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Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-03-01 · 260 added, 292 removed, 641 unchanged (46% of the section changed)

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We have audited the accompanying consolidated balance sheets of PDF Solutions, Inc.

(a Delaware corporation) and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 2023, expressed an unqualified opinion.

(a Delaware corporation) and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2024, expressed an unqualified opinion.

Basis for Opinion

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(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Company derives revenue from Analytics and Integrated Yield Ramp Revenue.

As described in Note 2 to the consolidated financial statements, the Company derives revenue from Analytics and Integrated Yield Ramp.

Contracts with customers can include various combinations of licenses, subscriptions, products and services, some of which are distinct and are accounted for as separate performance obligations.

judgment is exercised by the Company in determining revenue recognition for customer agreements, including determining whether licenses, subscriptions, and services are distinct performance obligations, determining the standalone selling price (“SSP”) attributed to each performance obligation, establishing the pattern of delivery for each distinct performance obligation, and estimating variable consideration when determining the amount of revenue to recognize.

Significant judgment

is exercised by the Company in determining revenue recognition for customer agreements, including determining whether licenses, subscriptions, and services are distinct performance obligations, determining the standalone selling price (“SSP”) attributed to each performance obligation, establishing the pattern of delivery for each distinct performance obligation, and estimating variable consideration when determining the amount of revenue to recognize.

In addition, for revenue under project-based contracts for fixed-price services, revenue is recognized as services are performed using a percentage-of-completion (“POC”) method based on costs or labor-hours input method.

Estimated costs to complete each contract are based on i) future labor and product costs and ii) expected productivity efficiencies.

Changes in these estimates can have a material effect on revenue recognized and/or related cost.

Finally, the Company recognized Gainshare royalty revenue in the same period in which the usage occurs.

Changes in these estimates can have a material effect on revenue recognized and/or related costs.

Finally, the Company recognizes Gainshare royalty revenue in the same period in which the usage occurs.

The Company accrues the related revenue based on estimates of customers’ underlying sales achievements.

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The principal audit considerations for our determination that performing procedures related to the Company’s revenue recognition for customer agreements is a critical audit matter are the significant amount of judgment required by management in this process.

Significant judgment is required in determining SSP as the Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation, which in turn led to significant auditor judgment, subjectivity and effort in performing audit procedures in assessing the allocation of SSPs to performance obligations.

In addition, significant judgment is required in determining the total estimated contract costs for fixed-price contracts, which in turn led to significant auditor judgment, subjectivity, and effort in performing audit procedures and in evaluating audit evidence relating the total estimated contract costs.

Significant judgment is required in determining SSP as the Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation, which in turn leads to significant auditor judgment, subjectivity and effort in performing audit procedures in assessing the allocation of SSPs to performance obligations.

In addition, significant judgment is required in determining the total estimated contract costs for fixed-price contracts, which in turn leads to significant auditor judgment, subjectivity, and effort in performing audit procedures and in evaluating audit evidence relating to the total estimated contract costs.

Significant judgment is also required in recording Gainshare royalty revenue in the same period in which the usage occurs.

The Company generally does not receive the acknowledgment reports from customers during a given quarter, so the Company is required to accrue the related revenue based on estimates of customers underlying sales achievement, which in turn led to significant auditor judgment, subjectivity, and effort in evaluating the reasonableness of these estimates based on historical data, trends, seasonality and other factors.

The Company generally does not receive acknowledgment reports from customers during a given quarter, so the Company is required to accrue the related revenue based on estimates of customers underlying sales achievement, which in turn leads to significant auditor judgment, subjectivity, and effort in evaluating the reasonableness of these estimates based on historical data, trends, seasonality and other factors.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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We have served as the Company’s auditor since 2018.

March 1, 2023

San Jose, California

February 27, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2022 and 2021 and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022 and the related notes (collectively referred to as the “consolidated financial statements”) of the Company, and our report dated March 1, 2023 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2023 and 2022 and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023 and the related notes (collectively referred to as the “consolidated financial statements”) of the Company, and our report dated February 27, 2024 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Assessment of Internal Controls Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the entity’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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San Jose, California

March 1, 2023

February 27, 2024

PDF SOLUTIONS, INC.

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Short-term investments

Accounts receivable, net

Accounts receivable, net of allowance for credit losses

Prepaid expenses and other current assets

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Total current liabilities

Long-term income taxes payable

Long-term income taxes

Non-current portion of operating lease liabilities

Non-current portion of deferred revenues

Other non-current liabilities

Total liabilities

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PDF SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

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Interest and other expense (income), net

Income (loss) before income taxes

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Other comprehensive income (loss):

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Total other comprehensive income (loss)

Comprehensive loss

Net loss per share, basic and diluted

Weighted average common shares used to calculate net loss per share, basic and diluted

Comprehensive income (loss)

Net income (loss) per share:

Weighted average common shares used to calculate net income (loss) per share:

See Accompanying Notes to Consolidated Financial Statements.

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Balances, January 1, 2021

Issuance of common stock, net of issuance of $0.1 million

Repurchase of common stock

Issuance of common stock in connection with employee stock purchase plan

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Vesting of restricted stock units

Purchases of treasury stock in connection with tax withholdings on restricted stock grants

Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock

Stock-based compensation expense

Comprehensive income (loss)

Comprehensive loss

Balances, December 31, 2021

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Vesting of restricted stock units

Purchases of treasury stock in connection with tax withholdings on restricted stock grants

Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock

Stock-based compensation expense

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Vesting of restricted stock units

Purchases of treasury stock in connection with tax withholdings on restricted stock grants

Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock

Stock-based compensation expense

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Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

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Amortization of costs capitalized to obtain revenue contracts

Loss on disposal and write-down in value of property and equipment

Net accretion of discounts on short-term investments

Write-down in value of property and equipment

Deferred taxes

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Purchases of short-term investments

Proceeds from sale of property and equipment

Purchases of property and equipment

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Proceeds from exercise of stock options

Proceeds from employee stock purchase plan

Proceeds from employee stock purchase plans

Payments for taxes related to net share settlement of equity awards

Repurchases of common stock

Proceeds from issuance of common stock, net of issuance costs paid

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net change in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Continued on next page.

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Supplemental disclosure of cash flow information:

Cash paid during the period for taxes

Cash paid during the year for taxes

Cash paid for amounts included in the measurement of operating lease liabilities

Supplemental disclosure of noncash information:

Property and equipment, and intangible assets received and accrued in accounts payable and accrued and other liabilities

Property and equipment received and accrued in accounts payable and accrued and other liabilities

Advances for purchase of fixed assets transferred from prepaid assets to property and equipment

Operating lease liabilities arising from obtaining right-of-use assets

Stock-based compensation capitalized as software development costs

See accompanying notes to consolidated financial statements.

