UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM

10-Q

(MARK ONE)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~

July 2

, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-26946

INTEVAC, INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3125814
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3560 Bassett Street

Santa Clara, California 95054

(Address of principal executive office, including Zip Code)

Registrant’s telephone number, including area code: (408)

986-9888

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.001 par value)	IVAC	The Nasdaq Stock Market LLC (Nasdaq) Global Select

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~emerging~~“emerging growth ~~company~~company” in

Rule 12b-2

of the Exchange ~~Act. (Check one):~~

Act:


Large accelerated filer	☐		Accelerated filer	☒

~~Non-accelerated filer~~		~~☐ (Do not check if a smaller reporting company)~~
Non-accelerated filer	☐		Smaller reporting company	☐ ☒


			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Act). ☐ Yes ☒ No

On ~~October 31, 2017, 21,789,007 shares~~August 4, 2

022, 25,384,488 sha

res of the ~~Registrant’s~~registrant’s Common Stock, $0.001 par value, were outstanding.

Table of Contents

INTEVAC, INC.

INDEX


No.		Page
PART I. FINANCIAL INFORMATION

~~Item 1.~~
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2223
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2930
Item 4.	Controls and Procedures		30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		31
Item 1A.	Risk Factors		31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		37
SIGNATURES			38
~~Item 3.~~	~~Defaults upon Senior Securities~~		38
~~Item 4.~~	~~Mine Safety Disclosures~~		39
~~Item 5.~~	~~Other Information~~		39
~~Item 6.~~	~~Exhibits~~		39

~~SIGNATURES~~			40

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

   September 30,
2017 December 31,
2016
   (Unaudited)

(In thousands, except
par value)

ASSETS
Current assets:

Cash and cash equivalents
   $ 19,197 $ 27,043
Short-term investments
   18,037 17,602
Trade and other accounts receivable, net of allowances of $0 at both September 30, 2017 and at December 31, 2016
   22,311 17,447
Inventories
   32,581 24,876
Prepaid expenses and other current assets
   2,825 1,768


Total current assets
   94,951 88,736
Property, plant and equipment, net
   12,509 11,237
Long-term investments
   6,165 3,593
Restricted cash
   1,400 1,602
Intangible assets, net of amortization of $6,725 at September 30, 2017 and $6,129 at December 31, 2016
   1,662 2,258
Deferred income taxes and other long-term assets
   745 898


Total assets
   $ 117,432 $ 108,324


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable
   $ 7,036 $ 5,323
Accrued payroll and related liabilities
   5,781 4,220
Other accrued liabilities
   7,856 17,011
Customer advances
   12,347 5,422


Total current liabilities
   33,020 31,976
Other long-term liabilities
   2,994 3,082
Stockholders’ equity:

Common stock, $0.001 par value
   22 21
Additionalpaid-in capital
   176,282 171,314
Treasury stock, 4,845 shares at both September 30, 2017 and December 31, 2016
   (28,489 ) (28,489 )
Accumulated other comprehensive income
   443 321
Accumulated deficit
   (66,840 ) (69,901 )


Total stockholders’ equity
   81,418 73,266


Total liabilities and stockholders’ equity
   $ 117,432 $ 108,324


	July 2, 2022			January 1, 2022

	(Unaudited)
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	53,669		$	102,728
Short-term investments		31,168			10,221
Trade and other accounts receivable, net of allowances of $0 at both July 2, 2022 and January 1, 2022		30,321			14,261
Inventories		11,771			5,791
Prepaid expenses and other current assets		1,532			1,827

Total current assets		128,461			134,828
Long-term investments		24,565			7,427
Restricted cash		786			786
Property, plant and equipment, net		3,311			4,759
Operating lease right-of-use-assets		3,510			4,520
Deferred income taxes and other long-term assets		5,018			5,449

Total assets	$	165,651		$	157,769

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current operating lease liabilities	$	3,199		$	3,119
Accounts payable		3,609			5,320
Accrued payroll and related liabilities		3,542			5,505
Other accrued liabilities		3,042			3,665
Customer advances		24,760			2,107

Total current liabilities		38,152			19,716

Noncurrent liabilities:
Noncurrent operating lease liabilities		2,102			3,675
Other long-term liabilities		237			363

Total noncurrent liabilities		2,339			4,038
Stockholders’ equity:
Common stock, $0.001 par value		25			25
Additional paid-in capital		201,478			199,073
Treasury stock, 5,087 shares at both July 2, 2022 and at January 1, 2022		(29,551	)		(29,551	)
Accumulated other comprehensive income (loss)		(9	)		578
Accumulated deficit		(46,783	)		(36,110	)

Total stockholders’ equity		125,160			134,015

Total liabilities and stockholders’ equity	$	165,651		$	157,769

Note: Amounts as of ~~December 31, 2016~~January 1, 2022 are derived from the ~~December 31, 2016~~January 1, 2022 audited consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   Three Months Ended Nine Months Ended
   September 30,
2017    October 1,
2016 September 30,
2017    October 1,
2016
   (Unaudited)
   (In thousands, except per share amounts)
Net revenues:

Systems and components
   $ 24,537    $ 20,961 $ 82,822    $ 47,326
Technology development
   2,189    1,598 5,255    3,816






Total net revenues
   26,726    22,559 88,077    51,142
Cost of net revenues:

Systems and components
   13,402    13,025 47,419    29,490
Technology development
   2,026    1,019 4,842    3,155






Total cost of net revenues
   15,428    14,044 52,261    32,645






Gross profit
   11,298    8,515 35,816    18,497
Operating expenses:

Research and development
   4,535    4,067 13,635    14,220
Selling, general and administrative
   5,495    4,772 17,482    14,724






Total operating expenses
   10,030    8,839 31,117    28,944






Income (loss) from operations
   1,268    (324 ) 4,699    (10,447 )
Interest income and other income (expense), net
   28    60 265    184






Income (loss) before income taxes
   1,296    (264 ) 4,964    (10,263 )
Provision for income taxes
   66    217 805    13






Net income (loss)
   $ 1,230    $ (481 ) $ 4,159    $ (10,276 )






Net income (loss) per share:

Basic
   $ 0.06    $ (0.02 ) $ 0.19    $ (0.50 )
Diluted
   $ 0.05    $ (0.02 ) $ 0.18    $ (0.50 )
Weighted average common shares outstanding:

Basic
   21,714    20,869 21,475    20,704
Diluted
   22,970    20,869 22,989    20,704


	Three Months Ended						Six Months Ended
	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021

	(Unaudited)
	(In thousands, except per share amounts)
Net revenues	$	9,307		$	5,369		$	13,752		$	14,607
Cost of net revenues		4,820			4,363			8,543			11,467

Gross profit		4,487			1,006			5,209			3,140
Operating expenses:
Research and development		2,868			3,118			7,028			6,483
Selling, general and administrative		4,016			4,197			8,265			8,531

Total operating expenses		6,884			7,315			15,293			15,014

Loss from operations		(2,397	)		(6,309	)		(10,084	)		(11,874	)
Interest income and other income (expense), net		317			20			310			50

Loss from continuing operations before provision for (benefit from) income taxes		(2,080	)		(6,289	)		(9,774	)		(11,824	)
Provision for (benefit from) income taxes		500			(165	)		526			(132	)

Net loss from continuing operations, net of taxes		(2,580	)		(6,124	)		(10,300	)		(11,692	)

Net loss from discontinued operations, net of taxes		(238	)		(2	)		(373	)		(938	)

Net loss	$	(2,818	)	$	(6,126	)	$	(10,673	)	$	(12,630	)

Net loss per share:
Basic and diluted – continuing operations	$	(0.10	)	$	(0.25	)	$	(0.41	)	$	(0.48	)
Basic and diluted – discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.04	)
Basic and diluted – net loss	$	(0.11	)	$	(0.25	)	$	(0.43	)	$	(0.52	)
Weighted average common shares outstanding:
Basic and diluted		25,141			24,241			24,970			24,137

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   Nine months ended
   September 30,
2017 October 1,
2016
   (Unaudited)
   (In thousands)
Operating activities

Net income (loss)
   $ 4,159 $ (10,276 )
Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities:

Depreciation and amortization
   2,877 3,744
Net amortization of investment premiums and discounts
   53 96
Equity-based compensation
   3,012 2,896
Change in the fair value of acquisition-related contingent consideration
   (181 ) (90 )
Deferred income taxes
   (1 ) 9
Gain on disposal of equipment
   —   (8 )
Changes in operating assets and liabilities
   (11,658 ) 577


Total adjustments
   (5,898 ) 7,224


Net cash and cash equivalents used in operating activities
   (1,739 ) (3,052 )
Investing activities

Purchases of investments
   (21,968 ) (10,433 )
Proceeds from sales and maturities of investments
   18,916 22,180
Proceeds from sale of equipment
   —   8
Purchases of leasehold improvements and equipment
   (3,553 ) (2,535 )
Decrease (increase) in restricted cash
   202 (178 )


Net cash and cash equivalents (used in) provided by investing activities
   (6,403 ) 9,042
Financing activities

Net proceeds from issuance of common stock
   2,344 1,482
Taxes paid related to net share settlement
   (1,988 ) (403 )
Payment of acquisition-related contingent consideration
   (174 ) —


Net cash and cash equivalents provided by financing activities
   182 1,079
Effect of exchange rate changes on cash
   114 8


Net increase (decrease) in cash and cash equivalents
   (7,846 ) 7,077
Cash and cash equivalents at beginning of period
   27,043 13,746


Cash and cash equivalents at end of period
   $ 19,197 $ 20,823


	Six months ended
	July 2, 2022			July 3, 2021

	(Unaudited)
	(In thousands)
Operating activities
Net loss	$	(10,673	)	$	(12,630	)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:
Depreciation and amortization		776			1,686
Net amortization (accretion) of investment premiums and discounts		(20	)		62
Equity-based compensation		489			1,987
Straight-line rent adjustment and amortization of lease incentives		(483	)		(231	)
Deferred income taxes		345			(202	)
Loss on disposal of equipment		1,453			0—
Changes in operating assets and liabilities		(3,322	)		12,692

Total adjustments		(762	)		15,994

Net cash and cash equivalents provided by (used in) operating activities		(11,435	)		3,364
Investing activities
Purchases of investments		(45,663	)		(10,163	)
Proceeds from sales and maturities of investments		7,263			9,815
Purchases of leasehold improvements and equipment		(888	)		(365	)

Net cash and cash equivalents used in investing activities		(39,288	)		(713	)
Financing activities
Net proceeds from issuance of common stock		2,211			1,436
Taxes paid related to net share settlement		(295	)		(532	)

Net cash and cash equivalents provided by financing activities		1,916			904
Effect of exchange rate changes on cash and cash equivalents		(252	)		(40	)

Net increase (decrease) in cash, cash equivalents and restricted cash		(49,059	)		3,515
Cash, cash equivalents and restricted cash at beginning of period		103,514			30,128

Cash, cash equivalents and restricted cash at end of period	$	54,455		$	33,643

Non-cash investing and financing activity
Additions to right-of-use-assets obtained from new operating lease liabilities	$	94		$	—

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Description of Business and Basis of Presentation

Description of Business

Intevac, Inc. (together with its subsidiaries, “Intevac”, the “Company” or “we”) is a leader in the design and development of high-productivity, thin-film processing systems. Intevac’s production-proven platforms are designed for high-volume manufacturing of substrates with precise thin-film properties, such as for the hard disk drive (“HDD”) and display cover panel (“DCP”) markets.

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Intevac, Inc. and its subsidiaries after elimination of inter-company balances and transactions.

In the opinion of management, the unaudited interim condensed consolidated financial statements of Intevac ~~Inc. and its subsidiaries (“Intevac” or the “Company”)~~ included herein have been prepared on a basis consistent with the ~~December 31, 2016~~January 1, 2022 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Intevac’s Annual Report on Form~~10-K~~ ~~for the fiscal year ended December 31, 2016 (“2016 Form10-K”).~~ ~~Intevac’s results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of future operating results.~~

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make ~~judgments,~~ estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

2.	~~Recent Accounting Pronouncements~~

Reportable Segment

During fiscal 2021, we sold the business of one of our reporting segments, Photonics. Therefore, we have one reportable segment remaining. See Note 2 for additional disclosure related to discontinued operations.

The remaining segment, Thin Film Equipment (“TFE”), designs, develops and markets vacuum process equipment solutions for high-volume manufacturing of small substrates with precise thin-film properties, such as for the HDD, and DCP markets, as well as other adjacent thin-film markets. The TFE segment also previously designed, developed and marketed manufacturing equipment for the photovoltaic (“PV”) solar cell and advanced semiconductor packaging industries.

In ~~May 2017,~~March 2022, the ~~Financial Accounting Standards Board~~Company’s management approved a restructuring plan to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“~~FASB”~~R&D”) ~~issued Accounting Standards Update~~programs and product offerings. As part of this realignment effort, the Company will no longer be pursuing several DCP projects, including the coating of the backside covers of smartphones, PV solar ion implantation (also known as ENERGi

), and advanced semiconductor packaging.

Reclassification of Prior Periods

On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH, LLC, a Michigan limited liability company (“~~ASU”~~EOTECH” or the “Buyer”)~~2017-09,~~~~Compensation—Stock Compensation: Scope of Modification Accounting~~~~, which provides guidance about which changes~~. Due to the ~~terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value~~sale of the ~~modified award is~~Photonics business during the ~~same as~~fourth quarter of 2021, we have classified the ~~original award, the vesting conditions~~results of the ~~modified award are~~Photonics business as discontinued operations in our condensed consolidated statements of operations for all periods presented. See Note 2 for additional disclosure related to discontinued operations. All amounts included in the ~~same as~~Notes to Condensed Consolidated Financial Statements relate to continuing operations unless otherwise noted.

2.	Divestiture and Discontinued Operations

Sale of Photonics

On December 30, 2021, the ~~original award and~~Company entered into an asset purchase agreement (the “Purchase Agreement”) with EOTECH, governing the ~~classification~~sale of the ~~modified award as an equity instrument~~Company’s Photonics business to EOTECH in exchange for (i) $70.0 million in cash consideration (as may be increased or ~~liability instrument is~~decreased by certain closing net working capital adjustments), (ii) up to $30.0 million in earnout payments and (iii) the ~~same as the original award. This update becomes effective and will be adopted by Intevac in the first quarter~~

Table of fiscal 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

~~In March 2017, the FASB issued ASU2017-08,~~~~Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities~~~~. ASU2017-08~~ amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2019. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

~~In January 2017, the FASB issued ASU2017-04,~~~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~~~. ASU2017-04~~ eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU~~2017-04,~~ an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

~~In March 2016,~~

assumption by EOTECH of certain liabilities of the ~~FASB issued ASU2016-09~~~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~~~. We have adopted these amendments beginning~~Photonics business as specified in the ~~first quarter~~Purchase Agreement. The transaction closed on December 30, 2021. Under the Purchase Agreement, EOTECH has also agreed to pay to the Company, if earned, earnout payments of ~~2017. Starting~~up to an aggregate of $30.0 million based on achievement of fiscal year 2023, 2024 and 2025 Photonics segment revenue targets for the Integrated Visual Augmentation System (“IVAS”) program as specified in the ~~first quarter~~Purchase Agreement. At any time prior to December 31, 2024, EOTECH may elect to pay to the Company $14.0 million, which would terminate EOTECH’s obligations with respect to any remaining earnout payments. The cash proceeds do not include any estimated future payments from the revenue earnout as the Company has elected to record the proceeds when the consideration is deemed realizable. The Company believes this disposition will allow it to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.

In connection with the Photonics sale, the Company and EOTECH have entered into a Transition Service Agreement (“TSA”) and a Lease Assignment Agreement. The TSA outlines the information technology, people, and facility support the parties will provide to each other for a period anticipated to be up to six months after the closing of ~~fiscal 2017, stock-based compensation excess tax benefits or deficiencies are reflected~~the sale. The Lease Assignment Agreement assigns the lease obligation for two buildings in the ~~Condensed Consolidated Statements of Operations as a component~~Company’s California campus to EOTECH. As part of the ~~provision~~assignment, the Company has agreed to subsidize a portion of EOTECH’s lease payments through the remainder of the lease term which expires in March 2024.

TSA fees earned since the divestiture were $408,000 for ~~income taxes, whereas they previously~~the three months ended July 2, 2022 and $1.2 million for the six months ended July 2, 2022. The agreed-upon charges for such services are generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA fees were ~~recognized~~included in ~~equity.~~selling, general and administrative expenses and cost of sales, respectively, in the Company’s condensed consolidated statement of operations. Additionally, ~~our Condensed Consolidated Statements~~during the three and six months ended July 2, 2022, the Company sold inventory in the amount of ~~Cash Flows now presents excess tax benefits~~$32,000 and $148,000, respectively to EOTECH. As of July 2, 2022, accounts receivable from EOTECH of $354,000 were included in trade and other accounts receivable in the Company’s condensed consolidated balance sheets.

Based on its magnitude and because the Company exited certain markets, the sale of the Photonics segment represents a significant strategic shift that has a material effect on the Company’s operations and financial results, and the Company has separately reported the results of its Photonics segment as andiscontinued operations in the condensed consolidated statements of operations for the three and six months ended July 2, 2022 and July 3, 2021.

The operating ~~activity. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect~~results of ~~this change was recognized as a $1.1 million charge~~the discontinued operations only reflect revenues and expenses that are directly attributable to the ~~accumulated deficit as of January 1, 2017.~~

~~In May 2014,~~Photonics segment that have been eliminated from continuing operations. Previously reported expenses for the ~~FASB issued ASU2014-09~~~~(Topic 606) Revenue from Contracts with Customers.~~ ~~Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities~~Photonics segment have been recast to ~~recognize revenue when they transfer control of promised goods or services to customers in an amount~~exclude certain allocated expenses that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We expect revenue recognition for our equipment sales arrangements, which includes systems, technology upgrades, service and spare parts, to remain materially consistent with our historical practice.

~~We expect to recognize revenue for equipment sales at a point in time following the transfer of control of such products~~are not directly attributable to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Our contracts with customers may include multiple performance obligations. For such arrangements, we expect to allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost plus margin.Photonics segment. The ~~expected costs associated with our base warranties will continue to be recognized as expense when the equipment is sold.~~

~~We expect to recognize revenue for cost plus fixed fee and firm fixed priced government contracts over time under thecost-to-cost~~ method for the majority of our government contracts, which is consistent with our current revenue recognition model. Revenue on the majority of our government contracts will continue to be recognized over time because of the continuous transfer of controlkey components from discontinued operations related to the ~~customer. For U.S. government contracts, this continuous transfer~~Photonics segment are as follows:


	Three Months Ended						Six Months Ended
	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021

	(In thousands)
Net revenues:
Systems and components	$	—		$	5,282		$	—		$	9,103
Technology development		—			3,162			—			6,344

Total net revenues		—			8,444			—			15,447
Cost of net revenues:
Systems and components		—			4,261			—			7,121
Technology development		—			2,081			—			5,304

Total cost of net revenues		—			6,342			—			12,425

Gross profit		—			2,102			—			3,022
Operating expenses:
Research and development		—			776			—			1,036
Selling, general and administrative		238			1,328			373			2,924

Total operating expenses		238			2,104			373			3,960

Operating loss – discontinued operations		(238	)		(2	)		(373	)		(938	)
Other income (expense) – discontinued operations		0—			0—			0—			0—

Loss from discontinued operations before provision for income taxes		(238	)		(2	)		(373	)		(938	)
Provision for income taxes		—			—			—			—

Net loss from discontinued operations, net of taxes	$	(238	)	$	(2	)	$	(373	)	$	(938	)

Table of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, for~~non-U.S.~~ government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the company. Under the new standard, the~~cost-to-cost~~ ~~measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.~~

The new standard must be adopted by Intevac in our fiscal year beginning December 31, 2017. We intend to adopt the new standard as of December 31, 2017, using the modified retrospective transition method applied to those contracts which were not completed as of that date. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to our opening balance of the accumulated deficit. Prior periods will not be retrospectively adjusted. Based on our preliminary assessment, we expect the adoption of Topic 606 will not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations. We also do not expect the standard to have a material impact on our Consolidated Balance Sheet. The immaterial impact primarily relates to reclassifications among financial statement accounts to align with the new standard. Most notably, contracts in process, net will be reclassified as receivables or contract assets based on amounts billed or unbilled, respectively. Advance payments and billings in excess of costs incurred and deferred revenue will be combined and reclassified as contract liabilities. Our contract balances will be reported in a net contract asset or liability position on a~~contract-by-contract~~ ~~basis at the end of each reporting period.~~

Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows. The following table presents cash flow and

non-cash

information related to discontinued operations for the three and six months ended July 2, 2022 and July 3, 2021:


	Three Months Ended				Six Months Ended

	July 2, 2022		July 3, 2021		July 2, 2022			July 3, 2021
1	1
	(In thousands)
Depreciation and amortization	$	—	$	375	$	—		$	661
Equity-based compensation	$	39	$	247	$	(291	)	$	518
Purchase of leasehold improvements and equipment	$	—	$	76	$	—		$	149

3.	~~Inventories~~ Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended July 2, 2022 and July 3, 2021.

Major Products and Service Lines


	Three Months Ended July 2, 2022								Three Months Ended July 3, 2021

	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		Total

Systems, upgrades and spare parts	$	7,756	$	1	$	82	$	7,839	$	3,955	$	3	$	47	$	4,005
Field service		1,421		43		4		1,468		1,364		—		—		1,364

Total net revenues	$	9,177	$	44	$	86	$	9,307	$	5,319	$	3	$	47	$	5,369


	Six Months Ended July 2, 2022								Six Months Ended July 3, 2021


	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		ASP		Total

Systems, upgrades and spare parts	$	10,879	$	1	$	135	$	11,015	$	7,539	$	3	$	158	$	3,850	$	11,550
Field service		2,684		43		10		2,737		3,001		14		42		—		3,057

Total net revenues	$	13,563	$	44	$	145	$	13,752	$	10,540	$	17	$	200	$	3,850	$	14,607

Primary Geographical Markets


	Three Months Ended				Six Months Ended

	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021

	(In thousands)
United States	$	1,656	$	2,121	$	1,950	$	2,488
Asia		7,651		3,248		11,802		8,269
Europe		—		—		—		3,850

Total net revenues	$	9,307	$	5,369	$	13,752	$	14,607

Timing of Revenue Recognition


	Three Months Ended				Six Months Ended

	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021

	(In thousands)
Products transferred at a point in time	$	9,307	$	5,369	$	13,752	$	14,607
Products and services transferred over time		—		—		—		—

Total net revenues	$	9,307	$	5,369	$	13,752	$	14,607

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled and our contract liabilities, which we classify as deferred revenue and customer advances, for the six months ended July 2, 2022:


	July 2, 2022		January 1, 2022		Six Months Change

	(In thousands)
Contract assets:
Accounts receivable, unbilled	$	—	$	99	$	(99	)

Contract liabilities:
Deferred revenue	$	129	$	65	$	64
Customer advances		24,760		2,107		22,653

	$	24,889	$	2,172	$	22,717

Accounts receivable, unbilled represents a contract asset for revenue that has been recognized in advance of billing the customer. For our system and certain upgrade sales, our customers generally pay in 3 installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price due upon completion of installation and acceptance of the system at the customer’s factory. Accounts receivable, unbilled generally represents the balance of the system price that is due upon completion of installation and acceptance, less, the amount that has been deferred as revenue for the performance of the installation tasks. During the six months ended July 2, 2022, contract assets decreased by $99,000 primarily due to the billing of accrued revenue related to spare parts sold to a customer as of January 1, 2022.

Customer advances generally represent a contract liability for amounts billed to the customer prior to transferring goods. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These customer advances are liquidated when revenue is recognized. Deferred revenue generally represents a contract liability for amounts billed to a customer for completed systems at the customer site that are undergoing installation and acceptance testing where transfer of control has not yet occurred as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product. During the six months ended July 2, 2022, we recognized revenue of $353,000 and $39,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

On July 2, 2022, we had $100.2 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 22% of our remaining performance obligations as revenue in 2022, 26% in 2023, 26% in 2024 and 26% in 2025.

4.	Inventories

Inventories are stated at the lower of average cost or ~~market~~net realizable value and consist of the following:

   September 30,    December 31,
   2017    2016
   (In thousands)
Raw materials
   $ 16,385    $ 10,290
Work-in-progress
   12,452    6,470
Finished goods
   3,744    8,116




   $ 32,581    $ 24,876

~~Finished goods inventory consists primarily of completed systems that are undergoing installation and acceptance testing.~~


	July 2, 2022		January 1, 2022

	(In thousands)
Raw materials	$	6,728	$	5,323
Work-in-progress		5,043		468

	$	11,771	$	5,791

Equity-Based Compensation

At ~~September 30, 2017,~~July 2, 2022, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan, ~~and~~ the ~~2004~~2022 Inducement Equity Incentive Plan (the “Inducement Plan”) (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved ~~all of these plans.~~the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan and the ESPP. The Plans permit the grant of incentive or

non-statutory

stock options, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and performance shares.

On January 19, 2022, Intevac’s Board of Directors adopted the Inducement Plan and, subject to the adjustment provisions of the

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Inducement Plan, reserved 1,200,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the Company’s 2020 Equity Incentive Plan. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with that rule, awards under the Inducement Plan may only be made to individuals not previously employees or

non-employee

directors of the Company (or following such individuals’ bona fide period of

non-employment

with the Company), as an inducement material to the individuals’ entry into employment with the Company.

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length and consist of a series of

six-month

purchase intervals. Eligible employees may join the ESPP at the beginning of any

six-month

purchase interval. Under the terms of the ESPP, employees can choose to have up to ~~15%~~50% of their base earnings withheld to purchase Intevac common ~~stock.~~

stock (not to exceed $25,000 per year).

Compensation Expense

The effect of recording equity-based compensation for the three and ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 and ~~October 1, 2016~~July 3, 2021 was as follows:

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands)
Equity-based compensation by type of award:

Stock options
   $ 350    $ 211    $ 808    $ 696
RSUs
   731    543    1,943    1,657
ESPP awards
   67    151    261    543








Total equity-based compensation
   $ 1,148    $ 905    $ 3,012    $ 2,896

Equity-based compensation expense is based on awards ultimately expected to vest and such amount has been historically reduced for estimated forfeitures. Beginning January 1, 2017, Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures. The net cumulative effect of this change was recognized as a $1.1 million increase to


	Three Months Ended				Six Months Ended

	July 2, 2022		July 3, 2021		July 2, 2022			July 3, 2021

	(In thousands)
Equity-based compensation by type of award:
Stock options	$	8	$	57	$	(163	)	$	132
RSUs		1,295		656		567			1,200
ESPP purchase rights		222		306		85			655

Total equity-based compensation	$	1,525	$	1,019	$	489		$	1,987

Included in the ~~accumulated deficit as of January 1, 2017.~~

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

table above are:

(a)

A reversal of $1.3 million in equity-based compensation expense related to forfeitures of awards due to our reduction in workforce and a $37,000 benefit related to the modification of certain stock-based awards for the six months ended July 2, 2022. (See Note

13. Restructuring and Other Costs, Net.); and

(b)

Equity-based compensation reported in discontinued operations of $39,000 and ($291,000) for the three and six months ended July

2, 2022, respectively, and $247,000 and $518,000 for the three and six months ended July 3, 2021, respectively. Equity-based compensation expense allocated to discontinued operations for the six months ended July 2, 2022 includes $75,000 related to the modification of certain stock-based awards and is net of a divestiture-related forfeiture benefit of $446,000 that was recognized when employees were conveyed to the Buyer upon closing. (See Note 2. Divestiture and Discontinued Operations.)

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual employee stock option exercise behavior.

Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures.

Option activity as of ~~September 30, 2017~~July 2, 2022 and changes during the ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 were as follows:

   Shares    Weighted Average
Exercise Price
Options outstanding at December 31, 2016
   2,740,364    $ 7.00
Options granted
   413,075    $ 12.33
Options cancelled and forfeited
   (61,753 )    $ 12.07
Options exercised
   (115,273 )    $ 6.88



Options outstanding at September 30, 2017
   2,976,413    $ 7.64



Options exercisable at September 30, 2017
   2,127,940    $ 7.16


	Shares			Weighted-Average Exercise Price

Options outstanding at January 1, 2022		1,457,587		$	6.55
Options cancelled and forfeited		(550,332	)	$	7.31
Options exercised		(313,000	)	$	4.83

Options outstanding at July 2, 2022		594,255		$	6.76

Options exercisable at July 2, 2022		564,979		$	6.82

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Intevac issued ~~405,659~~146,344 shares of common stock under the ESPP during the ~~nine~~six months ended ~~September 30, 2017.~~

July 2, 2022.

Intevac estimated the weighted-average fair value of ~~stock options and employee stock~~ESPP purchase rights using the following weighted-average assumptions:

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Stock Options:

Weighted-average fair value of grants per share
$ 3.89 $ 1.90 $ 4.54 $ 1.75
Expected volatility
42.10 % 40.53 % 40.54 % 44.00 %
Risk free interest rate
1.84 % 0.97 % 1.77 % 0.94 %
Expected term of options (in years)
4.08 3.96 4.10 4.29
Dividend yield
None None None None
Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Stock Purchase Rights:

Weighted-average fair value of grants per share
$ 2.76 $ 1.69 $ 2.75 $ 1.55
Expected volatility
48.59 % 37.51 % 43.51 % 39.22 %
Risk free interest rate
1.36 % 0.63 % 1.22 % 0.75 %
Expected term of purchase rights (in years)
0.50 1.00 0.65 1.87
Dividend yield
None None None None

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~


	Six Months Ended
	July 2, 2022			July 3, 2021

ESPP Purchase Rights:
Weighted-average fair value of grants per share	$	1.85		$	2.69
Expected volatility		60.36	%		58.56	%
Risk-free interest rate		0.98	%		0.08	%
Expected term of purchase rights (in years)		1.2			1.0
Dividend yield		NaN			NaN

The computation of the expected volatility assumptions used in the Black-Scholes calculations for ~~new stock option grants and employee stock~~ESPP purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the ~~stock option grant or~~ purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

RSUs

~~A summary of the~~

RSU activity isas of July 2, 2022 and changes during the six months ended July 2, 2022 were as follows:

   Shares    Weighted Average
Grant Date
Fair Value
Non-vested RSUs at December 31, 2016
   949,455    $ 4.64
Granted
   363,846    $ 11.44
Vested
   (500,621 )    $ 4.46
Cancelled and forfeited
   (14,292 )    $ 7.97



Non-vested RSUs at September 30, 2017
   798,388    $ 7.79


	Shares			Weighted-Average Grant Date Fair Value

Non-vested RSUs at January 1, 2022		1,033,436		$	5.59
Granted		1,756,267		$	4.36
Vested		(211,889	)	$	5.47
Cancelled and forfeited		(533,199	)	$	5.65

Non-vested RSUs at July 2, 2022		2,044,615		$	4.53

Time-based RSUs are converted into shares of Intevac common stock upon vesting on a

one-for-one

basis. Time-based RSUs typically are scheduled to vest over three or four years. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.

~~Market condition-based RSUs vest upon the~~

In May 2022, we granted to members of our senior management awards of performance-based restricted stock units (“PRSU Awards”) covering an aggregate of 935,600 shares of Intevac common stock (at maximum performance). The PRSU Awards are eligible to be earned based on achievement of certain ~~market conditions (our~~ stock ~~performance)~~prices based on the average closing price of the Company’s stock over a

30-day

period (the “Company Stock Price Hurdle”) during a ~~set~~three-year performance period ~~(typically~~commencing on May 18, 2022 and ending on May 31, 2025 (or earlier, upon a change in control, as defined in the Company’s 2022 Inducement Equity Incentive Plan or 2020 Equity Incentive Plan, as applicable) (the “Performance Period”). The PRSU Awards will vest, if at all, in five ~~years) subject to~~possible tranches. Each of the ~~grantee’s continued service with Intevac through the date~~five tranches will vest only if the applicable ~~market condition~~Company Stock Price Hurdle is ~~achieved.~~achieved within the Performance Period, and each tranche may only be achieved once during the Performance Period. If a Company Stock Price Hurdle is not achieved within the Performance Period, the corresponding PRSUs will not vest, and all unvested PRSUs at the end of the Performance Period will immediately be forfeited. The fair value ~~is based~~of each PRSU award was estimated on the ~~values calculated under the~~date of grant using a Monte Carlo ~~simulation model on the grant date. Compensation cost~~simulation. PRSU Award activity is ~~not adjusted in future periods for subsequent changes~~included in the ~~expected outcome~~above RSU tables.

Table of market related conditions. The compensation expense is recognized over the derived service period. We granted 125,000 of such awards to certain executive officers in the nine months ended October 1, 2016. These awards have a derived service period of 2.8 years.

Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Intevac estimated the weighted-average fair value of ~~market condition-based RSUs~~the PRSU Awards granted in May 2022 using the following weighted-average assumptions:

   Nine Months Ended
October 1, 2016
Weighted-average fair value of grants per share
   $ 2.46
Expected volatility
   47.65 %
Risk free interest rate
   1.35 %
Expected term (in years)
   4.79
Dividend yield
   None

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~


	Three Months Ended
	July 2, 2022
Weighted-average fair value of grants per share	$	3.67
Expected volatility		54.42	%
Risk-free interest rate		2.82	%
Dividend yield		NaN

In ~~fiscal 2016,~~May 2021, we granted to members of our senior management PRSU Awards covering an aggregate of 126,320 shares of Intevac common stock (at

target

performance). The number of PRSUs that will vest is determined by our common stock achieving a certain Total Shareholder Return (“TSR”) for the ~~annual bonus for certain participants~~Company, relative to the TSR of a specified peer group over a measurement period of two years from the time of grant. The fair value of each PRSU Award was estimated on the date of grant using a Monte Carlo simulation. PRSU Award activity is included in the above RSU tables. At the end of the performance measurement period, the Compensation Committee of the Company’s ~~annual incentive plan was settled with RSUs with one year vesting. The Company accrued for~~Board of Directors will determine the ~~payment of bonuses at~~achievement against the ~~expected company-wide payout percentage amount at October 1, 2016, which amounts were less than~~performance objectives. Depending on the ~~target bonus amounts for each participant. The bonus accrual was classified as a liability until~~Company’s TSR relative to the peer group TSR, the actual number of shares ~~was determined on~~that will be vested for each PRSU Award can range from 0 to 200% of the ~~date the awards were granted, at which time the Company classified the awards into equity. In February 2017, the annual 2016 bonus for certain participants was settled with RSUs withone-year~~ vesting. 33 participants were granted stock awards to receive an aggregate of 134,000 shares of common stock with a weighted average grant date fair value of $9.63 per share. In February 2016, the annual 2015 bonus for certain participants was settled with RSUs with one year vesting. 34 participants were granted stock awards to receive an aggregate of 266,000 shares of common stock with a weighted average grant date fair value of $4.40 per share. The Company recorded equity-based compensation expense related to the annual incentive plans of $102,000 for the nine months ended September 30, 2017. The Company recorded equity-based compensation expense related to the annual incentive plan of $120,000 and $364,000, respectively, for the three and nine months ended October 1, 2016.

5.	~~Purchased Intangible Assets~~

~~Details of finite-lived intangible assets by segment as of September 30, 2017 are as follows.~~

   September 30, 2017
   Gross
Carrying
Amount    Accumulated
Amortization    Net
Carrying
Amount
   (In thousands)
Equipment
   $ 7,172    $ (5,648 )    $ 1,524
Photonics
   1,215    (1,077 )    138






   $ 8,387    $ (6,725 )    $ 1,662

~~Total amortization expense of finite-lived intangibles for the three and nine months ended September 30, 2017 was $169,000 and $596,000, respectively.~~

~~As of September 30, 2017, future amortization expense is expected to be as follows.~~

(In thousands)
2017
   $ 159
2018
   615
2019
   615
2020
   273


   $ 1,662

6.	~~Acquisition-Related Contingent Consideration~~

In connection with the acquisition of Solar Implant Technologies, Inc. (“SIT”), Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain products over a specified period up to an aggregate of $9.0 million. initial grant.

Intevac estimated the ~~fair value of this contingent consideration on September 30, 2017 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products.~~

~~The fair value measurement of contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in~~weighted-average fair value of the ~~contingent consideration subsequent to~~PRSU Awards granted in May 2021 using the ~~acquisition date is recognized in income (loss) from operations within the condensed consolidated statement of operations. The~~ following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three and nine month periods ended September 30, 2017 and October 1, 2016:

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands)
Opening balance
   $ 859    $ 748    $ 759    $ 890
Changes in fair value
   (283 )    52    (181 )    (90 )
Cash payments made
   (172 )    —      (174 )    —








Closing balance
   $ 404    $ 800    $ 404    $ 800

~~The following table displays the balance sheet classification of the contingent consideration liability account at September 30, 2017 and at December 31, 2016:~~

   September 30,    December 31,
   2017    2016
   (In thousands)
Other accrued liabilities
   $ 36    $ 329
Other long-term liabilities
   368    430




Total acquisition-related contingent consideration
   $ 404    $ 759

The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the continent consideration liability as of September 30, 2017. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower or higher fair value measurement.

