Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this report. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
For an overview of our business, see “Part I – Item 1. Business.”
Key Metrics
We monitor a variety of key financial metrics to help us evaluate trends, establish budgets, measure the effectiveness of our business strategies, and assess operational efficiencies. These financial metrics include revenue, gross margin, operating expenses, and operating income determined in accordance with generally accepted accounting principles in the United States (GAAP). Additionally, we monitor and project cash flow to determine our sources and uses for working capital to fund our operations. We also monitor Adjusted EBITDA, a non-GAAP financial measure, and design wins. We define Adjusted EBITDA as net income or loss adjusted for interest expense, taxes, depreciation and amortization, stock-based compensation expense, and restructuring costs, if any.
Adjusted EBITDA. Our management and board of directors use Adjusted EBITDA to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating and financing plans. Accordingly, we believe that Adjusted EBITDA provides useful information for investors in understanding and evaluating our operating results in the same manner as our management and our board of directors. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income reported in accordance with GAAP. The following table presents a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA for the periods indicated:
Year Ended December 31,
2023
2022
Adjusted EBITDA reconciliation:
Net income
$
9,052
$
6,129
Depreciation and amortization
1,205
982
Stock-based compensation expense
5,005
4,408
Interest expense
63
274
Income tax (benefit) expense
(16)
14
Adjusted EBITDA
$
15,309
$
11,807
Our Adjusted EBITDA for the year ended December 31, 2023 includes a one-time employee retention tax credit received of $2.0 million in the second quarter of 2023.
Design wins . To continue to grow our revenue, we must continue to achieve design wins for our MRAM products. We consider a design win to occur when an OEM or contract manufacturer notifies us that it has qualified one of our products as a component in a product or system for production. Because the life cycles for our customers’ products can last for many years, if these products have successful commercial introductions, we expect to continue to generate revenues over an extended period of time for each successful design win. New design wins in each successive quarter of 2023 were 66, 62, 37, and 52, respectively, compared to 61, 49, 48, and 52 in each successive quarter of 2022, respectively.
Effect of COVID-19 on our Business
The COVID-19 outbreak resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19. Overall, our business remained operational in the midst of COVID-19. The United States Government has declared that it was no longer treating COVID-19 as a pandemic. Since our business is
30
Table of Contents
dependent on a global supply chain, we expect to continue to navigate the impact of COVID-19, particularly in some Asian countries. We will continue to monitor the situation and take additional actions as warranted. These actions may include further altering our operations in order to protect the best interests of our employees, customers and suppliers, and to comply with government requirements, while also planning and executing our business to best support our customers, suppliers, and partners.
The ultimate extent of the impact of COVID-19 on our business, results of operations and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. See “Risk Factors” in Part II, Item 1A of this report for additional risks we face due to COVID-19.
Results of Operations
Below are factors we want to highlight for understanding our 2023 annual results and year over year comparison with proper historical perspective:
● The first half of 2023 was impacted by supply chain challenges that were overcome in the second half of the year as the industry reverted to pre-COVID-19 seasonal patterns.
● Our commitment to improving our manufacturing excellence enabled us to drive yield improvements within our internal and external foundries network to sustain and improve existing product margins.
The following table sets forth our results of operations for the periods indicated:
Year Ended December 31,
2023
2022
2023
2022
(In thousands)
(As a percentage of revenue)
Product sales
$
53,123
$
55,032
83
%
92
%
Licensing, royalty, patent, and other revenue
10,642
4,953
17
8
Total revenue
63,765
59,985
100
100
Cost of product sales
24,693
25,112
39
42
Cost of licensing, royalty, patent, and other revenue
1,827
928
3
2
Total cost of sales
26,520
26,040
42
43
Gross profit
37,245
33,945
58
57
Operating expenses:
Research and development
11,776
11,108
19
19
General and administrative
14,296
11,741
22
20
Sales and marketing
5,288
4,869
8
8
Total operating expenses
31,360
27,718
49
47
Income from operations
5,885
6,227
9
10
Interest expense
(63)
(274)
—
—
Other income, net
3,214
190
5
—
Net income before income taxes
9,036
6,143
14
10
Income tax benefit (expense)
16
(14)
—
—
Net income and comprehensive income
$
9,052
$
6,129
14
%
10
%
Comparison of the Years Ended December 31, 2023 and 2022
Revenue
We generated 78% and 85% of our revenue from products sold through distributors for the years ended December 31, 2023 and 2022, respectively.
