10-Q 1 gsit-20150930x10q.htm 10-Q gsit_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

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

 

77-0398779

(State or other jurisdiction of incorporation or organization)

 

(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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No  

 

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

 

 

 

 

Large accelerated filer  

 

Accelerated filer  

 

 

 

Non-accelerated filer  

 

Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

 

The number of shares of the registrant’s common stock outstanding as of October 31, 2015: 22,633,465

 

 

 


 

 

GSI TECHNOLOGY, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

 

 

 

 

 

Page

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1. 

Financial Statements

 

Condensed Consolidated Balance Sheets

 

Condensed Consolidated Statements of Operations

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

Condensed Consolidated Statements of Cash Flows

 

Notes to Condensed Consolidated Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

24 

Item 4. 

Controls and Procedures

24 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

25 

Item 1A. 

Risk Factors

26 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

40 

Item 6. 

Exhibits

41 

Signatures 

42 

Exhibit Index 

43 

 

 

1


 

 

PART I — FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

March 31,

 

 

2015

  

2015

 

 

 

 

 

 

 

 

 

(In thousands, except share

 

 

and per share amounts)

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

   

$

39,421

    

$

36,776

Short-term investments

 

 

20,929

 

 

22,201

Accounts receivable, net

 

 

6,151

 

 

8,257

Inventories

 

 

8,636

 

 

8,412

Prepaid expenses and other current assets

 

 

2,431

 

 

2,297

Total current assets

 

 

77,568

 

 

77,943

Property and equipment, net

 

 

8,164

 

 

8,708

Long-term investments

 

 

17,541

 

 

21,740

Other assets

 

 

434

 

 

498

Total assets

 

$

103,707

 

$

108,889

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

3,739

 

$

2,961

Accrued expenses and other liabilities

 

 

3,725

 

 

5,937

Deferred revenue

 

 

1,855

 

 

2,815

Total current liabilities

 

 

9,319

 

 

11,713

Income taxes payable

 

 

798

 

 

780

Total liabilities

 

 

10,117

 

 

12,493

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued and outstanding: none

 

 

 

 

Common Stock: $0.001 par value authorized: 150,000,000 shares; issued and outstanding: 22,683,866 and 23,128,372 shares, respectively

 

 

23

 

 

23

Additional paid-in capital

 

 

27,882

 

 

29,407

Accumulated other comprehensive income

 

 

9

 

 

26

Retained earnings

 

 

65,676

 

 

66,940

Total stockholders’ equity

 

 

93,590

 

 

96,396

Total liabilities and stockholders’ equity

 

$

103,707

 

$

108,889

 

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

2


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

   

$

13,577

    

$

13,263

    

$

27,602

    

$

26,208

Cost of revenues

 

 

6,660

 

 

7,202

 

 

13,390

 

 

14,208

Gross profit

 

 

6,917

 

 

6,061

 

 

14,212

 

 

12,000

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,940

 

 

2,946

 

 

5,938

 

 

6,019

Selling, general and administrative

 

 

4,274

 

 

4,156

 

 

9,579

 

 

8,491

Total operating expenses

 

 

7,214

 

 

7,102

 

 

15,517

 

 

14,510

Loss from operations

 

 

(297)

 

 

(1,041)

 

 

(1,305)

 

 

(2,510)

Interest income, net

 

 

71

 

 

78

 

 

151

 

 

174

Other income (expense), net

 

 

(92)

 

 

34

 

 

(56)

 

 

9

Loss before income taxes

 

 

(318)

 

 

(929)

 

 

(1,210)

 

 

(2,327)

Provision for income taxes

 

 

29

 

 

21

 

 

54

 

 

69

Net loss

 

$

(347)

 

$

(950)

 

$

(1,264)

 

$

(2,396)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02)

 

$

(0.04)

 

$

(0.06)

 

$

(0.09)

Diluted

 

$

(0.02)

 

$

(0.04)

 

$

(0.06)

 

$

(0.09)

Weighted average shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,676

 

 

25,540

 

 

22,809

 

 

26,512

Diluted

 

 

22,676

 

 

25,540

 

 

22,809

 

 

26,512

 

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

3


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

   

$

(347)

    

$

(950)

    

$

(1,264)

    

$

(2,396)

Net unrealized loss on available-for-sale investments, net of tax

 

 

(12)

 

 

(40)

 

 

(17)

 

 

(36)

Total comprehensive loss

 

$

(359)

 

$

(990)

 

$

(1,281)

 

$

(2,432)

 

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

4


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

   

$

(1,264)

    

$

(2,396)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Allowance for sales returns, doubtful accounts and other

 

 

(3)

 

 

(5)

Provision for excess and obsolete inventories

 

 

659

 

 

622

Depreciation and amortization

 

 

651

 

 

931

Stock-based compensation

 

 

973

 

 

1,144

Amortization of bond premium on investments

 

 

145

 

 

340

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,109

 

 

413

Inventory

 

 

(883)

 

 

(1,677)

Prepaid expenses and other assets

 

 

(152)

 

 

(334)

Accounts payable

 

 

784

 

 

(1,146)

Accrued expenses and other liabilities

 

 

(2,194)

 

 

(175)

Deferred revenue

 

 

(960)

 

 

577

Net cash used in operating activities

 

 

(135)

 

 

(1,706)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of investments

 

 

(9,026)

 

 

(4,000)

Sales and maturities of short-term investments

 

 

14,335

 

 

24,873

Purchases of property and equipment

 

 

(31)

 

 

(160)

Net cash provided by investing activities

 

 

5,278

 

 

20,713

Cash flows from financing activities:

 

 

 

 

 

 

Repurchase of common stock

 

 

(3,074)

 

 

(26,430)

Proceeds from issuance of common stock under employee stock plans

 

 

576

 

 

663

Net cash used in financing activities

 

 

(2,498)

 

 

(25,767)

Net increase (decrease) in cash and cash equivalents

 

 

2,645

 

 

(6,760)

Cash and cash equivalents at beginning of the period

 

 

36,776

 

 

41,520

Cash and cash equivalents at end of the period

 

$

39,421

 

$

34,760

Non-cash financing activities:

 

 

 

 

 

 

Purchases of property and equipment through accounts payable and accruals

 

$

 —

 

$

5

Supplemental cash flow information:

 

 

 

 

 

 

Net cash paid (received) for income taxes

 

$

(97)

 

$

52

 

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

5


 

 

GSI TECHNOLOGY, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of GSI Technology, Inc. and its subsidiaries (“GSI” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.  Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for annual financial statements.  These interim financial statements contain all adjustments (which consist of only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the interim financial information included therein.  The Company believes that the disclosures are adequate to make the information not misleading.  However, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

 

The consolidated results of operations for the three months and six months ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

Significant accounting policies

 

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

 

Litigation and settlement costs

 

From time to time, the Company is involved in legal actions.  See Note 6 for information regarding litigation that was resolved during the six months ended September 30, 2015. 

 

6


 

Recent accounting pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, "Simplifying the Measurement of Inventory". This standard update intends to simplify the subsequent measurement of inventory, excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The update replaces the current lower of cost or market test with a lower of cost and net realizable value test. Under the current guidance, market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The update is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

In August 2014, the FASB issued new guidance related to the Company’s responsibility to evaluate whether there is substantial doubt about its ability to continue ongoing business operations and to provide relevant footnote disclosures. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The new accounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. ASU No. 2014-09 provides for one of two methods of transition: retrospective application to each prior period presented; or, recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.  

 

NOTE 2—NET LOSS PER COMMON SHARE

 

The Company uses the treasury stock method to calculate the weighted average shares used in computing diluted net loss per share. The following table sets forth the computation of basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

   

$

(347)

    

$

(950)

    

$

(1,264)

    

$

(2,396)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares—Basic

 

 

22,676

 

 

25,540

 

 

22,809

 

 

26,512

Dilutive effect of employee stock options

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Weighted average shares—Dilutive

 

 

22,676

 

 

25,540

 

 

22,809

 

 

26,512

Net loss per common share—Basic

 

$

(0.02)

 

$

(0.04)

 

$

(0.06)

 

 

(0.09)

Net loss per common share—Diluted

 

$

(0.02)

 

$

(0.04)

 

$

(0.06)

 

 

(0.09)

 

7


 

The following shares of common stock underlying outstanding stock options, determined on a weighted average basis, were excluded from the computation of diluted net loss per share as they had an anti-dilutive effect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Shares underlying options

   

5,317

    

3,503

    

5,067

    

3,375

 

 

8


 

NOTE 3—BALANCE SHEET DETAIL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

 

 

 

 

 

 

 

(In thousands)

Inventories:

 

 

 

 

 

 

Work-in-progress

   

$

2,333

    

$

2,422

Finished goods

 

 

5,919

 

 

5,362

Inventory at distributors

 

 

384

 

 

628

 

 

$

8,636

 

$

8,412

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

(In thousands)

Accounts receivable, net:

 

 

 

 

 

 

Accounts receivable

   

$

6,251

    

$

8,360

 Less: Allowances for sales returns, doubtful accounts and other

 

 

(100)

 

 

(103)

 

 

$

6,151

 

$

8,257

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

(In thousands)

Prepaid expenses and other current assets:

 

 

 

 

 

 

Prepaid tooling and masks

 

$

1,557

 

$

1,208

Prepaid income taxes

 

 

 —

 

 

139

Other receivables

 

 

270

 

 

350

Other prepaid expenses

 

 

604

 

 

600

 

 

$

2,431

 

$

2,297

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

(In thousands)

Property and equipment, net:

 

 

 

 

 

 

Computer and other equipment

 

$

17,288

 

$

17,264

Software

 

 

4,792

 

 

4,792

Land

 

 

3,900

 

 

3,900

Building and building improvements

 

 

2,256

 

 

2,256

Furniture and fixtures

 

 

110

 

 

110

Leasehold improvements

 

 

791

 

 

791

 

 

 

29,137

 

 

29,113

Less: Accumulated depreciation and amortization

 

 

(20,973)

 

 

(20,405)

 

 

$

8,164

 

$

8,708

 

Depreciation and amortization expense was $277,000 and $377,000, respectively, for the three months ended September 30, 2015 and 2014 and $569,000 and $842,000, respectively, for the six months ended September 30, 2015 and 2014.

9


 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

(In thousands)

Other assets:

 

 

 

 

 

 

Non-current deferred income taxes

 

$

48

 

$

27

Intangibles, net

 

 

311

 

 

393

Deposits

 

 

75

 

 

78

 

 

$

434

 

$

498

 

The following table summarizes the components of intangible assets and related accumulated amortization balances at September 30, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

Intangible assets:

 

 

 

 

 

 

 

 

 

Product designs

 

$

590

 

$

512

 

$

78

Patents

 

 

720

 

 

487

 

 

233

Software

 

 

80

 

 

80

 

 

 —

Total

 

$

1,390

 

$

1,079

 

$

311

 

Amortization of intangible assets included in cost of revenues was $41,000 and $44,000, respectively, for the three months ended September 30, 2015 and 2014 and $82,000 and $89,000, respectively, for the six months ended September 30, 2015 and 2014.

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

March 31, 2015

 

 

(In thousands)

Accrued expenses and other liabilities:

 

 

 

 

 

 

Accrued compensation

 

$

2,452

 

$

3,386

Accrued professional fees

 

 

100

 

 

1,380

Accrued commissions

 

 

283

 

 

268

Other accrued expenses

 

 

890

 

 

903

 

 

$

3,725

 

$

5,937

 

 

 

 

 

NOTE 4—INCOME TAXES

 

The current portion of the Company’s unrecognized tax benefits was $0 at both September 30, 2015 and March 31, 2015. The long-term portion at September 30, 2015 and March 31, 2015 was $798,000 and $780,000, respectively, of which the timing of the resolution is uncertain.  As of September 30, 2015,  $1,359,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets.  As of September 30, 2015 and March 31, 2015,  the Company’s net deferred tax assets of $6.5 million and $6.0 million, respectively, were subject to a full valuation allowance. 

 

Management believes that it is reasonably possible that within the next twelve months the Company could have a reduction in uncertain tax benefits of up to $729,000, including interest and penalties, related to positions taken with respect to credits and loss carryforwards on previously filed tax returns.

 

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the Condensed Consolidated Statements of Operations.

 

10


 

The Company is subject to taxation in the United States and various state and foreign jurisdictions.  Fiscal years 2012 through 2015 remain open to examination by federal tax authorities, and fiscal years 2011 through 2015 remain open to examination by California tax authorities.

 

The Company’s estimated annual effective income tax rate was approximately 3.5% and 4.5% as of September 30, 2015 and 2014, respectively. The annual effective tax rate as of September 30, 2015 and 2014 varies from the United States statutory income tax rate primarily due to valuation allowances in the United States whereby pre-tax losses do not result in the recognition of corresponding income tax benefits and expenses and the foreign tax differential.

 

NOTE 5—FINANCIAL INSTRUMENTS

 

Fair value measurements

 

Authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosures.  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 September 30, 2015, the Level 1 category included money market funds of $5.1 million, which were included in cash and cash equivalents on the Condensed 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 September 30, 2015, the Level 2 category included short-term investments of $20.9 million and long-term investments of $17.5 million, which were comprised of certificates of deposit, corporate debt securities and government and agency securities.

 

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.  As of September 30, 2015, the Company had no Level 3 financial assets.

 

As of September 30, 2015, there were no liabilities measured at fair value on a recurring basis.

11


 

 

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

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

 

 

September 30, 2015

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

5,096

 

$

5,096

 

$

 —

 

$

 —

Marketable securities

 

 

38,470

 

 

 —

 

 

38,470

 

 

 —

Total

 

$

43,566

 

$

5,096

 

$

38,470

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets and Liabilities

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

 

 

March 31, 2015

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,409

 

$

4,409

 

$

 —

 

$

 —

Marketable securities

 

 

43,941

 

 

 —

 

 

43,941

 

 

 —

Total

 

$

48,350

 

$

4,409

 

$

43,941

 

$

 —

 

Short-term and long-term 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 in the Condensed Consolidated Balance Sheets.   The Company had money market funds of $5.1 million and $4.4 million at September 30, 2015 and March 31, 2015, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.  The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

 

 

12


 

The following table summarizes the Company’s available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

(In thousands)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

1,032

 

$

4

 

$

 —

 

$

1,036

Corporate notes

 

 

6,940

 

 

1

 

 

(3)

 

 

6,938

Certificates of deposit

 

 

8,250

 

 

8

 

 

 —

 

 

8,258

Foreign government obligations

 

 

2,690

 

 

2

 

 

 —

 

 

2,692

Agency bonds

 

 

2,003

 

 

2

 

 

 —

 

 

2,005

Total short-term investments

 

$

20,915

 

$

17

 

$

(3)

 

$

20,929

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

2,784

 

$

 —

 

$

(8)

 

$

2,776

Certificates of deposit

 

 

12,750

 

 

14

 

 

(7)

 

 

12,757

Agency bonds

 

 

2,002

 

 

6

 

 

 —

 

 

2,008

Total long-term investments

 

$

17,536

 

$

20

 

$

(15)

 

$

17,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

(In thousands)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

6,810

 

$

 —

 

$

 —

 

$

6,810

Corporate notes

 

 

7,366

 

 

10

 

 

 —

 

 

7,376

Agency bonds

 

 

1,006

 

 

 —

 

 

 —

 

 

1,006

Certificates of deposit

 

 

7,000

 

 

9

 

 

 —

 

 

7,009

Total short-term investments

 

$

22,182

 

$

19

 

$

 —

 

$

22,201

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

1,053

 

$

4

 

$

 —

 

$

1,057

Corporate notes

 

 

4,232

 

 

 —

 

 

(10)

 

 

4,222

Certificates of deposit

 

 

9,750

 

 

24

 

 

(1)

 

 

9,773

Agency bonds

 

 

4,003

 

 

4

 

 

(2)

 

 

4,005

Foreign government obligations

 

 

2,684

 

 

 —

 

 

(1)

 

 

2,683

Total long-term investments

 

$

21,722

 

$

32

 

$

(14)

 

$

21,740

 

The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains 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.

 

The deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was $6,000 at September 30, 2015 and $11,000 at March 31, 2015.

 

13


 

As of September 30, 2015, contractual maturities of the Company’s available-for-sale investments were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

 

 

 

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

 

(In thousands)

Maturing within one year

 

 

 

 

 

 

 

$

20,915

 

$

20,929

Maturing in one to three years

 

 

 

 

 

 

 

 

17,536

 

 

17,541

Maturing in more than three years

 

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

$

38,451

 

$

38,470

 

The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.

 

NOTE 6—COMMITMENTS AND CONTINGENCIES

 

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 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, the Company’s indemnification obligations are 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 that may be required 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.

 

Product warranties

 

The Company warrants its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of revenues. Warranty costs were not material for the three months or six months ended September 30, 2015 or 2014.

 

Legal proceedings

 

In March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against the Company in the United States District Court for the District of Minnesota alleging that the Company’s products, including its SigmaDDR and SigmaQuad families of Very Fast SRAMs, infringe five patents held by Cypress.  The complaint sought unspecified damages for past infringement and a permanent injunction against future infringement.

 

On June 10, 2011, Cypress filed a complaint against the Company with the United States International Trade Commission (the “ITC”).  The ITC complaint, as subsequently amended, alleged infringement by the Company of three of the five patents involved in the District Court case and one additional patent and also alleged infringement by three of the Company’s distributors and 11 of its customers who allegedly incorporate the Company’s SRAMs in their products.  The ITC complaint sought a limited exclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the United States and permanent orders directing the Company and the other respondents to cease and desist from selling or distributing such products in the United States.  On July 21, 2011, the ITC formally instituted an investigation in response to Cypress’s complaint.   On

14


 

June 7, 2013, the ITC announced that the full Commission had affirmed the determination of Chief Administrative Judge Charles E. Bullock that GSI’s SRAM devices, and products containing them, do not infringe the Cypress patents and that Cypress had failed to establish existence of a domestic industry that practices the patents.  Moreover, the Commission reversed a portion of Judge Bullock’s determination with respect to the validity of the patents, finding the asserted claims of one of the patents to have been anticipated by prior art and, therefore, invalid.  The Commission ordered the investigation terminated, and Cypress did not appeal the ruling.

 

The Minnesota District Court case had been stayed pending the conclusion of the ITC proceeding. Following the termination of the ITC investigation, the stay was lifted.  On May 1, 2013, Cypress filed an additional lawsuit in the United States District Court for the Northern District of California alleging infringement by our products of five additional Cypress patents.  Like the Minnesota case, the complaint in the California lawsuit sought unspecified damages for past infringement and a permanent injunction against future infringement.  The Company filed answers in both cases denying liability and asserting affirmative defenses.  On August 7, 2013, the parties stipulated that the claims in the Minnesota case with respect to three of the asserted patents would be dismissed without prejudice and that the claims with respect to the remaining two patents would be transferred to, and consolidated with, the California case.  On August 20, 2013, the Court in the California case ordered the cases consolidated.

 

The Company did not record any loss contingency during fiscal 2013, fiscal 2014 or fiscal 2015 in connection with these legal proceedings as the Company was unable to predict their outcome and could not estimate the likelihood or potential dollar amount of any adverse results.

 

On May 6, 2015, the Company and Cypress entered into a settlement agreement to resolve the patent infringement litigation and a separate lawsuit pending in the United States District Court for the Northern District of California in which the Company alleged that Cypress had violated federal and state antitrust laws.  Under the settlement agreement: 

·

Each of the parties agreed to dismiss its lawsuit with prejudice in consideration of the dismissal with prejudice of the lawsuit brought by the other party; and

 

·

Each party agreed to release all claims against the other with respect to issues raised in the two lawsuits. 

The parties agreed that the settlement agreement was entered into to resolve disputed claims, and that each party denies any liability to the other party.

 

NOTE 7—STOCK-BASED COMPENSATION

 

As of September 30, 2015, 6,833,823 shares of common stock were available for grant under the Company’s 2007 Equity Incentive Plan.

 

The following table summarizes the Company’s stock option activities for the six months ended September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Average

 

Weighted

 

 

 

 

 

Shares

 

Underlying

 

Remaining

 

Average

 

 

 

 

 

Available for

 

Options

 

Contractual

 

Exercise

 

Intrinsic

 

 

Grant

 

Outstanding

 

Life (Years)

 

Price

 

Value

Balance at March 31, 2015

 

6,213,943

 

6,774,151

 

 

 

$

5.16

 

 

 

Options reserved

 

1,156,419

 

 —

 

 

 

 

 —

 

 

 

Granted

 

(546,403)

 

546,403

 

 

 

 

5.01

 

 

 

Exercised

 

 —

 

(73,745)

 

 

 

 

4.24

 

$

42,743

Forfeited/expired

 

9,864

 

(19,864)

 

 

 

 

4.64

 

 

 

Balance at September 30, 2015

 

6,833,823

 

7,226,945

 

 

 

$

5.16

 

 

 

Options vested and exercisable

 

 

 

4,856,795

 

3.99

 

$

5.04

 

$

875,022

Options vested and expected to vest

 

 

 

7,176,400

 

5.40

 

$

5.16

 

$

875,022

15


 

 

The weighted average fair value per underlying share of options granted during the three months ended September 30, 2015 and 2014 was $1.72 and $2.14, respectively and for the six months ended September 30, 2015 and 2014 was $1.74 and $2.16, respectively.

 

Options outstanding by exercise price at September 30, 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

Shares

 

Weighted

 

Weighted Average

 

 

 

Weighted

 

 

 

 

 

Underlying

 

Average

 

Remaining

 

Number

 

Average

 

 

 

 

 

Options

 

Exercise

 

Contractual

 

Vested and

 

Exercise

Exercise Price

 

Outstanding

 

Price

 

Life (Years)

 

Exercisable

 

Price

$

2.43

-

3.43

 

895,584

 

$

3.18

 

3.35

 

895,584

 

$

3.18

$

3.75

-

4.00

 

812,779

 

$

3.96

 

3.46

 

812,779

 

$

3.96

$

4.17

-

4.81

 

836,528

 

$

4.42

 

5.81

 

449,647

 

$

4.41

$

4.90

-

4.98

 

793,963

 

$

4.95

 

8.46

 

237,507

 

$

4.90

$

5.13

-

5.34

 

625,513

 

$

5.23

 

8.99

 

29,528

 

$

5.23

$

5.50

 

 

 

783,433

 

$

5.50

 

1.13

 

783,433

 

$

5.50

$

5.59

-

6.00

 

901,930

 

$

5.77

 

5.78

 

532,248

 

$

5.81

$

6.28

-

6.63

 

812,219

 

$

6.48

 

6.62

 

603,780

 

$

6.46

$

6.82

-

7.00

 

651,376

 

$

6.90

 

6.31

 

398,669

 

$

6.92

$

9.20

 

 

 

113,620

 

$

9.20

 

5.33

 

113,620

 

$

9.20

 

 

 

 

 

7,226,945

 

$

5.16

 

5.42

 

4,856,795

 

$

5.04

 

The following table summarizes stock-based compensation expense by line item in the Condensed Consolidated Statements of Operations, all relating to employee stock plans: