What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-08 · 155 added, 103 removed, 136 unchanged (65% of the section changed)

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our customers and suppliers;

our revenue and the components thereof;

our revenue and the recognition and components thereof;

our costs and expenses;

including capital expenditures;

seasonality and demand;

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changes in laws and regulations;

including with respect to taxes;

our plans related to and the impact of current and future litigation or activism;

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deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names.

We and our wholly-owned subsidiaries hold more than 2,500 issued or pending patents worldwide as of March 31, 2020.

We and our wholly-owned subsidiaries hold more than 2,300 issued or pending patents worldwide as of June 30, 2020.

Our patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content.

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Impact of COVID-19

In March 2020, the World Health Organization declared COVID-19 to be a global pandemic and the President of the United States declared the COVID-19 outbreak a national emergency.

The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, which has resulted in a significant deterioration of economic conditions in many of the countries in which we operate.

The spread of the COVID-19 virus has also caused us to modify our business practices (including implementing work-from-home policies and restricting travel by our employees) in ways that may be detrimental to our business.

These practices may have impacted our ability to deploy our workforce effectively.

These same developments may affect the operations of our suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus.

While expected to be temporary, these disruptions may negatively impact our revenue, results of operations, financial condition, and liquidity in 2020.

Although such disruptions did not have a material adverse impact on our financial results for the first quarter of fiscal 2020, the COVID-19 pandemic and our resulting economic effects could have significant adverse effects on our customers’ ability to manufacture, distribute and sell products incorporating our touch-enabling technologies, which may result in a reduction in the royalties we receive and could cause adverse effects on our business, results of operations, financial condition and cash flows.

As part of our response to the impact of the COVID-19 pandemic on our business, we are taking the following cost reduction measures:

a 10% reduction of the base salaries of certain company executives and a 25% reduction of cash compensation of each directors' cash compensation for service on the Board and each of our committees;

reduced and renegotiated professional services fees from third party services providers and relocation of certain positions to lower-cost regions.

We also suspended our 401(k) match until further notice.

We will continue to analyze our cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers and other counterparties, for an indefinite period of time.

We will continue to evaluate the nature and extent of the impact of COVID-19 to our business.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S.

and the world and has resulted in authorities implementing numerous measures to combat the spread of the virus.

including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

The COVID-19 outbreak and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

Our compliance with these containment measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers and suppliers for an extended period of time.

To support the health and well-being of our employees, customers and communities, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place until the end of September 2020.

In addition, many of our customers are working remotely, which may delay the timing of some orders due to their and our compliance with frequently changing government-mandated or recommended shelter-in-place orders in jurisdictions in which we, our customers and our suppliers operate.

We reported lower estimated royalties revenue in the second quarter of 2020 following the anticipated volume reductions due to delay in shipments as well as decline in general business environment due to the impact of COVID-19.

In response to certain anticipated impacts from the COVID-19 pandemic, we have also implemented a series of cost reduction initiatives to further preserve financial flexibility.

These actions include:

reductions of the base salaries and cash compensation of company executives and board members;

cancellation and reduction in current year's executive and employee bonus plans;

renegotiated professional services fees from third party services providers;

relocation of certain positions to lower-cost regions;

temporarily suspended company matching of our employee retirement savings plan and taking advantage of the broad-based employer relief provided by the governments.

In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic.

The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria.

We applied for the CEWS to the extent we met the requirements to receive the subsidy.

During the three months ended June 30, 2020, we recorded $0.2 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statement of Operations.

As the COVID-19 pandemic evolves, we will continue to actively monitor developments and business conditions that may cause us to take further actions that alter business operations as may be required by applicable authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders.

Although the effects of the pandemic may not be fully reflected in our financial results until future periods, the COVID-19 pandemic and our resulting economic effects could have significant adverse effects on our customers’ ability to produce, distribute and sell products incorporating our touch-enabling technologies, which may result in a reduction in the royalties we receive and could cause adverse effects on our business, results of operations, financial condition and cash flows.

CRITICAL ACCOUNTING POLICES AND ESTIMATES

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On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, stock-based compensation, short-term investments, leases, income taxes and contingencies.

We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates and assumptions on historical experience and on

various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates and assumptions.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets.

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 8, 2020 , the date of issuance of this Quarterly Report on Form

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of August 6, 2020 , the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change as new events occur and additional information is obtained.

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RESULTS OF OPERATIONS

Total revenue for the three months ended March 31, 2020 was $ 6.3 million , an increase of $1.1 million , or 22% , compared to $5.1 million for the three months ended March 31, 2019 primarily driven by a $1.6 million , or 48% , increase in per-unit royalty revenue partially offset by a $0.5 million or 26.0% , decrease in fixed fee license revenue.

Net loss for the three months ended March 31, 2020 was $4.8 million , a decrease of $6.2 million , or 56% , as compared to a net loss of $11.0 million for the three months ended March 31, 2019 .

This decrease in net loss was mainly attributable to a $1.1 million increase in total revenue and a $5.8 million decrease in total cost and operating expenses partially offset by an $0.8 million decrease in interest and other income (expense).

The decrease in cost and expenses was primarily due to lower legal and settlement costs attributable to reduced activities following litigation settlements, and decreased compensation costs largely due to lower stock-based compensation expense, partially offset by increased depreciation expense resulting from the shortening in estimated useful life of our San Jose California Facility ("SJ Facility") to March 31, 2020 following our decision to exit this facility.

The following table sets forth our condensed consolidated statements of income data as a percentage of total revenue:

Three Months Ended March 31,

Total revenue for the three months ended June 30, 2020 was $ 5.7 million , a decrease of $3.1 million , or 35% , compared to $8.7 million for the three months ended June 30, 2019 primarily driven by a $3.0 million or 70% , decrease in fixed fee license revenue.

Total revenue for the six months ended June 30, 2020 was $11.9 million , a decrease of $1.9 million , or 14% , compared to $13.9 million for the six months ended June 30, 2019 primarily driven by a $3.4 million or 57% , decrease in fixed fee license revenue partially offset by a $1.5 million , or 19% , increase in per-unit royalty revenue.

Net loss for the three months ended June 30, 2020 was $0.7 million , a decrease of $7.9 million , or 92% , as compared to a net loss of $8.6 million for the three months ended June 30, 2019 .

The decrease in net loss was mainly attributable to a $3.1 million decrease in total revenue and a $11.2 million decrease in total cost and operating expenses.

The decrease in cost and expenses was primarily due to lower legal and settlement costs attributable to reduced activities following litigation settlements in 2019, decreased compensation, benefits and other employee related costs and lower consulting and professional services fees driven by lower recruitment fees.

The decrease in compensation, benefits and other employee related costs was largely attributable to lower base salaries following the completed transition of research and development and finance functions from San Jose, California to Montreal,Canada and lower variable compensation primarily due to the impact of the cost reduction initiative we implemented in the first half of 2020 in response to the COVID-19 pandemic.

Net loss for the six months ended June 30, 2020 was $5.5 million , a decrease of $14.1 million , or 72% , as compared to a net loss of $19.6 million for the six months ended June 30, 2019 mainly attributable to a $1.9 million decrease in total revenue, a $17.0 million decreased in total cost and operating expenses and a $1.0 million decrease in interest and other income (expense).

The decrease in cost and expenses was primarily due to lower legal and settlement costs attributable to reduced activities following litigation settlements, lower compensation costs and a decrease in professional services largely attributable to the cost reduction initiative we implemented in the first half of 2020.

These decreases were partially offset by increased depreciation expense resulting from the shortening in estimated useful life of our San Jose, California Facility ("SJ Facility") to March 31, 2020 following our decision to exit this facility as well as a decrease in stock-based compensation expense.

The decrease in consulting and professional services was driven by decreases in recruitment fees and outside services in the six months ended June 30, 2020 compared to the same period in 2019.

The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of total revenue:

Three Months Ended

Six Months Ended

Fixed fee license revenue

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Total costs and expenses

Operating income (loss)

Interest and other income (loss)

Income (loss) before provision for income taxes

Operating loss

Interest and other income

Loss before provision for income taxes

Provision for income taxes

Net income (loss)

Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less significant revenue earned from development, services and other revenue.

Royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.

A revenue summary for the three months ended March 31, 2020 and 2019 are as follows (in thousands, except for percentages):

Royalty and license revenue are composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

A revenue summary for the three months ended June 30, 2020 and 2019 are as follows (in thousands, except for percentages):

Three Months Ended

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Total revenues

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Royalty and license revenue — Total royalty and license revenue for three months ended March 31, 2020 increased $1.1 million , or 22% , from $5.0 million for the three months ended March 31, 2019 to $6.2 million for the three months ended March 31, 2020 .

Per-unit royalty revenue increased by $1.6 million , or 48% , from $3.3 million for the three months ended March 31, 2019 to $4.9 million for the three months ended March 31, 2020 , primarily caused by a $2.7 million increase in royalties from our mobility licenses partially offset by a $0.5 million decrease in royalties obtained from our gaming licenses ("gaming royalties") and a $0.5 million decrease in royalties obtained from our automotive licenses ("automotive royalties)").

The $2.7 million increase in mobility royalties was due mainly to per-unit royalty agreements entered into during the three months ended June 30, 2019 and partially offset by the impact of lower shipments estimated for other mobility licensees.

The $0.5 million decrease in gaming royalties was caused by lower shipment volumes estimated for our gaming licensees.

The $0.5 million decrease in automotive royalties was caused by lower shipment volumes estimated for our automotive licensees.

Fixed fee license revenue decreased $0.5 million , or 26% , from $1.7 million for the three months ended March 31, 2019 to $1.3 million for the three months ended March 31, 2020 , primarily due to a $0.5 million decrease in automotive license revenue.

Royalty and license revenue — Total royalty and license revenue for the three months ended June 30, 2020 decreased $3.1 million , or 35% , from $8.7 million for the three months ended June 30, 2019 to $5.6 million for the three months ended June 30, 2020 .

Per-unit royalty revenue decreased by $0.1 million , or 3% , in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 , primarily caused by a $0.6 million decrease in royalties from our automotive royalties and a $0.5

million decrease in our gaming royalties, partially offset by a $0.9 million increase in royalties obtained from our mobility licensees ("mobility royalty").

The decrease in automotive royalty was primarily due to lower volume due to shipment delays resulting from the impact of COVID-19.

The decrease in gaming royalty revenue was caused by lower shipment volume due to COVID-19 related economic downturn and the impact of nonrenewal of an expired contract.

The increase in mobility royalty revenue was due mainly to per-unit royalty revenue agreements entered into during the second and third quarters of 2019.

Fixed fee license revenue decreased $3.0 million , or 70% , in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a $2.0 million decrease in gaming license revenue and a $1.0 million decrease in mobility license revenue.

We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP.

Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements under Accounting Standard Codification 606, Revenue from Contracts with Customers , (“ASC 606”).

Development, services and other revenue — Development, services, and other revenue was $75,000 for each of the three months ended June 30, 2020 and 2019.

Geographically, revenues generated in Asia, North America, and Europe for the three months ended June 30, 2020 represented 78%, 16%, and 6%, respectively, of our total revenue as compared to 58%, 37%, and 5%, respectively, for the three months ended June 30, 2019 .

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

A revenue summary for the six months ended June 30, 2020 and 2019 are as follows (in thousands, except for percentages):

Six Months Ended

Fixed fee license revenue

Per-unit royalty revenue

Total royalty and license revenue

Development, services, and other revenue

Total revenues

Royalty and license revenue — Total royalty and license revenue for the six months ended June 30, 2020 decreased $1.9 million , or 14% , from $13.7 million for the six months ended June 30, 2019 to $11.8 million for the six months ended June 30, 2019 .

Per-unit royalty revenue increased by $1.5 million , or 19% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 , primarily caused by a $3.6 million increase in royalties from our mobility licensees partially offset by a $1.1 million decrease in royalties obtained from our gaming licensees and a $1.1 million decrease in royalty revenue from our automotive licensees.

The increase in mobility royalties was due mainly to per-unit royalty agreements entered into during the second and third quarters of 2019.

The decrease in gaming revenue was primarily due to the impact of nonrenewal of an expired contract as well as lower shipments due to the impact of COVID-19 related economic downturn.

The decrease in automotive royalty revenue was primarily due to lower shipment volume largely attributable to the impact of COVID-19.

Fixed fee license revenue decreased $3.4 million , or 57% , in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a $2.0 million decrease in gaming license revenue, a $1.0 million decrease in mobility license revenue and a $0.5 million decrease in automotive license revenue.

We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP.

Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements under ASC 606.

Development, services and other revenue — Development, services, and other revenue was $75,000 for each of the three months ended March 31, 2020 and 2019.

Geographically, revenues generated in Asia, North America, and Europe for the three months ended March 31, 2020 represented 79% , 17% , and 4% , respectively, of our total revenue as compared to 48% , 38% , and 14% , respectively, for the three months ended March 31, 2019 .

The increase in revenue attributable to Asia as a percentage of total revenue was primarily driven by increased revenues from mobility partially offset by decreased revenues from automotive customers in Asia.

The decrease in revenue attributable to North America as a percentage of total revenue was primarily driven by lower revenues from automotive and mobility customers in the region.

The decrease in revenue attributable to Europe as a percentage of total revenue was primarily caused by lower revenues from gaming, automotive and medical customers in the region.

Development, services and other revenue — Development, services, and other revenue was $0.2 million for each of the six months ended June 30, 2020 and 2019.

Geographically, revenues generated in Asia, North America, and Europe for the six months ended June 30, 2020 represented 79% , 16% , and 5% , respectively, of our total revenue as compared to 54% , 38% , and 8% , respectively, for the three months ended June 30, 2019 .

OPERATING EXPENSES

The following tables set forth a summary of our operating expenses for the three months ended March 31, 2020 and 2019 (in thousands):

The following tables set forth a summary of our operating expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

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% of total revenue

Six Months Ended

Sales and marketing

% of total revenue

Research and development

% of total revenue

General and administrative

% of total revenue

Sales and Marketing — Our sales and marketing expenses are primarily comprised of employee compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market development funds, travel, and allocation of facilities costs.

Sales and marketing expenses increased $0.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

This increase was primarily due to a $0.3 million increase in depreciation expense primarily resulting from the shortening in estimated useful life of the leasehold improvements of the SJ Facility to March 31, 2020 following our decision to exit this facility, partially offset by a $0.3 million decrease in compensation, benefits and other personnel related costs due to lower stock-based compensation.

Sales and marketing expenses decreased $0.3 million , or 21% , for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to a $0.2 million decrease in sales and marketing and travel costs and a $0.1 million decrease in outside services costs.

These decreases were mainly attributable to reduced business activities as a result of the COVID-19 pandemic and the impact of the cost reduction initiatives implemented in the first half of 2020.

Sales and marketing expenses decreased $0.2 million , or 7% , for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a $0.3 million decrease in compensation, benefits and other personnel related costs reduction initiatives and a $0.1 million decrease in consulting and outside services, partially offset by a $0.2 million increase in depreciation expense.

The decrease in compensation, benefits and other personnel related costs was primarily due to a decrease in commissions and other variable compensation largely attributable to reduced business activities as a result of COVID-19 pandemic, the impact of cost reduction initiatives we implemented during the first half of 2020, and a decrease in

stock-based compensation expense.

The increase in depreciation expense was primarily attributable to higher depreciation expense in the first quarter of 2020 resulting from the shortening in estimated useful life of the leasehold improvements of the San Jose, California (" SJ Facility").

Research and Development — Our research and development expenses are comprised of employee compensation and benefits, outside services and consulting fees, tooling and supplies, and an allocation of facilities costs.

Research and development expenses decreased $0.6 million , or 27% , for the three months ended March 31, 2020 compared to three months ended March 31, 2019 .

This decrease was primarily due to a $0.6 million decrease in compensation, benefits and other personnel related costs largely attributable to lower stock-based compensation, partially offset by a $0.1 million increase in depreciation expense resulting from the shortening in estimated useful life of leasehold improvements of the SJ Facility to March 31, 2020 following our decision to exit this facility.

Research and development expenses decreased $0.5 million , or 28% , for the three months ended June 30, 2020 compared to three months ended June 30, 2019 .

This decrease was primarily due to a $0.2 million decrease in compensation, benefits and other personnel related costs, a $0.1 million decrease in travel costs and a $0.1 million decrease in facilities related costs.

Research and development expenses decreased $1.1 million , or 27% , for the six months ended June 30, 2020 compared to six months ended June 30, 2019 primarily resulting from a $0.8 million decrease in compensation, benefits and other personnel related costs, including a $0.4 million decrease in stock-based compensation, $0.1 million decrease in consulting and outside services and a $0.1 million decrease in travel costs.

The decrease in compensation, benefits and other personnel related costs was primarily attributable to lower base salary largely attributable to the completed transition of our research and development function from San Jose, California to Montreal, Canada.

In addition, we recorded a $0.2 million CEWS subsidy as a reduction to compensation expense in the second quarter of 2020.

The decrease in variable compensation largely attributable to the cost reduction initiatives we implemented in the first half of 2020.

The decrease in travel and consulting and professional services expenses were primarily due to reduced business activities during the three and six months ended June 30, 2020 compared to the same period in 2019 due to the impact of COVID-19 pandemic.

We believe that continued investment in research and development is critical to our future success, and we expect to continue making targeted investments in areas of research and technology development to support future growth in key markets.

General and Administrative — Our general and administrative expenses consist of employee compensation and benefits, legal and professional fees, external legal costs for patents;

office supplies;

and allocation of facilities costs.

General and administrative expenses decreased $5.3 million , or 42% , for three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to a $5.9 million decrease in legal expenses partially offset by a $0.4 million increase in depreciation expense resulting from the shortening in estimated useful life of leasehold improvements of the SJ Facility to March 31, 2020 following our decision to exit this facility.

The decrease in legal expense was primarily attributable to reduced activities following litigation settlements.

We expect our general and administrative expenses to decrease in the future as we achieve targeted reductions in consulting and professional services.

General and Administrative — Our general and administrative expenses consist of employee compensation and benefits, legal and professional fees, external legal costs for patents, office supplies, travel, and allocation of facilities costs.

General and administrative expenses decreased $10.4 million , or 72% , for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to a $8.4 million decrease in legal expenses, a $0.9 million decrease in consulting and professional services and a $0.7 million decrease in compensation, benefits and other personnel related costs.

General and administrative expenses decreased $15.7 million , or 58% , for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to a $14.4 million decrease in legal expenses, a $0.7 million decrease in consulting and professional services, a $0.6 million decrease in compensation, benefits and other personnel related costs and a $0.2 million decrease in foreign currency exchange loss.

These decreases were partially offset by a $0.3 million increase in depreciation expense.

The decrease in legal expense was primarily attributable to reduced activities following litigation settlements in 2019, as well as a decrease in patent maintenance and prosecution costs.

The decrease in compensation, benefits and other personnel related costs was primarily due to lower salaries, variable compensation and stock-based compensation, primarily driven by the transition of our general and administrative function from San Jose, California to Montreal, Canada and the impact of the COVID-19 related cost cutting initiative we implemented in the first half of 2020.

The decrease in consulting and professional services was due to lower recruitment fees in the three and six months ended June 30, 2020 compared to the same periods in 2019.

We expect our general and administrative expenses to decrease in the future as we achieve targeted reductions in consulting and professional services, and other costs.

INTEREST AND OTHER INCOME (LOSS)

Interest and Other Income (Loss) — Interest and other income (loss) consists of interest income from cash equivalents and short-term investments, interest on notes receivable, translation exchange rate gains and other income.

Interest and other income (loss) decreased $0.8 million during the three months ended March 31, 2020 compared to the same period in 2019 primarily driven by a $0.4 million increase in foreign currency translation loss and a $0.3 million decrease in investment earnings on cash equivalents and short-term investments.

Foreign exchange translation loss was $0.4 million for the three months ended March 31, 2020 compared to a foreign exchange gain of $19,000 for the same period in 2019.

The significant fluctuation in foreign exchange translation gain (loss) was a result of the depreciation of the South Korean Won and the Canadian dollar against the U.S.

dollar partially resulting from the increased market volatility driven by the global COVID-19 pandemic.

The decrease in investment earnings was primarily due to a lower effective interest rate and a decrease in total cash, cash equivalents and short-term investments during the three months ended March 31, 2020 as compared to the same period in 2019.

PROVISION FOR INCOME TAXES

The following table sets forth a summary of our provision for income taxes for the three months ended March 31, 2020 and 2019 (in thousands except for percentages):

Interest and Other Income (Loss) — Interest and other income (loss) consists of interest income from cash equivalents and short-term investments, translation exchange rate gains (losses) and other income.

Interest and other income (loss) decreased $0.1 million during the three months ended June 30, 2020 compared to the same period in 2019 primarily driven by a $0.5 million decrease in investment earnings on cash equivalents and short-term investments partially offset by a $0.2 million increase in other income and a $0.1 million increase in foreign exchange translation gain.

Interest and other income (loss) decreased $1.0 million during the six months ended June 30, 2020 compared to the same period in 2019 primarily driven by a $0.8 million decrease in investment earnings on cash equivalents and short-term investments, a $0.4 million increase in foreign exchange translation loss partially offset by a $0.2 million increase in other income.

The decrease in investment earnings was primarily due to lower total cash, cash equivalents and short-term investments during the three and six months ended June 30, 2020 as compared to the same periods in 2019.

The increase in foreign exchange translation loss for the six months ended June 30, 2020 was a result of the depreciation of the South Korean Won and the Canadian dollar against the U.S.

dollar in the first quarter of 2020 partially resulting from the increased market volatility driven by the global COVID-19 pandemic.

BENEFIT FROM (PROVISION FOR) INCOME TAXES

The following table sets forth a summary of our benefit from (provision for) income taxes for the three and six months ended June 30, 2020 and 2019 (in thousands except for percentages):

Three Months Ended

Loss before provision for income taxes

Provision for income taxes

Benefit from (provision for) income taxes

Effective tax rate

Provision for income tax for the three months ended March 31, 2020 and 2019, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

Six Months Ended

Loss before benefit from (provision for) income taxes

Provision for income taxes

Effective tax rates

The provision for income tax for the three and six months ended June 30, 2020 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

The benefit for income tax for the three months ended June 30, 2019 and provision for income tax for the six months ended June 30, 2019 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

For the three and six months ended June 30, 2019, we used a year-to-date approach to calculate the effective tax rate.

We continue to carry a full valuation allowance on our federal deferred tax assets.

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territory was included in the calculation of the year-to-date effective tax rate, which was the main reason for the difference between the statutory tax rate and actual effective tax rate.

The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was passed into law.

Among other changes, the Tax Act reduced the US federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings.

In addition, the Act introduced the Base Erosion and Anti-Abuse Tax (the “BEAT”), which creates a new tax on certain related-party payments.

The year-over-year change in provision for income taxes resulted primarily from the change in mix of income from continuing operations across various tax jurisdictions.

On December 22, 2017, the Tax Act was passed into law.

Among other changes, the Tax Act introduced the Base Erosion and Anti-Abuse Tax (the “BEAT”), which creates a new tax on certain related-party payments.

We concluded that we have not met the threshold requirements of the BEAT.

Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of topics, is expected to be issued.

On July 9, 2020, the Internal Revenue Service issued final regulations regarding deductions for global intangible low-taxed income (“GILTI”) and foreign-derived intangible income (“FDII”).

On July 9, 2020, the Treasury Department released final regulations (TD 9901) under IRC Section 250, which allows an annual deduction

to a domestic corporation for its foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) inclusion.

The final guidance is not expected to have a material impact on our consolidated financial statements.

Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of other topics, is expected to be issued.

In accordance with ASC 740, we will recognize any effects of the guidance in the period that such guidance is issued.

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The CARES Act includes several significant business tax provisions including modification to the taxable income limitation for utilization of net operating losses (“NOLs”) incurred in 2018, 2019 and 2020 and the ability to carry back NOLs from those years for a period of up to five years, an increase to the limitation on deductibility of certain business interest expense, bonus depreciation for purchases of qualified improvement property and special deductions on certain corporate charitable contributions.

We analyzed the provisions of the CARES Act and determined there was no effect on our provision for the current period.

We analyzed the provisions of the CARES Act and determined there was no effect on our provision for the three and six months ended June 30, 2020.

We continue to maintain a valuation allowance of $28.0 million against certain of our deferred tax assets, including all federal, state, and certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results.

In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made.

The valuation allowance does not impact our ability to utilize any underlying net operating loss carryforwards.

We also maintain liabilities for uncertain tax positions.

As of March 31, 2020, we had unrecognized tax benefits under ASC 740 of approximately $4.8 million and applicable interest of $27,000 .

As of June 30, 2020, we had unrecognized tax benefits under ASC 740 of approximately $4.8 million and applicable interest of $29,000 .

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $97,000 .

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents, and short-term investments consist primarily of money market funds and treasury bills and government agency securities.

All of our short-term investments are classified as available-for-sale.

Our cash, cash equivalents, and short-term investments consist primarily of money market funds and treasury bills.

Our short-term investments are classified as available-for-sale.

The securities are stated at market value, with unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholders’ equity.

On March 31, 2020 , our cash, cash equivalents, and short-term investments totaled $76.2 million , a decrease of $13.3 million from $89.5 million on December 31, 2019 .

Three Months Ended March 31,

On June 30, 2020 , our cash, cash equivalents, and short-term investments totaled $54.1 million , a decrease of $32.4 million from $86.5 million on December 31, 2019 .

Six Months Ended

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Net cash provided by (used in) financing activities

(1) Not meaningful.

Operating Activities

Cash provided by (used in) operating activities primarily consists of net income (loss), adjusted for certain non-cash items including depreciation and amortization;

Cash used in operating activities primarily consists of net loss, adjusted for certain non-cash items including depreciation and amortization;

stock-based compensation expense and the effect of changes in operating assets and liabilities.

Net cash used in operating activities was $1.3 million during the three months ended March 31, 2020 , primarily consisted of $4.8 million in net loss, partially offset by $2.3 million adjustments for non-cash items and $1.2 million changes in net operating assets and liabilities.

Adjustments for non-cash items consisted of $1.2 million of depreciation and amortization expense, $0.7 million stock-based compensation expense and $0.4 million in foreign currency translation losses.

Changes in net operating assets and liabilities primarily consisted of a $4.8 million decrease in prepaid expenses and other current assets primarily due to a decrease in short-term contract assets, $0.7 million increase in other current and long-term liabilities, partially offset by $2.2 million increase in accounts receivable, $1.3 million decrease in deferred revenue and $0.9 million decrease in accrued compensation.

Net cash used in operating activities was $7.6 million during the three months ended March 31, 2019 , and primarily consisted of $11.0 million in net loss, partially offset by $2.6 million adjustments for non-cash items and $0.8 million changes in net operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $2.1 million stock-based compensation expense and $0.4 million depreciation and amortization expense.

Changes in net operating assets and liabilities primarily consisted of $11.6 million increase in other assets, $2.6 million decrease in accrued compensation, $0.9 million decrease in deferred revenue and $0.5 million increase in accounts and other receivables, partially offset by $8.8 million increase in accounts payable, $6.6 million increase in other current and long-term liabilities and $1.0 million decrease in prepaid expenses and other current assets.

The increase in other assets primarily consisted of $6.9 million increase in long-term deposits and $3.8 million increase in right-of-use lease assets.

The decrease in other current and long-term liabilities primarily due to $4.6 million increase in lease liabilities and $1.9 million increase in accrued legal expense.

Net cash used in operating activities was $4.8 million during the six months ended June 30, 2020 , a $19.1 million decrease compared the same period in 2019.

The decrease in net cash used in operating activities in the six months ended June 30, 2020 compared to the same period in 2019 was primarily attributable to a $14.1 million decrease in net loss and a $5.5 million change in net operating assets and liabilities.

Investing Activities

Our investing activities primarily consist of purchases of and proceeds from maturities of short-term investments and purchases of computer equipment, furniture and leasehold improvements related to facilities expansion.

Net cash provided by investing activities during the three months ended March 31, 2020 was $3.0 million primarily consisting of $3.0 million proceeds from maturities of short-term investments.

Net cash used in investing activities during the three months ended March 31, 2019 was $0.9 million primarily consisting of $8.9 million in purchases of short-term investments partially offset by $8.0 million proceeds from maturities of short-term investments.

Net cash provided by investing activities during the six months ended June 30, 2020 was $3.0 million primarily consisting of proceeds from maturities of short-term investments.

Net cash used in investing activities during the six months ended June 30, 2019 was $5.1 million primarily consisting of $8.9 million in purchases of short-term investments partially offset by $14.0 million proceeds from maturities of short-term investments.

Financing Activities

Our financing activities primarily consist of cash proceeds from cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of our common stock.

Net cash used in financing activities during the three months ended March 31, 2020 was $11.9 million , and primarily consisted of $12.0 million in cash paid for stock repurchases partially offset by $0.1 million in cash proceeds from stock purchases under our employee stock purchase plan.

Net cash provided by financing activities during the three months ended 2019 was $0.2 million , and consisted of $0.2 million in cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan.

Our total cash, cash equivalents, and short-term investments were $76.2 million as of March 31, 2020 , of which approximately 5% ( $3.6 million ) was held by our foreign subsidiaries and subject to repatriation tax effects.

Our financing activities primarily consist of cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of our common stock.

Net cash used in financing activities during the six months ended June 30, 2020 was $30.6 million , and primarily consisted of $30.6 million in cash paid for stock repurchases.

Net cash provided by financing activities during the six months ended June 30, 2019 was $0.5 million , and consisted of $0.5 million in cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan.

Our total cash, cash equivalents, and short-term investments were $54.1 million as of June 30, 2020 , of which approximately 12% ( $6.3 million ) was held by our foreign subsidiaries and subject to repatriation tax effects.

Our intent is to permanently reinvest all of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.

We may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation.

During the first quarter of 2020, we repurchased approximately 2.0 million shares of our common stock for approximately $12.0 million at an average cost of $5.95 per share leaving approximately $18.7 million remaining available under our previously-approved share repurchase program.

During the first half of 2020, we repurchased approximately 4.9 million shares of our common stock for approximately $30.6 million at an average cost of $6.21 per share.

As of June 30, 2020, there were no amounts available under our previously-approved share repurchase program.

We anticipate that capital expenditures for property and equipment for the year ending December 31, 2020 will be less than $1 million.

While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created significant uncertainty as to general economic and capital market conditions for the remainder of 2020 and beyond, as of the date of this report, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months.

While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created significant uncertainty as to general economic and capital market conditions for the remainder of 2020 and beyond, as of August 6, 2020 , the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months.

Cash from operations could also be affected by various risks and uncertainties, including but not limited to the risks detailed in Part II, Item 1A Risk Factors.

1 unchanged sentence

We presented our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2019 .

Our principal commitments as of March 31, 2020 consisted of $4.4 million in obligations under operating leases.

Our principal commitments as of June 30, 2020 consisted of $3.9 million in obligations under operating leases.

On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San Francisco, California.

1 unchanged sentence

The lease commenced in the first quarter of 2020 and expires in 2022.

As of March 31, 2020, the total lease obligation for this lease was $0.5 million.

As of June 30, 2020, the total lease obligation for this lease was $0.5 million.

On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc.

("Neato") for the San Jose California Facility ("SJ Facility").

The term of the sublease agreement commences upon the later of (i) May 1, 2020 and (ii) fifteen (15) days following our landlord’s consent to the sublease (the “Commencement Date”).

Effective May 1, 2020, we entered into an

amendment to the sublease agreement with Neato, pursuant to which the Commencement Date occurs upon the earlier of (i) the date Neato commences conduct of business operations from the SJ Facility or (ii) the date that is fifteen (15) days after delivery of the SJ Facility to Neato and the lifting of the Order of the Health Officer of the County of Santa Clara, dated March 16, 2020, and Executive Order N-33-20 issued by the Executive Department, State of California, dated March 19, 2020, and any extensions thereof, or similar directives requiring residents to shelter in place or businesses that include businesses of ours or Neato, to shut down or work remotely, issued by applicable municipal, state, and federal authorities having jurisdiction over the SJ Facility in connection with the management of the COVID-19 pandemic.

However, if we do not deliver the premises to Neato by the Commencement Date, then the sublease would commence 15 days after we deliver the premises to Neato.

We expect to receive $3.1 million in total rent payments under this sublease agreement.

There have been no other material changes in those obligations during the three months ended March 31, 2020 .

As of March 31, 2020 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $4.8 million and applicable interest of $27,000 .

("Neato") for the SJ Facility.

This sublease commenced in June 2020.

We expect to receive approximately $3.0 million in total rent payments under this sublease agreement.

There have been no other material changes in those obligations during the six months ended June 30, 2020 .

As of June 30, 2020 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $4.8 million and applicable interest of $29,000 .

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $97,000 .

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis