What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-04 compared with 2021-11-05 · 67 added, 78 removed, 130 unchanged (53% of the section changed)

23 unchanged sentences

Since March 2020, except for our employees located in Taiwan, the majority of our employees have worked from home around the world.

In May 2021, with the surge in COVID-19 infections in Taiwan, our employees in Taiwan began working from home under alternating schedules, fully returning to work in July 2021.

In May 2021, with the surge in COVID-19 infections in Taiwan, our employees in Taiwan began working from home under alternating schedules, fully returning to their offices in July 2021.

We have maintained a substantial portion of our manufacturing operational capacity at our primary manufacturing support facility located in Hsin Chu, Taiwan where our suppliers are located and all of our products are manufactured.

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While we continue to monitor the business metrics that we have historically used to predict our financial performance, we are uncertain as to whether these metrics will operate consistently with our historical experience.

As of September 30, 2021, we had cash, cash equivalents, and short-term and long-term investments of $53.5 million, with no debt.

As of December 31, 2021, we had cash, cash equivalents, and short-term and long-term investments of $51.5 million, with no debt.

We have a team in-place with tremendous depth and breadth of experience and knowledge, with a legacy business that is providing an ongoing source of funding for the development of new product lines.

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We believe that during the next 12 months, the COVID-19 global pandemic will continue to impact general economic activity and demand in our end markets.

Although it is difficult to estimate the length or gravity of the impact of the COVID-19 outbreak, if the pandemic continues, it may have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity for the remainder of fiscal year 2022.

Although it is difficult to estimate the length or gravity of the impact of the COVID-19 outbreak, if the pandemic continues, it is expected to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity for the remainder of fiscal year 2022 and into fiscal 2023.

On March 27, 2020, the CARES Act was enacted to provide emergency economic stimulus in response to the COVID-19 global pandemic.

The CARES Act includes aid to small businesses in the form of loans and grants, and other efforts to stabilize the U.S.

The CAA Act which was signed into law in 2020 extended some of the CARES Act programs along with adding new stimulus provisions.

In March 2021, the ARPA Act of 2021 was also passed which further extended several CARES Act relief programs and other assistance.

We have not filed, and do not intend to file, for funding related to the CARES Act, CAA or ARPA due to our strong balance sheet and liquidity position with $53.5 million in cash and cash equivalents, short-term investments and long-term investments and no debt outstanding.

We currently have no plans to defer payroll taxes, to layoff or furlough employees or to modify leases and stock compensation plans.

Also included in the CARES Act are numerous income tax provisions including changes to the net operating loss.

During fiscal year 2021, we recorded a $378,000 tax benefit resulting from the carryback of our fiscal year 2020 federal net operating loss to fiscal year 2018 due to the five-year net

operating loss carryback provision from the CARES Act.

The CARES Act, along with the Consolidated Appropriations Act (“CAA”) and the American Rescue Plan Act of 2021 (“ARPA”) is an emergency economic stimulus package passed in response to the COVID-19 global pandemic that includes aid to small businesses in the form of loans and grants and other efforts to stabilize the U.S.

Also included in the CARES Act are numerous income tax provisions including changes to the net operating loss rules.

During fiscal year 2021, we recorded a $378,000 tax benefit resulting from the carryback of our fiscal year 2020 federal net operating loss to fiscal year 2018 due to the five-year net operating loss carryback provision from the CARES Act.

We believe that the CAA and ARPA will not have a significant impact on us.

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Nokia purchases products directly from us and through contract manufacturers and distributors.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 34%, 39%, 38% and 45% of our net revenues in the six months ended September 30, 2021 and in fiscal 2021, 2020 and 2019, respectively.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 31%, 39%, 38% and 45% of our net revenues in the nine months ended December 31, 2021 and in fiscal 2021, 2020 and 2019, respectively.

Our revenues have been substantially impacted by significant fluctuations in sales to Nokia, and we expect that future direct and indirect sales to Nokia will continue to fluctuate substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods.

To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in the six months ended September 30, 2021 and in fiscal 2021, 2020 or 2019.

To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in the nine months ended December 31, 2021 and in fiscal 2021, 2020 or 2019.

Cost of Revenues.

Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly, test and burn-in expenses, the amortized cost of production mask sets, stock-based compensation and the

cost of materials and overhead from operations.

Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly, test and burn-in expenses, the amortized cost of production mask sets, stock-based compensation and the cost of materials and overhead from operations.

All of our wafer manufacturing and assembly operations, and a significant portion of our wafer sort testing operations, are outsourced.

Accordingly, most of our cost of revenues consists of payments to TSMC and independent assembly and test houses.

Because we do not have long-term, fixed-price supply contracts, our wafer fabrication and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors.

Because we do not have long-term, fixed-

price supply contracts, our wafer fabrication and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors.

We have experienced increased costs as a result of supply chain constraints for wafers and outsourced assembly, burn-in and test operations.

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The following table sets forth statement of operations data as a percentage of net revenues for the periods indicated:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Cost of revenues

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Net Revenues .

Net revenues increased by 17.1% from $6.7 million in the three months ended September 30, 2020 to $7.8 million in the three months ended September 30, 2021 and by 24.9% from $13.3 million in the six months ended September 30, 2020 to $16.6 million in the six months ended September 30, 2021.

Net revenues increased by 19.3% from $6.8 million in the three months ended December 31, 2020 to $8.1 million in the three months ended December 31, 2021 and by 23.0% from $20.0 million in the nine months ended December 31, 2020 to $24.7 million in the nine months ended December 31, 2021.

Net revenues in all periods were impacted by the COVID-19 global pandemic.

Although revenues for the three and nine months ended December 31, 2021 increased when compared to the three and nine months ended December 31, 2020, supply chain constraints have had an impact on our ability to fulfill all of our orders.

While there has been some improvement, the situation remains fluid, and we do not expect significant relief from these constraints before the end of calendar year 2022.

Our net revenues continue to demonstrate the challenges that we are facing during the COVID-19 global pandemic, which has restricted the activities of our sales force and distributors, reduced customer demand and caused the postponement of investment in certain customer sectors.

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However, we are still not operating at an optimal level.

The overall average selling price of all units shipped in the quarter ended September 30, 2021 increased by 5.6% compared to the quarter ended September 30, 2020 and the number of units shipped increased 3.4% in the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020.

The overall average selling price of all units shipped in the six months ended September 30, 2021 increased by 14.1% compared to the six months ended September 30, 2020 and the number of units shipped increased 4.7% in the six months ended September 30, 2021 compared to the six months ended September 30, 2020.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $3.4 million in the three months ended September 30, 2020 to $1.9 million in the three months September 30, 2021 and increased from $5.2 million in the six months ended September 30, 2020 to $5.6 million in the six months September 30, 2021.

The overall average selling price of all units shipped in the quarter ended December 31, 2021 increased by 4.2% compared to the quarter ended December 31, 2020 and the number of units shipped increased 13.7% in the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020.

The overall average selling price of all units shipped in the nine months ended December 31, 2021 increased by 10.6% compared to the nine months ended December 31, 2020 and the number of units shipped increased 7.7% in the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020.

The changes in the average selling price were due to changes in product mix, as we sold more higher density, higher average selling price products in the fiscal 2022 periods compared to the prior fiscal year periods and to a lesser extent reflect the impact of a 20% price increase to all of our customers effective on December 1, 2021.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $2.8 million in the three months ended December 31, 2020 to $1.9 million in the three months December 31, 2021 and decreased from $8.1 million in the nine months ended December 31, 2020 to $7.6 million in the nine months December 31, 2021.

Shipments to Nokia in the quarter ended June 30, 2021 included approximately $1.0 million of buffer stock in anticipation of perceived market tightness.

Shipments of our SigmaQuad product line accounted for 65.4% of total shipments in the three months ended September 30, 2020 compared to 52.4% of total shipments in the three months ended September 30, 2021 and 56.1% of total shipments in the six months ended September 30, 2020 and compared to 58.4% of total shipments in the six months ended September 30, 2021.

The changes in SigmaQuad shipments were primarily due to the changes in sales to Nokia discussed above.

Shipments of our SigmaQuad product line accounted for 62.0% of total shipments in the three months ended December 31, 2020 compared to 40.5% of total shipments in the three months ended December 31, 2021 and 58.1% of total shipments in the nine months ended December 31, 2020 and compared to 52.5% of total shipments in the nine months ended December 31, 2021.

