GSI
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KGSI TECHNOLOGY INC - GSITFiled: June 10, 2016 (period: March 31, 2016)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 COMMISSION Washington, D.C. 20549FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2016 or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 For the transition period from toCommission File Number 001-33387GSI 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 ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate 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 of 1934during 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 ☒ No ☐Indicate 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 ☒ No ☐Indicate 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 thebest of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of "large accelerated filer," accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Act. (Check one): Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stockon September 30, 2015, as reported on the Nasdaq Global Market, was approximately $63.7 million. Shares of the registrant's common stock held by each officerand director and each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemedto be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of May 31, 2016, there were 21,208,548shares of the registrant's common stock issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement for its 2016 annual meeting of stockholders are incorporated by reference into Part III hereof. Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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.2016 FORM 10-K ANNUAL REPORTTABLE OF CONTENTSPART I PageItem 1. Business3Item 1A. Risk Factors19Item 1B. Unresolved Staff Comments34Item 2. Properties34Item 3. Legal Proceedings34Item 4. Mine Safety Disclosures35 PART II 36Item 5. Market for Registrant's Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities36Item 6. Selected Financial Data37Item 7. Management's Discussion and Analysis of Financial Condition and Results ofOperations38Item 7A. Quantitative and Qualitative Disclosures About Market Risk51Item 8. Financial Statements and Supplementary Data52Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure86Item 9A. Controls and Procedures86Item 9B. Other Information87 PART III 88Item 10. Directors, Executive Officers and Corporate Governance88Item 11. Executive Compensation88Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters88Item 13. Certain Relationships and Related Transactions, and Director Independence88Item 14. Principal Accountant Fees and Services88 PART IV 89Item 15. Exhibits and Financial Statement Schedules89 SIGNATURES 92 2 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsForward-looking StatementsIn addition to historical information, this Annual Report on Form 10-K includes forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements involve risks anduncertainties. 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 characterizations of future events or circumstances are forward-looking statements. Actual resultscould differ materially from those projected in the forward-looking statements as a result of a number of factors,including those set forth in this report under "Management's Discussion and Analysis of Financial Condition andResults of Operations" and "Risk Factors," those described elsewhere in this report, and those described in our otherreports filed with the Securities and Exchange Commission ("SEC"). We caution you not to place undue reliance onthese forward-looking statements, which speak only as of the date of this report, and we undertake no obligation toupdate these forward-looking statements after the filing of this report. You are urged to review carefully and considerour 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. PART I Item 1. BusinessOverviewFor many years we have developed and marketed high performance memory products, including "Very Fast" staticrandom access memory, or SRAM, and low latency dynamic random access memory, or LLDRAM, that are incorporatedprimarily in high-performance networking and telecommunications equipment, such as routers, switches, wide areanetwork infrastructure equipment, wireless base stations and network access equipment. We sell these products toleading original equipment manufacturer, or OEM, customers including Alcatel-Lucent, Cisco Systems and HuaweiTechnologies. In addition, we serve the ongoing needs of the military, industrial, test and measurement equipment,automotive and medical markets for high-performance SRAMs. Based on the performance characteristics of our productsand the breadth of our product portfolio, we consider ourselves to be a leading provider of Very Fast SRAMs. We utilizea fabless business model, which allows us both to focus our resources on research and development, product design andmarketing, and to gain access to advanced process technologies with only modest capital investment and fixed costs.Subsequent to our acquisition of MikaMonu Group Ltd. (“MikaMonu”), discussed below, we have expanded ourstrategy to include the development of in-place associative computing solutions for applications in evolving newmarkets such as “big data” (including machine learning and deep convolutional neural networks (“CNNs”)), computervision, and cyber security.We were incorporated in California in 1995 under the name Giga Semiconductor, Inc. We changed our name toGSI Technology in December 2003 and reincorporated 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 numberis (408) 331-8800.Recent DevelopmentsRecent AcquisitionOn November 23, 2015, we acquired all of the outstanding capital stock of privately held MikaMonu, adevelopment-stage, Israel-based company that specializes in in-place associative computing for markets including3 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsbig data, computer vision and cyber security. MikaMonu, located in Tel Aviv, held 12 United States patents and anumber of pending patent applications. With the vast amount of data currently being generated, and the increasing demand for faster processing of thatdata, memory bus speeds are not keeping up with processor speeds. MikaMonu’s in-place associative computingtechnology addresses this issue by changing the concept of computing from serial data processing – where data ismoved back and forth from the processor to the memory – to parallel data processing, computation and search directly inthe main processing array. This new computing model has the potential to greatly expedite computation and responsetimes in “big data” applications. Fast response times are also needed in the computer vision and cyber securitymarkets. For example, in the automotive market, advanced driver assistance systems (ADAS) require a tremendousamount of image processing to be accomplished in real-time. MikaMonu’s massively parallel computing technology iswell suited to address these needs. We believe that our state-of-the-art circuit design expertise will enable thedevelopment of high quality associative processors incorporating MikaMonu’s patented, in-place associativecomputing technology and algorithms, potentially creating a new category of computing products with substantialtarget markets and a large new customer base in those markets. Realization of the potential synergies of the acquisition,however, will require a substantial development effort over more than a year, with initial products not expected to beintroduced until late calendar 2017. The acquisition has been accounted for as a purchase under authoritative guidance for businesscombinations. The purchase price of the acquisition has been preliminarily allocated to the intangible assets acquired,with the excess of the purchase price over the fair value of assets acquired recorded as goodwill. The results ofoperations of MikaMonu and the estimated fair value of the assets acquired were included in our consolidated financialstatements beginning November 23, 2015.Under the terms of the acquisition agreement, we paid the former MikaMonu shareholders initial cashconsideration of approximately $4.4 million at the closing on November 23, 2015. We will make cash payments of up to$484,000 to the three former MikaMonu shareholders in May 2017 upon the release of cash held in escrow for potentialindemnification claims. Additionally, we will make cash retention payments of up to an additional $2.5 million to thethree former MikaMonu shareholders in installments over a four-year period, conditioned on the continued employmentof Dr. Avidan Akerib, MikaMonu’s co-founder and chief technologist. We will also make “earnout” payments to theformer MikaMonu shareholders in cash or shares of our common stock, at our discretion, during a period of up to tenyears following the closing if certain product development milestones and revenue targets for products based on theMikaMonu technology are achieved. Earnout amounts of $750,000 will be payable if certain product developmentmilestones are achieved by December 31, 2017. Additional earnout amounts of $2,750,000 and $4,000,000 will bepayable if certain revenue milestones are achieved by January 1, 2021 and January 1, 2022, respectively; and additionalpayments, up to a maximum of $30 million, equal to 5% of net revenues from the sale of qualifying products in excessof certain thresholds, will be made quarterly through December 31, 2025.Settlement of Protracted Litigation with Cypress Semiconductor CorporationOn May 6, 2015, we entered into a settlement agreement with Cypress Semiconductor Corporation to resolve alawsuit filed by Cypress in the United States District Court for the Northern District of California alleging that certain ofour products infringe patents held by Cypress and a separate lawsuit pending in the same court in which we had allegedthat Cypress violated federal and state antitrust laws. Reference is made to “Item 3. Legal Proceedings” for informationregarding this protracted litigation that began in 2011. Under the settlement agreement:·Each of the parties agreed to dismiss its lawsuit in consideration of the dismissal of the lawsuit brought by theother party; and4 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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·Each party released all claims against the other with respect to issues raised in the two lawsuits. The parties agreed that the settlement agreement was entered into to resolve disputed claims, and that each partydenies any liability to the other party.Industry BackgroundSRAM, LLDRAM and Bandwidth Engine Market OverviewVirtually all types of high-performance electronic systems incorporate some form of volatile memory. An SRAM isa memory device that retains data as long as power is supplied, without requiring any further user intervention. Incontrast, dynamic random access memory, or DRAM, is a memory device that requires user intervention in the form ofrefresh operations to retain data while power is supplied, due to the capacitive nature of its memory cell. However, aDRAM memory cell is much smaller than an SRAM memory cell, so several times more DRAM bits than SRAM bits canbe implemented in any given unit area of silicon. The fundamentally different characteristics of SRAM and DRAMmemory 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 haveserved high performance requirements while DRAM-based products have been used in cost-optimizedapplications. Today, SRAM- and DRAM-based products serve both performance and cost-based applications. As thevolatile memory market fragments into a variety of specialized products, more meaningful distinctions between volatilememory products can be made.There is an increasingly broad variety of volatile memory products on the market, characterized by a number ofattributes, such as speed, memory capacity, or density, I/O interface and power consumption. There are several differentindustry measures of speed:·latency, 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 productsmay be described in terms of numbers of clock cycles required between the load of an address and thedelivery of valid data;·random access time, which is the minimum amount of time required between accesses to randomlocations within the memory array, typically measured in nanoseconds, or ns;·bandwidth, which is the rate at which data can be streamed to or from a device and is often measured inmegabits or gigabits per second (Mb/s or Gb/s);·clock frequency, which is the cycle rate of a clock within a synchronous device and is often measured inmegahertz or gigahertz (MHz or GHz); and·transaction rate, which is the rate at which new commands can be executed by the memory device, andis often measured in millions or billions of transactions per second (MT/s or BT/s).Historically, SRAMs have been utilized wherever other lower price-per-bit memory technologies have beeninadequate. SRAMs demonstrate lower latency and faster random access times relative to DRAMs and other types ofmemory technologies, but at a higher price-per-bit. Historically, the volatile memory market has had three price-performance points, DRAM at the low end, Fast SRAM at the high end, and slow SRAM in the middle. Over the pasttwo decades, alternative memory technologies have been introduced to address certain applications that formerly usedslow SRAMs. For example, new types of DRAM have displaced slow SRAM in applications such as cellphones. However, in the networking memory market a technology vacuum formed between Fast SRAMs on one end andcommodity DRAMs at the other, with no high bandwidth, high transaction rate, moderate capacity,5 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsmoderate latency, and moderate cost volatile memory product to fill the void. In the past decade, low latency DRAMs,or LLDRAMs, have been developed to fill that void. Like the slow SRAMs that came before them, LLDRAMs have amuch higher price-per-bit than commodity DRAMs (in order to deliver higher transaction rates) but demonstrate slowerrandom access times and longer latencies than Fast SRAMs.All of these SRAM and DRAM technologies utilize traditional parallel I/O interfaces that require a significantnumber of pins. Recently we have partnered with another company to provide a new serial I/O (SerDes) memory devicecalled “Bandwidth Engine” which is fabricated using embedded DRAM technology. The Bandwidth Engine hascapacity comparable to LLDRAMs but offers far greater transaction rate and data bandwidth capability (greater eventhan Fast SRAMs) through its serial interface. It can also execute a variety of read-modify-write operations previouslyunavailable in any other memory device. The networking market is just beginning to take advantage of the unique andpowerful capabilities of Bandwidth Engine technology.The need for increasingly greater capacity, data bandwidth and transaction rates from the various memorytechnologies continues unabated as the networking market begins to make preparations for Terabit networking in thelatter half of the current decade. We believe that Fast SRAM, LLDRAM and Bandwidth Engine products, optimized fornetworking applications, will play an increasingly essential role in enabling continued improvements in networkperformance.As a result of the displacement of low performance SRAMs, the total market size for SRAMs is diminishing.However, due to their inherent higher latency characteristics, DRAMs cannot match the random access speed of high-performance SRAMs. Gartner Dataquest divides the SRAM market into segments based on speed. The highestperformance 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 andtelecommunications equipment.Increasing Need for Networking Memory ProductsGrowth in data, voice and video traffic has driven the need for both greater networking bandwidth and morecomplex routing and switching equipment, resulting in the continued expansion of the networking andtelecommunications infrastructure. The continued growth in the level of Internet usage has led to the proliferation of awide variety of equipment throughout the networking and telecommunications infrastructure, including routers,switches, wireless local area network infrastructure equipment, wireless base stations and network access equipment, anda continuing demand for new equipment with faster and higher performance. Moving data in and out of highperformance volatile memory is the core task of every piece of networking equipment. The access patterns orworkload of most memory arrays used in networking equipment are significantly different from those of memorydevices typically used in the computer market, such as the DRAMs used for main storage in PCs. As a result, distinctclasses of memory products optimized for the demands of the networking market have been emerging over the lastfifteen years. The sharply rising demand for increasing worldwide network performance is expected to drive acontinuing need for ever more specialized memory products. High-performance networking and telecommunicationsequipment requires a variety of memory types; both SRAM-based and DRAM-based. Some of the required memoryarrays are embedded in specialized processors or ASICs but many tasks require more bits than can be accommodated ona processor or ASIC, and must be provided in some form of external volatile memory. SRAM-based and DRAM-basednetworking memory products 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 ofinformation in data tables. As networking equipment must increasingly support advanced traffic content such as Voiceover Internet Protocol, or VoIP, video streaming and bi-directional video, demand for even higher performancenetworking memory is expected to continue to increase.6 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsDemanding Requirements for Success in the Networking Memory MarketThe pressure on networking and telecommunications OEMs to bring higher performance equipment to marketrapidly to support not only more traffic but also more advanced traffic content is compounded by the requirement thatthis new equipment occupy no more space than the equipment it replaces, which results in increased circuit densityrequirements and the need for lower power operations. In response to these pressures, OEMs have increasingly relied onproviders that are capable of rapidly developing and introducing advanced, higher density, low power networkingmemory. The variety of memory applications within the networking and telecommunications markets has also driven aneed for more specialized products available in relatively low volumes. These specialized products include high-speedsynchronous memory products implemented in both SRAM and DRAM memory technologies with a range of density,latency and bandwidth capabilities. In general, OEMs prefer to work with a supplier who can address the full range oftheir high-performance networking memory product requirements and, just as importantly, can offer the technical andlogistic support necessary to sustain and accelerate their efforts.We 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 productswith higher speeds, lower power and greater densities, to maintain timely availability of prior generations of products forseveral years after their introductions, and to provide effective logistic and technical support throughout their OEMcustomers' product development and manufacturing life cycles.The GSI SolutionWe endeavor to address the overall needs of our OEM customers, not only satisfying their immediate requirementsfor our latest generation, highest performance networking memory, but also providing them with the ongoing long-termsupport necessary during the entire lives of the systems in which our products are utilized. Accordingly, the keyelements 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 of high-performance networking memory products. Our SRAM product line hasevolved from BurstRAMs with an average transaction rate of about 0.125 BT/s to our SigmaQuad™-IVe SRAMs withtransaction rates up to 2.66 BT/s and data bandwidths of up to 192 Gb/s, greater than any other SRAM commerciallyavailable today. Our current Low Latency DRAMs deliver transaction rates of up to 0.533 BT/s and data bandwidths ofup to 38 Gb/s. Our Bandwidth Engine products provide transaction rates exceeding 4 BT/s and data bandwidths of up to400 Gb/s. Our SRAM products can produce data at latencies of 4 to 5 ns while LLDRAM and Bandwidth Enginelatencies are approximately 15 ns. By providing higher performance networking memory, we enable our networkingand telecommunications customers to continually design and develop higher performance products that supportincreasingly complex traffic content.Low Power Consumption. Many of our products require significantly less power than comparable productsoffered by our principal competitors. Because these products utilize less power and generate less heat, the reliability ofthe networking or telecommunications equipment in which they are employed increases. Furthermore, the low powerutilization 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 arelocated in close physical proximity to our SRAM wafer manufacturing partner, Taiwan Semiconductor ManufacturingCompany, or TSMC. This enhances our ability to work closely with TSMC to develop modifications of the advancedprocess technologies used in the manufacturing of our Fast SRAMs in order to maximize product7 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsperformance, optimize yields, lower manufacturing costs and improve quality. Our most advanced 144 and 288 Mbsynchronous Very Fast SRAMs are manufactured using 40 nanometer process technology. Our LLDRAMs are beingproduced using 63 nanometer DRAM process technology at Powerchip Technology Corporation, or Powerchip, inTaiwan.Product Innovation. We believe that we have established a position as a technology leader in the design anddevelopment of Very Fast SRAMs. We were the first supplier to introduce 72-bit-wide SRAMs as single monolithic ICs.In 2010, we were the first supplier to introduce a Fast Synchronous SRAM capable of one billion transactions per second– SigmaQuad-IIIe – whose 1.45 BT/s capability was more than double any other SRAM commercially available at thetime. In early 2015, we further solidified our position as a technology leader by being the first vendor to introduce andship 288 megabit monolithic SRAMs. In addition, we are the only vendor to offer a full line of Very Fast SynchronousSRAMs that operate and interface at 1.8 to 3.3 volts, giving our OEM customers the ability to use the same product insystems that operate at any voltage within that range. Moreover, we are the only vendor to offer a Very FastSynchronous SRAM product that operates at 1.8 volts and uses approximately one-half to two-thirds the power of ourcompetitors' 2.5 volt products.Broad and Readily Available Product PortfolioExtensive Product Catalog. The Very Fast SRAM market is highly fragmented in terms of product features andspecifications. This is especially true of the networking segment of the fast SRAM market and is becoming true of theLLDRAM segment as well. To meet our OEM customers' diverse needs, we have what we believe is the broadest catalogof Very Fast SRAM products currently available, and our LLDRAM and Bandwidth Engine product lines further expandour position in the networking market. Our product line includes a wide range of devices with varying densities,features, clock speeds, and voltages, as well as several operating temperature ranges and numerous package options inboth 5/6 RoHS (leaded) and 6/6 RoHS (lead-free) versions, which are compliant with the European Union's Restrictionon the Use of Hazardous Substances Directive 2002/95/EC.Advanced Feature Sets. Our products offer features that address a broad range of our networking andtelecommunications OEMs' system requirements. Among these features is a JTAG test port, named for the IEEE JointTest Action Group, which enables post-assembly verification of the connection between our product and an OEMcustomer's system board, thereby allowing an OEM customer of ours to develop, test and ship their products morerapidly. Additionally, we offer our FLXDrive™ feature, which allows system designers to optimize the signal integrityfor any given requirement. We also provide OEMs the ability to employ certain of our products in various modes ofoperation by using our products' mode control pins, thus increasing the flexibility of those products and their readyavailability from our inventory.Superior Lifetime Availability of Products. Unlike the market for consumer electronics, the markets in which wecompete, particularly the networking and telecommunications markets, generally are characterized by system designsthat remain in production for extended periods of time, and maintenance of those systems in the field for even longerperiods is critical to their success. Our foundry-based manufacturing strategy, our process technology selections, ourmaster-die design strategy and the design of our packaging, burn-in and test work-flows all contribute to allow us tomeet and exceed our guarantee of providing a product life of at least seven years for any new product family we bring tomarket. These techniques also allow us to keep our delivery lead-times relatively short even for specialized, infrequentlyordered members of those product families. We believe our approach is better suited to address the needs of our targetmarkets 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 ourproducts. This ability to perform at specification throughout the industrial temperature range of -40°C to +85°C iscritical for memory products used in a broad variety of networking and telecommunications applications, where the8 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsoperating 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 asingle mask set. As a result, based upon the way available die from a wafer are metalized, wire bonded, packaged andtested, from 25 mask sets we have created over 15,000 different products. Using these mask sets, we produce wafers thatcan be further processed upon customer orders into the final specified product thereby significantly shortening theoverall manufacturing time. For example, from a 72 megabit mask set, we can produce three families of 72 megabitSRAM products. Our unique methodology 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 several different products from a single master die, we can respond to unforecastedcustomer orders more quickly than our competitors.Reduced Cost. Our master die methodology allows us to reduce our costs through the purchase of fewer mask setsby allowing faster and less expensive internal product qualifications, by enabling more cost-efficient use of engineeringresources and by reducing the incidence of obsolete inventory.Customer ResponsivenessCustomer-driven Solutions. We work closely with leading networking and telecommunications OEMs, as well astheir chip-set suppliers, to better anticipate their requirements and to rapidly develop and implement solutions thatallow them to meet their specific product performance objectives. Customer demand drives our business. For example, toaddress near term needs, we offer critical specification variations, such as special operating ranges or wire bond optionson currently available products, while we also design new families of products to meet their emerging long term needs.As a consequence, our portfolio not only includes the widest selection of catalog parts available, it also includes anextensive list of custom, customer-specific products. This degree of responsiveness enables us to provide our OEMcustomers with the exact products required for their applications.Preemptive Service. Our extensive open libraries of design support tools as well as our ability to deliver thespecific device required for system prototyping with very short notice enables networking and telecommunicationOEMs to design and introduce differentiated products quickly as well as to reduce their development costs. Our openmodel libraries give designers access 24 hours a day, seven days a week to electrical and behavioral simulation models.Behavioral models are offered in both Verilog and very high speed integrated circuits hardware description language("VHDL") format to better fit different customers' simulation environments, further streamlining the customers'development process. We currently offer our FPGA controller IP free of charge for use with our Type II+ and Type IIIeSigmaQuad and SigmaDDR Fast SRAM devices to help enable our customers to design FPGA-based systems quicklyand efficiently, and reach the market with their products faster, and are also developing new FPGA controller IP for usewith our next generation Type IVe SigmaQuad and SigmaDDR SRAMs, as well as for our next generationLLDRAMs. Controller IP is also available for our Bandwidth Engine products. Our open model libraries and supporttools, coupled with the FPGA controller IP, can save our customers months of design effort and leverage the extensiveevaluation and timing already performed by our engineers to enhance their products’ performance, reduce developmentcosts and shorten time-to-market. We refer to this customer support as “Preemptive Service.”Quality and Reliability. Networking and telecommunications equipment typically have long product lives, andthe cost to repair or replace this equipment due to product failure at any time is prohibitively expensive. The9 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentshigh-quality and reliability of memory products incorporated in our OEM customers' products is, thus, critical. Everyproduct family we offer is subjected to extensive long term reliability testing before receiving qualification certification,and every device shipped is first subjected to burn-in and then to final tests in which the device is operated beyond itsspecified operating voltage and temperature ranges.The GSI StrategyOur objective is to profitably increase our market share in the high performance memory market. Our strategyincludes the following key elements:Continue to Focus on the Networking and Telecommunications Markets. We intend to continue to focus ondesigning and developing high transaction rate, low latency, high bandwidth and feature-rich memory products targetedprimarily at the networking and telecommunications markets. Increasing network complexity due to higher trafficvolume and more advanced traffic content continues to drive OEMs' demand for high-performance networkingmemory. We believe our active high-performance memory product development and manufacturing expertise coupledwith established strategic partnerships will continue to enable us to provide networking and telecommunicationsOEMs with the early access to next generation Very Fast SRAMs, Low Latency DRAMS, and Bandwidth Engineproducts that offer superior performance, advanced feature sets and continued high reliability, which they need todesign and develop new products that support increasingly complex traffic content and to bring networking andtelecommunications equipment to market quickly.Strengthen and Expand Customer Relationships. We are focused on maintaining close relationships withindustry leaders to facilitate rapid adoption of 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-memory IC suppliers that require high-performance memory support. We will continue to work with both groups at the pre-design and design stage of theirprojects in order to anticipate their future high-performance memory needs and to identify and respond to theirimmediate requests for currently available products and variants on currently available products. We plan to enhanceour relationships with these leading OEMs and IC vendors and to develop similar relationships with additionalOEMs and IC vendors.Continue to Invest in Research and Development to Extend Our Technology Leadership. We believe we haveestablished a position as a technology leader in the design and development of Very Fast SRAMs. Our Very Fast SRAMproducts most often provide the highest speed