What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-02-14 · 95 added, 131 removed, 100 unchanged (69% of the section changed)

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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.

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.

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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 calendar 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.

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 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.

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 December 31, 2022, we had cash, cash equivalents, and short-term and long-term investments of $35.2 million, with no debt.

Our revenues in recent years 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.

While the COVID-19 pandemic has ended, the significant fluctuations in energy prices, worldwide inflationary pressures, rising interest rates and decline in the global economic environment have had, and may continue to have, an adverse impact on our business and financial condition.

Furthermore, the easing of supply chain shortages and prior buffer stock purchases from significant customers led to a decrease in fiscal 2023 revenues and during the three months ended June 30, 2023.

In June 2023, we announced the receipt of an award of a prototype agreement with the Space Development Agency (“SDA”) for the development of a Next-Generation Associative Processing Unit-2 (“APU2”) for Enhanced Space-Based Capabilities.

Our next-generation non-Von-Neumann Associative Processing Unit compute in-memory integrated circuit (“IC”) offers unique capabilities to address the challenges faced by the U.S.

Space Force (“USSF”) in processing extensive sets of big data in space.

Our overarching objective is to enable and enhance current and future mission capabilities through the deployment of compute in-memory integrated systems that can efficiently handle vast amounts of data in real-time at the edge.

The APU, featuring a scalable format, compact footprint, and low power consumption, presents an ideal solution for edge applications where prompt and precise responses are crucial.

These capabilities empower the USSF to swiftly detect, warn, analyze, attribute, and forecast potential and actual threats in space, ultimately bolstering the ability of the United States to maintain and leverage space superiority.

Space Force is actively seeking solutions to address current limitations in processing big data that is needed to execute the mission objectives of the Space Development Agency within the evolving and challenging space environment.

This award will be funded by the Small Business Innovation Research program, a competitive program funded by various U.S.

government agencies, that encourages small businesses to engage in federal research and development with the potential for commercialization.

Under the terms of this Direct to Phase II award, we will develop an advanced non-Von-Neumann Associative Processing Unit-2, compute in-memory IC, and design and fabricate an APU2 Evaluation Board.

Pursuant to an agreed-upon schedule, we will receive milestone payments totaling an estimated $1.25 million upon the successful completion of predetermined milestones.

As of June 30, 2023, we had cash, cash equivalents and short-term term investments of $27.7 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.

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.

Generally, our primary source of liquidity is cash equivalents and short-term investments.

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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 economic environment, it is expected to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity in calendar year 2023.

Although it is difficult to estimate the length or gravity of the continued inflationary pressures and rising interest rates, the impact of recent bank failures, significant fluctuations in energy prices and the decline in the global economic environment, are expected to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity in fiscal 2024.

In November 2022, we announced measures taken to reduce our operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount and salary decreases for certain retained employees, as well as targeted reductions in research and development spending.

These strategic cost reduction measures are expected to enable us to better focus on our operational resources on advancing our proprietary APU technology.

None of the Gemini-II chip development and core APU software development, including the APU compiler, will be affected by the reduction in R&D spending.

The APU marketing, sales, and APU engineering efforts will retain priority in the budget.

The planned spending reductions will not impact the launch of Gemini-I in target markets, including SAR, search, and SaaS.

The cost reduction initiative is expected to be completed by March 31, 2023 and will result in an approximate 15% decrease in our global workforce.

We expect to incur approximately $850,000 in cash expenditures for termination costs, including the payout of accrued vacation, most of which are expected to be incurred in the current fiscal 2023.

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

None of the Gemini-II (our second generation APU product) chip development and core APU software development, including the APU compiler, were affected by the reduction in R&D spending.

The APU marketing, sales, and APU engineering efforts have retained priority in the budget.

reductions are not expected to impact the launch of Gemini-I in target markets, including SAR, search, and SaaS.

The cost reduction initiative is expected to be completed by September 30, 2023 and will result in an approximate 15% decrease in our global workforce.

