This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words "believe," "may," "will,"
"potentially," "estimate," "continue," "anticipate," "intend," "could," "would,"
"project," "plan," "expect" and similar expressions that convey uncertainty of
future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements speak only as of the date of this Form 10-Q
and are subject to uncertainties, assumptions and business and economic risks.
As such, our actual results could differ materially from those set forth in the
forward-looking statements as a result of the factors referenced in the
subsection "Risk Factors" set forth in Part II, Item 1A of this Report and Part
I, Item 1A of our Annual Report, and similar discussions in our other reports
filed with the Securities and Exchange Commission. You should not rely upon
forward-looking statements as predictions of future events. Although we believe
that the expectations reflected in our forward-looking statements are
reasonable, we cannot guarantee that the future results, levels of activity,
performance or events and circumstances described in the forward-looking
statements will be achieved or occur. We undertake no obligation to update
publicly any forward-looking statements for any reason after the date of this
Form 10-Q to conform these statements to actual results or to changes in our
expectations, except as required by law.
The following discussion should be read in conjunction with our unaudited
condensed consolidated financial statements and notes thereto appearing
elsewhere in this Quarterly Report on Form 10-Q with the understanding that our
actual future results, levels of activity, performance and events and
circumstances may be materially different from what we expect.
Overview
We are a late-stage development company that develops technology for the RF
front-end market. Our focus is on continuing to create innovative technology,
engage new customers, expand the number of license contracts for filter designs
and build the necessary infrastructure to support anticipated growth.
We plan to continue to develop IP associated with high frequency/wide
bandwidth filters (XBAR®-based filters), to expand our IP and trade secret
libraries, and further the development of our WaveX™ multi-physics EDA platform.
While we remain a filter design licensing company, we are also investigating the
potential of licensing part or all of our WaveX™ software design suite and
certain patents to potential customers in the RFFE industry. During the third
quarter of 2019, we completed an investment and commercial agreement with Murata
Manufacturing Co., Ltd., the first collaboration agreement leveraging our XBAR®
IP. During the third quarter of 2021, we expanded the commercial agreement to
include designs for additional RF bands. In all licensing arrangements with our
customers we intend to retain ownership of our technology, software, designs and
related improvements. Our goal is to establish and leverage alliances with new
and existing customers, who will help grow the market for our designs by
integrating them with their own proprietary technology and products, or by using
our software products for their own designs, thus combining their own particular
strengths with ours to provide an extensive array of solutions. We continue to
expand our foundry program, which allows fabless companies to enter into the
filter business quickly and efficiently. It is through this foundry program that
we expect to engage with OEM's and Independent Design House's (IDH's) directly
to provide a significant cost and time to market advantage.
Our costs include employee salaries and benefits, compensation paid to
consultants, capital costs for research and other equipment, costs associated
with development activities including travel and administration, legal expenses,
sales and marketing costs, general and administration expenses, and other costs
associated with a late-stage development, publicly-traded technology company. We
continue to add employees, as needed, to support the development of our WaveX™
platform, applications and system test, research and development, as well as
sales, marketing and administration functions, to support our efforts.
The amounts that we actually spend for any specific purpose may vary
significantly and will depend on a number of factors including, but not limited
to, our expected cash resources, the pace of progress of our commercialization
and development efforts, actual needs with respect to product testing, research
and development, market conditions, and changes in or revisions to our marketing
strategies. In addition, we may invest in complementary products, technologies
or businesses.
Recent Developments
COVID-19-- The ongoing COVID-19 pandemic has negatively impacted the United
States, Asia and Europe, the major markets in which we operate. Although we have
seen improvements in the United States, the major markets in which we operate
continue to experience COVID-19 cases and recurring shutdowns. The pandemic's
ultimate impact on our operations and financial performance depends in part on
many factors not within our control and that vary by region, including, without
limitation, restrictive governmental and business actions that continue to be
taken in response (including travel restrictions and other workforce
limitations).
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Restrictions on travel and the imposition of stay-at-home or work remote
conditions have impacted our operations and those of our clients. While we have
not experienced major disruptions, clients have requested engagement deferrals
and our employees' ability to deliver our products and services has been
impacted. We continue to actively communicate with and listen to our customers
to best ensure that we are responding to their needs in the current environment
with innovative solutions that will not only be beneficial now but also over the
long-term. However, our ability to interact with customers has been impacted by
the current environment. For example, we believe that our inability to meet
in-person with current or prospective customers, as well as the cancellation or
postponement of Company-sponsored events or third-party events at which our
products are featured, may have a negative impact on our business.