available at a given density for a given device configuration. We intendto 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 wecontinue to broaden our product line with the introduction of other new high performance memory technologiestargeted 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 relyupon advanced complementary metal oxide semiconductor, or CMOS, technologies, the most commonly used processtechnologies for manufacturing semiconductor devices, from TSMC for SRAM-based products and from Powerchip forDRAM-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 mostadvanced products currently in production were designed using 40 nanometer process technology on 300 millimeterwafers.Exploit Opportunities to Expand the Market for Our Memory Products. While we develop our high-performancememory products specifically for the networking and telecommunications markets, they are often applicable across awide range of industries and applications. We have experienced growth in product sales for10 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsmilitary, industrial, test and measurement, and medical markets and intend to continue penetrating these and other newmarkets with similar needs for high-performance memory technologies.Develop Products for New Markets. Following our recent acquisition of MikaMonu, we are devoting substantialefforts to the development of in-place associative computing solutions utilizing patented technology obtained in theacquisition. Products based on this cutting edge technology will address evolving new markets such as “big data”(including machine learning and deep convolutional neural networks (CNNs”)), computer vision and cyber security. Weintend to supplement our internal development activities by seeking additional opportunities to acquire otherbusinesses, product lines or technologies, or enter into strategic partnerships, that would complement our currentproduct lines, expand the breadth of our markets, enhance our technical capabilities, or otherwise provide growthopportunities.ProductsWe design, develop and market a broad range of high-performance memory products primarily for the networkingand telecommunications markets. We specialize in high performance memory products featuring very high transactionrates, high density, low latency, high bandwidth, fast clock access times and low power consumption. We commit tooffering our products for longer periods of time than our competitors, typically seven years or more following theirinitial introduction. Accordingly, we continue to offer products in a variety of package types that have beendiscontinued by other suppliers.We currently offer more than 30 families of SRAMs, two families of LLDRAMs, and one family of BandwidthEngine products. These basic product configurations are the basis for over 15,000 individual products that incorporate avariety of performance specifications and optional features. Our products can be found in a wide range of networkingand telecommunications equipment, including core routers, multi-service access routers, universal gateways, enterpriseedge routers, service provider edge routers, optical edge routers, fast Ethernet switches and wireless base stations. Wealso sell our products to OEMs that manufacture products for military applications such as radar and guidance systems,for professional audio applications such as sound mixing systems, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control, and for medical applications such as ultrasoundand CAT scan equipment.We have also begun developing and marketing in-place associative computing solutions, leveraging the patentedtechnology obtained in our acquisition of MikaMonu and our 20-plus years of high-performance SRAM developmentexperience. Our new associative computing solutions will address evolving new markets, such as “big data” (includingmachine learning and deep convolutional neural networks (“CNNs”)), computer vision and cyber security.Synchronous SRAM ProductsSynchronous SRAMs are controlled by timing signals, referred to as clocks, which make them easier to use thanolder style asynchronous SRAMs with similar latency characteristics in applications requiring high bandwidth datatransfers. Synchronous SRAMs that employ double data rate interface protocols can transfer data at much higherbandwidth than both single data rate and asynchronous SRAMs. We currently supply synchronous SRAMs that cancycle at operating frequencies as high as 1,333 MHz.BurstRAM™ and NBT™ SRAMs. We currently offer BurstRAMs and No Bus Turnaround, or NBT, SRAMs thatimplement a single data rate bus protocol. BurstRAMs were originally developed for microprocessor cache applicationsand have become the most widely used synchronous SRAMs on the market. They are used in applications where largeamounts of data are read or written in single sessions, or bursts. NBT SRAMs are a variation on the BurstRAM theme andwere developed to address the needs of moderate performance networking11 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsapplications. NBT SRAMs feature a single data rate bus protocol designed to minimize or eliminate wasted data transfertime slots on the bus when BurstRAMs switch from read to write operations. Both families of products can perform burstdata 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-throughSRAMs allow the shortest latency. Pipelined SRAMs break the access into discrete clock-controlled steps, allowing newaccess commands to be accepted while an access is already in progress. Therefore, while flow-through SRAMs offerlower 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 aJTAG test port and our FLXDrive feature, which allows system designers to optimize signal integrity for a givenapplication.We currently offer BurstRAMs and NBT SRAMs with storage densities of up to 144 megabits with clockfrequency of up to 333 MHz and clock access times 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 synchronousSRAMs have become the de facto standard for the networking and telecommunications industry. We offer a full line ofquad data rate separate I/O SRAMs, known as our SigmaQuad family, as well as a companion line of double data ratecommon I/O SRAMs, known as our SigmaDDR family. SigmaQuad SRAMs feature two uni-directional (one input andone output) double data rate data ports (two data ports times double data rate transfers equals quad data rate), controlledvia a single address and control port. SigmaDDR SRAMs feature a single bi-directional double data rate data port. Wecurrently offer our SigmaQuad and SigmaDDR devices in multiple bus protocol versions and data burst lengths, andwith various power supply and interface voltages, all under the names SigmaQuad, SigmaQuad-II and SigmaQuad-IIIe,and (coming soon) SigmaQuad-IVe, and their SigmaDDR equivalents. An additional variant in this family of SRAMs isthe SigmaSIO DDR, which is designed to address some segments of the market currently served by dual-port SRAMs.We currently offer SigmaQuad/SigmaDDR products in five storage densities, 18 megabits, 36 megabits, 72megabits, 144 megabits and 288 megabits. These SRAMs are capable of speeds up to 1,333 MHz and operate on mainpower supply voltages that range from 2.5 volts to 1.2 volts and interface voltages that range from 1.8 volts to 1.2 volts.Low Latency DRAM ProductsOur low latency DRAM family fills an under-served market segment between commodity DRAMs and FastSRAMs. Offering moderate density, moderate speed and moderate cost, LLDRAM technology gives system designers amiddle choice when commodity DRAM performance is insufficient but Fast SRAM performance is unnecessary.LLDRAMs offer one-third the latency of commodity DRAMs and four times the density of Fast SRAMs, givingnetworking equipment designers another tool for solving difficult data management problems.Our current LLDRAM portfolio includes both 288 megabit and 576 megabit devices that are capable of speeds ofup to 533 MHz, and that operate on a 1.8 volt power supply and support both 1.8 volt and 1.5 volt interfaces. They areavailable in five distinct configurations including common I/O and separate I/O types and data bus widths of x36, x18and x9. These devices serve as an alternate source for users of a popular, functionally equivalent device from acompeting vendor. We plan to expand our LLDRAM portfolio later in fiscal 2017 with the introduction of 1.25 Gigabitdevices capable of speeds of up to 800 MHz, that operate on a 1.5 volt power supply and support 1.2 volt and 1.0 voltinterfaces, and that will be available in common I/O configurations with data bus widths of x36 and x18.12 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsBandwidth Engine ProductsThe serial I/O interface and high transaction rate and data bandwidth capability of our Bandwidth Engineproducts, along with their ability to perform atomic read-modify-write operations, provide a level of performance well-suited for the next generation of high-speed networking systems.The Bandwidth Engine products are 576 megabit devices that support SerDes speeds of up to 15 Gb/s pertransceiver. They are capable of performing in excess of 4 billion transactions per second, can achieve sustained databandwidth of up to 400 Gb/s (200 Gb/s input, 200 Gb/s output) and can support four different SerDes laneconfigurations.CustomersOur primary sales and marketing strategy is to achieve design wins with leading OEMs in the networking andtelecommunications markets and the other markets we serve. The following is a representative list of our OEM customersthat directly or indirectly purchased more than $600,000 of our products in the fiscal year ended March 31, 2016:Alcatel-Lucent Cisco Systems General DynamicsHuawei Technologies IBM LockheedRaytheon Rockwell ZTE Many of our OEM customers use contract manufacturers to assemble their equipment. Accordingly, a significantpercentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses whopurchase products from us for use by contract manufacturers. In addition, we sell our products to OEM customersindirectly through domestic and international distributors.In the case of sales of our products to distributors and consignment warehouses, the decision to purchase ourproducts is typically made by the OEM customers. In the case of contract manufacturers, OEM customers typicallyprovide a list of approved products to the contract manufacturer, which then has discretion whether or not to purchaseour products from that list.Direct sales to contract manufacturers and consignment warehouses accounted for 37.6%, 33.1% and 37.5% of ournet revenues for fiscal 2016, 2015 and 2014, respectively. Sales to foreign and domestic distributors accounted for50.4%, 58.7% and 50.0% of our net revenues for fiscal 2016, 2015 and 2014, respectively.13 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 followingperiods: Fiscal Year Ended March 31, 2016 2015 2014 Contract manufacturers and consignment warehouses: SMART Modular Technologies -%5.2%14.4% Flextronics Technology 13.7 8.1 11.9 Sanmina 16.4 12.6 8.5 Distributors: Avnet Logistics 28.2 35.2 30.3 Nexcomm 13.3 12.3 10.2 Alcatel-Lucent was our largest customer in fiscal 2016 and 2015. Alcatel-Lucent purchases products directly fromus and through contract manufacturers and distributors. Based on information provided to us by Alcatel-Lucent’scontract manufacturers and our distributors, purchases by Alcatel-Lucent represented approximately 32%, 25% and 19%of our net revenues in fiscal 2016, 2015 and 2014, respectively. Cisco Systems, historically our largest OEM customer,purchases our products primarily through its consignment warehouses, and also purchases some products through itscontract manufacturers and directly from us. Based on information provided to us by Cisco Systems' consignmentwarehouses and contract manufacturers, purchases by Cisco Systems represented approximately 9%, 13% and 19% ofour net revenues in fiscal 2016, 2015 and 2014, respectively. To our knowledge, none of our other OEM customersaccounted for more than 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 anddistributors. As of March 31, 2016, we employed 18 sales and marketing personnel, and were supported by over 200independent sales representatives. We believe that our relationship with our U.S. distributor, Avnet, puts us in a strongposition to address the Very Fast SRAM and LLDRAM memory markets in the United States. We currently haveregional sales offices located in Canada, China, Hong Kong, Israel and the United States. We believe this internationalcoverage allows us to better serve our distributors and OEM customers by providing them with coordinated support. Webelieve 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-termrelationships with us based on our success in meeting these criteria.Our sales are generally made pursuant to purchase orders received between one and six months prior to thescheduled delivery date. Because industry practice allows customers to reschedule or cancel orders on relatively shortnotice, these orders are not firm and hence we believe that backlog is not a good indicator of our future sales. Wetypically provide a warranty of up to 36 months on our products. Liability for a stated warranty period is usually limitedto replacement of defective products.Our marketing efforts are, first and foremost, focused on ensuring that the products we develop meet or exceed ourcustomers' needs. Historically, those efforts have been focused on defining our high-performance SRAM and LLDRAMproduct roadmaps by working closely with key customers to understand their roadmaps and to ensure that the productswe develop meet their requirements (primary aspects of which include functionality, performance, electrical interfaces,power, and schedule). More recently, our marketing efforts have been expanded to include defining the new in-placeassociative computing products that we are developing. Our marketing group14 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsalso provides technical, strategic and tactical sales support to our direct sales personnel, sales representatives anddistributors. This support includes in-depth product presentations, datasheets, application notes, simulation models,sales tools, marketing communications, marketing research, trademark administration and other support functions. Wealso engage in various activities to increase brand awareness.We emphasize customer service and technical support in an effort to provide our OEM customers with theknowledge and resources necessary to successfully use our products in their designs. Our customer service organizationincludes a technical team of applications engineers, technical marketing personnel and, when required, product designengineers. We provide customer support throughout the qualification and sales process and continue providing follow-up service after the sale of our products and on an ongoing basis. In addition, we provide our OEM customers withcomprehensive datasheets, application notes and reference designs and access to our FPGA controller IP for use in theirproduct development.ManufacturingWe outsource our wafer fabrication, assembly and wafer sort testing, which enables us to focus on our designstrengths, minimize fixed costs and capital expenditures and gain access to advanced manufacturing technologies. Ourengineers work closely with our outsource partners to increase yields, reduce manufacturing costs, and help assure thequality of our products.Currently, all of our wafers are manufactured by TSMC and Powerchip under individually negotiated purchaseorders. We do not currently have a long-term supply contract with either of these foundries, and, therefore, neither ofthem is obligated to manufacture products for us for any specified period, in any specified quantity or at any specifiedprice, 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 and Bandwidth Engine products are manufactured using 40 nanometer processtechnology at TSMC. The majority of our current SRAM products are manufactured using 0.13 micron, 90 nanometerand 65 nanometer process technologies on 300 millimeter wafers at TSMC. Our LLDRAM production at Powerchip uses72 nanometer and 63 nanometer process technologies. On-going development programs are underway to extend,expand and/or cost reduce most our product families.Our master die methodology enables multiple product families, and variations thereof, to be manufactured from asingle mask set. As a result, based upon the way available die from a wafer are metalized, wire bonded, packaged andtested, we can create a number of different products. The manufacturing process consists of two phases, the first of whichtakes approximately eight to twelve weeks and results in wafers that have the potential to yield multiple products withina given product family. After the completion of this phase, the wafers are stored pending customer orders. Once wereceive orders for a particular product, we perform the second phase, consisting of final wafer processing, assembly,burn-in and test, which takes approximately four to eight weeks to complete. This two-step manufacturing processenables us to significantly shorten our product lead times, providing flexibility for customization and to increase theavailability of our products.All of our manufactured wafers are tested for electrical compliance and most are packaged at AdvancedSemiconductor Engineering, or ASE, which is located in Taiwan. Our test procedures require that all of our products besubjected to accelerated burn-in and extensive functional electrical testing which is performed at our Taiwan and U.S.test facilities.15 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsResearch and DevelopmentResearch and development expenses were $12.1 million in fiscal 2016, $11.9 million in fiscal 2015 and $13.1million in fiscal 2014. Our research and development staff includes engineering professionals with extensive experiencein the areas of high-speed circuit design, including SRAM design, DRAM design and systems level networking andtelecommunications equipment design. The design process for our products is complex. As a result, we have madesubstantial investments in computer-aided design and engineering resources to manage our design process. Our currentdevelopment focus is on our new in-place associative computing products and further enhancements to our SigmaQuadSRAM family and our family of LLDRAM products.CompetitionOur existing competitors include many large domestic and international companies, some of which havesubstantially greater resources, offer other types of memory and/or non-memory technologies and may have longerstanding relationships with OEM customers than we do. Unlike us, some of our principal competitors maintain their ownsemiconductor fabs, which may, at times, provide them with capacity, cost and technical advantages.Our principal competitors include Cypress Semiconductor, Integrated Silicon Solution, Micron and REC. Whilesome of our competitors offer a broad array of memory products and offer some of their products at lower prices than wedo, we believe that our focus on, and performance leadership in, low latency, high density Very Fast SRAMs provide uswith key competitive advantages.We believe that our ability to compete successfully in the rapidly evolving markets for memory products for thenetworking and telecommunications markets 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 competesuccessfully in the future with respect to any of these factors. Our failure to compete successfully in these or other areascould harm our business.The market for networking memory products is competitive and is characterized by technological change,declining average selling prices and product obsolescence. Competition could increase in the future from existingcompetitors and from other companies that may enter our existing or future markets with solutions that may be lesscostly or provide higher performance or more desirable features than our products. This increased competition mayresult in price reductions, reduced profit margins and loss of market share.In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures aswell as new forms of DRAM and other new memory technologies. Because we have limited experience developing ICproducts other than Very Fast SRAMs and LLDRAMs, any efforts by us to introduce new products based on newtechnology, including the in-place associative computing products currently under development, may not be successfuland, as a result, our business may suffer.16 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsIntellectual PropertyOur ability to compete successfully depends, in part, upon our ability to protect our proprietary technology andinformation. We rely on a combination of patents, copyrights, trademarks, trade secret laws, non-disclosure and othercontractual arrangements and technical measures to protect our intellectual property. We currently hold 44 United Statespatents and have in excess of a dozen patent applications pending. We do not consider our existing patents to bematerially important to our business, and we cannot assure you that any patents will be issued as a result of our pendingapplications or that any patents issued will be valuable to our business. We believe that factors such as thetechnological and creative skills of our personnel and the success of our ongoing product development efforts are moreimportant than our patent portfolio in maintaining our competitive position. We generally enter into confidentiality orlicense agreements with our employees, distributors, customers and potential customers and limit access to ourproprietary information. Our intellectual property rights, if challenged, may not be upheld as valid, may not be adequateto prevent misappropriation of our technology or may not prevent the development of competitive products.Additionally, we may not be able to obtain patents or other intellectual property protection in the future. Furthermore,the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, includingvarious countries in Asia, may not protect our products or intellectual property rights to the same extent as do the lawsof the United States and thus make the possibility of piracy of our technology and products more likely in thesecountries.The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights,which have resulted in significant and often protracted and expensive litigation. We or our foundry from time to time arenotified of claims that we may be infringing patents or other intellectual property rights owned by third parties. We haverecently been 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 allegations of patent infringement or other intellectual property matters couldresult in significant expense to us and divert the efforts of our technical and management personnel, whether or not suchlitigation results in a determination favorable to us. In the event of an adverse result in any such litigation, we could berequired to pay substantial damages, cease the manufacture, use and sale of infringing products, expend significantresources to develop non-infringing technology, discontinue the use of certain processes or obtain licenses to theinfringing technology. Licenses may not be offered or the terms of any offered licenses may not be acceptable to us. Ifwe fail to obtain a license from a third party for technology used by us, we could incur substantial liabilities and berequired to suspend the manufacture of products or the use by our foundry of certain processes.EmployeesAs of March 31, 2016, we had 142 full-time employees, including 78 engineers, of which 47 are engaged inresearch and development and 40 have PhD or MS degrees, 18 employees in sales and marketing, ten employees ingeneral and administrative capacities and 68 employees in manufacturing. Of these employees, 56 are based in ourSunnyvale facility and 60 are based in our Taiwan facility. We believe that our future success will depend in large parton our ability to attract and retain highly-skilled, engineering, managerial, sales and marketing personnel. Ouremployees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. Webelieve that our employee relations are good.Investor InformationYou can access financial and other information in the Investor Relations section of our website atwww.gsitechnology.com. We make available, on our website, 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 those reports filed or17 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsfurnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing suchmaterial electronically or otherwise furnishing it to the SEC.The charters of our Audit Committee, our Compensation Committee, and our Nominating and GovernanceCommittee, our code of conduct (including code of ethics provisions that apply to our principal executive officer,principal financial officer, controller, and senior financial officers) and our corporate governance guidelines are alsoavailable at our website under "Corporate Governance." These items are also available to any stockholder who requeststhem by calling (408) 331-8800. The contents 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 issuersthat file electronically with the SEC at www.sec.gov.Executive OfficersThe following table sets forth certain information concerning our executive officers as of June 1, 2016:NameAgeTitleLee-Lean Shu61 President, Chief Executive Officer and ChairmanDidier Lasserre51 Vice President, SalesDouglas Schirle61 Chief Financial OfficerBor-Tay Wu64 Vice President, Taiwan OperationsPing Wu59 Vice President, U.S. OperationsRobert Yau63 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 Officerand as a member of our Board of Directors since inception. Since October 2000, Mr. Shu has also served as Chairman ofour Board. From January 1995 to March 1995, Mr. Shu was Director, SRAM Design at Sony MicroelectronicsCorporation, a semiconductor company and a subsidiary of Sony Corporation, and from July 1990 to January 1995, hewas a design manager at Sony Microelectronics Corporation. Didier Lasserre has served as our Vice President, Sales since July 2002. From November 1997 to July 2002,Mr. Lasserre served as our Director of Sales for the Western United States and Europe. From July 1996 to October 1997,Mr. Lasserre was an account manager at Solectron Corporation, a provider of electronics manufacturing services. FromJune 1988 to July 1996, Mr. Lasserre was a field sales engineer at Cypress Semiconductor Corporation, a semiconductorcompany. Douglas Schirle has served as our Chief Financial Officer since August 2000. From June 1999 to August 2000,Mr. Schirle served as our Corporate Controller. From March 1997 to June 1999, Mr. Schirle was the Corporate Controllerat Pericom Semiconductor Corporation, a provider of digital and mixed signal integrated circuits. From November 1996to February 1997, Mr. Schirle was Vice President, Finance for Paradigm Technology, a manufacturer of SRAMs, andfrom December 1993 to October 1996, he was the Controller for Paradigm Technology. Mr. Schirle was formerly acertified public accountant. Bor-Tay Wu has served as our Vice President, Taiwan Operations since January 1997. From January 1995 toDecember 1996, Mr. Wu was a design manager at Atalent, an IC design company in Taiwan.18 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Ping Wu has served as our Vice President, U.S. Operations since September 2006. He served in the same capacityfrom February 2004 to April 2006. From April 2006 to August 2006, Mr. Wu was Vice President of Operations at QPixelTechnology, a semiconductor company. From July 1999 to January 2004, 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, a semiconductormanufacturer. Robert Yau co-founded our company in March 1995 and has served as our Vice President, Engineering and as amember of our Board of Directors since inception. From December 1993 to February 1995, Mr. Yau was design managerfor specialty memory devices at Sony Microelectronics Corporation. From 1990 to 1993, Mr. Yau was design manager atMOSEL/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 of operations could suffer and the trading price of our common stock could decline.Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair ourbusiness operations. You should also refer to other information contained in this report, including our consolidatedfinancial 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 varyin the future. For example, in the twelve fiscal quarters ended March 31, 2016, we recorded net revenues of as much as$16.4 million and as little as $12.2 million and quarterly operating income of as much as $241,000 and, in elevenquarters, operating losses, including an operating loss of $3.6 million in the quarter ended March 31, 2014. We thereforebelieve that period-to-period comparisons of our operating results are not a good indication of our future performance,and you should not rely on them to predict our future performance or the future performance of our stock price. In futureperiods, we may not have any revenue growth, or our revenues could decline. Furthermore, if our operating expensesexceed our expectations, our financial performance could be adversely affected. Factors that may affect periodicoperating 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 ourproducts on a purchase order basis rather than pursuant 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, losepotential sales, harm our relationships with customers and result in write-downs;·changes in our product pricing policies, including those made in response to new product announcementsand pricing changes of our competitors;·fluctuations in our quarterly operating expenses due to substantial litigation-related expenses in somequarters; and19 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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·our ability to address technology issues as they arise, improve our products' functionality and expand ourproduct offerings.Our expenses are, to a large extent, fixed, and we expect that these expenses will increase in the future. We will notbe able to adjust our spending quickly if our revenues fall short of our expectations. If this were to occur, our operatingresults would be harmed. If our operating results in future quarters fall below the expectations of market analysts andinvestors, the price of our common stock could fall.Our two largest OEM customers account for a significant percentage of our net revenues. If either of thesecustomers, or any of our other major customers, reduces the amount they purchase or stop purchasing our products,our operating results will suffer.Alcatel-Lucent, currently our largest customer, purchases our products directly from us and through contractmanufacturers and distributors. Purchases by Alcatel-Lucent represented approximately 32%, 25% and 19% of our netrevenues in fiscal 2016, 2015 and 2014, respectively. Cisco Systems, historically our largest OEM customer, purchasesour products through its consignment warehouses and contract manufacturers and directly from us. Purchases by CiscoSystems represented approximately 9%, 13% and 19% of our net revenues in fiscal 2016, 2015 and 2014, respectively.We expect that our operating results in any given period will continue to depend significantly on orders from our keyOEM customers, particularly Alcatel-Lucent and Cisco Systems, and our future success is dependent to a large degree onthe business success of these OEMs over which we have no control. We do not have long-term contracts with Alcatel-Lucent, Cisco Systems or any of our other major OEM customers, distributors or contract manufacturers that obligatethem to purchase our products. We expect that future direct and indirect sales to Alcatel-Lucent, Cisco Systems and ourother key OEM customers will continue to fluctuate significantly on a quarterly basis and that such fluctuations maysubstantially affect our operating results in future periods. If we fail to continue to sell to our key OEM customers,distributors or contract 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. We incurred losses of $2.2 million and $5.0 million duringfiscal 2016 and 2015, respectively. Our operating expenses over the past several years included substantial expensesrelated to legal proceedings which resulted in operating losses. Although these proceedings were concluded in fiscal2016, there can be no assurance that our Very Fast SRAMs will continue to receive broad market acceptance, that ournew product development initiatives will be successful or that we will be able to achieve sustained revenue growth orreturn to profitability.We depend upon the sale of our Very Fast SRAMs for most of our revenues, and a downturn in demand for theseproducts could significantly 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 willrepresent the substantial majority of our revenues for the foreseeable future. Our business depends in large part uponcontinued demand for our products in the markets we currently serve, and adoption of our products in new markets.Market adoption will be dependent upon our ability to increase customer awareness of the benefits of our products andto prove their high-performance and cost-effectiveness. We may not be able to sustain or increase our revenues fromsales of our products, particularly if the networking and telecommunications markets were to experience anothersignificant downturn in the future. Any decrease in revenues from sales of our products could harm our business morethan it would if we offered a more diversified line of products.20 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsIf we do not successfully develop new products to respond to rapid market changes due to changing technologyand evolving industry standards, particularly in the networking and telecommunications markets, our business will beharmed. Our effort to develop new in-place associative computing products involves additional risks.If we fail to offer technologically advanced products and respond to technological advances and emergingstandards, we may not generate sufficient revenues to offset our development costs and other expenses, which will hurtour business. The development of new or enhanced products is a complex and uncertain process that requires theaccurate anticipation of technological and market trends. In particular, the networking and telecommunications marketsare rapidly evolving and new standards are emerging. We are vulnerable to advances in technology by competitors,including new SRAM architectures, new forms of DRAM and the emergence of new memory technologies that couldenable 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,evolving industry standards, competitive developments or end-user requirements. For example, because we have limitedexperience developing integrated circuits, or IC, products other than Very Fast SRAMs and LLDRAMs, our efforts tointroduce new products may not be successful and our business may suffer. Other challenges that we face 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 alternativetechnologies;·we may not have sufficient resources to develop or acquire new technologies or to introduce newproducts capable of competing with future technologies;·new products that we develop may not successfully integrate with our end-users' products into whichthey 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 toimplement new technologies; and·when introducing new or enhanced products, we may be unable to manage effectively the transition fromolder products.In particular, we are devoting substantial efforts and resources to the development of in-place associativecomputing solutions utilizing patented technology obtained in our recent acquisition of MikaMonu. This newdevelopment project involves the commercialization of new, cutting-edge technology, will require a substantial effortover more than a year and will be subject to significant risks, including technical problems, delays or unanticipatedcosts that may be encountered in the development of the new associative computing products and risks associated withthe establishment of new markets and customer relationships for the sale of such 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, wirelessbase stations and network access equipment used in the highly cyclical networking and telecommunications markets.We expect that the networking and telecommunications markets will continue to be highly cyclical,21 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentscharacterized by periods of rapid growth and contraction. Our business and our operating results are likely to fluctuate,perhaps quite severely, as a result of this cyclicality.The market for Very Fast SRAMs is highly competitive.The market for Very Fast SRAMs, which are used primarily in networking and telecommunications equipment, ischaracterized by price erosion, rapid technological change, cyclical market patterns and intense foreign and domesticcompetition. Several of our competitors offer a broad array of memory products and have greater financial, technical,marketing, distribution and other resources than we have. Some of our competitors maintain their own semiconductorfabrication facilities, which may provide them with capacity, cost and technical advantages over us. We cannot assureyou that we will be able to compete successfully against any of these competitors. Our ability to compete successfully inthis market depends on factors both within and outside of our control, 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 andnew forms of DRAM, or the emergence of new memory technologies that could enable the development of products thatfeature higher performance, lower cost or lower power capabilities. Additionally, the trend toward incorporating SRAMinto 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 tocompete successfully in these or other areas could harm our business. The average selling prices of our products are expected to decline, and if we are unable to offset these declines,our operating results will suffer.Historically, the average unit selling prices of our products have declined substantially over the lives of theproducts, and we expect this trend to continue. A reduction in overall average selling prices of our products could resultin reduced revenues and lower gross margins. Our ability to increase our net revenues and maintain our gross marginsdespite a decline in the average selling prices of our products will depend on a variety of factors, including our ability tointroduce lower cost versions of our existing products, increase unit sales volumes of these products, and introduce newproducts with higher prices and 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 design changes that lower our manufacturing costs, negotiatereduced purchase prices from our independent foundries and our independent assembly and test vendors, andsuccessfully manage our manufacturing and subcontractor relationships. Because we do not operate our own waferfoundry or assembly facilities, we may not be able to reduce our costs as rapidly as companies that operate their ownfoundries or facilities.Global economic and market conditions may adversely affect our business, financial condition and results ofoperations.We sell our products to end customers both in the United States and internationally. We also rely heavily on oursuppliers in Asia. We are therefore susceptible to adverse domestic and international economic and market22 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsconditions. In recent years, turmoil in global financial markets and economic conditions has impacted creditavailability, consumer spending and capital expenditures, including expenditures for networking andtelecommunications equipment. Weakness in global networking and telecommunications markets, particularly in Asia,has continued to adversely impact our revenues in recent quarters. Slowness in economic growth, domestically and inour key markets, uncertainty regarding macroeconomic trends, and volatility in financial markets may continue toadversely affect our business, financial condition and results of operations over coming quarters.We are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, ourbusiness will be harmed and our prospects for growth will be curtailed.We currently purchase several key components used in the manufacture of our products from single sources andare dependent upon supply from these sources to meet our needs. If any of these suppliers cannot provide componentson a timely basis, at the same price or at all, our ability to manufacture our products will be constrained and our businesswill suffer. Most significantly, we obtain wafers for our Very Fast SRAM products from a single foundry, TSMC, andmost of them are packaged at ASE. Wafers for our LLDRAM products are obtained exclusively from Powerchip. If weare unable to obtain an adequate supply of wafers from TSMC or Powerchip or find alternative sources in a timelymanner, we will be unable to fulfill our customer orders and our operating results will be harmed. We do not have supplyagreements with TSMC, Powerchip, ASE or any of our other independent assembly and test suppliers, and instead obtainmanufacturing services and products from these suppliers on a purchase-order basis. Our suppliers, including TSMC andPowerchip, have no obligation to supply products or services to us for any specific product, in any specific quantity, atany specific price or for any specific time period. As a result, the loss or failure to perform by any of these supplierscould adversely affect our business and operating results.Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted bynatural disaster or political instability, choose to prioritize capacity or inventory for other uses or reduce or eliminatedeliveries to us for any other reason, we likely will not be able to enforce fulfillment of any delivery commitments andwe would have to identify and qualify acceptable replacements from alternative sources of supply. In particular, ifTSMC is unable to supply us with sufficient quantities of wafers to meet all of our requirements, we would have toallocate our products among our customers, which would constrain our growth and might cause some of them to seekalternative sources of supply. Since the manufacturing of wafers and other components is extremely complex, theprocess of qualifying new foundries and suppliers is a lengthy process and there is no assurance that we would be able tofind and qualify another supplier without materially adversely affecting our business, financial condition and results ofoperations.Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we may berequired to enter into costly long-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 apurchase order basis. In order to secure future wafer supply from TSMC or Powerchip or from other independentfoundries, we may be required to enter into various arrangements with them, which could 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 capacitycommitments.23 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 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 beobligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our financialresults.If we are unable to offset increased wafer fabrication costs by increasing the average selling prices of ourproducts, our gross margins will suffer.If there is a significant upturn in the networking and telecommunications markets that results in increased demandfor our products and competing products, the available supply of wafers may be limited. As a result, we could berequired to obtain additional manufacturing capacity in order to meet increased demand. Securing additionalmanufacturing capacity may cause our wafer fabrication costs to increase. If we are unable to offset these increased costsby 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 indirectdistribution channels.A significant percentage of our sales are made to distributors and to contract manufacturers who incorporate ourproducts into end products for OEMs. For example, in fiscal 2016, 2015 and 2014, our distributor Avnet Logisticsaccounted for 28.2%, 35.2% and 30.3%, respectively, of our net revenues. Avnet Logistics and our other existingdistributors may choose to devote greater resources to marketing and supporting the products of other companies. Sincewe sell through multiple channels and distribution networks, we may have to resolve potential conflicts between thesechannels. For example, these conflicts may result from the different discount levels offered by multiple channeldistributors to their customers or, potentially, from our direct sales force targeting the same equipment manufactureraccounts as our indirect channel distributors. These conflicts may harm our business or reputation.We may be unable to accurately predict future sales through our distributors, which could harm our ability toefficiently manage our resources to match market demand.Our financial results, quarterly product sales, trends and comparisons are affected by fluctuations in the buyingpatterns of the OEMs that purchase our products from our distributors. While we attempt to assist our distributors inmaintaining targeted stocking levels of our products, we may not consistently be accurate or successful. This processinvolves the exercise of judgment and use of assumptions as to future uncertainties, including end user demand.Inventory levels of our products held by our distributors may exceed or fall below the levels we consider desirable on agoing-forward basis. This could result in distributors returning unsold inventory to us, or in us not having sufficientinventory to meet the demand for our products. If we are not able to accurately predict sales through our distributors oreffectively 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 anyperiod, and if any one of them fails to pay us, our financial position and operating results will suffer.At March 31, 2016, four customers accounted for 26%, 25%, 13% and 11% of our accounts receivable,respectively. If any of these customers do not pay us, our financial position and operating results will be harmed.Generally, we do not require collateral from our customers.24 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 have previously disclosed a material weakness in our internal control over financial reporting relating tothe evaluation and calculation of our inventory reserve which management believes has been fully remediated. Shouldwe have inadequately remediated this material weakness or should we otherwise fail to maintain effective internalcontrol over financial reporting and disclosure controls and processes, our ability to report our financial conditionand results of operations accurately and on a timely basis could be adversely affected.In connection with the completion of the quarter-end closing and review procedures for the quarter endedDecember 31, 2013, certain errors were identified in the evaluation and calculation of our inventory write-down for thequarter and nine month period then ended that were the result of a material weakness in our internal control overfinancial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control overfinancial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interimfinancial statements will not be prevented or detected on a timely basis.During these closing and review procedures, our management determined that we had not designed andmaintained effective controls over the review of supporting information to confirm the completeness and accuracy ofour calculations for the write-down of excess or obsolete inventory, thereby affecting the valuation of our inventory asof December 31, 2013. While this control deficiency did not result in any material misstatement of our historicalfinancial statements, it did result in adjustments identified by our auditors as part of their quarterly review process, andrequire corrections after our initial estimate of excess and obsolete inventory write-downs for the three month periodended December 31, 2013.A material weakness in our internal control over financial reporting could adversely impact our ability to providetimely and accurate financial information. Following the identification of the error in our financial statements and thematerial weakness that gave rise to the error, our management implemented a remediation plan which it believes fullyremediated the material weakness. Should our remediation efforts prove to have been inadequate or should weotherwise fail to maintain effective internal control over financial reporting and disclosure controls and procedures, wecould be unable to meet our reporting obligations accurately and on a timely basis. Inferior internal controls could alsocause investors to lose confidence in our reported financial information, which could adversely affect the trading priceof our common stock.Our acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilutestockholder value and adversely affect our operating results.In November 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group Ltd., adevelopment-stage, Israel-based company that specializes in in-place associative computing for markets including bigdata, computer vision and cyber security. We also acquired substantially all of the assets related to the SRAM memorydevice product line of Sony Corporation in 2009. We intend to supplement our internal development activities byseeking opportunities to make additional acquisitions or investments in companies, assets or technologies that webelieve are complementary or strategic. Other than the MikaMonu and Sony acquisitions, we have not made any suchacquisitions or investments, and therefore our experience as an organization in making such acquisitions andinvestments is limited. In connection with the recently completed MikaMonu acquisition, we are subject to risks relatedto potential problems, delays or anticipated costs that may be encountered in the development of products based on theMikaMonu technology and the establishment of new markets and customer relationships for the potential newproducts. In addition, in connection with the MikaMonu acquisition and any future acquisitions or investments we maymake, we face numerous other risks, including:·difficulties in integrating operations, technologies, products and personnel;·diversion of financial and managerial resources from existing operations;25 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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·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 litigationthat may result from offering the acquired product 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 ourcash, or to finance the transaction through debt or equity securities offerings, which may decrease our financial liquidityor dilute our stockholders and affect the market price of our stock. As a result, if we fail to properly evaluate and executeacquisitions 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 usto incur significant costs.In recent years, there has been significant litigation in the semiconductor industry involving patents and otherintellectual property rights. We have recently been involved in protracted patent infringement litigation, and we couldbecome subject to additional claims or litigation in the future as a result of allegations that we infringe others'intellectual property rights or that our use of intellectual property otherwise violates the law. Claims that our productsinfringe the proprietary rights of others would force us to defend ourselves and possibly our customers, distributors ormanufacturers against the alleged infringement. Any such litigation regarding intellectual property could result insubstantial costs and diversion of resources and could have a material adverse effect on our business, financial conditionand results of operations. Similarly, changing our products or processes to avoid infringing the rights of others may becostly or impractical. If any claims received in the future were to be upheld, the consequences to us could require us to:·stop selling our products that incorporate the challenged intellectual property;·obtain a license to sell or use the relevant technology, which license may not be available on reasonableterms 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 every instance to settle an alleged patent infringement claim through a cross-licensingarrangement in part because we have a more limited patent portfolio than many of our competitors. If a successful claimis made against us or any of our customers and a license is not made available to us on commercially reasonable terms orwe are required to pay substantial damages or awards, our business, financial condition and results of operations wouldbe materially adversely affected.26 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 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 acombination of patent, trade secret, copyright and trademark laws and non-disclosure and other contractual agreementsto protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology fromthird-party infringement. Monitoring unauthorized use of our intellectual property is difficult and we cannot be certainthat the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where thelaws may not protect our proprietary rights as fully as in the United States. Our attempts to enforce our intellectualproperty rights could be time consuming and costly. We have recently been involved in litigation to enforce ourintellectual property rights and to protect our trade secrets. Additional litigation of this type may be necessary in thefuture. Any such litigation could result in substantial costs and diversion of resources. If competitors are able to use ourtechnology without our approval or compensation, our ability to compete effectively could be harmed.We may experience difficulties in transitioning to smaller geometry process technologies and other moreadvanced manufacturing process technologies, which may result in reduced manufacturing yields, delays in productdeliveries and increased expenses.In order to remain competitive, we expect to continue to transition the manufacture of our products to smallergeometry process technologies. This transition will require us to migrate to new manufacturing processes for ourproducts and redesign certain products. The manufacture and design of our products is complex, and we may experiencedifficulty in transitioning to smaller geometry process technologies or new manufacturing processes. These difficultiescould result in reduced manufacturing yields, delays in product deliveries and increased expenses. We are dependent onour relationships with TSMC and Powerchip to transition successfully to smaller geometry process technologies and tomore advanced manufacturing processes. We cannot assure you that TSMC or Powerchip will be able to effectivelymanage the transition or that we will be able to maintain our relationship with them. If we or TSMC or Powerchipexperience significant delays in this transition or fail to implement these transitions, our business, financial conditionand results of operations could be materially and adversely affected.Manufacturing process technologies are subject to rapid change and require significant expenditures forresearch and development.We continuously evaluate the benefits of migrating to smaller geometry process technologies in order to improveperformance and reduce costs. Historically, these migrations to new manufacturing processes have resulted in significantinitial design and development costs associated with pre-production mask sets for the manufacture of new products withsmaller geometry process technologies. For example, in fiscal 2014, we incurred $809,000 and $648,000, respectively,in research and development expense associated with pre-production mask sets which were not later used in productionas part of the transition to our new 40 nanometer SRAM process technology and 63 nanometer DRAM processtechnology. We will incur similar expenses in the future as we continue to transition our products to smaller geometryprocesses. The costs inherent in the transition to new manufacturing process technologies will adversely affect ouroperating results and our gross margin.Our products are complex to design and manufacture and could contain defects, which could reduce revenues orresult in claims against us.We develop complex products. Despite testing by us and our OEM customers, design or manufacturing errors maybe found in existing or new products. These defects could result in a delay in recognition or loss of revenues, loss ofmarket share or failure to achieve market acceptance. These defects may also cause us to incur significant warranty,support and repair costs, divert the attention of our engineering personnel from our product development efforts, resultin a loss of market acceptance of our products and harm our relationships with our OEM customers.27 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 OEM customers could also seek and obtain damages from us for their losses. A product liability claim broughtagainst us, even if unsuccessful, would likely be time consuming and costly to defend.Defects in wafers and other components used in our products and arising from the manufacturing of these productsmay not be fully recoverable from TSMC or our other suppliers. For example, in the quarter ended December 31, 2005,we incurred a charge of approximately $900,000 related to the write-off of inventory resulting from an error in theassembly 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 orselling their products.Our products are used as components in our OEM customers' products, including routers, switches and othernetworking and telecommunications products. Accordingly, demand for our products is subject to factors affecting theability of our OEM customers to successfully introduce and market their products, including:·capital spending by telecommunication and network service providers and other end-users who purchaseour OEM customers' products;·the competition our OEM customers face, particularly in the networking and telecommunicationsindustries;·the technical, manufacturing, sales and marketing and management capabilities of our OEM customers;·the financial and other resources of our OEM customers; and·the inability of our OEM customers to sell their products if they infringe third-party intellectual propertyrights.As a result, if OEM customers reduce their purchases of our products, our business will suffer.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, theirdecisions to use our products often require significant expenditures by us without any assurance of success, and oftenprecede volume sales, if any, by a year or more. If an OEM customer decides at the design stage not to incorporate ourproducts 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 thislengthy sales cycle, we may experience a delay between increasing expenses for research and development and our salesand marketing efforts and the generation of volume production revenues, if any, from these expenditures. Moreover, thevalue of any design win will largely depend on the commercial success of our OEM customers' products. There can beno assurance that we will continue to achieve design wins or that any design win will result in future revenues.Any 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 noticewithout incurring a significant penalty. Any significant cancellations or deferrals in the future could materially andadversely affect our business, financial condition and results of operations. Cancellations or deferrals could cause us tohold excess inventory, which could reduce our profit margins, increase product obsolescence and28 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsrestrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If acustomer refuses to accept shipped products or does not pay for these products, we could miss future revenue projectionsor incur significant charges against our income, which could materially and adversely affect our operating results.If our business grows, such growth may place a significant strain on our management and operations and, as aresult, our business may suffer.We are endeavoring to expand our business, and any growth that we are successful in achieving could place asignificant strain on our management systems, infrastructure and other resources. To manage the potential growth of ouroperations and resulting increases in the number of our personnel, we will need to invest the necessary capital tocontinue to improve our operational, financial and management controls and our reporting systems and procedures. Ourcontrols, systems and procedures may prove to be inadequate should we experience significant growth. In addition, wemay not have sufficient administrative staff to support our operations. For example, we currently have only fiveemployees in our finance department in the United States, including our Chief Financial Officer. Furthermore, ourofficers have limited experience in managing large or rapidly growing businesses. If our management fails to respondeffectively 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 60.3%, 66.2% and 69.2% of our netrevenues in fiscal 2016, 2015 and 2014, respectively. Moreover, a substantial portion of our products is manufacturedand tested in Taiwan, and we are now conducting business in Israel as a result of our recently completed acquisition ofMikaMonu. We intend to continue expanding our international business in the future. Conducting business outside ofthe 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 and unexpected changes in these lawsand regulations;·legal uncertainties regarding taxes, tariffs, quotas, export controls, competition, export licenses and othertrade barriers;·potential political and economic instability in, or foreign conflicts that involve or affect, the countries inwhich we, our customers and our suppliers are located;·difficulties in collecting accounts receivable and longer accounts receivable payment cycles;·difficulties and costs of staffing and managing personnel, distributors and representatives across differentgeographic areas and cultures, including assuring compliance with the U. S. Foreign Corrupt PracticesAct and other U. S. and foreign anti-corruption laws;·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 operatingexpenses is denominated in currencies other than 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 result in transaction gains or29 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentslosses that could impact our operating results. We do not currently engage in currency hedging activities to reduce therisk of financial exposure from fluctuations in foreign exchange rates.TSMC and Powerchip, as well as our other independent suppliers and many of our OEM customers, haveoperations in the Pacific Rim, an area subject to significant earthquake risk and adverse consequences related to thepotential outbreak of contagious diseases such as the H1N1 Flu.The foundries that manufacture our Fast SRAM and LLDRAM products, TSMC and Powerchip, and all of theprincipal independent suppliers that assemble and test our products are located in Taiwan. Many of our customers arealso located in the Pacific Rim. The risk of an earthquake in these Pacific Rim locations is significant. The occurrence ofan earthquake or other natural disaster near the fabrication facilities of TSMC or our other independent suppliers couldresult 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 untilwe are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor toanother third-party vendor. In such an event, we may not be able to 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 those countries. If there were to be another outbreak of a contagious disease, such as SARS orthe H1N1 Flu, that significantly affected the Asia-Pacific region, the operations of our key suppliers could be disrupted.In addition, our business could be harmed if such an