GSI Technology, Inc. Annual Report 2020

FY2020 Annual Report · GSI Technology, Inc.

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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2020
or

☐ 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

Trading Symbol(s) Name of Each Exchange on which Registered

Common Stock, $0.001 par value

GSIT

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its

internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, based upon the closing sale price of the

common stock on September 30, 2019, as reported on the Nasdaq Global Market, was approximately $153.9 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 31, 2020, there were 23,607,773 shares of the registrant’s common stock issued and outstanding.

Portions of the registrant’s definitive proxy statement for its 2020 annual meeting of stockholders are incorporated by reference into Part III

DOCUMENTS INCORPORATED BY REFERENCE

hereof.

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GSI TECHNOLOGY, INC.

2020 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II
Item 5.

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

PART III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

PART IV
Item 15.
Item 16.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules
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.

Item 1. Business

Overview

PART I

For many years we have developed and marketed high performance memory products, including “Very Fast”

static random access memory, or SRAM, 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. 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.

Beginning in November 2015 with the acquisition of an Israeli company, 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. Our commercialization efforts for our initial Associative Processing
Unit (“APU”) products are focused on applications using similarity search. Similarity search is used in visual search
queries for ecommerce and molecular structure similarity search applications for drug and vaccine discovery. Our
extensive experience in developing high speed synchronous SRAMs enhances our ability to develop hardware
artificial intelligence (AI) products and solutions with long term reliability. Even as we develop in-place associative
computing solutions, we continue to be committed to the synchronous SRAM market, supplying both exceedingly
high densities not available elsewhere, and robust high-quality radiation-tolerant and radiation-hardened space grade
parts.

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 and Market Background

Associative Processing Unit Computing Markets

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 not able to provide the fast response times required by real time “big data” applications.
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 require a tremendous
amount of image processing to be accomplished in real time.

Our commercialization efforts for the APU product are initially focused on similarity search applications and

other applications that can leverage the math-in-place capabilities of the APU. We see demand for the APU in artificial
intelligence applications, including approximate nearest neighbor searches, and natural language processing and other
fields where the technology’s superior speed is needed.

Similarity search uses a technique called distance metric learning, in which learning algorithms measure how

similar or related objects are. Our APU is well suited for very fast similarity search because its design enables distance
metric learning using fast computation speeds with high degrees of accuracy. Our APU is further differentiated from
other solutions in the market by its scalability for very large datasets. The use of visual search, a subset of similarity
search, is forecasted to grow rapidly as AI is adopted by the online retail industry. The APU has demonstrated the
ability to increase the rate of computation for visual search by orders of magnitude with greater accuracy and reduced
power consumption. This kind of performance has the potential to transform online retailers’ capabilities to run search
queries and improve customers’ online shopping experience.

The APU’s higher speeds and increased accuracy in similarity search has been shown to speed drug discovery,
which can potentially lower drug discovery costs, an important consideration for research organizations dependent on
funding. The APU is well suited for enhancing drug discovery work because it can perform similarity searches using
very descriptive molecular representations in a virtual environment. This can significantly reduce the cost of
developing drugs by allowing virtual screening and requires less use of physical laboratories. Use of AI products like
the APU could reduce costs, increase drug efficacy and safety, and increase speed to market thereby potentially saving
billions of dollars. For these reasons, the APU is drawing interest from prospective customers in the pharmaceutical
and genomics industries.

Our associative computing technology utilizes process-in-memory (“PIM”) structures to address the bottlenecks

that limit performance and increase power consumption in CPUs, GPUs, and FPGAs when processing large
datasets. By constantly having to move operands and results in and out of devices with ever increasing processing
speeds and bus speeds, current solutions are focused on memory transfers rather than addressing the basic computation
problem. By changing the computational framework to parallel processing and having search functions conducted
directly in a processing memory array, the utilization of PIM structures 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 us to develop high-quality associative processors based upon our patented, in-place associative computing
technology and algorithms. We are creating a new category of computing products that are expected to have substantial
target markets and a large new customer base in those markets. Our associative computing products have shown to
improve system performance, reduce query response times from hours to seconds and at the same time significantly
reduce power consumption and system cost.

New Markets for the APU

The APU is capable of processing large data arrays without having to simultaneously transfer data and input
new data. Not only does this capability provide a very cost competitive solution for large database similarity search,
but the mathematical capabilities of the APU also create new opportunities for using real-time causal processing.
Furthermore, GSI’s expertise in developing radiation-tolerant components creates new opportunities in the growing

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market for AI products that can be used in low earth orbit and space applications, where other AI products are not able
to survive the harsh environment. These are all additional markets experiencing growth that could benefit from our
technology.

APU Board Level Product

Our APU technology is currently being evaluated by advanced users in medical, digital signal processing, face

recognition, and cybersecurity markets. Our current product is a half-length PCIe card that will fit into a blade, rack, or
desktop server. As part of our strategy to expand the total addressable market for our board product, GSI is considering
other form factors and product configurations whose pricing and performance density requirements would be better
served with our APU technology.

High-Speed Synchronous SRAM Market Overview

Over the past 20 years, the demand for high-speed synchronous SRAMs has been dominated by the networking
and telecom industry, which incorporates SRAM into high-performance routers, switches, and other end-products. The
networking and telecom industry’s demand for high-speed synchronous SRAMs has accounted for more than 70% of
the total addressable market while the remaining market consisted of military/defense and aerospace applications,
audio/video processing, test and measurement equipment, medical and automotive applications, and other
miscellaneous applications.

However, for the past decade the networking and telecom market demand for high-speed synchronous SRAMs
has been steadily declining due to the industry trend of embedding greater amounts of SRAM into each generation of
ASICs/controllers products, thereby reducing the need for external SRAMs. We expect this decline in demand from
the networking and telecom market to continue. As a result, the demand for external high-speed synchronous SRAMs
in new end-products is being driven by what had previously been considered secondary markets, the greatest of those
being military/defense and aerospace applications. Such applications require a combination of high densities and high
random transaction rates that GSI is well positioned to serve, being the only SRAM manufacturer to offer 288Mb
densities as well as offering the highest truly random transaction rate in the industry – 1866 million transactions per
second (MT/s). To further serve the military/defense and aerospace markets, GSI has been focusing on qualifying its
products for space/satellite applications to capitalize on opportunities resulting from the development of near-earth
orbiting satellite megaconstellations, as well as the more traditional geo-stationary earth orbit satellite communication
platforms and national assets.

High-Speed Synchronous SRAM Products

We offer four families of high-speed synchronous SRAMs – SyncBurst™, NBT™, SigmaQuad™, and

SigmaDDR™. They feature high density, high transaction rate, high data bandwidth, low latency, and low power
consumption. We commit to offering our products for longer periods of time than our competitors, typically ten years
or more following their initial introduction, including die shrinks.

These four product families provide the basis for approximately 10,000 individual part numbers. They are

available in several density and data width configurations and are available in a variety of performance, feature,
temperature, and package options. 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.

Synchronous SRAM timing is controlled by a clock that defines its operating frequency. Some are “common

I/O” (common input/output data bus), and some are “separate I/O” (separate input and output data busses).

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Additionally, some are “single data rate” (SDR), in which one unit of data is transferred per clock cycle, and some are
“double data rate” (DDR), in which two units of data are transferred per clock cycle. The “Quad” in our SigmaQuad
product name refers to its ability to send and receive DDR data simultaneously, in the same clock cycle.

SyncBurst™ and NBT™ SRAMs. Synchronous Burst (SyncBurst) and No Bus Turnaround (NBT)

SRAMs implement a common I/O, SDR bus protocol. SyncBurst SRAMs were originally developed for
microprocessor cache applications, but eventually migrated to many diverse applications. NBT SRAMs are offshoots
of the SyncBurst SRAM architecture and were developed specifically to address the needs of networking and telecom
applications. They feature a bus protocol designed to minimize or eliminate idle cycles when switching between read
and write operations. Both families can perform burst data transfers or single data transfers at the discretion of the user.
Both families come with pipeline and flow-through mode options.

Our SyncBurst and NBT SRAMs are available in densities from 4 Mb to 288 Mb (four times greater than the

nearest competition), with operating frequencies up to 400 MHz (up to sixty percent greater than other
suppliers). They can be operated with supply voltages of 1.8V, 2.5V, or 3.3V.

SigmaQuad™ and SigmaDDR™ Products. SigmaQuad SRAMs implement a separate I/O, DDR bus protocol,
while SigmaDDR SRAMs implement a common I/O, DDR bus protocol. They were developed specifically to meet the
rapidly growing density and random transaction rate requirements of networking and telecom applications,
requirements that NBT SRAMs are unable to meet, and have been used extensively in those markets for the past 15
years. They include the highest performance SRAMs available in the market today, with random transaction rates up
to 1866 MT/s – forty percent greater than the nearest competition. Both product families have burst-of-2 and burst-of-
4 options.

We have developed several generations of SigmaQuad and SigmaDDR SRAMs, with increasing performance

capability, referred to as Type-I, Type-II, Type-II+, Type-IIIe, and Type-IVe. They are available in densities from
18Mb to 288Mb (two times greater than the nearest competition), with operating frequencies up to 1333 MHz. They
can be operated with a range of supply voltages depending on the generation.

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, 144 megabit, and
72 megabit devices from our SigmaQuad-II+ family. We have also expanded to include 144 megabit, 72 megabit, and
32 megabit SyncBurst and NBT SRAMs RadTolerant products to enable the avionics and other space platforms that
have historically leveraged smaller asynchronous devices. 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.

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:

(cid:0)

Product Performance Leadership. Through the use of advanced architectures and design methodologies,
we have developed high-performance SRAM 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.

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(cid:0)

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.

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:

(cid:0)

Complete productization of our initial In-place Associative Computing product. Our principal operations
objective is the completion of productization efforts for the in-place associative computing product. We
are on-track to complete this productization work in calendar 2020.

Identifying and developing new long tail markets where the APU is differentiated. Realization of this goal
will require additional development and marketing efforts in calendar 2020. In many instances, customer
evaluations can proceed with the current product, but our optimized product is expected to be ready for
production in calendar 2021.

Identify opportunities and rapidly increase sales of RadHard and RadTolerant SRAMs. We are
aggressively targeting the Aerospace & Defense (“A&D”) markets now that our radiation hardened
qualifications are complete. We plan to continue expansion into the A&D markets with our APU
platform that has shown design robustness for those applications.

Exploit opportunities to expand the market for our SRAM products. While we developed our high-
performance SRAM products principally for the networking and telecom 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 SRAM technologies.

Collaborate with wafer foundry to leverage leading-edge process technologies. We will continue to
utilize CMOS fabrication process technologies from TSMC to design our 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.

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 with our initial focus in this area

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being for similarity search applications including facial recognition, drug discovery and drug toxicity, signal and object
detection and cryptography.

The following is a representative list of our OEM customers that directly or indirectly purchased more than

$500,000 of our SRAM products in the fiscal year ended March 31, 2020:

BAE Systems
General Dynamics
Nokia

Ciena
Honeywell
Raytheon

Cisco Systems
Lockheed
Rockwell

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 33.7%, 41.3% and 34.9% of
our net revenues for fiscal 2020, 2019 and 2018, respectively. Sales to foreign and domestic distributors accounted for
61.3%, 56.0% and 62.5% of our net revenues for fiscal 2020, 2019 and 2018, respectively.

The following direct customers accounted for 10% or more of our net revenues in one or more of the following

periods:

Contract manufacturers and consignment warehouses:

Flextronics Technology
Sanmina
Distributors:

Avnet Logistics
Nexcomm

Fiscal Year Ended
March 31,

2020 2019 2018

14.8 % 21.8 % 14.0 %
17.7
17.4

16.0

34.3
15.1

31.3
14.8

35.3
16.1

Nokia was our largest customer in fiscal 2020, 2019 and 2018. Nokia purchases products directly from us and

Sales, Marketing and Technical Support

We sell our products primarily through our worldwide network of independent sales representatives and
distributors. As of March 31, 2020, we employed 18 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
expected introduction of our associative computing products in fiscal 2021. We believe that our relationship with our
U.S. distributor, Avnet, puts us in a strong position to address the Very Fast SRAM memory market in the United
States. We currently have regional sales offices located in Canada, China, Hong Kong, Israel and the United

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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. 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 product
roadmap 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 SRAM wafers are manufactured by TSMC under individually negotiated purchase orders.

We do not currently have a long-term supply contract with our foundry, and, therefore, TSMC is not 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 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 new in-place associative computing
products will be manufactured at TSMC initially 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

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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.

All of our manufactured wafers, including wafers for our APU product, 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 are assembled and tested at STS,
located near our Sunnyvale, California headquarters facility.

Research and Development

We have devoted substantial resources in the last four years on the development of a new category of in-place

associative computing products. 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. Additionally, we have assembled a team of software development experts in Israel needed for the
development of the various levels of software required in the use 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 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:

(cid:0)

product performance, features, quality, reliability and price;

(cid:0) manufacturing flexibility, product availability and customer service throughout the lifetime of the product;

(cid:0)

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.

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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
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, 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 85 United States patents, including 60
memory patents and 25 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, 2020, we had 166 full-time employees, including 108 engineers, of which 87 are engaged in
research and development and 51 have PhD or MS degrees, 18 employees in sales and marketing, 10 employees in
general and administrative capacities and 65 employees in manufacturing. Of these employees, 59 are based in our
Sunnyvale facility, 58 are based in our Taiwan facility and 34 are based in our Israel facility. We believe that our

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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.

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, 2020:

Name

Lee-Lean Shu

Didier Lasserre

Douglas Schirle

Bor-Tay Wu

Ping Wu

Robert Yau

Age

Title

65 President, Chief Executive Officer and Chairman
55 Vice President, Sales
65 Chief Financial Officer
68 Vice President, Taiwan Operations
63 Vice President, U.S. Operations
67 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 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.

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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, 2020, we recorded net revenues of as
much as $14.7 million and as little as $8.5 million and quarterly operating income of as much as $2.2 million and, in
eleven quarters, operating losses, including an operating loss of $4.7 million in the quarter ended December 31, 2019.
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 or be adversely impacted
by the COVID-19 global pandemic. 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:

(cid:0)

commercial acceptance of our associative computing products;

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;

(cid:0) 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;

(cid:0)

changes in our product pricing policies, including those made in response to new product announcements
and pricing changes of our competitors; and

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(cid:0)

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.

The COVID-19 global pandemic has caused increased stock market volatility and uncertainty in customer
demand and the worldwide economy in general, and we may experience decreased sales and revenues in the near
future. We believe such impact may in particular affect our SRAM sales and may also impact the launch of our APU
product to some degree. However, the magnitude of such impact on our business and its duration is uncertain and
cannot be reasonably estimated at this time.

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 38%, 45% and 36% of our net revenues in fiscal 2020,
2019 and 2018, 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. Any decline in economic activity resulting from the COVID-19 global pandemic could cause
a decline in orders from Nokia and our other key OEM customers. If we fail to continue to sell to our key OEM
customers, distributors or contract manufacturers in sufficient quantities, our business could be harmed.

The ongoing COVID-19 global pandemic may adversely affect our revenues, results of operations and

financial condition.

Our business could be materially adversely affected by the widespread outbreak of contagious disease,

including the recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19. COVID-19
has been declared by the World Health Organization to be a “pandemic” and has spread to many of the countries in
which we, our customers, our suppliers and our other business partners conduct business. National, state and local
governments in affected regions have implemented, and may continue to implement, safety precautions which include
quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem
necessary. Many organizations and individuals, including the Company and our employees, are taking additional steps
to avoid or reduce infection, including limiting travel and working from home. These measures are disrupting normal
business operations both in and outside of affected areas and have had significant negative impacts on businesses and
financial markets worldwide.

We continue to monitor our operations and government recommendations and have made modifications to our
normal operations because of the COVID-19 global pandemic. We have instituted many preventative measures and are
regularly evaluating those measures and others as we continue to better understand our current and future operating
environment. Except for our employees located in Taiwan, the majority of our employees are working from home
around the world, and productivity remains high. We have maintained a substantial portion of our manufacturing
operational capacity at our primary manufacturing support facility located in Hsin Chu, Taiwan where our suppliers are
located and where all of our products are manufactured. Since the outbreak of COVID-19, aside from the lengthening
of lead times for wafers and assembly services, we have experienced minimal impact on

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our manufacturing operations in Taiwan. Final testing of our product is conducted in house. Shipping and receiving
operations at our Sunnyvale headquarters facility are being maintained by a skeleton crew with minimal impact. Our
revenues may be impacted by possible changes in customer buying patterns and communication limitations related to
shelter in place restrictions that require a significant number of our customer contacts to work from home.

We may experience a number of adverse impacts as a result of the COVID-19 global pandemic, including

reductions in demand for our products, delays and cancellations of orders, difficulties in obtaining raw materials and
components, shortages of labor to manufacture products, inefficiencies caused by remote worker’s difficulties in
performing their normal work outputs, closures of the facilities of some of our suppliers and customers, delays in
shipments and delays in collecting accounts receivable. Although we cannot estimate the length or gravity of the
impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have an adverse effect on our results
of operations, financial position, and liquidity in fiscal year 2021.

The disruption to the marketplace resulting from the COVID-19 global pandemic that we are currently
experiencing is unlike anything we have ever had to deal with. While we continue to monitor the business metrics that
we have historically used to predict our financial performance, we are uncertain as to whether these metrics will
operate consistently with our historical experience.

Disruptions in the capital markets as a result of the COVID-19 global pandemic may also adversely affect our

ability to obtain additional liquidity should the impacts of the global pandemic continue for a prolonged period.

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

We have incurred significant losses. We incurred net losses of $10.3 million and $4.5 million during fiscal 2020

and 2018, respectively. 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, which could be adversely impacted by the
COVID-19 global pandemic, 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.

Our future success is substantially dependent on the successful development of new in-place associative

computing products which entails significant risks.

Since 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, will require a substantial effort during fiscal 2021 and beyond and
will be subject to significant risks. In addition to the typical risks associated with the development of technologically
advanced products (as further detailed in the next 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. The establishment of new customer relationships

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and selling our in-place associative computing products to such new customers will be a significant undertaking that
will require us to invest heavily in our sales team, enter into new channel partner relationships, expand our marketing
activities and change the focus of our business and operations. Our inability to successfully 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. 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.

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, our
efforts to introduce new products may not be successful and our business may suffer. Other challenges that we face
include:

(cid:0)

our products may become obsolete upon the introduction of alternative technologies;

(cid:0) we may incur substantial costs if we need to modify our products to respond to these alternative

technologies;

(cid:0) we may not have sufficient resources to develop or acquire new technologies or to introduce new

products capable of competing with future technologies;

(cid:0)

new products that we develop may not successfully integrate with our end-users’ products into which
they are incorporated;

(cid:0) we may be unable to develop new products that incorporate emerging industry standards;

(cid:0) we may be unable to develop or acquire the rights to use the intellectual property necessary to

implement new technologies; and

(cid:0) when introducing new or enhanced products, we may be unable to manage effectively the transition

from older products.

We are subject to the highly cyclical nature of the networking and telecommunications markets.

Our products are incorporated into routers, switches, wireless local area network infrastructure equipment,

wireless base stations and network 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.

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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:

(cid:0)

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.

Current unfavorable economic and market conditions, domestically and internationally, may adversely affect

our business, financial condition, results of operations and cash flows.

We have significant customer sales both in the United States and internationally. We also rely heavily on our

suppliers in Asia. We are therefore susceptible to adverse U.S. and international economic and market conditions,
including the economic difficulties resulting from the COVID-19 global pandemic that currently exist in the United
States and worldwide. If any of our manufacturing partners, customers, distributors or suppliers experiences serious
financial difficulties or ceases operations, our business could be adversely affected.

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. For example, due to the COVID-19 global pandemic, we could see disruptions in our supply
chain. Most significantly, we obtain wafers for our Very Fast SRAM and APU products from a single foundry, TSMC,
and most of them are packaged at ASE. If we are unable to obtain an adequate supply of wafers from TSMC 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, ASE or any of our other independent assembly and test
suppliers, and instead obtain manufacturing services and products from these suppliers on a purchase-order basis. Our
suppliers, including TSMC, have no obligation to supply products or services to us for any specific product, in any
specific quantity, at any specific price or for any specific time period. As a result, the loss or failure to perform by any
of these suppliers could adversely affect our business and operating results.

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Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted by

the COVID-19 global pandemic, 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.

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 2020, 2019 and 2018, our largest distributor Avnet
Logistics accounted for 34.3%, 31.3% and 35.3%, 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.

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 and may increase in the future due to a large number of our employees working from home during the COVID-
19 global pandemic. 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 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.

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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, 2020, three customers accounted for 33%, 20% and 19% 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.

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 a long-term supply agreement with TSMC, but instead obtain our wafers on a purchase order

basis. In order to secure future wafer supply from TSMC or from other independent foundries, we may be required to
enter into various arrangements with them, which could include:

(cid:0)

contracts that commit us to purchase specified quantities of wafers over extended periods;

investments in and joint ventures with the foundries; or

non-refundable deposits with or prepayments or loans to foundries in exchange for capacity
commitments.

We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements, if

any, may not be on terms favorable to us. Moreover, even if we are able to secure independent foundry capacity, we
may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our
financial results.

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.

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 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:

(cid:0)

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 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:

(cid:0)

difficulties in integrating operations, technologies, products and personnel;

diversion of financial and managerial resources from existing operations;

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(cid:0)

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.

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, whether as a result of illness,
retirement or death, 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.

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.

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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.

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 relationship with TSMC to transition successfully to smaller geometry process technologies and to
more advanced manufacturing processes. We cannot assure you that TSMC will be able to effectively manage the
transition or that we will be able to maintain our relationship with them. If we or TSMC 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 the second quarter of fiscal 2019, we incurred
approximately $1.0 million in research and development expense associated with a pre-production mask set that will
not be used in production as part of the transition to our new 28 nanometer SRAM process technology for our APU
product. 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.

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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
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:

(cid:0)

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.

Our international business exposes us to additional risks.

Products shipped to destinations outside of the United States accounted for 59.6%, 62.5% and 51.5% of our net
revenues in fiscal 2020, 2019 and 2018, 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:

(cid:0)

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;

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;

local authorities decisions’ regarding travel restrictions, stay-at-home orders, testing requirements and
other policies to address public health crises such as the COVID-19 global pandemic which have an
adverse impact on the economy and demand for our products;

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.

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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. Any action to withdraw
from or materially modify international trade agreements, change corporate tax policy related to international
commerce, or mandate domestic production of goods, could adversely affect our business, financial condition and
results of operations.

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.

TSMC, as well as our other independent suppliers and many of our OEM customers, have operations in the

Pacific Rim, an area subject to significant risk of earthquakes, typhoons and other natural disasters and adverse
consequences related to the outbreak of contagious diseases such as COVID-19.

The foundry that manufactures our Fast SRAM, TSMC, 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, typhoon 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.

The COVID-19 global pandemic, along with the previous outbreaks of SARS, H1N1 and the Avian Flu, has

curtailed travel between and within countries, including in the Asia-Pacific region. Outbreaks of new contagious
diseases or the resurgence of existing diseases that significantly affect the Asia-Pacific region could disrupt the
operations of our key suppliers and manufacturing partners. In addition, our business could be harmed if such an
outbreak resulted in travel being restricted, the implementation of stay-at-home or shelter-in-place orders or if it
adversely affected the operations of our OEM customers or the demand for our products or our OEM customers’
products.

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.

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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:

(cid:0)

actual or anticipated declines in operating results;

changes in financial estimates or recommendations by securities analysts;

the institution of legal proceedings against us or significant developments in such proceedings;

announcements by us or our competitors of financial results, new products, significant technological
innovations, contracts, acquisitions, 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;

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(cid:0)

recruitment or departure of key personnel; and

(cid:0) market conditions in our industry, the industries of our customers and the economy as a whole,

including the impacts of global pandemics.

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 2020 we repurchased and retired an aggregate of 12,004,779 shares of our

common stock at a total cost of $60.7 million, including 3,846,153 shares repurchased at a total cost of $25 million
pursuant to a modified “Dutch auction” self-tender offer that we completed in August 2014 and additional shares
repurchased in the open market pursuant to our stock repurchase program. At March 31, 2020, we had outstanding
authorization from our Board of Directors to purchase up to an additional $4.3 million of our common stock from time
to time under our repurchase program. Although our Board has determined that these repurchases are in the best
interests of our stockholders, they expose us to certain risks including:

(cid:0)

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.

Our executive officers, directors and entities affiliated with them hold a substantial percentage of our

common stock.

As of May 31, 2020, our executive officers, directors and entities affiliated with them beneficially owned

approximately 35% of our outstanding common stock. As a result, these stockholders will be able to exercise
substantial influence over, and may be able to effectively control, matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, which could have the effect of delaying or
preventing a third party from acquiring control over or merging with us.

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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:

(cid:0)

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 $692,000 in fiscal 2020.

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, Holders of Common Stock and Dividends

Our common stock is traded on the Nasdaq Global Market under the symbol “GSIT”.

On May 31, 2020, there were approximately 20 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.

We have never declared or paid cash dividends on our common stock, and we do not anticipate declaring or

paying any cash dividends in the foreseeable future.

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, 2020, we did not repurchase any of our shares under the repurchase
program.

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, 2020, 2019 and 2018 and the selected consolidated balance sheet data as of
March 31, 2020 and 2019 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, 2017 and 2016 and the selected consolidated balance sheet data as of March 31, 2018,
2017 and 2016 are derived from audited consolidated financial statements not included in this report.

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Consolidated Statement of Operations Data:
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
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Basic and diluted net income (loss) per share

available to common stockholders:

Weighted average shares used in per share

Basic
Diluted

calculations:
Basic
Diluted

Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Total stockholders' equity

2020

Fiscal Year Ended March 31,
2018
(In thousands, except per share amounts)

2017

2019

$ 43,343 $ 51,486 $ 42,643 $ 48,180 $

18,000
25,343

19,858
31,628

20,217
22,426

21,764
26,416

25,223
10,922
36,145
(10,802)
712
(10,090)
247

$ (10,337) $

21,355
10,455
31,810
(182)
450
268
105
163 $ (4,515) $

16,998
9,899
26,897
(4,471)
409
(4,062)
453

15,803
11,140
26,943
(527)
478
(49)
66
(115) $

2016

52,736
25,999
26,737

12,095
17,663
29,758
(3,021)
210
(2,811)
(641)
(2,170)

$
$

(0.45) $
(0.45) $

0.01 $
0.01 $

(0.21) $
(0.21) $

(0.01) $
(0.01) $

(0.10)
(0.10)

22,968
22,968

21,889
23,349

21,085
21,085

20,652
20,652

22,593
22,593

2020

2019

March 31,
2018
(In thousands)

2017

2016

$ 66,567 $ 61,841 $ 58,365 $ 49,935 $

70,853
102,561
89,641

68,632
106,223
93,155

63,867
99,540
86,815

57,798
102,595
86,444

55,112
62,720
106,530
89,869

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.

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, 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.

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On March 11, 2020, the World Health Organization announced that COVID-19, a respiratory illness, caused by

a novel coronavirus is a pandemic. COVID-19 has spread to many of the countries in which we, our customers, our
suppliers and our other business partners conduct business. Governments in affected regions have implemented, and
may continue to implement, safety precautions which include quarantines, travel restrictions, business closures,
cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals,
including the Company and our employees, are taking additional steps to avoid or reduce infection, including limiting
travel and working from home. These measures are disrupting normal business operations both in and outside of
affected areas and have had significant negative impacts on businesses and financial markets worldwide. While
expected to be temporary, these disruptions may negatively impact our revenue, results of operations, financial
condition, and liquidity in fiscal year 2021.

We continue to monitor our operations and government recommendations and have made modifications to our

normal operations because of the COVID-19 global pandemic. We have instituted many preventative measures and are
regularly evaluating those measures and others as we continue to better understand our current and future operating
environment. Except for our employees located in Taiwan, the majority of our employees are working from home
around the world, and productivity remains high. We have maintained a substantial portion of our manufacturing
operational capacity at our primary manufacturing support facility located in Hsin Chu, Taiwan where our suppliers are
located and all of our products are manufactured. Since the outbreak of COVID-19, aside from the lengthening of lead
times for wafers and assembly services, we have experienced minimal impact on our manufacturing operations in
Taiwan. Final testing of our product is conducted in house. Shipping and receiving operations are being maintained by
a skeleton crew with minimal impact. Our revenues may be impacted by possible changes in customer buying patterns
and communication limitations related to shelter in place restrictions that require a significant number of our customer
contacts to work from home.

As of March 31, 2020, we had cash, cash equivalents, and short-term and long-term investments of $70.7
million, with no debt. We have a team in-place with tremendous depth and breadth of experience and knowledge, with
a legacy business that is providing an ongoing source of funding for the development of new product lines. We have a
strong balance sheet and liquidity position that we anticipate will provide financial flexibility and security in the
current environment of economic uncertainty with no current expectations of additional cash infusions required.
Generally, our primary source of liquidity is cash generated from operating activities. Our level of cash and cash flows
from operations have historically been sufficient to meet our operating and capital needs. We believe that during the
next 12 months the COVID-19 global pandemic could impact general economic activity and demand in our end
markets. Although we cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the
pandemic continues, it may have an adverse effect on our results of operations, financial position, and liquidity in
fiscal year 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to

provide emergency economic stimulus in response to the COVID-19 global pandemic. The CARES Act includes direct
financial assistance to Americans in the form of one-time payments to individuals, aid to small businesses in the form
of loans and grants, and other efforts to stabilize the U.S. economy and keep Americans employed. We have not filed,
and currently do not intend to file, for funding related to the CARES Act due to our strong balance sheet and liquidity
position with $70.7 million in cash and cash equivalents, short-term investments and long-term investments and no
debt outstanding. We currently have no plans to defer payroll taxes, to layoff or furlough employees or to modify
leases and stock compensation plans. Also included in the CARES Act are numerous income tax provisions including
changes to the net operating loss rules that we believe will not have significant impact on us.

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Revenues. Our revenues are derived primarily from sales of our Very Fast SRAM products. Sales to

networking and telecommunications OEMs accounted for 50% to 55% 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, our wafer supplier, 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. Our revenues may be impacted by possible changes in customer buying patterns and communication
limitations related to COVID-19 shelter in place restrictions that require a significant number of our customer contacts
to work from home. The majority of our 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 we have a right to payment. Thus, we will generally recognize revenue
upon shipment of the product. Sales to consignment warehouses, who purchase products from us for use by contract
manufacturers, are recorded upon delivery to the contract manufacturer.

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 33.7%, 41.3% and
34.9% of our net revenues for fiscal 2020, 2019 and 2018, respectively. Sales to foreign and domestic distributors
accounted for 61.3%, 56.0% and 62.5% of our net revenues for fiscal 2020, 2019 and 2018,

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respectively. The following direct customers accounted for 10% or more of our net revenues in one or more of the
following periods:

Contract manufacturers and consignment warehouses:

Flextronics Technology
Sanmina
Distributors:

Avnet Logistics
Nexcomm

Fiscal Year Ended
March 31,

2020 2019 2018

14.8 % 21.8 % 14.0 %
17.7
17.4

16.0

34.3
15.1

31.3
14.8

35.3
16.1

Nokia was our largest customer in fiscal 2020, 2019 and 2018. 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 38%, 45% and 36% of our net revenues in fiscal
2020, 2019 and 2018, 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 2020, 2019
or 2018.

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 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
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.

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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 specialized 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 had a number of pending patent applications.

The acquisition was undertaken 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 are developing using the in-place
associative computing technology.

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
near the end 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 $4.9 million. We are also required to pay the former MikaMonu shareholders future
contingent consideration consisting of retention payments and “earnout” payments, as described below.

We also made cash retention payments totaling $2.5 million to the three former MikaMonu shareholders,

conditioned on the continued employment of Dr. Avidan Akerib, MikaMonu’s co-founder and chief technologist.
Retention payments of $743,000, $750,000 and $1.0 million were paid to the former MikaMonu shareholders during
the quarters ended December 31, 2017, 2018 and 2019, respectively. We are not required to make any further retention
payments.

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 were paid in the fiscal year ended March 31, 2019 based on the achievement of certain product development
milestones. Additional earnout amounts of $2.8 million and $4.0 million 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
$30.0 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 made to Dr. Akerib (approximately $1.2 million) was recorded as

compensation expense over the period that his services were provided to us. The portion of the retention payment
made 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
contingent consideration, non-current on the Consolidated Balance Sheet at March 31, 2019 and 2020 in the amount

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of $3.7 million and $3.9 million, respectively, and is included in accrued expenses and other liabilities at March 31,
2019 and 2020 in the amount of $492,000 and $0, respectively.

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, 2020
resulted in an increase of the contingent consideration liability of $80,000.

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.

Results of Operations

The following table sets forth statement of operations data as a percentage of net revenues for the periods

indicated:

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
Income (loss) before income taxes
Provision for income taxes
Net income (loss)

Year Ended March 31,
2019

2020

100.0 %
41.5
58.5

100.0 %
38.6
61.4

2018
100.0 %
47.4
52.6

58.2
25.2
83.4
(24.9)
1.6
(23.3)
0.6
(23.9)

41.5
20.3
61.8
(0.4)
0.9
0.5
0.2
0.3

39.9
23.2
63.1
(10.5)
1.0
(9.5)
1.1
(10.6)

Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

Net Revenues. Net revenues decreased by 15.8% from $51.5 million in fiscal 2019 to $43.3 million in fiscal
2020. The overall average selling price of all units shipped in fiscal 2020 decreased by 0.8% in fiscal 2020 compared
to the prior fiscal year. Units shipped declined 14.7% in fiscal 2020 compared to fiscal 2019. The networking and
telecommunications markets represented 50% and 55% of shipments in fiscal 2020 and in fiscal 2019,
respectively. Direct and indirect sales to Nokia, currently our largest customer, decreased by $6.8 million from $23.1
million in fiscal 2019 to $16.3 million fiscal 2020. Shipments of our SigmaQuad product line accounted for 60.8% of
total shipments in fiscal 2020 compared to 63.6% of total shipments in fiscal 2019. The decrease in SigmaQuad
shipments was primarily due to the decreased sales to Nokia.

We currently expect that net revenues will fluctuate in the future, from period-to-period, based on evolving

customer demand for existing products, the pace of adoption of newer products, and macroeconomic conditions.
Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 global
pandemic, we may experience decreased sales and revenues. We believe such impact may in particular affect our direct
and indirect sales of Very Fast SRAMs to Nokia and our other key OEM customers.

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Cost of Revenues. Cost of revenues decreased by 9.4% from $19.9 million in fiscal 2019 to $18.0 million in
fiscal 2020. Cost of revenues included a provision for excess and obsolete inventories of $1.2 million in fiscal 2019
compared to $343,000 in fiscal 2020. Cost of revenues included stock-based compensation expense of $257,000 and
$234,000, respectively, in fiscal 2020 and fiscal 2019.

Gross Profit. Gross profit decreased by 19.9% from $31.6 million in fiscal 2019 to $25.3 million in fiscal

2020. Gross margin decreased from 61.4% in fiscal 2019 to 58.5% in fiscal 2020. The decrease in gross margin was
primarily related to changes in the mix of products and customers and the reduction in the provision for excess and
obsolete inventories in fiscal 2020 compared to fiscal 2019 discussed above.

