What changed in this filing

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Item 1A. Risk Factors

2021-08-06 compared with 2021-02-05 · 107 added, 115 removed, 279 unchanged (44% of the section changed)

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Our quarterly and annual revenues, expenses and operating results have varied significantly and are likely to vary in the future.

For example, in the eleven fiscal quarters ended December 31, 2020, we recorded net revenues of as much as $14.7 million and as little as $6.6 million, including net revenues varying from $6.6 million to $6.8 million in the last three quarters and quarterly operating income of as much as $2.2 million and, in ten quarters, operating losses, including operating losses varying from $5.2 million to $5.7 million in the last three quarters ended December 31, 2020.

For example, in the nine fiscal quarters ended June 30, 2021, we recorded net revenues of as much as $13.0 million and as little as $6.6 million, including net revenues varying from $6.6 million to $8.8 million in the last five quarters, and operating losses from $229,000 to $5.7 million, and varying from $4.4 million and $5.7 million in the last five quarters ended June 30, 2021.

We therefore believe that period-to-period comparisons of our operating results are not a good indication of our future performance, and you should not rely on them to predict our future performance or the future performance of our stock price.

For the last three consecutive quarters, our net revenues were adversely impacted by the COVID-19 global pandemic.In future periods, we may not have any revenue growth, or our revenues could decline or continue to be further adversely impacted by the COVID-19 global pandemic.

For the last six consecutive quarters, our net revenues were adversely impacted by the COVID-19 global pandemic.

In future periods, we may not have any revenue growth, or our revenues could decline or continue to be further adversely impacted by the COVID-19 global pandemic.

Furthermore, if our operating expenses exceed our expectations, our financial performance could be adversely affected.

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our ability to anticipate and conform to new industry standards;

● fluctuations in availability and costs associated with materials needed to satisfy customer requirements;

fluctuations in availability and costs associated with materials and manufacturing services needed to satisfy customer requirements caused by supply constraints;

manufacturing defects, which could cause us to incur significant warranty, support and repair costs, lose potential sales, harm our relationships with customers and result in write-downs;

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Our expenses are, to a large extent, fixed, and we expect that these expenses will increase in the future.

In fiscal 2021 we experienced price increases for raw materials and manufacturing services due to the tightness in the semiconductor market.

We will not be able to adjust our spending quickly if our revenues fall short of our expectations.

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Nokia, our largest customer, purchases our products directly from us and through contract manufacturers and distributors.

Purchases by Nokia represented approximately 40%, 38%, 45% and 36% of our net revenues in the nine months ended December 31, 2020 and in fiscal 2020, 2019 and 2018, respectively.

We expect that our

operating results in any given period will continue to depend significantly on orders from our key OEM customers, particularly Nokia, and our future success is dependent to a large degree on the business success of this customer over which we have no control.

Purchases by Nokia represented approximately 43%, 39%, 38% and 45% of our net revenues in the three months ended June 30, 2021 and in fiscal 2021, 2020 and 2019, respectively.

We expect that our operating results in any given period will continue to depend significantly on orders from our key OEM customers, particularly Nokia, and our future success is dependent to a large degree on the business success of this customer over which we have no control.

We do not have long-term contracts with Nokia or any of our other major OEM customers, distributors or contract manufacturers that obligate them to purchase our products.

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The ongoing COVID-19 global pandemic may continue to adversely affect our revenues, results of operations and financial condition.

Our business is expected to continue to be materially adversely affected by global outbreak of respiratory illness caused by a novel coronavirus known as COVID-19.

COVID-19 has been declared by the World Health Organization to be a “pandemic” and has spread to many of the countries in which we, our customers, our suppliers and our other business partners conduct business.

Our business is expected to continue to be materially adversely affected by the COVID-19 global pandemic.

National, state and local governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary.

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These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

We continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the COVID-19 global pandemic.

We have instituted many preventative measures and are regularly evaluating those measures and others as we continue to better understand our current and future operating environment.

Except for our employees located in Taiwan, the majority of our employees are working from home around the world.

We continue to monitor our operations and government recommendations and has made modifications to our normal operations because of the COVID-19 global pandemic.

We have instituted many preventative measures and are regularly evaluating those measures and others as we continue to better understand our current and future

operating environment.

Since March 2020, except for our employees located in Taiwan, the majority of our employees have worked from home around the world.

In May 2021, with the surge in COVID-19 infections in Taiwan, our Taiwan employees have begun working from home under alternating schedules.

We have maintained a substantial portion of our manufacturing operational capacity at our primary manufacturing support facility located in Hsin Chu, Taiwan where our suppliers are located and where all of our products are manufactured.

Since the outbreak of COVID-19, aside from the lengthening of lead times for wafers and assembly services, we have experienced minimal impact on our manufacturing operations in Taiwan.

Since the outbreak of COVID-19, aside from the lengthening of lead times for wafers and assembly services and some price increases, we have experienced minimal impact, and continue to experience minimal impact, on our manufacturing operations in Taiwan.

Final testing of our product is conducted in house.

Shipping and receiving operations at our Sunnyvale headquarters facility are being maintained by a skeleton crew with minimal impact.

Our revenues have been and are expected to continue to be impacted by changes in customer buying patterns and communication limitations related to shelter in place restrictions that require a significant number of our customer contacts to work from home.

Our revenues have been and are expected to continue to be impacted by changes in customer buying patterns and communication limitations related to COVID-19 restrictions that require a significant number of our customer contacts to work from home.

We have adapted our sales strategies for the COVID-19 environment where we cannot do face-to-face meetings and conduct secure meetings with government and defense contractors.

We have experienced, and expect to continue to experience, a number of adverse impacts as a result of the COVID-19 global pandemic, including reductions in demand for our products, delays and cancellations of orders, difficulties in obtaining raw materials and components, shortages of labor to manufacture products, inefficiencies caused by remote worker’s difficulties in performing their normal work outputs, closures of the facilities of some of our suppliers and customers, delays in shipments and delays in collecting accounts receivable.

Although we cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it is expected to have an adverse effect on our results of operations, financial position, and liquidity during fiscal year 2021 and into fiscal year 2022.

Although it is difficult to accurately estimate the length or gravity of the impact of the COVID-19 outbreak, if the pandemic continues, it is expected to have an adverse effect on our results of operations, financial position, and liquidity during the remainder of fiscal year 2022.

This includes results from new information that may emerge concerning COVID-19 and any actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

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We have incurred significant losses.

We incurred net losses of $10.3 million and $4.5 million during fiscal 2020 and 2018, respectively, and a net loss of $16.5 million during the nine months ended December 31, 2020.

We incurred net losses of $21.5 million, $10.3 million and $4.5 million during fiscal 2021, 2020 and 2018, respectively, and a net loss of $4.2 million in the three months ended June 30, 2021.

There can be no assurance that our Very Fast SRAMs will continue to receive broad market acceptance, that our new product development initiatives will be successful or that we will be able to achieve sustained revenue growth or profitability.

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Any decrease in revenues from sales of our products could harm our business more than it would if we offered a more diversified line of products.

Our future success is substantially dependent on the successful development of new in-place associative computing products which entails significant risks.

Since 2015, our principal strategic objective has been the development of a new category of in-place associative computing products.

We have devoted, and are continuing to devote, substantial efforts and resources to this development effort.

This ongoing project involves the commercialization of new, cutting-edge technology, will require a substantial effort during fiscal 2021 and beyond and will be subject to significant risks.

In addition to the typical risks associated with the development of technologically advanced products (as further detailed in the next paragraph), this project will be subject to enhanced risks of technological problems related to the development of an entirely new category of products, substantial risks of delays or unanticipated costs that may be encountered, and risks associated with the establishment of entirely new markets and customer relationships.

The establishment of new customer relationships and selling our in-place associative computing products to such new customers will be a significant undertaking that will require us to invest heavily in our sales team, enter into new channel partner relationships, expand our marketing activities and change the focus of our business and operations.

Our inability to successfully conclude this major development effort and establish a market for the products we hope to develop would have a material adverse effect on our future financial and business success, including our prospects for increased revenues.

Additionally, if we are unable to meet the expectations of market analysts and investors with respect to this major development effort, then the price of our common stock could fall.

Our future success is substantially dependent on the successful introduction of new in-place associative computing products which entails significant risks.

Since 2015, our principal strategic objective has been the development of our first in-place associative computing product.

We have devoted, and will continue to devote, substantial efforts and resources to the development of our new family of in-place associative computing products.

This ongoing project involves the commercialization of new, cutting-edge technology, will require a continuing substantial effort during fiscal 2022 and beyond and will be subject to significant risks.

In addition to the typical risks associated with the development of technologically advanced products (as further detailed in the next paragraph), this project will be subject to enhanced risks of technological problems related to the development of this entirely new category of products, substantial risks of delays or unanticipated costs that may be encountered, and risks associated with the establishment of entirely new markets and customer relationships.

The establishment of new customer relationships and selling our in-place associative computing products to such new customers is a significant undertaking that requires us to invest heavily in our sales team, enter into new channel partner relationships, expand our marketing activities and change the focus of our business and operations.

Our inability to successfully establish a market for the product that we have developed will have a material adverse effect on our future financial and business success, including our prospects for increased revenues.

Additionally, if we are unable to meet the expectations of market analysts and investors with respect to this major product introduction effort, then the price of our common stock could fall.

We are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, our business will be harmed and our prospects for growth will be curtailed.

We currently purchase several key components used in the manufacture of our products from single sources and are dependent upon supply from these sources to meet our needs.

If any of these suppliers cannot provide components on a timely basis, at the same price or at all, our ability to manufacture our products will be constrained and our business will suffer.

For example, due to the COVID-19 global pandemic, we could see additional disruptions in our supply chain beyond the longer lead-times for the purchase of wafers and assembly services that we are currently experiencing.

Most significantly, we obtain wafers for our Very Fast SRAM and APU products from a single foundry, TSMC, and most of them are packaged at ASE.

If we are unable to obtain an adequate supply of wafers from TSMC or find alternative sources in a timely manner, we will be unable to fulfill our customer orders and our operating results will be harmed.

We do not have supply agreements with TSMC, ASE or any of our other independent assembly and test suppliers, and instead obtain manufacturing services and products from these suppliers on a purchase-order basis.

Our suppliers, including TSMC, have no obligation to supply products or services to us for any specific product, in any specific quantity, at any specific price or for any specific time period.

As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating results.

Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted by the COVID-19 global pandemic, natural disaster or political instability, choose to prioritize capacity or inventory for other uses or reduce or eliminate deliveries to us for any other reason, we likely will not be able to enforce fulfillment of any delivery commitments and we would have to identify and qualify acceptable replacements from alternative sources of supply.

In particular, if TSMC is unable to supply us with sufficient quantities of wafers to meet all of our requirements, we would have to allocate our products among our customers, which would constrain our growth and might cause some of them to seek alternative sources of supply.

Since the manufacturing of wafers and other components is extremely complex, the process of qualifying new foundries and suppliers is a lengthy process and there is no assurance that we would be able to find and qualify another supplier without materially adversely affecting our business, financial condition and results of operations.

If we do not successfully develop new products to respond to rapid market changes due to changing technology and evolving industry standards, particularly in the networking and telecommunications markets, our business will be harmed.

If we fail to offer technologically advanced products and respond to technological advances and emerging standards, we may not generate sufficient revenues to offset our development costs and other expenses, which will hurt our business.

The development of new or enhanced products is a complex and uncertain process that requires the accurate anticipation of technological and market trends.

The development of new or enhanced products is a complex and uncertain process that requires

the accurate anticipation of technological and market trends.

In particular, the networking and telecommunications markets are rapidly evolving and new standards are emerging.

We are vulnerable to advances in technology by competitors, including new SRAM architectures, new forms of DRAM and the emergence of new memory technologies that could enable the development of products that feature higher performance or lower cost.

In addition, the trend toward incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce future demand for Very Fast SRAM products.

We may experience development, marketing and other technological difficulties that may delay or limit our ability to respond to technological changes, evolving industry standards, competitive developments or end-user requirements.

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when introducing new or enhanced products, we may be unable to manage effectively the transition from older products.

If we are unable to offset increased wafer fabrication and assembly costs by increasing the average selling prices of our products, our gross margins will suffer.

If there is a significant upturn in the demand for the manufacturing and assembly of semiconductor products as has occured in recent months as a result of the COVID-19 global pandemic, the available supply of wafers and packaging services may be limited.

As a result, we could be required to obtain additional manufacturing and assembly capacity in order to meet increased demand.

Securing additional manufacturing and assembly capacity may cause our wafer fabrication and assembly costs to increase.

If we are unable to offset these increased costs by increasing the average selling prices of our products, our gross margins will decline.

We are subject to the highly cyclical nature of the networking and telecommunications markets.

Our products are incorporated into routers, switches, wireless local area network infrastructure equipment, wireless base stations and network access equipment used in the highly cyclical networking and telecommunications markets.

Our Very Fast SRAM products are incorporated into routers, switches, wireless local area network infrastructure equipment, wireless base stations and network access equipment used in the highly cyclical networking and telecommunications markets.

We expect that the networking and telecommunications markets will continue to be highly cyclical, characterized by periods of rapid growth and contraction.

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Several of our competitors offer a broad array of memory products and have greater financial, technical, marketing, distribution and other resources than we have.

Some of our competitors maintain their own semiconductor fabrication facilities, which may provide them with capacity, cost and technical advantages over us.

Some of our competitors maintain their own semiconductor fabrication facilities, which may provide them with capacity, cost and technical

advantages over us.

We cannot assure you that we will be able to compete successfully against any of these competitors.

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the supply and cost of wafers.

In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures and new forms of DRAM, or the emergence of new memory technologies that could enable the development of products that feature higher performance, lower cost or lower power capabilities.

Additionally, the trend toward incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce future demand for Very Fast SRAM products.

There can be no assurance that we will be able to

compete successfully in the future.

There can be no assurance that we will be able to compete successfully in the future.

Our failure to compete successfully in these or other areas could harm our business.

We are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, our business will be harmed and our prospects for growth will be curtailed.

We currently purchase several key components used in the manufacture of our products from single sources and are dependent upon supply from these sources to meet our needs.

If any of these suppliers cannot provide components on a timely basis, at the same price or at all, our ability to manufacture our products will be constrained and our business will suffer.

Most significantly, we obtain wafers for our Very Fast SRAM and APU products from a single foundry, TSMC, and most of them are packaged at ASE.

Our suppliers, including TSMC, have no obligation to supply products or services to us for any specific product, in any specific quantity, at any specific price or for any specific time period.

As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating results.

We rely heavily on distributors and our success depends on our ability to develop and manage our indirect distribution channels.

A significant percentage of our sales are made to distributors and to contract manufacturers who incorporate our products into end products for OEMs.

For example, in the nine months ended December 31, 2020 and in fiscal 2020, 2019 and 2018, our largest distributor Avnet Logistics accounted for 31.0%, 34.3%, 31.3% and 35.3%, respectively, of our net revenues.

For example, in the three months ended June 30, 2021 and in fiscal 2021, 2020 and 2019, our largest distributor Avnet Logistics accounted for 26.2%, 29.8%, 34.3% and 31.3%, respectively, of our net revenues.

Avnet Logistics and our other existing distributors may choose to devote greater resources to marketing and supporting the products of other companies.

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These conflicts may harm our business or reputation.

Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we may be required to enter into costly long-term supply arrangements to secure foundry capacity.

We do not have a long-term supply agreement with TSMC, but instead obtain our wafers on a purchase order basis.

In order to secure future wafer supply from TSMC or from other independent foundries, we may be required to enter into various arrangements with them, which could include:

● contracts that commit us to purchase specified quantities of wafers over extended periods;

● investments in and joint ventures with the foundries;

● non-refundable deposits with or prepayments or loans to foundries in exchange for capacity commitments.

We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements, if any, may not be on terms favorable to us.

Moreover, even if we are able to secure independent foundry capacity, we may be obligated to use all of that capacity or incur penalties.

These penalties may be expensive and could harm our financial results.

If we are unable to offset increased wafer fabrication and assembly costs by increasing the average selling prices of our products, our gross margins will suffer.

If there is a significant upturn in the demand for the manufacturing and assembly of semiconductor products as has incurred in recent months as a result of the COVID-19 global pandemic, the available supply of wafers and packaging services may be limited.

As a result, we could be required to obtain additional manufacturing and assembly capacity in order to meet increased demand.

Securing additional manufacturing and assembly capacity may cause our wafer fabrication and assembly costs to increase.

If we are unable to offset these increased costs by increasing the average selling prices of our products, our gross margins will decline.

The average selling prices of our products are expected to decline, and if we are unable to offset these declines, our operating results will suffer.

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Because we do not operate our own wafer foundry or assembly facilities, we may not be able to reduce our costs as rapidly as companies that operate their own foundries or facilities.

Current unfavorable economic and market conditions, domestically and internationally, may adversely affect our business, financial condition, results of operations and cash flows.

We have significant customer sales both in the United States and internationally.

We also rely heavily on our suppliers in Asia.

We are therefore susceptible to adverse U.S.

and international economic and market conditions, including the economic difficulties resulting from the COVID-19 global pandemic that currently exist in the United States and worldwide.

If any of our manufacturing partners, customers, distributors or suppliers experience serious financial difficulties or ceases operations, our business could be adversely affected.

We are substantially dependent on the continued services and performance of our senior management and other key personnel.

Our future success is substantially dependent on the continued services and continuing contributions of our senior management who must work together effectively in order to design our products, expand our business, increase our revenues and improve our operating results.

Members of our senior management team have long-standing and important relationships with our key customers and suppliers.

The loss of services, whether as a result of illness, retirement or death, of Lee-Lean Shu, our President and Chief Executive Officer, Robert Yau, our Vice President of Engineering, Dr.

Avidan Akerib, our Vice President of Associative Computing, any other executive officer or other key employee could significantly delay or prevent the achievement of our development and strategic

We do not have employment contracts with, nor maintain key person insurance on, any of our executive officers or other key employees.

System security risks, data protection, cyber-attacks and systems integration issues could disrupt our internal operations or the operations of our business partners, and any such disruption could harm our reputation or cause a reduction in our expected revenue, increase our expenses, negatively impact our results of operation or otherwise adversely affect our stock price.

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A small number of customers generally account for a significant portion of our accounts receivable in any period, and if any one of them fails to pay us, our financial position and operating results will suffer.

At December 31, 2020, three customers accounted for 41%, 23% and 19% of our accounts receivable, respectively.

At June 30, 2021, three customers accounted for 36%, 27% and 12% of our accounts receivable, respectively.

If any of these customers do not pay us, our financial position and operating results will be harmed.

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There can be no assurance that we will continue to achieve design wins or that any design win will result in future revenues.

Any significant order cancellations or order deferrals could adversely affect our operating results.

We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significant penalty.

Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results of operations.

Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations.

We generally recognize revenue upon shipment of products to a customer.

If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.

Claims that we infringe third party intellectual property rights could seriously harm our business and require us to incur significant costs.

In recent years, there has been significant litigation in the semiconductor industry involving patents and other intellectual property rights.

We have recently been involved in protracted patent infringement litigation, and we could become subject to additional claims or litigation in the future as a result of allegations that we infringe others’ intellectual property rights or that our use of intellectual property otherwise violates the law.

We have been involved in protracted patent infringement litigation, and we could become subject to additional claims or litigation in the future as a result of allegations that we infringe others’ intellectual property rights or that our use of intellectual property otherwise violates the law.

Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers, distributors or manufacturers against the alleged infringement.

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obtain a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all;

● pay damages;

redesign those products that use the disputed technology.

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As a result, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be harmed.

We are substantially dependent on the continued services and performance of our senior management and other key personnel.

Members of our senior management team have long-standing and important relationships with our key customers and suppliers.

The loss of services, whether as a result of illness, retirement or death, of Lee-Lean Shu, our President and Chief Executive Officer, Robert Yau, our Vice President of Engineering, Dr.

Avidan Akerib, our Vice President of Associative Computing, any other executive officer or other key employee could significantly delay or prevent the achievement of our development and strategic objectives.

We do not have employment contracts with, nor maintain key person insurance on, any of our executive officers or other key employees.

If we are unable to recruit or retain qualified personnel, our business and product development efforts could be harmed.

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Our attempts to enforce our intellectual property rights could be time consuming and costly.

We were recently involved in litigation to enforce our intellectual property rights and to protect our trade secrets.

In the past, we have been involved in litigation to enforce our intellectual property rights and to protect our trade secrets.

Additional litigation of this type may be necessary in the future.

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If competitors are able to use our technology without our approval or compensation, our ability to compete effectively could be harmed.

Current unfavorable economic and market conditions, domestically and internationally, may adversely affect our business, financial condition, results of operations and cash flows.

We have significant customer sales both in the United States and internationally.

We also rely heavily on our suppliers in Asia.

We are therefore susceptible to adverse U.S.

and international economic and market conditions, including the economic difficulties resulting from the COVID-19 global pandemic that currently exist in the United States and worldwide.

If any of our manufacturing partners, customers, distributors or suppliers experience serious financial difficulties or ceases operations, our business could be adversely affected.

Any significant order cancellations or order deferrals could adversely affect our operating results.

We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significant penalty.

Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results of operations.

Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations.

We generally recognize revenue upon shipment of products to a customer.

If our business grows, such growth may place a significant strain on our management and operations and, as a result, our business may suffer.

We are endeavoring to expand our business, and any growth that we are successful in achieving could place a significant strain on our management systems, infrastructure and other resources.

To manage the potential growth of our operations and resulting increases in the number of our personnel, we will need to invest the necessary capital to continue to improve our operational, financial and management controls and our reporting systems and procedures.

Our controls, systems and procedures may prove to be inadequate should we experience significant growth.

In addition, we may not have sufficient administrative staff to support our operations.

For example, we currently have only five employees in our finance department in the United States, including our Chief Financial

Furthermore, our officers have limited experience in managing large or rapidly growing businesses.

If our management fails to respond effectively to changes in our business, our business may suffer.

Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which can be expensive, and may affect our business and operating results.

We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous and toxic materials.

If we were to violate or become liable under environmental laws in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs, or civil or criminal sanctions, face property damage or personal injury claims or be required to incur substantial investigation or remediation costs, which could be material, or experience disruptions in our operations, any of which could have a material adverse effect on our business.

In addition, environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business.

We face increasing complexity in our product design as we adjust to new and future requirements relating to the material composition of our products, including the restrictions on lead and other hazardous substances that apply to specified electronic products put on the market in the European Union, China and California.

Other countries, including at the federal and state levels in the United States, are also considering similar laws and regulations.

Certain electronic products that we maintain in inventory may be rendered obsolete if they are not in compliance with such laws and regulations, which could negatively impact our ability to generate revenue from those products.

Although we cannot predict the ultimate impact of any such new laws and regulations, they will likely result in additional costs, or in the worst case decreased revenue, and could even require that we redesign or change how we manufacture our products.

Such redesigns result in additional costs and possible delayed or lost revenue.

Risks Related to Manufacturing and Product Development

We may experience difficulties in transitioning to smaller geometry process technologies and other more advanced manufacturing process technologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

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We are dependent on our relationships with TSMC to transition successfully to smaller geometry process technologies and to more advanced manufacturing processes.

We cannot assure you that TSMC will be able to effectively manage the transition or that we will be able to maintain our relationship with them.

If we or TSMC experience significant delays in this transition or fail to implement these transitions, our business, financial condition and results of operations could be materially and adversely affected.

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Defects in wafers and other components used in our products and arising from the manufacturing of these products may not be fully recoverable from TSMC or our other suppliers.

For example, in the quarter ended December 31, 2005, we incurred a charge of approximately $900,000 related to the write-off of inventory resulting from an error in the assembly process at one of our suppliers.

This write-off adversely affected our operating results for fiscal 2006.

If our business grows, such growth may place a significant strain on our management and operations and, as a result, our business may suffer.

We are endeavoring to expand our business, and any growth that we are successful in achieving could place a significant strain on our management systems, infrastructure and other resources.

Our controls, systems and procedures may prove to be inadequate should we experience significant growth.

In addition, we may not have sufficient administrative staff to support our operations.

For example, we currently have only five employees in our finance department in the United States, including our Chief Financial Officer.

Furthermore, our officers have limited experience in managing large or rapidly growing businesses.

If our management fails to respond effectively to changes in our business, our business may suffer.

Risks Related to Our International Business and Operations

Changes in Taiwan’s political, social and economic environment may affect our business performance.

Because much of the manufacturing and testing of our products is conducted in Taiwan, our business performance may be affected by changes in Taiwan’s political, social and economic environment.

For example, any political instability resulting from the relationship among the United States, Taiwan and the People’s Republic of China could damage our business.

Moreover, the role of the Taiwanese government in the Taiwanese economy is significant.

Taiwanese policies toward economic liberalization, and laws and policies affecting technology companies, foreign investment, currency exchange rates, taxes and other matters could change, resulting in greater restrictions on our ability and our suppliers’ ability to do business and operate facilities in Taiwan.

If any of these changes were to occur, our business could be harmed and our stock price could decline.

Our international business exposes us to additional risks.

Products shipped to destinations outside of the United States accounted for 53.3%, 59.6%, 62.5% and 51.5% of our net revenues in the nine months ended December 31, 2020 and in fiscal 2020, 2019 and 2018, respectively.

Products shipped to destinations outside of the United States accounted for 48.4%, 55.4%, 59.6% and 62.5% of our net revenues in the three months ended June 30, 2021 and in fiscal 2021, 2020 and 2019, respectively.

Moreover, a substantial portion of our products is manufactured and tested in Taiwan, and the software development for our associative computing products occurs in Israel.

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We do not currently engage in currency hedging activities to reduce the risk of financial exposure from fluctuations in foreign exchange rates.

Changes in Taiwan’s political, social and economic environment may affect our business performance.

Because much of the manufacturing and testing of our products is conducted in Taiwan, our business performance may be affected by changes in Taiwan’s political, social and economic environment.

For example, any political instability resulting from the relationship among the United States, Taiwan and the People’s Republic of China could damage our business.

Moreover, the role of the Taiwanese government in the Taiwanese economy is significant.

If any of these changes were to occur, our business could be harmed and our stock price could decline.

TSMC, as well as our other independent suppliers and many of our OEM customers, have operations in the Pacific Rim, an area subject to significant risk of earthquakes, typhoons and other natural disasters and adverse consequences related to the outbreak of contagious diseases such as COVID-19.

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Any action to materially modify international trade agreements, change corporate tax policy related to international commerce or mandate domestic production of goods, could adversely affect our business, financial condition and results of operations.

We may need to raise additional capital in the future, which may not be available on favorable terms or at all, and which may cause dilution to existing stockholders.

We may need to seek additional funding in the future.

We do not know if we will be able to obtain additional financing on favorable terms, if at all.

If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, and we may be required to reduce operating costs, which could seriously harm our business.

In addition, if we issue equity securities, our stockholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of our common stock.

Some of our products are incorporated into advanced military electronics, and changes in international geopolitical circumstances and domestic budget considerations may hurt our business.

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For example, if governmental appropriations for military purchases of electronic devices that include our products are reduced, our revenues will likely decline.

Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which can be expensive, and may affect our business and operating results.

We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous and toxic materials.

In addition, environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business.

Other countries, including at the federal and state levels in the United States, are also considering similar laws and regulations.

those products.

Such redesigns result in additional costs and possible delayed or lost revenue.

Risks Relating to Our Common Stock and the Securities Market

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This could harm our business and cause the value of our stock to decline.

We may need to raise additional capital in the future, which may not be available on favorable terms or at all, and which may cause dilution to existing stockholders.

We may need to seek additional funding in the future.

We do not know if we will be able to obtain additional financing on favorable terms, if at all.

In addition, if we issue equity securities, our stockholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of our common stock.

Use of a portion of our cash reserves to repurchase shares of our common stock presents potential risks and disadvantages to us and our continuing stockholders.

From November 2008 through December 2019 we repurchased and retired an aggregate of 12,004,779 shares of our common stock at a total cost of $60.7 million, including 3,846,153 shares repurchased at a total cost of $25 million pursuant to a modified “Dutch auction” self-tender offer that we completed in August 2014 and additional shares repurchased in the open market pursuant to our stock repurchase program.

At December 31, 2020, we had outstanding authorization from our Board of Directors to purchase up to an additional $4.3 million of our common stock from time to time under our repurchase program.

From November 2008 through March 2021 we repurchased and retired an aggregate of 12,004,779 shares of our common stock at a total cost of $60.7 million, including 3,846,153 shares repurchased at a total cost of $25 million pursuant to a modified “Dutch auction” self-tender offer that we completed in August 2014 and

additional shares repurchased in the open market pursuant to our stock repurchase program.

At June 30, 2021, we had outstanding authorization from our Board of Directors to purchase up to an additional $4.3 million of our common stock from time to time under our repurchase program.

Although our Board has determined that these repurchases are in the best interests of our stockholders, they expose us to certain risks including:

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Our executive officers, directors and entities affiliated with them hold a substantial percentage of our common stock.

As of January 31, 2021 , our executive officers, directors and entities affiliated with them beneficially owned approximately 35% of our outstanding common stock.

As of July 31, 2021 , our executive officers, directors and entities affiliated with them beneficially owned approximately 35% of our outstanding common stock.

As a result, these stockholders will be able to exercise substantial influence over, and may be able to effectively control, matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over or merging with us.

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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 1A. Risk Factors