UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☒(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172019 |
orOr
|
☐( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________ |
Commission file number: 0-10394 |
DATA I/O CORPORATION |
(Exact name of registrant as specified in its charter) |
|
Washington | 91-0864123 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
6645 185th Ave NE, Suite 100, Redmond, Washington, 98052 (Address of principal executive offices, including zip code) |
Securities registered pursuant to Section 12(b) of the Act: |
(425) 881-6444
(Registrant’s telephone number, including area code)
|
Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon StockDAIONASDAQ |
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “acceleratedfiler”, ”accelerated filer”, “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
| | Accelerated filer ☐ |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ (Do not check if a smaller reporting company)
| Smaller reporting company | ☒ |
Non-accelerated filer ☐ | | | 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 Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTY PROCEEDINGS DURING THE PREVIOUS FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13or 15(d) of the Security Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Shares of Common Stock, no par value, outstanding as of October 26, 2017:August 2, 2019: 8,205,798
8,241,049
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FORM 10-Q |
For the Quarter Ended SeptemberJune 30, 20172019 |
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INDEX |
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PARTPART I - FINANCIAL INFORMATION
FinancialFinancial Statements
|
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share data) |
(UNAUDITED) |
|
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share data) |
|
| | |
| | |
| | |
ASSETS | | |
CURRENT ASSETS: | | |
Cash and cash equivalents | $15,165 | $18,343 |
Trade accounts receivable, net of allowance for | | |
doubtful accounts of $72 and $75, respectively | 3,812 | 3,771 |
Inventories | 5,218 | 5,185 |
Other current assets | 618 | 621 |
TOTAL CURRENT ASSETS | 24,813 | 27,920 |
| | |
Property, plant and equipment – net | 1,953 | 1,985 |
Income tax receivable | 640 | 598 |
Other assets | 2,284 | 220 |
TOTAL ASSETS | $29,690 | $30,723 |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
CURRENT LIABILITIES: | | |
Accounts payable | $1,006 | $1,755 |
Accrued compensation | 1,415 | 2,872 |
Deferred revenue | 1,365 | 1,392 |
Other accrued liabilities | 1,451 | 789 |
Income taxes payable | 35 | 47 |
TOTAL CURRENT LIABILITIES | 5,272 | 6,855 |
| | |
Operating lease liabilities | 1,532 | - |
Long-term other payables | 157 | 511 |
| | |
COMMITMENTS | - | - |
| | |
STOCKHOLDERS’ EQUITY | | |
Preferred stock - | | |
Authorized, 5,000,000 shares, including | | |
200,000 shares of Series A Junior Participating | | |
Issued and outstanding, none | - | - |
Common stock, at stated value - | | |
Authorized, 30,000,000 shares | | |
Issued and outstanding, 8,261,702 shares as of June 30, | | |
2019 and 8,338,628 shares as of December 31, 2018 | 18,463 | 19,254 |
Accumulated earnings | 3,848 | 3,695 |
Accumulated other comprehensive income | 418 | 408 |
TOTAL STOCKHOLDERS’ EQUITY | 22,729 | 23,357 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $29,690 | $30,723 |
| | |
See notes to consolidated financial statements | | |
| | |
| | |
ASSETS | | |
CURRENT ASSETS: | | |
Cash and cash equivalents | $15,164 | $11,571 |
Trade accounts receivable, net of allowance for | | |
doubtful accounts of $104 and $96, respectively | 5,233 | 4,725 |
Inventories | 4,950 | 4,059 |
Other current assets | 537 | 483 |
TOTAL CURRENT ASSETS | 25,884 | 20,838 |
| | |
Property, plant and equipment – net | 2,158 | 1,875 |
Other assets | 45 | 63 |
TOTAL ASSETS | $28,087 | $22,776 |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
CURRENT LIABILITIES: | | |
Accounts payable | $1,598 | $1,428 |
Accrued compensation | 3,273 | 2,208 |
Deferred revenue | 1,570 | 1,926 |
Other accrued liabilities | 1,029 | 703 |
TOTAL CURRENT LIABILITIES | 7,470 | 6,265 |
| | |
Long-term other payables | 438 | 479 |
| | |
COMMITMENTS | - | - |
| | |
STOCKHOLDERS’ EQUITY | | |
Preferred stock - | | |
Authorized, 5,000,000 shares, including | | |
200,000 shares of Series A Junior Participating | | |
Issued and outstanding, none | - | - |
Common stock, at stated value - | | |
Authorized, 30,000,000 shares | | |
Issued and outstanding, 8,240,711 shares as of September 30, | | |
2017 and 8,015,746 shares as of December 31, 2016 | 18,836 | 19,204 |
Accumulated earnings (deficit) | 553 | (3,360) |
Accumulated other comprehensive income | 790 | 188 |
TOTAL STOCKHOLDERS’ EQUITY | 20,179 | 16,032 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $28,087 | $22,776 |
| | |
See notes to consolidated financial statements |
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
|
| | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| | | | |
| | | | |
Net sales | $5,834 | $7,204 | $11,892 | $14,834 |
Cost of goods sold | 2,250 | 2,955 | 4,623 | 6,169 |
Gross margin | 3,584 | 4,249 | 7,269 | 8,665 |
Operating expenses: | | | | |
Research and development | 1,680 | 1,845 | 3,361 | 3,724 |
Selling, general and administrative | 1,829 | 2,158 | 3,803 | 4,351 |
Total operating expenses | 3,509 | 4,003 | 7,164 | 8,075 |
Operating income | 75 | 246 | 105 | 590 |
Non-operating income: | | | | |
Interest income | 10 | 9 | 22 | 16 |
Gain on sale of assets | - | 4 | 60 | 4 |
Foreign currency transaction gain (loss) | 69 | 269 | (36) | 93 |
Total non-operating income | 79 | 282 | 46 | 113 |
Income before income taxes | 154 | 528 | 151 | 703 |
Income tax (expense) benefit | (27) | (42) | 2 | (87) |
Net income | $127 | $486 | $153 | $616 |
| | | | |
| | | | |
Basic earnings per share | $0.02 | $0.06 | $0.02 | $0.07 |
Diluted earnings per share | $0.02 | $0.06 | $0.02 | $0.07 |
Weighted-average basic shares | 8,257 | 8,356 | 8,280 | 8,321 |
Weighted-average diluted shares | 8,332 | 8,500 | 8,375 | 8,521 |
| | | | |
See notes to consolidated financial statements | | | |
DATA I/O CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(UNAUDITED) |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | |
| | | | |
Net sales | $9,596 | $6,588 | $25,955 | $17,002 |
Cost of goods sold | 3,639 | 2,945 | 10,629 | 7,743 |
Gross margin | 5,957 | 3,643 | 15,326 | 9,259 |
Operating expenses: | | | | |
Research and development | 1,814 | 1,358 | 5,130 | 3,655 |
Selling, general and administrative | 2,319 | 1,664 | 6,300 | 4,766 |
Total operating expenses | 4,133 | 3,022 | 11,430 | 8,421 |
Operating income | 1,824 | 621 | 3,896 | 838 |
Non-operating income (expense): | | | | |
Interest income | 6 | 11 | 19 | 34 |
Gain on sale of assets | 72 | - | 363 | - |
Foreign currency transaction gain (loss) | (66) | (3) | (158) | 41 |
Total non-operating income | 12 | 8 | 224 | 75 |
Income before income taxes | 1,836 | 629 | 4,120 | 913 |
Income tax (expense) | (108) | (4) | (207) | (12) |
Net income | $1,728 | $625 | $3,913 | $901 |
| | | | |
| | | | |
Basic earnings per share | $0.21 | $0.08 | $0.48 | $0.11 |
Diluted earnings per share | $0.20 | $0.08 | $0.47 | $0.11 |
Weighted-average basic shares | 8,201 | 7,977 | 8,112 | 7,955 |
Weighted-average diluted shares | 8,467 | 8,183 | 8,400 | 8,083 |
| | | | |
See notes to consolidated financial statements |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
|
|
| | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| | | | |
| | | | |
Net income | $127 | $486 | $153 | $616 |
Other comprehensive income: | | | | |
Foreign currency translation gain (loss) | (118) | (534) | 10 | (233) |
Comprehensive income (loss) | $9 | $(48) | $163 | $383 |
| | | | |
See notes to consolidated financial statements
DATA I/O CORPORATION |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(in thousands) |
(UNAUDITED) |
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
(in thousands, except share amounts) |
| | | | | |
| | | | | |
| | | | |
| | | | | |
| | | | | |
| | | | | |
Balance at December 31, 2017 | 8,276,813 | $18,989 | $2,089 | $982 | 22,060 |
Stock options exercised | 15,000 | - | | | - |
Repurchased shares | (4,948) | - | | | - |
Stock awards issued, net of tax withheld | 7,531 | (12) | - | - | (12) |
Issuance of stock through: ESPP | 630 | 7 | - | - | 7 |
Share-based compensation | - | 177 | - | - | 177 |
Net income | - | - | 130 | - | 130 |
Other comprehensive income gain | - | - | - | 301 | 301 |
Balance at March 31, 2018 | 8,295,026 | $19,161 | $2,219 | $1,283 | $22,663 |
Stock awards issued, net of tax withheld | 132,858 | (415) | - | - | (415) |
Share-based compensation | - | 473 | - | - | 473 |
Net income | - | - | 486 | - | 486 |
Other comprehensive income (loss) | - | - | - | (67) | (67) |
Balance at June 30, 2018 | 8,427,884 | 19,219 | 2,705 | 1,216 | 23,140 |
| | | | | |
| | | | | |
Balance at December 31, 2018 | 8,338,628 | $19,254 | $3,695 | $408 | $23,357 |
Repurchased shares | (57,612) | (312) | | | (312) |
Stock awards issued, net of tax withheld | 4,046 | (9) | - | - | (9) |
Issuance of stock through: ESPP | 2,763 | 15 | - | - | 15 |
Share-based compensation | - | 287 | - | - | 287 |
Net income | - | - | 26 | - | 26 |
Other comprehensive income gain | - | - | - | 128 | 128 |
Balance at March 31, 2019 | 8,287,825 | 19,235 | 3,721 | 536 | 23,492 |
Repurchased shares | (188,194) | (908) | | | (908) |
Stock awards issued, net of tax withheld | 162,071 | (228) | - | - | (228) |
Share-based compensation | - | 364 | - | - | 364 |
Net income | - | - | 127 | - | 127 |
Other comprehensive income (loss) | - | - | - | (118) | (118) |
Balance at June 30, 2019 | 8,261,702 | 18,463 | 3,848 | 418 | 22,729 |
| | | | | |
See notes to consolidated financial statements | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | |
| | | | |
Net income | $1,728 | $625 | $3,913 | $901 |
Other comprehensive income: | | | | |
Foreign currency translation gain (loss) | 248 | (17) | 602 | (77) |
Comprehensive income | $1,976 | $608 | $4,515 | $824 |
| | | | |
See notes to consolidated financial statements |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
| | |
| For the Six Months Ended June 30, |
| | |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
Net income | $153 | $616 |
Adjustments to reconcile net income | | |
to net cash provided by (used in) operating activities: | | |
Depreciation and amortization | 424 | 507 |
Gain on sale of assets | (60) | (4) |
Equipment transferred to cost of goods sold | (26) | 336 |
Share-based compensation | 651 | 650 |
Net change in: | | |
Trade accounts receivable | (63) | (1,650) |
Inventories | (28) | (179) |
Other current assets | 3 | 175 |
Accounts payable and accrued liabilities | (2,223) | (1,667) |
Deferred revenue | (62) | 627 |
Other long-term liabilities | (312) | (34) |
Deposits and other long-term assets | 88 | (175) |
Net cash provided by (used in) operating activities | (1,455) | (798) |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Purchases of property, plant and equipment | (365) | (495) |
Net proceeds from sale of assets | 60 | 4 |
Cash provided by (used in) investing activities | (305) | (491) |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Net proceeds from issuance of common stock, less payments | | |
for shares withheld to cover tax | (222) | (420) |
Repurchase of common stock | (1,220) | - |
Cash provided by (used in) financing activities | (1,442) | (420) |
Increase (decrease) in cash and cash equivalents | (3,202) | (1,709) |
| | |
Effects of exchange rate changes on cash | 24 | (198) |
Cash and cash equivalents at beginning of period | 18,343 | 18,541 |
Cash and cash equivalents at end of period | $15,165 | $16,634 |
| | |
Supplemental disclosure of cash flow information: | | |
Cash paid during the period for: | | |
Income taxes | $101 | $111 |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
| | |
| For the Nine Months Ended September 30, |
| | |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
Net income | $3,913 | $901 |
Adjustments to reconcile net income | | |
to net cash provided by (used in) operating activities: | | |
Depreciation and amortization | 634 | 409 |
Gain on sale of assets | (363) | - |
Equipment transferred to cost of goods sold | 725 | 720 |
Share-based compensation | 540 | 409 |
Net change in: | | |
Trade accounts receivable | (192) | (2,385) |
Inventories | (766) | (211) |
Other current assets | (33) | 213 |
Accounts payable and accrued liabilities | 1,497 | 160 |
Deferred revenue | (485) | 163 |
Other long-term liabilities | (52) | 86 |
Deposits and other long-term assets | 18 | 1 |
Net cash provided by (used in) operating activities | 5,436 | 466 |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Purchases of property, plant and equipment | (1,642) | (1,688) |
Net proceeds from sale of assets | 363 | - |
Cash provided by (used in) investing activities | (1,279) | (1,688) |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Net Proceeds from issuance of common stock, less payments | | |
for shares withheld to cover tax | (895) | (76) |
Repurchase of common stock | - | (191) |
Cash provided by (used in) financing activities | (895) | (267) |
Increase/(decrease) in cash and cash equivalents | 3,262 | (1,489) |
| | |
Effects of exchange rate changes on cash | 331 | (54) |
Cash and cash equivalents at beginning of period | 11,571 | 11,268 |
Cash and cash equivalents at end of period | $15,164 | $9,725 |
| | |
Supplemental disclosure of cash flow information: | | |
Cash paid during the period for: | | |
Income Taxes | $82 | $6 |
| | |
See notes to consolidated financial statements |
See notes to consolidated financial statements
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
Data I/O Corporation (“Data I/O”, “We”, “Our”, “Us”) prepared the financial statements as of SeptemberJune 30, 20172019 and SeptemberJune 30, 20162018 according to the rules and regulations of the Securities and Exchange Commission ("SEC"). These statements are unaudited but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented. The balance sheet at December 31, 20162018 has been derived from the audited financial statements at that date. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations. Operating results for the three and ninesix months ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019. These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2016.2018.
