What changed in this filing

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Item 1A. Risk Factors

2022-11-04 compared with 2022-08-05 · 54 added, 41 removed, 419 unchanged (18% of the section changed)

12 unchanged sentences

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.

● The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates, the decline in the global economic environment 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.

● Goodwill impairment and related charges, as well as other accounting charges or adjustments could negatively impact our operating results.

● 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.

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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 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.

For example, in the ten fiscal quarters ended September 30, 2022, we recorded net revenues of as much as $9.0 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 ten consecutive quarters, our net revenues were adversely impacted by the COVID-19 global pandemic.

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

● restructuring, asset and goodwill impairment and related charges, as well as other accounting changes or adjustments;

● 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 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.

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 a 6% increase expected in early calendar 2023, 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.

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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 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.

The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates, the decline in the global economic environment and the ongoing 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.

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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 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.

Purchases by Nokia represented approximately 14%, 29%, 39% and 38% of our net revenues in the six months ended September 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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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 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.

The military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates, the decline in the global economic environment 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.

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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.

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.

The majority of our employees around the world worked from home for extended timeframes due to the pandemic.

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.

Since the outbreak of COVID-19, aside from supply chain shortages from the lengthening of lead times for wafers and assembly services and the impact of ongoing and expected price increases from suppliers, including a 20% increase in the cost of wafers received in early calendar 2022 and an expected 6% increase in early calendar 2023, we have experienced minimal impact, and continue to experience minimal impact, on our manufacturing operations in Taiwan.

Final testing of our product is conducted in house.

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

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.

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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.

The military conflict in Ukraine and the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the decline in the global economic environment 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.

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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 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.

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 a decline in the global economic environment 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 $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.

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 $7.2 million in the six months ended September 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.

We have identified a material weakness in our internal control as of September 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.

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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.

We are in the process of implementing a detailed plan for the remediation of the material weakness identified in the fourth quarter of fiscal 2022, including enhancing management's review controls over the forecasts used to calculate the contingent consideration liability and used in the recoverability test for intangible assets .

Although we have begun

implementing the enhancements described above, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Until this material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.

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.

If we are unable to assert that our internal control over financial reporting is effective, 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.

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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.

If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.

Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination, such as our acquisition of MikaMonu Group Ltd.

in fiscal 2016.

We test for goodwill impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired.

If the carrying value of a material asset is determined to be impaired, it will be written down to fair value by a charge to operating earnings.

As of both March 31, 2022 and September 30, 2022, we had a goodwill balance of $8.0 million and intangible assets of $2.0 million and $1.9 million, respectively, from the MikaMonu acquisition.

An adverse change in market conditions, including a sustained decline in our stock price, loss of significant customers, or a weakened demand for our products could be considered to be an impairment triggering event.

If such change has the effect of changing one of our critical assumptions or estimates, a change to the estimation of fair value could result in an impairment charge to our goodwill or intangible assets, which would negatively impact our operating results and harm our business.

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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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 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.

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we may be unable to develop or acquire the rights to use the intellectual property necessary to implement new technologies;

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

when introducing new or enhanced products, we may be unable to effectively manage 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.

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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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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 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.

For example, in the six months ended September 30, 2022 and in fiscal 2022, 2021 and 2020, our largest distributor Avnet Logistics accounted for 45.4%, 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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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.

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.

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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 June 30, 2022, four customers accounted for 23%, 21%, 21% and 13% of our accounts receivable, respectively.

At September 30, 2022, four customers accounted for 31%, 21%, 18% and 15% 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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We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the interests of our other stockholders.

Responding to such actions can be costly and time-consuming, disrupt our business and operations, and divert the attention of our board of directors, management, and employees from the pursuit of our business strategies.

Responding to such actions can be costly and time-consuming, disrupt our business and operations, and divert the attention of our board of directors, management, and employees

from the pursuit of our business strategies.

Such activities could interfere with our ability to execute our strategic plan.

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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.

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.

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.

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

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.

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.

Risks Related to Our International Business and Operations

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Our international business exposes us to additional risks.

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.

Products shipped to destinations outside of the United States accounted for 51.9%, 53.5%, 55.4% and 59.6% of our net revenues in the six months ended September 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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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.

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This risk is especially acute for us because the extreme volatility of market prices of technology companies has resulted in a larger number of securities class action claims against them.

Due to the potential volatility of our stock price, we may in the future be the target of similar litigation.

the potential volatility of our stock price, we may in the future be the target of similar litigation.

Securities litigation could result in substantial costs and divert management’s attention and resources.

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

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.

As of October 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.

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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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.

At September 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:

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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