If restrictions continue for an extended period of time, we may, among other
issues, experience delays in product development, a decreased ability to support
our customers, further disruptions in sales and marketing activities and an
overall lack of productivity. Similarly, significant outbreaks, continued travel
restrictions, stay-at-home or work remote conditions, or other restrictions may
impact our customers' ability to manufacture or deliver raw materials or provide
key components or services, which could result in delays in the demand from our
customers to produce designs. The pandemic may also impact the expansion of
current and/or the roll out of new services which could impact our customers'
demand for their products, which could reduce their demand for our products or
services. While we don't know and cannot quantify specific impacts, we expect we
may be negatively affected if we encounter delays in our product development
efforts, reductions in demand due to disruptions in the operations of our
customers or their end customers, disruptions in local and global economies,
volatility in the global financial markets, overall reductions in demand, or
other COVID-19 ramifications.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2021 and 2020
Revenues. Revenues consist primarily of the recognized portion of the
transaction price associated with our contracts from customers recognized over
time as the obligations under the terms of the contract are satisfied.
Generally, the transaction price includes both upfront and milestone payments
which we expect to receive in exchange for providing services. Revenues also
include royalties from shipments of our licensed designs. For the three months
ended September 30, 2021 and 2020, we recognized a total of $0.4 million and
$1.4 million, respectively, of revenue. For the nine months ended September 30,
2021 and 2020, we recognized a total of $1.6 million and $2.6 million,
respectively, of revenue. The decreases in revenue are the result of non-linear
revenue recognition associated with our design development agreements. In the
three and nine months ended September 30, 2020 we recognized a significant
amount of revenue when we received a $2.5 million milestone payment. We derive a
substantial majority of our revenues from a single customer. Additionally,
during 2021, there have been nominal increases in our sales-based royalty
revenue. We have recorded $4.4 million of deferred revenue as of September 30,
2021, which we expect to recognize over the remainder of the contracts.
Research and Development. These expenses relate to direct engineering and other
costs associated with the development and commercialization of our technology,
including the development of filter designs for our customers and consist
primarily of the compensation costs of employees and consultants, including
stock-based compensation, and to a lesser extent, development related costs for
facilities, equipment, software and supplies. We also include the costs for our
intellectual property development program under research and development. This
program focuses on patent strategy and invention extraction.
Research and development expenses increased $1.5 million from $4.4 million in
the third quarter of 2020 to $5.9 million in the third quarter of 2021 and
increased $2.4 million, from $14.7 million in the nine months ended
September 30, 2020 to $17.1 million in the nine months ended September 30, 2021.
The increases in the three and nine month periods were primarily a result of
increased costs related to development of our WaveX™ and XBAR® technology,
increases in compensation expenses as a result of increased headcount and
increased costs associated with expanding our patent portfolio. For the
remainder of the year we expect research and development expenses to increase
due to higher development costs and additional headcount.
Sales, Marketing and Administration Expenses. These expenses relate to our sales
and marketing efforts and our back-office support and include compensation costs
of employees and consultants, including stock-based compensation. They also
include expenses for facilities, travel expenses, telecommunications, investor
relations, insurance and professional fees.
Sales, marketing and administration expenses were $3.5 million for the third
quarter of 2021 compared to $3.1 million in the third quarter of 2020, and $11.4
million for the nine months ended September 30, 2021 compared to $9.2 million
for the nine months ended September 30, 2020. The increase for the three month
period is primarily related to increased compensation expenses for employees and
consultants. The increase for the nine month period was primarily related to
increased compensation expenses for employee and consultants of $1.4 million,
costs related to the filing of our universal shelf registration statement of
$0.1 million and other increased operating expenses, including insurance, legal,
accounting and
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marketing of $0.7 million. We anticipate that our sales, marketing and
administration expenses will remain consistent with the current quarter.
Interest and Investment Income (Expense). Interest and investment expense for
the three and nine months ended September 30, 2021 was $3,000 and $9,000,
respectively. Interest and investment income for the three and nine months ended
September 30, 2020 was $1,000 and $65,000, respectively. The income in 2020
represented interest income on our cash and investment balances while the
expense in 2021 represented interest expense recorded in connection with a
finance lease for equipment.
Income Taxes. We have earned minimal revenues and are currently operating at a
loss. In the three and nine months ended September 30, 2021 and 2020, our only
tax liability was for minimum taxes in the states where we conduct business.