outbreak resulted in travel being restricted or if it adversely affectedthe 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 performancemay be affected by changes in Taiwan's political, social and economic environment. For example, any politicalinstability resulting from the relationship among the United States, Taiwan and the People's Republic of China coulddamage 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, foreigninvestment, currency exchange rates, taxes and other matters could change, resulting in greater restrictions on our abilityand our suppliers' ability to do business and operate facilities in Taiwan. If any of these changes were to occur, ourbusiness could be harmed and our stock price could decline.We are substantially dependent on the continued services and performance of our senior management and otherkey personnel.Our future success is substantially dependent on the continued services and continuing contributions of our seniormanagement who must work together effectively in order to design our products, expand our business, increase ourrevenues and improve our operating results. Members of our senior management team have long-standing and importantrelationships 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 employeecould significantly delay or prevent the achievement of our development and strategic objectives. We do not haveemployment contracts with, nor maintain key person insurance on, any of our executive officers.30 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsIf we are unable to recruit or retain qualified personnel, our business and product development efforts could beharmed.We must continue to identify, recruit, hire, train, retain and motivate highly skilled technical, managerial, salesand marketing and administrative personnel. Competition for these individuals is intense, and we may not be able tosuccessfully recruit, assimilate or retain sufficiently qualified personnel. We may encounter difficulties in recruiting andretaining 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 torecruit and retain necessary technical, managerial, sales, marketing and administrative personnel could harm ourbusiness 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 dilution to existing stockholders.We may need to seek additional funding in the future. We do not know if we will be able to obtain additionalfinancing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not beable to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures orunanticipated 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 dilution or the new equity securities mayhave rights, preferences or privileges senior to those of our common stock.Some of our products are incorporated into advanced military electronics, and changes in internationalgeopolitical circumstances and domestic budget considerations may hurt our business.Some of our products are incorporated into advanced military electronics such as radar and guidance systems.Military expenditures and appropriations for such purchases rose significantly in recent years. However, as the currentconflict in Afghanistan winds down, demand for our products for use in military applications may decrease, and ouroperating results could suffer. Domestic budget considerations may also adversely affect our operating results. Forexample, if governmental appropriations for military purchases of electronic devices that include our products arereduced, our revenues will likely decline.Our operations involve the use of hazardous and toxic materials, and we must comply with environmental lawsand regulations, which can be 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 humanexposure to hazardous and toxic materials. If we were to violate or become liable under environmental laws in the futureas a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could besubject to fines, costs, or civil or criminal sanctions, face property damage or personal injury claims or be required toincur substantial investigation or remediation costs, which could be material, or experience disruptions in ouroperations, any of which could have a material adverse effect on our business. In addition, environmental laws couldbecome more stringent over time imposing greater compliance costs and increasing risks and penalties associated withviolations, which could harm our business.We face increasing complexity in our product design as we adjust to new and future requirements relating to thematerial composition of our products, including the restrictions on lead and other hazardous substances that apply tospecified electronic products put on the market in the European Union, China and California. Other countries, includingat the federal and state levels in the United States, are also considering similar laws and regulations. Certain electronicproducts that we maintain in inventory may be rendered obsolete if they are not in compliance with such laws andregulations, which could negatively impact our ability to generate revenue from those products. Although we cannotpredict the ultimate impact of any such new laws and regulations, they will31 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentslikely result in additional costs, or in the worst case decreased revenue, and could even require that we redesign orchange how we manufacture our products. Such redesigns result in additional costs and possible delayed or lost revenue. 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 ofwhich 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 technologicalinnovations, contracts, acquisitions, strategic relationships, joint ventures, capital commitments or otherevents;·changes in industry estimates of 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 experiencedextreme price fluctuations, which have often been unrelated to the operating performance of affected companies. Themarket price of our common stock might experience significant fluctuations in the future, including fluctuationsunrelated to our performance. These fluctuations could materially adversely affect our business relationships, our abilityto obtain future financing on favorable terms or otherwise harm our business. In addition, in the past, securities classaction litigation has often been brought against a company following periods of volatility in the market price of itssecurities. This risk is especially acute for us because the extreme volatility of market prices of technology companieshas resulted in a larger number of securities class action claims against them. Due to the potential volatility of our stockprice, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs anddivert management's attention and resources. This could harm our business and cause the value of our stock to decline.Use of a portion of our cash reserves to repurchase shares of our common stock presents potential risks anddisadvantages to us and our continuing stockholders. From November 2008 through March 2016 we repurchased and retired an aggregate of 10,340,501 shares of ourcommon stock at a total cost of $53.5 million, including 3,846,153 shares repurchased at a total cost of $25 millionpursuant to a modified “Dutch auction” self-tender offer that we completed in August 2014 and additional sharesrepurchased in the open market pursuant to our stock repurchase program. At March 31, 2016, we had outstandingauthorization from our Board of Directors to purchase up to an additional $1.5 million of our common stock from timeto time under our repurchase program. In May 2016, the Board extended the repurchase program by authorizing therepurchase of up to an additional $10 million of our common stock. Although our Board32 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentshas determined that these repurchases are in the best interests of our stockholders, they expose us to certain risksincluding: ·the risks resulting from a reduction in the size of our “public float,” which is the number of shares of ourcommon stock that are owned by non-affiliated stockholders and available for trading in the securitiesmarkets, which may reduce the volume of trading in our shares and result in reduced liquidity and,potentially, lower trading prices; ·the risk that our stock price could decline and that we would be able to repurchase shares of our commonstock in the future at a lower price per share than the prices we have paid in our tender offer and repurchaseprogram; and·the risk that the use of a portion of our cash reserves for this purpose has reduced, or may reduce, theamount of cash that would otherwise be available to pursue potential cash acquisitions or other strategicbusiness opportunities.Our executive officers, directors and entities affiliated with them hold a substantial percentage of our commonstock.As of May 31, 2016, our executive officers, directors and entities affiliated with them beneficially ownedapproximately 35% of our outstanding common stock. As a result, these stockholders will be able to exercise substantialinfluence over, and may be able to effectively control, matters requiring stockholder approval, including the election ofdirectors and approval of significant corporate transactions, which could have the effect of delaying or preventing athird party from acquiring control over or merging with us.The provisions of our charter documents might inhibit potential acquisition bids that a stockholder mightbelieve are desirable, and the market 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 Directorscan fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or actionby our stockholders. The issuance of shares of preferred stock might delay or prevent a change in control transaction. Asa result, the market price of our common stock and the voting and other rights of our stockholders might be adverselyaffected. The issuance of preferred stock might result in the loss of voting control to other stockholders. We have nocurrent plans to issue any shares of preferred stock. Our charter documents also contain other provisions, which mightdiscourage, 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·our stockholders must comply with advance notice requirements to nominate directors or submitproposals for consideration at stockholder meetings.These provisions could also have the effect of discouraging others from making tender offers for our commonstock. As a result, these provisions might prevent the market price of our common stock from increasing substantially inresponse to actual or rumored takeover attempts. These provisions might also prevent changes in our management.33 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 1B. Unresolved Staff CommentsNone. Item 2. PropertiesOur executive offices, our principal administration, marketing and sales operations and a portion of our researchand development operations are located in a 44,277 square foot facility in Sunnyvale, California, which we purchased infiscal 2010. In addition, we occupy approximately 25,250 square feet in a facility located in Hsin Chu, Taiwan under alease expiring in August 2017. This facility supports our manufacturing activities. We believe that both our Sunnyvaleand Taiwan facilities are adequate for our needs for the foreseeable future. We also lease space in the United States in thestates of Georgia and Texas and in Israel. The aggregate annual gross rent for our leased facilities was approximately$348,000 in fiscal 2016. Item 3. Legal ProceedingsIn March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against us inthe United States District Court for the District of Minnesota alleging that our products, including our SigmaDDR andSigmaQuad families of Very Fast SRAMs, infringe five patents held by Cypress. The complaint sought unspecifieddamages for past infringement and a permanent injunction against future infringement.On June 10, 2011, Cypress filed a complaint against us with the United States International Trade Commission(the “ITC”). The ITC complaint, as subsequently amended, alleged infringement by GSI of three of the five patentsinvolved in the District Court case and one additional patent and also alleged infringement by three of our distributorsand 11 of our customers who allegedly incorporate our SRAMs in their products. The ITC complaint sought a limitedexclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the UnitedStates and permanent orders directing GSI and the other respondents to cease and desist from selling or distributing suchproducts in the United States. On July 21, 2011, the ITC formally instituted an investigation in response to Cypress’scomplaint. On June 7, 2013, the ITC announced that the full Commission had affirmed the determination of ChiefAdministrative Law Judge Charles E. Bullock that GSI’s SRAM devices, and products containing them, do not infringethe Cypress patents and that Cypress had failed to establish the existence of a domestic industry that practices thepatents. Moreover, the Commission reversed a portion of Judge Bullock’s determination with respect to the validity ofthe patents, finding the asserted claims of one of the patents to have been anticipated by prior art and, therefore,invalid. The Commission ordered the investigation terminated, and Cypress did not appeal the ruling.The Minnesota District Court case had been stayed pending the conclusion of the ITC proceeding. Following thetermination of the ITC proceeding, the stay was lifted. On May 1, 2013, Cypress filed an additional lawsuit in theUnited States District Court for the Northern District of California alleging infringement by our products of fiveadditional Cypress patents. Like the Minnesota case, the complaint in the California lawsuit sought unspecifieddamages for past infringement and a permanent injunction against future infringement. We filed answers in both casesdenying liability and asserting affirmative defenses. On August 7, 2013, the parties stipulated that the claims in theMinnesota case with respect to three of the asserted patents would be dismissed without prejudice and that the claimswith respect to the remaining two patents would be transferred to the Northern District of California and consolidatedwith the pending California case. On August 20, 2013, the Court in the California case ordered the cases consolidated.On July 22, 2011, we filed a complaint against Cypress in the United States District Court for the NorthernDistrict of California. Our complaint alleged that Cypress had conducted an unlawful combination and conspiracy tomonopolize the market for certain high-performance SRAM devices, known as fast synchronous Quad Data Rate (orQDR) SRAMs and Double Data Rate (or DDR) SRAMs. The complaint alleged that the anti-competitive,34 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentscollusive and conspiratorial conduct of Cypress and certain co-conspirators violated Section 1 of the Sherman Act andalso constituted unlawful restraint of trade and unfair competition under applicable provisions of California law. Thecomplaint sought treble damages, in an amount to be determined at trial, a preliminary and permanent injunctionprohibiting the continuation of the unfair and illegal business practices and recovery of GSI’s attorneys’ fees and costs.On May 6, 2015, the Company and Cypress entered into a settlement agreement to resolve the patentinfringement and antitrust litigation. Under the settlement agreement: ·Each of the parties agreed to dismiss its lawsuit with prejudice in consideration of the dismissal withprejudice of the lawsuit brought by the other party; and ·Each party released all claims against the other with respect to issues raised in the two lawsuits. The parties agreed that the settlement agreement was entered into to resolve disputed claims, and that each party deniesany liability to the other party. Item 4. Mine Safety DisclosuresNot applicable.35 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecuritiesMarket InformationOur common stock has traded on the Nasdaq Global Market under the symbol "GSIT" since our initial publicoffering on March 29, 2007. The following table sets forth, for the periods indicated, the high and low sales prices forour common stock on such market. Fiscal Year Ended March 31, 2015HighLowFirst quarter$7.15 $5.36 Second quarter6.62 4.91 Third quarter5.50 4.52 Fourth quarter5.90 4.87 Fiscal Year Ended March 31, 2016 First quarter$5.88 $4.75 Second quarter5.43 4.00 Third quarter4.55 3.72 Fourth quarter4.64 3.33 Holders of Common StockOn May 31, 2016, the closing price of our common stock on the Nasdaq Global Market was $4.00, and there were34 holders of record of our common stock. Because many of such shares are held by brokers and other institutions onbehalf of stockholders, we are unable to estimate the total number of beneficial holders of our common stock representedby these record holders.Dividend PolicyWe have never declared or paid cash dividends on our common stock. The payment of dividends in the future willbe at the discretion of our Board of Directors. However, we currently intend to retain future earnings to finance thegrowth and development of our business, and we do not anticipate declaring or paying any cash dividends in theforeseeable 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 ourequity compensation plans. Such information is incorporated by reference from our definitive proxy statement for our2016 annual meeting of stockholders.36 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsIssuer Purchases of Equity SecuritiesOur Board of Directors has authorized us to repurchase, at management’s discretion, shares of our commonstock. Under the repurchase program, we may repurchase shares from time to time on the open market or in privatetransactions. The specific timing and amount of the repurchases will be dependent on market conditions, securities lawlimitations and other factors. The repurchase program may be suspended or terminated at any time without priornotice. Below is summary of the repurchases of our common stock made during the quarter ended March 31, 2016, all ofwhich were made under our repurchase program. Value of Shares That May Yet Be Average Repurchased Shares Price per Under thePeriod Repurchased Share ProgramBeginning approximate dollar value available to be repurchasedas of December 31, 2015 $4,419,935 January 1 to January 31, 2016 166,317 $3.64 $3,815,140February 1 to February 29, 2016 383,615 $3.52 $2,465,714March 1 to March 31, 2016 244,123 $4.05 $1,476,041 Total shares repurchased 794,055 Ending approximate dollar value that may be repurchased underthe program as of March 31, 2016 $1,476,041 In May 2016, the Board extended the repurchase program by authorizing the repurchase of up to an additional$10 million of our common stock. Item 6. Selected Financial DataYou should read the following selected consolidated financial data in conjunction with "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statementsand the related notes included elsewhere in this report. The selected consolidated statement of operations data set forthbelow for the fiscal years ended March 31, 2016, 2015 and 2014 and the selected consolidated balance sheet data as ofMarch 31, 2016 and 2015 are derived from, and are qualified by reference to, our audited consolidated financialstatements included elsewhere in this report. The selected consolidated statement of operations data set forth below forthe fiscal years ended March 31, 2013 and 2012 and the selected consolidated balance sheet data as of March 31, 2014, 2013 and 2012 are derived from audited consolidated financial statements not included in this report.37 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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, 2016 2015 2014 2013 2012 (In thousands, except per share amounts)Consolidated Statement of Operations Data: Net revenues $52,736 $53,498 $58,579 $66,014 $82,540Cost of revenues 25,999 28,375 32,469 37,426 45,891Gross profit 26,737 25,123 26,110 28,588 36,649Operating expenses: Research and development 12,095 11,917 13,110 11,472 10,637Selling, general and administrative 17,663 19,247 18,814 13,696 19,356Total operating expenses 29,758 31,164 31,924 25,168 29,993Income (loss) from operations (3,021) (6,041) (5,814) 3,420 6,656Interest and other income (expense), net 210 388 338 464 525Income (loss) before income taxes (2,811) (5,653) (5,476) 3,884 7,181Provision (benefit) for income taxes (641) (675) 713 38 425Net income (loss) $(2,170) $(4,978) $(6,189) $3,846 $6,756Basic and diluted net income (loss) per shareavailable to common stockholders: Basic $(0.10) $(0.20) $(0.23) $0.14 $0.24Diluted $(0.10) $(0.20) $(0.23) $0.14 $0.23Weighted average shares used in per sharecalculations: Basic 22,593 25,029 27,505 27,124 28,497Diluted 22,593 25,029 27,505 28,077 29,496 March 31, 2016 2015 2014 2013 2012 (In thousands)Consolidated Balance Sheet Data: Cash, cash equivalents and short-terminvestments $55,112 $58,977 $80,932 $67,259 $58,678Working capital 62,720 66,230 90,670 86,619 82,684Total assets 106,530 108,889 141,677 145,845 143,117Total stockholders' equity 89,869 96,396 128,378 132,183 128,779 Item 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 actualresults could differ substantially from those anticipated in these forward-looking statements as a result of many factors,including those set forth under "Risk Factors" and elsewhere in this report. The following discussion should be readtogether with our consolidated financial statements and the related notes included elsewhere in this report.OverviewWe are a fabless semiconductor company that designs, develops and markets static random access memories, orSRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, and low latencydynamic random access memories, or LLDRAMs, primarily for the networking and telecommunications38 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsmarkets. We are subject to the highly cyclical nature of the semiconductor industry, which has experienced significantfluctuations, often in connection with fluctuations in demand for the products in which semiconductor devices are used.Our revenues have been substantially impacted by significant fluctuations in sales to Cisco Systems, historically ourlargest customer, and more recently to Alcatel-Lucent. We expect that future direct and indirect sales to these twocustomers will continue to fluctuate significantly on a quarterly basis. The worldwide financial crisis and the resultingeconomic impact on the end markets we serve have adversely impacted our financial results since the second half offiscal 2009, and we expect that the unsettled global economic environment will continue to affect our operating resultsin future periods. However, with no debt, substantial liquidity and a history of positive cash flows from operations, webelieve 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 networkingand telecommunications OEMs accounted for 63% to 73% of our net revenues during our last three fiscal years. We alsosell our products to OEMs that manufacture products for military applications such as radar and guidance systems, forprofessional audio applications such as sound mixing systems, for test and measurement applications such as high-speedtesters, for automotive applications such as smart cruise control and voice recognition systems, and for medicalapplications such 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 theproduct. Our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales volumes ofexisting products and to introduce and sell new products with higher average selling prices in quantities sufficient tocompensate for the anticipated declines in selling prices of our more mature products. Although we expect the averageselling prices of individual products to decline over time, we believe that, over the next several quarters, our overallaverage selling prices will increase due 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 dependent primarily upon increases in customerdemand 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 ourability to increase the number of good integrated circuit die produced from each wafer through die size reductions andyield enhancement activities.We may experience fluctuations in quarterly net revenues for a number of reasons. Historically, orders on hand atthe beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generallycancelable up to 30 days prior to scheduled delivery. Accordingly, we depend on obtaining and shipping orders in thesame 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 theend of the quarter may adversely affect our operating results. Furthermore, our customers may delay scheduled deliverydates and/or cancel orders within specified timeframes without significant penalty.We sell our products through our direct sales force, international and domestic sales representatives anddistributors. Revenues from product sales, except for sales to distributors, are generally recognized upon shipment, netof sales returns and allowances. Sales to consignment warehouses, who purchase products from us for use by contractmanufacturers, 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 tothe OEM. Sales to distributors are made under agreements allowing for returns or credits under certain circumstances. Wetherefore defer recognition of revenue on sales to distributors until products are resold by the distributor.Historically, a small number of OEM customers have accounted for a substantial portion of our net revenues, andwe expect that significant customer concentration will continue for the foreseeable future. Many of our OEMs usecontract manufacturers to manufacture their equipment. Accordingly, a significant percentage of our net39 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsrevenues 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 theircontract manufacturers. Direct sales to contract manufacturers and consignment warehouses accounted for 37.6%, 33.1%and 37.5% of our net revenues for fiscal 2016, 2015 and 2014, respectively. Sales to foreign and domestic distributorsaccounted for 50.4%, 58.7% and 50.0% of our net revenues for fiscal 2016, 2015 and 2014, respectively. The followingdirect customers accounted for 10% or more of our net revenues in one or more of the following periods: Fiscal Year Ended March 31, 201620152014Contract manufactures and consignment warehouses:SMART Modular Technologies-%5.2%14.4% Flextronics Technology13.78.111.9 Sanmina16.412.68.5Distributors:Avnet Logistics28.235.230.3Nexcomm13.312.310.2 Alcatel-Lucent was our largest customer in fiscal 2016 and 2015. Alcatel-Lucent purchases products directly fromus and through contract manufacturers and distributors. Based on information provided to us by Alcatel-Lucent’scontract manufacturers and our distributors, purchases by Alcatel-Lucent represented approximately 32%, 25% and 19%of our net revenues in fiscal 2016, 2015 and 2014, respectively. Cisco Systems, historically our largest OEM customer,purchases our products primarily through its consignment warehouses and also purchases some products through itscontract manufacturers and directly from us. Based on information provided to us by Cisco Systems' consignmentwarehouses and contract manufacturers, purchases by Cisco Systems represented approximately 9%, 13% and 19% ofour net revenues in fiscal 2016, 2015 and 2014, respectively. Our revenues have been substantially impacted bysignificant fluctuations in sales to Alcatel-Lucent and Cisco Systems, and we expect that future direct and indirect salesto these two customers will continue to fluctuate substantially on a quarterly basis and that such fluctuations maysignificantly affect our operating results in future periods. To our knowledge, none of our other OEM customersaccounted for more than 10% of our net revenues in fiscal 2016, 2015 or 2014.Cost of Revenues. Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly, test andburn-in expenses, the amortized cost of production mask sets, stock-based compensation and the cost of materials andoverhead from operations. All of our wafer manufacturing and assembly operations, and a significant portion of ourwafer sort testing operations, are outsourced. Accordingly, most of our cost of revenues consists of payments to TSMC,Powerchip and independent assembly and test houses. Because we do not have long-term, fixed-price supply contracts,our wafer fabrication and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand forsemiconductors. Cost of revenues also includes expenses related to supply chain management, quality assurance, andfinal product testing and documentation control activities conducted at our headquarters in Sunnyvale, California andour branch operations in Taiwan.Gross Profit. Our gross profit margins vary among our products and are generally greater on our higher densityproducts and, within a particular density, greater on our higher speed and industrial temperature products. We expectthat our overall gross margins will fluctuate from period to period as a result of shifts in product mix, changes in averageselling prices and our ability to control our cost of revenues, including costs associated with outsourced waferfabrication and product assembly and testing.40 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsResearch and Development Expenses. Research and development expenses consist primarily of salaries andrelated expenses for design engineers and other technical personnel, the cost of developing prototypes, stock-basedcompensation and fees paid to consultants. We charge all research and development expenses to operations as incurred.We charge mask costs used in production to costs of revenues over a 12-month period. However, we charge costs relatedto pre-production mask sets, which are not used in production, to research and development expenses at the time theyare incurred. These charges often arise as we transition to new process technologies and, accordingly, can cause researchand development expenses to fluctuate on a quarterly basis. We believe that continued investment in research anddevelopment is critical to our long-term success, and we expect to continue to devote significant resources to productdevelopment activities. In particular, we plan to devote substantial resources to the development of in-place associativecomputing products based on patented technology obtained in our acquisition of MikaMonu in November 2015.Accordingly, we expect that our research and development expenses will increase in future periods, although suchexpenses as a percentage of net revenues may fluctuate.Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily ofcommissions paid to independent sales representatives, salaries, stock-based compensation and related expenses forpersonnel engaged in sales, marketing, administrative, finance and human resources activities, professional fees, costsassociated with the promotion of our products and other corporate expenses. We expect that our sales and marketingexpenses will increase in absolute dollars in future periods if we are able to grow and expand our sales force but that, tothe extent our revenues increase in future periods, these expenses will generally decline as a percentage of net revenues.We also expect that, in support of any future growth that we are able to achieve, general and administrative expenseswill generally increase in absolute dollars. General and administrative expenses increased significantly beginning infiscal 2012 as a result of substantial legal expenses, principally related to our patent infringement and antitrust litigationwith Cypress Semiconductor Corporation. These expenses varied significantly from quarter to quarter thereafter,depending on the relative level of activity in the Cypress litigation. In May 2015, we entered into a settlementagreement to resolve our protracted litigation with Cypress. See “Part I. Item 3. Legal Proceedings.” Although weceased to incur legal expenses related to our litigation with Cypress after the quarter ended June 30, 2015, legalexpenses associated with unrelated commercial and trade secret litigation in which we were the plaintiff continued to besignificant through the quarter ended December 31, 2015, reflecting preparation for and conduct of the trial of that casewhich was concluded in November 2015.AcquisitionOn November 23, 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group Ltd.(“MikaMonu”), a development-stage, Israel-based company that specializes in in-place associative computing formarkets including big data, computer vision and cyber security. MikaMonu, located in Tel Aviv, held 12 United Statespatents and a number of pending patent applications. The acquisition was undertaken by the Company in order to gain access to the MikaMonu patents and thepotential markets, and new customer base in those markets, that can be served by new products that we plan to developusing the MikaMonu patents obtained in the acquisition.The acquisition has been accounted for as a purchase under authoritative guidance for businesscombinations. The purchase price of the acquisition has been preliminarily allocated to the intangible assets acquired,with the excess of the purchase price over the fair value of assets acquired recorded as goodwill. We will perform agoodwill impairment test in February of each fiscal year. The results of operations of MikaMonu and the estimated fairvalue of the assets acquired were included in our consolidated financial statements beginning November 23, 2015.Under the terms of the acquisition agreement, we paid the former MikaMonu shareholders initial cashconsideration of approximately $4.4 million at the closing on November 23, 2015. We will make cash payments of upto $484,000 to the three former MikaMonu shareholders in May 2017 upon the release of cash held in escrow for41 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentspotential indemnification claims. This amount is included in other assets on the Consolidated Balance Sheet at March31, 2016. We are also required to pay the former MikaMonu shareholders future contingent consideration consisting ofretention payments and “earnout” payments, as described below. We will make cash retention payments of up to an additional $2.5 million to the three former MikaMonushareholders in installments over a four-year period, conditioned on the continued employment of Dr. Avidan Akerib,MikaMonu’s co-founder and chief technologist. The retention amount of $2.5 million has been deposited in escrow andis included in other assets on the Consolidated Balance Sheet at March 31, 2016. We will also make “earnout” payments to the former MikaMonu shareholders in cash or shares of our commonstock, at our discretion, during a period of up to ten years following the closing if certain product developmentmilestones and revenue targets for products based on the MikaMonu technology are achieved. Earnout amounts of$750,000 will be payable if certain product development milestones are achieved by December 31, 2017. Additionalearnout amounts of $2,750,000 and $4,000,000 will be payable if certain revenue milestones are achieved by January 1,2021 and January 1, 2022, respectively; and additional payments, up to a maximum of $30 million, equal to 5% of netrevenues from the sale of qualifying products in excess of certain thresholds, will be made quarterly throughDecember 31, 2025. The portion of the retention payment contingently payable to Dr. Akerib (approximately $1.2 million) will berecorded as compensation expense over the period that his services are provided to us. The portion of the retentionpayment contingently payable to the other former MikaMonu shareholders (approximately $1.3 million) plus themaximum amount of the potential earnout payments totals approximately $38.8 million. We determined that the fairvalue of this contingent consideration liability was $5.8 million at the acquisition date.The fair value of the contingent consideration liability was determined as of the acquisition date usingunobservable inputs. These inputs include the estimated amount and timing of future revenues, the probability ofsuccess (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8% usedto adjust the probability-weighted cash flows to their present value. Subsequent to the acquisition date, at eachreporting period, the contingent consideration liability will be re-measured at then current fair value with changesrecorded in the Consolidated Statement of Operations. Changes in any of the inputs may result in significantadjustments to the recorded fair value. The amount included in other accrued expenses on the Consolidated BalanceSheet at March 31, 2016 was $5.9 million.Acquisition-related costs of approximately $426,000 are included in selling, general and administrative expensesin the Consolidated Statements of Operations for the fiscal year ended March 31, 2016.The allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on theirestimated fair values at the date of acquisition. The fair value allocated to patents was $3.5 million and the fair valueallocated to goodwill was $8.0 million.42 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 periodsindicated: Fiscal Year Ended March 31, 2016 2015 2014 Net revenues 100.0% 100.0% 100.0%Cost of revenues 49.3 53.0 55.4 Gross profit 50.7 47.0 44.6 Operating expenses: Research and development 22.9 22.3 22.4 Selling, general and administrative 33.5 36.0 32.1 Total operating expenses 56.4 58.3 54.5 Loss from operations (5.7) (11.3) (9.9) Interest and other income (expense), net 0.4 0.7 0.6 Loss before income taxes (5.3) (10.6) (9.3) Provision (benefit) for income taxes (1.2) (1.2) 1.2 Net loss (4.1)% (9.3)% (10.6)% Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015Net Revenues. Net revenues decreased by 1.4% from $53.5 million in fiscal 2015 to $52.7 million in fiscal2016. The reduction reflected the continuing weakness in the global networking and telecommunications markets and,in particular, continued weakness in Asia. Direct and indirect sales to Alcatel-Lucent, currently our largest customer,increased by $3.9 million from $13.2 million in fiscal 2015 to $17.1 million fiscal 2016, reflecting increased demand forits systems that incorporate our products. However, direct and indirect sales to Cisco Systems, historically our largestcustomer, decreased by $2.6 million from $7.1 million in fiscal 2015 to $4.5 million in fiscal 2016 due to softness in themarket for its switches and routers that incorporate our products. We believe that our net revenues were also negativelyimpacted during fiscal 2015 and the first quarter of fiscal 2016 by uncertainty regarding the outcome of our patentlitigation with Cypress Semiconductor that was settled in May 2015. We believe that the Commission’s favorable finaldetermination in the ITC proceeding reduced this market uncertainty somewhat, and that the uncertainty was resolvedwith the settlement of the litigation. However, some design-in losses that we suffered during the pendency of the ITCproceeding will continue to adversely affect our revenues throughout the life of the related products. Shipments of ourSigmaQuad product line accounted for 53.5% of total shipments in fiscal 2016 compared to 41.6% of total shipments infiscal 2015.Cost of Revenues. Cost of revenues decreased by 8.4% from $28.4 million in fiscal 2015 to $26.0 million infiscal 2016. This decrease was primarily due to the corresponding decrease in net revenues, favorable product mix andreductions in variable manufacturing costs in fiscal 2016. Cost of revenues included stock-based compensation expenseof $320,000 and $401,000, respectively, in fiscal 2016 and fiscal 2015.Gross Profit. Gross profit increased by 6.4% from $25.1 million in fiscal 2015 to $26.7 million in fiscal2016. Gross margin increased from 47.0% in fiscal 2015 to 50.7% in fiscal 2016. The increases in gross profit andimprovements in gross margin were primarily related to favorable changes in the mix of products and customers. Research and Development Expenses. Research and development expenses increased 1.5% from $11.9 millionin fiscal 2015 to $12.1 million in fiscal 2016. This increase was primarily due to an increase in payroll43 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsrelated expenses of $314,000 and lesser increases in patent related legal fees and travel related expenses, partially offsetby a decrease in depreciation expense of $129,000 and lesser decreases in facilities related expenses, stock-basedcompensation expense and software maintenance expenses. Payroll expenses increased as a result of our acquisition ofMikaMonu in November 2015 and the subsequent hiring of engineers to work on our in-place associative computingproduct development. Research and development expenses included stock-based compensation expense of $858,000and $941,000, respectively, in fiscal 2016 and fiscal 2015.Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 8.2%from $19.2 million in fiscal 2015 to $17.7 million in fiscal 2016. This decrease was primarily related to a $1.5 milliondecrease in legal fees related to the patent infringement and antitrust litigation involving Cypress SemiconductorCorporation which was settled in May 2015 and commercial and trade secret litigation in which we were the plaintiff,the trial of which concluded in November 2015, and lesser decreases in other professional fees, stock-basedcompensation, facility related expenses and payroll related expenses, partially offset by an increase in independent salesrepresentative commissions. Selling, general and administrative expenses included stock-based compensation expenseof $672,000 and $735,000, respectively, in fiscal 2016 and fiscal 2015. Interest and Other Income (Expense), Net. Interest and other income (expense), net decreased 45.9% from$388,000 in fiscal 2015 to $210,000 in fiscal 2016. Interest income decreased by $17,000 due to lower interest ratesreceived on reduced balances of cash and short-term and long-term investments. A foreign currency exchange gain of$64,000 in fiscal 2015 compared to a foreign currency exchange loss of $97,000 in fiscal 2016. The exchange gain orloss in each period was primarily related to our Taiwan branch operations.Provision for Income Taxes. The benefit for income taxes of $675,000 in fiscal 2015 compared to a benefit of$641,000 in fiscal 2016. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March31, 2016 and the realization of our deferred tax assets is questionable, we recorded a tax provision reflecting a fullvaluation allowance of $6.4 million in net deferred tax assets in fiscal 2016.Net Income (Loss). Net loss decreased from $5.0 million in fiscal 2015 to $2.2 million in fiscal 2016. Thisdecrease was primarily due to the changes in net revenues, gross profit and operating expenses discussed above.Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014Net Revenues. Net revenues decreased by 8.7% from $58.6 million in fiscal 2014 to $53.5 million in fiscal2015. The reduction reflected the continuing weakness in the global networking and telecommunications markets and,in particular, continued weakness in Asia. Direct and indirect sales to Alcatel-Lucent, currently our largest customer,increased by $2.0 million from $11.2 million in fiscal 2014 to $13.2 million fiscal 2015. However, direct and indirectsales to Cisco Systems, historically our largest customer, decreased by $3.9 million from $11.0 million in fiscal 2014 to$7.1 million in fiscal 2015 due to softness in the market for its switches and routers that incorporate our products. Webelieve that our net revenues in each of these periods were also negatively impacted by uncertainty regarding theoutcome of our patent litigation with Cypress Semiconductor. We believe that the Commission’s favorabledetermination in the ITC proceeding in June 2013 reduced this market uncertainty, although some design-in losses thatwe suffered during the pendency of the ITC proceeding will continue to adversely affect our revenues throughout thelife of the related products. Shipments of our SigmaQuad product line accounted for 41.6% of total shipments in fiscal2015 compared to 42.2% of total shipments in fiscal 2014.Cost of Revenues. Cost of revenues decreased by 12.6% from $32.5 million in fiscal 2014 to $28.4 million infiscal 2015. This decrease was primarily due to the corresponding decrease in net revenues, favorable product mix andreductions in variable manufacturing costs in fiscal 2015, in addition to a decrease of $1.0 million in non-cash write-downs of excess or obsolete inventory compared to fiscal 2014. A write-down of $985,000 was taken in the three monthsended December 31, 2013 to reflect the fact that management’s prior expectations of increasing demand for ourproducts, following the favorable ITC ruling in June 2013 and the exit of a competitor from the44 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsSRAM market in the December 2012 quarter, did not materialize. Cost of revenues included stock-based compensationexpense of $401,000 and $386,000, respectively, in fiscal 2015 and fiscal 2014.Gross Profit. Gross profit decreased by 3.8% from $26.1 million in fiscal 2014 to $25.1 million in fiscal2015. However, gross margin increased from 44.6% in fiscal 2014 to 47.0% in fiscal 2015. The decrease in gross profitwas related to the corresponding decrease in net revenues, while the improvement in gross margin was due to favorablechanges in the mix of products and customers and the reduction in the non-cash write-down of excess or obsoleteinventory.Research and Development Expenses. Research and development expenses decreased 9.1% from $13.1 millionin fiscal 2014 to $11.9 million in fiscal 2015. This decrease was primarily due to decreases of $1.5 million in expensesrelated to pre-production mask sets, a $177,000 decrease in depreciation expense and lesser decreases in repairs andmaintenance expense and patent-related expenses, partially offset by an increase of $567,000 in payroll-relatedexpenses. Research and development expenses included stock-based compensation expense of $941,000 and $970,000,respectively, in fiscal 2015 and fiscal 2014.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 2.3% from $18.8 million in fiscal 2014 to $19.2 million in fiscal 2015. This increase was primarily related to increases of $346,000in payroll-related expenses and $308,000 in non-legal professional fees and lesser increases in travel related expensesand legal fees related to the patent infringement and antitrust litigation involving Cypress Semiconductor Corporationand other pending litigation, partially offset by decreases in stock-based compensation expense and independent salesrepresentative commissions. Selling, general and administrative expenses included stock-based compensation expenseof $735,000 and $872,000, respectively, in fiscal 2015 and fiscal 2014. Interest and Other Income (Expense), Net. Interest and other income (expense), net increased 14.8% from$338,000 in fiscal 2014 to $388,000 in fiscal 2015. Interest income decreased by $63,000 due to lower interest ratesreceived on reduced balances of cash and short-term and long-term investments. These decreases were more than offsetby a foreign currency exchange gain of $64,000 in fiscal 2015 compared to a foreign currency exchange loss of $49,000in fiscal 2014. The exchange gain or loss in each period was related to our Taiwan branch operations.Provision for Income Taxes. The provision for income taxes of $713,000 in fiscal 2014 compared to a benefit of$675,000 in fiscal 2015. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March31, 2015, we recorded a tax provision reflecting a full valuation allowance of our $6.0 million in deferred tax assets infiscal 2015.Net Income (Loss). Net loss decreased from $6.2 million in fiscal 2014 to $5.0 million in fiscal 2015. Thisdecrease was primarily due to the changes in net revenues, gross profit and operating expenses discussed above.Liquidity and Capital ResourcesAs of March 31, 2016, our principal sources of liquidity were cash, cash equivalents and short-term investments of$55.1 million compared to $59.0 million as of March 31, 2015. Cash, cash equivalents and short-term investmentstotaling $24.5 were held in foreign locations as of March 31, 2016.Net cash provided by operating activities was $460,000 for fiscal 2016 compared to $1.1 million for fiscal 2015and $8.7 million for fiscal 2014. The primary sources of cash in fiscal 2016 were non-cash stock-based compensationexpense of $1.9 million, depreciation and amortization expense of $1.5 million and a provision for excess and obsoleteinventory of $1.2 million. The primary uses of cash in fiscal 2016 were a net loss of $2.2 million, a decrease of $2.1million in accrued expenses and other liabilities and a decrease of $485,000 in deferred revenue. The primary sources ofcash in fiscal 2015 were a decrease in prepaid expenses and other assets of $2.9 million, non-cash stock-basedcompensation expense of $2.1 million, depreciation and amortization expense of $1.645 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsmillion and a provision for excess and obsolete inventory of $1.1 million. The primary uses of cash in fiscal 2015 were anet loss of $5.0 million, a decrease of $1.9 million in accounts payable and an increase of $1.3 million in inventories. The primary sources of cash in fiscal 2014 were a reduction in inventory of $3.5 million, adjustments for non-cash stock-based compensation expense of $2.2 million, a provision for excess and obsolete inventory of $2.1 million anddepreciation expense of $2.0 million, partially offset by a net loss of $6.2 million and a decrease in accrued expensesand other liabilities. We allowed inventory levels to decrease in response to the slowdown in our business during fiscal2014 and fiscal 2015. Net cash provided by investing activities was $935,000 in fiscal 2016 compared $23.2 million in fiscal 2015 andnet cash used in investing activities of $8.2 million in fiscal 2014. Investment activities in fiscal 2016 consistedprimarily of the maturity of corporate notes, state and municipal obligations and certificates of deposit of $23.6 million,partially offset by the purchase of investments of $14.1 million, our acquisition of MikaMonu for $4.4 million,restricted cash of $3.0 million related to amounts held in escrow related to the acquisition and the purchase of propertyand equipment for $1.2 million. Investment activities in fiscal 2015 consisted primarily of the sale and maturity ofcorporate notes and certificates of deposits of $39.7 million, partially offset by the purchase of investments of $16.0million. Investment activities in fiscal 2014 consisted primarily of the purchase of agency bonds, state and municipalobligations, corporate notes and certificates of deposit of $35.9 million, substantially offset by proceeds from the salesand maturities of investments of $28.4 million. Cash used in financing activities in fiscal 2016, fiscal 2015 and in fiscal 2014 included the repurchase of ourcommon stock for a total purchase price of $7.0 million, $30.0 million and $2.9 million, respectively. We repurchased1,611,969 shares of our common stock at an average price of $4.36 per share in fiscal 2016. Cash provided by financingactivities in fiscal 2016, fiscal 2015 and fiscal 2014 primarily consisted of the net proceeds from the sale of commonstock pursuant to our employee stock plans.At March 31, 2016, we had total minimum lease obligations of approximately $447,000 from April 1, 2016through February 28, 2018, under non-cancelable operating leases.We believe that our existing balances of cash, cash equivalents and short-term investments, and cash flowexpected to be generated from our future operations, will be sufficient to meet our cash needs for working capital andcapital expenditures for at least the next 12 months, although we could be required, or could elect, to seek additionalfunding prior to that time. Our future capital requirements will depend on many factors, including the rate of revenuegrowth that we experience, the extent to which we utilize subcontractors, the levels of inventory and accountsreceivable that we maintain, the timing and extent of spending to support our product development efforts and theexpansion of our sales and marketing efforts. Additional capital may also be required for the consummation of anyacquisition 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, 2016: Payments due by period Up to 1 year 1 - 3 years 3 - 5 years More than 5 years TotalFacilities and equipmentleases $304,000 143,000 $ - $ - $447,000Wafer, test and maskpurchase obligations 2,147,000 847,000 101,000 - 3,095,000 $2,451,000 $990,000 $101,000 $ - $3,542,000 46 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsAs of March 31, 2016, the current portion of our unrecognized tax benefits was $0, and the long-term portion was$116,000. We do not expect to make federal income tax payments in the next twelve months, and we are not able tomake a reasonably reliable estimate of the timing of such payments due to uncertainties in the timing of tax creditoutcomes.In connection with the acquisition of MikaMonu on November 23, 2015, we are required to make contingentconsideration payments to the former MikaMonu shareholders conditioned upon the retention of MikaMonu’s keyemployee and the achievement of certain product development milestones and revenue targets for products based on theMikaMonu technology. As of March 31, 2016, the accrual for potential payment of contingent consideration was $5.9million.Critical Accounting Policies and EstimatesThe preparation of our consolidated financial statements and related disclosures in conformity with accountingprinciples generally accepted in the United States ("GAAP") requires us to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses during the reporting period. Significantestimates are inherent in the preparation of the consolidated financial statements and include estimates affectingrevenue recognition, obsolete and excess inventory, the valuation allowance on deferred tax assets, the valuation ofequity instruments and stock-based compensation. We believe that we consistently apply these judgments and estimatesand that our financial statements and accompanying notes fairly represent our financial results for all periods presented.However, any errors in these judgments and estimates may have a material impact on our balance sheet and statement ofoperations. Critical accounting estimates, as defined by the Securities and Exchange Commission, are those that aremost important to the portrayal of our financial condition and results of operations and require our most difficult andsubjective judgments and estimates of matters that are inherently uncertain. Our critical accounting estimates includethose 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 hasoccurred, the price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Underthese criteria, revenue from the sale of our products is generally recognized upon shipment according to our shippingterms, net of accruals for estimated sales returns and allowances based on historical experience. Sales to distributors aremade under agreements allowing for returns or credits. We defer recognition of revenue on sales to distributors untilproducts are resold by the distributor to the end-user. Distributors have stock rotation, price protection and ship fromstock pricing adjustment rights, and we therefore defer recognition of revenue on sales to distributors until products areresold by the distributor. In light of uncertainties related to the stock rotation rights and possible changes to sales pricesresulting from price protection and price adjustment rights granted, we are unable to reasonably estimate possiblechanges 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 upondelivery to the contract manufacturers.The timing of recognizing revenues on product sales to distributors is dependent on receiving pertinent andaccurate data from our distributors in a timely fashion. Distributors provide us monthly data regarding the product, price,quantity, and end customer for their shipments as well as the quantities of our products they have in stock at month end.In determining the appropriate amount of revenue to recognize, we use this data in reconciling differences between ourestimate of their inventory levels and their reported inventories and shipment activities. If distributors incorrectly reporttheir inventories or shipment activities, it could lead to inaccurate reporting of our revenues and income.47 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsValuation of Inventories. Inventories are stated at the lower of cost or market value, cost being determined on aweighted average basis. Our inventory write-down allowance is established when conditions indicate that the sellingprice of our products could be less than cost due to physical deterioration, obsolescence, changes in price levels, orother 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 ourpremises or consignment warehouses, work in progress at our premises or our contract manufacturers and finished goodsat distributors and takes into account any uncancellable purchase commitments. Historically, it has been difficult toforecast customer demand especially at the part-number level. Many of the orders we receive from our customers anddistributors request delivery of product on relatively short notice and with lead times less than our manufacturing cycletime. In order to provide competitive delivery times to our customers, we build and stock a certain amount of inventoryin anticipation of customer demand that may not materialize. Moreover, as is common in the semiconductor industry, wemay allow customers to cancel orders with minimal advance notice. Thus, even product built to satisfy specific customerorders may not ultimately be required to fulfill customer demand. Nevertheless, at any point in time, some portion of ourinventory is subject to the risk of being materially in excess of our projected demand. Additionally, our average sellingprices could decline due to market or other conditions, which creates a risk that costs of manufacturing our inventorymay not be recovered. These factors contribute to the risk that we may be required to record additional inventory write-downs in the future, which could be material. In addition, if actual market conditions are more favorable than expected,inventory previously written down may be sold to customers resulting in lower cost of sales and higher income fromoperations than expected in that period.Taxes. We account for income taxes under the liability method, whereby deferred tax assets and liabilities aredetermined based on the difference between the financial statement and tax bases of assets and liabilities using enactedtax rates in effect for the year in which the differences are expected to affect taxable income. We make certain estimatesand 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 toreduce our deferred tax assets to the amount that management estimates is more likely than not to be realized. As ofMarch 31, 2016, our net deferred tax assets of $6.4 million are subject to a full valuation allowance. If, in the future wedetermine that we are likely to realize all or part of our net deferred tax assets, an adjustment to deferred tax assets wouldbe added 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 additional taxes that we estimate we may be required to pay as a result of future potentialexaminations by federal and state taxing authorities. If the payment ultimately proves to be unnecessary, the reversal ofthese 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 forincome taxes will result.Authoritative guidance prescribes a comprehensive model for how a company should recognize, measure, present,and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a taxreturn (including a decision whether to file or not to file a return in a particular jurisdiction). Under this guidance, thefinancial statements will reflect expected future tax consequences of such positions presuming the taxing authorities'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 thestatement of operations is based on options ultimately expected to vest, reduced by the amount of estimated forfeitures.We chose the straight-line method of allocating compensation cost over the requisite service period of the related awardin accordance with the authoritative guidance. We calculated the expected term based on the historical average periodof time that options were outstanding as adjusted for expected changes in future exercise patterns, which, for optionsgranted in fiscal 2016, 2015 and 2014, resulted in an expected term of approximately48 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsfive years. We used our historical volatility to estimate expected volatility in fiscal 2016, 2015 and 2014. The risk-freeinterest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding to the expectedlife of the options. The dividend yield is 0%, based on the fact that we have never paid dividends and have no presentintention to pay dividends. Determining some of these assumptions requires significant judgment and changes to theseassumptions could result in a significant change to the calculation of stock-based compensation in future periods.Cash flows, if any, resulting from the tax benefits from tax deductions in excess of the compensation costrecognized for those options (excess tax benefits) are classified as financing cash flows.As stock-based compensation expense recognized in the Consolidated Statement of Operations is based on awardsultimately expected to vest, it has been reduced for estimated forfeitures. We estimate forfeitures at the time of grant andrevise the original estimates, if necessary, 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 ournon-employee directors.Contingent Consideration. The fair value of the contingent consideration liability potentially payable inconnection with our acquisition of MikaMonu was initially determined as of the acquisition date using unobservableinputs. These inputs include the estimated amount and timing of future cash flows, the probability of success(achievement of the various contingent events) and a risk-adjusted discount rate to adjust the probability-weighted cashflows to their present value. Subsequent to the acquisition date, at each reporting period, the contingent considerationliability will be re-measured at its then current fair value with changes recorded in the Consolidated Statements ofOperations. Changes in any of the inputs may result in material adjustments to the recorded fair value.Valuation of Goodwill.Goodwill represents the difference between the purchase price and the estimated fair value of the identifiableassets acquired and liabilities assumed in a business combination. We test for goodwill impairment on an annual basis,or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. Wehave one reporting unit. We assess goodwill for impairment on an annual basis on the last day of February in the fourthquarter of our fiscal year.As of March 31, 2016, we had a goodwill balance of $8.0 million. The goodwill resulted from the acquisition ofMikaMonu in fiscal 2016. Our market capitalization declined in fiscal 2016. A significant decline in a company’s stock price may suggestthat an adverse change in the business climate may have caused the fair value of one or more reporting units to fallbelow their carrying value. Significant judgment has been applied to determine whether stock price declines are a short-term swing or a long-term trend. We believe that the decline in our stock price will not be sustained. We utilized a two-step quantitative analysis to complete our annual impairment test during the fourth quarter offiscal 2016 and concluded that there was no impairment, as the fair value of our sole reporting unit exceeded its carryingvalue. We determined that the second step of the impairment test was not necessary. We believe that the fair valueestablished during the fiscal 2016 annual goodwill impairment testing was reasonable, and no triggering event hastaken place subsequent to the fiscal 2016 annual assessment. However, a sustained decline in our stock price couldconstitute a triggering event that would require assessment for potential goodwill impairment in fiscal 2017. 