# INVE Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [INVE Technologies, Inc.](/companies/inve.md) (CIK 1036044)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 16:47 ET
- Period: 2023-09-30
- Accession: 0000950170-23-061217
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1036044/000095017023061217/inve-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1036044/000095017023061217/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $31.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $87.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $19.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $55.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $11.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $32.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $8.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $341.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$3.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $20.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $61.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$22.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$3.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 23,174,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 23,008,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $3.1m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-09-30 | $19.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $81.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $111.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $31.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $36.6m | us-gaap:Liabilities |
| Current portion of debt | at 2023-09-30 | $9.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $74.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,783 characters.

*This Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements, within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements reflect current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “will,” “believe,” “could,” “should,” “would,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors,” The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.*

*Each of the terms the “Company,” “Identiv,” “we,” “us” and “our” as used herein refers collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless otherwise stated.*

### Overview

Identiv is a global provider of secure identification and physical security.

We are leveraging our Radio Frequency Identification (“RFID”)-enabled physical device-management expertise as well as our physical access, video and analytics solutions to provide leading solutions as our customers, and our customers’ customers, embracing the Internet of Things (“IoT”). Customers in the technology and mobility, consumer, government, healthcare, education and other sectors rely on Identiv’s identification and access solutions. Identiv’s platform encompasses RFID and Near-Field Communication (“NFC”), cybersecurity, and the full spectrum of physical access, video, and audio security. We are bringing the benefits of the IoT to a wide range of physical, connected items.

Identiv’s mission is to digitally enable every physical thing and every physical place on the planet. Our full continuum of security solutions is delivered through our platform of RFID-enabled devices, mobile, client/server, cloud, web, dedicated hardware and software defined architectures. In doing so, we believe that we will create smart physical security and a smarter physical world.

### Segments

We have organized our operations into two reportable business segments, principally by solution families: Identity and Premises. Our *Identity* segment includes products and solutions enabling secure access to information serving the logical access and cyber-security market, and protecting connected objects and information using RFID embedded security. Our *Premises* segment includes our solutions to address the premises security market for government and enterprise, including access control, video surveillance, analytics, audio, access readers and identities.

### Factors Affecting Our Performance

#### Market Adoption

Our financial performance depends on the pace, scope and depth of end-user adoption of our RFID products in multiple industries. Such pace, scope and depth accelerated during 2020, causing large fluctuations in our operating results. During 2021, we believe RFID deployments occurred at a much faster pace of growth than historically. We believe significant improvement in chip capabilities at lower costs, combined with the incorporation of the full NFC Data Exchange Format (“NDEF”) protocol by Apple Inc. in its iPhone 12 and iOS 14, has accelerated the opportunities for product engineers to integrate RFID into their products to create new and more engaging customer experiences, product reliability and performance. As the market hit this pivot point, we expanded both our capacity and technical leadership. We track growth indicators including design wins, customer launches and technology launches. We have made investments in our technology, world class quality and automation, and we believe that our competitive advantages will continue to drive growth.

We believe the underlying, long-term trend is continued RFID adoption by multiple verticals. We also believe that expanding use cases fosters adoption across verticals and into other markets. In addition, we do not have any significant concentration of customers so we believe that our demand will continue to be resilient to the loss of any individual customer or application.

If RFID market adoption, and adoption of our products specifically, does not meet our expectations then our growth prospects and operating results will be adversely affected. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects may be adversely affected. In contrast, if our RFID sales exceed expectations, then our revenue and profitability may be positively affected.

Given the uncertainties of the specific timing of our new customer deployments, we cannot assure you that we have appropriate inventory and capacity levels or that we will not experience inventory shortfalls or overages in the future or acquire inventory at costs to maintain gross margins. We attempt to mitigate those risks by being deeply embedded in our customers’ design cycles, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities to accommodate several scenarios for growth potential.

If end users with sizable projects change or delay them, we may experience significant fluctuation in revenue on a quarterly or annual basis, and we anticipate that uncertainty to continue to characterize our business for the foreseeable future.

