Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q, and in particular the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements involve risks and uncertainties. Forward-looking statements are identified by words such as “anticipates,” “believes,” “expects,” “intends,” “may,” “will,” and other similar expressions. In addition, any statements which refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those set forth in this report under “Risk Factors,” those described elsewhere in this report, and those described in our other reports filed with the Securities and Exchange Commission (“SEC”). We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update these forward-looking statements after the filing of this report. 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 .
Overview
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. 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. Our revenues have been substantially impacted by significant fluctuations in sales to our largest customer, Nokia. We expect that future direct and indirect sales to Nokia will continue to fluctuate significantly on a quarterly basis. 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 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 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. 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 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 at least the end of 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. 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
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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. 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, 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. We have a strong balance sheet and liquidity position that we anticipate will provide financial flexibility and security in the current environment of economic uncertainty with no current expectations of additional cash infusions required. 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 current and longer term operating and capital needs. 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 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.
Revenues. 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 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. 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, however there may be quarters where the average selling price declines. 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 may experience fluctuations in quarterly net revenues for a number of reasons. Historically, orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery. Accordingly, we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives. In addition, the timing of product releases, purchase orders and product availability could result in significant product shipments at the end of a quarter. Failure to ship these products by the end of the quarter may adversely affect our operating results. Furthermore, our customers may delay scheduled delivery dates and/or cancel orders within specified timeframes without significant penalty.
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 continue 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. Delivery of all performance obligations contained within a contract with a customer typically occurs at the same time (or within the same accounting period). Transfer of control typically occurs at the time of shipment or at the time the product is pulled from consignment as that is the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customer, and we have a right to payment. Thus, we will generally recognize revenue upon shipment of the product. Sales to consignment warehouses, who purchase products from us for use by contract manufacturers, are recorded upon delivery to the contract manufacturer.
Nokia was our largest customer in fiscal 2022, 2021 and 2020. 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 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 six months ended September 30, 2022 and in fiscal 2022, 2021 or 2020.
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. 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. 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 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.
Research and Development Expenses. Research and development expenses consist primarily of salaries and related expenses for design engineers and other technical personnel, the cost of developing prototypes, stock-based compensation and fees paid to consultants. We charge all research and development expenses to operations as incurred. We charge mask costs used in production to cost of revenues over a 12-month period. However, we charge costs related to pre-production mask sets, which are not used in production, to research and development expenses at the time they are incurred. 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
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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. Accordingly, we expect that our research and development expenses will continue to be substantial in future periods and may lead to operating losses in some periods. Such expenses as a percentage of net revenues may fluctuate from period to period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of commissions paid to independent sales representatives, salaries, stock-based compensation and related expenses for personnel engaged in sales, marketing, administrative, finance and human resources activities, professional fees, costs associated with the promotion of our products and other corporate expenses. We expect that our sales and marketing expenses will increase in absolute dollars in future periods if we are able to grow and expand our sales force but that, to the extent our revenues increase in future periods, these expenses will generally decline as a percentage of net revenues. 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.
Goodwill. 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.
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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 September 30,
Six Months Ended September 30,
2022
2021
2022
2021
Net revenues
100.0
%
100.0
%
100.0
%
100.0
%
Cost of revenues
37.4
46.4
38.6
46.0
Gross profit
62.6
53.6
61.4
54.0
Operating expenses:
Research and development
71.4
75.8
72.9
72.4
Selling, general and administrative
27.0
35.7
28.5
35.1
Total operating expenses
98.4
111.5
101.4
107.5
Loss from operations
(35.8)
(57.9)
(40.0)
(53.5)
Interest and other income (expense), net
0.1
(0.1)
0.2
(0.2)
Loss before income taxes
(35.7)
(58.0)
(39.8)
(53.7)
Provision (benefit) for income taxes
0.4
0.5
0.5
(0.8)
Net loss
(36.1)
(58.5)
(40.3)
(52.9)
Net Revenues . 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. 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 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 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 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
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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 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 8.3% 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 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 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
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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 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 . 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 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 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 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 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,
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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 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 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
Our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
Off-Balance Sheet Arrangements
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.
Recent Accounting Pronouncements
Please refer to Note 1 to our condensed consolidated financial statements appearing under Part I, Item 1 for a discussion of recent accounting pronouncements that may impact the Company.
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