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 $46 thousand on March 31, 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 months ended March 31, 2022

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2022 ("2022-Q1") and 2021 ("2021-Q1"), respectively, together with the percentage of total revenue which each such item represents:

We believe, although there can be no assurance, that we can sustain our revenue growth and return to generating operating profits through our strategic initiatives namely product innovation, cost reduction and defense of our intellectual property.

Costs of Goods Sold and Gross Profit

Our gross profit margin decreased from 42.7% during 2021-Q1 to 37.3% during 2022-Q1. The gross profit margin was negatively impacted due to increase in material costs due to continuing supply chain constraints, and increased freight and tariff costs, which were partially offset by the absence of inventory obsolescence costs in 2022-Q1.

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.

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.

Other income (expense), net includes interest income and foreign currency changes. Other income remained immaterial during the first quarter of 2022 and 2021.

Interest expense almost remained unchanged at $0.1 million in 2022-Q1 when compared to 2021-Q1.

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

As of March 31, 2022, our cash and cash equivalents were approximately $1.4 million compared to $1.1 million as of December 31, 2021. Our working capital was $19.3 million and $18.0 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, we had open purchase orders of approximately $4.8 million mostly for purchase of inventory.

As of March 31, 2022, we had inventory totaling $13.1 million, of which non-current inventory accounted for $3.2 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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