Cost of Revenues.

Cost of revenues increased by 2.1% from $3.5 million in the three months ended September 30, 2020 to $3.6 million in the three months ended September 30, 2021 and increased by 7.2% from $7.1 million in the six months ended September 30, 2020 to $7.6 million in the six months ended September 30, 2021.

Cost of revenues included a provision for excess and obsolete inventories of $230,000 in the six months ended

September 30, 2020 compared to $265,000 in the six months ended September 30, 2021.

Cost of revenues included stock-based compensation expense of $84,000 and $64,000 for the three months September 30, 2020 and 2021, respectively, and $172,000 and $134,000 for the six months ended September 30, 2020 and 2021, respectively.

Cost of revenues were essentially unchanged at $3.6 million in the three months ended December 31, 2020 and in the three months ended December 31, 2021 and increased by 5.1% from $10.7 million in the nine months ended December 31, 2020 to $11.2 million in the nine months ended December 31, 2021.

Cost of revenues included a provision for excess and obsolete inventories of $327,000 in the nine months ended December 31, 2020 compared to $330,000 in the nine months ended December 31, 2021.

Cost of revenues included stock-based compensation expense of $88,000 and $58,000 for the three months December 31, 2020 and 2021, respectively, and $260,000 and $192,000 for the nine months ended December 31, 2020 and 2021, respectively.

Gross Profit.

Gross profit increased by 34.2% from $3.1 million in the three months ended September 30, 2020 to $4.2 million in the three months ended September 30, 2021 and by 45.4% from $6.2 million in the six months ended September 30, 2020 to $9.0 million in the six months ended September 30, 2021.

Gross margin increased from 46.7% in the three months ended September 30, 2020 to 53.6% in the three months ended September 30, 2021 and increased from 46.4% in the six months ended September 30, 2020 to 54.0% in the six months ended September 30, 2021.

Gross profit increased by 39.6% from $3.2 million in the three months ended December 31, 2020 to $4.5 million in the three months ended December 31, 2021 and by 43.4% from $9.4 million in the nine months ended December 31, 2020 to $13.4 million in the nine months ended December 31, 2021.

Gross margin increased from 47.3% in the three months ended December 31, 2020 to 55.3% in the three months ended December 31, 2021 and increased from 46.7% in the nine months ended December 31, 2020 to 54.4% in the nine months ended December 31, 2021.

The changes in gross profit are primarily related to the change in net revenues discussed above.

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Research and Development Expenses.

Research and development expenses increased by 4.4% from $5.7 million in the three months ended September 30, 2020 to $5.9 million in the three months ended September 30, 2021 .

The increase in research and development spending was primarily related to an increase of $366,000 in payroll related expenses and lesser increases in stock-based compensaton expense and facilities related expenses partially offset by lesser decreases outside consulting expenses and other fees and patent related legal fees.

Research and development expenses included stock-based compensation expense of $353,000 and $418,000 for the three months ended September 30, 2020 and 2021, respectively.

Research and development expenses increased by 4.6% from $11.5 million in the six months ended September 30, 2020 to $12.0 million in the six months ended September 30, 2021.

The increase in research and development spending was primarily related to an increase of $718,000 in payroll related expenses and lesser increases in stock-based compensaton expense and facilities related expenses partially offset by lesser decreases outside consulting expenses and other fees and patent related legal fees.

Research and development expenses included stock-based compensation expense of $766,000 and $888,000 for the six months ended September 30, 2020 and 2021, respectively.

Research and development expenses increased by 7.3% from $5.7 million in the three months ended December 31, 2020 to $6.2 million in the three months ended December 31, 2021 .

The increase in research and development spending was primarily related to an increase of $413,000 in payroll related expenses and lesser increases in software maintenance expense and stock-based compensation expense partially offset by decreases in outside consulting expenses.

Research and development expenses included stock-

based compensation expense of $343,000 and $416,000 for the three months ended December 31, 2020 and 2021, respectively.

Research and development expenses increased by 5.5% from $17.2 million in the nine months ended December 31, 2020 to $18.2 million in the nine months ended December 31, 2021.