Research and Development Expenses. Research and development expenses increased 18.1% from $21.4
million in fiscal 2019 to $25.2 million in fiscal 2020. The increase was primarily due to increases of $2.7 million for
purchased intellectual property with no alternative future use, $882,000 in consulting and prototype development fees,
$712,000 in payroll related expenses and $177,000 in stock-based compensation expense that were primarily offset by
a decrease of $986,000 in non-production mask sets, all related to our associative processing development activities.
Research and development expenses included stock-based compensation expense of $1.5 million and $1.3 million,
respectively, in fiscal 2020 and fiscal 2019.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 4.5%

from $10.5 million in fiscal 2019 to $10.9 million in fiscal 2020. This increase was primarily related to an increase in
the re-measurement of the contingent consideration liability related to our acquisition of MikaMonu which resulted in
an increase of the liability of $193,000 in fiscal 2020 compared to a reduction of $179,000 in fiscal 2019, for a year
over year increase in expenses of $372,000. Lesser increases in professional fees and stock-based compensation
expenses were offset by a decrease in independent sales representative commissions. Selling, general and
administrative expenses included stock-based compensation expense of $822,000 and $722,000, respectively, in fiscal
2020 and fiscal 2019.

Interest and Other Income (Expense), Net. Interest and other income (expense), net increased 58.2% from
$450,000 in fiscal 2019 to $712,000 in fiscal 2020. Interest income increased by $107,000 due to higher interest rates
received on cash and short-term and long-term investments. The foreign currency exchange loss decreased from
($221,000) in fiscal 2019 to ($66,000) in fiscal 2020. The exchange 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 $105,000 in fiscal 2019 compared to

$247,000 in fiscal 2020. This change was primarily due to fluctuations in the relative mix of income among our
operating jurisdictions. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March
31, 2020 and the realization of our deferred tax assets is questionable, we recorded a tax provision reflecting a
valuation allowance of $9.4 million in net deferred tax assets in fiscal 2020. Reductions in uncertain tax benefits due to
lapses in the statute of limitations were not significant in the years ended March 31, 2020 and 2019.

Net Income (Loss). Net income was $163,000 in fiscal 2019 compared to a net loss of ($10.3) million in fiscal

2020. This decrease was primarily due to the changes in net revenues, gross profit and operating expenses discussed
above.

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Net Revenues. Net revenues increased by 20.7% from $42.6 million in fiscal 2018 to $51.5 million in fiscal

2019. The overall average selling price of all units shipped in fiscal 2019 increased by 24.0% compared to fiscal 2018.
The increase in the average selling price in fiscal 2019 was due to a change in product mix, as we sold more higher
density, higher average selling price products in fiscal 2019 compared to the prior fiscal year. Units shipped declined
3.1% in fiscal 2019 compared to fiscal 2018. The networking and telecommunications markets represented 55% of
shipments in fiscal 2019 and in fiscal 2018. Direct and indirect sales to Nokia, currently our largest customer,
increased by $7.8 million from $15.3 million in fiscal 2018 to $23.1 million fiscal 2019. Shipments of our

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SigmaQuad product line accounted for 63.6% of total shipments in fiscal 2019 compared to 47.4% of total shipments
in fiscal 2018. The increase in SigmaQuad shipments was primarily due to the increased sales to Nokia.

Cost of Revenues. Although net revenues increased in fiscal 2019 compared to fiscal 2018, cost of revenues

decreased by 1.8% from $20.2 million in fiscal 2018 to $19.9 million in fiscal 2019. The decrease was primarily due to
an increase in gross margin from 52.6% in fiscal 2018 to 61.4% in fiscal 2019 resulting from the favorable product
mix. Cost of revenues included stock-based compensation expense of $234,000 and $259,000, respectively, in fiscal
2019 and fiscal 2018.

Gross Profit. Gross profit increased by 41.0% from $22.4 million in fiscal 2018 to $31.6 million in fiscal

2019. Gross margin increased from 52.6% in fiscal 2018 to 61.4% in fiscal 2019. The increase in gross margin was
primarily related to changes in the mix of products and customers.

Research and Development Expenses. Research and development expenses increased 25.6% from $17.0

million in fiscal 2018 to $21.4 million in fiscal 2019. The increase was primarily due to increases of $1.5 million in
payroll related expenses, $1.2 million in outside consultant expenses, $986,000 in non-production mask sets and
$214,000 in depreciation expense, all related to our associative processing development activities. Research and
development expenses included stock-based compensation expense of $1.3 million and $1.1 million, respectively, in
fiscal 2019 and fiscal 2018.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 5.6%
from $9.9 million in fiscal 2018 to $10.5 million in fiscal 2019. This increase was primarily related to an increase in
payroll related expenses of $713,000 and a lesser increase in outside sales representative commissions, partially offset
by a decrease of $712,000 in professional fees. In addition, re-measurement of the contingent consideration liability
related to our acquisition of MikaMonu resulted in a reduction of the liability of $179,000 in fiscal 2019 compared to
$308,000 in fiscal 2018, for a year over year increase in expenses of $129,000. Selling, general and administrative
expenses included stock-based compensation expense of $722,000 and $670,000, respectively, in fiscal 2019 and fiscal
2018.

Interest and Other Income (Expense), Net. Interest and other income (expense), net increased 10.0% from
$409,000 in fiscal 2018 to $450,000 in fiscal 2019. Interest income increased by $250,000 due to higher interest rates
received on cash and short-term and long-term investments. The foreign currency exchange loss increased from
($12,000) in fiscal 2018 to ($221,000) in fiscal 2019. The exchange 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 $453,000 in fiscal 2018 compared to
$105,000 in fiscal 2019. 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.
During the year ended March 31, 2019, we completed our assessment of the impact of H.R. 1 and recorded an
immaterial additional liability that is included in Income Taxes Payable in the Consolidated Balance Sheet as of March
31, 2019. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March 31, 2019 and
the realization of our deferred tax assets is questionable, we recorded a tax provision reflecting a valuation allowance
of $6.7 million in net deferred tax assets in fiscal 2019. Reductions in uncertain tax benefits due to lapses in the statute
of limitations were not significant in the years ended March 31, 2019 and 2018.

Net Income (Loss). Net loss was ($4.5) million in fiscal 2018 compared to net income of $163,000 in fiscal

2019. This improvement was primarily due to the changes in net revenues, gross profit and operating expenses
discussed above.

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Liquidity and Capital Resources

As of March 31, 2020, our principal sources of liquidity were cash, cash equivalents and short-term investments

of $66.6 million compared to $61.8 million as of March 31, 2019. Cash, cash equivalents and short-term investments
totaling $36.2 million were held in foreign locations as of March 31, 2020. Net cash used in operating activities was
$4.7 million for fiscal 2020 compared to net cash provided by operating activities of $3.0 million and $1.1 million for
fiscal 2019 and 2018, respectively. The primary use of cash in fiscal 2020 was the net loss of $10.3 million. The
primary sources of cash in fiscal 2020 were non-cash items including stock-based compensation of $2.6 million,
depreciation and amortization expenses of $1.5 million and a provision for excess and obsolete inventories of
$343,000, a decrease in inventories of $1.1 million and a decrease of $1.0 million in accounts receivable. Accounts
receivable decreased primarily due to the decreased level of shipments during the fourth quarter of fiscal 2020
compared to the prior year. The primary sources of cash in fiscal 2019 were an increase in accrued expenses and other
liabilities of $1.5 million and non-cash items including stock-based compensation of $2.3 million, depreciation and
amortization expenses of $1.5 million and a provision for excess and obsolete inventories of $1.2 million. Accrued
expenses and other liabilities increased primarily due to increased levels of compensation related accruals in fiscal
2019 compared to the prior year. The primary uses of cash in fiscal 2019 were increases in accounts receivable of $2.1
million and inventory of $1.3 million. Accounts receivable increased primarily due to the timing of payments received
from customers and the increased level of shipments during fourth quarter of fiscal 2019 compared to the prior
year. 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 a 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, 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.

Net cash provided by investing activities was $10.0 million in fiscal 2020 compared to net cash used in
investing activities of $3.5 million in fiscal 2019 and net cash provided by investing activities of $2.8 million in fiscal
2018. Investment activities in fiscal 2020 primarily consisted of the maturity of supranational obligations, agency
bonds and certificates of deposit of $27.4 million and a reduction in the MikaMonu escrow deposits of $1.0 million,
partially offset by the purchase of certificates of deposit and agency bonds of $18.1 million. Investment activities in
fiscal 2019 primarily consisted of the purchase of agency bonds and certificates of deposit of $20.3 million and the
purchase of property and equipment of $2.1 million, partially offset by the maturity of agency bonds and certificates of
deposit of $18.2 million and a reduction in the MikaMonu escrow deposits of $750,000. 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.

Cash provided by financing activities in fiscal 2020, fiscal 2019 and fiscal 2018 primarily consisted of the net

proceeds from the sale of common stock pursuant to our employee stock plans. Cash used in financing activities in
fiscal 2020, fiscal 2019 and fiscal 2018 included the release of escrow deposits related to our acquisition of MikaMonu
in November 2015 in the amount of $428,000, $364,000 and $862,000, respectively.

At March 31, 2020, we had total minimum lease obligations of approximately $667,000 from April 1, 2020

through April 30, 2022, under non-cancelable operating leases for our facilities.

While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have

created significant uncertainty as to general economic and capital market conditions for the remainder of 2020 and

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beyond, 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. A material adverse impact from the COVID-19 global pandemic could
result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating
activities, particularly if we pursue additional acquisitions of businesses, products or technologies. We cannot assure
you that additional equity or debt financing, if required, will be available on terms that are acceptable or at all.

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Contractual Obligations

The following table describes our contractual obligations as of March 31, 2020:

Facilities and software leases
Wafer, software and test purchase obligations

Payments due by period (in thousands)

Up to 1
year

1 - 3 years

3 - 5 years

More
than 5
years

Total

512 $

2,984
3,496 $

155 $
143
298 $

— $
—
— $

667
3,127
3,794

As of March 31, 2020, the current portion of our unrecognized tax benefits was $0, and the long-term portion

was $613,000.

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 achievement of certain revenue
targets for products based on the MikaMonu technology. As of March 31, 2020, the accrual for potential payment of
contingent consideration was $3.9 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. On April 1, 2018, we adopted ASU No. 2014-09, "Revenue from Contracts with
Customers (Topic 606)." This standard update outlines a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers. We adopted using the modified retrospective method applied to all
at the date of initial application (i.e., April 1, 2018). Results for reporting periods after April 1, 2018 are presented
under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the
historic accounting under Topic 605.

We determine revenue recognition through the following steps: (1) identification of the contract with a

customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price;
(4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue
when, or as, we satisfy a performance obligation.

The adoption of ASC 606 was applied to all contracts and did not have a significant impact on our retained

earnings as the timing of our revenue recognition under the new standard coincides with the way we previously
recognized revenue. There was no impact on the opening retained earnings balance as of April 1, 2018 due to the
adoption of ASC 606.

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The majority of our 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 we have a right to payment. Thus, we will generally recognize revenue upon shipment of
the product.

Because all our performance obligations relate to contracts with a duration of less than one year, we elected to

apply the optional exemption practical expedient provided in ASC 606 and, therefore, are not required to disclose the
aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially
unsatisfied at the end of the reporting period.

We adjust the transaction price for variable consideration. Variable consideration is not typically significant

and primarily results from stock rotation rights and quick pay discounts provided to our distributors. As a practical
expedient, we recognize 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, we have adopted an
accounting policy to recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.

Our contracts with customers do not typically include extended payment terms. Payment terms vary by

contract type and type of customer and generally range from 30 to 60 days from shipment. Additionally, we have a
right to payment upon shipment.

We record revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with

product sales. The impact of such taxes on products sales is immaterial. We have also elected to recognize the cost for
freight and shipping when control over the products sold passes to customers and revenue is recognized.

During fiscal 2018, we revised our distribution agreements to certain 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 net realizable 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 stock rotation 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 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

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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, 2020, our net deferred tax assets of $9.4 million are subject to a valuation allowance of $9.4 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. During the
year ended March 31, 2019, we completed our assessment of the impact of H.R. 1 and recorded an immaterial
additional liability that is included in Income Taxes Payable in the Consolidated Balance Sheet as of March 31, 2019.

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 2020, 2019 and 2018, resulted in an expected term of approximately five years.
We used our historical volatility to estimate expected volatility in fiscal 2020, 2019 and 2018. 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 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.

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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, 2020, 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 2020 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 2020 annual goodwill impairment testing was reasonable, and no triggering event
has taken place subsequent to the fiscal 2020 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 2021.

Off-Balance Sheet Arrangements

At March 31, 2020, 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.

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.

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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 $70.7 million at March 31, 2020. These amounts were invested primarily in money market funds, 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 Firm
Consolidated Balance Sheets As of March 31, 2020 and 2019
Consolidated Statements of Operations For the Three Years Ended March 31, 2020,

2019 and 2018

Consolidated Statements of Comprehensive Income (Loss) For the Three Years

Ended March 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity For the Three Years Ended March

31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows For the Three Years Ended March 31, 2020,

2019 and 2018

Notes to Consolidated Financial Statements

Page

46
48

52
53

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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 sheets of GSI Technology, Inc. (the “Company”) as of March
31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period ended March 31, 2020, 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 at March 31, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, 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, 2020, 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 5, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its accounting method for
accounting for leases in fiscal year 2020 due to the adoption of Topic 842: Leases, using a modified retrospective
approach, and changed its method for recognizing revenue in fiscal year 2019 due to the adoption of Topic
606: Revenue from Contracts with Customers.

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 audits. 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 audits 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2017.

San Jose, California
June 5, 2020

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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,
2020, 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, 2020, 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 sheets of the Company as of March 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of
the three years in the period ended March 31, 2020, and the related notes and our report dated June 5, 2020 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,
Controls and Procedures. 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 5, 2020

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GSI TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

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
Operating lease right-of-use assets
Long-term investments
Goodwill
Intangible assets, net
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Lease liabilities, current
Accrued expenses and other liabilities

Total current liabilities

Income taxes payable
Lease liabilities, non-current
Contingent consideration, non-current

Total liabilities

Commitments and contingencies (Note 9)
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: 23,229,286 and 22,320,156 shares, respectively

Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

March 31,

2020

2019

(In thousands, except share and
per share amounts)

51,506
15,061
6,330
4,282
1,934
79,113
8,119
617
4,117
7,978
2,489
128
102,561

1,184
498
6,578
8,260
620
142
3,898
12,920

42,495
19,346
7,339
5,685
2,500
77,365
9,001
—
8,997
7,978
2,722
160
106,223

1,864
—
6,869
8,733
622
—
3,713
13,068

—

23
40,176
71
49,371
89,641
102,561

22
33,462
(37)
59,708
93,155
106,223

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

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GSI TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Net revenues
Cost of revenues
Gross profit
Operating expenses:

Research and development
Selling, general and administrative

Total operating expenses

Loss from operations
Interest income, net
Other expense, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net income (loss) per share:

Basic
Diluted

Weighted average shares used in per share calculations:

Basic
Diluted

2020

Year Ended March 31,
2019
(In thousands, except per share amounts)
$ 43,343 $ 51,486 $ 42,643
20,217
22,426

19,858
31,628

18,000
25,343

2018

25,223
10,922
36,145
(10,802)
783
(71)
(10,090)
247

16,998
21,355
9,899
10,455
26,897
31,810
(4,471)
(182)
421
671
(12)
(221)
(4,062)
268
105
453
163 $ (4,515)

$ (10,337) $

$
$

(0.45) $
(0.45) $

0.01 $
0.01 $

(0.21)
(0.21)

22,968
22,968

21,889
23,349

21,085
21,085

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

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GSI TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended March 31,

Net income (loss)
Net unrealized gain (loss) on available-for-sale investments
Total comprehensive income (loss)

2020

2018

2019
(In thousands)
$ (10,337) $ 163 $ (4,515)
(80)
$ (10,229) $ 268 $ (4,595)

105

108

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

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GSI TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Accumulated

Additional

Other

Total

Paid-in Comprehensive

Retained Stockholders'

Amount Capital

Income (Loss) Earnings

Equity

Common Stock
Shares

Balance, March 31, 2017
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
Issuance of common stock under
employee stock option plans
Repurchase and retirement of common
stock
Stock-based compensation expense
Net income
Net unrealized gain on available-for-sale
investments
Balance, March 31, 2019
Issuance of common stock under
employee stock option plans
Stock-based compensation expense
Net loss
Net unrealized gain on available-for-sale
investments
Balance, March 31, 2020

20,612,757 $

21 $ 21,830 $

(62) $ 64,655 $

86,444

(In thousands, except share amounts)

794,490
—
—
—

—
—
—
—

3,491
2,070
—
—

—
—
—
—

—
—
(595)
(4,515)

—
21,407,247

—
21

—
27,391

(80)
(142)

—
59,545

933,746

3,908

(20,837)
—
—

—
—
—

(103)
2,266
—

—

—
—
—

—

—
—
163

3,491
2,070
(595)
(4,515)

(80)
86,815

3,909

(103)
2,266
163

—
22,320,156

—
22

—
33,462

105
(37)

—
59,708

105
93,155

909,130
—
—

1
—
—

4,148
2,566
—

—
—
—

—
—
(10,337)

4,149
2,566
(10,337)

—

23,229,286 $

—
23 $ 40,176 $

—

108
71 $ 49,371 $

—

108
89,641

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

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GSI TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Allowance for doubtful accounts and other
Provision for excess and obsolete inventories
Non-cash lease expense
Depreciation and amortization
Stock-based compensation
Amortization of premium on investments
Changes in assets and liabilities:

Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchase of investments
Maturities of short-term investments
Decrease in MikaMonu escrow deposit
Purchases of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities:
Payment of contingent consideration
Payment of MikaMonu escrow deposit
Repurchase of common stock

Proceeds from issuance of common stock under employee stock plans

Net cash provided by financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Non-cash financing activities:

2020

Year Ended March 31,
2019
(In thousands)

2018

$ (10,337) $

163 $ (4,515)

(17)
343
611
1,434
2,566
—

1,026
1,060
(431)
(680)
(256)
(4,681)

39
1,195
—
1,454
2,266
(36)

(2,099)
(1,333)
(144)
48
1,453
3,006

(41)
1,561
—
1,255
2,070
73

1,111
2,103
117
189
(2,858)
1,065

(18,116)
27,418
1,000
(331)
9,971

(20,307)
18,173
750
(2,090)
(3,474)

(13,243)
16,140
1,234
(1,320)
2,811

—
(428)
—
4,149
3,721
9,011
42,495

—
(720)
(862)
(364)
—
(103)
3,491
3,909
2,629
2,722
6,505
2,254
33,736
40,241
$ 51,506 $ 42,495 $ 40,241

Purchases of property and equipment through accounts payable and
accruals

Supplemental cash flow information:
Net cash paid for income taxes

19 $

31 $

105

345 $

11 $

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 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. The uncertainty created by the COVID-19 global pandemic
and efforts to contain it, has made such estimates more difficult and subjective. Actual results could differ materially
from those estimates.

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Risk and uncertainties

On March 11, 2020, the World Health Organization announced that COVID-19, a respiratory illness, caused by

a novel coronavirus is a pandemic. COVID-19 has spread to many of the countries in which the Company, its
customers, suppliers and other business partners conduct business. Governments in affected regions have
implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions,
business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations
and individuals, including the Company and its employees, are taking additional steps to avoid or reduce infection,
including limiting travel and working from home. These measures are disrupting normal business operations both in
and outside of affected areas and have had significant negative impacts on businesses and financial markets
worldwide.

The Company continues to monitor its operations and government recommendations and have made

modifications to its normal operations because of the COVID-19 global pandemic. The Company has instituted many
preventative measures and is regularly evaluating those measures and others as it continues to better understand its
current and future operating environment. Except for the Company’s employees located in Taiwan, the majority of its
employees are working from home around the world, and productivity remains high. The Company has maintained a
substantial portion of its manufacturing operational capacity at its primary manufacturing support facility located in
Hsin Chu, Taiwan where the Company’s suppliers are located and where all of the Company’s products are
manufactured. Since the outbreak of COVID-19, aside from the lengthening of lead times for wafers and assembly
services, the Company has experienced minimal impact on its manufacturing operations in Taiwan. Final testing of the
Company’s products are conducted in house. Shipping and receiving operations are being maintained by a skeleton
crew with minimal impact. The Company’s revenues may be impacted by possible changes in customer buying
patterns and communication limitations related to shelter in place restrictions that require a significant number of its
customer contacts to work from home.

The disruption to the marketplace resulting from the COVID-19 global pandemic that the Company is currently
experiencing is unlike anything the Company has ever had to deal with. While the Company continues to monitor the
business metrics that it has historically used to predict its financial performance, the Company is uncertain as to
whether these metrics will operate consistently with its historical experience.

The Company believes that during the next 12 months the COVID-19 pandemic could impact general economic

activity and demand in its end markets. Although the Company cannot estimate the length or gravity of the impact of
the COVID-19 outbreak at this time, if the pandemic continues, it may have an adverse effect on the Company’s
results of operations, financial position, and liquidity in fiscal year 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The
CARES Act is an approximate $2 trillion emergency economic stimulus package passed in response to the COVID-19
global pandemic. The CARES Act includes direct financial assistance to Americans in the form of one-time payments
to individuals, aid to small businesses in the form of loans and grants and other efforts to stabilize the U.S. economy
and keep Americans employed. The Company has not filed, and currently does not intend to file, for funding related to
the CARES Act due to its strong balance sheet and liquidity position with $70.7 million in cash and cash equivalents,
short-term investments and long-term investments and no debt outstanding as of March 31, 2020. The Company
currently has no plans to defer payroll taxes, to layoff or furlough employees or to modify leases and stock
compensation plans. Also included in the CARES Act are numerous income tax provisions including changes to the
net operating loss rules which the Company believes will not have a significant impact.

The Company buys all of its SRAM wafers, an integral components of its products, from a single supplier and is

also dependent on independent suppliers to assemble and test its products. During the years ended March 31, 2020,
2019 and 2018, all of the wafers used in the Company’s SRAM products were supplied by Taiwan Semiconductor
Manufacturing Company Limited, or TSMC. If this supplier fails to satisfy the Company’s

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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 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, typhoon 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. 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 implemented ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and

several supplemental and/or clarifying ASUs (collectively, "ASC 606") in fiscal 2019. The Company recognizes
revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those goods or services. Under this criteria,
revenue from the sale of products is generally recognized upon shipment according to the Company’s shipping terms,
net of accruals for estimated variable consideration resulting from 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. Prior to implementation of ASC
606, sales to certain distributors were 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
were fixed and determinable on the date of shipment and revenue was recognized upon shipment. Additionally, 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.

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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 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 receivables 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, 2020, 2019 or 2018.

At March 31, 2020, three customers accounted for 33%, 20% and 19% of accounts receivable, and for the year

then ended, four customers accounted for 34%, 17%, 15% and 15% of net revenues. At March 31, 2019, three
customers accounted for 44%, 22% and 17% of accounts receivable, and for the year then ended, four customers
accounted for 31%, 22%, 18% and 15% of net revenues. For the year ended March 31, 2018, four customers
accounted for 35%, 16%, 16% 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 $343,000, $1.2 million and $1.6

million, respectively, in fiscal 2020, 2019 and 2018.

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
Computer and other equipment
Building and building improvements
Furniture and fixtures

3 to 5 years
5 to 10 years
10 to 25 years
7 years

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

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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, 2020, 2019 or 2018.

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 years ended March 31, 2020 and 2019, the
Company has recorded a tax provision reflecting substantially a full valuation allowance of its $9.4 million and $6.7
million of net deferred tax assets at March 31, 2020 and 2019, 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

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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.

Advertising expense

Advertising costs are charged to expense in the period incurred. Advertising expense was not material for the

years ended March 31, 2020, 2019 and 2018.

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,
2020, 2019 or 2018.

Segments

Segment reporting is based on the “management approach,” following the method that management organizes

the Company’s reportable segments for which separate financial information is made available to, and evaluated
regularly by, the chief operating decision maker in allocating resources and in assessing performance. The Company’s
chief operating decision maker is its Chief Executive Officer (CEO), who makes the decision on allocating resources
and in assessing performance. The CEO reviews the Company's consolidated results as one operating segment. In
making operating decisions, the CEO primarily considers consolidated financial information, accompanied by
disaggregated information about revenues by customers and product. All of the Company’s principal operations and
decision-making functions are located in the U.S. The Company’s CEO views its operations, manages its business, and
uses one measurement of profitability for the one operating segment, which designs, develops and sells 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 2020, 2019 and 2018 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.

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Comprehensive income (loss)

Comprehensive income (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, 2020, 2019
and 2018, comprehensive income (loss) was ($10.2) million, $268,000 and ($4.6) 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.

Recent accounting pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” as part of its initiative to reduce complexity in the
accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation,
the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for
outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes.
The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2020. Early adoption is 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 August 2018, FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure

Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The standard amends the
disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding
certain disclosures. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted. The Company is currently evaluating how it will be impacted by
Topic 820, but does not anticipate that the adoption of this guidance will have a material impact on its consolidated
financial statements and related disclosures.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and
Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or
superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity
for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity
presented in the balance sheet must be provided in a note or separate statement. The analysis should present a
reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive
income is required to be filed. The Company’s first presentation of changes in stockholders' equity was included in the
Form 10-Q for the quarter ended June 30, 2019.

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.

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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
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, 2022, 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 and related disclosures.

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. In July 2018, the FASB issued ASU 2018-
11, "Leases (Topic 842): Targeted Improvements," which provides clarifications and improvements to ASU 2016-02
including allowing entities to elect an additional transition method, a modified retrospective approach, that permits
changes to be applied by means of a cumulative-effect adjustment recorded in retained earnings as of the beginning of
the fiscal year of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of
adoption would continue to be in accordance with Leases (Topic 840) ("ASC 840"), including the disclosure
requirements of ASC 840. The Company adopted Topic 842 as of April 1, 2019 and applied the modified retrospective
approach to all leases existing at, or entered into on or after, the date of adoption of April 1, 2019.

The Company did not restate comparative periods, as permitted by ASU 2018-11, and elected the package of
practical expedients permitted under the transition guidance within the new standard and did not reassess whether any
contracts that existed prior to adoption have or contain leases or the classification of existing leases. Further, the
Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance
sheet. The Company will recognize those lease payments in the Consolidated Statements of Operations on a straight-
line basis over the lease term.

As a result of adoption of this standard and election of the transition practical expedients, the Company

recognized right-of-use (“ROU”) assets and lease liabilities for those leases classified as operating leases under ASC
Topic 840 that continued to be classified as operating leases under ASC Topic 842 at the date of initial
application. The Company does not have any leases classified as a capital lease under ASC 840 and therefore has no
leases classified as a “finance lease” under the new standard.

In applying the alternative modified retrospective transition method, the Company measured lease liabilities

at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present
value of lease liabilities has been measured using the Company’s incremental borrowing rates as of April 1, 2019 (the
date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial
measurement of applicable lease liabilities adjusted for any prepaid or accrued rent.

Upon adoption of Topic 842, the Company recognized ROU assets of approximately $1.1 million and lease
liabilities of approximately $1.1 million on the Company’s Condensed Consolidated Balance Sheets as of April 1,
2019, with no material impact to its Condensed Consolidated Statements of Operations.

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NOTE 2 —REVENUE RECOGNITION

Upon adoption of ASC 606 in fiscal 2019, the Company determines revenue recognition through the following

steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the
contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance
obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.

The adoption of ASC 606 was applied to all contracts and 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. There was no impact on the opening retained earnings balance as of April 1,
2018 due to the adoption of ASC 606.

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.

Because all of the Company’s performance obligations relate to contracts with a duration of less than one year,
the Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not
required to disclose the aggregate amount of the transaction price allocated to performance obligations that are
unsatisfied or partially unsatisfied at the end of the reporting period.

The Company adjusts the transaction price for variable consideration. Variable consideration is not typically
significant and primarily results from stock rotation rights and quick pay discounts 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 has adopted an accounting policy to recognize shipping costs that occur after control transfers to the
customer as a fulfillment activity.

The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary

by contract type and type of customer and generally range from 30 to 60 days from shipment. Additionally, the
Company has right to payment upon shipment.

The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent

with product sales. The impact of such taxes on products sales is immaterial. The Company has also elected to
recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is
recognized.

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

estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of revenues.
Warranty costs and the accrued warranty liability were not material as of March 31, 2020.

The majority of the Company’s revenue is derived from sales of SRAM products which represent approximately

98% of total revenues in the year ended March 31, 2020.

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

manufacturers and distributors. Based on information provided to the Company by its contract manufacturers and
distributors, purchases by Nokia represented approximately 38%, 45% and 36% of the Company’s net revenues in
fiscal 2020, 2019 and 2018, respectively.

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The Company historically deferred recognition of revenue on shipments to its distributors under prior revenue

guidance 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 new revenue guidance did not have a
significant impact on the Company’s consolidated financial statements. See “Note 13 - Segment and Geographic
Information” for revenue by shipment destination.

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

Contract manufacturers
Distribution
OEMs

2018

2020

Year Ended March 31,
2019
(In thousands)
$ 14,603 $ 21,281 $ 14,875
26,635
28,807
1,133
1,398
$ 43,343 $ 51,486 $ 42,643

26,555
2,185

NOTE 3—NET INCOME (LOSS) PER COMMON SHARE

The Company uses the treasury stock method to calculate the weighted average shares used in computing

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

Net income (loss)

Denominators:
Weighted average shares—Basic
Dilutive effect of employee stock options
Dilutive effect of employee stock purchase plan options
Weighted average shares—Dilutive
Net income (loss) per common share—Basic
Net income (loss) per common share—Diluted

2020

Year Ended March 31,
2019
(In thousands, except per share amounts)
163 $ (4,515)

$ (10,337) $

2018

22,968
—
—
22,968

21,889
1,453
7
23,349

$
$

(0.45) $
(0.45) $

0.01 $
0.01 $

21,085
—
—
21,085
(0.21)
(0.21)

The following shares of common stock (determined on a weighted average basis) were excluded from the

computation of diluted net income (loss) per common share as they had an anti-dilutive effect:

Year Ended March 31,

Shares underlying options and ESPP shares

2020

2019
(In thousands)
2,108

2018

2,790

3,914

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NOTE 4—BALANCE SHEET DETAIL

Inventories:

Work-in-progress
Finished goods
Inventory at distributors

Accounts receivable, net:
Accounts receivable
Less: Allowances for doubtful accounts and other

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:

Computer and other equipment
Software
Land
Building and building improvements
Furniture and fixtures
Leasehold improvements

Less: Accumulated depreciation

March 31,

2020

2019

(In thousands)

1,650 $ 1,983
3,690
2,612
12
20
4,282 $ 5,685

March 31,

2020

2019

(In thousands)

6,415 $ 7,441
(102)
6,330 $ 7,339

(85)

March 31,

2020

2019

(In thousands)

707 $
79
—
211
937

535
39
1,000
321
605
1,934 $ 2,500

March 31,

2020

2019

(In thousands)

$ 18,191 $ 19,086
4,058
3,900
3,718
102
848
31,712
(22,711)
9,001

4,086
3,900
3,735
102
874
30,888
(22,769)

8,119 $

Depreciation expense was $1.2 million, $1.2 million and $934,000 for the years ended March 31, 2020, 2019

and 2018, respectively.

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Other assets:

Non-current deferred income taxes
Deposits

March 31,

2020

2019

(In thousands)

— $
128
128 $

35
125
160

The following table summarizes the components of intangible assets and related accumulated amortization

balances at March 31, 2020 and 2019, respectively (in thousands):

Intangible assets:
Product designs
Patents
Software
Total

As of March 31, 2020

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

590 $

4,220
80

$ 4,890 $

(590) $

(1,731)
(80)
(2,401) $

—
2,489
—
2,489

As of March 31, 2019

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

590 $

4,220
80

$ 4,890 $

(590) $

(1,498)
(80)
(2,168) $

—
2,722
—
2,722

Amortization of intangible assets of $233,000, $267,000 and $313,000 was included in cost of revenues for the

years ended March 31, 2020, 2019 and 2018, respectively.

As of March 31, 2020, the estimated future amortization expense of intangible assets in the table above is as

follows (in thousands):

Fiscal year ending March 31,
2021
2022
2023
2024
2025
Thereafter
Total

233
233
233
233
233
1,324
2,489

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Accrued expenses and other liabilities:

Accrued compensation
Purchased intellectual property
Accrued professional fees
Accrued commissions
Contingent consideration
Accrued retention payment
Miscellaneous accrued expenses

NOTE 5—GOODWILL

March 31,

2020

2019

(In thousands)

3,673 $ 4,659
—
1,621
60
—
304
270
492
—
—
415
939
1,014
6,578 $ 6,869

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, 2020 and 2019. 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 2020 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 2020 annual goodwill impairment testing was
reasonable, and no triggering event has taken place subsequent to the fiscal 2020 annual assessment.

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NOTE 6—INCOME TAXES

Income (loss) before income taxes and the provision for income taxes consists of the following:

2020

Year Ended March 31,
2019
(In thousands)

2018

Income (loss) before income taxes:

U.S.
Foreign

Current income tax expense (benefit):

U.S. federal
Foreign
State

Deferred income tax expense (benefit):

U.S. federal
Foreign
State

Provision for income taxes

$ (8,574) $ (5,487) $ (3,654)
(408)
268 $ (4,062)

$ (10,090) $

5,755

(1,516)

(39) $
274
1
236

12
—
(1)
11
247 $

(28) $
121
1
94

13
—
(2)
11
105 $

367
153
1
521

(90)
22
—
(68)
453

The provision 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:

2020

Year Ended March 31,
2019
(In thousands)

2018

U.S. Federal taxes at statutory rate
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

Valuation allowance

$ (2,120) $

—
—
—
(58)
(494)
593
(16)
38
(2,057)
2,304

247 $

56 $ (1,282)
—
(2)
5,117
—
1,093
—
(124)
(124)
(417)
(536)
390
117
(8)
(4)
97
17
4,866
(476)
(4,413)
581
453
105 $

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Deferred tax assets and deferred tax liabilities consist of the following:

Deferred tax assets:

Tax credits
Net operating losses
Stock-based compensation
Property and equipment
Other reserves and accruals

Total deferred tax assets
Less valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Unrecognized gains

Total deferred tax liabilities
Net deferred tax asset (liability)

March 31,

2020

2019

(In thousands)

$ 5,512 $ 4,819
113
891
138
776
6,737
(6,700)
37

1,245
950
731
976
9,414
(9,389)
25

(32)
(32)
(7) $

(2)
(2)
35

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, 2020 and 2019 was $613,000

and $622,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2020 and 2019, $2.7
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, 2020, the Company’s net deferred tax assets of $9.4 million are subject to a valuation
allowance of $9.4 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:

Unrecognized tax benefits, beginning of period
Additions based on tax positions related to current year
Additions based on tax positions related to prior years
2017 Tax Act and tax rate re-measurement
Reductions based on tax positions related to prior years
Lapses during the current year applicable to statutes of limitations
Unrecognized tax benefits, end of period

2020

2018

Year Ended March 31,
2019
(In thousands)
$ 3,102 $ 2,735 $ 2,714
520
—
(499)
—
—
$ 3,321 $ 3,102 $ 2,735

394
—
—
(158)
(17)

371
13
—
(17)
—

The unrecognized tax benefit balance as of March 31, 2020 of $582,000 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 estimate, the Company
must record a provisional estimate in the financial statements. If the Company cannot

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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 calculated our best estimate of the impact of H.R. 1 in the fiscal 2018 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 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. Pursuant to Staff Accounting
Bulletin No. 118, adjustments to the provisional amounts recorded by the Company 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. During the year ended March 31, 2019,
the Company completed its assessment of the impact of H.R. 1 and recorded an immaterial additional liability that is
included in Income Taxes Payable in the Consolidated Balance Sheet as of March 31, 2019.

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. The Company has elected to treat GILTI book-tax differences as a period cost. In addition, the
Company has elected to use the incremental cash tax savings approach (with and without method) in determining its
U.S. valuation allowance.

At March 31, 2020, due to the Company’s valuation allowance in the United States, there was no net income tax

effect related to GILTI in the Company’s fiscal year ended March 31, 2020.

Management believes that within the next twelve months the Company will have no material 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 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

$5.3 and $1.9 million, respectively, at March 31, 2020. The Company's state tax net operating loss carryforwards
expire beginning in 2034.

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The Company's federal and state tax credit carryforwards for income tax purposes are approximately $2.6
million and $3.7 million respectively, at March 31, 2020. 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, 2020, the Company maintained a valuation allowance of $9.4 million for deferred tax assets that are not expected
to be utilized in future years. Fiscal years 2013 through 2020 remain open to examination by the federal tax authorities
and fiscal years 2012 through 2020 remain open to examination by the state of California. Fiscal years 2016 and 2017
are currently being audited by the Israeli tax authorities.

NOTE 7—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, 2020, the Level 1 category included money market funds of
$14.1 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, 2020, the Level 2 category included
short-term investments of $15.1 million and long term-investments of $4.1 million, which were primarily comprised of
certificates of deposit 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, 2020, 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 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. The contingent consideration liability is included in contingent consideration, non-current
on the Consolidated Balance Sheet at March 31, 2020 and 2019 in the amount of $3.9 million and $3.7 million,
respectively, and is included in accrued expenses and other liabilities at March 31, 2020 and 2019 in the amount of $0
and $492,000, respectively.

Refer to Note 14, “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)

Observable Unobservable

Significant
Other

Inputs
(Level 3)

Inputs
(Level 2)

Significant

March 31, 2020

Assets:
Money market funds
Marketable securities
Total

Liabilities:
Contingent consideration

Assets:
Money market funds
Marketable securities
Total

Liabilities:
Contingent consideration

14,117 $
19,178
33,295 $

14,117
—
14,117

—
19,178
19,178

—
—
—

3,898 $

—

3,898

Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
and Liabilities
(Level 1)

Observable Unobservable

Significant
Other

Inputs
(Level 3)

Inputs
(Level 2)

Significant

March 31, 2019

4,090 $
28,343
32,433 $

4,090
—
4,090

—
28,343
28,343

—
—
—

4,206 $

—

4,206

The following table sets forth the changes in fair value of contingent consideration for the fiscal years ended

March 31, 2020, 2019 and 2018, respectively:

Contingent consideration, beginning of period
Change due to accretion
Re-measurement of contingent consideration
Payment of contingent consideration
Contingent consideration, end of period

Short-term and long-term investments

2020

Year Ended March 31,

2019

(In thousands)

2018

4,206 $
112
80
(500)
3,898 $

5,514 $
147
(326)
(1,129)
4,206 $

6,200
158
(466)
(378)
5,514

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 had money market funds of $14.1 million and $4.1 million at March 31,
2020 and March 31, 2019, respectively, included in cash and cash equivalents on the Consolidated Balance

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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, 2020

Gross

Unrealized Unrealized
Gains

Losses

Fair
Value

Cost

Short-term investments:
Certificates of deposit
Agency bonds

Total short-term investments
Long-term investments:
Certificates of deposit
Agency bonds
Supranational obligations
Total long-term investments

Short-term investments:
Certificates of deposit
Supranational obligations
Total short-term investments
Long-term investments:
Certificates of deposit
Agency bonds

Total long-term investments

(In thousands)

$ 12,000 $

2,989
$ 14,989 $

745 $

2,029
1,270
$ 4,044 $

52
21
73 $

18 $
42
13
73 $

(1) $ 12,051
3,010
(1) $ 15,061

763
— $
2,071
—
—
1,283
— $ 4,117

March 31, 2019

Gross

Unrealized Unrealized
Gains

Losses

Fair
Value

Cost

(In thousands)

$ 16,500 $

2,867
$ 19,367 $

$ 6,000 $

2,968
$ 8,968 $

4 $

—
4 $

23 $
11
34 $

(24) $ 16,480
(1)
2,866
(25) $ 19,346

(4) $ 6,019
2,978
(1)
(5) $ 8,997

The following table shows the gross unrealized losses and fair value of the Company’s investments with
unrealized losses aggregated by investment category and length of time that individual securities have been in a
continuous loss position as of March 31, 2020 and 2019, respectively.

Less Than 12 Months
Fair
Value

Unrealized
Loss

March 31, 2020

12 Months or Greater

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Certificates of deposit

$
$

2,498 $
2,498 $

(In thousands)
— $
— $

— $
— $

2,498 $
2,498 $

(2)
(2)

(2) $
(2) $

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Certificates of deposit
Supranational obligations
Agency bonds

Less Than 12 Months
Fair
Value

Unrealized
Loss

March 31, 2019

12 Months or Greater

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

2,998 $
2,866
1,501
7,365 $

(In thousands)

(2) $
(1)
(1)
(4) $

7,974 $
—
—
7,974 $

(26) $ 10,972 $
—
—
(26) $ 15,339 $

2,866
1,501

(28)
(1)
(1)
(30)

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, 2020 and 2019, the deferred tax liability related to unrecognized gains and losses on short-term

and long-term investments was ($30,000) and ($2,000), respectively.

As of March 31, 2020, contractual maturities of the Company’s available-for-sale investments were as follows:

Maturing within one year
Maturing in one to three years

NOTE 8—LEASES

Cost

Fair
Value

(In thousands)
$ 14,989 $ 15,061
4,117
$ 19,033 $ 19,178

4,044

The Company has operating leases for corporate offices, research and development facilities, certain
equipment and software. The Company’s leases have remaining lease terms of 5 months to 25 months, some of which
include options to extend for up to 5 years.

Supplemental balance sheet information related to leases was as follows:

Operating Leases
Operating lease right-of-use assets

Lease liabilities-current
Lease liabilities-non-current
Total operating lease liabilities

As of
March 31, 2020
(In thousands)

617

498
142
640

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The following table provides the details of lease costs:

Operating lease cost
Short-term lease cost

The following table provides other information related to leases:

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases

Right-of-use assets obtained in exchange for lease obligations
Operating leases

Weighted-average remaining lease term (years):
Operating leases

Weighted-average discount rate:
Operating leases

Twelve months ended
March 31, 2020

(In thousands)

647
29
676

Twelve months ended
March 31, 2020
(Amounts in thousands)

655

1,228

1.3

6.46%

The following table provides the maturities of the Company’s operating lease liabilities as of March 31, 2020:

Fiscal Year
2021
2022
2023
Total undiscounted future cash flows
Less: Imputed interest
Present value of undiscounted future cash flows

Presentation on statement of financial position
Current
Non-current

Operating Lease
Liabilities
(In thousands)

512
148
7
667
(27)
640

498
142

$
$

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The following table provides the future minimum lease payments under noncancelable operating leases with

lease terms in excess of one year at March 31, 2019 in accordance with ASC 840:

Fiscal Year Ending March 31,

2020
2021
2022
2023
Total

Operating
Leases
(In thousands)
477
$
338
83
7
905

Rent expense for the years ended March 31, 2019 and 2018 was $566,000 and $527,000, respectively, under

Topic 840.

NOTE 9—COMMITMENTS AND CONTINGENCIES

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, 2020, 2019 and 2018 was $35,000, $34,000 and $46,000,
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.

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

NOTE 10—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.

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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 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, 2020, including the shares purchased in the modified “Dutch
Auction” self-tender offer, the Company has repurchased and retired a total of 12,004,779 shares at an average cost of
$5.06 per share for a total cost of $60.7 million. At March 31, 2020, management was authorized to repurchase
additional shares with a value of up to $4.3 million under the repurchase program.

NOTE 11—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

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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.

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:

(cid:0) No more than 300,000 shares subject to stock options and stock appreciation rights.

(cid:0) No more than 100,000 shares subject to restricted stock and restricted stock unit awards.

(cid:0)

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.

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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 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 that 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. During fiscal 2020, 136,463 shares of common stock were issued under the 2007 Purchase Plan.

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:

Weighted

Balance at March 31, 2017

Granted
Exercised
Forfeited

Balance at March 31, 2018

Granted
Exercised
Forfeited

Balance at March 31, 2019

Granted
Exercised
Forfeited

Balance at March 31, 2020
Options vested and exercisable
Options vested and expected to vest

Shares
Available for
Grant
5,464,185
(1,029,684)
—
9,800
4,444,301
(1,097,893)
—
80,140
3,426,548
(1,011,708)
—
107,474
2,522,314

Number of Shares
Underlying
Options

Outstanding

Average Weighted
Remaining Average
Contractual Exercise
Life (Years) Price

Intrinsic
Value

7,622,830
1,029,684
(678,897)
(99,350)
7,874,267
1,097,893
(823,456)
(131,675)
8,017,029
1,011,708
(772,667)
(120,279)
8,135,791
5,138,027
8,056,574

$ 5.09
$ 7.28
$ 4.22 $ 2,460,812
$ 5.06
$ 5.45
$ 6.74
$ 4.00 $ 2,782,691
$ 5.60
$ 5.77
$ 8.11
$ 4.39 $ 2,614,879
$ 7.03
5.47 $ 6.17
3.90 $ 5.68 $ 4,830,618
5.44 $ 6.16 $ 5,581,363

The options outstanding and by exercise price at March 31, 2020 are as follows:

Exercise Price
-
-
-
-
-
-
-

4.81
4.99
5.59
6.16
6.70
7.26
8.06

$ 3.40
$ 4.90
$ 5.13
$ 5.69
$ 6.24
$ 6.82
$ 7.40
$ 8.09
$ 8.30
$ 9.20

Number of
Shares
Underlying
Options
Outstanding

Weighted
Average
Exercise
Price

Options Outstanding

Options Exercisable

Weighted Average
Remaining
Contractual
Life (Years)

Number

Vested and

Exercisable

Weighted
Average
Exercise
Price

910,273 $
1,336,396 $
926,921 $
825,827 $
1,399,575 $
1,296,755 $
628,211 $
85,360 $
617,893 $
108,580 $
8,135,791 $

4.07
4.97
5.32
5.92
6.58
7.05
7.77
8.09
8.30
9.20
6.17

4.08
5.15
4.39
4.45
5.11
5.30
8.99
7.69
9.33
0.84
5.47

910,273 $
897,047 $
891,696 $
644,888 $
784,655 $
721,208 $
136,376 $
43,304 $
- $
108,580 $
5,138,027 $

4.07
4.96
5.32
5.90
6.49
6.93
7.59
8.09
-
9.20
5.68

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Stock-based compensation

The Company recognized $2.6 million, $2.3 million and $2.1 million of stock-based compensation expense for

the years ended March 31, 2020, 2019 and 2018, respectively, as follows:

Cost of revenues
Research and development
Selling, general and administrative
Total

2020

Year Ended March 31,
2019
(In thousands)

2018

257 $

1,487
822
2,566 $

234 $

1,310
722
2,266 $

259
1,141
670
2,070

Stock-based compensation expense in the years ended March 31, 2020, 2019 and 2018 included
$220,000, $211,000 and $207,000, respectively, related to the Company’s Employee Stock Purchase Plan.

No tax benefit was recognized in either fiscal 2020 or fiscal 2019 due to a full valuation allowance. There were
no windfall tax benefits realized from exercised stock options recognized in fiscal 2020 or fiscal 2019. Compensation
cost capitalized within inventory at March 31, 2020 and 2019 was not material. As of March 31, 2020, the Company’s
total unrecognized compensation cost was $4.8 million, which will be recognized over the weighted average period of
1.90 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

2020

Year Ended March 31,
2019

2018

1.35 - 2.30 % 2.53 - 2.91 % 1.84 - 2.49 %

5.00

36.5 - 39.7 % 35.6 - 37.3 % 35.5 - 36.5 %
— %

— %

1.58 - 2.43 % 2.09 - 2.50 % 1.04 - 1.42 %

0.50

33.5 - 43.1 % 32.6 - 37.7 % 38.8 - 51.1 %
— %

— %

The weighted average fair value of options granted during the years ended March 31, 2020, 2019 and 2018 was

$2.86, $2.44 and $2.54, respectively.

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NOTE 12—RELATED PARTY TRANSACTION

The Company incurred non-recurring engineering service expense and manufacturing services of
approximately $357,000 during the fiscal ended March 31, 2020 from Wistron Neweb Corp (“WNC”) in connection
with the design, development and delivery of prototypes of a 167mm single-APU PCIe board, and LEDA-G
production boards, to be used in the Company’s in-place associative computing product. Haydn Hsieh, a member of
the Company’s board of directors, is the Chairman and Chief Strategy Officer of WNC.

NOTE 13—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:

United States
China
Singapore
Netherlands
Germany
Rest of the world

2018

2020

Year Ended March 31,
2019
(In thousands)
$ 17,505 $ 19,327 $ 20,690
5,520
6,878
4,375
3,769
1,411
$ 43,343 $ 51,486 $ 42,643

4,458
7,592
11,093
7,478
1,538

6,079
6,556
5,463
6,604
1,136

All sales are denominated in United States dollars.

The locations and net book value of long-lived assets are as follows:

United States
Taiwan
Israel

NOTE 14—ACQUISITION

March 31,

2020

2019

(In thousands)
$ 7,340 $ 7,707
854
440
$ 8,119 $ 9,001

369
410

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 specialized 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 had 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.

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Consideration

Under the terms of the acquisition agreement, the Company paid the former MikaMonu shareholders initial cash
consideration of approximately $4.9 million. 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 made cash retention payments of $2.5 million to the three former MikaMonu shareholders in

installments over a four-year period, that were conditioned on the continued employment of Dr. Avidan Akerib,
MikaMonu’s co-founder and chief technologist. The retention amount of $2.5 million was deposited in escrow. Of this
amount, $743,000, $750,000 and $1.0 million was paid to the former MikaMonu shareholders during the quarters
ended December 31, 2017, 2018 and 2019, respectively. The Company is not required to make any further retention
payments.

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 were paid in the fiscal year ended March 31, 2020 based on the achievement
of certain product development milestones. Additional earnout amounts of $2.8 million and $4.0 million 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 $30.0 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) was
recorded as compensation expense over the period that his services were provided to the Company. The portion of the
retention payment made 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 contingent consideration, non-current on the Consolidated Balance Sheet at March 31, 2020 and
2019 in the amount of $3.9 million and $3.7 million, respectively, and is included in accrued expenses and other
liabilities at March 31, 2020 and 2019 in the amount of $0 and $492,000, respectively.

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 resulted in an increase (reduction) in fair value for the years ended March 31, 2020, 2019 and
2018 of $80,000, ($326,000) and ($466,000), respectively.

NOTE 15—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.

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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 6% of eligible
compensation, and the Company contributes up to 15.83% of eligible compensation. All contributions are fully vested.

NOTE 16 —QUARTERLY FINANCIAL DATA (Unaudited)

Consolidated Statement of Operations Data:
Net revenues
Gross profit
Net loss
Net loss per common share—Basic
Net loss per common share—Diluted

Consolidated Statement of Operations Data:
Net revenues
Gross profit
Net income (loss)
Net income (loss) per common share—Basic
Net income (loss) per common share—Diluted

Three Months Ended

June 30,

September 30, December 31, March 31,

2019

2020

(In thousands, except per share amounts)

$ 13,019 $
$ 8,243 $
$
(125) $
$ (0.01) $
$ (0.01) $

11,740 $
6,568 $
(1,768) $
(0.08) $
(0.08) $

10,049 $ 8,535
6,049 $ 4,483
(4,620) $ (3,824)
(0.20) $ (0.16)
(0.20) $ (0.16)

Three Months Ended

June 30,

September 30, December 31, March 31,

2018

2019

(In thousands, except per share amounts)

$ 11,266 $
$ 5,788 $
$ (1,646) $
$ (0.08) $
$ (0.08) $

12,832 $
8,031 $
(351) $
(0.02) $
(0.02) $

14,702 $ 12,686
10,039 $ 7,770
(102)
2,262 $
—
0.10 $
—
0.10 $

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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, 2020, 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, 2020 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

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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
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, 2020. 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, 2020.

The effectiveness of the Company’s internal control over financial reporting as of March 31, 2020 has been

audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears
on page 47 of this Annual Report on Form 10-K.

Item 9B. Other Information

Not applicable.

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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 2020 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” and “Corporate Governance” 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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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Form:

Financial Statements

Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets As of March 31, 2020 and 2019
Consolidated Statements of Operations For the Three Years Ended March 31,

2020, 2019 and 2018

Consolidated Statements of Comprehensive Income (Loss) For the Three

Years Ended March 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity For the Three Years Ended

March 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows For the Three Years Ended March

31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements

Page

46
48

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.

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3. Exhibits:

The following exhibits are filed herewith:

Exhibit
Number
3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

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)

Description of Registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of

1934
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) 2007 Equity Incentive Plan, as amended (Incorporated by reference to Appendix A to Registrant’s

definitive Proxy Statement filed on July 21,2011)

(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)

(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)

(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)

(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)

(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)
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)

(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)

(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)

(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)
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)

(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)

(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)

(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)
(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)
(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)

Table of Contents

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

21.1
23.1
24.1

31.1

31.2

32.1

(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)
(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)

(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)

(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)

(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)

(1) GSI Technology, Inc. 2020 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to

Registrant’s Current Report on Form 8-K filed on June 12, 2019)

(1) GSI Technology, Inc. 2021 Variable Compensation Plan (Incorporated by reference to Exhibit 10.1 to

Registrant’s Current Report on Form 8-K filed on June 4, 2020)
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm – BDO USA, 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.

Item 16. Form 10-K Summary

Not applicable.

Table of Contents

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 5, 2020

GSI TECHNOLOGY, INC.

/s/ DOUGLAS M. SCHIRLE
Douglas M. Schirle

Chief Financial Officer

By:

Table of Contents

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

Date

/s/ LEE-LEAN SHU

Lee-Lean Shu

President, Chief Executive Officer and Chairman

June 5, 2020

(Principal Executive Officer)

/s/ DOUGLAS M. SCHIRLE
Douglas M. Schirle

Chief Financial Officer
(Principal Financial and Accounting Officer)

June 5, 2020

/s/ ROBERT YAU
Robert Yau

/s/ JACK A. BRADLEY
Jack A. Bradley

/s/ ELIZABETH CHOLAWSKY

Elizabeth Cholawsky

/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 5, 2020

Director

June 5, 2020

June 5 2020

June 5, 2020

Exhibit 4.1

DESCRIPTION OF REGISTRANT'S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

GSI Technology, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended

(the “Exchange Act”), our Common Stock, $0.001 par value per share (“Common Stock”).

The following is a summary of the material terms of our Common Stock and does not purport to be complete. It is subject to and
qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and
our Amended and Restated Bylaws (the “Bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on
Form 10-K of which this Exhibit 4.1 is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable
provisions of the Delaware General Corporation Law, for additional information.

Authorized Capital Stock

Our authorized capital stock consists of 150,000,000 shares of Common Stock, and 5,000,000 shares of undesignated preferred

stock, $0.001 par value per share. The outstanding shares of Common Stock are fully paid and nonassessable.

Common Stock

The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of

stockholders. Holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences applicable to any outstanding preferred stock, holders of common stock are entitled
to receive ratably any dividends declared by our Board of Directors. In the event of a liquidation, dissolution or winding-up of the
Company, holders of Common Stock are entitled to share ratably in the assets remaining after payment of liabilities and the liquidation
preferences of any outstanding preferred stock. Holders of Common Stock have no preemptive, conversion or redemption rights.

Preferred Stock

Our Board of Directors has the authority, without further action by our stockholders, to designate and issue up to 5,000,000 shares

of preferred stock in one or more series. In addition, the Board may fix the rights, preferences and privileges of any preferred stock it
determines to issue. Any or all of these rights may be superior to the rights of the Common Stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change in control of the Company or to make removal of management more difficult.
Additionally, the issuance of preferred stock may dilute the voting power and decrease the market price of the Common Stock, and
reduce the likelihood that the holders of Common Stock will receive payments in the event of a liquidation, dissolution or winding-up of
the Company.

Registration Rights

None of our stockholders has any registration rights.

Antitakeover Provisions

Delaware Law

We are subject to Section 203 of the Delaware General Corporation Law regulating corporate takeovers, which prohibits a

Delaware corporation from engaging in any business combination with an "interested stockholder," unless:

(cid:0) prior to the date of the transaction, the Board of Directors of the corporation approved either the business combination

or the transaction, which resulted in the stockholder becoming an interested stockholder;

(cid:0) the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the

transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by
persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in
a tender or exchange offer; or

(cid:0) on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at
an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 /3% of
the outstanding voting stock which is not owned by the interested stockholder.

Except as otherwise specified in Section 203, an "interested stockholder" is defined to include:

(cid:0) any person that is the owner of 15% or more of the outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at
any time within three years immediately prior to the date of determination and

(cid:0) the affiliates and associates of any such person.

(cid:0) Certificate of Incorporation and Bylaws

Our Certificate of Incorporation and Bylaws provide that:

(cid:0) no action can be taken by stockholders except at an annual or special meeting of the stockholders called in accordance

with the Bylaws, and stockholders may not act by written consent;

(cid:0) the approval of holders of two-thirds of the shares entitled to vote at an election of directors will be required to adopt,
amend or repeal the Bylaws or amend or repeal the provisions of the Certificate of Incorporation regarding the election
and removal of directors and the ability of stockholders to take action;

(cid:0) our Board of Directors will be expressly authorized to make, alter or repeal our Bylaws;

(cid:0) our Board of Directors will be authorized to issue preferred stock without stockholder approval;

(cid:0) directors may only be removed for cause by the holders of two-thirds of the shares entitled to vote at an election of

directors; and

(cid:0) we will indemnify officers and directors against losses that may incur as a result of investigations and legal

proceedings resulting from their services to us, which may include services in connection with takeover defense
measures.

These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of

delaying or preventing a change in control of the Company.

Transfer Agent and Registrar

The transfer agent and registrar for the Common Stock is Computershare Limited.

Nasdaq Global Market Listing

Our Common Stock is listed on the Nasdaq Global Market under the symbol “GSIT”.

Exhibit 21.1

GSI TECHNOLOGY, INC. SUBSIDIARIES

GSI Technology Holdings, Inc., a Cayman Islands company

GSI Technology (BVI), Inc., a British Virgin Islands company

GSI Technology Taiwan, Inc., a Republic of China company

GSI Technology Israel Ltd., an Israeli company

Consent of Independent Registered Public Accounting Firm

Exhibit 23.1

GSI Technology, Inc.
Sunnyvale, California

We hereby consent to the incorporation by reference in the Registration Statements on Forms S 8 (Nos. 333-
144140 and 333-219798) of GSI Technology, Inc. of our reports dated June 5, 2020, relating to the consolidated
financial statements and the effectiveness of GSI Technology, Inc.’s internal control over financial reporting,
which appear in this Form 10-K.

/s/ BDO USA, LLP
San Jose, California
June 5, 2020

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lee-Lean Shu, certify that:

I have reviewed this annual report on Form 10-K of GSI Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a

material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over

financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that

occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal

control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting, which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

June 5, 2020

/s/ LEE-LEAN SHU
Lee-Lean Shu
President and Chief Executive Officer

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas M. Schirle, certify that:

I have reviewed this annual report on Form 10-K of GSI Technology, Inc.;

Exhibit 31.2