   Quantitative Information about Level 3 Fair Value Measurements at September 30, 2017
   Fair Value    Valuation Technique
Unobservable Input
   Range (Weighted Average)
   (In thousands, except for percentages)
Revenue Earnout
   $ 404    Discounted
cash flow
Weighted average cost of capital
Probability weighting of achieving revenue forecasts
   11.9%
10.0% - 80.0% (30.0%)

weighted-average assumptions:


	Three Months Ended
	July 3, 2021
Weighted-average fair value of grants per share	$	7.65
Expected volatility		56.26	%
Risk-free interest rate		0.15	%
Dividend yield		NaN

Warranty

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is ~~per~~subject to contract terms and, for its ~~disk~~HDD manufacturing, DCP manufacturing, solar ~~photovoltaic (“PV”)~~cell manufacturing and ~~display cover panel (“DCP”) manufacturing~~advanced semiconductor packaging systems, the warranty typically ranges between 12 and 24 months from customer acceptance. During this warranty period any defective

non-consumable

parts are replaced and installed at no charge to the customer. Intevac uses estimated repair or replacement costs along with its historical warranty experience to determine its warranty obligation. ~~Intevac generally provides a twelve month warranty on its Photonics products.~~ The provision for the estimated future costs of warranty is based upon historical cost and product performance experience. Intevac exercises judgment in determining the underlying estimates.

On the condensed consolidated balance sheets, the short-term portion of the warranty provision is included in other accrued liabilities, while the long-term portion is included in other long-term liabilities. The expense associated with product warranties issued or adjusted is included in cost of net revenues on the condensed consolidated statements of operations.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

The following table displays the activity in the warranty provision account for the three and ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 and ~~October 1, 2016:~~

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands)
Opening balance
   $ 1,220    $ 592    $ 1,007    $ 982
Expenditures incurred under warranties
   (360 )    (80 )    (640 )    (384 )
Accruals for product warranties issued during the reporting period
   169    320    675    494
Adjustments to previously existing warranty accruals
   106    (110 )    93    (370 )








Closing balance
   $ 1,135    $ 722    $ 1,135    $ 722

July 3, 2021:


	Three Months Ended						Six Months Ended

	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021

				(In thousands)
Opening balance	$	249		$	590		$	346		$	480
Expenditures incurred under warranties		(54	)		(195	)		(225	)		(346	)
Expenditures incurred under warranties included in discontinued operations		—			(22	)		—			(69	)
Accruals for product warranties issued during the reporting period		36			155			72			410
Accruals for product warranties issued during the reporting period included in discontinued operations		—			43			—			63
Adjustments to previously existing warranty accruals		(17	)		(15	)		21			(25	)
Adjustments to previously existing warranty accruals included in discontinued operations		—			16			—			59

Closing balance	$	214		$	572		$	214		$	572

The following table displays the balance sheet classification of the warranty provision account at ~~September 30, 2017~~July 2, 2022 and at ~~December 31, 2016:~~

   September 30,
2017    December 31,
2016
   (In thousands)
Other accrued liabilities
   $ 915    $ 829
Other long-term liabilities
   220    178




Total warranty provision
   $ 1,135    $ 1,007

January 1, 2022.


	July 2 2022		January 1 2022

	(In thousands)
Other accrued liabilities	$	199	$	301
Other long-term liabilities		15		45

Total warranty provision	$	214	$	346

Guarantees

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, Intevac has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was, serving at Intevac’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Intevac could be required to make under these indemnification obligations is unlimited; however, Intevac has a director and officer insurance policy that mitigates Intevac’s exposure and enables Intevac to recover a portion of any future amounts paid. As a result of Intevac’s insurance policy coverage, Intevac believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in Intevac’s industry, many of Intevac’s contracts provide remedies to certain third parties such as defense, settlement, or payment of judgments for intellectual property claims related to the use of its products. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

Letters of Credit

As of ~~September 30, 2017,~~July 2, 2022, we had letters of credit and bank guarantees outstanding totaling ~~$1.4 million,~~$786,000, including athe standby letter of credit outstanding under the Santa Clara, California facility lease and various other guarantees with our bank. These letters of credit and bank guarantees are collateralized by ~~$1.4 million~~$786,000 of restricted cash.

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Cash, Cash Equivalents and Investments

Cash and cash equivalents, short-term investments and long-term investments consist of:

   September 30, 2017
   Amortized
Cost    Unrealized
Holding
Gains    Unrealized
Holding
Losses    Fair Value
   (In thousands)
Cash and cash equivalents:

Cash
   $ 14,159    $ —      $ —      $ 14,159
Money market funds
   5,038    —      —      5,038








Total cash and cash equivalents
   $ 19,197    $ —      $ —      $ 19,197
Short-term investments:

Certificates of deposit
   $ 4,498    $ 1    $ 1    $ 4,498
Commercial paper
   1,990    —      —      1,990
Corporate bonds and medium-term notes
   6,252    1    5    6,248
Municipal bonds
   1,004    —      3    1,001
U.S. treasury and agency securities
   4,300    —      —      4,300








Total short-term investments
   $ 18,044    $ 2    $ 9    $ 18,037
Long-term investments:

Corporate bonds and medium-term notes
   $ 3,576    $ —      $ 3    $ 3,573
U.S. treasury and agency securities
   2,596    —      4    2,592








Total long-term investments
   $ 6,172    $ —      $ 7    $ 6,165








Total cash, cash equivalents, and investments
   $ 43,413    $ 2    $ 16    $ 43,399








   December 31, 2016
   Amortized
Cost    Unrealized
Holding
Gains    Unrealized
Holding
Losses    Fair Value
   (in thousands)
Cash and cash equivalents:

Cash
   $ 18,726    $ —      $ —      $ 18,726
Money market funds
   8,317    —      —      8,317








Total cash and cash equivalents
   $ 27,043    $ —      $ —      $ 27,043
Short-term investments:

Commercial paper
   $ 1,992    $ —      $ 1    $ 1,991
Corporate bonds and medium-term notes
   8,586    —      6    8,580
Municipal bonds
   600    —      —      600
U.S. treasury and agency securities
   6,432    —      1    6,431








Total short-term investments
   $ 17,610    $ —      $ 8    $ 17,602
Long-term investments:

Corporate bonds and medium-term notes
   $ 2,510    $ —      $ 11    $ 2,499
Municipal bonds
   500    —      4    496
U.S. treasury and agency securities
   597    1    —      598








Total long-term investments
   $ 3,607    $ 1    $ 15    $ 3,593








Total cash, cash equivalents, and investments
   $ 48,260    $ 1    $ 23    $ 48,238

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)


	July 2, 2022
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value

	(In thousands)
Cash and cash equivalents:
Cash	$	46,732	$	—	$	—	$	46,732
Money market funds		3,591		—		—		3,591
Commercial paper		3,348		—		2		3,346

Total cash and cash equivalents	$	53,671	$	—	$	2	$	53,669
Short-term investments:
Asset backed securities	$	1,003	$	—	$	2	$	1,001
Certificates of deposit		7,850		—		23		7,827
Commercial paper		14,586		2		37		14,551
Corporate bonds and medium-term notes		4,725		—		52		4,673
Municipal bonds		493		—		7		486
U.S. treasury securities		2,661		—		31		2,630

Total short-term investments	$	31,318	$	2	$	152	$	31,168
Long-term investments:
Asset backed securities	$	9,876	$	—	$	80	$	9,796
Corporate bonds and medium-term notes		5,204		7		32		5,179
Municipal bonds		1,212		—		9		1,203
U.S. treasury and agency securities		8,486		—		99		8,387

Total long-term investments	$	24,778	$	7	$	220	$	24,565

Total cash, cash equivalents, and investments	$	109,767	$	9	$	374	$	109,402


	January 1, 2022
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value

	(In thousands)
Cash and cash equivalents:
Cash	$	102,494	$	—	$	—	$	102,494
Money market funds		234		—		—		234

Total cash and cash equivalents	$	102,728	$	—	$	—	$	102,728
Short-term investments:
Certificates of deposit	$	4,300	$	—	$	—	$	4,300
Commercial paper		400		—		—		400
Corporate bonds and medium-term notes		2,916		—		3		2,913
Municipal bonds		700		—		—		700
U.S. treasury securities		1,910		—		2		1,908

Total short-term investments	$	10,226	$	—	$	5	$	10,221
Long-term investments:
Asset backed securities	$	2,040	$	—	$	3	$	2,037
Certificates of deposit		500		—		3		497
Corporate bonds and medium-term notes		1,521		—		6		1,515
Municipal bonds		145		—		1		144
U.S. treasury securities		3,246		—		12		3,234

Total long-term investments	$	7,452	$	—	$	25	$	7,427

Total cash, cash equivalents, and investments	$	120,406	$	—	$	30	$	120,376

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The contractual maturities of~~available-for-sale~~ investment securities at ~~September 30, 2017~~July 2, 2022 are presented in the following table.

   Amortized
Cost    Fair Value
   (In thousands)
Due in one year or less
   $ 23,082    $ 23,075
Due after one through two years
   6,172    6,165




   $ 29,254    $ 29,240


	Amortized Cost		Fair Value

	(In thousands)
Due in one year or less	$	38,257	$	38,105
Due after one through five years		24,778		24,565

	$	63,035	$	62,670

The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of ~~September 30, 2017.~~

   September 30, 2017
   In Loss Position for
Less than 12 Months    In Loss Position for
Greater than 12 Months
   Fair Value    Gross
Unrealized
Losses    Fair Value    Gross
Unrealized
Losses
   (In thousands)
Certificates of deposit
   $ 1,249    $ 1    $ —      $ —
Corporate bonds and medium-term notes
   5,882    7    1,200    1
Municipal bonds
   504    1    497    2
U.S. treasury and agency securities
   4,118    4    —      —








   $ 11,753    $ 13    $ 1,697    $ 3

July 2, 2022.


	July 2, 2022
	In Loss Position for Less than 12 Months				In Loss Position for Greater than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

	(In thousands)
Asset backed securities	$	10,180	$	82	$	—	$	—
Certificates of deposit		6,827		23		—		—
Commercial paper		15,932		39		—		—
Corporate bonds and medium-term notes		8,345		80		500		4
Municipal bonds		1,698		16		—		—
U.S. treasury and agency securities		11,017		130		—		—

	$	53,990	$	370	$	500	$	4

All prices for the fixed maturity securities including U.S. ~~Treasury~~treasury and agency securities, certificates of deposit, commercial paper, corporate bonds, asset backed securities and municipal bonds are received from independent pricing services utilized by Intevac’s outside investment manager. This investment manager performs a review of the pricing methodologies and inputs utilized by the independent pricing services for each asset type priced by the vendor. In addition, on at least an annual basis, the investment manager conducts due diligence visits and interviews with each pricing vendor to verify the inputs utilized for each asset class. The due diligence visits include a review of the procedures performed by each vendor to ensure that pricing evaluations are representative of the price that would be received ~~for~~if a security were sold in an orderly ~~sale.~~transaction. Any pricing where the input is based solely on a broker price is deemed to be a Level 3 price. Intevac uses the pricing data obtained from its outside investment manager as the primary input to make its assessments and determinations as to the ultimate valuation of the above-mentioned securities and has not made, during the periods presented, any material adjustments to such inputs.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

The following table represents the fair value hierarchy of Intevac’s~~available-for-sale~~ investment securities measured at fair value on a recurring basis as of ~~September 30, 2017.~~

   Fair Value Measurements
at September 30, 2017
   Total    Level 1    Level 2
   (In thousands)
Recurring fair value measurements:

Available-for-sale securities

Money market funds
   $ 5,038    $ 5,038    $ —
U.S. treasury and agency securities
   6,892    4,865    2,027
Certificates of deposit
   4,498    —      4,498
Commercial paper
   1,990    —      1,990
Corporate bonds and medium-term notes
   9,821    —      9,821
Municipal bonds
   1,001    —      1,001






Total recurring fair value measurements
   $ 29,240    $ 9,903    $ 19,337

~~10.~~

~~Derivative Instruments~~

July 2, 2022.


	Fair Value Measurements at July 2, 2022
	Total		Level 1		Level 2

	(In thousands)
Recurring fair value measurements:
Investment securities
Money market funds	$	3,591	$	3,591	$	—
U.S. treasury and agency securities		11,017		7,521		3,496
Asset backed securities		10,797		—		10,797
Certificates of deposit		7,827		—		7,827
Commercial paper		17,897		—		17,897
Corporate bonds and medium-term notes		9,852		—		9,852
Municipal bonds		1,689		—		1,689

Total recurring fair value measurements	$	62,670	$	11,112	$	51,558

9. Derivative Instruments

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the

re-measurement

of certain monetary assets and liabilities denominated in foreign currencies and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. These derivatives are carried at fair value with changes recorded in interest income and other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by

re-measurement

of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have ~~original~~ maturities of approximately 30 days.

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded in its condensed consolidated balance sheets as of ~~September 30, 2017~~July 2, 2022 and ~~December 31, 2016:~~

   Notional Amounts    Derivative Liabilities
Derivative Instrument
   September 30
2017    December 31,
2016    September 30,
2017    December 31,
2016
         Balance
Sheet
Line Fair
Value    Balance
Sheet
Line Fair
Value
   (in thousands)
Undesignated Hedges:

Forward Foreign Currency Contracts
   $ 1,418    $ 1,146    (a ) $ 2    (a ) $ 8








Total Hedges
   $ 1,418    $ 1,146    $ 2    $ 8

January 1, 2022.


	Notional Amounts				Derivative Liabilities				Derivative Assets
Derivative Instrument	July 2, 2022		January 1, 2022		July 2, 2022				January 1, 2022
					Balance Sheet Line		Fair Value		Balance Sheet Line		Fair Value
	(In thousands)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	1,074	$	815		(b)	$	11		(a)	$	14

Total Hedges	$	1,074	$	815			$	11			$	14

(a)	Other current assets

(b)	Other accrued liabilities

~~11.~~

~~Equity~~

10. Equity

Stock Repurchase Program

On November 21, 2013, ~~Intevac’s~~Intevac announced that its Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 20, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program for an aggregate authorized amount of up to $40.0 million. At ~~September 30, 2017, $1.5~~July 2, 2022, $10.4 million remains available for future stock repurchases under the repurchase program. Intevac did not make any common stock repurchases during the three and ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 and ~~October 1, 2016, respectively.~~

July 3, 2021.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

~~Intevac records treasury stock purchases under~~

Condensed Consolidated Statement of Changes in Equity

The changes in stockholders’ equity by component for the ~~cost method using thefirst-in,first-out~~ ~~(FIFO) method. Upon reissuance~~three and six months ended July 2, 2022 and July 3, 2021, are as follows (in thousands):


	Three Months Ended July 2, 2022
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
Balance at April 2, 2022	$	198,960		$	(29,551	)	$	371		$	(43,965	)	$	125,815
Common stock issued under employee plans		1,178			—			—			—			1,178
Shares withheld for net share settlement of RSUs		(160	)		—			—			—			(160	)
Equity-based compensation expense		1,525			—			—			—			1,525
Net loss		—			—			—			(2,818	)		(2,818	)
Other comprehensive loss		—			—			(380	)		—			(380	)

Balance at July 2, 2022	$	201,503		$	(29,551	)	$	(9	)	$	(46,783	)	$	125,160


	Six Months Ended July 2, 2022
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
Balance at January 1, 2022	$	199,098		$	(29,551	)	$	578		$	(36,110	)	$	134,015
Common stock issued under employee plans		2,211			—			—			—			2,211
Shares withheld for net share settlement of RSUs		(295	)		—			—			—			(295	)
Equity-based compensation expense		489			—			—			—		��	489
Net loss		—			—			—			(10,673	)		(10,673	)
Other comprehensive loss		—			—			(587	)		—			(587	)

Balance at July 2, 2022	$	201,503		$	(29,551	)	$	(9	)	$	(46,783	)	$	125,160


	Three Months Ended July 3, 2021
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
Balance at April 3, 2021	$	195,388		$	(29,551	)	$	552	$	(69,234	)	$	97,155
Common stock issued under employee plans		193			—			—		—			193
Shares withheld for net share settlement of RSUs		(512	)		—			—		—			(512	)
Equity-based compensation expense		1,019			—			—		—			1,019
Net loss		—			—			—		(6,126	)		(6,126	)
Other comprehensive income		—			—			19		—			19

Balance at July 3, 2021	$	196,088		$	(29,551	)	$	571	$	(75,360	)	$	91,748


	Six Months Ended July 3, 2021
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity
Balance at January 2, 2021	$	193,197		$	(29,551	)	$	640		$	(62,730	)	$	101,556
Common stock issued under employee plans		1,436			—			—			—			1,436
Shares withheld for net share settlement of RSUs		(532	)		—			—			—			(532	)
Equity-based compensation expense		1,987			—			—			—			1,987
Net loss		—			—			—			(12,630	)		(12,630	)
Other comprehensive loss		—			—			(69	)		—			(69	)

Balance at July 3, 2021	$	196,088		$	(29,551	)	$	571		$	(75,360	)	$	91,748

Table of ~~treasury stock, amounts in excess of the acquisition cost are credited to additionalpaid-in~~ ~~capital. If Intevac reissues treasury stock at an amount below its acquisition cost and additionalpaid-in~~ capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.

Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Accumulated Other Comprehensive Income

(Loss)

The changes in accumulated other comprehensive income (loss) by component for the three and ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 and ~~October 1, 2016,~~July 3, 2021, are as follows.

   Three Months Ended Nine Months Ended
   September 30, 2017
   Foreign
currency Unrealized
holding losses on
available-for-sale
investments Total Foreign
currency    Unrealized
holding losses on
available-for-sale
investments Total
   (In thousands)
Beginning balance
   $ 418 $ (19 ) $ 399 $ 343    $ (22 ) $ 321
Other comprehensive income before reclassification
   39 5 44 114    8 122
Amounts reclassified from other comprehensive income
   —   —   —   —      —   —




Net current-period other comprehensive income
   39 5 44 114    8 122




Ending balance
   $ 457 $ (14 ) $ 443 $ 457    $ (14 ) $ 443




   Three Months Ended Nine Months Ended
   October 1, 2016
   Foreign
currency Unrealized
holding gains on
available-for-sale
investments Total Foreign
currency    Unrealized
holding gains on
available-for-sale
investments Total
   (In thousands)
Beginning balance
   $ 474 $ 17 $ 491 $ 452    $ (40 ) $ 412
Other comprehensive income (loss) before reclassification
   (17 ) (16 ) (33 ) 5    41 46
Amounts reclassified from other comprehensive income
   —   —   —   —      —   —




Net current-period other comprehensive income (loss)
   (17 ) (16 ) (33 ) 5    41 46




Ending balance
   $ 457 $ 1 $ 458 $ 457    $ 1 $ 458

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~12.~~

~~Net Income (Loss) Per Share~~


	Three Months Ended									Six Months Ended

	July 2, 2022
	Foreign currency			Unrealized holding gains (losses) on available-for-sale investments			Total			Foreign currency			Unrealized holding gains (losses) on available-for-sale investments			Total

	(In thousands)
Beginning balance	$	575		$	(204	)	$	371		$	608		$	(30	)	$	578
Other comprehensive loss before reclassification		(219	)		(161	)		(380	)		(252	)		(335	)		(587	)
Amounts reclassified from other comprehensive loss		—			—			—			—			—			—

Net current-period other comprehensive loss		(219	)		(161	)		(380	)		(252	)		(335	)		(587	)

Ending balance	$	356		$	(365	)	$	(9	)	$	356		$	(365	)	$	(9	)


	Three Months Ended							Six Months Ended

	July 3, 2021
	Foreign currency		Unrealized holding gains (losses) on available-for-sale investments			Total		Foreign currency			Unrealized holding gains (losses) on available-for-sale investments			Total

	(In thousands)
Beginning balance	$	534	$	18		$	552	$	602		$	38		$	640
Other comprehensive income (loss) before reclassification		28		(9	)		19		(40	)		(29	)		(69	)
Amounts reclassified from other comprehensive income (loss)		—		—			—		—			—			—

Net current-period other comprehensive income (loss)		28		(9	)		19		(40	)		(29	)		(69	)

Ending balance	$	562	$	9		$	571	$	562		$	9		$	571

11. Net Loss Per Share

The following table sets forth the computation of basic and diluted net ~~income (loss)~~loss per share:

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands, except per share amounts)
Net income (loss)
   $ 1,230    $ (481 )    $ 4,159    $ (10,276 )








Weighted-average shares – basic
   21,714    20,869    21,475    20,704
Effect of dilutive potential common shares
   1,256    —      1,514    —








Weighted-average shares – diluted
   22,970    20,869    22,989    20,704








Net income (loss) per share – basic
   $ 0.06    $ (0.02 )    $ 0.19    $ (0.50 )








Net income (loss) per share –diluted
   $ 0.05    $ (0.02 )    $ 0.18    $ (0.50 )

~~The following potentially dilutive securities were excluded (as common stock equivalents) from the computation~~


	Three Months Ended						Six Months Ended

	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021

	(In thousands, except per share amounts)
Net loss from continuing operations	$	(2,580	)	$	(6,124	)	$	(10,300	)	$	(11,692	)
Net loss from discontinued operations, net of taxes	$	(238	)	$	(2	)	$	(373	)	$	(938	)

Net loss	$	(2,818	)	$	(6,126	)	$	(10,673	)	$	(12,630	)
Weighted-average shares – basic		25,141			24,241			24,970			24,137
Effect of dilutive potential common shares		—			—			—			—

Weighted-average shares – diluted		25,141			24,241			24,970			24,137

Basic and diluted net loss per share:
Continuing operations	$	(0.10	)	$	(0.25	)	$	(0.41	)	$	(0.48	)

Discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.04	)

Net loss per share	$	(0.11	)	$	(0.25	)	$	(0.43	)	$	(0.52	)

Table of ~~diluted net income (loss) per share for the periods presented as their effect would have been antidilutive:~~

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands)
Stock options to purchase common stock
   826    2,743    834    2,743
RSUs
   —      955    —      955
Employee stock purchase plan
   —      82    —      82

~~13.~~

~~Segment Reporting~~

Intevac’s two reportable segments are: Thin-film Equipment and Photonics. Intevac’s chief operating decision-maker has been identified as the President and CEO, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon Intevac’s management organization structure as of September 30, 2017 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed.

Each reportable segment is separately managed and has separate financial results that are reviewed by Intevac’s chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker.

Intevac derives the segment results from its internal management reporting system. The accounting policies Intevac uses to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including orders, net revenues and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Intevac manages certain operating expenses separately at the corporate level. Intevac allocates certain of these corporate expenses to the segments in an amount equal to 3% of net revenues. Segment operating income excludes interest income/expense and other financial charges and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, gains and losses on divestitures and sales of intellectual property, and unallocated costs in measuring the performance of the reportable segments.

Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)

(Unaudited)

~~The Thin-film Equipment segment designs, develops and markets vacuum process equipment solutions for high-volume manufacturing~~

As the Company is in a net loss position, all of ~~small substrates with precise thin-film properties, such as for~~ the ~~hard drive, solar cell and DCP industries, as well as other adjacent thin-film markets.~~

~~The Photonics segment develops compact, cost-effective, high-sensitivity digital-optical products for the capture and display oflow-light~~ ~~images. Intevac provides sensors, cameras and systems for government applications such as night vision.~~

~~Information for each reportable segment for the three and nine months ended September 30, 2017 and October 1, 2016 is as follows:~~

~~Net Revenues~~

~~Operating~~Company’s equity instruments are considered antidilutive.

12. Income ~~(Loss)~~

   Three Months Ended    Nine Months Ended
   September 30,
2017    October 1,
2016    September 30,
2017    October 1,
2016
   (In thousands)
Thin-film Equipment
   $ 1,213    $ (998 )    $ 4,821    $ (10,117 )
Photonics
   1,417    1,737    3,646    3,656








Total segment operating income (loss)
   2,630    739    8,467    (6,461 )








Unallocated costs
   (1,362 )    (1,063 )    (3,768 )    (3,986 )








Income (loss) from operations
   1,268    (324 )    4,699    (10,447 )
Interest income and other income (expense), net
   28    60    265    184








Income (loss) before income taxes
   $ 1,296    $ (264 )    $ 4,964    $ (10,263 )

~~INTEVAC, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~Total assets for each reportable segment as of September 30, 2017 and December 31, 2016 are as follows:~~

~~Assets~~

   September 30,
2017    December 31,
2016
   (In thousands)
Thin-film Equipment
   $ 52,620    $ 39,503
Photonics
   16,563    16,071




Total segment assets
   69,183    55,574




Cash, cash equivalents and investments
   43,399    48,238
Restricted cash
   1,400    1,602
Deferred income taxes
   4    3
Other current assets
   1,024    997
Common property, plant and equipment
   1,698    1,039
Other assets
   724    871




Consolidated total assets
   $ 117,432    $ 108,324

~~14.~~

~~Income Taxes~~

Taxes

Intevac recorded income tax provisions of ~~$66,000~~$500,000 and ~~$805,000~~$526,000 for the three and ~~nine~~six months ended ~~September 30, 2017,~~July 2, 2022, respectively, and ~~$217,000~~income tax benefits of $165,000 and ~~$13,000~~$132,000 for the three and ~~nine~~six months ended ~~October 1, 2016,~~July 3, 2021, respectively. The income tax provision for the nine months ended September 30, 2017 includes $506,000 for withholding taxes on royalties payable to the United States from Intevac’s Singapore subsidiary and $200,000 for audit considerations in foreign jurisdictions, both recorded as discrete items. The income tax provisions (benefits) for the three and ~~nine~~six month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which Intevac operates. ~~Intevac did not recognize benefits on the U.S. net operating loss for~~For the three and ~~nine~~six month ~~period~~periods ended ~~September 30, 2017 due~~July 2, 2022 Intevac recorded income tax provisions on income of its international subsidiaries of $390,000 and $364,000, respectively, and recorded $107,000 and $158,000, respectively, for withholding taxes on royalties paid to ~~having full valuation allowances on~~ the ~~U.S. deferred tax assets. Intevac did not recognize benefits on the U.S. net operating loss or on the~~United States from Intevac’s Singapore ~~net operating loss for~~subsidiary as discrete items. For the three and ~~nine~~six month ~~period~~periods ended ~~October 1, 2016 due~~July 3, 2021, Intevac recorded income tax benefits on losses of its international subsidiaries of $189,000 and $208,000, respectively, and recorded $24,000 and $72,000, respectively, for withholding taxes on royalties paid to ~~having full valuation allowances on~~ the ~~U.S. deferred tax assets and on the~~United States from Intevac’s Singapore ~~deferred tax assets.~~subsidiary as discrete items. Intevac’s tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors, including the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.

The ~~Inland Revenue Authority~~Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act includes several significant provisions for corporations, including the usage of ~~Singapore (“IRAS”~~net operating losses and payroll benefits. Several foreign

(non-U.S.) ~~is currently conducting a review~~

jurisdictions in which we operate have taken similar economic stimulus measures. The Company evaluated the provisions of the ~~fiscal 2009 through 2012 tax returns~~CARES Act and other

non-U.S.

economic measures and determined the impact on our financial position at July 2, 2022 and on the results of operations and cash flows for the three and six months then ended to be as follows.

Under the CARES Act, we elected to defer payment, on an interest-free basis, of the ~~Company’s wholly-owned subsidiary, Intevac Asia Pte. Ltd. IRAS has challenged the Company’s tax position with respect~~employer portion of social security payroll taxes incurred from March 27, 2020 to ~~certain aspects~~December 31, 2020.

One-half

of such deferral amount became due on December 31, 2021.

One-half

of such deferral amount will become due on December 31, 2022. We elected to utilize this deferral program to delay payment of $764,000 of the ~~Company’s transfer pricing. Under~~employer portion of payroll taxes which were incurred between March 27, 2020 and December 31, 2020. On the condensed consolidated balance sheets, the deferred payroll tax liability in the amount of $407,000 as of July 2, 2022 is included in accrued payroll and related liabilities. The Company also utilized the employee retention tax credit under the CARES Act for certain qualifying employee salary and wage expenditures. Tax benefits under the employee retention tax credit are not significant.

In Singapore, ~~tax law,~~Intevac received government assistance under the Job Support Scheme (“JSS”). The purpose of the JSS is to provide wage support to employers to help them retain their local employees. During the first half of fiscal 2021, the Company ~~must pay all contested taxes~~received $82,000 in JSS grants, of which $55,000 is reported as a reduction of cost of net revenues, $10,000 is reported as a reduction of research and ~~the related interest to have the right to defend its position. The contested tax deposits~~development expenses and $17,000 is reported as a reduction of ~~$724,000 at September 30, 2017~~selling, general and ~~$871,000 at December 31, 2016 are included in other long-term assets~~administrative expenses on the condensed consolidated ~~balance sheets.~~statement of operations. The ~~Company’s~~Company did not receive any JSS grants in the first half of fiscal 2022.

13. Restructuring and Other Costs, Net

During the first quarter of fiscal 2022, Intevac substantially completed implementation of the 2022 cost reduction plan (the “2022 Cost Reduction Plan”), which was intended to reduce our overall cost structure and optimize our operational design, inclusive of the stranded overhead associated with the divestiture of the Photonics business. The restructuring program includes management reorganization and ~~its advisors continue~~the right sizing of certain technology development, marketing and administrative functions. We incurred restructuring costs of $1.2 million in estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2022 Cost Reduction Plan include: (i) a benefit of $1.3 million related to ~~believe that~~the stock-based compensation forfeitures related to the employees affected by the reduction in workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Reduction Plan reduced the workforce by 6 percent. The cost of implementing the 2022 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Implementation of the 2022 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis.

The changes in restructuring reserves, which resulted from cash-based severance payments and other employee-related costs, associated with the 2022 Cost Reduction Plan for the three and six months ended July 2, 2022 were as follows.


	Employee Termination Costs
	(In thousands)
Balance at January 1, 2022	$	—
Provision for restructuring charges under the 2022 Cost Reduction Plan		1,232
Cash payments made		(757	)
Non-cash utilization (a)		37

Balance at April 2, 2022		512
Cash payments made		(179	)

Balance at July 2, 2022 (b)	$	333

(a)	Acceleration of equity awards.

(b)	Liability for employee termination costs is included in accrued payroll and related liabilities.

During the fourth quarter of fiscal 2021, the Company recorded asset impairment and restructuring charges associated with the sale of the Photonics division including (i) $693,000 in severance and other employee-related costs related to the termination of the Photonics general manager; (ii) $1.2 million in asset impairment charges on the Company’s ROU asset and (iii) $665,000 in accruals for common area charges associated with an unused space commitment to EOTECH. In consideration of EOTECH’s assumption of certain lease obligations related to the Company’s Santa Clara, California campus, which assumed lease obligations pertain in part to excess space beyond that required by EOTECH’s currently anticipated operation of the Photonics division, the Company agreed to pay EOTECH the amount of $2.1 million, which is ~~“more likely than not” to successfully defend that the tax treatment was proper~~payable in (i) one initial installment of $308,000 on January 10, 2022 and ~~in accordance with Singapore tax regulations. Presently, there are no other active income tax examinations~~(ii) 7 equal quarterly installments of $259,000. The Company recorded an asset impairment charge against its ROU asset in the ~~jurisdictions where~~amount of $1.2 million associated with the excess space noted above. The Company recorded a liability to EOTECH in the amount of $665,000, the amount related to common area charges which are not included in the base rental payments or the lease liability on the Company’s condensed consolidated balance sheet. During the first quarter of fiscal 2022, the Company recorded restructuring charges associated with the sale of the Photonics division including $37,000 in severance and other employee-related costs related to the termination of four Photonics employees and $75,000 in stock-based compensation associated with the modification of certain stock-based awards for eighty Photonics employees.

The changes in restructuring reserves, which resulted from cash-based severance payments and other employee-related costs and other exit costs associated with the Photonics divestiture for the three and six months ended July 2, 2022 were as follows.


	Employee Termination Costs			Other Exit Costs			Total

	(In thousands)
Balance at January 1, 2022	$	358		$	665		$	1,023
Provision for restructuring charges associated with Photonics divestiture (a)		112			2			114
Cash payments made		(137	)		(128	)		(265	)
Non-cash utilization (b)		(75	)		—			(75	)

Balance at April 2, 2022	$	258		$	539		$	797

Provision for restructuring charges associated with Photonics divestiture (a)		—			4			4
Cash payments made		(90	)		(77	)		(167	)

Balance at July 2, 2022	$	168	(c)	$	466		$	634

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

(a)	Included in loss from discontinued operations (See Note 2).

(b)	Acceleration of equity awards.

(c)	Liability for employee termination costs is included in accrued payroll and related liabilities.

During the third quarter of fiscal 2021, Intevac ~~operates.~~

substantially completed implementation of the 2021 cost reduction plan (the “2021 Cost Reduction Plan”), which was intended to reduce expenses and reduce its workforce by 5.2 percent. The cost of implementing the 2021 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Substantially all cash outlays in connection with the 2021 Cost Reduction Plan occurred in the first nine months of fiscal 2021. Implementation of the 2021 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.0 million on an annual basis.

The changes in restructuring reserves, which resulted from cash-based severance payments and other employee-related costs, associated with the 2021 Cost Reduction Plan for the six months ended July 3, 2021 were as follows.

~~15.~~	~~Contingencies~~
		Six Months Ended July 3, 2021
		(In thousands)
Beginning balance		$	—
Provision for restructuring reserves			43
Cash payments made			(43	)

Ending balance		$	—

14. Commitments and Contingencies

From time to time, Intevac may have certain contingent liabilities that arise in the ordinary course of its business activities. Intevac accounts for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Legal Matters

From time to time, Intevac receives notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions in connection with claims made against them. In addition, from time to time, Intevac receives notification from third parties claiming that Intevac may be or is infringing their intellectual property or other rights. Intevac also is subject to various other legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business. Although the outcome of these claims and proceedings cannot be predicted with certainty, Intevac does not believe that any existing proceedings or claims will have a material adverse effect on its consolidated financial condition or results of operations.

In July 2020, Robin Quiusky, a former contract employee who worked for us via a staffing agency, filed an action against us under the Private Attorneys General Act (“PAGA”) in California state court (Quiusky v. Intevac, Inc., et al) alleging that the Company failed to provide rest and meal breaks, pay overtime and reimburse business expenses for

non-exempt

California employees. The former employee subsequently added class action claims to his original complaint. The parties participated in a confidential mediation on February 1, 2022, and reached a settlement resolving the case. We are awaiting approval of the settlement by the court. Payment on the claims is expected to be made in the second half of 2022. The settlement effectively extinguishes the Quiusky v. Intevac, Inc., et al lawsuit. The settlement includes the dismissal of all claims against the Company and related parties in the Quiusky lawsuit and claim under the PAGA, without any admission of liability or wrongdoing attributed to the Company. Because of the uncertainty surrounding this litigation, no litigation reserve had been previously established by the Company resulting in the full $1.0 million settlement expense being recognized in the fourth quarter of fiscal 2021.

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form

10-Q

contains forward-looking statements, which involve risks and uncertainties. Words such as “believes,” “expects,” “anticipates” and the like indicate forward-looking statements. These forward-looking statements include comments related to Intevac’s shipments, projected revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in ~~2017~~2022 and beyond; projected customer requirements for Intevac’s new and existing products, and when, and if, Intevac’s customers will place orders for these ~~products; Intevac’s ability to proliferate its Photonics technology into major military programs and to develop and introduce commercial imaging~~ products; the timing of delivery and/or acceptance of the systems and products that comprise Intevac’s backlog for revenue and the Company’s ability to achieve cost savings. Intevac’s actual results may differ materially from the results discussed in the forward-looking statements for a variety of reasons, including those set forth under “Risk Factors” and in other documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form

10-K

filed on February ~~15, 2017,~~ 17, 2022, our Quarterly Reports on Form

10-Q

and our ~~periodic~~Current Reports on Form~~10-Q’s~~

8-K.

Intevac’s trademarks include the following: “200 Lean

,” “INTEVAC LSMA

,” “INTEVAC MATRIX

,” “oDLC

,” and “TRIO

™

.”

Discontinued Operations

On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH, LLC, a Michigan limited liability company (“EOTECH”). As a result of the disposition, the results of operations from the Photonics reporting segment are reported as “Net loss from discontinued operations, net of taxes” in the condensed consolidated financial statements. The Company has recast prior period amounts presented to provide visibility and comparability. All discussion herein, unless otherwise noted, refers to Intevac’s remaining operating segment after the disposition, the Thin Film Equipment (“TFE”) business. See Note 2 “Divestiture and Discontinued Operations” to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form~~8-K’s.~~

10-Q.

Overview

Intevac is a provider of vacuum deposition equipment for a wide variety of thin-film ~~applications, and a leading provider of digital night-vision technologies and products to the defense industry.~~applications. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the hard disk drive (“HDD”), and display cover panel (“DCP”)~~, and solar cell~~ industries. ~~Intevac also provides sensors, cameras and systems for government applications such as night vision.~~ Intevac’s customers include manufacturers of hard disk media ~~DCPs~~ and ~~solar cells as well as the U.S. government and its agencies, allies and contractors.~~DCPs. Intevac ~~reports two segments: Thin-film Equipment and Photonics.~~

operates in a single segment: TFE. Product development and manufacturing activities occur in North America and Asia. Intevac also has field offices in Asia to support its ~~Thin-film Equipment~~ customers. Intevac’s products are highly technical and are sold primarily through Intevac’s direct sales force. ~~Intevac also sells its products through distributors in Japan and China.~~

Intevac’s results of operations are driven by a number of factors including success in its equipment growth initiatives in the DCP ~~and solar markets~~market and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, and the

end-user

demand for PCs, enterprise data storage, nearline “cloud” applications, video players and video game consoles that include such drives. Intevac continues to execute its strategy of ~~equipment~~ diversification ~~into new markets~~beyond the HDD industry by ~~introducing new products, such as~~focusing on the Company’s ability to provide proprietary tools to enhance scratch protection and durability for ~~a thin-film physical vapor deposition (“PVD”) application for protective coating for~~the DCP market and by working to develop the next generation of high volume DCP manufacturing ~~and a thin-film PVD application for PV solar cell manufacturing.~~equipment. Intevac believes that ~~expansion into these markets~~its renewed focus on the DCP market will result in incremental equipment revenues for Intevac and decrease Intevac’s dependence on the HDD industry. Intevac’s equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs and cell phones ~~and PV cells~~ as well as other factors such as global economic conditions and technological advances in fabrication processes.

In March 2022, the Company’s management approved a restructuring plan to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of this realignment effort, the Company will no longer be pursuing several DCP projects including the coating of the backside covers of smartphones, solar ion implantation (also known as ENERGi

), and advanced packaging for semiconductor manufacturing.

The following table presents certain significant measurements for the three and ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 and ~~October 1, 2016:~~

   Three months ended    Nine months ended
   September 30,
2017 October 1,
2016 Change over
prior period    September 30,
2017 October 1,
2016 Change over
prior period
   (In thousands, except percentages and per share amounts)
Net revenues
   $ 26,726 $ 22,559 $ 4,167    $ 88,077 $ 51,142 $ 36,935
Gross profit
   $ 11,298 $ 8,515 $ 2,783    $ 35,816 $ 18,497 $ 17,319
Gross margin percent
   42.3 % 37.7 % 4.6 points    40.7 % 36.2 % 4.5 points
Income (loss) from operations
   $ 1,268 $ (324 ) $ 1,592    $ 4,699 $ (10,447 ) $ 15,146
Net income (loss)
   $ 1,230 $ (481 ) $ 1,711    $ 4,159 $ (10,276 ) $ 14,435
Net income (loss) per diluted share
   $ 0.05 $ (0.02 ) $ 0.07    $ 0.18 $ (0.50 ) $ 0.68

July 3, 2021:


	Three months ended									Six months ended
	July 2, 2022			July 3, 2021			Change over prior period			July 2, 2022			July 3, 2021			Change over prior period

	(In thousands, except percentages and per share amounts)
Net revenues	$	9,307		$	5,369		$	3,938		$	13,752		$	14,607		$	(855	)
Gross profit	$	4,487		$	1,006		$	3,481		$	5,209		$	3,140		$	2,069
Gross margin percent		48.2	%		18.7	%		29 points			37.9	%		21.5	%		16 points
Loss from operations	$	(2,397	)	$	(6,309	)	$	3,912		$	(10,084	)	$	(11,874	)	$	1,790
Loss from continuing operations	$	(2,580	)	$	(6,124	)	$	3,544		$	(10,300	)	$	(11,692	)	$	1,392
Loss from discontinued operations	$	(238	)	$	(2	)	$	(236	)	$	(373	)	$	(938	)	$	565
Net loss	$	(2,818	)	$	(6,126	)	$	3,308		$	(10,673	)	$	(12,630	)	$	1,957
Net loss per diluted share	$	(0.11	)	$	(0.25	)	$	0.14		$	(0.43	)	$	(0.52	)	$	0.09

Net revenues ~~for~~increased during the ~~third~~second quarter of fiscal 2017 increased compared to the same period in the prior year primarily due to higher technology upgrade and spare parts sales to HDD manufacturers and to higher Photonics product sales and higher Photonics contract research and development (“R&D”). Thin-film Equipment recognized revenue on two 200 Lean^®~~HDD systems in both the third quarter of fiscal 2017 and third quarter of fiscal 2016. Thin-film Equipment also recognized revenue on one pilot ENERG~~i™ solar ion implant system in the third quarter of fiscal 2016. Net income for the third quarter of fiscal 2017 increased compared to the same period in the prior year due to higher revenues and higher gross profit offset in part by higher spending on research and development and higher selling, general and administrative expenses as the Company recorded higher variable compensation expenses as a result of the return to profitability.

~~Net revenues for the first nine months of fiscal 2017 increased~~2022 compared to the same period in the prior year primarily due to higher equipment sales to HDD PVmanufacturers. Higher gross margin in the second quarter of fiscal 2022 reflected the higher-margin contribution from HDD upgrades. Fees earned pursuant to the TSA with EOTECH since the divestiture of Photonics (“TSA fees”) were $408,000 for the three months ended July 2, 2022, of which $14,000 was reported as a reduction of cost of net revenues and ~~cell phone manufacturers,~~$394,000 was reported as a reduction of selling, general and administrative expenses. The agreed-upon charges for such services are generally intended to allow the service provider to recover all costs and expenses of providing such services. The Company reported a smaller net loss for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021 due to higher ~~Photonics contract R&D~~revenues, higher gross margins and ~~by higher Photonics product sales. Thin-film Equipment recognized revenue~~lower operating costs as a result of the cost reduction actions taken in the first ~~nine months~~quarter of fiscal ~~2017 on four 200 LeanHDD systems, one pilot INTEVAC MATRIX™ solar ion implant system, two ENERG~~i ~~solar ion implant systems and four INTEVAC VERTEX™ coating systems for DCP. Thin-film Equipment recognized revenue in~~2022.

Net revenues decreased during the first ~~nine months~~half of fiscal ~~2016 on two 200 LeanHDD systems, one pilot ENERG~~i ~~solar ion implant system and one VERTEX system. The net income for the first nine months of fiscal 2017 increased~~2022 compared to the same period in the prior year primarily due to ~~higher revenues, higher~~lower system sales. We did not recognize revenue on any system sales in the first half of fiscal 2022 compared to one MATRIX PVD system for advanced semiconductor packaging recognized in the first half of fiscal 2021. Higher gross ~~profit, and lower spending on research and development~~margin in the first half of fiscal 2022 reflects the higher-margin contribution from HDD upgrades, offset in part by ~~higher~~$755,000 in charges for excess and obsolete inventory as part of the Company’s realignment effort. Lower gross margin in the first half of fiscal 2021 reflected the lower-margin contribution from the first MATRIX PVD system for advanced semiconductor packaging. In March 2022, the Company’s management approved a restructuring plan to realign the Company’s operational focus, scale the business and improve costs. R&D expenses for the first half of fiscal 2022 include $1.5 million in expenditures related to the disposal of certain lab equipment as part of the realignment effort. The cost of employee severance associated with the realignment effort of $1.2 million was offset in full by stock-based compensation forfeitures related to the employees affected by the reduction in workforce. TSA fees were $1.2 million for the six months ended July 2, 2022, of which $23,000 was reported as a reduction of cost of net revenues and $1.2 million was reported as a reduction of selling, general and administrative ~~expenses as~~expenses. During the first half of fiscal 2021, the Company ~~recorded~~received $82,000 in government assistance related to

COVID-19

from the government of Singapore, of which $55,000 was reported as a reduction of cost of net revenues, $10,000 was reported as a reduction of R&D expenses and $17,000 was reported as a reduction of selling, general and administrative expenses. The Company did not receive any JSS grants in the first half of fiscal 2022. The Company reported a smaller net loss for the first half of fiscal 2022 compared to the first half of fiscal 2021 due to higher ~~variable compensation expenses~~gross margins, offset in part by lower revenues and higher operating costs as a result of the ~~return to profitability~~realignment effort.

We believe fiscal 2022 will be a challenging year, and ~~higher legal fees related to patents and contracts.~~

~~Given the momentum we have built in our business, we believe that we are currently on the path to profitability~~Intevac does not expect be profitable in fiscal ~~2017. Intevac expects higher sales of new Thin-film Equipment products for DCP and PV and higher sales of HDD equipment. For fiscal 2017,~~2022. Intevac expects that ~~Photonics business levels~~2022 HDD equipment sales will be ~~at about the same~~similar to 2021 levels as ~~2016~~we expect a customer to take delivery of one system in backlog. We believe there will be improvements to our HDD equipment sales in the future as ~~Photonics continues~~we expect a customer to ~~deliver production shipments~~start taking deliveries from the remaining ten systems in backlog starting in fiscal 2023. However, our operating results and growth prospects could be impacted by macroeconomic conditions such as a global economic slowdown, global economic instability and political conflicts, wars, and public health crises. In addition, rising inflation and interest rates may impact demand for our products and services and our cost to provide products and services.

COVID-19

Update

The impact of

COVID-19,

including changes in consumer behavior, pandemic fears, and market downturns, as well as restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. Although

COVID-19

vaccines are now broadly distributed and administered, there remains significant uncertainty concerning the magnitude of the ~~pilot night-vision systems for~~impact and the ~~Apache helicopter~~duration of the

COVID-19

pandemic. As new strains of

COVID-19

develop, the continued impacts to our business could be material to our fiscal 2022 results. Further, the impacts of inflation and ~~night-vision camera modules for~~interest rate fluctuations on our business

and the ~~F35 Joint Strike Fighter program. Deliveries~~broader economy, which may continue to be exacerbated by the economic recovery from the

COVID-19

pandemic, may also impact our financial condition and results of operations. Our customers may delay or cancel orders due to reduced demand, supply chain disruptions, and/or travel restrictions and border closures. We have experienced pandemic-related delays in our evaluation and development work. In response to

COVID-19,

we implemented initiatives to safeguard our employees, including work-from-home protocols. Although we have since fully reopened our offices in accordance with local guidelines, our employees’ health and safety remain our top priority, and we will continue to monitor local restrictions across the world, the administration and efficacy of vaccines and the number of new cases, to determine whether and when additional safeguards may become necessary.

In Singapore, Intevac received government assistance under the ~~current multi-year Apache arrangement are expected~~Job Support Scheme (“JSS”). The purpose of the JSS is to ~~be completed~~provide wage support to employers to help them retain their local employees. Under the JSS, Intevac received $82,000 in JSS grants in the ~~fourth quarter~~first half of ~~2017.~~

~~Intevac’s trademarks, include~~fiscal 2021. The Company did not receive any JSS grants in the ~~following: “200 Lean~~^®~~,” “AccuLuber™,” “EBAPS~~^®~~,” “ENERG~~i~~™,”“I-Port™,”~~ ~~“LIVAR~~^®~~,” “INTEVAC LSMA™,” “INTEVAC MATRIX™,” “MicroVista~~^®~~,” “NightVista~~^®~~,” “Night Port™,” “oDLC™”~~first half of fiscal 2022.

For the three and ~~“INTEVAC VERTEX™”.~~

six months ended July 2, 2022, the Company’s expenses included approximately $16,000 and $34,000, respectively, due to costs related to actions taken in response to

COVID-19.

For the three and six months ended July 3, 2021, the Company’s expenses included approximately $44,000 and $87,000, respectively, due to costs related to actions taken in response to

COVID-19.

Results of Operations

Net revenues

   Three months ended    Nine months ended
   September 30,
2017    October 1,
2016    Change over
prior period    September 30,
2017    October 1,
2016    Change over
prior period
   (In thousands)
Thin-film Equipment
   $ 17,177    $ 14,272    $ 2,905    $ 61,087    $ 25,941    $ 35,146
Photonics:

Products
   $ 7,360    $ 6,689    $ 671    $ 21,735    $ 21,385    $ 350
Contract R&D
   2,189    1,598    591    5,255    3,816    1,439












   9,549    8,287    1,262    26,990    25,201    1,789












Total net revenues
   $ 26,726    $ 22,559    $ 4,167    $ 88,077    $ 51,142    $ 36,935

~~Thin-film Equipment revenue~~


	Three months ended						Six months ended
	July 2, 2022		July 3, 2021		Change over prior period		July 2, 2022		July 3, 2021		Change over prior period

	(In thousands)
Net revenues	$	9,307	$	5,369	$	3,938	$	13,752	$	14,607	$	(855	)

Revenue for the three months ended ~~September 30, 2017~~July 2, 2022 increased ~~over~~compared to the same period in the prior year as a result of higher sales of technology upgrades, spare parts and ~~spare parts. Thin-film Equipment revenue~~service. Revenue for the ~~three~~six months ended ~~September 30, 2017 included revenue recognized for two 200 LeanHDD systems. Thin-film Equipment revenue for the three months ended October 1, 2016 included two 200 Lean systems and a pilot ENERG~~i ~~solar ion implant tool. Thin-film Equipment revenue for the nine months ended September 30, 2017 increased over~~July 2, 2022 decreased compared to the same period in the prior year as a result of ~~higher~~lower sales of systems, spare parts and service, offset in part by higher sales technology ~~upgrades, service~~upgrades. Revenue for the three months ended July 2, 2022 and ~~spare parts. Thin-film Equipment~~July 3, 2021 did not include revenue recognized for any systems. Revenue for the six months ended July 2, 2022 did not include revenue recognized for any systems compared to revenue recognized on one MATRIX PVD system for advanced semiconductor packaging in the first ~~nine months~~half of fiscal ~~2017 on four 200 LeanHDD systems, one pilot MATRIX solar ion implant system, two ENERG~~i ~~solar ion implant systems and four VERTEX coating systems for DCP. Thin-film Equipment recognized revenue in the first nine months of fiscal 2016 on two 200 LeanHDD systems, one pilot ENERG~~i ~~solar ion implant system and one VERTEX system.~~

Photonics revenue for the three and nine month periods ended September 30, 2017 increased from the same periods in the prior year as a result of higher product sales revenues and by increased contract R&D work.

2021.

Backlog

   September 30,
2017    December 31,
2016    October 1,
2016
   (In thousands)
Thin-film Equipment
   $ 59,375    $ 46,283    $ 49,234
Photonics
   13,457    22,244    23,703






Total backlog
   $ 72,832    $ 68,527    $ 72,937

~~Thin-film Equipment backlog~~


	July 2, 2022		January 1, 2022		July 3, 2021

	(In thousands)
Backlog	$	100,194	$	24,725	$	18,943

Backlog at ~~September 30, 2017~~July 2, 2022 included ~~five~~eleven 200 Lean HDD ~~systems and twelve ENERG~~i ~~solar ion implant~~ systems. ~~Thin-film Equipment backlog~~Backlog at ~~December 31, 2016~~January 1, 2022 included ~~four~~one 200 Lean HDD ~~systems, four VERTEX systems for DCP, one pilot MATRIX solar ion implant system, and two ENERG~~i ~~solar ion implant systems. Thin-film Equipment backlog~~system. Backlog at ~~October 1, 2016 included four~~July 3, 2021 did not include any 200 Lean HDD ~~systems, one MATRIX solar PVD system, three VERTEX systems for DCP, one pilot MATRIX solar ion implant system, and two ENERG~~i ~~solar ion implant~~ systems.

Revenue by geographic region

   Three months ended Nine months ended
   September 30,
2017    October 1,
2016    Change over
prior period September 30,
2017    October 1,
2016    Change over
prior period
   (In thousands)
United States
   $ 10,294    $ 9,066    $ 1,228 $ 29,879    $ 27,603    $ 2,276
Asia
   15,807    13,311    2,496 57,062    22,801    34,261
Europe
   94    182    (88 ) 605    738    (133 )
Rest of World
   531    —      531 531    —      531










Total net revenues
   $ 26,726    $ 22,559    $ 4,167 $ 88,077    $ 51,142    $ 36,935


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021

	(In thousands)
United States	$	1,656	$	2,121	$	1,950	$	2,488
Asia		7,651		3,248		11,802		8,269
Europe		—		—		—		3,850

Total net revenues	$	9,307	$	5,369	$	13,752	$	14,607

International sales include products shipped to overseas operations of U.S. companies. The ~~increase~~decrease in sales to the U.S. region in ~~2017~~the three and six months ended July 2, 2022 versus ~~2016~~the three and six months ended July 3, 2021, reflected lower HDD upgrade sales, offset in part by higher ~~Photonics contract R&D work~~spare parts and ~~higher Photonics product~~service sales. The increase in sales to the Asia region in ~~2017~~the three and six months ended July 2, 2022 versus ~~2016~~the three and six months ended July 3, 2021, reflected higher ~~system~~HDD upgrade, spare parts and service sales. Sales to the Asia region in ~~2017 included four 200 Lean HDD systems, four VERTEX coating systems for DCP, one pilot MATRIX solar ion implant system and two ENERG~~i ~~solar ion implant systems versus two 200 Lean HDD systems, one pilot ENERG~~i ~~solar ion implant tool one and VERTEX coating system in 2016.~~all periods presented did not include any systems. Sales to the Europe region in ~~2017 and 2016 were not significant. Rest~~the six months ended July 3, 2021 included one MATRIX PVD system for advanced semiconductor packaging.

Gross profit

   Three months ended Nine months ended
   September 30,
2017 October 1,
2016 Change over
prior period September 30,
2017 October 1,
2016 Change over
prior period
   (In thousands, except percentages)
Thin-film Equipment gross profit
   $ 7,812 $ 4,628 $ 3,184 $ 25,686 $ 7,337 $ 18,349
% of Thin-film Equipment net revenues
   45.5 % 32.4 % 42.0 % 28.3 %
Photonics gross profit
   $ 3,486 $ 3,887 $ (401 ) $ 10,130 $ 11,160 $ (1,030 )
% of Photonics net revenues
   36.5 % 46.9 % 37.5 % 44.3 %
Total gross profit
   $ 11,298 $ 8,515 $ 2,783 $ 35,816 $ 18,497 $ 17,319
% of net revenues
   42.3 % 37.7 % 40.7 % 36.2 %


	Three months ended								Six months ended
	July 2, 2022			July 3, 2021			Change over prior period		July 2, 2022			July 3, 2021			Change over prior period

	(In thousands, except percentages)
Gross profit	$	4,487		$	1,006		$	3,481	$	5,209		$	3,140		$	2,069
% of net revenues		48.2	%		18.7	%				37.9	%		21.5	%

Cost of net revenues consists primarily of purchased materials, ~~and costs attributable to contract research and development,~~ and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap.

~~Thin-film Equipment gross~~

Gross margin was ~~45.5%~~48.2% in the three months ended ~~September 30, 2017~~July 2, 2022 compared to ~~32.4%~~18.7% in the three months ended ~~October 1, 2016~~July 3, 2021 and was ~~42.0%~~37.9% in the ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 compared to ~~28.3%~~21.5% in the ~~nine~~six months ended ~~October 1, 2016.~~July 3, 2021. The improvement in the gross margin percentage for the three ~~and nine~~ months ended ~~September 30, 2017~~July 2, 2022 compared to the same period in the prior year was due primarily to higher ~~revenue, increased shipments of~~revenues, the higher-margin contribution from HDD upgrades, and higher factory utilization. ~~Thin-film Equipment~~The improvement in the gross margin percentage for the six months ended July 2, 2022 was due primarily to the higher-margin contribution from HDD upgrades, offset in part by $755,000 in charges for excess and obsolete inventory as part of the Company’s realignment effort. Gross margin for the ~~nine~~six months ended ~~September 30, 2017~~July 3, 2021 reflects ~~the release of $2.2 million on previously-recognized inventory provisions upon the sale of two ENERG~~i ~~solar ion implant systems, offset in part by~~ the lower margin on the ~~pilot~~first MATRIX ~~solar ion implant system.~~PVD system for advanced semiconductor packaging. Gross ~~margin for the three and nine months ended October 1, 2016 reflected the lower margin on a pilot ENERG~~i ~~solar implant tool sold to an R&D facility. Gross~~ margins ~~in the Thin-film Equipment business~~ will vary depending on a number of factors, including revenue levels, product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.

~~Photonics gross margin was 36.5% in~~

Research and development expense


	Three months ended							Six months ended
	July 2, 2022		July 3, 2021		Change over prior period			July 2, 2022		July 3, 2021		Change over prior period
1
	(In thousands)
Research and development expense	$	2,868	$	3,118	$	(250	)	$	7,028	$	6,483	$	545

Research and development spending during the three months ended September 30, 2017 compared to 46.9% in the three months ended October 1, 2016 and was 37.5% in the nine months ended September 30, 2017 compared to 44.3% in the nine months ended October 1, 2016. The decline in gross margin for the three months ended September 30, 2017 was due to lower margins on contract R&D, higher inventory provisions and higher manufacturing engineering spending. The lower gross margin for the nine months ended September 30, 2017 was due to loss provisions recorded on firm fixed price contracts, higher inventory provisions and higher manufacturing engineering spending. Gross margins in the Photonics business will vary depending on a number of factors, including sensor yield, product mix, product cost, pricing, factory utilization, provisions for warranty and inventory reserves.

~~Research and development~~

~~Research and development spending in Thin-film Equipment during the three and nine months ended September 30, 2017 increased~~July 2, 2022 decreased compared to the same periods in the prior ~~year. Thin-film Equipment~~year primarily due to savings from cost reduction activities completed in the first quarter of fiscal 2022, offset in part by higher spending ~~consisted primarily of PV and~~on DCP development. ~~Research and development~~R&D spending ~~decreased in Photonics~~ during the ~~three and nine~~six months ended ~~September 30, 2017 as~~July 2, 2022 increased compared to the ~~same periods in the prior year. Photonics spending during the three and nine~~six months ended ~~October 1, 2016 reflected incremental~~July 3, 2021 primarily due to $1.5 million in expenditures related to the disposal of certain lab equipment as part of the realignment effort, offset by lower spending on demonstrators developed for evaluation by the U.S. Army and U.S. Navy which were self-funded by Intevac. Research and development expenses do not include costs of $2.0 million and $4.8 million for the three and nine months ended September 30, 2017 respectively, or $1.0 million and $3.2 million for the three and nine months ended October 1, 2016 respectively, which are related to customer-funded contract R&D ~~programs at Photonics and therefore included in cost of net revenues.~~

programs.

Selling, general and administrative

   Three months ended    Nine months ended
   September 30,
2017    October 1,
2016    Change over
prior period    September 30,
2017    October 1,
2016    Change over
prior period
   (In thousands)
Selling, general and administrative expense
   $ 5,495    $ 4,772    $ 723    $ 17,482    $ 14,724    $ 2,758

expense


	Three months ended							Six months ended
	July 2, 2022		July 3, 2021		Change over prior period			July 2, 2022		July 3, 2021		Change over prior period

	(In thousands)
Selling, general and administrative expense	$	4,016	$	4,197	$	(181	)	$	8,265	$	8,531	$	(266	)

Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expense for the three months ended July 2, 2022 decreased compared to the three months ended July 3, 2021 due to cost savings as a result of the realignment program implemented in the first quarter of fiscal 2022, reimbursement under the TSA, and lower variable compensation expenses, offset in part by higher stock compensation expenses. Selling, general and administrative expense for the six months ended July 2, 2022 decreased compared to the six months ended July 3, 2021 as lower variable compensation expenses, lower stock compensation expenses, and TSA reimbursements were offset

in-part

one-time

severance charges associated with the realignment effort and higher legal and consulting fees. Selling, general and administrative expense for the three and ~~nine~~six months ended ~~September 30, 2017 increased~~July 2, 2022, is net of $394,000 and $1.2 million, respectively in TSA fees earned since the Photonics divestiture. The agreed-upon charges for such services are generally intended to allow the service provider to recover all costs and expenses of providing such services.

Cost reduction plans

re-alignment

effort, the Company will no longer be pursuing several DCP projects including the coating of the backside covers of smartphones, solar ion implantation (also known as ENERGi

), and advanced packaging for semiconductor manufacturing. We incurred restructuring costs of $1.2 million for estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2022 cost reduction plan include: (i) a benefit of $1.3 million related to the stock-based compensation forfeitures related to the employees affected by the reduction in workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost Reduction Plan reduced the workforce by 6 percent. The cost of implementing the 2022 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Implementation of the 2022 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis and reduce depreciation expense by $720,000 on an annual basis.

During the third quarter of fiscal 2021, Intevac substantially completed implementation of the 2021 cost reduction plan (the “2021 Cost Reduction Plan”), which was intended to reduce expenses and reduce its workforce by 5.2 percent. During the first half of 2021, the Company reported costs of $43,000 under the 2021 Cost Reduction Plan of which $9,000 was reported under cost of net revenues and $34,000 was reported under operating expenses. The total cost of implementing the 2021 Cost Reduction Plan was $319,000, of which $224,000 was reported under cost of net revenues and $95,000 was reported under operating expenses during fiscal 2021. Substantially all cash outlays in connection with the 2021 Cost Reduction Plan were completed in the third quarter of fiscal 2021. Implementation of the 2021 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.0 million on an annual basis.

Interest income and other income (expense), net


	Three months ended						Six months ended
	July 2, 2022		July 3, 2021		Change over prior period		July 2, 2022		July 3, 2021		Change over prior period

	(In thousands)
Interest income and other, income (expense), net	$	317	$	20	$	297	$	310	$	50	$	260

Interest income and other income (expense), net in the three months ended July 2, 2022 included $166,000 of interest income on investments, various other income of $11,000 and $140,000 of foreign currency gains. Interest income and other income (expense), net in the six months ended July 2, 2022 included $175,000 of interest income on investments, various other income of $28,000 and $107,000 of foreign currency gains. Interest income and other income (expense), net in the three months ended July 3, 2021 included $10,000 of interest income on investments, various other income of $5,000 and $5,000 of foreign currency gains. Interest income and other income (expense), net in the six months ended July 3, 2021 included $27,000 of interest income on investments and various other income of $25,000, offset in part by $2,000 of foreign currency losses. The increase in interest income in the three and six months ended July 2, 2022 compared to the same periods in the prior year ~~primarily due to~~resulted from higher ~~variable compensation costs as a result of the Company’s return to profitability, increased legal expenses for patent applications~~invested balances and increased spending for strategic consulting. Selling, general and administrative expense for the three months ended September 30, 2017 is net of a benefit of $283,000 compared to a charge of $52,000 for the three months ended October 1, 2016 associated with changes in the fair value of the contingent consideration related to a revenue earnout obligation. Selling, general and administrative expense for the nine months ended September 30, 2017 is net of a benefit of $181,000 compared to a benefit of $90,000 for the nine months ended October 1, 2016 associated with changes in the fair value of the contingent consideration related to the revenue earnout obligation.

~~Interest income and other income (expense), net~~

   Three months ended Nine months ended
   September 30,
2017    October 1,
2016    Change over
prior period September 30,
2017    October 1,
2016    Change over
prior period
   (In thousands)
Interest income and other income (expense), net
   $ 28    $ 60    $ (32 ) $ 265    $ 184    $ 81

~~Interest income and other income (expense), net is comprised of~~higher interest ~~income, foreign currency gains and losses, and other income and expense such as gains and losses on sales of fixed assets and earnout income from divestitures.~~

rates.

Provision for (benefit from) income taxes

   Three months ended Nine months ended
   September 30,
2017    October 1,
2016    Change over
prior period September 30,
2017    October 1,
2016    Change over
prior period
   (In thousands)
Provision for income taxes
   $ 66    $ 217    $ (151 ) $ 805    $ 13    $ 792


	Three months ended							Six months ended
	July 2, 2022		July 3, 2021			Change over prior period		July 2, 2022		July 3, 2021			Change over prior period

	(In thousands)
Provision for (benefit from) income taxes	$	500	$	(165	)	$	665	$	526	$	(132	)	$	658

of $189,000 and $208,000, respectively, and recorded $24,000 and $72,000, respectively, for withholding taxes on royalties paid to the ~~U.S.~~United States from Intevac’s Singapore subsidiary as discrete items. For all periods presented, Intevac utilized net operating loss ~~for~~carry-forwards to offset the three and nine month period ended September 30, 2017 due to having full valuation allowances on the U.S. deferred tax assets. Intevac did not recognize benefits on the U.S. net operating loss or on the Singapore net operating loss for the three and nine month period ended October 1, 2016 due to having full valuation allowances on the U.S. deferred tax assets and on the Singapore deferred tax assets.impact of global intangible

low-taxed

income. Intevac’s tax rate differs from the applicable statutory rates due primarily to the establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors, including the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.

The income tax expense (benefit) consists primarily of income taxes in foreign jurisdictions in which we conduct business and foreign withholding taxes. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss carry-forwards and certain domestic tax credits. Intevac’s effective tax rate differs from the U.S. statutory rate in both 2022 and 2021 primarily due to the Company not recognizing an income tax benefit on the domestic loss.

Loss from discontinued operations, net of taxes


	Three months ended						Six months ended
	July 2, 2022		July 3, 2021		Change over prior period		July 2, 2022		July 3, 2021		Change over prior period

	(In thousands)
Loss from discontinued operations, net of taxes	$	238	$	2	$	236	$	373	$	938	$	(565	)

The loss from discontinued operations consists primarily of the results of operations of the Photonics business which was sold to EOTECH on December 30, 2021. Loss from discontinued operations for the three months ended July 2, 2022 includes contract termination costs associated with certain software maintenance contracts, settlement of the closing net working capital adjustment from the sale of the Photonics business to EOTECH and stock based compensation associated with 16 mutual employees of both the Company and the Buyer that are assisting in the assignment and novation of all government contracts and to sponsor the Buyer’s facility clearance from the Defense Counterintelligence and Security Agency of the U.S. government. Loss from discontinued operations for the six months ended July 2, 2022 includes salaries and wages and employee benefits up to and including January, 4, 2022, the date when employees were conveyed to the Buyer, severance for several employees that were not hired by the Buyer, stock-based compensation expense associated with the acceleration of stock awards, contract termination costs associated with software maintenance agreements, settlement of the net working capital adjustment and incremental legal expenses associated with the divestiture, offset in part by a stock based compensation divestiture-related forfeiture benefit. Loss from discontinued operations for the three and six months ended July 3, 2021 represents the loss from the Photonics division, net of tax.

Liquidity and Capital Resources

At ~~September 30, 2017,~~July 2, 2022, Intevac had ~~$43.4~~$110.2 million in cash, cash equivalents, restricted cash and investments compared to ~~$48.2~~$121.2 million at ~~December 31, 2016.~~January 1, 2022. During the first ~~nine~~six months of ~~2017,~~fiscal 2022, cash, cash equivalents, restricted cash and investments decreased by ~~$4.8~~$11.0 million due primarily to cash used byin operating activities, purchases of fixed assets and tax payments ~~related to the~~on net share ~~settlement of restricted stock units,~~settlements, partially offset by cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans.

Cash, cash equivalents, restricted cash and investments consist of the following:

   September 30,
2017    December 31,
2016
   (In thousands)
Cash and cash equivalents
   $ 19,197    $ 27,043
Short-term investments
   18,037    17,602
Long-term investments
   6,165    3,593




Total cash, cash equivalents and investments
   $ 43,399    $ 48,238


	July 2, 2022		January 1, 2022

	(In thousands)
Cash and cash equivalents	$	53,669	$	102,728
Restricted cash		786		786
Short-term investments		31,168		10,221
Long-term investments		24,565		7,427

Total cash, cash equivalents, restricted cash and investments	$	110,188	$	121,162

Operating activities used cash of ~~$1.7~~$11.4 million during the first ~~nine~~six months of ~~2017~~fiscal 2022 and ~~used~~generated cash of ~~$3.1~~$3.4 million during the first ~~nine~~six months of ~~2016. The improvement in operating cash flows was due primarily to higher net income as a result~~fiscal 2021.

Accounts receivable totaled ~~$22.3~~$30.3 million at ~~September 30, 2017~~July 2, 2022 compared to ~~$17.4~~$14.3 million at ~~December 31, 2016 primarily as a result of billings for third quarter revenue and customer advances. At September 30, 2017, customer~~January 1, 2022. Customer advances for products that had not been shipped to customers and included in accounts receivable were ~~$4.0 million.~~$19.3 million at July 2, 2022 which were collected on July 7, 2022. Net inventories totaled ~~$32.6~~$11.8 million at ~~September 30, 2017~~July 2, 2022 compared to ~~$24.9~~$5.8 million at ~~December 31, 2016. The increase was~~January 1, 2022 due ~~primarily~~ to ~~three Energ~~i systems that were undergoing installation and acceptance testing and included in finished goods at September 30, 2017 and higher levels of production inventories for planned 2017 and 2018 shipments, offset in part by recognition of previously deferred revenue on four VERTEX systems and two Energi ~~systems that were undergoing installation and acceptance testing and included in finished goods at December 31, 2016.~~increased manufacturing activities. Accounts payable ~~totaled $7.0~~decreased to $3.6 million at ~~September 30, 2017 compared to~~July 2, 2022 from $5.3 million at ~~December 31, 2016. The increase was due primarily~~January 1, 2022. Accounts payable at January 1, 2022 included a payable of $2.0 million as a commission to ~~increased materials purchases to support planned shipments.~~the investment banker for the Photonics sale. Accrued payroll and related liabilities ~~increased~~decreased to ~~$5.8~~$3.5 million at ~~September 30, 2017~~July 2, 2022 compared to ~~$4.2~~$5.5 million at ~~December 31, 2016~~January 1, 2022 due primarily to ~~higher accruals for 2017 bonuses and profit sharing due to the return to profitability, offset in part by~~ the settlement of ~~2016~~2021 bonuses. Other accrued liabilities decreased to ~~$7.9~~$3.0 million at ~~September 30, 2017~~July 2, 2022 compared to ~~$17.0~~$3.7 million at ~~December 31, 2016~~January 1, 2022 primarily due ~~primarily~~ to ~~the recognition of previously deferred revenue.~~lower other tax liability balances. Customer advances increased from ~~$5.4~~$2.1 million at ~~December 31, 2016~~January 1, 2022 to ~~$12.3~~$24.8 million at ~~September 30, 2017,~~July 2, 2022 primarily ~~due to the receipt~~as a result of new ~~customer~~ orders.

Investing activities used cash of ~~$6.4~~$39.3 million during the first ~~nine~~six months of ~~2017.~~fiscal 2022. Purchases of investments net of proceeds from sales totaled ~~$3.1~~$38.4 million. Capital expenditures for the ~~nine~~six months ended ~~September 30, 2017~~July 2, 2022 were ~~$3.6 million.~~

$888,000.

Financing activities generated cash of ~~$182,000~~$1.9 million in the first ~~nine~~six months of ~~2017.~~fiscal 2022. The sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans generated cash of ~~$2.3~~$2.2 million. Tax payments related to the net share settlement of restricted stock units were ~~$2.0 million.~~

$295,000.

Intevac’s investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, certificates of deposit, asset-backed securities, commercial paper, municipal bonds and corporate bonds. Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies.

As of ~~September 30, 2017,~~July 2, 2022, approximately ~~$10.9~~$27.7 million of cash and cash equivalents and ~~$3.3~~$2.9 million of ~~short-term~~ investments were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain offshore in the short term. If the Company chose to repatriate these funds to the United States, it would be required to accrue and pay additional taxes on any portion of the repatriation ~~where no United States income tax had been previously provided.~~

~~Intevac believes~~subject to foreign withholding taxes.

We believe that ~~its~~our existing cash, cash equivalents and investments and cash flows from operating activities will be ~~sufficient~~adequate to meet ~~its cash requirements~~our liquidity needs for the next twelve months and for the foreseeable ~~future. Intevac intends to undertake approximately $2.0 million to $3.0 million in~~future beyond the next twelve months. Our significant funding requirements include procurement of manufacturing inventories, operating expenses,

non-cancelable

operating lease obligations, capital expenditures, ~~during~~settlement of the PAGA litigation and variable compensation. We have flexibility over some of these uses of cash, including capital expenditures and discretionary operating expenses, to preserve our liquidity position. Capital expenditures for the remainder of ~~2017.~~

fiscal 2022 are projected to be approximately $3.7 million related to network infrastructure and security, and laboratory and test equipment to support our R&D programs.

Off-Balance

Sheet Arrangements

Off-balance

sheet firm commitments relating to outstanding letters of credit amounted to approximately ~~$1.4 million~~$786,000 as of ~~September 30, 2017.~~July 2, 2022. These letters of credit and bank guarantees are collateralized by ~~$1.4 million~~$786,000 of restricted cash. We do not maintain any other

off-balance

sheet arrangements, transactions, obligations, or other relationships that would be expected to have a material current or future effect on the consolidated financial statements.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. Intevac’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of Intevac’s Annual Report on Form

10-K

for the year ended January 1, 2022, filed with the SEC on February ~~15, 2017.~~17, 2022. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of Intevac’s financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on Intevac’s financial conditions and results of operations. Specifically, critical accounting estimates have the following attributes: 1) Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates Intevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on Intevac’s financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as Intevac’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they become known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Many of these uncertainties are discussed in the section below entitled “Risk Factors.” Based on a critical assessment of Intevac’s accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that Intevac’s consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation of Intevac’s financial condition and results of ~~operation.~~

~~For further information about Intevac’s other~~operations.

There have been no material changes to our critical accounting policies ~~see the discussion of critical accounting policies in Intevac’s 2016 Form10-K.~~ Beginning January 1, 2017, Intevac accounts for forfeitures on stock-based compensation as they occur, rather than estimate expected forfeitures. Except for the change in accounting policy for the timing of recognition of forfeitures, management believes that there have been no significant changes during the ~~nine~~six months ended ~~September 30, 2017 to the items identified as critical accounting policies in Intevac’s 2016 Form10-K.~~

July 2, 2022.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

~~Interest rate risk.~~~~Intevac’s exposure~~

Not applicable to market risk for changes in interest rates relates primarily to its investment portfolio. Intevac does not use derivative financial instruments in Intevac’s investment portfolio. The Company has adopted an investment policy and established guidelines relating to credit quality, diversification and maturities of its investments in order to preserve principal and maintain liquidity. All investment securities in Intevac’s portfolio have an investment grade credit rating. Investments typically consist of certificates of deposit, commercial paper, obligations of the U.S. government and its agencies, corporate debt securities and municipal bonds.

~~The table below presents principal amounts and related weighted-average interest rates by year of expected maturity for Intevac’s investment portfolio at September 30, 2017.~~

   2017 2018 2019 Total    Fair
Value
   (In thousands, except percentages)
Cash equivalents Variable rate amounts
   $ 5,038 $ —   $ —   $ 5,038    $ 5,038
Weighted-average rate
   0.93 % —   —
Short-term investments Fixed rate amounts
   $ 6,247 $ 11,797 $ —   $ 18,044    $ 18,037
Weighted-average rate
   1.49 % 1.37 % —
Long-term investments Fixed rate amounts
   $ —   $ 598 $ 5,574 $ 6,172    $ 6,165
Weighted-average rate
   —   1.00 % 1.87 %
Total investment portfolio
   $ 11,285 $ 12,395 $ 5,574 $ 29,254    $ 29,240

~~Foreign exchange risk.~~~~From time to time, Intevac enters into foreign currency forward exchange contracts to hedge certain of its anticipated foreign currencyre-measurement~~ exposures and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. The objective of these contracts is to minimize the impact of foreign currency exchange rate movements on Intevac’s operating results. The derivatives have original maturities of approximately 30 days. The notional amount of Company’s foreign currency derivatives was $1.4 million at September 30, 2017 and $1.1 million at December 31, 2016.

smaller reporting companies.

Item 4.

Controls and Procedures

Evaluation of ~~disclosure controls~~Disclosure Controls and ~~procedures~~

Procedures

Intevac maintains a set of disclosure controls and procedures that are designed to ensure that information relating to Intevac required to be disclosed in periodic filings under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported in a timely manner under the Exchange Act. In connection with the filing of this Quarterly Report on Form

10-Q

for the quarter ended ~~September 30, 2017,~~July 2, 2022, as required under Rule~~13a-15(b)~~

13a-15(e)

of the Exchange Act, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the ~~“CEO” and~~ “CFO”), of the effectiveness of Intevac’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, Intevac’s ~~Chief Executive Officer~~CEO and ~~Chief Financial Officer~~CFO concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017.~~

July 2, 2022.

Attached as exhibits to this Quarterly Report on Form

10-Q

are certifications of the CEO and the CFO, which are required in accordance with Rule

13a-14

of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of disclosure controls

Disclosure ~~Controls~~controls are controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form

10-Q,

is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure ~~Controls~~controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our ~~Disclosure Controls~~disclosure controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within our ~~Disclosure Controls,~~disclosure controls, they are included in the scope of our quarterly controls evaluation.

Limitations on the effectiveness of controls

Intevac’s management, including the CEO and CFO, does not expect that Intevac’s ~~Disclosure Controls~~disclosure controls or Intevac’s internal control over financial reporting will prevent all ~~error~~errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Intevac have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in internal ~~controls~~control over financial reporting

There were no changes in our internal ~~controls~~control over financial reporting that occurred during the period covered by this Quarterly Report on Form

10-Q

that have materially affected, or are reasonably likely to materially affect, Intevac’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, Intevac is involved in claims and legal proceedings that arise in the ordinary course of business. Intevac expects that the number and significance of these matters will increase as Intevac’s business expands. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us or at all. Intevac is not presently a party to any lawsuit or proceeding that, in Intevac’s opinion, is likely to seriously harm Intevac’s business.

For a description of our material pending legal proceedings, see Note 14 “Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

10-Q.

See also “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form

10-Q.

Item 1A.

Risk Factors

The following factors could materially affect Intevac’s business, financial condition or results of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

Risks Related to Our Business

The industries we serve are cyclical, volatile and unpredictable.

A significant portion of our revenue is derived from the sale of equipment used to manufacture commodity technology products such as disk drives ~~PV solar cells~~ and cell phones. This subjects us to business cycles, the timing, length and volatility of which can be difficult to predict. When demand for commodity technology products exceeds production capacity, then demand for new capital equipment such as ours tends to be amplified. Conversely, when supply of commodity technology products exceeds demand, then demand for new capital equipment such as ours tends to be depressed. For example, sales of systems for magnetic disk production were depressed from late 2007 through 2009. The number of new systems delivered increased in 2010 as customers increased their production capacity in response to increased demand for data storage, but decreased in 2011 through 2015 as the hard disk drive industry did not add the same level of capacity that it did in 2010. We cannot predict with any certainty when these cycles will begin or end. ~~Our~~For example, our sales of systems for magnetic disk production increased ~~modestly~~ in 2016 as a customer ~~upgraded~~began upgrading the technology level of its manufacturing capacity. ~~2017 sales~~Sales of systems and upgrades for magnetic disk production ~~to date have been~~in 2017 and 2018 were higher than in 2016 as this customer’s technology upgrade continued. However, sales of systems and upgrades for magnetic disk production in 2019, 2020 and 2021 were down from the levels in 2018 as this customer took delivery of fewer or no (in the case of 2021) systems. Intevac expects sales of systems and ~~we anticipate~~upgrades for magnetic disk production in 2022 will be at levels similar to the ~~trend will continue for the remainder of 2017.~~

levels in 2021.

Our equipment represents only a portion of the capital expenditure that our customers incur when they upgrade or add production capacity. Accordingly, our customers generally commit to making large capital expenditures far in excess of the cost of our systems alone when they decide to purchase our systems. The magnitude of these capital expenditures requires our customers to have access to large amounts of capital. Our customers generally reduce their level of capital investment during downturns in the overall economy or during a downturn in their industries.

~~In recent years~~ Reductions in capital investment could be particularly pronounced as the ~~photovoltaic (solar) market has undergone a downturn, which is likely to impact our sales~~cost of ~~PV equipment. The solar industry from time to time experiences~~obtaining capital increases during periods of structural imbalance between supply and demand. And such periods put intense pressure on our customers’ pricing. The solar industry is currently in such a period. Competition in solar markets globally and across the solar value chain is intense, and could remain that way for an extended period of time. During any such period, solar module manufacturers may reduce their sales prices in response to competition, even below their manufacturing costs, in order to generate sales and may do so for a sustained period of time. As a result, our customers may be unable to sell their solar modules or systems at attractive prices or for a profit during a period of excess supply of solar modules, which would adversely affect their results of operations and their ability to make capital investments such as purchasing our products.

rapidly rising interest rates.

We must effectively manage our resources and production capacity to meet rapidly changing demand. Our business experiences rapid growth and contraction, which stresses our infrastructure, internal systems and managerial resources. During periods of increasing demand for our products, we must have sufficient manufacturing capacity and inventory to meet customer demand; attract, retain and motivate a sufficient number of qualified individuals; and effectively manage our supply chain. During periods of decreasing demand for our products, we must be able to align our cost structure with prevailing market conditions; motivate and retain key employees and effectively manage our supply chain.

Sales of new manufacturing systems are also dependent on obsolescence and replacement of the installed base of our customers’ existing equipment with newer, more capable equipment. If upgrades are developed that extend the useful life of the installed base of systems, then we tend to sell more upgrade products and fewer new systems, which can significantly reduce total revenue. ~~For example, some of our~~

Our 200 Lean ~~customers continue to use legacy systems for the production of perpendicular media, which delayed the replacement of such systems with new 200 Lean systems.~~

~~Our 200 Lean~~HDD customers also experience competition from companies that produce alternative storage technologies like flash memory, which offer smaller size, lower power consumption and more rugged designs. These storage technologies are being used increasingly in enterprise applications and smaller form factors such as tablets, smart-phones, ultra-books, and notebook PCs instead of hard disk drives. Tablet computing devices and smart-phones have never contained, nor are they likely in the future to contain, a disk drive. Products using alternative technologies, such as flash memory, optical storage and other storage technologies are becoming increasingly common and could become a significant source of competition to particular applications of the products of our 200 Lean HDD customers, which could adversely affect our results of operations. If alternative technologies, such as flash memory, replace hard disk drives as a significant method of digital storage, then demand for our hard disk manufacturing products would decrease.

The Photonics business is also subject to long sales cycles because many of its products, such as our military imaging products, often must be designed into the customers’ end products, which are often complex~~state-of-the-art~~ products. These development cycles are typically multi-year, and our sales are contingent on our customers successfully integrating our product into their product, completing development of their product and then obtaining production orders for their product from the U.S. government or its allies.

We operate in an intensely competitive marketplace, and our competitors have greater resources than we do.

In the market for our disk sputtering systems, we experience competition primarily from Canon Anelva, which has sold a substantial number of systems worldwide. In the PV equipment market, Intevac faces competition from large established competitors including Applied Materials, Centrotherm Photovoltaics, Amtech, Jusung and Von Ardenne. In the market for our military imaging products we experience competition from companies such as Harris Corporation and~~L-3~~ ~~Communications.~~ Some of our competitors have substantially greater financial, technical, marketing, manufacturing and other resources than we do, especially in the DCP ~~and PV~~ equipment ~~markets.~~market. Our competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features, and new competitors may enter our markets and develop such enhanced products. Moreover, competition for our customers is intense, and our competitors have historically offered substantial pricing concessions and incentives to attract our customers or retain their existing customers.

We are exposed to risks associated with a highly concentrated customer base.

Historically, a significant portion of our revenue in any particular period has been attributable to sales of our disk sputtering systems to a limited number of customers. Our reliance on sales to relatively few customers has increased with the disposition of our Photonics business, and we expect that sales of our products to relatively few customers will continue to account for a high percentage of our revenues in the foreseeable future. This concentration of customers, when combined with changes in the customers’ specific capacity plans and market share shifts can lead to extreme variability in our revenue and financial results from period to period.

The concentration of our customer base may enable our customers to demand pricing and other terms unfavorable to Intevac and makes us more vulnerable to changes in demand by or issues with a given customer. Orders from a relatively limited number of manufacturers have accounted for, and will likely continue to account for, a substantial portion of our revenues. The loss of one of these large customers, or delays in purchasing by them, would have a material and adverse effect on our revenues.

Our operating results fluctuate significantly from quarter to quarter, which can lead to volatility in the price of our common stock.

Our quarterly revenues and common stock price have fluctuated significantly. We anticipate that our revenues, operating margins and common stock price will continue to fluctuate for a variety of reasons, including: (1) changes in the demand, due to seasonality, cyclicality and other factors in the markets for computer systems, storage subsystems and consumer electronics containing disks as well as cell phones our customers produce with our systems; (2) delays or problems in the introduction and acceptance of our new products, or delivery of existing products; (3) timing of orders, acceptance of new systems by our customers or cancellation or delay of those orders; (4) new products, services or technological innovations by our competitors or us; (5) changes in our manufacturing costs and operating expense; (6) changes in general economic, political, stock market and industry conditions; and (7) any failure of our operating results to meet the expectations of investment research analysts or investors.

Any of these, or other factors, could lead to volatility and/or a rapid change in the trading price of our common shares. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against Intevac, could result in substantial costs and diversion of management time and attention.

Our success depends on international sales and the management of global operations.

In previous years, the majority of our revenues have come from regions outside the United States. Most of our international sales are to customers in Asia, which includes products shipped to overseas operations of U.S. companies. We currently have manufacturing facilities in California and Singapore and international customer support offices in Singapore, China, and Malaysia. We expect that international sales will continue to account for a significant portion of our total revenue in future years. Certain of our suppliers are also located outside the United States.

regarding possible national commercial and/or security issues posed by growing manufacturing business in Asia; (4) fluctuation of interest rates, raw material costs, labor and operating costs, and exchange rates; (5) variations in the ability to develop relationships with suppliers and other local businesses; (6) changes in the laws and regulations of the United States, including export restrictions, and other countries, as well as their interpretation and application; (7) the need to provide technical and spare parts support in different locations; (8) political and economic instability; (9) cultural differences; (10) varying government incentives to promote development; (11) shipping costs and delays; (12) adverse conditions in credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.
We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues.
Our success is dependent on recruiting and retaining a highly talented work force.
Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject to
non-competition
agreements and other restrictions.
The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property

Our growth depends on development of technically advanced new products and processes.

We have invested heavily, and continue to invest, in the development of new products, such as our 200 Lean HDD and ~~other PVD systems,~~ our coating systems for ~~DCP, our solar systems for PV applications, our digital night-vision products and ournear-eye~~ ~~display products.~~DCP. Our success in developing and selling new products depends upon a variety of factors, including our ability to: predict future customer requirements; make technological advances; achieve a low total cost of ownership for our products; introduce new products on schedule; manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and achieve acceptable and reliable performance of our new products in the field. Our new product decisions and development commitments must anticipate continuously evolving industry requirements significantly in advance of sales. In addition, we are attempting to expand into new or related markets, including the ~~PV and cell phone~~display cover glass ~~markets.~~market. Our expansion into the PVcover glass market is dependent upon the success of our customers’ development plans. To date we have not recognized material revenue from such products. Failure to correctly assess the size of the ~~markets,~~market, to successfully develop cost effective products to address the ~~markets~~market or to establish effective sales and support of the new products would have a material adverse effect on future revenues and profits. In addition, if we invest in products for which the market does not develop as anticipated, we may incur significant charges related to such investments.

Rapid technological change in our served markets requires us to rapidly develop new technically advanced products. Our future success depends in part on our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance and payment for new products and additional service and warranty expenses.

~~We are exposed to risks associated with a highly concentrated customer base.~~

~~Historically, a significant portion~~

Our business depends on the integrity of our ~~revenue in any particular period has been attributable to sales~~intellectual property rights.

The success of our ~~disk sputtering systems~~business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to ~~a limited number of customers. This concentration of customers, when combined with changes~~us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.

From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the ~~customers’ specific capacity plans and market share shifts, can lead~~future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to ~~extreme variability~~our products. Any claims, with or without merit, could be time-consuming, result in ~~our revenue and financial results from period to period.~~

The concentration of our customer base may enable our customers to demand pricing and other terms unfavorable to Intevac, and makes us more vulnerable to changes in demand by a given customer. Orders from a relatively limited number of manufacturers have accounted for, and will likely continue to account for, a substantial portion of our revenues. The loss of one of these large customers, or delays in purchasing by them, could have a material and adverse effect on our revenues.

~~Our operating results fluctuate significantly from quarter to quarter, which can lead to volatility in the price of our common stock.~~

Our quarterly revenues and common stock price have fluctuated significantly. We anticipate that our revenues, operating margins and common stock price will continue to fluctuate for a variety of reasons, including: (1) changes in the demand, due to seasonality, cyclicality and other factors in the markets for computer systems, storage subsystems and consumer electronics containing disks as well as cell phones and PV solar cells our customers produce with our systems; (2)costly litigation, cause product shipment delays or ~~problems in the introduction and acceptance~~require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.

Risks Related to ~~meet the expectations of investment research analysts or investors.~~

Government Regulation

We may not be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.

Many of our ~~products, especially Photonics~~ products, require export licenses from U.S. government agencies under the Export Administration ~~Act, the Trading with the Enemy Act of 1917, the Arms Export Act of 1976 or the International Traffic in Arms Regulations.~~Act. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export licenses for defense related products has resulted in lengthened review periods for our license applications. ~~Exports to countries that are not considered by the U.S. government to be allies are likely to be prohibited, and even sales to U.S. allies may be limited.~~ Failure to comply with export control laws, including identification and reporting of all exports and

re-exports

of controlled technology or exports made without correct license approval or improper license use could result in severe penalties and revocation of licenses. Failure to obtain export licenses, delays in obtaining licenses, or revocation of previously issued licenses would prevent us from selling the affected products outside the United States and could negatively impact our results of operations.

~~The Photonics business is dependent on U.S. government contracts, which~~

We are subject to ~~fixed pricing, immediate termination~~risks of
non-compliance
with environmental and other governmental regulations.

We are subject to a ~~number~~variety of ~~procurement rules and regulations.~~

~~We sell our Photonics products and services directly~~governmental regulations relating to the ~~U.S. government, as well as~~use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to ~~prime contractors for various U.S. government programs. The U.S government~~comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment and incur substantial expenses to comply with them.

In addition, climate change legislation is ~~considering~~a significant ~~changes~~topic of recent discussion and has generated and may continue to generate federal, international or other regulatory responses in the ~~level~~near future. If we or our suppliers, customers or partners fail to timely comply with applicable legislation, certain customers may refuse to purchase our products or we may face increased operating costs as a result of ~~existing,follow-on~~taxes, fines or ~~replacement programs. We cannot predict the impact of potential changes in priorities due to military transformations and/~~penalties, or ~~the nature of futurewar-related~~ ~~activities. A shift of government priorities to programs in~~incur legal liability and reputational damage, which ~~we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs~~could harm our business, financial condition and ~~opportunities, could have a material adverse effect on our financial position,~~ results of ~~operations,~~operations.

General Risk Factors

Our business could be negatively impacted by cyber and other security threats or ~~cash flows.~~

~~Funding of multi-year government programs is subject~~disruptions.

We face various cyber and other security threats, including attempts to ~~congressional appropriations,~~gain unauthorized access to sensitive information and ~~there is no guarantee that~~networks. Although we utilize various procedures and controls to monitor and mitigate the U.S. government will make further appropriations, particularly given the U.S. government’s recent focus on spending in other areas and spending reductions. Sales to the U.S. government and its prime contractors may also be affected by changes in procurement policies, budget considerations and political developments in the United States or abroad. For example, if the U.S. government is less focused on defense spending or there is a decrease in hostilities, demand for our products could decrease. The loss of funding for a government program would result in a loss of future revenues attributable to that program. The influence of anyrisk of these ~~factors, which~~threats, there can be no assurance that these procedures and controls will be sufficient. These threats could lead to losses of sensitive information or capabilities; financial liabilities and damage to our reputation. If we are ~~beyond~~unable to maintain compliance with security standards applicable to defense contractors, we could lose business or suffer reputational harm. Cyber threats to businesses are evolving and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in our ~~control, could negatively impact our results~~systems, unauthorized release of ~~operations.~~

~~A significant portion~~confidential, personal or otherwise protected information (ours or that of our ~~U.S. government revenue is derived from fixed-price development~~employees, customers or partners), and ~~production contracts. Under fixed-price contracts, unexpected increases in the cost to develop~~corruption of data, networks or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, reduced production volumes, inefficiencies or other factors, are borne by us.systems. We have experienced ~~cost overruns in~~cybersecurity threats and incidents involving our systems and expect these incidents to continue. While none of the ~~past that~~cybersecurity events have ~~resulted in losses on certain contracts, and may experience additional cost overruns in the future. We are required~~been material to ~~recognize the total estimated impact of cost overruns in the period in which they are first identified. Such cost overruns~~date, a successful breach or attack could have a material adverse effect on our results of ~~operations.~~

~~Generally, government contracts contain provisions permitting termination,~~operations, financial condition or business, harm our reputation and relationships with our customers, business partners, employees or other third parties, and subject us to consequences such as litigation and direct costs associated with incident response. In addition, we could be impacted by cyber threats or other disruptions or vulnerabilities found in ~~whole~~products we use or in ~~part, without prior notice at the government’s convenience upon the payment~~our partners’ or customers’ systems that are used in connection with our business. These events, if not prevented or effectively mitigated, could damage our reputation, require remedial actions and lead to loss of ~~compensation only for work done~~business, regulatory actions, potential liability and commitments made at the time of termination. We cannot ensure that one or more of the government contracts under which we, or our customers, operate will not be terminated under these circumstances. Also, we cannot ensure that we, or our customers, would be able to procure new government contracts to offset the revenues lost as a result of any termination of existing contracts, nor can we ensure that we, or our customers, will continue to remain in good standing as federal contractors.

As a U.S. government contractor we must comply with specific government rules and regulations and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, the results could include: (1) reductions in the value of our contracts; (2) reductions in amounts previously billed and recognized as revenue; (3) contract modifications or termination; (4) the assessment of penalties and fines; and (5) suspension or debarment from government contracting or subcontracting for a period of time or permanently.

other financial losses.

Changes to our effective tax rate affect our results of operations.

As a global company, we are subject to taxation in the United States, Singapore and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future effective tax rate could be affected by: (1) changes in tax laws; (2) the allocation of earnings to countries with differing tax rates; (3) changes in worldwide projected annual earnings in current and future years: (4) accounting pronouncements; or (5) changes in the valuation of our deferred tax assets and liabilities. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be different from the treatment reflected in our historical income tax provisions and accruals, which could result in additional payments by Intevac.

~~Our success depends on international sales and the management of global operations.~~

Managing our global operations presents challenges including, but not limited to, those arising from: (1) global trade issues; (2) variations in protection of intellectual property and other legal rights in different countries; (3) concerns of U.S. governmental agencies regarding possible national commercial and/or security issues posed by growing manufacturing business in Asia; (4) fluctuation of interest rates, raw material costs, labor and operating costs, and exchange rates; (5) variations in the ability to develop relationships with suppliers and other local businesses; (6) changes in the laws and regulations of the United States, including export restrictions, and other countries, as well as their interpretation and application; (7) the need to provide technical and spares support in different locations; (8) political and economic instability; (9) cultural differences; (10) varying government incentives to promote development; (11) shipping costs and delays; (12) adverse conditions in credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.

~~We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues.~~

Difficulties in integrating past or future acquisitions or implementing strategic divestitures could adversely affect our business.

We have completed a number of acquisitions and dispositions during our operating history. For example, in 2007, we acquired certain assets of DeltaNu, LLC and certain assets of Creative Display Systems, LLC, in 2008 we acquired certain assets of OC Oerlikon Balzers Ltd., in 2010 we acquired the outstanding shares of SIT, in 2012 we completed the sale of certain semiconductor mainframe technology assets and in 2013 we completed the sale of the assets of DeltaNu. We have spent and may continue to

spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in integrating the operations, technologies and products of the acquired ~~companies or achieving the desires outcomes;~~companies; (2) the diversion of our management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of the prior and any future acquisitions or to successfully integrate the operations of the companies we acquire could have a material and adverse effect on our business, financial condition and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities. In addition, we have made and will continue to consider making strategic ~~divestitures.~~divestitures, such as the disposition of our Photonics business. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings or earnout payments associated with the financial performance of the divested business, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.

~~We may be subject to additional impairment charges due to potential declines in the fair value of our assets.~~

As a result of our acquisitions, we have significant intangible assets and had significant goodwill on our balance sheet. We test these assets for impairment on a periodic basis as required, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The events or changes that could require us to test our intangible assets for impairment include: a significant reduction in our stock price, and as a result market capitalization, changes in our estimated future cash flows, as well as changes in rates of growth in our industry or in any of our reporting units. In the fourth quarter of 2012, as a result of a decline in our market capitalization and a reduction in our revenue expectations we recorded a goodwill impairment charge in the amount of $18.4 million. We will continue to evaluate the carrying value of our intangible assets and if we determine in the future that there is a potential further impairment, we may be required to record additional charges to earnings which could materially adversely affect our financial results and could also materially adversely affect our business.

~~Our success is dependent on recruiting and retaining a highly talented work force.~~

Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel, and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject to~~non-competition~~ ~~agreements and other restrictions.~~

The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.

~~We are dependent on certain suppliers for parts used in our products.~~

We are a manufacturing business. Purchased parts constitute the largest component of our product cost. Our ability to manufacture depends on the timely delivery of parts, components and subassemblies from suppliers. We obtain some of the key components and subassemblies used in our products from a single supplier or a limited group of suppliers. If any of our suppliers fail to deliver quality parts on a timely basis, we may experience delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of our products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure.

~~Our business depends on the integrity of our intellectual property rights.~~

The success of our business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.

From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to our products. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.

We could be involved in litigation.

From time to time, we may be involved in litigation of various types, including litigation alleging infringement of intellectual property rights and other ~~claims.~~claims and customer disputes. For example, we recently settled an action against us under the Private Attorneys General Act for $1.0 million, pending approval by the court. Litigation is expensive, subjects us to the risk of significant damages and requires significant management time and attention and could have a material and adverse effect on our business, financial condition and results of operations.

~~We are subject to risks ofnon-compliance~~ ~~with environmental and other governmental regulations.~~

We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment and to incur substantial expenses to comply with them.

We are also subject to a variety of other governmental regulations and may incur significant costs associated with the compliance with these regulations. For example rules adopted by the SEC to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act impose diligence and disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in the products we manufacture. Compliance with these regulations is likely to result in additional costs and expenses or may affect the sourcing and availability of the components used in the products we manufacture.

Business interruptions could adversely affect our operations.

Our operations are vulnerable to interruption by fire, earthquake, floods or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist activities, war, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error, physical

or electronic security breaches and computer viruses, and other events beyond our control. We do not have a detailed disaster recovery plan. Despite our implementation of network security measures, our tools and servers may be vulnerable to computer viruses,

break-ins

and similar disruptions from unauthorized tampering with our computer systems and tools located at customer sites. Political instability could cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs or cause international currency markets to fluctuate. All these unforeseen disruptions and instabilities could have the same effects on our suppliers and their ability to timely deliver their products. In addition, we do not carry sufficient business interruption insurance to compensate us for all losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business and results of operations. For example, we self-insure earthquake risks because we believe this is the prudent financial decision based on the high cost of the limited coverage available in the earthquake insurance market. An earthquake could significantly disrupt our operations, most of which are conducted in California. It could also significantly delay our research and engineering effort on new products, most of which is also conducted in California. We take steps to minimize the damage that would be caused by business interruptions, but there is no certainty that our efforts will prove successful.

We could be negatively affected as a result of a proxy contest and the actions of activist stockholders.

A proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: ~~(i)~~(1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; ~~(ii)~~(2) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and ~~(iii)~~(3) if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management must perform evaluations of our internal control over financial reporting. ~~Beginning in 2004, our Form10-K~~ has included a report by management of their assessment of the adequacy of such internal control. Additionally, our independent registered public accounting firm must publicly attest to the effectiveness of our internal control over financial reporting.

~~We have completed the evaluation of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.~~ Although our assessment, testing, and evaluation resulted in our conclusion that as of ~~December 31, 2016,~~January 1, 2022, our internal ~~controls~~control over financial reporting ~~were~~was effective, we cannot predict the outcome of our testing in future periods. Ongoing compliance with this requirement is complex, costly and time-consuming. If Intevac fails to maintain effective internal control over financial reporting; or our management does not timely assess the adequacy of such internal ~~control; or our independent registered public accounting firm does not deliver an unqualified opinion as to the effectiveness of our internal~~ control, ~~over financial reporting,~~ then we could be subject to restatement of previously reported financial results, regulatory sanctions and a decline in the public’s perception of Intevac, which could have a material and adverse effect on our business, financial condition and results of operations.


	September 30, 2017			December 31, 2016
	(Unaudited)
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	19,197		$	27,043
Short-term investments		18,037			17,602
Trade and other accounts receivable, net of allowances of $0 at both September 30, 2017 and at December 31, 2016		22,311			17,447
Inventories		32,581			24,876
Prepaid expenses and other current assets		2,825			1,768

Total current assets		94,951			88,736
Property, plant and equipment, net		12,509			11,237
Long-term investments		6,165			3,593
Restricted cash		1,400			1,602
Intangible assets, net of amortization of $6,725 at September 30, 2017 and $6,129 at December 31, 2016		1,662			2,258
Deferred income taxes and other long-term assets		745			898

Total assets	$	117,432		$	108,324

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,036		$	5,323
Accrued payroll and related liabilities		5,781			4,220
Other accrued liabilities		7,856			17,011
Customer advances		12,347			5,422

Total current liabilities		33,020			31,976
Other long-term liabilities		2,994			3,082
Stockholders’ equity:
Common stock, $0.001 par value		22			21
Additionalpaid-in capital		176,282			171,314
Treasury stock, 4,845 shares at both September 30, 2017 and December 31, 2016		(28,489	)		(28,489	)
Accumulated other comprehensive income		443			321
Accumulated deficit		(66,840	)		(69,901	)

Total stockholders’ equity		81,418			73,266

Total liabilities and stockholders’ equity	$	117,432		$	108,324


	Three Months Ended					Nine Months Ended
	September 30, 2017		October 1, 2016			September 30, 2017		October 1, 2016
	(Unaudited)
	(In thousands, except per share amounts)
Net revenues:
Systems and components	$	24,537	$	20,961		$	82,822	$	47,326
Technology development		2,189		1,598			5,255		3,816

Total net revenues		26,726		22,559			88,077		51,142
Cost of net revenues:
Systems and components		13,402		13,025			47,419		29,490
Technology development		2,026		1,019			4,842		3,155

Total cost of net revenues		15,428		14,044			52,261		32,645

Gross profit		11,298		8,515			35,816		18,497
Operating expenses:
Research and development		4,535		4,067			13,635		14,220
Selling, general and administrative		5,495		4,772			17,482		14,724

Total operating expenses		10,030		8,839			31,117		28,944

Income (loss) from operations		1,268		(324	)		4,699		(10,447	)
Interest income and other income (expense), net		28		60			265		184

Income (loss) before income taxes		1,296		(264	)		4,964		(10,263	)
Provision for income taxes		66		217			805		13

Net income (loss)	$	1,230	$	(481	)	$	4,159	$	(10,276	)

Net income (loss) per share:
Basic	$	0.06	$	(0.02	)	$	0.19	$	(0.50	)
Diluted	$	0.05	$	(0.02	)	$	0.18	$	(0.50	)
Weighted average common shares outstanding:
Basic		21,714		20,869			21,475		20,704
Diluted		22,970		20,869			22,989		20,704


	September 30,		December 31,
	2017		2016
	(In thousands)
Raw materials	$	16,385	$	10,290
Work-in-progress		12,452		6,470
Finished goods		3,744		8,116

	$	32,581	$	24,876


	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
	(In thousands)
Equity-based compensation by type of award:
Stock options	$	350	$	211	$	808	$	696
RSUs		731		543		1,943		1,657
ESPP awards		67		151		261		543

Total equity-based compensation	$	1,148	$	905	$	3,012	$	2,896


	Shares			Weighted Average Exercise Price
Options outstanding at December 31, 2016		2,740,364		$	7.00
Options granted		413,075		$	12.33
Options cancelled and forfeited		(61,753	)	$	12.07
Options exercised		(115,273	)	$	6.88

Options outstanding at September 30, 2017		2,976,413		$	7.64

Options exercisable at September 30, 2017		2,127,940		$	7.16


	Shares			Weighted Average Grant Date Fair Value
Non-vested RSUs at December 31, 2016		949,455		$	4.64
Granted		363,846		$	11.44
Vested		(500,621	)	$	4.46
Cancelled and forfeited		(14,292	)	$	7.97

Non-vested RSUs at September 30, 2017		798,388		$	7.79


	Nine Months Ended October 1, 2016
Weighted-average fair value of grants per share	$	2.46
Expected volatility		47.65	%
Risk free interest rate		1.35	%
Expected term (in years)		4.79
Dividend yield		None


	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Equipment	$	7,172	$	(5,648	)	$	1,524
Photonics		1,215		(1,077	)		138

	$	8,387	$	(6,725	)	$	1,662


	Quantitative Information about Level 3 Fair Value Measurements at September 30, 2017
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(In thousands, except for percentages)
Revenue Earnout	$	404	Discounted cash flow	Weighted average cost of capital Probability weighting of achieving revenue forecasts	11.9% 10.0% - 80.0% (30.0%)


	September 30, 2017		December 31, 2016
	(In thousands)
Other accrued liabilities	$	915	$	829
Other long-term liabilities		220		178

Total warranty provision	$	1,135	$	1,007


	September 30, 2017
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(In thousands)
Cash and cash equivalents:
Cash	$	14,159	$	—	$	—	$	14,159
Money market funds		5,038		—		—		5,038

Total cash and cash equivalents	$	19,197	$	—	$	—	$	19,197
Short-term investments:
Certificates of deposit	$	4,498	$	1	$	1	$	4,498
Commercial paper		1,990		—		—		1,990
Corporate bonds and medium-term notes		6,252		1		5		6,248
Municipal bonds		1,004		—		3		1,001
U.S. treasury and agency securities		4,300		—		—		4,300

Total short-term investments	$	18,044	$	2	$	9	$	18,037
Long-term investments:
Corporate bonds and medium-term notes	$	3,576	$	—	$	3	$	3,573
U.S. treasury and agency securities		2,596		—		4		2,592

Total long-term investments	$	6,172	$	—	$	7	$	6,165

Total cash, cash equivalents, and investments	$	43,413	$	2	$	16	$	43,399


	December 31, 2016
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	18,726	$	—	$	—	$	18,726
Money market funds		8,317		—		—		8,317

Total cash and cash equivalents	$	27,043	$	—	$	—	$	27,043
Short-term investments:
Commercial paper	$	1,992	$	—	$	1	$	1,991
Corporate bonds and medium-term notes		8,586		—		6		8,580
Municipal bonds		600		—		—		600
U.S. treasury and agency securities		6,432		—		1		6,431

Total short-term investments	$	17,610	$	—	$	8	$	17,602
Long-term investments:
Corporate bonds and medium-term notes	$	2,510	$	—	$	11	$	2,499
Municipal bonds		500		—		4		496
U.S. treasury and agency securities		597		1		—		598

Total long-term investments	$	3,607	$	1	$	15	$	3,593

Total cash, cash equivalents, and investments	$	48,260	$	1	$	23	$	48,238


	September 30, 2017
	In Loss Position for Less than 12 Months				In Loss Position for Greater than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)
Certificates of deposit	$	1,249	$	1	$	—	$	—
Corporate bonds and medium-term notes		5,882		7		1,200		1
Municipal bonds		504		1		497		2
U.S. treasury and agency securities		4,118		4		—		—

	$	11,753	$	13	$	1,697	$	3


	2017			2018			2019			Total		Fair Value
	(In thousands, except percentages)
Cash equivalents Variable rate amounts	$	5,038		$	—		$	—		$	5,038	$	5,038
Weighted-average rate		0.93	%		—			—
Short-term investments Fixed rate amounts	$	6,247		$	11,797		$	—		$	18,044	$	18,037
Weighted-average rate		1.49	%		1.37	%		—
Long-term investments Fixed rate amounts	$	—		$	598		$	5,574		$	6,172	$	6,165
Weighted-average rate		—			1.00	%		1.87	%
Total investment portfolio	$	11,285		$	12,395		$	5,574		$	29,254	$	29,240


Exhibit Number		Description

10.1		Form of PRSU Award Agreement (Company Stock Price Hurdle) under the 2022 Inducement Equity Incentive Plan*

10.2		Form of PRSU Award Agreement (Company Stock Price Hurdle) under the 2020 Equity Incentive Plan*

10.3		Consulting Agreement with Mark Popovich

31.1		Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Executive Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Secretary Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications Pursuant to U.S.C. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

101.INS		XBRL Instance ~~Document~~Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL ~~Taxonomy Extension~~ Schema Document

101.CAL		Inline XBRL ~~Taxonomy Extension~~ Calculation Linkbase Document

101.DEF		Inline XBRL ~~Taxonomy Extension~~ Definition Linkbase Document

101.LAB		Inline XBRL ~~Taxonomy Extension~~ Label Linkbase Document

101.PRE		Inline XBRL ~~Taxonomy Extension~~ Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


Date: August 4, 2022	~~INTEVAC, INC.~~

~~Date: October 31, 2017~~ By:	~~By:~~	/s/ ~~WENDELL BLONIGAN~~NIGEL HUNTON
			~~Wendell Blonigan~~
		Nigel Hunton President and Chief Executive Officer ~~and Director~~ ~~(Principal~~ (Principal Executive Officer)



Date: ~~October 31, 2017~~August 4, 2022	By:	/s/ JAMES MONIZ
			James Moniz
		Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Treasurer ~~(Principal~~ (Principal Financial and Accounting Officer)