We maintain a direct selling relationship, for strategic purposes, with several key customer accounts. We have organized our sales team and representatives into three primary regions: Asia-Pacific (APAC); North America; and
31
Table of Contents
Europe, Middle East and Africa (EMEA). We recognize revenue by geography based on the region in which our products are sold, and not to where the end products in which they are assembled are shipped. Our revenue by region for the periods indicated was as follows (in thousands):
Year Ended December 31,
2023
2022
APAC
$
33,096
$
35,631
North America
15,922
14,533
EMEA
14,747
9,821
Total revenue
$
63,765
$
59,985
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Product sales
$
53,123
$
55,032
$
(1,909)
(3.5)
%
Licensing, royalty, patent, and other revenue
10,642
4,953
5,689
114.9
%
Total revenue
$
63,765
$
59,985
$
3,780
6.3
%
Total revenue increased by $3.8 million, or 6.3%, from $60.0 million during the year ended December 31, 2022, to $63.8 million during the year ended December 31, 2023. The increase was primarily driven by the increase in licensing, royalty, patent, and other revenue of $5.7 million due to revenue recognized under our RAD-Hard projects. This was offset by a decline in product sales due to volume shifts in customer demand of $1.9 million or 3.5%, from $55.0 million during the year ended December 31, 2022, to $53.1 million during the year ended December 31, 2023.
Licensing, royalty, patent, and other revenue is a highly variable revenue item characterized by a small number of transactions annually with revenue based on size and terms of each transaction. We estimate royalty revenue earned throughout the year, with an annual adjustment recognized for actual sales in the first quarter of each fiscal year. Licensing, royalty, patent, and other revenue increased by $5.7 million, from $5.0 million during the year ended December 31, 2022, to $10.6 million during the year ended December 31, 2023. The increase was primarily due to an increase in licensing revenues of $5.5 million from our contractual agreements with customers for the development of RAD-Hard products, along with an increase of $0.7 million of other revenue related to a contractual arrangement with a customer for the development of reliability models for strategic radiation hardened toggle MRAM, offset in part by a decrease of $0.5 million in royalty revenue. There were no patent sales during the year ended December 31, 2023.
Cost of Sales and Gross Margin
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Cost of sales
$
24,693
$
25,112
$
(419)
(1.7)
%
Cost of licensing, royalty, patent, and other revenue
1,827
928
899
96.9
%
Total cost of sales
$
26,520
$
26,040
$
480
1.8
%
Gross margin
58.4
%
56.6
%
*
*
Cost of product sales decreased by $0.4 million, or 1.7%, from $25.1 million during the year ended December 31, 2022, to $24.7 million during the year ended December 31, 2023. The decrease was primarily due to a reduction in product sales compared to the prior year.
Cost of licensing, royalty, patent, and other revenue increased by $0.9 million, or 96.9%, from $0.9 million during the year ended December 31, 2022, to $1.8 million during the year ended December 31, 2023. The increase was due to an increase in licensing costs related to labor and materials associated with the progression of our RAD-Hard projects.
32
Table of Contents
Our gross margin increased from 56.6% during the year ended December 31, 2022, to 58.4% during the year ended December 31, 2023. Our gross margin increased by offsetting increased pricing from suppliers with increased yields on our toggle products and increased licensing revenue to offset the decrease in product sales.
Operating Expenses
Our operating expenses consist of research and development, general and administrative and sales and marketing expenses. Personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation, are among the most significant component of each of our operating expense categories.
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Research and development
$
11,776
$
11,108
$
668
6.0
%
Research and development as a % of revenue
19
%
19
%
Research and Development Expenses. Research and development expenses increased by $0.7 million, or 6.0%, from $11.1 million during the year ended December 31, 2022, to $11.8 million during the year ended December 31, 2023. The increase was primarily due to higher expenses relating to the development and enhancement of our new xSPI family of STT-MRAM products and increases in share-based compensation.
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
General and administrative
$
14,296
$
11,741
$
2,555
21.8
%
General and administrative as a % of revenue
22
%
20
%
General and Administrative Expenses. General and administrative expenses increased by $2.6 million, or 21.8%, from $11.7 million during the year ended December 31, 2022, to $14.3 million during the year ended December 31, 2023. The increase was primarily due to increases in professional service costs, share-based compensation, and depreciation.
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Sales and marketing
$
5,288
$
4,869
$
419
8.6
%
Sales and marketing as a % of revenue
8
%
8
%
Sales and Marketing Expenses. Sales and marketing expenses increased by $0.4 million, or 8.6%, from $4.9 million during the year ended December 31, 2022, to $5.3 million during the year ended December 31, 2023. The increase was primarily due to an increase in variable compensation costs and contract labor.
