Edgar Filing: GSI TECHNOLOGY INC

gsit_Current folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

☐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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐

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 October 31, 2014: 23,736,079

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GSI TECHNOLOGY, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014


		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
Signatures		43
Exhibit Index		44

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PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

GSI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30,		March 31,
	2014		2014

	(In thousands, except share
	and per share amounts)
ASSETS
Cash and cash equivalents	$	34,760	$	41,520
Short-term investments		27,971		39,412
Accounts receivable, net		7,830		8,238
Inventories		9,240		8,185
Prepaid expenses and other current assets		5,471		5,152
Total current assets		85,272		102,507
Property and equipment, net		9,006		9,683
Long-term investments		19,011		28,819
Other assets		594		668
Total assets	$	113,883	$	141,677
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	3,724	$	4,870
Accrued expenses and other liabilities		4,244		4,444
Deferred revenue		3,100		2,523
Total current liabilities		11,068		11,837
Income taxes payable		1,492		1,462
Total liabilities		12,560		13,299
Commitments and contingencies (Note 6)
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: 23,736,079 and 27,561,482 shares, respectively		24		28
Additional paid-in capital		31,780		56,399
Accumulated other comprehensive income (loss)		(3)		33
Retained earnings		69,522		71,918
Total stockholders’ equity		101,323		128,378
Total liabilities and stockholders’ equity	$	113,883	$	141,677

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 September 30,				Six Months Ended September 30,
	2014		2013		2014		2013

	(In thousands, except per share amounts)

Net revenues	$	13,263	$	15,542	$	26,208	$	31,954
Cost of revenues		7,202		8,140		14,208		17,086
Gross profit		6,061		7,402		12,000		14,868
Operating expenses:
Research and development		2,946		2,951		6,019		5,948
Selling, general and administrative		4,156		4,210		8,491		9,220
Total operating expenses		7,102		7,161		14,510		15,168
Income (loss) from operations		(1,041)		241		(2,510)		(300)
Interest income, net		78		95		174		199
Other income (expense), net		34		(10)		9		(3)
Income (loss) before income taxes		(929)		326		(2,327)		(104)
Provision (benefit) for income taxes		21		(60)		69		(49)
Net income (loss)	$	(950)	$	386	$	(2,396)	$	(55)
Net income (loss) per share:
Basic	$	(0.04)	$	0.01	$	(0.09)	$	—
Diluted	$	(0.04)	$	0.01	$	(0.09)	$	—
Weighted average shares used in per share calculations:
Basic		25,540		27,631		26,512		27,407
Diluted		25,540		28,975		26,512		27,407

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 September 30,				Six Months Ended September 30,
	2014		2013		2014		2013

	(In thousands)

Net income (loss)	$	(950)	$	386	$	(2,396)	$	(55)
Net unrealized gain (loss) on available-for-sale investments, net of tax		(40)		46		(36)		(39)
Total comprehensive income (loss)	$	(990)	$	432	$	(2,432)	$	(94)

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)



	Six Months Ended September 30,
	2014		2013

	(In thousands)
Cash flows from operating activities:
Net loss	$	(2,396)	$	(55)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Allowance for sales returns, doubtful accounts and other		(5)		(14)
Provision for excess and obsolete inventories		622		526
Depreciation and amortization		931		998
Stock-based compensation		1,144		1,128
Deferred income taxes		—		102
Windfall tax benefits from stock options exercised		—		(403)
Amortization of bond premium on investments		340		439
Changes in assets and liabilities:
Accounts receivable		413		445
Inventory		(1,677)		2,097
Prepaid expenses and other assets		(334)		(36)
Accounts payable		(1,146)		(63)
Accrued expenses and other liabilities		(175)		297
Deferred revenue		577		(449)
Net cash provided by (used in) operating activities		(1,706)		5,012
Cash flows from investing activities:
Purchase of investments		(4,000)		(19,708)
Sales and maturities of short-term investments		24,873		20,111
Purchases of property and equipment		(160)		(138)
Net cash provided by investing activities		20,713		265
Cash flows from financing activities:
Repurchase of common stock		(26,430)		—
Windfall tax benefits from stock options exercised		—		403
Proceeds from issuance of common stock under employee stock plans		663		2,021
Net cash provided by (used in) financing activities		(25,767)		2,424
Net increase (decrease) in cash and cash equivalents		(6,760)		7,701
Cash and cash equivalents at beginning of the period		41,520		41,120
Cash and cash equivalents at end of the period	$	34,760	$	48,821
Non-cash financing activities:
Purchases of property and equipment through accounts payable and accruals	$	5	$	—
Supplemental cash flow information:
Net cash paid for income taxes	$	52	$	10

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, 2014.