#### Seasonality and Other Factors

We experience variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year. Sales of our physical access control solutions and related products to U.S. Government agencies are subject to annual government budget cycles and generally are highest in the third quarter of each year. Sales of our Identity readers, many of which are sold to government agencies worldwide, are impacted by project schedules of government agencies, as well as roll-out schedules for application deployments. Further, this business is typically subject to seasonality based on differing commercial and global government budget cycles. Lower sales are expected in the U.S. in the first half, and in particular, the first quarter of the year, with higher sales typically in the second half of each year. In the Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year. Accordingly, our net revenue levels in the first quarter each year often depend on the relative strength of project completions and sales mix between our U.S. customer base and our international customer base.

#### Purchasing of our Products and Services for U.S. Federal Government Security Programs

In addition to the general seasonality of demand, overall U.S. Federal Government expenditure patterns have a significant effect on demand for our products due to the significant portion of revenue that is typically sourced from U.S. Federal Government agencies. Drivers of growth included our technology strength and proven security solutions, work-from-home mandates, and continued strength in investments for security across a number of different agencies. We believe that the success and growth of our business will continue through the U.S. Federal Government focus on security and our successful procurement of government business. If there are changes in government purchasing policies or budgetary constraints, there could be implications for our growth prospects and operating results. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects and operating results may be adversely affected.

#### Impacts of Macroeconomic Conditions and Other Factors on our Business

The COVID-19 pandemic and the responses to combat it have had a negative impact on the global economy, including industry-wide global supply chain challenges, such as manufacturing, transportation and logistics. We purchase certain products and key components from a limited number of sources that depend on the supply chain, including freight, to receive components, transport finished goods and deliver our products across the world. In view of the rapidly changing business environment, we have experienced delays and reductions in customer orders, shifting supply chain availability, component shortages, and other production-related challenges. We are currently unable to determine if there will be any continued disruption and the extent to which this may have future impact on our business. We continue to monitor the global supply chain challenges and its effect on our financial position, results of operations, and cash flows.

More recently, we have also been impacted by other adverse macroeconomic conditions, including but not limited to, inflation, foreign currency fluctuations, and the slowdown of economic activity around the globe. These conditions have also impacted our suppliers, contract manufacturers, logistics providers, and distributors, causing increases in cost of materials and higher shipping and transportation rates, which then impacted the pricing of our products. Price increases may not successfully offset cost increases or may cause us to lose market share and, in turn, may adversely impact our financial position, results of operations, and cash flows.

### Results of Operations

The following table includes net revenue and net profit information by business segment and reconciles gross profit to loss before income tax provision (in thousands).

| Identity: | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net revenue | $18,280 | $19,150 | (5%) | $50,651 | $50,647 | 0% |
| Gross profit | 3,764 | 4,319 | (13%) | 10,894 | 11,459 | (5%) |
| Gross profit margin | 21% | 23% |  | 22% | 23% |  |
| **Premises:** |  |  |  |  |  |  |
| Net revenue | 13,566 | 11,846 | 15% | 36,747 | 33,267 | 10% |
| Gross profit | 8,177 | 6,869 | 19% | 21,106 | 18,905 | 12% |
| Gross profit margin | 60% | 58% |  | 57% | 57% |  |
| **Total:** |  |  |  |  |  |  |
| Net revenue | 31,846 | 30,996 | 3% | 87,398 | 83,914 | 4% |
| Gross profit | 11,941 | 11,188 | 7% | 32,000 | 30,364 | 5% |
| Gross profit margin | 37% | 36% |  | 37% | 36% |  |
| Operating expenses: |  |  |  |  |  |  |
| Research and development | 2,916 | 2,625 | 11% | 8,638 | 7,633 | 13% |
| Selling and marketing | 5,641 | 5,326 | 6% | 17,617 | 15,709 | 12% |
| General and administrative | 2,939 | 2,639 | 11% | 8,790 | 7,623 | 15% |
| Restructuring and severance | 104 | 49 | 112% | 376 | 132 | 185% |
| Total operating expenses: | 11,600 | 10,639 | 9% | 35,421 | 31,097 | 14% |
| Income (loss) from operations | 341 | 549 | (38%) | (3,421) | (733) | 367% |
| Non-operating income (expense): |  |  |  |  |  |  |
| Interest expense, net | (211) | (39) | 441% | (351) | (101) | 248% |
| Gain on investment | 132 | — | 100% | 132 | 30 | 340% |
| Foreign currency gains (losses), net | (264) | (3) | 8,700% | (184) | 111 | (266%) |
| Income (loss) before income tax benefit (provision) | $(2) | $507 | (100%) | $(3,824) | $(693) | 452% |

Geographic net revenue based on each customer’s ship-to location is as follows (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas | $21,348 | $20,951 | 2% | $66,229 | $55,480 | 19% |
| Europe and the Middle East | 5,383 | 3,651 | 47% | 10,439 | 11,473 | (9%) |
| Asia-Pacific | 5,115 | 6,394 | (20%) | 10,730 | 16,961 | (37%) |
| Total | $31,846 | $30,996 |  | $87,398 | $83,914 |  |
| Percentage of net revenue: |  |  |  |  |  |  |
| Americas | 67% | 68% |  | 76% | 66% |  |
| Europe and the Middle East | 17% | 11% |  | 12% | 14% |  |
| Asia-Pacific | 16% | 21% |  | 12% | 20% |  |
| Total | 100% | 100% |  | 100% | 100% |  |

### Net Revenue

Net revenue for the three months ended September 30, 2023 was $31.8 million, an increase of 3% compared with $31.0 million for the comparable period of 2022. Net revenue in the Americas was $21.3 million for the three months ended September 30, 2023, an increase of 2% compared to $21.0 million for the comparable period of 2022. Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $10.5 million for the three months ended September 30, 2023, an increase of 5% compared with the comparable period of 2022.

Net revenue for the nine months ended September 30, 2023 was $87.4 million, an increase of 4% compared with $83.9 million for the comparable period of 2022. Net revenue in the Americas was $66.2 million for the nine months ended September 30, 2023, an increase of 19% compared to $55.5 million for the comparable period of 2022. Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $21.2 million for the nine months ended September 30, 2023, a decrease of 26% compared with the comparable period of 2022.

#### Identity Segment

Net revenue in our Identity segment was $18.3 million for the three months ended September 30, 2023, a decrease of 5% compared with $19.2 million for the comparable period of 2022. For the nine months ended September 30, 2023, net revenue in this segment was $50.7 million, an increase of less than 1% compared with $50.6 million for the comparable period of 2022. Net revenue in this segment for the three and nine months ended September 30, 2023 represented 57% and 58%, respectively, of our net revenue, compared to 62% and 60% in the comparable periods of the prior year.

Net revenue in this segment in the Americas for the three months ended September 30, 2023 decreased 13% compared with the comparable period of 2022 primarily due to lower sales of access cards. For the nine months ended September 30, 2023, net revenue in this segment in the Americas increased 29% compared with the comparable period of 2022 primarily due to higher sales of RFID transponder products to customers in the healthcare and specialty packaging markets, and higher sales of our legacy smart card readers, partially offset by lower sales of access cards.

Net revenue in this segment in Europe, the Middle East, and the Asia-Pacific for the three months ended September 30, 2023 increased 5% compared with the comparable period of 2022 primarily due to higher sales RFID transponder products and our legacy smart card readers. For the nine months ended September 30, 2023, net revenue in this segment in Europe, Middle East, and the Asia-Pacific decreased 27% compared with the comparable period of 2022 primarily due to lower sales of RFID transponder products, our legacy smart card readers, and access cards.

#### Premises Segment

Net revenue in our Premises segment was $13.6 million for the three months ended September 30, 2023, an increase of 15% compared with $11.8 million for the comparable period of 2022. For the nine months ended September 30, 2023, net revenue in this segment was $36.7 million, an increase of 10% compared with $33.3 million for the comparable period of 2022. Net revenue in our Premises segment for the three and nine months ended September 30, 2023 represented 43% and 42%, respectively, of our net revenue, compared to 38% and 40% in the comparable periods of the prior year.

Net revenue in this segment in the Americas for the three and nine months ended September 30, 2023 increased 16% and 12%, respectively, compared with the comparable periods of 2022 due to higher sales of Hirsch Velocity hardware, software, and related support services, and higher sales of video technology and analytic software products, across both federal government and commercial businesses.

Net revenue in this segment across Europe, the Middle East, and the Asia-Pacific for the three months ended September 30, 2023 increased 1% compared with the comparable period of 2022, while net revenue for the nine months ended September 30, 2023 decreased 7% compared with the comparable period of 2022. Net revenue in these regions is primarily project driven and can vary period to period.

As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memoranda from the Office of Management and Budget (“OMB M-11-11”). We believe that our solutions for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To address sales opportunities in the United States in general and with our U.S. Government customers in particular, we focus on a strong U.S. sales organization and our sales presence in Washington D.C.

