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
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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 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, which are marketed using the Gemini® product name, 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 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. Our revenues have been substantially impacted by significant fluctuations in sales to our largest end user customers, Nokia and KYEC. We expect that future direct and indirect sales to Nokia and KYEC 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.
Worldwide inflationary pressures, higher interest rates, increasing geopolitical tensions 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 fiscal 2024.
In June 2023, we announced the receipt of an award of a prototype agreement with the Space Development Agency 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. The USSF 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 is being 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 are developing 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. During the nine months ended December 31, 2024, we received payments in the amount of $124,000 under this prototype agreement.
In January 2024, we announced that GSI had 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. We are creating specialized algorithms for the U.S. Air Force Research Laboratory to leverage the compute-in-memory architecture of the Gemini® APU. This chip is designed
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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 are also developing algorithms using data from the USSF to showcase the performance benefits of our compute-in-memory APU-2 integrated circuit. During the nine months ended December 31, 2024, we received payments in the amount of $157,000 under this contract.
As of December 31, 2024, we had cash and cash equivalents of $15.1 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. Our balance sheet and liquidity position has been strengthened by the recent sale of our Sunnyvale, California property, which has provided further financial flexibility and security in the current environment of economic uncertainty. Generally, our primary source of liquidity is cash equivalents. Our level of cash equivalents 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, higher interest rates and increasing geopolitical tensions 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, higher interest rates and increasing geopolitical tensions, 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 and beyond.
In August 2024, we initiated measures to reduce our operating expenses by approximately $3.5 million on an annualized basis, primarily from salary reductions related to reduced headcount, 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 and Gemini-II in target markets, including SAR and search. The cost reduction initiative was completed in August 2024 and resulted in an approximate 16% decrease in our global workforce. We incurred approximately $668,000 in cash expenditures for termination costs, including the payout of accrued vacation, in the quarter ended September 30, 2024.
Revenues. Substantially all of our revenues are derived primarily from sales of our Very Fast SRAM products. Direct and indirect sales to networking and telecommunications OEMs accounted for 32% to 49% 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. 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.
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.
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We sell our products through our direct sales force, international and domestic sales representatives and distributors. 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 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 end user customer in fiscal 2024, 2023 and 2022. 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%, 21%, 17% and 29% of our net revenues in the nine months ended December 31, 2024 and in fiscal 2024, 2023 and 2022, respectively. In fiscal 2025, KYEC is expected to be our largest end user customer. Based on information provided by our contract manufacturers and distributors, purchases by KYEC represented approximately 23% and 0% our net revenues in the three months ended December 31, 2024 and 2023, respectively and 20% and 0% of our net revenue in the nine months ended December 31, 2024 and 2023, 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, 2024 and in fiscal 2024, 2023 or 2022.
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 review our manufacturing costs on a regular basis and pass on any cost increases to our customers when it makes sense to do so. 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 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 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
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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 had a goodwill balance of $8.0 million as of both December 31, 2024 and March 31, 2024. The goodwill resulted from the acquisition of MikaMonu Group Ltd. in fiscal 2016. 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. 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. There were no impairment indicators noted as of December 31, 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.
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 December 31,
Nine Months Ended December 31,
2024
2023
2024
2023
Net revenues
100.0
%
100.0
%
100.0
%
100.0
%
Cost of revenues
46.0
44.1
53.3
44.8
Gross profit
54.0
55.9
46.7
55.2
Operating expenses:
Research and development
74.6
131.1
89.1
101.6
Selling, general and administrative
55.4
50.5
55.7
49.4
Gain from sale and leaseback transaction
(1.1)
—
(39.6)
—
Total operating expenses
128.9
181.6
105.2
151.0
Loss from operations
(74.9)
(125.7)
(58.5)
(95.8)
Interest and other income, net
1.3
2.9
1.9
1.8
Loss before income taxes
(73.6)
(122.8)
(56.6)
(94.0)
Provision for income taxes
0.8
1.3
0.8
0.9
Net loss
(74.4)
(124.1)
(57.4)
(94.9)
Net Revenues . Net revenues increased by 1.8% from $5.3 million in the three months ended December 31, 2023 to $5.4 million in the three months ended December 31, 2024 and decreased by 11.9% from $16.6 million in the nine months ended December 31, 2023 to $14.6 million in the nine months ended December 31, 2024. The overall average selling price of all units shipped in the quarter ended December 31, 2024 decreased by 12.3% compared to the quarter ended December 31, 2023 and the number of units shipped increased 16.6% in the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023. The overall average selling price of all units shipped in the nine months ended December 31, 2024 decreased by 12.7% compared to the nine months ended December 31, 2023 and the number of units shipped increased 0.7% in the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The changes in the average selling price were due to changes in product mix. Direct and indirect sales to Nokia decreased from $807,000 in the three months ended December 31, 2023 to $239,000 in the three months ended December 31, 2024 and from $3.8 million in the nine months ended December 31, 2023 to $2.0 million in the nine months ended December 31, 2024. Shipments to Nokia will continue to fluctuate on a quarterly basis as a result of demand and shipments to its end customers. In fiscal 2025, KYEC is expected to be our largest end user customer. Based on information provided to us by our contract
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manufacturers and distributors, purchases by KYEC represented approximately 23% and 0% of our net revenues in the three months ended December 31, 2024 and 2023, respectively and 20% and 0% of our net revenue in the nine months ended December 31, 2024 and 2023, respectively. 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, increasing geopolitical tensions and the decline in the global economic environment. In addition, during the quarter ended December 31, 2024, we have seen early indications of a improvement in our SRAM business. Existing customers are depleting their channel inventory, and we anticipate they will resume ordering in the upcoming quarters. Furthermore, we expect an increase in orders from an existing customer over the next 12 months. This opportunity for additional orders involves collaborating on a cutting-edge product for a leading AI chip developer, which is expected to drive consistent demand for this customer's equipment and our SRAM chips going forward.
Cost of Revenues. Cost of revenues increased by 6.3% from $2.3 million in the three months ended December 31, 2023 to $2.5 million in the three months ended December 31, 2024 and by 4.6% from $7.4 million in the nine months ended December 31, 2023 to $7.8 million in the nine months ended December 31, 2024. Cost of revenues included a provision for excess and obsolete inventories of $117,000 in the nine months ended December 31, 2023 compared to $245,000 in the nine months ended December 31, 2024. Cost of revenues included stock-based compensation expense of $51,000 and $50,000 for the three months ended December 31, 2023 and 2024, respectively, and $175,000 and $157,000 for the nine months ended December 31, 2023 and 2024, respectively. Cost of revenues includes $204,000 in severance related payments in the nine months ended December 31, 2024 related to our August 2024 cost reduction initiative.
Gross Profit. Gross profit decreased by 1.8% from $3.0 million in the three months ended December 31, 2023 to $2.9 million in the three months ended December 31, 2024 and by 25.4% from $9.2 million in the nine months ended December 31, 2023 to $6.8 million in the nine months ended December 31, 2024. Gross margin decreased from 55.9% in the three months ended December 31, 2023 to 54.0% in the three months ended December 31, 2024. Gross margin decreased from 55.2% in the nine months ended December 31, 2023 to 46.7% in the nine months ended December 31, 2024. The change in gross profit in the three months ended December 31, 2024 is primarily related to the change in the provision for obsolete inventories discussed above. The change in gross profit for the nine months ended December 23, 2024 is primarily related to the decrease in net revenues discussed above. Gross margin in the nine months ended December 31, 2024 reflects the impact of fixed overhead on lower shipment levels compared to the same period in the prior year. Gross margin in the nine months ended December 31, 2024 was also impacted by the severance related payments related to our August 2024 cost reduction initiative discussed above.
Research and Development Expenses. Research and development expenses decreased by 42.1% from $7.0 million in the three months ended December 31, 2023 to $4.0 million in the three months ended December 31, 2024 . The decrease in research and development spending was primarily related to a decrease in pre-production mask costs of $2.4 million related to our APU-2 product and a decrease of $644,000 of payroll related expenses. The decrease in payroll related expenses was related to the cost reduction measures implemented in August 2024. Research and development expenses in the three months ended December 31, 2023 were also offset by $180,000 of funding received under the government contracts discussed above. Research and development expenses included stock-based compensation expense of $325,000 and $121,000 for the three months ended December 31, 2023 and 2024, respectively. Research and development expenses decreased by 22.7% from $16.9 million in the nine months ended December 31, 2023 to $13.0 million in the nine months ended December 31, 2024. The decrease in research and development spending was primarily related to a decrease in pre-production mask costs of $2.4 million related to our APU-2 product and a decrease of $1.5 million in payroll related expenses, partially offset be lesser increases in software maintenance and outside consulting expenses. The decrease in payroll related expenses was related to the cost reduction measures implemented in August 2024. Research and development expenses in the nine months ended December 31, 2023 and 2024 were also offset by $435,000 and $318,000, respectively, of funding received under government contracts discussed above. Research and development expenses included stock-based compensation expense of $1.1 million and $747,000 in the nine months ended December 31, 2023 and 2024, respectively.
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Selling, General and Administrative Expense. Selling, general and administrative expenses increased by 11.7% from $2.7 million in the three months ended December 31, 2023 to $3.0 million in the three months ended December 31, 2024. Selling, general and administrative expenses included a decrease of $51,000 in the value of contingent consideration in the three months ended December 31, 2024 compared to a decrease of $233,000 in the quarter ended December 31, 2023. An increase of $444,000 in professional fees was partially offset by decreases of $107,000 in outside consultants and lesser decreases in independent sales representative commissions and payroll related expenses. Selling, general and administrative expenses included stock-based compensation expense of $273,000 and $258,000 for the three months ended December 31, 2023 and 2024, respectively. Selling, general and administrative expenses were $8.2 million in each of the nine months ended December 31, 2023 and December 31, 2024. Selling, general and administrative expenses included a decrease of $160,000 in the value of contingent consideration in the nine months ended December 31, 2024 compared to a decrease of $557,000 in the nine months ended December 31, 2023. Decreases of $226,000 in outside sales representative commissions, $144,000 in outside consultants and $127,000 in payroll related expenses were partially offset by an increase of $118,000 in professional fees. Selling, general and administrative expenses included stock-based compensation expense of $890,000 and $846,000 for the nine months ended December 31, 2023 and 2024, respectively.
Gain from Sale of Assets . Gain from sale of assets includes 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 decreased by $85,000 from $155,000 in the three months ended December 31, 2023 to $70,000 in the three months ended December 31, 2024. Interest income decreased by $18,000 primarily due to lower cash balances invested in money market funds. Foreign exchange gains were $5,000 for the three months ended December 31, 2023 compared to a loss of $62,000 for the three months ended December 31, 2024. Interest and other income, net decreased by $32,000 from $306,000 in the nine months ended December 31, 2023 to $274,000 in the nine months ended December 31, 2024. Interest income decreased by $43,000 primarily due to lower cash balances invested in money market funds. Foreign exchange losses were $118,000 for the nine months ended December 31, 2023 compared to $107,000 for the nine months ended December 31, 2024. The exchange losses in each period were related to our Taiwan operations and our operations in Israel.
Provision for Income Taxes. The provision for income taxes decreased from $71,000 in the three months ended December 31, 2023 to $44,000 in the three months ended December 31, 2024 and decreased from $155,000 in the nine months ended December 31, 2023 to $124,000 in the nine months ended December 31, 2024. These changes were primarily due to fluctuations in the relative mix of income among our operating jurisdictions.
Net Loss . Net loss was $6.6 million in the three months ended December 31, 2023 compared $4.0 million in the three months ended December 31, 2024 and was $15.8 million in the nine months ended December 31, 2023 compared to $8.4 million in the nine months ended December 31, 2024. 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, 2024, our principal sources of liquidity were cash and cash equivalents of $15.1 million compared to cash and cash equivalents $14.4 million as of March 31, 2024.
Net cash used in operating activities was $11.3 million for the nine months ended December 31, 2024 compared to $10.2 million for the nine months ended December 31, 2023. The primary uses of cash in the nine months ended December 31, 2024 were the net loss of $8.4 million and a decrease of $1.2 million in accrued expenses and other liabilities. The primary sources of cash in the nine months ended December 31, 2024 were reductions in inventories and prepaid expenses and other current assets. Cash from operations in the nine months ended December 31, 2024 was adjusted for the non-cash gain on the sale of assets in the amount of $5.8 million.
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
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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.
Net cash provided by investing activities was $11.4 million in the nine months ended December 31, 2024 compared to $2.8 million in the nine months ended December 31, 2023. Investment activities in the nine months ended December 31, 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 $41,000. 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.
Net cash provided by financing activities in the nine months ended December 31, 2024 consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans of $622,000. Net cash provided by financing activities in the nine months ended December 31, 2023 consisted of the 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.
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. 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 higher interest rates and inflation may have on our business, the extent to which we utilize subcontractors, the levels of inventory and accounts receivable that we maintain, the timing and extent of spending to support our product development efforts and the expansion of our sales and marketing team. Additional capital may also be required for the consummation of any acquisition of businesses, products or technologies that we may undertake. On June 28, 2023, we filed a registration statement on Form S-3, which 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 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 nine months ended December 31, 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, 2024, we had $14.6 million in purchase obligations for facility leases, wafer, masks, software and test purchase obligations that are binding commitments of which $1.4 million are payable in the next twelve months and $13.2 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, 2024, the accrual for potential contingent consideration was $0.
Critical Accounting Estimates
Our critical accounting estimates are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Off-Balance Sheet Arrangements
At December 31, 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
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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 recent accounting pronouncements that may impact the Company.
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