Property and equipment transferred to sales-type leases

See A ccompanying Notes to Consolidated Financial Statements.

PDF SOLUTIONS, INC.

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PDF Solutions, Inc.

(the “Company” or “PDF”), provides products and services designed to empower organizations across the semiconductor ecosystem to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products and operational efficiency.

(the “Company” or “PDF”), provides products and services designed to empower organizations across the semiconductor and electronics ecosystem to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products and operational efficiency.

The Company’s products, services, and solutions include proprietary software, physical intellectual property (“IP”) for integrated circuit (“IC”) designs, electrical measurement hardware tools, proven methodologies, and professional services.

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GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates in these financial statements include revenue recognition, the estimated useful lives of property and equipment and intangible assets, assumptions made in analysis of allowance for doubtful accounts, fair values of assets acquired and liabilities assumed in business combinations, impairment of goodwill and long-lived assets, valuation for deferred tax assets, and accounting for lease obligations, stock-based compensation expense, and income tax uncertainties and contingencies.

Significant estimates in these financial statements include revenue recognition, the estimated useful lives of property and equipment and intangible assets, assumptions made in analysis of allowance for credit losses, fair values of assets acquired and liabilities assumed in business combinations, impairment of goodwill and long-lived assets, valuation for deferred tax assets, and accounting for lease obligations, stock-based compensation expense, and income tax uncertainties and contingencies.

Actual results could differ from those estimates and may result in material effects on the Company’s operating results and financial position.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide.

As of the date of issuance of the consolidated financial statements, the Company is not aware of any specific event or circumstance relating to COVID-19 that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities.

These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.

Actual results could differ from those estimates and any such differences may be material to the financial statements.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable.

As of December 31, 2023, and periodically throughout the year, the Company had cash balances in various operating accounts in excess of federally insured limits.

The Company maintains its cash and cash equivalents and short-term investments with what it considers high credit quality financial institutions.

The Company primarily sells its products and services to companies in Asia, Europe, and North America within the semiconductor industry.

As of December 31, 2022, three customers accounted for 53 % of the Company’s gross accounts receivable and two customers accounted for 41 % of the Company’s total revenues for 2022.

As of December 31, 2021, two customers accounted for 44 % of the Company’s gross accounts receivable and two customers accounted for 27 % of the Company’s revenues for 2021.

As of December 31, 2023, two customers accounted for 50 % of the Company’s gross accounts receivable and one customer accounted for 35 % of the Company’s total revenues for 2023.

As of December 31, 2022, three customers accounted for 53 % of the Company’s gross accounts receivable and two customers accounted for 41 % of the Company’s revenues for 2022.

Two customers accounted for 27 % of the Company’s revenues for 2021.

See Note 11 for further details.

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The Company maintains allowances for potential credit losses.

The allowance for doubtful accounts, which was based on management’s best estimates, could be adjusted in the near term from current estimates depending on actual experience.

The allowance for credit losses, which was based on management’s best estimates, could be adjusted in the near term from current estimates depending on actual experience.

Such adjustments could be material to the consolidated financial statements.

Supplier Concentration

Some of the Company’s vendors provide highly specialized, differentiated products and services related to the Company’s eProbe system and some licensors provide key enabling software for the Company’s products and services.

In the event any of these suppliers delay or discontinue providing such products and services to the Company, it may be difficult for the Company to replace such suppliers, software, or parts in a timely manner or at all, which could delay or make impossible the Company’s ability to deliver or adequately support its software systems or to complete and deliver its eProbe systems to its customers, and could negatively impact the Company’s future financial results of operations.

Cash and Cash Equivalents, and Short-term Investments

The Company considers all highly liquid investments with an original maturity of 90 days or less or investments with a remaining maturity of 90 days or less at the purchase to be cash equivalents and investments with original maturities greater than 90 days but less than one year to be short-term investments.

The Company classifies securities with readily determinable market values as available-for-sale.

Short-term investments include available-for-sale securities and are carried at estimated fair value, with the unrealized gains and losses deemed temporary in nature, net of tax, reported as a component of accumulated other comprehensive loss in stockholders’ equity.

Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other expense, net in the Consolidated Statements of Comprehensive Loss.

The Company considers all highly liquid investments with effective maturities of 90 days or less on the date of purchase to be cash equivalents and investments with effective maturities greater than 90 days but less than one year to be short-term investments.

The Company classifies its securities with readily determinable market values as “available-for-sale”.

Short-term investments include available-for-sale securities and are carried at estimated fair value, with the unrealized gains and unrealized non-credit-related losses, net of tax, reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Unrealized credit-related losses are recorded to interest and other expense (income), net in the Consolidated Statements of Comprehensive Income (Loss) with a corresponding allowance for credit-related losses in the Consolidated Balance Sheets.

Realized gains and losses are based on the specific identification method and are included as a component of interest and other expense (income), net in the Consolidated Statements of Comprehensive Income (Loss).

The Company periodically reviews short-term investments for impairment.

In the event a decline in value is determined to be other-than-temporary, an impairment loss is recognized.

When determining if a decline in value is other-than-temporary, the Company takes into consideration the current market conditions, the duration and severity of and the reason for the decline, and the likelihood that it would need to sell the security prior to a recovery of par value.

For investments in unrealized loss positions, the Company assesses whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors if the Company neither intends to sell nor anticipates that it is more likely than not that it will be required to sell prior to recovery of the amortized cost basis.

The Company considers factors such as the extent to which the market value has been less than the amortized cost basis, any noted failure of the issuer to make scheduled interest or principal payments, changes to the rating of the security by a rating agency and other relevant credit-related factors in determining whether or not a credit loss exists.

There was no allowance for credit-related losses on any of the Company’s investments recognized in the years ended December 31, 2023, 2022 and 2021.

As of December 31, 2023, and 2022, short-term investments consisted solely of U.S.

Treasury bills.

Government securities.

The cost of these securities approximated fair value and there was no material gross realized or unrealized gains or losses as of December 31, 2023 and 2022.

There were also no impairments in the investments’ value in the year ended December 31, 2022 and 2021.

Refer to Note 12, “Fair Value Measurements” for further discussion on the Company’s investments.

Restricted cash of $ 3.5 million noted in the Consolidated Statement of Cash Flows for the year ended December 31, 2020 pertains to the amount specifically designated to pay for the Holdback amount related to the Company’s acquisition of Cimetrix Incorporated (“Cimetrix”).

