What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 99 added, 68 removed, 114 unchanged (59% 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 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.

We are a leading provider of 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.

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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.

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

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

Since 2020, the COVID-19 global 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.

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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.

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.

The majority of our employees around the world worked from home for extended timeframes due to the pandemic.

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.

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 and a 6% increase expected in early calendar 2023, 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.

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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 June 30, 2022, we had cash, cash equivalents, and short-term and long-term investments of $42.3 million, with no debt.

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

As of September 30, 2022, we had cash, cash equivalents, and short-term and long-term investments of $38.9 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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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.

We believe that during the next 12 months, continued inflationary pressures and rising interest rates, will continue to negatively impact general economic activity and demand in our end markets.

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.

While there has been some improvement in the supply chain, the situation remains fluid, and we do not expect significant relief from these constraints through at least the end of fiscal 2023.

Although it is difficult to estimate the length or gravity of the continued inflationary pressures and rising interest rates and the decline in the global environment, 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.

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Our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products.

Although we expect the average selling prices of individual products to decline over time, we believe that, over the next several quarters, our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price, higher density products, and to a lesser extent, recent price increases to our customers due to supply constraints.

Our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but, particularly in periods of increasing demand, can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from TSMC, our wafer supplier, and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities.

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We sell our products through our direct sales force, international and domestic sales representatives and distributors.

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.

The majority of our customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products.

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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 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.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 14%, 29%, 39% and 38% of our net revenues in the six months ended September 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 three months ended June 30, 2022 and in fiscal 2022, 2021 or 2020.

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, 2022 and in fiscal 2022, 2021 or 2020.

Cost of Revenues.

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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 inflation, supply chain constraints for wafers and outsourced assembly, burn-in and test operations.

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These charges often arise as we transition to new process technologies and, accordingly, can cause research and development expenses to fluctuate on a quarterly basis.

We believe that continued investment in research and development is critical to our long-term success, and we expect to continue to devote significant resources to product development activities.

We believe that continued investment in research and development is critical to our long-term success, and we expect to continue to devote

significant resources to product development activities.

In particular, we are devoting substantial resources to the development of a new category of in-place associative computing products.

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We also expect that, in support of any future growth that we are able to achieve, general and administrative expenses will generally increase in absolute dollars.

We completed our annual goodwill impairment test during the fourth quarter of fiscal 2022 and concluded that there was no impairment, as the fair value of our sole reporting unit of $96.9 million exceeded its carrying value by approximately 54%.

For purposes of the annual goodwill impairment test, our market capitalization was used as a proxy for the fair value of our sole reporting unit.

We believe that no triggering event has taken place through September 30, 2022.

However, with the macroeconomic uncertainty and decline in our stock price subsequent to the annual goodwill impairment test in fiscal 2022, there could be a non-cash charge for impairment in a future period should the decline in stock price subsequent to September 30, 2022 be sustained, due to a potential loss of significant customers, or due to a weakened demand for our products.

As additional facts and circumstances evolve, we will continue to observe and assess whether an impairment trigger has occurred.

To the extent it becomes more likely than not that the fair value of our sole reporting unit is less than its carrying amount, we will be required to perform a quantitative impairment test, which may result in a non-cash impairment charge in future periods.

Intangible Assets.

We review identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition.

Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.

Based on the uncertainty of forecasts, events such as the failure to generate revenue from future product launches could result in impairment in the future.

We identified a potential impairment indicator for the finite lived intangible assets and performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of the asset group to the carrying amount as of March 31, 2022.

The result of the recoverability test indicated that the sum of the expected future cash flows was greater than the carrying amount of the finite lived intangible assets.

Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from the APU product could result in a non-cash impairment charge in future periods.

Results of Operations

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Cost of revenues

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Net Revenues .

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 increased by 14.8% from $7.8 million in the three months ended September 30, 2021 to $9.0 million in the three months ended September 30, 2022 and by 7.7% from $16.6 million in the six months ended September 30, 2021 to $17.9 million in the six months ended September 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.

These challenges continue to impact us as we enter new markets and engage with target customers.

The increased net revenues in the three month and six month periods ended September 30, 2022 resulted from increased shipments of our high-performance SRAMs and radiation-hardened SRAMs.

Our net revenues continue to demonstrate the challenges that we are facing due to changed work habits that arose during the COVID-19 global pandemic.

These changed work habits have restricted the activities of our sales force and distributors, reduced customer demand and caused the postponement of investment in certain customer sectors.

The challenges resulting from changed work habits and environment continue to negatively impact us as we enter new markets and engage with target customers.

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 as there are limitations with both in-person and virtual meetings, particularly, government and defense customers with regards to secure teleconferencing.

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

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.

However, we are still not operating at an optimal level as we continue to have trouble accessing prospective customers.

The overall average selling price of all units shipped in the quarter ended September 30, 2022 decreased by 1.0% compared to the quarter ended September 30, 2021 and the number of units shipped increased 16.6% in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021.

The overall average selling price of all units shipped in the six months ended September 30, 2022 decreased by 3.6% compared to the six months ended September 30, 2021 and the number of units shipped increased 11.6% in the six months ended September 30, 2022 compared to the six months ended September 30, 2021.

The changes in the average selling price were due to changes in product mix.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $1.9 million in the three months ended September 30, 2021 to $1.2 million in the three months ended September 30, 2022 and from $5.6 million in the six months ended September 30, 2021 to $2.5 million in the six months ended September 30, 2022.

Shipments to Nokia will continue to fluctuate on a quarterly basis as a result of demand and shipments to its end customers.

Shipments to Nokia in the quarter ended June 30, 2021 included approximately $1.1 million of buffer stock in anticipation of perceived market tightness.

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.

Shipments of our SigmaQuad product line accounted for 52.4% of total shipments in the three months ended September 30, 2021 compared to 58.1% of total shipments in the three months ended September 30, 2022 and 58.4% of total shipments in the six months ended September 30, 2021 and compared to 51.4% 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.

Cost of Revenues.

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.

Cost of revenues decreased by 7.4% from $3.6 million in the three months ended September 30, 2021 to $3.4 million in the three months ended September 30, 2022 and decreased by 9.6% from $7.6

million in the six months ended September 30, 2021 to $6.9 million in the six months ended September 30, 2022.

Cost of revenues included a provision for excess and obsolete inventories of $265,000 in the six months ended September 30, 2021 compared to $89,000 in the six months ended September 30, 2022.

Cost of revenues included stock-based compensation expense of $64,000 and $49,000 for the three months ended September 30, 2021and 2022, respectively, and $134,000 and $109,000 for the six months ended September 30, 2021 and 2022, respectively.

Gross Profit.

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.

Gross profit increased by 34.1% from $4.2 million in the three months ended September 30, 2021 to $5.6 million in the three months ended September 30, 2022 and by 22.4% from $9.0 million in the six months ended September 30, 2021 to $11.0 million in the six months ended September 30, 2022.

Gross margin increased from 53.6% in the three months ended September 30, 2021 to 62.6% in the three months ended September 30, 2022 and increased from 54.0% in the six months ended September 30, 2021 to 61.4% in the six months ended September 30, 2022.

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

The changes in gross margin are primarily related to changes in the mix of products and customers.

Gross margin in the three months and six months ended September 30, 2022 reflect shipments of our radiation hardened SRAMs which typically have gross margins in excess of our overall average corporate gross margins.

Research and Development Expenses.

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.

Research and development expenses increased by 8.3% from $5.9 million in the three months ended September 30, 2021 to $6.4 million in the three months ended September 30, 2022 .

The increase in research and development spending was primarily related to an increase of $301,000 in outside consulting expenses for the development of our next generation APU product and an increase of $171,000 in software maintenance expense which were partially offset by a lesser decrease payroll related expenses and stock-based compensation expense.

Research and development expenses included stock-based compensation expense of $418,000 and $390,000 for the three months ended September 30, 2021 and 2022, respectively.

Research and development expenses increased by 8.4% from $12.0 million in the six months ended September 30, 2021 to $13.0 million in the six months ended September 30, 2022.

The increase in research and development spending was primarily related to increases of $818,000 in outside consulting expenses for the development of our next generation APU product and $328,000 in software maintenance expense which was partially offset by decreases in payroll related expenses and stock-based compensation expense.

Research and development expenses included stock-based compensation expense of $888,000 and $741,000 for the six months ended September 30, 2021 and 2022, respectively.

Selling, General and Administrative Expenses.

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.

Selling, general and administrative expenses decreased by 13.4% from $2.8 million in the three months ended September 30, 2021 to $2.4 million in the three months ended September 30, 2022.

This decline in expenses included a decrease of $413,000 in the value of contingent consideration in the three months ended September 30, 2022 compared to an increase of $22,000 in the quarter ended September 30, 2022.

The change in contingent consideration was partially offset by an increase of $99,000 in independent sales representatives’ commissions.

Selling, general and administrative expenses included stock-based compensation expense of $234,000 and $222,000 for the three months ended September 30, 2021 and 2022, respectively.

Selling, general and administrative expenses decreased by 12.5% from $5.8 million in the six months ended September 30, 2021 to $5.1 million in the six months ended September 30, 2022.

This decline in expenses included a decrease of $830,000 in the value of contingent consideration in the six months ended September 30, 2022 compared to an increase of $44,000 in the six months ended September 30, 2021.

The change in contingent consideration was partially offset by an increase of $125,000 in legal fees and a lesser increase in independent sales representatives’ commissions.

Selling, general and administrative expenses included stock-based compensation expense of $517,000 and $449,000 for the six months ended September 30, 2021 and 2022, respectively.

Interest Income and Other Expense, Net.

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.

Interest and other income, net increased by $22,000 from a net expense of $8,000 in the three months ended September 30, 2021 to income of $14,000 in the three months ended September 30, 2022.

Interest income increased by $37,000 primarily due to higher interest rates received on our cash and short-term and long-term investments.

Foreign exchange losses were $26,000 for the three months ended September 30, 2021 compared to $41,000 for the three months ended September 30, 2022.

Interest and other income, net increased by $68,000 from an expense of $28,000 in the six months ended September 30, 2021 to income of $40,000 in the six months ended September 30, 2022.

Interest income increased by $36,000 primarily due to higher interest rates received on our cash and short-term and long-term investments.

Foreign exchange losses were $69,000 for the six months ended September 30, 2021 compared to $37,000 for the six months ended

September 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 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.

The provision (benefit) for income taxes decreased from a provision of $42,000 in the three months ended September 30, 2021 to $37,000 in the three months ended September 30, 2022 and increased from a benefit of ($130,000) in the six months ended September 30, 2021 to a provision of $97,000 in the six months ended September 30, 2022.

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 $4.6 million in the three months ended September 30, 2021 compared $3.2 million in the three months ended September 30, 2022 and was $8.8 million in the six months ended September 30, 2021 compared to $7.2 million in the six months ended September 30, 2022.

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

Liquidity and Capital Resources

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.

As of September 30, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments of $38.2 million compared to $44.0 million as of March 31, 2022.

Net cash used in operating activities was $8.4 million for the six months ended September 30, 2022 compared to $7.4 million for the six months ended September 30, 2021.

The primary uses of cash in the six months ended September 30, 2022 were the net loss of $7.2 million and a reduction in accrued expenses and other liabilities of $1.4 million.

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, 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 primary sources of cash in the six months ended September 30, 2022 were non-cash items including stock-based compensation of $1.3 million and depreciation and amortization expenses of $510,000.

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 $593,000 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 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.

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 provided by investing activities was $4.0 million in the six months ended September 30, 2022 compared to $2.5 million in the six months ended September 30, 2021.

Investment activities in the six months ended September 30, 2022 primarily consisted of the maturity of certificates of deposit and agency bonds of $4.3 million, partially offset by the purchase property and equipment of $224,000.

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.

Net cash provided by financing activities in the six months ended September 30, 2022 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $179,000.

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.

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 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.

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 rising interest rates and inflation may have 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 team.

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 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.

As of September 30, 2022, we had $3.3 million in purchase obligations for facility leases, software leases, wafer, software and test purchase obligations that are binding commitments of which $2.0 million are payable in the next twelve months and $1.3 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 June 30, 2022, the accrual for potential contingent consideration was $2.3 million and is payable at various dates through December 31, 2025.

As of September 30, 2022, the accrual for potential contingent consideration was $1.9 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 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.

At September 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