Interest Expense
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Interest expense
$
63
$
274
$
(211)
(77.0)
%
Interest expense decreased by $0.2 million, or 77.0%, from $0.3 million during the year ended December 31, 2022, to $0.1 million during the year ended December 31, 2023. The decrease was due to having no outstanding balance under our 2019 Credit Facility as we paid off the outstanding balance in full in March 2023, resulting in no interest incurred during the remainder of 2023 after the outstanding balance was paid in full.
33
Table of Contents
Other Income, Net
Year Ended December 31,
Change
2023
2022
Amount
%
(Dollars in thousands)
Other income, net
$
3,214
$
190
$
3,024
1,591.6
%
Other income, net changed by $3.0 million, from $0.2 million of expense during the year ended December 31, 2022, to $3.2 million of income during the year ended December 31, 2023. The increase was primarily due to the employee retention tax credit received during the second quarter of 2023 of $2.0 million, along with an increase in interest income earned on the money market cash account as a result of increased cash balances and increasing interest rates, offset by a loss on prepayment and termination of our 2019 Credit Facility.
Liquidity and Capital Resources
As of December 31, 2023, we had $36.9 million of cash and cash equivalents, compared to $26.8 million as of December 31, 2022. As of December 31, 2023, we have no outstanding debt as we paid off our 2019 Credit Facility in full in March 2023. We believe our cash and cash equivalents are sufficient to meet our anticipated capital requirements in the next 12 months. Our future capital requirements will depend on many factors, including, among other things, our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of new products.
Additionally, see “Credit Facilities” below for information regarding our debt financing.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
Year Ended December 31,
2023
2022
(In thousands)
Cash provided by operating activities
$
13,128
$
9,493
Cash used in investing activities
(1,385)
(2,586)
Cash used in financing activities
(1,592)
(1,521)
Cash Flows From Operating Activities
During the year ended December 31, 2023, cash provided by operating activities was $13.1 million, which consisted of net income of $9.1 million, non-cash charges of $6.4 million and changes in net operating assets and liabilities of $2.3 million. The non-cash charges primarily consisted of stock-based compensation of $5.0 million, depreciation and amortization of $1.2 million, and a loss on prepayment and termination of our 2019 credit facility of $0.2 million. The change in our net operating assets and liabilities was primarily due to an increase in accounts receivable of $0.9 million due to timing of cash receipts for outstanding balances, an increase in inventory of $1.7 million to meet anticipated production volumes, an increase in prepaid and other current assets of $0.4 million, an increase in other assets of $0.2 million, an increase in accounts payable of $0.5 million, an increase in accrued liabilities of $0.8 million, and a decrease in deferred revenue of $0.5 million.
During the year ended December 31, 2022, cash provided by operating activities was $9.5 million, which primarily consisted of net income of $6.1 million, adjusted by non-cash charges of $5.3 million and a decrease of $1.9 million in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $4.4 million, depreciation and amortization of $1.0 million, and non-cash interest expense of $0.1 million, offset by a gain on disposal of property and equipment of $0.2 million. The change in our net operating assets and liabilities was primarily due to an increase of $2.5 million in accounts receivable due to an increased sales volume and timing of cash receipts for outstanding balances and a $0.3 million increase in inventory. These were offset by an increase of $0.6 million in accounts payable due to timing of invoice due dates and a $0.2 million increase in lease liabilities.
34
Table of Contents
Cash Flows From Investing Activities
During the year ended December 31, 2023, cash used in investing activities was $1.4 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment offset by a nominal amount in proceeds received on the sale of property and equipment.
During the year ended December 31, 2022, cash used in investing activities was $2.6 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment and purchased software offset by a nominal amount in proceeds received on the sale of property and equipment.
Cash Flows From Financing Activities
During the year ended December 31, 2023, cash used in financing activities was $1.6 million, which primarily consisted of $2.8 million of payments to pay off our 2019 Credit Facility offset by $1.2 million in proceeds from stock option exercises and purchases of shares under our employee stock purchase plan.
During the year ended December 31, 2022, cash used in financing activities was $1.5 million, which primarily consisted of $2.4 million in payments on long-term debt offset by $0.9 million in proceeds from stock option exercises and purchases of shares under our employee stock purchase plan.
Credit Facilities
In May 2017, we executed a Loan and Security Agreement (2017 Credit Facility) with Silicon Valley Bank (SVB) for a $12.0 million term loan, which we subsequently amended in January 2019 and June 2019. In August 2019, we executed an Amended and Restated Loan and Security Agreement (2019 Credit Facility), which amended and restated the 2017 Credit Facility, providing for a formula revolving line of credit (Line of Credit) and a term loan (2019 Term Loan) with SVB to refinance in full the outstanding principal balance of $8.0 million under the 2017 Credit Facility.
In July 2020, we executed the first amendment to the 2019 Credit Facility with SVB. The amendment, among other things, extended the initial 12-month interest-only period for the term loan to a 16-month interest-only period and lowered the floor interest rate. The floor interest rates for 2019 Term Loan and the Line of Credit Facility were reduced from 4.75% and 6.75% to 3.75% and 4.75%, respectively.
The amended Line of Credit allowed for a maximum draw of $5.0 million, subject to a formula borrowing base, has a two-year term and bears interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate plus 1.5%, per annum, subject to a floor of 4.75%. The Line of Credit required a commitment fee of 1.6% of the maximum availability of the Line of Credit, which was paid in August 2019 upon closing, and was accounted for as a debt discount. The Line of Credit also provided for a termination fee equal to 1% of the maximum availability under the Line of Credit, which was due in case of a termination of the Line of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125% per annum of the average unused portion of the Line of Credit, which is expensed as incurred. The Line of Credit was set to mature on August 5, 2023.
The amended 2019 Term Loan provided for a $6.0 million term loan. The amended 2019 Term Loan had a term of 46 months, and a 16-month interest-only period followed by 30 months of equal principal payments of $200,000 per month, plus accrued interest. The 2019 Term Loan incurred interest at a floating rate equal to the WSJ prime rate minus 0.75%, subject to a floor of 3.75%. A final payment of 7% of the original principal amount of the 2019 Term Loan was to be made when the 2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise. The additional payment, which is accounted for as a debt discount, was being accreted using the effective interest method. The 2019 Term Loan had a prepayment fee equal to 2% of the total commitment, which was due only if the 2019 Term Loan was prepaid prior to the scheduled maturity date for any reason. The 2019 Term Loan was to mature on June 1, 2023.
In conjunction with entering into the 2019 Credit Facility, on August 5, 2019, we and SVB amended and restated the warrant issued to SVB in connection with the first amendment to the 2017 Credit Facility, which was a warrant to purchase 9,375 shares of our common stock at an exercise price of $8.91 per share, to add an option by SVB to put the warrant back to us for $50,000 upon expiration or a liquidity event, to be prorated if SVB exercises a portion of the warrant. The warrants were set to expire on July 6, 2023. The warrant was classified as a liability and recorded at fair
35
Table of Contents
value within other liabilities in our balance sheet. Due to the put right, the warrant was subject to fair value remeasurement at each subsequent reporting date until the exercise or expiration of the warrant. Any resulting change in the fair value of the warrant was to be recorded as other income, net, in our statements of income and comprehensive income. The other income recognized for the years ended 2023 and 2022 related to the change in fair value of the warrant has been minimal and immaterial to the financial statements. These warrants were extinguished as of December 31, 2023.
Collateral for the 2019 Credit Facility included all of our assets except for intellectual property. We were required to comply with certain covenants under the 2019 Credit Facility, including requirements to maintain a minimum cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender, such as limitations on our ability to engage in mergers or acquisitions, sell assets, incur indebtedness, or grant liens or negative pledges on our assets, make loans or make other investments. Under these covenants, we were prohibited from paying cash dividends with respect to our capital stock. The 2019 Credit Facility contained a material adverse effect clause which provides that an event of default will occur if, among other triggers, an event occurs that could reasonably be expected to result in a material adverse effect on our business, operations, or condition, or on our ability to perform our obligations under the 2019 Term Loan.
In March 2023, the 2019 Credit Facility, consisting of our Term Loan and Line of Credit, was paid in full, and there was no outstanding balance as of December 31, 2023. We paid an early termination and prepayment fee of $170,000, which was recorded within other income, net, within the statements of income and comprehensive income for the year ended December 31, 2023. We were in compliance with all covenants throughout the 2019 Credit Facility payoff date in March 2023.
The amortization of the debt issuance costs and accretion of the debt discount is included in interest expense within the statements of income and comprehensive income and included in non-cash interest expense within the statement of cash flows.
For additional information about the 2019 Credit Facility, see Note 6 in the accompanying Notes to Financial Statements in Part II, Item 8 of this Form 10-K.
Critical Accounting Policies and Significant Judgements and Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We base our estimates on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
We recognize revenue when a customer obtains control of the promised products or services, in an amount that reflects the consideration we expect to receive in exchange for those products or services. We recognize revenue net of allowances for returns and price concessions, and any taxes imposed on revenue transactions, which are subsequently remitted to governmental authorities.
Nature of Products and Services
We derive our revenue from the sale of MRAM-based products in discrete unit form, licenses of and royalties on our MRAM and magnetic sensor technology, the sale of backend foundry services, and design services to third parties. We recognize sales of products in discrete unit form at a point in time, revenue related to licensing agreements when we have delivered control of the technology, revenue related to royalty agreements in the period in which sales generated from products sold using our technology occurs, sales of backend foundry services over time, and design services to third parties either at a point in time or over time, depending on the nature of the services.
36
Table of Contents
Product Revenue
For products sold in their discrete form, we either sell our products directly to OEMs, ODMs, contract manufacturers (CMs), or through a network of distributors, who in turn sell to those customers. For sales directly to OEMs, ODMs and CMs, we recognize revenue when the OEM, ODM or CM obtains control of the product, which occurs at a point in time, generally upon shipment to the customer.
From time to time, we may provide distributors with price adjustments subsequent to the delivery of product to them and such amounts are dependent on the end customer and product sales price. Price adjustments can be based on a variety of factors, including customer, product, quantity, geography, and competitive differentiation. Price protection rights grant distributors the right to a credit in the event of declines in the price of our products. Under these circumstances, we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors’ outstanding accounts receivable balance. The credits are on a per unit basis and are not given to the distributor until the distributor provides information regarding the sale to their end customer. We estimate these credits and record such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of an allowance for price adjustments for amounts due to distributors. We estimate credits to distributors based on the historical rate of credits provided to distributors relative to sales and evaluation of current market conditions. Revenue on shipments to distributors is recorded when control of the products has been transferred to the distributor.
We estimate the amount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We estimate our product return liability by analyzing our historical returns, current economic trends and changes in customer demand and acceptance of products. We have received insignificant returns to date and believe that returns of our products will continue to be minimal.
Upon the transfer of control, generally at shipment, we record a trade receivable for the selling price as there is a legally enforceable obligation of the distributor to pay for the product delivered, an allowance is recorded for the estimated discount that will be provided to the distributor, and the net of these amounts is recorded as revenue on the statements of income and comprehensive income.
License Revenue
For licenses of technology, recognition of revenue is dependent upon whether we have delivered rights to the technology, and whether there are future performance obligations under the contract. In some instances, the license agreements call for future events or activities to occur in order for milestone amounts to become due from the customer. The terms of such agreements include payment to us of one or more of the following: non-refundable upfront fees; and royalties on net sales of licensed products. Historically, these license agreements have not included other future performance obligations once the license has been transferred to the customer.
We recognize revenue from non-refundable upfront payments when the license is transferred to the customer and we have no other performance obligations.
We also have entered into multiple contractual agreements with customers for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract and for the development of a strategic radiation hardened field programmable gate array product, consisting of a technology license to provide design and development services under the contractual agreements. We applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied.
We concluded these contractual arrangements represent one arrangement and evaluated our promises to the customer and whether the performance obligations granted under the arrangement were distinct. The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependency between the licenses and the development subcontract. Accordingly, we determined the
37
Table of Contents
licenses were not distinct within the context of the contract and combined the license with other performance obligations.
As a result, we are recognizing revenue related to the performance obligations over time using the input method based on costs incurred to date relative to the total expected costs of the contract over the performance obligation period.
Inventory
We record inventories at the lower of cost, determined on a first-in, first-out basis or net realizable value. We write down inventory for estimated excess or obsolete inventory equal to the difference between cost and estimated net realizable value. Inventory write downs establish a new cost basis for inventory and charges are not subsequently reversed even if circumstances subsequently indicate that increased carrying amounts are recoverable. In estimating these reserves, our evaluation takes into consideration historical and expected future demand considering current market conditions and trends, the effect new products may have on the sale of existing products, technological obsolescence, and other factors. We record inventory write-downs for the valuation of inventory when required based on our analyses and any write-downs result in a new cost basis for the affected item.
Recent Accounting Pronouncements
See Note 2 in the accompanying Notes to Financial Statements in Part II, Item 8 of this Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for a smaller reporting company.
38
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.