The increase in research and development spending was primarily related to an increase of $1.1 million in payroll related expenses and lesser increases in stock-based compensation expense and facilities related expenses partially offset by lesser decreases outside consulting expenses and other fees and patent related legal fees.

Research and development expenses included stock-based compensation expense of $1.1 million and $1.3 million for the nine months ended December 31, 2020 and 2021, respectively.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased by 6.9% from $2.6 million in the three months ended September 30, 2020 to $2.8 million in the three months ended September 30, 2021.

An increase of $62,000 for professional fees and lesser increases in payroll related expenses, general insurance expense, stock-based compensation expense and independent sales representatives commissions was partially offset by a decrease in travel related expenses.

Selling, general and administrative expenses included stock-based compensation expense of $216,000 and $234,000 for the three months ended September 30, 2020 and 2021, respectively.

Selling, general and administrative expenses increased by 5.4% from $5.5 million in the six months ended September 30, 2020 to $5.8 million in the six months ended September 30, 2021.

An increase of $137,000 in independent sales representatives commissions and lesser increases in professional fees, general insurance expense and stock-based compensation expense was partially offset by a decrease in travel related expenses.

Selling, general and administrative expenses included stock-based compensation expense of $470,000 and $517,000 for the six months ended September 30, 2020 and 2021, respectively.

Interest Income and Other Income, Net.

Interest and other income, net decreased by $8,000 from a net expense of $16,000 in the three months ended September 30, 2020 to an expense of $8,000 in the three months ended September 30, 2021.

Selling, general and administrative expenses increased by 8.8% from $2.6 million in the three months ended December 31, 2020 to $2.8 million in the three months ended December 31, 2021.

An increase of $143,000 in payroll related expenses and a lesser increase in independent sales representatives commissions was partially offset by decreases professional fees and outside consulting expenses.

Selling, general and administrative expenses included stock-based compensation expense of $262,000 and $266,000 for the three months ended December 31, 2020 and 2021, respectively.

Selling, general and administrative expenses increased by 6.5% from $8.1 million in the nine months ended December 31, 2020 to $8.7 million in the nine months ended December 31, 2021.

An increase of $175,000 in independent sales representatives commissions and lesser increases in payroll related expenses, professional fees, general insurance expense and stock-based compensation expense was partially offset by a decrease in travel related expenses and dues and subscription related expenses.

Selling, general and administrative expenses included stock-based compensation expense of $732,000 and $783,000 for the nine months ended December 31, 2020 and 2021, respectively.

Interest Income and Other Expense, Net.

Interest and other expense, net decreased by $10,000 from income of $25,000 in the three months ended December 31, 2020 to income of $15,000 in the three months ended December 31, 2021.

Interest income decreased by $30,000 primarily due to lower interest rates received on our cash and short-term and long-term investments and a lesser amount of investments.

Foreign exchange losses were $96,000 for the three months ended September 30, 2020 compared to $26,000 for the three months ended September 30, 2021.

Interest and other income, net decreased by $118,000 from income of $90,000 in the six months ended September 30, 2020 to an expense of $28,000 in the six months ended September 30, 2021.

Foreign exchange losses were $25,000 for the three months ended December 31, 2020 compared to $5,000 for the three months ended December 31, 2021.

Interest and other expense, net decreased by $128,000 from income of $115,000 in the nine months ended December 31, 2020 to an expense of $13,000 in the nine months ended December 31, 2021.

Interest income decreased by $184,000 primarily due to lower interest rates received on our cash and short-term and long-term investments and a lesser amount of investments.

Foreign exchange losses were $104,000 for the six months ended September 30, 2020 compared to $69,000 for the six months ended September 30, 2021.

Foreign exchange losses were $129,000 for the nine months ended December 31, 2020 compared to $73,000 for the nine months ended December 31, 2021.

The exchange losses in each period were related to our Taiwan branch operations and our operations in Israel.

Provision (benefit) for Income Taxes.

The provision (benefit) for income taxes decreased from a provision of $62,000 in the three months ended September 30, 2020 to $42,000 in the three months September 30, 2021 and decreased from a provision of $549,000 in the six months ended September 30, 2020 to a benefit of ($130,000) in the six months September 30, 2021.

