What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-14 compared with 2022-11-04 · 48 added, 48 removed, 425 unchanged (18% of the section changed)

17 unchanged sentences

● 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 in the process of implementing various cost reduction initiatives, which may result in unintended and adverse impacts on our business and operations and cause us to fail to realize the anticipated benefits of the cost reduction initiatives.

● 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 do not successfully develop and introduce the new in-place associative computing 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.

30 unchanged sentences

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

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.

For example, in the eleven fiscal quarters ended December 31, 2022, we recorded net revenues of as much as $9.0 million and as little as $6.4 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 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.

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

11 unchanged sentences

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 a 6% increase expected in early calendar 2023, 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 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.

8 unchanged sentences

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

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.

Purchases by Nokia represented approximately 16%, 29%, 39% and 38% of our net revenues in the nine months ended December 31, 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.

5 unchanged sentences

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.

Many organizations and individuals, including the Company and our employees, took 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.

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 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.

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 a 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.

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.

4 unchanged sentences

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 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 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.

1 unchanged sentence

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 $7.2 million in the six months ended September 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 $12.0 million in the nine months ended December 31, 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 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.

1 unchanged sentence

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.

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.

Additionally, forecasts were also used in the goodwill impairment test as of December 1, 2022.

This material weakness has not been remediated as of December 31, 2022.

Our management is taking steps to remediate our material weakness, including re-evaluating the methodology and procedures involved in developing forecasts 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, used in the recoverability test for intangible assets and used in the goodwill impairment test .

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.

11 unchanged sentences

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.

As of both March 31, 2022 and December 31, 2022, we had a goodwill balance of $8.0 million and intangible assets of $2.0 million and $1.8 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.

During the three months ended December 31, 2022, we identified a sustained decline in our stock price that resulted in our market capitalization being below the carrying value of our stockholders’ equity.

We concluded the sustained decline in our stock price was a triggering event and proceeded with a quantitative goodwill impairment assessment.

The results of the quantitative goodwill impairment assessment that we performed indicated the fair value of our sole reporting unit exceeded its carrying value as of December 31, 2022.

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.

7 unchanged sentences

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 2023 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 beyond 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.

9 unchanged sentences

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.

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

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

4 unchanged sentences

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.

11 unchanged sentences

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

If we do not successfully implement the cost reduction initiatives that were announced on November 30, 2022, we may suffer adverse impacts on our business and operations.

On November 30, 2022, we announced the implementation of cost reduction initiatives.

The cost reduction initiatives are expected to be completed by March 31, 2023, and will result in an approximate 15% decrease in our

global workforce.

The aim of these initiatives is to reduce GSI Technology’s operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount and salary decreases for certain retained employees, as well as targeted reductions in research and development spending.

The implementation of these cost reduction initiatives may result in unintended and adverse impacts on our business and operations.

Any failure to successfully implement the cost reduction initiatives could prevent us from focusing our operational resources on advancing GSI Technology’s proprietary APU technology.

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.

11 unchanged sentences

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.

13 unchanged sentences

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 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.

For example, in the nine months ended December 31, 2022 and in fiscal 2022, 2021 and 2020, our largest distributor Avnet Logistics accounted for 48.0%, 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.

10 unchanged sentences

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.

20 unchanged sentences

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 September 30, 2022, four customers accounted for 31%, 21%, 18% and 15% of our accounts receivable, respectively.

At December 31, 2022, three customers accounted for 48%, 32% and 10% of our accounts receivable, respectively.

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

22 unchanged sentences

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.

7 unchanged sentences

Any such litigation regarding intellectual property could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.

Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical.

Similarly, changing our products or processes to avoid infringing the

rights of others may be costly or impractical.

If any claims received in the future were to be upheld, the consequences to us could require us to:

47 unchanged sentences

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.

For example, we currently have only four 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.

2 unchanged sentences

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.

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.

25 unchanged sentences

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

7 unchanged sentences

Our international business exposes us to additional risks.

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.

Products shipped to destinations outside of the United States accounted for 52.1%, 53.5%, 55.4% and 59.6% of our net revenues in the nine months ended December 31, 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.

16 unchanged sentences

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.

40 unchanged sentences

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.

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

Due to 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.

6 unchanged sentences

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

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.

As of December 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.

14 unchanged sentences

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 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.

At December 31, 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:

3 unchanged sentences

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