The consolidated results of operations for the three months and six months ended September 30, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year.

Significant accounting policies

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Litigation and settlement costs

From time to time, the Company is involved in legal actions. The Company currently is a party to pending legal proceedings which it is defending aggressively. See Note 6 for additional information regarding this pending litigation. There are many uncertainties associated with any litigation, and the Company may not prevail. The litigation, regardless of its eventual outcome, will be costly and time consuming and, should the outcome be adverse to the Company, could result in the Company being required to pay significant monetary damages. If that occurs, our business, financial condition and results of operations could be materially and adversely affected. If information becomes available that causes us to determine that a loss in any of our pending litigation, or the settlement of such litigation, is probable, and we can reasonably estimate the loss associated with such events, we will record the loss in accordance with GAAP. However, the actual liability in any such litigation may be materially different from our estimates, which could require us to record additional costs.

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) on Income Taxes, to improve the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is expected to reduce diversity in practice and is expected to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. Implementation of this guidance in the quarter ended June 30, 2014 did not have a material impact on the Company’s financial position or results of operations.

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In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The new accounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

NOTE 2—NET INCOME (LOSS) PER COMMON SHARE

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2014		2013		2014		2013

	(In thousands, except per share amounts)
Net income (loss)	$	(950)	$	386	$	(2,396)	$	(55)

Denominators:
Weighted average shares—Basic		25,540		27,631		26,512		27,407
Dilutive effect of employee stock options		—		1,331		—		—
Dilutive effect of employee stock purchase plan options		—		13		—		—
Weighted average shares—Dilutive		25,540		28,975		26,512		27,407
Net income (loss) per common share—Basic	$	(0.04)	$	0.01	$	(0.09)	$	—
Net income (loss) per common share—Diluted	$	(0.04)	$	0.01	$	(0.09)	$	—

The following shares of common stock underlying outstanding stock options, 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 September 30,		Six Months Ended September 30,
	2014	2013	2014	2013

	(In thousands)
Shares underlying options	3,503	1,558	3,375	2,964

NOTE 3—BALANCE SHEET DETAIL



	September 30, 2014		March 31, 2014

	(In thousands)
Inventories:
Work-in-progress	$	2,852	$	2,011
Finished goods		5,785		5,588
Inventory at distributors		603		586
	$	9,240	$	8,185

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	September 30, 2014		March 31, 2014
	(In thousands)
Accounts receivable, net:
Accounts receivable	$	7,936	$	8,349
Less: Allowances for sales returns, doubtful accounts and other		(106)		(111)
	$	7,830	$	8,238


	September 30, 2014		March 31, 2014
	(In thousands)
Prepaid expenses and other current assets:
Prepaid tooling and masks	$	1,362	$	833
Prepaid income taxes		2,601		2,598
Other receivables		484		596
Other prepaid expenses		1,024		1,125
	$	5,471	$	5,152


	September 30, 2014		March 31, 2014
	(In thousands)
Property and equipment, net:
Computer and other equipment	$	16,942	$	16,990
Software		4,792		4,780
Land		3,900		3,900
Building and building improvements		2,256		2,256
Furniture and fixtures		110		110
Leasehold improvements		791		791
		28,791		28,827
Less: Accumulated depreciation and amortization		(19,785)		(19,144)
	$	9,006	$	9,683

Depreciation and amortization expense was $377,000 and $459,000, respectively, for the three months ended September 30, 2014 and 2013 and $842,000 and $908,000, respectively, for the six months ended September 30, 2014 and 2013.


	September 30, 2014		March 31, 2014
	(In thousands)
Other assets:
Non-current deferred income taxes	$	39	$	24
Intangibles, net		475		564
Deposits		80		80
	$	594	$	668

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The following table summarizes the components of intangible assets and related accumulated amortization balances at September 30, 2014 (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
Product designs	$	590	$	428	$	162
Patents		720		407		313
Software		80		80		—
Total	$	1,390	$	915	$	475

Amortization of intangible assets included in cost of revenues was $44,000 and $45,000, respectively, for the three months ended September 30, 2014 and 2013 and $89,000 and $90,000, respectively, for the six months ended September 30, 2014 and 2013.


	September 30, 2014		March 31, 2014
	(In thousands)
Accrued expenses and other liabilities:
Accrued compensation	$	2,134	$	2,330
Accrued professional fees		699		824
Accrued commissions		322		307
Other accrued expenses		1,089		983
	$	4,244	$	4,444

NOTE 4—INCOME TAXES

The current portion of the Company’s unrecognized tax benefits was $0 at both September 30, 2014 and March 31, 2014. The long-term portion at September 30, 2014 and March 31, 2014 was $1,492,000 and $1,462,000, respectively, of which the timing of the resolution is uncertain. As of September 30, 2014, $1,122,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of September 30, 2014 and March 31, 2014, the Company’s net deferred tax assets of $4.5 million and $3.7 million, respectively, were subject to a full valuation allowance.

Management believes that it is reasonably possible that within the next twelve months the Company could have a reduction in uncertain tax benefits of up to $775,000, 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 2011 through 2014 remain open to examination by federal tax authorities, and fiscal years 2010 through 2014 remain open to examination by California tax authorities

The Company’s estimated annual effective income tax rate was approximately 4.5% and (3.6)% as of September 30, 2014 and 2013, respectively. The annual effective tax rate as of September 30, 2014 varies 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 expenses. The difference between the effective income tax rate and the applicable United States statutory income tax rate as of September 30, 2013 was primarily due to the effects of tax credits, foreign tax rate differentials and tax free interest income, offset by stock-based compensation expense.

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NOTE 5—FINANCIAL INSTRUMENTS

Fair value measurements

The 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 September 30, 2014, the Level 1 category included money market funds of $1.1 million, which were included in cash and cash equivalents in the Condensed Consolidated Balance Sheet.

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 September 30, 2014, the Level 2 category included short-term investments of $28.0 million and long-term investments of $19.0 million, which were comprised of certificates of deposit, corporate debt securities and government and agency securities.

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of September 30, 2014, the Company had no Level 3 financial assets measured at fair value in the Condensed Consolidated Balance Sheet.

As of September 30, 2014, there were no liabilities measured at fair value on a recurring basis.

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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 Markets for Identical Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	1,135	$	1,135	$	—	$	—
Marketable securities		46,982		—		46,982		—
Total	$	48,117	$	1,135	$	46,982	$	—


			Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	March 31, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	3,852	$	3,852	$	—	$	—
Marketable securities		68,231		—		68,231		—
Total	$	72,083	$	3,852	$	68,231	$	—

Short-term and long-term investments

All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income in the Condensed Consolidated Balance Sheets. The Company had money market funds of $1.1 million and $3.9 million at September 30, 2014 and March 31, 2014, respectively, included in cash and cash equivalents in the Condensed Consolidated Balance Sheet. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

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The following table summarizes the Company’s available-for-sale investments:



	September 30, 2014
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
State and municipal obligations	$	11,581	$	4	$	—	$	11,585
Corporate notes		7,366		12		—		7,378
Agency bonds		1,001		1		—		1,002
Certificates of deposit		8,000		6		—		8,006
Total short-term investments	$	27,948	$	23	$	—	$	27,971
Long-term investments:
State and municipal obligations	$	1,074	$	5	$	—	$	1,079
Corporate notes		3,017		9		—		3,026
Certificates of deposit		10,250		—		(12)		10,238
Agency bonds		3,008		—		(9)		2,999
International government obligations		1,676		—		(7)		1,669
Total long-term investments	$	19,025	$	14	$	(28)	$	19,011



	March 31, 2014
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
State and municipal obligations	$	8,336	$	4	$	—	$	8,340
Corporate notes		5,023		12		—		5,035
Agency bonds		3,523		2		—		3,525
Certificates of deposit		14,997		6		—		15,003
International government obligations		7,507		2		—		7,509
Total short-term investments	$	39,386	$	26	$	—	$	39,412
Long-term investments:
State and municipal obligations	$	8,227	$	10	$	—	$	8,237
Corporate notes		6,392		16				6,408
Certificates of deposit		10,500		—		(2)		10,498
Agency bonds		2,011		—		(5)		2,006
International government obligations		1,670		—		—		1,670
Total long-term investments	$	28,800	$	26	$	(7)	$	28,819

The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains are due to changes in interest rates and bond yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity.

The deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was $0 and $11,000 at September 30, 2014 and March 31, 2014, respectively.

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As of September 30, 2014, contractual maturities of the Company’s available-for-sale non-equity investments were as follows:



			Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	27,948	$	27,971
Maturing in one to three years		19,025		19,011
Maturing in more than three years		—		—
	$	46,973	$	46,982

The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.

NOTE 6—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, the Company’s indemnification obligations are 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 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.

Product warranties

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 were not significant for the three months or six months ended September 30, 2014 or 2013.

Legal proceedings

In March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against the Company in the United States District Court for the District of Minnesota alleging that the Company’s products, including its SigmaDDR and SigmaQuad families of Very Fast SRAMs, infringe five patents held by Cypress. The complaint seeks unspecified damages for past infringement and a permanent injunction against future infringement.

On June 10, 2011, Cypress filed a complaint against the Company with the United States International Trade Commission (the “ITC”). The ITC complaint, as subsequently amended, alleged infringement by the Company of three of the five patents involved in the District Court case and one additional patent and also alleged infringement by three of our distributors and 11 of our customers who allegedly incorporate the Company’s SRAMs in their products. The ITC complaint sought a limited exclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the United States and permanent orders directing the Company and the other respondents to cease and desist from selling or distributing such products in the United States. On July 21,

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2011, the ITC formally instituted an investigation in response to Cypress’s complaint. On June 7, 2013, the ITC announced that the full Commission had affirmed the determination of Chief Administrative Judge Charles E. Bullock that GSI’s SRAM devices, and products containing them, do not infringe the Cypress patents and that Cypress had failed to establish existence of a domestic industry that practices the patents. Moreover, the Commission reversed a portion of Judge Bullock’s determination with respect to the validity of the patents, finding the asserted claims of one of the patents to have been anticipated by prior art and, therefore, invalid. The Commission ordered the investigation terminated, and Cypress did not appeal the ruling.

The Minnesota District Court case had been stayed pending the conclusion of the ITC proceeding. Following the termination of the ITC investigation, the stay was lifted. On May 1, 2013, Cypress filed an additional lawsuit in the United States District Court for the Northern District of California alleging infringement by our products of five additional Cypress patents. Like the Minnesota case, the complaint in the California lawsuit seeks unspecified damages for past infringement and a permanent injunction against future infringement. The Company filed answers in both cases denying liability and asserting affirmative defenses. On August 7, 2013, the parties stipulated that the claims in the Minnesota case with respect to three of the asserted patents would be dismissed without prejudice and that the claims with respect to the remaining two patents would be transferred to, and consolidated with, the California case. On August 20, 2013, the Court in the California case ordered the cases consolidated. Discovery in the case is proceeding.

The Company believes that it has strong defenses against Cypress’ patent infringement claims and intends to continue to defend itself vigorously. However, the litigation process is inherently uncertain, and the Company may not prevail. Patent litigation is particularly complex and can extend for a protracted period of time, which can substantially increase the cost of such litigation. The Company has not recorded any loss contingency during fiscal 2012, fiscal 2013, fiscal 2014 or fiscal 2015 in connection with these legal proceedings as the Company cannot predict their outcome and cannot estimate the likelihood or potential dollar amount of any adverse results. However, an unfavorable outcome in these proceedings could have a material adverse impact on the Company’s financial position, results of operations or cash flows for the period in which the outcome occurs and in future periods.

NOTE 7—STOCK-BASED COMPENSATION

As of September 30, 2014, 6,396,356 shares of common stock were available for grant under the Company’s 2007 Equity Incentive Plan.

The following table summarizes the Company’s stock option activities for the six months ended September 30, 2014:



			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, 2014	5,585,500	6,143,980			5.13
Options reserved	1,377,699	—			—
Granted	(575,043)	575,043			5.29
Exercised	—	(105,725)			4.04	$	224,178
Forfeited	8,200	(8,200)			5.97
Balance at September 30, 2014	6,396,356	6,605,098		$	5.16
Options vested and exercisable		4,188,255	4.45	$	4.83	$	3,742,830
Options vested and expected to vest		6,556,577	5.87	$	5.16	$	4,300,040

The weighted average fair value per underlying share of options granted during the three months ended September 30, 2014 and 2013 was $2.14 and $2.93, respectively, and for the six months ended September 30, 2014 and 2013 was $2.16 and $2.72, respectively.

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Options outstanding by exercise price at September 30, 2014 were as follows:

Number of

Options Outstanding

Options Exercisable

Weighted

Weighted Average

Weighted

Underlying

Average