In total, we expect to incur approximately $917,000 in cash expenditures for termination costs, including the payout of accrued vacation, of which $490,000 was incurred in fiscal 2023.

There were no cash expenditures related to the cost reduction initiative during the first quarter of fiscal 2024.

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

Sales to networking and telecommunications OEMs accounted for 32% to 53% of our net revenues during our last three fiscal years.

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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 the next several years, 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.

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 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.

Our revenues have been and are expected to continue to be impacted by changes in customer buying patterns and communication limitations related to changes in working habits that have resulted in a significant number of our customer contacts working from home.

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.

Transfer of control occurs at the time of shipment, title and the risks and rewards of ownership have passed to the customer, and we have a right to payment.

Thus, we will recognize revenue upon shipment of the product for direct sales and sales to our distributors.

Nokia was our largest customer in fiscal 2023, 2022 and 2021.

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 16%, 29%, 39% and 38% of our net revenues in the nine months ended December 31, 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 34%, 17%, 29% and 39% of our net revenues in the three months ended June 30, 2023 and in fiscal 2023, 2022 and 2021, 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, 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 three months ended June 30, 2023 and in fiscal 2023, 2022 or 2021.

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.

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

We expect these increased manufacturing costs will continue into fiscal 2024.

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.

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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 had a goodwill balance of $8.0 million as of both December 31, 2022 and March 31, 2022.

We had a goodwill balance of $8.0 million as of both June 30, 2023 and March 31, 2023.

The goodwill resulted from the acquisition of MikaMonu Group Ltd.

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We completed our annual goodwill impairment test during the fourth quarter of fiscal 2023 and concluded that there was no impairment, as the fair value of our sole reporting unit exceeded its carrying value.

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.

During the three months ended December 31, 2022, management identified a sustained decline in our stock price that resulted in our market capitalization being below the carrying value of stockholders’ equity.

We concluded the sustained decline in our stock price was a triggering event and proceeded with a quantitative goodwill impairment assessment.

The quantitative impairment assessment was performed as of December 1, 2022, utilizing an equal weighting of the income approach and the market comparable method.

The analysis required the comparison of our carrying value with our fair value, with an impairment recorded for any excess of carrying value over the fair value.

The income approach utilized a discounted cash flow analysis to determine the fair value of our single reporting unit.

Key assumptions used in the discounted cash flow analysis included, but are not limited to, a discount rate of approximately 23.5% to account for risk in achieving the forecast and a terminal growth rate for cash flows of 3.0%.

The market comparable method was used to determine the fair value of the reporting unit by multiplying forecasted revenue by a market multiple.

The revenue market multiple was calculated by comparing the enterprise value to revenue for comparable companies in the semiconductor industry and then applying a control premium.

The equal weighting of the income approach and the market comparable method was then reconciled to the market approach.

The market approach was calculated by multiplying the average closing share price of our common stock for the 30 days prior to the measurement date, by the number of outstanding shares of our common

stock and adding a control premium that reflected the premium a hypothetical buyer might pay.

The control premium was estimated using historical acquisition transactions in the semiconductor industry over the past five years.

The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded its carrying value.

As a result, we concluded there was no goodwill impairment as of December 31, 2022.

A number of significant assumptions and estimates are involved in the income approach and the market comparable method.

The income approach assumes the future cash flows reflect market expectations.

The market comparable method requires an estimate of a revenue market multiple and an appropriate control premium.

These fair value measurements require significant judgements using Level 3 inputs, such as discounted cash flows from operations and revenue forecasts, which are not observable from the market, directly or indirectly.

There is uncertainty in the projected future cash flows used in our impairment analysis, which requires the use of estimates and assumptions.

If actual performance does not achieve the projections, or if the assumptions used in the analysis change in the future, we may be required to recognize impairment charges in future periods.

Key assumptions in the market approach include determining a control premium.