49 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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, 2016, we did not have any off-balance sheet arrangements or relationships with unconsolidatedentities or financial partnerships, such as entities often referred to as structured finance or special purpose entities,established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limitedpurposes. Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if wehad engaged in such relationships.Recent Accounting PronouncementsIn March 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update forthe accounting for share-based payment transactions, including the income tax consequences, classification of awards aseither equity or liabilities and classification on the statement of cash flows. This accounting standard update will beeffective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, andearly adoption is permitted. We are currently evaluating the methods and impact of adopting the new accountingstandard on our consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that alessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for thelessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore,recognition of those lease assets and lease liabilities represents a change of previous GAAP, which did not require leaseassets and lease liabilities to be recognized for most leases. This ASU is effective for annual and interim periodsbeginning after December 15, 2018. Early adoption is permitted. The recognition, measurement, and presentation ofexpenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. We arecurrently evaluating the impact the pronouncement will have on our consolidated financial statements and relateddisclosures.In January 2016, the FASB issued an accounting standard update which requires equity investments to bemeasured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment ofequity investments without readily determinable fair values by requiring a qualitative assessment to identifyimpairment. The accounting standard update also updates certain presentation and disclosure requirements. Thisaccounting standard update will be effective for fiscal years beginning after December 15, 2017, including interimperiods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact of thisaccounting standard update on our consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, whicheliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classifiedbalance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent. The updateis effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted.Implementation of this guidance in the quarter ended March 31, 2016 did not have a material impact on ourconsolidated financial statements.In September 2015, the FASB issued a new accounting standard that eliminates the requirement to restate priorperiod financial statements for measurement period adjustments following a business combination. The new guidancerequires that the cumulative impact of a measurement period adjustment including the impact on prior periods berecognized in the reporting period in which the adjustment is identified along with additional disclosures. The newguidance will be effective for us beginning in the first quarter of fiscal 2017. The new guidance is required to be adoptedprospectively with early adoption permitted for financial statements that have not yet been made available for issuance.The new guidance is not expected to have a material impact on the Company’s consolidated financial statements.50 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory". This standardupdate intends to simplify the subsequent measurement of inventory, excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The update replaces the current lower of cost or market test with a lower ofcost and net realizable value test. Under the current guidance, market could be replacement cost, net realizable value ornet realizable value less an approximately normal profit margin. Net realizable value is the estimated selling price in theordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The update iseffective for reporting periods beginning after December 15, 2016, with early adoption permitted. We are currentlyevaluating the impact of this accounting standard on our consolidated financial statements.In August 2014, the FASB issued new guidance related to our responsibility to evaluate whether there issubstantial doubt about our ability to continue ongoing business operations and to provide relevant footnotedisclosures. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2016. Early adoption is permitted. The adoption of this guidance is not expected to have a materialimpact on our consolidated financial statements.In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The newaccounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising fromcontracts with customers and supersedes most current revenue recognition guidance. The accounting standard iseffective for annual reporting periods (including interim reporting periods within those periods) beginning afterDecember 15, 2017. Early adoption is permitted for annual reporting periods (including interim reporting periods withinthose periods) beginning after December 15, 2016. ASU No. 2014-09 provides for one of two methods of transition:retrospective application to each prior period presented; or recognition of the cumulative effect of retrospectiveapplication of the new standard in the period of initial application. We are currently evaluating the impact of thisaccounting standard on our consolidated financial statements. In March, April and May 2016, the FASB issuedadditional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifyingperformance obligations and licensing arrangements, and narrow-scope improvements and practical expedients,respectively. We are in the process of assessing the impact this additional guidance is expected to have upon adoption,including determining the adoption method. Item 7A. Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Risk. Our revenues and expenses, except those expenses related to our operations inIsrael and Taiwan, including subcontractor manufacturing expenses in Taiwan, are denominated in U.S. dollars. As aresult, we have relatively little exposure for currency exchange risks, and foreign exchange losses have been minimal todate. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies orany other derivative financial instruments for trading or speculative purposes. In the future, if we feel our foreigncurrency exposure has increased, we may consider entering into hedging transactions to help mitigate that risk.Interest Rate Sensitivity. We had cash, cash equivalents, short term investments and long-term investmentstotaling $66.3 million at March 31, 2016. These amounts were invested primarily in money market funds, state andmunicipal obligations, corporate notes, certificates of deposit and agency bonds. The cash, cash equivalents and short-term marketable securities are held for working capital purposes. We do not enter into investments for trading orspeculative purposes. Due to the short-term nature of these investments, we believe that we do not have any materialexposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. We believe ahypothetical 100 basis point increase in interest rates would not materially affect the fair value of our interest-sensitivefinancial instruments. Declines in interest rates, however, will reduce future investment income.51 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Firm 53 Consolidated Balance Sheets As of March 31, 2016 and 2015 54 Consolidated Statements of Operations For the Three Years Ended March 31, 2016, 2015and 2014 55 Consolidated Statements of Comprehensive Loss For the Three Years Ended March 31,2016, 2015 and 2014 56 Consolidated Statements of Stockholders’ Equity For the Three Years Ended March 31,2016, 2015 and 2014 57 Consolidated Statements of Cash Flows For the Three Years Ended March 31, 2016,2015 and 2014 58 Notes to Consolidated Financial Statements 59 52 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 accompanying consolidated balance sheets and the related consolidated statements ofoperations, comprehensive loss, stockholders’ equity and cash flows present fairly, in all material respects, the financialposition of GSI Technology, Inc. and its subsidiaries at March 31, 2016 and 2015, and the results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2016 in conformity with accounting principlesgenerally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of March 31, 2016, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company's management is responsible for these financial statements, for maintainingeffective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial 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 and on the Company's internalcontrol over financial reporting based on our integrated audits. We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financial statements are free of materialmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Ouraudits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audit of internal control over financial reportingincluded obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as we considered necessary in thecircumstances. 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 assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaJune 10, 201653 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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. March 31, 2016 2015 (In thousands, except share andper share amounts)ASSETS Cash and cash equivalents $31,963 $36,776Short-term investments 23,149 22,201Accounts receivable, net 7,478 8,257Inventories 7,174 8,412Prepaid expenses and other current assets 2,198 2,297Total current assets 71,962 77,943Property and equipment, net 8,653 8,708Long-term investments 11,148 21,740Goodwill 8,030 -Intangible assets, net 3,651 393Other assets 3,086 105Total assets $106,530 $108,889LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $2,514 $2,961Accrued expenses and other liabilities 4,398 5,937Deferred revenue 2,330 2,815Total current liabilities 9,242 11,713Income taxes payable 116 780Long-term deferred income taxes 811 -Other accrued expenses 6,492 -Total liabilities 16,661 12,493Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued andoutstanding: none - -Common Stock: $0.001 par value authorized: 150,000,000 shares; issued andoutstanding: 21,716,364 and 23,128,372 shares, respectively 22 23Additional paid-in capital 25,050 29,407Accumulated other comprehensive income 27 26Retained earnings 64,770 66,940Total stockholders' equity 89,869 96,396Total liabilities and stockholders' equity $106,530 $108,889Table of ContentsGSI TECHNOLOGY, INC.CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of these consolidated financial statements.54 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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, 2016 2015 2014 (In thousands, except per share amounts)Net revenues $52,736 $53,498 $58,579Cost of revenues 25,999 28,375 32,469Gross profit 26,737 25,123 26,110Operating expenses: Research and development 12,095 11,917 13,110Selling, general and administrative 17,663 19,247 18,814Total operating expenses 29,758 31,164 31,924Loss from operations (3,021) (6,041) (5,814)Interest income, net 307 324 387Other income (expense), net (97) 64 (49)Loss before income taxes (2,811) (5,653) (5,476)Provision (benefit) for income taxes (641) (675) 713Net loss $(2,170) $(4,978) $(6,189)Net loss per share: Basic $(0.10) $(0.20) $(0.23)Diluted $(0.10) $(0.20) $(0.23)Weighted average shares used in per share calculations: Basic 22,593 25,029 27,505Diluted 22,593 25,029 27,505 The accompanying notes are an integral part of these consolidated financial statements.55 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 GSI TECHNOLOGY, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended March 31, 2016 2015 2014 (In thousands, except per share amounts) Net loss $(2,170) $(4,978) $(6,189)Net unrealized gain (loss) on available-for-sale investments,net of tax 1 (7) (12)Comprehensive net loss $(2,169) $(4,985) $(6,201) The accompanying notes are an integral part of these consolidated financial statements.56 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income Earnings Equity Balance, March 31, 2013 27,065,209 $27 $54,004 $45 $78,107 $132,183Issuance of common stockunder employee stock option plans 932,800 1 3,080 - - 3,081Repurchase and retirement of common stock (436,527) - (2,880) - - (2,880)Stock-based compensation expense - - 2,228 - - 2,228Windfall tax benefit fromstock options exercised - - (33) - - (33)Comprehensive loss: Net loss - - - - (6,189) (6,189)Net unrealized loss onavailable-for-sale investments - - - (12) - (12)Total comprehensive loss - - - - - (6,201)Balance, March 31, 2014 27,561,482 28 56,399 33 71,918 128,378Issuance of common stockunder employee stock option plans 228,665 - 952 - - 952Repurchase and retirement of common stock (4,661,775) (5) (30,021) - - (30,026)Stock-based compensation expense - - 2,077 - - 2,077Comprehensive loss: Net loss - - - - (4,978) (4,978)Net unrealized loss onavailable-for-sale investments - - - (7) - (7)Total comprehensive loss - - - - - (4,985)Balance, March 31, 2015 23,128,372 23 29,407 26 66,940 96,396Issuance of common stockunder employee stock option plans 199,961 - 818 - - 818Repurchase and retirement of common stock (1,611,969) (1) (7,025) - - (7,026)Stock-based compensation expense - - 1,850 - - 1,850Comprehensive loss: Net loss - - - - (2,170) (2,170)Net unrealized gain onavailable-for-sale investments - - - 1 - 1Total comprehensive loss - - - - - (2,169)Balance, March 31, 2016 21,716,364 $22 $25,050 $27 $64,770 $89,869 The accompanying notes are an integral part of these consolidated financial statements. 57 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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, 2016 2015 2014 (In thousands)Cash flows from operating activities: Net loss $(2,170) $(4,978) $(6,189)Adjustments to reconcile net loss to net cash provided by operating activities: Allowance for sales returns, doubtful accounts and other (3) (8) (5)Provision for excess and obsolete inventories 1,172 1,067 2,079Depreciation and amortization 1,459 1,633 1,981Stock-based compensation 1,850 2,077 2,228Deferred income taxes - - 1,224Windfall tax benefits from stock options exercised - - 33Amortization of bond premium on investments 209 593 842Changes in assets and liabilities, net of impact of acquisition: Accounts receivable 782 (11) 2,008Inventory 66 (1,294) 3,545Prepaid expenses and other assets 102 2,854 1,046Accounts payable (441) (1,915) 1,066Accrued expenses and other liabilities (2,081) 811 (857)Deferred revenue (485) 292 (554)Net cash provided by operating activities 460 1,121 8,447Cash flows from investing activities: Purchase of investments (14,149) (16,009) (35,866)Sales and maturities of investments 23,585 39,699 28,412Acquisition (4,359) - -Restricted cash (2,984) - -Purchases of property and equipment (1,158) (481) (761)Net cash provided by (used in) investing activities 935 23,209 (8,215)Cash flows from financing activities: Repurchase of common stock (7,026) (30,026) (2,880)Windfall tax benefits from stock options exercised - - (33)Proceeds from issuance of common stock under employee stock plans 818 952 3,081Net cash provided by (used in) financing activities (6,208) (29,074) 168Net increase (decrease) in cash and cash equivalents (4,813) (4,744) 400Cash and cash equivalents at beginning of the year 36,776 41,520 41,120Cash and cash equivalents at end of the year $31,963 $36,776 $41,520Non-cash financing activities: Purchases of property and equipment through accounts payable andaccruals $ - $6 $ -Supplemental cash flow information: Net cash paid (received) for income taxes $78 $(2,394) $2 The accompanying notes are an integral part of these consolidated financial statements.58 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsNOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe CompanyGSI Technology, Inc. (the "Company") was incorporated in California in March 1995 and reincorporated inDelaware on June 9, 2004. The Company is a provider of "Very Fast" SRAM products and LLDRAM products that areincorporated 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, theCompany serves the ongoing needs of the military, industrial, test equipment and medical markets for high-performanceSRAMs.Accounting principlesThe consolidated financial statements and accompanying notes were prepared in accordance with accountingprinciples generally accepted in the United States of America ("GAAP").Basis of consolidationThe consolidated financial statements include the accounts of the Company's four wholly-owned subsidiaries, GSITechnology Holdings, Inc., GSI Technology (BVI), Inc., GSI Technology Israel Ltd. 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 andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenue and 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 equityinstruments 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 singlesuppliers and is also dependent on independent suppliers to assemble and test its products. During the years endedMarch 31, 2016, 2015 and 2014, all of the wafers used in the Company's SRAM and LLDRAM products were suppliedby Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and Powerchip Technology Corporation, orPowerchip, respectively. If these suppliers fail to satisfy the Company's requirements on a timely basis at competitiveprices, the Company could suffer manufacturing delays, a possible loss of revenues, or higher cost of revenues, any ofwhich could adversely affect operating results.A majority of the Company's net revenues come from sales to customers in the networking andtelecommunications equipment industry. A decline in demand in this industry could have a material adverse affect onthe Company's operating results and financial condition.Because much of the manufacturing and testing of the Company's products is conducted in Taiwan, its businessperformance may be affected by changes in Taiwan's political, social and economic environment. For example, anypolitical instability resulting from the relationship among the United States, Taiwan and the People's Republic of Chinacould damage the Company's business. Moreover, the role of the Taiwanese government in the Taiwanese economy issignificant. Taiwanese policies toward economic liberalization, and laws and policies affecting technology companies,foreign investment, currency exchange rates, taxes and other matters could change,59 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsresulting in greater restrictions on the Company's and its suppliers' ability to do business and operate facilities inTaiwan. 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 theevent of a major earthquake or other natural disaster near the facilities of any of these suppliers or the Company, theCompany's business could be harmed.From time to time, the Company is involved in legal actions. See Note 7 for information regarding litigation thatwas resolved during the year ended March 31, 2016. There are many uncertainties associated with any litigation, andthe Company may not prevail. If information becomes available that causes us to determine that a loss in any of ourpending litigation, or the settlement of such litigation, is probable, and we can reasonably estimate the loss associatedwith such events, we will record the loss in accordance with GAAP. However, the actual liability in any such litigationmay 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, theprice is fixed or determinable and collectability of the resulting receivable is reasonably assured. Under these criteria,revenue from the sale of products is generally recognized upon shipment according to the Company's shipping terms,net of accruals for estimated sales returns and allowances based on historical experience. Sales to distributors are madeunder agreements allowing for returns or credits. Distributors have stock rotation, price protection and ship from stockpricing adjustment rights and the Company therefore defers recognition of revenue on sales to distributors untilproducts are resold by the distributor. In light of possible changes to sales prices resulting from price protection andprice adjustment rights granted, sales prices to the distributor are not fixed or determinable until the final sale to the enduser. For sales to consignment warehouses, who purchase products from the Company for use by contract manufacturers,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 anoriginal or remaining maturity of three months or less at the date of purchase, stated at cost, which approximates theirfair value.Short-term and long-term investmentsAll of the Company's short-term and long-term investments are classified as available-for-sale. Available-for-saledebt securities with maturities greater than twelve months are classified as long-term investments when they are notintended for use in current operations. Investments in available-for-sale securities are reported at fair value withunrecognized gains (losses), net of tax, as a component of "Accumulated other comprehensive income" on theConsolidated Balance Sheets. The Company monitors its investments for impairment periodically and recordsappropriate reductions in carrying values when the declines in fair value are determined to be other-than-temporary.Concentration of credit riskFinancial instruments that potentially subject the Company to a concentration of credit risk consist primarily ofcash, cash equivalents, short-term and long-term investments and accounts receivable. The Company places its cashprimarily in checking, certificate of deposit, and money market accounts with reputable financial institutions. TheCompany'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 nocollateral from its customers. The Company maintains an allowance for doubtful accounts receivable60 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsbased upon the expected collectability of accounts receivable. There were no write offs of accounts receivable in theyears ended March 31, 2016, 2015 or 2014.At March 31, 2016, four customers accounted for 26%, 25%, 13%, and 11% of accounts receivable, and for theyear then ended, four customers accounted for 28%, 16%, 14% and 13% of net revenues. At March 31, 2015, fourcustomers accounted for 25%, 20%, 16%, and 13% of accounts receivable, and for the year then ended, three customersaccounted for 35%, 13% and 12% of net revenues. At March 31, 2014, four customers accounted for 20%, 16%, 14%,and 12% of accounts receivable, and for the year then ended, four customers accounted for 30%, 14%, 12% and 10% ofnet revenues.InventoriesInventories are stated at the lower of cost or market value, cost being determined on a weighted average basis.Inventory write-down allowances are established when conditions indicate that the selling price could be less than costdue to physical deterioration, obsolescence, changes in price levels, or other causes. These allowances, once recorded,result in a new cost basis for the related inventory. These allowances are also considered for excess inventory generallybased on inventory levels in excess of 12 months of forecasted demand, as estimated by management, for each specificproduct. The allowance is not reversed until the inventory is sold or disposed of.The Company recorded write-downs of excess and obsolete inventories of $1.2 million, $1.1 million and $2.1million, respectively, in fiscal 2016, 2015 and 2014. Property and equipment, netProperty and equipment are stated at cost. Depreciation is computed using the straight-line method over theestimated useful lives of the assets as presented below:Software 3 to 5 yearsComputer and other equipment 5 to 10 yearsBuilding and building improvements10 to 25 yearsFurniture and fixtures 7 years Leasehold improvements are amortized using the straight-line method over the shorter of the estimated usefullives of the assets or the remaining lease term of the respective assets. Gains or losses on disposals of property andequipment are recorded within income from operations. Costs of repairs and maintenance are typically included as partof operating expenses unless they are incurred in relation to major improvements to existing property and equipment, atwhich 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 incircumstances indicate that their net book value 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 book value of the asset an impairmentcould exist and the amount of the impairment loss, if any, will generally be measured as the difference between net bookvalue of the assets and their estimated fair values. There were no impairment losses recognized during the years endedMarch 31, 2016, 2015 or 2014.61 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsGoodwill and intangible assetsGoodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes incircumstances indicate that the carrying amount of these assets may not be recoverable.The Company assesses goodwill for impairment on an annual basis on the last day of February in the fourth quarterof its fiscal year and if certain events or circumstances indicate that an impairment loss may have been incurred, on aninterim basis. The Company has one reporting unit. In accordance with ASU 2011-08, Testing Goodwill for Impairment,qualitative factors can be assessed to determine whether it is necessary to perform the current two-step test for goodwillimpairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fairvalue of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, nofurther testing is required.Intangible assets with finite useful lives are amortized over their estimated useful lives, generally on a straight-linebasis over five to fifteen years. The Company reviews identifiable amortizable intangible assets for impairmentwhenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resultingfrom use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of thecarrying value of the asset over its fair value.Research and developmentResearch and development expenses are related to new product designs, including, salaries, stock-basedcompensation, contractor fees, and allocation of corporate costs and are charged to the statement of operations asincurred.Income taxesThe Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities aredetermined based on the difference between the financial statement and tax bases of assets and liabilities using enactedtax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances areestablished when it is more likely than not that the deferred tax asset will not be realized. Because the Companyrecorded a cumulative three-year loss on a U.S. tax basis for the period ended March 31, 2016, the Company hasrecorded a tax provision reflecting a full valuation allowance of its $6.4 million and $6.0 million of net deferred taxassets at March 31, 2016 and 2015, respectively.Authoritative guidance prescribes a comprehensive model for how a company should recognize, measure, present,and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a taxreturn (including a decision whether to file or not to file a return in a particular jurisdiction). Under the guidance, thefinancial statements will reflect expected future tax 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 evaluatethe tax position for recognition by determining if the weight of available evidence indicates that it is more likely thannot that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. Thesecond step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized uponultimate settlement.Shipping and handling costsThe Company records costs related to shipping and handling in cost of revenues.62 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsAdvertising expenseAdvertising costs are charged to expense in the period incurred. Advertising expense was $4,000, $5,000 and$7,000 for the years ended March 31, 2016, 2015, and 2014, respectively.Foreign currency transactionsThe U.S. dollar is the functional currency for all of the Company's foreign operations. Foreign currency transactiongains and losses, resulting from transactions denominated in currencies other than U.S. dollars are included in theConsolidated Statements of Operations. These gains and losses were not material for the years ended March 31, 2016, 2015 or 2014.SegmentsThe Company operates as one segment for the design, development and sale of integrated circuits.Accounting for stock-based compensationStock-based compensation expense recognized in the Consolidated Statement of Operations is based on optionsultimately expected to vest, reduced by the amount of estimated forfeitures. The Company chose the straight-linemethod of allocating compensation cost over the requisite service period of the related award according to authoritativeguidance. The Company calculated the expected term based on the historical average period of time that options wereoutstanding as adjusted for expected changes in future exercise patterns, which, for options granted in fiscal 2016, 2015and 2014 resulted in an expected term of approximately five years. The Company used historical volatility to estimateexpected volatility in fiscal 2016, 2015 and 2014. The risk-free interest rate is based on the U.S. Treasury yields ineffect at the time of grant for periods corresponding to the expected life of the options. The dividend yield is 0%, basedon the fact that the Company has never paid dividends and has no present intention to pay dividends. Changes to theseassumptions 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 ofthe compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows.Comprehensive lossComprehensive income (loss) is defined to include all changes in stockholders’ equity during a period exceptthose resulting from investments by owners and distributions to owners. For the years ended March 31, 2016, 2015 and2014, comprehensive loss was $2,169,000, $4,985,000 and $6,201,000, respectively.Business combinationsThe Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets,liabilities, and intangible assets acquired, based on their estimated fair values. Goodwill represents the excess ofacquisition cost over the fair value of tangible and identified intangible net assets of businesses acquired. Transactioncosts and costs to restructure the acquired company are expensed as incurred. The operating results of the acquiredcompany are reflected in the Company’s consolidated financial statements after the closing date of the businesscombination. See Note 11 for additional information related to the acquisition of MikaMonu Group Ltd.63 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsRecent accounting pronouncementsIn March 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update forthe accounting for share-based payment transactions, including the income tax consequences, classification of awards aseither equity or liabilities and classification on the statement of cash flows. This accounting standard update will beeffective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, andearly adoption is permitted. The Company is currently evaluating the methods and impact of adopting the newaccounting standard on its consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that alessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for thelessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore,recognition of those lease assets and lease liabilities represents a change of previous GAAP, which did not require leaseassets and lease liabilities to be recognized for most leases. This ASU is effective for annual and interim periodsbeginning after December 15, 2018. Early adoption is permitted. The recognition, measurement, and presentation ofexpenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. TheCompany is currently evaluating the impact the pronouncement will have on its consolidated financial statements andrelated disclosures.In January 2016, the FASB issued an accounting standard update which requires equity investments to bemeasured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment ofequity investments without readily determinable fair values by requiring a qualitative assessment to identifyimpairment. The accounting standard update also updates certain presentation and disclosure requirements. Thisaccounting standard update will be effective for fiscal years beginning after December 15, 2017, including interimperiods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact ofthis accounting standard update on its consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, whicheliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classifiedbalance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent. The updateis effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted.Implementation of this guidance in the quarter ended March 31, 2016 did not have a material impact on the Company’sconsolidated financial statements.In September 2015, the FASB issued a new accounting standard that eliminates the requirement to restate priorperiod financial statements for measurement period adjustments following a business combination. The new guidancerequires that the cumulative impact of a measurement period adjustment including the impact on prior periods berecognized in the reporting period in which the adjustment is identified along with additional disclosures. The newguidance will be effective for the Company beginning in the first quarter of fiscal 2017. The new guidance is required tobe adopted prospectively with early adoption permitted for financial statements that have not yet been made availablefor issuance. The new guidance is not expected to have a material impact on the Company’s consolidated financialstatements.In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory". This standardupdate intends to simplify the subsequent measurement of inventory, excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The update replaces the current lower of cost or market test with a lower ofcost and net realizable value test. Under the current guidance, market could be replacement cost, net realizable value ornet realizable value less an approximately normal profit margin. Net realizable value is the estimated selling price in theordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The update iseffective for reporting periods beginning after December 15, 2016, with early64 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsadoption permitted. The Company is currently evaluating the impact of this accounting standard on its consolidatedfinancial statements.In August 2014, the FASB issued new guidance related to the Company’s responsibility to evaluate whether thereis substantial doubt about its ability to continue ongoing business operations and to provide relevant footnotedisclosures. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2016. Early adoption is permitted. The adoption of this guidance is not expected to have a materialimpact on the Company’s consolidated financial statements.In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The new accountingstandard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts withcustomers and supersedes most current revenue recognition guidance. The accounting standard is effective for annualreporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Earlyadoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginningafter December 15, 2016. ASU No. 2014-09 provides for one of two methods of transition: retrospective application toeach prior period presented; or recognition of the cumulative effect of retrospective application of the new standard inthe period of initial application. The Company is currently evaluating the impact of this accounting standard on itsconsolidated financial statements. In March, April and May 2016, the FASB issued additional updates to the newrevenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations andlicensing arrangements, and narrow-scope improvements and practical expedients, respectively. The Company is in theprocess of assessing the impact this additional guidance is expected to have upon adoption, including determining theadoption method.NOTE 2—NET LOSS PER COMMON SHAREThe Company uses the treasury stock method to calculate the weighted average shares used in computing dilutednet loss per share. The following table sets forth the computation of basic and diluted net loss per share: Year Ended March 31, 201620152014 (In thousands, except per share amounts)Net loss$(2,170)$(4,978)$(6,189) Denominators:Weighted average shares—Basic22,59325,02927,505Dilutive effect of employee stock options - - -Dilutive effect of employee stock purchase plan options - - -Weighted average shares—Dilutive22,59325,02927,505Net loss per common share—Basic$(0.10)$(0.20)$(0.23)Net loss per common share—Diluted$(0.10)$(0.20)$(0.23) The following shares of common stock underlying outstanding stock options, determined on a weighted averagebasis, were excluded from the computation of diluted net loss per common share as they had an anti-dilutive effect: Year Ended March 31, 2016 2015 2014 (In thousands)Shares underlying options 5,407 3,851 2,911 65 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 NOTE 3—BALANCE SHEET DETAIL March 31, 2016 2015 (In thousands)Inventories: Work-in-progress $1,697 $2,422Finished goods 5,011 5,362Inventory at distributors 466 628 $7,174 $8,412 March 31, 2016 2015 (In thousands)Accounts receivable, net: Accounts receivable $7,578 $8,360Less: Allowances for sales returns, doubtful accountsand other (100) (103) $7,478 $8,257 March 31, 2016 2015 (In thousands)Prepaid expenses and other current assets: Prepaid tooling and masks $1,224 $1,208Prepaid income taxes - 139Other receivables 230 350Other prepaid expenses 744 600 $2,198 $2,297 March 31, 2016 2015 (In thousands)Property and equipment, net: Computer and other equipment $18,394 $17,264Software 4,793 4,792Land 3,900 3,900Building and building improvements 2,256 2,256Furniture and fixtures 114 110Leasehold improvements 687 791 30,144 29,113Less: Accumulated depreciation and amortization (21,491) (20,405) $8,653 $8,708 66 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsDepreciation and amortization expense was $1,459,000, $1,633,000 and $1,981,000 for the years endedMarch 31, 2016, 2015 and 2014, respectively. March 31, 2016 2015 (In thousands)Other assets: Non-current deferred income taxes $ - $27Deposits 3,086 78 $3,086 $105 The following table summarizes the components of intangible assets and related accumulated amortizationbalances at March 31, 2016 and 2015, respectively (in thousands): As of March 31,2016 Gross Carrying Accumulated Net Carrying Amount Amortization AmountIntangible assets: Product designs $590 $(555) $35Patents 4,220 (604) 3,616Software 80 (80) -Total $4,890 $(1,239) $3,651 As of March 31,2015 Gross Carrying Accumulated Net Carrying Amount Amortization AmountIntangible assets: Product designs $590 $(470) $120Patents 720 (447) 273Software 80 (80) -Total $1,390 $(997) $393 Amortization of intangible assets of $242,000 and 171,000 was included in cost of revenues for the years endedMarch 31, 2016 and 2015, respectively.67 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsAs of March 31, 2016, the estimated future amortization expense of intangible assets in the table above is asfollows (in thousands): Year Ending March 31,2017$3492018313201926720202332021233Thereafter2,256Total$3,651 March 31, 20162015 (In thousands)Accrued expenses and other liabilities:Accrued compensation$3,082$3,386Accrued professional fees831,380Accrued commissions284268Accrued royalties2126Other accrued expenses928877 $4,398$5,937 March 31, 20162015 (In thousands)Other accrued expenses:Contingent consideration$5,856$-Escrow indemnity accrual484-Other long-term accrued liabilities152- $6,492$- NOTE 4—GOODWILLGoodwill represents the difference between the purchase price and the estimated fair value of the identifiableassets acquired and liabilities assumed in a business combination. The Company tests for goodwill impairment on anannual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than notimpaired. The Company has one reporting unit. The Company assesses goodwill for impairment on an annual basis onthe last day of February in the fourth quarter of its fiscal year.As of March 31, 2016, the Company had a goodwill balance of $8.0 million. The goodwill resulted from theacquisition of MikaMonu Group Ltd. (“MikaMonu”) in fiscal 2016. The Company’s market capitalization declined in fiscal 2016. A significant decline in a company’s stock pricemay suggest that an adverse change in the business climate may have caused the fair value of one or more reportingunits to fall below their carrying value. Significant judgment has been applied to determine whether stock price declinesare a short-term swing or a long-term trend. The Company believes that the decline in its stock price will not besustained. 68 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Company utilized a two-step quantitative analysis to complete its annual impairment test during the fourthquarter of fiscal 2016 and concluded that there was no impairment, as the fair value of its sole reporting unit exceededits carrying value. The Company determined that the second step of the impairment test was not necessary. TheCompany believes that the fair value established during the fiscal 2016 annual goodwill impairment testing wasreasonable, and no triggering event has taken place subsequent to the fiscal 2016 annual assessment. However, asustained decline in the Company’s stock price could constitute a triggering event that would require assessment forpotential goodwill impairment in fiscal 2017. NOTE 5—INCOME TAXESLoss before income taxes and income tax expense consists of the following: Year Ended March 31, 2016 2015 2014 (In thousands)Loss before income taxes: U.S. $(3,426) $(6,910) $(6,388)Foreign 615 1,257 912 $(2,811) $(5,653) $(5,476)Current income tax expense (benefit): U.S. federal $(354) $(619) $(1,782)Foreign 15 (2) 113State (289) (54) (82) (628) (675) (1,751)Deferred income tax expense (benefit): U.S. federal (3) - 1,892Foreign (10) - -State - - 572 (13) - 2,464Provision (benefit) for income tax $(641) $(675) $713 Income tax expense differs from the amount of income tax determined by applying the applicable U.S. statutoryincome tax rate to pre-tax income as follows: Year Ended March 31, 2016 2015 2014 (In thousands)U.S. Federal taxes at statutory rate $(956) $(1,922) $(1,862)State taxes, net of federal benefit (204) (39) 490Stock-based compensation 470 447 392Tax credits (539) (472) (338)Foreign tax rate differential (368) (916) (650)Tax exempt interest (9) (20) (29)Other 6 (35) (72) (1,600) (2,957) (2,069)Valuation allowance 959 2,282 2,782 $(641) $(675) $713 69 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsDeferred tax assets and deferred tax liabilities consist of the following: March 31, 20162015 (In thousands)Deferred tax assets:Deferred revenue$231$110Tax credits2,7061,766Net operating losses1,3561,165Stock-based compensation1,5501,387Property and equipment297193Other reserves and accruals1,1751,407Total deferred tax assets$7,315$6,028Deferred tax liabilities:Intangible assets$(856)$ -Unrecognized gains(14)(11)Total deferred tax liabilities$(870)$(11) Net deferred tax assets$6,445$6,017Valuation allowance(7,256)(6,017)Net deferred tax liability$(811)$ - U.S. income taxes and withholding taxes have not been provided on a cumulative total of $40.1 million ofundistributed earnings for certain non-U.S. subsidiaries. The Company currently intends to indefinitely reinvest theseearnings in operations outside the United States. No provision has been made for taxes that might be payable uponremittance of such earnings, nor is it practicable to determine the amount of such potential liability.The long-term portion of the Company's unrecognized tax benefits at March 31, 2016 and 2015 was $116,000 and$780,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2016, $1,943,000 ofunrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of March 31, 2016, theCompany’s net deferred tax assets of $6.4 million are subject to a full valuation allowance. It is possible, however, thatsome months or years may elapse before an uncertain position for which the Company has established a reserve isresolved. A reconciliation of unrecognized tax benefits is as follows: Year Ended March 31, 2016 2015 2014 (In thousands)Unrecognized tax benefits, beginning of period $1,982 $2,386 $2,760Additions based on tax positions related to current year 453 292 250Additions based on tax positions related to prior years 183 - 13Settlements during the current year - - -Lapses during the current year applicable to statutes oflimitations (563) (696) (637)Unrecognized tax benefits, end of period $2,055 $1,982 $2,386 The unrecognized tax benefit balance as of March 31, 2016 of $112,000 would affect the Company's effective taxrate if recognized.70 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsManagement believes that it is reasonably possible that within the next twelve months the Company could have areduction in uncertain tax benefits of up to $16,000, including interest and penalties, as a result of the lapse of statute oflimitations.The Company's policy is to include interest and penalties related to unrecognized tax benefits within theprovision for income taxes in the Consolidated Statements of Operations.The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March31, 2016, the Company maintained a full valuation allowance of $7.3 million for deferred tax assets that are notexpected to be utilized in future years. Fiscal years 2013 through 2016 remain open to examination by the federal taxauthorities and fiscal years 2011 through 2016 remain open to examination by California.NOTE 6—FINANCIAL INSTRUMENTSFair value measurementsAuthoritative accounting guidance for fair value measurements provides a framework for measuring fair value andrelated disclosure. The guidance applies to all financial assets and financial liabilities that are measured on a recurringbasis. The guidance requires fair value measurement to be classified and disclosed in one of the following threecategories:Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value ofavailable-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularlyavailable in an active market. As of March 31, 2016, the Level 1 category included money market funds of $6.6 million,which were included in cash and cash equivalents on the Consolidated Balance Sheets.Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assetsat the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directlyor indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the marketvalues obtained from an independent pricing service that were evaluated using pricing models that vary by asset classand may incorporate available trade, bid and other market information and price quotes from well establishedindependent pricing vendors and broker-dealers. As of March 31, 2016, the Level 2 category included short-terminvestments of $23.2 million and long term-investments of $11.1 million, which were primarily comprised of certificatesof deposit, corporate debt securities and government and agency securities.Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reportingentity's own assumptions about market participants and pricing. As of March 31, 2016, the Company’s Level 3 financialinstruments measured at fair value on the Consolidated Balance Sheets consisted of the contingent considerationliability related to the MikaMonu acquisition. Refer to Note 11, “Acquisition” for more information.71 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 fair value of financial assets measured on a recurring basis is as follows (in thousands): Fair Value Measurements at Reporting Date Using Quoted Pricesin ActiveMarkets forIdentical Assetsand Liabilities SignificantOtherObservableInputs SignificantUnobservableInputs March 31,2016 (Level 1) (Level 2) (Level 3) Assets: Money market funds $6,611 $6,611 — $ — Marketable securities 34,297 — 34,297 — Total $40,908 $6,611 $34,297 $ — Fair Value Measurements at Reporting Date Using Quoted Pricesin ActiveMarkets forIdentical Assetsand Liabilities SignificantOtherObservableInputs SignificantUnobservableInputs March 31,2015 (Level 1) (Level 2) (Level 3) Assets: Money market funds $4,409 $4,409 $ — $ — Marketable securities 43,941 — 43,941 — Total $48,350 $4,409 $43,941 $ — Short-term and long-term investmentsAll of the Company's short-term and long-term investments are classified as available-for-sale. Available-for-saledebt securities with maturities greater than twelve months are classified as long-term investments when they are notintended for use in current operations. Investments in available-for-sale securities are reported at fair value withunrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income on theConsolidated Balance Sheets. The Company had money market funds of $6.6 million and $4.4 million at March 31,2016 and March 31, 2015, respectively, included in cash and cash equivalents on the Consolidated Balance Sheets. TheCompany monitors its investments for impairment periodically and records appropriate reductions in carrying valueswhen the declines are determined to be other-than-temporary.72 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 table summarizes the Company's available-for-sale investments: March 31, 2016 Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value (In thousands)Short-term investments: State and municipal obligations $1,011 $ - $ - $1,011Corporate notes 5,680 - (3) 5,677Agency bonds 2,001 1 - 2,002Foreign government obligations 2,695 3 - 2,698Certificates of deposit 11,750 12 - 11,762Total short-term investments $23,137 $16 $(3) $23,150Long-term investments: Corporate notes $558 $1 $ - $559Certificates of deposit 8,500 24 (1) 8,523Agency bonds 1,000 4 - 1,004Foreign government obligations 1,060 1 - 1,061Total long-term investments $11,118 $30 $(1) $11,147 March 31, 2015 Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value (In thousands)Short-term investments: State and municipal obligations $6,810 $ - $ - $6,810Corporate notes 7,366 10 - 7,376Agency bonds 1,006 - - 1,006Certificates of deposit 7,000 9 - 7,009Total short-term investments $22,182 $19 $ - $22,201Long-term investments: State and municipal obligations $1,053 $4 $ - $1,057Corporate notes 4,232 - (10) 4,222Certificates of deposit 9,750 24 (1) 9,773Agency bonds 4,003 4 (2) 4,005Other 2,684 - (1) 2,683Total long-term investments $21,722 $32 $(14) $21,740 The Company's investment portfolio consists of both corporate and governmental securities that have a maximummaturity of three years. All unrealized losses are due to changes in interest rates and bond yields. Subject to normalcredit risks, the Company has the ability to realize the full value of all these investments upon maturity.At March 31, 2016, the deferred tax liability related to unrecognized gains and losses on short-term and long-terminvestments was $14,000. At March 31, 2015, the deferred tax liability related to unrecognized gains and losses onshort-term and long-term investments was $11,000.73 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsAs of March 31, 2016, contractual maturities of the Company's available-for-sale non-equity investments were asfollows: Fair Cost Value (In thousands)Maturing within one year $23,137 $23,150Maturing in one to three years 11,118 11,147Maturing in more than three years - - $34,255 $34,297 NOTE 7—COMMITMENTS AND CONTINGENCIESOperating leasesThe Company leases office space and equipment under noncancelable operating leases with various expirationdates through February 2018. Rent expense for the years ended March 31, 2016, 2015 and 2014 was $348,000,$354,000 and $368,000, respectively. The terms of the facility leases provide for rental payments on a graduated scale.The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expenseincurred but not paid.Future minimum lease payments under noncancelable operating leases with remaining lease terms in excess of oneyear at March 31, 2016 are as follows: Operating Leases (In thousands)Fiscal Year Ending March 31, 2017 $3042018 1432019 -2020 -2021 -Thereafter -Total $447 Royalty obligationsThe Company has license agreements that require it to pay royalties on the sale of products using the licensedtechnology. Royalty expense for the years ended March 31, 2016, 2015 and 2014 was $44,000, $53,000 and $59,000,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 otherparty with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by theCompany, under which the Company customarily agrees to hold the other party harmless against losses74 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsarising from a breach of representations and covenants related to such matters as title to assets sold and certainintellectual property rights. In each of these circumstances, payment by the Company is conditioned on the other partymaking a claim pursuant to the procedures specified in the particular contract, which procedures typically allow theCompany to challenge the other party's claims. Further, the Company's obligations under these agreements may belimited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties forcertain payments made by it under these agreements.It is not possible to predict the maximum potential amount of future payments under these or similar agreementsdue to the conditional nature of the Company's obligations and the unique facts and circumstances involved in eachparticular agreement. Historically, payments made by the Company under these agreements have not had a materialeffect on its business, financial condition, cash flows or results of operations. The Company believes that if it were toincur a loss in any of these matters, such loss should not have a material effect on its business, financial condition, cashflows or results of operations.Product warrantiesThe Company warrants its products to be free of defects generally for a period of three years. The Companyestimates its warranty costs based on historical warranty claim experience and includes such costs in cost of revenues.Warranty costs were not significant for the years ended March 31, 2016, 2015 or 2014.Legal proceedingsIn March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against theCompany in the United States District Court for the District of Minnesota alleging that the Company’s products,including its SigmaDDR and SigmaQuad families of Very Fast SRAMs, infringe five patents held by Cypress. Thecomplaint sought unspecified damages for past infringement and a permanent injunction against future infringement.On June 10, 2011, Cypress filed a complaint against the Company with the United States International TradeCommission (the “ITC”). The ITC complaint, as subsequently amended, alleged infringement by the Company of threeof the five patents involved in the District Court case and one additional patent and also alleged infringement by threeof the Company’s distributors and 11 of its customers who allegedly incorporate the Company’s SRAMs in theirproducts. The ITC complaint sought a limited exclusion order excluding the allegedly infringing SRAMs, and productscontaining them, from entry into the United States and permanent orders directing the Company and the otherrespondents 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. On June 7, 2013, the ITC announced thatthe full Commission had affirmed the determination of Chief Administrative Judge Charles E. Bullock that GSI’s SRAMdevices, and products containing them, do not infringe the Cypress patents and that Cypress had failed to establishexistence of a domestic industry that practices the patents. Moreover, the Commission reversed a portion of JudgeBullock’s determination with respect to the validity of the patents, finding the asserted claims of one of the patents tohave been anticipated by prior art and, therefore, invalid. The Commission ordered the investigation terminated, andCypress did not appeal the ruling.The Minnesota District Court case had been stayed pending the conclusion of the ITC proceeding. Following thetermination of the ITC investigation, the stay was lifted. On May 1, 2013, Cypress filed an additional lawsuit in theUnited States District Court for the Northern District of California alleging infringement by the Company’s products offive additional Cypress patents. Like the Minnesota case, the complaint in the California lawsuit sought unspecifieddamages for past infringement and a permanent injunction against future infringement. The Company filed answers inboth cases denying liability and asserting affirmative defenses. On August 7, 2013, the parties stipulated that the claimsin the Minnesota case with respect to three of the asserted patents would be dismissed without prejudice and that theclaims with respect to the remaining two patents would be transferred to the Northern75 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsDistrict of California and consolidated with the pending California case. On August 20, 2013, the Court in theCalifornia case ordered the cases consolidated.The Company did not record any loss contingency during fiscal 2014, fiscal 2015 or fiscal 2016 in connectionwith these legal proceedings as the Company was unable to predict their outcome and could not estimate the likelihoodor potential dollar amount of any adverse results.On May 6, 2015, the Company and Cypress entered into a settlement agreement to resolve the patentinfringement litigation and a separate lawsuit pending in the United States District Court for the Northern District ofCalifornia in which the Company alleged that Cypress had violated federal and state antitrust laws. Under thesettlement agreement: ·Each of the parties agreed to dismiss its lawsuit with prejudice in consideration of the dismissal withprejudice of the lawsuit brought by the other party; and ·Each party agreed to release all claims against the other with respect to issues raised in the two lawsuits. The parties agreed that the settlement agreement was entered into to resolve disputed claims, and that each partydenies any liability to the other party.NOTE 8—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 August 6, 2014, the Company completed a modified “Dutch auction” self-tender offer to repurchase for cashshares of its common stock. The Company accepted for purchase and retirement an aggregate of 3,846,153 shares of itscommon stock at a final purchase price of $6.50 per share, for an aggregate cost of approximately $25 million,excluding fees and expenses related to the tender offer.The Company’s board of directors has authorized the repurchase, at management's discretion, of shares of itscommon stock. Under the repurchase program, the Company may repurchase shares from time to time on the openmarket or in private transactions. The specific timing and amount of the repurchases will be dependent on marketconditions, securities law limitations and other factors. The repurchase program may be suspended or terminated at anytime without prior notice. Through March 31, 2016, including the shares purchased in the modified “Dutch Auction”self-tender offer, the Company has repurchased and retired a total of 10,340,501 shares at an average cost of $5.18 pershare for a total cost of $53.5 million. At March 31, 2016, management was authorized to repurchase additional shareswith a value of up to $1.5 million under the repurchase program.NOTE 9—STOCK- BASED COMPENSATIONThe 2000 Stock Option PlanIn February 2001, the Company adopted the 2000 Stock Option Plan (the "2000 Plan"). The 2000 Plan providedfor the granting of stock options and stock 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 hadreserved 3,500,000 shares of common stock for issuance under the 2000 Plan.76 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsOptions under the 2000 Plan could be granted for periods of up to ten years. However, in the case of ISOs grantedto an optionee who, at the time the option was granted, owned stock representing more than 10% of the voting power ofall classes of stock of the Company, the maximum term of an option was five years from the date of grant. The exerciseprice of an ISO or NSO could not be less than 100% and 85% of the estimated fair value of the shares as determined bythe board of directors on the date of grant, respectively. However the exercise price of an ISO or NSO granted to a 10%or greater stockholder could 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 approved by the Company's stockholders in March 2007. A total of 3,000,000 shares ofcommon stock were authorized and reserved for issuance under the Equity Plan. This reserve automatically increases onApril 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 theboard of directors. Appropriate adjustments will be made in the number of authorized shares and other numerical limitsin the Equity Plan and in outstanding awards to prevent dilution or enlargement of participants' rights in the event of astock split or other change in the Company's capital structure. Shares subject to awards which expire or are cancelled orforfeited will again become available for issuance under the Equity Plan. The shares available will not be reduced byawards settled in cash or by shares withheld to satisfy tax withholding obligations. Only the net number of shares issuedupon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previouslyowned 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 of Section 162(m) of the Internal Revenue Code, the Equity Plan establishes limits on themaximum aggregate number of shares or dollar value for which awards may 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 morethan 50,000 shares subject to performance share 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 issuedupon the exercise of ISOs granted under the Equity Plan to 3,000,000, cumulatively increased on April 1 of eachsubsequent year through 2017, by an amount equal to the smallest of (a) five percent of the number of shares of commonstock 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 weregranted under the 2000 Plan, the 535,597 shares 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, orconsultants or those of any present or future parent or subsidiary corporation or other affiliated entity. To date, optionsgranted to non-officer employees generally vest 25% on the first anniversary and subsequent anniversaries of the date ofgrant, while grants to officers vest in full four years after the anniversary date of the officer's77 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsemployment that is closest to the date of grant. While the Company may grant ISOs only to employees, the Companymay grant NSOs, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units,performance shares, performance units and cash-based awards or other stock-based awards to any eligible participant.Non-employee director awards may be granted only to members of the Company's board of directors who, at the time ofgrant, are not employees. Deferred compensation awards may be granted only to officers, directors and selected membersof 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 thenonemployee director awards component of the Equity Plan. The board or the compensation committee shall set theamount and type of nonemployee director awards to be awarded on a periodic, non-discriminatory basis. Nonemployeedirector awards may be granted in the form of NSOs, stock appreciation rights, restricted stock awards and restrictedstock unit awards. Subject to adjustment for changes in the Company's capital structure, no nonemployee director maybe 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 thenonemployee director is first appointed or elected to the board, (ii) an additional 2,000 shares in any fiscal year in whichthe nonemployee director is serving as the chairman or lead director of the board, (iii) an additional 1,000 shares in anyfiscal year for each committee of the board on which the nonemployee director is then serving other than as chairman ofthe committee, and (iv) an additional 2,000 shares in any fiscal year for each committee of the board on which thenonemployee director is then serving 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 orcontinue all or any awards outstanding under the Equity Plan or substitute substantially equivalent awards. Any awardswhich are not assumed or continued in connection with a change in control or exercised or settled prior to the change incontrol will terminate effective as of the time of the change in control. The administrator may provide for theacceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except thatthe vesting of all nonemployee director awards will automatically be accelerated in full. The Equity Plan also authorizesthe administrator, in its discretion and without the consent of any participant, to cancel each or any outstanding awarddenominated in shares upon a change in control in exchange for a payment to the participant with respect to each vestedshare subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share ofcommon stock in the change in control 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 PurchasePlan") which was subsequently approved by the Company's stockholders in March 2007. A total of 500,000 shares ofthe Company's common stock was authorized and reserved for sale under the 2007 Purchase Plan. In addition, the 2007Purchase Plan provides for an automatic annual increase in the number of shares available for issuance under the plan onApril 1 of each year beginning in 2008 and continuing through and including April 1, 2017 equal to the lesser of(1) one percent of the number of issued and outstanding shares of common stock on the immediately precedingMarch 31, (2) 250,000 shares or (3) a number of shares as the board of directors may determine. Appropriate adjustmentswill be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargementof participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchaserights which expire or are canceled 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 administratorwill be eligible to participate in the 2007 Purchase Plan if they are customarily employed by us for more than 20 hoursper week and more than five months in any calendar year. However, an employee may not be granted a right to purchasestock under the 2007 Purchase Plan if: (1) the employee immediately after such grant78 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentswould own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stockor of any parent or subsidiary corporation, or (2) the employee's rights to purchase stock under all of our employee stockpurchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans.The 2007 Purchase Plan is designed to be implemented through a series of sequential offering periods, generallysix (6) months in duration beginning on the first trading day on or after May 1 and November 1 of each year. Theadministrator is authorized to establish additional or alternative sequential or overlapping offering periods and offeringperiods 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 theCompany's common stock at the end of each offering period at a price generally equal to 85% of the lower of the fairmarket value of our common stock at the beginning of an offering period or at the end of the offering period. Prior tocommencement 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 offeringperiod. The maximum number of shares a participant 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) the number of months (rounded to the nearestwhole 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 months (rounded to the nearest whole month) inthe offering period and rounding to the nearest whole dollar by (y) the fair market value of a share of our common stockat the beginning of the offering period. Prior to the beginning of any offering period, the administrator may alter themaximum number of shares that may be purchased by any participant during the offering period or specify a maximumaggregate number of shares that may be purchased by all participants in the offering period. If insufficient shares remainavailable under the plan to permit all participants to purchase the number of shares to which they would otherwise beentitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld fromparticipants' compensation in excess 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 obligationsunder the 2007 Purchase Plan. If the acquiring or successor corporation does not assume such rights and obligations,then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control.79 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 table summarizes stock option activities: Weighted Number of Shares Average Weighted Shares Underlying Remaining Average Available for Options Contractual Exercise Intrinsic Grant Outstanding Life (Years) Price ValueBalance at March 31, 2013 4,867,458 6,336,319 4.46 Options reserved 1,353,260 - - Granted (784,303) 784,303 6.45 Exercised - (816,957) 3.10 $2,629,982Forfeited 149,085 (159,685) 6.04 Balance at March 31, 2014 5,585,500 6,143,980 5.13 Options reserved 1,377,699 - - Granted (791,903) 791,903 5.20 Exercised - (119,085) 3.88 262,253Forfeited 42,647 (42,647) 5.49 Balance at March 31, 2015 6,213,943 6,774,151 5.16 Options reserved 1,156,419 - - Granted (969,913) 969,913 4.42 Exercised - (76,745) 4.19 46,977Forfeited 31,614 (41,614) 4.82 Balance at March 31, 2016 6,432,063 7,625,705 $5.08 Options vested and exercisable 5,246,088 3.70 $5.02 $939,846Options vested and expected tovest 7,574,414 5.14 $5.08 $1,150,077 The options outstanding and by exercise price at March 31, 2016 are as follows: Number ofOptions OutstandingOptions Exercisable SharesWeightedWeighted AverageWeighted UnderlyingAverageRemainingNumberAverage OptionsExerciseContractualVested andExerciseExercise PriceOutstandingPriceLife (Years)ExercisablePrice$2.43-3.40895,204$3.175.06586,394$3.05$3.43-4.001,118,969$3.813.101,118,969$3.81$4.17-4.81935,478$4.415.75670,261$4.33$4.90-4.98793,963$4.957.92298,150$4.91$5.13-5.34625,513$5.238.4962,626$5.22$5.50783,433$5.500.63783,433$5.50$5.59-6.00899,930$5.775.24568,526$5.80$6.28-6.63808,219$6.486.08645,440$6.47$6.82-7.00651,376$6.905.76398,669$6.92$9.20113,620$9.204.83113,620$9.20 7,625,705$5.085.175,246,088$5.02 80 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsStock-based compensationThe Company recognized $1,850,000, $2,077,000 and $2,228,000 of stock-based compensation expense for theyears ended March 31, 2016, 2015 and 2014, respectively, as follows: Year Ended March 31, 2016 2015 2014 (In thousands)Cost of revenues $320 $401 $386Research and development 858 941 970Selling, general and administrative 672 735 872Total $1,850 $2,077 $2,228 Stock-based compensation expense in the years ended March 31, 2016, 2015 and 2014 included $136,000,$153,000 and $152,000, respectively, related to the Company's Employee Stock Purchase Plan.No tax benefit was recognized in either fiscal 2016 or fiscal 2015 due to a full valuation allowance. There were nowindfall tax benefits realized from exercised stock options recognized in fiscal 2016 or fiscal 2015. The reversal ofpreviously recognized windfall tax benefits realized from exercised stock options was $33,000 in fiscal2014. Compensation cost capitalized within inventory at March 31, 2016 was not material. As of March 31, 2016, theCompany's total unrecognized compensation cost was $2.9 million, which will be recognized over the weighted averageperiod of 2.13 years. The Company calculated the fair value of stock based awards in the periods presented using theBlack-Scholes option pricing model and the following weighted average assumptions: Year Ended March 31, 2016 2015 2014 (In thousands)Stock Option Plans: Risk-free interest rate 1.41-1.57% 1.47-1.7% 0.91-1.61%Expected life (in years) 5.00 5.00 5.00 Volatility 36.3-38.0% 40.4-44.8% 45.5-48.4%Dividend yield -% -% -%Employee Stock Purchase Plan: Risk-free interest rate 0.09 0.15% 0.05% 0.07-0.09%Expected life (in years) 0.50 0.50 0.50 Volatility 26.3-27.9% 30.8-38.0% 30.4-32.8%Dividend yield -% -% -% The weighted average fair value of options granted during the years ended March 31, 2016, 2015 and 2014 was$1.52, $2.08 and $2.73, respectively.81 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 NOTE 10—SEGMENT AND GEOGRAPHIC INFORMATIONBased on its operating management and financial reporting structure, the Company has determined that it has onereportable business segment: the design, development and sale of integrated circuits.The following is a summary of net revenues by geographic area based on the location to which product is shipped: Year Ended March 31, 2016 2015 2014 (In thousands)United States $20,951 $18,099 $18,021China 12,123 15,695 13,294Malaysia 32 2,720 9,827Singapore 7,345 6,552 5,979Rest of the world 12,285 10,432 11,458 $52,736 $53,498 $58,579 All sales are denominated in United States dollars.The locations and net book value of long-lived assets are as follows: March 31, 2016 2015 (In thousands)United States $6,085 $6,630Taiwan 2,521 2,078Israel 47 - $8,653 $8,708 NOTE 11—ACQUISITIONOn November 23, 2015, the Company acquired all of the outstanding capital stock of privately held MikaMonuGroup Ltd. (“MikaMonu”), a development-stage, Israel-based company that specializes in in-place associativecomputing for markets including big data, computer vision and cyber security. MikaMonu, located in Tel Aviv, held12 United States patents and a number of pending patent applications. The acquisition was undertaken by the Company in order to gain access to the MikaMonu patents and thepotential markets, and new customer base in those markets, that can be served by new products that the Company plansto develop using the MikaMonu patents.The acquisition has been accounted for as a purchase under authoritative guidance for businesscombinations. The purchase price of the acquisition has been preliminarily allocated to the intangible assets acquired,with the excess of the purchase price over the fair value of assets acquired recorded as goodwill. 82 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 results of operations of MikaMonu and the estimated fair value of the assets acquired were included in theCompany’s consolidated financial statements beginning November 23, 2015.ConsiderationUnder the terms of the acquisition agreement, the Company paid the former MikaMonu shareholders initial cashconsideration of approximately $4.4 million at the closing on November 23, 2015. The Company will make cashpayments of up to $484,000 to the three former MikaMonu shareholders in May 2017 upon the release of cash held inescrow for potential indemnification claims. This amount is included in other assets on the Consolidated Balance Sheetat March 31, 2016. The Company is also required to pay the former MikaMonu shareholders future contingent considerationconsisting of retention payments and “earnout” payments, as described below. The Company will make cash retention payments of up to an additional $2.5 million to the three formerMikaMonu shareholders in installments over a four-year period, conditioned on the continued employment ofDr. Avidan Akerib, MikaMonu’s co-founder and chief technologist. The retention amount of $2.5 million has beendeposited in escrow and is included in other assets on the Consolidated Balance Sheet at March 31, 2016.The Company will also make “earnout” payments to the former MikaMonu shareholders in cash or shares of theCompany’s common stock, at the Company’s discretion, during a period of up to ten years following the closing ifcertain product development milestones and revenue targets for products based on the MikaMonu technology areachieved. Earnout amounts of $750,000 will be payable if certain product development milestones are achieved byDecember 31, 2017. Additional earnout amounts of $2,750,000 and $4,000,000 will be payable if certain revenuemilestones are achieved by January 1, 2021 and January 1, 2022, respectively; and additional payments, up to amaximum of $30 million, equal to 5% of net revenues from the sale of qualifying products in excess of certainthresholds, will be made quarterly through December 31, 2025. The portion of the retention payment contingently payable to Dr. Akerib (approximately $1.2 million) will berecorded as compensation expense over the period that his services are provided to the Company. The portion of theretention payment contingently payable to the other former MikaMonu shareholders (approximately $1.3 million) plusthe maximum amount of the potential earnout payments totals approximately $38.8 million. The Company determinedthat the fair value of this contingent consideration liability was $5.8 million at the acquisition date. The fair value of the contingent consideration liability was determined as of the acquisition date usingunobservable inputs. These inputs include the estimated amount and timing of future cash flows, the probability ofsuccess (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8% usedto adjust the probability-weighted cash flows to their present value. Subsequent to the acquisition date, at eachreporting period, the contingent consideration liability will be re-measured to fair value with changes recorded in theConsolidated Statements of Operations. Changes in any of the inputs may result in material adjustments to the recordedfair value. The amount included in other accrued expenses on the Consolidated Balance Sheet at March 31, 2016 was$5.9 million. Acquisition-related costsAcquisition-related costs of approximately $32,000 and $426,000 are included in selling, general andadministrative expenses in the Consolidated Statements of Operations for the three months and twelve months endedMarch 31, 2016, respectively.83 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsPurchase price allocationThe allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on theirestimated fair values at the date of acquisition. The fair value allocated to patents was $3.5 million and the fair valueallocated to goodwill was $8.0 million. Goodwill represents the excess of the cost of an acquisition over the sum of theamounts assigned to identifiable intangible assets acquired less liabilities assumed. The goodwill resulting from theacquisition is not deductible for tax purposes.The fair value allocated to tangible and identifiable intangible assets and goodwill of MikaMonu acquired onNovember 23, 2015 was computed as follows (in thousands):Cash and cash equivalents $1 Other receivables 54 Property and equipment, net 10 Intangible assets 3,500 Goodwill 8,030 Total assets acquired 11,595 Accrued expenses (10) Net deferred tax liability (821) Total liabilities assumed (831) Fair value of net assets acquired $10,764 The deferred tax liability associated with the estimated fair value adjustments of the intangible assets acquired isrecorded at an estimated weighted average statutory tax rate in the jurisdictions where the fair value adjustments mayoccur.Identifiable intangible assetsThe following table sets forth the components of the identifiable intangible assets acquired in the MikaMonuacquisition, which are being amortized over their estimated useful lives on a straight-line basis: Fair Value Useful Life (in thousands) (in years) Patents $3,500 15 Total acquired identifiable intangible assets $3,500 The fair value of patents was determined using relief from royalty approach, which discounted expected futurecash flows to present value. The cash flows were discounted at a rate of approximately 14.0%.Prior to the closing of the acquisition, there were no material relationships between the Company and MikaMonu.84 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 table summarizes total net revenues and net loss of the combined entity had the acquisition ofMikaMonu occurred on April 1, 2014 (in thousands, except loss per share data): Year Ended March 31, 2016 2015 Pro forma net revenues $52,736 $54,134 Pro forma net loss $(2,575) $(5,810) Pro forma net loss per share, basic and diluted $(0.11) $(0.23) The combined results in the table above have been prepared for comparative purposes only and include acquisitionrelated adjustments for, among other items, the amortization of identifiable intangible assets. Since the acquisition date,the results of MikaMonu have been included in the Company’s consolidated financial statements. The combinedresults do not purport to be indicative of the results of operations which would have resulted had the acquisition beeneffected at the beginning of the applicable periods noted above, or the future results of operations of the combinedentity.NOTE 12—EMPLOYEE BENEFIT PLANSThe Company provides a defined contribution retirement plan (the "Retirement Plan"), which qualifies underSection 401(k) of the Internal Revenue Code of 1986. The Retirement Plan covers essentially all United Statesemployees. Eligible employees may make contributions to the Retirement Plan up to 15% of their annual compensation,but no greater than the annual IRS limitation for any plan year. The Retirement Plan does not provide for Companycontributions.The Company provides a defined contribution retirement plan (the “Pension Plan”) that covers essentially all ofits employees located in Israel. Eligible employees may make contributions to the Pension Plan up to 5% of eligiblecompensation, and the Company contributes up to 15.83% of eligible compensation. All contributions are fully vested.Pursuant to Israeli labor laws, the Company’s Israeli subsidiary is required to pay severance pay to dismissedemployees and employees leaving their employment in certain circumstances. Severance pay is computed based onlength of service and generally according to the latest monthly salary and one month’s salary for each year worked.NOTE 13 —QUARTERLY FINANCIAL DATA (Unaudited) Three Months Ended June 30, September 30, December 31, March 31, 2015 2015 2015 2016 (In thousands, except per share amounts)Consolidated Statement of Operations Data: Net revenues $14,025 $13,577 $12,921 $12,213Gross profit $7,295 $6,917 $6,386 $6,139Net loss $(917) $(347) $(819) $(87)Net loss per common share—Basic $(0.04) $(0.02) $(0.04) $ -Net loss per common share—Diluted $(0.04) $(0.02) $(0.04) $ - 85 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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,September 30,December 31,March 31, 2014201420142015 (In thousands, except per share amounts)Consolidated Statement of Operations Data:Net revenues$12,945$13,263$14,227$13,063Gross profit$5,939$6,061$6,650$6,473Net income (loss)$(1,446)$(950)$148$(2,730)Net income (loss) per common share—Basic$(0.05)$(0.04)$0.01$(0.12)Net income (loss) per common share—Diluted$(0.05)$(0.04)$0.01$(0.12) Item 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 of 1934, as amended) as of March 31, 2016, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and procedures were effective as of the end of the periodcovered by this report for the purpose of ensuring that the information required to be disclosed by us in the reports wefile or submit under the Act is recorded, processed, summarized and reported within the time periods specified in theSEC’s rules and forms, and that the information is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the quarter endedMarch 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that ourdisclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, nomatter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of thecontrol system are met. Further, the design of a control system must reflect the fact that there are resource constraints,and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide 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 reportingas defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements and can only provide reasonable assurance with respect to financialstatement preparation. Also, projections of any evaluation of effectiveness to future periods are subject86 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contentsto the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.We assessed the effectiveness of our internal control over financial reporting as of March 31, 2016. In making thisassessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission("COSO") in Internal Control—Integrated Framework (2013). Based on our assessment using those criteria, ourmanagement (including our Chief Executive Officer and Chief Financial Officer) concluded that our internal controlover financial reporting was effective as of March 31, 2016.The effectiveness of the Company's internal control over financial reporting as of March 31, 2016 has beenaudited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their reportwhich appears on page 53 of this Annual Report on Form 10-K. Item 9B. Other Information Not applicable. 87 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 IIIThe SEC allows us to include information required in this report by referring to other documents or reports wehave already filed or will soon be filing. This is called "incorporation by reference." We intend to file our definitiveproxy statement for our 2016 annual meeting of stockholders (the "Proxy Statement") pursuant to Regulation 14A notlater than 120 days after the end of the fiscal year covered by this report, and certain information therein is incorporatedin 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 Reporton Form 10-K and the remaining information required by this item is incorporated by reference from the sectionsentitled "Proposal No. 1 - Election of Directors", "Corporate Governance" and "Section 16(a) Beneficial OwnershipReporting Compliance" to be included in the Proxy Statement. Item 11. Executive CompensationThe information required by this item is incorporated by reference from the section entitled "ExecutiveCompensation" to be included in the Proxy Statement. 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 sections entitled "PrincipalStockholders and Stock Ownership by Management" and “Executive Compensation – Equity Compensation PlanInformation” 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 PersonTransactions" 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 "Proposal No. 2 -Ratification of Appointment of Independent Registered Public Accounting Firm" to be included in the Proxy Statement. 88 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 IV Item 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 Firm 53 Consolidated Balance Sheets As of March 31, 2016 and 2015 54 Consolidated Statements of Operations For the Three Years Ended March31, 2016, 2015 and 2014 55 Consolidated Statements of Comprehensive Loss For the Three YearsEnded March 31, 2016, 2015 and 2014 56 Consolidated Statements of Stockholders’ Equity For the Three YearsEnded March 31, 2016, 2015 and 2014 57 Consolidated Statements of Cash Flows For the Three Years Ended March31, 2016, 2015 and 2014 58 Notes to Consolidated Financial Statements 59 2. Financial Statement SchedulesSchedules not listed above have been omitted because the information required to be set forth therein is notapplicable, is not material or is shown in the consolidated financial statements or the notes thereto.89 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contents3. Exhibits:The following exhibits are filed herewith:ExhibitNumbeName of Document3.1 Restated Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.3 toRegistrant's Registration Statement on Form 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 onForm 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 byreference to identically-numbered exhibit to Registrant's Registration Statement on Form S-1 (FileNo. 333-139885) filed on January 10, 2007)10.2(1)1997 Stock Plan and form of Stock Option Agreement (Incorporated by reference to identically-numberedexhibit to Registrant's Registration 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 to Registrant's Registration Statement on Form S-1 (File No. 333-139885) filed onFebruary 16, 2007)10.4(1)2007 Equity Incentive Plan, as amended (Incorporated by reference to Appendix A to Registrant'sdefinitive Proxy Statement filed on July 21,2011)10.5(1)2007 Employee Stock Purchase Plan and form of Subscription Agreement (Incorporated by reference toidentically-numbered exhibit to Registrant's Registration Statement on Form S-1 (File No. 333-139885)filed on February 16, 2007)10.6(1)Form of Notice of Grant of Stock Option (U.S. Participant) (Incorporated by reference to Exhibit 99.1 toRegistrant's Current Report 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 99.2to Registrant's Current Report 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 toRegistrant's Current Report on Form 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 toRegistrant's Current Report on Form 8-K filed on June 4, 2007)10.10 Intellectual Property Agreement dated August 28, 2009 between GSI Technology, Inc. and SonyElectronics Inc. (Incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Qfiled on November 16, 2009)10.11Factory Lease Agreement for No. 1, 6th Floor, 30 Tai-Yuan Street, Chu-Pei City, Taiwan dated August 9,2012 (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed onSeptember 11, 2012)10.12(2)Master Purchase Agreement dated August 31, 2011 between Registrant and Cisco Systems, Inc.(Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10‑Q filed onNovember 4, 2011)10.13(2)Master Purchase Agreement dated August 31, 2011 between Registrant and Cisco Systems InternationalB.V. (Incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10‑Q filed onNovember 4, 2011)10.14(1)GSI Technology, Inc. 2014 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 toRegistrant's Current Report on Form 8-K filed on June 3, 2013) 90 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 Contents10.15(1)GSI Technology, Inc. 2015 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 toRegistrant's Current Report on Form 8-K filed on May 30, 2014)10.16Factory Lease Agreement for No. 1, 6th Floor, 30 Tai-Yuan Street, Chu-Pei City, Taiwan dated August 22,2014 (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed onAugust 26, 2014)10.17(1)GSI Technology, Inc. 2016 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 toRegistrant's Current Report on Form 8-K filed on August 3, 2015)10.18Stock Purchase Agreement dated November 23, 2015 among GSI Technology, Inc., GSI TechnologyHoldings, Inc. and MikaMonu Group Ltd. (Incorporated by reference to Exhibit 10.1 to Registrant’sCurrent Report on Form 8-K filed on February 4, 2016)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 theSarbanes-Oxley Act of 200231.2 Certification of Douglas Schirle, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-OxleyAct of 200232.1 Certification of Lee-Lean Shu, President and Chief Executive Officer, and Douglas Schirle, ChiefFinancial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL 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 whichhas been granted by the Commission. The confidential portions of this exhibit have been omitted and marked by asterisks. 91 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 hasduly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. June 10, 2016GSI TECHNOLOGY, INC. By:/s/ DOUGLAS M. SCHIRLE Douglas M. SchirleChief Financial Officer 92 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 ContentsPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes andappoints Lee-Lean Shu and Robert Yau, 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 Annual Report on Form 10-K and to file the same, withexhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, herebyratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to bedone by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has beensigned below by the following persons on 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 10, 2016Lee-Lean Shu(Principal Executive Officer) /s/ DOUGLAS M. SCHIRLE Chief Financial Officer June 10, 2016Douglas M. Schirle(Principal Financial and Accounting Officer) /s/ ROBERT YAU Vice President, Engineering, Secretary and Director June 10, 2016Robert Yau /s/ JACK A. BRADLEYDirectorJune 10, 2016Jack A. Bradley /s/ E. THOMAS HARTDirectorJune 10, 2016E. Thomas Hart /s/ HAYDN HSIEHDirectorJune 10 2016Haydn Hsieh /s/ RUEY L. LUDirectorJune 10, 2016Ruey L. Lu /s/ ARTHUR O. WHIPPLE Director June 10, 2016Arthur O. Whipple 93Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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., a Republic of China companyGSI Technology Israel Ltd., an Israeli company Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-144140) of GSI Technology, Inc. of our report dated June 10, 2016 relating to the financial statements and theeffectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PRICEWATERHOUSECOOPERS LLPSan Jose, CaliforniaJune 10, 2016 Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 amaterial fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial 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 proceduresto be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others 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 financialreporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the endof 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 thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting, which are reasonably 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 asignificant role in the registrant's internal control over financial reporting. June 10, 2016/s/ LEE-LEAN SHULee-Lean ShuPresident and Chief Executive Officer Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 FINANCIAL 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 amaterial fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial 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 proceduresto be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others 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 financialreporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the endof 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 thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting, which are reasonably 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 asignificant role in the registrant's internal control over financial reporting. June 10, 2016/s/ DOUGLAS M. SCHIRLEDouglas M. SchirleChief Financial Officer Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 2002In connection with the Annual Report of GSI Technology, Inc. (the "Company") on Form 10-K for the yearended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), theundersigned officers of the Company, each certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 ofthe 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 of1934 (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 andresults of operations of the Company. June 10, 2016/s/ LEE-LEAN SHULee-Lean ShuPresident and Chief Executive Officer/s/ DOUGLAS M. SCHIRLEDouglas M. SchirleChief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging,or otherwise adopting the signature that appears in typed form within the electronic version of this written statementrequired by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished tothe Securities and Exchange Commission or its staff upon request. Source: GSI TECHNOLOGY INC, 10-K, June 10, 2016Powered 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 10, 2016Powered 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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