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Annual Report
and Proxy Statement
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July 2018
To Our Stockholders:
In our fiscal year ended March 31, 2018, we achieved a number of notable milestones related to our
future product roadmap, which includes our SigmaQuad radiation-hardened (‘‘Rad-Hard’’) and
radiation-tolerant (‘‘Rad-Tolerant’’) SRAM lines for aerospace and defense applications, as well as our
in-place associative computing technology, the Associative Processing Unit (‘‘APU’’).
We are extremely pleased with the marketplace reception of our Rad-Hard SRAM for extreme
aerospace and defense applications. Based on feedback from prospective customers, we expanded the
initial product line to include Rad-Tolerant for use in less extreme applications. The first shipments of
Rad-Hard and Rad-Tolerant products are anticipated in fiscal year 2019.
The design of our APU enables massive parallel data processing capability that significantly improves
computation speed and reduces power consumption, with lower costs and improved outcomes. Our
APU software development team in Israel and the hardware design team in the U.S. have worked
diligently during fiscal year 2018 to prepare and quality test the chip design for initial silicon. We
anticipate receiving APU samples for initial testing early in the second half of fiscal 2019 and remain
on target for having a market ready product later in fiscal 2019.
From a financial perspective, our net revenues declined by 11.5% to $42.6 million in fiscal 2018
compared to $48.2 million in fiscal 2017, reflecting the continued weak demand for our existing
products in the global networking and telecommunications markets and, in particular, ongoing
weakness in Asia. While still trending above historical levels, we saw a decline in gross margin to 52.6%
from the prior year due to product mix and lower net sales. We are hopeful that the declines in net
revenues and gross margin have abated, as both net revenues and gross margin exceeded our guidance
in the fiscal fourth quarter.
We believe that the following developments have favorably positioned us for fiscal 2019:
• Improving financial outlook. Despite the challenges in the markets for our existing high speed
memory products, our current outlook is positive for top-line growth and improving gross margins
during fiscal 2019.
• Continued technology leadership in the SRAM market. We remain focused on expanding our market
position in the high-speed segment, with the introduction of our new high performance Rad-Hard
and Rad-Tolerant SRAM product lines. We expect improved gross margins on these products
compared to our existing SRAM products. Additionally, our existing SRAM products continue to be
in demand for networking, telecom, military, and other applications.
• Development of associative computing technology and intellectual property. The design of the APU has
been well received by leading AI customers for critical ‘big data’ applications, including machine
learning, deep convolutional neural networks, video search, natural language processing, and cyber
security. We remain committed to achieving our milestones for the development and launch of our
APU.
With exciting new products, an outlook for improved financial results, and new market opportunities
with our Rad-Hard and Rad-Tolerant product lines and the APU technology, we are optimistic about
our future. We look forward to keeping you apprised of our efforts to achieve our milestones, and, as
always, we value your continuing support as shareholders.
Sincerely,
14JUL200818324627
Lee-Lean Shu
Chairman, President and Chief Executive Officer
July 20, 2018
Dear Stockholder:
19MAY200416334785
This year’s annual meeting of stockholders will be held on Tuesday, August 28, 2018, at 2:00 p.m.
local time, at the offices of DLA Piper LLP (US), 2000 University Avenue, East Palo Alto, California
94303. You are cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which describe the formal
business to be conducted at the meeting, follow this letter. A copy of GSI Technology’s Annual Report
to Stockholders is also enclosed for your information.
After reading the Proxy Statement, please promptly mark, sign, date and return the enclosed proxy
card in the accompanying prepaid envelope. Alternatively, you may vote your shares via the Internet or
by telephone. Instructions regarding these methods of voting are provided on the proxy card.
Whether or not you plan to attend the annual meeting, we urge you to sign, date and return the
enclosed proxy card or vote via the Internet or by telephone at your earliest convenience. We look
forward to seeing you at the annual meeting.
Sincerely yours,
Lee-Lean Shu
President, Chief Executive Officer and Chairman
14JUL200818324627
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19MAY200416334785
1213 Elko Drive
Sunnyvale, CA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 28, 2018
TO THE STOCKHOLDERS:
Notice is hereby given that the annual meeting of the stockholders of GSI Technology, Inc., a
Delaware corporation, will be held on Tuesday, August 28, 2018, at 2:00 p.m. local time, at the offices
of DLA Piper LLP (US) located at 2000 University Avenue, East Palo Alto, California 94303, for the
following purposes:
1. To elect seven persons to serve on our Board of Directors until the next annual meeting of
stockholders and until their respective successors are duly elected and qualified;
2. To ratify the appointment of BDO USA, LLP as our independent registered public accounting
firm for the fiscal year ending March 31, 2019;
3. To vote on an advisory (non-binding) resolution regarding the fiscal 2018 compensation of the
executive officers named in the Summary Compensation Table included in the proxy statement
for the annual meeting; and
4. To transact such other business as may properly come before the meeting or any adjournment
or postponement of the meeting.
These business items are described more fully in the proxy statement accompanying this Notice.
Our Board of Directors unanimously recommends that you vote FOR all of the nominees
proposed by our Board of Directors, and FOR Proposals No. 2 and 3. Stockholders of record at the
close of business on July 9, 2018 are entitled to notice of, and to vote at, the meeting and any
adjournment or postponement thereof. For ten days prior to the meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination by any stockholder, for
any purpose relating to the meeting, during ordinary business hours at our principal offices located at
1213 Elko Drive, Sunnyvale, California 94089.
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20JUL201115581433
Robert Yau
Secretary
Sunnyvale, California
July 20, 2018
IMPORTANT: Please vote your shares via the Internet or by telephone, in accordance with the
instructions contained in the accompanying materials, or by dating and signing the proxy card and
returning it in the accompanying postage-paid envelope to ensure that your shares are represented at
the meeting. If you attend the meeting, you may choose to vote in person even if you have previously
sent in your proxy card or submitted your proxy via the Internet.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 28, 2018: Our proxy
statement is enclosed. Financial and other information concerning GSI Technology, Inc. is contained in
our annual report to stockholders for the fiscal year ended March 31, 2018. A complete set of proxy
materials relating to our annual meeting is available on the Internet. These materials, consisting of the
notice of annual meeting, proxy statement, proxy card and annual report to stockholders, may be
viewed and downloaded at: http://ir.gsitechnology.com/proxy-materials.
TABLE OF CONTENTS
INFORMATION CONCERNING SOLICITATION AND VOTING . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 1 ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board of Directors’ Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Sessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committees and Meeting Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications with Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Attendance at Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Business Conduct and Ethics; Corporate Governance Guidelines . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 3 ADVISORY (NON-BINDING) VOTE ON EXECUTIVE
COMPENSATION (SAY-ON-PAY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested During Last Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RELATED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP BY MANAGEMENT . . . . . . . . .
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . .
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING . . . . .
TRANSACTION OF OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNUAL REPORT ON FORM 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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GSI TECHNOLOGY, INC.
1213 Elko Drive
Sunnyvale, CA 94089
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 28, 2018
The accompanying proxy is solicited by the Board of Directors of GSI Technology, Inc., a
Delaware corporation, for use at its annual meeting of stockholders to be held on Tuesday, August 28,
2018, or any adjournment or postponement thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders. This proxy statement and the enclosed proxy are being
mailed to stockholders on or about July 20, 2018. References in this proxy statement to the
‘‘Company,’’ ‘‘we,’’ ‘‘our,’’ ‘‘us’’ and ‘‘GSI Technology’’ are to GSI Technology, Inc., and references to
the ‘‘annual meeting’’ are to the 2018 Annual Meeting of Stockholders. When we refer to the
Company’s fiscal year, we mean the annual period ending on March 31. This proxy statement covers
our fiscal year ended March 31, 2018 (‘‘fiscal 2018’’).
INFORMATION CONCERNING SOLICITATION AND VOTING
Why am I receiving these proxy materials?
We sent you this proxy statement and proxy card because your Board of Directors is soliciting your
proxy to vote at the annual meeting. This proxy statement contains important information that is
intended to assist you in making informed decisions regarding your vote.
What items of business will be voted on at the annual meeting?
Stockholders will vote on three proposals at the annual meeting:
• to elect seven persons to serve on our Board of Directors until the 2019 annual meeting
(Proposal No. 1);
• to ratify the appointment of BDO USA, LLP as our independent registered public accounting
firm for the fiscal year ending March 31, 2019 (Proposal No. 2);
• to vote on an advisory (non-binding) resolution to approve the fiscal 2018 compensation of our
named executive officers (as defined in this proxy statement) (Proposal No. 3); and
We will also consider any other business that properly come before the annual meeting.
What is a proxy?
A proxy is your designation of another person or persons to vote your shares on your behalf. By
properly signing and returning the enclosed proxy card, or by voting via the Internet or by telephone,
you give the persons designated as proxies by our Board of Directors the authority to vote your shares
in the manner that you specify.
How does the Board recommend that I vote my shares?
Our Board of Directors unanimously recommends that you vote your shares:
• FOR all of the Board’s nominees for director, as listed and described under Proposal No. 1;
• FOR ratification of the appointment of BDO USA, LLP as our independent registered public
accounting firm for the fiscal year ending March 31, 2019; and
• FOR approval of the advisory (non-binding) resolution approving the fiscal 2018 compensation
of our named Executive Officers.
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Who is entitled to vote at the annual meeting?
Only stockholders of record at the close of business on July 9, 2018 (the ‘‘Record Date’’) are
entitled to vote at the annual meeting. As of the Record Date, 21,760,094 shares of our common stock
were outstanding.
How many shares must be present to hold the annual meeting?
The presence of the holders of a majority of all shares outstanding and entitled to vote, whether in
person or represented by proxy, will constitute a quorum for the transaction of business at the annual
meeting. If a quorum is not present, the annual meeting will be adjourned until a quorum is obtained.
How many votes do I have?
Each stockholder is entitled to cast one vote for each share of our common stock held on the
Record Date.
If I am a stockholder of record, how do I vote?
If your shares are registered directly in your name with our transfer agent, you are considered to
be the stockholder of record with respect to those shares, and these proxy materials have been sent
directly to you. If you are a stockholder of record, there are four ways to vote your shares:
• by completing, signing and dating your proxy card and returning it in the envelope provided;
• via the Internet by following the instructions on the proxy card you received;
• by telephone by following the instructions on the proxy card; or
• by attending the annual meeting and voting in person.
If I am a beneficial owner of shares, how do I vote?
If your shares are held for you in an account with a broker, bank or similar organization, you are
considered the ‘‘beneficial owner’’ of those shares, which are generally referred to as being held in
‘‘street name,’’ and you should have received these proxy materials from that organization. If you are a
beneficial owner of shares held in street name, there are several ways to vote your shares:
• by completing, signing and dating the voting instruction form provided by the organization that
holds your shares and returning the form to that organization, which will vote your shares in
accordance with your instructions;
• if your broker, bank or other nominee permits you to provide voting instructions via the Internet
or by telephone, you may vote that way as well; or
• by attending the annual meeting and voting in person. However, in order to vote in person, you
must obtain a legal proxy from the organization that holds your shares. Follow the instructions
from the broker, bank or other organization holding your shares to obtain such a proxy.
In order that your shares are properly voted, we encourage you to provide specific voting
instructions with respect to each proposal to any organization that holds your shares in street name by
carefully following the organization’s voting instructions.
What happens if I do not provide specific voting instructions?
If you are a stockholder of record and you return a signed and dated proxy card without providing
specific voting instructions, the persons named as proxy holders will vote your shares in the manner
recommended by the Board of Directors on all of the proposals described in this proxy statement. If
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any other matter is properly presented at the meeting, the proxy holders will vote your shares as they
may determine in their discretion.
If you are the beneficial owner of shares held in street name and do not provide specific voting
instructions to the organization that holds your shares, the organization may generally vote your shares
at their discretion on ‘‘routine matters’’ but cannot vote on ‘‘non-routine’’ matters. ‘‘Non-routine’’
matters would include the election of directors (Proposal No. 1) and the advisory (non-binding) vote on
executive compensation (Proposal No. 3), while ‘‘routine’’ matters would include the ratification of the
appointment of our independent registered public accounting firm (Proposal No. 2).
How many votes are needed to elect directors?
Members of the GSI Technology Board of Directors are elected by plurality vote. Accordingly, the
seven persons duly nominated at the annual meeting who receive the highest number of FOR votes will
be elected as directors.
How many votes are needed to approve proposals Nos. 2 and 3?
The appointment of BDO USA, LLP as our independent registered public accounting firm
(Proposal No. 2) and approval of the advisory (non-binding) vote regarding fiscal 2018 executive officer
compensation (Proposal No. 3) each require the affirmative vote of a majority of the shares
represented and voting at the annual meeting.
How are broker non-votes and abstentions treated?
A ‘‘broker non-vote’’ occurs when a broker, bank or other nominee holds shares in street name for
the beneficial owner but, with respect to a particular proposal, does not have discretionary authority to
vote the shares (i.e., it is a ‘‘non-routine’’ matter) and has not received timely voting instructions from
the beneficial owner.
Broker non-votes and abstentions are counted as present for purposes of determining whether a
quorum is present at the meeting.
Votes withheld and broker non-votes will have no effect on the election of directors (Proposal
No. 1). Proposals Nos. 2 and 3 each requires the affirmative vote of a majority of shares represented
and voting at the annual meeting. Abstentions and broker non-votes will reduce the number of shares
voting as well as the number of shares in favor of the proposal and, therefore, will have no impact on
the results of voting.
Can I revoke my proxy or change my vote?
Yes. You may revoke your proxy and change your vote at any time before the polls close at the
annual meeting.
If you are a stockholder of record, you may revoke your proxy and change your vote in any of the
following ways:
• by signing and returning a proxy card with a later date;
• by voting again via the Internet or by telephone prior to 11:59 p.m., Eastern Time, on Monday,
August 27, 2018;
• by voting in person at the annual meeting; or
• by giving written notice of revocation to the Company’s Corporate Secretary.
Please note that attendance at the annual meeting, in and of itself, will not revoke your proxy.
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If you are the beneficial owner of shares held in street name, you may revoke your proxy and
change your vote in any of the following ways:
• by signing and returning an instruction form with a later date;
• by voting again via the Internet or by telephone (if such voting is allowed by your broker, bank
or other nominee) prior to 11:59 p.m., Eastern Time, on Monday, August 27, 2018; or
• by voting in person at the annual meeting (although, as noted above, in order to vote at the
annual meeting, you must obtain a legal proxy from the bank, broker or other nominee that
holds your shares).
How will the votes be counted?
Votes taken at the annual meeting will be counted by an independent inspector of election
appointed by the Company.
How can I find out the results of the voting?
Preliminary voting results will be announced at the annual meeting. Final voting results will be
tabulated by the inspector of election. We will publish voting results known to us in a Form 8-K report
to be filed with the Securities and Exchange Commission within four business days after the annual
meeting. If final results are not available to use at the time of such filing, we will file an amendment to
the Form 8-K report to publish the final results within four business days after they are known to us.
Who will solicit proxies on behalf of the Board of Directors?
Proxies may be solicited by directors and officers of the Company, without additional
compensation. Solicitation of proxies by mail may be supplemented by telephone, facsimile, e-mail or
personal solicitation. None of the participants will receive additional compensation for assisting with the
solicitation.
You may also be solicited by press releases issued by us and postings on our corporate website.
Unless expressly indicated otherwise, information contained on our corporate website is not part of this
proxy statement.
Who will bear the cost of the solicitation of proxies?
We will pay for the entire cost of soliciting proxies on behalf of GSI Technology. We will also
reimburse brokerage firms, banks and other agents, upon their request, for the costs of forwarding our
proxy materials to beneficial owners of stock held in their name.
How can I attend the annual meeting?
You are entitled to attend the annual meeting only if you are a stockholder of record or a
beneficial owner of shares of our common stock as of the close of business on the Record Date, or you
hold a valid proxy for the annual meeting. Stockholders who plan to attend the meeting must present
valid photo identification. If you hold your shares in street name, please also bring proof of your share
ownership, such as a broker’s statement showing that you owned shares of the Company’s common
stock on the Record Date. As noted above, a legal proxy is required if you hold your shares in a street
name and you plan to vote in person at the annual meeting. Stockholders of record will be verified
against an official list available at the annual meeting. The Company reserves the right to deny
admittance to anyone who cannot adequately show proof of ownership as of the Record Date.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
We have a Board of Directors consisting of seven directors who will serve until the next annual
meeting of stockholders and until their respective successors are duly elected and qualified.
The Board of Directors’ nominees for election at the annual meeting are Jack A. Bradley,
E. Thomas Hart, Haydn Hsieh, Ruey L. Lu, Lee-Lean Shu, Arthur O. Whipple and Robert Yau, all of
whom currently serve on the Board of Directors. If elected, the seven nominees will serve as directors
until our annual meeting of stockholders in 2019 and until their successors are duly elected and
qualified. If any of the nominees declines to serve or becomes unavailable for any reason, or if a
vacancy occurs before the election (although we know of no reason to anticipate that this will occur),
the proxies may be voted for such substitute nominees as we may designate.
These seven nominees represent a balance of directors with a history of service on the Board and
newer directors with a strong mix of relevant experience. Our Nominating and Governance Committee
and Board of Directors have evaluated each of our nominees against the factors and principles we use
to select nominees for director, which are described elsewhere in this proxy statement. Based on this
evaluation, our Nominating and Governance Committee and Board of Directors concluded that it is in
the best interests of GSI Technology and its stockholders for each of the seven nominees named above
to serve as a member of the Board of Directors.
If a quorum is present and voting, the seven nominees for director receiving the greatest number
of votes will be elected. A WITHHOLD vote will have no effect on the vote. Our Board of Directors
has no reason to believe that any nominee named herein will be unable or unwilling to serve.
The Board of Directors unanimously recommends a vote FOR the nominees named above.
The following table sets forth information regarding our current directors, each of whom is a
nominee for election at the annual meeting, as of June 30, 2018:
Nominee’s Name
Principal Occupation
Director
Since
Age
Jack A. Bradley . . . . . . Partner, David Powell Financial Services
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E. Thomas Hart . . . . . . Non-executive Chairman of the Board of QuickLogic Corporation 76
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Haydn Hsieh . . . . . . . . Chairman and Chief Strategy Officer of Wistron NeWeb Corp.
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Ruey L. Lu . . . . . . . . . President of eMPIA Technology
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Lee-Lean Shu . . . . . . . President, Chief Executive Officer and Chairman of the Board of
Arthur O. Whipple . . . . North American President of ABBYY USA Software House, Inc.
Robert Yau . . . . . . . . . Vice President, Engineering and Secretary of GSI Technology
70
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Directors of GSI Technology
2015
2015
2008
2000
1995
2007
1995
Business Experience of Director Nominees
Set forth below is a description of the business experience of each director nominee, including a
discussion of the specific experience, qualifications, attributes and skills that led our Nominating and
Governance Committee and our Board of Directors to conclude that those individuals should serve as
directors.
Jack A. Bradley has served as a member of our Board of Directors since March 2015. Mr. Bradley
has been a partner in David Powell Financial Services, an advisor to early stage companies, since
September 2014. From February 2006 through March 2013, Mr. Bradley served as Chief Executive
Officer of Packet Design, Inc. (‘‘PDI’’), a venture capital-funded company that developed and marketed
analytic management systems for data communications. From March 2001 to February 2006,
Mr. Bradley served as Chief Financial Officer of Packet Design, LLC, a developer of networking
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infrastructure software that spun off several networking companies, including PDI. Prior to joining
Packet Design, LLC, Mr. Bradley held senior operational and financial management positions with
several networking and communications companies, including Cisco Systems, Inc. (General Manager of
Video Internet Services Business Unit), Network Computing Devices, Inc. (Chief Financial Officer and
Interim Chief Executive Officer), 3Com Corporation (Vice President and General Manager,
International Division), and Bridge Communications, Inc. (Chief Financial Officer). Mr. Bradley holds
a B.S. degree in Accounting from the University of San Francisco. Mr. Bradley brings over 30 years’
experience in executive management positions with public and private companies engaged in the
software, systems and semiconductor industries. In particular, his extensive experience in the
networking and communications industries, including his operational experience with providing
integrated hardware and software solutions to customers, enables him to provide advice and guidance
as we develop our new in-place associative computing products.
E. Thomas Hart has served as a member of our Board of Directors since March 2015. Mr. Hart
currently serves as non-executive Chairman of the Board of QuickLogic Corporation, a Nasdaq-listed
fabless semiconductor company that designs, markets and supports semiconductor and software
algorithm solutions primarily for manufacturers of mobile, consumer and enterprise communication
products. Mr. Hart previously served as QuickLogic’s President and Chief Executive Officer from June
1994 to March 2009, its Chairman and Chief Executive Officer from March 2009 to January 2011 and
its Executive Chairman from January 2011 to January 2014. Prior to joining QuickLogic, Mr. Hart held
senior management positions in operations, engineering, sales and marketing with several
semiconductor companies, including National Semiconductor Corporation and Motorola, Inc. Mr. Hart
is a Board Leadership Fellow of the National Association of Corporate Directors. Mr. Hart is a retired
Captain in the U.S. Navy, having served 37 years on active and reserve duty. Mr. Hart holds a
B.S. degree in Electrical Engineering from the University of Washington. Mr. Hart’s many years of
executive leadership in the semiconductor industry, and particularly, his experience as chief executive
officer and chairman of a Nasdaq-listed fabless semiconductor company, enable him to make valuable
contributions as the Board guides GSI Technology.
Haydn Hsieh has served as a member of our Board of Directors since August 2008. Mr. Hsieh has
served as the Chief Strategy Officer of Wistron NeWeb Corp., a manufacturer of wireless
communications products, since December 2017, its Chief Executive Officer from June 2000 through
December 2017, its Vice Chairman from June 2000 through June 2014, and its Chairman since June
2014. From February 1981 through June 2000, Mr. Hsieh served in various management capacities at
several divisions of Acer Group, a manufacturer of personal computers and related products, including
President of the Mobile Computing Business Unit and Senior Vice President of Acer Inc. Mr. Hsieh
holds a B.S. degree in Electrical Engineering from Tatung Institute of Technology and participated in
the Executive Program at the Graduate School of Business Administration of National Chengchi
University in Taiwan. Mr. Hsieh’s broad management background provides relevant experience in a
number of strategic and operational areas, including his management experience with the application
and manufacturing of systems and modules, enables him to provide advice and guidance as we develop
our new in-place associative computing products. Moreover, his management experience with, and
service as an outside board member to, companies headquartered in Taiwan provides him with relevant
insight into that country, where GSI Technology has significant operations, as well as a valuable
perspective on global business operations.
Ruey L. Lu has served as a member of our Board of Directors since October 2000. Mr. Lu is the
President of eMPIA Technology Corp., a semiconductor solutions company, which he founded in
January 2002. From March 1993 to December 2000, Mr. Lu served as President of ARK Logic, a
storage device and software applications company, which he founded. From October 1989 to February
1993, Mr. Lu served as Director of Engineering in the Imaging Product Division of Western Digital
Corporation, an information storage company. Mr. Lu holds a B.S. degree in Electrical Engineering
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from Taipei Institute of Technology and an M.S. degree in Electrical Engineering from the University
of Missouri. Mr. Lu’s experience as President of eMPIA Technology and in executive roles at ARK
Logic and Western Digital has provided him with broad industry and executive experience, including
the co-design of hardware and software platforms like our new in-place associative computing products.
Moreover, his management experience with a company headquartered in Taiwan provides him with
relevant insight into that country, where GSI Technology has significant operations, as well as a
valuable perspective on global business operations.
Lee-Lean Shu co-founded our company in March 1995 and has served as our President and Chief
Executive Officer and as a member of our Board of Directors since our inception. In October 2000,
Mr. Shu became Chairman of our Board. From January 1995 to March 1995, Mr. Shu was Director,
SRAM Design at Sony Microelectronics Corporation, a semiconductor company and a subsidiary of
Sony Corporation, and from July 1990 to January 1995, he was a design manager at Sony
Microelectronics Corporation. Mr. Shu holds a B.S. degree in Electrical Engineering from Tatung
Institute of Technology and an M.S. degree in Electrical Engineering from the University of California,
Los Angeles. It is our policy that our Chief Executive Officer should serve on our Board. In addition,
Mr. Shu’s role as a co-founder of our company and his day-to-day involvement in the management of
our business has provided him with extensive knowledge and understanding of GSI Technology and its
industry. As Chief Executive Officer, he is in a unique position to provide our Board with insight and
information related to our business and operations and to participate in the ongoing review of strategic
issues.
Arthur O. Whipple has served as a member of our Board of Directors since August 2007, and was
appointed lead director in June 2010. Mr. Whipple has served as North American President of ABBYY
USA Software House, Inc., a privately-held software developer, since August 2016 and the Executive
Vice President of Global Services of ABBYY PLC, since January 2018. Mr. Whipple served as North
American Chief Financial Officer of ABBYY USA, from April 2015 through August 2016 , initially in a
consulting capacity and since June 2015 as an employee. From August 2014 to January 2015,
Mr. Whipple was Director of Finance of Avago Technologies, a provider of analog, digital, mixed signal
and optoelectronics components and subsystems. Mr. Whipple served as Chief Financial Officer of PLX
Technology, Inc., a semiconductor device manufacturer, from February 2007 until its acquisition by
Avago in August 2014. From March 2005 to February 2007, Mr. Whipple was employed by Silicon
Storage Technology, Inc., a storage semiconductor manufacturer, where his last position was Vice
President of Finance and Chief Financial Officer. From April 1998 to March 2005, Mr. Whipple was
employed by QuickLogic Corporation, where he served in several management capacities, including
Vice President of Finance and Chief Financial Officer, Vice President and General Manager, Logic
Products, and Vice President, Business Development. In 2004 and 2005, Mr. Whipple also served as a
financial consultant to Technovus, Inc., a privately-held fabless semiconductor manufacturer.
Mr. Whipple holds a B.S. degree in Electrical Engineering from the University of Washington and an
M.B.A. from Santa Clara University. Mr. Whipple’s experience as a chief financial officer and in other
finance roles has provided him with broad experience in finance including accounting, financial
reporting and compliance with U.S. federal securities laws. He also brings strong leadership skills and
knowledge of engineering and operations, gained through his years of financial and operational
management at companies engaged in various segments of the semiconductor industry.
Robert Yau co-founded our company in March 1995 and has served as our Vice President,
Engineering and as a member of our Board of Directors since our inception. From December 1993 to
February 1995, Mr. Yau was design manager for specialty memory devices at Sony Microelectronics
Corporation. From 1990 to 1993, Mr. Yau was design manager at MOSEL/VITELIC, a semiconductor
company. Mr. Yau holds a B.S. degree in Electrical Engineering from the University of Texas at
Arlington and an M.S. degree in Electrical Engineering from the University of California, Berkeley. As
a co-founder, our Vice President, Engineering, and an expert in SRAM technology, Mr. Yau is able to
provide the Board with an understanding of our technology and our product development strategy as
well as expert perspective on industry trends and opportunities.
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Director Independence
CORPORATE GOVERNANCE
The Board of Directors has determined that, other than Lee-Lean Shu and Robert Yau, each of
the members of the Board is an ‘‘independent director’’ for purposes of the Nasdaq Listing Rules and
Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, as the term relates to
membership on the Board and the various Board committees. There are no family relationships
between any of our directors or executive officers.
Board of Directors Leadership Structure
Lee-Lean Shu serves as both our Chief Executive Officer and the Chairman of our Board of
Directors. The Board believes that combining the role of Chairman and Chief Executive Officer is
appropriate in the case of Mr. Shu, given his role in founding GSI Technology and his significant
ownership stake and also because Mr. Shu is the Board member who is most familiar with our business
strategy and most knowledgeable regarding our industry. The Board also believes that the combined
role of Chairman and Chief Executive Officer facilitates the flow of information between the Board
and management, improves the Board’s ability to focus on key policy and operational issues and helps
the Board operate in the long-term interests of our stockholders.
The Board has determined that, at any time the office of Chairman is filled by our Chief Executive
Officer or another employee of GSI Technology, a non-employee director, recommended by the
Nominating and Governance Committee, shall be designated to serve as lead director. Arthur O.
Whipple currently serves in that position. The lead director serves as the principal liaison between the
independent directors and the Chairman. In that capacity, the lead director presides over executive
sessions of the independent directors, chairs Board meetings in the Chairman’s absence, and
collaborates with the Chairman on agendas, schedules and materials for Board meetings. The Board
believes that this leadership structure provides the appropriate balance of management and
non-management oversight. The Nominating and Corporate Governance Committee periodically
evaluates our leadership structure to ensure that we maintain a structure that is beneficial to us and
our stockholders, and will recommend any appropriate changes to the Board.
The Board of Directors’ Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately
determine its success. We face a number of risks, including general economic risks, operational risks,
financial risks, competitive risks and reputational risks. Management is responsible for the day-to-day
management of the risks that we face, while the Board of Directors, as a whole and through its
committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board
has the responsibility to satisfy itself that the risk management processes designed and implemented by
management are adequate and functioning as designed. In addition, the Board is responsible for
matters relating to management and Board succession planning.
While the full Board of Directors is charged with ultimate oversight responsibility for risk
management, committees of the Board also have responsibilities with respect to various aspects of risk
management oversight. In particular, the Audit Committee plays a significant role in monitoring and
assessing our financial and operational risks. The Audit Committee is also responsible for establishing
and administering our code of conduct and reviewing transactions between the Company and any
related parties. The Compensation Committee monitors and assesses risks associated with our
compensation policies and consults with management and the Board concerning the development of
incentives that encourage a level of risk-taking consistent with our overall strategy, as further discussed
under the heading ‘‘Compensation Discussion and Analysis.’’ The Nominating and Governance
Committee has oversight responsibility for corporate governance risks, including risks associated with
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director independence. Our executive management meets regularly to discuss our strategy and the risks
that we face. Senior officers regularly attend Board meetings where they are available to address
questions or concerns raised by the Board regarding risk management related matters.
Executive Sessions
Non-management directors generally meet in executive session without the presence of
management, including our Chief Executive Officer and our Vice President, Engineering, at each
regularly scheduled meeting of the Board. Mr. Whipple, in his capacity as lead director, acts as the
presiding director for these executive sessions.
Committees and Meeting Attendance
The Board of Directors has three standing committees: an Audit Committee, a Compensation
Committee and a Nominating and Governance Committee. The Board of Directors held seven
meetings during the fiscal year ended March 31, 2018. During fiscal 2018, no director attended fewer
than 76% of the total number of meetings of the Board and all of the committees of the Board on
which such director served that were held during that period.
Our Nominating and Governance Committee, as part of its governance review, evaluates the
composition of each of our Board committees to ensure that we maintain a structure that is beneficial
to us and our stockholders, and recommends any appropriate changes to our Board of Directors.
The following table sets forth the current members of each of our Board’s standing committees as
of the date of this proxy statement:
Committee Member
Audit
Compensation
Nominating
and Governance
Jack A. Bradley . . . . . . . . . . . . . . . . . . . . . . .
E. Thomas Hart . . . . . . . . . . . . . . . . . . . . . . .
Haydn Hsieh . . . . . . . . . . . . . . . . . . . . . . . . .
Ruey L. Lu . . . . . . . . . . . . . . . . . . . . . . . . . .
Arthur O. Whipple . . . . . . . . . . . . . . . . . . . . . Chair
X
X
Chair
X
X
Chair
X
X
X
Audit Committee
The members of the Audit Committee during fiscal 2018 were Messrs. Bradley, Hsieh and Whipple
(Chair). The Audit Committee held ten meetings during fiscal 2018. Each of the members of the Audit
Committee is independent for purposes of the Nasdaq Listing Rules as they apply to audit committee
members. Messrs. Whipple and Bradley have been designated as ‘‘audit committee financial experts,’’
as the term is defined in applicable SEC rules. The Audit Committee operates under a charter that is
available on our website at www.gsitechnology.com. The functions of the Audit Committee include
oversight, review and evaluation of our financial statements, accounting and financial reporting
processes, internal control functions and the audits of our financial statements. The Audit Committee is
responsible for the appointment, compensation, retention and oversight of our independent registered
public accounting firm. Additional information regarding the Audit Committee is set forth in the
Report of the Audit Committee immediately following Proposal No. 2.
Compensation Committee
The members of the Compensation Committee during fiscal 2018 were Messrs. Hart (Chair),
Hsieh and Lu. The Compensation Committee held seven meetings during fiscal 2018. Each of the
members of the Compensation Committee is independent for purposes of the Nasdaq Listing Rules.
The Compensation Committee operates under a charter that is available on our website at
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www.gsitechnology.com. The purpose of the Compensation Committee is to assist the Board of Directors
in carrying out its responsibilities with respect to: (i) overseeing our compensation policies and
practices; and (ii) reviewing and approving compensation and compensation procedures for our
executive officers. The Compensation Committee’s responsibilities include: periodically reviewing and
advising the Board of Directors concerning overall compensation philosophy, policies and plans,
including reviewing both regional and industry compensation practices and trends; identifying any peer
group of companies to be used for comparison purposes; reviewing and approving all performance
goals and objectives relevant to the compensation of all executive officers and assessing the
achievement of such goals and objectives; determining and approving all compensation for our
executive officers (including salary and incentive-based compensation and awards); making
recommendations to the Board of Directors regarding the establishment and terms of incentive
compensation plans, and administering such plans; and approving grants of options and other equity
awards to all executive officers and other eligible individuals under our equity compensation plans.
Other responsibilities of the Compensation Committee include: reviewing and approving compensation-
related matters outside the ordinary course of business, including but not limited to employment
contracts, change-in-control provisions, severance arrangements, and material amendments thereto;
preparing an annual report on executive compensation, including a Compensation Discussion and
Analysis, for inclusion in the proxy statement for our annual meeting of stockholders; monitoring and
assessing risks associated with our compensation policies and consulting with management regarding
such risks; and reporting to the Board of Directors on the Compensation Committee’s activities on a
regular basis. Regarding most compensation matters, including executive compensation, our
management provides recommendations to the Compensation Committee. Additional information
regarding the Compensation Committee and its activities is set forth under the heading ‘‘Executive
Compensation’’ in this proxy statement.
Nominating and Governance Committee
The members of the Nominating and Governance Committee during fiscal 2018 were
Messrs. Bradley (Chair), Hart, Lu and Whipple. The Nominating and Governance Committee held
three meetings during fiscal 2018. Each of the members of the Nominating and Governance Committee
is independent for purposes of the Nasdaq Listing Rules. The Nominating and Governance Committee
operates under a charter that is available on our website at www.gsitechnology.com. The Nominating and
Governance Committee identifies prospective Board candidates, recommends nominees for election to
our Board of Directors, develops and recommends Board member selection criteria, considers
committee member qualification, reviews and makes recommendations to the Board of Directors
regarding Board and committee compensation, recommends corporate governance principles to the
Board of Directors, and provides oversight in the evaluation of the Board of Directors and each
committee.
Director Nominations
The Nominating and Governance Committee is responsible for, among other things, the selection
and recommendation to the Board of Directors of nominees for election as directors. When considering
the nomination of directors for election at an annual meeting, the Nominating and Governance
Committee reviews the needs of the Board of Directors for various skills, background and experience.
When reviewing potential nominees, including incumbents, the Nominating and Governance Committee
considers the perceived needs of the Board of Directors, the candidate’s relevant background,
experience and skills and his or her expected contributions to the Board of Directors. The Nominating
and Governance Committee also seeks appropriate input from the Chief Executive Officer and other
executive officers in assessing the needs of the Board of Directors for relevant background, experience
and skills of its members.
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The Nominating and Governance Committee’s goal is to assemble a Board of Directors that brings
to GSI Technology a diversity of experience at policy-making levels in business and technology, and in
areas that are relevant to GSI Technology’s global activities. Directors should possess the highest
personal and professional ethics, integrity and values and be committed to representing the long-term
interests of our stockholders. They must have an inquisitive and objective outlook and mature
judgment. They must also have experience in positions with a high degree of responsibility and be
leaders in the companies or institutions with which they are, or have been, affiliated. Director
candidates must have sufficient time available, in the judgment of the Nominating and Governance
Committee, to perform all Board and committee responsibilities that will be expected of them.
Members of the Board of Directors are expected to rigorously prepare for, attend and participate in all
meetings of the Board of Directors and applicable committees. While we do not have a specific policy
regarding diversity, when considering the nomination of directors, the Nominating and Governance
Committee does consider the diversity of its directors and nominees in terms of knowledge, experience,
background, skills, expertise and other demographic factors. Other than the foregoing, there are no
specific minimum criteria for director nominees, although the Nominating and Governance Committee
believes that it is preferable that a majority of the Board of Directors meet the definition of
‘‘independent director’’ set forth in Nasdaq and SEC rules. The Nominating and Governance
Committee also believes it appropriate for one or more key members of the Company’s management,
including the Chief Executive Officer, to serve on the Board of Directors.
The Nominating and Governance Committee will consider candidates for director proposed by
directors or management, and will evaluate any such candidates against the criteria and pursuant to the
policies and procedures set forth above. If the Nominating and Governance Committee believes that
the Board of Directors requires additional candidates for nomination, the Nominating and Governance
Committee may engage, as appropriate, a third party search firm to assist in identifying qualified
candidates. The nominating process may also include interviews and additional background and
reference checks for non-incumbent nominees, at the discretion of the Nominating and Governance
Committee.
The Nominating and Governance Committee will also consider candidates for director
recommended by a stockholder, provided that any such recommendation is sent in writing to the Board
of Directors, c/o Corporate Secretary at the address noted below, at least 120 days prior to the
anniversary of the date definitive proxy materials were mailed to stockholders in connection with the
prior year’s annual meeting of stockholders and contains the following information:
• the candidate’s name, age, contact information and present principal occupation or employment;
and
• a description of the candidate’s qualifications, skills, background and business experience during
at least the last five years, including his or her principal occupation and employment and the
name and principal business of any company or other organization where the candidate has been
employed or has served as a director.
The Nominating and Governance Committee will evaluate any candidates recommended by
stockholders against the same criteria and pursuant to the same policies and procedures applicable to
the evaluation of candidates proposed by directors or management.
In addition, stockholders may make direct nominations of directors for election at an annual
meeting, provided the advance notice requirements set forth in our bylaws have been met. Under our
bylaws, written notice of such nomination, including certain information and representations specified
in the bylaws, must be delivered to our principal executive offices, addressed to the Corporate
Secretary, at least 120 days prior to the anniversary of the date definitive proxy materials were mailed
to stockholders in connection with the prior year’s annual meeting of stockholders, except that if no
annual meeting was held in the previous year or the date of the annual meeting has been advanced by
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more than 30 days from the date contemplated at the time of the previous year’s proxy statement, such
notice must be received not later than the close of business on the 10th day following the day on which
the public announcement of the date of such meeting is first made.
Communications with Directors
Stockholders may send any communications to the Board of Directors or any individual director at
the following address. All communications received are reported to the Board or the individual
directors:
Board of Directors (or name of individual director(s))
c/o Secretary
GSI TECHNOLOGY, INC.
1213 Elko Drive
Sunnyvale, California, 94089
Our Secretary will forward all such communications to the Board of Directors, or the individual
director or directors, except for spam, junk mail, mass mailings, product complaints or inquiries, job
inquiries, surveys, business solicitations, advertisements, or patently offensive or otherwise inappropriate
material. Our Secretary may forward certain correspondence, such as product-related inquiries,
elsewhere within GSI Technology for review and possible response.
Director Attendance at Annual Meetings
We attempt to schedule our annual meeting of stockholders at a time and date to accommodate
attendance by directors, taking into account the directors’ schedules. Directors are encouraged to
attend our annual meeting of stockholders, but the Board has not adopted a formal policy with respect
to such attendance. Five of the seven directors then serving on the Board attended last year’s annual
meeting of stockholders.
Code of Business Conduct and Ethics; Corporate Governance Guidelines
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees,
officers and directors. The Board of Directors, upon the recommendation of the Nominating and
Governance Committee, has also adopted a series of Corporate Governance Guidelines. The Code of
Business Conduct and Ethics and Corporate Governance Guidelines are available on our website at
www.gsitechnology.com. If we make any substantive amendments to the Code of Business Conduct and
Ethics, or grant any waiver from a provision of the Code to any executive officer or director, we will
promptly disclose the nature of the amendment or waiver on our website, as well as via any other
means then required by Nasdaq Listing Rules or applicable law.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee are or have been an officer or employee of
GSI Technology. During fiscal 2018, no member of the Compensation Committee had any relationship
with GSI Technology requiring disclosure under Item 404 of Regulation S-K. During fiscal 2018, none
of GSI Technology’s executive officers served on the compensation committee (or its equivalent) or
board of directors of another entity any of whose executive officers served on GSI Technology’s
Compensation Committee or Board of Directors.
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PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors of GSI Technology has selected BDO USA, LLP
as its independent registered public accounting firm to audit the consolidated financial statements of
GSI Technology for the fiscal year ending March 31, 2019. BDO USA, LLP has acted in such capacity
since its appointment in September 2017. A representative of BDO USA, LLP is expected to be
present at the 2018 annual meeting, with the opportunity to make a statement if the representative
desires to do so, and is expected to be available to respond to appropriate questions. At the 2018
Annual Meeting, the shareholders are being asked to ratify the selection of BDO USA, LLP as the
Company’s independent registered public accounting firm for the fiscal year ending March 31, 2019.
Prior to hiring BDO USA, LLP, the Company’s independent registered public accounting firm was
PricewaterhouseCoopers LLP. On September 12, 2017, the Company, with the approval of the Audit
Committee of the Company’s Board of Directors, dismissed PricewaterhouseCoopers LLP as its
principal accountant and appointed BDO USA, LLP as the Company’s new independent registered
public accounting firm for its fiscal year ending March 31, 2018. The decision to change the Company’s
independent registered public accounting firm was the result of a comprehensive, competitive process
conducted by the Audit Committee to select an independent registered public accounting firm.
PricewaterhouseCoopers LLP’s dismissal as the Company’s independent registered public accounting
firm was effective as of September 12, 2017. The reports of PricewaterhouseCoopers LLP on the
Company’s consolidated financial statements for the fiscal years ended March 31, 2017 and March 31,
2016 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company’s consolidated financial statements for the fiscal
years ended March 31, 2017 and March 31, 2016, and in the subsequent interim period through
September 12, 2017, there were no disagreements with PricewaterhouseCoopers LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing scope or procedures,
which, if not resolved to PricewaterhouseCoopers LLP’s satisfaction, would have caused
PricewaterhouseCoopers LLP to make reference to the matter in its report.
During the fiscal years ended March 31, 2017 and March 31, 2016, and the subsequent interim
period from April 1, 2017, through the date of BDO USA, LLP’s engagement, the Company has not,
nor has anyone acting on its behalf, consulted with BDO USA, LLP regarding the application of
accounting principles to a specific transaction, either completed or proposed, or the type of audit
opinion that might be rendered with respect to the Company’s financial statements.
The following table sets forth the aggregate fees billed to GSI Technology for the fiscal year ended
March 31, 2018 by BDO USA, LLP:
Audit fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$574,087
5,000
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$579,087
Fiscal 2018
(1) Audit fees consist of fees for professional services rendered for the integrated audit of
GSI Technology’s annual consolidated financial statements and internal control
framework, the review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided in connection with statutory and
regulatory filings.
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(2) Tax fees consist of fees for consultation on various tax matters and compliance with
federal and state income tax filing requirements.
The following table sets forth the aggregate fees billed to GSI Technology for the fiscal years
ended March 31, 2017 and March 31, 2018 by PricewaterhouseCoopers LLP:
Audit fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$821,200
67,000
1,800
$ 97,000
55,000
—
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$890,000
$152,700
Fiscal 2017
Fiscal 2018
(1) Audit fees consist of fees for professional services rendered for the integrated audit of
GSI Technology’s annual consolidated financial statements and internal control
framework, the review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided in connection with statutory and
regulatory filings.
(2) Tax fees consist of fees for consultation on various tax matters and compliance with
federal and state income tax filing requirements.
(3) Other fees consist of fees related to the license of specialized accounting research
software.
The Audit Committee has determined that all services performed by BDO USA, LLP and
PricewaterhouseCoopers LLP are compatible with maintaining the independence of BDO USA, LLP
and PricewaterhouseCoopers LLP. The Audit Committee’s policy is to pre-approve all audit and
permissible non-audit services provided by our independent registered public accounting firm. These
services may include audit services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to the particular service or
category of services. The independent registered public accounting firm and management are required
to periodically report to the Audit Committee regarding the extent of services provided by the
independent registered public accounting firm in accordance with this pre-approval.
Vote Required and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a majority of the shares present in
person or by proxy and voting on the matter. Abstentions and broker non-votes will each be counted as
present for purposes of determining the presence of a quorum but will not have any effect on the
outcome of the vote.
The Board of Directors unanimously recommends a vote ‘‘FOR’’ the ratification of the
appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal
year ending March 31, 2019.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees GSI Technology’s financial reporting process on behalf of the
Board of Directors. Management has the primary responsibility for the financial statements and the
reporting process, including the design and maintenance of our internal control systems. Our
independent registered public accounting firm, BDO USA, LLP, is responsible for expressing an
opinion as to the conformity of our audited financial statements with generally accepted accounting
principles and the effectiveness of our internal control over financial reporting.
The Audit Committee currently consists of three directors. Each member of the Committee, in the
judgment of the Board of Directors, is an ‘‘independent director’’ as defined in the Nasdaq Listing
Rules. The Audit Committee acts pursuant to a written charter that has been adopted by the Board of
Directors. A copy of this charter is available on our website at www.gsitechnology.com.
The Audit Committee has reviewed and discussed with management GSI Technology’s audited
financial statements and the results of management’s assessment of the effectiveness of GSI
Technology’s internal control over financial reporting as of March 31, 2018. The Audit Committee has
discussed and reviewed with our independent registered public accounting firm all matters required to
be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards,
Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
The Audit Committee has met with BDO USA, LLP, with and without management present, to discuss
the overall scope of BDO’s audit, the results of its examinations, and the overall quality of GSI
Technology’s financial reporting and internal control over financial reporting.
The Audit Committee has received from our independent registered public accounting firm a
formal written statement describing all relationships between the independent registered public
accounting firm and GSI Technology that might bear on the independent registered public accounting
firm’s independence consistent with Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board
in Rule 3600T, discussed with the independent registered public accounting firm any relationships that
may impact their objectivity and independence, and satisfied itself as to the independent registered
public accounting firm’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to the
Board of Directors that GSI Technology’s audited financial statements be included in GSI Technology’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2018.
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THE AUDIT COMMITTEE
Arthur O. Whipple (Chair)
Jack A. Bradley
Haydn Hsieh
The foregoing Audit Committee Report shall not be deemed to be incorporated by reference into any
filing of GSI Technology under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that GSI Technology specifically incorporates such information by reference.
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PROPOSAL NO. 3
ADVISORY (NON-BINDING) VOTE
ON EXECUTIVE COMPENSATION (SAY-ON-PAY)
Background
In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934 and
the related rules of the SEC, we provide our stockholders the opportunity to cast an advisory
(non-binding) vote on executive compensation, commonly referred to as a ‘‘Say-on-Pay’’ vote. At our
2017 Annual Meeting of Stockholders, our stockholders voted in favor of holding future ‘‘Say-on-Pay’’
votes on an annual basis. The Board subsequently determined that such advisory votes shall be held
annually at the annual meeting of stockholders. The vote is advisory, which means that it is not binding
on the Board of Directors, the Compensation Committee or GSI Technology in any way. However, the
Compensation Committee will review the outcome of the vote and take it into consideration when
considering future executive compensation policies and decisions.
At our 2013, 2014, 2015, 2016 and 2017 annual meetings, 99%, 78%, 84%, 91% and 99%,
respectively, of the votes cast were voted in favor of the Company’s executive compensation program
for the previous fiscal year. Partially as a result of this positive stockholder feedback, our Compensation
Committee has adopted compensation packages having similar basic structures in subsequent years.
As described in our Compensation Discussion and Analysis included elsewhere in this proxy
statement, we seek to closely align the interests of our executive officers with the interests of our
stockholders, and attract and retain superior executive talent. Our compensation programs are designed
to reward our executive officers for the achievement of our short-term and long-term strategic and
operational goals and the achievement of increased total stockholder return, while avoiding the
encouragement of unnecessary or excessive risk-taking. Please read the Compensation Discussion and
Analysis section for a more detailed discussion of our compensation philosophy and our executive
compensation program.
The advisory vote on executive compensation solicited by this proposal is not intended to address
any specific item of compensation, but rather the overall compensation of our Chief Executive Officer,
our Chief Financial Officer and our three other most highly-compensated executive officers, who are
collectively referred to as our ‘‘named executive officers,’’ which is disclosed and discussed elsewhere in
this proxy statement. Furthermore, because this non-binding, advisory resolution primarily relates to the
compensation of our named executive officers that has already been paid or contractually committed,
there is generally no opportunity for us to revisit these decisions.
Stockholders will be asked at the annual meeting to approve the following resolution pursuant to
this Proposal No. 3:
‘‘RESOLVED, that the stockholders of GSI Technology, Inc. approve, on an advisory basis, the
compensation of the Company’s named executive officers for the fiscal year ended March 31, 2018,
as disclosed pursuant to Item 402 of Regulation S-K in the Company’s definitive proxy statement
for the 2018 Annual Meeting of Stockholders.’’
Vote Required and Board of Directors Recommendation
Approval of this resolution requires the affirmative vote of a majority of the shares present in
person or by proxy and voting on the matter. Abstentions and broker non-votes will each be counted as
present for purposes of determining a quorum but will not have any effect on the outcome of the vote.
The Board of Directors unanimously recommends a vote ‘‘FOR’’ approval of the foregoing
resolution.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
This Compensation Discussion and Analysis explains our philosophy and objectives with respect to
the compensation of our executive officers and our compensation-setting process and provides more
detailed information regarding the compensation of our Chief Executive Officer, our Chief Financial
Officer, and our other three most highly-compensated executive officers, determined as of March 31,
2018. We refer to these individuals as our ‘‘named executive officers.’’ This discussion focuses on the
information contained in the tables and related footnotes and narrative included below, primarily for
our 2018 fiscal year.
Philosophy and Objectives
Our fundamental compensation philosophy is to align the compensation of our senior management
with our annual and long-term business objectives, performance against those objectives and creation of
stockholder value, as well as to offer compensation that will enable us to attract, retain, and
appropriately reward executive officers whose contributions are necessary for our long-term success. We
seek to reward our executive officers’ contributions to achieving revenue growth, increasing operating
profits and controlling costs. We operate in a very competitive environment for executive talent, and it
is our belief that our compensation packages should be competitive when compared to our peers and
should also be aligned with our stockholders’ interests.
The Compensation Committee of the Board of Directors oversees the design and administration of
our executive compensation program. The principal elements of the program are base salary, variable
incentive cash compensation programs, long-term equity-based incentive compensation and broad-based
benefits programs. The policy of the Compensation Committee is that the total compensation of the
executive officers should generally be comparable to the median compensation paid by the Company’s
peer companies to officers performing comparable functions. However, it has not been the
Compensation Committee’s policy to adopt a rigid formula or benchmark system related to peer
company compensation practices.
Compensation-Setting Process
Generally, the Compensation Committee reviews the compensation of our executive officers in the
early part of each fiscal year and takes action at that time to set base salaries and variable
compensation for the current year. In setting our executive officers’ total compensation, the
Compensation Committee considers individual and company performance, as well as compensation
surveys and other market information regarding compensation paid by comparable companies, including
our industry peers. The Compensation Committee considers the grant of equity awards to all of our
executive and non-executive officers at the same time, once a year, usually in July or August.
In its annual review of compensation for GSI Technology’s executive officers, the Compensation
Committee has considered compensation data and analyses assembled and prepared by the Committee
and our Human Resources staff. The Chief Executive Officer provides the Compensation Committee
with a review of each of the other executive officer’s individual performance and contributions over the
past year and makes recommendations regarding their compensation, which the Compensation
Committee considers. In making compensation decisions, our Chief Executive Officer and our
Compensation Committee have considered the Company’s financial performance as well as the
experience level and contributions of the individual executive officer, the role and responsibilities of the
executive officer and market factors.
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The Compensation Committee has the authority to engage its own consultants and advisors to
assist it in carrying out its responsibilities. In February 2013, the Compensation Committee determined
that it would periodically retain compensation consultants in connection with its annual review of
executive officer compensation and, in accordance with such policy, engaged the services of
Compensia, Inc. (‘‘Compensia’’), an independent national compensation consulting firm, to assist it in
connection with its annual review and determination of executive officer compensation for fiscal 2014,
2016 and 2018. The Compensation Committee assessed the independence of Compensia pursuant to
applicable SEC rules and concluded that no conflicts of interest existed that would affect Compensia’s
independence in providing services and advice to the Compensation Committee. The Compensation
Committee did not retain the services of compensation consultants in connection with its annual review
and determination of executive officer compensation for fiscal 2015 or 2017.
At our annual meetings of stockholders, we provide our stockholders the opportunity to vote to
approve, on an advisory basis, the compensation of our named executive officers for the previous fiscal
year, as disclosed in the proxy statement for the meeting (commonly referred to as a ‘‘Say-on-Pay’’
vote). These stockholder advisory votes are held after the Compensation Committee has determined
the compensation to be paid to our executive officers for the fiscal year in question. Accordingly, the
Compensation Committee cannot take such results into account in determining executive compensation
for that year. However, in its annual review of executive compensation, the Compensation Committee
considers, among other things, the results of the stockholder Say-on-Pay vote for previous years.
Components of Compensation
In order to align executive compensation with our compensation philosophy, our executive
compensation package contains three principal components: (i) base salary, (ii) variable cash
compensation and (iii) long-term stock-based incentive awards. Each component of our executive
compensation program is designed to reward a different aspect of performance. The base salaries of
our executive officers are initially set based on negotiation with the individual officers at the time of
their recruitment. Once set, these base salaries are subject to annual review. Our variable cash
compensation plans are intended to motivate and reward performance over the current fiscal year. Our
equity award program is designed to provide long-term retention incentives through the use of options
subject to time-based vesting. We also provide our executive officers a variety of benefits that are
available generally to all salaried employees. The basic elements of our executive compensation
package are generally the same among our named executive officers.
Fiscal 2018 Base Salary
The base salaries of our executive officers are initially negotiated with the individual executive
officer at the time of his or her recruitment or promotion and with reference to their experience,
expected contribution, geographical location and market factors. Historically, the base salaries of our
executive officers generally have been adjusted concurrently with our annual company-wide
compensation review.
During the first quarter of fiscal 2018, the Compensation Committee conducted its annual review
of executive compensation. The Committee engaged Compensia to assist it in its review.
Representatives of Compensia attended meetings of the Compensation Committee and communicated
with members of the Compensation Committee outside of its formal meetings. Representatives of
Compensia also met with members of the Company’s management to gain management’s perspective
on executive compensation issues.
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With the assistance of Compensia, the Compensation Committee identified the following group of
peer companies, including our industry peers and similarly-sized companies in our broader industry
group (the ‘‘Fiscal 2018 Peer Companies’’):
Adesto Technologies Corp.
Amtech Systems, Inc.
AXT, Inc.
CEVA, Inc.
DSP Group, Inc.
Emcore Corporation
Exar Corporation
GigPeak, Inc.
Immersion Corporation Quantenna Communications
Intermolecular, Inc.
inTEST Corporation
Kopin Corporation
Pixelworks, Inc.
QuickLogic Corporation
In its annual review of executive compensation for fiscal 2018, the Compensation Committee took
into account its general compensation philosophy and objectives, as described above, and various other
considerations, including:
• available compensation data for comparable peer companies and other analyses provided by
Compensia;
• the Company’s financial performance during fiscal 2017, including declines in net revenues from
the prior year and continuing net losses due primarily to a particularly challenging market for its
products;
• the current outlook for the Company’s fiscal 2018 financial performance;
• management’s recommendation that, in light of the Company’s fiscal 2017 financial performance,
increases in officers’ base salaries should be limited to the percentage increases recently granted
to the Company’s non-officer employees, which averaged approximately three percent over fiscal
2017 levels; and
• specific contributions of individual officers.
The Committee also noted that, by positive votes at the last five annual meetings of stockholders,
our stockholders had approved the compensation of our named executive officers. Partially in
recognition of this positive stockholder feedback, the Committee adopted a compensation package for
fiscal 2018 having the same basic structure as the compensation packages that had been adopted for
previous years.
On the basis of its review, on May 2, 2017, the Compensation Committee concluded that executive
officer base salaries should be increased at the same rate as the salaries of the Company’s non-officer
employees and approved increases in the base salaries of our executive officers, effective April 1, 2017,
by 3% over fiscal 2017 base salaries. The fiscal 2018 base salaries of the named executive officers were
as follows:
Name
Title
Fiscal 2018
Base
Salary
Percentage Increase over
Fiscal 2017 Base Salary
Lee-Lean Shu . . . . . . . . . . . . . . President and Chief Executive Officer $407,119
$288,993
Douglas M. Schirle . . . . . . . . . . Chief Financial Officer
$304,187
Didier Lasserre . . . . . . . . . . . . . Vice President, Sales
$274,796
Robert Yau . . . . . . . . . . . . . . . . Vice President, Engineering
$259,263
Ping Wu . . . . . . . . . . . . . . . . . . Vice President, U.S. Operations
3%
3%
3%
3%
3%
2018 Variable Compensation Plan
Under our compensation policy, a significant component of each executive officer’s potential
annual compensation takes the form of a performance-based cash bonus. On May 30, 2017, the
Compensation Committee adopted the 2018 Variable Compensation Plan, which was similar in
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structure to previous variable compensation plans for the Company’s executive officers. The 2018
Variable Compensation Plan was designed to encourage performance and retention of eligible
employees by providing cash bonus awards based on our financial performance and our success in
completing specified milestones in the development of our new in-place associative computing products
during the fiscal year ended March 31, 2018. Each of our executive officers was eligible to participate
in the 2018 Plan. Certain non-executive officers were also eligible to participate.
Under the 2018 Variable Compensation Plan, each participant had a designated target bonus,
which was set at the same level as their target bonus under the 2017 Variable Compensation Plan. The
target bonus for Lee-Lean Shu, our President, Chief Executive Officer and Chairman, was $250,000,
and the target bonus for each of our other executive officers was $125,000. If the target financial goals
were exceeded, actual bonus awards payable to participants in the 2018 Variable Compensation Plan
could have been up to two times their target bonuses. There was no threshold or minimum amount
payable under the 2018 Variable Compensation Plan. The Compensation Committee considered the
critical role of Mr. Shu, our President and Chief Executive Officer, in our long-term success when
determining his target bonus amount. The use of the same target bonus amount for each of our other
named executive officers reflected the Compensation Committee’s desire to encourage a team approach
by treating our executive officers equally with respect to bonus opportunities. The actual bonus awards
were computed on the basis of our fiscal 2018 operating results and the completion of specified
milestones in the development of our new in-place associative computing products, with 25% of each
award based on the achievement of targeted net revenues, 35% based on the achievement of targeted
operating income, as adjusted to exclude certain specified categories of expenses, and 40% based on
the completion of the development milestones. The percentage allocation between these three targets
reflected a balance between the Compensation Committee’s desire to make the target bonus achievable
given the comparatively greater ability of our executive officers to increase revenues, while still focusing
the attention of our executive officers on our profitability, which it believes to be the more important
factor in improving stockholder value, and the importance of completing our new in-place associative
computing products on time or ahead of schedule.
For fiscal 2018, our net revenues were 84.3% of the 2018 Variable Compensation Plan target, our
adjusted operating income was below the minimum required to earn this portion of the 2018 Variable
Compensation Plan bonus award and the development milestones were not met. The shortfall in net
revenues reflected continued weakness in the global networking and telecommunications markets,
particularly in Asia. The shortfall in the adjusted operating income reflected changes in the mix of
products and customers forecasted and a provision for excess and obsolete inventory that was not
anticipated in the operating income target. Based on these operating results and the lack of
achievement of development milestones, bonuses earned under the 2018 Variable Compensation Plan
were 60.7% of the net revenue target bonus, 0% of the adjusted operating income target bonus and
0% of the development milestones target. Original target bonus amounts for each of the named
executive officers under the 2018 Variable Compensation Plan and the bonuses actually earned under
the plan for their services during fiscal 2018 were as follows:
Name
Fiscal 2018
Target
Bonus
Fiscal 2018
Bonus
Earned
Lee-Lean Shu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas M. Schirle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ping Wu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$250,000
$125,000
$125,000
$125,000
$125,000
$37,938
$18,969
$18,969
$18,969
$18,969
Bonus awards paid under the 2018 Plan are subject to vesting based on the participant’s continued
employment with the Company, with 60% becoming vested and payable on the last business day in
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April 2018 and 20% becoming vested and payable on the last business day in April of each of the
succeeding two years.
Total Fiscal 2018 Cash Compensation
The total cash compensation of each of our named executive officers for fiscal 2018 was:
Name
Principal Position
Lee-Lean Shu . . . . . . . . . . . . . . . . . President and Chief Executive Officer
Douglas M. Schirle . . . . . . . . . . . . . Chief Financial Officer
Didier Lasserre . . . . . . . . . . . . . . . . Vice President, Sales
Robert Yau . . . . . . . . . . . . . . . . . . . Vice President, Engineering
Ping Wu . . . . . . . . . . . . . . . . . . . . . Vice President, U.S. Operations
Fiscal 2018
Base
Salary
$407,119
$288,993
$304,187
$274,796
$259,263
Fiscal 2018
Total Cash
Compensation
Earned
$445,057(1)
$307,962(2)
$328,556(3)
$293,765(2)
$278,232(2)
(1) Includes incentive compensation of $37,938 earned under the 2018 Variable Compensation Plan.
(2) Includes incentive compensation of $18,969 earned under the 2018 Variable Compensation Plan.
(3) Includes incentive compensation of $18,969 earned under the 2018 Variable Compensation Plan
and a car allowance of $5,400.
Long-Term Incentive Compensation
We utilize stock option awards as a primary component of compensation for our executive officers,
with the objective of strengthening the mutuality of interests between the executive officers and our
stockholders. These grants are designed to provide each executive with a significant incentive to
manage from the perspective of an owner with an equity stake in our company. All stock options
granted to our employees, including named executive officers, and to our directors have exercise prices
equal to the fair market value of our common stock on the grant date. Our policies and procedures for
the grant of stock-based awards provide that all options and other stock-based awards are generally to
be granted by the Compensation Committee and, except in special circumstances, all grants are to be
made at regular quarterly meetings of the Compensation Committee. Accordingly, option grants to new
employees hired since the previous quarterly meeting and annual grants to continuing employees with
anniversary dates subsequent to the previous meeting are made each quarter. The effective date of
each quarterly grant is the later of the second trading day following the public announcement of our
financial results for the preceding quarter or the date of the meeting at which the grant is approved.
The Compensation Committee considers the grant of equity awards to all of our executive and
non-executive officers at the same time, once a year, usually in July or August. During fiscal 2018, the
Compensation Committee approved grants to our named executive officers of options to purchase the
following number of shares of our common stock:
Name
Lee-Lean Shu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas M. Schirle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ping Wu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
100,000
40,000
30,000
40,000
30,000
Unlike options granted to our non-officer employees, which vest in four annual installments,
options granted to our executive and non-executive officers vest in their entirety four years after the
anniversary date of the officer’s commencement of employment that is closest to the date of grant,
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subject to the officer’s continued service. Each of these option grants provides a return to the officer
only if he remains employed by us during the respective vesting period, and then only if the market
price of the shares appreciates over the option term. The Compensation Committee believes the
four-year vesting schedule deters risk taking and further focuses management on building long-term
stockholder value. The value of the shares subject to the fiscal 2018 option grants to executive officers
are reflected in the ‘‘Summary Compensation Table’’ below, and further information about these grants
is contained in the ‘‘Fiscal 2018 Grants of Plan-Based Awards’’ table below.
Executive Retention and Severance Plan
On September 30, 2014, the Compensation Committee adopted the Executive Retention and
Severance Plan (the ‘‘Retention Plan’’) and on August 29, 2017 extended the term of the Plan by an
additional three years such that the Retention Plan will expire on September 30, 2020. The purpose of
the Retention Plan is to mitigate some of the risk that exists for executives working in an environment
where GSI Technology could be acquired or the subject of another transaction that would result in a
change in its control. The severance benefits provided by the Retention Plan are intended to encourage
the continued dedication of our executive officers and key employees during a period of unrest,
notwithstanding a possible change in control. The change in control arrangements are also intended to
mitigate potential disincentives to the consideration of a transaction that would result in a change in
control, particularly where the services of the participants may not be required by a potential acquirer.
The Retention Plan and amounts potentially payable thereunder are described in more detail
below under ‘‘Potential Payments Upon Change of Control.’’
Inter-Relationship of Components of Compensation Packages
The Compensation Committee has adopted a policy that the aggregate compensation of our
executive officers (composed of base compensation, variable cash compensation and equity awards)
should approximate the median aggregate compensation paid by our peer companies to officers
performing comparable functions. Except for this policy, the various components of our executive
officers’ compensation generally are not inter-related. Adjustments to our executive officers’ base
compensation are primarily based on our financial performance, our annual company-wide
compensation survey and review of peer company compensation levels. As we have relied on long-term
equity incentives for a portion of our total compensation package, option grants for our executive
officers are generally considered each year. If the value of options that are granted in one year is
reduced due to a reduction in the value of the underlying common stock, the size of the option grants
for the next year are not affected. Similarly, if the value of previously granted options increases
significantly, the amount of compensation to be awarded for the next year is not affected. While the
Compensation Committee has discretion to make exceptions to existing compensation arrangements, it
has not approved any exceptions to such arrangements with regard to any named executive officers.
Other Benefits
Our executive officers are eligible to participate in all of our employee benefit plans, such as our
medical, dental, vision, group life, disability, and accidental death and dismemberment insurance and
our simplified employee pension plan, in each case on the same basis as our other employees. Aside
from a $5,400 car allowance provided to Mr. Lasserre, there were no special benefits or perquisites
provided to any named executive officer in fiscal 2018.
Accounting for Executive Compensation
We account for equity compensation paid to our employees under authorization guidance for stock
based compensation which requires us to measure and record an expense over the service period of the
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award. Accounting rules also require us to record cash compensation as an expense at the time the
obligation is incurred.
Tax Considerations
We intend to consider the impact of Section 162(m) of the Internal Revenue Code, as recently
amended by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 (the ‘‘Tax Act’’),
when making decisions regarding future executive compensation. This section limits the deductibility of
compensation (including performance-based compensation such as stock options) paid to each of our
named executive officers and certain other employees to $1 million annually. The Compensation
Committee may determine to make changes or amendments to our existing compensation programs in
order to revise aspects of our programs that may no longer serve as an appropriate incentive measure
for our executive officers as a result of the Tax Act.
Other Compensation-Related Policies
Our insider trading policy applies to shares of our common stock held by our directors, officers
and other employees, including shares issued pursuant to equity-based awards. The policy prohibits our
directors, executive officers and other employees from, among other things:
• engaging in short sales of our stock;
• engaging in transactions in derivative securities involving our stock;
• hedging their ownership position in our stock; and
• holding our stock in a margin account or pledging our stock as collateral for a loan.
Compensation Committee Report
We, the Compensation Committee of the Board of Directors of GSI Technology, Inc., have
reviewed the Compensation Discussion and Analysis contained in this proxy statement and discussed it
with management. Based on such review and discussions, we have recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this proxy statement and in
GSI Technology, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.
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THE COMPENSATION COMMITTEE
E. Thomas Hart (Chair)
Haydn Hsieh
Ruey L. Lu
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Summary Compensation Table
The following table sets forth information concerning the compensation earned during the fiscal
years ended March 31, 2018, 2017 and 2016 by our Chief Executive Officer, our Chief Financial
Officer, and our three other most highly-compensated executive officers, determined as of March 31,
2018:
Name and Principal Position
Lee-Lean Shu . . . . . . . . . . . . . . . . .
President and Chief
. . . . . . . . . . .
Executive Officer . . . . . . . . . . . . .
Douglas M. Schirle . . . . . . . . . . . . . .
Chief Financial Officer . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . . .
Vice President, Sales . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . . .
Vice President, Engineering . . . . . .
Ping Wu . . . . . . . . . . . . . . . . . . . . .
Vice President, US Operations . . .
Year
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
Salary
($)
407,119
395,261
383,749
288,993
280,576
272,404
304,187
295,327
286,726
274,796
266,792
259,021
259,263
251,711
244,380
Option
Awards
($)(1)
252,780
157,340
172,450
101,112
62,936
68,980
75,834
47,202
51,735
101,112
62,936
68,980
75,834
47,202
51,735
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
37,938(2)
361,521(3)
217,010(4)
18,969(5)
180,761(6)
108,505(7)
18,969(5)
180,761(6)
108,505(7)
18,969(5)
180,761(6)
108,505(7)
18,969(5)
180,761(6)
108,505(7)
—
—
—
—
—
—
5,400(8)
5,400(8)
5,400(8)
—
—
—
—
—
—
Total
($)
697,837
914,122
773,209
409,074
524,273
449,889
404,390
528,690
452,366
394,877
510,489
436,506
354,066
479,674
404,620
(1) As required by SEC rules, amounts shown in the column entitled ‘‘Option Awards’’ present the
aggregate grant date fair value of option grants made each year computed in accordance with
authoritative guidance. These amounts do not reflect whether the recipient has actually realized or
will realize a financial benefit from the option award. The assumptions used with respect to the
valuation of option grants are set forth in Note 9 to our Consolidated Financial Statements
included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018. Under
generally accepted accounting principles, compensation expense with respect to option awards
granted to our employees and directors is generally recognized over the vesting periods applicable
to the awards.
(2) Earned under the 2018 Variable Compensation Plan, of which $22,762 was paid in May 2018 and
$7,588 will be vested and payable on the last day of April 2019 and April 2020.
(3) Earned under the 2017 Variable Compensation Plan, of which $216,913 was paid in May 2017,
$72,304 was paid in May 2018 and $72,304 will be vested and payable on the last day of April
2019.
(4) Earned under the 2016 Variable Compensation Plan, of which $130,206 was paid in June 2016,
$43,402 was paid in May 2017 and $43,402 was paid in May 2018.
(5) Earned under the 2018 Variable Compensation Plan, of which $11,381 was paid in May 2018 and
$3,794 will be vested and payable on the last day of April 2019 and April 2020.
(6) Earned under the 2017 Variable Compensation Plan, of which $108,457 was paid in May 2017,
$36,152 was paid in May 2018 and $36,152 will be vested and payable on the last day of April
2019.
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(7) Earned under the 2016 Variable Compensation Plan, of which $65,103 was paid in June 2016,
$21,701 was paid in May 2017 and $21,701 was paid in May 2018.
(8) Represents Mr. Lasserre’s car allowance of $5,400.
Grants of Plan-Based Awards
The following table sets forth certain information with respect to plan-based awards granted during
the fiscal year ended March 31, 2018 to our named executive officers:
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($)
Name
Lee-Lean Shu . . . . . . . . . . .
Douglas M. Schirle . . . . . . . .
Didier Lasserre . . . . . . . . . .
Robert Yau . . . . . . . . . . . . .
Ping Wu . . . . . . . . . . . . . . .
7/31/17
7/31/17
7/31/17
7/31/17
7/31/17
—
—
—
—
—
250,000
125,000
125,000
125,000
125,000
500,000
250,000
250,000
250,000
250,000
100,000(3) 7.26
40,000(4) 7.26
30,000(5) 7.26
40,000(6) 7.26
30,000(7) 7.26
Grant Date
Fair Value
of Option
Awards
($)(2)
252,780
101,112
75,834
101,112
75,834
(1) Represents the range of potential cash bonuses payable under the 2018 Variable Compensation
Plan, as more fully described above under ‘‘Compensation Discussion and Analysis—2018 Variable
Compensation Plan.’’ There was no threshold or minimum amount payable under the Plan.
(2) Reflects the grant date fair value of each equity award in accordance with authoritative guidance.
The assumptions used in the calculation of this amount are included in Note 9 to our Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year ended March 31,
2018.
(3) Option granted pursuant to the 2016 Equity Incentive Plan. This option vests 100% on April 13,
2021.
(4) Option granted pursuant to the 2016 Equity Incentive Plan. This option vests 100% on June 3,
2021.
(5) Option granted pursuant to the 2016 Equity Incentive Plan. This option vests 100% on May 3,
2021.
(6) Option granted pursuant to the 2016 Equity Incentive Plan. This option vests 100% on April 13,
2021.
(7) Option granted pursuant to the 2016 Equity Incentive Plan. This option vests 100% on June 5,
2021.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to the value of all unexercised
options previously awarded to our named executive officers as of March 31, 2018:
Name
Lee-Lean Shu . . . . . . . . . . . . . . . . .
Douglas Schirle . . . . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . .
Number of Securities
Underlying Unexercised
Options (#) Exercisable Options (#) Unexercisable
Number of Securities
Underlying Unexercised
Option
Exercise
Price
($)
Option
Expiration
Date
—
—
—
—
—
—
—
100,000(1)
100,000(2)
100,000(3)
100,000(4)
—
—
—
—
—
—
40,000(5)
40,000(6)
40,000(7)
40,000(8)
—
—
—
—
—
—
30,000(9)
30,000(10)
30,000(11)
30,000(12)
—
—
—
—
—
—
40,000(1)
40,000(2)
40,000(3)
40,000(4)
4.00
3.43
6.00
6.54
4.17
5.76
6.86
5.23
4.98
4.99
7.26
3.75
4.00
7.00
6.28
4.81
6.86
5.23
4.98
4.99
7.26
2.43
4.43
9.20
4.92
6.45
6.86
5.23
4.98
4.99
7.26
3.38
6.00
6.54
4.17
5.76
6.86
5.23
4.98
4.99
7.26
6/9/18
6/4/19
5/10/20
5/9/21
5/7/22
5/6/23
7/29/23
8/11/24
8/3/25
8/1/26
7/31/27
8/4/18
8/3/19
8/2/20
8/1/21
7/30/22
7/29/23
8/11/24
8/3/25
8/1/26
7/31/27
2/9/19
2/8/20
1/31/21
1/30/22
2/4/23
7/29/23
8/11/24
8/3/25
8/1/26
7/31/27
5/11/19
5/10/20
5/9/21
5/7/22
5/6/23
7/29/23
8/11/24
8/3/25
8/1/26
7/31/27
100,000
100,000
100,000
100,000
100,000
100,000
25,000
—
—
—
—
20,625
10,625
40,000
40,000
40,000
40,000
—
—
—
—
20,625
20,625
30,000
30,000
30,000
15,000
—
—
—
—
20,625
40,000
40,000
40,000
40,000
10,000
—
—
—
—
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Name
Ping Wu . . . . . . . . . . . . . . . . . . . . .
Number of Securities
Underlying Unexercised
Options (#) Exercisable Options (#) Unexercisable
Number of Securities
Underlying Unexercised
20,625
20,625
30,000
30,000
30,000
22,500
—
—
—
—
—
—
—
—
—
—
30,000(13)
30,000(14)
30,000(15)
30,000(16)
Option
Exercise
Price
($)
3.37
3.43
6.82
4.90
5.59
6.86
5.23
4.98
4.99
7.26
Option
Expiration
Date
11/3/18
11/2/19
11/1/20
10/31/21
10/31/22
7/29/23
8/11/24
8/3/25
8/1/26
7/31/27
(1) Option vested 100% on April 13, 2018.
(2) Option vests 100% on April 13, 2019.
(3) Option vests 100% on April 13, 2020.
(4) Option vests 100% on April 13, 2021.
(5) Option vested 100% on June 3, 2018.
(6) Option vests 100% on June 3, 2019.
(7) Option vests 100% on June 3, 2020.
(8) Option vests 100% on June 3, 2021.
(9) Option vested 100% on May 3, 2018.
(10) Option vests 100% on May 3, 2019.
(11) Option vests 100% on May 3, 2020.
(12) Option vests 100% on May 3, 2021.
(13) Option vested 100% on June 5, 2018.
(14) Option vests 100% on June 5, 2019.
(15) Option vests 100% on June 5, 2020.
(16) Option vests 100% on June 5, 2021.
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Option Exercises and Stock Vested During Last Fiscal Year
The following table sets forth information regarding options exercised by our named executive
officers during the fiscal year ended March 31, 2018.
Fiscal 2018 Option Exercises
Name
Number of Shares
Acquired on Exercise (#)
Value Realized on
Exercise ($)(1)
Lee-Lean Shu . . . . . . . . . . . . . . . . . . . . . . .
Douglas Schirle . . . . . . . . . . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . . . . . . . . .
61,875
30,625
20,625
41,250
221,513
131,362
101,955
146,539
(1) The value realized on exercise represents the difference between the exercise price and
the sale price of the shares on the date of exercise, if the shares were sold, or the
difference between the exercise price and the closing price on the day of exercise for
shares exercised and held.
We have not made any direct grants of stock awards to any of our employees. Accordingly, there
was no vesting of restricted stock held by any named executive officers during the fiscal year ended
March 31, 2018.
Potential Payments Upon Change of Control
Our executive officers, including our named executive officers, are eligible to participate in our
Executive Retention and Severance Plan (the ‘‘Retention Plan’’). Participants in the Retention Plan are
entitled to receive severance benefits upon an ‘‘involuntary termination’’ of their employment other
than for ‘‘cause’’ or a voluntary termination for ‘‘good reason’’ during a period beginning two months
prior to and ending two years following a ‘‘change in control,’’ as such terms are defined in the
Retention Plan.
Benefits payable under the Retention Plan consist of the following (in addition to all other
compensation and benefits accrued at the time of the participant’s termination):
• A lump sum cash payment equal to: (i) the greater of 18 months of base salary or one month’s
salary for each full or partial year of service for the Chief Executive Officer; (ii) the greater of
12 months of base salary or one month’s salary for each full or partial year of service for other
executive officers; and (iii) 12 months of base salary or such lesser amount as the Compensation
Committee may specify for other participants;
• a lump sum cash payment of all bonuses earned by the participant in prior fiscal years but not
vested and payable at the time of termination;
• a lump sum cash payment of the pro rata portion of the participant’s bonus or anticipated bonus
for the fiscal year in which the termination occurs (calculated as provided in the Plan) and 150%
of such amount in the case of the Chief Executive Officer;
• Medical, dental, vision and life insurance benefits for the same period covered by the
participant’s base salary benefit; and
• 100% acceleration of the participant’s equity awards assumed by an acquirer in connection with
a change in control, effective upon termination (100% acceleration effective upon the change in
control for awards not assumed).
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Benefits under the Retention Plan are subject to withholding of applicable income and
employment taxes. Participants are not entitled to any tax ‘‘gross up’’ in respect of excise taxes, if any,
that might arise under the ‘‘parachute payment’’ provisions of the Internal Revenue Code and may be
subject to a reduction in benefits if any such excise tax were applicable and the reduced benefit would
maximize the net after-tax payment to the participant.
No severance or change of control payments were made to any of our executive officers in fiscal
2018.
The following table summarizes amounts that would have been payable to our named executive
officers upon a termination of their employment qualifying for benefits under the Retention Plan,
assuming that such termination had occurred on March 31, 2018:
Name
Cash Severance
Payment
Based on
Salary
Based on
Bonus
Continued Health
Benefits(1)
Lee-Lean Shu . . . . . . . . . . . . . . . .
Douglas M. Schirle . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . . . . .
Robert Yau . . . . . . . . . . . . . . . . . .
Ping Wu . . . . . . . . . . . . . . . . . . . .
$814,238
457,572
532,327
549,592
410,500
$244,917
112,974
112,974
112,974
112,974
$40,753
45,361
50,136
40,753
45,361
Acceleration of
Stock
Options(2)
$718,000
287,200
215,400
287,200
215,400
Total
$1,817,908
903,107
910,837
990,519
784,235
(1) Represents the aggregate premium payments required to provide continued health insurance
coverage under COBRA, based on the officer’s health insurance coverage in effect as of March 31,
2018.
(2) The value of the acceleration of stock options is calculated by multiplying (x) the number of shares
subject to acceleration by (y) the difference between the fair market value of a share of our
common stock on March 29, 2018 ($7.41) and the per share exercise price of the unvested shares
subject to acceleration.
CEO Compensation Pay Ratio
We believe our executive compensation program must be internally consistent and equitable to
motivate our employees to create stockholder value. We monitor the relationship between the
compensation of our executive officers and the compensation of our non-managerial employees. For
the year ended March 31, 2018, the total compensation of Lee-Lean Shu, our President and Chief
Executive Officer, of $697,837, as shown in the Summary Compensation Table above, was
approximately 6.5 times the total compensation of the median employee calculated in the same manner
of $107,966.
Our CEO to median employee pay ratio is calculated in accordance with SEC’s rules pursuant to
Item 402(u) of Regulation S-K. We identified the median employee by examining the 2018 total
compensation for all of our employees , excluding our CEO, who were employed by us on March 31,
2018, the last day of our payroll year. We included all employees, whether employed on a full-time or
part-time basis. We did not make any assumptions, adjustments, or estimates with respect to total
compensation. We annualized the compensation for any full-time employees that were not employed by
us for all of 2018.
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Compensation of Directors
Our policy for the compensation of non-employee directors provides that non-employee directors
are entitled to receive annual cash retainers as follows:
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lead Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40,000
$20,000
Audit Committee:
• Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Other Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,000
$ 7,500
Compensation Committee:
• Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Other Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,000
$ 5,000
Nominating and Governance Committee:
• Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Other Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,500
$ 3,000
Prior to fiscal 2017, each new non-employee director was granted an initial option to purchase
10,000 shares of our common stock upon his or her initial election or appointment to our Board of
Directors, which option was exercisable in three equal annual installments beginning on the first
anniversary of the date of grant. Under the Board’s prior policy, at the first regular quarterly meeting
of the Board of Directors following each annual meeting of stockholders, each non-employee director
who remained in office immediately following such annual meeting of stockholders was granted an
additional option to purchase 2,000 shares of common stock, which became fully vested and exercisable
on August 15 of the following year, subject to the non-employee director’s continuous service on our
Board of Directors. In addition, each non-employee director was granted an option to purchase (i) an
additional 2,000 shares in any fiscal year in which the non-employee director was serving as the
chairman or lead director of the Board, (ii) an additional 1,000 shares in any fiscal year for each
committee of the Board on which the non-employee director was then serving, other than as chairman
of the committee, and (iii) an additional 2,000 shares in any fiscal year for each committee of the
Board on which the non-employee director was then serving as chairman of the committee. Upon
stockholder approval of the 2016 Equity Incentive Plan in August 2016, the Board revised the policy for
the annual grant of options so that each non-employee director will receive an option to purchase the
number of shares having a fair market value equal to the aggregate amount of the annual cash retainer
payable to such director for service on the Board and its committees.
The table below summarizes the compensation we paid to our non-employee directors for the
fiscal year ended March 31, 2018.
Name
Fees Earned
or Paid in
Cash ($)
Option Awards
($)(1)(2)(3)
Jack A. Bradley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Thomas Hart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Haydn Hsieh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ruey L. Lu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arthur O. Whipple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,000
53,000
52,500
48,000
83,000
18,873
18,185
18,016
16,472
28,482
Total ($)
73,873
71,185
70,516
64,472
111,482
(1) Valuation based on the dollar amount recognized during fiscal 2018 for financial statement
reporting purposes pursuant to authoritative guidance, giving effect to service-based vesting
conditions, but disregarding the estimate of forfeitures related to such vesting conditions. These
30
amounts do not reflect whether the recipient has actually realized or will realize a financial benefit
from the option award. The assumptions used with respect to the valuation of option grants are set
forth in Note 9 to our Consolidated Financial Statements included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2018.
(2) On October 30, 2017, Mr. Bradley, Mr. Hart, Mr. Hsieh, Mr. Lu and Mr. Whipple were granted
options to purchase 8,017, 7,725, 7,653, 6,997 and 12,099 shares, respectively, that will be fully
vested on August 15, 2018. The grant date fair value of each of these options was $18,873, $18,185,
$18,016, $16,472 and $28,482, respectively.
(3) As of March 31, 2018, each non-employee director had the following number of shares underlying
outstanding options: Mr. Bradley: 33,433; Mr. Hart: 32,762; Mr. Hsieh: 72,596; Mr. Lu: 56,087; and
Mr. Whipple: 83,818.
Equity Compensation Plan Information
We currently maintain three compensation plans that provide for the issuance of our common
stock to officers and other employees, directors and consultants. These consist of the 2007 Equity
Incentive Plan, the 2016 Equity Incentive Plan (the ‘‘2016 Plan’’) and the 2007 Employee Stock
Purchase Plan (the ‘‘Purchase Plan’’), each of which has been approved by stockholders. The following
table sets forth information regarding outstanding options and shares reserved for future issuance
under the foregoing plans as of March 31, 2018:
Number of shares
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of shares
remaining available
for future issuance
under equity
compensation plans
(excluding shares
reflected in column (a))
(c)
Plan Category
Equity compensation plans approved by
stockholders . . . . . . . . . . . . . . . . . . . . .
7,874,267
$5.45
6,327,539(1)(2)
(1) Includes 1,883,238 shares available for future issuance under the Purchase Plan.
(2) A total of 6,000,000 shares of common stock have been authorized and reserved for issuance under
the 2016 Plan, of which 4,444,301 were available for grant as of March 31, 2018. Appropriate
adjustments will be made in the number of authorized shares and other numerical limits in the
2016 Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in
the event of a stock split or other change in our capital structure. Shares subject to awards which
expire or are cancelled or forfeited will again become available for issuance under the 2016 Plan.
The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy
tax withholding obligations. Only the net number of shares issued upon the exercise of stock
appreciation rights or options exercised by means of a net exercise or by tender of previously
owned shares will be deducted from the shares available under the 2016 Plan.
Procedures for Approval of Related Person Transactions
RELATED PERSON TRANSACTIONS
Pursuant to our Code of Business Conduct and Ethics and the Audit Committee Charter, our
executive officers, directors, and principal stockholders, including their immediate family members and
affiliates, are prohibited from entering into a related party transaction with us without the prior consent
of our Audit Committee which reviews and approves any related-party transactions.
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We have entered into indemnification agreements with our officers and directors containing
provisions that may require us, among other things, to indemnify our officers and directors against
certain liabilities that may arise by reason of their status or service as officers or directors and to
advance their expenses incurred as a result of any proceeding against them as to which they could be
indemnified.
Other Transactions
For information regarding the grant of stock options to our directors and executive officers, please
see ‘‘Executive Compensation—Compensation of Directors’’ and ‘‘Executive Compensation—Grants of
Plan-Based Awards,—Outstanding Equity Awards at Fiscal Year-End and—Potential Payments Upon
Change of Control.’’
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PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP BY MANAGEMENT
The following table sets forth, as of June 30, 2018 certain information with respect to the
beneficial ownership of GSI Technology’s common stock by (i) each stockholder known by GSI
Technology to be the beneficial owner of more than 5% of GSI Technology’s common stock, (ii) each
director of GSI Technology, (iii) each executive officer named in the Summary Compensation Table,
and (iv) all directors and executive officers of GSI Technology as a group:
Beneficial Owner(1)
Number of
Shares
Beneficially
Owned(2)
Percentage
of Shares
Beneficially
Owned(3)
Principal Stockholders:
Ariel Investments, LLC(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,876,484
8.6%
200 E. Randolph Street, Suite 2900
Chicago, IL 60601
Jing Rong Tang(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,509,230
6.9
c/o HolyStone Enterprises Co., Ltd.
1FL No. 62, Sec 2 Huang Shan Road
Taipei, Taiwan, R.O.C
Ching Ho Cheng(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,126,521
5.2
P.O. Box 2148
Menlo Park, CA 94026
Directors, Named Executive Officers and certain Executive Officers:
Lee-Lean Shu(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jack A. Bradley(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Thomas Hart(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Haydn Hsieh(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ruey L. Lu(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arthur O. Whipple(12)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Yau(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Didier Lasserre(14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas M. Schirle(15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ping Wu(16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bor-Tay Wu(17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All executive officers and directors as a group (14 persons)(18) . . . . . . . . . . . .
3,080,864
36,433
32,762
72,596
66,087
108,818
1,265,147
440,585
250,625
288,835
1,143,125
8,042,655
13.7
*
*
*
*
*
5.8
2.0
1.1
1.3
5.2
36.3
*
Less than 1.0%
(1) The address for those individuals and entities not otherwise indicated is 1213 Elko Drive,
Sunnyvale, California 94089. Except as otherwise indicated, the persons named in this table have
sole voting and investment power with respect to all shares of common stock shown as beneficially
owned by them, subject to community property laws where applicable and to the information
contained in the other footnotes to this table.
(2) Under the rules of the SEC, a person is deemed to be the beneficial owner of shares that can be
acquired by such person within 60 days upon the exercise of options.
(3) Calculated on the basis of 21,760,094 shares of common stock outstanding as of June 30, 2018,
provided that any additional shares of common stock that a stockholder has the right to acquire
within 60 days after June 30, 2018 are deemed to be outstanding for the purpose of calculating
that stockholder’s percentage beneficial ownership.
(4) Based on information contained in a Schedule 13G filed with the SEC on February 13, 2018.
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(5) Based on information contained in a Schedule 13G/A filed with the SEC on February 12, 2018.
Includes: 66,089 shares held by HolyStone Enterprises Co., Ltd., of which Mr. Tang is Chief
Executive Officer; and 443,141 shares held by Koowin Co., Ltd., of which Mr. Tang is a director.
Mr. Tang disclaims beneficial ownership of these securities except to the extent of his pecuniary
interest therein.
(6) Based on information contained in a Schedule 13G/A filed with the SEC on February 23, 2018.
(7) Includes: 625,000 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018; 13,600 shares held by Mr. Shu’s children; 520,626 shares held by
Mr. Shu’s spouse; and 77,346 shares issuable upon exercise of options held by his spouse that are
exercisable within 60 days of June 30, 2018.
(8) Includes 33,433 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(9) Includes 32,762 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(10) Includes 51,596 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(11) Includes 56,087 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(12) Includes 78,818 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(13) Includes 230,625 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018 and 4,000 shares held by Mr. Yau’s spouse.
(14) Includes 176,250 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(15) Includes 202,625 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(16) Includes 183,750 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(17) Includes 230,625 shares issuable upon exercise of options that are exercisable within 60 days
following June 30, 2018.
(18) Includes an aggregate of 2,740,917 shares issuable upon exercise of options that are exercisable
within 60 days following June 30, 2018.
34
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors
and persons who beneficially own more than 10% of our common stock to file initial reports of
beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are
required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person.
Based solely on our review of such forms furnished to us and written representations from certain
reporting persons, we believe that all filing requirements applicable to our executive officers, directors
and greater-than-10% stockholders were complied with during fiscal 2018 except that Jack Bradley,
E. Thomas Hart, Haydn Hsieh, Ruey L. Lu and Arthur O. Whipple each filed one late report, on
Form 4, with respect to one transaction each.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Stockholder proposals may be included in our proxy materials for an annual meeting so long as
they are provided to us on a timely basis and satisfy the other conditions set forth in applicable SEC
rules. For a stockholder proposal to be included in our proxy materials for the 2019 annual meeting,
the proposal must be received at our principal executive offices, addressed to the Secretary, not later
than March 22, 2019.
Submitting a stockholder proposal does not guarantee that we will include it in our proxy
statement. Our Nominating and Governance Committee reviews all stockholder proposals and makes
recommendations to the board for actions on such proposals. For information on qualifications of
director nominees considered by our Nominating and Governance committee, see the ‘‘Corporate
Governance’’ section of this proxy statement.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the Board of Directors knows of no other business that will
be conducted at the 2018 annual meeting other than as described in this Proxy Statement. If any other
matter or matters are properly brought before the meeting, or any adjournment or postponement of
the meeting, it is the intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgment.
ANNUAL REPORT ON FORM 10-K
A copy of our annual report on Form 10-K (without exhibits) for the fiscal year ended March 31,
2018 is being distributed along with this proxy statement. We refer you to such report for financial and
other information about us, but such report is not incorporated in this proxy statement and is not
deemed to be a part of the proxy solicitation material. It is also available on our website at
www.gsitechnology.com. In addition, the report (with exhibits) is available at the SEC’s website at
www.sec.gov.
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July 20, 2018
20JUL201115581433
Robert Yau
Secretary
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2018
or
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33387
GSI Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
77-0398779
(IRS Employer
Identification No.)
1213 Elko Drive
Sunnyvale, 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
Common Stock, $0.001 par value
Securities registered pursuant to Section 12(g) of the Act: None
Name of Each Exchange on which Registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:95)
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 (cid:134) No (cid:95)
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 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required 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 was required to submit and post such files). Yes (cid:95) No (cid:134)
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 the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.
(Check one):
Large accelerated filer (cid:134)
Accelerated filer (cid:95)
Non-accelerated filer (cid:134)
Smaller reporting company (cid:134)
Emerging growth
company (cid:134)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
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 stock on September 30, 2017, as reported on the Nasdaq Global Market, was approximately $119.1 million. Shares of the
registrant’s common stock held by each officer and director and each person who owns 10% or more of the outstanding common stock of the
registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of May 29, 2018, there were 21,686,364 shares of the registrant’s common stock issued and
outstanding.
Portions of the registrant’s definitive proxy statement for its 2018 annual meeting of stockholders are incorporated by reference into
DOCUMENTS INCORPORATED BY REFERENCE
Part III hereof.
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GSI TECHNOLOGY, INC.
2018 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Forward-looking Statements
In addition to historical information, this Annual Report on Form 10-K includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements involve risks and
uncertainties. Forward-looking statements are identified by words such as “anticipates,” “believes,” “expects,”
“intends,” “may,” “will,” and other similar expressions. In addition, any statements which refer to expectations,
projections, or other characterizations of future events or circumstances are forward-looking statements. Actual
results could 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 and Results of Operations” and “Risk Factors,” those described elsewhere in this report, and those
described in our other reports filed with the Securities and Exchange Commission (“SEC”). We caution you not to
place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we
undertake no obligation to update these forward-looking statements after the filing of this report. You are urged to
review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or
filed with the SEC that attempt to advise you of the risks and factors that may affect our business.
PART I
Item 1. Business
Overview
For many years we have developed and marketed high performance memory products, including “Very Fast”
static random access memory, or SRAM, and low latency dynamic random access memory, or LLDRAM, that are
incorporated primarily in high-performance networking and telecommunications equipment, such as routers,
switches, wide area network infrastructure equipment, wireless base stations and network access equipment. We sell
these products to leading original equipment manufacturer, or OEM, customers including Nokia and Cisco Systems.
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 products and the
breadth of our product portfolio, we consider ourselves to be a leading provider of Very Fast SRAMs. We utilize a
fabless business model, which allows us both to focus our resources on research and development, product design
and marketing, and to gain access to advanced process technologies with only modest capital investment and fixed
costs.
On November 23, 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group
Ltd. (“MikaMonu”), an Israel-based company that was engaged in the development of in-place associative
computing technology. MikaMonu, located in Tel Aviv, held 12 United States patents and a number of pending
patent applications. Subsequent to our acquisition of MikaMonu, our principal strategic objective has been the
development of in-place associative computing solutions for applications in evolving new markets such as “big
data” (including machine learning and deep convolutional neural networks (“CNNs”)), natural language processing,
computer vision, and cyber security.
We were incorporated in California in 1995 under the name Giga Semiconductor, Inc. We changed our name
to GSI 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 number is (408) 331-8800.
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Industry Background
SRAM, LLDRAM and Bandwidth Engine Market Overview
Virtually all types of high-performance electronic systems incorporate some form of volatile memory. An
SRAM is a memory device that retains data as long as power is supplied, without requiring any further user
intervention. In contrast, dynamic random access memory, or DRAM, is a memory device that requires user
intervention in the form of refresh operations to retain data while power is supplied, due to the capacitive nature of
its memory cell. However, a DRAM memory cell is much smaller than an SRAM memory cell, so several times
more DRAM bits than SRAM bits can be implemented in any given unit area of silicon. The fundamentally
different characteristics of SRAM and DRAM memory cells have resulted in the emergence of markedly different
architectures for SRAM-based and DRAM-based memory products, and the two types of memory serve different
applications. Classically, SRAM-based products have served high performance requirements while DRAM-based
products have been used in cost-optimized applications. Today, SRAM- and DRAM-based products serve both
performance and cost-based applications. As the volatile memory market fragments into a variety of specialized
products, more meaningful distinctions between volatile memory products can be made.
There is an increasingly broad variety of volatile memory products on the market, characterized by a number
of attributes, such as speed, memory capacity, or density, I/O interface and power consumption. There are several
different industry measures of speed:
•
•
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•
•
latency, which is the delay between the request for data and the delivery of such data for use and is
measured in nanoseconds, or ns, or when used to describe performance of synchronous memory products
may be described in terms of numbers of clock cycles required between the load of an address and the
delivery of valid data;
random access time, which is the minimum amount of time required between accesses to random
locations 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 in
megabits 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 in
megahertz or gigahertz (MHz or GHz); and
transaction rate, which is the rate at which new commands can be executed by the memory device, and
is 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 been
inadequate. SRAMs demonstrate lower latency and faster random access times relative to DRAMs and other types
of memory 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. Gartner
Dataquest divides the SRAM market into segments based on speed. The highest performance segment is comprised
of SRAMs that operate at speeds of less than 10 nanoseconds, which we refer to as “Very Fast SRAMs.” Very Fast
SRAMs are predominantly utilized in high-performance networking and telecommunications equipment. Over the
past two decades, alternative memory technologies have been introduced to address certain applications that
formerly used slow SRAMs. For example, new types of DRAM have displaced slow SRAM in applications such as
cell phones. However, in the networking memory market a technology vacuum formed between Fast SRAMs on
one end and commodity DRAMs at the other, with no high bandwidth, high transaction rate, moderate capacity,
moderate 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 a much higher price-per-bit than commodity DRAMs (in order to deliver higher transaction rates)
but demonstrate slower random access times and longer latencies than Fast SRAMs.
The need for increasingly greater capacity, data bandwidth and transaction rates from the various memory
technologies continues unabated as the networking market begins to make preparations for Terabit networking in the
4
latter half of the current decade. We believe that Fast SRAM and LLDRAM, optimized for networking applications,
will continue to play an essential role in enabling continued improvements in network performance.
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 maintain timely availability of
prior generations of products for several years after their introductions, and to provide effective logistic and
technical support throughout their OEM customers’ product development and manufacturing life cycles.
Memory Requirements for “Big Data” Applications
With the vast amount of data currently being generated and the demand for faster processing of that data,
processor speeds are continuing to increase. However, existing systems that move data back and forth between the
processor and memory are inadequate to address the fast response times required by “big data” applications
(including machine learning, CNNs and natural language processing). Faster response times are also needed to meet
the demands of developers in such markets as cyber security and computer vision. For example, in the automotive
market, advanced driver assistance systems (“ADAS”) require a tremendous amount of image processing to be
accomplished in real time
The GSI Solution
Continue Leadership in the High Performance Memory Market
We endeavor to address the overall needs of our OEM customers, not only satisfying their immediate
requirements for our latest generation, highest performance networking memory, but also providing them with the
ongoing long-term support necessary during the entire lives of the systems in which our products are utilized.
Accordingly, the key elements of our solution include:
• Product Performance Leadership. Through the use of advanced architectures and design methodologies,
we have developed high-performance SRAM and LLDRAM products offering superior high speed
performance capabilities and low power consumption, while our advanced silicon process technologies
allow us to optimize yields, lower manufacturing costs and improve quality.
• Product Innovation. We believe that we have established a position as a technology leader in the design
and development of Very Fast SRAMs. We are believed to have the industry’s highest density RadHard
SRAM, the SigmaQuad-II+, which is an example of our industry-leading product innovation.
• Broad and Readily Available Product Portfolio. We have what we believe is the broadest catalog of
Very Fast SRAM products.
• Master Die Methodology. Our master die methodology enables multiple product families, and variations
thereof, to be manufactured from a single mask set so that we are able to maintain a common pool of
wafers that incorporate all available master die, allowing rapid fulfillment of customer orders and
reducing costs.
• Customer Responsiveness. We work closely with leading networking and telecommunications OEMs, as
well as their chip-set suppliers, to anticipate their requirements and to rapidly develop and implement
solutions that allow them to meet their specific product performance objectives.
Development of In-Place Associative Computing Products
The in-place associative computing technology that we obtained in the MikaMonu acquisition addresses the
bottleneck caused by the inability of memory bus speeds to keep up with increasing processor speeds by changing
the concept of computing from serial data processing – where data is moved back and forth from the processor to the
memory – to parallel processing computation and search functions being conducted directly in the main processing
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array. This new computing model has the potential to greatly expedite computation and response times in “big data”
applications. We believe that our state-of-the-art circuit design expertise will enable the development of high
quality associative processors incorporating MikaMonu’s patented, in-place associative computing technology and
algorithms to create a new category of computing products with substantial target markets and a large new customer
base in those markets. We anticipate the release of our initial product based on the MikaMonu IP to be released late
in calendar 2018. Our associative computing products will improve system performance, reducing query response
times from hours to seconds and at the same time significantly reducing power consumption and reducing system
cost.
The GSI Strategy
Our objective is to profitably increase our market share in the markets that we serve, while developing
transformative new products utilizing our cutting-edge in-place associative computing technology. Our strategy
includes the following key elements:
• Continue to Focus on the Networking and Telecommunications Markets. We intend to continue to focus
on designing and developing high transaction rate, low latency, high bandwidth and feature-rich memory
products targeted primarily at the networking and telecommunications markets.
• Complete the Development of Our Initial In-place Associative Computing Product. Our principal
strategic objective is the completion of our initial in-place associative computing product. Realization of
this goal will require additional development and marketing efforts during the remainder of calendar
2018, with initial product introduction and customer evaluation expected in late fiscal 2019.
• Exploit Opportunities to Expand the Market for Our Memory Products. While we develop our high-
performance memory products principally for the networking and telecommunications markets, they are
often applicable across a wide range of industries and applications. We have experienced growth in
product sales for military, industrial, test and measurement, and medical markets and intend to continue
penetrating these and other new markets with similar needs for high-performance memory technologies.
•
Strengthen and Expand Customer Relationships. We are focused on maintaining close relationships with
industry 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 in order to anticipate their future high-
performance memory needs and to identify and respond to their immediate requests for currently
available products and variants on currently available products.
• Continue to Invest in Research and Development to Extend Our Technology Leadership. We believe we
have established a position as a technology leader in the design and development of Very Fast
SRAMs. Our Very Fast SRAM products most often provide the highest speed available at a given
density for a given device configuration. We intend to maintain and advance our technology leadership
through continual enhancement of our existing Very Fast SRAM products, particularly our
SigmaQuad/SigmaDDR family of low latency, high-bandwidth synchronous SRAMs, while we continue
to broaden our product line with the introduction of other new high performance memory technologies
targeted to address the evolving needs of the high performance memory market.
• Collaborate with Wafer Foundries to Leverage Leading-edge Process Technologies. We will continue
to rely upon advanced complementary metal oxide semiconductor, or CMOS, technologies, the most
commonly used process technologies for manufacturing semiconductor devices, from TSMC for SRAM-
based products and from Powerchip for DRAM-based products.
•
Seek New Market Opportunities. We intend to supplement our internal development activities by
seeking additional opportunities to acquire other businesses, product lines or technologies, or enter into
strategic partnerships, that would complement our current product lines, expand the breadth of our
markets, enhance our technical capabilities, or otherwise provide growth opportunities.
6
Products
We design, develop and market a broad range of high-performance memory products primarily for the
networking and telecommunications markets. We specialize in high performance memory products featuring very
high transaction rates, high density, low latency, high bandwidth, fast clock access times and low power
consumption. We commit to offering our products for longer periods of time than our competitors, typically
seven years or more following their initial introduction. Accordingly, we continue to offer products in a variety of
package types that have been discontinued by other suppliers.
We currently offer more than 30 families of SRAMs and one family of LLDRAMs. These basic product
configurations are the basis for over 16,000 individual products that incorporate a variety of performance
specifications and optional features. Our products can be found in a wide range of networking and
telecommunications equipment, including core routers, multi-service access routers, universal gateways, enterprise
edge routers, service provider edge routers, optical edge routers, fast Ethernet switches and wireless base stations.
We also sell our products to OEMs that manufacture products for military and aerospace applications such as radar
and guidance systems and satellites, 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 ultrasound and CAT scan equipment.
We have spent in excess of two years developing and marketing in-place associative computing solutions
since our acquisition of MikaMonu in November 2015, leveraging the patented technology obtained in our
acquisition of MikaMonu and our 20-plus years of high-performance SRAM development experience. Our new
associative computing solutions will address evolving new markets, such as “big data” (including machine learning
and CNNs), natural language processing, computer vision and cyber security.
Synchronous SRAM Products
Synchronous SRAMs are controlled by timing signals, referred to as clocks, which make them easier to use
than older style asynchronous SRAMs with similar latency characteristics in applications requiring high bandwidth
data transfers. Synchronous SRAMs that employ double data rate interface protocols can transfer data at much
higher bandwidth than both single data rate and asynchronous SRAMs. We currently supply synchronous
SRAMs that can cycle at operating frequencies as high as 1,333 MHz.
BurstRAM™ and NBT™ SRAMs. We currently offer BurstRAMs and No Bus Turnaround, or NBT,
SRAMs that implement a single data rate bus protocol. BurstRAMs were originally developed for microprocessor
cache applications and have become the most widely used synchronous SRAMs on the market. They are used in
applications where large amounts of data are read or written in single sessions, or bursts. NBT SRAMs are a
variation on the BurstRAM theme and were developed to address the needs of moderate performance networking
applications. NBT SRAMs feature a single data rate bus protocol designed to minimize or eliminate wasted data
transfer time slots on the bus when BurstRAMs switch from read to write operations. Both families of products can
perform burst data transfers or single cycle transfers at the discretion of the user.
Our BurstRAMs and NBT SRAMs are offered in both pipeline and flow-through modes. Flow-through
SRAMs allow the shortest latency. Pipelined SRAMs break the access into discrete clock-controlled steps, allowing
new access commands to be accepted while an access is already in progress. Therefore, while flow-through
SRAMs offer lower latency, pipelined SRAMs offer greater data bandwidth. Our BurstRAM and NBT SRAM
products incorporate a number of features that reduce our OEM customers’ cost of ownership and increase their
design flexibility, including a JTAG test port and our FLXDrive feature, which allows system designers to optimize
signal integrity for a given application.
We currently offer BurstRAMs and NBT SRAMs with storage densities of up to 288 megabits with clock
frequency of up to 400 MHz and clock access times as fast as 2 nanoseconds that operate at 3.3, 2.5 or 1.8 volts.
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SigmaQuad and SigmaDDR Products. High-performance double data rate and quad data rate synchronous
SRAMs have become the de facto standard for the networking and telecommunications industry. We offer a full line
of quad data rate separate I/O SRAMs, known as our SigmaQuad family, as well as a companion line of double data
rate common I/O SRAMs, known as our SigmaDDR family. SigmaQuad SRAMs feature two uni-directional (one
input and one output) double data rate data ports (two data ports times double data rate transfers equals quad data
rate), controlled via a single address and control port. SigmaDDR SRAMs feature a single bi-directional double data
rate data port. We currently offer our SigmaQuad and SigmaDDR devices in multiple bus protocol versions and data
burst lengths, and with various power supply and interface voltages, all under the names SigmaQuad, SigmaQuad-II,
SigmaQuad-IIIe and SigmaQuad-IVe, and their SigmaDDR equivalents. An additional variant in this family of
SRAMs is the 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,
72 megabits, 144 megabits and 288 megabits. These SRAMs are capable of speeds up to 1,333 MHz and operate on
main power 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.
RadHard and RadTolerant SRAM Products. We have committed to introduce and market radiation-hardened,
or “RadHard”, and radiation-tolerant, or “RadTolerant”, SRAMs for aerospace and military applications such as
networking satellites and missiles. Our initial RadHard and RadTolerant products are 288 megabit devices from our
SigmaQuad-II family. The RadHard products are housed in a hermetically-sealed ceramic column grid array
package, and undergo a special fabrication process that diminishes the adverse effects of high-radiation
environments.
Low Latency DRAM Products
Our low latency DRAM family fills an under-served market segment between commodity DRAMs and Fast
SRAMs. Offering moderate density, moderate speed and moderate cost, LLDRAM technology gives system
designers a middle choice when 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, giving networking 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 of up 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 are available in five distinct configurations including common I/O and separate I/O types and data
bus widths of x36, x18 and x9. These devices serve as an alternate source for users of a popular, functionally
equivalent device from a competing vendor.
Customers
Historically, our primary sales and marketing strategy has been to achieve design wins with leading OEMs in
the networking and telecommunications markets and the other markets we serve. With the development of our new
in-place associative computing products, we are focusing sales and marketing efforts in the markets for “big data”
(including CNNs), natural language processing, computer vision and cyber security.
The following is a representative list of our OEM customers that directly or indirectly purchased more than
$500,000 of our products in the fiscal year ended March 31, 2018:
BAE Systems
General Dynamics
Nokia
Ciena
Honeywell
Raytheon
Cisco Systems
Lockheed
Rockwell
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Many of our OEM customers use contract manufacturers to assemble their equipment. Accordingly, a
significant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment
warehouses who purchase products from us for use by contract manufacturers. In addition, we sell our products to
OEM customers indirectly through domestic and international distributors.
In the case of sales of our products to distributors and consignment warehouses, the decision to purchase our
products is typically made by the OEM customers. In the case of contract manufacturers, OEM customers typically
provide a list of approved products to the contract manufacturer, which then has discretion whether or not to
purchase our products from that list.
Direct sales to contract manufacturers and consignment warehouses accounted for 34.9%, 39.0% and 37.6%
of our net revenues for fiscal 2018, 2017 and 2016, respectively. Sales to foreign and domestic distributors
accounted for 62.5%, 57.5% and 50.4% of our net revenues for fiscal 2018, 2017 and 2016, respectively.
The following direct customers accounted for 10% or more of our net revenues in one or more of the
following periods:
Fiscal Year Ended
March 31,
2018
2017
2016
Contract manufacturers and consignment warehouses:
Flextronics Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanmina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.0 % 10.4 % 13.7 %
20.4
16.0
16.4
Distributors:
Avnet Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nexcomm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.3
16.1
25.5
19.7
28.2
13.3
Nokia was our largest customer in fiscal 2018, 2017 and 2016. Nokia purchases products directly from us
and through contract manufacturers and distributors. Based on information provided to us by its contract
manufacturers and our distributors, purchases by Nokia represented approximately 36%, 41% and 32% of our net
revenues in fiscal 2018, 2017 and 2016, respectively. To our knowledge, none of our other OEM customers
accounted for more than 10% of our net revenues in any of these periods.
Sales, Marketing and Technical Support
We sell our products primarily through our worldwide network of independent sales representatives and
distributors. As of March 31, 2018, we employed 16 sales and marketing personnel, and were supported by over
200 independent sales representatives, which we believe will enable us to address an expanded customer base with
the introduction of our associative computing products in fiscal 2019. We believe that our relationship with our
U.S. distributor, Avnet, puts us in a strong position to address the Very Fast SRAM and LLDRAM memory markets
in the United States. We currently have regional sales offices located in Canada, China, Hong Kong, Israel and the
United States. We believe this international coverage allows us to better serve our distributors and OEM customers
by providing them with coordinated support. We believe that our customers’ purchasing decisions are based
primarily on product performance, availability, features, quality, reliability, price, manufacturing flexibility and
service. Many of our OEM customers have had long-term relationships with 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 the
scheduled delivery date. Because industry practice allows customers to reschedule or cancel orders on relatively
short notice, these orders are not firm and hence we believe that backlog is not a good indicator of our future sales.
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We typically provide a warranty of up to 36 months on our products. Liability for a stated warranty period is usually
limited to replacement of defective products.
Our marketing efforts are, first and foremost, focused on ensuring that the products we develop meet or
exceed our customers’ needs. Historically, those efforts have been focused on defining our high-performance SRAM
and LLDRAM product roadmaps by working closely with key customers to understand their roadmaps and to ensure
that the products we 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
marketing the new in-place associative computing products that we are developing. Our marketing group also
provides technical, strategic and tactical sales support to our direct sales personnel, sales representatives and
distributors. This support includes in-depth product presentations, datasheets, application notes, simulation models,
sales tools, marketing communications, marketing research, trademark administration and other support functions.
We also engage in various marketing activities to increase brand awareness.
We emphasize customer service and technical support in an effort to provide our OEM customers with the
knowledge and resources necessary to successfully use our products in their designs. Our customer service
organization includes a technical team of applications engineers, technical marketing personnel and, when required,
product design engineers. 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 with comprehensive datasheets, application notes and reference designs and access to our FPGA
controller IP for use in their product development.
Manufacturing
We outsource our wafer fabrication, assembly and wafer sort testing, which enables us to focus on our design
strengths, minimize fixed costs and capital expenditures and gain access to advanced manufacturing technologies.
Our engineers work closely with our outsource partners to increase yields, reduce manufacturing costs, and help
assure the quality of our products.
Currently, all of our wafers are manufactured by TSMC and Powerchip under individually negotiated
purchase orders. We do not currently have a long-term supply contract with either of these foundries, and, therefore,
neither of them is obligated to manufacture products for us for any specified period, in any specified quantity or at
any specified price, except as may be provided in a particular purchase order. Our future success depends in part on
our ability to secure sufficient capacity at TSMC, Powerchip or other independent foundries to supply us with the
wafers we require.
The majority of our current SRAM products are manufactured using 0.13 micron, 90 nanometer,
65 nanometer and 40 nanometer process technologies on 300 millimeter wafers at TSMC. Our LLDRAM
production at Powerchip uses 72 nanometer and 63 nanometer process technologies. We currently plan to have our
new in-place associative computing products manufactured at TSMC using 28 nanometer process technology.
Our master die methodology enables multiple product families, and variations thereof, to be manufactured
from a single mask set. As a result, based upon the way available die from a wafer are metalized, wire bonded,
packaged and tested, we can create a number of different products. The manufacturing process consists of
two phases, the first of which takes approximately eight to twelve weeks and results in wafers that have the potential
to yield multiple products within a given product family. After the completion of this phase, the wafers are stored
pending customer orders. Once we receive 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 process enables us to significantly shorten our product lead times, providing flexibility
for customization and to increase the availability of our products.
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All of our manufactured wafers are tested for electrical compliance and most are packaged at Advanced
Semiconductor Engineering, or ASE, which is located in Taiwan. Our test procedures require that all of our products
be subjected to accelerated burn-in and extensive functional electrical testing which is performed at our Taiwan and
U.S. test facilities. Our radiation-hardened products will be assembled and tested at STS, located near our
Sunnyvale, California headquarters facility.
Research and Development
Research and development expenses were $17.0 million in fiscal 2018, $15.8 million in fiscal 2017 and
$12.1 million in fiscal 2016. During the past two fiscal years, we have devoted substantial resources to the
development of a new category of in-place associative computing products based on patented technology obtained in
our acquisition of MikaMonu in November 2015. Our research and development staff includes engineering
professionals with extensive experience in the areas of high-speed circuit design, including SRAM design, DRAM
design and systems level networking and telecommunications equipment design, and well suited for the
development of our associative computing products. The design process for our products is complex. As a result, we
have made substantial investments in computer-aided design and engineering resources to manage our design
process.
Competition
Our existing and potential competitors include many large domestic and international companies, some of
which have substantially greater resources, offer other types of memory and/or non-memory technologies and may
have longer standing relationships with OEM customers than we do. Unlike us, some of our principal competitors
maintain their own semiconductor 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 for
our SRAM and LLDRAM products. NVIDIA Corporation and Intel Corporation are prospective competitors for the
in-place associative computing products that we are currently developing. Other competitors are expected to enter
this field as well. While some of our competitors offer a broader array of products and offer some of their products
at lower prices than we do, we believe that our focus on performance leadership provides us with key competitive
advantages.
We believe that our ability to compete successfully in the rapidly evolving markets for “big data” and
memory products for the networking 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 compete successfully in the future with respect to any of these factors. Our failure to compete successfully in
these or other areas could harm our business.
The market for networking memory products is competitive and is characterized by technological change,
declining average selling prices and product obsolescence. Competition could increase in the future from existing
competitors and from other companies that may enter our existing or future markets with solutions that may be less
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costly or provide higher performance or more desirable features than our products. This increased competition may
result 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
as well as new forms of DRAM and other new memory technologies. Because we have limited experience
developing IC products other than Very Fast SRAMs and LLDRAMs, any efforts by us to introduce new products
based on new technology, including the in-place associative computing products currently under development, may
not be successful and, as a result, our business may suffer.
Intellectual Property
Our ability to compete successfully depends, in part, upon our ability to protect our proprietary technology
and information. We rely on a combination of patents, copyrights, trademarks, trade secret laws, non-disclosure and
other contractual arrangements and technical measures to protect our intellectual property. We believe that it is
important to maintain a large patent portfolio to protect our innovations. We currently hold 70 United States patents,
including 53 memory patents and 17 associative computing patents, and have in excess of a dozen patent
applications pending. We cannot assure you that any patents will be issued as a result of our pending applications.
We believe that factors such as the technological and creative skills of our personnel and the success of our ongoing
product development efforts are also important in maintaining our competitive position. We generally enter into
confidentiality or license agreements with our employees, distributors, customers and potential customers and limit
access to our proprietary information. Our intellectual property rights, if challenged, may not be upheld as valid,
may not be adequate to 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, including various countries in Asia, may not protect our products or intellectual property
rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries.
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 are notified of claims that we may be infringing patents or other intellectual property rights owned by
third parties. We have been involved in patent infringement litigation in the past. We have been subject to other
intellectual 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 could
result in significant expense to us and divert the efforts of our technical and management personnel, whether or not
such litigation results in a determination favorable to us. In the event of an adverse result in any such litigation, we
could be required to pay substantial damages, cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology. Licenses may not be offered or the terms of any offered licenses may not be
acceptable to us. If we fail to obtain a license from a third party for technology used by us, we could incur
substantial liabilities and be required to suspend the manufacture of products or the use by our foundry of certain
processes.
Employees
As of March 31, 2018, we had 157 full-time employees, including 98 engineers, of which 68 are engaged in
research and development and 51 have PhD or MS degrees, 16 employees in sales and marketing, ten employees in
general and administrative capacities and 67 employees in manufacturing. Of these employees, 58 are based in our
Sunnyvale facility, 60 are based in our Taiwan facility and 22 are based in our Israel facility. We believe that our
future success will depend in large part on our ability to attract and retain highly-skilled, engineering, managerial,
sales and marketing personnel. Our employees are not represented by any collective bargaining unit, and we have
never experienced a work stoppage. We believe that our employee relations are good.
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Financial Information about Segments and Geographic Areas
Please see Note 10 of our Notes to Consolidated Financial Statements for information regarding our foreign
operations, and see Item 1A Risk Factors for further information on risks attendant to our foreign operations and
dependence. We operate all of our business as a single operating segment.
Investor Information
You can access financial and other information in the Investor Relations section of our website at
www.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 or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such
material electronically or otherwise furnishing it to the SEC.
The charters of our Audit Committee, our Compensation Committee, and our Nominating and Governance
Committee, 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 also
available at our website under “Corporate Governance.” These items are also available to any stockholder who
requests them 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
issuers that file electronically with the SEC at www.sec.gov.
Executive Officers
The following table sets forth certain information concerning our executive officers as of June 1, 2018:
Name
Lee-Lean Shu . . . . . . . . . . . . .
Didier Lasserre . . . . . . . . . . . .
Douglas Schirle . . . . . . . . . . .
Bor-Tay Wu . . . . . . . . . . . . . .
Ping Wu . . . . . . . . . . . . . . . . .
Age
63
53
63
66
61
Robert Yau . . . . . . . . . . . . . . .
65
Title
President, Chief Executive Officer and Chairman
Vice President, Sales
Chief Financial Officer
Vice President, Taiwan Operations
Vice President, U.S. Operations
Vice President, Engineering, Secretary and
Director
Lee-Lean Shu co-founded our company in March 1995 and has served as our President and Chief Executive
Officer and as a member of our Board of Directors since inception. Since October 2000, Mr. Shu has also served as
Chairman of our Board. From January 1995 to March 1995, Mr. Shu was Director, SRAM Design at Sony
Microelectronics Corporation, a semiconductor company and a subsidiary of Sony Corporation, and from July 1990
to January 1995, he was 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. From June 1988 to July 1996, Mr. Lasserre was a field sales engineer at Cypress
Semiconductor Corporation, a semiconductor company.
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 Controller at Pericom Semiconductor Corporation, a provider of digital and mixed signal integrated
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circuits. From November 1996 to February 1997, Mr. Schirle was Vice President, Finance for Paradigm
Technology, a manufacturer of SRAMs, and from December 1993 to October 1996, he was the Controller for
Paradigm Technology. Mr. Schirle was formerly a certified public accountant.
Bor-Tay Wu has served as our Vice President, Taiwan Operations since January 1997. From January 1995 to
December 1996, Mr. Wu was a design manager at Atalent, an IC design company in Taiwan.
Ping Wu has served as our Vice President, U.S. Operations since September 2006. He served in the same
capacity from February 2004 to April 2006. From April 2006 to August 2006, Mr. Wu was Vice President of
Operations at QPixel Technology, a semiconductor company. From July 1999 to 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 semiconductor manufacturer.
Robert Yau co-founded our company in March 1995 and has served as our Vice President, Engineering and as
a member of our Board of Directors since inception. From December 1993 to February 1995, Mr. Yau was design
manager for specialty memory devices at Sony Microelectronics Corporation. From 1990 to 1993, Mr. Yau was
design manager at MOSEL/VITELIC, a semiconductor company.
Item 1A. Risk Factors
Our future performance is subject to a variety of risks. If any of the following risks actually occur, our
business, financial condition and results 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 our business operations. You should also refer to other information contained in this report, including our
consolidated financial statements and related notes.
Unpredictable fluctuations in our operating results could cause our stock price to decline.
Our quarterly and annual revenues, expenses and operating results have varied significantly and are likely to
vary in the future. For example, in the twelve fiscal quarters ended March 31, 2018, we recorded net revenues of as
much as $14.0 million and as little as $9.6 million and quarterly operating income of as much as $389,000 and, in
nine quarters, operating losses, including an operating loss of $1.8 million in the quarter ended September 30, 2017.
We therefore believe that period-to-period comparisons of our operating results are not a good indication of our
future performance, and you should not rely on them to predict our future performance or the future performance of
our stock price. In future periods, we may not have any revenue growth, or our revenues could decline. Furthermore,
if our operating expenses exceed our expectations, our financial performance could be adversely affected. Factors
that may affect periodic operating results in the future include:
•
•
•
•
changes in our customers' inventory management practices;
unpredictability of the timing and size of customer orders, since most of our customers purchase our
products on a purchase order basis rather than pursuant to a long-term contract;
our ability to anticipate and conform to new industry standards;
fluctuations in availability and costs associated with materials needed to satisfy customer requirements;
• manufacturing defects, which could cause us to incur significant warranty, support and repair costs, lose
potential sales, harm our relationships with customers and result in write-downs;
14
•
•
changes in our product pricing policies, including those made in response to new product announcements
and pricing changes of our competitors; and
our ability to address technology issues as they arise, improve our products' functionality and expand our
product offerings.
Our expenses are, to a large extent, fixed, and we expect that these expenses will increase in the future. We
will not be able to adjust our spending quickly if our revenues fall short of our expectations. If this were to occur,
our operating results would be harmed. If our operating results in future quarters fall below the expectations of
market analysts and investors, the price of our common stock could fall.
Our largest OEM customer accounts for a significant percentage of our net revenues. If this customer, or
any of our other major customers, reduces the amount they purchase or stop purchasing our products, our
operating results will suffer.
Nokia, our largest customer, purchases our products directly from us and through contract manufacturers and
distributors. Purchases by Nokia represented approximately 36%, 41% and 32% of our net revenues in fiscal 2018,
2017 and 2016, respectively. We expect that our operating results in any given period will continue to depend
significantly on orders from our key OEM customers, particularly Nokia, and our future success is dependent to a
large degree on the business success of this customer over which we have no control. We do not have long-term
contracts with Nokia or any of our other major OEM customers, distributors or contract manufacturers that obligate
them to purchase our products. We expect that future direct and indirect sales to Nokia and our other key OEM
customers will continue to fluctuate significantly on a quarterly basis and that such fluctuations may substantially
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 $4.5 million, $115,000 and
$2.2 million during fiscal 2018, 2017 and 2016, respectively. Our operating expenses in fiscal 2016 included
substantial expenses related to legal proceedings that resulted in operating losses. Although these proceedings have
concluded, there can be no assurance that our Very Fast SRAMs will continue to receive broad market acceptance,
that our new product development initiatives will be successful or that we will be able to achieve sustained revenue
growth or profitability.
We depend upon the sale of our Very Fast SRAMs for most of our revenues, and a downturn in demand
for these products could significantly reduce our revenues and harm our business.
We derive most of our revenues from the sale of Very Fast SRAMs, and we expect that sales of these
products will represent the substantial majority of our revenues for the foreseeable future. Our business depends in
large part upon continued 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 and to prove their high-performance and cost-effectiveness. We may not be able to sustain or
increase our revenues from sales of our products, particularly if the networking and telecommunications markets
were to experience another significant downturn in the future. Any decrease in revenues from sales of our products
could harm our business more than it would if we offered a more diversified line of products.
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If we do not successfully develop new products to respond to rapid market changes due to changing
technology and evolving industry standards, particularly in the networking and telecommunications markets, our
business will be harmed.
If we fail to offer technologically advanced products and respond to technological advances and emerging
standards, we may not generate sufficient revenues to offset our development costs and other expenses, which will
hurt our business. The development of new or enhanced products is a complex and uncertain process that requires
the accurate anticipation of technological and market trends. In particular, the networking and telecommunications
markets are 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 could enable the development of products that feature higher performance or lower cost. We may
experience development, marketing and other technological difficulties that may delay or limit our ability to respond
to technological changes, evolving industry standards, competitive developments or end-user requirements. For
example, because we have limited experience developing integrated circuits, or IC, products other than Very Fast
SRAMs and LLDRAMs, our efforts to introduce 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 alternative
technologies;
• we may not have sufficient resources to develop or acquire new technologies or to introduce new
products capable of competing with future technologies;
•
new products that we develop may not successfully integrate with our end-users’ products into which
they are incorporated;
• we may be unable to develop new products that incorporate emerging industry standards;
• we may be unable to develop or acquire the rights to use the intellectual property necessary to implement
new technologies; and
• when introducing new or enhanced products, we may be unable to manage effectively the transition from
older products.
Our future success is substantially dependent on the successful development of new in-place associative
computing products which entails significant risks.
Since our acquisition of MikaMonu in November 2015, our principal strategic objective has been the
development of a new category of in-place associative computing products based on patented technology that we
acquired in the acquisition. We have devoted, and are continuing to devote, substantial efforts and resources to this
development effort. This ongoing project involves the commercialization of new, cutting-edge technology, may
require a substantial effort during fiscal 2019 and will be subject to significant risks. In addition to the typical risks
associated with the development of technologically advanced products (as outlined in the previous paragraph), this
project will be subject to enhanced risks of technological problems related to the development of an entirely new
category of products, substantial risks of delays or unanticipated costs that may be encountered and risks associated
with the establishment of entirely new markets and customer relationships. Our inability to successfully conclude
this major development effort and establish a market for the products we hope to develop would have a material
adverse effect on our future financial and business success, including our prospects for increased revenues.
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Additionally, if we are unable to meet the expectations of market analysts and investors with respect to this major
development effort, then the price of our common stock could fall.
We are subject to the highly cyclical nature of the networking and telecommunications markets.
Our products are incorporated into routers, switches, wireless local area network infrastructure equipment,
wireless base stations and network 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,
characterized 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, is characterized by price erosion, rapid technological change, cyclical market patterns and intense
foreign and domestic competition. Several of our competitors offer a broad array of memory products and have
greater financial, technical, marketing, distribution and other resources than we have. Some of our competitors
maintain their own semiconductor fabrication facilities, which may provide them with capacity, cost and technical
advantages over us. We cannot assure you that we will be able to compete successfully against any of these
competitors. Our ability to compete successfully in this market depends on factors both within and outside of our
control, including:
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real or perceived imbalances in supply and demand of Very Fast SRAMs;
the rate at which OEMs incorporate our products into their systems;
the success of our customers’ products;
our ability to develop and market new products; and
the supply and cost of wafers.
In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures
and new forms of DRAM, or the emergence of new memory technologies that could enable the development of
products that feature higher performance, lower cost or lower power capabilities. Additionally, the trend toward
incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce
future demand for Very Fast SRAM products. There can be no assurance that we will be able to compete
successfully in the future. Our failure to compete successfully in these 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 the
products, and we expect this trend to continue. A reduction in overall average selling prices of our products could
result in reduced revenues and lower gross margins. Our ability to increase our net revenues and maintain our gross
margins despite a decline in the average selling prices of our products will depend on a variety of factors, including
our ability to introduce lower cost versions of our existing products, increase unit sales volumes of these products,
and introduce new products 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, negotiate reduced purchase prices from our independent foundries and our independent
assembly and test vendors, and successfully manage our manufacturing and subcontractor relationships. Because we
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do not operate our own wafer foundry or assembly facilities, we may not be able to reduce our costs as rapidly as
companies that operate their own foundries or facilities.
Global economic and market conditions may adversely affect our business, financial condition and results
of operations.
We sell our products to end customers both in the United States and internationally. We also rely heavily on
our suppliers in Asia. We are therefore susceptible to adverse domestic and international economic and market
conditions. In recent years, turmoil in global financial markets and economic conditions has impacted credit
availability, consumer spending and capital expenditures, including expenditures for networking and
telecommunications 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 in our key markets, uncertainty regarding macroeconomic trends, and volatility in financial
markets may continue to adversely 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, our
business 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
and are dependent upon supply from these sources to meet our needs. If any of these suppliers cannot provide
components on a timely basis, at the same price or at all, our ability to manufacture our products will be constrained
and our business will suffer. Most significantly, we obtain wafers for our Very Fast SRAM products from a single
foundry, TSMC, and most of them are packaged at ASE. Wafers for our LLDRAM products are obtained
exclusively from Powerchip. If we are unable to obtain an adequate supply of wafers from TSMC or Powerchip or
find alternative sources in a timely manner, we will be unable to fulfill our customer orders and our operating results
will be harmed. We do not have supply agreements with TSMC, Powerchip, ASE or any of our other independent
assembly and test suppliers, and instead obtain manufacturing services and products from these suppliers on a
purchase-order basis. Our suppliers, including TSMC and Powerchip, have no obligation to supply products or
services to us for any specific product, in any specific quantity, at any specific price or for any specific time period.
As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating
results.
Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted
by natural disaster or political instability, choose to prioritize capacity or inventory for other uses or reduce or
eliminate deliveries to us for any other reason, we likely will not be able to enforce fulfillment of any delivery
commitments and we would have to identify and qualify acceptable replacements from alternative sources of supply.
In particular, if TSMC is unable to supply us with sufficient quantities of wafers to meet all of our requirements, we
would have to allocate our products among our customers, which would constrain our growth and might cause some
of them to seek alternative sources of supply. Since the manufacturing of wafers and other components is extremely
complex, the process of qualifying new foundries and suppliers is a lengthy process and there is no assurance that
we would be able to find and qualify another supplier without materially adversely affecting our business, financial
condition and results of operations.
Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we
may be required to enter into 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 a
purchase order basis. In order to secure future wafer supply from TSMC or Powerchip or from other independent
foundries, we may be required to enter into various arrangements with them, which could include:
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investments in and joint ventures with the foundries; or
non-refundable deposits with or prepayments or loans to foundries in exchange for capacity
commitments.
We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements,
if any, may not be on terms favorable to us. Moreover, even if we are able to secure independent foundry capacity,
we may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm
our financial results.
If we are unable to offset increased wafer fabrication costs by increasing the average selling prices of our
products, our gross margins will suffer.
If there is a significant upturn in the networking and telecommunications markets that results in increased
demand for our products and competing products, the available supply of wafers may be limited. As a result, we
could be required to obtain additional manufacturing capacity in order to meet increased demand. Securing
additional manufacturing capacity may cause our wafer fabrication costs to increase. If we are unable to offset these
increased costs by increasing the average selling prices of our products, our gross margins will decline.
We rely heavily on distributors and our success depends on our ability to develop and manage our indirect
distribution channels.
A significant percentage of our sales are made to distributors and to contract manufacturers who incorporate
our products into end products for OEMs. For example, in fiscal 2018, 2017 and 2016, our largest distributor Avnet
Logistics accounted for 35.3%, 25.5% and 28.2%, respectively, of our net revenues. Avnet Logistics and our other
existing distributors may choose to devote greater resources to marketing and supporting the products of other
companies. Since we sell through multiple channels and distribution networks, we may have to resolve potential
conflicts between these channels. For example, these conflicts may result from the different discount levels offered
by multiple channel distributors to their customers or, potentially, from our direct sales force targeting the same
equipment manufacturer accounts 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
to efficiently manage our resources to match market demand.
Our financial results, quarterly product sales, trends and comparisons are affected by fluctuations in the
buying patterns of the OEMs that purchase our products from our distributors. While we attempt to assist our
distributors in maintaining targeted stocking levels of our products, we may not consistently be accurate or
successful. This process involves 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 a going-forward basis. This could result in distributors returning unsold inventory to
us, or in us not having sufficient inventory to meet the demand for our products. If we are not able to accurately
predict sales through our distributors or effectively manage our relationships with our distributors, our business and
financial results will suffer.
A small number of customers generally account for a significant portion of our accounts receivable in any
period, and if any one of them fails to pay us, our financial position and operating results will suffer.
At March 31, 2018, four customers accounted for 26%, 25%, 21% and 13% 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.
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Our acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilute
stockholder value and adversely affect our operating results.
In November 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group Ltd.,
a development-stage, Israel-based company that specializes in in-place associative computing for markets including
big data, computer vision and cyber security. We also acquired substantially all of the assets related to the SRAM
memory device product line of Sony Corporation in 2009. We intend to supplement our internal development
activities by seeking opportunities to make additional acquisitions or investments in companies, assets or
technologies that we believe are complementary or strategic. Other than the MikaMonu and Sony acquisitions, we
have not made any such acquisitions or investments, and therefore our experience as an organization in making such
acquisitions and investments is limited. In connection with the MikaMonu acquisition, we are subject to risks related
to potential problems, delays or unanticipated costs that may be encountered in the development of products based
on the MikaMonu technology and the establishment of new markets and customer relationships for the potential new
products. In addition, in connection with any future acquisitions or investments we may make, we face numerous
other risks, including:
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difficulties in integrating operations, technologies, products and personnel;
diversion of financial and managerial resources from existing operations;
risk of overpaying for or misjudging the strategic fit of an acquired company, asset or technology;
problems or liabilities stemming from defects of an acquired product or intellectual property litigation
that may result from offering the 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 our cash, or to finance the transaction through debt or equity securities offerings, which may decrease our
financial liquidity or dilute our stockholders and affect the market price of our stock. As a result, if we fail to
properly evaluate and execute acquisitions or investments, our business and prospects may be harmed.
Claims that we infringe third party intellectual property rights could seriously harm our business and
require us to incur significant costs.
In recent years, there has been significant litigation in the semiconductor industry involving patents and other
intellectual property rights. We have recently been involved in protracted patent infringement litigation, and we
could become subject to additional claims or litigation in the future as a result of allegations that we infringe others’
intellectual property rights or that our use of intellectual property otherwise violates the law. Claims that our
products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers,
distributors or manufacturers against the alleged infringement. Any such litigation regarding intellectual property
could result in substantial costs and diversion of resources and could have a material adverse effect on our business,
financial condition and results of operations. Similarly, changing our products or processes to avoid infringing the
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rights of others may be costly or impractical. If any claims received in the future were to be upheld, the
consequences to us could require us to:
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stop selling our products that incorporate the challenged intellectual property;
obtain a license to sell or use the relevant technology, which license may not be available on reasonable
terms or at all;
pay damages; or
redesign those products that use the disputed technology.
Although patent disputes in the semiconductor industry have often been settled through cross-licensing
arrangements, we may not be able, in any or every instance, to settle an alleged patent infringement claim through a
cross-licensing arrangement in part because we have a more limited patent portfolio than many of our competitors.
If a successful claim is made against us or any of our customers and a license is not made available to us on
commercially reasonable terms or we are required to pay substantial damages or awards, our business, financial
condition and results of operations would be materially adversely affected.
Our business will suffer if we are unable to protect our intellectual property.
Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely
on a combination of patent, trade secret, copyright and trademark laws and non-disclosure and other contractual
agreements to protect our proprietary rights. These agreements and measures may not be sufficient to protect our
technology from third-party infringement. Monitoring unauthorized use of our intellectual property is difficult and
we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Our attempts
to enforce our intellectual property rights could be time consuming and costly. We were recently involved in
litigation to enforce our intellectual property rights and to protect our trade secrets. Additional litigation of this type
may be necessary in the future. Any such litigation could result in substantial costs and diversion of resources. If
competitors are able to use our technology without our approval or compensation, our ability to compete effectively
could be harmed.
System security risks, data protection, cyber-attacks and systems integration issues could disrupt our
internal operations or the operations of our business partners, and any such disruption could harm our
reputation or cause a reduction in our expected revenue, increase our expenses, negatively impact our results of
operation or otherwise adversely affect our stock price.
Security breaches, computer malware and cyber-attacks have become more prevalent and sophisticated in
recent years. Experienced computer programmers and hackers may be able to penetrate our network security or the
network security of our business partners, and misappropriate or compromise our confidential and proprietary
information, create system disruptions or cause shutdowns. The costs to us to eliminate or alleviate cyber or other
security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be
significant, and our efforts to address these problems may not be successful and could result in interruptions and
delays that may impede our sales, manufacturing, distribution or other critical functions.
We manage and store various proprietary information and sensitive or confidential data relating to our
business on the cloud. Breaches of our security measures or the accidental loss, inadvertent disclosure or
unapproved dissemination of proprietary information or confidential data about us, including the potential loss or
disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us to a
risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation or
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otherwise harm our business. In addition, the cost and operational consequences of implementing further data
protection measures could be significant.
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce
errors in connection with systems integration or migration work that takes place from time to time. We may not be
successful in implementing new systems and transitioning data, which could cause business disruptions and be more
expensive, time consuming, disruptive and resource-intensive than originally anticipated. Such disruptions could
adversely impact our ability to fulfill orders and interrupt other processes and could adversely affect our financial
results, stock price and reputation.
We may experience difficulties in transitioning to smaller geometry process technologies and other more
advanced manufacturing process technologies, which may result in reduced manufacturing yields, delays in
product deliveries and increased expenses.
In order to remain competitive, we expect to continue to transition the manufacture of our products to smaller
geometry process technologies. This transition will require us to migrate to new manufacturing processes for our
products and redesign certain products. The manufacture and design of our products is complex, and we may
experience difficulty in transitioning to smaller geometry process technologies or new manufacturing processes.
These difficulties could result in reduced manufacturing yields, delays in product deliveries and increased expenses.
We are dependent on our relationships with TSMC and Powerchip to transition successfully to smaller geometry
process technologies and to more advanced manufacturing processes. We cannot assure you that TSMC or
Powerchip will be able to effectively manage the transition or that we will be able to maintain our relationship with
them. If we or TSMC or Powerchip experience significant delays in this transition or fail to implement these
transitions, our business, financial condition and results of operations could be materially and adversely affected.
Manufacturing process technologies are subject to rapid change and require significant expenditures for
research and development.
We continuously evaluate the benefits of migrating to smaller geometry process technologies in order to
improve performance and reduce costs. Historically, these migrations to new manufacturing processes have resulted
in significant initial design and development costs associated with pre-production mask sets for the manufacture of
new products with smaller 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 production as part of the transition to our new 40 nanometer SRAM process technology and
63 nanometer DRAM process technology. We will incur similar expenses in the future as we continue to transition
our products to smaller geometry processes. The costs inherent in the transition to new manufacturing process
technologies will adversely affect our operating results and our gross margin.
Our products are complex to design and manufacture and could contain defects, which could reduce
revenues or result in claims against us.
We develop complex products. Despite testing by us and our OEM customers, design or manufacturing errors
may be found in existing or new products. These defects could result in a delay in recognition or loss of revenues,
loss of market 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, result in a loss of market acceptance of our products and harm our relationships with our OEM customers.
Our OEM customers could also seek and obtain damages from us for their losses. A product liability claim brought
against us, even if unsuccessful, would likely be time consuming and costly to defend.
Defects in wafers and other components used in our products and arising from the manufacturing of these
products may not be fully recoverable from TSMC or our other suppliers. 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
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from an error in the assembly process at one of our suppliers. This write-off adversely affected our operating results
for fiscal 2006.
Demand for our products may decrease if our OEM customers experience difficulty manufacturing,
marketing or selling their products.
Our products are used as components in our OEM customers’ products, including routers, switches and other
networking and telecommunications products. Accordingly, demand for our products is subject to factors affecting
the ability of our OEM customers to successfully introduce and market their products, including:
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capital spending by telecommunication and network service providers and other end-users who purchase
our OEM customers’ products;
the competition our OEM customers face, particularly in the networking and telecommunications
industries;
the technical, manufacturing, sales and marketing and management capabilities of our OEM customers;
the financial and other resources of our OEM customers; and
the inability of our OEM customers to sell their products if they infringe third-party intellectual property
rights.
As a result, if OEM customers reduce their purchases of our products, our business will suffer.
Our products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.
Our products are generally incorporated in our OEM customers’ products at the design stage. However, their
decisions to use our products often require significant expenditures by us without any assurance of success, and
often precede volume sales, if any, by a year or more. If an OEM customer decides at the design stage not to
incorporate our products into their products, we will not have another opportunity for a design win with respect to
that customer’s product for many months or years, if at all. Our sales cycle can take up to 24 months to complete,
and because of this lengthy sales cycle, we may experience a delay between increasing expenses for research and
development and our sales and marketing efforts and the generation of volume production revenues, if any, from
these expenditures. Moreover, the value of any design win will largely depend on the commercial success of our
OEM customers’ products. There can be no 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
notice without incurring a significant penalty. Any significant cancellations or deferrals in the future could
materially and adversely affect our business, financial condition and results of operations. Cancellations or deferrals
could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and
restrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer.
If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue
projections or incur significant charges against our income, which could materially and adversely affect our
operating results.
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If our business grows, such growth may place a significant strain on our management and operations and,
as a result, our business may suffer.
We are endeavoring to expand our business, and any growth that we are successful in achieving could place a
significant strain on our management systems, infrastructure and other resources. To manage the potential growth of
our operations and resulting increases in the number of our personnel, we will need to invest the necessary capital to
continue to improve our operational, financial and management controls and our reporting systems and procedures.
Our controls, systems and procedures may prove to be inadequate should we experience significant growth. In
addition, we may not have sufficient administrative staff to support our operations. For example, we currently have
only five employees in our finance department in the United States, including our Chief Financial Officer.
Furthermore, our officers have limited experience in managing large or rapidly growing businesses. If our
management fails to respond effectively to changes in our business, our business may suffer.
We are substantially dependent on the continued services and performance of our senior management and
other key personnel.
Our future success is substantially dependent on the continued services and continuing contributions of our
senior management who must work together effectively in order to design our products, expand our business,
increase our revenues and improve our operating results. Members of our senior management team have long-
standing and important relationships with our key customers and suppliers. The loss of services of Lee-Lean Shu,
our President and Chief Executive Officer, Robert Yau, our Vice President of Engineering, Dr. Avidan Akerib, our
Vice President of Associative Computing, any other executive officer or other key employee could significantly
delay or prevent the achievement of our development and strategic objectives. We do not have employment
contracts with, nor maintain key person insurance on, any of our executive officers or other key employees.
If we are unable to recruit or retain qualified personnel, our business and product development efforts
could be harmed.
We must continue to identify, recruit, hire, train, retain and motivate highly skilled technical, managerial,
sales and marketing and administrative personnel. Competition for these individuals is intense, and we may not be
able to successfully recruit, assimilate or retain sufficiently qualified personnel. We may encounter difficulties in
recruiting and retaining a sufficient number of qualified engineers, which could harm our ability to develop new
products and adversely impact our relationships with existing and future end-users at a critical stage of development.
The failure to recruit and retain necessary technical, managerial, sales, marketing and administrative personnel could
harm our business and our ability to obtain new OEM customers and develop new products.
Our international business exposes us to additional risks.
Products shipped to destinations outside of the United States accounted for 51.5%, 59.1% and 60.3% of our
net revenues in fiscal 2018, 2017 and 2016, respectively. Moreover, a substantial portion of our products is
manufactured and tested in Taiwan, and the software development for our associative computing products occurs in
Israel. We intend to continue expanding our international business in the future. Conducting business outside of the
United States subjects us to additional risks and challenges, including:
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heightened price sensitivity from customers in emerging markets;
compliance with a wide variety of foreign laws and regulations and unexpected changes in these laws
and regulations;
uncertainties regarding taxes, tariffs, quotas, export controls and license requirements, trade wars,
policies that favor domestic companies over nondomestic companies, including government efforts to
provide for the development and growth of local competitors, and other trade barriers;
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potential political and economic instability in, or foreign conflicts that involve or affect, the countries in
which 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 different
geographic areas and cultures, including assuring compliance with the U. S. Foreign Corrupt Practices
Act and other U. S. and foreign anti-corruption laws;
limited protection for intellectual property rights in some countries; and
fluctuations in freight rates and transportation disruptions.
Moreover, our reporting currency is the U.S. dollar. However, a portion of our cost of revenues and our
operating expenses is denominated in currencies 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
or losses that could impact our operating results. We do not currently engage in currency hedging activities to reduce
the risk of financial exposure from fluctuations in foreign exchange rates.
The United States could withdraw from or materially modify certain international trade agreements, or
change tax provisions related to the global manufacturing and sales of our products.
A portion of our business activities are conducted in foreign countries, including Taiwan and Israel. Our
business benefits from free trade agreements, and we also rely on various U.S. corporate tax provisions related to
international commerce as we develop, manufacture, market and sell our products globally. The current
U.S. administration has made comments suggesting that it is not supportive of certain existing international trade
agreements. At this time, it remains unclear what the current U.S. administration will do with respect to these
international trade agreements and U.S. tax provisions related to international commerce. Any action to withdraw
from or materially modify international trade agreements, or change corporate tax policy related to international
commerce, could adversely affect our business, financial condition and results of operations.
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“H.R. 1”) was signed into law, significantly impacting
several sections of the Internal Revenue Code. Following the enactment of the H.R. 1, the SEC staff issued
SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. Staff Accounting Bulletin
No. 118 (“SAB 118”) provides a measurement period that should not extend beyond one year from the H.R. 1
enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, we must
reflect the income tax effects of those aspects of H.R. 1 for which the accounting under ASC 740 is complete. To
the extent that our accounting for certain income tax effects of the Tax Act is incomplete but we are able to
determine a reasonable estimate, we must record a provisional estimate in the financial statements. If we cannot
determine a provisional estimate to be included in the financial statements, we should continue to apply ASC 740 on
the basis of the provisions of the tax law that were in effect immediately before the enactment of the H.R 1.
This new law includes significant changes to the U.S. corporate income tax system, including a permanent
reduction in the corporate income tax rate from 35% to 21%, limitations on the deductibility of interest expense and
executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial
tax system. We are continuing to examine the impact that H.R. 1 may have on our business. We re-measured certain
deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The re-
measurement of our deferred tax balance of $1.1 million was offset by application of our valuation allowance. We
have calculated our best estimate of the impact of H.R. 1 in the year end income tax provision, including the impact
of the one-time transition tax, in accordance with our understanding of H.R. 1 and guidance available as of the date
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of this filing and have recorded a tax expense of $367,000 related to the transition tax. As we complete the analysis
of H.R. 1, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to
our initial assessment. Pursuant to SAB 118, adjustments to the provisional amounts recorded by us as of
March 31, 2018 that are identified within a subsequent measurement period of up to one year from the enactment
date will be included as an adjustment to tax expense from continuing operations in the period the amounts are
determined.
In addition, we recorded a deferred tax benefit related to a valuation allowance release of $101,000 as a result
of provisions in the new legislation related to indefinite lived net operating loss carryovers and the refundability of
minimum tax credit carryovers. Finally, we currently estimate that we will not have a liability for taxes currently
payable at March 31, 2018 that is a result of H.R. 1.
This original estimate may be materially impacted by a number of additional considerations, including but not
limited to the issuance of the final regulations and our ongoing analysis of the new law.
H.R. 1 subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned by certain
foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed
Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary
basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the
year the tax is incurred. Given the complexity of the GILTI provisions, we are still evaluating the effects of the
GILTI provisions and have not yet determined our accounting policy. At March 31, 2018, because we are still
evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we are unable to
make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial statements.
TSMC and Powerchip, as well as our other independent suppliers and many of our OEM customers, have
operations in the Pacific Rim, an area subject to significant earthquake risk and adverse consequences related to
the potential 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
the principal independent suppliers that assemble and test our products are located in Taiwan. Many of our
customers are also located in the Pacific Rim. The risk of an earthquake in these Pacific Rim locations is significant.
The occurrence of an earthquake or other natural disaster near the fabrication facilities of TSMC or our other
independent suppliers could result in damage, power outages and other disruptions that impair their production and
assembly capacity. Any disruption resulting from such events could cause significant delays in the production or
shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing
from the affected contractor to another third-party vendor. In such an event, we may not be able to obtain alternate
foundry capacity on favorable terms, or at all.
If there were to be another outbreak of a contagious disease, such as SARS or the H1N1 Flu, that significantly
affected the Asia-Pacific region, 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 affected the operations of
our suppliers or our OEM customers or the demand for our products or our OEM customers’ products.
Changes in Taiwan’s political, social and economic environment may affect our business performance.
Because much of the manufacturing and testing of our products is conducted in Taiwan, our business
performance may be affected by changes in Taiwan’s political, social and economic environment. For example, any
political instability resulting from the relationship among the United States, Taiwan and the People’s Republic of
China could damage our business. Moreover, the role of the Taiwanese government in the Taiwanese economy is
significant. Taiwanese policies toward economic liberalization, and laws and policies affecting technology
companies, foreign investment, currency exchange rates, taxes and other matters could change, resulting in greater
restrictions on our ability and our suppliers’ ability to do business and operate facilities in Taiwan. If any of these
changes were to occur, our business could be harmed and our stock price could decline.
26
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 additional
financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not
be able to develop or enhance our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, and we may be required to reduce operating costs, which could seriously
harm our business. In addition, if we issue equity securities, our stockholders may experience dilution or the new
equity securities may have rights, preferences or privileges senior to those of our common stock.
Some of our products are incorporated into advanced military electronics, and changes in international
geopolitical 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, if current
U.S. military operations around the world are scaled back, demand for our products for use in military applications
may decrease, and our operating results could suffer. Domestic budget considerations may also adversely affect our
operating results. For example, if governmental appropriations for military purchases of electronic devices that
include our products are reduced, our revenues will likely decline.
Our operations involve the use of hazardous and toxic materials, and we must comply with environmental
laws and 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
human exposure to hazardous and toxic materials. If we were to violate or become liable under environmental laws
in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes,
we could be subject to fines, costs, or civil or criminal sanctions, face property damage or personal injury claims or
be required to incur substantial investigation or remediation costs, which could be material, or experience
disruptions in our operations, any of which could have a material adverse effect on our business. In addition,
environmental laws could become more stringent over time imposing greater compliance costs and increasing risks
and penalties associated with violations, which could harm our business.
We face increasing complexity in our product design as we adjust to new and future requirements relating to
the material composition of our products, including the restrictions on lead and other hazardous substances that
apply to specified electronic products put on the market in the European Union, China and California. Other
countries, including at the federal and state levels in the United States, are also considering similar laws and
regulations. Certain electronic products that we maintain in inventory may be rendered obsolete if they are not in
compliance with such laws and regulations, which could negatively impact our ability to generate revenue from
those products. Although we cannot predict the ultimate impact of any such new laws and regulations, they will
likely result in additional costs, or in the worst case decreased revenue, and could even require that we redesign or
change 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
of which are beyond our control, including:
•
•
actual or anticipated declines in operating results;
changes in financial estimates or recommendations by securities analysts;
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•
•
•
•
•
the institution of legal proceedings against us or significant developments in such proceedings;
announcements by us or our competitors of financial results, new products, significant technological
innovations, contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other
events;
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
experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected
companies. The market price of our common stock might experience significant fluctuations in the future, including
fluctuations unrelated to our performance. These fluctuations could materially adversely affect our business
relationships, our ability to obtain future financing on favorable terms or otherwise harm our business. In addition,
in the past, securities class action litigation has often been brought against a company following periods of volatility
in the market price of its securities. This risk is especially acute for us because the extreme volatility of market
prices of technology companies has resulted in a larger number of securities class action claims against them. Due to
the potential volatility of our stock price, we may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management’s attention and resources. 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
and disadvantages to us and our continuing stockholders.
From November 2008 through March 2018 we repurchased and retired an aggregate of 11,983,942 shares of
our common stock at a total cost of $60.6 million, including 3,846,153 shares repurchased at a total cost of
$25 million pursuant to a modified “Dutch auction” self-tender offer that we completed in August 2014 and
additional shares repurchased in the open market pursuant to our stock repurchase program. At March 31, 2018, we
had outstanding authorization from our Board of Directors to purchase up to an additional $4.4 million of our
common stock from time to time under our repurchase program. Although our Board has determined that these
repurchases are in the best interests of our stockholders, they expose us to certain risks including:
•
•
•
the risks resulting from a reduction in the size of our “public float,” which is the number of shares of our
common stock that are owned by non-affiliated stockholders and available for trading in the securities
markets, 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 common
stock in the future at a lower price per share than the prices we have paid in our tender offer and
repurchase program; and
the risk that the use of a portion of our cash reserves for this purpose has reduced, or may reduce, the
amount of cash that would otherwise be available to pursue potential cash acquisitions or other strategic
business opportunities.
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Our executive officers, directors and entities affiliated with them hold a substantial percentage of our
common stock.
As of May 29, 2018, our executive officers, directors and entities affiliated with them beneficially owned
approximately 36% of our outstanding common stock. As a result, these stockholders will be able to exercise
substantial influence over, and may be able to effectively control, matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions, which could have the effect of delaying
or preventing a third party from acquiring control over or merging with us.
The provisions of our charter documents might inhibit potential acquisition bids that a stockholder might
believe are desirable, and the market price of our common stock could be lower as a result.
Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock. Our Board of
Directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further
vote or action by our stockholders. The issuance of shares of preferred stock might delay or prevent a change in
control transaction. As a result, the market price of our common stock and the voting and other rights of our
stockholders might be adversely affected. The issuance of preferred stock might result in the loss of voting control to
other stockholders. We have no current plans to issue any shares of preferred stock. Our charter documents also
contain other provisions, which might discourage, delay or prevent a merger or acquisition, including:
•
•
•
•
our stockholders have no right to remove directors without cause;
our stockholders have no right to act by written consent;
our stockholders have no right to call a special meeting of stockholders; and
our stockholders must comply with advance notice requirements to nominate directors or submit
proposals for consideration at stockholder meetings.
These provisions could also have the effect of discouraging others from making tender offers for our common
stock. As a result, these provisions might prevent the market price of our common stock from increasing
substantially in response to actual or rumored takeover attempts. These provisions might also prevent changes in our
management.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our executive offices, our principal administration, marketing and sales operations and a portion of our
research and development operations are located in a 44,277 square foot facility in Sunnyvale, California, which we
purchased in fiscal 2010. In addition, we occupy approximately 25,250 square feet in a facility located in Hsin Chu,
Taiwan under a lease expiring in August 2020. This facility supports our manufacturing activities. We believe that
both our Sunnyvale and Taiwan facilities are adequate for our needs for the foreseeable future. We also lease space
in the United States in the states of Georgia and Texas and in Israel. The aggregate annual gross rent for our leased
facilities was approximately $527,000 in fiscal 2018.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock has traded on the Nasdaq Global Market under the symbol “GSIT” since our initial public
offering on March 29, 2007. The following table sets forth, for the periods indicated, the high and low sales prices
for our common stock on such market.
Fiscal Year Ended March 31, 2017
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended March 31, 2018
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
4.34 $
5.24
6.34
9.68
8.89 $
8.27
8.65
8.94
3.50
4.03
4.71
5.58
7.30
6.05
6.65
7.10
Holders of Common Stock
On May 29, 2018, the closing price of our common stock on the Nasdaq Global Market was $7.52, and there
were 26 holders of record of our common stock. Because many of such shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of beneficial holders of our
common stock represented by these record holders.
Dividend Policy
We have never declared or paid cash dividends on our common stock. The payment of dividends in the future
will be at the discretion of our Board of Directors. However, we currently intend to retain future earnings to finance
the growth and development of our business, and we do not anticipate declaring or paying any cash dividends in the
foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
Please see Part III, Item 12 of this report for information regarding securities authorized for issuance under
our equity compensation plans. Such information is incorporated by reference from our definitive proxy statement
for our 2018 annual meeting of stockholders.
Issuer Purchases of Equity Securities
Our Board of Directors has authorized us to repurchase, at management’s discretion, shares of our common
stock. Under the repurchase program, we may repurchase shares from time to time on the open market or in private
transactions. The specific timing and amount of the repurchases will be dependent on market conditions, securities
law limitations and other factors. The repurchase program may be suspended or terminated at any time without prior
notice. During the quarter ended March 31, 2018, we did not repurchase any of our shares under the repurchase
program.
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Item 6. Selected Financial Data
You should read the following selected consolidated financial data in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements and the related notes included elsewhere in this report. The selected consolidated statement of operations
data set forth below for the fiscal years ended March 31, 2018, 2017 and 2016 and the selected consolidated balance
sheet data as of March 31, 2018 and 2017 are derived from, and are qualified by reference to, our audited
consolidated financial statements included elsewhere in this report. The selected consolidated statement of
operations data set forth below for the fiscal years ended March 31, 2015 and 2014 and the selected consolidated
balance sheet data as of March 31, 2016, 2015 and 2014 are derived from audited consolidated financial statements
not included in this report.
2018
Fiscal Year Ended March 31,
2015
2016
(In thousands, except per share amounts)
2017
2014
Consolidated Statement of Operations Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,643 $ 48,180 $ 52,736 $ 53,498 $ 58,579
32,469
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,110
Operating expenses:
20,217
22,426
28,375
25,123
21,764
26,416
25,999
26,737
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,515) $
Basic and diluted net loss per share available to common
stockholders:
16,998
9,899
26,897
(4,471)
409
(4,062)
453
15,803
11,140
26,943
(527)
478
(49)
66
13,110
18,814
31,924
(5,814)
338
(5,476)
713
(115) $ (2,170) $ (4,978) $ (6,189)
11,917
19,247
31,164
(6,041)
388
(5,653)
(675)
12,095
17,663
29,758
(3,021)
210
(2,811)
(641)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.21) $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.21) $
(0.01) $
(0.01) $
(0.10) $
(0.10) $
(0.20) $
(0.20) $
(0.23)
(0.23)
Weighted average shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,085
21,085
20,652
20,652
22,593
22,593
25,029
25,029
27,505
27,505
2018
2017
March 31,
2016
(In thousands)
2015
2014
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments . . . . . . . . . . . $ 58,365 $ 49,935 $ 55,112 $ 58,977 $ 80,932
90,670
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,677
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128,378
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,230
108,889
96,396
62,720
106,530
89,869
57,798
102,595
86,444
63,867
99,540
86,815
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 actual
results 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 read together with our consolidated financial statements and the related notes included elsewhere in this
report.
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Overview
We are a fabless semiconductor company that designs, develops and markets static random access memories,
or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, and low
latency dynamic random access memories, or LLDRAMs, primarily for the networking and telecommunications
markets. We are subject to the highly cyclical nature of the semiconductor industry, which has experienced
significant fluctuations, 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 our largest
customer, Nokia. We expect that future direct and indirect sales to Nokia will continue to fluctuate significantly on a
quarterly basis. The networking and telecommunications market has accounted for a significant portion of our net
revenues in the past and has declined during the past several years and is expected to continue to decline. However,
with no debt, substantial liquidity and a history of positive cash flows from operations, we believe we are in a better
financial position than many other companies of our size.
Revenues. Our revenues are derived primarily from sales of our Very Fast SRAM products. Sales to
networking and telecommunications OEMs accounted for 55% to 66% of our net revenues during our last three
fiscal years. We also sell our products to OEMs that manufacture products for military and aerospace applications
such as radar and guidance systems, missiles and satellites, 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 voice recognition systems, and for medical applications 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
the product. Our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales
volumes of existing products and to introduce and sell new products with higher average selling prices in quantities
sufficient to compensate for the anticipated declines in selling prices of our more mature products. Although we
expect the average selling prices of individual products to decline over time, we believe that, over the next several
quarters, our overall average 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 customer demand but, particularly in periods of increasing demand, can also be affected by our
ability to increase production through the availability of increased wafer fabrication capacity from TSMC and
Powerchip, our wafer suppliers, and our ability to increase the number of good integrated circuit die produced from
each wafer through die size reductions and yield enhancement activities.
We may experience fluctuations in quarterly net revenues for a number of reasons. Historically, orders on
hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are
generally cancelable up to 30 days prior to scheduled delivery. Accordingly, we depend on obtaining and shipping
orders in the same quarter to achieve our revenue objectives. In addition, the timing of product releases, purchase
orders and product availability could result in significant product shipments at the end of a quarter. Failure to ship
these products by the end of the quarter may adversely affect our operating results. Furthermore, our customers may
delay scheduled delivery dates and/or cancel orders within specified timeframes without significant penalty.
We sell our products through our direct sales force, international and domestic sales representatives and
distributors. Sales to consignment warehouses, who purchase products from us for use by contract manufacturers,
are recorded upon delivery to the contract manufacturer. Sales to certain distributors were previously made under
agreements allowing for returns or credits under certain circumstances. We therefore deferred recognition of revenue
on sales to those distributors under these terms until products were resold by the distributor. During fiscal 2018, we
revised our distribution agreements to these distributors to eliminate ship from stock and debits and price protection.
Under these revised distribution agreements, selling prices are now fixed and determinable on the date of shipment
and revenue is recognized upon shipment. Under these revised distribution agreements, we recognized additional
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revenue of $2.0 million in fiscal 2018 on the dates that the distribution agreements were revised for product held by
our distributors as the price became fixed and determinable.
Historically, a small number of OEM customers have accounted for a substantial portion of our net revenues,
and we expect that significant customer concentration will continue for the foreseeable future. Many of our
OEMs use contract manufacturers to manufacture their equipment. Accordingly, a significant percentage of our net
revenues is derived from sales to these contract manufacturers and to consignment warehouses. In addition, a
significant portion of our sales are made to foreign and domestic distributors who resell our products to OEMs, as
well as their contract manufacturers. Direct sales to contract manufacturers and consignment warehouses accounted
for 34.9%, 39.0% and 37.6% of our net revenues for fiscal 2018, 2017 and 2016, respectively. Sales to foreign and
domestic distributors accounted for 62.5%, 59.1% and 50.4% of our net revenues for fiscal 2018, 2017 and 2016,
respectively. The following direct customers accounted for 10% or more of our net revenues in one or more of the
following periods:
Fiscal Year Ended
March 31,
2017
2016
2018
Contract manufacturers and consignment warehouses:
Flextronics Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sanmina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.0 %
16.0
10.4 %
20.4
13.7 %
16.4
Distributors:
Avnet Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nexcomm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.3
16.1
25.5
19.7
28.2
13.3
Nokia was our largest customer in fiscal 2018, 2017 and 2016. Nokia purchases products directly from us
and through contract manufacturers and distributors. Based on information provided to us by its contract
manufacturers and our distributors, purchases by Nokia represented approximately 36%, 41% and 32% of our net
revenues in fiscal 2018, 2017 and 2016, respectively. Our revenues have been substantially impacted by significant
fluctuations in sales to Nokia, and we expect that future direct and indirect sales to Nokia will continue to fluctuate
substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future
periods. To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in
fiscal 2018, 2017 or 2016.
Cost of Revenues. Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly,
test and burn-in expenses, the amortized cost of production mask sets, stock-based compensation and the cost of
materials and overhead from operations. All of our wafer manufacturing and assembly operations, and a significant
portion of our wafer 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 for semiconductors. Cost of revenues also includes expenses related to supply chain
management, quality assurance, and final product testing and documentation control activities conducted at our
headquarters in Sunnyvale, California and our branch operations in Taiwan.
Gross Profit. Our gross profit margins vary among our products and are generally greater on our higher
density products and, within a particular density, greater on our higher speed and industrial temperature products.
We expect that our overall gross margins will fluctuate from period to period as a result of shifts in product mix,
changes in average selling prices and our ability to control our cost of revenues, including costs associated with
outsourced wafer fabrication and product assembly and testing.
Research and Development Expenses. Research and development expenses consist primarily of salaries and
related expenses for design engineers and other technical personnel, the cost of developing prototypes, stock-based
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compensation and fees paid to consultants. We charge all research and development expenses to operations as
incurred. We charge mask costs used in production to cost of revenues over a 12-month period. However, we charge
costs related to pre-production mask sets, which are not used in production, to research and development expenses at
the time they are incurred. These charges often arise as we transition to new process technologies and, accordingly,
can cause research and development expenses to fluctuate on a quarterly basis. We believe that continued
investment in research and development is critical to our long-term success, and we expect to continue to devote
significant resources to product development activities. In particular, we are devoting substantial resources to the
development of a new category of in-place associative computing products. Accordingly, we expect that our
research and development expenses will continue to be substantial in future periods and may lead to operating losses
in some periods. Such expenses as a percentage of net revenues may fluctuate from period to period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist
primarily of commissions paid to independent sales representatives, salaries, stock-based compensation and related
expenses for personnel engaged in sales, marketing, administrative, finance and human resources activities,
professional fees, costs associated with the promotion of our products and other corporate expenses. We expect that
our sales and marketing expenses will increase in absolute dollars in future periods if we are able to grow and
expand our sales force but that, to the 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 expenses will generally increase in absolute dollars.
Acquisition
On 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 for markets including big data, computer vision and cyber security. MikaMonu, located in Tel Aviv,
held 12 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 the
potential markets, and new customer base in those markets, that can be served by new products that we plan to
develop using the patents obtained in the MikaMonu acquisition.
The acquisition has been accounted for as a purchase under authoritative guidance for business
combinations. The purchase price of the acquisition was allocated to the intangible assets acquired, with the excess
of the purchase price over the fair value of assets acquired recorded as goodwill. We perform a goodwill impairment
test in February of each fiscal year.
The results of operations of MikaMonu and the estimated fair value 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 cash
consideration of approximately $4.4 million at the closing on November 23, 2015. In addition, $484,000 was
deposited in escrow to provide a fund for potential future indemnification claims by us. The majority of this escrow
deposit, or $479,000, was paid to the former MikaMonu shareholders in May 2017.
We are also required to pay the former MikaMonu shareholders future contingent consideration consisting of
retention 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 MikaMonu
shareholders 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. Of this amount, $750,000 is included in prepaid expenses and other current assets, $1,000,000 is included in
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other assets on the Consolidated Balance Sheet at March 31, 2018 and $743,000 was paid to the former MikaMonu
shareholders during the quarter ended December 31, 2017.
We will also make “earnout” payments to the former MikaMonu shareholders in cash or shares of our
common stock, at our discretion, during a period of up to ten years following the closing if certain product
development milestones and revenue targets for products based on the MikaMonu technology are achieved. Earnout
amounts of $750,000 are payable at March 31, 2018 based on the achievement of certain product development
milestones and are included in accrued expenses and other liabilities on the Consolidated Balance Sheet at
March 31, 2018. Additional earnout 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 net revenues from the sale of qualifying products in excess of certain
thresholds, will be made quarterly through December 31, 2025.
The portion of the retention payment contingently payable to Dr. Akerib (approximately $1.2 million) will be
recorded as compensation expense over the period that his services are provided to us. The portion of the retention
payment contingently payable to the other former MikaMonu shareholders (approximately $1.3 million) plus the
maximum amount of the potential earnout payments totals approximately $38.8 million. We determined that the fair
value of this contingent consideration liability was $5.8 million at the acquisition date. The contingent consideration
liability is included in other accrued expenses on the Consolidated Balance Sheet at March 31, 2017 and 2018 in the
amount of $5.1 million and $4.4 million, respectively, and is included in accrued expenses and other liabilities at
March 31, 2017 and 2018 in the amount of $1.1 million.
The fair value of the contingent consideration liability was determined as of the acquisition date using
unobservable inputs. These inputs include the estimated amount and timing of future revenues, the probability of
success (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8%
used to adjust the probability-weighted cash flows to their present value. Subsequent to the acquisition date, at each
reporting period, the contingent consideration liability will be re-measured at then current fair value with changes
recorded in the Consolidated Statement of Operations. Changes in any of the inputs may result in significant
adjustments to the recorded fair value. Re-measurement of the contingent consideration liability at March 31, 2018
resulted in a reduction of the contingent consideration liability of $466,000 due to increased discount rates.
Acquisition-related costs of approximately $426,000 are included in selling, general and administrative
expenses in 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 their
estimated fair values at the date of acquisition. The fair value allocated to patents was $3.5 million and the residual
value allocated to goodwill was $8.0 million.
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Results of Operations
The following table sets forth statement of operations data as a percentage of net revenues for the periods
indicated:
Year Ended March 31,
2017
100.0 % 100.0 %
2016
2018
100.0 %
47.4
52.6
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.9
23.2
63.1
(10.5)
1.0
(9.5)
1.1
(10.6)
45.2
54.8
32.8
23.1
55.9
(1.1)
1.0
(0.1)
0.1
(0.2)
49.3
50.7
22.9
33.5
56.4
(5.7)
0.4
(5.3)
(1.2)
(4.1)
Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017
Net Revenues. Net revenues decreased by 11.5% from $48.2 million in fiscal 2017 to $42.6 million in fiscal
2018. The decrease in net revenues was primarily the result of a 19.9% decline in total units shipped in fiscal 2018
compared to fiscal 2017 that was partially offset by an increase of 4.4% in the overall average selling price of all
units shipped in fiscal 2018 compared to fiscal 2017. The increase in the average selling price was due to a change
in product mix, as we sold more higher density, higher average selling price product in fiscal 2018. The reduction in
net revenues reflected the continuing weakness in the global networking and telecommunications markets and, in
particular, continued weakness in Asia. The networking and telecommunications markets represented 55% of
shipments in fiscal 2018 compared to 66% in fiscal 2017. The decline in networking and telecommunications
shipments has been partially offset by an increase in shipments to our military market which represented 25% of
shipments in fiscal 2018 compared to 17% of shipments in fiscal 2017. During fiscal 2018 we revised our
distribution agreements to eliminate ship from stock and debits and price protection. Under these revised distribution
agreements, we recognized additional revenue of $2.0 million in fiscal 2018 on the dates that the distribution
agreements were revised for product held by our distributors as the price became fixed and determinable. Direct and
indirect sales to Nokia, currently our largest customer, decreased by $4.5 million from $19.8 million in fiscal 2017
to $15.3 million fiscal 2018, reflecting inventory correction by Nokia during fiscal 2018 to reduce inventory levels
to align them with production requirements. In addition, direct and indirect sales to Cisco Systems, historically our
largest customer, decreased by $2.0 million from $4.3 million in fiscal 2017 to $2.3 million in fiscal 2018 due to
softness in the market for its switches and routers that incorporate our products.
Cost of Revenues. Cost of revenues decreased by 7.1% from $21.8 million in fiscal 2017 to $20.2 million in
fiscal 2018. Cost of revenues decreased primarily due to the decrease in net revenues discussed above, partially
offset by an increase in the provision for excess and obsolete inventories which increased from $588,000 in fiscal
2017 to $1.6 million in fiscal 2018. Cost of revenues included stock-based compensation expense of $259,000 and
$282,000, respectively, in fiscal 2018 and fiscal 2017.
Gross Profit. Gross profit decreased by 15.1% from $26.4 million in fiscal 2017 to $22.4 million in fiscal
2018. Gross margin decreased from 54.8% in fiscal 2017 to 52.6% in fiscal 2018. The decline in gross margin was
primarily related to changes in the mix of products and customers and the increased provision for excess and
obsolete inventory discussed above.
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Research and Development Expenses. Research and development expenses increased 7.6% from
$15.8 million in fiscal 2017 to $17.0 million in fiscal 2018. This increase was primarily due to an increase of
$1.1 million in payroll related expenses, and an increase of $331,000 in external research and development
expenses primarily related to qualification of our RadHard product, partially offset by a decrease of $564,000 for
purchased IP both primarily related to our in-place associative processor development activities. Research and
development expenses included stock-based compensation expense of $1.1 million and $980,000, respectively, in
fiscal 2018 and fiscal 2017
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased
11.1% from $11.1 million in fiscal 2017 to $9.9 million in fiscal 2018. This decrease was primarily related to a
decrease in payroll related expenses of $550,000. In addition, re-measurement of the contingent consideration
liability related to our acquisition of MikaMonu resulted in a reduction of the liability of $308,000 in fiscal 2018
compared to an increase in the liability of $344,000 in fiscal 2017, for a year over year reduction in expenses of
$652,000. Selling, general and administrative expenses included stock-based compensation expense of $670,000 and
$615,000, respectively, in fiscal 2018 and fiscal 2017.
Interest and Other Income (Expense), Net. Interest and other income (expense), net decreased 14.4% from
$478,000 in fiscal 2017 to $409,000 in fiscal 2018. Interest income increased by $109,000 due to higher interest
rates received on cash and short-term and long-term investments. A foreign currency exchange gain of $166,000 in
fiscal 2017 compared to a foreign currency exchange loss of $12,000 in fiscal 2018. The exchange gain or loss in
each period was primarily related to our Taiwan branch operations and operations in Israel.
Provision for Income Taxes. The provision for income taxes was $66,000 in fiscal 2017 compared to a
$453,000 in fiscal 2018. The “Tax Cuts and Jobs Act” ("H.R. 1") resulted in an estimated tax provision of $367,000
in the year ended March 31, 2018 related to the transition tax associated with deemed repatriation of foreign
earnings. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March 31, 2018
and the realization of our deferred tax assets is questionable, we recorded a tax provision reflecting a valuation
allowance of $5.9 million in net deferred tax assets in fiscal 2018. Reductions in uncertain tax benefits due to lapses
in the statute of limitations were $0 and $71,000 in the years ended March 31, 2018 and 2017, respectively.
Net Loss. Net loss increased from $115,000 in fiscal 2017 to $4.5 million in fiscal 2018. This increase was
primarily due to the changes in net revenues, gross profit and operating expenses discussed above.
Fiscal Year Ended March 31, 2017 Compared to Fiscal Year Ended March 31, 2016
Net Revenues. Net revenues decreased by 8.6% from $52.7 million in fiscal 2016 to $48.2 million in fiscal
2017. 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 Nokia, currently our largest customer,
increased by $2.7 million from $17.1 million in fiscal 2016 to $19.8 million fiscal 2017, reflecting increased demand
for its systems that incorporate our products. However, direct and indirect sales to Cisco Systems, historically our
largest customer, decreased by $200,000 from $4.5 million in fiscal 2016 to $4.3 million in fiscal 2017 due to
softness in the market for its switches and routers that incorporate our products. We believe that our net revenues
were also negatively impacted during fiscal 2016 by uncertainty regarding the outcome of our patent litigation with
Cypress Semiconductor that was settled in May 2015. We believe that this market uncertainty was resolved with the
settlement of the litigation. However, some design-in losses that we suffered during the pendency of the lawsuit and
a related ITC proceeding will continue to adversely affect our revenues throughout the life of the related products.
Shipments of our SigmaQuad product line accounted for 55.2% of total shipments in fiscal 2017 compared to 53.5%
of total shipments in fiscal 2016.
Cost of Revenues. Cost of revenues decreased by 16.3% from $26.0 million in fiscal 2016 to $21.8 million
in fiscal 2017. Cost of revenues decreased primarily due to improved gross margin and the decrease in net revenues
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discussed above. Cost of revenues included stock-based compensation expense of $282,000 and $320,000,
respectively, in fiscal 2017 and fiscal 2016.
Gross Profit. Gross profit decreased by 1.2% from $26.7 million in fiscal 2016 to $26.4 million in fiscal
2017. Gross margin increased from 50.7% in fiscal 2016 to 54.8% in fiscal 2017. The improvement in gross margin
was primarily related to favorable changes in the mix of products and customers.
Research and Development Expenses. Research and development expenses increased 30.7% from
$12.1 million in fiscal 2016 to $15.8 million in fiscal 2017. This increase was primarily due to an increase of
$2.7 million in payroll related expenses and $564,000 for purchased IP both primarily related to our in-place
associative processor development activities. Research and development expenses included stock-based
compensation expense of $980,000 and $858,000, respectively, in fiscal 2017 and fiscal 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased
36.9% from $17.7 million in fiscal 2016 to $11.1 million in fiscal 2017. This decrease was primarily related to a
decrease in legal expenses of $7.0 million related to the resolution of patent infringement and antitrust litigation
involving Cypress Semiconductor Corporation which was settled in May 2015, partially offset by increased
expenses related to the UMI/ISSI litigation. Selling, general and administrative expenses included stock-based
compensation expense of $615,000 and $672,000, respectively, in fiscal 2017 and fiscal 2016.
Interest and Other Income (Expense), Net. Interest and other income (expense), net increased 127.6% from
$210,000 in fiscal 2016 to $478,000 in fiscal 2017. Interest income increased by $5,000 due to higher interest rates
received on cash and short-term and long-term investments. A foreign currency exchange loss of $97,000 in fiscal
2016 compared to a foreign currency exchange gain of $166,000 in fiscal 2017. The exchange gain or loss in each
period was primarily related to our Taiwan branch operations and operations in Israel.
Provision for Income Taxes. The benefit for income taxes was $641,000 in fiscal 2016 compared to a
provision of $66,000 in fiscal 2017. Because we recorded a cumulative three-year loss on a U.S. tax basis for the
year ended March 31, 2017 and the realization of our deferred tax assets is questionable, we recorded a tax provision
reflecting a full valuation allowance of $8.9 million in net deferred tax assets in fiscal 2017. Reductions in uncertain
tax benefits due to lapses in the statute of limitations were $71,000 and $563,000 in the years ended March 31, 2017
and 2016, respectively.
Net Loss. Net loss decreased from $2.2 million in fiscal 2016 to $115,000 in fiscal 2017. This decrease was
primarily due to the changes in net revenues, gross profit and operating expenses discussed above.
Liquidity and Capital Resources
As of March 31, 2018, our principal sources of liquidity were cash, cash equivalents and short-term
investments of $58.4 million compared to $49.9 million as of March 31, 2017. Cash, cash equivalents and short-
term investments totaling $31.7 million were held in foreign locations as of March 31, 2018.
Net cash provided by operating activities was $1.1 million for fiscal 2018 compared to $2.1 million for fiscal
2017 and $460,000 for fiscal 2016. The primary sources of cash in fiscal 2018 were a reduction in inventory of
$2.1 million, non-cash stock-based compensation expense of $2.1 million, a provision for excess and obsolete
inventory of $1.6 million, depreciation and amortization expense of $1.3 million and a decrease in accounts
receivable of $1.1 million. The primary uses of cash in fiscal 2018 were and net loss of $4.5 million, a decrease in
deferred revenue of $1.7 million and a decrease in accrued expenses and other liabilities of $1.2 million. The
decrease in deferred revenue is due to revisions in our distribution agreements in fiscal 2018 that resulted in the
elimination of ship from stock and debit rights and price protection rights for our distributors to eliminate any
uncertainty in regards to a final selling price and to establish a selling price that is fixed and determinable at the time
of shipment to the distributor and enable us to recognize revenue upon shipment to our distributors that was
previously deferred. The primary
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sources of cash in fiscal 2017 were non-cash stock-based compensation expense of $1.9 million, depreciation and
amortization expense of $1.5 million and a decrease in accounts receivable of $1.1 million. The primary uses of cash
in fiscal 2017 were an increase in inventories of $2.6 million, a decrease in accounts payable of $887,000 and a
decrease in deferred revenue of $534,000. Our inventory balance increased primarily due to assembling our
LLDRAM products to support shipments in the next three to six months as we qualified a new assembly vendor.
The primary sources of cash in fiscal 2016 were non-cash stock-based compensation expense of $1.9 million,
depreciation and amortization expense of $1.5 million and a provision for excess and obsolete inventory of
$1.2 million. The primary uses of cash in fiscal 2016 were a net loss of $2.2 million, a decrease of $2.1 million in
accrued expenses and other liabilities and a decrease of $485,000 in deferred revenue.
Net cash provided by investing activities was $2.8 million in fiscal 2018 compared $4.8 million in fiscal 2017
and $935,000 in fiscal 2016. Investment activities in fiscal 2018 consisted primarily of the maturity of certificates of
deposit, state and municipal obligations and corporate notes of $16.1 million and a reduction in the MikaMonu
escrow deposits of $1.2 million, partially offset by the purchase of investments of $13.2 million and the purchase of
property and equipment of $1.3 million. Investment activities in fiscal 2017 consisted primarily of the maturity of
corporate notes, agency bonds, state and municipal obligations and certificates of deposit of $23.6 million, partially
offset by the purchase of investments of $18.6 million. Investment activities in fiscal 2016 consisted primarily 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 property and
equipment for $1.2 million.
Cash used in financing activities in fiscal 2017 and in fiscal 2016 included the repurchase of our common
stock for a total purchase price of $7.1 million and $7.0 million, respectively. There were no repurchases of our
common stock in fiscal 2018. Cash provided by financing activities in fiscal 2018, fiscal 2017 and fiscal 2016
primarily consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans.
At March 31, 2018, we had total minimum lease obligations of approximately $1.0 million from April 1,
2018 through April 30, 2022, under non-cancelable operating leases.
We believe that our existing balances of cash, cash equivalents and short-term investments, and cash flow
expected to be generated from our future operations, will be sufficient to meet our cash needs for working capital
and capital expenditures for at least the next 12 months, although we could be required, or could elect, to seek
additional funding prior to that time. Our future capital requirements will depend on many factors, including the rate
of revenue growth that we experience, the extent to which we utilize subcontractors, the levels of inventory and
accounts receivable that we maintain, the timing and extent of spending to support our product development efforts
and the expansion of our sales and marketing efforts. Additional capital may also be required for the consummation
of any acquisition of businesses, products or technologies that we may undertake. We cannot assure you that
additional equity or debt financing, if required, will be available on terms that are acceptable or at all.
Contractual Obligations
The following table describes our contractual obligations as of March 31, 2018:
Up to 1 year 1 - 3 years 3 - 5 years More than 5 years
Total
Payments due by period
Facilities and equipment leases . . . . . . . . . . $
Wafer and test purchase obligations . . . . . .
434,000 $ 521,000 $ 90,000 $
1,555,000
112,000
$ 1,989,000 $ 633,000 $ 90,000 $
—
— $ 1,045,000
1,667,000
—
— $ 2,712,000
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As of March 31, 2018, the current portion of our unrecognized tax benefits was $0, and the long-term portion
was $619,000. We do not expect to make any federal income tax payments in fiscal 2019.
We expect expenditures of approximately $1.0 million to be incurred in fiscal 2019 for test equipment to be
used on our associative computing products.
In connection with the acquisition of MikaMonu on November 23, 2015, we are required to make contingent
consideration payments to the former MikaMonu shareholders conditioned upon the retention of MikaMonu’s key
employee and the achievement of certain product development milestones and revenue targets for products based on
the MikaMonu technology. As of March 31, 2018, the accrual for potential payment of contingent consideration was
$5.5 million.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the 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 estimates affecting revenue recognition, obsolete and excess inventory, the valuation allowance on deferred
tax assets, stock-based compensation, contingent consideration and the valuation of goodwill. We believe that we
consistently apply these judgments and estimates and 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 of operations. Critical accounting estimates, as defined by
the Securities and Exchange Commission, are those that are most important to the portrayal of our financial
condition and results of operations and require our most difficult and subjective judgments and estimates of matters
that are inherently uncertain. Our critical accounting estimates include those regarding revenue recognition, the
valuation of inventories, taxes, stock-based compensation, contingent consideration and the valuation of goodwill.
Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the price is fixed or determinable and collectability of the resulting receivable is reasonably assured.
Under these criteria, revenue from the sale of our products is generally recognized upon shipment according to our
shipping terms, net of accruals for estimated sales returns and allowances based on historical experience. Sales to
consignment warehouses, who purchase products from us for use by contract manufacturers, are recorded upon
delivery to the contract manufacturers. Sales to certain distributors were previously made under agreements allowing
for returns or credits under certain circumstances. We therefore deferred recognition of revenue on sales to those
distributors under these terms until products were resold by the distributor. During fiscal 2018, we revised our
distribution agreements to these distributors to eliminate ship from stock and debits and price protection. Under
these revised distribution agreements, selling prices are now fixed and determinable on the date of shipment and
revenue is recognized upon shipment. Under these revised distribution agreements, we recognized additional
revenue of $2.0 million in fiscal 2018 on the dates that the distribution agreements were revised for product held by
our distributors as the price became fixed and determinable.
Valuation of Inventories. Inventories are stated at the lower of cost or market value, cost being determined
on a weighted average basis. Our inventory write-down allowance is established when conditions indicate that the
selling price of our products could be less than cost due to physical deterioration, obsolescence, changes in price
levels, or other causes. We consider the need to establish the allowance for excess inventory generally based on
inventory levels in excess of 12 months of forecasted demand for each specific product. Inventory consists of
finished goods at our premises or consignment warehouses, work in progress at our premises or our contract
manufacturers and finished goods at distributors that have price protection and ship from stock and debit rights and
takes into account any un-cancellable purchase commitments. Historically, it has been difficult to forecast customer
demand especially at the part-number level. Many of the orders we receive from our customers and distributors
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request delivery of product on relatively short notice and with lead times less than our manufacturing cycle time. In
order to provide competitive delivery times to our customers, we build and stock a certain amount of inventory in
anticipation of customer demand that may not materialize. Moreover, as is common in the semiconductor industry,
we may allow customers to cancel orders with minimal advance notice. Thus, even product built to satisfy specific
customer orders may not ultimately be required to fulfill customer demand. Nevertheless, at any point in time, some
portion of our inventory is subject to the risk of being materially in excess of our projected demand. Additionally,
our average selling prices could decline due to market or other conditions, which creates a risk that costs of
manufacturing our inventory may 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 from operations than expected in that period.
Taxes. We account for income taxes under the liability method, whereby deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to affect taxable income. We make
certain estimates and judgments in the calculation of tax liabilities and the determination of deferred tax assets,
which arise from temporary differences between tax and financial statement recognition methods. We record a
valuation allowance to reduce our deferred tax assets to the amount that management estimates is more likely than
not to be realized. As of March 31, 2018, our net deferred tax assets of $6.0 million are subject to a valuation
allowance of $5.9 million. If, in the future we determine that we are likely to realize all or part of our net deferred
tax assets, an adjustment to deferred tax assets would be added to earnings in the period such determination is made.
We re-measured all deferred tax assets and liabilities as of December 22, 2017, based on the provisions of
H.R. 1. This new legislation resulted in an estimated tax provision of $367,000 in the year ended March 31, 2018
related to the transition tax associated with deemed repatriation of foreign earnings. In addition, we recorded a
deferred tax benefit related to a valuation allowance release of $101,000 as a result of provisions in the new
legislation related to indefinite lived net operating loss carryovers and the refundability of minimum tax credit
carryovers. Finally, we currently estimate that we will not have a liability for taxes currently payable at March 31,
2018 as a result of H.R. 1. This original estimate may be materially impacted by a number of additional
considerations, including but not limited to the issuance of the final regulations and the Company’s ongoing analysis
of the new law.
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
potential examinations by federal and state taxing authorities. If the payment ultimately proves to be unnecessary,
the reversal of these tax reserves would result in tax benefits being recognized in the period we determine such
reserves are no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional
charge to provision for income taxes will result.
Authoritative guidance prescribes a comprehensive model for how a company should recognize, measure,
present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take
on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Under this
guidance, the financial 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
the statement 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 award in accordance with the authoritative guidance. We calculated the expected term based on the
historical average period of time that options were outstanding as adjusted for expected changes in future exercise
patterns, which, for options granted in fiscal 2018, 2017 and 2016, resulted in an expected term of approximately
five years. We used our historical volatility to estimate expected volatility in fiscal 2018, 2017 and 2016. The risk-
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free interest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding to the
expected life of the options. The dividend yield is 0%, based on the fact that we have never paid dividends and have
no present intention to pay dividends. Determining some of these assumptions requires significant judgment and
changes to these assumptions could result in a significant change to the 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 cost
recognized 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
awards ultimately expected to vest, it has been reduced for estimated forfeitures. We estimate forfeitures at the time
of grant and revise 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
our non-employee directors.
Contingent Consideration. The fair value of the contingent consideration liability potentially payable in
connection with our acquisition of MikaMonu was initially determined as of the acquisition date using unobservable
inputs. These inputs included the estimated amount and timing of future cash flows, the probability of success
(achievement of the various contingent events) and a risk-adjusted discount rate to adjust the probability-weighted
cash flows to their present value. Subsequent to the acquisition date, at each reporting period, the contingent
consideration liability will be re-measured at its then current fair value with changes recorded in the Consolidated
Statements of Operations. 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 identifiable assets 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. We have one reporting unit. We assess goodwill for impairment on an annual basis
on the last day of February in the fourth quarter of our fiscal year.
As of March 31, 2018, we had a goodwill balance of $8.0 million. The goodwill resulted from the acquisition
of MikaMonu in fiscal 2016.
We utilized a two-step quantitative analysis to complete our annual impairment test during the fourth quarter
of fiscal 2018 and concluded that there was no impairment, as the fair value of our sole reporting unit exceeded its
carrying value. We determined that the second step of the impairment test was not necessary. We believe that the
fair value established during the fiscal 2018 annual goodwill impairment testing was reasonable, and no triggering
event has taken place subsequent to the fiscal 2018 annual assessment. However, a sustained decline in our stock
price could constitute a triggering event that would require an interim assessment for potential goodwill impairment
in fiscal 2019.
Off-Balance Sheet Arrangements
At March 31, 2018, we did not have any off-balance sheet arrangements or relationships with unconsolidated
entities 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 limited
purposes. Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if
we had engaged in such relationships.
42
Recent Accounting Pronouncements
Please refer to Note 1 to our consolidated financial statements appearing under Part II, Item 8 for a discussion
of recent accounting pronouncements that may impact the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk. Our revenues and expenses, except those expenses related to our
operations in Israel and Taiwan, including subcontractor manufacturing expenses in Taiwan, are denominated in
U.S. dollars. As a result, we have relatively little exposure for currency exchange risks, and foreign exchange losses
have been minimal to date. We do not currently enter into forward exchange contracts to hedge exposure
denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes.
In the future, if we believe our foreign currency 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 investments
totaling $66.3 million at March 31, 2018. These amounts were invested primarily in money market funds, state and
municipal 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
or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any
material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. We
believe a hypothetical 100 basis point increase in interest rates would not materially affect the fair value of our
interest-sensitive financial instruments. Declines in interest rates, however, will reduce future investment income.
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Item 8. Financial Statements and Supplementary Data
GSI TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets As of March 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations For the Three Years Ended March 31, 2018, 2017 and 2016 . . . . .
Consolidated Statements of Comprehensive Loss For the Three Years Ended March 31, 2018, 2017
and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity For the Three Years Ended March 31, 2018, 2017
and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows For the Three Years Ended March 31, 2018, 2017 and 2016 . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
45
48
49
50
51
52
53
44
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
GSI Technology, Inc.
Sunnyvale, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of GSI Technology, Inc. (the “Company”) and
subsidiaries as of March 31, 2018, the related consolidated statements of operations, comprehensive loss,
stockholders’ equity, and cash flows for the year ended March 31, 2018, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiaries at March 31, 2018, and the results of
their operations and their cash flows for the year ended March 31, 2018, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company's internal control over financial reporting as of March 31, 2018, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) and our report dated June 1, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2017.
San Jose, California
June 1, 2018
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
GSI Technology, Inc.
Sunnyvale, California
Opinion on Internal Control over Financial Reporting
We have audited GSI Technology, Inc.’s (the “Company’s”) internal control over financial reporting as of
March 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of March 31,
2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of March 31, 2018,
the related consolidated statements of operations, comprehensive loss, stockholder’s equity, and cash flows for the
year ended March 31, 2018, and the related notes, and our report dated June 1, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ BDO USA, LLP
San Jose, California
June 1, 2018
46
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of GSI Technology, Inc.:
In our opinion, the consolidated balance sheet as of March 31, 2017 and the related consolidated statements
of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended
March 31, 2017 present fairly, in all material respects, the financial position of GSI Technology, Inc. and its
subsidiaries as of March 31, 2017, and the results of their operations and their cash flows for each of the two years
in the period ended March 31, 2017, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 5, 2017
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GSI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
2018
2017
(In thousands, except share and
per share amounts)
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,241 $
18,124
5,279
5,547
2,080
71,271
8,172
7,923
7,978
2,989
1,207
99,540 $
1,841 $
5,442
121
7,404
619
—
4,702
12,725
33,736
16,199
6,349
9,211
2,777
68,272
7,689
12,898
7,978
3,302
2,456
102,595
1,627
7,051
1,796
10,474
244
15
5,418
16,151
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued and
outstanding: none . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock: $0.001 par value authorized: 150,000,000 shares; issued and
outstanding: 21,407,247 and 20,612,757 shares, respectively . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
21
27,391
(142)
59,545
86,815
99,540 $
21
21,830
(62)
64,655
86,444
102,595
The accompanying notes are an integral part of these consolidated financial statements.
48
GSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
2017
(In thousands, except per share amounts)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,643 $ 48,180 $ 52,736
25,999
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,737
Operating expenses:
21,764
26,416
20,217
22,426
2016
2018
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,515) $
Net loss per share:
16,998
9,899
26,897
(4,471)
421
(12)
(4,062)
453
15,803
11,140
26,943
(527)
312
166
(49)
66
12,095
17,663
29,758
(3,021)
307
(97)
(2,811)
(641)
(115) $ (2,170)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(0.21) $
(0.21) $
(0.01) $
(0.01) $
(0.10)
(0.10)
Weighted average shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,085
21,085
20,652
20,652
22,593
22,593
The accompanying notes are an integral part of these consolidated financial statements.
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GSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,515)
Net unrealized gain (loss) on available-for-sale investments . . . . . . . . . . . . . . .
(80)
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,595) $
2018
2016
Year Ended March 31,
2017
(In thousands)
(115)
$
(89)
(204)
$ (2,170)
1
$ (2,169)
The accompanying notes are an integral part of these consolidated financial statements.
50
GSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Shares
Additional
Paid-in
Amount Capital
Accumulated
Other
Total
Comprehensive Retained Stockholders'
Income
Earnings
Equity
199,961
Balance, March 31, 2015. . . . . . . . . . . . . . . 23,128,372 $
Issuance of common stock under
employee stock option plans . . . . . . . . . . . .
Repurchase and retirement of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,611,969)
Stock-based compensation expense . . . . . .
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Net unrealized gain on available-for-sale
—
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, March 31, 2016. . . . . . . . . . . . . . . 21,716,364
Issuance of common stock under
employee stock option plans . . . . . . . . . . . .
Repurchase and retirement of
common stock . . . . . . . . . . . . . . . . . . . . . . . (1,643,441)
—
Stock-based compensation expense . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Net unrealized loss on available-for-sale
—
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, March 31, 2017. . . . . . . . . . . . . . . 20,612,757
Issuance of common stock under
employee stock option plans . . . . . . . . . . . .
Stock-based compensation expense . . . . . .
Impact of adoption of ASU 2016-16 . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on available-for-sale
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, March 31, 2018. . . . . . . . . . . . . . . 21,407,247 $
794,490
—
—
—
539,834
—
(In thousands, except share amounts)
23 $ 29,407 $
26 $ 66,940 $
96,396
—
818
—
—
818
(1) (7,025)
1,850
—
—
—
—
—
—
—
— (2,170)
(7,026)
1,850
(2,170)
—
—
22 25,050
1
—
27 64,770
1
89,869
1
2,013
—
—
2,014
(2) (7,110)
1,877
—
—
—
—
—
—
—
—
(115)
(7,112)
1,877
(115)
—
—
21 21,830
—
(89)
(62) 64,655
(89)
86,444
—
—
—
—
3,491
2,070
—
—
—
—
—
—
(595)
—
— (4,515)
3,491
2,070
(595)
(4,515)
—
21 $ 27,391 $
—
(80)
(142) $ 59,545 $
—
(80)
86,815
The accompanying notes are an integral part of these consolidated financial statements.
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GSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2018
Year Ended March 31,
2017
(In thousands)
2016
(115) $ (2,170)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,515) $
Adjustments to reconcile net loss to net cash provided by operating
activities:
Allowance for sales returns, doubtful accounts and other . . . . . . . . . . . . . . . .
Provision for excess and obsolete inventories . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premium on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
(41)
1,561
1,255
2,070
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Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
1,111
2,103
117
189
(1,183)
(1,675)
1,065
4
588
1,532
1,877
74
1,125
(2,625)
103
(887)
911
(534)
2,053
Cash flows from investing activities:
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in MikaMonu escrow deposit . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,243)
16,140
—
1,234
(1,320)
2,811
(18,563)
23,600
—
—
(219)
4,818
Cash flows from financing activities:
(3)
1,172
1,459
1,850
209
782
66
102
(441)
(2,081)
(485)
460
(14,149)
23,585
(4,359)
(2,984)
(1,158)
935
(7,026)
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of MikaMonu escrow deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
818
Proceeds from issuance of common stock under employee stock plans . . . . .
(6,208)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . .
(4,813)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of the period . . . . . . . . . . . . . . . . . . . . . .
36,776
Cash and cash equivalents at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,241 $ 33,736 $ 31,963
Non-cash financing activities:
—
(862)
3,491
2,629
6,505
33,736
(7,112)
—
2,014
(5,098)
1,773
31,963
Purchases of property and equipment through accounts payable and
accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
105 $
— $
—
Supplemental cash flow information:
Net cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
39
$ 1,339
$
78
The accompanying notes are an integral part of these consolidated financial statements.
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NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
GSI Technology, Inc. (the “Company”) was incorporated in California in March 1995 and reincorporated in
Delaware on June 9, 2004. The Company is a provider of high performance semiconductor memory solutions to
networking, industrial, medical, aerospace and military customers. The Company’s products are incorporated
primarily in high-performance networking and telecommunications equipment, such as routers, switches, wide area
network infrastructure equipment, wireless base stations and network access equipment. In addition, the Company
serves the ongoing needs of the military, industrial, test equipment and medical markets for high-performance
SRAMs. The Company’s in-place associative computing product, currently under development, is targeted for
markets including big data, computer vision and cyber security.
Accounting principles
The consolidated financial statements and accompanying notes were prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”).
Basis of consolidation
The consolidated financial statements include the accounts of the Company’s four wholly-owned subsidiaries,
GSI Technology Holdings, Inc., GSI Technology (BVI), Inc., GSI Technology Israel Ltd. and GSI Technology
Taiwan, Inc. All inter-company transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the 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 revenue recognition, obsolete and excess inventory, the valuation allowance on deferred tax assets, stock-
based compensation, contingent consideration and the valuation of goodwill. Actual results could differ materially
from those estimates.
Risk and uncertainties
The Company buys all of its SRAM and LLDRAM wafers, integral components of its products, from single
suppliers and is also dependent on independent suppliers to assemble and test its products. During the years ended
March 31, 2018, 2017 and 2016, all of the wafers used in the Company’s SRAM and LLDRAM products were
supplied by Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and Powerchip Technology
Corporation, or Powerchip, respectively. If these suppliers fail to satisfy the Company’s requirements on a timely
basis at competitive prices, the Company could suffer manufacturing delays, a possible loss of revenues, or higher
cost of revenues, any of which could adversely affect operating results.
A majority of the Company’s net revenues come from sales to customers in the networking and
telecommunications equipment industry. A decline in demand in this industry could have a material adverse effect
on the Company’s operating results and financial condition.
Because much of the manufacturing and testing of the Company’s products is conducted in Taiwan, its
business performance may be affected by changes in Taiwan’s political, social and economic environment. For
example, any political instability resulting from the relationship among the United States, Taiwan and the People’s
Republic of China could damage the Company’s business. Moreover, the role of the Taiwanese government in the
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Taiwanese economy is significant. Taiwanese policies toward economic liberalization, and laws and policies
affecting technology companies, foreign investment, currency exchange rates, taxes and other matters could change,
resulting in greater restrictions on the Company’s and its suppliers' ability to do business and operate facilities in
Taiwan. If any of these risks were to occur, the Company’s business could be harmed.
Some of the Company’s suppliers and the Company’s two principal operations are located near fault lines. In
the event of a major earthquake or other natural disaster near the facilities of any of these suppliers or the Company,
the Company’s business could be harmed.
From time to time, the Company is involved in legal actions. See Note 7 for information regarding litigation
that was resolved during the year ended March 31, 2016. There are many uncertainties associated with any
litigation, and the Company may not prevail. If information becomes available that causes us to determine that a
loss in any of our pending litigation, or the settlement of such litigation, is probable, and we can reasonably estimate
the loss associated with such events, we will record the loss in accordance with GAAP. However, the actual liability
in any such litigation may be materially different from our estimates, which could require us to record additional
costs.
Revenue recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the price 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. 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. Sales to certain distributors were previously made under
agreements allowing for returns or credits under certain circumstances. We therefore deferred recognition of revenue
on sales to those distributors under these terms until products were resold by the distributor. During fiscal 2018, we
revised our distribution agreements to these distributors to eliminate ship from stock and debits and price protection.
Under these revised distribution agreements, selling prices are now fixed and determinable on the date of shipment
and revenue is recognized upon shipment. Under these revised distribution agreements, we recognized additional
revenue of $2.0 million in fiscal 2018 on the dates that the distribution agreements were revised for product held by
our distributors as the price became fixed and determinable.
Cash and cash equivalents
Cash and cash equivalents include cash in demand accounts and highly liquid investments purchased with an
original or remaining maturity of three months or less at the date of purchase, stated at cost, which approximates
their fair value.
Short-term and long-term investments
All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-
sale debt securities with maturities greater than twelve months are classified as long-term investments when they are
not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with
unrecognized gains (losses), net of tax, as a component of “Accumulated other comprehensive income (loss)” on the
Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records
appropriate reductions in carrying values when the declines in fair value are determined to be other-than-temporary.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily
of cash, cash equivalents, short-term and long-term investments and accounts receivable. The Company places its
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cash primarily in checking, certificate of deposit, and money market accounts with reputable financial institutions,
and by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. The
Company’s accounts receivable are derived primarily from revenue earned from customers located in the U.S. and
Asia. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectability of accounts receivable. There were no write offs of accounts receivable in the
years ended March 31, 2018, 2017 or 2016.
At March 31, 2018, four customers accounted for 26%, 25%, 21%, and 13% of accounts receivable, and for
the year then ended, four customers accounted for 35%, 16%, 16% and 13% of net revenues. At March 31, 2017,
four customers accounted for 36%, 26%, 13%, and 10% of accounts receivable, and for the year then ended, four
customers accounted for 26%, 20%, 20% and 10% of net revenues. For the year ended March 31, 2016, four
customers accounted for 28%, 16%, 14% and 13% of net revenues.
Inventories
Inventories are stated at the lower of cost or net realizable 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 cost due 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 generally based on inventory levels in excess of 12 months of forecasted demand, as estimated
by management, for each specific product. The allowance is not reversed until the inventory is sold or disposed.
The Company recorded write-downs of excess and obsolete inventories of $1.6 million, $588,000 and
$1.2 million, respectively, in fiscal 2018, 2017 and 2016.
Property and equipment, net
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as presented below:
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 to 5 years
Computer and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 10 years
Building and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 to 25 years
7 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful
lives of the assets or the remaining lease term of the respective assets. Gains or losses on disposals of property and
equipment are recorded within income from operations. Costs of repairs and maintenance are included as part of
operating expenses unless they are incurred in relation to major improvements to existing property and equipment, at
which time they are capitalized.
Impairment of long-lived assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in
circumstances 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
impairment could exist and the amount of the impairment loss, if any, will generally be measured as the difference
between the net book value of the assets and their estimated fair values. There were no impairment losses recognized
during the years ended March 31, 2018, 2017 or 2016.
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Goodwill and intangible assets
Goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in
circumstances 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
quarter of its fiscal year and if certain events or circumstances indicate that an impairment loss may have been
incurred, on an interim 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 goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative
impairment test is required. Otherwise, no further testing is required.
Intangible assets with finite useful lives are amortized over their estimated useful lives, generally on a
straight-line basis over five to fifteen years. The Company reviews identifiable amortizable intangible assets for
impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash
flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on
the excess of the carrying value of the asset over its fair value.
Research and development
Research and development expenses are related to new product designs, including, salaries, stock-based
compensation, contractor fees, and allocation of corporate costs and are charged to the statement of operations as
incurred.
Income taxes
The Company accounts for income taxes under the liability method, whereby deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income.
Valuation allowances are established when it is more likely than not that the deferred tax asset will not be realized.
Because the Company recorded a cumulative three-year loss on a U.S. tax basis for the year ended March 31, 2018
and 2017, the Company has recorded a tax provision reflecting a valuation allowance of its $5.9 million and
$8.9 million of net deferred tax assets at March 31, 2018 and 2017, 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 tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Under the
guidance, the financial statements will reflect expected 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 evaluate the tax position for recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50%
likely of being realized upon ultimate settlement.
Shipping and handling costs
The Company records costs related to shipping and handling in cost of revenues.
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Advertising expense
Advertising costs are charged to expense in the period incurred. Advertising expense was not material for the
years ended March 31, 2018, 2017, and 2016, respectively.
Foreign currency transactions
The U.S. dollar is the functional currency for all of the Company’s foreign operations. Foreign currency
transaction gains and losses, resulting from transactions denominated in currencies other than U.S. dollars are
included in the Consolidated Statements of Operations. These gains and losses were not material for the years ended
March 31, 2018, 2017 or 2016.
Segments
The Company operates as one segment for the design, development and sale of integrated circuits.
Accounting for stock-based compensation
Stock-based compensation expense recognized in the Consolidated Statement of Operations is based on
options ultimately expected to vest, reduced by the amount of estimated forfeitures. The Company chose the
straight-line method of allocating compensation cost over the requisite service period of the related award according
to authoritative guidance. The Company calculates the expected term based on the historical average period of time
that options were outstanding as adjusted for expected changes in future exercise patterns, which, for options
granted in fiscal 2018, 2017 and 2016 resulted in an expected term of approximately five years. The Company uses
its historical volatility to estimate expected volatility. The risk-free interest rate is based on the U.S. Treasury yields
in effect at the time of grant for periods corresponding to the expected life of the options. The dividend yield is 0%,
based on the fact that the Company has never paid dividends and has no present intention to pay dividends. Changes
to these assumptions may have a significant impact on the results of operations.
Authoritative guidance requires cash flows, if any, resulting from the tax benefits from tax deductions in
excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash
flows in the Consolidated Statements of Cash Flows.
Comprehensive loss
Comprehensive loss is defined to include all changes in stockholders’ equity during a period except those
resulting from investments by owners and distributions to owners. For the years ended March 31, 2018, 2017 and
2016, comprehensive loss was $4.6 million, $204,000 and $2.2 million, respectively.
Business combinations
The 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 of
acquisition cost over the fair value of tangible and identified intangible net assets of businesses acquired.
Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of
the acquired company are reflected in the Company’s consolidated financial statements after the closing date of the
business combination. See Note 11 for additional information related to the acquisition of MikaMonu Group Ltd. in
fiscal 2016.
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Recent accounting pronouncements
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09, “Scope of
Modification Accounting”. ASU 2017-09 amends the scope of modification accounting for share-based payment
arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment
awards to which an entity would be required to apply modification accounting under ASC 718. This guidance
clarifies that an entity will not apply modification accounting to a share-based payment award if all of the following
are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of
the award, and (iii) the classification of the award as an equity instrument or liability instrument. The Company
adopted ASU 2017-09 in the quarter ended March 31, 2018. Implementation of this guidance did not have a material
impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment". The standard eliminates the second step in the goodwill impairment
test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity
should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the
fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the
reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years
beginning after December 15, 2019, with early adoption permitted. The Company does not anticipate the adoption
of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted
Cash”. ASU 2016-18 requires entities to include in their cash and cash-equivalent balances in the statement of cash
flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies
will no longer present transfers between cash and cash equivalents, and restricted cash and restricted cash
equivalents in the statement of cash flows. This standard is effective for fiscal years beginning after December 15,
2017 and interim periods within those fiscal years, with early adoption permitted. ASU 2016-18 is applied using the
retrospective transition method for each period presented. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory.” ASU 2016-16 requires an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an
intra-entity transfer of an asset other than inventory. The Company adopted ASU 2016-16 in the quarter ended
June 30, 2017. ASU 2016-16 is applied on a modified retrospective basis in the period of adoption. The adoption
of this guidance resulted in a de-recognition of a prepaid tax asset of $595,000 related to a prior period intra-entity
asset transfer, with an offsetting reduction to retained earnings. Because of the Company’s valuation allowance in
the United States, there was no change to the Company’s net deferred tax assets. The de-recognition of the prepaid
tax asset as of April 1, 2017 decreased the Company’s income tax expense in fiscal 2018 by $43,000.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. ASU 2016-15 adds or clarifies guidance on the classification of certain
cash receipts and cash payments in the statement of cash flows. The amendments in the update provide guidance on
eight specific cash flow issues, and are effective for annual and interim periods beginning after December 15,
2017. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-15 in
the quarter ended March 31, 2018. Implementation of this guidance did not have a material impact on the
Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments,” ASU 2016-13 replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of
a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other
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receivables, loans, and other financial instruments, the Company will be required to use a forward-looking expected
loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.
Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses
rather than as a reduction in the amortized cost basis of the securities. ASU 2016-13 is effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption
permitted beginning April 1, 2019. Application of the amendments is through a cumulative-effect adjustment to
retained earnings as of the effective date. The Company is currently evaluating the impact of this standard on its
consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities and classification on the statement of cash flows. The Company adopted ASU 2016-09 in
the quarter ended June 30, 2017. The Company has elected to continue to estimate forfeitures as part of the
compensation cost of equity awards. ASU 2016-09 is applied prospectively to all excess tax benefits and tax
deficiencies resulting from settlements after the date of adoption. The adoption of ASU 2016-09 resulted in an
increase to the net operating loss carryforward deferred tax asset and a corresponding increase in the valuation
allowance of $654,000 attributable to excess tax benefits not previously recognized as they did not reduce income
taxes payable.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is
that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability
for the lessee 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 lease assets and lease liabilities to be recognized for most leases. This ASU is effective for annual and
interim periods beginning after December 15, 2018. Early adoption is permitted. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from
previous GAAP. Although the Company is currently evaluating the impact the pronouncement will have on its
consolidated financial statements and related disclosures, the Company expects that most of its operating lease
commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets
upon adoption.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity
investments to be measured at fair value with changes in fair value recognized in net income and simplifies the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure
requirements. This accounting standard update will be effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years, and early adoption is permitted. The Company does not expect
implementation of this accounting standard update to have a significant impact on its consolidated financial
statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This standard
update 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 of cost and net realizable value test. Under the current guidance, market could be replacement cost, net
realizable value or net realizable value less an approximately normal profit margin. Net realizable value is the
estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. The Company adopted ASU 2015-11 in the quarter ended June 30, 2017. Implementation of
this guidance did not have a material impact on the Company’s consolidated financial statements.
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In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)"
and has subsequently issued several supplemental and/or clarifying ASUs (collectively, "ASC 606"). The new
accounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue recognition guidance. The new standard requires a
company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the
expected consideration to be received in exchange for those goods or services. It defines a five-step approach for
recognizing revenue, which may require a company to use more judgment and make more estimates than under the
current standard. The accounting standard is effective for annual reporting periods (including interim reporting
periods within those periods) beginning after December 15, 2017. The Company adopted ASC 606 on April 1, 2018
using the modified retrospective transition method.
The adoption of ASC 606 did not have a significant impact on the Company’s retained earnings as the timing
of Company’s revenue recognition under the new standard coincides with the way the Company previously
recognized revenue. The majority of the Company’s customer contracts, which may be in the form of purchase
orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products.
Delivery of all performance obligations contained within a contract with a customer typically occurs at the same
time (or within the same accounting period). Transfer of control typically occurs at the time of shipment or at the
time the product is pulled from consignment as that is the point at which delivery has occurred, title and the risks
and rewards of ownership have passed to the customer, and the Company has a right to payment. Thus, the
Company will generally recognize revenue upon shipment of the product. The Company adjusts the transaction
price for variable consideration. Variable consideration is not typically significant and primarily results from stock
rotation rights provided to our distributors. As a practical expedient, the Company is recognizing the incremental
costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than
twelve months, as an expense when incurred. Additionally, the Company will adopt an accounting policy to
recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.
The Company historically deferred recognition of revenue on shipments to its distributors because it lacked
fixed and determinable pricing for contracts in which the distributors had rights to price concessions from the
Company upon shipment to the distributors’ customers. During fiscal 2018, the Company revised all of its
distribution agreements to eliminate the uncertainty in pricing, allowing the Company to recognize revenue at the
time of shipment to the distributors. As a result, the implementation of the guidance did not have a significant
impact on the Company’s consolidated financial statements. The Company is continuing to finalize its assessment of
the impact that the new guidance will have on its business processes, internal controls and the additional disclosures
which may be required upon the adoption of ASC 606.
60
NOTE 2—NET LOSS PER COMMON SHARE
The Company uses the treasury stock method to calculate the weighted average shares used in computing
diluted net loss per share. The following table sets forth the computation of basic and diluted net loss per share:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,515) $
2018
Year Ended March 31,
2017
(In thousands, except per share amounts)
(115) $ (2,170)
2016
Denominators:
Weighted average shares—Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of employee stock purchase plan options . . . . . . . . . . . . . . . . . .
Weighted average shares—Dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per common share—Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss per common share—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
21,085
—
—
21,085
20,652
—
—
20,652
(0.21) $
(0.21) $
(0.01) $
(0.01) $
22,593
—
—
22,593
(0.10)
(0.10)
The following shares of common stock (determined on a weighted average basis) were excluded from the
computation of diluted net loss per common share as they had an anti-dilutive effect:
Shares underlying options and ESPP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 3—BALANCE SHEET DETAIL
2018
Year Ended March 31,
2017
(In thousands)
5,483
2016
5,407
2,790
Inventories:
Work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory at distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Accounts receivable, net:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Allowances for sales returns, doubtful accounts and other . . . . . . . . . . . . . . . . . . . .
$
March 31,
2018
2017
(In thousands)
2,226 $
3,299
22
5,547 $
2,112
6,803
296
9,211
March 31,
2018
2017
(In thousands)
5,342 $
(63)
5,279 $
6,453
(104)
6,349
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Prepaid expenses and other current assets:
Prepaid tooling and masks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Escrow deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Property and equipment, net:
March 31,
2018
2017
(In thousands)
163 $
—
750
370
797
2,080 $
836
43
1,234
216
448
2,777
March 31,
2018
2017
(In thousands)
Computer and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,845 $ 18,585
4,793
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,900
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,256
Building and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
715
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,360
(22,671)
7,689
4,072
3,900
2,310
82
766
965
29,940
(21,768)
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,172 $
$
Depreciation expense was $934,000, $1.2 million and $1.2 million for the years ended March 31, 2018, 2017
and 2016, respectively. The construction in progress relates to a facility expansion at our Sunnyvale headquarters
that will be placed in service in the first quarter of fiscal 2019.
Other assets:
Escrow deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-current deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
March 31,
2018
2017
(In thousands)
1,000 $
75
—
132
1,207 $
1,750
22
552
132
2,456
The following table summarizes the components of intangible assets and related accumulated amortization
balances at March 31, 2018 and 2017, respectively (in thousands):
As of March 31, 2018
Gross
Carrying
Amount
Accumulated
amortization
Net Carrying
Amount
Intangible assets:
Product designs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,220
80
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,890 $
62
590 $
(590) $
(1,231)
(80)
(1,901) $
—
2,989
—
2,989
As of March 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Intangible assets:
Product designs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
590 $
4,220
80
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,890 $
(590) $
(918)
(80)
(1,588) $
—
3,302
—
3,302
Amortization of intangible assets of $313,000, $349,000 and $242,000 was included in cost of revenues for
the years ended March 31, 2018, 2017 and 2016, respectively.
As of March 31, 2018, the estimated future amortization expense of intangible assets in the table above is as
follows (in thousands):
Twelve month period ending March 31,
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
267
233
233
233
233
1,790
2,989
March 31,
2018
2017
(In thousands)
Accrued expenses and other liabilities:
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,786 $ 3,990
484
Escrow indemnity accrual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
Accrued professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
238
Accrued commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,117
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251
Accrued retention payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
905
Miscellaneous accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,442 $ 7,051
—
31
299
1,102
291
933
Other accrued expenses:
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,411 $ 5,083
335
Other long-term accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,702 $ 5,418
291
March 31,
2018
2017
(In thousands)
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NOTE 4—GOODWILL
Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable
assets acquired and liabilities assumed in a business combination. The Company tests for goodwill impairment on an
annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not
impaired. The Company has one reporting unit. The Company assesses goodwill for impairment on an annual basis
on the last day of February in the fourth quarter of its fiscal year.
The Company had a goodwill balance of $8.0 million as of both March 31, 2018 and 2017. The goodwill
resulted from the acquisition of MikaMonu Group Ltd. (“MikaMonu”) in fiscal 2016.
The Company utilized a two-step quantitative analysis to complete its annual impairment test during the
fourth quarter of fiscal 2018 and concluded that there was no impairment, as the fair value of its sole reporting unit
exceeded its carrying value. The Company determined that the second step of the impairment test was not necessary.
The Company believes that the fair value established during the fiscal 2018 annual goodwill impairment testing was
reasonable, and no triggering event has taken place subsequent to the fiscal 2018 annual assessment.
64
NOTE 5—INCOME TAXES
Loss before income taxes and the provision (benefit) for income taxes consists of the following:
2018
Year Ended March 31,
2017
(In thousands)
2016
Loss before income taxes:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,654) $ (4,938) $ (3,426)
615
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(49) $ (2,811)
$ (4,062) $
4,889
(408)
Current income tax expense (benefit):
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit):
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
367 $
153
1
521
(90)
22
(68)
453 $
(14) $
736
4
726
14
(674)
(660)
66 $
(354)
15
(289)
(628)
(3)
(10)
(13)
(641)
The provision (benefit) for income tax differs from the amount of income tax determined by applying the
applicable U.S. statutory income tax rate to pre-tax loss as follows:
2018
Year Ended March 31,
2017
(In thousands)
2016
U.S. Federal taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,282) $
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed repatriation transfer tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax re-measurement, change in tax rates . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
5,117
1,093
(124)
(417)
390
(8)
97
4,866
(4,413)
(17) $
3
—
—
630
(398)
(1,525)
(5)
24
(1,288)
1,354
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
453 $
66 $
65
(956)
(204)
—
—
470
(539)
(368)
(9)
6
(1,600)
959
(641)
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Deferred tax assets and deferred tax liabilities consist of the following:
Deferred tax assets:
March 31,
2018
2017
(In thousands)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
330
3,387
2,264
1,386
425
1,167
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,988 $ 8,959
Deferred tax liabilities:
3,958
104
899
268
743
16 $
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
(13)
(13)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,988 $ 8,946
(8,939)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(5,913)
75 $
The Company currently intends to indefinitely reinvest earnings in operations outside the United States. No
provision has been made for state income taxes that might be payable upon remittance 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, 2018 and 2017 was
$619,000 and $244,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2018 and
2017, $2.1 million and $2.5 million, respectively, of unrecognized tax benefits had been recorded as a reduction to
net deferred tax assets. As of March 31, 2018, the Company’s net deferred tax assets of $6.0 million are subject to a
valuation allowance of $5.9 million. It is possible, however, that some months or years may elapse before an
uncertain position for which the Company has established a reserve is resolved. A reconciliation of unrecognized tax
benefits is as follows:
2018
Year Ended March 31,
2017
(In thousands)
2016
Unrecognized tax benefits, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,714 $ 2,055 $ 1,982
Additions based on tax positions related to current year . . . . . . . . . . . . . . . . . . . . . .
453
183
Additions based on tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . .
2017 Tax Act and tax rate re-measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Lapses during the current year applicable to statutes of limitations . . . . . . . . . . . . .
(563)
Unrecognized tax benefits, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,735 $ 2,714 $ 2,055
520
—
(499)
—
730
—
—
(71)
The unrecognized tax benefit balance as of March 31, 2018 of $601,000 would affect the Company’s
effective tax rate if recognized.
On December 22, 2017, the “Tax Cuts and Jobs Act” ("H.R. 1") was signed into law, significantly impacting
several sections of the Internal Revenue Code. Following the enactment of the H.R. 1, the SEC staff issued SAB
118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement
period that should not extend beyond one year from the H.R. 1 enactment date for companies to complete the
accounting under ASC 740. In accordance with SAB 118, the Company must reflect the income tax effects of those
aspects of H.R. 1 for which the accounting under ASC 740 is complete. To the extent that the Company’s
accounting for certain income tax effects of H.R. 1 is incomplete but the Company is able to determine a reasonable
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estimate, the Company must record a provisional estimate in the financial statements. If the Company cannot
determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on
the basis of the provisions of the tax law that were in effect immediately before the enactment of the H.R 1.
This new law includes significant changes to the U.S. corporate income tax system, including a permanent
reduction in the corporate income tax rate from 35% to 21%, limitations on the deductibility of interest expense and
executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial
tax system. We re-measured certain deferred tax assets and liabilities based on the rates at which they are expected
to reverse in the future. The re-measurement of our deferred tax balance of $1.1 million was offset by application of
our valuation allowance. We have calculated our best estimate of the impact of H.R. 1 in the year end income tax
provision, including the impact of the one-time transition tax, in accordance with our understanding of H.R. 1 and
guidance available as of the date of this filing and have recorded a tax expense of $367,000 in the year ended
March 31, 2018 related to the transition tax associated with deemed repatriation of foreign earnings. As the
Company completes the analysis of H.R. 1, collects and prepares necessary data, and interprets any additional
guidance, the Company may make adjustments to its initial assessment. Pursuant to Staff Accounting Bulletin
No. 118, adjustments to the provisional amounts recorded by the Company as of March 31, 2018 that are identified
within a subsequent measurement period of up to one year from the enactment date will be included as an
adjustment to tax expense from continuing operations in the period the amounts are determined.
In addition, we recorded a deferred tax benefit related to a valuation allowance release of $101,000 as a result
of provisions in the new legislation related to indefinite lived net operating loss carryovers and the refundability of
minimum tax credit carryovers. Finally, the Company currently estimates that it will not have a liability for taxes
currently payable at March 31, 2018 as a result of H.R. 1.
This original estimate may be materially impacted by a number of additional considerations, including but not
limited to the issuance of the final regulations and the Company’s ongoing analysis of the new law.
H.R. 1 subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned by certain
foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed
Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary
basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the
year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects
of the GILTI provisions and has not yet determined its accounting policy. At March 31, 2018, because the
Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI,
it is unable to make a reasonable estimate and has not reflected any adjustments related to GILTI in its financial
statements.
Management believes that within the next twelve months the Company will have no reduction in uncertain
tax benefits, including interest and penalties, as a result of the lapse of statute of limitations.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the
provision (benefit) for income taxes in the Consolidated Statements of Operations.
The Company's federal and state net operating loss carryforwards for income tax purposes are approximately
$0 and $2.3 million, respectively, at March 31, 2018. The Company's state tax net operating loss carryforwards
expire beginning in 2034.
The Company's federal and state tax credit carryforwards for income tax purposes are approximately
$1.8 million and $2.7 million respectively, at March 31, 2018. The Company's federal tax credit carryforwards
expire beginning in 2033. The Company's state tax credit carryforwards have no expiration date.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of
March 31, 2018, the Company maintained a valuation allowance of $5.9 million for deferred tax assets that are not
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expected to be utilized in future years. Fiscal years 2012 through 2018 remain open to examination by the federal
tax authorities and fiscal years 2011 through 2018 remain open to examination by the state of California.
NOTE 6—FINANCIAL INSTRUMENTS
Fair value measurements
Authoritative accounting guidance for fair value measurements provides a framework for measuring fair
value and related disclosure. The guidance applies to all financial assets and financial liabilities that are measured
on a recurring basis. The guidance requires fair value measurement to be classified and disclosed in one of the
following three categories:
Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value
of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and
regularly available in an active market. As of March 31, 2018, the Level 1 category included money market funds of
$6.8 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
assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable,
either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based
on the market values obtained from an independent pricing service that were evaluated using pricing models that
vary by asset class and may incorporate available trade, bid and other market information and price quotes from
well-established independent pricing vendors and broker-dealers. As of March 31, 2018, the Level 2 category
included short-term investments of $18.1 million and long term-investments of $7.9 million, which were primarily
comprised of certificates of deposit and government and agency securities.
Level 3: Valuations based on inputs that are unobservable and involve management judgment and the
reporting entity’s own assumptions about market participants and pricing. As of March 31, 2018, the Company’s
Level 3 financial instruments measured at fair value on the Consolidated Balance Sheets consisted of the contingent
consideration liability related to the MikaMonu acquisition. The contingent consideration liability is included in
other accrued expenses on the Consolidated Balance Sheet at March 31, 2018 and 2017 in the amount of
$4.4 million and $5.1 million, respectively, and is included in accrued expenses and other liabilities at March 31,
2018 and 2017 in the amount of $1.1 million.
Refer to Note 11, “Acquisition” for more information.
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The fair value of financial assets measured on a recurring basis is as follows (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
and Liabilities
(Level 1)
March 31, 2018
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,788 $
26,047
32,835 $
6,788 $
—
6,788 $
— $
26,047
26,047 $
—
—
—
Liabilities:
Contingent consideration. . . . . . . . . . . . . . . . . . . . . . . . . $
5,514 $
— $
— $
5,514
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
and Liabilities
(Level 1)
March 31, 2017
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,293 $
29,097
35,390 $
6,293 $
—
6,293 $
— $
29,097
29,097 $
—
—
—
Liabilities:
Contingent consideration. . . . . . . . . . . . . . . . . . . . . . . . . $
6,200 $
— $
— $
6,200
The following table sets forth the changes in fair value of contingent consideration for the fiscal years ended
March 31, 2018, 2017 and 2016, respectively:
2018
Year Ended March 31,
2017
(In thousands)
2016
—
Contingent consideration, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,200 $ 5,856 $
5,800
Acquisition of MikaMonu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Change due to accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Re-measurement of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Contingent consideration, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,514 $ 6,200 $ 5,856
—
158
(466)
(378)
—
161
183
—
Short-term and long-term investments
All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-
sale debt securities with maturities greater than twelve months are classified as long-term investments when they are
not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with
unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income (loss) on the
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Consolidated Balance Sheets. The Company had money market funds of $6.8 million and $6.3 million at March 31,
2018 and March 31, 2017, respectively, included in cash and cash equivalents on the Consolidated Balance Sheets.
The Company monitors its investments for impairment periodically and records appropriate reductions in carrying
values when the declines are determined to be other-than-temporary.
The following table summarizes the Company’s available-for-sale investments:
March 31, 2018
Gross
Gross
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
Short-term investments:
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,750 $
Foreign government obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,428
3,996
Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,174 $
Long-term investments:
(In thousands)
— $
—
—
— $
(28) $ 8,722
5,407
(21)
(1)
3,995
(50) $ 18,124
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $
Total long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $
— $
— $
(77) $ 7,923
(77) $ 7,923
March 31, 2017
Gross
Gross
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
(In thousands)
Short-term investments:
State and municipal obligations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,632 $
Corporate notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
557
3,012
1,001
10,000
Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,202 $
Long-term investments:
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500 $
Foreign government obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
5,442
Total long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,942 $
1 $
—
—
—
9
10 $
3 $
—
3 $
— $ 1,633
555
(2)
3,005
(7)
(1)
1,000
10,006
(3)
(13) $ 16,199
(39) $ 7,464
5,434
(8)
(47) $ 12,898
The Company’s investment portfolio consists of both corporate and governmental securities that have a
maximum maturity of three years. All unrealized gains and losses are due to changes in interest rates and bond
yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments
upon maturity.
At March 31, 2018 and 2017, the deferred tax asset related to unrecognized gains and losses on short-term
and long-term investments was $29,000 and $17,000, respectively.
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As of March 31, 2018, contractual maturities of the Company’s available-for-sale investments were as
follows:
Maturing within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,174 $ 18,124
7,923
Maturing in one to three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,174 $ 26,047
8,000
Cost
Fair
Value
(In thousands)
NOTE 7—COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases office space and equipment under noncancelable operating leases with various
expiration dates through April 2022. Rent expense for the years ended March 31, 2018, 2017 and 2016 was
$527,000, $504,000 and $348,000, 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 expense incurred but not paid.
Future minimum lease payments under noncancelable operating leases with remaining lease terms in excess
of one year at March 31, 2018 are as follows:
Operating
Fiscal Year Ending March 31,
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Leases
(In thousands)
434
343
178
83
7
1,045
Royalty obligations
The Company has license agreements that require it to pay royalties on the sale of products using the licensed
technology. Royalty expense for the years ended March 31, 2018, 2017 and 2016 was $46,000, $35,000 and
$44,000, respectively, and was included within cost of revenues.
Indemnification obligations
The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the
other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into
by the Company, under which the Company customarily agrees to hold the other party harmless against losses
arising from a breach of representations and covenants related to such matters as title to assets sold and certain
intellectual property rights. In each of these circumstances, payment by the Company is conditioned on the other
party making a claim pursuant to the procedures specified in the particular contract, which procedures typically
allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these
agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse
against third parties for certain payments made by it under these agreements.
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It is not possible to predict the maximum potential amount of future payments under these or similar
agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances
involved in each particular agreement. Historically, payments made by the Company under these agreements have
not had a material effect on its business, financial condition, cash flows or results of operations. The Company
believes that if it were to incur a loss in any of these matters, such loss should not have a material effect on its
business, financial condition, cash flows or results of operations.
Product warranties
The Company warrants its products to be free of defects generally for a period of three years. The Company
estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of
revenues. Warranty costs and the accrued warranty liability were not material as of March 31, 2018 and 2017 and
for the years ended March 31, 2018, 2017 or 2016.
Legal proceedings
In March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against
the Company in the United States District Court for the District of Minnesota alleging that certain of the Company’s
SRAM products infringe patents held by Cypress. The complaint 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 Trade
Commission (the “ITC”). The ITC complaint, as subsequently amended, alleged infringement by the Company of
certain patents involved in the District Court case and one additional patent and also alleged infringement by certain
of the Company’s distributors and customers who allegedly incorporate the Company’s SRAMs in their
products. The ITC complaint sought a limited exclusion order excluding the allegedly infringing SRAMs, and
products containing them, from entry into the United States and permanent orders directing the Company and the
other respondents to cease and desist from selling or distributing such products in the United States.
The Company did not record any loss contingency during fiscal 2015 or fiscal 2016 in connection with these
legal proceedings as the Company was unable to predict their outcome and could not estimate the likelihood or
potential dollar amount of any adverse results.
On May 6, 2015, the Company and Cypress entered into a settlement agreement to resolve the patent
infringement litigation and a separate lawsuit pending in the United States District Court for the Northern District of
California in which the Company alleged that Cypress had violated federal and state antitrust laws. Under the
settlement agreement:
• Each of the parties agreed to dismiss its lawsuit with prejudice in consideration of the dismissal with
prejudice 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
party denies any liability to the other party.
NOTE 8—COMMON STOCK
The 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
cash shares of its common stock. The Company accepted for purchase and retirement an aggregate of 3,846,153
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shares of its common 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 its
common stock. Under the repurchase program, the Company may repurchase shares from time to time on the open
market or in private transactions. The specific timing and amount of the repurchases will be dependent on market
conditions, securities law limitations and other factors. The repurchase program may be suspended or terminated at
any time without prior notice. Through March 31, 2018, including the shares purchased in the modified “Dutch
Auction” self-tender offer, the Company has repurchased and retired a total of 11,983,942 shares at an average cost
of $5.06 per share for a total cost of $60.6 million. At March 31, 2018, management was authorized to repurchase
additional shares with a value of up to $4.4 million under the repurchase program.
NOTE 9—STOCK- BASED COMPENSATION
The 2007 Equity Incentive Plan
In January 2007, the Company’s board of directors approved the 2007 Equity Incentive Plan, (the “2007
Plan”), which was subsequently approved by the Company’s stockholders in March 2007. A total of
3,000,000 shares of common stock were authorized and reserved for issuance under the 2007 Plan. This reserve
automatically increased on April 1 of each year through 2017 by an amount equal to the smaller of (a) five percent
of the number of shares of common stock issued and outstanding on the immediately preceding March 31, or (b) a
lesser amount determined by the board of directors. As described below, the 2007 Plan was terminated in August
2016 and no further awards may be granted pursuant to the 2007 Plan. In the event of a stock split or other change
in the Company’s capital structure, appropriate adjustments will be made in the number of outstanding awards to
prevent dilution or enlargement of participants’ rights.
Awards could be granted under the 2007 Plan to the Company’s employees, including officers, directors, or
consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. Options
granted to non-officer employees generally vest at the rate of 25% on the first anniversary and subsequent
anniversaries of the date of grant, while grants to officers vest in full four years after the anniversary date of the
officer’s employment that is closest to the date of grant.
In the event of a change in control as described in the 2007 Plan, the acquiring or successor entity may
assume or continue all or any awards outstanding under the 2007 Plan or substitute substantially equivalent awards.
Any awards which are not assumed or continued in connection with a change in control or exercised or settled prior
to the change in control will terminate effective as of the time of the change in control. The administrator may
provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it
determines, except that the vesting of all nonemployee director awards will automatically be accelerated in full. The
2007 Plan also authorizes the administrator, in its discretion and without the consent of any participant, to cancel
each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the
participant with respect to each vested share subject to the cancelled award of an amount equal to the excess of the
consideration to be paid per share of common stock in the change in control transaction over the exercise
price per share, if any, under the award.
The 2016 Equity Incentive Plan
In June 2016, the Company’s board of directors approved the 2016 Equity Incentive Plan, (the “2016 Plan”),
which was subsequently approved by the Company’s stockholders in August 2016. In connection with the
stockholders’ approval of the 2016 Plan, 6,000,000 shares available for future award under the 2007 Plan were
transferred to the 2016 Plan, 705,699 shares available for grant under the 2007 plan were canceled and the 2007 Plan
was terminated. The Company granted options under the 2007 Plan until August 2016, although it continues to
govern the terms of options that remain outstanding under the 2007 Plan.
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Appropriate and proportionate adjustments will be made to the number of shares authorized and other
numerical limits in the 2016 Plan and to outstanding awards in the event of any change in the Company’s common
stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or
similar change in the Company’s capital structure, or if the Company makes a distribution to its stockholders in a
form other than common stock (excluding regular, periodic cash dividends) that has a material effect on the fair
market value of the Company’s common stock. In such circumstances, the administrator also has the discretion
under the 2016 Plan to adjust other terms of outstanding awards as it deems appropriate.
If any award granted under the 2016 Plan expires or otherwise terminates for any reason without having been
exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the
Company for not more than the participant's purchase price, any such shares reacquired or subject to a terminated
award will again become available for issuance under the 2016 Plan. Shares will not be treated as having been
issued under the 2016 Plan and will therefore not reduce the number of shares available for issuance to the extent an
award is settled in cash or to the extent that shares are withheld or reacquired by the Company in satisfaction of a tax
withholding obligation. Upon the exercise of a stock appreciation right, tender of shares in payment of an option's
exercise price or net-exercise of an option, the number of shares available under the 2016 Plan will be reduced by
number of shares actually issued in settlement of the award.
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 2016 Plan establishes
limits on the maximum 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 performance shares or
performance unit awards, no more than 50,000 shares subject to performance share awards or more than
$500,000 subject to performance unit awards.
• For each full fiscal year of the Company contained in the performance period of cash-based or other
stock-based awards, no more than $500,000 subject to cash-based awards or more than 50,000 shares
subject to other stock-based awards.
Awards may be granted under the 2016 Plan to the Company’s employees, including officers, directors and
consultants or those of any present or future parent or subsidiary corporation or other affiliated entity of the
Company. To date, options granted to non-officer employees generally vest 25% on the first anniversary and
subsequent anniversaries of the date of grant, while grants to officers vest in full four years after the anniversary date
of the officer’s employment that is closest to the date of grant.
While the Company may grant incentive stock options only to employees, the Company may grant
nonstatutory stock options, stock appreciation rights, restricted stock and stock units, performance shares and units,
other stock-based awards and cash-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 of grant, are not employees.
Only members of the board of directors who are not employees at the time of grant are eligible to participate
in the nonemployee director awards component of the 2016 Plan. The board or the compensation committee shall set
the amount and type of nonemployee director awards to be awarded on a periodic, non-discriminatory basis.
Nonemployee director awards may be granted in the form of NSOs, stock appreciation rights, restricted stock
awards and restricted stock unit awards. Subject to adjustment for changes in the Company's capital structure, no
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nonemployee director may be awarded, in any fiscal year, one or more nonemployee director awards for more than a
number of shares determined by dividing $150,000 by the fair market value of a share of the Company’s stock
determined on the last trading day immediately preceding the date on which the applicable nonemployee award is
granted.
The 2016 Plan provides that, without the approval of a majority of the votes cast in person or by proxy at a
meeting of the Company’s stockholders, the administrator may not provide for any of the following with respect to
underwater options or stock appreciation rights: (1) either the cancellation of such outstanding options or stock
appreciation rights in exchange for the grant of new options or stock appreciation rights at a lower exercise price or
the amendment of outstanding options or stock appreciation rights to reduce the exercise price, (2) the issuance of
new full value awards in exchange for the cancellation of such outstanding options or stock appreciation rights, or
(3) the cancellation of such outstanding options or stock appreciation rights in exchange for payments in cash.
In the event of a change in control as described in the 2016 Plan, the surviving, continuing, successor or
purchasing entity or its parent may, without the consent of any participant, either assume or continue outstanding
awards or substitute substantially equivalent awards for its stock. If so determined by the Committee, stock-based
awards will be deemed assumed if, for each share subject to the award prior to the change in control, its holder is
given the right to receive the same amount of consideration that a stockholder would receive as a result of the
change in control. Any awards which are not assumed or continued in connection with a change in control or
exercised or settled prior to the change in control will terminate effective as of the time of the Change in Control.
The administrator may provide for the acceleration of vesting or settlement of any or all outstanding awards upon
such terms and to such extent as it determines, except that the vesting of all nonemployee director awards will
automatically be accelerated in full. The 2016 Plan also authorizes the administrator, in its discretion and without the
consent of any participant, to cancel each or any outstanding award denominated in shares of stock upon a change in
control in exchange for a payment to the participant with respect each vested share (and each unvested share if so
determined by the administrator) subject to the cancelled award of an amount equal to the excess of the
consideration to be paid per share of common stock in the change in control transaction over the exercise or
purchase price per share, if any, under the award.
The 2007 Employee Stock Purchase Plan
In January 2007, the board of directors approved the 2007 Employee Stock Purchase Plan (the “2007
Purchase Plan”) which was subsequently approved by the Company’s stockholders in March 2007. A total of
500,000 shares of the Company’s common stock was authorized and reserved for sale under the 2007 Purchase Plan.
In addition, the 2007 Purchase Plan provides for an automatic annual increase in the number of shares available for
issuance under the plan on April 1 of each year beginning in 2008 and continuing through and including April 1,
2017 equal to the lesser of (1) one percent of the number of issued and outstanding shares of common stock on the
immediately preceding March 31, (2) 250,000 shares or (3) a number of shares as the board of directors may
determine. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase
rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our
capital structure. Shares subject to purchase rights which expire or 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
administrator will be eligible to participate in the 2007 Purchase Plan if they are customarily employed by us for
more than 20 hours per week and more than five months in any calendar year. However, an employee may not be
granted a right to purchase stock under the 2007 Purchase Plan if: (1) the employee immediately after such grant
would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital
stock or of any parent or subsidiary corporation, or (2) the employee’s rights to purchase stock under all of our
employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of
participation in such plans.
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The 2007 Purchase Plan is designed to be implemented through a series of sequential offering periods,
generally six (6) months in duration beginning on the first trading day on or after May 1 and November 1 of each
year. The administrator is authorized to establish additional or alternative sequential or overlapping offering periods
and offering periods having a different duration or different starting or ending dates, provided that no offering period
may have a duration exceeding 27 months.
Amounts accumulated for each participant under the 2007 Purchase Plan are used to purchase shares of the
Company’s common stock at the end of each offering period at a price generally equal to 85% of the lower of the
fair market value of our common stock at the beginning of an offering period or at the end of the offering period.
Prior to commencement of an offering period, the administrator is authorized to reduce, but not increase, this
purchase price discount for that offering period, or, under circumstances described in the 2007 Purchase Plan, during
that offering period. 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 nearest whole month) in the offering period and rounding to the nearest whole share or (ii) that
number of whole shares determined by dividing (x) the product of $2,083.33 and the number of months (rounded to
the nearest whole month) in the offering period and rounding to the nearest whole dollar by (y) the fair market value
of a share of our common stock at the beginning of the offering period. Prior to the beginning of any offering period,
the administrator may alter the maximum number of shares that may be purchased by any participant during the
offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the
offering period. If insufficient shares remain available under the plan to permit all participants to purchase the
number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the
available shares. Any amounts withheld from participants' 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
obligations under 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.
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The following table summarizes stock option activities:
Shares
Available for
Number of Shares
Underlying
Options
Outstanding
Weighted
Average
Weighted
Remaining Average
Contractual Exercise
Life (Years) Price
Intrinsic
Value
Balance at March 31, 2015 . . . . . . . . . . . . . . .
Options reserved . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2016 . . . . . . . . . . . . . . .
Options reserved . . . . . . . . . . . . . . . . . . . .
Terminated plan . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2017 . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2018 . . . . . . . . . . . . . . .
Options vested and exercisable . . . . . . . . . . . .
Options vested and expected to vest . . . . . . . .
Grant
6,213,943
1,156,419
(969,913)
—
31,614
6,432,063
1,085,818
(705,699)
(1,362,798)
—
14,801
5,464,185
(1,029,684)
—
9,800
4,444,301
6,774,151
—
969,913
(76,745)
(41,614)
7,625,705
—
—
1,362,798
(391,039)
(974,634)
7,622,830
1,029,684
(678,897)
(99,350)
7,874,267
4,813,309
7,809,354
46,977
$ 5.16
—
$ 4.42
$ 4.19 $
$ 4.82
$ 5.08
—
—
$ 5.14
$ 3.96 $
$ 5.53
$ 5.09
$ 7.28
$ 4.22 $ 2,460,812
$ 5.06
5.59 $ 5.45
3.87 $ 5.25 $ 10,598,173
5.56 $ 5.44 $ 15,656,510
855,160
The options outstanding and by exercise price at March 31, 2018 are as follows:
Exercise Price
- 3.60
- 4.17
- 4.98
- 5.23
- 6.00
- 6.54
- 6.86
- 7.40
$ 2.43
$ 3.75
$ 4.30
$ 4.99
$ 5.28
$ 6.16
$ 6.61
$ 7.00
$ 8.09
$ 9.20
Number of
Shares
Underlying
Options
Outstanding
Options Outstanding
Options Exercisable
Weighted Weighted Average
Average
Exercise
Price
Remaining
Contractual
Life (Years)
Number
Vested and
Exercisable
Weighted
Average
Exercise
Price
903,633 $
905,706 $
1,180,166 $
1,158,816 $
975,486 $
849,678 $
843,896 $
817,496 $
130,810 $
108,580 $
7,874,267 $
3.37
4.03
4.83
5.10
5.64
6.35
6.80
7.22
8.09
9.20
5.45
4.26
1.95
5.64
7.45
5.38
5.30
6.23
7.92
9.83
2.84
5.59
689,079 $
905,706 $
692,684 $
177,739 $
830,592 $
622,445 $
604,005 $
182,509 $
— $
108,580 $
4,813,339 $
3.34
4.03
4.76
5.12
5.70
6.41
6.78
7.05
—
9.20
5.25
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Stock-based compensation
The Company recognized $2.1 million, $1.9 million and $1.9 million of stock-based compensation expense
for the years ended March 31, 2018, 2017 and 2016, respectively, as follows:
2018
Year Ended March 31,
2017
(In thousands)
2016
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,070 $
1,141
670
259 $
282 $
980
615
320
858
672
1,877 $ 1,850
Stock-based compensation expense in the years ended March 31, 2018, 2017 and 2016 included $207,000,
$150,000 and $136,000, respectively, related to the Company’s Employee Stock Purchase Plan.
No tax benefit was recognized in either fiscal 2018 or fiscal 2017 due to a full valuation allowance. There
were no windfall tax benefits realized from exercised stock options recognized in fiscal 2018 or fiscal 2017.
Compensation cost capitalized within inventory at March 31, 2018 and 2017 was not material. As of March 31,
2018, the Company’s total unrecognized compensation cost was $4.0 million, which will be recognized over the
weighted average period of 2.02 years. The Company calculated the fair value of stock based awards in the periods
presented using the Black-Scholes option pricing model and the following weighted average assumptions:
Stock Option Plans:
Risk-free interest rate . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan:
Risk-free interest rate . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . .
2018
1.84 -
35.5 -
0.38 -
30.8 -
Year Ended March 31,
2017
(In thousands)
2.49 %
5.00
36.5 %
— %
0.45 %
0.50
39.6 %
— %
1.12 -
33.3 -
0.38 -
30.8 -
1.95 %
5.00
35.4 %
— %
0.45 %
0.50
39.6 %
— %
2016
1.41 -
36.3 -
0.09 -
26.3 -
1.57 %
5.00
38.0 %
— %
0.15 %
0.50
27.9 %
— %
The weighted average fair value of options granted during the years ended March 31, 2018, 2017 and 2016
was $2.54, $1.66 and $1.52, respectively.
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NOTE 10—SEGMENT AND GEOGRAPHIC INFORMATION
Based on its operating management and financial reporting structure, the Company has determined that it has
one reportable 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:
2018
Year Ended March 31,
2017
(In thousands)
2016
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,690 $ 19,708 $ 20,951
12,123
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,345
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,124
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,193
Rest of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,643 $ 48,180 $ 52,736
5,520
6,878
4,375
5,180
9,364
9,475
4,728
4,905
All sales are denominated in United States dollars.
The locations and net book value of long-lived assets are as follows:
March 31,
2018
2017
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,576 $ 5,648
1,952
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,172 $ 7,689
1,443
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NOTE 11—ACQUISITION
On November 23, 2015, the Company 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 for markets including big data, computer vision and cyber security. MikaMonu, located in
Tel Aviv, held 12 United States patents and a number of pending patent applications.
The acquisition was accounted for as a purchase under authoritative guidance for business combinations. The
purchase price of the acquisition was allocated to the intangible assets acquired, with the excess of the purchase
price over the fair value of assets acquired recorded as goodwill. The Company performs a goodwill impairment test
in February of each fiscal year.
The results of operations of MikaMonu and the estimated fair value of the assets acquired were included in
the Company’s consolidated financial statements beginning November 23, 2015.
Consideration
Under the terms of the acquisition agreement, the Company paid the former MikaMonu shareholders initial
cash consideration of approximately $4.4 million at the closing on November 23, 2015. In addition, $484,000 was
deposited in escrow to provide a fund for potential future indemnification claims by the Company. The majority of
this escrow deposit, or $479,000, was paid to the former MikaMonu shareholders in May 2017.
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The Company is also required to pay the former MikaMonu shareholders future contingent consideration
consisting 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 former
MikaMonu shareholders 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. Of this amount, $750,000 is included in prepaid expenses and other current assets, $1,000,000
is included in other assets on the Consolidated Balance Sheet at March 31, 2018 and $743,000 was paid to the
former MikaMonu shareholders during the quarter ended December 31, 2017.
The Company will also make “earnout” payments to the former MikaMonu shareholders in cash or shares of
the Company’s common stock, at the Company’s discretion, during a period of up to ten years following the closing
if certain product development milestones and revenue targets for products based on the MikaMonu technology are
achieved. Earnout amounts of $750,000 are payable at March 31, 2018 based on the achievement of certain product
development milestones and are included in accrued expenses and other accrued liabilities on the Consolidated
Balance Sheet. Additional earnout 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 net revenues from the sale of qualifying products in excess of certain
thresholds, will be made quarterly through December 31, 2025.
The portion of the retention payment contingently payable to Dr. Akerib (approximately $1.2 million) will be
recorded as compensation expense over the period that his services are provided to the Company. The portion of the
retention payment contingently payable to the other former MikaMonu shareholders (approximately $1.3 million)
plus the maximum amount of the potential earnout payments totals approximately $38.8 million. The Company
determined that the fair value of this contingent consideration liability was $5.8 million at the acquisition date. The
contingent consideration liability is included in other accrued expenses on the Consolidated Balance Sheet at
March 31, 2018 and 2017 in the amount of $4.4 million and $5.1 million, respectively, and is included in accrued
expenses and other liabilities at March 31, 2017 and 2018 in the amount of $1.1 million.
The fair value of the contingent consideration liability was initially determined as of the acquisition date
using unobservable inputs. 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 of
approximately 14.8% used to adjust the probability-weighted cash flows to their present value. Subsequent to the
acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with
changes recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. Re-
measurement of the contingent consideration liability in fiscal 2018 resulted in a reduction in fair value for the year
ended March 31, 2018 of $308,000.
Acquisition-related costs
Acquisition-related costs of approximately $426,000 are included in selling, general and administrative
expenses in the Consolidated Statements of Operations for year ended March 31, 2016.
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Purchase price allocation
The allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on their
estimated fair values at the date of acquisition. The fair value allocated to patents was $3.5 million and the residual
amount allocated to goodwill was $8.0 million.
The fair value allocated to tangible and identifiable intangible assets and goodwill of MikaMonu acquired on
November 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)
(831)
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,764
The deferred tax liability associated with the estimated fair value adjustments of the intangible assets
acquired is recorded at an estimated weighted average statutory tax rate in the jurisdictions where the fair value
adjustments may occur.
Identifiable intangible assets
The following table sets forth the components of the identifiable intangible assets acquired in the MikaMonu
acquisition, which are being amortized over their estimated useful lives on a straight-line basis:
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Acquired identifiable intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,500
3,500
15
The fair value of patents was determined using relief from royalty approach, which discounted expected
future cash 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.
Fair Value
Useful Life
(in thousands) (in years)
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The following table summarizes total net revenues and net loss of the combined entity had the acquisition of
MikaMonu occurred on April 1, 2014 (in thousands, except loss per share data):
Year Ended March 31,
2016
Pro forma net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pro forma net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pro forma net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
52,736
(2,575)
(0.11)
The combined results in the table above have been prepared for comparative purposes only and include
acquisition related 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 combined results do not purport to be indicative of the results of operations which would have resulted had the
acquisition been effected at the beginning of the applicable periods noted above, or the future results of operations of
the combined entity.
NOTE 12—EMPLOYEE BENEFIT PLANS
The Company provides a defined contribution retirement plan (the “Retirement Plan”), which qualifies under
Section 401(k) of the Internal Revenue Code of 1986. The Retirement Plan covers essentially all United States
employees. 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 Company contributions.
The Company provides a defined contribution retirement plan (the “Taiwan Pension Plan”) that covers
essentially all of its employees located in Taiwan. The Company makes contributions to the Taiwan Pension Plan
equal to 6% of eligible compensation and employees can make voluntary contributions of up to 6% of eligible
compensation. All contributions are fully vested.
The Company provides a defined contribution retirement plan (the “Pension Plan”) that covers essentially all
of its employees located in Israel. Eligible employees may make contributions to the Pension Plan up to 5% of
eligible compensation, and the Company contributes up to 15.83% of eligible compensation. All contributions are
fully vested.
NOTE 13 —QUARTERLY FINANCIAL DATA (Unaudited)
Three Months Ended
June 30,
September 30, December 31, March 31,
2017
2017
2017
2018
(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,687 $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,604 $
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,512) $
Net Income (loss) per common share—Basic . . . . . . . . . . . . . . . $ (0.07) $
Net Income (loss) per common share—Diluted . . . . . . . . . . . . . . $ (0.07) $
9,647 $
4,858 $
(1,740) $
(0.08) $
(0.08) $
11,118 $ 11,191
5,675 $ 6,289
265
(1,528) $
0.01
(0.07) $
0.01
(0.07) $
82
Three Months Ended
June 30,
September 30, December 31, March 31,
2016
2016
2016
2017
(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,946 $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,722 $
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
260 $
0.01 $
Net income (loss) per common share—Basic . . . . . . . . . . . . . . . . $
0.01 $
Net income (loss) per common share—Diluted . . . . . . . . . . . . . . $
13,358 $
7,343 $
626 $
0.03 $
0.03 $
11,484 $ 10,392
6,495 $ 5,856
348 $ (1,349)
0.02 $ (0.07)
0.02 $ (0.07)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On September 12, 2017, we dismissed PricewaterhouseCoopers LLP (“PWC”) as our principal accountant,
and engaged BDO USA, LLP (“BDO”) as the independent registered public accounting firm to audit our financial
statements for the fiscal year ended March 31, 2018.
The reports of PWC on our consolidated financial statements for the fiscal years ended March 31, 2017 and
March 31, 2016 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of our consolidated financial statements for the fiscal years ended March 31,
2017 and March 31, 2016, and in the subsequent interim period through September 12, 2017, there were no
disagreements with PWC on any matters of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to PWC’s satisfaction, would have caused PWC to make
reference to the matter in its report.
During the fiscal years ended March 31, 2017 and March 31, 2016, and the subsequent interim period from
April 1, 2017, through the date of BDO’s engagement, we have not, nor has anyone acting on our behalf, consulted
with BDO regarding the application of accounting principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered with respect to our financial statements.
Item 9A. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Based 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, 2018, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of
the end of the period covered by this report for the purpose of ensuring that the information required to be disclosed
by us in the reports we file or submit under the Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions
regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
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in all control systems, 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 Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements and can only provide reasonable assurance with respect
to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of March 31, 2018. In making
this assessment, 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, our management (including our Chief Executive Officer and Chief Financial Officer) concluded that our
internal control over financial reporting was effective as of March 31, 2018.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2018 has been
audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which
appears on page 46 of this Annual Report on Form 10-K.
Item 9B. Other Information
Not applicable.
84
PART III
The SEC allows us to include information required in this report by referring to other documents or reports
we have already filed or will soon be filing. This is called “incorporation by reference.” We intend to file our
definitive proxy statement for our 2018 annual meeting of stockholders (the “Proxy Statement”) pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information
therein is incorporated in this report by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to executive officers is set forth in Part I of this Annual
Report on Form 10-K and the remaining information required by this item is incorporated by reference from the
sections entitled “Proposal No. 1 - Election of Directors”, “Corporate Governance” and “Section 16(a) Beneficial
Ownership Reporting Compliance” to be included in the Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the section entitled “Executive
Compensation” to be included in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from the sections entitled “Principal
Stockholders and Stock Ownership by Management” and “Executive Compensation – Equity Compensation Plan
Information” to be included in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference from the section entitled “Related Person
Transactions” and “Corporate Governance—Director Independence” to be included in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The 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.
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Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) The following documents are filed as part of this Form:
1. Financial Statements
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets As of March 31, 2018 and 2017 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations For the Three Years Ended
March 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss For the Three Years Ended
March 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity For the Three Years Ended
March 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows For the Three Years Ended
March 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
45
48
49
50
51
52
53
2. Financial Statement Schedules
Schedules not listed above have been omitted because the information required to be set forth therein is not
applicable, is not material or is shown in the consolidated financial statements or the notes thereto.
86
3. Exhibits:
The following exhibits are filed herewith:
Exhibit
Number
3.1
3.2
10.1
10.2
Name of Document
Restated Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.3 to
Registrant’s Registration Statement on Form S-1 (File No. 333-139885) filed on February 16, 2007)
Bylaws of Registrant (Incorporated by reference to Exhibit 3.4 to Registrant’s Registration Statement
on Form S-1 (File No. 333-139885) filed on February 16, 2007)
Form of Indemnity Agreement between Registrant and Registrant’s directors and officers
(Incorporated by reference to identically-numbered exhibit to Registrant’s Registration Statement on
Form S-1 (File No. 333-139885) filed on January 10, 2007)
(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 on February 16, 2007)
10.3
(1) 2007 Equity Incentive Plan, as amended (Incorporated by reference to Appendix A to Registrant’s
definitive Proxy Statement filed on July 21,2011)
10.4
(1) 2007 Employee Stock Purchase Plan and form of Subscription Agreement (Incorporated by reference
to identically-numbered exhibit to Registrant’s Registration Statement on Form S-1 (File
No. 333-139885) filed on February 16, 2007)
10.5
(1) Form of Notice of Grant of Stock Option (U.S. Participant) (Incorporated by reference to Exhibit 99.1
to Registrant’s Current Report on Form 8-K filed on June 4, 2007)
10.6
(1) Form of Notice of Grant of Stock Option (Non-U.S. Participant) (Incorporated by reference to
Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on June 4, 2007)
10.7
(1) Form of Stock Option Agreement (U.S. Participant) (Incorporated by reference to Exhibit 99.3 to
Registrant’s Current Report on Form 8-K filed on June 4, 2007)
10.8
(1) Form of Stock Option Agreement (Non-U.S. Participant) (Incorporated by reference to Exhibit 99.4 to
Registrant’s Current Report on Form 8-K filed on June 4, 2007)
10.9
10.10
Intellectual Property Agreement dated August 28, 2009 between GSI Technology, Inc. and Sony
Electronics Inc. (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on
Form 10-Q filed on November 16, 2009)
Factory 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 on September 11, 2012)
10.11
(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 on
November 4, 2011)
10.12
(2) Master Purchase Agreement dated August 31, 2011 between Registrant and Cisco Systems
International B.V. (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on
Form 10-Q filed on November 4, 2011)
10.13
(1) GSI Technology, Inc. 2016 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed on August 3, 2015)
10.14
Stock Purchase Agreement dated November 23, 2015 among GSI Technology, Inc., GSI Technology
Holdings, Inc. and MikaMonu Group Ltd. (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K filed on February 4, 2016)
10.15
(1) GSI Technology, Inc. 2017 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed on July 5, 2016)
10.16
(1) GSI Technology, Inc. 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K/A filed on September 2, 2016)
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10.17
(1) Form of Notice of Grant of Stock Option (U.S. Participant) under 2016 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-Q filed on November 4, 2016)
10.18
(1) Form of Notice of Grant of Stock Option (Non-U.S. Participant) under 2016 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.3 to Registrant’s Form 10-Q filed on November 4, 2016)
10.19
(1) Form of Stock Option Agreement (U.S. Participant) under 2016 Equity Incentive Plan (Incorporated
by reference to Exhibit 10.4 to Registrant’s Form 10-Q filed on November 4, 2016)
10.20
(1) Form of Stock Option Agreement (Non-U.S. Participant) under 2016 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.5 to Registrant’s Form 10-Q filed on November 4, 2016)
10.21
(1) GSI Technology, Inc. 2018 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed on June 1, 2017)
10.22
(1) GSI Technology, Inc. Executive Retention and Severance Plan (Incorporated by reference to Exhibit
10.1 to Registrant’s Current Report on Form 8-K filed on October 3, 2014)
10.23
10.24
(1) First Amendment to the GSI Technology, Inc. Executive Retention and Severance Plan dated
August 29. 2017 (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on
Form 8-K filed on August 31, 2018)
Factory Lease Agreement for No. 1, 6th Floor, 30 Tai-Yuan Street, Chu-Pei City, Taiwan dated
August 31, 2017 (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on
Form 8-K filed on September 27, 2017)
10.25
(1) GSI Technology, Inc. 2019 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed on May 31, 2018)
16.1
21.1
23.1
23.2
24.1
31.1
31.2
32.1
Letter from PricewaterhouseCoopers LLP dated September 14, 2017 (Incorporated by reference to
Exhibit 16.1 to Registrant’s Current Report on Form 8-K filed on September 14, 2017)
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm – BDO USA, LLP
Consent of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP
Power of Attorney (Incorporated by reference to the signature page of this Annual Report on
Form 10-K)
Certification of Lee-Lean Shu, President and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Douglas Schirle, Chief Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Lee-Lean Shu, President and Chief Executive Officer, and Douglas Schirle, Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1) Compensatory plan or management contract.
(2) This exhibit has been filed separately with the Commission pursuant to an application for confidential
treatment which has been granted by the Commission. The confidential portions of this exhibit have been
omitted and marked by asterisks.
88
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
June 1, 2018
GSI TECHNOLOGY, INC.
By:
/s/ DOUGLAS M. SCHIRLE
Douglas M. Schirle
Chief Financial Officer
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints 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, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name
Title
/s/ LEE-LEAN SHU
Lee-Lean Shu
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ DOUGLAS M. SCHIRLE
Douglas M. Schirle
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
June 1, 2018
June 1, 2018
/s/ ROBERT YAU
Robert Yau
/s/ JACK A. BRADLEY
Jack A. Bradley
/s/ E. THOMAS HART
E. Thomas Hart
/s/ HAYDN HSIEH
Haydn Hsieh
/s/ RUEY L. LU
Ruey L. Lu
/s/ ARTHUR O. WHIPPLE
Arthur O. Whipple
Vice President, Engineering, Secretary and Director
June 1, 2018
Director
Director
Director
Director
Director
June 1, 2018
June 1, 2018
June 1, 2018
June 1, 2018
June 1, 2018
90
Board of Directors
Executive Officers
Lee-Lean Shu
Chairman of the Board, President and
Chief Executive Officer
GSI Technology, Inc.
Jack A. Bradley
Partner, David Powell Financial Services
E. Thomas Hart
Non-executive Chairman of the Board
QuickLogic Corporation
Haydn Hsieh
Chairman and Chief Strategy Officer
Wistron NeWeb Corporation
Ruey L. Lu
President
EMPIA Technology
Arthur O. Whipple
North American President
ABBYY USA Software House, Inc.
Robert Yau
Vice President, Engineering
GSI Technology, Inc.
Lee-Lean Shu
President and Chief Executive Officer
Didier Lasserre
Vice President, Sales
Douglas Schirle
Chief Financial Officer
Bor-Tay Wu
Vice President, Taiwan Operations
Ping Wu
Vice President, U.S. Operations
Robert Yau
Vice President, Engineering
Annual Meeting of Stockholders
The annual meeting of stockholders
will be held on Tuesday, August 28, 2018
at 2:00 p.m. PDT at the offices of
DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, California 94303.
Corporate Offices
GSI Technology, Inc.
1213 Elko Drive
Sunnyvale, California 94089
408-331-8800
http://www.gsitechnology.com
General Counsel
DLA Piper LLP (US)
East Palo Alto, California
Investor Relations
Hayden IR
Phoenix, Arizona
206-395-2711
Independent Registered Public
Accounting Firm
BDO USA, LLP
San Jose, California
Transfer Agent and Stock Registrar
First Class/Registered/Certified Mail:
Computershare
P.O. Box 505000
Louisville, KY 40233
Courier Services:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Shareholder Services Number:
800-368-5948
Investor Centre(cid:1) portal:
www.computershare.com/investor
Additional Information
Additional copies of our annual report on Form 10-K, as filed with the Securities and Exchange
Commission, can be obtained, free of charge, on our Web site or upon written request by mail or
e-mail to our corporate offices, Attention Investor Relations, at the address indicated above.
Stock Performance Graph
The line graph and table below compare the cumulative total stockholder return on our common
stock with the cumulative total return of the Standard and Poor’s 500 Index and the Philadelphia
Semiconductor Sector Index for the period beginning on March 31, 2013 through March 31, 2018. The
graph and table assume that $100 was invested on March 31, 2013 in each of our common stock, the
Standard and Poor’s 500 Index and the Philadelphia Semiconductor Sector Index. No cash dividends
have been declared on our stock. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
GSI Technology, Inc.
S&P 500 Index - Total Return
Philadelphia Semiconductor Index
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
March 2018
2013
100.00
100.00
100.00
2014
104.86
121.86
136.88
2015
89.53
137.37
166.03
2016
62.22
139.82
164.79
2017
132.02
163.83
250.78
2018
112.44
186.75
335.01
11JUL201821134150
www.gsitechnology.com
Corporate Office
1213 Elko Drive
Sunnyvale, CA 94089
(cid:23)08-(cid:22)(cid:22)(cid:20)-8(cid:27)(cid:19)(cid:19)