During January, at the Las Vegas Customer Electronics Show, CES 2022, the world's most influential annual tech event, our home office Aura™ Xceed™ BMA was singled out for exceptional innovation with a CES Picks Award, presented by Residential Systems magazine.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We also continued our programs to cut costs and to speed up product development that we believe will enable us to get back to a growth path.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Economic conditions, challenges and risks

Deferred product revenue decreased to $43 thousand on June 30, 2022 compared to $54 thousand on December 31, 2021.

A detailed discussion of our results of operations follows below.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the three and six months ended June 30, 2022

Costs of Goods Sold and Gross Profit

Our gross profit margin decreased from 44.3% during 2021-Q2 to 38.1% during 2022-Q2. The gross profit margin was negatively impacted due to increase in material costs due to continuing supply chain constraints, which was partially offset by reduced freight and tariff costs and a decrease in inventory obsolescence costs in 2022-Q2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Sales and Marketing - S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses.

S&M expenses for 2022-H1 decreased to $3.1 million from $3.3 million for 2021-H1. The decreases in employment expenses and consultant expenses due to a reduction in the headcount were offset by increases in trade-show related expenses and advertising.

Research and Product Development - R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses.

R&D expenses decreased to $2.5 million in 2022-H1, from $2.8 million in 2021-H1. The decrease in employment expenses due to reduction in the headcount was partially offset by increase in project-related expenses.

G&A expenses remained the same at $1.7 million in 2021-Q2 and 2022-Q2. The increase in amortization costs relating to our capitalized patent defense costs were partially offset by a reduction in legal expenses and consulting expenses.

Other income (expense), net includes interest income and foreign currency changes. Other income in 2022-Q2 and 2022-H1 includes $1.5 million recognized on the gain arising from the CARES Act Paycheck Protection Program loan forgiveness. Other items remained immaterial during the second quarter of 2022 and 2021.

Interest expense almost remained unchanged at $0.1 million in 2022-Q2 when compared to 2021-Q2. Interest expense remained consistent at $0.2 million in 2022-H1 and 2021-H1.

During the six months ended of 2022 and 2021, we did not recognize any benefit from the losses incurred due to setting up of a full valuation allowance. Provision for income taxes recognized for 2022-Q2 and 2022-H1 primarily relates to foreign jurisdictions.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of June 30, 2022, our cash and cash equivalents were approximately $1.2 million compared to $1.1 million as of December 31, 2021. Our working capital was $20.2 million and $18.0 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, we had open purchase orders of approximately $6.4 million mostly for purchase of inventory.

As of June 30, 2022, we had inventory totaling $12.8 million, of which non-current inventory accounted for $3.0 million. This compares to total inventories of $13.6 million and non-current inventory of $3.6 million as of December 31, 2021.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of recent accounting pronouncements, see Note 1: "Business Description, Basis of Presentation and Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements included under Item 1 of this Form 10-Q.

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