The provision for (benefit from) income taxes for the three months ended

September 30, 2020 included a settlement of an income tax audit in Israel for fiscal years 2016 through fiscal 2019 which resulted in a discrete tax provision of $479,000.

The provision (benefit) for income taxes for the three months ended September 30, 2021 included a benefit of ($220,000) related to the approval by the Israel tax authorities of a “Preferred Company” tax rate that was retroactively applied to fiscal 2018 and subsequent fiscal years.

Net loss was $5.2 million in the three months ended September 30, 2020 compared $4.6 million in the three months ended September 30, 2021 and was $11.3 million in the six months ended September 30, 2020 compared to $8.8 million in the six months ended September 30, 2021.

The provision (benefit) for income taxes decreased from a provision of $90,000 in the three months ended December 31, 2020 to $64,000 in the three months December 31, 2021 and decreased from a provision of $639,000 in the nine months ended December 31, 2020 to a benefit of ($66,000) in the nine months December 31, 2021.

The provision for income taxes for the nine months ended December 31, 2020 included a settlement of an income tax audit in Israel for fiscal years 2016 through fiscal 2019 which resulted in a discrete tax provision of $479,000.

The benefit from income taxes for the nine months ended December 31, 2021 included a benefit of ($220,000) related to the approval by the Israel tax authorities of a “Preferred Company” tax rate that was retroactively applied to fiscal 2018 and subsequent fiscal years.

Net loss was $5.2 million in the three months ended December 31, 2020 compared to $4.6 million in the three months ended December 31, 2021 and was $16.5 million in the nine months ended December 31, 2020 compared to $13.4 million in the nine months ended December 31, 2021.

These fluctuations were primarily due to the changes in net revenues, gross profit and operating expenses discussed above.

Liquidity and Capital Resources

As of September 30, 2021, our principal sources of liquidity were cash, cash equivalents and short-term investments of $50.7 million compared to $54.0 million as of March 31, 2021.

Net cash used in operating activities was $7.4 million for the six months ended September 30, 2021 compared to $8.3 million for the six months ended September 30, 2020.

The primary uses of cash in the six months ended September 30, 2021 was the net loss of $8.8 million, a reduction in accrued expenses and other liabilities of $548,000 and lesser increases in prepaids expenses and other assets and inventory.

The reduction in accrued expenses and other liabilities was primarily related to the payment of fiscal 2021 year-end accruals for incentive compensation.

The primary sources of cash in the six months ended September 30, 2021 were non-cash items including stock-based compensation of $1.5 million and depreciation and amortization expenses of $501,000.

Net cash used in operating activities was $8.3 million for the six months ended September 30, 2020.

The primary uses of cash in the six months ended September 30, 2020 was the net loss of $11.3 million and a reduction in accrued expenses and other liabilities of $1.9 million.

As of December 31, 2021, our principal sources of liquidity were cash, cash equivalents and short-term investments of $48.1 million compared to $54.0 million as of March 31, 2021.

Net cash used in operating activities was $9.9 million for the nine months ended December 31, 2021 compared to $11.4 million for the nine months ended December 31, 2020.

The primary uses of cash in the nine months ended December 31, 2021 was the net loss of $13.4 million and increases in prepaid expenses and other

current assets and inventory.

The primary sources of cash in the nine months ended December 31, 2021 were non-cash items including stock-based compensation of $2.3 million and depreciation and amortization expenses of $752,000, an increase in accounts payable of $792,000 and a lesser decrease in accounts receivable.

The primary uses of cash in the nine months ended December 31, 2020 was the net loss of $16.5 million and a reduction in accrued expenses and other liabilities of $1.7 million.

The reduction in accrued expenses and other liabilities was primarily related to the payment of fiscal 2020 year-end accruals for purchased intellectual property.

Primary sources of cash in the six months ended September 30, 2020 were a reduction in accounts receivable of $2.1 million and non-cash items including stock-based compensation of $1.4 million and depreciation and amortization expenses of $707,000.

The decrease in accounts receivable was primarily due to the decrease in shipments in the quarter ended September 30, 2020 compared to the quarter ended March 31, 2020.

Net cash provided by investing activities was $2.5 million in the six months ended September 30, 2021 compared to net cash used in investing activities of $1.7 million in the six months ended September 30, 2020.

Investment activities in the six months ended September 30, 2021 primarily consisted of the maturity of certificates of deposit and agency bonds of $6.1 million partially offset by the purchase of certificates of deposit of $3.3 million.

Investment activities in the six months ended September 30, 2020 primarily consisted of the purchase of certificates of deposit, agency bonds and supranational obligations of $11.3 million, partially offset by the maturity of certificates of deposit and agency bonds of $9.8 million

Net cash provided by financing activities in the six months ended September 30, 2021 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $1.6 million.

Net cash provided by financing activities in the six months ended September 30, 2020 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $2.5 million.

Our estimated annual effective income tax rate was approximately 0.49% as of September 30, 2021.

Primary sources of cash in the nine months ended December 31, 2020 were a reduction in accounts receivable of $2.3 million, non-cash items including stock-based compensation of $2.1 million and depreciation and amortization expenses of $962,000 and an increase in accounts payable of $1.2 million.

The decrease in accounts receivable was primarily due to the decrease in shipments in the quarter ended December 31, 2020 compared to the quarter ended March 31, 2020.

Net cash used by investing activities was $320,000 in the nine months ended December 31, 2021 compared to $381,000 in the nine months ended December 31, 2020.

Investment activities in the nine months ended December 31, 2021 primarily consisted of the maturity of certificates of deposit and agency bonds of $7.4 million partially offset by the purchase of certificates of deposit of $7.2 million.

Investment activities in the nine months ended December 31, 2020 primarily consisted of the purchase of certificates of deposit, agency bonds and supranational obligations of $17.5 million, partially offset by the maturity of certificates of deposit and agency bonds of $17.3 million.

Net cash provided by financing activities in the nine months ended December 31, 2021 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $2.4 million.

Net cash provided by financing activities in the nine months ended December 31, 2020 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $3.3 million.

Our estimated annual effective income tax rate was approximately 0.28% as of December 31, 2021.

We believe that our existing balances of cash, cash equivalents and short-term investments, and cash flow expected to be generated from our future operations will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months.

Our future capital requirements will depend on many factors, including revenue growth, if any, that we experience, the continuation of the impact of the COVID-19 pandemic on our business, the extent to which we utilize subcontractors, the levels of inventory and accounts receivable that we maintain, the timing and extent of spending to support our product development efforts and the expansion of our sales and marketing.

Our future capital requirements will depend on many factors, including revenue growth, if any, that we experience, any additional manufacturing cost increases resulting from suppy constraints and the continuation of the impact of the COVID-19 pandemic on our business, the extent to which we utilize subcontractors, the levels of inventory and accounts receivable that we maintain, the timing and extent of spending to support our product development efforts and the expansion of our sales and marketing.

Additional capital may also be required for the consummation of any acquisition of businesses, products or technologies that we may undertake.

We cannot assure that additional equity or debt financing, if required, will be available on terms that are acceptable or at all.

Contractual Obligations

The following table describes our contractual obligations as of September 30, 2021:

Payments due by period (in thousands)

More than 5 years

Facilities and software leases

Wafer, software and test purchase obligations

As of September 30, 2021, the current portion of our unrecognized tax benefits was $0, and the long-term portion was $0.

As of December 31, 2021 we had $3.4 million in purchase obligations for facility leases, software leases wafer and software and test purchase obligations that are binding commitments of which $2.0 million are payable in the next twelve months and $1.4 million are committed in the long term.

As of December 31, 2021, the current portion of our unrecognized tax benefits was $0, and the long-term portion was $0.

In connection with the acquisition of MikaMonu on November 23, 2015, we are required to make contingent consideration payments to the former MikaMonu shareholders conditioned upon revenue targets for products based on the MikaMonu technology.

As of September 30, 2021, the accrual for potential contingent consideration was $4.3 million and is payable at various dates through December 31, 2025.

As of December 31, 2021, the accrual for potential contingent consideration was $4.3 million and is payable at various dates through December 31, 2025.

Critical Accounting Policies and Estimates

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Off-Balance Sheet Arrangements

At September 30, 2021, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

At December 31, 2021, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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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