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Item 1A. Risk Factors

2022-08-05 compared with 2022-02-04 · 136 added, 71 removed, 324 unchanged (39% of the section changed)

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The risk factors described below do not contain any material changes from those previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 .

Risk Factor Summary

Our business is subject to numerous risks and uncertainties, which are more fully described in the Risk Factors below.

These risks include, but are not limited to:

Risks Related to Our Business and Financial Condition

● Unpredictable fluctuations in our operating results could cause our stock price to decline.

● Our largest OEM customer accounts for a significant percentage of our net revenues.

If this customer, or any of our other major customers, reduces the amount they purchase or stops purchasing our products, our financial position and operating results will suffer.

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

● The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the ongoing COVID-19 global pandemic may continue to adversely affect our financial condition.

● We have incurred significant losses and may incur losses in the future.

● We have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, our ability to produce timely and accurate financial statements could be impaired.

● We depend upon the sale of our Very Fast SRAMs for most of our revenues and the market for Very Fast SRAMs is highly competitive.

● We are dependent on a number of single source suppliers.

● If we do not successfully develop and introduce new products, which entails certain significant risks, our business will be harmed.

● If we are unable to offset increased wafer fabrication and assembly costs, our gross margins will suffer.

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

● We rely heavily on distributors and our business will be negatively impacted if we are unable to develop and manage distribution channels and accurately predict future sales through our distributors.

● The average selling prices of our products are expected to decline.

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

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

● Cyber-attacks could disrupt our operations or the operations of our partners, and result in reduced revenue, increased costs, liability claims and harm our reputation or competitive position.

● Demand for our products may decrease if our OEM customers experience difficulty manufacturing, marketing or selling their products.

● Our products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.

● Our business could be negatively affected as a result of actions of activist stockholders or others.

● Our acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.

● Our business will suffer if we are unable to protect our intellectual property or if there are claims that we infringe third party intellectual property rights.

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

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

Risks Related to Manufacturing and Product Development

● We may experience difficulties in transitioning our manufacturing process technologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

● Manufacturing process technologies are subject to rapid change and require significant expenditures for research and development.

● Our products may contain defects, which could reduce revenues or result in claims against us.

Risks Related to Our International Business and Operations

● The international political, social and economic environment, particularly as it relates to Taiwan, may affect our business performance.

● Certain of our independent suppliers and OEM customers have operations in the Pacific Rim, an area subject to significant risk of natural disasters and outbreak of contagious diseases such as COVID-19.

● The United States could materially modify certain international trade agreements, or change tax provisions related to the global manufacturing and sales of our products.

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

Risks Relating to Our Common Stock and the Securities Market

● The trading price of our common stock is subject to fluctuation and is likely to be volatile.

● 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.

● 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.

● Our executive officers, directors and their affiliates hold a substantial percentage of our common stock.

● The provisions of our charter documents might inhibit potential acquisition bids that a stockholder might believe are desirable, and the market price of our common stock could be lower as a result.

Risks Related to Our Business and Financial Condition

Unpredictable fluctuations in our operating results could cause our stock price to decline.

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, 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 seven quarters, and operating losses from $229,000 to $5.7 million, and varying from $4.4 million and $5.7 million in the last seven quarters ended December 31, 2021.

For example, in the nine fiscal quarters ended June 30, 2022, we recorded net revenues of as much as $8.9 million and as little as $6.6 million, and operating losses from $2.9 million to $5.7 million.

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

For the last ten 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.

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commercial acceptance of our associative computing products;

commercial acceptance of our RadHard and RadTolerant products;

changes in our customers' inventory management practices;

unpredictability of the timing and size of customer orders, since most of our customers purchase our products on a purchase order basis rather than pursuant to a long-term contract;

● changes in our product pricing policies, including those made in response to new product announcements, pricing changes of our competitors and price increases by our foundry and suppliers;

our ability to anticipate and conform to new industry standards;

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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;

changes in our product pricing policies, including those made in response to new product announcements, pricing changes of our competitors and price increases by our foundry and suppliers;

our ability to address technology issues as they arise, improve our products' functionality and expand our product offerings.

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

In fiscal years 2021 and 2022, we experienced, and we expect to continue to experience price increases for raw materials and manufacturing services due to the tightness in the semiconductor market.

In fiscal years 2021 and 2022, we experienced price increases for raw materials, including a 20% increase in the price of wafers received in early calendar 2022, and manufacturing services due to the supply chain constraints in the semiconductor market.

We expect to experience additional price increases for raw materials in fiscal year 2023 due to worldwide inflationary pressures.

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

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If our operating results in future quarters fall below the expectations of market analysts and investors, the price of our common stock could fall.

The COVID-19 global pandemic has caused increased stock market volatility and uncertainty in customer demand and the worldwide economy in general, and we may continue to experience decreased sales and revenues in

We expect such impact will in particular affect our SRAM sales and may also impact the launch of our APU product to some degree.

The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the COVID-19 global pandemic have caused increased stock market volatility and uncertainty in

customer demand and the worldwide economy in general, and we may continue to experience decreased sales and revenues in the future.

We expect such impact will in particular affect our SRAM sales and has also impacted the launch of our APU product to some degree and the adoption of RadHard and RadTolerant SRAM products by aerospace and military customers.

However, the magnitude of such impact on our business and its duration is highly uncertain.

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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 31%, 39%, 38% and 45% of our net revenues in the nine months ended December 31, 2021 and in fiscal 2021, 2020 and 2019, respectively.

Purchases by Nokia represented approximately 15%, 29%, 39% and 38% of our net revenues in the three months ended June 30, 2022 and in fiscal 2022, 2021 and 2020, 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.

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We expect that future direct and indirect sales to Nokia and our other key OEM customers will continue to fluctuate significantly on a quarterly basis and that such fluctuations may substantially affect our operating results in future periods.

The decline in economic activity resulting from the COVID-19 global pandemic is expected to cause a continued reduction in orders from Nokia and our other key OEM customers.

If we fail to continue to sell to our key OEM customers, distributors or contract manufacturers in sufficient quantities, our business could be harmed.

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 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.

Many organizations and individuals, including the Company and our employees, are taking additional steps to avoid or reduce infection, including limiting travel and working from home.

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

The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the ongoing COVID-19 global pandemic may continue to adversely affect our revenues, results of operations and financial condition.

Our business may be materially adversely affected by military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the ongoing the COVID-19 global pandemic.

Since 2020, national, state and local governments have implemented, and may continue to implement, safety precautions including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary.

Many organizations and individuals, including the Company and our employees, have taken additional steps to avoid or reduce infection, including limiting travel and working from home.

These measures have disrupted normal business operations and have had significant negative impacts on businesses and financial markets worldwide.

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.

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 began working from home under alternating schedules, returning to their offices in July 2021.

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 and some price increases, including a 20% increase in the cost of wafers to be received beginning in early calendar 2022, we have experienced minimal impact, and continue to experience minimal impact, on our manufacturing operations in Taiwan.

From March 2020 through April 2022, except for our employees located in Taiwan, the majority of our employees worked from home around the world.

In May 2021, due to a surge in COVID-19 infections in Taiwan, our Taiwan employees worked from home under alternating schedules, and returned to their offices in July 2021.

During the pandemic we were able to maintain a substantial portion of our manufacturing operational capacity at our primary manufacturing support facility located in Hsin Chu, Taiwan where our suppliers are located and where all of our products are manufactured.

Since the outbreak of COVID-19, aside from supply chain shortages from the lengthening of lead times for wafers and assembly services and the impact of ongoing and expected price increases from suppliers, including a 20% increase in the cost of wafers received in early calendar 2022, 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 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 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 and into fiscal 2023.

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.

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

Our revenues were impacted by changes in customer buying patterns and communication limitations related to COVID-19 restrictions that required a significant number of our customer contacts to work from home.

Industry conferences and on-site training workshops, which are typically used for building a sales pipeline, were limited, and continue to be limited due to COVID-19 related restrictions.

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

The military conflict in Ukraine and the rapid rise in energy prices, worldwide inflationary pressures and rising interest rates may have an adverse impact on our business and financial condition.

We experienced, and are continuing 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.

If the pandemic continues, it may have an adverse effect on our results of operations, financial position, and liquidity the future.

This could include 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.

We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods.

The disruption to the marketplace resulting from the COVID-19 global pandemic that we continue to experience is unlike anything we have ever had to deal with.

The disruption to the marketplace that resulted from the COVID-19 global pandemic and that are continuing to experience is unlike anything we have ever had to deal with.

While we continue to monitor the business metrics that we have historically used to predict our financial performance, we are uncertain as to whether these metrics will operate consistently with our historical experience.

Disruptions in the capital markets as a result of the COVID-19 global pandemic may also adversely affect our ability to obtain additional liquidity should the impacts of the global pandemic continue for a prolonged period.

Disruptions in the capital markets as a result of the military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the COVID-19 global pandemic may also adversely affect our ability to obtain additional liquidity should the impacts of the global pandemic continue for a prolonged period.

We have incurred significant losses and may incur losses in the future.

We have incurred significant losses.

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 $13.4 million in the nine months ended December 31, 2021.

We incurred net losses of $16.4 million, $21.5 million and $10.3 million during fiscal 2022, 2021 and 2020, respectively and a net loss of $4.0 million in the three months ended June 30, 2022.

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.

We have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

We have identified a material weakness in our internal control as of June 30, 2022 related to the calculation of the contingent consideration liability.

In the course of preparing our financial statements for the fiscal year ended March 31, 2022, we identified a material weakness in our internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified pertains to the design of the control over the review of the forecasts used to calculate the contingent consideration liability and used in the recoverability test for intangible assets.

Our management is taking steps to remediate our material weakness, including re-evaluating the methodology and procedures involved in developing forecasts used to calculate the contingent consideration liability as well as the review and oversight of the forecasting process.

If we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources.

Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.

Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future.

Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

Any failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the SEC.

We depend upon the sale of our Very Fast SRAMs for most of our revenues, and a downturn in demand for these products could significantly reduce our revenues and harm our business.

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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.

This ongoing project involves the commercialization of new, cutting-edge technology, will require a continuing substantial effort during fiscal 2023 and will be subject to significant risks.

In addition to the typical risks associated with the development of technologically advanced products, 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 and partner relationships.

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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.

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.

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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 occurred in recent months as a result of the COVID-19 global pandemic, the available supply of wafers and packaging services may be limited.

If there is a significant upturn in the demand for the manufacturing and assembly of semiconductor products as has occurred in recent quarters 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.

Inflationary pressures may also cause our wafer fabrication 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.

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We recently experienced a 20% increase in wafer fabrication costs due to supply chain constraints, which resulted in us increasing the cost of our products.

Inflationary pressures are expected to result in additional increases in our wafer fabrication costs, which may require us to further increase the cost of our products.

Our customers may decide to purchase products from our competitors rather than accept these price increases and our business may suffer.

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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, 2021 and in fiscal 2021, 2020 and 2019, our largest distributor Avnet Logistics accounted for 35.6%, 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.

For example, in the three months ended June 30, 2022 and in fiscal 2022, 2021 and 2020, our largest distributor Avnet Logistics accounted for 40.6%, 38.0%, 29.8% and 34.3%, 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.

Since we sell through multiple channels and distribution networks, we may have to resolve potential conflicts between these channels.

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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.

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

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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.

Security breaches, computer malware and cyber-attacks have become more prevalent and sophisticated in recent years and may increase in the future due to a large number of our employees working from home during the COVID-19 global pandemic.

Security breaches, computer malware and cyber-attacks have become more prevalent and sophisticated in recent years and may increase in the future due to a number of our employees working from home and the potential for retaliatory cyber-attacks as a result of the military conflict in Ukraine.

Experienced computer programmers and hackers may be able to penetrate our network security or the network security of our business partners, and misappropriate or compromise our confidential and proprietary information, create system disruptions or cause shutdowns.

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We manage and store various proprietary information and sensitive or confidential data relating to our business on the cloud.

Breaches of our security measures or the accidental loss, inadvertent disclosure or

unapproved dissemination of proprietary information or confidential data about us, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation or otherwise harm our business.

Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or confidential data about us, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation or otherwise harm our business.

In addition, the cost and operational consequences of implementing further data protection measures could be significant.

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We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated.

Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes and could adversely affect our financial results, stock price and reputation.

Such disruptions could adversely impact our ability to attract and retain customers, fulfill orders and interrupt other processes and could adversely affect our business, financial results, stock price and reputation.

We may be unable to accurately predict future sales through our distributors, which could harm our ability to efficiently manage our resources to match market demand.

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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, 2021, three customers accounted for 51%, 23% and 12% of our accounts receivable, respectively.

At June 30, 2022, four customers accounted for 23%, 21%, 21% and 13% 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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However, their decisions to use our products often require significant expenditures by us without any assurance of success, and often precede volume sales, if any, by a year or more.

If an OEM customer decides at the design stage not to incorporate our products into their products, we will not have another opportunity for a design win with respect to that customer’s product for many months or years, if at all.

If an OEM customer decides at the design stage not to

incorporate our products into their products, we will not have another opportunity for a design win with respect to that customer’s product for many months or years, if at all.

Our sales cycle can take up to 24 months to complete, and because of this lengthy sales cycle, we may experience a delay between increasing expenses for research and development and our sales and marketing efforts and the generation of volume production revenues, if any, from these expenditures.

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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.

We are developing a subscription business model for certain of our new APU products, which will take time to implement and will be subject to execution risks.

The sales cycle for subscription products is different from our hardware sales business and we will need to implement strategies to manage customer retention, which may be more volatile than the hardware sales to OEM customers.

We anticipate that there will be quarterly fluctuations in the revenue and expenses associated with this new license-based business as we optimize the sales process for our target customers.

Furthermore, because of the time it takes to build a meaningful subscription business, we expect to incur significant expenses relating to the subscription business before generating revenue from that new business.

Our business could be negatively affected as a result of actions of activist stockholders or others.

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Monitoring unauthorized use of our intellectual property is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

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

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

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

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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.

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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.

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.

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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.

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A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.

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.

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.

Risks Related to Our International Business and Operations

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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 or armed conflict resulting from changes in the relationship among the United States, Taiwan and the People’s Republic of China could damage our business.

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

Any significant armed conflict related to this matter would be expected to materially and adversely damage our business.

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

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Our international business exposes us to additional risks.

Products shipped to destinations outside of the United States accounted for 52.7%, 55.4%, 59.6% and 62.5% of our net revenues in the nine months ended December 31, 2021 and in fiscal 2021, 2020 and 2019, respectively.

Products shipped to destinations outside of the United States accounted for 60.0%, 53.5%, 55.4% and 59.6% of our net revenues in the three months ended June 30, 2022 and in fiscal 2022, 2021 and 2020, 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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Conducting business outside of the United States subjects us to additional risks and challenges, including:

heightened price sensitivity from customers in emerging markets;

compliance with a wide variety of foreign laws and regulations and unexpected changes in these laws and regulations;

uncertainties regarding taxes, tariffs, quotas, export controls and license requirements, trade wars, policies that favor domestic companies over nondomestic companies, including government efforts to provide for the development and growth of local competitors, and other trade barriers;

potential political and economic instability in, or foreign conflicts that involve or affect, the countries in which we, our customers and our suppliers are located;

local authorities’ decisions regarding travel restrictions, stay-at-home orders, testing requirements and other policies to address public health crises such as the COVID-19 global pandemic which have an adverse impact on the economy and demand for our products;

difficulties in collecting accounts receivable and longer accounts receivable payment cycles;

heightened price sensitivity from customers in emerging markets;

compliance with a wide variety of foreign laws and regulations and unexpected changes in these laws and regulations;

fluctuations in freight rates and transportation disruptions;

difficulties and costs of staffing and managing personnel, distributors and representatives across different geographic areas and cultures, including assuring compliance with the U.

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and foreign anti-corruption laws;

difficulties in collecting accounts receivable and longer accounts receivable payment cycles;

limited protection for intellectual property rights in some countries.

fluctuations in freight rates and transportation disruptions.

Moreover, our reporting currency is the U.S.

However, a portion of our cost of revenues and our operating expenses is denominated in currencies other than the U.S.

dollar, primarily the New Taiwanese dollar.

dollar, primarily the New Taiwanese dollar and Israeli Shekel.

As a result, appreciation or depreciation of other currencies in relation to the U.S.

dollar could result in transaction gains or losses that could impact our operating results.

dollar could result

in transaction gains or losses that could impact our operating results.

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

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.

The foundry that manufactures our Fast SRAM, TSMC, and all of the principal independent suppliers that assemble and test our products are located in Taiwan.

The foundry that manufactures our Fast SRAM and APU products, TSMC, and all of the principal independent suppliers that assemble and test our products are located in Taiwan.

Many of our customers are also located in the Pacific Rim.

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In addition, our business could be harmed if such an outbreak resulted in travel being restricted, the implementation of stay-at-home or shelter-in-place orders or if it adversely affected the operations of our OEM customers or the demand for our products or our OEM customers’ products.

We do not maintain sufficient business interruption and other insurance policies to compensate us for all losses that may occur.

Any losses or damages incurred by us as a result of a catastrophic event or any other significant uninsured loss in excess of our insurance policy limits could have a material adverse effect on our business.

The United States could materially modify certain international trade agreements, or change tax provisions related to the global manufacturing and sales of our products.

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announcements by us or our competitors of financial results, new products, significant technological innovations, contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other events;

changes in industry estimates of demand for Very Fast SRAM products;

changes in industry estimates of demand for Very Fast SRAM, RadHard and RadTolerant products;

· the gain or loss of significant orders or customers;

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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 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 December 31, 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:

the risks resulting from a reduction in the size of our “public float,” which is the number of shares of our common stock that are owned by non-affiliated stockholders and available for trading in the securities markets, which may reduce the volume of trading in our shares and result in reduced liquidity and, potentially, lower trading prices;

the risk that our stock price could decline and that we would be able to repurchase shares of our common stock in the future at a lower price per share than the prices we have paid in our tender offer and repurchase program;

the risk that the use of a portion of our cash reserves for this purpose has reduced, or may reduce, the amount of cash that would otherwise be available to pursue potential cash acquisitions or other strategic business opportunities.

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

As of January 31, 2022 , our executive officers, directors and entities affiliated with them beneficially owned approximately 31% 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.

As of July 31, 2022 , our executive officers, directors and entities affiliated with them beneficially owned approximately 32% 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.

The provisions of our charter documents might inhibit potential acquisition bids that a stockholder might believe are desirable, and the market price of our common stock could be lower as a result.

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Our charter documents also contain other provisions, which might discourage, delay or prevent a merger or acquisition, including:

our stockholders have no right to remove directors without cause;

our stockholders have no right to act by written consent;

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These provisions might also prevent changes in our management.

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.

Since November 2008, we have 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, 2022, 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:

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