What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-02-04 · 77 added, 92 removed, 105 unchanged (62% of the section changed)

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You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business .

We are a fabless semiconductor company that designs, develops and markets static random access memories, or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, primarily for the networking and telecommunications markets.

We are a leading provider of high-performance semiconductor memory solutions for in-place associative computing applications in high growth markets such as artificial intelligence (AI) and high-performance computing (HPC), including natural language processing and computer vision.

Our initial associative processing unit (“APU”) products are focused on applications using similarity search.

Similarity search is used in visual search queries for ecommerce, computer vision, drug discovery, cyber security and service markets such as NoSQL, Elasticsearch, and OpenSearch.

We also design, develop and market static random access memories, or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, primarily for the networking and telecommunications and the military/defense and aerospace markets.

We are subject to the highly cyclical nature of the semiconductor industry, which has experienced significant fluctuations, often in connection with fluctuations in demand for the products in which semiconductor devices are used.

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The networking and telecommunications market has accounted for a significant portion of our net revenues in the past and has declined during the past several years and is expected to continue to decline.

In recent years we have devoted significant resources to the development of our new APU product.

In anticipation of the decline of the networking and telecommunications market, we have been using the revenue generated by the sales of high-speed synchronous SRAM products to finance the development of our new in-place associative computing solutions and the marketing and sale of new types of SRAM products such as radiation-hardened and radiation-tolerant SRAMs.

However, with no debt and substantial liquidity, we believe we are in a better financial position than many other companies of our size.

The COVID-19 pandemic has affected many of the countries in which we, our customers, our suppliers and our other business partners conduct business.

Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary.

Since 2020, the COVID-19 pandemic has affected the business activities of the Company, its customers, its suppliers and its other business partners.

Governments have implemented, and may continue to implement, safety precautions including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary.

Many organizations and individuals, including the Company and our employees, are taking additional steps to avoid or reduce infection, including limiting travel and working from home.

These measures have disrupted normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

While originally

expected to be temporary, these disruptions negatively impacted our revenue, results of operations, financial condition, and liquidity in fiscal year 2021, and are expected to continue to negatively impact us in fiscal 2022 and into fiscal 2023.

These measures have disrupted normal business operations and have had significant negative impacts on businesses and financial markets worldwide.

While originally expected to be temporary, these disruptions negatively impacted our revenue, results of operations, financial condition, and liquidity in fiscal year 2021 and fiscal 2022, and are expected to continue to negatively impact us through fiscal 2023.

We continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the COVID-19 global pandemic.

We have instituted many preventative measures and are regularly evaluating those measures and others as we continue to better understand our current and future operating environment.

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 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.

Supply chain shortages, the impact of ongoing and expected price increases from suppliers and the impact of rising COVID infections in Taiwan that have recently impacted the operations of our manufacturing partners are expected to impact our fulfillment of sales in the near term, and into calendar 2022.

From March 2020 through April 2022, except for our employees located in Taiwan, the majority of our employees worked from home around the world.

In May 2021, due to a surge in COVID-19 infections in Taiwan, our employees in Taiwan worked from home under alternating schedules, and returned to their offices in July 2021.

During the pandemic we have been able to maintain 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.

Since the outbreak of COVID-19, aside from supply chain shortages from the lengthening of lead times for wafers and assembly services and the impact of ongoing and expected price increases from suppliers, including a 20% increase in the cost of wafers received in early calendar 2022, we have experienced minimal impact, and continue to experience minimal impact, on our manufacturing operations in Taiwan.

Final testing of our product is conducted in house.

Shipping and receiving operations at our United States headquarters are being maintained by a skeleton crew with minimal impact.

Our revenues have been and are expected to continue to be impacted by changes in customer buying patterns and communication limitations related to COVID-19 restrictions that require a significant number of our customer contacts to work from home.

Our results for the fiscal year ended March 31, 2021 demonstrated 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.

These challenges are also impacting us as we enter new markets and engage with target customers to sell our new APU product.

Industry conferences and on-site training workshops, which are typically used for building a sales pipeline, have been limited due to COVID-19 related restrictions.

We have adapted our sales strategies for the COVID-19 environment, where we cannot do face-to-face meetings and conduct secure meetings with government and defense customers, but we are still not operating at an optimal level.

The disruption to the marketplace resulting from the COVID-19 global pandemic that we are currently experiencing is unlike anything we have ever had to deal with.

Shipping and receiving operations at our United States headquarters were maintained by a skeleton crew with minimal impact.

Our revenues were impacted by changes in customer buying patterns and communication limitations related to COVID-19 restrictions that required a significant number of our customer contacts to work from home.

Our results for the fiscal years ended March 31, 2021 and 2022 demonstrated the challenges that we have faced during the COVID-19 global pandemic, which restricted the activities of our sales force and distributors, reduced customer demand and caused the postponement of investment in certain customer sectors.

These challenges impacted us as we entered new markets and engaged with target customers to sell our new APU product.

Industry conferences and on-site training workshops, which are typically used for building a sales pipeline, were limited, and continue to be limited, due to COVID-19 related restrictions.

We adapted our sales strategies for the COVID-19 environment, where we could not have face-to-face meetings and conduct secure meetings with government and defense customers.

In addition to the continuing COVID-19 global pandemic, the recent military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures and rising interest rates may have an adverse impact on our business and financial condition.

The disruption to the marketplace that resulted from the COVID-19 global pandemic and that we are continuing to experience is unlike anything we have ever had to deal with.

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

As of June 30, 2022, we had cash, cash equivalents, and short-term and long-term investments of $42.3 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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Generally, our primary source of liquidity is cash equivalents and short-term investments.

Our level of cash equivalents and short-term investments has historically been sufficient to meet our operating and capital needs.

Our level of cash equivalents and short-term investments has historically been sufficient to meet our current and longer term operating and capital needs.

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 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, 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.

In addition, supply chain constraints have had an impact on our ability to fulfill all of our orders.

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

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

Our revenues are derived primarily from sales of our Very Fast SRAM products.

Sales to networking and telecommunications OEMs accounted for 49% to 53% of our net revenues during our last three fiscal years.

We also sell our products to OEMs that manufacture products for military and aerospace applications such as radar and guidance systems, missiles and satellites, for professional audio applications such as sound mixing systems, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control and voice recognition systems, and for medical applications such as ultrasound and CAT scan equipment.

We also sell our products to OEMs that manufacture products for military and aerospace applications such as radar and guidance systems, missiles and satellites, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control, and for medical applications such as ultrasound and CAT scan equipment.

As is typical in the semiconductor industry, the selling prices of our products generally decline over the life of the product.

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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 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.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 15%, 29%, 39% and 38% of our net revenues in the three months ended June 30, 2022 and in fiscal 2022, 2021 and 2020, 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 nine months ended December 31, 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 three months ended June 30, 2022 and in fiscal 2022, 2021 or 2020.

Cost of Revenues.

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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.

We expect these increased manufacturing costs will continue into calendar 2022.

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

We expect these increased manufacturing costs will continue through calendar 2023.

Cost of revenues also includes expenses related to supply chain management, quality assurance, and final product testing and documentation control activities conducted at our headquarters in Sunnyvale, California and our branch operations in Taiwan.

Gross Profit.

Our gross profit margins vary among our products and are generally greater on our higher density products and, within a particular density, greater on our higher speed and industrial temperature products.

Our gross profit margins vary among our products and are generally greater on our radiation hardened and radiation tolerant SRAMs, on our higher density products and, within a particular density, greater on our higher speed and industrial temperature products.

We expect that our overall gross margins will fluctuate from period to period as a result of shifts in product mix, changes in average selling prices and our ability to control our cost of revenues, including costs associated with outsourced wafer fabrication and product assembly and testing.

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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 December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Cost of revenues

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Net Revenues .

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.

Net revenues increased by 1.3% from $8.8 million in the three months ended June 30, 2021 to $8.9 million in the three months ended June 30, 2022.

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

Although net revenues for the three months ended June 30, 2022 increased when compared to the three months ended June 30, 2021, supply chain constraints have had an impact on our ability to fulfill all of our orders.

While there has been some improvement in the supply chain, 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 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.

The overall average selling price of all units shipped in the quarter ended June 30, 2022 decreased by 6.1% compared to the quarter ended June 30, 2021 and the number of units shipped increased 7.2% in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021.

The change in the average selling price was due to changes in product mix, as we sold more higher density, higher average selling price products in the fiscal 2022 period compared to the current fiscal year period.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $3.8 million in the three months ended June 30, 2021 to $1.3 million in the three months ended June 30, 2022.

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 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.

Shipments of our SigmaQuad product line accounted for 63.6% of total shipments in the three months ended June 30, 2021 compared to 44.8% of total shipments in the three months ended June 30, 2022.

The level of our SigmaQuad shipments was impacted by the decrease in shipments to Nokia in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021.

Cost of Revenues.

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.

Cost of revenues decreased by 11.6% from $4.0 million in the three months ended June 30, 3021 to $3.5 million in the three months ended June 30, 2022.

Cost of revenues included a provision for excess and obsolete inventories of $160,000 in the three months ended June 30, 2021 compared to $43,000 in the three months ended June 30, 2022.

Cost of revenues included stock-based compensation expense of $70,000 and $60,000 for the three months ended June 30, 2021 and 2022, respectively.

Gross Profit.

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.

Gross profit increased by 12.2% from $4.8 million in the three months ended June 30, 2021 to $5.4 million in the three months ended June 30, 2022.

Gross margin increased from 54.4% in the three months ended June 30, 2021 to 60.2% in the three months ended June 30, 2022.

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 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.

Research and development expenses increased by 8.5% from $6.1 million in the three months ended June 30, 2021 to $6.6 million in the three months ended June 30, 2022 .

The increase in research and development spending was primarily related to increases of $517,000 in outside consulting expenses and $156,000 in software maintenance expense which was partially offset by a decrease in stock-based compensation expense.

Research and development expenses included stock-based compensation expense of $470,000 and $351,000 for the three months ended June 30, 2021 and 2022, respectively.

Selling, General and Administrative Expenses.

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.

Selling, general and administrative expenses decreased by 11.6% from $3.0 million in the three months ended June 30, 2021 to $2.7 million in the three months ended June 30, 2022.

This included a decrease of $417,000 in the value of contingent consideration in the three months ended June 30, 2022 compared to an increase of $22,000 in the quarter ended June 30, 2021.

The change in contingent consideration was partially offset by an increase of $149,000 in professional fees and outside consulting expenses.

Selling, general and administrative expenses included stock-based compensation expense of $283,000 and $227,000 for the three months ended June 30, 2021 and 2022, 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 $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 $129,000 for the nine months ended December 31, 2020 compared to $73,000 for the nine months ended December 31, 2021.

Interest and other expense, net increased by $46,000 from a net expense of $20,000 in the three months ended June 30, 2021 to income of $26,000 in the three months ended June

Interest and other income increased by $15,000 primarily due to higher interest rates received on our cash and short-term and long-term investments and other miscellaneous income.

Foreign exchange losses were $42,000 for the three months ended June 30, 2021 compared to $11,000 for the three months ended June 30, 2022.

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 $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.

The provision (benefit) for income taxes increased from a benefit of ($172,000) in the three months ended June 30, 2021 to a provision of $60,000 in the three months ended June 30, 2022.

The benefit for income taxes for the three months ended June 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 $4.2 million in the three months ended June 30, 2021 compared to $4.0 million in the three months ended June 30, 2022.

This fluctuation was primarily due to the changes in net revenues, gross profit and operating expenses discussed above.

Liquidity and Capital Resources

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 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.

As of June 30, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments of $41.5 million compared to $44.0 million as of March 31, 2022.

Net cash used in operating activities was $5.0 million for the three months ended June 30, 2022 compared to $4.6 million for the three months ended June 30, 2021.

The primary uses of cash in the three months ended June 30, 2022 was the net loss of $4.0 million and a reduction in accrued expenses and other liabilities of $1.9 million.

The reduction in accrued expenses and other liabilities was primarily related to the payment of fiscal 2022 year-end accruals for incentive compensation.

The primary sources of cash in the three months ended June 30, 2022 were non-cash items including stock-based compensation of $638,000, depreciation and amortization expenses of $256,000 and a decrease in accounts receivable of $235,000.

The primary uses of cash in the three months ended June 30, 2021 was the net loss of $4.2 million, an increase in accounts receivable of $885,000, and a reduction in accrued expenses and other liabilities of $813,000.

The increase in accounts receivable was related to the increased net revenues in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

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 three months ended June 30, 2021 were non-cash items including stock-based compensation of $823,000 and depreciation and amortization expenses of $246,000 and a decrease in inventory of $252,000.

Net cash provided by investing activities was $1.4 million in the three months ended June 30, 2022 compared to $4.1 million in the three months ended June 30, 2021.

Investment activities in both periods primarily consisted of the maturity of certificates of deposit and agency bonds of $1.5 million and $4.1 million in the three months ended June 30, 2022 and 2021, respectively.

Net cash provided by financing activities in the three months ended June 30, 2022 and 2021 primarily consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $179,000 and $783,000, respectively.

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, 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.

Our future capital requirements will depend on many factors, including revenue growth, if any, that we experience, any additional manufacturing cost increases resulting from supply 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.

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.

As of June 30, 2022, we had $3.9 million in purchase obligations for facility leases, software leases, wafer, software and test purchase obligations that are binding commitments of which $2.8 million are payable in the next twelve months and $1.1 million are committed in the long term.

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

As of June 30, 2022, the accrual for potential contingent consideration was $2.3 million and is payable at various dates through December 31, 2025.

Critical Accounting Policies and Estimates

1 unchanged sentence

Off-Balance Sheet Arrangements

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.

At June 30, 2022, 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.

2 unchanged sentences

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