gsit_Current folio_10Q

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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 June 30, 2019

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)

 

 

 

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

 

 

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 Exchange Act.

 

 

 

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 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 July 31, 2019: 22,908,243

 

 

 

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GSI TECHNOLOGY, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

 

 

 

 

 

Page

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1. 

Financial Statements

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2. 

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

21

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4. 

Controls and Procedures

26

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1A. 

Risk Factors

27

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6. 

Exhibits

42

Signatures 

43

 

 

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PART I — FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

 

 

2019

  

2019

    

 

 

(In thousands, except share
and per share amounts)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

   

$

46,435

    

$

42,495

 

Short-term investments

 

 

18,282

 

 

19,346

 

Accounts receivable, net

 

 

7,375

 

 

7,339

 

Inventories

 

 

5,463

 

 

5,685

 

Prepaid expenses and other current assets

 

 

3,009

 

 

2,500

 

Total current assets

 

 

80,564

 

 

77,365

 

Property and equipment, net

 

 

8,726

 

 

9,001

 

Operating lease right-of-use assets

 

 

910

 

 

 —

 

Long-term investments

 

 

7,264

 

 

8,997

 

Goodwill

 

 

7,978

 

 

7,978

 

Intangible assets, net

 

 

2,664

 

 

2,722

 

Other assets

 

 

160

 

 

160

 

Total assets

 

$

108,266

 

$

106,223

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Accounts payable

 

$

1,676

 

$

1,864

 

Lease liabilities, current

 

 

559

 

 

 —

 

Accrued expenses and other liabilities

 

 

5,205

 

 

6,869

 

Total current liabilities

 

 

7,440

 

 

8,733

 

Income taxes payable

 

 

624

 

 

622

 

Lease liabilities, non-current

 

 

380

 

 

 —

 

Contingent consideration, non-current

 

 

3,740

 

 

3,713

 

Total liabilities

 

 

12,184

 

 

13,068

 

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: 22,898,188 and 22,320,156 shares, respectively

 

 

23

 

 

22

 

Additional paid-in capital

 

 

36,462

 

 

33,462

 

Accumulated other comprehensive income (loss)

 

 

14

 

 

(37)

 

Retained earnings

 

 

59,583

 

 

59,708

 

Total stockholders’ equity

 

 

96,082

 

 

93,155

 

Total liabilities and stockholders’ equity

 

$

108,266

 

$

106,223

 

 

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

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GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands, except per share amounts)

 

Net revenues

    

$

13,019

    

$

11,266

 

Cost of revenues

 

 

4,776

 

 

5,478

 

Gross profit

 

 

8,243

 

 

5,788

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

5,595

 

 

4,850

 

Selling, general and administrative

 

 

2,877

 

 

2,597

 

Total operating expenses

 

 

8,472

 

 

7,447

 

Loss from operations

 

 

(229)

 

 

(1,659)

 

Interest income, net

 

 

205

 

 

138

 

Other expense, net

 

 

(58)

 

 

(115)

 

Loss before income taxes

 

 

(82)

 

 

(1,636)

 

Provision for income taxes

 

 

43

 

 

10

 

Net loss

 

$

(125)

 

$

(1,646)

 

Net loss per share:

 

 

 

 

 

 

 

Basic

 

$

(0.01)

 

$

(0.08)

 

Diluted

 

$

(0.01)

 

$

(0.08)

 

Weighted average shares used in per share calculations:

 

 

 

 

 

 

 

Basic

 

 

22,605

 

 

21,567

 

Diluted

 

 

22,605

 

 

21,567

 

 

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

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GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands)

 

Net loss

    

$

(125)

    

$

(1,646)

 

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

 

 

51

 

 

(10)

 

Total comprehensive loss

 

$

(74)

 

$

(1,656)

 

 

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

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GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Retained

 

Stockholders'

 

 

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Earnings

    

Equity

 

 

 

(In thousands, except share amounts)

 

Balance, March 31, 2019

 

22,320,156

 

$

22

 

$

33,462

 

$

(37)

 

$

59,708

 

$

93,155

 

Issuance of common stock under employee stock option plans

 

578,032

 

 

 1

 

 

2,349

 

 

 —

 

 

 —

 

 

2,350

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

651

 

 

 —

 

 

 —

 

 

651

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(125)

 

 

(125)

 

Net unrealized gain on available-for-sale investments

 

 —

 

 

 —

 

 

 —

 

 

51

 

 

 —

 

 

51

 

Balance, June 30, 2019

 

22,898,188

 

$

23

 

$

36,462

 

$

14

 

$

59,583

 

$

96,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

 

21,407,247

 

$

21

 

$

27,391

 

$

(142)

 

$

59,545

 

$

86,815

 

Issuance of common stock under employee stock option plans

 

352,847

 

 

 1

 

 

1,502

 

 

 —

 

 

 —

 

 

1,503

 

Repurchase and retirement of common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

542

 

 

 —

 

 

 —

 

 

542

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,646)

 

 

(1,646)

 

Net unrealized loss on available-for-sale investments

 

 —

 

 

 —

 

 

 —

 

 

(10)

 

 

 —

 

 

(10)

 

Balance, June 30, 2018

 

21,760,094

 

$

22

 

$

29,435

 

$

(152)

 

$

57,899

 

$

87,204

 

 

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

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GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

   

$

(125)

    

$

(1,646)

 

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

 

 

 

 

 

 

 

Allowance for doubtful accounts and other

 

 

(9)

 

 

28

 

Provision for excess and obsolete inventories

 

 

89

 

 

678

 

Non-cash lease expense

 

 

172

 

 

 —

 

Depreciation and amortization

 

 

365

 

 

329

 

Stock-based compensation

 

 

651

 

 

542

 

Amortization of discount on investments

 

 

(8)

 

 

(2)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(27)

 

 

(1,596)

 

Inventory

 

 

133

 

 

(272)

 

Prepaid expenses and other assets

 

 

(523)

 

 

(28)

 

Accounts payable

 

 

(190)

 

 

202

 

Accrued expenses and other liabilities

 

 

(1,775)

 

 

(266)

 

Net cash used in operating activities

 

 

(1,247)

 

 

(2,031)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of investments

 

 

(1,990)

 

 

(8,848)

 

Maturities of short-term investments

 

 

4,860

 

 

6,800

 

Purchases of property and equipment

 

 

(33)

 

 

(1,239)

 

Net cash provided by (used in) investing activities

 

 

2,837

 

 

(3,287)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock plans

 

 

2,350

 

 

1,503

 

Net cash provided by financing activities

 

 

2,350

 

 

1,503

 

Net increase (decrease) in cash and cash equivalents

 

 

3,940

 

 

(3,815)

 

Cash and cash equivalents at beginning of the period

 

 

42,495

 

 

40,241

 

Cash and cash equivalents at end of the period

 

$

46,435

 

$

36,426

 

Non-cash financing activities:

 

 

 

 

 

 

 

Purchases of property and equipment through accounts payable and
accruals

 

 

30

 

 

277

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Net cash paid for income taxes

 

$

111

 

$

41

 

 

 

 

 

 

 

 

 

 

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

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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, 2019.

 

The consolidated results of operations for the three months ended June 30, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

Significant accounting policies

 

Except for the accounting policy for leases, which was updated as a result of adopting a new accounting standard related to leases, there have been no material changes to our significant accounting policies that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

 

See “Recent accounting pronouncements” below for additional information on the impact of the adoption of the new accounting standard for leases on the Company’s consolidated financial statements.

 

Recent accounting pronouncements

In August 2018, the Financial Accounting Standards Board (“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 does not anticipate the adoption of this guidance to 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 is included in this 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

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should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted.  The Company does not anticipate the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

In 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, 2019, including interim periods within those fiscal years, with early adoption permitted beginning April 1, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

 

In 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, which among other things, allows the Company to carry forward the historical lease classification. 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

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 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 has 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 certain 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 June 30, 2019.

 

The majority of the Company’s revenue is derived from sales of SRAM products which represent approximately 99% of total revenues in the three months ended June 30, 2019.

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 46% of the Company’s net revenues in the three months ended June 30, 2019.

See “Note 11 - Segment and Geographic Information” for revenue by shipment destination.

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands)

 

Contract manufacturers

   

$

3,477

   

$

4,927

 

Distribution

 

 

9,256

 

 

6,101

 

OEMs

 

 

286

 

 

238

 

 

 

$

13,019

 

$

11,266

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 3—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 income  loss per share:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands, except per share amounts)

 

Net loss

    

$

(125)

    

$

(1,646)

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

Weighted average shares—Basic

 

 

22,605

 

 

21,567

 

Dilutive effect of employee stock options

 

 

 —

 

 

 —

 

Dilutive effect of employee stock purchase plan options

 

 

 —

 

 

 —

 

Weighted average shares—Dilutive

 

 

22,605

 

 

21,567

 

Net loss per common share—Basic

 

$

(0.01)

 

$

(0.08)

 

Net loss per common share—Diluted

 

$

(0.01)

 

$

(0.08)

 

 

 

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 June 30,

 

 

 

2019

 

2018

    

 

 

(In thousands)

 

Shares underlying options and ESPP shares

 

3,624

 

3,044

 

 

 

 

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NOTE 4—BALANCE SHEET DETAIL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Inventories:

 

 

 

Work-in-progress

   

$

1,853

    

$

1,983

 

Finished goods

 

 

3,604

 

 

3,690

 

Inventory at distributors

 

 

 6

 

 

12

 

 

 

$

5,463

 

$

5,685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Accounts receivable, net:

 

 

 

 

 

 

 

Accounts receivable

   

$

7,468

    

$

7,441

 

Less: Allowances for doubtful accounts and other

 

 

(93)

 

 

(102)

 

 

 

$

7,375

 

$

7,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

 

Prepaid tooling and masks

 

$

880

 

$

535

 

Prepaid income taxes

 

 

51

 

 

39

 

Escrow deposit

 

 

1,000

 

 

1,000

 

Other receivables

 

 

341

 

 

321

 

Other prepaid expenses and other current assets

 

 

737

 

 

605

 

 

 

$

3,009

 

$

2,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Property and equipment, net:

 

 

 

 

 

 

 

Computer and other equipment

 

$

19,117

 

$

19,086

 

Software

 

 

4,058

 

 

4,058

 

Land

 

 

3,900

 

 

3,900

 

Building and building improvements

 

 

3,718

 

 

3,718

 

Furniture and fixtures

 

 

102

 

 

102

 

Leasehold improvements

 

 

848

 

 

848

 

 

 

 

31,743

 

 

31,712

 

Less: Accumulated depreciation

 

 

(23,017)

 

 

(22,711)

 

 

 

$

8,726

 

$

9,001

 

 

Depreciation expense was $306,000 and $251,000 for the three months ended June 30, 2019 and 2018, respectively.

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June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Other assets:

 

 

 

 

 

 

 

Non-current deferred income taxes

 

 

34

 

 

35

 

Deposits

 

 

126

 

 

125

 

 

 

$

160

 

$

160

 

 

The following tables summarize the components of intangible assets and related accumulated amortization balances at June 30, 2019 and March 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

 

    

Gross
Carrying
Amount

    

Accumulated
amortization

    

Net Carrying
Amount

 

Intangible assets:

 

 

 

    

 

 

    

 

 

 

Product designs

 

$

590

 

$

(590)

 

$

 —

 

Patents

 

 

4,220

 

 

(1,556)

 

 

2,664

 

Software

 

 

80

 

 

(80)

 

 

 —

 

Total

 

$

4,890

 

$

(2,226)

 

$

2,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

 

    

Gross
Carrying
Amount

    

Accumulated
Amortization

    

Net Carrying
Amount

 

Intangible assets:

 

 

 

 

 

 

 

 

 

 

Product designs

 

$

590

 

$

(590)

 

$

 —

 

Patents

 

 

4,220

 

 

(1,498)

 

 

2,722

 

Software

 

 

80

 

 

(80)

 

 

 —

 

Total

 

$

4,890

 

$

(2,168)

 

$

2,722

 

 

 

Amortization of intangible assets included in cost of revenues was $58,000 and $78,000 for the three months ended June 30, 2019 and 2018, respectively.

 

As of June 30, 2019, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):

 

 

 

 

 

Fiscal year ending March 31,

 

 

2020 (9 months remaining)

 

$

175

2021

 

 

233

2022

 

 

233

2023

 

 

233

2024

 

 

233

Thereafter

 

 

1,557

Total

 

$

2,664

 

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June 30, 2019

 

March 31, 2019

    

 

 

(In thousands)

 

Accrued expenses and other liabilities:

 

 

 

 

 

 

 

Accrued compensation

 

$

3,090

 

$

4,659

 

Accrued professional fees

 

 

45

 

 

60

 

Accrued commissions

 

 

384

 

 

304

 

Contingent consideration

 

 

495

 

 

492

 

Accrued retention payment

 

 

446

 

 

415

 

Miscellaneous accrued expenses

 

 

745

 

 

939

 

 

 

$

5,205

 

$

6,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 5—GOODWILL

Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. The Company tests for goodwill impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. The Company has one reporting unit. The Company assesses goodwill for impairment on an annual basis on the last day of February in the fourth quarter of its fiscal year.

The Company had a goodwill balance of $8.0 million as of both March 31, 2019 and June 30, 2019. The goodwill resulted from the acquisition of MikaMonu Group Ltd. in fiscal 2016.

 

The Company utilized a two-step quantitative analysis to complete its annual impairment test during the fourth quarter of fiscal 2019 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. No triggering event took place subsequent to the fiscal 2019 annual assessment that necessitated a quantitative impairment analysis for the Company’s one reporting unit.

 

 

 

 

NOTE 6—INCOME TAXES

 

The current portion of the Company’s unrecognized tax benefits was $0 at both June 30, 2019 and March 31, 2019. The long-term portion at June 30, 2019 and March 31, 2019 was $624,000 and $622,000, respectively, of which the timing of the resolution is uncertain.  As of June 30, 2019, $2.6 million of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets.  As of June 30, 2019, the Company’s net deferred tax assets of $7.4 million were subject to a valuation allowance of $7.4 million. As of March 31, 2019, the Company’s net deferred tax assets of $6.7 million were subject to a valuation allowance of $6.7 million.

 

Management believes that within the next twelve months the Company will not have a significant reduction in uncertain tax benefits, 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.

 

The Company is subject to taxation in the United States and various state and foreign jurisdictions.  Fiscal years 2013 through 2019 remain open to examination by federal tax authorities, and fiscal years 2012 through 2019 remain open to examination by California tax authorities.

 

The Company’s estimated annual effective income tax rate was approximately (8.7%) and (4.8%) as of June 30, 2019 and 2018, respectively. The annual effective tax rates as of June 30, 2019 and 2018 vary from the United States statutory income tax rate primarily due to valuation allowances in the United States, whereby pre-tax

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losses do not result in the recognition of corresponding income tax benefits and expenses, the foreign tax differential, and the impact of recent tax reform.

 

NOTE 7—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 June 30, 2019, the Level 1 category included money market funds of $8.1 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 June 30, 2019, the Level 2 category included short-term investments $18.3 million and long-term investments of $7.3 million, which were comprised of certificates of deposit, 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 June 30, 2019, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu. The fair value of the contingent consideration liability 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 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 Condensed Consolidated Statements of Operations. The contingent consideration liability is included in contingent consideration, long-term on the Consolidated Balance Sheet at June 30, 2019 and March 31, 2019 in the amount of $3.7 million and $3.7 million, respectively, and is included in accrued expenses and other liabilities at June 30, 2019 and March 31, 2019 in the amount of $495,000 and $492,000, respectively.

 

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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

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

 

Identical Assets

 

Observable

 

Unobservable

 

 

 

 

 

 

and Liabilities

 

Inputs

 

Inputs

 

 

    

June 30, 2019

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

8,107

 

$

8,107

 

$

 —

 

$

 —

 

Marketable securities

 

 

25,546

 

 

 —

 

 

25,546

 

 

 —

 

Total

 

$

33,653

 

$

8,107

 

$

25,546

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

4,235

 

$

 —

 

$

 —

 

$

4,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

 

Identical Assets

 

Observable

 

Unobservable

 

 

 

 

 

 

and Liabilities

 

Inputs

 

Inputs

 

 

    

March 31, 2019

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,090

 

$

4,090

 

$

 —

 

$

 —

 

Marketable securities

 

 

28,343

 

 

 —

 

 

28,343

 

 

 —

 

Total

 

$

32,433

 

$

4,090

 

$

28,343

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities: