GSI Technology(GSIT) - 2026 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for GSI Technology, Inc. for the quarter ended June 30, 2025, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, balance sheet components, and other financial disclosures Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :--------------------------- | :-------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $22,725 | $13,434 | $9,291 | 69.16% | | Total current assets | $31,087 | $23,455 | $7,632 | 32.54% | | Total assets | $50,505 | $43,317 | $7,188 | 16.59% | | Total current liabilities | $5,372 | $7,074 | $(1,702) | -24.06% | | Total liabilities | $13,131 | $15,091 | $(1,960) | -12.99% | | Total stockholders' equity | $37,374 | $28,226 | $9,148 | 32.41% | Condensed Consolidated Statements of Operations | Metric (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net revenues | $6,283 | $4,671 | $1,612 | 34.51% | | Cost of revenues | $2,632 | $2,510 | $122 | 4.86% | | Gross profit | $3,651 | $2,161 | $1,490 | 68.95% | | Research and development | $3,097 | $4,214 | $(1,117) | -26.51% | | Selling, general and administrative | $2,730 | $2,604 | $126 | 4.84% | | Gain from sale of assets | $0 | $(5,737) | $5,737 | -100.00% | | Total operating expenses | $5,827 | $1,081 | $4,746 | 439.04% | | Income (loss) from operations | $(2,176) | $1,080 | $(3,256) | -301.48% | | Net income (loss) | $(2,217) | $1,078 | $(3,295) | -305.66% | | Basic EPS | $(0.08) | $0.04 | $(0.12) | -300.00% | | Diluted EPS | $(0.08) | $0.04 | $(0.12) | -300.00% | Condensed Consolidated Statements of Comprehensive Loss | Metric (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net income (loss) | $(2,217) | $1,078 | $(3,295) | -305.66% | | Total comprehensive income (loss) | $(2,217) | $1,078 | $(3,295) | -305.66% | Condensed Consolidated Statements of Stockholders' Equity | Metric (Three Months Ended June 30, 2025) | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Balance, March 31, 2025 | $28,226 | | Issuance of common stock (ATM offering) | $10,798 | | Issuance of common stock (ESOP) | $226 | | Stock-based compensation expense | $341 | | Net loss | $(2,217) | | Balance, June 30, 2025 | $37,374 | | Metric (Three Months Ended June 30, 2024) | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Balance, March 31, 2024 | $35,970 | | Issuance of common stock (ESOP) | $296 | | Stock-based compensation expense | $658 | | Net income | $1,078 | | Balance, June 30, 2024 | $38,002 | Condensed Consolidated Statements of Cash Flows | Metric (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash used in operating activities| $(1,712) | $(4,264) | $2,552 | | Net cash provided by (used in) investing activities | $(21) | $11,304 | $(11,325) | | Net cash provided by financing activities | $11,024 | $296 | $10,728 | | Net increase in cash and cash equivalents | $9,291 | $7,336 | $1,955 | | Cash and cash equivalents at end of period | $22,725 | $21,765 | $960 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, revenue recognition, balance sheet components, and other financial disclosures for the unaudited condensed consolidated financial statements NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the Company's accounting policies, including GAAP and SEC compliance, government grant recognition, marketable securities impairment, accounts receivable allowances, and the impact of global economic factors and new accounting pronouncements - The Company's unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC regulations, with no material changes to significant accounting policies from the prior annual report[26][28] - The Company applies IAS 20 by analogy for government agreements, recognizing grants when conditions are met and systematically over the period of related costs[29] - The Company assesses marketable securities for impairment, recording credit losses through an allowance if the present value of expected cash flows is less than amortized cost[30][31][33] - Accounts receivable are recorded net of estimated allowances for credit losses, considering historical experience, credit quality, age, and economic conditions[34] - Global economic factors (higher interest rates, inflation, geopolitical tensions) and the military conflict in Israel are identified as risks impacting business activities, customers, suppliers, and operations[35][36][37] - New accounting pronouncements ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) are being evaluated for their impact on financial statements, effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively[38][39] NOTE 2—REVENUE RECOGNITION This note details the Company's policy for recognizing revenue, primarily from SRAM product sales, and provides a breakdown of revenues by customer and customer type - Revenue is recognized upon product shipment when control, title, and risks/rewards of ownership pass to the customer, and the Company has a right to payment[41] - Substantially all revenue (approximately 100% in Q2 2025 and 99% in Q2 2024) is derived from sales of SRAM products[46] | Customer | Q2 2025 Net Revenues (%) | Q2 2024 Net Revenues (%) | | :--------- | :----------------------- | :----------------------- | | Nokia | 9% | 21% | | KYEC | 4% | 22% | | Cadence Design Systems | 24% | 0% | | Customer Type | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | | Contract manufacturers | $413 | $411 | | Distribution | $5,794 | $4,240 | | OEMs | $76 | $20 | | Total | $6,283 | $4,671 | NOTE 3—NET INCOME (LOSS) PER COMMON SHARE This note provides the calculation of basic and diluted net income (loss) per common share, including the impact of anti-dilutive securities | Metric (Three Months Ended June 30,) | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Net income (loss) | $(2,217) | $1,078 | | Weighted average shares—Basic | 26,967 | 25,374 | | Weighted average shares—Diluted | 26,967 | 25,686 | | Net income (loss) per common share—Basic | $(0.08) | $0.04 | | Net income (loss) per common share—Diluted | $(0.08) | $0.04 | - 7,031 thousand shares underlying options and ESPP shares were excluded from diluted EPS calculation in Q2 2025 due to their anti-dilutive effect, compared to 7,650 thousand in Q2 2024[51] NOTE 4—BALANCE SHEET DETAIL This note provides detailed breakdowns of inventories, accounts receivable, and intangible assets, along with information on amortization expenses and recent cost-cutting measures | Inventories (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------- | :------------ | :------------- | | Work-in-progress | $1,602 | $1,769 | | Finished goods | $2,159 | $2,122 | | Inventory at distributors | $2 | $0 | | Total | $3,763 | $3,891 | | Accounts Receivable, net (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------ | :------------ | :------------- | | Accounts receivable | $1,613 | $3,215 | | Less: Allowances for credit losses | $(26) | $(46) | | Total | $1,587 | $3,169 | | Intangible Assets (in thousands) | Gross Carrying Amount (June 30, 2025) | Accumulated Amortization (June 30, 2025) | Net Carrying Amount (June 30, 2025) | | :------------------------------- | :------------------------------------ | :--------------------------------------- | :---------------------------------- | | Product designs | $590 | $(590) | $0 | | Patents | $4,220 | $(2,956) | $1,264 | | Software | $80 | $(80) | $0 | | Total | $4,890 | $(3,626) | $1,264 | - Amortization of intangible assets included in cost of revenues was $59,000 for Q2 2025, slightly up from $58,000 in Q2 2024[54] | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | Fiscal year ending March 31, 2026 (remaining nine months): $175 | | Fiscal year ending March 31, 2027: $233 | | Fiscal year ending March 31, 2028: $233 | | Fiscal year ending March 31, 2029: $233 | | Fiscal year ending March 31, 2030: $233 | | Thereafter: $157 | | Total: $1,264 | - The Company implemented strategic cost-cutting measures in August 2024, including an approximate 16% reduction in its global workforce. Severance payments were completed by March 31, 2025, with no additional charges expected[56] NOTE 5—GOODWILL This note confirms the Company's goodwill balance and the results of its annual impairment test - Goodwill balance remained at $8.0 million as of June 30, 2025, and March 31, 2025, resulting from the MikaMonu Group Ltd. acquisition in fiscal 2016[58] - The annual impairment test in Q4 fiscal 2025 concluded no impairment, as the fair value of the sole reporting unit exceeded its carrying value[59] NOTE 6—INCOME TAXES This note discusses the Company's income tax provisions, including its valuation allowance on deferred tax assets and the estimated annual effective income tax rate - The Company maintains a full valuation allowance on its U.S. federal and state deferred tax assets due to historical losses[60] | Metric (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Income tax expense | $54 | $57 | | Net income (loss) before income taxes| $(2,200) | $1,100 | | Estimated annual effective income tax rate | (2.58%) | (2.89%) | NOTE 7—FINANCIAL INSTRUMENTS This note provides details on the Company's financial assets, specifically money market funds, and changes in contingent consideration liability | Financial Assets (in thousands) | June 30, 2025 (Level 1) | March 31, 2025 (Level 1) | | :------------------------------ | :---------------------- | :----------------------- | | Money market funds | $11,888 | $4,836 | - Contingent consideration liability was $0 at June 30, 2025, compared to $74,000 at June 30, 2024, reflecting re-measurement and accretion changes[68] NOTE 8—LEASES This note outlines the Company's lease arrangements, including a sale and leaseback transaction, lease liabilities, and future lease maturities - On June 6, 2024, the Company completed a sale and leaseback transaction for its Sunnyvale property, generating $11.3 million in cash and recording a $5.7 million gain[71] | Lease Liabilities (in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------- | :------------ | :------------- | | Operating lease right-of-use assets | $9,232 | $9,547 | | Lease liabilities-current | $1,615 | $1,642 | | Lease liabilities-non-current | $7,743 | $8,001 | | Total operating lease liabilities| $9,358 | $9,643 | | Lease Costs (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | | :---------------------------------------- | :------------------ | :------------------ | | Operating lease cost | $465 | $233 | | Short-term lease cost | $7 | $8 | | Total | $472 | $241 | | Operating Lease Liabilities Maturities (as of June 30, 2025, in thousands) | | :----------------------------------------------------------------------- | | Fiscal Year 2026 (remaining nine months): $1,217 | | Fiscal Year 2027: $1,621 | | Fiscal Year 2028: $1,192 | | Fiscal Year 2029: $1,220 | | Fiscal Year 2030: $1,257 | | Thereafter: $5,651 | | Total undiscounted future cash flows: $12,158 | | Present value of undiscounted future cash flows: $9,358 | NOTE 9—COMMITMENTS AND CONTINGENCIES This note addresses the Company's indemnification obligations, noting that they have not materially impacted financial results historically - The Company has indemnification obligations in various agreements, but historically, payments under these agreements have not had a material effect on its financial condition or results of operations[75][77] NOTE 10—STOCK-BASED COMPENSATION This note details the Company's stock-based compensation plans, including available shares for grant, stock option activity, and related expenses - As of June 30, 2025, 2,841,569 shares of common stock were available for grant under the Company's Amended and Restated 2016 Equity Incentive Plan[78] | Stock Option Activity (Three Months Ended June 30, 2025) | | :------------------------------------------------------- | | Balance at March 31, 2025: 7,636,716 options outstanding, weighted average exercise price $5.03 | | Granted: 306,010 options, weighted average exercise price $3.68 | | Exercised: (1,875) options, weighted average exercise price $1.90 | | Forfeited: (75,753) options, weighted average exercise price $3.86 | | Balance at June 30, 2025: 7,865,098 options outstanding, weighted average exercise price $4.98 | | Options vested and exercisable: 5,836,736, weighted average exercise price $5.48 | | Options unvested: 2,028,362, weighted average exercise price $3.56 | | Stock-Based Compensation Expense (Three Months Ended June 30, in thousands) | | :------------------------------------------------------------------------ | | 2025 | | Cost of revenues: $44 | | Research and development: $(62) | | Selling, general and administrative: $359 | | Total: $341 | | 2024 | | Cost of revenues: $56 | | Research and development: $290 | | Selling, general and administrative: $312 | | Total: $658 | NOTE 11—RELATED PARTY TRANSACTIONS This note discloses manufacturing services incurred from a related party, Wistron Neweb Corp (WNC), where a director holds a key position - The Company incurred $16,000 in manufacturing services from Wistron Neweb Corp (WNC) in Q2 2025, up from $8,000 in Q2 2024. Haydn Hsieh, a director, is Chairman and Chief Strategy Officer of WNC[80] NOTE 12—SEGMENT AND GEOGRAPHIC INFORMATION This note clarifies that the Company operates as a single business segment and provides a breakdown of net revenues by geographic area - The Company operates as a single reportable business segment: the design, development, and sale of integrated circuits[81] | Net Revenues by Geographic Area (Three Months Ended June 30, in thousands) | | :----------------------------------------------------------------------- | | 2025 | | United States: $4,472 | | China: $404 | | Singapore: $484 | | Netherlands: $103 | | Germany: $572 | | Rest of the world: $248 | | Total: $6,283 | | 2024 | | United States: $1,565 | | China: $1,098 | | Singapore: $775 | | Netherlands: $36 | | Germany: $930 | | Rest of the world: $267 | | Total: $4,671 | NOTE 13—GOVERNMENT AGREEMENTS This note details the Company's government prototype agreements for APU2 and Gemini-II technology development, including funding recognition and milestone payments - The Company has prototype agreements with the Space Development Agency (SDA) for APU2 development ($1.25 million estimated total) and the U.S. Air Force Research Laboratory (AFRL) for specialized APU2 algorithms ($1.1 million estimated total)[85][86] - In October 2024, the Company was selected by the U.S. Army for a potential contract of up to $250,000 to develop edge computing AI solutions using Gemini-II technology, focusing on 1-bit Large Language Models (LLMs)[87] - Funding recognized as a reduction to R&D expense was $543,000 in Q2 2025, up from $281,000 in Q2 2024. Milestone payments received totaled $594,000 in Q2 2025 and $79,000 in Q2 2024[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the quarter ended June 30, 2025, covering business overview, financial performance, liquidity, and critical accounting estimates Overview This overview describes GSI Technology's focus on high-performance semiconductor memory solutions, its transition to APU products, government agreements, and current liquidity position - GSI Technology provides high-performance semiconductor memory solutions for in-place associative computing (APU) in AI and HPC markets, while current revenue is primarily from Very Fast SRAMs[91] - APU products, focused on similarity search, have not generated material revenues to date but are being developed for applications like visual search, computer vision, drug discovery, and SAR image processing[91] - The Company has secured government prototype agreements for APU2 development with the Space Development Agency ($1.25M), AFWERX/AFRL ($1.1M), and the U.S. Army ($250K), focusing on space-based computing and edge AI solutions[92][94][95][96] - As of June 30, 2025, cash and cash equivalents stood at $22.7 million with no debt. Liquidity was strengthened by a $11.3 million property sale in June 2024 and $10.8 million net proceeds from an At-the-Market offering in May/June 2025[97] Revenues This section analyzes the Company's revenue sources, primarily from Very Fast SRAM products, and discusses factors influencing average selling prices and quarterly fluctuations - Substantially all revenues are from Very Fast SRAM products, with direct and indirect sales to networking and telecommunications OEMs accounting for 19% to 34% in the last three fiscal years[98] - The average selling price of products has increased or remained unchanged recently, but historically declines over a product's life, requiring increased unit sales or new higher-priced products to maintain revenue[100] - Quarterly net revenues fluctuate due to insufficient initial orders, dependence on same-quarter shipments, timing of product releases, and customer order delays/cancellations[101] | Customer | Q2 2025 Net Revenues (%) | FY2025 Net Revenues (%) | FY2024 Net Revenues (%) | FY2023 Net Revenues (%) | | :--------- | :----------------------- | :---------------------- | :---------------------- | :---------------------- | | KYEC | 4% | 23% | 3% | 2% | | Nokia | 9% | 12% | 21% | 17% | | Cadence Design Systems | 24% | 8% | 8% | 2% | Cost of Revenues This section details the components of cost of revenues, including outsourced manufacturing expenses, and notes the impact of semiconductor industry cyclical fluctuations and supply chain constraints - Cost of revenues primarily includes outsourced wafer fabrication, wafer sort, assembly, test, burn-in expenses, amortized production mask sets, stock-based compensation, and materials/overhead[104] - Outsourced manufacturing costs are subject to semiconductor industry cyclical fluctuations, with recent increases due to supply chain constraints for wafers and outsourced assembly[104] Gross Profit This section explains the variability of gross profit margins based on product type and anticipates fluctuations due to product mix, average selling prices, and cost control - Gross profit margins vary by product, generally higher for radiation-hardened/tolerant SRAMs, higher density products, and higher speed/industrial temperature products[106] - Overall gross margins are expected to fluctuate due to shifts in product mix, changes in average selling prices, and control over cost of revenues[106] Research and Development Expenses This section outlines the components of R&D expenses, including salaries, prototype development, and mask set costs, emphasizing the need for continued substantial investment in new products - R&D expenses include salaries for design engineers, prototype development, stock-based compensation, and consultant fees, all expensed as incurred[107] - Costs for pre-production mask sets, such as the $2.4 million incurred for APU2 in Q3 fiscal 2024, are charged to R&D and can cause quarterly fluctuations[107] - Continued substantial investment in R&D, particularly for in-place associative computing products, is critical for long-term success and may lead to operating losses[107] Selling, General and Administrative Expenses This section details SG&A expenses, including sales, marketing, and administrative costs, and discusses expectations for future trends relative to revenue growth - SG&A expenses include commissions, salaries for sales, marketing, administrative, finance, and HR personnel, professional fees, and product promotion costs[108] - Sales and marketing expenses are expected to increase in absolute dollars with sales force expansion but decline as a percentage of net revenues if revenues grow[108] Goodwill This section confirms the Company's goodwill balance and the absence of impairment findings from the latest annual test - Goodwill remained at $8.0 million as of June 30, 2025, and March 31, 2025, with no impairment identified during the annual test in Q4 fiscal 2025[109] Intangible Assets This section discusses the Company's identifiable amortizable intangible assets, impairment review policy, and potential future impairment risks related to APU product revenue - Identifiable amortizable intangible assets are reviewed for impairment when circumstances indicate carrying value may not be recoverable; no impairment indicators were noted as of June 30, 2025[110] - Failure to generate forecasted revenue from the APU product could lead to a non-cash impairment charge in future periods[110] Results of Operations This section provides a detailed analysis of the Company's financial performance, including net revenues, cost of revenues, gross profit, operating expenses, and net income (loss) for the quarter Net Revenues This subsection analyzes the increase in net revenues, changes in average selling price and units shipped, and customer-specific sales fluctuations - Net revenues increased by 34.5% to $6.3 million in Q2 2025 from $4.7 million in Q2 2024[111] - The average selling price increased by 37.9% in Q2 2025 compared to Q2 2024, while the number of units shipped decreased by 2.0%, driven by changes in product mix[111] | Customer (Three Months Ended June 30,) | 2025 Sales (in thousands) | 2024 Sales (in thousands) | Change (in thousands) | | :------------------------------------- | :------------------------ | :------------------------ | :-------------------- | | KYEC | $267 | $1,022 | $(755) | | Nokia | $536 | $998 | $(462) | | Cadence Design Systems | $1,500 | $0 | $1,500 | - The Company observed early indications of improvement in its SRAM business during the second half of fiscal 2025, with existing customers depleting channel inventory and anticipated resumption of ordering[111] Cost of Revenues This subsection details the increase in cost of revenues, attributing it to product and customer mix changes, and notes variations in inventory provisions and stock-based compensation - Cost of revenues increased by 4.9% to $2.6 million in Q2 2025 from $2.5 million in Q2 2024, primarily due to changes in product and customer mix[112] - Provision for excess and obsolete inventories decreased to $70,000 in Q2 2025 from $91,000 in Q2 2024[112] - Stock-based compensation expense in cost of revenues decreased to $44,000 in Q2 2025 from $56,000 in Q2 2024[112] Gross Profit This subsection highlights the significant increase in gross profit and gross margin, driven by favorable product and customer mix and the impact of fixed overhead - Gross profit increased by 69.0% to $3.7 million in Q2 2025 from $2.2 million in Q2 2024[113] - Gross margin increased to 58.1% in Q2 2025 from 46.3% in Q2 2024, driven by changes in product and customer mix and the impact of fixed overhead on higher shipment levels[113] Research and Development Expenses This subsection analyzes the decrease in R&D expenses, attributing it to reduced stock-based compensation, payroll, and software maintenance, partially offset by government contract funding - R&D expenses decreased by 26.5% to $3.1 million in Q2 2025 from $4.2 million in Q2 2024[114][116] - The decrease was primarily due to a $352,000 decrease in stock-based compensation, a $337,000 decrease in payroll-related expenses (due to August 2024 cost reduction measures), and a $231,000 decrease in software maintenance expense[116] - R&D expenses were offset by government contract funding of $543,000 in Q2 2025, up from $318,000 in Q2 2024[116] Selling, General and Administrative Expense This subsection details the increase in SG&A expenses, specifically noting the rise in stock-based compensation - SG&A expenses increased by 4.8% to $2.7 million in Q2 2025 from $2.6 million in Q2 2024[117] - Stock-based compensation expense in SG&A increased to $359,000 in Q2 2025 from $312,000 in Q2 2024[117] Gain from Sale of Assets This subsection explains the gain recognized from the sale and leaseback of the Company's headquarters building in the prior year - The gain from sale of assets in Q2 2024 was $5.7 million, resulting from the sale and leaseback of the Company's headquarters building completed on June 6, 2024[118] Interest Income and Other Expense, Net This subsection analyzes the decrease in net interest and other income, attributing it to lower interest income and increased foreign currency exchange loss - Interest income and other income (expense), net, decreased to $13,000 in Q2 2025 from $55,000 in Q2 2024[119] - Interest income decreased by $22,000 due to lower cash balances invested in money market funds. Foreign currency exchange loss increased to $53,000 in Q2 2025 from $33,000 in Q2 2024[119] Provision for Income Taxes This subsection details the decrease in the provision for income taxes, primarily due to shifts in the mix of income across operating jurisdictions - The provision for income taxes decreased to $54,000 in Q2 2025 from $57,000 in Q2 2024, primarily due to fluctuations in the relative mix of income among operating jurisdictions[120] Net Income (Loss) This subsection summarizes the Company's shift from net income to a net loss, driven by changes in revenues, gross profit, operating expenses, and the prior year's asset sale gain - The Company reported a net loss of $(2.2) million in Q2 2025, compared to a net income of $1.1 million in Q2 2024, primarily driven by changes in net revenues, gross profit, operating expenses, and the gain from sale of assets[121] Liquidity and Capital Resources This section discusses the Company's cash position, cash flow activities, future capital requirements, and purchase obligations - Cash and cash equivalents increased to $22.7 million as of June 30, 2025, from $13.4 million as of March 31, 2025[121] | Cash Flow Activity (Three Months Ended June 30,) | 2025 (in thousands) | 2024 (in thousands) | | :----------------------------------------------- | :------------------ | :------------------ | | Net cash used in operating activities | $(1,712) | $(4,264) | | Net cash provided by (used in) investing activities | $(21) | $11,304 | | Net cash provided by financing activities | $11,024 | $296 | - Operating cash outflow in Q2 2025 was primarily due to a net loss of $2.2 million and a $1.7 million decrease in accrued expenses (related to a production mask set payment)[122] - Financing cash inflow in Q2 2025 included $10.8 million net proceeds from an At-the-Market offering and $226,000 from employee stock plans[126] - The Company believes existing cash and cash equivalents will be sufficient for at least the next 12 months, but future capital requirements depend on revenue growth, manufacturing costs, and product development[127] - As of June 30, 2025, purchase obligations totaled $13.4 million, with $2.0 million payable in the next 12 months[128] Critical Accounting Estimates This section refers to the Company's Annual Report for a detailed discussion of critical accounting estimates - Critical accounting estimates are disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025[130] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements as of the reporting date - As of June 30, 2025, the Company had no off-balance sheet arrangements or relationships with unconsolidated entities[131] Recent Accounting Pronouncements This section directs readers to Note 1 for information on recent accounting pronouncements - Information on recent accounting pronouncements is provided in Note 1 to the condensed consolidated financial statements[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, specifically foreign currency exchange risk and interest rate sensitivity, highlighting minimal exposure due to U.S. dollar denominated transactions and short-term investments Foreign Currency Exchange Risk This subsection explains the Company's minimal exposure to foreign currency exchange risks due to U.S. dollar denominated transactions and the absence of hedging activities - The Company has relatively little exposure to foreign currency exchange risks as most revenues and expenses are U.S. dollar denominated, with minimal foreign exchange gains and losses to date[133] - The Company does not currently use forward exchange contracts or other derivative financial instruments for hedging or speculative purposes[133] Interest Rate Sensitivity This subsection describes the Company's interest rate risk, which is limited due to its cash and cash equivalents being primarily invested in short-term money market funds - Cash and cash equivalents totaled $22.7 million at June 30, 2025, primarily invested in money market funds for working capital[134] - Due to the short-term nature of investments, the Company believes it has no material exposure to changes in fair value from interest rate fluctuations; a hypothetical 100 basis point change would not materially affect fair value[134] Item 4. Controls and Procedures This section details management's evaluation of the Company's disclosure controls and procedures and internal control over financial reporting, concluding on their effectiveness and reporting no material changes Management's Evaluation of Disclosure Controls and Procedures This subsection states management's conclusion that the Company's disclosure controls and procedures were effective as of June 30, 2025 - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[136] Inherent Limitations on Effectiveness of Controls This subsection acknowledges that while disclosure controls and internal control provide reasonable assurance, no system can prevent all errors or fraud due to inherent limitations - Management believes disclosure controls and internal control over financial reporting provide reasonable, not absolute, assurance of achieving their objectives, acknowledging that no system can prevent all errors and fraud[137][138][140] Changes in Internal Control over Financial Reporting This subsection reports that no material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[141] PART II — OTHER INFORMATION Item 1A. Risk Factors This section outlines various risks and uncertainties that could adversely affect GSI Technology's business, financial condition, and stock price, including operational, macroeconomic, manufacturing, and market-related challenges Risk Factor Summary This summary highlights key risks such as unpredictable operating results, customer concentration, strategic uncertainties, dependence on SRAM sales, new product introduction challenges, macroeconomic pressures, and operational vulnerabilities - Key risks include unpredictable operating results, significant customer concentration (KYEC, Nokia, Cadence Design Systems), uncertainties from strategic alternatives, dependence on Very Fast SRAMs while transitioning to in-place associative computing, and the risks associated with new product introductions[143] - Macroeconomic factors such as higher interest rates, inflation, trade disputes, geopolitical tensions (including conflicts in Israel and Ukraine), and global economic decline are expected to adversely affect revenues and financial condition[143] - Operational risks include maintaining effective internal controls, potential goodwill and intangible asset impairment, reliance on single-source suppliers, challenges in developing new products for rapid market changes, and the cyclical nature of the networking and telecommunications markets[146] Risks Related to Our Business and Financial Condition This section details risks impacting the Company's business and financial health, including volatile operating results, rising expenses, customer concentration, strategic review uncertainties, new product development challenges, and potential impairment of assets - Quarterly operating results have varied significantly, with net revenues ranging from $4.6 million to $6.3 million and operating losses from $2.2 million to $6.7 million in the last nine fiscal quarters, making period-to-period comparisons unreliable for future performance prediction[149] - Expenses are largely fixed and expected to increase, with raw material costs (e.g., wafer prices up 20% in early 2022 and 6% in early 2023) and manufacturing services rising due to supply chain constraints[153] - KYEC, Nokia, and Cadence Design Systems collectively accounted for a significant portion of net revenues in recent fiscal years (e.g., KYEC 23% in FY2025, Nokia 12% in FY2025, Cadence 8% in FY2025), and fluctuations in their orders will substantially affect operating results[155] - The ongoing strategic review initiated on May 2, 2024, to maximize stockholder value (including financing, divestiture, licensing, or sale) creates uncertainty that could disrupt business operations, affect employee retention, and cause stock price volatility[156][159] - Future success is substantially dependent on the successful introduction of new in-place associative computing products, a project involving significant technological, financial, and market establishment risks[162] - The Company incurred net losses of $10.6 million, $20.1 million, and $16.0 million during fiscal 2025, 2024, and 2023, respectively, with no assurance of sustained revenue growth or profitability[168] - A material weakness in internal control over financial reporting identified in FY2022 and unremediated at FY2023 was remediated by March 31, 2024, but there's no assurance against future deficiencies[169][170] - Goodwill ($8.0 million) and intangible assets ($1.3 million) from the MikaMonu acquisition are subject to impairment tests; an adverse change in market conditions or failure of APU products could trigger impairment charges[172] Risks Related to Manufacturing and Product Development This section covers risks associated with manufacturing, supply chain, product development, competition, sales channels, personnel, intellectual property, and operational growth - The Company relies on single-source suppliers for key components, including TSMC for wafers and ASE for packaging, without long-term fixed-price contracts, exposing it to supply disruptions and cost increases[173] - Failure to develop new products and respond to rapid technological changes and evolving industry standards, particularly in networking and telecommunications, could harm the business[175] - Increased wafer fabrication and assembly costs, driven by demand upturns or inflationary pressures, may not be offset by higher average selling prices, leading to declining gross margins[178] - The Very Fast SRAM market is highly competitive, characterized by price erosion, rapid technological change, and cyclical patterns, with competitors often having greater resources and integrated facilities[180] - A significant percentage of sales are through distributors (e.g., Avnet Logistics accounted for 71.5% of net revenues in Q2 2025), and inability to manage these channels or forecast sales accurately could harm the business[184] - The average unit selling prices of products historically decline over their lives, requiring continuous introduction of lower-cost versions, increased unit sales, or new higher-priced products to maintain revenues and gross margins[185] - The Company's future success is substantially dependent on the continued services of senior management and other key personnel, including Lee-Lean Shu (President/CEO) and Dr. Avidan Akerib (VP of Associative Computing), without whom development and strategic objectives could be delayed[186] - System security risks, data protection breaches, cyber-attacks, and IT integration issues could disrupt internal operations or business partners, leading to financial losses, reputational damage, and increased expenses[189][190][191] - Demand for the Company's products is tied to the success of OEM customers in manufacturing, marketing, and selling their own products, making the Company vulnerable to factors affecting its customers' businesses[194][195] - Products have lengthy sales cycles (up to 24 months), making expense planning and forecasting difficult, and the new subscription business model for APU products introduces additional execution and customer retention risks[196][197] - Actions by activist stockholders could be costly, time-consuming, and disruptive, potentially interfering with strategic plans and affecting relationships with stakeholders[198][201] - Future acquisitions or investments carry risks such as integration difficulties, diversion of resources, overpaying, and challenges in retaining key employees[202] - Inability to recruit and retain highly skilled technical, managerial, sales, and marketing personnel could harm business and product development efforts due to intense competition for such individuals[204] - Claims of intellectual property infringement could lead to substantial costs, diversion of resources, and require stopping sales, obtaining licenses, paying damages, or redesigning products[205][207][208] - Failure to protect proprietary technology through patents, trade secrets, copyrights, and contractual agreements could allow competitors to use the technology without approval, harming competitive ability[209] - Significant order cancellations or deferrals, which customers can generally do on short notice, could materially and adversely affect operating results by leading to excess inventory, reduced profit margins, and increased obsolescence[210] - Business growth could strain management systems, infrastructure, and resources, requiring significant capital investment and potentially exposing inadequacies in controls and staffing[211][213] - Difficulties in transitioning to smaller geometry process technologies and advanced manufacturing processes could result in reduced manufacturing yields, delivery delays, and increased expenses[214] - Manufacturing process technologies are subject to rapid change and require significant R&D expenditures, such as the $2.4 million incurred for an APU2 pre-production mask set in Q3 fiscal 2024[215] - Complex products could contain defects, leading to delayed revenue recognition, loss of market share, significant warranty/support costs, and potential product liability claims[216] Risks Related to Our International Business and Operations This section addresses risks associated with international operations, including export controls, trade policies, geopolitical instability, and reliance on foreign suppliers and customers - The Company's offerings are subject to export controls and economic sanctions laws, and failure to comply or for channel distributors to obtain necessary licenses could result in fines, penalties, and reputational harm[217][219][220] - Changes in trade policy, including new tariffs, export restrictions, and trade barriers, could increase manufacturing/transportation costs, limit market access, and harm revenue and competitive position[221] - Business performance may be affected by changes in Taiwan's political, social, and economic environment, as much of the manufacturing and testing occurs there; significant armed conflict could materially damage the business[222] - Software development for associative computing products occurs in Israel, making business performance and operations vulnerable to the evolving military conflict there[223] - International business exposes the Company to risks including uncertainties regarding taxes/tariffs, political/economic instability, heightened price sensitivity in emerging markets, compliance with foreign laws, and fluctuations in freight rates[226][229] - Changes in U.S. international trade agreements or corporate tax provisions related to global manufacturing and sales could adversely affect business, financial condition, and results of operations[227] - Demand for products incorporated into advanced military electronics could decrease if U.S. military operations scale back or governmental appropriations for military purchases are reduced[228] - Reliance on suppliers and customers in the Pacific Rim (e.g., TSMC in Taiwan) exposes the Company to significant risks from natural disasters (earthquakes, typhoons) and outbreaks of contagious diseases, which could disrupt production and shipments[230][231] Risks Relating to Our Common Stock and the Securities Market This section outlines risks related to the Company's common stock, including price volatility, potential need for additional capital, influence of executive officers, and anti-takeover provisions - The trading price of common stock is subject to significant fluctuation and volatility due to factors such as financial results, new product announcements, changes in demand estimates, and overall market conditions[233][234] - The Company may need to raise additional capital in the future, which may not be available on favorable terms or at all, potentially leading to dilution for existing stockholders if equity securities are issued[237] - Executive officers, directors, and their affiliates beneficially owned approximately 25% of outstanding common stock as of July 31, 2025, allowing them substantial influence over stockholder approval matters[238] - Provisions in the Company's charter documents, such as the Board's authority to issue preferred stock and restrictions on stockholder actions, might inhibit potential acquisition bids and affect the market price of common stock[239][240] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the Company's stock repurchase program, indicating that no shares were repurchased during the quarter ended June 30, 2025 Stock Repurchase Program This subsection states that despite authorization, no shares were repurchased under the stock repurchase program during the quarter - The Board of Directors authorized a stock repurchase program, but no shares were repurchased during the quarter ended June 30, 2025[241] Item 5. Other information This section provides information on insider trading arrangements and policies, stating that no directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter Insider Trading Arrangements and Policies This subsection confirms that no directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter - No director or officer adopted or terminated a Rule 10b5-1(c) trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[242] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and Inline XBRL documents | Exhibit Number | Name of Document | | :------------- | :--------------- | | 31.1 | Certification of Lee-Lean Shu, President, Chief Executive Officer and Chairman, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 31.2 | Certification of Douglas M. Schirle, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 32.1 | Certification of Lee-Lean Shu, President, Chief Executive Officer and Chairman, and Douglas M. Schirle, Chief Financial Officer, pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | Signatures This section contains the required signatures of the registrant's authorized officers, confirming the filing of the report - The report was signed on August 8, 2025, by Lee-Lean Shu, President, Chief Executive Officer and Chairman, and Douglas M. Schirle, Chief Financial Officer[246]