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 |
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77-0398779 |
(State or other jurisdiction of incorporation or organization) |
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(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: |
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on which Registered |
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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 ☐ |
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Accelerated filer ☒ |
Non-accelerated filer ☐ |
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Smaller reporting company ☐ |
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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
GSI TECHNOLOGY, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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26 | ||
26 | ||
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PART II — OTHER INFORMATION |
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43 |
1
PART I — FINANCIAL INFORMATION
GSI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, |
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March 31, |
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2019 |
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2019 |
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(In thousands, except share |
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ASSETS |
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Cash and cash equivalents |
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$ |
46,435 |
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$ |
42,495 |
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Short-term investments |
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18,282 |
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19,346 |
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Accounts receivable, net |
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7,375 |
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7,339 |
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Inventories |
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5,463 |
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5,685 |
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Prepaid expenses and other current assets |
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3,009 |
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2,500 |
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Total current assets |
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80,564 |
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77,365 |
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Property and equipment, net |
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8,726 |
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9,001 |
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Operating lease right-of-use assets |
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910 |
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— |
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Long-term investments |
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7,264 |
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8,997 |
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Goodwill |
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7,978 |
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7,978 |
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Intangible assets, net |
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2,664 |
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2,722 |
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Other assets |
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160 |
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160 |
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Total assets |
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$ |
108,266 |
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$ |
106,223 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
1,676 |
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$ |
1,864 |
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Lease liabilities, current |
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559 |
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— |
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Accrued expenses and other liabilities |
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5,205 |
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6,869 |
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Total current liabilities |
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7,440 |
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8,733 |
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Income taxes payable |
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624 |
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622 |
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Lease liabilities, non-current |
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380 |
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— |
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Contingent consideration, non-current |
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3,740 |
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3,713 |
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Total liabilities |
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12,184 |
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13,068 |
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Commitments and contingencies (Note 9) |
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Stockholders’ equity: |
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Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued and outstanding: none |
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— |
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— |
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Common Stock: $0.001 par value authorized: 150,000,000 shares; issued and outstanding: 22,898,188 and 22,320,156 shares, respectively |
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23 |
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22 |
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Additional paid-in capital |
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36,462 |
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33,462 |
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Accumulated other comprehensive income (loss) |
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14 |
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(37) |
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Retained earnings |
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59,583 |
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59,708 |
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Total stockholders’ equity |
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96,082 |
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93,155 |
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Total liabilities and stockholders’ equity |
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$ |
108,266 |
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$ |
106,223 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
GSI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended June 30, |
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2019 |
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2018 |
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(In thousands, except per share amounts) |
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Net revenues |
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$ |
13,019 |
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$ |
11,266 |
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Cost of revenues |
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4,776 |
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5,478 |
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Gross profit |
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8,243 |
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5,788 |
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Operating expenses: |
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Research and development |
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5,595 |
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4,850 |
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Selling, general and administrative |
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2,877 |
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2,597 |
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Total operating expenses |
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8,472 |
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7,447 |
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Loss from operations |
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(229) |
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(1,659) |
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Interest income, net |
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205 |
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138 |
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Other expense, net |
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(58) |
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(115) |
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Loss before income taxes |
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(82) |
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(1,636) |
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Provision for income taxes |
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43 |
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10 |
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Net loss |
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$ |
(125) |
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$ |
(1,646) |
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Net loss per share: |
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Basic |
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$ |
(0.01) |
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$ |
(0.08) |
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Diluted |
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$ |
(0.01) |
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$ |
(0.08) |
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Weighted average shares used in per share calculations: |
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Basic |
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22,605 |
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21,567 |
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Diluted |
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22,605 |
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21,567 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GSI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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Three Months Ended June 30, |
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2019 |
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2018 |
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(In thousands) |
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Net loss |
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$ |
(125) |
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$ |
(1,646) |
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Net unrealized gain (loss) on available-for-sale investments |
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51 |
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(10) |
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Total comprehensive loss |
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$ |
(74) |
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$ |
(1,656) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GSI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
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(In thousands, except share amounts) |
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Balance, March 31, 2019 |
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22,320,156 |
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$ |
22 |
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$ |
33,462 |
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$ |
(37) |
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$ |
59,708 |
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$ |
93,155 |
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Issuance of common stock under employee stock option plans |
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578,032 |
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1 |
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2,349 |
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— |
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— |
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2,350 |
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Stock-based compensation expense |
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— |
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— |
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651 |
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— |
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— |
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|
651 |
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Net loss |
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— |
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— |
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— |
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— |
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(125) |
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(125) |
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Net unrealized gain on available-for-sale investments |
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— |
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— |
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— |
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51 |
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— |
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51 |
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Balance, June 30, 2019 |
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22,898,188 |
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$ |
23 |
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$ |
36,462 |
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$ |
14 |
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$ |
59,583 |
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$ |
96,082 |
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Balance, March 31, 2018 |
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21,407,247 |
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$ |
21 |
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$ |
27,391 |
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$ |
(142) |
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$ |
59,545 |
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$ |
86,815 |
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Issuance of common stock under employee stock option plans |
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352,847 |
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1 |
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1,502 |
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— |
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— |
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1,503 |
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Repurchase and retirement of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
|
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— |
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|
542 |
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— |
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|
— |
|
|
542 |
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Net loss |
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— |
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|
— |
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— |
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|
— |
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(1,646) |
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|
(1,646) |
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Net unrealized loss on available-for-sale investments |
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— |
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— |
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— |
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(10) |
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— |
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|
(10) |
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Balance, June 30, 2018 |
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21,760,094 |
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$ |
22 |
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$ |
29,435 |
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$ |
(152) |
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$ |
57,899 |
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$ |
87,204 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GSI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended June 30, |
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2019 |
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2018 |
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(In thousands) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(125) |
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$ |
(1,646) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Allowance for doubtful accounts and other |
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(9) |
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28 |
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Provision for excess and obsolete inventories |
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|
89 |
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|
678 |
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Non-cash lease expense |
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172 |
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— |
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Depreciation and amortization |
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365 |
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329 |
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Stock-based compensation |
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|
651 |
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|
542 |
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Amortization of discount on investments |
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(8) |
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|
(2) |
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Changes in assets and liabilities: |
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Accounts receivable |
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(27) |
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|
(1,596) |
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Inventory |
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133 |
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(272) |
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Prepaid expenses and other assets |
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(523) |
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(28) |
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Accounts payable |
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(190) |
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|
202 |
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Accrued expenses and other liabilities |
|
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(1,775) |
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(266) |
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Net cash used in operating activities |
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(1,247) |
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|
(2,031) |
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Cash flows from investing activities: |
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|
|
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Purchase of investments |
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(1,990) |
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|
(8,848) |
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Maturities of short-term investments |
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|
4,860 |
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|
6,800 |
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Purchases of property and equipment |
|
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(33) |
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|
(1,239) |
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Net cash provided by (used in) investing activities |
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|
2,837 |
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|
(3,287) |
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Cash flows from financing activities: |
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|
|
|
|
|
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Proceeds from issuance of common stock under employee stock plans |
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|
2,350 |
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|
1,503 |
|
Net cash provided by financing activities |
|
|
2,350 |
|
|
1,503 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
3,940 |
|
|
(3,815) |
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Cash and cash equivalents at beginning of the period |
|
|
42,495 |
|
|
40,241 |
|
Cash and cash equivalents at end of the period |
|
$ |
46,435 |
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$ |
36,426 |
|
Non-cash financing activities: |
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|
|
|
|
|
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Purchases of property and equipment through accounts payable and |
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|
30 |
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|
277 |
|
Supplemental cash flow information: |
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|
|
|
|
|
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Net cash paid for income taxes |
|
$ |
111 |
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$ |
41 |
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|
|
|
|
|
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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
7
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.
8
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.
9
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 |
|
10
|
|
|
|
||||
|
|
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.
11
|
|
|
|
|
|
|
|
|
|
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 |
|
Accumulated |
|
Net Carrying |
|
|||
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 |
|
Accumulated |
|
Net Carrying |
|
|||
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 |
12
|
|
|
|
|
|
|
|
|
|
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.
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
13
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.
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.
14
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: |
|
|
|
|
|
|