What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 72 added, 169 removed, 125 unchanged (66% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements within the meaning of Section 27A of the Securities Act, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The forward-looking statements involve risks and uncertainties.

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our sublease and the timing and income related thereto;

and our stock repurchase program.

our shelf S-3 registration statement and our plans with respect thereto, including anticipated use of proceeds;

and our stock repurchase and equity distribution programs.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.

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Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized.

Our primary business is currently in the mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including entertainment, social content, virtual and augmented reality, sexual wellness and wearables, as well as residential, commercial, and industrial Internet of Things (“IoT”).

In recent years, we have seen a trend towards broad market adoption of haptic technology, and estimate our technology is now in more than 3 billion devices worldwide.

In recent years, we have seen a trend towards broad market adoption of haptic technology.

As other companies follow our leadership in recognizing how important tactile feedback can be in people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand.

We have adopted a business model under which we provide advanced tactile software, related tools and technical assistance designed to integrate our patented technology into our customers’ products or enhance the functionality of our patented technology, and offer licenses to our patented technology to our customers.

Our licenses enable our customers to

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 2,100 issued or pending patents worldwide as of September 30, 2020.

Our licenses enable our customers to 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 1,800 issued or pending patents worldwide as of March 31, 2021.

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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We were incorporated in 1993 in California and reincorporated in Delaware in 1999.

Impact of COVID-19

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 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 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.

In response to certain anticipated impacts from the COVID-19 pandemic, we 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 and nine months ended September 30, 2020, we recorded $0.3 million and $0.5 million in government subsidies, respectively, 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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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 November 5, 2020, the date of issuance of this Quarterly Report on Form 10-Q.

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 6, 2021, 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 September 30, 2020 was $7.6 million, a decrease of $3.0 million, or 29%, compared to $10.6 million for the three months ended September 30, 2019 primarily driven by a $2.9 million or 70%, decrease in fixed fee license revenue.

Total revenue for the nine months ended September 30, 2020 was $19.5 million, a decrease of $5.0 million, or 20%, compared to $24.5 million for the nine months ended September 30, 2019 primarily driven by a $6.3 million or 62%, decrease in fixed fee license revenue partially offset by a $1.3 million, or 9%, increase in per-unit royalty revenue.

Net income for the three months ended September 30, 2020 was $2.9 million, an increase of $4.2 million, or 306%, as compared to a net loss of $1.4 million for the three months ended September 30, 2019.

The increase in net income was mainly attributable to a $6.9 million decrease in total operating expenses partially offset by a $3.0 million decrease in total revenue.

The decrease in operating expenses consisted of a $0.6 million decrease in Sales and Marketing expense, a $1.0 million decrease in Research and Development expense and a $5.3 million decrease in General and Administrative expense.

Net loss for the nine months ended September 30, 2020 was $2.7 million, an improvement of $18.3 million, or 87%, as compared to a net loss of $21.0 million for the nine months ended September 30, 2019 mainly attributable to a $23.9 million decrease in total operating expenses partially offset by a $5.0 million decrease in total revenue and a $0.8 million decrease in interest and other income (expense).

The decrease in operating expenses consisted of a $0.8 million decrease in Sales and Marketing expense, a $2.1 million decrease in Research and Development expense and a $21.0 million decrease in General and Administrative expense.

Total revenue for the three months ended March 31, 2021 was $7.2 million, an increase of $0.9 million, or 14%, compared to $6.3 million for the three months ended March 31, 2020 primarily driven by a $0.9 million or 18%, increased in per-unit royalty revenue.

Net income for the three months ended March 31, 2021 was $2.0 million, an increase of $6.9 million, or 142%, as compared to a net loss of $4.8 million for the three months ended March 31, 2020.

The increase in net income was mainly attributable to a $0.9 million increase in total revenue and a $6.1 million decrease in total operating expenses.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Fixed fee license revenue 18 % 21 %

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Interest and other income (5) (4)

Income (loss) before benefit from (provision for) income taxes 36 (12) (14) (85)

Benefit from (provision for) income taxes 1 (1) — (1)

Income (loss) before provision for income taxes 30 (76)

Provision for income taxes (2) (1)

Net income (loss) 28 % (77) %

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

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

A revenue summary for the three months ended March 31, 2021 and 2020 are as follows (in thousands, except for percentages):

Three Months Ended

September 30,

2021 2020 $ Change % Change

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Total revenues $ 7,159 $ 6,257 $ 902 14 %

Royalty and license revenue — Total royalty and license revenue for the three months ended September 30, 2020 decreased $3.0 million, or 29%, from $10.5 million for the three months ended September 30, 2019 to $7.5 million for the three months ended September 30, 2020.

Per-unit royalty revenue decreased by $0.1 million, or 2%, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily caused by a $0.6 million decrease in royalties from our automotive royalties partially offset by a $0.5 million increase in our gaming royalties.

Fixed fee license revenue decreased $2.9 million, or 70%, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to a $2.8 million decrease in mobile 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 $65,000 for the three months ended September 30, 2020 as compared to the $75,000 the three months ended September 30, 2019.

Geographically, revenues generated in Asia, North America, and Europe for the three months ended September 30, 2020 represented 77%, 14%, and 9%, respectively, of our total revenue as compared to 56%, 35%, and 9%, respectively, for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

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

Nine Months Ended

September 30,

2020 2019 $ Change % Change

Fixed fee license revenue $ 3,821 $ 10,109 $ (6,288) (62) %

Per-unit royalty revenue 15,485 14,155 1,330 9 %

Total royalty and license revenue 19,306 24,264 (4,958) (20) %

Development, services, and other revenue 215 225 (10) (4.4) %

Total revenues $ 19,521 $ 24,489 $ (4,968) (20) %

Royalty and license revenue — Total royalty and license revenue for the nine months ended September 30, 2020 decreased $5.0 million, or 20%, from $24.3 million for the nine months ended September 30, 2019 to $19.3 million for the nine months ended September 30, 2019.

Per-unit royalty revenue increased by $1.3 million, or 9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily caused by a $3.7 million increase in royalties from our mobility licensees partially offset by a $1.7 million decrease in royalties obtained from our automotive licensees and a $0.6 million decrease in royalty revenue from our gaming licensees.

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

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

The decrease in gaming revenue was primarily due the impact of an end of contract adjustment recorded in 2019 as well as lower shipments due to the impact of COVID-19 related economic downturn.

Fixed fee license revenue decreased $6.3 million, or 62%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to a $3.8 million decrease in mobility license revenue a $2.0 million decrease in gaming license revenue, and a $0.6 million decrease in automotive license revenue.

Royalty and license revenue — Royalty and license revenue for the three months ended March 31, 2021 increased $0.9 million, or 14%, from $6.2 million for the three months ended March 31, 2020 to $7.1 million for the three months ended March 31, 2021.

Per-unit royalty revenue increased by $0.9 million, or 18%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily caused by a $0.7 million increase in royalties from our gaming licensees.

Fixed fee license revenue was relatively flat in the three months ended March 31, 2021 compared to the same period in 2020.

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 $0.2 million for each of the nine months ended September 30, 2020 and 2019.

Geographically, revenues generated in Asia, North America, and Europe for the nine months ended September 30, 2020 represented 78%, 15%, and 7%, respectively, of our total revenue as compared to 55%, 36%, and 9%, respectively, for the nine months ended September 30, 2019.

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

We also anticipate that our royalty revenue will fluctuate relative to our customers’ unit shipments.

Development, services and other revenue — Development, services, and other revenue was $91,000 for the three months ended March 31, 2021 as compared to the $75,000 the three months ended March 31, 2020.

Geographically, revenues generated in Asia, North America, and Europe for the three months ended March 31, 2021 represented 74%, 19%, and 7%, respectively, of our total revenue as compared to 79%, 17%, and 4%, respectively, for the three months ended March 31, 2020.

OPERATING EXPENSES

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

The following tables set forth a summary of our operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

September 30,

2021 2020 Change % Change

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% of total revenue 31 % 118 %

Nine Months Ended

September 30,

2020 2019 Change % Change

Sales and marketing 4,067 4,876 (809) (17) %

% of total revenue 21 % 20 %

Research and development 3,932 6,066 (2,134) (35) %

% of total revenue 20 % 25 %

General and administrative 14,406 35,359 (20,953) (59) %

% of total revenue 74 % 144 %

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 decreased $0.6 million, or 35%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to a $0.4 million decrease in compensation, benefits and other personnel related costs and a $0.1 million decrease in travel costs.

Sales and marketing expenses decreased $0.8 million, or 17%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to a $0.7 million decrease in compensation, benefits and other personnel related costs reduction initiatives, $0.1 million decrease in travel costs and a $0.1 million decrease in consulting and outside services, partially offset by a $0.2 million increase in depreciation expense.

The decreases in compensation, benefits and other personnel related costs were primarily due to a lower headcount and decreases in variable compensation largely attributable to the cost reduction initiatives we implemented during 2020.

The decreases in travel and consulting costs were mainly attributable to reduced business activities as a result of the COVID-19 pandemic.

The increase in depreciation expense in the nine months ended September 30, 2020 compared to the same period in 2019 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").

Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market development funds, travel, and allocated facilities costs.

Sales and marketing expenses decreased $0.6 million, or 36%, in the first quarter of 2021 as compared to the first quarter of 2020 primarily attributable to a $0.3 million decrease in depreciation expense, a $0.1 million decrease in facility costs and a $0.1 million decrease in travel costs.

The decrease in depreciation expense in the first quarter of 2021 compared to the same period in 2020 was primarily attributable to the accelerated depreciation 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") to March 31, 2020 following our decision to exit this facility.

The decrease in facilities expense was largely attributable to the decrease in rent expense following the sublease of the SJ Facility in the second quarter of 2020.

The decrease in travel costs were mainly attributable to reduced business activities as a result of the COVID-19 pandemic.

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 $1.0 million, or 52%, for the three months ended September 30, 2020 compared to three months ended September 30, 2019.

This decrease was primarily due to a $0.7 million decrease in compensation, benefits and other personnel related costs, a $0.1 million decrease in facilities related costs and a $0.1 million decrease in travel costs.

Research and development expenses decreased $2.1 million, or 35%, for the nine months ended September 30, 2020 compared to nine months ended September 30, 2019 primarily resulting from a $1.6 million decrease in compensation, benefits and other personnel related costs, including a $0.4 million decrease in stock-based compensation, $0.2 million decrease in facilities costs and a $0.2 million decrease in travel costs.

The decrease in compensation, benefits and other personnel related costs was primarily attributable to lower base salaries, a decrease in headcount and a decrease in variable compensation primarily attributable to the completed transition of our research and development function from San Jose, California to Montreal, Canada and the impact of cost reduction initiatives we implemented during 2020.

In addition, we recorded a $0.3 million and $0.5 million CEWS subsidy as a reduction to compensation expense in the three and nine months ended September 30, 2020, respectively.

The reduction in facilities costs were attributable to lower rent expense following the sublease of the SJ Facility in the second quarter of 2020.

The decrease in travel costs were primarily due to reduced business activities during the three and nine months ended September 30, 2020 compared to the same period in 2019 due to the impact of COVID-19 pandemic.

Research and development expenses decreased $0.4 million, or 23%, for the three months ended March 31, 2021 compared to three months ended March 31, 2020.

This decrease was primarily due to a $0.2 million decrease in depreciation expense and $0.1 million decrease in facilities expense primarily attributable to the reasons discussed above.

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, travel, and allocation of facilities costs.

General and administrative expenses decreased $5.3 million, or 64%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to a $2.6 million decrease in legal expenses, a $1.2 million decrease in compensation, benefits and other personnel related costs primarily due to a decrease in salary and a reduction in variable compensation costs, a $0.9 million decrease in consulting and professional services and a $0.2 million decrease in facilities and depreciation expenses.

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

The decrease in compensation, benefits and other personnel related costs was primarily due to lower salaries, variable compensation and stock-based compensation, driven by the transition of our Accounting, Human Resources, Finance and IT functions from San Jose, California to Montreal, Canada and the impact of the COVID-19 related cost cutting initiatives we implemented in 2020.

The decrease in consulting and professional services was due to reductions in accounting and audit fees, consulting and other professional services fees in the three months ended September 30, 2020 compared to the same periods in 2019.

The decrease in facilities expense was primarily due to the lower rent expense following the sublease of the SJ Facility in the second quarter of 2020.

General and administrative expenses decreased $21.0 million, or 59%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to a $17.0 million decrease in legal expenses, a $1.8 million decrease in compensation, benefits and other personnel related costs, a $1.7 million decrease in consulting and professional services.

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, driven by the transition of our Accounting, Human Resources Finance and IT functions from San Jose, California to Montreal, Canada and the impact of the COVID-19 related cost cutting initiatives we implemented in 2020, partially offset by an increase in severance costs.

The decrease in consulting and professional services fees was due to decreases in recruitment fees, accounting and audit fees and consulting and other professional fees in the nine months ended September 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.

General and Administrative - Our general and administrative expenses primarily consisted of employee compensation and benefits, legal and professional fees, external legal costs for patents, office supplies, travel, and allocated facilities costs.

General and administrative expenses decreased $5.1 million, or 70%, in the three months ended March 31, 2021 as compared to the same period in 2020 primarily due to a $2.0 million decrease in compensation, benefits and other personnel related costs, a $1.3 million decrease in legal expenses, a $0.9 million decrease in professional services and outside services, $0.5 million decrease in depreciation expense and a $0.2 million decrease in facilities costs.

The decrease in compensation, benefits and other personnel related costs was primarily due to reduced headcount, lower salaries, variable compensation driven by the transition of our Accounting, Human Resources, Finance and IT functions from San Jose, California to Montreal, Canada and the impact of the COVID-19 related cost reduction initiatives implemented during 2020.

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

The decrease in consulting and professional services fees was due to decreases in accounting and audit fees and consulting and other professional fees in the first quarter of 2021 compared to the same period in 2020.

The decrease in depreciation expense and facilities costs were primarily attributable to the reasons discussed above.

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

INTEREST AND OTHER INCOME (LOSS), NET

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

Interest and other income (loss), net increased $0.2 million during the three months ended September 30, 2020 compared to the same period in 2019 primarily driven by a $0.6 million increase in foreign currency exchange gains partially offset by a $0.4 million decrease in investment earnings on cash equivalents and short-term investments.

Interest and other income (loss), net decreased $0.8 million during the nine months ended September 30, 2020 compared to the same period in 2019 primarily driven by a $1.2 million decrease in investment earnings on cash equivalents and short-term investments partially offset by a $0.2 million increase in other income and $0.2 million decrease in foreign currency exchange loss.

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

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 nine months ended September 30, 2020 and 2019 (in thousands except for percentages):

Interest and other income (loss), net decreased $0.1 million during the three months ended March 31, 2021 compared to the same period in 2020 primarily driven by a $0.2 million decrease in investment earnings on cash and cash equivalents partially offset by a $0.2 million decrease in foreign currency exchange losses.

The decrease in investment earnings was primarily due to lower interest rates during the three months ended March 31, 2021 compared to the same periods in 2020.

The decrease in the foreign exchange losses was primarily driven by the fluctuation in South Korean Won exchanges rates against the U.S.

PROVISION FOR INCOME TAXES

The following table sets forth a summary of our provision for income taxes for the three months ended March 31, 2021 and 2020 (in thousands except for percentages):

Three Months Ended

September 30,

2021 2020 Change % Change

Income (loss) before benefit from (provision for) income taxes $ 2,759 $ (1,299)

Benefit from (provision for) income taxes 96 (88) $ 184 (209) %

Income (loss) before provision for income taxes $ 2,177 $ (4,776)

Provision for income taxes 141 52 $ 89 171 %

Effective tax rate 6.5 % (1.1) %

Nine Months Ended

September 30,

2020 2019 Change % Change

Loss before benefit from (provision for) income taxes $ (2,688) $ (20,823)

Benefit from (provision for) income taxes 3 (200) $ 203 (102) %

Effective tax rates (0.1) % 1.0 %

The benefit from (provision for) income tax for the three months and nine months ended September 30, 2020 resulted primarily from benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation.

For the three and nine months ended September 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 and state deferred tax assets.

As a result, no benefit for losses generated from our U.S.

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 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.

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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed into law.

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 three and nine months ended September 30, 2020.

Provision for income tax for the three months ended March 31, 2021 and 2020 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We continue to carry a full valuation allowance on our U.S.

federal and State as well as Canada federal deferred tax assets.

The effective tax rate is lower than statutory tax rate is primarily due to the benefit recorded on deferred tax assets utilized in current year for the federal and state jurisdictions.

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

We continue to maintain a valuation allowance of $28.5 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 September 30, 2020, we had unrecognized tax benefits under ASC 740 of approximately $4.5 million and applicable interest of $0.

As of March 31, 2021, we had unrecognized tax benefits under ASC 740 of approximately $4.5 million and applicable interest of $0.

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $0.

LIQUIDITY AND CAPITAL RESOURCES

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.

Our cash and cash equivalents consist primarily of cash and money market funds.

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

On September 30, 2020, our cash, cash equivalents, and short-term investments totaled $56.0 million, a decrease of $30.5 million from $86.5 million on December 31, 2019.

Nine Months Ended

September 30,

On March 31, 2021, our cash and cash equivalents totaled $102.6 million, an increase of $43.1 million from $59.5 million on December 31, 2020.

Three Months Ended

2021 2020 Change % Change

Net cash used in operating activities $ (2,988) $ (30,866) $ 27,878 (90) %

Net cash provided by investing activities $ 2,960 $ 5,058 $ (2,098) (41) %

Net cash provided by ( used in) operating activities $ 4,410 $ (1,316) $ 5,726 (435) %

Net cash provided by (used in) investing activities $ (57) $ 2,979 $ (3,036) (102) %

Net cash provided by (used in) financing activities $ 38,749 $ (11,912) $ 50,661 NM 1

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Operating Activities

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

Cash provided by (used in) operating activities primarily consists of net income (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 $3.0 million during the nine months ended September 30, 2020, a $27.9 million decrease compared the same period in 2019.

The decrease in net cash used in operating activities was primarily attributable to a $18.3 million decrease in net loss, a $1.1 million decrease in noncash items and a $10.6 million change in net operating assets and liabilities.

Net cash provided by operating activities was $4.4 million during the three months ended March 31, 2021, a $5.7 million increase compared the same period in 2020.

This increase in net cash provided by operating activities was primarily attributable to a $6.9 million increase in net income which was partially offset by a $1.3 million decrease in noncash items.

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 nine months ended September 30, 2020 was $3.0 million primarily consisting of proceeds from maturities of short-term investments.

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

Net cash used in investing activities during the three months ended March 31, 2021 was $0.1 million consisting purchases of property and equipment.

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.

Financing Activities

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 nine months ended September 30, 2020 was $30.5 million primarily consisting of $30.6 million in cash paid for stock repurchases partially offset by $0.1 million cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan.

Net cash provided by financing activities during the nine months ended September 30, 2019 was $1.4 million, and consisted of 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 $56.0 million as of September 30, 2020, of which approximately 15% ($8.4 million) was held by our foreign subsidiaries and subject to repatriation tax effects.

Our financing activities primarily consist of cash from issuance of common stock, 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 provided by financing activities during the three months ended March 31, 2021 was $38.7 million primarily consisting of $35.9 million net proceeds from common stock issuances and $2.7 million proceeds from stock option exercises.

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.

Our total cash and cash equivalents were $102.6 million as of March 31, 2021, of which approximately 11% ($11.0 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.

In 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 September 30, 2020, there were no amounts available under our previously-approved share repurchase program.

On February 11, 2021, we entered into the Distribution Agreement with an investment banking firm to issue and sell shares of our common stock having an aggregate offering price of up to $50 million.

In accordance with the terms of the Distribution Agreement, we are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold, and to provide customary indemnification rights and the reimbursement of legal fees and disbursements.

The Distribution Agreement may be terminated by either party upon prior written notice to the other party, or at any time under certain circumstances.

We are not obligated to sell any shares under the Distribution Agreement.

During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the Distribution Agreement and we received net proceeds of approximately $35.9 million from the offering net of $1.2 million of commissions and other offering costs.

We terminated the Distribution Agreement on March 5, 2021.

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.

We anticipate that capital expenditures for property and equipment for the year ending December 31, 2021 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 November 5, 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.

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 first half of 2021 and beyond, as of May 6, 2021, 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.

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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 September 30, 2020 consisted of $3.6 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.

This facility will be used for administrative and headquarter functions.

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

As of September 30, 2020, the total lease obligation for this lease was $0.4 million.

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

("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 nine months ended September 30, 2020.

As of September 30, 2020, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $4.5 million and applicable interest of $0.

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $0.

RECENT ACCOUNTING PRONOUNCEMENTS

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What changed 10-Q

Item 2. Management’s Discussion and Analysis