What changed in this filing

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Item 1. Financial Statements

2023-08-08 compared with 2023-02-14 · 118 added, 173 removed, 346 unchanged (46% of the section changed)

Financial Statements

Financial Statements (unaudited)

GSI TECHNOLOGY, INC.

9 unchanged sentences

Operating lease right-of-use assets

Long-term investments

Intangible assets, net

21 unchanged sentences

Accumulated other comprehensive loss

Retained earnings (deficit)

Retained deficit

Total stockholders’ equity

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands, except per share amounts)

Three Months Ended June 30,

(In thousands, except per share amounts)

6 unchanged sentences

Interest income, net

Other expense, net

Other income (expense), net

Loss before income taxes

Provision (benefit) for income taxes

Provision for income taxes

Net loss per share:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands)

Three Months Ended June 30,

(In thousands)

6 unchanged sentences

Stockholders'

Income (Loss)

Earnings (Deficit)

Three months ended December 31, 2022

Three months ended June 30, 2023

(In thousands, except share amounts)

Balance, September 30, 2022

Balance, March 31, 2023

Issuance of common stock under employee stock option plans

1 unchanged sentence

Net unrealized gain on available-for-sale investments

Balance, December 31, 2022

Three months ended December 31, 2021

Balance, September 30, 2021

Issuance of common stock under employee stock option plans

Stock-based compensation expense

Net unrealized loss on available-for-sale investments

Balance, December 31, 2021

Balance, June 30, 2023

Comprehensive

Stockholders'

Income (Loss)

Earnings (Deficit)

Nine months ended December 31, 2022

Three months ended June 30, 2022

(In thousands, except share amounts)

2 unchanged sentences

Stock-based compensation expense

Net unrealized gain on available-for-sale investments

Balance, December 31, 2022

Nine months ended December 31, 2021

Balance, March 31, 2021

Issuance of common stock under employee stock option plans

Stock-based compensation expense

Net unrealized loss on available-for-sale investments

Balance, December 31, 2021

Balance, June 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

Nine Months Ended December 31,

Three Months Ended June 30,

(In thousands)

1 unchanged sentence

Adjustments to reconcile net loss to net cash used in operating activities:

Allowance for doubtful accounts and other

Allowance for credit losses

Provision for excess and obsolete inventories

11 unchanged sentences

Cash flows from investing activities:

Purchase of investments

Maturities of short-term investments

Purchases of property and equipment

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities:

5 unchanged sentences

Non-cash investing and financing activities:

Purchases of property and equipment through accounts payable and

Operating lease right-of-use assets exchanged for lease obligations

12 unchanged sentences

However, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

The consolidated results of operations for the nine months ended December 31, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year.

The consolidated results of operations for the three months ended June 30, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year.

Reclassifications

2 unchanged sentences

There have been no material changes to our significant accounting policies that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Credit Losses — Marketable Securities

For marketable securities in an unrealized loss position, the Company periodically assesses its portfolio for impairment.

The assessment first considers the intent or requirement to sell the marketable security.

If either of these criteria are met, the amortized cost basis is written down to fair value through earnings.

Beginning April 1, 2023, if the criteria above are not met, the Company evaluates whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the marketable security by a rating agency, and any adverse conditions specifically related to the marketable security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the marketable security is compared to the amortized cost basis of the marketable security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive loss.

Credit Losses — Accounts Receivable

Accounts receivable are recorded at the amounts billed less estimated allowances for credit losses for any potential uncollectible amounts.

The Company continually monitors customer payments and maintains an allowance

for estimated losses resulting from a customer’s inability to make required payments.

The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, and economic conditions that may affect a customer’s ability to pay.

Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success.

Risk and uncertainties

The COVID-19 global pandemic has affected the business activities of the Company, its customers, suppliers and other business partners.

Governments in affected regions 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 its 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.

The Company continues to monitor its operations and government recommendations and has made modifications to its normal operations because of the COVID-19 global pandemic.

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, including a 20 % increase in the cost of wafers received in early calendar 2022 and a 6 % increase in early calendar 2023, the Company has experienced minimal impact, and continues to experience minimal impact, on its manufacturing operations in Taiwan.

Final testing of the Company’s products is conducted in house in both the US and Taiwan.

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

The Company’s results for the fiscal years ended March 31, 2022 and 2021 demonstrated the challenges that the Company has faced during the COVID-19 global pandemic, which has restricted the activities of the Company’s sales force and distributors, reduced customer demand and

caused the postponement of investment in certain customer sectors.

These challenges have also impacted the Company as it entered new markets and engaged with target customers to sell its new APU product.

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.

The Company adapted its sales strategies for the COVID-19 environment, where it could not do face-to-face meetings and conduct secure meetings with government and defense customers.

In addition to the continuing COVID-19 global pandemic, the recent military conflict in Ukraine, the rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and decline in the global economic environment may have an adverse impact on the Company’s business and financial condition.

The Company believes that during the next 12 months the COVID-19 global pandemic could impact general economic activity and demand in its end markets.

Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak, if the pandemic continues, it will have an adverse effect on the Company’s results of operations, financial position, including potential impairments, and liquidity in fiscal year 2023.

The Company has made estimates of the impact of COVID-19 within its condensed consolidated financial statements and there may be changes to those estimates in future periods that could be material.

Accounting pronouncements not yet effective for fiscal 2023

The decline in the global economic environment due to, among other things, rising interest rates, worldwide inflationary pressures and significant fluctuations in energy prices has affected the business activities of the Company, its customers, suppliers, and other business partners in the fiscal year ended March 31, 2023 and into the three months ended June 30, 2023.

The Company believes that during the next 12 months disruptions in the capital markets as a result of rising interest rates, worldwide inflationary pressures, significant fluctuations in energy prices and the decline in the global economic environment could impact general economic activity and demand in the Company’s end markets.

Additionally, fluctuations in customer demand due to previous buffer stock purchases during the semiconductor supply shortage may negatively impact near-term revenues.

Accounting pronouncements effective for fiscal 2024

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

3 unchanged sentences

Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted beginning April 1, 2019.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date.

The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

Adoption of this standard on April 1, 2023 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

NOTE 2—REVENUE RECOGNITION

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and (5) recognition of revenue when, or as, we satisfy a performance obligation.

The majority of the Company’s customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products.

The Company’s customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products.

Delivery of all performance obligations contained within a contract with a customer typically occurs at the same time (or within the same accounting period).

Transfer of control typically occurs at the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment.

For all transactions apart from consignment sales, the Company will generally recognize revenue upon shipment of the product.

For consignment sales, which are infrequent, revenue is recognized at the time that the product is pulled from consignment warehouses.

Transfer of control occurs at the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment.

The Company recognizes revenue upon shipment of the product.

Because all of the Company’s performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption practical expedient and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

1 unchanged sentence

Variable consideration is not typically significant and primarily results from stock rotation rights and quick pay discounts provided to certain distributors.

As a practical expedient, the Company is recognizing the incremental costs of obtaining a contract,

specifically commission expenses that have a period of benefit of less than twelve months, as an expense when incurred.

As a practical expedient, the Company is recognizing the incremental costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than twelve months, as an expense when

Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.

4 unchanged sentences

The impact of such taxes on products sales is immaterial.

The Company has also elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized.

The Company warrants its products to be free of defects generally for a period of three years .

The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of revenues.

Warranty costs and the accrued warranty liability were not material as of December 31, 2022 and March 31, 2022.

The majority of the Company’s revenue is derived from sales of SRAM products, which represent approximately 98 % and 96 % of total revenues in the three months ended December 31, 2022 and 2021, respectively and 97 % and 98 % of total revenues in the nine months ended December 31, 2022 and 2021, respectively.

Warranty costs and the accrued warranty liability were not material as of June 30, 2023 and March 31, 2023.

Substantially all of the Company’s revenue is derived from sales of SRAM products, which represent approximately 99 % and 97 % of total revenues in the three months ended June 30, 2023 and 2022, respectively.

Nokia, the Company’s largest customer, purchases products directly from the Company and through contract manufacturers and distributors.

Based on information provided to the Company by its contract manufacturers and distributors, purchases by Nokia represented approximately 20 % and 24 % of the Company’s net revenues in the three months ended December 31, 2022 and 2021, respectively, and 16 % and 31 % of the Company’s net revenues in the nine months ended December 31, 2022 and 2021, respectively.

Based on information provided to the Company by its contract manufacturers and distributors, purchases by Nokia represented approximately 34 % and 15 % of the Company’s net revenues in the three months ended June 30, 2023 and 2022, respectively.

See “Note 12 — Segment and Geographic Information” for revenue by shipment destination.

The following table presents the Company’s revenue disaggregated by customer type.

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands)

Three Months Ended June 30,

(In thousands)

3 unchanged sentences

The following table sets forth the computation of basic and diluted net loss per share:

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands, except per share amounts)

Three Months Ended June 30,

(In thousands, except per share amounts)

6 unchanged sentences

Net loss per common share—Diluted

The following shares of common stock underlying outstanding stock options, determined on a weighted average basis, were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect:

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands)

The following shares of common stock underlying outstanding stock options and ESPP shares, determined on a weighted average basis, were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect:

Three Months Ended June 30,

(In thousands)

1 unchanged sentence

NOTE 4—BALANCE SHEET DETAIL

December 31, 2022

June 30, 2023

March 31, 2023

3 unchanged sentences

Inventory at distributors

December 31, 2022

June 30, 2023

March 31, 2023

2 unchanged sentences

Accounts receivable

Allowances for doubtful accounts and other

December 31, 2022

Allowances for credit losses

June 30, 2023

March 31, 2023

4 unchanged sentences

Other prepaid expenses and other current assets

December 31, 2022

June 30, 2023

March 31, 2023

6 unchanged sentences

Accumulated depreciation

Depreciation expense was $ 195,000 and $ 193,000 for the three months ended December 31, 2022 and 2021, respectively, and $ 588,000 and $ 577,000 for the nine months ended December 31, 2022 and 2021, respectively.

The following tables summarize the components of intangible assets and related accumulated amortization balances at December 31, 2022 and March 31, 2022 (in thousands):

As of December 31, 2022

Depreciation expense was $ 217,000 and $ 197,000 for the three months ended June 30, 2023 and 2022, respectively.

The following tables summarize the components of intangible assets and related accumulated amortization balances at June 30, 2023 and March 31, 2023 (in thousands):

As of June 30, 2023

Intangible assets:

3 unchanged sentences

Product designs

Amortization of intangible assets included in cost of revenues was $ 58,000 for each of the three months ended December 31, 2022 and 2021, and $ 175,000 for each of the nine months ended December 31, 2022 and 2021.

Amortization of intangible assets included in cost of revenues was $ 59,000 for the three months ended June 30, 2023 and 2022.

The Company reviews identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

1 unchanged sentence

Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.

The Company identified a potential impairment indicator for the finite lived intangible assets and performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of the asset group to the carrying amount as of December 31, 2022 and March 31, 2022.

The result of the recoverability tests indicated that the sum of the expected future cash flows was greater than the carrying amount of the finite lived intangible assets.

The result of the recoverability test indicated that the sum of the expected future cash flows was greater than the carrying amount of the finite lived intangible assets.

Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from the APU product could result in a non-cash impairment charge in future periods.

As of December 31, 2022, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):

As of June 30, 2023, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):

Fiscal year ending March 31,

2023 (remaining three months)

December 31, 2022

2024 (remaining nine months)

June 30, 2023

March 31, 2023

4 unchanged sentences

Income taxes payable

Outsourced design resources

Miscellaneous accrued expenses

On November 30, 2022, the Company announced cost reduction initiatives which included an approximate 15 % reduction in the Company’s global workforce.

The Company incurred $ 0.3 million in severance related charges during the three and nine months ended December 31, 2022 including $ 0.1 million recorded as cost of revenues and $ 0.2 million recorded as selling, general and administrative expense in the condensed consolidated statements of operations.

The Company expects to incur an additional $ 0.3 million in severance related charges during the three months ending March 31, 2023.

There were no severance charges accrued as of December 31, 2022 as the terms of the severance benefits have not been communicated to employees expected to be impacted.

There was no accrued severance as of March 31, 2022 and there were no severance charges incurred during the year ended March 31, 2022.

The Company incurred $ 0.3 million in severance related charges during fiscal 2023 including $ 0.1 million recorded as cost of revenues and $ 0.2 million recorded as selling, general and administrative expense.

There were no severance related charges in the three months ended June 30, 2023 and 2022.

The Company expects to incur an additional $ 0.3 million in severance related charges during the second quarter of fiscal 2024.

There were no severance charges accrued as of June 30, 2023 and March 31, 2023 as the terms of the severance benefits have not been communicated to employees expected to be impacted.

NOTE 5—GOODWILL

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The Company tests 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.

The Company has one reporting unit.

The Company assesses goodwill for impairment on an annual basis on the last day of February in the fourth quarter of its fiscal year.

Goodwill Impairment Test

The Company had a goodwill balance of $ 8.0 million as of both December 31, 2022 and March 31, 2022.

The Company has one reporting unit.

The Company had a goodwill balance of $ 8.0 million as of both June 30, 2023 and March 31, 2023.

The goodwill resulted from the acquisition of MikaMonu Group Ltd.

in fiscal 2016.

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

The Company concluded the sustained decline in its stock price was a triggering event and proceeded with a quantitative goodwill impairment assessment.

The quantitative impairment assessment was performed as of December 1, 2022, utilizing an equal weighting of the income approach and market comparable approach.

The analysis required the comparison of the Company’s carrying value with its fair value, with an impairment recorded for any excess of carrying value over the fair value.

The income approach utilized a discounted cash flow analysis to determine the fair value of the Company’s single reporting unit.

Key assumptions used in the discounted cash flow analysis included, but are not limited to, a discount rate of approximately 23.5 % to account for risk in achieving the forecast and a terminal growth rate for cash flows of 3.0 %.

The market comparable method was used to determine the fair value of the reporting unit by multiplying forecasted revenue by a market multiple.

The revenue market multiple was calculated by comparing the enterprise value to revenue for comparable companies in the semiconductor industry and then

applying a control premium.

The equal weighting of the income approach and the market comparable method was then reconciled to the market approach.

The market approach was calculated by multiplying the average closing share price of the Company’s common stock for the 30 days prior to the measurement date, by the number of outstanding shares of the Company’s common stock and adding a control premium that reflected the premium a hypothetical buyer might pay.

The control premium was estimated using historical acquisition transactions in the semiconductor industry over the past five years .

The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded its carrying value.

As a result, the Company concluded there was no goodwill impairment as of December 31, 2022.

A number of significant assumptions and estimates are involved in the income approach and the market comparable method.

The income approach assumes the future cash flows reflect market expectations.

The market comparable method requires an estimate of a revenue market multiple and an appropriate control premium.

These fair value measurements require significant judgements using Level 3 inputs, such as discounted cash flows from operations and revenue forecasts, which are not observable from the market, directly or indirectly.

There is uncertainty in the projected future cash flows used in the Company’s impairment analysis, which requires the use of estimates and assumptions.

If actual performance does not achieve the projections, if there is a further decline in the Company’s stock price, or if the assumptions used in the analysis change in the future, the Company may be required to recognize impairment charges in future periods.

Key assumptions in the market approach include determining the control premium .

The Company believes its procedures for determining fair value are reasonable and consistent with current market conditions as of December 31, 2022.

The Company completed its annual impairment test during the fourth quarter of fiscal 2023 and concluded that there was no impairment, as the fair value of its sole reporting unit exceeded its carrying value.

NOTE 6—INCOME TAXES

The current portion and long-term portion of the Company’s income tax liability related to unrecognized tax benefits was $ 0 at both December 31, 2022 and March 31, 2022.

As of December 31, 2022, $ 3.7 million of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets.

The current portion and long-term portion of the Company’s income tax liability related to unrecognized tax benefits was $ 0 at both June 30, 2023 and March 31, 2023.

As of June 30, 2023, $ 3.8 million of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets.

Due to historical losses in the United States, the Company has a full valuation allowance on its United States federal and state deferred tax assets.

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Fiscal years 2020, 2021, 2022 and 2023 are subject to audit by the Israeli tax authorities.

For the nine months ended December 31, 2022 and December 31, 2021, the Company incurred income tax expense (benefit) of $ 181,000 and ($ 66,000 ) on net losses before income taxes of ($ 11.8 million) and ($ 13.4 million), respectively.

The provision (benefit) was calculated using the annualized effective tax rate method.

The Company’s estimated annual effective income tax rate, including discrete items, was approximately ( 2.16 %) and 0.28 % as of December 31, 2022 and 2021, respectively.

The annual effective tax rates as of December 31, 2022 and 2021 vary from the United States statutory income tax rate primarily due to valuation allowances in the United States, whereby pre-tax losses do not result in the recognition of corresponding income tax benefits and expenses and the foreign tax differential.

For the three months ended June 30, 2023 and June 30, 2022, the Company incurred income tax expense of $ 51,000 and $ 60,000 on net losses before income taxes of ($ 5.1 million) and ($ 3.9 million), respectively.

The provision was calculated using the annualized effective tax rate method.

The Company’s estimated annual effective

income tax rate, including discrete items, was approximately ( 2.25 %) and ( 1.49 %) as of June 30, 2023 and 2022, respectively.

The annual effective tax rates as of June 30, 2023 and 2022 vary from the United States statutory income tax rate primarily due to valuation allowances in the United States, whereby pre-tax losses do not result in the recognition of corresponding income tax benefits and expenses and the foreign tax differential.

NOTE 7—FINANCIAL INSTRUMENTS

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The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market.

As of December 31, 2022, the Level 1 category included money market funds of $ 12.3 million, which were included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

As of June 30, 2023, the Level 1 category included money market funds of $ 10.4 million, which were included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date;

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The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers.

As of December 31, 2022, the Level 2 category included short-term investments of $ 3.3 million, which were comprised of certificates of deposit, government and agency securities.

As of June 30, 2023, the Level 2 category included short-term investments of $ 891,000 , which were comprised of certificates of deposit and government securities.

Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.

As of December 31, 2022, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu.

As of June 30, 2023, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu.

The fair value of the contingent consideration liability was initially determined as of the acquisition date using unobservable inputs.

These inputs included the estimated amount and timing of future cash flows, the probability of success (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8 % used to adjust the probability-weighted cash flows to their present value.

Significant increases (decreases) to the estimated amount and timing of future cash flows or the probability of success would result in a significantly higher (lower) fair value measurement.

These inputs included the estimated amount and timing of future cash flows, the probability achievement of the forecast and a risk-adjusted discount rate of approximately 14.8 % used to adjust the probability-weighted cash flows to their present value.

Significant increases (decreases) to the estimated amount and timing of future cash flows or the probability of achievement of the forecast would result in a significantly higher (lower) fair value measurement.

Conversely, a significant increase or (decrease) in the risk-adjusted discount rate would result in a significantly (lower) higher fair value measurement.

Generally, changes used in the assumptions for future cash flows and probability of success would be accompanied by a directionally similar change in the fair value measurement and expense.

Generally, changes used in the assumptions for future cash flows and probability of achievement of the forecast would be accompanied by a directionally similar change in the fair value measurement and expense.

Conversely, changes in the risk-adjusted discount rate would be accompanied by a directionally opposite change in the related fair value measurement and expense.

Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

During the most recent re-measurement of the contingent consideration liability as of December 31, 2022, the Company used a risk-adjusted discount rate of approximately 15.5 % to adjust the probability-weighted cash flows to their present value using probabilities ranging from 20 % to 90 % for the remaining contingent events.

The contingent consideration liability is included in contingent consideration, non-current on the Consolidated Balance Sheets at December 31, 2022 and March 31, 2022 in the amount of $ 1.9 million and $ 2.7 million, respectively.

During the most recent re-measurement of the contingent consideration liability as of June 30, 2023, the Company used a risk-adjusted discount rate of approximately 15.1 % to adjust the probability-weighted cash flows to their present value using probabilities ranging from 15 % to 90 % for the remaining contingent events.

The contingent consideration liability is included in contingent consideration, non-current on the Condensed Consolidated Balance Sheets at June 30, 2023 and March 31, 2023 in the amount of $ 1.0 million and $ 1.1 million, respectively.

The fair value of financial assets measured on a recurring basis is as follows (in thousands):

3 unchanged sentences

and Liabilities

December 31, 2022

June 30, 2023

Money market funds

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Contingent consideration

The following table sets forth the changes in fair value of contingent consideration for the nine months ended December 31, 2022 and 2021, respectively:

Nine Months Ended December 31,

The following table sets forth the changes in fair value of contingent consideration for the three months ended June 30, 2023 and 2022, respectively:

Three Months Ended June 30,

(In thousands)

4 unchanged sentences

Short-term and long-term investments

All of the Company’s short-term and long-term investments are classified as available-for-sale.

All of the Company’s short-term investments are classified as available-for-sale.

Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations.

Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets.

The Company had money market funds of $ 12.3 million and $ 16.1 million at December 31, 2022 and March 31, 2022, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

The Company had money market funds of $ 10.4 million and $ 7.8 million at June 30, 2023 and March 31, 2023, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

The following table summarizes the Company’s available-for-sale investments:

December 31, 2022

June 30, 2023

(In thousands)

9 unchanged sentences

Total short-term investments

Long-term investments:

Certificates of deposit

Supranational obligations

Total long-term investments

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position as of December 31, 2022 and March 31, 2022, respectively.

December 31, 2022

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that do not have an allowance for credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position as of June 30, 2023 and March 31, 2023, respectively.

June 30, 2023

Less Than 12 Months

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The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years .

All unrealized gains and losses are due to changes in interest rates and bond

All unrealized gains and losses are due to changes in interest rates and bond yields.

Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity.

The deferred tax asset related to unrecognized gains and losses on short-term and long-term investments was $ 19,000 and $ 22,000 at December 31, 2022 and March 31, 2022, respectively.

As of December 31, 2022, contractual maturities of the Company’s available-for-sale investments were as follows:

All available-for-sale investment securities are either fully insured or contractual terms of the investment do not permit the issuer to settle the security at a price less than the amortized cost of the investment.

The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis.

The deferred tax asset related to unrecognized gains and losses on short-term investments was $ 3,000 and $ 10,000 at June 30, 2023 and March 31, 2023, respectively.

As of June 30, 2023, contractual maturities of the Company’s available-for-sale investments were as follows:

(In thousands)

3 unchanged sentences

NOTE 8—LEASES

The Company has operating leases for corporate offices, research and development facilities, certain equipment and software.

The Company has operating leases for corporate offices and research and development facilities.

The Company’s leases have remaining lease terms of 8 months to 46 months , some of which include options to extend for up to 5 years .

On June 29, 2023, the Company entered into a lease agreement in Taiwan, wherein the lease for the Company’s existing office and warehouse space was extended through August 31, 2026.

The lease has been extended for a three-year period under substantially the same terms and conditions of the original lease agreement.

The Company identified this extension as a lease modification and reassessed the discount rate at the remeasurement date, at 3.9 % based on local rates in Taiwan, and the Company has remeasured its ROU asset and lease liability on the condensed consolidated balance sheet using the discount rate that applies as of the date of the modification.

Supplemental balance sheet information related to leases was as follows:

December 31, 2022

June 30, 2023

March 31, 2023

6 unchanged sentences

The following table provides the details of lease costs:

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands)

Three Months Ended June 30,

(In thousands)

2 unchanged sentences

The following table provides other information related to leases:

Nine Months Ended December 31,

Three Months Ended June 30,

(In thousands)

7 unchanged sentences

Operating leases

The following table provides the maturities of the Company’s operating lease liabilities as of December 31, 2022:

The following table provides the maturities of the Company’s operating lease liabilities as of June 30, 2023:

Operating Lease

(In thousands)

2023 (Remaining three months)

2024 (remaining nine months)

Total undiscounted future cash flows

8 unchanged sentences

Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements.

It is not possible to predict the maximum potential amount of future payments that may be required under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and

circumstances involved in each particular agreement.

Historically, payments made by the Company under these agreements have not had a material effect on its business, financial condition, cash flows or results of operations.

NOTE 10—STOCK-BASED COMPENSATION

As of December 31, 2022, 3,528,901 shares of common stock were available for grant under the Company’s Amended and Restated 2016 Equity Incentive Plan.

The following table summarizes the Company’s stock option activities for the nine months ended December 31, 2022:

As of June 30, 2023, 3,606,778 shares of common stock were available for grant under the Company’s Amended and Restated 2016 Equity Incentive Plan.

The following table summarizes the Company’s stock option activities for the three months ended June 30, 2023:

Number of Shares

1 unchanged sentence

Balance at March 31, 2023

( 1,420,537 )

( 1,057,642 )

Balance at December 31, 2022

Balance at June 30, 2023

Options vested and exercisable

1 unchanged sentence

The following table summarizes stock-based compensation expense by line item in the Condensed Consolidated Statements of Operations, all relating to employee stock plans:

Three Months Ended December 31,

Nine Months Ended December 31,

(In Thousands)

Three Months Ended June 30,

(In Thousands)

3 unchanged sentences

NOTE 11—RELATED PARTY TRANSACTION

The Company incurred non-recurring engineering service expense and production charges of approximately $ 201,000 and $ 349,000 during the nine months ended December 31, 2022 and 2021, respectively, from Wistron Neweb Corp (“WNC”) in connection with the manufacturing of single-APU PCIe boards, to be used in the Company’s in-place associative computing product.

The Company incurred non-recurring engineering service expense and production charges of approximately $ 0 and $ 57,000 during the three months ended June 30, 2023 and 2022, respectively, from Wistron Neweb Corp (“WNC”) in connection with the manufacturing of single-APU PCIe boards, to be used in the Company’s in-place associative computing product.

Haydn Hsieh, a member of the Company’s board of directors, is the Chairman and Chief Strategy Officer of WNC.

The amount owed to WNC, of $ 4,000 and $ 32,000 at December 31, 2022 and March 31, 2022, respectively, is included in accounts payable in the Condensed Consolidated Balance Sheets.

The amount owed to WNC, of $ 0 and $ 8,000 at June 30, 2023 and March 31, 2023, respectively, is included in accounts payable in the Condensed Consolidated Balance Sheets.

NOTE 12—SEGMENT AND GEOGRAPHIC INFORMATION

2 unchanged sentences

The following is a summary of net revenues by geographic area based on the location to which product is shipped:

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands)

Three Months Ended June 30,

(In thousands)

2 unchanged sentences

All sales are denominated in United States dollars.

NOTE 13—SUBSEQUENT EVENT

On August 1, 2023, the Company commenced a registered securities offering pursuant to a Sales Agreement (the “Sales Agreement”) with Needham & Company, LLC (“Needham”).

The Sales Agreement provides that the Company may offer and sell its common stock having an aggregate offering price of up to $ 25.0 million from time to time (the “Offering”) through Needham, acting as the Company’s sales agent.

The Company did no t receive any proceeds from the Offering during the quarter ended June 30, 2023.

From August 2, 2023 to August 7, 2023, the Company sold 133,000 shares at an average price of $ 4.20 for net proceeds of $ 542,000 .

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 1. Financial Statements