We believe our procedures for determining fair value are reasonable and consistent with current market conditions as of December 31, 2022.

Intangible Assets.

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

No impairment triggering events were identified subsequent to the March 31, 2023 recoverability

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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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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Loss from operations

Interest and other income (expense), net

Interest and other income, net

Loss before income taxes

Provision (benefit) for income taxes

Provision for income taxes

Net Revenues .

Net revenues decreased by 20.1% from $8.1 million in the three months ended December 31, 2021 to $6.4 million in the three months ended December 31, 2022 and by 1.4% from $24.7 million in the nine months ended December 31, 2021 to $24.3 million in the nine months ended December 31, 2022.

The decrease in net revenues in both periods is related to the current economic environment.

While customer order patterns are variable right now, these fluctuations are related to economic and external factors which include the military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the decline in the global economic environment , not changes in the ongoing requirements for our products.

Net revenues in both periods continue to be impacted by the COVID-19 global pandemic where there continues to be limitations with

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

The overall average selling price of all units shipped in the quarter ended December 31, 2022 increased by 13.3% compared to the quarter ended December 31, 2021 and the number of units shipped decreased 30.0% in the quarter ended December 31, 2022 compared to the quarter ended December 31, 2021.

The overall average selling price of all units shipped in the nine months ended December 31, 2022 increased by 1.3% compared to the nine months ended December 31, 2021 and the number of units shipped decreased 2.9% in the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021.

The changes in the average selling price were due to changes in product mix and a 20% price increase effective in December 2021 on most of our products.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $1.9 million in the three months ended December 31, 2021 to $1.3 million in the three months ended December 31, 2022 and from $7.6 million in the nine months ended December 31, 2021 to $3.8 million in the nine months ended December 31, 2022.

Net revenues decreased by 37.3% from $8.9 million in the three months ended June 30, 2022 to $5.6 million in the three months ended June 30, 2023.

The decrease in net revenues is related to the current economic environment.

The overall average selling price of all units shipped in the quarter ended June 30, 2023 increased by 40.8% compared to the quarter ended June 30, 2022 and the number of units shipped decreased 55.5% in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022.

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

Direct and indirect sales to Nokia, currently our largest customer, increased from $1.3 million in the three months ended June 30, 2022 to $1.9 million in the three months ended June 30, 2023.

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 40.5% of total shipments in the three months ended December 31, 2021 compared to 45.2% of total shipments in the three months ended December 31, 2022 and 52.5% of total shipments in the nine months ended December 31, 2021 and compared to 50.0% of total shipments in the nine months ended December 31, 2022.

Shipments of our SigmaQuad product line, which has a higher average selling price, accounted for 44.8% of total shipments in the three months ended June 30, 2022 compared to 58.6% of total shipments in the three months ended June 30, 2023.

While recent customer order patterns have been particularly variable, these fluctuations are related to economic and external factors, which include the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the decline in the global economic environment .

Cost of Revenues.

Cost of revenues decreased by 23.9% from $3.6 million in the three months ended December 31, 2021 to $2.7 million in the three months ended December 31, 2022, a result of the 20.1% decline in revenues, and decreased by 14.2% from $11.2 million in the nine months ended December 31, 2021 to $9.6 million in the nine months ended December 31, 2022 due the mix of higher gross margin products sold in the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021.

Cost of revenues included a provision for excess and obsolete inventories of $330,000 in the nine months ended December 31, 2021 compared to $166,000 in the nine months ended December 31, 2022.

Cost of revenues included stock-based compensation expense of $58,000 and $54,000 for the three months ended December 31, 2021 and 2022, respectively, and $192,000 and $163,000 for the nine months ended December 31, 2021 and 2022, respectively.

Cost of revenues decreased by 29.0% from $3.5 million in the three months ended June 30, 2022 to $2.5 million in the three months ended June 30, 2023, as a result of the 37.3% decline in revenues.