Liquidity and Capital Resources
Financing Activities
We have earned minimal revenues since inception. Our operations have been
funded with initial capital contributions and proceeds from the sale of equity
securities and debt.
As of September 30, 2021, we have raised aggregate gross proceeds of $149.6
million through the use of loans and convertible debt, and sales of equity
pursuant to our initial public offering, secondary underwritten offerings, an
at-the-market equity program, private placement financings, and the exercise of
stock options and warrants.
We had current assets of $20.1 million and current liabilities of $6.4 million
at September 30, 2021, resulting in working capital of $13.7 million. This
compares to working capital of $14.7 million at September 30, 2020 and $19.8
million at December 31, 2020. The change in working capital is primarily the
result of cash used in our normal business operations, offset by proceeds from
the issuance of equity securities.
As of September 30, 2021, our accumulated deficit totaled $177.8 million. In
the nine months ended September 30, 2021 our net loss totaled $26.9 million and
we used $21.9 million of cash for operating activities, the purchase of property
and equipment and expenditures for patents. To date we have not generated
significant revenues to enable profitability. We expect to continue to incur
significant losses. These factors raise substantial doubt regarding our ability
to continue as a going concern. At September 30, 2021 we had cash and cash
equivalents of $15.3 million and accounts receivable of $4.3 million. Subsequent
to September 30, 2021, but prior to the publication of the financial statements
on this Form 10-Q, we raised $6.1 million of cash from sales of common stock
using our At-The-Market Equity Offering Sales Agreement. In the absence of
additional customer contracts, we believe these cash resources, along with
anticipated cash generated from existing customer contracts, will provide
sufficient funding into the fourth quarter of 2022. We are subject to the risks
and uncertainties associated with a new business. We also have been impacted by
the COVID-19 pandemic which has added additional risks and uncertainties. Our
continuance as a going concern is dependent on our future profitability. We are
actively pursuing expanding our technology portfolio, increasing our revenue
opportunities by completing deliverables under current customer contracts and
entering into new customer contracts, and efficiently managing operations and
exploring cost saving opportunities. We may not be successful in these efforts.
We may need to seek to raise additional capital from the sale of equity
securities or incurrence of indebtedness. There can be no assurance that
additional financing will be available to us on acceptable terms, or at all, in
which case we might be forced to make substantial reductions in our operating
expenses which could adversely affect our ability to implement our business plan
and ultimately our viability as a company. Even if available, such capital may
be dilutive to existing stockholders. The accompanying condensed consolidated
financial statements have been prepared on a going concern basis which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The condensed consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
Cash Flow Analysis
Operating activities used cash of $20.4 million in the first nine months of
2021 and $16.0 million in the first nine months of 2020. The increase is
primarily the result of our higher net loss and working capital changes,
partially offset by higher non-cash expenses.
Investing activities used cash of $1.4 million in the first nine months of 2021
and $1.0 million in the first nine months of 2020 as a result of purchases of
property and equipment and expenditures for patents.
Financing activities provided cash of $12.2 million in the first nine months of
2021 as a result of the net proceeds from our at-the-market equity program and
exercises of stock options. Financing activities provided cash of $26.4 million
in
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the first nine months of 2020 as a result of the net proceeds from the
underwritten sale of equity securities completed in February 2020.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. Certain accounting policies and estimates are
particularly important to the understanding of our financial position and
results of operations and require the application of significant judgment by our
management or can be materially affected by changes from period to period in
economic factors or conditions that are outside of our control. As a result,
they are subject to an inherent degree of uncertainty. In applying these
policies, our management uses their judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those
estimates are based on our historical operations, our future business plans and
projected financial results, the terms of existing contracts, our observance of
trends in the industry, information provided by our customers and information
available from other outside sources, as appropriate. While the nature of the
COVID 19 situation is dynamic, we have considered its impact when developing our
estimates and assumptions. Actual results and outcomes may differ from
management's estimates and assumptions.
A description of our critical accounting policies that represent the more
significant judgments and estimates used in the preparation of our financial
statements was provided in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of our Annual Report on Form 10-K
for the year ended December 31, 2020. There have been no changes to our critical
accounting policies and estimates described in the Annual Report on Form 10-K
for the year ended December 31, 2020 that have had a material impact on our
condensed consolidated financial statements and related notes.
Recently Issued and Adopted Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2 to our condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
Not Applicable
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