GSI TECHNOLOGY INC [GSIT] Filings

10-Q 1 gsit-20240630x10q.htm 10-Q

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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, 2024

☐

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 29, 2024: 25,446,380.

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GSI TECHNOLOGY, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024


		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 Income (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	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II — OTHER INFORMATION

Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 5.	Other information	44
Item 6.	Exhibits	44
Signatures		45

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PART I — FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited)

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		March 31,
	2024		2024

	(In thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	21,765	$	14,429
Accounts receivable, net		2,718		3,118
Inventories		4,467		4,977
Prepaid expenses and other current assets ($375 and $375 from a related party)		2,143		1,954
Assets held for sale		—		5,629
Total current assets		31,093		30,107
Property and equipment, net		1,076		1,148
Operating lease right-of-use assets		10,471		1,553
Goodwill		7,978		7,978
Intangible assets, net		1,498		1,556
Deposits		211		122
Total assets	$	52,327	$	42,464
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable ($6 and $0 to a related party)	$	653	$	668
Lease liabilities, current		1,528		567
Accrued expenses and other liabilities		3,241		4,130
Total current liabilities		5,422		5,365
Deferred tax liability		14		14
Lease liabilities, non-current		8,815		955
Contingent consideration, non-current		74		160
Total liabilities		14,325		6,494
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: 25,446,380 and 25,300,372 shares, respectively		25		25
Additional paid-in capital		61,552		60,598
Accumulated other comprehensive loss		(87)		(87)
Retained deficit		(23,488)		(24,566)
Total stockholders’ equity		38,002		35,970
Total liabilities and stockholders’ equity	$	52,327	$	42,464

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,
	2024		2023

	(In thousands, except per share amounts)
Net revenues	$	4,671	$	5,587
Cost of revenues ($8 and $0 to a related party)		2,510		2,518
Gross profit		2,161		3,069
Operating expenses:
Research and development		4,214		5,204
Selling, general and administrative		2,604		3,004
Gain from sale and leaseback transaction		(5,737)		—
Total operating expenses		1,081		8,208
Income (loss) from operations		1,080		(5,139)
Interest income		88		143
Other expense, net		(33)		(63)
Income (loss) before income taxes		1,135		(5,059)
Provision for income taxes		57		51
Net income (loss)	$	1,078	$	(5,110)
Net income (loss) per share:
Basic	$	0.04	$	(0.21)
Diluted	$	0.04	$	(0.21)
Weighted average shares used in per share calculations:
Basic		25,374		24,866
Diluted		25,686		24,866

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 INCOME (LOSS)

(Unaudited)


	Three Months Ended June 30,
	2024		2023

	(In thousands)
Net income (loss)	$	1,078	$	(5,110)
Net unrealized gain on available-for-sale investments		—		27
Total comprehensive income (loss)	$	1,078	$	(5,083)

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

(Unaudited)


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Loss		Deficit		Equity

Three months ended June 30, 2024	(In thousands, except share amounts)
Balance, March 31, 2024	25,300,372	$	25	$	60,598	$	(87)	$	(24,566)	$	35,970
Issuance of common stock under employee stock option plans	146,008		—		296		—		—		296
Stock-based compensation expense	—		—		658		—		—		658
Net income	—		—		—		—		1,078		1,078
Balance, June 30, 2024	25,446,380	$	25	$	61,552	$	(87)	$	(23,488)	$	38,002


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Loss		Deficit		Equity

Three months ended June 30, 2023
Balance, March 31, 2023	24,685,059	$	25	$	55,953	$	(127)	$	(4,479)	$	51,372
Issuance of common stock under employee stock option plans	398,084		—		1,473		—		—		1,473
Stock-based compensation expense	—		—		820		—		—		820
Net loss	—		—		—		—		(5,110)		(5,110)
Net unrealized gain on available-for-sale investments	—		—		—		27		—		27
Balance, June 30, 2023	25,083,143	$	25	$	58,246	$	(100)	$	(9,589)	$	48,582

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,
	2024		2023

	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	1,078	$	(5,110)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Allowance for credit losses		(8)		(10)
Provision for excess and obsolete inventories		91		35
Non-cash lease expense		174		148
Change in fair value of contingent consideration		(86)		(45)
Depreciation and amortization		192		276
Gain on sale and leaseback transaction		(5,737)		—
Stock-based compensation		658		820
Amortization of premium on investments		—		(1)
Changes in assets and liabilities:
Accounts receivable		408		399
Inventories		419		452
Prepaid expenses and other assets		(278)		(141)
Accounts payable		(15)		(270)
Accrued expenses and other liabilities		(1,160)		(284)
Net cash used in operating activities		(4,264)		(3,731)
Cash flows from investing activities:
Proceeds from sale of assets		11,336		—
Maturities of short-term investments		—		2,500
Purchases of property and equipment		(32)		(607)
Net cash provided by investing activities		11,304		1,893
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		296		1,473
Net cash provided by financing activities		296		1,473
Net increase (decrease) in cash and cash equivalents		7,336		(365)
Cash and cash equivalents at beginning of the period		14,429		27,212
Cash and cash equivalents at end of the period	$	21,765	$	26,847
Non-cash investing and financing activities:
Operating lease right-of-use assets exchanged for lease obligations	$	9,092	$	637
Supplemental cash flow information:
Net cash paid for income taxes	$	49	$	13

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, 2024.

The consolidated results of operations for the three months ended June 30, 2024 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, 2024.

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 Losses—Marketable 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 Losses—Accounts 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 and worldwide inflationary pressures has affected the business activities of the Company, its customers, suppliers, and other business partners in the fiscal year ended March 31, 2024 and into the three months ended June 30, 2024.

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 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 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 not yet adopted by the Company

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. This accounting standard update will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on the Company's financial statement 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 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

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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 June 30, 2024 and March 31, 2024.

Substantially all of the Company’s revenue is derived from sales of SRAM products, which represent approximately 99% of total revenues in each of the three months ended June 30, 2024 and 2023.

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 21% and 34% of the Company’s net revenues in the three months ended June 30, 2024 and 2023, 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 June 30,
	2024		2023

	(In thousands)
Contract manufacturers	$	411	$	1,949
Distribution		4,240		3,614
OEMs		20		24
	$	4,671	$	5,587

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NOTE 3—NET INCOME (LOSS) PER COMMON SHARE

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


	Three Months Ended June 30,
	2024		2023

	(In thousands, except per share amounts)
Net income (loss)	$	1,078	$	(5,110)

Denominators:
Weighted average shares—Basic		25,374		24,866
Dilutive effect of employee stock options		301		—
Dilutive effect of employee stock purchase plan options		11		—
Weighted average shares—Dilutive		25,686		24,866
Net income (loss) per common share—Basic	$	0.04	$	(0.21)
Net income (loss) per common share—Diluted	$	0.04	$	(0.21)

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 income (loss) per share as they had an anti-dilutive effect:


	Three Months Ended June 30,
	2024	2023

	(In thousands)
Shares underlying options and ESPP shares	7,650	7,778

NOTE 4—BALANCE SHEET DETAIL



	June 30, 2024		March 31, 2024

	(In thousands)
Inventories:
Work-in-progress	$	2,282	$	2,865
Finished goods		2,174		2,112
Inventory at distributors		11		—
	$	4,467	$	4,977



	June 30, 2024		March 31, 2024

	(In thousands)
Accounts receivable, net:
Accounts receivable	$	2,754	$	3,162
Less: Allowances for credit losses		(36)		(44)
	$	2,718	$	3,118

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	June 30, 2024		March 31, 2024

	(In thousands)
Prepaid expenses and other current assets:
Prepaid tooling and masks	$	685	$	668
Other receivables		292		215
Other prepaid expenses and other current assets		1,166		1,071
	$	2,143	$	1,954



	June 30, 2024		March 31, 2024

	(In thousands)
Property and equipment, net:
Computer and other equipment	$	17,987	$	18,555
Software		4,426		4,428
Furniture and fixtures		102		102
Leasehold improvements		927		927
		23,442		24,012
Less: Accumulated depreciation		(22,366)		(22,864)
	$	1,076	$	1,148

Depreciation expense was $134,000 and $217,000 for the three months ended June 30, 2024 and 2023, respectively.

The following tables summarize the components of intangible assets and related accumulated amortization balances at June 30, 2024 and March 31, 2024 (in thousands):


	As of June 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
Product designs	$	590	$	(590)	$	—
Patents		4,220		(2,722)		1,498
Software		80		(80)		—
Total	$	4,890	$	(3,392)	$	1,498


	As of March 31, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
Product designs	$	590	$	(590)	$	—
Patents		4,220		(2,664)		1,556
Software		80		(80)		—
Total	$	4,890	$	(3,334)	$	1,556

Amortization of intangible assets included in cost of revenues was $58,000 and $59,000 in the three months ended June 30, 2024 and 2023, respectively.

The Company reviews identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. There were no impairment indicators noted as of June 30, 2024.

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As of June 30, 2024, the estimated future amortization expense of intangible assets in the table above is as follows (in thousands):


Fiscal year ending March 31,
2025 (remaining nine months)	$	175
2026		233
2027		233
2028		233
2029		233
Thereafter		391
Total	$	1,498



	June 30, 2024		March 31, 2024

	(In thousands)
Accrued expenses and other liabilities:
Accrued compensation	$	2,521	$	3,173
Accrued commissions		114		180
Income taxes payable		15		10
Miscellaneous accrued expenses		591		767
	$	3,241	$	4,130

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 June 30, 2024 and March 31, 2024. 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 2024 and concluded that there was no impairment, as it was more likely than not that the fair value of its sole reporting unit exceeded its carrying value and the performance of a quantitative impairment test was not required.

NOTE 6—INCOME TAXES

Due to historical losses in the United States, the 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 could have a reduction in uncertain tax benefits of up to $767,000, including interest and penalties, as a result of the lapse of statute of limitations.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the 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 2023 remain open to examination by federal tax authorities, and fiscal years 2012 through 2023 remain open to examination by California tax authorities. Fiscal years 2020 through 2023 are subject to audit by the Israeli tax authorities.

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For the three months ended June 30, 2024 and June 30, 2023, the Company incurred income tax expense of $57,000 and $51,000 on net income before income taxes of $1.1 million and a net loss before income taxes of ($5.1 million), respectively. The provision was calculated using the annualized effective tax rate method. The Company’s estimated annual effective income tax rate, excluding discrete items, was approximately (2.89%) and (2.25%) as of June 30, 2024 and 2023, respectively. The annual effective tax rates as of June 30, 2024 and 2023 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 and 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 June 30, 2024, the Level 1 category included money market funds of $13.2 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, 2024 and March 31, 2024, 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 June 30, 2024, 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 revenues or the probability of achievement of the revenue forecast would result in a significantly higher (lower) fair value measurement. Conversely, a significant increase (decrease) in the risk-adjusted discount rate would result in a significantly (lower) higher fair value measurement. Generally, changes used in the assumptions for future revenues and probability of achievement of the revenue 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. The continued appropriateness of the Monte Carlo valuation model selected or any decision to change the valuation model may also lead to changes in fair value measurement. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of June 30, 2024, the Company used a risk-adjusted discount rate of approximately 15.8% 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 June 30, 2024 and March 31, 2024 in the amount of $74,000 and $160,000, 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, 2024		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	13,247	$	13,247	$	—	$	—
Marketable securities		—		—		—		—
Total	$	13,247	$	13,247	$	—	$	—

Liabilities:
Contingent consideration	$	74	$	—	$	—	$	74


			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, 2024		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	5,676	$	5,676	$	—	$	—
Marketable securities		—		—		—		—
Total	$	5,676	$	5,676	$	—	$	—

Liabilities:
Contingent consideration	$	160	$	—	$	—	$	160

The following table sets forth the changes in fair value of contingent consideration for the three months ended June 30, 2024 and 2023, respectively:


	Three Months Ended June 30,
	2024		2023

	(In thousands)
Contingent consideration, beginning of period	$	160	$	1,052
Change due to accretion		4		38
Re-measurement of contingent consideration		(90)		(83)
Contingent consideration, end of period	$	74	$	1,007

Short-term investments

The Company had money market funds of $13.2 million and $5.7 million at June 30, 2024 and March 31, 2024, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

There were no available-for-sale investments at June 30, 2024 or March 31, 2024, respectively.

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NOTE 8—LEASES

The Company has operating leases for corporate offices and research and development facilities. The Company’s leases have remaining lease terms of 26 months to 119 months, some of which include options to extend for up to 10 years.

On June 6, 2024, the Company completed a sale and leaseback transaction pursuant to a previously executed purchase and sale agreement (the “Agreement”) with an unrelated party, as purchaser, for the sale of the Company’s 1213 Elko Drive property in Sunnyvale, California (the “Sunnyvale Property”) for a purchase price, net of closing and other expenses payable by the Company, of $11.3 million in cash. Concurrent with the sale, the Company entered into a lease agreement (the “Lease”) to lease all of the Sunnyvale Property that it occupied from the purchaser for an initial term of ten years from the closing of the sale of the Sunnyvale Property. The Company has the option to renew the term of the Lease for two additional five-year periods. Pursuant to the Lease, the Company is responsible for base rent initially at a rate of approximately $90,768 per month and the monthly operational expenses, such as maintenance, insurance, property taxes and utilities. The rental rate will increase three percent (3%) per year beginning on the first anniversary of the closing. The transaction was accounted for as a sale and leaseback and operating lease accounting classification. The Company recorded a gain of $5.7 million which is recorded in the gain from sale and leaseback transaction in the Condensed Consolidated Statements of Operations in the quarter ended June 30, 2024.

Supplemental balance sheet information related to leases was as follows:


	As of		As of
	June 30, 2024		March 31, 2024

	(In thousands)
Operating Leases
Operating lease right-of-use assets	$	10,471	$	1,553

Lease liabilities-current	$	1,528	$	567
Lease liabilities-non-current		8,815		955
Total operating lease liabilities	$	10,343	$	1,522

The following table provides the details of lease costs:


	Three Months Ended June 30,
	2024		2023

	(In thousands)
Operating lease cost	$	233	$	143
Short-term lease cost		8		8
	$	241	$	151

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The following table provides other information related to leases:


	Three Months Ended June 30,
	2024		2023

	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	217	$	142

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	9,092	$	637

Weighted-average remaining lease term (years):
Operating leases		9.14		2.98

Weighted-average discount rate:
Operating leases		6.18%		4.12%

The following table provides the maturities of the Company’s operating lease liabilities as of June 30, 2024:


	Operating Lease
	Liabilities
Fiscal Year	(In thousands)
2025 (remaining nine months)	$	1,151
2026		1,694
2027		1,581
2028		1,192
2029		1,220
Thereafter		6,908
Total undiscounted future cash flows		13,746
Less: Imputed interest		(3,403)
Present value of undiscounted future cash flows	$	10,343

Presentation on statement of financial position
Current	$	1,528
Non-current	$	8,815

NOTE 9—COMMITMENTS AND CONTINGENCIES

Indemnification obligations

The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold and certain intellectual property rights. In each of these circumstances, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements.

It is not possible to predict the maximum potential amount of future payments that may be required under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and

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circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on its business, financial condition, cash flows or results of operations.

NOTE 10—STOCK-BASED COMPENSATION

As of June 30, 2024, 2,623,851 shares of common stock were available for grant under the Company’s Amended and Restated 2016 Equity Incentive Plan.

The following table summarizes the Company’s stock option activities for the three months ended June 30, 2024:


			Weighted
		Number of Shares	Average	Weighted
	Shares	Underlying	Remaining	Average
	Available for	Options	Contractual	Exercise		Intrinsic
	Grant	Outstanding	Life (Years)	Price		Value
Balance at March 31, 2024	2,584,186	8,968,199		$	5.26
Granted	(80,210)	80,210		$	3.10
Exercised	—	(3,000)		$	1.98	$	3,341
Forfeited	119,875	(139,775)		$	4.63