### Gross Profit and Gross Margin

Gross profit for the three months ended September 30, 2023 was $11.9 million, or 37% of net revenue, compared with $11.2 million, or 36% of net revenue in the comparable period of 2022. Gross profit for the nine months ended September 30, 2023 was $32.0 million, or 37% of net revenue, compared with $30.4 million, or 36% of net revenue in the comparable period of 2022. Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.

#### Identity Segment

In our Identity segment, gross profit in the three and nine months ended September 30, 2023 was $3.8 million and $10.9 million, respectively, compared with $4.3 million and $11.5 million in the comparable periods of 2022. Gross profit margins in the Identity segment for the three and nine months ended September 30, 2023 decreased to 21% and 22%, respectively, from 23% and 23%, respectively, compared to the comparable periods of 2022. The decrease in gross profit margins were primarily attributable to changes in product mix within the segment, with lower sales of higher margin legacy access cards.

#### Premises Segment

In our Premises segment, gross profit in the three and nine months ended September 30, 2023 was $8.2 million and $21.1 million, respectively, compared with $6.9 million and $18.9 million in the comparable periods of 2022. Gross profit margins in the Premises segment for the three months ended September 30, 2023 increased to 60% compared to 58% in the comparable prior year period primarily due to lower freight and logistics costs. Gross profit margins for the nine months ended September 30, 2023 were comparable to the same period of 2022.

We expect there will be variation in our total gross profit from period to period, as our gross profit has been and will continue to be affected primarily by varying mix among our products. Within each product category, gross margins have tended to be consistent, but over time may be affected by a variety of factors, including, without limitation, competition, product pricing, the volume of sales in any given quarter, manufacturing volumes, product configuration and mix, the availability of new products, product enhancements, software and services, risk of inventory write-downs and the cost and availability of components.

### Operating Expenses

Information about our operating expenses for the three and nine months ended September 30, 2023 and 2022 is set forth below (dollars in thousands).

#### Research and Development

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $2,916 | $2,625 | 11% | $8,638 | $7,633 | 13% |
| as a % of net revenue | 9% | 8% |  | 10% | 9% |  |

Research and development expenses consist primarily of employee compensation and fees for the development of hardware, software and firmware products. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Research and development expenses for the three and nine months ended September 30, 2023 increased compared to the prior year periods primarily due to higher headcount and related payroll costs, and higher certification costs in line with our product development roadmap, partially offset by lower stock-based compensation costs in 2023 related to performance share units granted in prior years.

#### Selling and Marketing

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and marketing | $5,641 | $5,326 | 6% | $17,617 | $15,709 | 12% |
| as a % of net revenue | 18% | 17% |  | 20% | 19% |  |

Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Selling and marketing expenses for the three and nine months ended September 30, 2023 increased compared to the prior year periods primarily due to higher headcount and related payroll costs, and higher travel related costs, partially offset by lower external contractor costs in 2023.

#### General and Administrative

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $2,939 | $2,639 | 11% | $8,790 | $7,623 | 15% |
| as a % of net revenue | 9% | 9% |  | 10% | 9% |  |

General and administrative expenses consist primarily of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other consulting services.

General and administrative expenses for the three and nine months ended September 30, 2023 increased compared to the prior year periods primarily due to higher headcount and related payroll costs as well as higher stock-based compensation costs.

#### Restructuring and Severance Charges

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Restructuring and severance | $104 | $49 | 112% | $376 | $132 | 185% |

Restructuring expenses for the three and nine months ended September 30, 2023 consisted of severance related costs. During the three and nine months ended September 30, 2022, restructuring expenses consisted of severance related costs of $49,000 and $283,000, respectively. In addition, in the first quarter of 2022, we entered into a settlement agreement associated with outstanding rental payments due the landlord on leased office space in San Francisco, California. As a result of the settlement, we recorded a net credit of $153,000 representing the difference between amounts accrued and the settlement amount.

### Non-operating Income (Expense)

Information about our non-operating income (expense) for the three and nine months ended September 30, 2023 and 2022 is set forth below (dollars in thousands).

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense, net | $(211) | $(39) | 441% | $(351) | $(101) | 248% |
| Gain on investment | $132 | $— | 100% | $132 | $30 | 340% |
| Foreign currency gains (losses), net | $(264) | $(3) | n/m | $(184) | $111 | (266%) |

29

Interest expense, net consists of interest on financial liabilities and amortization of debt issuance costs. The increase in interest expense for the three and nine months ended September 30, 2023 compared to the comparable periods of 2022 was attributable to borrowings under our revolving loan facility with our lender.

Gain on investment is associated with additional proceeds received in connection with the acquisition of a private company that we had previously invested in, which had been fully impaired and had no carrying value.

Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. Dollar, the Indian Rupee, the Canadian Dollar, the Thai Baht and the Euro. Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.

### Income Tax Provision

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income tax benefit (provision) | $(20) | $12 | (267%) | $(61) | $(38) | 61% |
| Effective tax rate | 0% | 0% |  | (2%) | (5%) |  |

As of September 30, 2023, our deferred tax assets are fully offset by a valuation allowance. Accounting Standards Codification (“ASC”) 740, *Income Taxes*, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against all of our net U.S. and foreign deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.

We recorded income tax provisions during the three and nine months ended September 30, 2023. The effective tax rates for the three and nine months ended September 30, 2023 and 2022 differ from the federal statutory rate of 21% primarily due to a change in valuation allowance, and the provision or benefit in certain foreign jurisdictions, which are subject to higher tax rates.

### Liquidity and Capital Resources

As of September 30, 2023, our working capital, defined as current assets less current liabilities, was $49.8 million, a decrease of $1.9 million compared to $51.7 million as of December 31, 2022. As of September 30, 2023, our cash and cash equivalents balance was $19.7 million.

On February 8, 2017, we entered into a Loan and Security Agreement (as amended or amended and restated from time to time, the “Loan Agreement”) with East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, we amended and restated the Loan Agreement by replacing the $20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest rate was lowered from prime to prime minus 0.25%, and certain financial covenants were amended. On February 8, 2023, we entered into an amendment (the "Fourth Amendment") to the Loan Agreement. The Fourth Amendment amends the Loan Agreement to, among other things, extend the maturity date to February 8, 2025 and amend certain financial covenants. As of September 30, 2023, we were in compliance with all financial covenants under the Loan Agreement.

As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant additional taxes related to such amounts. However, our estimates are provisional and subject to further analysis. Generally, most of our foreign subsidiaries have accumulated deficits and cash and cash equivalents that are held outside the United States are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the United States. We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences. As of September 30, 2023, the amount of cash included at such subsidiaries was $5.7 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We have historically incurred operating losses and negative cash flows from operating activities, and we may continue to incur losses in the future. As of September 30, 2023, we had an accumulated deficit of $413.2 million. During the nine months ended September 30, 2023, we had a net loss of $3.9 million.

We believe our existing cash and cash equivalents, together with cash generated from operations and available credit under our Loan Agreement will be sufficient to satisfy our working capital needs to fund operations for the next 12 months. We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. We may also choose to finance our business through public or private equity offerings, debt financings or other arrangements. However, there can be no assurance that additional capital will be available to us or that such capital will be available to us on acceptable terms. If we raise funds by issuing equity securities, dilution to stockholders could result. Debt or any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms of debt securities issued or loans could impose significant restrictions on our operations. The incurrence of additional indebtedness or the issuance of certain debt or equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Our Loan Agreement imposes restrictions on our operations, increases our fixed payment obligations and has restrictive covenants. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.

The following summarizes our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,614) | $(3,014) |
| Net cash used in investing activities | (3,007) | (2,978) |
| Net cash provided by (used in) financing activities | 10,459 | (896) |
| Effect of exchange rates on cash, cash equivalents, and restricted cash | (47) | (1,019) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 3,791 | (7,907) |
| Cash, cash equivalents, and restricted cash at beginning of period | 17,137 | 29,807 |
| Cash, cash equivalents, and restricted cash at end of period | $20,928 | $21,900 |

### Cash flows from operating activities

Cash used in operating activities for the nine months ended September 30, 2023 of $3.6 million, was primarily due to net loss of $3.9 million, a decrease in cash from net changes in operating assets and liabilities of $4.6 million, partially offset by adjustments for certain non-cash items of $4.9 million, consisting primarily of depreciation, amortization and stock-based compensation.

Cash used in operating activities for the nine months ended September 30, 2022 of $3.0 million, was primarily due to net loss of $0.7 million, a decrease in cash from net changes in operating assets and liabilities of $6.5 million, offset by adjustments for certain non-cash items of $4.2 million, consisting primarily of depreciation, amortization and stock-based compensation.

### Cash flows from investing activities

Cash used in investing activities for the nine months ended September 30, 2023 was $3.0 million, which related primarily to capital investment expenditures in our manufacturing facility in Thailand. Cash used in investing activities for the nine months ended September 30, 2022 was $3.0 million which related primarily to capital expenditures in our manufacturing facility in Singapore and our research and development facility in Germany.

### Cash flows from financing activities

Cash provided by financing activities during the nine months ended September 30, 2023 was $10.5 million, which consisted of net borrowings of $9.9 million under our revolving loan facility with our lender, proceeds received from the exercise of warrants by 21 April Fund, LP and 21 April Fund, Ltd. of approximately $1.0 million, partially offset by net share settlements of restricted stock units. Cash used in financing activities during the nine months ended September 30, 2022 was $0.9 million, which related to the net share settlement of restricted stock units.

### Contractual Obligations

We lease facilities, certain equipment, and automobiles under non-cancelable operating lease agreements. See Note 14, *Leases*, in the accompanying notes to our condensed consolidated financial statements.

Purchases for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from our customers, we may have to change, reschedule, or cancel purchases or purchase orders from our suppliers. These changes may lead to vendor cancellation charges on these orders or contractual commitments. See Note 15, *Commitments and Contingencies*, in the accompanying notes to our unaudited condensed consolidated financial statements.

Our other long-term liabilities include gross unrecognized tax benefits, and related interest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities.

### Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.

### Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had a material effect on our business, financial condition or results of operations.

### Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation. We have other important accounting policies and practices; however, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. Management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.

During the three months ended September 30, 2023, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Recent Accounting Pronouncements

See Note 2, S*ignificant Accounting Policies and Recent Accounting Pronouncements,* in the accompanying notes to our unaudited condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, which is incorporated herein by reference.

## Market risk

As filed, 2,958 characters.

We are primarily exposed to changes in currency exchange rates as certain of our operations are conducted in foreign currencies such as the Indian Rupee, the Canadian Dollar, the Thai Baht and the Euro.

#### Economic Exposure

We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. Our objective is to identify material foreign currency exposures and to manage these exposures to minimize the potential effects of currency fluctuations on our condensed consolidated financial statements.

#### Transaction Exposure

Our exposure to foreign currency transaction gains and losses is the result of assets and liabilities (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our condensed consolidated financial statements. We have performed sensitivity analyses as of September 30, 2023 and December 31, 2022 using a modeling technique that evaluated the hypothetical impact of a 10% movement in the value of the U.S. Dollar compared to the functional currency of the foreign subsidiary, with all other variables held constant, to determine the incremental transaction gains or losses that would have been incurred. The foreign exchange rates used were based on market rates in effect at each of September 30, 2023 and December 31, 2022. The results of these sensitivity analyses indicated that the impact on a hypothetical 10% movement in foreign currency exchange rates would result in increased foreign currency gains or losses of $0.9 million as of September 30, 2023 and $1.1 million as of December 31, 2022.

#### Translation Exposure

We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. Dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. Dollars results in a gain or loss which is recorded as a component of accumulated other comprehensive income (loss) in our condensed consolidated statements of stockholders’ equity.

With respect to our international operations, we have re-measured accounts which are denominated in the non-functional currencies into the functional currency of the subsidiary and recorded the resulting gains (losses) within foreign currency gains (losses), net in our condensed consolidated statements of comprehensive loss. We re-measure all monetary assets and liabilities at the current exchange rate at the end of the period, non-monetary assets and liabilities at historical exchange rates, and revenue and expenses at average exchange rates in effect during the periods.

## Controls and procedures

As filed, 2,191 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

#### Changes in Internal Control over Financial Reporting

We have made no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended September 30, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,080 characters.

*Our business and results of operations are subject to numerous risks, uncertainties, and other factors that you should be aware of. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 under the heading “Risk Factors.” There have been no material changes from the risk factors disclosed in our 2022 Annual Report on Form 10-K. The risks, uncertainties and other factors described in the risk factors are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the risks, uncertainties and other factors could have a materially adverse effect on our business, financial condition, results of operations, cash flows or product market share and could cause the trading price of our common stock to decline substantially.*

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-061217. Last ingested by Listed: Oct 30, 2026, 07:17 ET. No prices; not investment advice.