What changed in this filing

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Item 1A. Risk Factors

2023-11-08 compared with 2023-08-08 · 62 added, 56 removed, 395 unchanged (23% of the section changed)

11 unchanged sentences

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

● Rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment may continue to adversely affect our financial condition.

● Rising interest rates, worldwide inflationary pressures, the evolving conflict in Israel, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment may continue to adversely affect our financial condition.

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

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● 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.

● If we do not successfully implement certain cost reduction initiatives, we may suffer adverse impacts on our business and operations.

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

● 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.

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

● If we do not successfully implement certain cost reduction initiatives, we may suffer adverse impacts on our business and operations.

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

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

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

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

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Risks Related to Our International Business and Operations

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

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

● The international political, social and economic environment, including the risks for escalating military conflicts, particularly relating to Israel and Taiwan, may affect our business performance.

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

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

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

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

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

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

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

Risks Related to Our Business and Financial Condition

1 unchanged sentence

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, 2023, we recorded net revenues of as much as $9.0 million and as little as $5.4 million, and operating losses from $2.9 million to $5.1 million.

For example, in the ten fiscal quarters ended September 30, 2023, we recorded net revenues of as much as $9.0 million and as little as $5.4 million, and operating losses from $2.9 million to $5.1 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.

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We expect to experience additional price increases for raw materials in fiscal year 2024 due to worldwide inflationary pressures.

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

We may not be able to adjust our spending quickly if our revenues fall short of

our expectations.

If this were to occur, our operating results would be harmed.

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

Rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment 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.

Rising interest rates, worldwide inflationary pressures, the evolving conflict in Israel, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment 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 34%, 17%, 29% and 39% of our net revenues in the three months ended June 30, 2023 and in fiscal 2023, 2022 and 2021, respectively.

Purchases by Nokia represented approximately 27%, 17%, 29% and 39% of our net revenues in the six months ended September 30, 2023 and in fiscal 2023, 2022 and 2021, 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.

Rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the resulting decline in the global economic environment are expected to adversely affect our revenues, results of operations and financial condition.

Our business is expected to be materially adversely affected by rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine and the significant fluctuations in energy prices, all of which are contributing to a decline in the global economic environment.

Rising interest rates, worldwide inflationary pressures, the evolving conflict in Israel, the military conflict in Ukraine, significant fluctuations in energy prices and the resulting decline in the global economic environment are expected to adversely affect our revenues, results of operations and financial condition.

Our business is expected to be materially adversely affected by rising interest rates, worldwide inflationary pressures, the evolving conflict in Israel, the military conflict in Ukraine and the significant fluctuations in energy prices, all of which are contributing to a decline in the global economic environment.

Our quarterly revenues have been flat and trended downward in the past year due to the decline in the global economic environment that has resulted in less demand for GSI’s products.

We expect that a continued rise in interest rates, continued inflationary pressures, recent bank failures, continued uncertainties in the business climate caused by the military conflict in Ukraine and related fluctuations in energy prices will adversely impact demand for new and existing products, and to impact the mindset of potential commercial partners to launch new products using GSI’s technology.

We expect that a continued rise in interest rates, continued inflationary pressures, the evolving conflict in Israel , continued uncertainties in the business climate caused by the military conflict in Ukraine and related fluctuations in energy prices will adversely impact demand for new and existing products, and to impact the mindset of potential commercial partners to launch new products using GSI’s technology.

The resulting decline in the global economic environment is expected to have an adverse impact on our business and financial condition.

Disruptions in the capital and financial markets as a result of rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment 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.

Disruptions in the capital and financial markets as a result of rising interest rates, worldwide inflationary pressures, the evolving conflict in Israel, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment 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 $16.0 million, $16.4 million and $21.5 million during fiscal 2023, 2022 and 2021, respectively and a net loss of $5.1 million in the three months ended June 30, 2023.

We incurred net losses of $16.0 million, $16.4 million and $21.5 million during fiscal 2023, 2022 and 2021, respectively and a net loss of $9.2 million in the six months ended September 30, 2023.

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

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

This material weakness has not been remediated as of June 30, 2023.

This material weakness has not been remediated as of September 30, 2023.

Our management continues to take 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.

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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.

control over financial reporting or that they will prevent or avoid potential future material weaknesses.

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

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

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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 March 31, 2023 and June 30, 2023, we had a goodwill balance of $8.0 million and intangible assets of $1.8 million and $1.7 million at March 31, 2023 and June 30, 2023, respectively, from the MikaMonu acquisition.

As of March 31, 2023 and September 30, 2023, we had a goodwill balance of $8.0 million and intangible assets of $1.8 million and $1.7 million at March 31, 2023 and September 30, 2023, 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.

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.

In the fiscal year ended March 31, 2023, we identified sustained declines in our stock price that resulted in our market capitalization being below the carrying value of our stockholders’ equity.

1 unchanged sentence

The results of the quantitative goodwill impairment assessments that we performed indicated the fair value of our sole reporting unit exceeded its carrying value as of December 31, 2022, February 28, 2023 and March 31, 2023 .

The Company believes that no triggering event has taken place subsequent to the fiscal 2023 annual assessment.

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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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.

The establishment of new customer and partner relationships and selling our in-place associative

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

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

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

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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 time period.

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

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

The cost reduction initiatives are expected to be completed by September 30, 2023, and will result in an approximate 15% decrease in our global workforce.

The aim of these initiatives is to reduce our 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 cost reduction initiatives resulted in an approximate 15% decrease in our global workforce.

The aim of these initiatives was to

reduce our operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount, attrition 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.

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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

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

Our ability to compete successfully in this market depends on factors both within and outside of our control, including:

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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, 2023 and in fiscal 2023, 2022 and 2021, our largest distributor Avnet Logistics accounted for 43.6%, 48.1%, 38.0% and 29.8%, respectively, of our net revenues.

For example, in the six months ended September 30, 2023 and in fiscal 2023, 2022 and 2021, our largest distributor Avnet Logistics accounted for 45.4%, 48.1%, 38.0% and 29.8%, respectively, of our net revenues.

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

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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, 2023, three customers accounted for 37%, 24% and 23% of our accounts receivable, respectively.

At September 30, 2023, three customers accounted for 45%, 19% and 14% 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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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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The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.

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

There has been significant litigation in the semiconductor industry involving patents and other intellectual property rights.

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

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

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.

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

● stop selling our products that incorporate the challenged intellectual property;

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

● pay damages;

● redesign those products that use the disputed technology.

Although patent disputes in the semiconductor industry have often been settled through cross-licensing arrangements, we may not be able in any or every instance to settle an alleged patent infringement claim through a cross-licensing arrangement in part because we have a more limited patent portfolio than many of our competitors.

If a successful claim is made against us or any of our customers and a license is not made available to us on commercially reasonable terms or we are required to pay substantial damages or awards, our business, financial condition and results of operations would be materially adversely affected.

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

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Other than the MikaMonu and Sony acquisitions, we have not made any such acquisitions or investments, and therefore our experience as an organization in making such acquisitions and investments is limited.

In connection with the MikaMonu acquisition, we are subject to risks related to potential problems, delays or unanticipated costs that may be encountered in the development of products based on the MikaMonu technology and the establishment of new markets and customer relationships for the potential new products.

In addition, in connection with any future acquisitions or investments we may make, we face numerous other risks, including:

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The failure to recruit and retain necessary technical, managerial, sales, marketing and administrative personnel could harm our business and our ability to obtain new OEM customers and develop new products.

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

There has been significant litigation in the semiconductor industry involving patents and other intellectual property rights.

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

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:

● stop selling our products that incorporate the challenged intellectual property;

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

● pay damages;

● redesign those products that use the disputed technology.

Our business will suffer if we are unable to protect our intellectual property.

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Risks Related to Our International Business and Operations

The software development for our associative computing products occurs in Israel, and therefore our business performance and operations may be adversely affected by military conflict in Israel.

Our software development and certain regional sales activities for our APU product offerings occur in Israel.

Our Vice President, Associative Computing, along with a team of software development experts are based in our Israel facility.

This team is needed for the development of the various levels of software required in the use of our APU product offering.

Proof of concept customers for our SAR imagine processing acceleration system are also based in Israel.

We are closely monitoring developments in the evolving military conflict with Hamas that began on October 7, 2023 including potential impacts to our business, customers, employees and operations in Israel.

At this time, the impact on GSI Technology are uncertain and subject to change given the volatile nature of the situation, but adverse changes in the military conditions in Israel could harm our business and our stock price could decline.

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

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

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

ability and our suppliers’ ability to do business and operate facilities in Taiwan.

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

Our international business exposes us to additional risks.

Products shipped to destinations outside of the United States accounted for 44.7%, 51.4%, 53.5% and 55.4% of our net revenues in the three months ended June 30, 2023 and in fiscal 2023, 2022 and 2021, 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.

Products shipped to destinations outside of the United States accounted for 46.6%, 51.4%, 53.5% and 55.4% of our net revenues in the six months ended September 30, 2023 and in fiscal 2023, 2022 and 2021, 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 where there is an evolving military conflict with Hamas.

We intend to continue expanding our international business in the future.

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● fluctuations in freight rates and transportation disruptions;

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

Foreign Corrupt Practices Act and other U.

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

Foreign Corrupt Practices Act and other U.S.

and foreign anti-corruption laws;

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The recent COVID-19 global pandemic, along with the previous outbreaks of SARS, H1N1 and the Avian Flu, curtailed travel between and within countries, including in the Asia-Pacific region.

Outbreaks of new contagious diseases or the resurgence of existing diseases that significantly affect the Asia-Pacific region could disrupt the operations of our key suppliers and manufacturing partners.

Outbreaks of new

contagious diseases or the resurgence of existing diseases that significantly affect the Asia-Pacific region could disrupt the operations of our key suppliers and manufacturing partners.

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

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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, 2023 , our executive officers, directors and entities affiliated with them beneficially owned approximately 31% of our outstanding common stock.

As of October 31, 2023 , 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.

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As a result, the market price of our common stock and the voting and other rights of our stockholders might be adversely affected.

The issuance of preferred stock might result in the loss of voting control to

other stockholders.

The issuance of preferred stock might result in the loss of voting control to other stockholders.

We have no current plans to issue any shares of preferred stock.

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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, 2023, 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, 2023, 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