Refer to Note 4, “Business Combination” for further discussion about the payment of Holdback Amount in fiscal 2021.

The Company recorded interest income from its cash, cash equivalents, and short-term investments of $ 5.5 million, $ 1.5 million and $ 0.1 million in the years ended December 31 2023, 2022 and 2021, respectively.

Accounts Receivable

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The Company performs ongoing credit evaluations of its customers’ financial condition.

An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectability of the accounts receivable.

The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance.

Accounts receivable reserves are summarized below (in thousands):

(1) Additions to the accounts receivable reserve for doubtful accounts are charged to bad debt expense.

Additions to the receivable reserve for billing adjustments are charged against revenue.

An allowance for credit losses is maintained for probable credit losses based upon the Company’s assessment of the expected collectibility of the accounts receivable.

The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance.

The changes in allowance for credit losses are summarized below (in thousands):

(1) Additions to the accounts receivable reserve for credit losses are charged to bad debt expense.

Property and Equipment

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The Company has operating leases for administrative and sales offices, research and development laboratory and clean room.

The Company recognizes long-term operating lease rights and commitments as operating lease right-of-use assets (ROU), operating lease liabilities and operating lease liabilities, non-current, respectively, in the Consolidated Balance Sheets.

The Company recognizes long-term operating lease rights and commitments as operating lease right-of-use

(“ROU”) assets, operating lease liabilities and operating lease liabilities, non-current, respectively, in the Consolidated Balance Sheets.

The Company elected to not separate lease and non-lease components for all of its leases.

The Company determines if an arrangement is, or contains, a lease at inception.

Operating lease right-of-use assets, and operating lease liabilities are initially recorded based on the present value of lease payments over the lease term.

Operating lease ROU assets, and operating lease liabilities are initially recorded based on the present value of lease payments over the lease term.

Lease terms include the minimum unconditional term of the lease, and may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised.

The decision to include these options involves consideration of our overall future business plans and other relevant business economic factors that may affect our business.

Since the determination of the lease term requires an application of judgment, lease terms that differ in reality from our initial judgment may potentially have a material impact on the Company’s Consolidated Balance Sheets.

The decision to include these options involves consideration of the Company’s overall future business plans and other relevant business economic factors that may affect its business.

Since the determination of the lease term requires an application of judgment, lease terms that differ in reality from the Company’s initial judgment may potentially have a material impact on the Company’s Consolidated Balance Sheets.

In addition, the Company’s leases do not provide an implicit rate.

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Software Development Costs

Internally developed software is software developed to meet our internal needs to provide certain services to the customers.

Internally developed software is software developed to meet the Company’s internal needs to provide certain services to the customers.

The Company’s capitalized software development costs consist of internal compensation related costs and external direct costs incurred during the application development stage and are amortized over their useful lives, generally five to six years.

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility.

As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statements of Comprehensive Loss.

The costs to develop software that is marketed externally consisting of external direct costs and internal compensation related costs are capitalized once technological feasibility of the software product has been established.

Costs incurred prior to establishing technological feasibility are expensed as incurred.

Technological feasibility is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the software product can be produced to meet its design specifications.

Capitalization of such costs ceases when the software product is generally available to customers.

These software development costs are amortized using the greater of the straight-line method or the usage method over its estimated useful life.

Cost of Revenues

Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology.

Service costs include material, personnel-related costs including compensation, employee benefits, bonus and stock-based compensation expense, subcontractor costs, overhead costs, travel, and allocated facilities-related costs.

Software license costs consist of costs associated with cloud-delivery related expenses and licensing third-party software used by us in providing services to the Company’s customers in solution engagements or sold in conjunction with the Company’s software products.

Costs of revenues consist primarily of costs incurred to provide and support the Company’s services, costs recognized in connection with licensing its software, IT and facilities-related costs and amortization of acquired technology.

Service costs include material costs, hardware costs (including cost of leased assets under sales-type leases), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), subcontractor costs, overhead costs, travel, and allocated facilities-related costs.

Software license costs consist of costs associated with cloud-delivery related expenses and licensing third-party software used by the Company in providing services to its customers in solution engagements or sold in conjunction with the Company’s software products.

Research and Development Expenses

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel-related costs including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing and general and administrative personnel, legal, tax and accounting services, marketing communications expenses, third-party cloud-services related costs, travel, IT and facilities cost allocations.

Selling, general and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing and general and administrative personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, IT and facilities cost allocations.

Stock-Based Compensation

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An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Comprehensive Loss.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase).

Basic net income (loss) per share is computed by dividing net income (loss) by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase).

Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive.

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The functional currency of the Company’s foreign subsidiaries is the local currency for the respective subsidiary.

The assets and liabilities are translated at the period-end exchange rate, and statements of comprehensive loss are translated at the average exchange rate during the year.

Gains and losses resulting from foreign currency translations are included as a component of other comprehensive loss.

Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Comprehensive Loss.

The assets and liabilities are translated at the period-end exchange rate, and statements of comprehensive income (loss) are translated at the average exchange rate during the year.

Gains and losses resulting from foreign currency translations are included as a component of other comprehensive income (loss).

Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Comprehensive Income (Loss).

Derivative Financial Instruments

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The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the date of the business combination.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

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Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Allocation of purchase consideration to identifiable assets and liabilities affects the Company’s amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including in-process research and development, and goodwill, are not amortized but tested annually for impairment.

Allocation of purchase consideration to identifiable assets and liabilities affects the Company’s amortization expense, as acquired finite-lived intangible assets are amortized over their useful life, whereas any indefinite lived intangible assets, including in-process research and development, and goodwill, are not amortized but tested annually for impairment.

During the measurement period, which is not to exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

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See Note 6, “Commitments and Contingencies”.

Accounting Standards Not Yet Effective

In June 2016, the FASB issued ASU No.

Accounting Standards Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts.

Measurement of Credit Losses on Financial Instruments (“ASU No.

2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts.

2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses.

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Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No.

Additionally, ASU No.

2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company will adopt this standard effective the first quarter of 2023.

In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses.

The subsequent amendments will have the same effective date and transition requirements as ASU No.

Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

The Company is in the process of evaluating the impact of Topic 326 on its consolidated financial statements and the related disclosure but does not believe it will have a material effect.

The Company adopted this standard on January 1, 2023, using a modified retrospective approach, which requires a cumulative-effect adjustment to accumulated deficit as of the beginning of the period of adoption with prior periods not restated.

The adoption of ASU No.

2016-13 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements.

Early adoption is permitted.

The Company is currently evaluating the impact of the new standard on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024.

Entities are permitted to early adopt the standard for “annual financial statements that have not yet been issued or made available for issuance.” Adoption is either prospectively or retrospectively, the Company will adopt this ASU on a prospective basis.

The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB and does not believe any of these accounting pronouncements has had or will have a material impact on the consolidated financial statements.

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Analytics revenue and Integrated Yield Ramp revenue.

The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers , and its related amendments (collectively known as “ASC 606”).

The Company recognizes revenue in accordance with FASB Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , and its related amendments (collectively known as “ASC 606”).

ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers.

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For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately.

For contracts with multiple performance obligations, we

allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.

For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.

Revenue from DFI systems and CV systems (including Characterization services) that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed.

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Please refer to “Significant Judgments” section of this Note for further discussion.

The Company also leases some of its DFI system and CV system assets to some customers.

The Company determines the existence of a lease when the customer controls the use of these identified assets for a period of time defined in the lease agreement and classifies such leases as operating leases or sales-type leases.

A lease is classified as a sales-type lease if it meets certain criteria under Topic 842, Leases;

otherwise it is classified as an operating lease.

Operating lease revenue is recognized on a straight-line basis over the lease term.

Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics Revenue in the Consolidated Statements of Comprehensive Income (Loss).

Payments under sales-type leases are discounted using the interest rate implicit in the lease.

When the Company’s leases are embedded in contracts with customers that include non-lease

performance obligations, the Company allocates consideration in the contract between lease and non-lease components based on their relative SSPs.

Assets subject to operating leases remain in Property and equipment and continue to be depreciated.

Assets subject to sales-type leases are derecognized from Property and equipment, net at lease commencement and a net investment in the lease asset is recognized in Prepaid expenses and other current assets and Other non-current assets in the Consolidated Balance Sheets.

Integrated Yield Ramp Revenue

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Please refer to “Significant Judgments” section of this Note for further discussion.

The Gainshare royalty contained in IYR contracts is a variable fee related to continued usage of the Company’s intellectual property after the fixed-fee service period ends, based on a customer’s yield achievement.

The Gainshare royalty contained in Integrated Yield Ramp contracts is a variable fee related to continued usage of the Company’s IP after the fixed-fee service period ends, based on a customer’s yield achievement.

Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels.

Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations.

The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and records it in the same period in which the usage occurs.

The Company records Gainshare as a usage-based royalty derived from customers’ usage of IP and records it in the same period in which the usage occurs.

Disaggregation of Revenue

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contract liabilities) at the contract level.

At December 31, 2022 and 2021, contract assets of $ 3.3 million and $ 0.4 million, respectively, are included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.

The Company did not record any asset impairment charges related to contract assets during fiscal year 2022 and 2021.

As of December 31, 2023 and 2022, contract assets of $ 6.8 million and $ 3.3 million, respectively, are included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.

As of December 31, 2023 and 2022, contract assets of $ 0.9 million and nil , respectively, are included in other non-current assets in the accompanying Consolidated Balance Sheets.

The Company did not record any asset impairment charges related to contract assets during fiscal years 2023, 2022 and 2021.

Deferred revenues and billings in excess of recognized revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met.

Deferred revenues that will be

recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded as non-current deferred revenues in the accompanying Consolidated Balance Sheets.

Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in other non-current liabilities in the accompanying Consolidated Balance Sheets.

As of December 31, 2023 and 2022, the non-current portion of deferred revenues included in non-current liabilities was $ 1.8 million and $ 1.9 million, respectively.

Revenue recognized for the years ended December 31, 2023, 2022 and 2021, that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $ 24.8 million, $ 24.9 million and $ 16.9 million, respectively.

At December 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately $ 277.7 million.

Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next two years , with the remainder in the following three years .

This amount does not include significant contracts to which the customer is not committed, future sales-based or usage-based royalty payments in exchange for a license of intellectual property, and future payments for performance obligations from on-demand arrangements.

As of December 31, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately $ 229.8 million.

Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next three years , with the remainder in the following three years .

This amount does not include significant contracts to which the customer is not committed, future sales-based or usage-based royalty payments in exchange for a license of IP, and future payments for performance obligations from on-demand arrangements.

This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments.

The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

The adjustment to revenue recognized in the years ended December 31, 2022, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous periods was an increase of $ 0.4 million, a decrease of $ 0.4 million and an increase $ 0.1 million, respectively.

The adjustment to revenue recognized in the years ended December 31, 2023, 2022 and 2021 from performance obligations satisfied (or partially satisfied) in previous periods was an increase of $ 3.7 million, an increase of $ 0.4 million and a decrease $ 0.4 million, respectively.

These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty.

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The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component for the years ended December 31, 2023, 2022 and 2021.

STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc.

(collectively referred to herein as “Advantest”) that included the following agreements.

● A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of the Company’s common stock for aggregate gross proceeds of $ 65.2 million and a related Stockholder Agreement.

● An Amendment #1 to that certain Software License and Related Services Agreement, dated as of March 25, 2020, for an exclusive commercial arrangement in which the Company and Advantest will collaborate on, and the

Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform.

On June 5, 2022, the parties amended Amendment #1 to provide another approved DEX Site (as defined therein).

On November 11, 2022, the parties entered into a further amendment to Amendment #1 that provided, effective October 31, 2022:

(i) flexibility for Advantest to spend the remainder of their committed $ 50.0 million over the remainder of the original term on its choice of products and services from a price list, instead of limiting Advantest to the original, fixed bundle of software and services;

(ii) revised exclusivity;

and (iii) the Company with free access/use of certain Advantest software.

● An Amended and Restated Master Development Agreement with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs through one or more development phases subject to certain conditions as set forth therein.

Costs and expenses incurred related to this agreement have no t been significant for the year ended December 31, 2022 and 2021.

● A Master Commercial Terms and Support Services Agreement for the commercialization and support of integrated products of the Company and Advantest that are the outcome of the above development agreement.

No material costs and expenses incurred related to the Commercial Agreement with Advantest during the years ended December 31, 2022 and 2021.

Analytics revenue recognized from Advantest during the years ended December 31, 2022, 2021 and 2020 was $ 10.3 million, $ 10.6 million and $ 3.4 million, respectively.

Accounts receivable from Advantest amounted to $ 0.3 million at December 31, 2022.

There were no outstanding accounts receivable from Advantest at December 31, 2021.

Deferred revenue amounted to $ 7.1 million and $ 6.8 million as of December 31, 2022 and 2021, respectively.

There was no occurrence of any termination events under these agreements as of the issuance of these consolidated financial statements.

The Company carries out transactions with Advantest on arm’s length commercial customary terms.

BUSINESS COMBINATION

On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated (“Cimetrix”).

Cimetrix a global provider of equipment connectivity products for smart manufacturing and Industry 4.0 that enable factory equipment to communicate to increase productivity, reduce costs, and improve quality.

The combination of Cimetrix connectivity products and platforms with the Company’s Exensio analytics platform powered by machine learning, is intended to enable IC, assembly, and electronics manufacturer customers to extract more intelligence from their tools, not just data, to build more reliable chips and systems at lower manufacturing costs.

The gross purchase price was approximately $ 37.5 million ($ 31.6 million net of cash acquired) for all of the outstanding equity of Cimetrix.

The net cash payment for this acquisition which also include the payment of adjusted Holdback Amount, as discussed below, was funded from the available cash of the Company.

At the Acquisition Date, the Company held back $ 3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement.

In fiscal 2021, the Company recorded a measurement period adjustment which reduced the Holdback Amount to $ 3.1 million.

The measurement period adjustment did not have an impact on the Company’s Consolidated Statement of Comprehensive Loss during the year ended December 31, 2021.

The adjusted Holdback Amount of $ 3.1 million was paid to the participating equity holders in December 2021.

The Company accounted for this acquisition as a business combination in accordance with FASB ASC Topic 805, Business Combinations.

This method requires that assets acquired and liabilities assumed in a business combination be recognized at their respective estimated fair values as of the Acquisition Date.

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill.

The goodwill recorded from this acquisition represents business benefits the Company anticipates from the acquired workforce and expectation for expanded sales opportunities to foster further business growth.

Due to the nature of the transaction, the goodwill associated with the acquisition is not deductible for tax purposes.

The final purchase price allocation, completed in the fourth quarter of 2021, resulted in adjustments to certain assets and liabilities primarily related to Holdback amount, as discussed above, and a reduction to net deferred tax liabilities of approximately $ 1.3 million.

The corresponding offset of measurement period acquisition adjustments to goodwill aggregated $ 1.7 million.

The following summarizes the final allocation of the purchase price for this acquisition, as of the date of the acquisition, is as follows (in thousands, except amortization period):

Period (Years)

Allocation of Purchase Price:

Fair value of tangible assets (including cash of $ 5,900 )

Fair value of intangible assets:

Developed technology

In-process R&D

Customer relationships

Noncompetition agreements

Tradenames and trademarks

Total assets acquired

Accounts payable and accrued expenses

Deferred revenue

Operating lease liabilities

Deferred tax liabilities

Total liabilities assumed

Total purchase price allocation

The estimated fair value of accounts receivable acquired approximates the contractual value of $ 1.6 million.

Pursuant to the merger agreement, the Company will also make payments to certain employees, subject to their continued employment with Cimetrix, through the second quarter of 2024.

The estimated total cash payout is about $ 1.4 million at Acquisition Date and will be paid at various scheduled payout dates.

This amount will be recognized as compensation expense over the period as services are rendered.

As of December 31, 2022 and 2021, such accrued compensation recorded under “Accrued compensation and related benefits” in the accompanying Consolidated Balance Sheets amounted to $ 0.2 million and $ 0.5 million, respectively.

Acquisition-Related Transaction Costs – Transaction expenses related to the acquisition of Cimetrix aggregated $ 1.6 million for the year ended December 31, 2020.

These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Consolidated Statement of Comprehensive Loss for the year ended December 31, 2020.

PROPERTY AND EQUIPMENT

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Test equipment

Construction-in-progress

Property and equipment in progress:

DFI™ system assets

CV® system and other assets

Accumulated depreciation and amortization

Test equipment mainly includes DFI™ systems and CV® systems assets at customer sites that are contributing to revenue.

Among assets under construction, the construction-in-progress balance related to construction of DFI™ systems assets amounted to $ 22.2 million and $ 20.0 million as of December 31, 2022, and December 31, 2021, respectively.

Depreciation and amortization expense for years ended December 31, 2022, 2021 and 2020 was $ 5.5 million, $ 6.2 million and $ 6.7 million, respectively.

In 2021, the Company wrote down the value of its property and equipment by $ 3.2 million related to its first-generation of e-beam tools for DFI™ systems wherein carrying values may not be fully recoverable due to lack of market demand and future needs of our customers for these tools.

Property and equipment in progress represent the development or construction of property and equipment that have not yet been placed in service for the Company’s intended use and are not depreciated.

Depreciation and amortization expense for the years ended December 31, 2023, 2022 and 2021 was $ 5.0 million, $ 5.5 million and $ 6.2 million, respectively.

In 2021, the Company wrote down the value of its property and equipment by $ 3.2 million related to its first-generation of e-beam tools for DFI systems wherein carrying values may not be fully recoverable due to lack of market demand and future needs of its customers for these tools.

GOODWILL AND INTANGIBLE ASSETS

The Company completed the acquisition of Cimetrix in the year ended December 31, 2020.

The Company completed the acquisition of Lantern Machinery Analytics, Inc.

in the year ended December 31, 2023.

Refer to Note 14 for additional information related to the goodwill and intangible assets added from this acquisition.

As of December 31, 2022 and 2021, the carrying amount of goodwill was $ 14.1 million.

As of December 31, 2023 and 2022, the carrying amount of goodwill was $ 15.0 million and $ 14.1 million, respectively.

The following table summarizes goodwill transaction for the years ended December 31, 2023, 2022 and 2021 (in thousands):

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Measurement period acquisition adjustment

Foreign currency translation adjustment

Balance at end of year

(1) Goodwill adjustment was recorded within the measurement period with a corresponding reduction in the Holdback Amount and reduction to net deferred tax liabilities.

See Note 4, “Business Combination”.

Intangible assets balance was $ 15.6 million and $ 18.1 million as of December 31, 2023 and 2022, respectively.

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The weighted average amortization period for acquired identifiable intangible assets was 5.3 years as of December 31, 2023.

The following table summarizes intangible assets amortization expense in the Consolidated Statements of Comprehensive Loss (in thousands):

The following table summarizes intangible assets amortization expense in the Consolidated Statements of Comprehensive Income (Loss) (in thousands):

Year Ended December 31,

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In 2022, the Company early terminated an office lease contract.

The termination of this lease reduced the Company’s operating lease right-of-use assets and lease liabilities by approximately $ 0.5 million and $ 0.6 million, respectively.

gain from the lease termination of approximately $ 0.1 million was recorded under selling, general and administrative expense in the accompanying Consolidated Statement of Comprehensive Loss for the year ended December 31, 2022.

The termination of this lease reduced the Company’s operating lease ROU assets and lease liabilities by approximately $ 0.5 million and $ 0.6 million, respectively.

The gain from the lease termination of approximately $ 0.1 million was recorded under selling, general and administrative expense in the accompanying Consolidated Statement of Comprehensive Loss for the year ended December 31, 2022.

Lease expense was comprised of the following (in thousands):

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Supplemental consolidated balance sheets information related to leases was as follows:

Weighted average remaining lease term under operating ROU leases (in years)

Weighted average remaining lease term under operating leases (in years)

Weighted average discount rate for operating lease liabilities

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Year Ending December 31,

2028 and thereafter

Total future minimum lease payments

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The Company generally provides a warranty to its customers that its software will perform substantially in accordance with documented specifications typically for a period of 90 days following delivery of its products.

The Company also indemnifies certain customers from third-party claims of intellectual property infringement relating to the use of its products.

The Company also indemnifies certain customers from third-party claims of IP infringement relating to the use of its products.

Historically, costs related to these guarantees have not been significant.

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The Company has purchase obligations with certain suppliers for the purchase of goods and services entered in the ordinary course of business.

As of December 31, 2022, total outstanding purchase obligations were $ 30.4 million, the majority of which due within the next 24 months.

As of December 31, 2023, total outstanding purchase obligations were $ 26.2 million, the majority of which are due within the next 2 years.

Indemnification of Officers and Directors

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As of December 31, 2023, except as disclosed below, the Company was not party to any material legal proceedings for which a loss was probable or an amount was accrued.

On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDF under a series of contracts.

From time to time, the Company may enter into contingent fee arrangements with external legal firms that may represent the Company in legal proceedings related to disputes.

Contingent legal fees are accrued by the Company when they are probable and reasonably estimable.

The Company seeks to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future (or a lump sum payment to end the contract), and costs associated with bringing the arbitration proceeding.

SMIC denies liability and an arbitration hearing was held in February 2023.

The decision is expected within approximately three to six months.

Final written submissions were submitted by the parties at the end of August 2023.

A decision is currently expected in 2024.

STOCKHOLDERS’ EQUITY

Issuance of Common Stock

On July 30, 2020, the Company issued 3,306,924 shares of common stock, at a purchase price of $ 19.7085 per share, for aggregate gross proceeds of $ 65.2 million pursuant to a Securities Purchase Agreement with Advantest dated July 29,

Issuance costs related to this private placement aggregated $ 0.1 million.

See Note 3, “Strategic Partnership Agreement with Advantest and Related Party Transactions”, for further details.

Stock Repurchase Program

On May 28, 2020, the Company’s 2018 stock repurchase program (the “2018 Program”) that was originally adopted on May 29, 2018, expired.

As of May 28, 2020, approximately 786,000 shares had been repurchased at an average price of $ 12.43 per share, for a total price of $ 9.8 million under the 2018 Program.

On June 4, 2020, the Company’s Board of Directors adopted a stock repurchase program (the “2020 Program”) to repurchase up to $ 25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years.

During the year ended December 31, 2022, the Company repurchased 218,858 shares under the 2020 Program at an average price of $ 26.40 per share for an aggregate total price of $ 5.8 million.

During the year ended December 31, 2021, the Company repurchased 251,212 shares under the 2020 Program at an average price of $ 18.01 per share for an aggregate total price of $ 4.5 million.

During the year ended December 31, 2022, 218,858 shares were repurchased by the Company under the 2020 Program at an average price of $ 26.40 per share for an aggregate total price of $ 5.8 million.

During the year ended December 31, 2021, 251,212 shares were repurchased by the Company under the 2020 Program at an average price of $ 18.01 per share for an aggregate total price of $ 4.5 million.

In total, 470,070 shares were repurchased under the 2020 Program at an average price of $ 21.91 per share, for an aggregate total price of $ 10.3 million.

On April 11, 2022, the Board of Directors terminated the 2020 Program, and adopted a new program (the “2022 Program”) to repurchase up to $ 35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, from time to time, over the next two years .

During the year ended December 31, 2022, the Company repurchased 714,600 shares under the 2022 Program at an average price of $ 23.36 per share for an aggregate total price of $ 16.7 million.

During the year ended December 31, 2023, 21,340 shares were repurchased by the Company under the 2022 Program at an average price of $ 34.81 per share for an aggregate total price of $ 0.7 million.

During the year ended December 31, 2022, 714,600 shares were repurchased by the Company under the 2022 Program at an average price of $ 23.36 per share for an aggregate total price of $ 16.7 million.

In total, the Company has repurchased 735,940 shares under the 2022 Program at an average price of $ 23.69 per share for an aggregate total price of $ 17.4 million.

EMPLOYEE BENEFIT PLANS

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2021 Purchase Plan

2010 Purchase Plan

Year Ended December 31,

Expected life (in years)

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Weighted average fair value of purchase rights granted during the period

During the year ended December 31, 2022, a total of 182,083 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $ 16.15 per share.

During the years ended December 31, 2022, 2021 and 2020, a total of 5,203 , 108,623 and 183,078 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $ 13.40 per share, $ 9.53 per share and $ 9.12 per share, respectively.

During the years ended December 31, 2023 and 2022, a total of 223,608 and 182,083 shares, respectively, were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $ 17.14 per share and $ 16.15 per share, respectively.

During the years ended December 31, 2022 and 2021 a total of 5,203 and 108,623 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $ 13.40 per share and $ 9.53 per share, respectively.

As of December 31, 2023, unrecognized compensation cost related to the 2021 Purchase Plan was $ 3.0 million.

This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.0 year.

There was no unrecognized compensation cost related to the 2010 Purchase Plan as of December 31, 2022.

This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.5 years.

As of December 31, 2023, 594,309 shares were available for future issuance under the 2021 Purchase Plan.

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Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors.

The aggregate number of shares reserved for awards under the 2011 Plan is 12,800,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011.

The aggregate number of shares reserved for awards under the 2011 Plan is 13.8 million shares, plus up to 3.5 million shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011.

In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards.

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The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through December 31, 2023.

As of December 31, 2022, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

As of December 31, 2023, there were no outstanding awards that were granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, interest rate and expected dividend.

The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options.

The expected life of an award is based on historical experience and on the

terms and conditions of the stock awards granted to employees.

The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.

The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options.

Year Ended December 31,

Expected life (in years)

Risk-free interest rate

Expected dividend

Weighted average fair value per share of options granted during the period

No stock options were granted during the years ended December 31, 2023, 2022 and 2021.

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Selling, general, and administrative

Stock-based compensation expenses

The stock-based compensation expense in the table above includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees.

The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits.

SARs were fully exercised in the third quarter of 2020.

Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was nil , nil and approximately $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Stock-based compensation expense

Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was $ 0.1 million for the year ended December 31, 2023, and nil for the years ended December 31, 2022 and 2021.

Additional information with respect to options under the Plans is as follows:

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Outstanding, January 1, 2023

Granted (weighted average fair value of $5.75 per share)

Outstanding, December 31, 2023

Outstanding, December 31, 2021

Outstanding, December 31, 2022

Vested and expected to vest, December 31, 2023

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The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $ 32.14 as of December 31, 2023, which would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 2.3 million, $ 3.0 million and $ 2.2 million, respectively.

As of December 31, 2022, there was $ 0.1 million of total unrecognized compensation cost, net of forfeitures, related to unvested stock options.

That cost is expected to be recognized over a weighted average period of 1.0 years.

The total fair value of options vested during the year ended December 31, 2022, was $ 0.1 million.

The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):

Year Ended December 31,

Intrinsic value of options exercised

Total remaining unrecognized compensation cost related to unvested stock options as of December 31, 2023, which is expected to be fully recognized in 2024, and total fair value of shares vested during the year ended December 31, 2023, was immaterial.

Nonvested shares (restricted stock units) were as follows:

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Nonvested, December 31, 2023

Nonvested, December 31, 2021

Nonvested, December 31, 2022

The weighted average grant date fair values of restricted stock units granted during fiscal 2023, 2022 and 2021 were $ 43.46 , $ 23.23 and $ 19.43 , respectively.

The total fair value of restricted stock units vested during fiscal 2023, 2022 and 2021 was as follows (in thousands):

Year Ended December 31,

Fair value of restricted stock units vested

As of December 31, 2023, there was $ 45.4 million of total unrecognized compensation cost related to restricted stock units.

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The Company may make discretionary matching contributions.

In fiscal 2022, the Company matches from 50 % to 100 % of each employee’s contribution up to a maximum of 4 % of the employee’s total eligible earnings.

The Company’s matching contributions to the 401(k) Plan aggregated $ 1.6 million for the year ended December 31, 2022.

No discretionary Company contributions have been made to the Plan through December 31, 2021.

During the years ended December 31, 2022, 2021 and 2020, loss before income taxes from U.S.

operations was ($ 1.2 ) million, ($ 19.7 ) million and ($ 18.4 ) million, respectively, and income before income taxes from foreign operations was $ 1.7 million, $ 1.4 million and $ 0.3 million, respectively.

In fiscal 2023 and 2022, the Company matched from 50 % to 100 % of each employee’s contribution up to a maximum of 4 % of the employee’s total eligible earnings.

The Company’s matching contributions to the 401(k) Plan aggregated $ 1.7 million and $ 1.6 million for the years ended December 31, 2023 and 2022.

No discretionary Company contributions were made to the Plan through December 31, 2021.

During the years ended December 31, 2023, 2022 and 2021, income (loss) before income tax expense from U.S.

operations was $ 3.2 million, ($ 1.2 ) million and ($ 19.7 ) million, respectively, and income before income tax expense from foreign operations was $ 1.7 million, $ 1.7 million and $ 1.4 million, respectively.

Year Ended December 31,

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Change in valuation allowance

Section 162(m) limitation

Unrealized tax benefit reserve changes

Business combination costs

Tax law changes

Total income tax expense

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The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future.

Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (DTAs) at December 31, 2022, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2022 and the likelihood that the Company will not utilize tax attributes before they begin to expire.

The valuation allowance was approximately $ 59.2 million and $ 51.6

million as of December 31, 2022 and 2021, respectively.

The increase in the valuation allowance from December 31, 2021 to December 31, 2022 was primarily driven by a net increase in timing differences relating to deferred revenue, accrued bonus and credits generated in the current year which require a valuation allowance.

Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (“DTAs”) as of December 31, 2023, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2023 and the likelihood that the Company will not utilize tax attributes before they begin to expire.

The valuation allowance was approximately $ 64.2 million and $ 59.2 million as of December 31, 2023 and 2022, respectively.

The increase in the valuation allowance from December

31, 2022 to December 31, 2023 was primarily driven by an increase in capitalized research and experimental expenses and credits generated in the current year which require a valuation allowance.

Management will continue to evaluate the need for a valuation allowance and may change its conclusion in a future period based on any change in facts (e.g.

12-quarter cumulative profit, significant new revenue, and other relevant factors).

If the Company concludes that it is more likely than not to utilize some or all of its US DTAs, it will release some or all of its valuation allowance and our tax provision will decrease in the period in which we make such determination.

Net deferred tax assets, after the US valuation allowance, was immaterial as of December 31, 2022, and December 31, 2021.

If the Company concludes that it is more likely than not to utilize some or all of its U.S.

DTAs, it will release some or all of its valuation allowance and the Company’s tax provision will decrease in the period in which such determination is made.

Net deferred tax assets, after the U.S.

valuation allowance, were immaterial as of December 31, 2023 and 2022.

The components of the net deferred tax assets are comprised of (in thousands):

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Deferred tax liabilities

Net deferred tax assets

In accordance with the accounting standard relating to accounting for uncertain tax positions, the Company classifies its liabilities for income tax exposures as long-term.

The Company includes interest and penalties related to unrecognized tax benefits within the Company’s income tax provision.

As of December 31, 2022, 2021 and 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 0.7 million, $ 0.7 million, and $ 0.8 million, respectively.

In the years ended December 31, 2022, 2021 and 2020, the Company recognized (reversal of) charges for interest and penalties related to unrecognized tax benefits of ($ 61,000 ), ($ 89,000 ) and $ 33,000 respectively, in the Consolidated Statements of Comprehensive Loss.

The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of December 31, 2022 was $ 15.1 million, of which $ 2.0 million, if recognized, would impact the Company’s effective tax rate.

As of December 31, 2022, the Company has recorded unrecognized tax benefits of $ 2.6 million, including interest and penalties of $ 0.7 million, as long-term income taxes payable in its Consolidated Balance Sheet.

The remaining $ 13.2 million has been recorded within our deferred tax assets, which is subject to a full valuation allowance.

Net deferred tax assets (liabilities)

The Company classifies its liabilities for income tax exposures as long-term.

The Company includes interest related to unrecognized tax benefits within the Company’s income tax provision.

As of December 31, 2023, 2022 and 2021, the Company had accrued interest related to unrecognized tax benefits of $ 0.7 million.

In the years ended December 31, 2023, 2022 and 2021, the Company recognized (reversal of) charges for interest related to unrecognized tax benefits of ($ 15,000 ), ($ 61,000 ) and ($ 89,000 ) respectively, in the Consolidated Statements of Comprehensive Income (Loss).

The Company’s total amount of unrecognized tax benefits, excluding interest, as of December 31, 2023 was $ 15.9 million, of which $ 2.0 million, if recognized, would impact the Company’s effective tax rate.

As of December 31, 2023, the Company has recorded unrecognized tax benefits of $ 2.6 million, including interest of $ 0.7 million, as long-term income taxes payable in its Consolidated Balance Sheet.

The remaining $ 14.0 million has been recorded within DTAs, which is subject to a full valuation allowance.

The Company does not expect the change in unrecognized tax benefits over the next twelve months to materially impact its results of operations and financial position.

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federal and California income tax purposes, the statute of limitations currently remains open for the years ended 2020 to present and 2019 to present, respectively.

In addition, due to NOL carryback claims, the tax years 2013 through 2015 may be subject to federal examination and all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination.

The Company is not currently under income tax examinations in the US or in any other of its major foreign subsidiaries’ jurisdictions.

Valuation allowance for deferred tax assets is summarized (in thousands):

In addition, all of the NOLs and R&D credit carry-forwards that may be utilized in future years may be subject to federal and state examination.

The Company is not currently under income tax examinations in the U.S.

or in any other of its major foreign subsidiaries’ jurisdictions.

Valuation allowance for DTAs is summarized (in thousands):

Write-offs of

Valuation allowance for deferred tax assets

NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase).

Diluted net loss per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net loss per share (in thousands except per share amount):

NET INCOME (LOSS) PER SHARE

Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands except per share amount):

Year Ended December 31,

Net income (loss)

Basic weighted average shares outstanding

Effect of dilutive options and restricted stock units

Effect of dilutive stock options, unvested restricted stock units, and shares of common stock expected to be issued under employee stock purchase plan(s)

Diluted weighted average shares outstanding

Net loss per share, basic and diluted

Net income (loss) per share:

For the years ended December 31, 2022 and 2021, because the Company was in a loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of the potential common shares would have been anti-dilutive.

The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

The following table sets forth potential shares of common stock that are not included in the diluted net income (loss) per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

Year Ended December 31,

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Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The multiple assumptions used to value financial instruments are referred to as inputs, and a hierarchy for inputs used in measuring fair value is established, that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable

inputs be used when available.

Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.

pricing based upon its own market assumptions.

These inputs are ranked according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

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Money market mutual funds

Government securities (1)

Short-term investments (available-for-sale debt securities)

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Money market mutual funds

Government securities (1)

Short-term investments (available-for-sale debt securities)

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(1) The carrying amount of the Company’s investments in U.S.

Government securities approximate fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities at December 31, 2022 and 2021.

From time to time, the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances.

The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations.

The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant.

These foreign currency forward contracts are not designated for hedge accounting treatment.

Therefore, the change in fair value of these contracts is recorded into earnings as a component of other expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other expense (income), net in the Company’s Consolidated Statements of Comprehensive Loss.

There was no realized gain or loss from foreign currency forward contracts during the years ended December 31, 2022 and 2021.

For the year ended December 31, 2020, the Company recognized a realized loss of $ 0.2 million on the contracts, which is recorded in interest and other expense (income), net in the Company’s Consolidated Statement of Comprehensive Loss.

As of December 31, 2022 and 2021, the Company had no outstanding forward contracts.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the Company’s quarterly consolidated results of operations (unaudited) for the fiscal years ended December 31, 2022 and 2021.

Year Ended December 31, 2022

(In thousands, except for per share amounts)

Total revenues

Costs of revenues

Net income (loss)

Net income (loss) per share:

Basic and diluted

Year Ended December 31, 2021

(In thousands, except for per share amounts)

Total revenues

Costs of revenues

Net loss per share:

Basic and diluted

STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

In July 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc.

(collectively referred to herein as “Advantest”), which includes:

(i) a Securities Purchase Agreement wherein the Company issued and sold to Advantest America, Inc., an aggregate of 3,306,924 shares of its common stock, for aggregate gross proceeds of $ 65.2 million;

(ii) a significant agreement for its assistance in development of cloud-based applications for Advantest tools that leverages our Exensio analytics software ;

(iii) a commercial agreement providing for the license to third parties of solutions that result from the development work that combine Advantest’s testing applications and our Exensio platform;

and (iv) a 5 -year cloud-based subscription for Exensio analytics software and related services.

Analytics revenue recognized from Advantest during the years ended December 31, 2023, 2022 and 2021 was $ 9.0 million, $ 10.3 million and $ 10.6 million, respectively.

Accounts receivable from Advantest were no t material as of December 31, 2023 and amounted to $ 0.3 million as of December 31, 2022.

Deferred revenue amounted to $ 9.4 million and $ 7.1 million as of December 31, 2023 and 2022, respectively.

The Company carries out transactions with Advantest on arm’s length commercial customary terms.

BUSINESS COMBINATION

On July 5, 2023 (the “Acquisition Date”), the Company, through its wholly-owned subsidiary in Canada, PDF Solutions Canada, Ltd., acquired 100 % of the equity interest in Lantern Machinery Analytics, Inc.

headquartered in Canada, a privately-held provider of automated image analysis and feature extraction AI/ML software for critical inspection and metrology steps at battery cell development and manufacturing processes for the electric vehicle industry.

This software will enhance the Company’s Exensio analytics software and product offerings to new and existing battery manufacturer customers.

The total cash consideration for this acquisition was $ 1.8 million, net of cash acquired, for all of the outstanding equity of Lantern Machinery Analytics, Inc.

The Company accounted for this acquisition as a business combination in accordance with FASB ASC Topic 805, Business Combinations .

This method requires that assets acquired and liabilities assumed in a business combination be recognized at their respective estimated fair values as of the Acquisition Date.

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill.

Due to the nature of the transaction, the goodwill associated with the acquisition is not deductible for tax purposes.

As of December 31, 2023, payment made for this acquisition, net of cash acquired, amounted to $ 1.8 million and was funded from available cash of the Company.

The allocation of the purchase price for this acquisition, as of the date of the acquisition, is as follows (in thousands, except amortization period):

Period (Years)

Allocation of Purchase Price:

Fair value of tangible assets (including cash of $ 265 )

Fair value of intangible assets:

Developed technology

Customer relationships

Total assets acquired

Deferred tax liabilities

Accounts payable and accrued expenses

Total liabilities assumed

Total purchase price allocation

Pro forma results of operations have not been presented because the effect of the acquisition was not material to the Company’s financial results.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data