Cost of revenues included a provision for excess and obsolete inventories of $43,000 in the three months ended June 30, 2022 compared to $35,000 in the three months ended June 30, 2023.

Cost of revenues included stock-based compensation expense of $60,000 and $67,000 for the three months ended June 30, 2022 and 2023, respectively.

Gross Profit.

Gross profit decreased by 16.9% from $4.5 million in the three months ended December 31, 2021 to $3.7 million in the three months ended December 31, 2022 and increased by 9.3% from $13.4 million in the nine months ended December 31, 2021 to $14.7 million in the nine months ended December 31, 2022.

Gross margin increased from 55.3% in the three months ended December 31, 2021 to 57.5% in the three months ended December 31, 2022 and increased from 54.4% in the nine months ended December 31, 2021 to 60.4% in the nine months ended December 31, 2022.

The changes in gross profit are primarily related to the changes 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 nine months ended December 31, 2022 reflect shipments of our radiation-hardened SRAMs, which typically have gross margins in excess of our overall average corporate gross margins.

Gross profit decreased by 42.8% from $5.4 million in the three months ended June 30, 2022 to $3.1 million in the three months ended June 30, 2023.

Gross margin decreased from 60.2% in the three months ended June 30, 2022 to 54.9% in the three months ended June 30, 2023.

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

The change in gross margin is primarily related to changes in the mix of products and customers and the impact of fixed manufacturing overhead on the lower net revenue in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Research and Development Expenses.

Research and development expenses decreased by 10.1% from $6.2 million in the three months ended December 31, 2021 to $5.5 million in the three months ended December 31, 2022 .

The decrease in research and development spending was primarily related to decreases of $439,000 in payroll related expenses, $164,000 in outside consulting expenses for the development of Gemini-II and $88,000 in stock-based compensation expense.

Research and development expenses included stock-based compensation expense of $416,000 and $328,000 for the three months ended December 31, 2021 and 2022, respectively.

The reduction in research and development spending in the quarter ended December 31, 2022 reflects the impact of cost reduction measures implemented in the quarter ended December 31, 2022.

Research and development expenses increased by 2.1% from $18.2 million in the nine months ended December 31, 2021 to $18.5 million in the nine months ended December 31, 2022.

The increase in research and development spending was primarily related to increases of $654,000 in outside consulting expenses for the development of Gemini-II and $327,000 in software maintenance expense which was partially offset by decreases of $635,000 in payroll related expenses and $235,000 in stock-based compensation expense.

Research and development expenses included stock-based compensation expense of $1.3 million and $1.1 million for the nine months ended December 31, 2021 and 2022, respectively.

Research and development expenses decreased by 21.4% from $6.6 million in the three months ended June 30, 2022 to $5.2 million in the three months ended June 30, 2023 .

The decrease in research and development spending was primarily related to decreases of $742,000 in payroll related expenses and $605,000 in outside consulting expenses for the development of Gemini-II.

Research and development expenses included stock-based compensation expense of $351,000 and $386,000 for the three months ended June

30, 2022 and 2023, respectively.

The reduction in research and development spending in the quarter ended June 30, 2023 reflects the impact of cost reduction measures implemented in November 2022.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased by 4.4% from $2.8 million in the three months ended December 31, 2021 to $3.0 million in the three months ended December 31, 2022.

This increase in expenses included an increase of $143,000 professional fees, partially offset by decreases of $57,000 in independent sales representatives’ commissions and $20,000 in payroll related expenses.

Payroll related expenses included approximately $200,000 for severance payments made to terminated employees as a result of our cost cutting measures discussed above.

Selling, general and administrative expenses included stock-based compensation expense of $266,000 and $273,000 for the three months ended December 31, 2021 and 2022, respectively.

Selling, general and administrative expenses decreased by 7.0% from $8.7 million in the nine months ended December 31, 2021 to $8.1 million in the nine months ended December 31, 2022.

This decline in expenses included a decrease of $845,000 in the value of contingent consideration in the nine months ended December 31, 2022 compared to an increase of $68,000 in the nine months ended December 31, 2021.

The change in contingent consideration was partially offset by an increase of $287,000 in professional fees.

Selling, general and administrative expenses included stock-based compensation expense of $783,000 and $722,000 for the nine months ended December 31, 2021 and 2022, respectively.

Selling, general and administrative expenses increased by 11.8% from $2.7 million in the three months ended June 30, 2022 to $3.0 million in the three months ended June 30, 2023.

Selling, general and administrative expenses included a decrease in the value of contingent consideration of $45,000 in the three months ended June 30, 2023 compared to $417,000 in the three months ended June 30, 2022.

The increase in expenses also included an increase of $140,000 stock-based compensation, partially offset by decreases of $136,000 in payroll-related expenses and $52,000 in independent sales representatives’ commissions.

Selling, general and administrative expenses included stock-based compensation expense of $227,000 and $367,000 for the three months ended June 30, 2022 and 2023, respectively.

Interest Income and Other Expense, Net.

Interest and other income, net increased by $46,000 from a net $15,000 in the three months ended December 31, 2021 to $61,000 in the three months ended December 31, 2022.

Interest income increased by $98,000 primarily due to higher interest rates received on our cash and short-term and long-term investments.

Foreign exchange losses were $5,000 for the three months ended December 31, 2021 compared to $57,000 for the three months ended December 31, 2022.

Interest and other income, net increased by $114,000 from an expense of $13,000 in the nine months ended December 31, 2021 to income of $101,000 in the nine months ended December 31, 2022.

Interest income increased by $135,000 primarily due to higher interest rates received on our cash and short-term and long-term investments.

Foreign exchange losses were $73,000 for the nine months ended December 31, 2021 compared to $109,000 for the nine months ended December 31, 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 $64,000 in the three months ended December 31, 2021 to $84,000 in the three months ended December 31, 2022 and increased from a benefit of ($66,000) in the nine months ended December 31, 2021 to a provision of $181,000 in the nine months ended December 31, 2022.

The provision (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 $4.6 million in the three months ended December 31, 2021 compared $4.8 million in the three months ended December 31, 2022 and was $13.4 million in the nine months ended December 31, 2021 compared to $12.0 million in the nine months ended December 31, 2022.

Interest and other income, net increased by $54,000 from a net $26,000 in the three months ended June 30, 2022 to $80,000 in the three months ended June 30, 2023.

Interest income increased by $121,000 primarily due to higher interest rates received on our cash and short-term investments.

Foreign exchange gains were $11,000 for the three months ended June 30, 2022 compared to a loss of $63,000 for the three months June 30, 2023.

The exchange gain and loss in were related to our Taiwan branch operations and our operations in Israel.

Provision for Income Taxes.

The provision for income taxes decreased from $60,000 in the three months ended June 30, 2022 to $51,000 in the three months ended June 30, 2023.

Net loss was $4.0 million in the three months ended June 30, 2022 compared $5.1 million in the three months ended June 30, 2023.

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

Liquidity and Capital Resources

As of December 31, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments of $35.2 million compared to $44.0 million as of March 31, 2022.

Net cash used in operating activities was $12.2 million for the nine months ended December 31, 2022 compared to $9.9 million for the nine months ended December 31, 2021.

The primary uses of cash in the nine months ended December 31, 2022 were the net loss of $12.0 million, a reduction in accrued expenses and other liabilities of $2.2 million and an increase in inventories of $1.7 million.

As of June 30, 2023, our principal sources of liquidity were cash, cash equivalents and short-term investments of $27.7 million compared to $30.6 million as of March 31, 2023.

Net cash used in operating activities was $3.7 million for the three months ended June 30, 2023 compared to $5.0 million for the three months ended June 30, 2022.

The primary uses of cash in the three months ended June 30, 2023 were the net loss of $5.1 million, and reductions in accrued expenses and other liabilities of $284,000 and accounts payable of $270,000.

The reduction in accrued expenses and other liabilities was primarily related to the payment of fiscal 2023 year-end accruals for incentive compensation.

The uses of cash in the nine months ended December 31, 2022 were less than the net loss due to non-cash items including stock-based compensation of $2.0 million and depreciation and amortization expenses of $763,000.

The primary sources of cash in the nine months ended December 31, 2022 were a decrease in accounts receivable of $891,000 and a lesser increase in accounts payable.

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 uses of cash in the nine months ended December 31, 2021 were less than the net loss due to non-cash items including stock-based compensation of $2.3 million and depreciation and amortization expenses of $752,000.

The primary sources of cash in the nine months ended December 31, 2021 were an increase in accounts payable of $792,000 and a lesser decrease in accounts receivable.

Net cash provided by investing activities was $6.7 million in the nine months ended December 31, 2022 compared to net cash used in investing activities of $320,000 in the nine months ended December 31, 2021.

Investment activities in the nine months ended December 31, 2022 primarily consisted of the maturity of certificates of deposit and agency bonds of $7.0 million, partially offset by the purchase property and equipment of $258,000.

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.

Net cash provided by financing activities in the nine months ended December 31, 2022 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $402,000.

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.

The uses of cash in the three months ended June 30, 2023 were less than the net loss due to non-cash items including stock-based compensation of $820,000 and depreciation and amortization expenses of $276,000.

The primary sources of cash in the three months ended June 30, 2023 were decreases in inventories of $452,000 and accounts receivable of $399,000.

The primary uses of cash in the three months ended June 30, 2022 were 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 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.

Net cash provided by investing activities was $1.9 million in the three months ended June 30, 2023 compared to $1.4 million in the three months ended June 30, 2022.

Investment activities in the three months ended June 30, 2023 primarily consisted of the maturity of certificates of deposit and agency bonds of $2.5 million, partially offset by the purchase property and equipment of $607,000.

Investment activities in the three months ended June 30, 2022 primarily consisted of the maturity of certificates of deposit and agency bonds of $1.5 million partially offset by the purchase of property and equipment of $106,000.

Net cash provided by financing activities in the three months ended June 30, 2023 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $1.5 million.

Net cash provided by

financing activities in the three months ended June 30, 2022 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $179,000.

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.

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

On June 28, 2023, we filed a registration statement on Form S-3, so that we would be in a position to quickly access the markets and raise capital if the opportunity arises.

The registration statement was declared effective by the SEC on July 19, 2023.

On August 1, 2023, we commenced a registered securities offering pursuant to a Sales Agreement (the “Sales Agreement”) with Needham & Company, LLC (“Needham”).

The Sales Agreement provides that we may offer and sell our common stock having an aggregate offering price of up to $25.0 million from time to time (the “Offering”) through Needham, acting as our sales agent.

We did not receive any proceeds from the Offering during the quarter ended June 30, 2023.

From August 2, 2023 to August 7, 2023, we sold 133,000 shares at an average price of $4.20 for net proceeds of $542,0000.

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, 2022, we had $2.5 million in purchase obligations for facility leases, software leases, wafer, software and test purchase obligations that are binding commitments of which $1.1 million are payable in the next twelve months and $1.4 million are committed in the long term.

As of June 30, 2023, we had $2.1 million in purchase obligations for facility leases, wafer, software and test purchase obligations that are binding commitments of which $1.1 million are payable in the next twelve months and $1.0 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, 2022, the accrual for potential contingent consideration was $1.9 million and is payable at various dates through December 31, 2025.

As of June 30, 2023, the accrual for potential contingent consideration was $1.0 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 December 31, 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 June 30, 2023, 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.

Recent Accounting Pronouncement

Please refer to Note 1 to our condensed consolidated financial statements appearing under Part I, Item 1 for a discussion of a recent accounting pronouncement, implemented in the June 30, 2023 quarter, that had no material impact on the Company.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis