GSI
Annual Report 2011

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KGSI TECHNOLOGY INC - GSITFiled: June 04, 2012 (period: March 31, 2012)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2012or oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 For the transition period from toCommission File Number 000-33387GSI Technology, Inc.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 77-0398779(IRS EmployerIdentification No.)1213 Elko DriveSunnyvale, California 94089(Address of principal executive offices, zip code)(408) 331-8800(Registrant's telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which RegisteredCommon Stock, $0.001 par value The Nasdaq Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.See the definitions of "large accelerated filer," accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Act. (Check one):Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xThe aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, based upon the closing sale price of the commonstock on September 30, 2011, as reported on the Nasdaq Global Market, was approximately $102.0 million. Shares of the registrant's common stock held byeach officer and director and each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such personsmay be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of April 30, 2012,there were 27,396,363 shares of the registrant's common stock issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement for its 2012 annual meeting of stockholders are incorporated by reference into Part III hereof.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.2012 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS PagePART IItem 1. Business 4Item 1A. Risk Factors 15Item 1B. Unresolved Staff Comments 26Item 2. Properties 26Item 3. Legal Proceedings 27Item 4. Mine Safety Disclosures 27PART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 28Item 6. Selected Financial Data 29Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39Item 8. Financial Statements and Supplementary Data 41Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68Item 9A. Controls and Procedures 68Item 9B. Other Information 69PART IIIItem 10. Directors, Executive Officers and Corporate Governance 69Item 11. Executive Compensation 69Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 69Item 13. Certain Relationships and Related Transactions, and Director Independence 69Item 14. Principal Accountant Fees and Services 69PART IVItem 15. Exhibits and Financial Statement Schedules 70Signatures 72Forward-looking Statements In addition to historical information, this Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements involve risks and uncertainties. Forward-looking statements are identified by words such as "anticipates," "believes," "expects,""intends," "may," "will," and other similar expressions. In addition, any statements which refer to expectations, projections, or other characterizationsof future events, or circumstances, are forward-looking statements. Actual results could differ materially from those projected in the forward-lookingstatements as a result of a number of factors, including those set forth in this report under "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and "Risk Factors," those described elsewhere in this report, and those described in our other reports filed withthe Securities and Exchange Commission ("SEC"). We caution you not to place undue reliance on these forward-looking statements, which speak onlyas of the date of this report, and we undertake no obligation to update these forward-looking statements after the filing of this report. You are urged toreview carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt toadvise you of the risks and factors that may affect our business.3Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IItem 1. BusinessOverviewWe develop and market high performance memory products, including "Very Fast" static random access memory, or SRAM, and low latency dynamicrandom access memory, or LLDRAM, that are incorporated primarily in high-performance networking and telecommunications equipment, such as routers,switches, wide area network infrastructure equipment, wireless base stations and network access equipment. In addition, we serve the ongoing needs of themilitary, industrial, test equipment and medical markets for high-performance SRAMs. Based on the performance characteristics of our products and thebreadth of our product portfolio, we consider ourselves to be a leading provider of Very Fast SRAMs.We sell our products to leading original equipment manufacturer, or OEM, customers including Alcatel-Lucent, Cisco Systems and HuaweiTechnologies. We utilize a fabless business model, which allows us both to focus our resources on research and development, product design and marketing,and to gain access to advanced process technologies with only modest capital investment and fixed costs.We were incorporated in California in 1995 under the name Giga Semiconductor, Inc. We changed our name to GSI Technology in December 2003 andreincorporated in Delaware in June 2004 under the name GSI Technology, Inc. Our principal executive offices are located at 1213 Elko Drive, Sunnyvale,California, 94089, and our telephone number is (408) 331-8800.Industry BackgroundSRAM and LLDRAM Market OverviewVirtually all types of high-performance electronic systems incorporate some form of volatile memory. An SRAM is a memory device that retains data aslong as power is supplied, without requiring any further user intervention. Dynamic random access memory, or DRAM, is a memory device that loses itscharge when stored data is read from the memory and must be refreshed in order for the device to retain the data for future use. The act of reading a DRAMmemory bit drains off the charge in the cell. This is known as a destructive read and it must be followed immediately by an automatic re-write of the cell inorder for the DRAM cell to retain data for later use. A DRAM memory cell is much smaller than an SRAM memory cell. The fundamentally differentcharacteristics of SRAM and DRAM memory cells have resulted in the emergence of markedly different architectures for SRAM-based and DRAM-basedmemory products, and the two types of memory serve different applications. Classically, SRAM-based products have served high performance requirementswhile DRAM-based products have been used in cost-optimized applications. Today, SRAM- and DRAM-based products serve both performance and cost-based applications. As the volatile memory market fragments into a variety of specialized products, more meaningful distinctions between volatile memoryproducts can be made.There is an increasingly broad variety of volatile memory products on the market, characterized by a number of attributes, such as speed, memorycapacity, or density, and power consumption. There are several different industry measures of speed:•latency, also referred to as random access time, which is the delay between the request for data and the delivery of such data for use and ismeasured in nanoseconds, or ns, or when used to describe performance of synchronous memory products may be described in terms ofnumbers of clock cycles required between the load of an address and the delivery of valid data;•bandwidth, which is the rate at which data can be streamed to or from a device and is measured in gigabits per second, or Gb/s;•clock frequency, which is the cycle rate of a clock within a synchronous device and is measured in megahertz, or MHz;•transaction rate, which is the rate at which new commands can be executed by the memory device, and is measured in billions oftransactions per second, or BT/s.Historically, SRAMs have been utilized wherever other memory technologies have been inadequate. SRAMs demonstrate lower latency and support not-destructive reads, resulting in faster random access times, relative to DRAMs and other types of4Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsmemory technologies. Historically, the volatile memory market has had three price-performance nodes, DRAM at the low end, Fast SRAM at the high end andslow SRAM in the middle. Over the past few decades, less expensive alternatives have been introduced to address certain applications formerly using lowerperformance SRAMs. For example, new types of DRAM are now in the process of displacing lower performance SRAM products in applications such as cellphones. As a result, particularly in the networking memory market, a technology vacuum formed between Fast SRAMs on one end and DRAMs at the otherwith no high bandwidth, moderate latency, high transaction rate, moderate cost volatile memory product to fill the void. Low latency DRAMs, or LLDRAMs,are now poised to re-fill the substantial gap in the volatile memory market between commodity DRAMs that cannot meet the transaction rate requirement formany networking market applications and Fast SRAMs that cannot meet the density requirements for some networking applications. Like the Slow SRAMsthat came before them, LLDRAMs have a much higher price-per-bit cost than commodity DRAMs (in order to deliver higher transaction rates) but demonstratea significantly longer latency than Fast SRAMs. Interestingly, their value in the market seems to place them squarely in the price - performance rangesuccessfully occupied by Slow SRAMs a decade ago.The need for increasingly greater bandwidth from commodity DRAMs and the need for higher and higher transaction rates and higher data bandwidthfrom Fast SRAMs continues unabated as the networking market begins to make preparations for Terabit networking in the latter half of the current decade. Itis expected that both Fast SRAM and Low Latency DRAM optimized for networking applications will play an increasingly essential role in enabling continuedimprovements in network performance.As a result of the displacement of low performance SRAMs, the total market size for SRAMs is diminishing. However, due to their inherent higherlatency characteristics, DRAMs cannot match the random access speed of high-performance SRAMs. Gartner Dataquest divides the SRAM market intosegments based on speed. The highest performance segment is comprised of SRAMs that operate at speeds of less than 10 nanoseconds, which we refer to as"Very Fast SRAMs." Very Fast SRAMs are predominantly utilized in high-performance networking and telecommunications equipment.Increasing Need for Networking Memory ProductsGrowth in data, voice and video traffic has driven the need for both greater networking bandwidth and more complex routing and switching equipment,resulting in the continued expansion of the networking and telecommunications infrastructure. The continued growth in the level of Internet usage has led to theproliferation of a wide variety of equipment throughout the networking and telecommunications infrastructure, including routers, switches, wireless local areanetwork infrastructure equipment, wireless base stations and network access equipment and a demand for new equipment with faster and higher performance.Moving data in and out of high performance volatile memory is the core task of every piece of networking equipment. The access patterns or workload seen bymost of the memory arrays in networking equipment are often significantly different from those seen by memory devices used in the computer market, suchas the DRAMs used for main storage in PCs. As a result, distinct classes of memory products optimized for the demands of the networking market have beenemerging over the last ten years. The sharply rising demand for increasing worldwide network performance is expected to drive a continuing need for ever morespecialized memory products. High-performance networking and telecommunications equipment require a variety of memory types; both SRAM-based andDRAM-based. Some of the required memory arrays are internal to specialized processors or ASICs but many tasks require more bits than can beaccommodated on a processor or ASIC, and must be provided in some form of external volatile memory. SRAM-based and DRAM-based networking memoryproducts address this requirement. For example, in a typical router or switch, multiple networking-optimized memory devices are required to temporarily store,or buffer, data traffic and to provide rapid lookup of information in data tables. As networking equipment must increasingly support advanced traffic contentsuch as Voice over Internet Protocol, or VoIP, video streaming and bi-directional video, demand for even higher performance networking memory is expected tocontinue to increase.Demanding Requirements for Success in the Networking Memory MarketThe pressure on networking and telecommunications OEMs to bring higher performance equipment to market rapidly to support not only more trafficbut also more advanced traffic content is compounded by the requirement that this new equipment occupy no more space than the equipment it replaces,which results in increased circuit density and the need for low power operations. In response to these pressures, OEMs have increasingly relied on providersthat are capable of rapidly developing and introducing advanced, higher density, low power networking memory. The variety of memory applications withinthe networking and telecommunications markets has also driven a need for more specialized products available in relatively low volumes. These specializedproducts include high-speed synchronous memory products implemented in both SRAM and DRAM memory technologies with different density, latency andbandwidth capabilities. In general, OEMs prefer to work with a supplier who can address the full range of their high-performance networking memory productrequirements and, just as importantly, can offer the technical and logistic support necessary to sustain and accelerate their efforts.5Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe believe the key success factors for a networking memory vendor are the ability to offer a broad catalog of high-performance, high-quality and high-reliability networking memory products, to continuously introduce new products with higher speeds, lower power and greater densities, to maintain timelyavailability of prior generations of products for several years after their introductions, and to provide effective logistic and technical support throughout theirOEM customers' product development and manufacturing life cycles.The GSI SolutionWe endeavor to address the overall needs of our OEM customers, not only satisfying their immediate requirements for our latest generation, highestperformance networking memory, but also providing them with the ongoing long-term support necessary during the entire lives of the systems in which ourproducts are utilized. Accordingly, the key elements of our solution include:Innovative Product Performance LeadershipHigh Speed. Through the use of advanced architectures, design methodologies and silicon process technologies, we have developed a wide variety ofhigh-performance networking memories. Until recently, all of our products have been SRAM-based, but increased investment in high performance DRAM-based networking memory products has allowed us to increase our market share in the overall networking memory market. Our SRAM product line hasevolved from BurstRAMs with an average transaction rate of about 0.125BT/s to our latest SigmaQuad™-IIIe+ SRAMs that deliver a 1.35 BT/s transactionrate, the fastest SRAMs currently available. Our Low Latency DRAMs currently deliver a transaction rate of 0.533 BT/s and LLDRAMs with fastertransaction rates are under development. Our fastest SRAMs deliver over 102 Gb/s of raw data bandwidth per device, and our LLDRAMs deliver 38 Gb/s perdevice. Our SRAM products can produce data at latencies of less than 4 nanoseconds while LLDRAM latencies are as short as 15 ns. By providing higherperformance networking memory, we enable our networking and telecommunications customers to continually design and develop higher performanceproducts that support increasingly complex traffic content.Low Power Consumption. Many of our products require significantly less power than comparable products offered by our principal competitors.Because these products utilize less power and generate less heat, the reliability of the networking or telecommunications equipment in which they are employedincreases. Furthermore, the low power utilization of our products helps enable OEMs to add capabilities to their systems, which otherwise might not have beenpossible due to overall system power constraints.Process Technology Leadership. We maintain our own process engineering capability and resources, which are located in close physical proximity toour SRAM wafer manufacturing partner, Taiwan Semiconductor Manufacturing Company, or "TSMC." This enhances our ability to work closely withTSMC to develop modifications of the advanced process technologies used in the manufacturing of our Very Fast SRAMs in order to maximize productperformance, optimize yields, lower manufacturing costs and improve quality. Our most advanced 72 and 144 megabit, or Mb, synchronous Very FastSRAMs are manufactured using 65 nanometer process technology. Our initial LLDRAMs are produced using 72 nanometer DRAM process technology atPowerchip Technology Corporation, or "Powerchip." in Taiwan. We are currently developing 144 megabit and 288 megabit synchronous Very FastSRAMs using 40 nanometer process technology, which will allow us to further increase product performance, lower power consumption and reduce costs.Product Innovation. We believe that we have established a position as a technology leader in the design and development of Very Fast SRAMs. Wewere the first supplier to introduce 72-bit-wide SRAMs as single monolithic ICs. During fiscal 2010, we further solidified our position as a technology leaderby being the first vendor to ship 144 megabit monolithic SRAMs to customers and the first vendor to ship Type-IIIe SigmaQuad™ and SigmaDDR™SRAMs, the fastest SRAMs ever to reach the open market. In addition, we are the only vendor to offer a full line of Very Fast Synchronous SRAMs thatoperate and interface at 1.8 to 3.3 volts, giving our OEM customers the ability to use the same product in systems of theirs that operate at any voltage withinthat range. Moreover, for certain Very Fast Synchronous SRAMs, we are the only vendor to offer a product that operates at 1.8 volts, which usesapproximately one half to two-thirds the power of our competitors' 2.5 volt products. We intend to apply the same approaches we used to take the lead inSRAM-based networking memory to the continued development of our line of DRAM-based networking memory products.Broad and Readily Available Product PortfolioExtensive Product Catalog. The Very Fast SRAM market is highly fragmented in terms of product features and specifications. This is especiallytrue of the networking segment of the fast SRAM market and is becoming true of the LLDRAM segment as well. To meet our OEM customers' diverse needs,we have what we believe is the broadest catalog of6Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsVery Fast SRAM products currently available, and our LLDRAM product line further expands our position in the networking market. Our product lineincludes a wide range of products with varying densities, features, clock speeds, and voltages, as well as several operating temperature ranges and numerouspackage options in both 5/6 (leaded) and 6/6 (lead-free) versions, which are compliant with the European Union's Restriction on the Use of HazardousSubstances Directive 2002/95/EC.Advanced Feature Sets. Our products offer features that address a broad range of our networking and telecommunications OEMs' systemrequirements. Among these features is a JTAG test port, named for the IEEE Joint Test Action Group, which enables post-assembly verification of theconnection between our product and an OEM customer's system board, thereby allowing an OEM customer of ours to develop, test and ship their productsmore rapidly. Additionally, we offer our FLXDrive™ feature, which allows system designers to optimize the signal integrity for any given requirement. Wealso provide OEMs the ability to employ certain of our products in various modes of operation by using our products' mode control pins, thus increasing theflexibility of those products and their ready availability from our inventory.Superior Lifetime Availability of Products. Unlike the market for consumer electronics, the markets in which we compete, particularly thenetworking and telecommunications markets, generally are characterized by system designs that remain in production for extended periods of time, andmaintenance of those systems in the field for even longer periods is critical to their success. Our foundry-based manufacturing strategy, our process technologyselections, our master-die design strategy and the design of our packaging, burn-in and test work-flows all contribute to allow us to meet and exceed ourguarantee of providing a product life of at least seven years for any new product family we bring to market. These techniques also allow us to keep ourdelivery lead-times relatively short even for specialized, infrequently ordered members of those product families. We believe our approach is better suited toaddress the needs of our target markets than attempts to apply mass market manufacturing strategies to networking memory products.Multiple Temperature Grades. We offer both commercial and industrial temperature grades for all of our products. This ability to perform atspecification throughout the industrial temperature range of -40°C to +85°C is critical for memory products used in a broad variety of networking andtelecommunications applications, where the operating environments may be harsh. We now also offer a portfolio of off-the-shelf military temperature SRAMproducts and can also offer military customers additional and extended temperature grades upon request.Master Die MethodologyOur master die methodology enables multiple product families, and variations thereof, to be manufactured from a single mask set. As a result, basedupon the way available die from a wafer are metalized, wire bonded, packaged and tested, from 25 mask sets we have created over 15,000 different products.Using these mask sets, we produce wafers that can be further processed upon customer orders into the final specified product thereby significantly shorteningthe overall manufacturing time. For example, from a 72 megabit mask set, we can produce three families of 72 megabit SRAM products. Our uniquemethodology results in the following benefits:Rapid Order Fulfillment. We maintain a common pool of wafers that incorporate all available master die. Because we can typically create severaldifferent products from a single master die, we can respond to unforecasted customer orders more quickly than our competitors.Reduced Cost. Our master die methodology allows us to reduce our costs through the purchase of fewer mask sets by allowing faster and lessexpensive internal product qualifications, by enabling more cost-efficient use of engineering resources and by reducing the incidence of obsolete inventory.Customer ResponsivenessCustomer-driven Solutions. We work closely with leading networking and telecommunications OEMs, as well as their chip-set suppliers, to betteranticipate their requirements and to rapidly develop and implement solutions that allow them to meet their specific product performance objectives. Customerdemand drives our business. For example, to address near term needs, we offer critical specification variations, such as special operating ranges or wire bondoptions on currently available products, while we also design new families of products to meet their emerging long term needs. As a consequence, our portfolionot only includes the widest selection of catalog parts available, it also includes an extensive list of custom, customer-specific products. This degree ofresponsiveness enables us to provide our OEM customers with the exact products required for their applications.Accelerated Time-to-market. Our extensive open libraries of design support tools as well as our ability to deliver the specific device required forsystem prototyping with very short notice enables networking and telecommunication OEMs to7Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdesign and introduce differentiated products quickly as well as to reduce their development costs. Our open model libraries give designers access 24 hours aday, seven days a week to electrical and behavioral simulation models. Behavioral models are offered in both Verilog and very high speed integrated circuitshardware description language ("VHDL") format to better fit different customers' simulation environments, further streamlining the customers' developmentprocess.Quality and Reliability. Networking and telecommunications equipment typically have long product lives, and the cost to repair or replace thisequipment due to product failure at any time is prohibitively expensive. The high-quality and reliability of memory products incorporated in our OEMcustomers' products is, thus, critical. Every product family we offer is subjected to extensive long term reliability testing before receiving qualificationcertification, and every device shipped is first subjected to burn-in and then to final tests in which the device is operated beyond its specified operating voltageand temperature ranges.The GSI StrategyOur objective is to profitably increase our market share in the high performance memory market. Our strategy includes the following key elements:Continue to Focus on the Networking and Telecommunications Markets. We intend to continue to focus on designing and developing hightransaction rate, low latency, high bandwidth and feature-rich memory products targeted primarily at the networking and telecommunications markets.Increasing network complexity due to higher traffic volume and more advanced traffic content continues to drive OEMs' demand for high-performancenetworking memory. We believe our active high-performance memory product development and manufacturing expertise will continue to allow us to providenetworking and telecommunications OEMs with the early access to next generation Very Fast SRAMs and Low Latency DRAMS that offer superiorperformance, advanced feature sets and continued high reliability, which they need to allow them to design and develop new products that support increasinglycomplex traffic content and to bring networking and telecommunications equipment to market quickly.Strengthen and Expand Customer Relationships. We are focused on maintaining close relationships with industry leaders to facilitate rapid adoptionof our products and to enhance our position as a leading provider of high-performance memory. We work with both our customers and with their non-memoryIC suppliers that require high-performance memory support. We will continue to work with both groups at the pre-design and design stage of their projects inorder to anticipate their future high-performance memory needs and to identify and respond to their immediate requests for currently available products andvariants on currently available products. We plan to enhance our relationships with these leading OEMs and IC vendors and to develop similar relationshipswith additional OEMs and IC vendors.Continue to Invest in Research and Development to Extend Our Technology Leadership. We believe we have established a position as a technologyleader in the design and development of Very Fast SRAMs. Our Very Fast SRAM products most often provide the highest speed available at a given densityfor a given device configuration. We intend to maintain and advance our technology leadership through continual enhancement of our existing Very Fast SRAMproducts, particularly our SigmaQuad/SigmaDDR family of low latency, high-bandwidth synchronous SRAMs, while we continue to broaden our productline with the introduction of other new high performance memory technologies targeted to address the evolving needs of the high performance memory market.Collaborate with Wafer Foundries to Leverage Leading-edge Process Technologies. We will continue to rely upon advanced complementary metaloxide semiconductor, or CMOS, technologies, the most commonly used process technologies for manufacturing semiconductor devices, from TSMC forSRAM-based products and from Powerchip for DRAM-based products. We provide our technology partners with the sort of in-depth feedback for yield andperformance improvement that can best come from very large array structures like those found in our products. Our most advanced products currently inproduction were designed using 65 nanometer process technology on 300 millimeter wafers. We intend to continue to collaborate closely with TSMC in therefinement of 40 nanometer process technology.Exploit New Market Opportunities. While we design our Very Fast SRAMs and LLDRAMs specifically for the networking and telecommunicationsmarkets, our products are often applicable across a wide range of industries and applications. We have recently experienced growth in both the defense andmedical markets and intend to continue penetrating these and other new markets with similar needs for high-performance memory technologies.ProductsWe design, develop and market a broad range of high-performance memory products primarily for the networking and telecommunications markets. Wespecialize in high performance memory products featuring very high transaction rates, high8Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdensity, low latency, high bandwidth, fast clock access times and low power consumption. We continue to offer products for longer periods of time than ourcompetitors, typically seven years or more following their initial introduction. Accordingly, we continue to offer products in a variety of package types thathave been discontinued by other suppliers.We currently offer more than 30 families of SRAMs and two families of LLDRAMs. These basic product configurations are the basis for over 15,000individual products that incorporate a variety of performance specifications and optional features. Our products can be found in a wide range of networkingand telecommunications equipment, including multi-service access routers, universal gateways, enterprise edge routers, service provider edge routers, opticaledge routers, fast Ethernet switches, multi-gigabit Ethernet switches, wireless base stations, Asymmetric Digital Subscriber Line ("ADSL") modems, wirelesslocal area networks, Internet Protocol phones and OC192 layer 2 switches. We also sell our products to OEMs that manufacture products for defenseapplications such as radar and guidance systems, for professional audio applications such as sound mixing systems, for test and measurement applicationssuch as high-speed testers, for automotive applications such as smart cruise control and voice recognition systems, and for medical applications such asultrasound and CAT scan equipment.Synchronous SRAM ProductsSynchronous SRAMs are controlled by timing signals, referred to as clocks, which make them easier to use than older style asynchronousSRAMs with similar latency characteristics in applications requiring high bandwidth data transfers. Synchronous SRAMs that employ double data rateinterface protocols can transfer data at much higher bandwidth than both single data rate and asynchronous SRAMs. Our single data rate synchronousSRAMs feature clock access times as short as 2 nanoseconds and our double data rate synchronous SRAMs have clock access times as fast as 0.45nanoseconds. We currently supply synchronous SRAMs that can cycle at operating frequencies as high as 714 MHz.BurstRAM™ and NBT™ SRAMs. We currently offer BurstRAMs and No Bus Turnaround, or NBT, SRAMs that implement a single data rate busprotocol. BurstRAMs were originally developed for microprocessor cache applications and have become the most widely used synchronous SRAMs on themarket. They are used in applications where large amounts of data are read or written in single sessions, or bursts. NBT SRAMs are a variation on theBurstRAM theme that were developed to address the needs of moderate performance networking applications. NBT SRAMs feature a single data rate busprotocol designed to minimize or eliminate wasted data transfer time slots on the bus when BurstRAMs switch from read to write operations. Both families ofproducts can perform burst data transfers or single cycle transfers at the discretion of the user.Our BurstRAMs and NBT SRAMs are offered in both pipeline and flow-through modes. Flow-through SRAMs allow the shortest latency. PipelinedSRAMs break the access into discrete clock-controlled steps, allowing new access commands to be accepted while an access is already in progress. Therefore,while flow-through SRAMs offer lower latency, pipelined SRAMs offer greater data bandwidth. Our BurstRAM and NBT SRAM products incorporate anumber of features that reduce our OEM customers' cost of ownership and increase their design flexibility, including a JTAG test port and our FLXDrivefeature, which allows system designers to optimize signal integrity for a given application.We currently offer BurstRAMs and NBT SRAMs with storage densities of up to 144 megabits with clock frequency of up to 333 MHz and clock accesstimes as fast as 2 nanoseconds that operate at 3.3, 2.5 or 1.8 volts.SigmaQuad and SigmaDDR Products. High-performance double data rate and quad data rate synchronous SRAMs have become the de factostandard for the networking and telecommunications industry. We offer a full line of quad data rate SRAMs, our SigmaQuad family as well as double datarate common I/O versions of the same products, our SigmaDDR family SRAMs. SigmaQuad SRAMs are separate input/output, or I/O, synchronousSRAMs that features two uni-directional (one input and one output) double data rate data ports (two data ports times double data rate transfers equals quaddata rate), controlled via a single address and control port. We offer our SigmaQuad devices in two different bus protocol versions, two different power supplyand interface voltage versions, with two different data burst length options, all under the name SigmaQuad or SigmaQuad-II. The common I/O (a single bi-directional data port) double data rate SRAMs in the same family of products are known as SigmaDDR SRAMs. There is also an additional variant in thefamily that is designed to address some segments of the market currently served by dual-port SRAMs. These are known as SigmaSIO DDR SRAMs.We currently offer SigmaQuad/SigmaDDR products in four storage densities, 18 megabits, 36 megabits, 72 megabits and a market leading 144megabits, with clock frequency rates up to 675 MHz and clock access times as fast as 0.15 nanoseconds. These operate on main power supply voltages from2.5 volts to 1.35 volts and interface at voltages that range from 1.5 volts to 1.2 volts.SigmaRAM™ Products. We offer a family of high-performance, low voltage, synchronous SigmaRAM™ SRAM products designed for use innetworking and telecommunications systems. Our SigmaRAM products include the full range of9Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscommon I/O SRAM functionality, including late write and double late write protocols, pipelined read cycles, burst data transfers and double data rate read andwrite data transfers. We currently offer SigmaRAM products with storage density of 18 megabits, speeds of up to 350 MHz and clock access times as fast as1.7 nanoseconds that operate at 1.8 volts.Asynchronous SRAM ProductsUnlike synchronous SRAMs, asynchronous SRAMs employ a clock-free control interface. They are widely used in support of high-end digital signalprocessors, or DSPs. We believe we have one of the broadest portfolios of 3.3 volt, high-speed asynchronous SRAMs. These products are designed to meet thestringent power and performance requirements of networking and telecommunications applications, such as VoIP, cellular base stations, DSL line cards andmodems.We currently offer asynchronous SRAM products with a variety of storage densities between 1 megabit and 8 megabits and random access timesranging from 7 nanoseconds to 15 nanoseconds. All of our asynchronous SRAMs operate at 3.3 volts.We intend to regularly introduce new products with high-performance advanced features of increasing complexity. These product solutions will requireus to achieve volume production in a rapid timeframe. We believe that by using the advanced technologies offered by our fabrication partner and its expertise inhigh-volume manufacturing, we can rapidly achieve volume production. However, lead times for materials and components we order vary significantly anddepend on such factors as the specific supplier, contract terms and demand for a component at a given time.Low Latency DRAM ProductsOur low latency DRAM family fills an under-served market segment between commodity DRAMs and Fast SRAMs. Offering moderate density,moderate speed and moderate cost, LLDRAM technology gives system designers a middle choice when DRAMs are not good enough but Fast SRAMs are notnecessary. LLDRAMs offer one-third the latency of commodity DRAMs and four times the density of Fast SRAMs, giving networking equipment designersanother tool for solving difficult data management problems.Our current LLDRAM portfolio includes both 288 Megabit and 576 Megabit devices that operate on a 1.8 volt power supply and support both 1.8 voltand 1.5 volt interfaces. Each family includes five distinct configurations including common I/O and separate I/O types and data bus widths of x36, x18 andx9. These devices serve as an alternate source for users of a popular, functionally equivalent device from a competing vendor.CustomersOur primary sales and marketing strategy is to achieve design wins with OEM customers who are leading networking and telecommunicationscompanies. The following is a representative list of our OEM customers that directly or indirectly purchased more than $600,000 of our products in the fiscalyear ended March 31, 2012:Alcatel-Lucent Ciena Cisco SystemsEricsson Huawei Technologies MotorolaTellabs ZTE Many of our OEM customers use contract manufacturers to assemble their equipment. Accordingly, a significant percentage of our net revenues isderived from sales to these contract manufacturers and to consignment warehouses who purchase products from us for use by contract manufacturers. Inaddition, we sell our products to networking and telecommunications OEM customers indirectly through domestic and international distributors.In the case of sales of our products to distributors and consignment warehouses, the decision to purchase our products is typically made by the OEMcustomers. In the case of contract manufacturers, OEM customers typically provide a list of approved products to the contract manufacturer, which then hasdiscretion whether or not to purchase our products from that list.Direct sales to contract manufacturers and consignment warehouses accounted for 45.1%, 39.5% and 39.2% of our net revenues for fiscal 2012, 2011and 2010, respectively. Sales to foreign and domestic distributors accounted for 45.7%, 48.9% and 50.2% of our net revenues for fiscal 2012, 2011 and2010, respectively.10Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following direct customers accounted for 10% or more of our net revenues in one or more of the following periods: Fiscal Year EndedMarch 31, 2012 2011 2010Consignment warehouses: SMART Modular Technologies 11.4%5.8%20.8%Jabil Circuit 20.018.610.4 Flextronics 9.3 11.7 4.7Distributors: Avnet Logistics 20.117.021.7Nexcomm 11.210.89.6Cisco Systems, our largest OEM customer, purchases our products primarily through its consignment warehouses, SMART Modular Technologies,Jabil Circuit and Flextronics Technology, and also purchases some products through its contract manufacturers and directly from us. Based on informationprovided to us by Cisco Systems' consignment warehouses and contract manufacturers, purchases by Cisco Systems represented approximately 41%, 37%and 35% of our net revenues in fiscal 2012, 2011 and 2010, respectively. To our knowledge, none of our other OEM customers accounted for more that 10%of our net revenues in any of these periods.Sales, Marketing and Technical SupportWe sell our products primarily through our worldwide network of independent sales representatives and distributors. As of March 31, 2012, weemployed 19 sales and marketing personnel, and were supported by over 200 independent sales representatives. We believe that our relationship with our U.S.distributor, Avnet, puts us in a strong position to address the Very Fast SRAM and LLDRAM memory markets in the U.S. We currently have regional salesoffices located in Canada, China, Italy and the United States. We believe this international coverage allows us to better serve our distributors and OEMcustomers by providing them with coordinated support. We believe that our customers' purchasing decisions are based primarily on product performance,availability, features, quality, reliability, price, manufacturing flexibility and service. Many of our OEM customers have had long-term relationships with usbased on our success in meeting these criteria.Our sales are generally made pursuant to purchase orders received between one and six months prior to the scheduled delivery date. Because industrypractice allows customers to reschedule or cancel orders on relatively short notice, these orders are not firm and hence we believe that backlog is not a goodindicator of our future sales. We typically provide a warranty of up to 36 months on our products. Liability for a stated warranty period is usually limited toreplacement of defective products.Our marketing efforts are focused on increasing brand name awareness and providing solutions that address our customers' needs. Key components ofour marketing efforts include maintaining an active role in industry standards committees, such as the JEDEC Solid State Technology Association (formerlythe Joint Electron Device Engineering Council), or JEDEC, which is responsible for establishing detailed specifications that can be utilized in future systemdesigns. We believe that our participation in and sponsorship of numerous proposals within these committees have increased our profile among leadingmanufacturers in the networking and telecommunications segment of the Very Fast SRAM market. Our marketing group also provides technical, strategic andtactical sales support to our direct sales personnel, sales representatives and distributors. This support includes in-depth product presentations, datasheets,application notes, simulation models, sales tools, marketing communications, marketing research, trademark administration and other support functions.We emphasize customer service and technical support in an effort to provide our OEM customers with the knowledge and resources necessary tosuccessfully use our products in their designs. Our customer service organization includes a technical team of applications engineers, technical marketingpersonnel and, when required, product design engineers. We provide customer support throughout the qualification and sales process and continue providingfollow-up service after the sale of our products and on an ongoing basis. In addition, we provide our OEM customers with comprehensive datasheets,application notes and reference designs.11Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsManufacturingWe outsource our wafer fabrication, assembly and wafer sort testing, which enables us to focus on our design strengths, minimize fixed costs andcapital expenditures and gain access to advanced manufacturing technologies. Our engineers work closely with our outsource partners to increase yields,reduce manufacturing costs, and help assure the quality of our products.Currently, all of our wafers are manufactured by TSMC and Powerchip under individually negotiated purchase orders. We do not currently have a long-term supply contract with either of these foundries, and, therefore, neither of them is obligated to manufacture products for us for any specified period, in anyspecified quantity or at any specified price, except as may be provided in a particular purchase order. Our future success depends in part on our ability tosecure sufficient capacity at TSMC, Powerchip or other independent foundries to supply us with the wafers we require.Our newest, leading edge SRAM products are manufactured using 65 nanometer process technology at TSMC. The majority of our current SRAMproducts are manufactured using 0.13 micron and 90 nanometer process technologies on 300 millimeter wafers at TSMC. Our LLDRAM production atPowerchip uses 72 nanometer technology. We currently have seven separate product families in production. On-going development programs are underway toextend, expand and/or cost reduce most our product families, including two programs targeting 40 nanometer SRAM products and a project to extend the reachof our LLDRAM product line using a more aggressive DRAM process technology.Our master die methodology enables multiple product families, and variations thereof, to be manufactured from a single mask set. As a result, basedupon the way available die from a wafer are metalized, wire bonded, packaged and tested, we can create a number of different products. The manufacturingprocess consists of two phases, the first of which takes approximately eight to twelve weeks and results in wafers that have the potential to yield multipleproducts within a given product family. After the completion of this phase, the wafers are stored pending customer orders. Once we receive orders for aparticular product, we perform the second phase, consisting of final wafer processing, assembly, burn-in and test, which takes approximately six to tenweeks to complete. This two-step manufacturing process enables us to significantly shorten our product lead times, providing flexibility for customization andto increase the availability of our products.All of our manufactured wafers are tested for electrical compliance and most are packaged at Advanced Semiconductor Engineering, or ASE, which islocated in Taiwan. Our test procedures require that all of our products be subjected to accelerated burn-in and extensive functional electrical testing which isperformed in our Taiwan and U.S. test facilities.Research and DevelopmentThe design process for our products is complex. As a result, we have made substantial investments in computer-aided design and engineering resourcesto manage our design process. Research and development expenses were $10.6 million in fiscal 2012, $10.6 million in fiscal 2011 and $9.1 million in fiscal2010. Our research and development staff includes engineering professionals with extensive experience in the areas of SRAM design, DRAM design andsystems level networking and telecommunications equipment design. Our current development focus is on the SigmaQuad SRAM family and our family ofLLDRAM products.We are also leveraging our advanced design capabilities to expand into other networking and telecommunications products, including a channelized OC-3 processor that incorporates over 90 embedded SRAM modules. When completed, this single chip solution will be capable of simultaneously processingmultiple types of traffic at OC-3 bandwidth and, we believe, will offer power, chip count and cost advantages compared to traditional network processorsolutions. We have established a design center in Norcross, Georgia to focus on the development of these products.CompetitionOur existing competitors include many large domestic and international companies, some of which have substantially greater resources, offer other typesof memory and/or non-memory technologies and may have longer standing relationships with OEM customers than we do. Unlike us, some of our principalcompetitors maintain their own semiconductor fabs, which may, at times, provide them with capacity, cost and technical advantages.Our principal competitors include Cypress Semiconductor, Integrated Device Technology, Integrated Silicon Solution, REC and Samsung Electronics.While some of our competitors offer a broad array of memory products and offer some of their products at lower prices than we do, we believe that our focuson and performance leadership in low latency, high density Very Fast SRAMs provide us with key competitive advantages.12Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe believe that our ability to compete successfully in the rapidly evolving markets for memory products for the networking and telecommunicationsmarkets depends on a number of factors, including:•product performance, features, quality, reliability and price;•manufacturing flexibility, product availability and customer service throughout the lifetime of the product;•the timing and success of new product introductions by us, our customers and our competitors; and•our ability to anticipate and conform to new industry standards.We believe we compete favorably with our competitors based on these factors. However, we may not be able to compete successfully in the future with respectto any of these factors. Our failure to compete successfully in these or other areas could harm our business.The market for networking memory products is competitive and is characterized by technological change, declining average selling prices and productobsolescence. Competition could increase in the future from existing competitors and from other companies that may enter our existing or future markets withsolutions that may be less costly or provide higher performance or more desirable features than our products. This increased competition may result in pricereductions, reduced profit margins and loss of market share.In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures as well as new forms of DRAM and othernew memory technologies. Because we have limited experience developing IC products other than Very Fast SRAMs and LLDRAMs, any efforts by us tointroduce new products based on a new memory technology may not be successful and, as a result, our business may suffer.Intellectual PropertyOur ability to compete successfully depends, in part, upon our ability to protect our proprietary technology and information. We rely on a combinationof patents, copyrights, trademarks, trade secret laws, non-disclosure and other contractual arrangements and technical measures to protect our intellectualproperty. We currently hold eleven United States patents and have several patent applications pending. We do not consider our existing patents to be materiallyimportant to our business, and we cannot assure you that any patents will be issued as a result of our pending applications or that any patents issued will bevaluable to our business. We believe that factors such as the technological and creative skills of our personnel and the success of our ongoing productdevelopment efforts are more important than our patent portfolio in maintaining our competitive position. We generally enter into confidentiality or licenseagreements with our employees, distributors, customers and potential customers and limit access to our proprietary information. Our intellectual propertyrights, if challenged, may not be upheld as valid, may not be adequate to prevent misappropriation of our technology or may not prevent the development ofcompetitive products. Additionally, we may not be able to obtain patents or other intellectual property protection in the future. Furthermore, the laws of certainforeign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products orintellectual property rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our technology and products morelikely in these countries.The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which have resulted in significant andoften protracted and expensive litigation. We or our foundry from time to time are notified of claims that we may be infringing patents or other intellectualproperty rights owned by third parties. We are currently involved in patent infringement litigation. See Item 3. Legal Proceedings. We have been subject to otherintellectual property claims in the past and we may be subject to additional claims and litigation in the future. Litigation by or against us relating to allegationsof patent infringement or other intellectual property matters could result in significant expense to us and divert the efforts of our technical and managementpersonnel, whether or not such litigation results in a determination favorable to us. In the event of an adverse result in any such litigation, we could be requiredto pay substantial damages, cease the manufacture, use and sale of infringing products, expend significant resources to develop non-infringing technology,discontinue the use of certain processes or obtain licenses to the infringing technology. Licenses may not be offered or the terms of any offered licenses may notbe acceptable to us. If we fail to obtain a license from a third party for technology used by us, we could incur substantial liabilities and be required to suspendthe manufacture of products or the use by our foundry of certain processes.13Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsEmployeesAs of March 31, 2012, we had 137 full-time employees, including 74 engineers, of which 41 are engaged in research and development and 40 have PhDor MS degrees, 19 employees in sales and marketing, ten employees in general and administrative capacities and 66 employees in manufacturing. Of theseemployees, 57 are based in our Sunnyvale facility and 57 are based in our Taiwan facility. We believe that our future success will depend in large part on ourability to attract and retain highly-skilled, engineering, managerial, sales and marketing personnel. Our employees are not represented by any collectivebargaining unit, and we have never experienced a work stoppage. We believe that our employee relations are good.Investor InformationYou can access financial and other information in the Investor Relations section of our website at www.gsitechnology.com. We make available, on ourwebsite, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically orotherwise furnishing it to the SEC.The charters of our Audit Committee, our Compensation Committee, and our Nominating and Governance Committee, and our code of conduct(including code of ethics provisions that apply to our principal executive officer, principal financial officer, controller, and senior financial officers) are alsoavailable at our website under "Corporate Governance." These items are also available to any stockholder who requests them by calling (408) 331-8800. Thecontents of our website are not incorporated by reference in this report.The SEC maintains an Internet site that contains reports, proxy statements and other information regarding issuers that file electronically with the SECat www.sec.gov.Executive OfficersThe following table sets forth certain information concerning our executive officers as of June 1, 2011:Name Age TitleLee-Lean Shu 57 President, Chief Executive Officer and ChairmanDavid Chapman 56 Vice President, MarketingDidier Lasserre 47 Vice President, SalesDouglas Schirle 57 Chief Financial OfficerBor-Tay Wu 60 Vice President, Taiwan OperationsPing Wu 55 Vice President, U.S. OperationsRobert Yau 59 Vice President, Engineering, Secretary and Director Lee-Lean Shu co-founded our company in March 1995 and has served as our President and Chief Executive Officer and as a member of our Board ofDirectors since inception. In October 2000, Mr. Shu became Chairman of our Board. From January 1995 to March 1995, Mr. Shu was Director, SRAMDesign at Sony Microelectronics Corporation, a semiconductor company and a subsidiary of Sony Corporation, and from July 1990 to January 1995, hewas a design manager at Sony Microelectronics Corporation. David Chapman has served as our Vice President, Marketing since July 2002. From November 1998 to June 2002, Mr. Chapman served as ourDirector of Strategic Marketing and Applications Engineering. From February 1988 to November 1998, Mr. Chapman served in various product planningand applications engineering management capacities in the Memory Operation division and later the Fast SRAM division of Motorola Semiconductor ProductSector, Motorola, Inc., an electronics manufacturer. Mr. Chapman has been a member of JEDEC since 1985, and served as Chairman of its SRAMcommittee in 1999. Didier Lasserre has served as our Vice President, Sales since July 2002. From November 1997 to July 2002, Mr. Lasserre served as our Director ofSales for the Western United States and Europe. From July 1996 to October 1997, Mr. Lasserre was an account manager at Solectron Corporation, aprovider of electronics manufacturing services. From June 1988 to July 1996, Mr. Lasserre was a field sales engineer at Cypress Semiconductor, asemiconductor company.14Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Douglas Schirle has served as our Chief Financial Officer since August 2000. From June 1999 to August 2000, Mr. Schirle served as our CorporateController. From March 1997 to June 1999, Mr. Schirle was the Corporate Controller at Pericom Semiconductor Corporation, a provider of digital and mixedsignal integrated circuits. From November 1996 to February 1997, Mr. Schirle was Vice President, Finance for Paradigm Technology, a manufacturer ofSRAMs, and from December 1993 to October 1996, he was the Controller for Paradigm Technology. Mr. Schirle was formerly a certified public accountant. Bor-Tay Wu has served as our Vice President, Taiwan Operations since January 1997. From January 1995 to December 1996, Mr. Wu was a designmanager at Atalent, an IC design company in Taiwan. Ping Wu has served as our Vice President, U.S. Operations since September 2006. He served in the same capacity from February 2004 to April 2006.From April 2006 to August 2006, Mr. Wu was Vice President of Operations at QPixel Technology, a semiconductor company. From July 1999 to January2004, Mr. Wu served as our Director of Operations. From July 1997 to June 1999, Mr. Wu served as Vice President of Operations at Scan Vision, asemiconductor manufacturer. Robert Yau co-founded our company in March 1995 and has served as our Vice President, Engineering and as a member of our Board of Directorssince inception. From December 1993 to February 1995, Mr. Yau was design manager for specialty memory devices at Sony Microelectronics Corporation.From 1990 to 1993, Mr. Yau was design manager at MOSEL/VITELIC, a semiconductor company.Item 1A. Risk Factors Our future performance is subject to a variety of risks. If any of the following risks actually occur, our business, financial condition and results ofoperations could suffer and the trading price of our common stock could decline. Additional risks that we currently do not know about or that wecurrently believe to be immaterial may also impair our business operations. You should also refer to other information contained in this report,including our consolidated financial statements and related notes.Unpredictable fluctuations in our operating results could cause our stock price to decline.Our quarterly and annual revenues, expenses and operating results have varied significantly and are likely to vary in the future. For example, in thetwelve fiscal quarters ended March 31, 2012, we recorded net revenues of as much as $26.7 million and as little as $14.2 million and quarterly operatingincome of as much as $6.7 million and, in one quarter, an operating loss of $83,000. We therefore believe that period-to-period comparisons of our operatingresults 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 ourstock price. In future periods, we may not have any revenue growth, or our revenues could decline. Furthermore, if our operating expenses exceed ourexpectations, our financial performance could be adversely affected. Factors that may affect periodic operating results in the future include:•our ability to anticipate and conform to new industry standards.•unpredictability of the timing and size of customer orders, since most of our customers purchase our products on a purchase order basis rather thanpursuant to a long term contract;•changes in our customers' inventory management practices;•fluctuations in availability and costs associated with materials needed to satisfy customer requirements;•manufacturing defects, which could cause us to incur significant warranty, support and repair costs, lose potential sales, harm our relationshipswith customers and result in write-downs;•changes in our product pricing policies, including those made in response to new product announcements and pricing changes of our competitors;and•our ability to address technology issues as they arise, improve our products' functionality and expand our product offerings.Our expenses are, to a large extent, fixed, and we expect that these expenses will increase in the future. We will not be able to adjust our spending quicklyif 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 belowthe expectations of market analysts and investors, the15Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsprice of our common stock could fall.Cisco Systems, our largest OEM customer, accounts for a significant percentage of our net revenues. If Cisco Systems, or any of our othermajor customers reduce the amount they purchase or stop purchasing our products, our operating results will suffer.Cisco Systems, our largest OEM customer, purchases our products through SMART Modular Technologies, Jabil Circuit and Flextronics Technology,its consignment warehouses, through its contract manufacturers and directly from us. Based on information provided to us by its consignment warehousesand contract manufacturers, purchases by Cisco Systems represented approximately 41%, 37% and 35% of our net revenues in fiscal 2012, 2011 and 2010,respectively. We expect that our operating results in any given period will continue to depend significantly on orders from our key OEM customers,particularly Cisco Systems, and our future success is dependent to a large degree on the business success of these OEMs over which we have no control. Wedo not have long-term contracts with Cisco Systems or any of our other major OEM customers, distributors or contract manufacturers that obligate them topurchase our products. We expect that future direct and indirect sales to Cisco Systems will continue to fluctuate significantly on a quarterly basis and thatsuch fluctuations may significantly affect our operating results in future periods. If we fail to continue to sell to our key OEM customers, distributors orcontract manufacturers in sufficient quantities, our business could be harmed.We have incurred significant losses in prior periods and may incur losses in the future.We have incurred significant losses in prior periods. For example, in fiscal 2003 and 2004, we incurred losses of $7.4 million and $670,000,respectively. Although we have operated profitably during the last eight fiscal years, there can be no assurance that our Very Fast SRAMs will continue toreceive broad market acceptance or that we will be able to sustain revenue growth or profitability. Our failure to do so may result in additional losses in thefuture. In addition, we expect our operating expenses to increase as we expand our business. If our revenues do not grow to offset these expected increasedexpenses, our business will suffer.We depend upon the sale of our Very Fast SRAMs for most of our revenues, and a downturn in demand for these products couldsignificantly reduce our revenues and harm our business.We derive most of our revenues from the sale of Very Fast SRAMs, and we expect that sales of these products will represent the substantial majority ofour revenues for the foreseeable future. Our business depends in large part upon continued demand for our products in the markets we currently serve, andadoption of our products in new markets. Market adoption will be dependent upon our ability to increase customer awareness of the benefits of our productsand to prove their high-performance and cost-effectiveness. We may not be able to sustain or increase our revenues from sales of our products, particularly ifthe networking and telecommunications markets were to experience another significant downturn in the future. Any decrease in revenues from sales of ourproducts could harm our business more than it would if we offered a more diversified line of products.We are subject to the highly cyclical nature of the networking and telecommunications markets.Our products are incorporated into routers, switches, wireless local area network infrastructure equipment, wireless base stations and network accessequipment used in the highly cyclical networking and telecommunications markets. Our operating results declined sharply in fiscal 2002 and 2003 as a resultof the severe contraction in demand for networking and telecommunications equipment in which our products are incorporated. Prior to this period ofcontraction, the networking and telecommunications markets experienced a period of rapid growth, which resulted in a significant increase in demand for ourproducts. We expect that the networking and telecommunications markets will continue to be highly cyclical, characterized by periods of rapid growth andcontraction. Our business and our operating results are likely to fluctuate, perhaps quite severely, as a result of this cyclicality.We are subject to pending patent infringement litigation.In March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against us alleging that our products, includingour Sigma DDR and Sigma Quad families of Fast SRAMs, infringe five patents held by Cypress. The complaint seeks unspecified damages for pastinfringement and a permanent injunction against future infringement. On June 10, 2011, Cypress filed a complaint against GSI with the ITC. The ITCcomplaint, as subsequently amended, alleges infringement by GSI of three of the five patents involved in the District Court case and one additional patent andalso alleges infringement by three of our distributors and 11 of our customers who allegedly incorporate our SRAMs in their products. The ITC complaintseeks a limited exclusion order excluding the allegedly infringing SRAMs, and products containing them, from16Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsentry into the United States and permanent orders directing GSI and the other respondents to cease and desist from selling or distributing such products in theUnited States. On July 21, 2011, the ITC formally instituted an investigation in response to Cypress's complaint. The evidentiary hearing took place duringthe week of March 12, 2012, and the initial determination of the administrative law judge will be issued on or before July 28, 2012. The District Court casehas been stayed pending the conclusion of the ITC proceeding. We believe that we have strong defenses against Cypress's patent infringement claims and weintend to continue to defend ourselves vigorously in both proceedings. However, the litigation process is inherently uncertain, and we may not prevail. Patentlitigation is particularly complex and can extend for a protracted period of time, which can substantially increase the cost of such litigation. We have incurredand expect to continue to incur substantial legal fees and expenses in connection with this litigation, and related antitrust litigation that we have commencedagainst Cypress, and we also expect the litigation to continue to divert the efforts and attention of some of our key management and technical personnel. As aresult, the litigation, regardless of its eventual outcome, will be costly and time consuming. In addition, uncertainty regarding the outcome of the litigation maycause some of our customers and potential customers to reduce their purchases of our products and/or seek alternative or second sources of supply, whichcould adversely affect our revenues. Should the outcome of the ITC proceeding be adverse to us, we and the other respondents could be prohibited from sellingor distributing those of our products found to be infringing Cypress's patents, or end products containing them, in the United States, unless and until we areable to negotiate a license from Cypress. Should the District Court case resume and its outcome be adverse to us, we could be required to pay significantmonetary damages to Cypress and could be enjoined from selling those of our products found to infringe Cypress's patents unless and until we are able tonegotiate a license from Cypress. Any such license arrangement with Cypress would likely require the payment of royalties which would increase our costs ofrevenues and reduce our gross profit. If we and the other respondents are prohibited from selling our products, or end-products containing them, in the UnitedStates, or if we are required to pay significant monetary damages, are enjoined from selling any of our products or are required to make substantial royaltypayments pursuant to any such license arrangement, our business would be significantly harmed.The average selling prices of our products are expected to decline, and if we are unable to offset these declines, our operating results willsuffer.Historically, the average unit selling prices of our products have declined substantially over the lives of the products, and we expect this trend tocontinue. A reduction in overall average selling prices of our products could result in reduced revenues and lower gross margins. Our ability to increase our netrevenues and maintain our gross margins despite a decline in the average selling prices of our products will depend on a variety of factors, including ourability to introduce lower cost versions of our existing products, increase unit sales volumes of these products, and introduce new products with higher pricesand greater margins. If we fail to accomplish any of these objectives, our business will suffer. To reduce our costs, we may be required to implement designchanges that lower our manufacturing costs, negotiate reduced purchase prices from our independent foundries and our independent assembly and testvendors, and successfully manage our manufacturing and subcontractor relationships. Because we do not operate our own wafer foundry or assemblyfacilities, we may not be able to reduce our costs as rapidly as companies that operate their own foundries or facilities.Current unfavorable economic and market conditions, domestically and internationally, may adversely affect our business, financialcondition, results of operations and cash flows.We have significant customer sales both in the United States and internationally. We are also reliant upon U.S. and international suppliers,manufacturing partners and distributors. We are therefore susceptible to adverse U.S. and international economic and market conditions, including thechallenging economic conditions that have prevailed and continue to prevail in the United States and worldwide. The recent turmoil in the financial marketshas resulted in higher borrowing costs and tightened credit markets which have made it more difficult (in some cases, prohibitively so) for many companies tofund their working capital obligations. If any of our manufacturing partners, customers, distributors or suppliers experiences serious financial difficulties orceases operations, our business could be adversely affected. In addition, the adverse impact of the credit crisis on consumers, including higher unemploymentrates, is expected to adversely impact consumer spending, which will adversely impact demand for consumer products such as certain end products in whichour SRAMs are embedded. As a result of the difficulty that businesses (including our customers) may have in obtaining credit and the decreased consumerspending that may result from the credit market crisis, high unemployment rates and continued global economic and market turmoil are likely to have anadverse impact on our business, financial condition, results of operations and cash flows.We are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, our business will be harmed and ourprospects for growth will be curtailed.We currently purchase several key components used in the manufacture of our products from single sources and are17Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdependent upon supply from these sources to meet our needs. If any of these suppliers cannot provide components on a timely basis, at the same price or atall, our ability to manufacture our products will be constrained and our business will suffer. Most significantly, we obtain wafers for our Very Fast SRAMproducts from a single foundry, TSMC, and most of them are packaged at ASE. Wafers for our LLDRAM products are obtained from Powerchip. If we areunable to obtain an adequate supply of wafers from TSMC or Powerchip or find alternative sources in a timely manner, we will be unable to fulfill ourcustomer orders and our operating results will be harmed. We do not have supply agreements with TSMC, Powerchip, ASE or any of our other independentassembly 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 anyspecific time period. As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating results.Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted by natural disaster or political instability,choose to prioritize capacity or inventory for other uses or reduce or eliminate deliveries to us, we likely will not be able to enforce fulfillment of any deliverycommitments and we would have to identify and qualify acceptable replacements from alternative sources of supply. In particular, if TSMC is unable tosupply us with sufficient quantities of wafers to meet all of our requirements, we would have to allocate our products among our customers, which wouldconstrain our growth and might cause some of them to seek alternative sources of supply. Since the manufacturing of wafers and other components isextremely complex, the process of qualifying new foundries and suppliers is a lengthy process and there is no assurance that we would be able to find andqualify another supplier without materially adversely affecting our business, financial condition and results of operations.Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we may be required to enter into costlylong-term supply arrangements to secure foundry capacity.We do not have long-term supply agreements with TSMC or Powerchip, but instead obtain our wafers on a purchase order basis. In order to securefuture wafer supply from TSMC or Powerchip or from other independent foundries, we may be required to enter into various arrangements with them, whichcould include:•contracts that commit us to purchase specified quantities of wafers over extended periods;•investments in and joint ventures with the foundries; or•non-refundable deposits with or prepayments or loans to foundries in exchange for capacity commitments.We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements, if any, may not be on terms favorable to us.Moreover, even if we are able to secure independent foundry capacity, we may be obligated to use all of that capacity or incur penalties. These penalties may beexpensive and could harm our financial results.If we are unable to offset increased wafer fabrication costs by increasing the average selling prices of our products, our gross margins willsuffer.If there is a significant upturn in the networking and telecommunications markets that results in increased demand for our products and competingproducts, the available supply of wafers may be limited. As a result, we could be required to obtain additional manufacturing capacity in order to meetincreased demand. Securing additional manufacturing capacity may cause our wafer fabrication costs to increase. If we are unable to offset these increasedcosts by increasing the average selling prices of our products, our gross margins will decline.We rely heavily on distributors and our success depends on our ability to develop and manage our indirect distribution channels.A significant percentage of our sales are made to distributors and to contract manufacturers who incorporate our products into end products forOEMs. For example, in fiscal 2012, 2011 and 2010, our distributor Avnet Logistics accounted for 20.1%, 17.0% and 21.7%, respectively, of our netrevenues. Avnet Logistics and our other existing distributors may choose to devote greater resources to marketing and supporting the products of othercompanies. Since we sell through multiple channels and distribution networks, we may have to resolve potential conflicts between these channels. Forexample, these conflicts may result from the different discount levels offered by multiple channel distributors to their customers or, potentially, from our directsales force targeting the same equipment manufacturer accounts as our indirect channel distributors. These conflicts may harm our business or reputation.18Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe may be unable to accurately predict future sales through our distributors, which could harm our ability to efficiently manage ourresources to match market demand.Our financial results, quarterly product sales, trends and comparisons are affected by fluctuations in the buying patterns of the OEMs that purchaseour products from our distributors. While we attempt to assist our distributors in maintaining targeted stocking levels of our products, we may notconsistently be accurate or successful. This process involves the exercise of judgment and use of assumptions as to future uncertainties, including end userdemand. Inventory levels of our products held by our distributors may exceed or fall below the levels we consider desirable on a going-forward basis. Thiscould result in distributors returning unsold inventory to us, or in us not having sufficient inventory to meet the demand for our products. If we are not able toaccurately predict sales through our distributors or effectively manage our relationships with our distributors, our business and financial results will suffer.A small number of customers generally account for a significant portion of our accounts receivable in any period, and if any one of themfails to pay us, our operating results will suffer.At March 31, 2012, five customers accounted for 19%, 16%, 13%, 12% and 11% of our accounts receivable, respectively. If any of these customersdo not pay us, our operating results will be harmed. Generally, we do not require collateral from our customers.Our acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilute stockholder value and adverselyaffect our operating results.In August 2009, we consummated the acquisition of substantially all of the assets related to the SRAM memory device product line of SonyCorporation. In the future, we may make additional acquisitions or investments in companies, assets or technologies that we believe are complementary orstrategic. Prior to the Sony acquisition, we had not made any such acquisitions or investments, and therefore our experience as an organization in makingsuch acquisitions and investments is limited. In connection with future acquisitions or investments we may make, we face numerous risks, including:•difficulties in integrating operations, technologies, products and personnel;•diversion of financial and managerial resources from existing operations;•risk of overpaying for or misjudging the strategic fit of an acquired company, asset or technology;•problems or liabilities stemming from defects of an acquired product or intellectual property litigation that may result from offering the acquiredproduct in our markets;•challenges in retaining key employees to maximize the value of the acquisition or investment;•inability to generate sufficient return on investment;•incurrence of significant one-time write-offs; and•delays in customer purchases due to uncertainty.If we proceed with additional acquisitions or investments, we may be required to use a considerable amount of our cash, or to finance the transactionthrough debt or equity securities offerings, which may decrease our financial liquidity or dilute our stockholders and affect the market price of our stock. As aresult, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be harmed.Claims that we infringe third party intellectual property rights could seriously harm our business and require us to incur significant costs.In recent years, there has been significant litigation in the semiconductor industry involving patents and other intellectual property rights. We arecurrently involved in patent infringement litigation. See "We are subject to pending patent infringement litigation" above. We could become subject to additionalclaims or litigation in the future as a result of allegations that we infringe others' intellectual property rights or that our use of intellectual property otherwiseviolates the law. Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers, distributorsor manufacturers against the alleged infringement. Any such litigation regarding intellectual property could result19Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsin 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 tobe upheld, the consequences to us would be severe and 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; or•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 everyinstance to settle an alleged patent infringement claim through a cross-licensing arrangement. We have a more limited patent portfolio than many of ourcompetitors. 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 weare required to pay substantial damages or awards, our business, financial condition and results of operations would be materially adversely affected.Our business will suffer if we are unable to protect our intellectual property.Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret,copyright and trademark laws and non-disclosure and other contractual agreements to protect our proprietary rights. These agreements and measures may notbe sufficient to protect our technology from third-party infringement, or to protect us from the claims of others. Monitoring unauthorized use of our products isdifficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the lawsmay not protect our proprietary rights as fully as in the United States. Our attempts to enforce our intellectual property rights could be time consuming andcostly. Litigation may be necessary in order to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of theproprietary rights of others or to defend against claims of infringement. If competitors are able to use our technology without our approval or compensation, ourability to compete effectively could be harmed.The market for Very Fast SRAMs is highly competitive.The market for Very Fast SRAMs, which are used primarily in networking and telecommunications equipment, is characterized by price erosion, rapidtechnological change, cyclical market patterns and heightened foreign and domestic competition. Several of our competitors offer a broad array of memoryproducts and have greater financial, technical, marketing, distribution and other resources than we have. Some of our competitors maintain their ownsemiconductor fabrication facilities, which may provide them with capacity, cost and technical advantages over us. We cannot assure you that we will be ableto compete successfully against any of these competitors. Our ability to compete successfully in this market depends on factors both within and outside of ourcontrol, including:•real or perceived imbalances in supply and demand of Very Fast SRAMs;•the rate at which OEMs incorporate our products into their systems;•the success of our customers' products;•our ability to develop and market new products; and•the supply and cost of wafers.In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures and new forms of DRAM, or the emergence ofnew memory technologies that could enable the development of products that feature higher performance, lower cost or lower power capabilities. Additionally,the trend toward incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce future demand for VeryFast SRAM products. There can be no assurance that we will be able to compete successfully in the future. Our failure to compete successfully in these orother areas could harm our business.20Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe may experience difficulties in transitioning to smaller geometry process technologies and other more advanced manufacturing processtechnologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.In order to remain competitive, we expect to continue to transition the manufacture of our products to smaller geometry process technologies. Thistransition will require us to migrate to new manufacturing processes for our products and redesign certain products. The manufacture and design of ourproducts is complex, and we may experience difficulty in transitioning to smaller geometry process technologies or new manufacturing processes. Thesedifficulties could result in reduced manufacturing yields, delays in product deliveries and increased expenses. We are dependent on our relationships withTSMC and Powerchip to transition successfully to smaller geometry process technologies and to more advanced manufacturing processes. We cannot assureyou that TSMC or Powerchip will be able to effectively manage the transition or that we will be able to maintain our relationship with them. If we or TSMC orPowerchip experience significant delays in this transition or fail to implement these transitions, our business, financial condition and results of operationscould be materially and adversely affected.Manufacturing process technologies are subject to rapid change and require significant expenditures for research and development.We continuously evaluate the benefits of migrating to smaller geometry process technologies in order to improve performance and reduce costs.Historically, these migrations to new manufacturing processes have resulted in significant initial design and development costs associated with pre-productionmask sets for the manufacture of new products with smaller geometry process technologies. For example, in fiscal 2010 and 2011, we incurred $650,000 and$727,000, respectively, in research and development expense associated with pre-production mask sets, which were not later used in production as part of thetransition to our new 65 nanometer SRAM process technology and 72 nanometer DRAM process technology, respectively. We will incur similar expenses inthe future as we continue to transition our products to smaller geometry processes. The transition costs inherent in the transition to new manufacturing processtechnologies will adversely affect our operating results and our gross margin.Our products are complex to design and manufacture and could contain defects, which could reduce revenues or result in claims againstus.We develop complex products. Despite testing by us and our OEM customers, design or manufacturing errors may be found in existing or newproducts. These defects could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defectsmay also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product developmentefforts, result in a loss of market acceptance of our products and harm our relationships with our OEM customers. Our OEM customers could also seek andobtain damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly todefend.Defects in wafers and other components used in our products and arising from the manufacturing of these products may not be fully recoverable fromTSMC or other suppliers. For example, in the quarter ended December 31, 2005, we incurred a charge of approximately $900,000 related to the write-off ofinventory resulting from an error in the assembly process at one of our suppliers. This write-off adversely affected our operating results for fiscal 2006.Demand for our products may decrease if our OEM customers experience difficulty manufacturing, marketing or selling their products.Our products are used as components in our OEM customers' products. For example, Cisco Systems, our largest OEM customer, incorporates ourproducts in a number of its networking routers and switches. Accordingly, demand for our products is subject to factors affecting the ability of our OEMcustomers to successfully introduce and market their products, including:•capital spending by telecommunication and network service providers and other end users who purchase our OEM customers' products;•the competition our OEM customers face, particularly in the networking and telecommunications industries;•the technical, manufacturing, sales and marketing and management capabilities of our OEM customers;•the financial and other resources of our OEM customers; and21Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents•the inability of our OEM customers to sell their products if they infringe third-party intellectual property rights.As a result, if OEM customers reduce their purchases of our products, our business will suffer.Downturns in the semiconductor industry may harm our revenues and margins.The semiconductor industry is highly cyclical. The industry has experienced significant downturns, often in connection with, or in anticipation of,maturing product cycles of both semiconductor companies' and their customers' products and declines in general economic conditions. These downturns havebeen characterized by production overcapacity, high inventory levels and accelerated erosion of average selling prices. From time to time, the semiconductorindustry also has experienced periods of increased demand and production capacity constraints. Our operating results may suffer during the down portion ofthese cycles. Downturns in the semiconductor industry could cause our stock price to be volatile, and a prolonged decline in the industry could adverselyaffect our revenues. If we are unable to control our inventory levels or expenses adequately in response to reduced net sales, our results of operations would benegatively impacted.If we do not successfully develop new products to respond to rapid market changes due to changing technology and evolving industrystandards, particularly in the networking and telecommunications markets, our business will be harmed.If we fail to offer technologically advanced products and respond to technological advances and emerging standards, we may not generate sufficientrevenues to offset our development costs and other expenses, which will hurt our business. The development of new or enhanced products is a complex anduncertain process that requires the accurate anticipation of technological and market trends. In particular, the networking and telecommunications markets arerapidly evolving and new standards are emerging. We are vulnerable to advances in technology by competitors, including new SRAM architectures, newforms of DRAM and the emergence of new memory technologies that could enable the development of products that feature higher performance or lower cost.We may experience development, marketing and other technological difficulties that may delay or limit our ability to respond to technological changes, evolvingindustry standards, competitive developments or end-user requirements. For example, because we have limited experience developing integrated circuits, or IC,products other than Very Fast SRAMs, our efforts to introduce new products may not be successful and our business may suffer. Other challenges that weface include:•our products may become obsolete upon the introduction of alternative technologies;•we may incur substantial costs if we need to modify our products to respond to these alternative technologies;•we may not have sufficient resources to develop or acquire new technologies or to introduce new products capable of competing with futuretechnologies;•new products that we develop may not successfully integrate with our end-users' products into which they are incorporated;•we may be unable to develop new products that incorporate emerging industry standards;•we may be unable to develop or acquire the rights to use the intellectual property necessary to implement new technologies; and•when introducing new or enhanced products, we may be unable to manage effectively the transition from older products.Our products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.Our products are generally incorporated in our OEM customers' products at the design stage. However, their decisions to use our products often requiresignificant expenditures by us without any assurance of success, and often precede volume sales, if any, by a year or more. If an OEM customer decides atthe design stage not to incorporate our products into their products, we will not have another opportunity for a design win with respect to that customer'sproduct for many months or years, if at all. Our sales cycle can take up to 24 months to complete, and because of this lengthy sales cycle, we may experiencea delay between increasing expenses for research and development and our sales and marketing efforts and the generation of volume production revenues, ifany, from these expenditures. Moreover, the value of any design win will largely depend on the commercial success of our OEM customers' products. Therecan be no assurance that we will continue to achieve design wins or that any design win will result in future revenues.22Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAny significant order cancellations or order deferrals could adversely affect our operating results.We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significantpenalty. Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results ofoperations. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence andrestrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shippedproducts or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materiallyand adversely affect our operating results.As our business grows, such growth may place a significant strain on our management and operations and, as a result, our business maysuffer.We plan to continue expanding our business, and our expected growth could place a significant strain on our management systems, infrastructureand other resources. To manage the expected growth of our operations and increases in the number of our personnel, we will need to invest the necessary capitalto improve our operational, financial and management controls and our reporting systems and procedures. Our controls, systems and procedures might not beadequate to support a growing public company. In addition, we may not have sufficient administrative staff to support our operations. For example, wecurrently have only five employees in our finance department in the United States, including our Chief Financial Officer. Furthermore, our officers havelimited experience in managing large or rapidly growing businesses and the majority of our management had no previous experience in managing a publiccompany or communicating with securities analysts and public company investors prior to the initial public offering of our common stock in 2007. If ourmanagement fails to respond effectively to changes in our business, our business may suffer.Our international business exposes us to additional risks.Products shipped to destinations outside of the United States accounted for 76.5%, 70.3% and 68.9% of our net revenues in fiscal 2012, 2011 and2010, respectively. Moreover, a substantial portion of our products is manufactured and tested in Taiwan. We intend to continue expanding our internationalbusiness in the future. Conducting business outside of the United States subjects us to additional risks and challenges, including:•heightened price sensitivity from customers in emerging markets;•compliance with a wide variety of foreign laws and regulations;•legal uncertainties regarding taxes, tariffs, quotas, export controls, competition, export licenses and other trade barriers;•political and economic instability in, or foreign conflicts that involve or affect, the countries of our customers;•difficulties in collecting accounts receivable and longer accounts receivable payment cycles;•difficulties in staffing and managing personnel, distributors and representatives;•limited protection for intellectual property rights in some countries; and•fluctuations in freight rates and transportation disruptions.Moreover, our reporting currency is the U.S. dollar. However, a portion of our cost of revenues and our operating expenses is denominated in currencies otherthan the U.S. dollar, primarily the New Taiwanese dollar. As a result, appreciation or depreciation of other currencies in relation to the U.S. dollar could resultin transaction gains or losses that could impact our operating results. We do not currently engage in currency hedging activities to reduce the risk of financialexposure from fluctuations in foreign exchange rates.TSMC and Powerchip, as well as our other independent suppliers and many of our OEM customers have operations in the Pacific Rim, anarea subject to significant earthquake risk and adverse consequences related to the potential outbreak of contagious diseases such as the H1N1Flu.The foundries that manufactures our Fast SRAM and LLDRAM products, TSMC and Powerchip, and all of the principal23Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsindependent suppliers that assemble and test our products are located in Taiwan. Many of our customers are also located in the Pacific Rim. The risk of anearthquake in these Pacific Rim locations is significant. The occurrence of an earthquake or other natural disaster near the fabrication facilities of TSMC orour other independent suppliers could result in damage, power outages and other disruptions that impair their production and assembly capacity. Anydisruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift ourmanufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. In such an event, we may not be ableto obtain alternate foundry capacity on favorable terms, or at all.The outbreak of SARS in 2003 curtailed travel to and from certain countries, primarily in the Asia-Pacific region, and limited travel within thosecountries. If there were to be another outbreak of a contagious disease, such as SARS or the H1N1 Flu, that significantly affected the Asia-Pacific region, theoperations of our key suppliers could be disrupted. In addition, our business could be harmed if such an outbreak resulted in travel being restricted, as it wasduring parts of 2003, or if it adversely affected the operations of our suppliers or our OEM customers or the demand for our products or our OEM customers'products.Changes in Taiwan's political, social and economic environment may affect our business performance.Because much of the manufacturing and testing of our products is conducted in Taiwan, our business performance may be affected by changes inTaiwan's political, social and economic environment. For example, any political instability resulting from the relationship among the United States, Taiwanand the People's Republic of China could damage our business. 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, taxesand other matters could change, resulting in greater restrictions on our ability and our suppliers' ability to do business and operate facilities in Taiwan. If anyof these changes were to occur, our business could be harmed and our stock price could decline.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 togethereffectively in order to design our products, expand our business, increase our revenues and improve our operating results. Members of our senior managementteam have long-standing and important relationships with our key customers and suppliers. The loss of services of Lee-Lean Shu, our President and ChiefExecutive Officer, Robert Yau, our Vice President of Engineering, any other executive officer or other key employee could significantly delay or prevent theachievement of our development and strategic objectives. We do not have employment contracts with, nor maintain key person insurance on, any of ourexecutive officers.If we are unable to recruit or retain qualified personnel, our business and product development efforts could be harmed.We must continue to identify, recruit, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing and administrativepersonnel. Competition for these individuals is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. Wemay encounter difficulties in recruiting and retaining a sufficient number of qualified engineers, which could harm our ability to develop new products andadversely impact our relationships with existing and future end-users at a critical stage of development. 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.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 dilutionto existing stockholders.We may need to seek additional funding in the future. We do not know if we will be able to obtain additional financing on favorable terms, if at all. If wecannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities orrespond to competitive pressures or unanticipated requirements, and we may be required to reduce operating costs, which could seriously harm our business.In addition, if we issue equity securities, our stockholders may experience additional dilution or the new equity securities may have rights, preferences orprivileges senior to those of our common stock.24Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOur products are incorporated into advanced military electronics, and changes in international geopolitical circumstances and domesticbudget considerations may hurt our business.Some of our products are incorporated into advanced military electronics such as radar and guidance systems. Military expenditures and appropriationsfor such purchases have risen significantly in recent years. However, should the current conflict in Afghanistan and the general war on terror subside, ouroperating results would likely suffer. Domestic budget considerations may also adversely affect our operating results. For example, if governmentalappropriations for military purchases of electronic devices that include our products are reduced, our revenues will likely decline.If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, whichcould adversely affect our operating results, our ability to operate our business and investors' views of us.Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statementson a timely basis is a costly and time-consuming process. On a continuous basis, we update our internal controls documentation and, where appropriate,improve our internal controls and procedures. Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness ofour internal control over financial reporting and a report by our independent registered public accounting firm addressing the effectiveness of our internalcontrol over financial reporting. Both we and our independent registered public accounting firm test our internal controls and, as part of that documentationand testing process, identify areas for further attention and improvement. Implementing any appropriate changes to our internal controls may entail substantialcosts in order to modify our existing financial and accounting systems, take a significant period of time to complete, and distract our officers, directors andemployees from the operation of our business. These changes may not, however, be effective in maintaining the adequacy of our internal controls. Any failureto maintain that adequacy, or a consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs, materiallyimpair our ability to operate our business, and adversely affect our stock price.Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which canbe expensive, and may affect our business and operating results.We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous and toxicmaterials. 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 berequired to incur substantial investigation or remediation costs, which could be material, or experience disruptions in our operations, any of which could havea material adverse effect on our business. In addition, environmental laws could become more stringent over time imposing greater compliance costs andincreasing risks and penalties associated with violations, which could harm our business.We also face increasing complexity in our product design as we adjust to new and future requirements relating to the materials composition of ourproducts, including the restrictions on lead and other hazardous substances applicable to specified electronic products placed on the market in the EuropeanUnion (Restriction on the Use of Hazardous Substances Directive 2002/95/EC, also known as the RoHS Directive). We also expect that our operations will beaffected by other new environmental laws and regulations on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws andregulations, they will likely result in additional costs, and could require that we change the design and/or manufacturing of our products, any of which couldhave a material adverse effect on our business.The trading price of our common stock is subject to fluctuation and is likely to be volatile.The trading price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control,including:•actual or anticipated declines in operating results;•changes in financial estimates or recommendations by securities analysts;•the institution of legal proceedings against us or significant developments in such proceedings;•announcements by us or our competitors of financial results, new products, significant technological innovations, contracts, acquisitions, strategicrelationships, joint ventures, capital commitments or other events;25Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents•changes in industry estimates in demand for Very Fast SRAM products;•the gain or loss of significant orders or customers;•recruitment or departure of key personnel; and•market conditions in our industry, the industries of our customers and the economy as a whole.In recent years the stock market in general, and the market for technology stocks in particular, have experienced extreme price fluctuations, which haveoften been unrelated to the operating performance of affected companies. The market price of our common stock might experience significant fluctuations in thefuture, including fluctuations unrelated to our performance. These fluctuations could materially adversely affect our business relationships, our ability toobtain future financing on favorable terms or otherwise harm our business. In addition, in the past, securities class action litigation has often been broughtagainst a company following periods of volatility in the market price of its securities. This risk is especially acute for us because the extreme volatility ofmarket prices of technology companies has resulted in a larger number of securities class action claims against them. Due to the potential volatility of ourstock price, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention andresources. This could harm our business and cause the value of our stock to decline.Our executive officers, directors and entities affiliated with them hold a substantial percentage of our common stock.As of April 30, 2012, our executive officers, directors and entities affiliated with them beneficially owned approximately 25% of our outstandingcommon stock. As a result, these stockholders will be able to exercise substantial influence over, and may be able to effectively control, matters requiringstockholder approval, including the election of directors and approval of significant corporate transactions, which could have the effect of delaying orpreventing 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 themarket price of our common stock could be lower as a result.Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock. Our Board of Directors can fix the price, rights,preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stockmight delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholdersmight be adversely affected. The issuance of preferred stock might result in the loss of voting control to other stockholders. We have no current plans to issueany shares of preferred stock. Our charter documents also contain other provisions, which might discourage, delay or prevent a merger or acquisition,including:•our stockholders have no right to remove directors without cause;•our stockholders have no right to act by written consent;•our stockholders have no right to call a special meeting of stockholders; and•stockholders must comply with advance notice requirements to nominate directors or submit proposals for consideration at stockholder meetings.These provisions could also have the effect of discouraging others from making tender offers for our common stock. As a result, these provisions mightprevent the market price of our common stock from increasing substantially in response to actual or rumored takeover attempts. These provisions might alsoprevent changes in our management.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur executive offices, our principal administration, marketing and sales operations and a portion of our research and26Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdevelopment operations are located in approximately 44,277 square feet of space in Sunnyvale, California, which we acquired in fiscal 2010. In addition, weoccupy approximately 25,250 square feet in a facility located in Hsin Chu, Taiwan under a lease expiring in August 2012. This facility supports ourmanufacturing activities. We believe that we will be able to renew the lease of our Taiwan facility on commercially reasonable terms and that both ourSunnyvale and Taiwan facilities are adequate for our needs for the foreseeable future. We also lease space in Georgia and Texas. The aggregate annual grossrent for our facilities was approximately $371,000 in fiscal 2012.Item 3. Legal ProceedingsIn March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against us in the United States District Court forthe District of Minnesota alleging that our products, including our Sigma DDR and Sigma Quad families of Fast SRAMs, infringe five patents held byCypress. The complaint seeks unspecified damages for past infringement and a permanent injunction against future infringement.On June 10, 2011, Cypress filed a complaint against GSI with the United States International Trade Commission (the “ITC”). The ITC complaint, assubsequently amended, alleges infringement by GSI of three of the five patents involved in the District Court case and one additional patent and also allegesinfringement by three of our distributors and 11 of our customers who allegedly incorporate our SRAMs in their products. The ITC complaint seeks a limitedexclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the United States and permanent orders directingGSI and the other respondents to cease and desist from selling or distributing such products in the United States. On July 21, 2011, the ITC formallyinstituted an investigation in response to Cypress's complaint. Two of the distributor-respondents and ten of the customer-respondents were subsequentlydismissed from the investigation. The evidentiary hearing took place during the week of March 12, 2012, and the initial determination of the administrativelaw judge will be issued on or before July 28, 2012. The District Court case has been stayed pending the conclusion of the ITC proceeding.On July 22, 2011, we filed a complaint against Cypress in the United States District Court for the Northern District of California. Our complaintalleges that Cypress has conducted an unlawful combination and conspiracy to monopolize the market for certain high-performance SRAM devices, knownas fast synchronous Quad Data Rate (or QDR) SRAMs and Double Data Rate (or DDR) SRAMs. The complaint alleges that the anti-competitive, collusiveand conspiratorial conduct of Cypress and certain co-conspirators has violated Section 1 of the Sherman Act and also constitutes unlawful restraint of tradeand unfair competition under applicable provisions of California law. The complaint seeks treble damages, in an amount to be determined at trial, apreliminary and permanent injunction prohibiting the continuation of the unfair and illegal business practices and recovery of GSI's attorneys' fees and costs.Cypress has moved to dismiss the complaint, we have opposed the motion and it is pending a decision by the court.We believe that we have strong defenses against Cypress's patent infringement claims, and we intend to continue to defend ourselves vigorously in inboth patent infringement proceedings while vigorously prosecuting our antitrust claims against Cypress. However, the litigation process is inherentlyuncertain, and we may not prevail. Patent litigation is particularly complex and can extend for a protracted period of time, which can substantially increase thecost of such litigation. We have incurred and expect to continue to incur substantial legal fees and expenses in connection with the Cypress patent and antitrustlitigation, and we also expect the litigation to continue to divert the efforts and attention of some of our key management and technical personnel. As a result,the litigation, regardless of its eventual outcome, will be costly and time consuming. In addition, uncertainty regarding the outcome of the litigation may causesome of our customers and potential customers to reduce purchases of our products and/or seek second sources of supply, which could adversely affect ourrevenues. Should the outcome of the ITC proceeding be adverse to us, we and the other respondents could be prohibited from selling or distributing those ofour products found to be infringing Cypress's patents, or end products containing them, in the United States, unless and until we are able to negotiate a licensefrom Cypress. Should the District Court case resume and its outcome be adverse to us, we could be required to pay significant monetary damages to Cypressand could be enjoined from selling those of our products found to infringe Cypress's patents unless and until we are able to negotiate a license from Cypress.Any such license arrangement with Cypress would likely require the payment of royalties which would increase our cost of revenues and reduce our grossprofit. If we and the other respondents are prohibited from selling our products, or end products containing them, in the United States, or if we are required topay significant monetary damages, are enjoined from selling any of our products or are required to make substantial royalty payments pursuant to any suchlicense arrangement, our business would be significantly harmed.Item 4. Mine Safety DisclosuresNot applicable.27Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock has traded on the Nasdaq Global Market under the symbol "GSIT" since our initial public offering on March 29, 2007. Thefollowing table sets forth, for the periods indicated, the high and low sales prices for our common stock on such market.Fiscal Year Ended March 31, 2011 High LowFirst quarter $6.93 $4.65Second quarter $7.08 $5.50Third quarter $8.24 $5.61Fourth quarter $10.20 $8.02Fiscal Year Ended March 31, 2012 First quarter $9.20 $6.17Second quarter $7.39 $4.55Third quarter $5.21 $4.55Fourth quarter $5.09 $4.18Holders of Common StockOn May 24, 2012, the closing price of our common stock on the Nasdaq Global Market was $4.20, and there were 43 holders of record of our commonstock. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number ofstockholders represented by these record holders.Dividend PolicyWe have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings to finance the growth anddevelopment of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future.Securities Authorized for Issuance under Equity Compensation PlansPlease see Part III, Item 12 of this report for information regarding securities authorized for issuance under our equity compensation plans. Suchinformation is incorporated by reference from our definitive proxy statement for our 2011 annual meeting of stockholders.Issuer Purchases of Equity SecuritiesOn November 6, 2008, our Board of Directors authorized us to repurchase, at management's discretion, up to $10 million of our common stock. OnJanuary 25, 2012, the Board authorized the repurchase of additional shares having an aggregate purchase price of up to $10 million. Under the repurchaseprogram, we may repurchase shares from time to time on the open market or in private transactions. The specific timing and amount of the repurchases willbe dependent on market conditions, securities law limitations and other factors. The repurchase program may be suspended or terminated at any time withoutprior notice. Below is a summary of our common stock repurchases during the quarter ended March 31, 2012.28Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPeriod SharesRepurchased Average PricePer Share Value of Shares thatMay Yet BeRepurchased Underthe ProgramBeginning approximate dollar value available to be repurchased as ofDecember 31, 2011 $1,381,510 Dollar value available reflecting January 25, 2012 increase $11,381,510 January 1 to January 31, 2012 94,038 4.67 10,942,765February 1 to February 29, 2012 130,043 4.87 10,309,159March 1 to March 31, 2012 178,492 4.45 9,515,550 Total shares repurchased 402,573 Ending approximate dollar value that may be repurchased under the programas of March 31, 2012 $9,515,550 Item 6. Selected Financial DataYou should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Conditionand Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this report. The selected consolidatedstatement of operations data set forth below for the fiscal years ended March 31, 2012, 2011 and 2010 and the selected consolidated balance sheet data as ofMarch 31, 2012 and 2011 are derived from, and are qualified by reference to, our audited consolidated financial statements included elsewhere in this report.The selected consolidated statement of operations data set forth below for the fiscal years ended March 31, 2009 and 2008 and the selected consolidatedbalance sheet data as of March 31, 2010, 2009 and 2008 are derived from audited consolidated financial statements not included in this report.29Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Fiscal Year Ended March 31, 2012 2011 2010 2009 2008 (In thousands, except per share amounts)Consolidated Statement of Operations Data: Net revenues $82,540 $97,763 $67,558 $62,108 $53,170Cost of revenues 45,891 53,009 38,342 35,552 31,847Gross profit 36,649 44,754 29,216 26,556 21,323Operating expenses: Research and development 10,637 10,632 9,069 5,737 4,365Selling, general and administrative 19,356 10,722 9,534 9,295 9,464Total operating expenses 29,993 21,354 18,603 15,032 13,829Income from operations 6,656 23,400 10,613 11,524 7,494Interest and other income (expense), net 525 461 1,965 1,363 1,784Income before income taxes 7,181 23,861 12,578 12,887 9,278Provision for income taxes 425 4,985 2,195 3,598 2,505Net income $6,756 $18,876 $10,383 $9,289 $6,773Basic and diluted net income per share available to commonstockholders: Basic $0.24 $0.67 $0.38 $0.33 $0.25Diluted $0.23 $0.64 $0.38 $0.33 $0.24Weighted average shares used in per share calculations: Basic 28,497 28,013 27,105 27,735 27,537Diluted 29,496 29,685 27,688 28,836 28,624 March 31, 2012 2011 2010 2009 2008 (In thousands)Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments $58,678 $51,985 $46,778 $47,337 $39,565Working capital 82,684 80,035 63,047 59,754 55,070Total assets 143,117 141,917 113,128 92,673 88,315Total stockholders' equity 128,779 124,680 98,719 84,705 77,140Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ substantiallyfrom those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere inthis report. The following discussion should be read together with our consolidated financial statements and the related notes included elsewhere inthis report.OverviewWe are a fabless semiconductor company that designs, develops and markets Very Fast static random access memories, or SRAMs, and low latencydynamic random access memories, or LLDRAMs, primarily for the networking and telecommunications markets. We are subject to the highly cyclical natureof the semiconductor industry, which has experienced significant fluctuations, often in connection with fluctuations in demand for the products in whichsemiconductor devices are used. Beginning in fiscal 2001, the networking and telecommunications markets experienced an extended period of severecontraction, during which our operating results sharply declined. Between fiscal 2004 and fiscal 2006, demand for networking and telecommunicationsequipment recovered. During the first three quarters of fiscal 2007, demand for such equipment accelerated and, as a result, our operating results improved. Inthe fourth quarter of fiscal 2007 and the first quarter of fiscal 2008, revenues again declined due, in part, to the implementation of a “lean manufacturing”program by our largest customer,30Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCisco Systems. Our revenues have been substantially impacted by the fluctuations in sales to Cisco Systems, and we expect that future direct and indirectsales to Cisco Systems will continue to fluctuate significantly on a quarterly basis. The worldwide financial crisis and the resulting economic impact on theend markets we serve adversely impacted our financial results since the second half of fiscal 2009, and we expect that the unsettled global economicenvironment will continue to affect our operating results in future periods. However, with no debt, substantial liquidity and a history of positive cash flowsfrom operations, we believe we are in a better financial position than many other companies of our size.Revenues. Our revenues are derived primarily from sales of our Very Fast SRAM products. Sales to networking and telecommunicationsOEMs accounted for 75% to 80% of our net revenues during our last three fiscal years. We also sell our products to OEMs that manufacture products fordefense applications such as radar and guidance systems, for professional audio applications such as sound mixing systems, for test and measurementapplications such as high-speed testers, for automotive applications such as smart cruise control and voice recognition systems, and for medical applicationssuch as ultrasound and CAT scan equipment.As is typical in the semiconductor industry, the selling prices of our products generally decline over the life of the product. Our ability to increase netrevenues, therefore, is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higheraverage selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products. Although we expect theaverage selling prices of individual products to decline over time, we believe that, over the next several quarters, our overall average selling prices will increasedue to a continuing shift in product mix to a higher percentage of higher price, higher density products. Our ability to increase unit sales volumes is dependentprimarily upon increases in customer demand but, particularly in periods of increasing demand, can also be affected by our ability to increase productionthrough the availability of increased wafer fabrication capacity from TSMC and Powerchip, our wafer suppliers, and our ability to increase the number ofgood integrated circuit die produced from each wafer through die size reductions and yield enhancement activities.We may experience fluctuations in quarterly net revenues for a number of reasons. Historically, orders on hand at the beginning of each quarter areinsufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery. Accordingly, we depend onobtaining and shipping orders in the same quarter to achieve our revenue objectives. In addition, the timing of product releases, purchase orders and productavailability could result in significant product shipments at the end of a quarter. Failure to ship these products by the end of the quarter may adversely affectour operating results. Furthermore, our customers may delay scheduled delivery dates and/or cancel orders within specified timeframes without significantpenalty.We sell our products through our direct sales force, international and domestic sales representatives and distributors. Revenues from product sales,except for sales to distributors, are generally recognized upon shipment, net of sales returns and allowances. Sales to consignment warehouses, who purchaseproducts from us for use by contract manufacturers, are recorded upon delivery to the contract manufacturer. Sales to distributors are recorded as deferredrevenues for financial reporting purposes and recognized as revenues when the products are resold by the distributors to the OEM. Sales to distributors aremade under agreements allowing for returns or credits under certain circumstances. We therefore defer recognition of revenue on sales to distributors untilproducts are resold by the distributor.Historically, a small number of OEM customers have accounted for a substantial portion of our net revenues, and we expect that significant customerconcentration will continue for the foreseeable future. Many of our OEMs use contract manufacturers to manufacture their equipment. Accordingly, asignificant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses. In addition, a significantportion of our sales are made to foreign and domestic distributors who resell our products to OEMs, as well as their contract manufacturers. Direct sales tocontract manufacturers and consignment warehouses accounted for 45.1%, 39.5% and 39.2% of our net revenues for fiscal 2012, 2011 and 2010,respectively. Sales to foreign and domestic distributors accounted for 45.7%, 48.9% and 50.2% of our net revenues for fiscal 2012, 2011 and 2010,respectively. The following direct customers accounted for 10% or more of our net revenues in one or more of the following periods:31Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Fiscal Year EndedMarch 31, 2012 2011 2010Consignment warehouses: SMART Modular Technologies 11.4%5.8%20.8%Jabil Circuit 20.0%18.6%10.4% Flextronics 9.3% 11.7% 4.7%Distributors: Avnet Logistics 20.1%17.0%21.7%Nexcomm 11.2%10.8%9.6%Cisco Systems, our largest OEM customer, purchases our products primarily through its consignment warehouses, SMART Modular Technologies,Jabil Circuit and Flextronics Technology, and also purchases some products through its contract manufacturers and directly from us. Historically, purchasesby Cisco Systems have fluctuated from period to period. Based on information provided to us by Cisco Systems' consignment warehouses and contractmanufacturers, purchases by Cisco Systems represented approximately 41%, 37% and 35% of our net revenues in fiscal 2012, 2011 and 2010, respectively.Our revenues have been substantially impacted by the fluctuations in sales to Cisco Systems, and we expect that future direct and indirect sales to CiscoSystems will continue to fluctuate significantly on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods.To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in fiscal 2012, 2011 or 2010.Cost of Revenues. Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly, test and burn-in expenses, the amortizedcost of production mask sets, stock-based compensation and the cost of materials and overhead from operations. All of our wafer manufacturing andassembly operations, and a significant portion of our wafer sort testing operations, are outsourced. Accordingly, most of our cost of revenues consists ofpayments to TSMC and independent assembly and test houses. Because we do not have long-term, fixed-price supply contracts, our wafer fabrication andother outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors. Cost of revenues also includes expenses related tosupply chain management, quality assurance, and final product testing and documentation control activities conducted at our headquarters in Sunnyvale,California and our branch operations in Taiwan.Gross Profit. Our gross profit margins vary among our products and are generally greater on our higher density products and, within a particulardensity, greater on our higher speed and industrial temperature products. We expect that our overall gross margins will fluctuate from period to period as aresult of shifts in product mix, changes in average selling prices and our ability to control our cost of revenues, including costs associated with outsourcedwafer fabrication and product assembly and testing.Research and Development Expenses. Research and development expenses consist primarily of salaries and related expenses for design engineers andother technical personnel, the cost of developing prototypes, stock-based compensation and fees paid to consultants. We charge all research and developmentexpenses to operations as incurred. We charge mask costs used in production to costs of revenues over a 12-month period. However, we charge costs related topre-production mask sets, which are not used in production, to research and development expenses at the time they are incurred. These charges often arise aswe transition to new process technologies and, accordingly, can cause research and development expenses to fluctuate on a quarterly basis. We believe thatcontinued investment in research and development is critical to our long-term success, and we expect to continue to devote significant resources to productdevelopment activities. Accordingly, we expect that our research and development expenses will increase in future periods, although such expenses as apercentage of net revenues may fluctuate.Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of commissions paid to independentsales representatives, salaries, stock-based compensation and related expenses for personnel engaged in sales, marketing, administrative, finance and humanresources activities, professional fees, costs associated with the promotion of our products and other corporate expenses. We expect that our sales andmarketing expenses will increase in absolute dollars in future periods as we continue to grow and expand our sales force but that, to the extent our revenuesincrease in future periods, these expenses will generally decline as a percentage of net revenues. We also expect that, in support of our continued growth and ouroperations as a public company, general and administrative expenses will continue to increase in absolute dollars for the foreseeable future. General andadministrative expenses increased significantly in fiscal 2012, primarily as a result of substantial legal expense related to our pending patent infringement andantitrust litigation with Cypress Semiconductor Corporation. Although we expect these expenses to be substantially reduced during the quarter ending June 30,32Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents2012, pending the anticipated issuance in July of an initial determination in the ITC proceeding, legal expenses may again become substantial in futurequarters if the litigation continues.AcquisitionOn August 28, 2009, we acquired substantially all of the assets related to the SRAM memory device product line of Sony Corporation and itssubsidiaries (collectively, "Sony"). As part of the transaction, we also entered into an Intellectual Property Agreement with Sony under which we acquiredcertain patents and license rights to other intellectual property used in connection with the acquired product line.The acquisition was undertaken in order to increase our market share in the SRAM memory business, expand our relationships with our majorcustomers and expand our product portfolio. The acquisition resulted in a bargain purchase as Sony had been incurring significant losses on an annual basis,had a minimal product offering, had only one customer and declining annual revenues at the time of the acquisition and was therefore motivated to sell theassets of its SRAM product line.We adopted authoritative guidance for business combinations as a result of this acquisition. The acquisition has been accounted for as a purchase underauthoritative guidance for business combinations. Acquisition related costs of approximately $533,000 incurred in connection with this acquisition have beenexpensed in accordance with the authoritative guidance and are included in selling, general and administrative expenses in the Consolidated Statement ofOperations for the year ended March 31, 2010. Contingent consideration was recognized at the date of the acquisition and recorded at its fair value. Changes tothe fair value of the contingent consideration subsequent to September 30, 2009 have been recorded in general and administrative expense and amounted to$105,000, $64,000 and $47,000 in fiscal 2010, 2011 and 2012, respectively.The purchase price of the acquisition has been preliminarily allocated to the net tangible and intangible assets acquired, with the excess of the fair valueof assets acquired over the purchase price recorded as a bargain purchase gain.The results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statementsbeginning August 29, 2009.The total purchase consideration was approximately $7.1 million in cash, of which approximately $5.2 million was paid at the closing, $1.2 millionwas paid in October 2009 following a post-closing adjustment to reflect actual product inventory on hand at the closing and $727,000 consisted of contingentconsideration that was payable on the basis of sales of certain acquired SRAM products over an eight quarter period commencing with the quarter endedSeptember 30, 2009, the quarter in which we first derived revenue from shipments of such products.The allocation of the purchase price to acquired tangible and identifiable intangible assets was based on their estimated fair values at the date ofacquisition.Prior to the closing of the acquisition, there were no material relationships between us and Sony or any related parties or affiliates of Sony.33Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsResults of OperationsThe following table sets forth statement of operations data as a percentage of net revenues for the periods indicated: Fiscal Year Ended March 31, 2012 2011 2010Net revenues 100.0% 100.0% 100.0%Cost of revenues 55.6 54.2 56.8Gross profit 44.4 45.8 43.2Operating expenses: Research and development 12.9 10.9 13.4Selling, general and administrative 23.5 11.0 14.1Total operating expenses 36.4 21.9 27.5Income from operations 8.0 23.9 15.7Interest and other income (expense), net 0.6 0.5 2.9Income before income taxes 8.6 24.4 18.6Provision for income taxes 0.5 5.1 3.2Net income 8.1% 19.3% 15.4%Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011Net Revenues. Net revenues decreased by 15.6% from $97.8 million in fiscal 2011 to $82.5 million in fiscal 2012 largely as a result of excessinventories accumulated by our customers in fiscal 2011 and drawn down in fiscal 2012. Direct and indirect sales to Cisco Systems, our largest customer,decreased by $2.8 million from $36.2 million in fiscal 2011 to $33.4 million in fiscal 2012. Net revenues in fiscal 2012 included $20.7 million from the saleto Cisco of products acquired in our August 28, 2009 acquisition of the Sony SRAM memory device product line, compared to $14.6 million in fiscal 2011.Shipments of our SigmaQuad product line accounted for 34.5% of total shipments in fiscal 2012 compared to 31.7% of total shipments in fiscal 2011. Webelieve net revenues in the third and fourth quarters of fiscal 2012 were negatively impacted by uncertainty regarding the outcome of our pending patentlitigation with Cypress Semiconductor and that this uncertainty will continue to affect our revenues over the next several quarters.Cost of Revenues. Cost of revenues decreased by 13.4% from $53.0 million in fiscal 2011 to $45.9 million in fiscal 2012. This decrease wasprimarily due to the decrease in net revenues, partially offset by increases in manufacturing overhead expenses as we prepared to support expected increases inthe production levels of new and existing products, including our low latency DRAMs. Fiscal 2011 cost of revenues included approximately $252,000 relatedto masks valued at approximately $604,000 that were acquired in the Sony acquisition and that were amortized over four quarters. Cost of revenues includedstock-based compensation expense of $321,000 and $300,000, respectively, in fiscal 2012 and fiscal 2011.Gross Profit. Gross profit decreased by 18.1% from $44.8 million in fiscal 2011 to $36.6 in fiscal 2012. Gross margin decreased from 45.8% infiscal 2011 to 44.4% in fiscal 2012. The decrease in gross profit was primarily related to the decreased net revenues. The decrease in gross margin wasprimarily related to the increases in manufacturing overhead expenses described above.Research and Development Expenses. Research and development expenses were unchanged at $10.6 million in fiscal 2011 and in fiscal 2012. Adecrease of $727,000 in research and development mask expense was primarily offset by increases in payroll related expenses and stock-based compensation.Research and development expenses included stock-based compensation expense of $1,061,000 and $834,000, respectively, in fiscal 2012 and fiscal 2011.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 80.5% from $10.7 million in fiscal 2011 to$19.4 million in fiscal 2012. This increase was due to an increase of $9.3 million in legal fees related to the pending patent infringement and antitrustlitigation involving Cypress Semiconductor Corporation, partially offset by a decrease in independent sales representative commissions of $475,000 and alesser decrease in non-legal professional fees. Stock-based compensation expense of $714,000 and $578,000 were included in selling, general andadministrative expenses in fiscal 2012 and fiscal 2011, respectively.Interest and Other Income (Expense), Net. Interest and other income (expense), net increased 13.9% from $461,000 in34Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsfiscal 2011 to $525,000 in fiscal 2012. Interest income decreased by $131,000 due to lower interest rates received on our cash and short-term and long-terminvestments. In addition, we recorded a foreign currency exchange loss of $212,000 in fiscal 2011 compared to $17,000 in fiscal 2012. The exchange loss ineach period was related to our Taiwan branch operations.Provision for Income Taxes. The provision for income taxes decreased from $5.0 million in fiscal 2011 to $425,000 in fiscal 2012. This decreasewas due to the decreased pre-tax income and changes in the relative mix of income within operating jurisdictions in fiscal 2012.Net Income. Net income decreased 64.2% from $18.9 million in fiscal 2011 to $6.8 million in fiscal 2012. This decrease was primarily due to thedecreased net revenues and changes in operating expenses and gross profit discussed above.Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010Net Revenues. Net revenues increased by 44.7% from $67.6 million in fiscal 2010 to $97.8 in fiscal 2011. Direct and indirect sales to CiscoSystems, our largest customer, increased by $12.7 million from $23.5 million in fiscal 2010 to $36.2 million in fiscal 2011. Net revenues in fiscal 2011included $14.6 million from the sale to Cisco of products acquired in our August 28, 2009 acquisition of the Sony SRAM memory device product line,compared to $5.4 million in fiscal 2010. In addition to the increase in sales to Cisco Systems, net revenues benefited from the continued acceptance of ourSigmaQuad product line which resulted in a 103.3% increase in SigmaQuad shipments in fiscal 2011 compared to fiscal 2010, accounting for 31.7% of ourtotal shipments in fiscal 2011.Cost of Revenues. Cost of revenues increased by 38.3% from $38.3 million in fiscal 2010 to $53.0 million in fiscal 2011. This increase wasprimarily due to the increase in net revenues. Fiscal 2011 and 2010 cost of revenues included approximately $252,000 and $352,000, respectively, related tomasks valued at approximately $604,000 that were acquired in the Sony acquisition and are being amortized over four quarters. Cost of revenues includedstock-based compensation expense of $300,000 and $291,000, respectively, in fiscal 2011 and fiscal 2010.Gross Profit. Gross profit increased by 53.2% from $29.2 million in fiscal 2010 to $44.8 in fiscal 2011. Gross margin increased from 43.2% infiscal 2010 to 45.8% in fiscal 2011. The increase in gross profit was primarily related to the increased net revenues.The increase in gross margin wasprimarily related to a shift in product mix to a higher percentage of higher density, higher margin products, partially offset by a reduction in the percentage ofsales of products for military applications and increased depreciation and amortization expense related to assets acquired from Sony.Research and Development Expenses. Research and development expenses increased 17.2% from $9.1 million in fiscal 2010 to $10.6 million infiscal 2011. This increase was primarily due to increases in payroll related expenses of $695,000, facility related expenses of $241,000 and lesser increases insoftware maintenance expense, stock-based compensation expense and depreciation expense. The increase in payroll expenses was related to increases inheadcount to support our low latency DRAM project and various high speed SRAM projects. Research and development expenses included stock-basedcompensation expense of $834,000 and $686,000, respectively, in fiscal 2011 and fiscal 2010.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 12.5% from $9.5 million in fiscal 2010 to$10.7 million in fiscal 2011. This increase was primarily related to increases of $710,000 in independent sales representative commissions, $521,000 inpayroll related expenses and a smaller increase in facility related expenses, partially offset by a decrease in outside consulting expenses. Selling, general andadministrative expenses in fiscal 2010 included $533,000 in legal and accounting fees and changes to the fair value of the contingent consideration related tothe Sony acquisition, compared to $64,000 in such acquisition related expenses in fiscal 2011. Stock-based compensation expense of $578,000 and $502,000were included in selling, general and administrative expenses in fiscal 2011 and fiscal 2010, respectively.Interest and Other Income (Expense), Net. Interest and other income (expense), net decreased 76.5% from $2.0 million in fiscal 2010 to $461,000 infiscal 2011. This decrease was primarily the result of a $1.1 million bargain purchase gain resulting from our acquisition of the Sony SRAM memory deviceproduct line in the quarter ended September 30, 2009, and decreases in interest income due to lower interest rates received on our cash, short-term and long-term investments. In addition, we recorded an exchange loss of $212,000 in fiscal 2011 compared to an exchange loss of $29,000 in fiscal 2010, related to ourTaiwan branch operations.Provision for Income Taxes. The provision for income taxes increased from $2.2 million in fiscal 2010 to $5.0 million in fiscal 2011. This increasewas due to the increased pre-tax income and changes in the relative mix of income within operating jurisdictions in fiscal 2011.35Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet Income. Net income increased 81.8% from $10.4 million in fiscal 2010 to $18.9 million in fiscal 2011. This increase was primarily due to theincreased net revenues and changes in operating expenses and gross profit discussed above.Liquidity and Capital ResourcesAs of March 31, 2012, our principal sources of liquidity were cash, cash equivalents and short-term investments of $58.7 million compared to$52.0 million as of March 31, 2011.Net cash provided by operating activities was $17.0 million for fiscal 2012 compared to $13.3 million for fiscal 2011 and $13.7 million for fiscal2010. The primary sources of cash in fiscal 2012 were net income of $6.8 million and decreases in accounts receivable of $4.5 million and inventory of $4.0million, partially offset by an increase in prepaid expenses and other assets of $2.6 million and a decrease in deferred revenue of $2.6 million. The decrease inaccounts receivable was due to the lower level of shipments in the fourth quarter of fiscal 2012 compared to the fourth quarter of fiscal 2011. The primarysources of cash in fiscal 2011 were net income of $18.9 million, depreciation and amortization of $2.8 million and lesser increases in accrued expenses andother liabilities and deferred revenue, partially offset by an increase in inventory of $7.1 million and an increase in accounts receivable of $5.8 million.Deferred revenue increased as a result of our distributors increasing the levels of inventory in their possession to better enable them to respond to theircustomers' requirements. The increase in accounts receivable was a result of the the timing of shipments in the quarter ended March 31, 2011 compared to thequarter ended March 31, 2010. Inventory levels increased as a result of a planned inventory build-up to enable us to better respond to current and forecastedcustomer requirements. The primary uses of cash in fiscal 2010 were increases of $3.6 million in accounts receivable, $1.1 million in inventory and$1.0 million in prepaid expenses and other assets. The increase in accounts receivable reflects the higher level of net revenues in the fourth quarter of fiscal2010 compared to the fourth quarter of fiscal 2009. These uses of cash were primarily offset by increases of $3.4 million in accounts payable and$2.0 million in accrued expenses and other liabilities. The increase in accounts payable reflects higher levels of wafer purchases and manufacturing relatedexpenses as we built inventory levels in response to increased levels of shipments.Net cash used in investing activities was $6.5 million in fiscal 2012, $17.5 million in fiscal 2011 and $3.8 million in fiscal 2010. Investmentactivities in fiscal 2012 consisted primarily of the purchase of state and municipal obligations and corporate notes of $38.1 million. This use wassubstantially offset by sales and maturities of investments of $33.3 million. Investment activities in fiscal 2011 consisted primarily of the purchase of stateand municipal obligations and corporate notes of $49.0 million and purchases of property and equipment. These uses were offset by sales and maturities ofinvestments of $35.8 million. Investing activity in fiscal 2010 consisted primarily of the purchase of short-term and long-term investments of $28.7 million,primarily state and municipal obligations and corporate notes, our acquisition of the Sony SRAM memory device product line and purchases of property andequipment, including our new headquarters facility in Sunnyvale, California. These uses were partially offset by the sale and current maturities of short-terminvestments of $37.2 million.Net cash provided by financing activities in fiscal 2012, fiscal 2011 and fiscal 2010 primarily consisted of the net proceeds from the sale of commonstock pursuant to our employee stock plans. In addition, net cash used in financing activities in fiscal 2012 and in fiscal 2010 included the repurchase of ourcommon stock for a total purchase price of $6.3 million and $58,000, respectively. We repurchased $6.3 million of our common stock at an average price of$4.74 per share in fiscal 2012.At March 31, 2012, we had total minimum lease obligations of approximately $179,000 from April 1, 2012 through May 31, 2013, under non-cancelable operating leases.We believe that our existing balances of cash, cash equivalents and short-term investments, and cash flow expected to be generated from our futureoperations, will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months, although we could berequired, or could elect, to seek additional funding prior to that time. Our future capital requirements will depend on many factors, including the rate ofrevenue growth that we experience, the extent to which we utilize subcontractors, the levels of inventory and accounts receivable that we maintain, the timingand extent of spending to support our product development efforts and the expansion of our sales and marketing efforts. Additional capital may also berequired for the consummation of any acquisition of businesses, products or technologies that we may undertake. We cannot assure you that additional equityor debt financing, if required, will be available on terms that are acceptable or at all.Contractual ObligationsThe following table describes our contractual obligations as of March 31, 2012:36Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Payments due by period Up to 1 year 1 - 3 years 3 - 5 years More than 5 years TotalFacilities and equipment leases $167,000 $12,000 $— $— $179,000Wafer, test and mask purchase obligations 6,078,000 2,001,000 481,000 — 8,560,000 $6,245,000 $2,013,000 $481,000 $— $8,739,000As of March 31, 2012, the current portion of our unrecognized tax benefits was $599,000, and the long-term portion was $1,835,000. Theunrecognized tax benefits balance as of March 31, 2012 of $3,109,000 would affect our effective tax rate if recognized. As of March 31, 2012, $901,000 ofunrecognized tax benefits have been recorded as a reduction to net deferred tax assets.Critical Accounting Policies and EstimatesThe preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States("GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are inherentin the preparation of the consolidated financial statements and include estimates affecting revenue recognition, obsolete and excess inventory, the realization ofintangible assets, the valuation allowance on deferred tax assets, the valuation of equity instruments and stock-based compensation. We believe that weconsistently apply these judgments and estimates and that our financial statements and accompanying notes fairly represent our financial results for allperiods presented. However, any errors in these judgments and estimates may have a material impact on our balance sheet and statement of operations. Criticalaccounting estimates, as defined by the Securities and Exchange Commission, are those that are most important to the portrayal of our financial condition andresults of operations and require our most difficult and subjective judgments and estimates of matters that are inherently uncertain. Our critical accountingestimates include those regarding revenue recognition, the valuation of inventories, taxes and stock-based compensation.Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed ordeterminable and collectibility of the resulting receivable is reasonably assured. Under these criteria, revenue from the sale of our products is generallyrecognized upon shipment according to our shipping terms, net of accruals for estimated sales returns and allowances based on historical experience. Sales todistributors are made under agreements allowing for returns or credits. We defer recognition of revenue on sales to distributors until products are resold by thedistributor to the end-user. Distributors have stock rotation, price protection and ship from stock pricing adjustment rights, and we therefore defer recognitionof revenue on sales to distributors until products are resold by the distributor. We are unable to reasonably estimate the inventory that could be returnedpursuant to the stock rotation rights. In light of possible changes to sales prices resulting from price protection and price adjustment rights granted, we areunable to reasonably estimate possible changes and the resulting sales price to the distributor is not fixed or determinable until the final sale to the end user.Sales to consignment warehouses, who purchase products from us for use by contract manufacturers, are recorded upon delivery to the contractmanufacturers.The timing of recognizing revenues on product sales to distributors is dependent on receiving pertinent and accurate data from our distributors in atimely fashion. Distributors provide us monthly data regarding the product, price, quantity, and end customer for their shipments as well as the quantities ofour products they have in stock at month end. In determining the appropriate amount of revenue to recognize, we use this data in reconciling differencesbetween our estimate of their inventory levels and their reported inventories and shipment activities. If distributors incorrectly report their inventories orshipment activities, it could lead to inaccurate reporting of our revenues and income. As of March 31, 2012 and 2011, reconciling differences were notsignificant after appropriately accounting for goods-in-transit.Valuation of Inventories. Inventories are stated at the lower of cost or market value, cost being determined on a weighted average basis. Our inventorywrite-down allowance is established when conditions indicate that the selling price of our products could be less than cost due to physical deterioration,obsolescence, changes in price levels, or other causes. We consider the need to establish the allowance for excess inventory generally based on inventory levelsin excess of 12 months of forecasted demand for each specific product. Inventory consists of finished goods at our premises or consignment warehouses,work in progress at our premises or our contract manufacturers and finished goods at distributors. Historically, it has been difficult to forecast customerdemand especially at the part-number level. Many of the orders we receive from our customers and distributors request delivery of product on relatively shortnotice and with lead times less than our manufacturing cycle37Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentstime. In order to provide competitive delivery times to our customers, we build and stock a certain amount of inventory in anticipation of customer demandthat may not materialize. Moreover, as is common in the semiconductor industry, we may allow customers to cancel orders with minimal advance notice.Thus, even product built to satisfy specific customer orders may not ultimately be required to fulfill customer demand. Nevertheless, at any point in time,some portion of our inventory is subject to the risk of being materially in excess of our projected demand. Additionally, our average selling prices could declinedue to market or other conditions, which creates a risk that costs of manufacturing our inventory may not be recovered. These factors contribute to the riskthat we may be required to record additional inventory write-downs in the future, which could be material. In addition, if actual market conditions are morefavorable than expected, inventory previously written down may be sold to customers resulting in lower cost of sales and higher income from operations thanexpected in that period.Intangible Assets. Intangible assets are amortized over their estimated useful lives, generally on a straight-line basis over five to nine years. TheCompany reviews identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of theassets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from useof the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.Taxes. We account for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the differencebetween the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affecttaxable income. We make certain estimates and judgments in the calculation of tax liabilities and the determination of deferred tax assets, which arise fromtemporary differences between tax and financial statement recognition methods. We record a valuation allowance to reduce our deferred tax assets to the amountthat management estimates is more likely than not to be realized. If in the future we determine that we are not likely to realize all or part of our net deferred taxassets, an adjustment to deferred tax assets would be charged to earnings in the period such determination is made.In addition, the calculation of tax liabilities involves inherent uncertainty in the application of complex tax laws. We record tax reserves for additionaltaxes that we estimate we may be required to pay as a result of future potential examinations by federal and state taxing authorities. If the payment ultimatelyproves to be unnecessary, the reversal of these tax reserves would result in tax benefits being recognized in the period we determine such reserves are no longernecessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to provision for income taxes will result.Authoritative guidance prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financialstatements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in aparticular jurisdiction). Under this guidance, the financial statements will reflect expected future tax consequences of such positions presuming the taxingauthorities' full knowledge of the position and all relevant facts, but without considering time values.Stock Based Compensation. Under authoritative guidance, stock-based compensation expense recognized in the statement of operations is based onoptions ultimately expected to vest, reduced by the amount of estimated forfeitures.We chose the straight-line method of allocating compensation cost over therequisite service period of the related award in accordance with the authoritative guidance. We calculated the expected term based on the historical averageperiod of time that options were outstanding as adjusted for expected changes in future exercise patterns, which, for options granted in fiscal 2012, 2011 and2010 resulted in an expected term of approximately five years. We based our estimate of expected volatility on the estimated volatility of similar entities whoseshare prices are publicly available. The risk-free interest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding to theexpected life of the options. The dividend yield is 0%, based on the fact that we have never paid dividends and have no present intention to pay dividends.Determining some of these assumptions requires significant judgment and changes to these assumptions could result in a significant change to the calculationof stock-based compensation in future periods.Authoritative guidance requires cash flows, if any, resulting from the tax benefits from tax deductions in excess of the compensation cost recognized forthose options (excess tax benefits) to be classified as financing cash flows.As stock-based compensation expense recognized in the Consolidated Statement of Operations is based on awards ultimately expected to vest, it has beenreduced for estimated forfeitures in accordance with authoritative guidance. We estimate forfeitures at the time of grant and revise the original estimates, ifnecessary, in subsequent periods if actual forfeitures differ from those estimates.We have no stock-based compensation arrangements with non-employees except for stock options granted to non-employee directors.38Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOff-Balance Sheet ArrangementsAt March 31, 2012, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if we hadengaged in such relationships.Recent Accounting PronouncementsIn June 2011, the Financial Accounting Standards Board (the "FASB") amended its guidance on the presentation of comprehensive income. Under theamended guidance, we have the option to present comprehensive income in either one continuous statement or two consecutive financial statements. A singlestatement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensiveincome, and a total for comprehensive income. In a two-statement approach, we must present the components of net income and total net income in the firststatement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for othercomprehensive income, and a total for comprehensive income. We are also required to present on the face of its financial statements reclassificationadjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and thecomponents of other comprehensive income are presented. The option under previous guidance that permits the presentation of components of othercomprehensive income as part of the statement of changes in stockholders' equity has been eliminated. In December 2011, the FASB further amended itsguidance to defer changes related to the presentation of reclassification adjustments indefinitely as a result of concerns raised by stakeholders that the newpresentation requirements would be difficult for preparers and add unnecessary complexity to financial statements. The amendment (other than the portionregarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effective during the first quarter ofour fiscal year ending March 31, 2013. Early adoption is permitted. The amendment will impact the presentation of our financial statements but will notimpact our consolidated financial position, results of operations or cash flows.In May 2011, the FASB amended its guidance to converge fair value measurement and disclosure guidance about fair value measurement under GAAPwith International Financial Reporting Standards ("IFRS"). IFRS is a comprehensive series of accounting standards published by the International AccountingStandards Board. The amendment changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosinginformation about fair value measurements. For many of the requirements, the FASB does not intend for the amendment to result in a change in the applicationof the requirements in the current authoritative guidance. The amendment became effective prospectively for our interim reporting period ended March 31,2012. Implementation of the guidance did not have an impact on our consolidated financial position, results of operations or cash flows. In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to discloseseparately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers.This authoritative guidance also requires enhanced disclosure of activity in Level 3 fair value measurements. The guidance for Level 1 and Level 2 fair valuemeasurements became effective for our fiscal year ended March 31, 2010 and the guidance for Level 3 fair value measurement disclosures became effective forour interim reporting period ended June 30, 2011. Implementation of the guidance did not have an impact on our consolidated financial position, results ofoperations or cash flows as it is disclosure-only in nature.Item 7A. Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Risk. Our revenues and expenses, except those expenses related to our operations in Taiwan, including subcontractormanufacturing expenses, are denominated in U.S. dollars. As a result, we have relatively little exposure for currency exchange risks, and foreign exchangelosses have been minimal to date. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any otherderivative financial instruments for trading or speculative purposes. In the future, if we feel our foreign currency exposure has increased, we may considerentering into hedging transactions to help mitigate that risk.Interest Rate Sensitivity. We had cash, cash equivalents, short term investments and long-term investments totaling $92.2 million at March 31,2012. These amounts were invested primarily in money market funds, state and municipal obligations, corporate notes and certificates of deposit. The cash,cash equivalents and short-term marketable securities are held for working capital purposes. We do not enter into investments for trading or speculativepurposes. Due to the short-term nature39Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsof these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes ininterest rates. We believe a hypothetical 100 basis point increase in interest rates would not materially affect the fair value of our interest-sensitive financialinstruments. Declines in interest rates, however, will reduce future investment income.40Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 8. Financial Statements and Supplementary DataGSI TECHNOLOGY, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm42Consolidated Balance Sheets As of March 31, 2012 and 201143Consolidated Statements of Operations For the Three Years Ended March 31, 2012, 2011 and 201044Consolidated Statements of Stockholders' Equity For the Three Years Ended March 31, 2012, 2011 and201045Consolidated Statements of Cash Flows For the Three Years Ended March 31, 2012, 2011 and 201046Notes to Consolidated Financial Statements4741Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of GSI Technology, Inc.:In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, thefinancial position of GSI Technology, Inc. and its subsidiaries at March 31, 2012 and March 31, 2011, and the results of their operations and their cashflows for each of the three years in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects,the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, inall material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible forthese financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reportingunder Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internalcontrol over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits ofthe financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaJune 4, 201242Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.CONSOLIDATED BALANCE SHEETS March 31, 2012 2011 (In thousands, except share and per shareamounts)ASSETS Cash and cash equivalents $31,634 $25,952Short-term investments 27,044 26,033Accounts receivable, net 10,579 15,042Inventories 16,725 21,380Prepaid expenses and other current assets 8,108 5,575Deferred income taxes 1,097 1,729Total current assets 95,187 95,711Property and equipment, net 12,806 13,545Long-term investments 33,497 30,938Other assets 1,627 1,723Total assets $143,117 $141,917LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $5,490 $5,638Accrued expenses and other liabilities 4,343 4,790Deferred revenue 2,670 5,248Total current liabilities 12,503 15,676Income taxes payable 1,835 1,561Total liabilities 14,338 17,237Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued and outstanding: none — —Common Stock: $0.001 par value authorized: 150,000,000 shares; issued and outstanding: 27,617,942 and28,649,033 shares, respectively 28 29Additional paid-in capital 54,402 57,063Accumulated other comprehensive income 88 83Retained earnings 74,261 67,505Total stockholders' equity 128,779 124,680Total liabilities and stockholders' equity $143,117 $141,917The accompanying notes are an integral part of these consolidated financial statements.43Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, 2012 2011 2010 (In thousands, except per share amounts)Net revenues $82,540 $97,763 $67,558Cost of revenues 45,891 53,009 38,342Gross profit 36,649 44,754 29,216Operating expenses: Research and development 10,637 10,632 9,069Selling, general and administrative 19,356 10,722 9,534Total operating expenses 29,993 21,354 18,603Income from operations 6,656 23,400 10,613Interest income, net 541 673 894Other income (expense), net (16) (212) 1,071Income before income taxes 7,181 23,861 12,578Provision for income taxes 425 4,985 2,195Net income $6,756 $18,876 $10,383Net income per share: Basic $0.24 $0.67 $0.38Diluted $0.23 $0.64 $0.38Weighted average shares used in per share calculations: Basic 28,497 28,013 27,105Diluted 29,496 29,685 27,688The accompanying notes are an integral part of these consolidated financial statements.44Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Accumulated OtherComprehensiveIncome Additional Paid-in Capital Retained Earnings TotalStockholders'Equity Shares Amount (In thousands, except share amounts)Balance, March 31, 2009 26,719,537 $27 $46,202 $230 $38,246 $84,705Issuance of common stock under employee stockoption plans 877,369 1 1,637 — — 1,638Repurchase of common stock (21,783) (58) — — (58)Stock-based compensation expense — — 1,479 — — 1,479Windfall tax benefit from stock options exercised — — 612 — — 612Comprehensive income: Net income — — — — 10,383 10,383Net unrealized loss on available-for-saleinvestments — — — (40) — (40)Total comprehensive income — — — — — 10,343Balance, March 31, 2010 27,575,123 28 49,872 190 48,629 98,719Issuance of common stock under employee stockoption plans 1,073,910 1 4,597 — — 4,598Repurchase of common stock — — — — — —Stock-based compensation expense — — 1,712 — — 1,712Windfall tax benefit from stock options exercised — — 882 — — 882Comprehensive income: Net income — — — — 18,876 18,876Net unrealized loss on available-for-saleinvestments — — — (107) — (107)Total comprehensive income — — — — — 18,769Balance, March 31, 2011 28,649,033 29 57,063 83 67,505 124,680Issuance of common stock under employee stockoption plans 307,007 — 1,504 — — 1,504Repurchase of common stock (1,338,098) (1) (6,336) — — (6,337)Stock-based compensation expense — — 2,096 — — 2,096Windfall tax benefit from stock options exercised — — 75 — — 75Comprehensive income: Net income — — — — 6,756 6,756Net unrealized gain on available-for-saleinvestments — — — 5 — 5Total comprehensive income — — — — — 6,761Balance, March 31, 2012 27,617,942 $28 $54,402 $88 $74,261 $128,779The accompanying notes are an integral part of these consolidated financial statements.45Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 2012 2011 2010 (In thousands)Cash flows from operating activities: Net income $6,756 $18,876 $10,383Adjustments to reconcile net income to net cash provided by operating activities: Allowance for sales returns, doubtful accounts and other (5) 4 (22)Gain on bargain purchase — — (1,099)Provision for excess and obsolete inventories 696 1,132 394Depreciation and amortization 2,611 2,794 2,196Stock-based compensation 2,096 1,712 1,479Deferred income taxes 632 (455) (299)Windfall tax benefits from stock options exercised (75) (882) (612)Amortization of bond premium on investments 1,256 811 1,000Changes in assets and liabilities: Accounts receivable 4,468 (5,805) (3,597)Inventory 3,959 (7,076) (1,133)Prepaid expenses and other assets (2,599) (1,959) (968)Accounts payable (17) (760) 3,404Accrued expenses and other liabilities (242) 3,023 1,995Deferred revenue (2,578) 1,932 580Net cash provided by operating activities 16,958 13,347 13,701Cash flows from investing activities: Purchase of investments (38,166) (48,988) (28,669)Sales and maturities of short-term investments 33,327 35,755 37,186Acquisition of new business — — (6,327)Purchases of property and equipment (1,679) (4,300) (6,022)Net cash used in investing activities (6,518) (17,533) (3,832)Cash flows from financing activities: Repurchase of common stock (6,337) — (58)Windfall tax benefits from stock options exercised 75 882 612Proceeds from issuance of common stock under employee stock plans 1,504 4,598 1,638Net cash provided by (used in) financing activities (4,758) 5,480 2,192Net increase in cash and cash equivalents 5,682 1,294 12,061Cash and cash equivalents at beginning of the year 25,952 24,658 12,597Cash and cash equivalents at end of the year $31,634 $25,952 $24,658Non-cash financing activities: Purchases of property and equipment through accounts payable and accruals $274 $261 $746Supplemental cash flow information: Cash paid for income taxes $3,256 $4,827 $1,229Supplemental disclosure of investing activities: Fair value of assets acquired $— $— $8,013Gain on bargain purchase — — (1,099)Unpaid purchase consideration — — (587)Acquisition of new business, net of gain $— $— $6,327The accompanying notes are an integral part of these consolidated financial statements.46Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe CompanyGSI Technology, Inc. (the "Company") was incorporated in California in March 1995 and reincorporated in Delaware on June 9, 2004. The Companyis a provider of "Very Fast" SRAM products and LLDRAM products that are incorporated primarily in high-performance networking and telecommunicationsequipment, such as routers, switches, wide area network infrastructure equipment, wireless base stations and network access equipment. In addition, theCompany serves the ongoing needs of the military, industrial, test equipment and medical markets for high-performance SRAMs.Accounting principlesThe consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the UnitedStates of America ("GAAP").Basis of consolidationThe consolidated financial statements include the accounts of the Company's three wholly-owned subsidiaries, GSI Technology Holdings, Inc., GSITechnology (BVI), Inc. and GSI Technology Taiwan, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.Use of estimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenueand expenses during the reporting period. Significant estimates are inherent in the preparation of the consolidated financial statements and include revenuerecognition, obsolete and excess inventory, the valuation allowance on deferred tax assets, the valuation of equity instruments and stock-based compensation.Actual results could differ from those estimates.Risk and uncertaintiesThe Company buys all of its SRAM and LLDRAM wafers, integral components of its products, from single suppliers and is also dependent onindependent suppliers to assemble and test its products. During the years ended March 31, 2012, 2011 and 2010, all of the wafers used in the Company'sSRAM and LLDRAM products were supplied by Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and Powerchip TechnologyCorporation, or Powerchip, respectively. If these suppliers fail to satisfy the Company's requirements on a timely basis at competitive prices, the Companycould suffer manufacturing delays, a possible loss of revenues, or higher cost of revenues, any of which could adversely affect operating results.A majority of the Company's net revenues come from sales to customers in the networking and telecommunications equipment industry. A decline indemand in this industry could have a material adverse affect on the Company's operating results and financial condition.Because much of the manufacturing and testing of the Company's products is conducted in Taiwan, its business performance may be affected bychanges in Taiwan's political, social and economic environment. For example, any political instability resulting from the relationship among the United States,Taiwan and the People's Republic of China could damage the Company's business. Moreover, the role of the Taiwanese government in the Taiwanese economyis significant. Taiwanese policies toward economic liberalization, and laws and policies affecting technology companies, foreign investment, currencyexchange rates, taxes and other matters could change, resulting in greater restrictions on the Company's and its suppliers' ability to do business and operatefacilities in Taiwan. If any of these risks were to occur, the Company's business could be harmed.Some of the Company's suppliers and the Company's two principal operations are located near fault lines. In the event of a major earthquake or othernatural disaster near the facilities of any of these suppliers or the Company, the Company's business could be harmed.47Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)From time to time, the Company is involved in legal actions. The Company currently is a party to pending legal proceedings which it is defendingaggressively. See Note 6 for additional information regarding this pending litigation. There are many uncertainties associated with any litigation, and theCompany may not prevail. If information becomes available that causes us to determine that a loss in any of our pending litigation, or the settlement of suchlitigation, is probable, and we can reasonably estimate the loss associated with such events, we will record the loss in accordance with GAAP. However, theactual liability in any such litigation may be materially different from our estimates, which could require us to record additional costs.Revenue recognitionThe Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable andcollectibility of the resulting receivable is reasonably assured. Under these criteria, revenue from the sale of products is generally recognized upon shipmentaccording to the Company's shipping terms, net of accruals for estimated sales returns and allowances based on historical experience. Sales to distributors aremade under agreements allowing for returns or credits. Distributors have stock rotation, price protection and ship from stock pricing adjustment rights and theCompany therefore defers recognition of revenue on sales to distributors until products are resold by the distributor. The Company is unable to reasonablyestimate the inventory that could be returned pursuant to the stock rotation rights. In light of possible changes to sales prices resulting from price protectionand price adjustment rights granted, we are unable to reasonably estimate possible changes and the resulting sales price to the distributor is not fixed ordeterminable until the final sale to the end user. For sales to consignment warehouses, who purchase products from the Company for use by contractmanufacturers, revenues are recognized upon delivery to the contract manufacturer.Cash and cash equivalentsCash and cash equivalents include cash in demand accounts and highly liquid investments purchased with an original or remaining maturity of threemonths or less at the date of purchase, stated at cost, which approximates their fair market value.Short-term and long-term investmentsAll of the Company's short-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelvemonths are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reportedat fair value with unrecognized gains (losses), net of tax, as a component of "Accumulated other comprehensive income" in the Consolidated Balance Sheets.The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when the declines are determined tobe other-than-temporary.Concentration of credit riskFinancial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents, short-term andlong-term investments and accounts receivable. The Company places its cash primarily in checking, certificate of deposit, and money market accounts withreputable financial institutions. The Company's accounts receivable are derived primarily from revenue earned from customers located in the U.S. and Asia.The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. TheCompany maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. There were no write offs in theyears ended March 31, 2012, 2011 or 2010.In fiscal 2012, 2011 and 2010, sales to the Company's top 10 customers accounted for approximately 92%, 91% and 94% of net revenues,respectively. At March 31, 2012, five customers accounted for 19%, 16%, 12%, 11% and 10% of accounts receivable, and for the year then ended, fourcustomers accounted for 20%, 20%, 11% and 11% of net revenues. At March 31, 2011, three customers accounted for 21%, 17% and 13% of accountsreceivable, and for the year then ended, four customers accounted for 19%, 17%, 12% and 11% of net revenues. At March 31, 2010, five customersaccounted for 16%, 14%, 13%, 13% and 12% of accounts receivable, and for the year then ended, three customers accounted for 22%, 21% and 10% of netrevenues.48Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)InventoriesInventories are stated at the lower of cost or market value, cost being determined on a weighted average basis. Inventory write-down allowances areestablished when conditions indicate that the selling price could be less than cost due to physical deterioration, obsolescence, changes in price levels, or othercauses. These allowances, once recorded, result in a new cost basis for the related inventory. These allowances are also considered for excess inventorygenerally based on inventory levels in excess of 12 months of forecasted demand, as estimated by management, for each specific product. The allowance is notreversed until the inventory is sold or disposed of.Property and equipment, netProperty and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets aspresented below:Software 3 to 5 yearsComputer and other and equipment 5 yearsBuilding and building improvements 10 to 25 yearsFurniture and fixtures 7 yearsLeasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the remaining leaseterm of the respective assets. Gains or losses on disposals of property and equipment are recorded within income from operations. Costs of repairs andmaintenance are typically included as part of operating expenses unless they are incurred in relation to major improvements to existing property andequipment, at which time they are capitalized.Impairment of long-lived assetsLong-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net bookvalue may not be recoverable. If the sum of the expected future cash flows (undiscounted and before interest) from the use of the assets is less than the net bookvalue of the asset an impairment exists and the amount of the impairment loss, if any, will generally be measured as the difference between net book value ofthe assets and their estimated fair values. There were no impairment losses recognized during the years ended March 31, 2012, 2011 or 2010.Intangible AssetsIntangible assets are amortized over their estimated useful lives, generally on a straight-line basis over five to nine years. The Company reviewsidentifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not berecoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and itseventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.Research and developmentResearch and development expenses are related to new product designs, including, salaries, stock-based compensation, contractor fees, and allocation ofcorporate costs and are charged to the statement of operations as incurred.Income taxesThe Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the differencebetween the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affecttaxable income. Valuation allowances are established when it is more likely than not that the deferred tax asset will not be realized.Authoritative guidance prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financialstatements uncertain tax positions that the company has taken or expects to take on a tax return49Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(including a decision whether to file or not to file a return in a particular jurisdiction). Under the guidance, the financial statements will reflect expected futuretax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts, but without considering time values.The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that theposition will be sustained on audit, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as thelargest amount that is more than 50% likely of being realized upon ultimate settlement.Shipping and handling costsThe Company records costs related to shipping and handling in cost of revenues.Advertising expenseAdvertising costs are charged to expense in the period incurred. Advertising expense was $8,000, $6,000 and $7,000 for the years ended March 31,2012, 2011, and 2010, respectively.Foreign currency transactionsThe U.S. dollar is the functional currency for all of the Company's foreign operations. Foreign currency transaction gains and losses, resulting fromtransactions denominated in currencies other than U.S. dollars are included in the statements of operations. These gains and losses were not material for theyears ended March 31, 2012, 2011 or 2010.SegmentsThe Company operates in one segment for the design, development and sale of integrated circuits.Accounting for stock-based compensationUnder authoritative guidance, stock-based compensation expense recognized in the statement of operations is based on options ultimately expected tovest, reduced by the amount of estimated forfeitures. The Company chose the straight-line method of allocating compensation cost over the requisite serviceperiod of the related award according to authoritative guidance. The Company calculated the expected term based on the historical average period of time thatoptions were outstanding as adjusted for expected changes in future exercise patterns, which, for options granted in fiscal 2012, 2011 and 2010 resulted in anexpected term of approximately five years. The Company based its estimate of expected volatility on the estimated volatility of similar entities whose shareprices are publicly available. The risk-free interest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding to theexpected life of the options. The dividend yield is 0%, based on the fact that the Company has never paid dividends and has no present intention to paydividends. Changes to these assumptions may have a significant impact on the results of operations.Authoritative guidance requires cash flows, if any, resulting from the tax benefits from tax deductions in excess of the compensation cost recognized forthose options (excess tax benefits) to be classified as financing cash flows.Comprehensive incomeComprehensive income is defined to include all changes in equity during a period except those resulting from investments by owners and distributions toowners. For the years ended March 31, 2012, 2011 and 2010, comprehensive income was $6,761,000, $18,769,000 and $10,343,000, respectively.Recent accounting pronouncementsIn June 2011, the Financial Accounting Standards Board ("FASB") amended its guidance on the presentation of comprehensive income. Under theamended guidance, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. Asingle statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensiveincome, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in thefirst statement. That statement must be immediately followed by a financial statement that presents the components of50Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The entity is also required to present on the face ofits financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where thecomponents of net income and the components of other comprehensive income are presented. The option under previous guidance that permits the presentationof components of other comprehensive income as part of the statement of changes in stockholders' equity has been eliminated. In December 2011, the FASBfurther amended its guidance to defer changes related to the presentation of reclassification adjustments indefinitely as a result of concerns raised bystakeholders that the new presentation requirements would be difficult for preparers and add unnecessary complexity to financial statements. The amendment(other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effectiveduring the first quarter of the Company's fiscal year ending March 31, 2013. Early adoption is permitted. The amendment will impact the presentation of theconsolidated financial statements but will not impact the Company's consolidated financial position, results of operations or cash flows.In May 2011, the FASB amended its guidance to converge fair value measurement and disclosure guidance about fairvalue measurement under GAAP with International Financial Reporting Standards ("IFRS"). IFRS is a comprehensive series of accounting standardspublished by the International Accounting Standards Board. The amendment changes the wording used to describe many of the requirements in GAAP formeasuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for theamendment to result in a change in the application of the requirements in the current authoritative guidance. The amendment became effective prospectively forthe Company's interim reporting period ended March 31, 2012. Implementation of the amendment did not have a material impact on the Company'sconsolidated financial position, results of operations or cash flows. In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to discloseseparately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers.This authoritative guidance also requires enhanced disclosure of activity in Level 3 fair value measurements. The guidance for Level 1 and Level 2 fair valuemeasurements became effective for the Company's fiscal year ended March 31, 2010, and the guidance for Level 3 fair value measurement disclosures becameeffective for the Company's interim reporting period ended June 30, 2011. Implementation of this guidance did not have an impact on the Company'sconsolidated financial position, results of operations or cash flows as it is disclosure-only in nature.NOTE 2—NET INCOME PER COMMON SHAREThe Company uses the treasury stock method to calculate the weighted average shares used in computing diluted net income per share. The followingtable sets forth the computation of basic and diluted net income per share: Year Ended March 31, 2012 2011 2010 (In thousands, exceptper share amounts) Net income $6,756 $18,876 $10,383 Denominators: Weighted average shares—Basic 28,497 28,013 27,105Dilutive effect of employee stock options 998 1,661 567Dilutive effect of employee stock purchase plan options 1 11 16Weighted average shares—Dilutive 29,496 29,685 27,688Net income per common share—Basic $0.24 $0.67 $0.38Net income per common share—Diluted $0.23 $0.64 $0.38The following shares of common stock underlying outstanding stock options, determined on a weighted average basis, were excluded from thecomputation of diluted net income per share as they had an anti-dilutive effect:51Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended March 31, 2012 2011 2010 (In thousands)Shares underlying options 1,388 416 3,633NOTE 3—BALANCE SHEET DETAIL March 31, 2012 2011 (In thousands)Inventories: Work-in-progress $6,163 $10,612Finished goods 9,832 9,345Inventory at distributors 730 1,423 $16,725 $21,380 March 31, 2012 2011 (In thousands)Accounts receivable, net: Accounts receivable $10,679 $15,147Less: Allowances for sales returns, doubtful accounts and other (100) (105) $10,579 $15,042 March 31, 2012 2011 (In thousands)Prepaid expenses and other current assets: Prepaid tooling and masks $2,310 $2,470Prepaid income taxes 4,287 1,350Other receivables 608 904Other prepaid expenses 903 851 $8,108 $5,575 March 31, 2012 2011 (In thousands)Property and equipment, net: Computer and other equipment $16,235 $14,638Software 4,497 4,442 Land 3,900 3,900Building and building improvements 2,256 2,249Furniture and fixtures 110 110Leasehold improvements 762 738Construction in progress 201 201 27,961 26,278Less: Accumulated depreciation and amortization (15,155) (12,733) $12,806 $13,54552Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Depreciation and amortization expense was $2,611,000, $2,794,000 and $2,196,000 for the years ended March 31, 2012, 2011 and 2010,respectively. March 31, 2012 2011 (In thousands)Other Assets: Non-current deferred income taxes $619 $535Intangibles, net 925 1,105Deposits 83 83 $1,627 $1,723The following table summarizes the components of intangible assets and related accumulated amortization balances at March 31, 2012 (in thousands): GrossCarryingAmount AccumulatedAmortization Net CarryingAmountIntangible assets: Product designs $590 $(218) $372Patents 720 (206) 514Software 80 (41) 39Total $1,390 $(465) $925Amortization of intangible assets of $180,000 was included in cost of revenues for the year ended March 31, 2012.As of March 31, 2012, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):Year Ending March 31,EstimatedAmortization2013$1802014180201517120161652017115Thereafter114Total$92553Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2012 2011 (In thousands)Accrued expenses and other liabilities: Accrued compensation $1,636 $1,844Accrued acquisition payments — 347Accrued professional fees 1,233 4Accrued commissions 332 456Accrued royalties 24 25Accrued income taxes 203 790Accrued equipment and software costs 131 51Other accrued expenses 784 1,273 $4,343 $4,790NOTE 4—INCOME TAXESIncome before income taxes and income tax expense consist of the following: Year Ended March 31, 2012 2011 2010 (In thousands)Income (loss) before income taxes: U.S $(438) $11,699 $6,595Foreign 7,619 12,162 5,983 $7,181 $23,861 $12,578Current income tax expense: U.S. federal $(108) $4,985 $2,162Foreign (123) 267 11State 91 503 466 (140) 5,755 2,639Deferred income tax expense: U.S. federal 643 (851) (223)State (78) 81 (221) 565 (770) (444) $425 $4,985 $2,195Income tax expense differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pre-tax income asfollows:54Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended March 31, 2012 2011 2010 (In thousands)U.S. Federal taxes at statutory rate $2,440 $8,153 $4,278State taxes, net of federal benefit (48) 448 127Stock-based compensation 502 212 319Tax credits (238) (333) (340)Foreign tax rate differential (2,167) (3,441) (1,701)Tax exempt interest (48) (47) (136)Gain on bargain purchase — — (374)Other (16) (7) 22 $425 $4,985 $2,195Deferred tax assets and deferred tax liabilities consist of the following: March 31, 2012 2011 (In thousands)Deferred tax assets: Deferred revenue $211 $897Tax credits 230 —Property and equipment 1 32Stock-based compensation 905 695Other reserves and accruals 895 849Total deferred tax assets 2,242 2,473Deferred tax liabilities: Property and equipment $(500) $(166)Unrecognized gains (26) (43)Total deferred tax liabilities $(526) $(209)Net deferred tax assets $1,716 $2,264U.S. income taxes and withholding taxes have not been provided on a cumulative total of $33.6 million of undistributed earnings for certain non-U.S.subsidiaries. The Company currently intends to reinvest these earnings in operations outside the U.S. No provision has been made for taxes that might bepayable upon remittance of such earnings, nor is it practicable to determine the amount of such potential liability.The current portion of the Company's unrecognized tax benefits at March 31, 2012 and 2011 was $599,000 and $532,000, respectively. The long-termportion at March 31, 2012 and 2011 was $1,835,000 and $1,561,000, respectively, of which the timing of the resolution is uncertain. As of March 31,2012, $901,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. It is possible, however, that some months or yearsmay elapse before an uncertain position for which the Company has established a reserve is resolved. A reconciliation of unrecognized tax benefits is asfollows: Year Ended March 31, 2012 2011 2010 (In thousands)Unrecognized tax benefits, beginning of period $2,312 1,616 $1,107Additions based on tax positions related to current year 649 769 422Additions based on tax positions related to prior years 252 32 230Lapses during the current year applicable to statutes of limitations (104) (105) (143)Unrecognized tax benefits, end of period $3,109 $2,312 $1,61655Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The unrecognized tax benefit balance as of March 31, 2012 of $3,109,000 would affect the Company's effective tax rate if recognized.Management believes that it is reasonably possible that within the next twelve months the Company could have a reduction in uncertain tax benefits ofup to $743,000, including interest and penalties, related to positions taken with respect to credits and loss carryforwards on previously filed tax returns as theresult of the possible conclusion of a pending tax controversy process.The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the ConsolidatedStatements of Operations.The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. Fiscal years 2009 through 2012 remain open to examinationby the federal tax authorities and fiscal years 2006 through 2012 remain open to examination by most state tax authorities. The Company has ongoing taxexaminations by the California Franchise Tax Board.NOTE 5—FINANCIAL INSTRUMENTSFair value measurementsAuthoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosure. The guidanceapplies to all financial assets and financial liabilities that are measured on a recurring basis. The guidance requires fair value measurement to be classifiedand disclosed in one of the following three categories:Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included inthe Level 1 category is based on quoted prices that are readily and regularly available in an active market. As of March 31, 2012, the Level 1 category includedmoney market funds of $11.3 million, which were included in cash and cash equivalents in the Consolidated Balance Sheet.Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quotedprices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included inthe Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by assetclass and may incorporate available trade, bid and other market information and price quotes from well established independent pricing vendors and broker-dealers. As of March 31, 2012, the Level 2 category included short-term investments of $27.0 million and long term-investments of $33.5 million, which wereprimarily comprised of certificates of deposit, corporate debt securities and government and agency securities.Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity's own assumptions about marketparticipants and pricing. As of March 31, 2012, the Company had no Level 3 financial assets measured at fair value in the Consolidated Balance Sheet.Short-term and long-term investmentsAll of the Company's short-term and long-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greaterthan twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securitiesare reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income in the CondensedConsolidated Balance Sheets. The Company had money market funds of $11.3 million and $10.6 million at March 31, 2012 and March 31, 2011,respectively, included in cash and cash equivalents in the Condensed Consolidated Balance Sheet. The Company monitors its investments for impairmentperiodically and records appropriate reductions in carrying values when the declines are determined to be other-than-temporary.The following table summarizes the Company's available-for-sale investments:56Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2012 Cost GrossUnrealizedGains GrossUnrealizedLosses FairValue (In thousands)Short-term investments: State and municipal obligations $14,261 $18 $— $14,279Corporate notes 3,037 4 — 3,041Certificates of deposit 9,705 19 — 9,724Total short-term investments $27,003 $41 $— $27,044Long-term investments: State and municipal obligations $15,992 $26 $— $16,018Corporate notes 6,201 11 — 6,212Certificates of deposit 8,473 52 — 8,525Other 2,758 — (16) 2,742Total long-term investments $33,424 $89 $(16) $33,497 March 31, 2011 Cost GrossUnrealizedGains GrossUnrealizedLosses FairValue (In thousands)Short-term investments: State and municipal obligations $10,363 $30 $— $10,393Corporate notes 10,633 33 — 10,666Certificates of deposit 4,960 14 — 4,974Total short-term investments $25,956 $77 $— $26,033Long-term investments: State and municipal obligations $22,872 $— $(16) $22,856Corporate notes 2,337 — (12) 2,325Certificates of deposit 5,680 77 — 5,757Total long-term investments $30,889 $77 $(28) $30,938The Company's investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealizedlosses are due to changes in interest rates and bond yields. The Company has the ability to realize the full value of all these investments upon maturity.At March 31, 2012, the deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was $26,000. At March31, 2011, the deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was $40,000.57Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of March 31, 2012, contractual maturities of the Company's available-for-sale non-equity investments were as follows: Cost FairValue (In thousands)Maturing within one year $27,003 $27,044Maturing in one to three years 33,424 33,497Maturing in more than three years — — $60,427 $60,541NOTE 6—COMMITMENTS AND CONTINGENCIESOperating leasesThe Company leases office space and equipment under noncancelable operating leases with various expiration dates through August 2013. Rent expensefor the years ended March 31, 2012, 2011 and 2010 was $371,000, $420,000 and $613,000, respectively. The terms of the facility leases provide for rentalpayments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurredbut not paid.Future minimum lease payments under noncancelable operating leases with remaining lease terms in excess of one year at March 31, 2012 are asfollows:Fiscal Year Ending March 31,OperatingLeases (In thousands)2013$1672014122015—2016—2017—Thereafter—Total$179Royalty obligationsThe Company has license agreements that require it to pay royalties on the sale of products using the licensed technology. Royalty expense for the yearsended March 31, 2012, 2011 and 2010 was $61,000, $75,000 and $71,000, respectively, and was included within cost of revenues.Indemnification obligationsThe Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters.Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other partyharmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold and certain intellectual propertyrights. In each of these circumstances, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in theparticular contract, which procedures typically allow the Company to challenge the other party's claims. Further, the Company's obligations under theseagreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain paymentsmade by it under these agreements.It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of theCompany's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company underthese agreements did not have a material effect on its business,58Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)financial condition, cash flows or results of operations. The Company believes that if it were to incur a loss in any of these matters, such loss should not havea material effect on its business, financial condition, cash flows or results of operations.Product warrantiesThe Company warrants its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based onhistorical warranty claim experience and includes such costs in cost of revenues. Warranty costs were not significant for the years ended March 31, 2012,2011 or 2010.Legal proceedingsIn March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against the Company in the United States DistrictCourt for the District of Minnesota alleging that the Company's products, including its Sigma DDR and Sigma Quad families of Fast SRAMs, infringe fivepatents held by Cypress. The complaint seeks unspecified damages for past infringement and a permanent injunction against future infringement. OnJune 10, 2011, Cypress filed a complaint against the Company with the United States International Trade Commission (the “ITC”). The ITC complaint, assubsequently amended, alleges infringement by the Company of three of the five patents involved in the District Court case and one additional patent and alsoalleges infringement by three of our distributors and 11 of our customers who allegedly incorporate our SRAMs in their products. The ITC complaint seeks alimited exclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the United States and permanent ordersdirecting the Company and the other respondents to cease and desist from selling or distributing such products in the United States. On July 21, 2011, theITC formally instituted an investigation in response to Cypress's complaint. Two of the distributor-respondents and ten of the customer-respondents weresubsequently dismissed from the investigation. The evidentiary hearing took place during the week of March 12, 2012, and the initial determination of theadministrative law judge will be issued on or before July 28, 2012. The District Court case has been stayed pending the conclusion of the ITC proceeding. TheCompany believes that it has strong defenses against Cypress's patent infringement claims and intends to continue to defend itself vigorously in bothproceedings. However, the litigation process is inherently uncertain, and the Company may not prevail. Patent litigation is particularly complex and can extendfor a protracted period of time, which can substantially increase the cost of such litigation. The Company has not recorded any loss contingency during fiscal2011 or fiscal 2012 in connection with these legal proceedings as the Company cannot predict their outcome and cannot estimate the likelihood or potentialdollar amount of any adverse results. However, an unfavorable outcome in this case could have a material adverse impact on the Company's financialposition, results of operations or cash flows for the period in which the outcome occurs and in future periods.NOTE 7—COMMON STOCKThe Company's Certificate of Incorporation, as amended, authorizes the Company to issue 150,000,000 shares of $0.001 par value common stock.On November 6, 2008, the Company's Board of Directors authorized the repurchase, at management's discretion, of up to $10 million of theCompany's common stock. On January 26, 2012, the Company's Board of Directors adopted a new program authorizing the repurchase of up to anadditional $10 million of common stock. Under the expanded repurchase program, the Company may repurchase shares from time to time on the open marketor in private transactions. The specific timing and amount of the repurchases will be dependent on market conditions, securities law limitations and otherfactors. The repurchase program may be suspended or terminated at any time without prior notice. Through March 31, 2012, the Company has repurchased atotal of 2,820,060 shares at an average cost of $3.72 per share for a total cost of $10.5 million.NOTE 8—STOCK BASED COMPENSATIONThe 2000 Stock Option PlanIn February 2001, the Company adopted the 2000 Stock Option Plan (the "2000 Plan"). The 2000 Plan provided for the granting of stock options andstock purchase rights to employees, consultants and directors of the Company. Options granted under the 2000 Plan could be either incentive stock options("ISOs") or nonstatutory stock options ("NSOs"). In December 2006, the Company's board of directors authorized an additional 500,000 shares of theCompany's common stock to be reserved for issuance under the 2000 Plan. As of March 31, 2008, the Company had reserved 3,500,000 shares of commonstock for issuance under the 2000 Plan.59Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Options under the 2000 Plan could be granted for periods of up to ten years. However, in the case of ISOs granted to an optionee who, at the time theoption was granted, owned stock representing more than 10% of the voting power of all classes of stock of the Company, the maximum term of an option wasfive years from the date of grant. The exercise price of an ISO or NSO could not be less than 100% and 85% of the estimated fair value of the shares asdetermined by the board of directors on the date of grant, respectively. However the exercise price of an ISO or NSO granted to a 10% or greater stockholdercould not be less than 110% of the estimated fair value of the shares on the date of grant.The 2007 Equity Incentive PlanIn January 2007, the Company's board of directors approved the 2007 Equity Incentive Plan, (the "Equity Plan"), which was subsequently approvedby the Company's stockholders in March 2007. A total of 3,000,000 shares of common stock were authorized and reserved for issuance under the Equity Plan.This reserve automatically increases on April 1 of each year through 2017 by an amount equal to the smaller of (a) five percent of the number of shares ofcommon stock issued and outstanding on the immediately preceding March 31, or (b) a lesser amount determined by the board of directors. Appropriateadjustments will be made in the number of authorized shares and other numerical limits in the Equity Plan and in outstanding awards to prevent dilution orenlargement of participants' rights in the event of a stock split or other change in the Company's capital structure. Shares subject to awards which expire or arecancelled or forfeited will again become available for issuance under the Equity Plan. The shares available will not be reduced by awards settled in cash or byshares withheld to satisfy tax withholding obligations. Only the net number of shares issued upon the exercise of stock appreciation rights or options exercisedby means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the Equity Plan.To enable compensation provided in connection with certain types of awards intended to qualify as “performance-based” within the meaning ofSection 162(m) of the Internal Revenue Code, the Equity Plan establishes limits on the maximum aggregate number of shares or dollar value for which awardsmay be granted to an employee in any fiscal year, as follows:•No more than 300,000 shares subject to stock options and stock appreciation rights.•No more than 100,000 shares subject to restricted stock and restricted stock unit awards.•For each full fiscal year of the Company contained in the performance period of the award, no more than 50,000 shares subject to performanceshare awards and other stock-based awards or more than $500,000 subject to performance unit awards and other cash-based awards.In addition, to comply with applicable tax rules, the Equity Plan also limits the number of shares that may be issued upon the exercise of ISOs granted underthe Equity Plan to 3,000,000, cumulatively increased on April 1 of each subsequent year through 2017, by an amount equal to the smallest of (a) five percentof the number of shares of common stock issued and outstanding on the immediately preceding March 31, (b) 1,500,000 shares, or (c) a lesser amountdetermined by the board of directors.Upon the adoption of the Equity Plan in March 2007, the 2000 Plan was terminated, no further options were granted under the 2000 Plan, the 535,597shares that remained reserved for grant under the 2000 Plan were cancelled, and all subsequent grants of stock options were made pursuant to the Equity Plan.Awards may be granted under the Equity Plan to the Company's employees, including officers, directors, or consultants or those of any present orfuture parent or subsidiary corporation or other affiliated entity. To date, options granted to non-officer employees generally vest 25% on the first anniversaryand subsequent anniversaries of the date of grant, while grants to officers vest in full four years after the anniversary date of the officer's employment that isclosest to the date of grant. While the Company may grant ISOs only to employees, the Company may grant NSOs, stock appreciation rights, restricted stockpurchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock-based awards to any eligibleparticipant. Non-employee director awards may be granted only to members of the Company's board of directors who, at the time of grant, are not employees.Deferred compensation awards may be granted only to officers, directors and selected members of management or highly compensated employees.Only members of the board of directors who are not employees at the time of grant are eligible to participate in the nonemployee director awardscomponent of the Equity Plan. The board or the compensation committee shall set the amount60Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)and type of nonemployee director awards to be awarded on a periodic, non-discriminatory basis. Nonemployee director awards may be granted in the form ofNSOs, stock appreciation rights, restricted stock awards and restricted stock unit awards. Subject to adjustment for changes in the Company's capitalstructure, no nonemployee director may be awarded, in any fiscal year, one or more nonemployee director awards for more than 2,000 shares. However, theannual limit may be increased by the following additions: (i) an additional 10,000 shares in the fiscal year in which the nonemployee director is first appointedor elected to the board, (ii) an additional 2,000 shares in any fiscal year in which the nonemployee director is serving as the chairman or lead director of theboard, (iii) an additional 1,000 shares in any fiscal year for each committee of the board on which the nonemployee director is then serving other than aschairman of the committee, and (iv) an additional 2,000 shares in any fiscal year for each committee of the board on which the nonemployee director is thenserving as chairman of the committee.In the event of a change in control as described in the Equity Plan, the acquiring or successor entity may assume or continue all or any awardsoutstanding under the Equity Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a changein control or exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The administrator may provide forthe acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all nonemployeedirector awards will automatically be accelerated in full. The Equity Plan also authorizes the administrator, in its discretion and without the consent of anyparticipant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respectto each vested share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change incontrol transaction over the exercise price per share, if any, under the award.The 2007 Employee Stock Purchase PlanIn January 2007, the board of directors approved the 2007 Employee Stock Purchase Plan (the "2007 Purchase Plan") which was subsequentlyapproved by the Company's stockholders in March 2007. A total of 500,000 shares of the Company's common stock was authorized and reserved for saleunder the 2007 Purchase Plan. In addition, the 2007 Purchase Plan provides for an automatic annual increase in the number of shares available for issuanceunder the plan on April 1 of each year beginning in 2008 and continuing through and including April 1, 2017 equal to the lesser of (1) one percent of thenumber of issued and outstanding shares of common stock on the immediately preceding March 31, (2) 250,000 shares or (3) a number of shares as the boardof directors may determine. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution orenlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or arecanceled will again become available for issuance under the 2007 Purchase Plan.The Company's employees and employees of any parent or subsidiary corporation designated by the administrator will be eligible to participate in the2007 Purchase Plan if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, anemployee may not be granted a right to purchase stock under the 2007 Purchase Plan if: (1) the employee immediately after such grant would own stockpossessing 5% or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (2) theemployee's rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar yearof participation in such plans.The 2007 Purchase Plan is designed to be implemented through a series of sequential offering periods, generally six (6) months in duration beginning onthe first trading day on or after May 1 and November 1 of each year. The administrator is authorized to establish additional or alternative sequential oroverlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have aduration exceeding 27 months.Amounts accumulated for each participant under the 2007 Purchase Plan are used to purchase shares of the Company's common stock at the end ofeach offering period at a price generally equal to 85% of the lower of the fair market value of our common stock at the beginning of an offering period or at theend of the offering period. Prior to commencement of an offering period, the administrator is authorized to reduce, but not increase, this purchase pricediscount for that offering period, or, under circumstances described in the 2007 Purchase Plan, during that offering period. The maximum number of shares aparticipant may purchase in any six-month offering period is the lesser of (i) that number of shares determined by multiplying (x) 1,000 shares by (y) thenumber of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole share or (ii) that number of whole sharesdetermined by dividing (x) the product of $2,083.33 and the number of months61Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(rounded to the nearest whole month) in the offering period and rounding to the nearest whole dollar by (y) the fair market value of a share of our commonstock at the beginning of the offering period. Prior to the beginning of any offering period, the administrator may alter the maximum number of shares thatmay be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participantsin the offering period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they wouldotherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants' compensation inexcess of the amounts used to purchase shares will be refunded, without interest.In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under the 2007 Purchase Plan. If theacquiring or successor corporation does not assume such rights and obligations, then the purchase date of the offering periods then in progress will beaccelerated to a date prior to the change in control.62Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes stock option activities: Shares Availablefor Grant Number of SharesUnderlying OptionsOutstanding Weighted AverageRemainingContractual Life(Years) WeightedAverageExercise Price Intrinsic ValueBalance at March 31, 2009 3,023,388 4,980,737 $3.78 Options reserved 1,335,977 — — Granted (1,352,338) 1,352,338 3.84 Exercised — (816,686) 1.80 $1,866,429Forfeited 20,595 (112,244) 4.26 Balance at March 31, 2010 3,027,622 5,404,145 4.08 Options reserved 1,378,756 — Granted (721,273) 721,273 7.13 Exercised — (983,510) 4.30 3,500,209Forfeited 50,930 (76,430) 4.50 Balance at March 31, 2011 3,736,035 5,065,478 4.46 Options reserved 1,432,452 — Granted (854,423) 854,423 5.81 Exercised — (225,789) 4.87 403,038Forfeited 47,400 (67,964) 5.53 Balance at March 31, 2012 4,361,464 5,626,148 $4.64 Options vested and exercisable 3,217,259 4.91 $4.20 $1,881,949Options vested and expected to vest 5,554,500 6.31 $4.63 $2,496,682The options outstanding and by exercise price at March 31, 2012 are as follows: Options Outstanding Options ExercisableExercise Price Number ofSharesUnderlyingOptionsOutstanding Weighted AverageExercise Price Weighted AverageRemainingContractual Life(Years) Number Vested andExercisable Weighted AverageExercise Price$2.10 - 2.43 628,673 $2.20 3.02 527,171 $2.16$2.49 - 3.38 563,881 $3.19 6.42 407,107 $3.12$3.43 - 3.76 590,467 $3.52 6.09 308,739 $3.57$3.81 - 3.94 38,000 $3.87 6.96 38,000 $3.87$4.00 789,738 $4.00 6.64 430,130 $4.00$4.20 - 4.90 626,475 $4.53 7.02 333,535 $4.32$4.92 - 5.40 147,670 $4.96 9.11 11,000 $5.40$5.50 883,208 $5.50 4.63 883,208 $5.50$5.75 - 6.28 580,083 $6.04 7.63 164,632 $5.77$6.54 - 9.20 777,953 $7.21 8.75 113,737 $7.26 5,626,148 6.34 3,217,259 63Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGSI TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Stock-based compensationThe Company recognized $2,096,000, $1,712,000 and $1,479,000 of stock-based compensation expense for the years ended March 31, 2012, 2011and 2010, respectively, as follows: Year Ended March 31, 2012 2011 2010 (In thousands)Cost of revenues $321 $300 $291Research and development 1,061 834 686Selling, general and administrative 714 578 502Total $2,096 $1,712 $1,479Stock-based compensation expense in the years ended March 31, 2012, 2011 and 2010 included $156,000, $146,000 and $71,000, respectively,related to the Company's Employee Stock Purchase Plan.The Company recognized related income tax benefits of $210,000, $158,000 and $183,000 in the years ended March 31, 2012, 2011 and 2010,respectively. Windfall tax benefits realized from exercised stock options were $75,000, $882,000 and $612,000 during the fiscal years ended March 31,2012, 2011 and 2010, respectively. Compensation cost capitalized within inventory at March 31, 2012 was insignificant. As of March 31, 2012, theCompany's total unrecognized compensation cost was $4.0 million, which will be recognized over the weighted average period of 2.00 years. The Companycalculated the fair value of stock based awards in the periods presented using the Black-Scholes option pricing model and the following weighted averageassumptions: Year Ended March 31,Stock Option Plans: 2012 2011 2010Risk-free interest rate 0.90 - 1.89% 1.49 - 2.29% 2.23 - 2.47%Expected life (in years) 5.00 5.00 5.00Volatility 50.8 - 53.8% 49.9 - 50.7% 48.1 - 48.6%Dividend yield —% —% —%Employee Stock Purchase Plan: Risk-free interest rate 0.05 - 0.07% 0.19 - 0.23% 0.17 - 0.29%Expected life (in years) 0.50 0.50 0.50Volatility 43.9 - 52.1% 52.3 - 73.6% 41.4 - 52.3%Dividend yield —% —% —%The weighted average fair value of options granted during the years ended March 31, 2012, 2011 and 2010 was $2.66, $3.23 and $1.70, respectively.NOTE 9—SEGMENT AND GEOGRAPHIC INFORMATIONBased on its operating management and financial reporting structure, the Company has determined that it has one reportable business segment: thedesign, development and sale of integrated circuits.64Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following is a summary of net revenues by geographic area based on the location to which product is shipped: Year Ended March 31, 2012 2011 2010 (In thousands)United States $19,434 $28,993 $20,998China 17,974 22,114 15,373Malaysia 27,048 24,805 18,160Singapore 10,971 12,819 7,934Rest of the world 7,113 9,032 5,093 $82,540 $97,763 $67,558All sales are denominated in United States dollars.The locations and net book value of long-lived assets are as follows: March 31, 2012 2011 (In thousands)United States $9,388 $9,046Taiwan 3,418 4,499 $12,806 $13,545NOTE 10—ACQUISITIONOn August 28, 2009, the Company acquired substantially all of the assets related to the SRAM memory device product line of Sony Corporation andits subsidiaries, including Sony Electronics Inc. (collectively, "Sony"). As part of the transaction, the Company also entered into an Intellectual PropertyAgreement with Sony under which it acquired certain patents and license rights to other intellectual property used in connection with the acquired product line.The acquisition was undertaken by the Company in order to increase its market share in the SRAM memory business, expand its relationships with itsmajor customers and expand its product portfolio. The acquisition resulted in a bargain purchase as Sony had been incurring significant losses on an annualbasis, had a minimal product offering, had only one customer and declining annual revenues at the time of the acquisition and was therefore motivated to sellthe assets of its SRAM product line.The acquisition has been accounted for as a purchase under authoritative guidance for business combinations. The purchase price of the acquisition hasbeen preliminarily allocated to the net tangible and intangible assets acquired, with the excess of the fair value of assets acquired over the purchase pricerecorded as a bargain purchase gain.The results of operations and estimated fair value of assets acquired and liabilities assumed were included in the Company's condensed consolidatedfinancial statements beginning August 29, 2009.ConsiderationThe total purchase consideration was approximately $7.1 million in cash, of which approximately $5.2 million was paid at the closing, $1.2 millionwas paid in October 2009 following a post-closing adjustment to reflect actual product inventory on hand at the closing and $727,000 consisted of contingentconsideration that was payable on the basis of sales of certain acquired SRAM products over an eight quarter period commencing with the September 2009quarter, the quarter in which the Company first derived revenue from shipments of such products.65Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAcquisition-related costsAcquisition-related costs of approximately $533,000 are included in selling, general and administrative expenses in the Consolidated Statement ofOperations for the year ended March 31, 2010.Purchase price allocationThe allocation of the purchase price to acquired tangible and identifiable intangible assets was based on their estimated fair values at the date ofacquisition.The fair value allocated to each of the major classes of tangible and identifiable intangible assets of Sony's SRAM memory device product line acquiredon August 28, 2009 and the bargain purchase gain recorded under other income (expense), net in the Consolidated Statements of Operations was computed asfollows (in thousands): Inventory$3,702Tooling and masks604Property and equipment2,800Intangible assets1,390Deferred tax liability resulting from acquisition(483)Net tangible and intangible assets8,013Purchase price6,914Gain on bargain purchase$1,099The deferred tax liability associated with the estimated fair value adjustments of tangible and intangible assets acquired is recorded at an estimatedweighted average statutory tax rate in the jurisdictions where the fair value adjustments may occur.Identifiable intangible assetsThe following table sets forth the components of the identifiable intangible assets acquired in the purchase of Sony's SRAM memory device productline, which are being amortized over their estimated useful lives, with a maximum amortization period of nine years, on a straight-line basis: Fair Value Useful Life (in thousands) (in years)Patents $720 9.0Designs 590 7.0Software 80 5.0Total acquired identifiable intangible assets $1,390 In accordance with authoritative guidance for fair value measurements, the Company allocated the purchase price using established valuationtechniques.Inventories—The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of theinventory less costs to complete and reasonable selling margin.Property, plant and equipment—The basis used for the Company's analysis was the fair value in continued use, which is considered to be the priceexpressed in terms of money which a willing and informed buyer would pay, contemplating continued use as part of a going concern of the assets in place forthe purpose for which they were designed, engineered, installed, fabricated and erected.66Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIntangible assets—The fair value of patents and designs were determined using the income approach, which discounted expected future cash flows topresent value. The cash flows were discounted at a rate of approximately 20%. The fair value of software was determined using the cost saving approach.Prior to the closing of the acquisition, there were no material relationships between GSI and Sony or any related parties or affiliates of Sony.The following table summarizes total net revenues and net income of the combined entity had the acquisition of Sony's SRAM memory device productline occurred on April 1, 2009 (in thousands): Three Months EndedMarch 31, 2010 Year EndedMarch 31, 2010 Total net revenues $21,244 $69,330 Net income $3,888 $4,114 The combined results in the table above have been prepared for comparative purposes only and include acquisition related adjustments for, among otheritems, amortization of identifiable intangible assets, conforming depreciation policies of Sony to GSI's, to reflect the bargain purchase gain and related taximpact and to reflect the step up in basis of acquired work-in-progress and finished goods inventories. Since the acquisition date, the results of the formerSony SRAM memory device operations have been included in the Company's consolidated financial statements. The combined results do not purport to beindicative of the results of operations which would have resulted had the acquisition been effected at the beginning of the applicable periods noted above, or thefuture results of operations of the combined entity.NOTE 11—EMPLOYEE BENEFIT PLANThe Company provides a defined contribution retirement plan (the "Retirement Plan"), which qualifies under Section 401(k) of the Internal RevenueCode of 1996. The Retirement Plan covers essentially all United States employees. Eligible employees may make contributions to the Retirement Plan up to15% of their annual compensation, but no greater than the annual IRS limitation for any plan year. The Retirement Plan does not provide for Companycontributions.NOTE 12—QUARTERLY FINANCIAL DATA (Unaudited) Three Months Ended June 30, 2011 September 30, 2011 December 31, 2011 March 31, 2012 (In thousands, except per share amounts)Consolidated Statement of Operations Data: Net revenues $23,048 $20,783 $19,975 $18,734Gross profit $10,177 $9,058 $8,767 $8,647Net income $3,272 $1,664 $991 $829Net income per common share—Basic $0.11 $0.06 $0.03 $0.03Net income per common share—Diluted $0.11 $0.06 $0.03 $0.0367Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Three Months Ended June 30, 2010 September 30, 2010 December 31, 2010 March 31, 2011 (In thousands, except per share amounts)Net revenues $22,918 $26,747 $26,244 $21,854Gross profit $10,817 $12,178 $12,123 $9,636Net income $4,379 $5,247 $5,838 $3,412Net income per common share—Basic $0.16 $0.19 $0.21 $0.12Net income per common share—Diluted $0.15 $0.18 $0.20 $0.11Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A. Controls and ProceduresManagement's Evaluation of Disclosure Controls and ProceduresBased on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended) as of March 31, 2012, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has concludedthat our disclosure controls and procedures were effective as of the end of the period covered by this report for the purpose of ensuring that the informationrequired to be disclosed by us in this report is made known to them by others on a timely basis, and that the information is accumulated and communicated toour management, including our Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required disclosure, and thatsuch information is recorded, processed, summarized, and reported by us within the time periods specified in the SEC's rules and instructions for Form 10-K.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2012 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or ourinternal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absoluteassurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, if any, within GSI Technology, have been detected.Management's Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of theExchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can only providereasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.We assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, we used the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework. Based on ourassessment using those criteria, our management (including our Chief Executive Officer and Chief Financial Officer) concluded that our internal control overfinancial reporting was effective as of March 31, 2012.68Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOur independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on our internal control over financialreporting as of March 31, 2012. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting,appears on page 42 of this Annual Report on Form 10-K.Item 9B. Other InformationNot applicable.PART IIIThe SEC allows us to include information required in this report by referring to other documents or reports we have already filed or will soon be filing.This is called "incorporation by reference." We intend to file our definitive proxy statement for our 2012 annual meeting of stockholders (the "ProxyStatement") pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information therein isincorporated in this report by reference.Item 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item with respect to executive officers is set forth in Part I of this Annual Report on Form 10-K and the remaininginformation required by this item is incorporated by reference from the sections entitled "Election of Directors," "Section 16(a) Beneficial Ownership ReportingCompliance," and "Corporate Governance" to be included in the Proxy Statement.Item 11. Executive CompensationThe information required by this item is incorporated by reference from the section entitled "Executive Compensation" to be included in the ProxyStatement.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated by reference from the section entitled "Principal Stockholders and Stock Ownership byManagement" to be included in the Proxy Statement.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference from the section entitled "Related Person Transactions" and "Corporate Governance—Director Independence" to be included in the Proxy Statement.Item 14. Principal Accountant Fees and ServicesThe information required by this item is incorporated by reference from the section entitled "Ratification of Appointment of Independent RegisteredPublic Accounting Firm" to be included in the Proxy Statement.69Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules(a)The following documents are filed as part of this Form:1.Financial Statements PageReport of Independent Registered Public Accounting Firm42Consolidated Balance Sheets43Consolidated Statements of Operations44Consolidated Statements of Stockholders' Equity45Consolidated Statements of Cash Flows46Notes to Consolidated Financial Statements472.Financial Statement SchedulesSchedule II—Valuation and Qualifying AccountsSchedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidatedfinancial statements or notes herein.3.Exhibits:The following exhibits are filed herewith:ExhibitNumber Name of Document3.1 Restated Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.3 to Registrant's Registration Statement onForm S-1 (File No. 333-139885) filed on February 16, 2007)3.2 Bylaws of Registrant (Incorporated by reference to Exhibit 3.4 to Registrant's Registration Statement on Form S-1 (File No. 333-139885) filed on February 16, 2007)10.1 Form of Indemnity Agreement between Registrant and Registrant's directors and officers (Incorporated by reference to identically-numbered exhibit to Registrant's Registration Statement on Form S-1 (File No. 333-139885) filed on January 10, 2007)10.2(1)1997 Stock Plan and form of Stock Option Agreement (Incorporated by reference to identically-numbered exhibit to Registrant'sRegistration Statement on Form S-1 (File No. 333-139885) filed on February 16, 2007)10.3(1)2000 Stock Option Plan and form of Stock Option Agreement (Incorporated by reference to identically-numbered exhibit toRegistrant's Registration Statement on Form S-1 (File No. 333-139885) filed on February 16, 2007)10.4(1)2007 Equity Incentive Plan, as amended (Incorporated by reference to Appendix A to Registrant's definitive Proxy Statement filed onJuly 21,2011)10.5(1)2007 Employee Stock Purchase Plan and form of Subscription Agreement (Incorporated by reference to identically-numbered exhibitto Registrant's Registration Statement on Form S-1 (File No. 333-139885) filed on February 16, 2007)70Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents ExhibitNumber Name of Document10.6(1)Form of Notice of Grant of Stock Option (U.S. Participant) (Incorporated by reference to Exhibit 99.1 to Registrant's CurrentReport on Form 8-K filed on June 4, 2007)10.7(1)Form of Notice of Grant of Stock Option (Non-U.S. Participant) (Incorporated by reference to Exhibit 99.2 to Registrant's CurrentReport on Form 8-K filed on June 4, 2007)10.8(1)Form of Stock Option Agreement (U.S. Participant) (Incorporated by reference to Exhibit 99.3 to Registrant's Current Report onForm 8-K filed on June 4, 2007)10.9(1)Form of Stock Option Agreement (Non-U.S. Participant) (Incorporated by reference to Exhibit 99.4 to Registrant's Current Reporton Form 8-K filed on June 4, 2007)10.10 Intellectual Property Agreement dated August 28, 2009 between GSI Technology, Inc. and Sony Electronics Inc. (Incorporated byreference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q filed on November 16, 2009)10.11(1)GSI Technology, Inc. 2011 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report onForm 8-K filed on April 5, 2010)10.12(1)GSI Technology, Inc. 2012 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report onForm 8-K filed on May 10, 2011)10.13 Building Office Lease for No. 1, 6th Floor, 30 Taiyuan Street, Chupei City, Taiwan dated January 27, 2011 (Incorporated byreference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K filed on June 2, 2011)10.14(2)Master Purchase Agreement dated August 31, 2011 between Registrant and Cisco Systems, Inc. (Incorporated by reference toExhibit 10.1 to Registrant's Quarterly Report on Form 10‑Q filed on November 4, 2011)10.15(2)Master Purchase Agreement dated August 31, 2011 between Registrant and Cisco Systems International B.V. (Incorporated byreference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10‑Q filed on November 4, 2011)10.16(1)GSI Technology, Inc. 2013 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Reporton Form 8‑K filed on May 8, 2012)21.1 List of Subsidiaries23.1 Consent of Independent Registered Public Accounting Firm24.1 Power of Attorney (Incorporated by reference to the signature page of this Annual Report on Form 10-K)31.1 Certification of Lee-Lean Shu, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 Certification of Douglas Schirle, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 Certification of Lee-Lean Shu, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2 Certification of Douglas Schirle, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS(3)XBRL Instance Document101.SCH(3)XBRL Taxonomy Extension Schema Document101.CAL(3)XBRL Taxonomy Extension Calculation Linkbase Document101.DEF(3)XBRL Taxonomy Extension Definition Linkbase Document101.LAB(3)XBRL Taxonomy Extension Label Linkbase Document101.PRE(3)XBRL Taxonomy Extension Presentation Linkbase Document__________________________________(1)Compensatory plan or management contract.(2)This exhibit has been filed separately with the Commission pursuant to an application for confidential treatment which has been granted by theCommission. The confidential portions of this exhibit have been omitted and marked by asterisks.(3)XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the SecuritiesExchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates andis not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.71Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.June 4, 2012GSI TECHNOLOGY, INC. By:/s/ DOUGLAS M. SCHIRLE Douglas M. SchirleChief Financial OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lee-Lean Shu and RobertYau, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this AnnualReport on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following personson behalf of the Registrant and in the capacities and on the dates indicated.Name Title Date /s/ LEE-LEAN SHU President, Chief Executive Officer and Chairman June 4, 2012Lee-Lean Shu (Principal Executive Officer) /s/ DOUGLAS M. SCHIRLE Chief Financial Officer June 4, 2012Douglas M. Schirle (Principal Financial and Accounting Officer) /s/ ROBERT YAU Vice President, Engineering, Secretary and Director June 4, 2012Robert Yau /s/ RUEY L. LU Director June 4, 2012Ruey L. Lu /s/ ARTHUR O. WHIPPLE Director June 4, 2012Arthur O. Whipple /s/ HAYDN HSIEH Director June 4, 2012Haydn Hsieh 72Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSCHEDULE II—VALUATION AND QUALIFYING ACCOUNTSDescription Balance at Beginningof Period Charges to Cost andExpenses Deductions Balance at End of Period (In thousands)Year ended March 31, 2012 Allowance for sales returns, doubtful accounts andother $105 $208 $213 $100Year ended March 31, 2011 Allowance for sales returns, doubtful accounts andother $101 $29 $25 $105Year ended March 31, 2010 Allowance for sales returns, doubtful accounts andother $123 $29 $51 $10173Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1GSI TECHNOLOGY, INC. SUBSIDIARIESGSI Technology Holdings, Inc., a Cayman Islands companyGSI Technology (BVI), Inc., a British Virgin Islands companyGSI Technology Taiwan, Inc.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-144140) of GSI Technology, Inc. of our reportdated June 4, 2012 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, whichappears in this Form 10-K./s/ PRICEWATERHOUSECOOPERS LLPSan Jose, CaliforniaJune 4, 2012Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Lee-Lean Shu, certify that:1.I have reviewed this annual report on Form 10-K of GSI Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which arereasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.June 4, 2012/s/ LEE-LEAN SHULee-Lean ShuPresident and Chief Executive OfficerSource: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Douglas M. Schirle, certify that:1.I have reviewed this annual report on Form 10-K of GSI Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which arereasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.June 4, 2012/s/ DOUGLAS M. SCHIRLEDouglas M. SchirleChief Financial OfficerSource: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of GSI Technology, Inc. (the "Company") on Form 10-K for the year ending March 31, 2012 as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), I, Lee-Lean Shu, President and Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.June 4, 2012 /s/ LEE-LEAN SHU Lee-Lean ShuPresident and Chief Executive OfficerA signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting thesignature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrantand will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of GSI Technology, Inc. (the "Company") on Form 10-K for the year ending March 31, 2012 as filed with theSecurities and Exchange Commission on the date hereof (the "Report"), I, Douglas M. Schirle, Chief Financial Officer of the Company, certify, pursuant to18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.June 4, 2012 /s/ DOUGLAS M. SCHIRLE Douglas M. SchirleChief Financial OfficerA signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting thesignature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrantand will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: GSI TECHNOLOGY INC, 10-K, June 04, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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