Business Context and Reporting Period
Company: GSI Technology, Inc.
Filing Type: Form 8-K (Current Report)
Date: August 28, 2009
Event: Entry into a Material Definitive Agreement and Completion of Acquisition of Assets.
On August 28, 2009, GSI Technology, Inc. ("GSI") entered into and consummated an Asset Purchase Agreement with Sony Electronics Inc. ("Sony"). GSI purchased substantially all assets related to Sony's SRAM memory device product line, including certain patents and license rights.
Key Financial Metrics and Transaction Details
- Consideration: Approximately $6.9 million in cash.
- Payment Structure: Approximately $5.2 million paid at closing; the balance payable following a post-closing inventory adjustment.
- Contingent Consideration: Future cash payments based on the sale of acquired SRAM products over an eight-quarter period, commencing with the first quarter of revenue generation.
- Accounting Method: Purchase method of accounting.
- Financial Statements: Financial statements for the acquired business and pro forma financial information are not included in this initial filing and will be filed by amendment within 71 calendar days.
Material Changes and Impact
The acquisition is not expected to have a significant impact on GSI's total revenues or operating results for the second fiscal quarter ending September 30, 2009, except for adjustments required by purchase accounting rules. There were no material relationships between GSI and Sony prior to this transaction.
Guidance, Outlook, and Risks
Revenue Projections
- Q3 2009 (ending Dec 31): Expected additional revenue of approximately $1 million from the new product line.
- Q4 2010 (ending Sep 30): Expected quarterly revenue of approximately $2 million from the new product line.
Margin Outlook
GSI expects to achieve gross profit margins comparable to its overall gross margins after a transition period of one to two quarters.
Risks and Contingencies
Forward-looking statements in the filing are subject to risks including:
- Difficulties in integrating the acquired product line.
- Volatility in earnings due to purchase accounting adjustments.
- Dependence on a limited number of customers.
- Cyclical nature of the semiconductor and SRAM markets.
- Intensive competition and the need to introduce new products to offset declining unit selling prices.
Investor Verification Checklist
- Verify the final purchase price after the post-closing inventory adjustment.
- Monitor the upcoming amendment to this 8-K for the required financial statements and pro forma information (due within 71 days).
- Track the realization of the projected $1 million revenue in Q3 2009 and the path to $2 million quarterly revenue by late 2010.
- Assess the timeline for achieving gross margins comparable to GSI's historical averages.
- Review the terms of the contingent payments based on future product sales over the eight-quarter period.