What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-10 · 97 added, 96 removed, 295 unchanged (40% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q (this “

Report ”

) and with our audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2021.

You should read the following discussion in conjunction with the financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and with our audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”).

The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs.

Words such as “

expect, ”

anticipate, ”

intend, ”

plan, ”

believe, ”

seek, ”

estimate, ”

continue, ”

may, ”

will, ”

could, ”

would, ”

Words such as “expect,”

“anticipate,”

“intend,”

“plan,”

“believe,”

“seek,”

“estimate,”

“continue,”

“may,”

“will,”

“could,”

“would,”

or the negative or plural of such words and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

), including particularly matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report and in our other filings with the Securities and Exchange Commission (“SEC”), including particularly matters set forth under Part I, Item 1A (Risk Factors) of the Annual Report.

Furthermore, such forward-looking statements speak only as of the date of this Report.

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The BolaWrap 150 is electronically deployed and is more robust, smaller, lighter and simpler to deploy than the BolaWrap 100 that is being phased out.

In 2020 we added a new solution to our public safety technologies, which is our virtual reality training platform –

In 2020 we added a new solution to our public safety technologies, which is our virtual reality (“

VR ”) training platform –

Wrap Reality.

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Wrap Reality  –

is a law enforcement training system employing immersive computer graphics virtual reality (" VR ") with proprietary software-enabled content.

is a law enforcement training system employing immersive computer graphics VR with proprietary software-enabled content.

It allows up to two participants to enter a simulated training environment simultaneously, and customized weapons controllers enable trainees to engage in strategic decision making along the force continuum.

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We believe that law enforcement trainers and officers that have seen demonstrations or have been trained about our products are more supportive of their department’s purchase and deployment of product.

As of June 30, 2022, over 1,130 agencies have received BolaWrap training with over 3,660 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments.

This represents a 41% increase in agencies and a 31% increase in training officers compared to June 30, 2021.

Operating expenses in Q2 of 2022 reduced 39% from Q2 of 2021.

As of September 30, 2022, over 1,315 agencies have received BolaWrap training with over 4,390 training officers at those agencies certified as BolaWrap instructors and qualified to train the rest of their departments.

This represents a 39% increase in agencies and a 36% increase in training officers as compared to September 30, 2021.

Operating expenses in the third fiscal quarter of 2022 reduced by 28% as compared to the third fiscal quarter of 2021.

The focus on reducing operating expenses was an immediate focus on the new management team.

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We have also transitioned to charging for our respected training services.

We have implemented changes to how we sell Wrap Reality and have now solidified our go forward virtual reality model as a Software as a Service (SaaS) model.

We have implemented changes to how we sell Wrap Reality and have now solidified our go forward virtual reality model as a Software as a Service (“

SaaS ”) model.

These changes will have significant positive impact on our future success and growth.

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This coupled with continued cost savings and cost control, should lead to a continuing reduction of cash burn going forward. 

As a result, we anticipate moving to a cash flow break-even point by the end of 2023 and we anticipate strong sales could lead to profitability by the end of 2024.

As a result, we anticipate moving to a cash flow break-even point by the end of fiscal 2023, and we anticipate strong sales could lead to profitability by the end of 2024.

With the acquisition of NSENA in December 2020, and the rebranding of the NSENA business as Wrap Reality, we have continued to market our VR system while working to integrate previous scenarios into a robust platform, employing BolaWrap and additional de-escalation techniques into new Wrap Reality scenarios.

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We plan to increase marketing activities for our VR solution to both law enforcement and corrections.

On June 30, 2022, we had backlog of approximately $72 thousand expected to be delivered in the next twelve months.

On September 30, 2022, we had backlog of approximately $26 thousand expected to be delivered in the next twelve months.

Additionally, we had deferred revenue of $300 thousand expected to be recognized generally over the next five years.

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We believe that we have adequate financial resources to sustain our operations for the next year.

In the second quarter of fiscal 2022 we reduced our net loss by more than $3 million versus the comparable prior year quarter.

Net cash used in operations during the six months ended June 30, 2022 was $4 million less than cash used in operations during the first six months of the prior year.

In the third quarter of fiscal 2022 we reduced our net loss by more than $2 thousand versus the comparable prior year quarter.

Net cash used in operations during the nine months ended September 30, 2022 was $2.8 million less than cash used in operations during the first nine months of the prior year.

We expect that we will need to continue to innovate new applications for our public safety technology, develop new products and technologies to meet diverse customer requirements and identify and develop new markets for our products.

In March 2020, the World Health Organization (" WHO ") classified the COVID-19 outbreak as a pandemic.

We believe our sales during the first six months of 2022 were negatively impacted by the transition to the BolaWrap 150 product and the stopping of our BolaWrap 100 production line and the effects of limited ability to demonstrate and train in 2021 due to the COVID-19 pandemic, especially internationally.

We believe our sales during the first nine months of 2022 were negatively impacted by the transition to the BolaWrap 150 product and the stopping of our BolaWrap 100 production line and the effects of limited ability to demonstrate and train in 2021 due to the COVID-19 pandemic, especially internationally.

However, we are beginning to see some recovery during Q3 as full production and sales of the BolaWrap 1500 occurred.

We continue to monitor developments and assess areas where there is potential for our business to be impacted by the pandemic.

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The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities.

We have $28.5 million in cash and cash equivalents and short-term investments as of June 30, 2022, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy.

We have $23.7 million in cash and cash equivalents and short-term investments as of September 30, 2022, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy.

The full magnitude of the pandemic cannot be measured at this time, and therefore, any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.

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We evaluate the adequacy of this reserve each reporting period.

We use the recognition criteria of ASC 450-20, “Loss Contingencies”

to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period.

We use the recognition criteria of FASB ASC Topic 450-20, Loss Contingencies, to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period.

We accrue bonus expense each quarter based on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

Other than the planned production change requiring a new estimate of exit expense, there were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the period ended June 30, 2022.

Segment and Related Information

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Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

The financial information and the discussion below should be read in conjunction with the financial statements and notes contained in this Report.

Three Months Ended June 30,

Three Months Ended

September 30,

(in thousands, except percentage change)

Product sales

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Total cost of revenues

Gross profit (loss)

Operating expenses:

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Loss from operations

We reported net revenue of $1.2 million for the three months ended June 30, 2022, as compared to $1.9 million for the prior year quarter.

While domestic revenues were constant at $1.1 million in each quarter, international revenues decreased from $0.8 million for the second quarter of 2021 to $75 thousand for the quarter ended June 30, 2022.

We incurred discounts of $161 thousand during the three months ended June 30, 2022, primarily as a result of promotional programs designed to encourage domestic customers to upgrade to the BolaWrap 150.

These discounts compares to business discounts of $77 thousand in the prior year quarter.

We expect selected discounts in the third quarter but thereafter a decline to minimal discounts as we have phased out our promotional upgrade offer.

We reported net revenue of $1.7 million for the three months ended September 30, 2022, as compared to $1.8 million for the prior year quarter.

Domestic revenues increased from $1.1 million for the third quarter of 2021 to $1.3 million for the quarter ended September 30, 2022.

International revenues decreased from $717 thousand for the third quarter of 2021 to $375 thousand for the quarter ended September 30, 2022.

We incurred discounts of $240 thousand during the three months ended September 30, 2022, primarily as a result of promotional programs designed to encourage domestic customers to upgrade to the BolaWrap 150.

These discounts compare to business discounts of $81 thousand in the prior year quarter.

We expect selected discounts in the fourth quarter but thereafter a decline to minimal discounts as we have phased out our promotional upgrade offer.

International revenues generally consist of larger orders with the end user being large, centralized government agencies.

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We believe that revenue during the fiscal year 2022 will still be an increase compared to the revenue recorded during 2021 due to growth of domestic sales and anticipated international orders from a robust pipeline, although no assurances can be given.

We incurred product promotional costs of $265 thousand during the quarter ended June 30, 2022, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

We incurred product promotional costs of $125 thousand during the quarter ended September 30, 2022, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

A total of $163 thousand of such product promotional costs were incurred during the prior year quarter.

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With increased successful field use by agencies and greater brand awareness, as well as the transition to the BolaWrap 150, we expect reductions in product promotional costs to decline versus the prior year.

We had $344 thousand of deferred revenue at June 30, 2022, of which $221 thousand related to VR training and $123 thousand related to BolaWrap extended warranties and services.

We had $300 thousand of deferred revenue at September 30, 2022, of which $177 thousand related to VR training and $123 thousand related to BolaWrap extended warranties and services.

As we potentially secure increased bookings for Wrap Reality, as well as BolaWrap extended warranties, we expect our deferred revenue to grow in future quarters.

At June 30, 2022, we had backlog of $72 thousand expected to be delivered in the next twelve months.

At September 30, 2022, we had backlog of $26 thousand worth of customer orders expected to be delivered in the next twelve months.

Distributor and customer orders for future deliveries are generally subject to modification, rescheduling or in some instance’s cancellation in the normal course of business.

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Our cost of revenue for the quarter was $790 thousand resulting in a gross margin of 54%.

The gross margin for the comparable prior quarter, was also 39% after excluding $747 thousand of restructuring charges related to the wind down of BolaWrap 100 production.

Our cost of revenue for the three months ended September 30, 2021 was $1,094 thousand resulting in a gross margin of 39%.

The most recent quarter period gross margin was impacted by the lower sales volume, warranty costs and promotional discounts.

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Selling, general and administrative ( “

SG&A ”) expense for the quarter ended June 30, 2022 were $2.8 million less than the prior year comparable quarter due to cost containment efforts and due to certain one-time costs in the prior year quarter.

Share-based compensation costs allocated to SG&A decreased to $0.6 million compared to $2.0 million for the comparable prior quarter.

This $1.4 million decrease resulted primarily from a one-time $1.2 million cost in the prior year quarter for legacy and new directors appointed in April 2021.

Cash compensation costs of $1.5 million for the quarter ended June 30, 2022 were comparable to the prior year as staffing remained at similar levels.

During the quarter ended June 30, 2022, as compared to the prior year comparable quarter, we incurred reduced advertising and promotions costs (including product promotion costs) of $254 thousand, reduced professional fees of $116 thousand, reduced annual meeting costs of $234 thousand and reduced consulting and contract services fees of $643 thousand.

SG&A ”) expense for the quarter ended September 30, 2022 were $1.1 million less than the prior year comparable quarter due to cost containment efforts and due to certain one-time costs in the prior year quarter.

Share-based compensation costs allocated to SG&A decreased to $700 thousand compared to $1.1 million for the comparable prior quarter.

This $393 thousand decrease resulted primarily from a one-time costs in the prior year period and changes in the stock price.

Salaries and burden costs of $2.2 million for the quarter ended September 30, 2022 were comparable to the prior year as staffing remained at similar levels.

During the quarter ended September 30, 2022, as compared to the prior year comparable quarter, we incurred reduced advertising and promotions costs (including product promotion costs) of $153 thousand, reduced professional fees of $136 thousand, and reduced consulting and contract services fees of $359 thousand.

We expect expenditures for SG&A expenses for the balance of 2022 to remain below the prior year due to management’s active cost containment efforts.

Research and Development Expense

Research and development expense increased by $314 thousand for the quarter ended June 30, 2022, compared to the comparable period in the prior year.

Non-cash share-based compensation expense allocated to research and development personnel was $136 thousand for the quarter ended June 30, 2022 comparable to the $121 thousand for the prior period.

Cash compensation costs for the quarter ended June 30, 2022 increased $102 thousand compared to the prior year resulting from an increase in headcount primarily associated with product development.

Prototype related costs for quarter ended June 30, 2022, increased $106 thousand related to BolaWrap 150 continued improvements.

Research and development expense decreased by $840 thousand for the quarter ended September 30, 2022, compared to the comparable period in the prior year.

Non-cash share-based compensation expense allocated to research and development personnel was $172 thousand for the quarter ended September 30, 2022 comparable to the $210 thousand  for the prior period.

Salaries and burden costs for the quarter ended September 30, 2022 increased $45 thousand compared to the prior year primarily associated with product development.

Prototype related costs for quarter ended September 30, 2022, increased $105 thousand related to BolaWrap 150 continued improvements.

We expect our research and development costs to remain at comparable levels for the balance of 2022. 

Operating Loss

Loss from operations during the three months ended June 30, 2022, of $4.8 million was a reduction of $3.0 million compared to that of the three months ended June 30, 2021 reflecting increased margin and the focus on reducing operating costs.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Loss from operations during the three months ended September 30, 2022, of $3.9 million was a reduction of $2.1 million compared to that of the three months ended September 30, 2021 reflecting increased margin and the focus on reducing operating costs.

Nine months Ended September 30, 2022 Compared to Nine months Ended September 30, 2021

The following table sets forth for the periods indicated certain items of our condensed consolidated statement of operations.

The financial information and the discussion below should be read in conjunction with the financial statements and notes contained in this Report.

Six Months Ended June 30,

Nine months Ended

September 30,

(in thousands, except percentage change)

Product sales

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Loss from operations

We reported net revenue of $2.8 million for the six months ended June 30, 2022, as compared to $3.5 million for the quarter ended June 30, 2021.

Domestic revenues of $2.3 million for the six months reflected growth of 30% over the prior comparable quarter of $1.8 million.

International revenues decreased from $1.7 million for the six months ended June 30, 2021 to $0.5 million for the six months ended June 30, 2022.

We incurred discounts of $549 thousand during the six months ended June 30, 2022, primarily as a result of promotional programs designed to encourage domestic customers to upgrade to the BolaWrap 150.

The discounts compare to business discounts of $81 thousand in the comparable six-month period of the prior year.

We expect selected discounts in the third quarter but thereafter a decline to minimal discounts as we have phased out our promotional upgrade offer.

We reported net revenue of $4.5 million for the nine months ended September 30, 2022, as compared to $5.3 million for the quarter ended September 30, 2021.

Domestic revenues of $3.5 million for the nine months reflected growth of 23% over the prior comparable quarter of $2.8 million.

International revenues decreased from $2.4 million for the nine months ended September 30, 2021 to $1.0 million for the nine months ended September 30, 2022.

We incurred discounts of $790 thousand during the nine months ended September 30, 2022, primarily as a result of promotional programs designed to encourage domestic customers to upgrade to the BolaWrap 150.

The discounts compare to business discounts of $161 thousand in the comparable nine-month period of the prior year.

We expect selected discounts in the fourth quarter but thereafter a decline to minimal discounts as we have phased out our promotional upgrade offer.

International revenues generally consist of larger orders with the end user being large, centralized government agencies.

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We incurred product promotional costs of $479 thousand during the six months ended June 30, 2022, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

A total of $678 thousand of such product promotional costs were incurred during the six months ended June 30, 2021.

We incurred product promotional costs of $616 thousand during the nine months ended September 30, 2022, related primarily to BolaWrap 150 demonstration products and the cost of training products and accessories delivered to law enforcement agencies that were expensed as marketing costs.

A total of $816 thousand of product promotional costs were incurred during the nine months ended September 30, 2021.

We are responding to increased demand for training as a result of expanded product and brand awareness with more efficient training approaches.

With increased successful field use by agencies and greater brand awareness we expect reductions in product promotional costs to decline versus the prior year.

We had $344 thousand of deferred revenue at June 30, 2022, of which $221 thousand related to VR training and $123 thousand related to BolaWrap extended warranties and services.

At June 30, 2022, we had backlog of $72 thousand expected to be delivered in the next twelve months.

We had $300 thousand of deferred revenue at September 30, 2022, of which $177 thousand related to VR training and $123 thousand related to BolaWrap extended warranties and services.

At September 30, 2022, we had backlog of $26 thousand worth of customer orders expected to be delivered in the next twelve months.

Distributor and customer orders for future deliveries are generally subject to modification, rescheduling or in some instance’s cancellation in the normal course of business.

Our cost of revenue for the six months ended June 30, 2022, was $1.6 million resulting in a gross margin of 41%.

The gross margin for the six months ended June 30, 2021, was 37% after adjusting excluding $747 thousand of restructuring charges related to the wind down of BolaWrap 100 production.

Our cost of revenue for the nine months ended September 30, 2022, was $2.4 million resulting in a gross margin of 46%.

The gross margin for the nine months ended September 30, 2021, was 38% after adjusting excluding $747 thousand of restructuring charges related to the wind down of BolaWrap 100 production.

The most recent period gross margin was impacted by the lower sales volume and promotional discounts.

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Selling, general and administrative ( “

SG&A ”) expense for the six months ended June 30, 2022 were $8.4 million reflecting a, decrease of $3.2 million when compared to $11.6 million for the six months ended June 30, 2021. The reduction in SG&A costs reflected active cost containment efforts and nonrecurrence of certain one-time costs in the prior year quarter.

Share-based compensation costs allocated to SG&A was $1.5 million for the six months ended June 30, 2022 compared to $2.6 million for the comparable prior period.

This $1.4 million decrease included the effect of a one-time $1.2 million cost in the prior period for legacy and new directors appointed in April 2021.

Cash compensation costs of $3.1 million for the six months ended June 30, 2022 was a $179 thousand increase from the prior year six months but included a $300 thousand severance expense offset by cost containment efforts.

During the six months ended June 30, 2002, as compared to the prior year comparable six months, we incurred reduced advertising and promotions costs (including product promotion costs) of $341 thousand, reduced professional fees of $842 thousand, reduced annual meeting costs of $234 thousand and reduced consulting and contract services fees of $748 thousand.

We expect expenditures for SG&A expenses for the balance of 2022 to remain below the prior year due to active cost containment efforts.

SG&A ”) expense for the nine months ended September 30, 2022 were $12.0 million reflecting a decrease of $4.2 million when compared to $16.2 million for the nine months ended September 30, 2021. The reduction in SG&A costs reflected active cost containment efforts and nonrecurrence of certain one-time costs in the prior year period.

Share-based compensation costs allocated to SG&A was $2.2 million for the nine months ended September 30, 2022 compared to $3.7 million for the comparable prior year period.

This $1.5 million decrease resulted primarily from  reduced headcount and changes in the stock price.

Salaries and burden costs of $6.8 million for the nine months ended September 30, 2022 was a $2.8 million decrease compared to the prior year nine months due to cost containment efforts and reduced personnel expense.

During the nine months ended September 30, 2022, as compared to the prior year comparable nine months, we incurred reduced advertising and promotions costs (including product promotion costs) of $460 thousand, reduced professional fees of $155 thousand, and reduced consulting and contract services fees of $652 thousand.

We expect expenditures for SG&A expense for the balance of 2022 to remain below the prior year due to active cost containment efforts.

Research and Development Expense

Research and development expense increased by $744 thousand for the six months ended June 30, 2022, compared to the comparable six-month period in fiscal 2021.

Non-cash share-based compensation expense allocated to research and development personnel was $271 thousand for the six months ended June 30, 2022 compared to the $378 thousand for the prior period which included effects of new hires.

Cash compensation costs for the six months ended June 30, 2022 increased $269 thousand compared to the prior year resulting from an increase in headcount primarily associated with product development.

Prototype related costs for the six months ended June 30, 2022, increased $305 thousand related to BolaWrap 150 startup costs and continued improvements.

We expect our research and development costs to remain at comparable levels for the balance of 2022. 

Research and development expense decreased by $93 thousand for the nine months ended September 30, 2022, compared to the comparable nine-month period in fiscal 2021.

Non-cash share-based compensation expense allocated to research and development personnel was $448 thousand for the nine months ended September 30, 2022 compared to the $588 thousand for the prior period.

Salaries and burden costs for the nine months ended September 30, 2022 was $2.5 million are in line with the prior year period.

Prototype related costs for the nine months ended September 30, 2022, increased $359 thousand related to BolaWrap 150 startup costs and continued improvements.

Operating Loss

Loss from operations during the six months ended June 30, 2022, of $10.2 million was a reduction of $3.0 million compared to that of the six months ended June 30, 2021 reflecting second quarter reduced costs from the prior year.

Loss from operations during the nine months ended September 30, 2022, of $14.1 million was a reduction of $5.1 million compared to that of the nine months ended September 30, 2021 reflecting third quarter reduced costs from the prior year.

Liquidity and Capital Resources

We have experienced net losses and negative cash flows from operations since our inception.

As of June 30, 2022, we had cash and cash equivalents of $3.6 million, short-term investments of $24.9 million, positive working capital of $30 million and had sustained cumulative losses attributable to stockholders of $60 million.

We believe that our cash on hand and short-term investments will sustain our operations for at least the next twelve months from the date of this Report.

As of September 30, 2022, we had cash and cash equivalents of $3.8 million, short-term investments of $19.9 million, positive working capital of $27.3 million and had sustained cumulative losses attributable to stockholders of $63.8 million.

We believe that our cash on hand and short-term investments will sustain our operations for at least the next twelve months.

Our primary source of liquidity to date has been funding from our stockholders from the sale of equity securities and the exercise of derivative securities, consisting of options and warrants.

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Operating Activities

During the six months ended June 30, 2022, net cash used in operating activities was $6.2 million. The net loss of $10.2 million was decreased by non-cash expense of $2.2 million consisting primarily of share-based compensation expense of $1.76 million.

Other major component changes using operating cash included an increase of $467 thousand in inventories and a net reduction in accounts payable and accrued liabilities of $311 thousand.

During the nine months ended September 30, 2022, net cash used in operating activities was $11 million. The net loss of $14.1 million was decreased by non-cash expense of $3.4 million consisting primarily of share-based compensation expense of $2.6 million.

Other major component changes using operating cash included an increase of $1.4 million in inventories and a net reduction in accounts payable and accrued liabilities of $659 thousand.

A decrease in accounts receivable of $1.6 million reduced the cash used in operating activities.

During the six months ended June 30, 2021, net cash used in operating activities was $10.25 milllion. The net loss of $13.2 million was decreased by non-cash expense of $4.3 million consisting primarily of share-based compensation expense of $3 million, restructuring inventory charges of $747 thousand and shares issued for services of $239 thousand.

Other major component changes using operating cash included an increase of $798 thousand in accounts receivable and an increase in inventories of $713 thousand.

An increase of $101 thousand in accounts payable and accrued expenses and an increase of $170 thousand in deferred revenue reduced the cash used in operating activities.

During the nine months ended September 30, 2021, net cash used in operating activities was $13.7 million. The net loss of $19.2 million was decreased by non-cash expense of $5.9 million consisting primarily of share-based compensation expense of $4.3 million, restructuring inventory charges of $747 thousand, depreciation and amortization expense of $336 thousand and shares issued for services of $239 thousand.

Other major component changes using operating cash included an increase of $1.4 million in accounts receivable and an increase in inventories of $160 thousand.

An increase of $773 thousand in accounts payable and accrued expense and an increase of $224 thousand in deferred revenue reduced the cash used in operating activities. 

Investing Activities

During the six months ended June 30, 2022, we used $14.9 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $20 million.

During the six months ended June 30, 2021, we used $25 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $20 million.

We used $168 thousand and $367 thousand of cash for the purchase of property and equipment during the six months ended June 30, 2022, and 2021, respectively.

We invested $102 thousand and $96 thousand in patents during the six months ended June 30, 2022, and 2021, respectively.

During the nine months ended September 30, 2022, we used $23.1 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $33.3 million.

During the nine months ended September 30, 2021, we used $30.0 million of cash to purchase short-term investments and we had proceeds from maturities of short-term investments of $25 million. 

We used $201 thousand and $811 thousand of cash for the purchase of property and equipment during the nine months ended September 30, 2022, and 2021, respectively.

We invested $133 thousand and $129 thousand in patents during the nine months ended September 30, 2022, and 2021, respectively.

Financing Activities

During the six months ended June 30, 2022, we received $75 thousand in proceeds from the exercise of previously issued stock options.

During the six months ended June 30, 2021, we received $12 million in proceeds from the exercise of outstanding stock warrants, $278 thousand in proceeds from the exercise of previously issued stock options and repaid $200 thousand in debt relating to the NSENA acquisition.

During the nine months ended September 30, 2022, we received $83 thousand in proceeds from the exercise of previously issued stock options.

During the nine months ended September 30, 2021, we received $12.0 million from previously issued stock purchase warrants and $1.7 million in proceeds from the exercise of previously issued stock options, and repaid $275 thousand in debt relating to the acquisition of NSENA in December 2020.

Contractual Obligations and Commitments

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We are committed to aggregate lease payments on our facility lease of $31 thousand in 2022, $121 thousand in 2023, $125 thousand in 2024, and $75 thousand in 2025.

At June 30, 2022, we were committed for approximately $3.2 million for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

At September 30, 2022, we were committed for approximately $4.4 million for future component deliveries and contract services that are generally subject to modification or rescheduling in the normal course of business.

Effects of Inflation

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Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended June 30, 2022, or subsequently thereto, that we believe are of potential significance to our financial statements.

There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended September 30, 2022, or subsequently thereto, that we believe are of potential significance to our financial statements.

Quantitative and Qualitative Disclosures about Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis