What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-02-02 · 85 added, 94 removed, 114 unchanged (61% of the section changed)

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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 .

We are a leading provider of semiconductor memory solutions and developer 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 (our current principal revenue source), 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.

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 provider of high-performance semiconductor memory solutions for in-place associative computing applications in high growth markets such as artificial intelligence and high-performance computing, including natural language processing and computer vision.

Our initial associative processing unit (“APU”) products are focused on applications using similarity search, but have not resulted in material revenues to date.

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

We have solutions to accelerate multimodal vector search as an on-prem or SaaS solution for OpenSearch and general Fast Vector Search, and for processing large area SAR images in real-time at high resolution.

Our revenue is currently generated from the design, development and marketing of static random access memories, or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, primarily for the networking and telecommunications and the military/defense and aerospace markets.

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

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

In 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.

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 recent fluctuations in energy prices, worldwide inflationary pressures, higher 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 revenues in the second half of fiscal 2023 and during the nine months ended December 31, 2023.

While the COVID-19 pandemic has ended, worldwide inflationary pressures, higher 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 revenues in the second half of fiscal 2023, during fiscal 2024 and into fiscal 2025.

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.

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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, of which $297,000 was received in the quarter ended September 30, 2023 and $138,000 was received in the quarter ended December 31, 2023.

In January 2024, we announced that GSI has been selected by AFWERX for an SBIR Direct-to-Phase II contract in the amount of $1.1 million to demonstrate high-data computation use cases leveraging the distinct compute in-memory architecture of our APU-2.

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

There were no amounts received under this agreement in the quarter ended June 30, 2024.

compute in-memory architecture of our APU-2.

We will create specialized algorithms for the U.S.

Air Force Research Laboratory (“AFRL”) to leverage the compute-in-memory architecture of the Gemini® APU.

This chip is designed for various AI applications to tackle key challenges in the Department of the Air Force (“DAF”), including in-aircraft search and rescue, object detection, moving target indication, change detection, and SSIM in GPS-absent situations.

This chip is designed for various AI applications to tackle key challenges in the Department of the Air Force, including in-aircraft search and rescue, object detection, moving target indication, change detection, and SSIM in GPS-absent situations.

We will also develop algorithms using data from the USSF to showcase the performance benefits of our compute-in-memory APU-2 integrated circuit.

There has been no activity under this award as of December 31, 2023.

As of December 31, 2023, we had cash and cash equivalents of $21.6 million, with no debt.

During the quarter ended June 30, 2024, we received payments in the amount of $79,000 under this agreement.

As of June 30, 2024, we had cash and cash equivalents of $21.8 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.

Our balance sheet and liquidity position has been strengthened by the recent sale of our Sunnyvale, California property, which we anticipate will provide further financial flexibility and security in the current environment of economic uncertainty.

Generally, our primary source of liquidity is cash equivalents.

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

Although it is difficult to estimate the length or gravity of the continued inflationary pressures and higher interest rates, the evolving conflict in the Middle East, the recent 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.

Although it is difficult to estimate the length or gravity of the continued inflationary pressures and higher interest rates, the evolving conflict in the Middle East 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 2025.

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

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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 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.

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.

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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 23%, 17%, 29% and 39% of our net revenues in the nine months ended December 31, 2023 and in fiscal 2023, 2022 and 2021, respectively.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 21%, 21%, 17% and 29% of our net revenues in the three months ended June 30, 2024 and in fiscal 2024, 2023 and 2022, 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, 2023 and in fiscal 2023, 2022 or 2021.

To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in fiscal 2024, 2023 or 2022.

Cost of Revenues.

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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 incurred charges of $2.4 million for a pre-production mask set for our APU-2 during the quarter ended December 31, 2023.

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.

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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, 2023 and March 31, 2023.

We had a goodwill balance of $8.0 million as of both June 30, 2024 and March 31, 2024.

The goodwill resulted from the acquisition of MikaMonu Group Ltd.

in fiscal 2016.

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.

We completed our annual impairment

test during the fourth quarter of fiscal 2024 and concluded that there was no impairment, as it was more likely than not that the fair value of our sole reporting unit exceeded its carrying value and the performance of a quantitative impairment test was not required.

Intangible Assets.

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

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 December 31, 2023 and March 31, 2023.

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.

There were no impairment indicators noted as of June 30, 2024 and March 31, 2024 .

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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Selling, general and administrative

Gain from sale and leaseback transaction

Total operating expenses

Loss from operations

Income (loss) from operations

Interest and other income, net

Loss before income taxes

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Net Revenues .

Net revenues decreased by 17.5% from $6.4 million in the three months ended December 31, 2022 to $5.3 million in the three months ended December 31, 2023 and by 31.8% from $24.3 million in the nine months ended December 31, 2022 to $16.6 million in the nine months ended December 31, 2023.

The decrease in net revenues in each period is related to the current economic environment which has led to cautionary spending by our customers and purchases made as a result of supply chain constraints in the previous periods.

The overall average selling price of all units shipped in the quarter ended December 31, 2023 increased by 40.5% compared to the quarter ended December 31, 2022 and the number of units shipped decreased 41.2% in the quarter ended December 31, 2023 compared to the quarter ended December 31, 2022.

The overall average selling price of all units shipped in the nine months ended December 31, 2023 increased by 34.0% compared to the nine months ended December 31, 2022 and the number of units shipped decreased 48.8% in the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022.

The changes in the average selling price were due to changes in product mix, as certain low density products with lower average selling prices had the largest declines in volume shipped.

Direct and indirect sales to Nokia, currently our largest customer, decreased from $1.3 million in the three months ended December 31, 2022 to $807,000 in the three months ended December 31, 2023 and were unchanged at $3.8 million in the nine months ended December 31, 2022 and in the nine months ended December 31, 2023.

Net revenues decreased by 16.4% from $5.6 million in the three months ended June 30, 2023 to $4.7 million in the three months ended June 30, 2024.

The decrease in net revenues is related to the current economic environment which has led to cautionary spending by our customers and purchases made as a result of supply chain constraints in the previous periods.

The overall average selling price of all units shipped in the quarter ended June 30, 2024 decreased by 15.8% compared to the quarter ended June 30, 2023 and the number of units shipped decreased 0.5% in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023.

The change in the average selling price was 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 June 30, 2023 to $998,000 in the three months ended June 30, 2024.

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

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, higher interest rates and the decline in the global economic environment .

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

Cost of Revenues.

Cost of revenues decreased by 14.5% from $2.7 million in the three months ended December 31, 2022 to $2.3 million in the three months ended December 31, 2023 and decreased by 22.7% from $9.6 million in the nine months ended December 31, 2022 to $7.4 million in the nine months ended December 31, 2023.

The reduction in cost of revenues is related to the decrease in revenues in each period.

Cost of revenues included a provision for excess and obsolete inventories of $166,000 in the nine months ended December 31, 2022 compared to $117,000 in the nine months ended December 31, 2023.

Cost of revenues included stock-based compensation expense of $54,000 and $51,000 for the three months ended December 31, 2022 and 2023, respectively, and $163,000 and $175,000 for the nine months ended December 31, 2022 and 2023, respectively.

Cost of revenues were unchanged at $2.5 million in each of the three months ended June 30, 2023 and June 30, 2024.

Cost of revenues included a provision for excess and obsolete inventories of $35,000 in the three months ended June 30, 2023 compared to $91,000 in the three months ended June 30, 2024.

Cost of revenues included stock-based compensation expense of $67,000 and $56,000 for the three months ended June 30, 2023 and 2024, respectively.

Gross Profit.

Gross profit decreased by 19.7% from $3.7 million in the three months ended December 31, 2022 to $3.0 million in the three months ended December 31, 2023 and by 37.5% from $14.7 million in the nine months ended December 31, 2022 to $9.2 million in the nine months ended December 31, 2023.

Gross margin decreased from 57.5% in the three months ended December 31, 2022 to 55.9% in the three months ended December

Gross margin decreased from 60.4% in the nine months ended December 31, 2022 to 55.2% in the nine months ended December 31, 2023.

The changes in gross profit are primarily related to the decreases 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, 2023 reflects the impact of fixed overhead on lower shipment levels compared to the same period in the prior year.

Gross profit decreased by 29.6% from $3.1 million in the three months ended June 30, 2023 to $2.2 million in the three months ended June 30, 2024.

Gross margin decreased from 54.9% in the three months ended June 30, 2023 to 46.3% in the three months ended June 30, 2024.

The change in gross margin is primarily

related to changes in the mix of products and customers and the impact of manufacturing overhead on the lower level of net revenue in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023.

Research and Development Expenses.

Research and development expenses increased by 26.2% from $5.5 million in the three months ended December 31, 2022 to $7.0 million in the three months ended December 31, 2023 .

The increase in research and development spending was primarily related to an increase in pre-production mask costs of $2.4 million related to our APU-2 product, partially offset by decreases of $612,000 of payroll related expenses and $156,000 in outside consulting expenses for the development of our APU-2 product.

The decreases in these expenses were related to the cost reduction measures implemented November 2022.

Research and development expenses in the three months ended December 31, 2023 were also offset by $180,000 of funding received under the Direct to Phase II award for the development of a Next-Generation Associative Processing Unit-2 for Enhanced Space-Based Capabilities discussed above.

Research and development expenses included stock-based compensation expense of $328,000 and $325,000 for the three months ended December 31, 2022 and 2023, respectively.

Research and development expenses decreased by 9.0% from $18.5 million in the nine months ended December 31, 2022 to $16.9 million in the nine months ended December 31, 2023.

The decrease in research and development spending was primarily related to decreases of $2.0 million in payroll related expenses and $1.3 million in outside consulting expenses for the development of our APU-2 product.

The decreases in these expenses were related to the cost reduction measures implemented November 2022.

Research and development expenses in the nine months ended December 31, 2023 were also offset by $435,000 of funding received under the Direct to Phase II award for the development of a Next-Generation Associative Processing Unit-2 for Enhanced Space-Based Capabilities discussed above.

Research and development expenses included stock-based compensation expense of $1.1 million in each of the nine months ended December 31, 2022 and 2023, respectively.

Research and development expenses decreased by 19.0% from $5.2 million in the three months ended June 30, 2023 to $4.2 million in the three months ended June 30, 2024 .

The decrease in research and development spending was primarily related to decreases of $430,000 of payroll related expenses due to reductions in headcount, $166,000 in outside consulting expenses for the development of our APU-2 product and stock-based compensation expense of $96,000.

Research and development expenses in the three months ended June 30, 2024 were also offset by $318,000 of funding received under the government contracts discussed above.

Research and development expenses included stock-based compensation expense of $386,000 and $290,000 for the three months ended June 30, 2023 and 2024, respectively.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses decreased by 9.5% from $3.0 million in the three months ended December 31, 2022 to $2.7 million in the three months ended December 31, 2023.

Selling, general and administrative expenses included a decrease of $233,000 in the value of contingent consideration in the three months ended December 31, 2023 compared to a decrease of $16,000 in the quarter ended December 31, 2022.

A decrease of $236,000 in payroll related expenses was partially offset by increases of $121,000 in outside consultants and lesser increases in professional fees and independent sales representative commissions.

Selling, general and administrative expenses included stock-based compensation expense of $273,000 and $273,000 for the three months ended December 31, 2022 and 2023, respectively.

Selling, general and administrative expenses increased by 1.8% from $8.1 million in the nine months ended December 31, 2022 to $8.2 million in the nine months ended December 31, 2023.

Selling, general and administrative expenses included a decrease of $557,000 in the value of contingent consideration in the nine months ended December 31, 2023 compared to a decrease of $845,000 in the nine months ended December 31, 2022.

Decreases of $546,000 in payroll related expenses and $144,000 in outside sales representative commissions were partially offset by increases of $221,000 in outside consultants and $175,000 in professional fees.

Selling, general and administrative expenses included stock-based compensation expense of $722,000 and $890,000 for the nine months ended December 31, 2022 and 2023, respectively.

Selling, general and administrative expenses decreased by 13.3% from $3.0 million in the three months ended June 30, 2023 to $2.6 million in the three months ended June 30, 2024.

Selling, general and administrative expenses included a decrease of $86,000 in the value of contingent consideration in the three months ended June 30, 2024 compared to a decrease of $45,000 in the quarter ended June 30, 2023.

Selling, general and administrative expenses included decreases of $192,000 in accounting fees, $90,000 in payroll related expenses and $78,000 in outside sales representative commissions.

Selling, general and administrative expenses included stock-based compensation expense of $367,000 and $312,000 for the three months ended June 30, 2023 and 2024, respectively.

Gain from Sale and Leaseback Transaction .

Gain from sale and leaseback transaction represents the gain from the sale of our headquarters building located at 1213 Elko Drive in Sunnyvale, California.

The sale and leaseback transaction was completed on June 6, 2024.

For further discussion of the sale and leaseback transaction, see Note - 8 Leases to the Condensed Consolidated Financial statements contained elsewhere in this report.

Interest Income and Other Expense, Net.

Interest and other income, net increased by $94,000 from $61,000 in the three months ended December 31, 2022 to $155,000 in the three months ended December 31, 2023.

Interest income increased by $32,000 primarily due to higher interest rates received on our cash and short-term investments.

Foreign exchange losses were $57,000 for the three months ended December 31, 2022 compared to a gain of $5,000 for the three months ended December 31, 2023.

Interest and other income, net increased by $205,000 from $101,000 in the nine months ended December 31, 2022 to $306,000 in the nine months ended December 31, 2023.

Interest income increased by $229,000 primarily due to higher interest rates received on our cash and short-term investments.

Foreign exchange losses were $109,000 for the nine months ended December 31, 2022 compared to $118,000 for the nine months ended December 31, 2023.

Interest and other income, net decreased by $25,000 from $80,000 in the three months ended June 30, 2023 to $55,000 in the three months ended June 30, 2024.

Interest income decreased by $55,000 from $143,000 in the three months ended June 30, 2023 to $88,000 in the three months ended June 30, 2024 primarily due to lower cash balances invested in money market funds in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023.

Foreign exchange losses were $63,000 for the three months ended June 30, 2023 compared to $33,000 for the three months ended June 30, 2024.

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

Provision for Income Taxes.

The provision for income taxes decreased from $84,000 in the three months ended December 31, 2022 to $71,000 in the three months ended December 31, 2023 and decreased from $181,000 in the nine months ended December 31, 2022 to $155,000 in the nine months ended December 31, 2023.

Net loss was $4.8 million in the three months ended December 31, 2022 compared $6.6 million in the three months ended December 31, 2023 and was $12.0 million in the nine months ended December 31, 2022 compared to $15.8 million in the nine months ended December 31, 2023.

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

The provision for income taxes increased from $51,000 in the three months ended June 30, 2023 to $57,000 in the three months ended June 30, 2024.

Net Income (Loss) .

Net loss was $5.1 million in the three months ended June 30, 2023 compared to net income of $1.1 million in the three months ended June 30, 2024.

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

Liquidity and Capital Resources

As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $21.6 million compared to cash, cash equivalents and short-term investments of $30.6 million as of March 31, 2023.

Net cash used in operating activities was $10.2 million for the nine months ended December 31, 2023 compared to $12.2 million for the nine months ended December 31, 2022.

The primary uses of cash in the nine months ended December 31, 2023 were the net loss of $15.8 million and an increase in prepaid expenses and other assets of $663,000.

The uses of cash in the nine months ended December 31, 2023 were less than the net loss due to non-cash items including stock-based compensation of $2.1 million and depreciation and amortization expenses of $718,000.

The primary sources of cash in the nine months ended December 31, 2023 were decreases in accounts receivable of $1.1 million and inventories of $794,000 and an increase of $1.2 million in accrued expenses and other liabilities.

The increase in accrued expenses and other liabilities included an accrual of $2.4 million for a pre-production mask set for our APU-2.

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.

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 provided by investing activities was $2.8 million in the nine months ended December 31, 2023 compared to $6.7 million in the nine months ended December 31, 2022.

Investment activities in the nine months ended December 31, 2023 primarily consisted of the maturity of certificates of deposit and agency bonds of $3.4 million, partially offset by the purchase property and equipment of $634,000.

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.

Net cash provided by financing activities in the nine months ended December 31, 2023 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $1.6 million and proceeds from the sale of common stock pursuant to an At-the-Market offering of $153,000.

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.

As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents of $21.8 million compared to cash and cash equivalents $14.4 million as of March 31, 2024.

Net cash used in operating activities was $4.3 million for the three months ended June 30, 2024 compared to $3.7 million for the three months ended June 30, 2023.

The primary sources of cash in the three months ended June 30, 2024 were net income of $1.1 million and decreases of $419,000 in inventories and $408,000 in accounts receivable.

The primary uses of cash in the three months ended June 30, 2024 were a reduction in accrued expenses and other liabilities of $1.2 million and an increase of $278,000 in prepaid expenses and other current assets.

The primary reason for the use of cash from operations in the quarter ended June 30, 2024 was an adjustment for the gain on the sale and leaseback transaction that was finalized during the quarter in the amount of $5.7 million.

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 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.

Net cash provided by investing activities was $11.3 million in the three months ended June 30, 2024 compared to $1.9 million in the three months ended June 30, 2023.

Investment activities in the three months ended June 30, 2024 primarily consisted of the net proceeds of $11.3 million from the sale and leaseback transaction discussed above, partially offset by the purchase of property and equipment of $32,000.

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.

Net cash provided by financing activities in the three months ended June 30, 2024 consisted of the proceeds from the sale of common stock pursuant to our employee stock plans of $296,000.

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

We believe that our existing balances of cash and cash equivalents, 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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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.

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 sold 133,000 shares pursuant to the offering at an average price of $4.20 for proceeds of $542,000, less offering costs of $389,000 during the quarter ended September 30, 2023.

We did not sell any shares pursuant to the offering in the three months ended June 30, 2024.

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, 2023, we had $4.2 million in purchase obligations for facility leases, wafer, masks, software and test purchase obligations that are binding commitments of which $3.3 million are payable in the next twelve months and $971,000 are committed in the long term.

As of June 30, 2024, we had $14.3 million in purchase obligations for facility leases, wafer, masks, software and test purchase obligations that are binding commitments of which $1.7 million are payable in the next twelve months and $12.6 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, 2023, the accrual for potential contingent consideration was $495,000 and is payable at various dates through December 31, 2025.

As of June 30, 2024, the accrual for potential contingent consideration was $74,000 and is payable at various dates through December 31, 2025.

Critical Accounting Estimates

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Off-Balance Sheet Arrangements

At December 31, 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.

At June 30, 2024, 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 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 quarter ended June 30, 2023, that had no material impact on the Company.

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.

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