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Table of Contents

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 December 31, 2023

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)

(408331-8800

(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 January 31, 2024: 25,295,047.

Table of Contents

GSI TECHNOLOGY, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2023

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 5.

Other information

46

Item 6.

Exhibits

46

Signatures

47

1

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited)

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

December 31, 

March 31, 

2023

  

2023

    

(In thousands, except share
and per share amounts)

ASSETS

Cash and cash equivalents

   

$

21,575

    

$

27,212

Short-term investments

 

 

3,363

Accounts receivable, net

 

2,377

 

3,471

Inventories

 

5,504

 

6,415

Prepaid expenses and other current assets ($375 and $0 from a related party)

 

2,079

 

1,414

Total current assets

 

31,535

 

41,875

Property and equipment, net

 

6,916

 

7,423

Operating lease right-of-use assets

887

684

Goodwill

7,978

7,978

Intangible assets, net

1,614

1,790

Deposits

 

125

 

126

Total assets

 

$

49,055

 

$

59,876

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable ($394 and $8 to a related party)

 

$

1,279

 

$

1,621

Lease liabilities, current

346

413

Accrued expenses and other liabilities

 

6,795

 

5,168

Total current liabilities

 

8,420

 

7,202

Deferred tax liability

 

14

 

12

Lease liabilities, non-current

542

238

Contingent consideration, non-current

495

1,052

Total liabilities

 

9,471

 

8,504

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: 25,295,047 and 24,685,059 shares, respectively

 

25

 

25

Additional paid-in capital

 

59,891

 

55,953

Accumulated other comprehensive loss

 

(87)

 

(127)

Retained deficit

 

(20,245)

 

(4,479)

Total stockholders’ equity

 

39,584

 

51,372

Total liabilities and stockholders’ equity

 

$

49,055

 

$

59,876

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

2

Table of Contents

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended December 31, 

Nine Months Ended December 31, 

2023

2022

2023

2022

    

(In thousands, except per share amounts)

(In thousands, except per share amounts)

Net revenues

   

$

5,318

    

$

6,447

    

$

16,613

    

$

24,309

Cost of revenues ($125, $4, $125 and $201 to a related party)

 

2,343

 

2,741

 

7,448

 

9,636

Gross profit

 

2,975

 

3,706

 

9,165

 

14,673

Operating expenses:

Research and development

 

6,976

5,529

16,871

18,543

Selling, general and administrative

 

2,684

2,966

8,211

8,066

Total operating expenses

 

9,660

 

8,495

 

25,082

 

26,609

Loss from operations

 

(6,685)

 

(4,789)

 

(15,917)

 

(11,936)

Interest income, net

 

150

118

424

195

Other income (expense), net

 

5

(57)

(118)

(94)

Loss before income taxes

 

(6,530)

 

(4,728)

 

(15,611)

 

(11,835)

Provision for income taxes

 

71

84

155

181

Net loss

 

$

(6,601)

 

$

(4,812)

 

$

(15,766)

 

$

(12,016)

Net loss per share:

Basic

 

$

(0.26)

 

$

(0.20)

 

$

(0.63)

 

$

(0.49)

Diluted

 

$

(0.26)

 

$

(0.20)

 

$

(0.63)

 

$

(0.49)

Weighted average shares used in per share calculations:

Basic

 

25,256

 

24,621

25,094

24,566

Diluted

 

25,256

 

24,621

25,094

24,566

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

3

Table of Contents

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

Three Months Ended December 31, 

Nine Months Ended December 31, 

2023

2022

2023

2022

    

(In thousands)

(In thousands)

Net loss

   

$

(6,601)

    

$

(4,812)

    

$

(15,766)

    

$

(12,016)

Net unrealized gain on available-for-sale investments

 

4

 

34

 

40

 

9

Total comprehensive loss

 

$

(6,597)

 

$

(4,778)

 

$

(15,726)

 

$

(12,007)

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

4

Table of Contents

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Retained

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Three months ended December 31, 2023

(In thousands, except share amounts)

Balance, September 30, 2023

25,216,143

$

25

$

59,075

$

(91)

$

(13,644)

$

45,365

Issuance of common stock under employee stock option plans

78,904

167

167

Stock-based compensation expense

649

649

Net loss

(6,601)

(6,601)

Net unrealized gain on available-for-sale investments

4

4

Balance, December 31, 2023

25,295,047

$

25

$

59,891

$

(87)

$

(20,245)

$

39,584

Three months ended December 31, 2022

Balance, September 30, 2022

24,553,753

$

25

$

54,560

$

(179)

$

4,294

$

58,700

Issuance of common stock under employee stock option plans

131,306

223

223

Stock-based compensation expense

655

655

Net loss

(4,812)

(4,812)

Net unrealized gain on available-for-sale investments

34

34

Balance, December 31, 2022

24,685,059

$

25

$

55,438

$

(145)

$

(518)

$

54,800

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Retained

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Nine months ended December 31, 2023

(In thousands, except share amounts)

Balance, March 31, 2023

24,685,059

$

25

$

55,953

$

(127)

$

(4,479)

$

51,372

Issuance of common stock under employee stock option plans

476,988

1,640

1,640

Issuance of common stock pursuant to an At-the-Market offering, net of offering costs of $389

133,000

153

153

Stock-based compensation expense

2,145

2,145

Net loss

(15,766)

(15,766)

Net unrealized gain on available-for-sale investments

40

40

Balance, December 31, 2023

25,295,047

$

25

$

59,891

$

(87)

$

(20,245)

$

39,584

Nine months ended December 31, 2022

Balance, March 31, 2022

24,486,239

$

24

$

53,083

$

(154)

$

11,498

$

64,451

Issuance of common stock under employee stock option plans

198,820

1

401

402

Stock-based compensation expense

1,954

1,954

Net loss

(12,016)

(12,016)

Net unrealized gain on available-for-sale investments

9

9

Balance, December 31, 2022

24,685,059

$

25

$

55,438

$

(145)

$

(518)

$

54,800

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)

Nine Months Ended December 31, 

2023

2022

    

(In thousands)

Cash flows from operating activities:

Net loss

   

$

(15,766)

    

$

(12,016)

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

Allowance for credit losses

 

(20)

 

(17)

Provision for excess and obsolete inventories

 

117

 

166

Non-cash lease expense

434

427

Change in fair value of contingent consideration

(557)

(845)

Depreciation and amortization

 

718

 

763

Stock-based compensation

 

2,145

 

1,954

Amortization of premium on investments

 

(2)

 

15

Changes in assets and liabilities:

Accounts receivable

 

1,114

 

891

Inventories

 

794

 

(1,710)

Prepaid expenses and other assets

 

(663)

 

247

Accounts payable

 

256

 

116

Accrued expenses and other liabilities

 

1,229

 

(2,236)

Net cash used in operating activities

 

(10,201)

 

(12,245)

Cash flows from investing activities:

Maturities of short-term investments

 

3,405

7,000

Purchases of property and equipment

 

(634)

(258)

Net cash provided by investing activities

 

2,771

 

6,742

Cash flows from financing activities:

Proceeds from issuance of common stock under At-the-Market offering, net of offering costs of $389

153

Proceeds from issuance of common stock under employee stock plans

 

1,640

402

Net cash provided by financing activities

 

1,793

 

402

Net decrease in cash and cash equivalents

 

(5,637)

 

(5,101)

Cash and cash equivalents at beginning of the period

 

27,212

36,971

Cash and cash equivalents at end of the period

 

$

21,575

 

$

31,870

Non-cash investing and financing activities:

Operating lease right-of-use assets exchanged for lease obligations

$

637

$

376

Supplemental cash flow information:

Net cash paid for income taxes

 

$

323

 

$

139

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, 2023.

The consolidated results of operations for the nine months ended December 31, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year.

Significant accounting policies

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, 2023.

Government Agreements

From time to time, the Company may enter into agreements with federal government agencies. GAAP does not have specific accounting standards covering agreements between the government and business entities. The Company applies International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for agreements entered into with the government. Under IAS 20, government grants or awards are initially recognized when there is reasonable assurance the conditions of the grant or award will be met and the grant or award will be received. After initial recognition, government grants or awards are recognized on a systematic basis in a manner consistent with the manner in which the Company recognizes the underlying costs for which the grant or award is intended to compensate. The Company follows ASC 832, Disclosures by Business Entities about Government Assistance, with respect to the disclosures of government grants or awards.

.

Credit LossesMarketable Securities

For marketable securities in an unrealized loss position, the Company periodically assesses its portfolio for impairment. The assessment first considers the intent or requirement to sell the marketable security. If either of these criteria are met, the amortized cost basis is written down to fair value through earnings.

Beginning April 1, 2023, if the criteria above are not met, the Company evaluates whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the marketable security by a rating agency, and any adverse conditions specifically related to the marketable security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the marketable security is compared to the amortized cost basis of the marketable security. If the present value of cash flows expected to be collected is less than the amortized

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cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any other impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive loss.

Credit LossesAccounts Receivable

Accounts receivable are recorded at the amounts billed less estimated allowances for credit losses for any potential uncollectible amounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from a customer’s inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, and economic conditions that may affect a customer’s ability to pay. Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success. 

Risk and uncertainties

The decline in the global economic environment due to, among other things, higher interest rates, worldwide inflationary pressures and recent fluctuations in energy prices has affected the business activities of the Company, its customers, suppliers, and other business partners in the fiscal year ended March 31, 2023 and into the nine months ended December 31, 2023.

Our software development and certain regional sales activities for our APU product offerings occur in Israel. Our Vice President, Associative Computing, along with a team of software development experts are based in our Israel facility. This team is needed for the development of the various levels of software required in the use of our APU product offering. Proof of concept customers for our SAR imagine processing acceleration system are also based in Israel. We are closely monitoring developments in the evolving military conflict with Hamas that began on October 7, 2023 including potential impacts to our business, customers, employees and operations in Israel. At this time, the impact on GSI Technology is uncertain and subject to change given the volatile nature of the situation, but adverse changes in the military conditions in Israel could harm our business and our stock price could decline.

The Company believes that during the next 12 months disruptions in the capital markets as a result of higher interest rates, worldwide inflationary pressures, recent fluctuations in energy prices and the decline in the global economic environment could impact general economic activity and demand in the Company’s end markets. Additionally, fluctuations in customer demand due to previous buffer stock purchases during the semiconductor supply shortage may negatively impact near-term revenues.

Accounting pronouncements effective for fiscal 2024

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 is 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 are recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. Adoption of this standard on April 1, 2023 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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

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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 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 occurs at 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. The Company recognizes 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 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 product sales is immaterial.

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 and for the periods ended December 31, 2023 and March 31, 2023.

Substantially all of the Company’s revenue is derived from sales of SRAM products, which represent approximately 98% and 97% of total revenues in the nine months ended December 31, 2023 and 2022, respectively.

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 15% and 20% of the Company’s net revenues in the three months ended December 31, 2023 and 2022, respectively, and 23% and 16% of the Company’s net revenues in the nine months ended December 31, 2023 and 2022, respectively.

See “Note 12 — Segment and Geographic Information” for revenue by shipment destination.

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

Three Months Ended December 31, 

Nine Months Ended December 31, 

2023

2022

2023

2022

    

(In thousands)

(In thousands)

Contract manufacturers

   

$

607

   

$

1,391

   

$

3,881

   

$

4,597

Distribution

4,133

4,992

12,104

19,110

OEMs

578

64

628

602

$

5,318

$

6,447

$

16,613

$

24,309

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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 loss per share:

Three Months Ended December 31, 

Nine Months Ended December 31, 

2023

2022

2023

2022

(In thousands, except per share amounts)

(In thousands, except per share amounts)

Net loss

   

$

(6,601)

    

$

(4,812)

    

$

(15,766)

    

$

(12,016)

Denominators:

Weighted average shares—Basic

 

25,256

24,621

25,094

24,566

Dilutive effect of employee stock options

Dilutive effect of employee stock purchase plan options

 

Weighted average shares—Dilutive

 

25,256

 

24,621

 

25,094

 

24,566

Net loss per common share—Basic

 

$

(0.26)

 

$

(0.20)

 

$

(0.63)

$

(0.49)

Net loss per common share—Diluted

 

$

(0.26)

 

$

(0.20)

 

$

(0.63)

$

(0.49)

The following shares of common stock underlying outstanding stock options and unissued ESPP shares, 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 December 31, 

Nine Months Ended December 31, 

2023

2022

2023

2022

    

(In thousands)

(In thousands)

Shares underlying options and ESPP shares

   

8,231

8,797

7,856

8,492

NOTE 4—BALANCE SHEET DETAIL

December 31, 2023

March 31, 2023

    

(In thousands)

Inventories:

Work-in-progress

   

$

3,178

    

$

3,629

Finished goods

 

2,313

 

2,767

Inventory at distributors

 

13

 

19

 

$

5,504

 

$

6,415

December 31, 2023

March 31, 2023

    

(In thousands)

Accounts receivable, net:

Accounts receivable

   

$

2,417

    

$

3,531

Less: Allowances for credit losses

 

(40)

 

(60)

 

$

2,377

 

$

3,471

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December 31, 2023

March 31, 2023

    

(In thousands)

Prepaid expenses and other current assets:

Prepaid tooling and masks

$

575

$

333

Other receivables

113

156

Other prepaid expenses and other current assets

1,391

925

$

2,079

$

1,414

December 31, 2023

March 31, 2023

    

(In thousands)

Property and equipment, net:

Computer and other equipment

$

18,548

$

19,188

Software

4,428

4,428

Land

3,900

3,900

Building and building improvements

3,741

3,741

Furniture and fixtures

102

102

Leasehold improvements

923

910

31,642

32,269

Less: Accumulated depreciation

(24,726)

(24,846)

$

6,916

$

7,423

Depreciation expense was $155,000 and $195,000 for the three months ended December 31, 2023 and 2022, respectively, and $543,000 and $588,000 for the nine months ended December 31, 2023 and 2022, respectively.

The following tables summarize the components of intangible assets and related accumulated amortization balances at December 31, 2023 and March 31, 2023 (in thousands):

As of December 31, 2023

    

Gross
Carrying
Amount

    

Accumulated
Amortization

    

Net Carrying
Amount

 

Intangible assets:

    

    

 

Product designs

$

590

$

(590)

$

Patents

4,220

(2,606)

1,614

Software

80

(80)

Total

$

4,890

$

(3,276)

$

1,614

As of March 31, 2023

    

Gross
Carrying
Amount

    

Accumulated
Amortization

    

Net Carrying
Amount

 

Intangible assets:

Product designs

$

590

$

(590)

$

Patents

4,220

(2,430)

1,790

Software

80

(80)

Total

$

4,890

$

(3,100)

$

1,790

Amortization of intangible assets included in cost of revenues was $58,000 for each of the three months ended December 31, 2023 and 2022, respectively, and $175,000 for each of the nine months ended December 31, 2023 and 2022.

The Company reviews identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of

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the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. The Company identified a potential impairment indicator for the finite lived intangible assets and performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of the asset group to the carrying amount as of December 31, 2023. The result of the recoverability test indicated that the sum of the expected future cash flows was greater than the carrying amount of the finite lived intangible assets. Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from the APU product could result in a non-cash impairment charge in future periods.

As of December 31, 2023, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):

Fiscal year ending March 31,

2024 (remaining three months)

$

58

2025

233

2026

233

2027

233

2028

233

Thereafter

624

Total

$

1,614

December 31, 2023

March 31, 2023

    

(In thousands)

Accrued expenses and other liabilities:

Accrued compensation

$

3,283

$

3,441

Accrued commissions

174

214

Income taxes payable

163

345

Outsourced design resources

552

Research and development mask set

2,446

Miscellaneous accrued expenses

729

616

$

6,795

$

5,168

On November 30, 2022, the Company announced cost reduction initiatives which included an approximate 15% reduction in the Company’s global workforce. The Company incurred $0.3 million in severance related charges during the three and nine months ended December 31, 2022 including $0.1 million recorded as cost of revenues and $0.2 million recorded as selling, general and administrative expenses. There were no severance related charges in the three and nine months ended December 31, 2023.

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 assesses goodwill for impairment on an annual basis on the last day of February in the fourth quarter of its fiscal year. The Company has one reporting unit.

The Company had a goodwill balance of $8.0 million as of both December 31, 2023 and March 31, 2023. The goodwill resulted from the acquisition of MikaMonu Group Ltd. in fiscal 2016.

The Company completed its annual impairment test during the fourth quarter of fiscal 2023 and concluded that there was no impairment, as the fair value of its sole reporting unit exceeded its carrying value.

NOTE 6—INCOME TAXES

The current portion and long-term portion of the Company’s income tax liability related to unrecognized tax benefits was $0 at both December 31, 2023 and March 31, 2023. Due to historical losses in the United States, the

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Company has a full valuation allowance on its United States federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance.

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 2022 remain open to examination by federal tax authorities, and fiscal years 2012 through 2022 remain open to examination by California tax authorities. Fiscal years 2020 through 2023 are subject to audit by the Israeli tax authorities.

For the nine months ended December 31, 2023 and December 31, 2022, the Company incurred income tax expense of $155,000 and $181,000 on net losses before income taxes of ($15.6 million) and ($11.8 million), respectively. The provision was calculated using the annualized effective tax rate method. The Company’s estimated annual effective income tax rate, including discrete items, was approximately (1.44%) and (2.16%) as of December 31, 2023 and 2022, respectively. The annual effective tax rates as of December 31, 2023 and 2022 vary from the United States statutory income tax rate primarily due to valuation allowances in the United States, whereby pre-tax losses do not result in the recognition of corresponding income tax benefits or foreign tax differential.

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 December 31, 2023, the Level 1 category included money market funds of $9.6 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 December 31, 2023, there were no Level 2 category short-term investments.

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 December 31, 2023, 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 achievement of the forecast and a risk-adjusted discount rate of approximately 14.8% used to adjust the probability-weighted cash flows to their present value. Significant increases (decreases) to the estimated amount and timing of future cash flows or the probability of achievement of the forecast would result in a significantly higher (lower) fair value measurement. Conversely, a significant increase or (decrease) in the risk-adjusted discount rate would result in a significantly

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(lower) higher fair value measurement. Generally, changes used in the assumptions for future cash flows and probability of achievement of the forecast would be accompanied by a directionally similar change in the fair value measurement and expense. Conversely, changes in the risk-adjusted discount rate would be accompanied by a directionally opposite change in the related fair value measurement and expense. 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. During the most recent re-measurement of the contingent consideration liability as of December 31, 2023, the Company used a risk-adjusted discount rate of approximately 15.6% to adjust the probability-weighted cash flows to their present value using probabilities ranging from 25% to 70% for the remaining contingent events. The contingent consideration liability is included in contingent consideration, non-current on the Condensed Consolidated Balance Sheets at December 31, 2023 and March 31, 2023 in the amount of $495,000 and $1.1 million, respectively.

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

    

December 31, 2023

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets:

Money market funds

$

9,560

$

9,560

$

$

Marketable securities

Total

$

9,560

$

9,560

$

$