Revenue Recognition
The adoption of Topic 606, “Revenue from contracts with customers”, did not have a material impact on our 2018 financial statement line items, either individually or in the aggregate. We have elected the practical expedient to expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year. During the six months ended June 30, 2019 and 2018, there were no contract acquisition costs capitalized. In 2018, we made a sales tax policy election to exclude sales, use, value added, some excise taxes and other similar taxes from the measurement of the transaction price.
We recognize revenue atupon transfer of control of the timepromised products or services to customers in an amount that reflects the product is shipped.consideration we expect to receive in exchange for those products or services. We have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element.performance obligation. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment. Installation that is considered perfunctory includes any installation that canis expected to be performed by other parties, such as distributors, other vendors, or the customers themselves. This takes into account the complexity, skill and training needed as well as customer expectations regarding installation.
We enter into arrangements with multiple deliverable arrangementsperformance obligations that arise during the sale of a system that includes an installation component, a service and support component and a software maintenance component. The transaction price is allocated to the separate performance obligations on relative standalone sales price. We allocate the valuetransaction price of each element based on relative selling prices. Relative selling price is based on the selling price of the standalone system. For the installation and service and support components,performance obligations, we use the value of the discount given to distributors who perform these components. For software maintenance components,performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is recognized on the system sale based on shipping terms, installation revenue is recognized after the installation is performed, and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement, typically one year. Deferred revenue includes service, support and maintenance contracts and represents the undelivered performance obligation of agreements that are typically recognized ratably over one year.
When we sell software separately, we recognize revenue upon the transfer of control of the software, revenuewhich is generally upon shipment, provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions, if any, have been met.
We recognize revenue when persuasive evidencethere is an approved contract that both parties are committed to perform, both parties rights have been identified, the contract has substance, collection of an arrangement exists, shipmentsubstantially all the consideration is probable, the transaction price has occurred,been determined and allocated over the price is fixed or determinable,performance obligations, the buyer has paid or is obligated to pay, collectability is reasonably assured,performance obligations including substantive acceptance conditions, if any, in the contract have been met, the obligation is not contingent on resale of the product, the buyer’s obligation would not be changed in the event of theft, physical destruction or damage to the product, the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items.
Payment terms are generally 30 days from shipment.
We transfer certain products out of service from their internal use and make them available for sale. The products transferred are typically our standard products in one of the following areas: service loaners, rental or test units; engineering test units; or sales demonstration equipment. Once transferred, the equipment is sold by our regular sales channels as used equipment inventory. These product units often involve refurbishing and an equipment warranty, and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value and the sale transaction is accounted for as revenue and cost of goods sold.
Stock-Based Compensation ExpenseThe following table represents our revenues by major categories:
| | |
Net sales by type | | | | | | |
(in thousands) | | | | | | |
Equipment sales | $3,537 | (24.2%) | $4,665 | $7,247 | (26.2%) | $9,814 |
Adapter sales | $1,421 | (18.8%) | $1,750 | $2,882 | (16.2%) | $3,440 |
Software and maintenance | 876 | 11.0% | 789 | 1,763 | 11.6% | 1,580 |
Total programming systems | $5,834 | (19.0%) | $7,204 | $11,892 | (19.8%) | $14,834 |
| | | | | | |
Leases - Accounting Standards Codification 842
Leases arise from contracts which convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. Our leasing arrangements are primarily for office space we use to conduct our operations. In addition, there are automobiles and a small amount of office equipment leased. We measuredetermine whether contracts include a lease at the inception date, which is generally upon contract signing, considering factors such as whether the contract includes an asset which is physically distinct, which party obtains substantially all of the capacity and recognizeeconomic benefit of the asset, and which party directs how, and for what purpose, the asset is used during the contractual period of use. Our leases commence when the lessor makes the asset available for our use. At commencement we record a lease liability at the present value of future lease payments, net of any future lease incentives to be received. Some of our lease agreements include cancellable future periods subject to termination or extension options. We include cancellable lease periods in our future lease payments when we are reasonably certain to continue to utilize the asset for those periods. We calculate the present value of future lease payments at commencement using a discount rate which we estimate as the collateralized borrowing rate we believe that would be incurred on our future lease payments over a similar term. At commencement we also record a corresponding right-of-use asset, which is calculated based on the amount of the lease liability, adjusted for any advance lease payments paid, initial direct costs incurred or lease incentives received prior to commencement. Right-of-use assets are subject to evaluation for impairment or disposal on a basis consistent with other long-lived assets.
Leases are classified at commencement as either operating or finance leases. As of June 30, 2019, all of our leases are classified as operating leases. Rent expense for operating leases is recognized on the straight-line method over the term of the agreement beginning on the lease commencement date.
In accounting for leases, we utilize certain practical expedients and policy elections available under the lease accounting standard. For example, we do not record right-of-use assets or lease liabilities for leases with terms of 12 months or less. For contracts containing real estate leases, we do not combine lease and non-lease components. The primary impact of this policy election is that we do not include in our calculation of lease liabilities any fixed and noncancelable future payments due under the contract for items such as common area maintenance, utilities and other costs. Lease-related costs which are variable rather than fixed are expensed in the period incurred.
Assumptions, judgments and estimates impacting the carrying value of our right-of-use assets and liabilities include evaluating whether an arrangement contains a lease, determining whether the lease term should include any cancellable future periods, estimating the discount rate used to calculate our lease liabilities, estimating the fair value and useful life of the leased asset for the purpose of classifying the lease as an operating or finance lease, evaluating whether a lease contract amendment represents a new lease agreement or a modification to the existing lease and evaluating our right-of-use assets for impairment.
Share-Based Compensation
All stock-based compensation expense as required for all share-based payment awards including employee stock options and restricted stock unit awards,are measured based on estimated fair values and estimated forfeiture rate on the date of grant dates.and recognized as compensation expense on the straight-line single-option method. Our share-based compensation is reduced for estimated forfeitures at the time of grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.
Income Tax
Penalties associated withIncome taxes are computed at current enacted tax mattersrates, less tax credits using the asset and liability method. Deferred taxes are classified as generaladjusted both for items that do not have tax consequences and administrative expense when incurred and amounts relatedfor the cumulative effect of any changes in tax rates from those previously used to interest associated with tax matters are classified as interest income or interest expense. We did not incur any interest or penalties associated with tax matters during the three and nine months ended September 30, 2017.
We have incurred net operating losses in certain past years. Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of netdetermine deferred tax assets associated with our net operating lossesor liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and credit carryforwardsliabilities that arise because of temporary differences between the timing of when items of income and continue to maintain aexpense are recognized for financial reporting and income tax purposes, and any changes in the valuation allowance forcaused by a change in judgment about the full amountrealization of the netrelated deferred tax asset balance. We expect to further analyze the level ofassets. A valuation allowance during the remainder of 2017. There were $249,000is established when necessary to reduce deferred tax assets to amounts expected to be realized. Tax reform changes effective January 1, 2018, including Global Intangible Low Tax Income (GILTI), have been included in our 2018 and $226,000 of unrecognized tax benefits related to uncertain tax positions and related valuation allowance as of September 30, 2017 and December 31, 2016, respectively.2019 financial statements.
Tax years that remain open for examination include 2014, 2015, 2016 and 2017 in the United States of America. In addition, tax years from 2000 to 2013 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.
RecentRecently Adopted Accounting Pronouncements
In March 2016,We adopted the FASB issued ASU 2016-09, Compensation-Stock Compensation (ASU 2016-09), “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 requires excess tax benefits to be recognized innew lease accounting standard, ASC 842, on January 1, 2019 using the statement of operations as an income tax expensemodified retrospective transition method, and is applied prospectively by means ofrecorded a cumulative-effectbalance sheet adjustment of excess tax benefits from equity inon the perioddate of adoption. In 2018, we accounted for leases under ASC 840. The new lease standard establishes an alternative practical expedient for estimating the expected term of an award by recognizing the effects of forfeitures in compensation cost when the forfeitures occur. Adoption of the alternative practical expedient is applied prospectively on an entity-wide basis. The standard requires that amounts paid to a taxing authority on the employee’s behalf as a result of directly withholding shares for tax-withholding purposes are to be presented on a retrospective basis as a financing activity on the statement of cash flows. The standard became effective beginning January 1, 2017. The adoption of ASU 2016-09 was not material to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02). ASU 2016-02 requires lessees to recognize almost all leasesright-of-use assets and lease liabilities on the balance sheet for operating leases, and also requires additional quantitative and qualitative disclosures to enable users of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In adopting ASC 842, we utilized certain practical expedients available under the standard. These practical expedients include waiving reassessment of conclusions reached under the previous lease standard as ato whether contracts contain leases, not recording right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoptionlease liabilities for leases with terms of 12 months or less, how to classify leases identified and how to account for initial direct costs incurred. We also utilized the practical expedient to use hindsight as of the standard is allowed. The standard becomes effective beginning January 1, 2019. We are in the process of evaluating the impactdate of adoption onto determine the terms of our leases and to evaluate our right-of-use assets for impairment.
We recorded the following adjusted balances in our consolidated financial statements.balance sheet on the date of adoption:
| As Reported December 31, 2018 | As Recorded January 1, 2019 |
(in thousands) | | |
Right-of-use assets (Long-term other assets) | $0 | $2,176 |
Lease liability-short term (Other accrued liabilities) | - | (654) |
Lease liability-long term (Long-term other payables) | - | (1,904) |
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principleSee Note 5 of the model is to recognize revenue when control of the goods or services transfersaccompanying notes to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” (ASU 2015-14), deferring the effective date of the new revenue recognition standard by one year and it now takes effect for public entities in fiscal years beginning after December 15, 2017. We plan to adopt the revenue standards as of January 1, 2018, utilizing the modified retrospective transition method. The Company is currently evaluating the potential impact of the adoption on our consolidated financial statements. As part of this process, the Company has identified its revenue streams and an analysis of how we currently account for revenue transactions compared to the revenue accounting required under the new standard. We intend to complete our adoption plan in fiscal year 2017. Because of the nature of the work that remains, at this time, we remain unable to reasonably estimate the impact of adoption on our consolidated financial statements. We will continue our evaluation of revenue from our contracts with customers, and will update our expectations of the impact of adoption of the new revenue standards on ourcondensed consolidated financial statements infor additional information regarding our next filing.operating leases.
NOTE 2 – INVENTORIES
Inventories consisted of the following components: | | |
| | | | |
(in thousands) | | |
Raw material | $2,806 | $2,402 | $2,540 | $2,925 |
Work-in-process | 1,465 | 1,226 | 2,145 | 1,584 |
Finished goods | 679 | 431 | 533 | 676 |
Inventories | $4,950 | $4,059 | $5,218 | $5,185 |
| | |
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, NET
Property and equipment consisted of the following components:
| | | | |
(in thousands) | | |
Leasehold improvements | $409 | $376 | $399 |
Equipment | 5,293 | 4,449 | 5,569 | 5,378 |
Sales demonstration equipment | 1,102 | 1,158 | 1,068 | 942 |
| 6,804 | 5,983 | 7,036 | 6,719 |
Less accumulated depreciation | 4,646 | 4,108 | 5,083 | 4,734 |
Property and equipment, net | $2,158 | $1,875 | $1,953 | $1,985 |
| | |
NOTE 4 – OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following components:
| | | | |
(in thousands) | | |
Lease liability - short term | | $667 | $0 |
Product warranty | $501 | $371 | 420 | 471 |
Sales return reserve | 80 | 50 | 87 |
Other taxes | 262 | 149 | 106 | 102 |
Other | 186 | 133 | 171 | 129 |
Other accrued liabilities | $1,029 | $703 | $1,451 | $789 |
| | |
The changes in our product warranty liability for the ninesix months ending SeptemberJune 30, 20172019 are as follows:
| September 30,
2017June 30,2019 |
(in thousands) | |
Liability, beginning balance | $371471 |
Net expenses | 609419 |
Warranty claims | (609419) |
Accrual revisions | 130(51) |
Liability, ending balance | $501420 |
NOTE 5 – OPERATING LEASE COMMITMENTSLEASES
We have commitments under non-cancelableOur leasing arrangements are primarily for facility leases we use to conduct our operations. The following table presents our future lease payments for long-term operating leases and other agreements, primarily for factory and office space, with initial or remaining termsas of one year or more as follows:June 30, 2019:
For the years ending December 31:
| | Operating Lease Commitments |
(in thousands) | | |
2017 (remaining) | $197 | |
2018 | 909 | |
2019 | 937 | |
2019 (remaining) | | $383 |
2020 | 919 | 760 |
2021 | 753 | 685 |
2022 | | 309 |
2023 | | 89 |
Thereafter | 231 | 226 |
Total | $3,946 | $2,452 |
Less Imputed interest | | (253) |
Total operating lease liabilities | | $2,199 |
Cash paid for operating lease liabilities for the three and six months ended June 30, 2019 was $173,000 and $369,000, respectively. There were no new or modified leases during the six months ended June 30, 2019.
10
| |
(in thousands) | |
Right-of-use assets (Long-term other assets) | $1,864 |
Lease liability-short term (Other accrued liabilities) | (667) |
Lease liability-long term (Long-term other payables) | (1,532) |
At June 30, 2019, the weighted average remaining lease term is 3.77 years and the weighted average discount rate used is 5%.
The components of our lease expense for the three and six months ended June 30, 2019 include operating lease costs of $107,000 and $273,000, respectively, and short-term lease costs of $5,000 and $10,000, respectively.
Our real estate facility leases are described below:
During the third quarter of 2017, we amended our lease agreement, extending the lease for the Redmond, Washington headquarters facility effective September 12, 2017, extending the lease tothrough July 31, 2022, waiving a potential space give back provision and receiving2022. This lease inducement incentives. Previously on June 8, 2015 the lease had been amended to relocate our headquarters to a nearby building and lower theis for approximately 20,460 square footage to approximately 20,460.
In addition to the Redmond facility, approximately 24,000 square feet is leased at two foreign locations, including our sales, service, operations and engineering office located in Shanghai, China, and our German sales, service and engineering office located near Munich, Germany.feet.
We signed a lease agreement effective November 1, 2015 that extends through October 31, 2021the lease for a new facility located in Shanghai, China which we moved into during the first quarter of 2016. The newthrough October 31, 2021. This lease is for approximately doubled our space to 19,400 square feet at approximately 54% of the prior lease rental rate.feet.
During the fourth quarter of 2016, we signed a lease agreement for a new facility located near Munich, Germany which was effective March 1, 2017 and extends the lease through February 28, 2022. The newThis lease slightly increased our space tois for approximately 4,895 square feet at approximately the same cost per square foot as the prior lease.feet.
NOTE 6 – OTHER COMMITMENTS
We have purchase obligations for inventory and production costs as well as other obligations such as capital expenditures, service contracts, marketing, and development agreements. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty, and with short notice, typically less than 90 days. At SeptemberJune 30, 2017,2019, the purchase commitments and other obligations totaled $2,058,000$2.0 million of which all but $18,000$646,000 are expected to be paid over the next twelve months.
NOTE 7 – CONTINGENCIES
As of SeptemberJune 30, 2017,2019, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position.
NOTE 8 – EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method.
Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share:
| | | |
| | | | | | |
| | | | | | | | |
(in thousands except per share data) | | | |
Numerator for basic and diluted | | |
earnings per share: | | |
earnings per share | | |
Net income | $1,728 | $625 | $3,913 | $901 | $127 | $486 | $153 | $616 |
| | |
Denominator for basic | | |
earnings per share: | | |
weighted-average shares | 8,201 | 7,977 | 8,112 | 7,955 | |
| | |
Employee stock options and awards | 266 | 206 | 288 | 128 | |
| | |
Weighted-average shares | | 8,257 | 8,356 | 8,280 | 8,321 |
Employee -stock options and awards | | 75 | 144 | 95 | 200 |
Denominator for diluted | | |
earnings per share: | | |
adjusted weighted-average shares & | | |
Adjusted weighted-average shares & | | |
assumed conversions of stock options | 8,467 | 8,183 | 8,400 | 8,083 | 8,332 | 8,500 | 8,375 | 8,521 |
| | |
Basic and diluted | | |
earnings per share: | | |
Total basic earnings per share | $0.21 | $0.08 | $0.48 | $0.11 | $0.02 | $0.06 | $0.02 | $0.07 |
Total diluted earnings per share | $0.20 | $0.08 | $0.47 | $0.11 | $0.02 | $0.06 | $0.02 | $0.07 |
Options to purchase 8,425 and 198,39525,000 shares were outstanding as of Septemberboth June 30, 20172019 and 2016, respectively,2018, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.
NOTE 9 – SHARE-BASED COMPENSATION
For share-based awards granted, we have recognized compensation expense based on the estimated grant date fair value method. For these awards we have recognized compensation expense using a straight-line amortization method reduced for estimated forfeitures.
The impact on our results of operations of recording share-based compensation, net of forfeitures, for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, was as follows:
| | | | |
| | | | | | | | |
(in thousands) | | |
Cost of goods sold | $4 | $3 | $14 | $11 | $10 | $11 | $16 | $15 |
Research and development | 39 | 23 | 127 | 82 | 103 | 107 | 166 | 149 |
Selling, general and administrative | 130 | 84 | 399 | 316 | 251 | 355 | 469 | 486 |
Total share-based compensation | $173 | $110 | $540 | $409 | $364 | $473 | $651 | $650 |
| | |
Impact on net earnings (loss) per share: | | |
Basic and diluted | $(0.02) | $(0.01) | $(0.07) | $(0.05) | |
The fair value of share-based awards for employee stock options was estimated using the Black-Scholes valuation model. The following weighted average assumptions were used to calculate the fair value of stock options granted during the three months and nine months ended September 30, 2017 and 2016:
| | |
| | | | |
| | | | |
Risk-free interest rates | 1.72% | N/A | 1.72% | N/A |
Volatility factors | 0.62 | N/A | 0.62 | N/A |
Expected life of the option in years | 4.00 | N/A | 4.00 | N/A |
Expected dividend yield | None | N/A | None | N/A |
Equity awards granted during the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 were as follows:
| | | | |
| | | | | | | | |
| | |
Restricted Stock | 51,000 | 3,000 | 286,600 | 225,100 | |
Restricted Stock Units
| | | | | |
Stock Options | 25,000 | - | 25,000 | - | | | | |
Non-employee directors Restricted Stock Units (“RSU’s”) vest over one year employeeand options vest over three years and have a six-year exercise period. Employee RSU’s typically vest over four years and employee Non-Qualified stock options typically vest quarterly over 4 years and have a six yearsix-year exercise period.
The remaining unamortized expected future equity compensation expense and remaining amortization period associated with unvested option grants, restricted stock awards and restricted stock unit awards at SeptemberJune 30, 20172019 are:
| Jun. 30,2019September 30,
2017 |
| |
Unamortized future equity compensation expense (in thousands) | $2,7222,874 |
Remaining weighted average amortization period (in years) | 3.192.77 |
NOTE 10– SHARE REPURCHASE PROGRAM
13
TableOn October 31, 2018, our Board of ContentsDirectors approved a share repurchase program with provisions to buy back up to $2 million of our stock during the period from November 1, 2018 through October 31, 2019. The program was established with a 10b5-1 plan under the Exchange Act to provide flexibility to make purchases throughout the period. For the quarter ended June 30, 2019, 188,194 shares of stock were repurchased at an average price of $4.81 for a total of $904,595 plus $3,891 in commissions and charges. The following is a summary of the stock repurchase program from November 1, 2018 through June 30, 2019:
Repurchases by Month | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program | Approximate Dollar Value of Shares that May Yet Be Purchased under the Program |
| | | | |
December 2018 | 101,975 | $5.23 | 101,975 | $1,466,537 |
January 2019 | 43,701 | $5.36 | 43,701 | $1,232,083 |
March 2019 | 13,911 | $5.47 | 13,911 | $1,156,048 |
April 2019 | 69,141 | $5.36 | 69,141 | $788,367 |
May 2019 | 69,798 | $4.61 | 69,798 | $467,643 |
June 2019 | 49,255 | $4.42 | 49,255 | $251,453 |
Total | 347,781 | $5.03 | 347,781 | |
Management'sManagement's Discussion and Analysis of Financial Condition and Results of Operations
General
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking. In particular, statements herein regarding economic outlook, industry prospects orand trends; expected revenues; expected level of expense; expected savings;industry partnerships; future results of operations; reversals of tax valuation allowances; breakeven point,operations or financial position; changes in gross margin; economic conditions and capital spending outlook;future spending; breakeven revenue point; expected market growth; market acceptance of our newly introduced or upgraded products;products or services; the sufficiency of our cash to fund future operations and capital requirements; development, introduction and shipment of new products; building lease arrangements; sales channelsproducts or services; changing foreign operations; trade issues and tariffs; and any other guidance on future periods are forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or other future events. Moreover, neither weData I/O nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this report.Quarterly Report. The readerReader should not place undue reliance on these forward-looking statements. The discussions above and in the section in Item 1A., Risk Factors “Cautionary Factors That May Affect Future Results” in our Annual report on Form 10-K for the year ended December 31, 20162018, describe some, but not all, of the factors that could cause these differences.
OVERVIEW
We arecontinued our focus on automotive electronics and managing the core programming business for growth and profitability, while developing and enhancing both our core products, and our managed and secure programming platformparticularly in security provisioning, to drive future revenue and earnings growth. We continuegrowth as we invest resources in the security provisioning market. Our challenge continues to be operating in a cyclical seasonal and rapidly evolving industry environment. We attemptcurrently believe we are experiencing a capital spending cyclical downturn. We are continuing our efforts to balance industry changes, industry partnerships, new technologies, business geography shifts, exchange rate volatility, trade issues and tariffs, increasing costs and strategic investments in our business with the level of demand and mix of current business opportunitieswe expect. We continue to manage our costs carefully and execute strategies for cost reduction.
We are concentratingfocusing our research and development efforts in our strategic growth markets, namely automotive electronics and Internet of Things (IoT), focusing onIoT new programming technologies, security provisioning,secure supply chain solutions, automated programming systems and their enhancements for the manufacturing environment and software. We are developingcontinuing to develop technology to securely programprovision new categories of semiconductors, including authentication ICs (especially secure elements)Secure Elements, Authentication Chips, and secure microcontrollers.Secure Microcontrollers. We are deliveringplan to deliver new programming technology and automated handling systems for managed and secure programming in the manufacturing environment. In these new security initiatives, we face a new evolving market; are in a period of rapid learning; and are establishing new industry relationships, business processes, supply chains, and investing heavily in advance of revenue.
We continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices, including various configurations of NAND Flash, e-MMC, UFS microcontrollers, authentication ICs, secure element ICs and secure microcontrollers on our newer products.
Our customer focus remainshas been on global and strategic high volumehigh-volume manufacturers in key market segments like automotive electronics, IoT, industrial controls and consumer electronics, as well as programming centers and contract manufacturing.centers.
CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, estimating the percentage-of-completion on fixed-price professional engineering service contracts, sales returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring charges, contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:
Revenue Recognition: The adoption of Topic 606, “Revenue from contracts with customers”, did not have a material impact on our 2018 financial statement line items, either individually or in the aggregate. We have elected the practical expedient to expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year. During the six months ended June 30, 2019 and 2018, there were no contract acquisition costs capitalized. In 2018, we made a sales tax policy election to exclude sales, use, value added, some excise taxes and other similar taxes from the measurement of the transaction price.
We recognize revenue atupon transfer of control of the timepromised products or services to customers in an amount that reflects the product is shipped.consideration we expect to receive in exchange for those products or services. We have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element.performance obligation. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment. Installation that is considered perfunctory includes any installation that canis expected to be performed by other parties, such as distributors, other vendors, or in most cases the customers themselves. This takes into account the complexity, skill and training needed as well as customer expectations regarding installation.
We enter into arrangements with multiple deliverable arrangementsperformance obligations that arise during the sale of a system that includes an installation component, a service and support component and a software maintenance component. The transaction price is allocated to the separate performance obligations on relative standalone sales price. We allocate the valuetransaction price of each element based on relative selling prices. Relative selling price is based on the selling price of the standalone system. For the installation and service and support components,performance obligations, we use the value of the discount given to distributors who perform these components. For software maintenance components,performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is recognized on the system sale based on shipping terms, installation revenue is recognized after the installation is performed, and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement, typically one year. OtherDeferred revenue includes service, revenue issupport and maintenance contracts and represents the undelivered performance obligation of agreements that are typically recognized as it is delivered.ratably over one year.
When we sell software separately, we recognize revenue upon the transfer of control of the software, revenuewhich is generally upon shipment, provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions, if any, have been met.
We recognize revenue when persuasive evidencethere is an approved contract that both parties are committed to perform, both parties rights have been identified, the contract has substance, collection of an arrangement exists, shipmentsubstantially all the consideration is probable, the transaction price has occurred,been determined and allocated over the price is fixed or determinable,performance obligations, the buyer has paid or is obligated to pay, collectability is reasonably assured,performance obligations including substantive acceptance conditions, if any, in the contract have been met, the obligation is not contingent on resale of the product, the buyer’s obligation would not be changed in the event of theft, physical destruction or damage to the product, the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items.
Payment terms are generally 30 days from shipment.
We transfer certain products out of service from their internal use and make them available for sale. The products transferred are typically our standard products in one of the following areas: service loaners, rental or test units; engineering test units; or sales demonstration equipment. Once transferred, the equipment is sold by our regular sales channels as used equipment inventory. These product units often involve refurbishing and an equipment warranty, and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value and the sale transaction is accounted for as revenue and cost of goods sold.
Allowance for Doubtful Accounts: We base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable. If there is deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, our estimates of the recoverability of amounts due to us could be adversely affected.
Inventory:Inventory: Inventories are stated at the lower of cost or market.net realizable value. Adjustments are made to standard cost, which approximates actual cost on a first-in, first-out basis. We estimate reductions to inventory for obsolete, slow-moving, excess and non-salable inventory by reviewing current transactions and forecasted product demand. We evaluate our inventories on an item by item basis and record inventory adjustments accordingly. If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments and our gross margin could be adversely affected.
Warranty Accruals: We accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations. If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be adversely affected.
Tax Valuation Allowances: Given the uncertainty created by our loss history, as well as the volatilecurrent and ongoing cyclical uncertain economic outlook for our industry and capital and geographic spending as well as income and current net deferred tax assets by entity and country, we have limitedexpect to continue to limit the recognition of net deferred tax assets associated with our net operating losses and credit carryforwardsaccounting for uncertain tax positions and continue to maintain athe tax valuation allowance for the full amount of the net deferred tax asset balance.allowances. At the current time, we expect, to continue to analyze and evaluate potentialtherefore, that reversals of the tax valuation allowance during the remainder of 2017. Any reversals will take place only as we are able to determine that it will be possible to take advantage of the underlying tax loss or other attributes in carry forward. Transferforward or their use by future income or circumstances allow us to realize these attributes. The transfer pricing and expense or cost sharing arrangements are complex areas where judgments, such as the determination of arms-length arrangements, can be subject to challenges by different tax jurisdictions.
Share-based Compensation: We account for share-based awards made to our employees and directors, including employee stock option awards and restricted stock unit awards, using the estimated grant date fair value method of accounting. For options, we estimate the fair value using the Black-Scholes valuation model and an estimated forfeiture rate, which requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using the historical volatility of our common stock. Changes in the subjective assumptions required in the valuation model may significantly affect the estimated value of the awards, the related stock-based compensation expense and, consequently, our results of operations. Restricted stock unit awards are valued based on the average of the high and low price on the date of the grant.grant and an estimated forfeiture rate. For both options and restricted awards, expense is recognized as compensation expense on the straight-line basis. Employee Stock Purchase Plan (“ESPP”) shares were issued under provisions that do not require us to record any equity compensation expense.
Results of OperationsRESULTS OF OPERATIONS:
NET SALES
| | | | |
Net sales by product line | | | | | | | | | | | | |
(in thousands) | | |
Automated programming systems | $7,766 | 49.5% | $5,196 | $21,193 | 58.0% | $13,417 | $4,651 | (18.1%) | $5,680 | $9,454 | (18.9%) | $11,654 |
Non-automated programming systems | 1,830 | 31.5% | 1,392 | 4,762 | 32.8% | 3,585 | 1,183 | (22.4%) | 1,524 | 2,438 | (23.3%) | 3,180 |
Total programming systems | $9,596 | 45.7% | $6,588 | $25,955 | 52.7% | $17,002 | $5,834 | (19.0%) | $7,204 | $11,892 | (19.8%) | $14,834 |
| | | | |
Net sales by location | | | | | | | | | | | | |
(in thousands) | | |
United States | $610 | 31.5% | $464 | $2,256 | 8.1% | $2,086 | $609 | (37.5%) | $974 | $966 | (51.5%) | $1,993 |
% of total | 6.4% | | 7.0% | 8.7% | | 12.3% | 10.4% | | 13.5% | 8.1% | | 13.4% |
| | |
International | $8,986 | 46.7% | $6,124 | $23,699 | 58.9% | $14,916 | $5,225 | (16.1%) | $6,230 | $10,926 | (14.9%) | $12,841 |
% of total | 93.6% | | 93.0% | 91.3% | | 87.7% | 89.6% | | 86.5% | 91.9% | | 86.6% |
| | |
Net sales by type | | | | | | |
(in thousands) | | | | | | |
Equipment sales | $3,537 | (24.2%) | $4,665 | $7,247 | (26.2%) | $9,814 |
Adapter sales | $1,421 | (18.8%) | $1,750 | $2,882 | (16.2%) | $3,440 |
Software and maintenance | 876 | 11.0% | 789 | 1,763 | 11.6% | 1,580 |
Total programming systems | $5,834 | (19.0%) | $7,204 | $11,892 | (19.8%) | $14,834 |
| | | | | | |
Net sales infor the thirdsecond quarter of 2017 were $9.62019 declined approximately 19.0% to $5.8 million compared with $6.6 million in the third quarter of 2016. Automotive Electronics demand from both OEMs and Programming Centers drove increased revenues primarily related to our PSV family of automated programming systems. Revenues from adapters, a consumable, increased approximately $100,000 from the year earlier period. International sales represented 94% of total sales for the third quarter, compared to 93% during the same period in 2016.2018 primarily as a result of slower Automotive Electronics cyclical demand. The 2018 comparable period sales also benefited from the use of backlog. On a regional basis, Asia was our strongest territory in the second quarter of 2019, despite tariffs.
RevenueNet sales for the quarter was approximately 74% equipment, 20% consumables and 6% software and services.first six months of 2019 declined for the same factors as in the second quarter.
Order bookings increased 4%in the second quarter of 2019 were $5.1 million, compared to $8.2$7.2 million in the thirdsecond quarter of 2017, a 10-year third quarter high, compared to $7.9 million in the third quarter of 2016. The variation in revenue percentages versus order bookings percentages relates to the change in backlog, deferred revenues and currency translation. Deferred revenue at the end of the third quarter was $1.6 million with all major systems shipments able to be recognized in the quarter. At the end of the second quarter, we had deferred revenue of $2.8 million, including 3 systems that were recognized in the third quarter.2018. Backlog at the end of the third quarterJune 30, 2019 was $4.6$1.4 million, compared to $4.7with $1.9 million at June 30, 2018. Data I/O had $1.5 million deferred revenue at the end of the second quarter and $3.2of 2019, down from $1.6 million at DecemberMarch 31, 2016.
For2019. Bookings for the ninefirst six months ending September 30, 2017,of 2019 were attributed to automotive 56% and programming centers 19% compared to the same period in 2016, net sales growth was generally due to the same factors discussed above for the third quarter, with a continued trend of higher automated2018 of 56% and lower non-automated system sales. On a regional basis, all regions had sales growth compared to the same period in 2016.
GROSS MARGIN
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| | | | | | | | | | | | |
(in thousands) | | |
Gross margin | $5,957 | 63.5% | $3,643 | $15,326 | 65.5% | $9,259 | $3,584 | (15.7%) | $4,249 | $7,269 | (16.1%) | $8,665 |
Percentage of net sales | 62.1% | | 55.3% | 59.0% | | 54.5% | 61.4% | | 59.0% | 61.1% | | 58.4% |
For the thirdsecond quarter of 2017,2019, gross margin as a percentage of sales was 62.1%61.4%, as compared to 55.3% in the third quarter of 2016 and 56.9%59% in the second quarter of 2017.2018. The increase wassecond quarter and first six months of 2019 gross margin percentage level exceeded the Company’s anticipated target model due primarily due to sales volume, which resulted in better fixed factory cost utilization, along with a favorable product mix aas well as favorable sales channel mix (with more direct sales versus distributer sales),variances, primarily overhead and reduced unfavorable factory variances. Distributer sales are net of a distribution discount where direct sales usually result in channel commissions which are included in selling expense. We increased our capacity during the third quarter with virtually no additional investment.
currency related. For the first nine months of 2017 comparedfull year we continue to the same period in 2016,model gross margin as a percentagepercentages in the mid to upper fifties. The impact of sales increased generally duetariffs has been manageable in 2019, but continues to the same factors discussed above for the third quarter. Based on past experience, we expect variationscause uncertainty in our gross margin asoutlook and may have a percentage of sales due to changesmore significant impact in key factors for future periods including: sales volume, product mix, channel mix, pricing, inventory fluctuations, warranty, factory variances and currency exchange rates.the future.
RESEARCH AND DEVELOPMENT
| | | | |
| | | | | | | | | | | | |
(in thousands) | | |
Research and development | $1,814 | 33.6% | $1,358 | $5,130 | 40.4% | $3,655 | $1,680 | (8.9%) | $1,845 | $3,361 | (9.7%) | $3,724 |
Percentage of net sales | 18.9% | | 20.6% | 19.8% | | 21.5% | 28.8% | | 25.6% | 28.3% | | 25.1% |
Research and development (“R&D”) increased $456,000expenses were lower in the thirdsecond quarter of 2017and year to date 2019 compared to the same periodperiods in 2016,2018 primarily due to additional and higher personnellower headcount related costs, incentive compensation and stock based compensation as well as SentriX NRE charges, which mostly supported our Managed and Secure Programming initiative.
For the first nine months of 2017 compared to the same period in 2016, the increase in R&D expense was generally due to the same factors discussed above for the third quarter.stock-based compensation.
SELLING, GENERAL AND ADMINISTRATIVE
| | | | |
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(in thousands) | | |
Selling, general & | | |
administrative | $2,319 | 39.4% | $1,664 | $6,300 | 32.2% | $4,766 | $1,829 | (15.2%) | $2,158 | $3,803 | (12.6%) | $4,351 |
Percentage of net sales | 24.2% | | 25.3% | 24.3% | | 28.0% | 31.4% | | 30.0% | 32.0% | | 29.3% |
Selling, General and Administrative (“SG&A”) expenses increased $655,000were lower in the thirdsecond quarter and year to date 2019 compared to the same periods in 2018 primarily due to lower sales commissions on lower sales and headcount related costs including incentive compensation and stock-based compensation.
INTEREST
| | |
| | | | | | |
(in thousands) | | | | | | |
Interest income | $10 | 11.1% | $9 | $22 | 37.5% | $16 |
Interest income was higher in the second quarter of 20172019 compared to the same period in 2016,2018 primarily due to the increased level of business activity and include higher incentive, commission and stock based compensation and depreciation, offsetminor increases in part by lower rent costs.interest rates on invested funds.
For | | |
| | | | | | |
(in thousands) | | | | | | |
Income tax benefit (expense) | $(27) | (35.7%) | $(42) | $2 | (102.3%) | $(87) |
Income tax for both the second quarter of 2019 and the same period in 2018, primarily related to foreign and state taxes, which for the 2019 period the foreign subsidiary income, was much lower than in the previous year for the same period. Income tax for the first ninesix months of 20172019 compared to the same period in 2016,2018, primarily related to converting remaining sequestered AMT credits, that had a full valuation allowance on such credits, into a receivable of approximately $42,000, resulting from IRS rule changes allowing the increase in SG&A expense was generally due to the same factors discussed above for the third quarter.
INTEREST
| | |
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(in thousands) | | | | | | |
Interest income | $6 | (45.5%) | $11 | $19 | (44.1%) | $34 |
Interest income decreased in the third quarterrelease of 2017 compared to the same period in 2016, due to both lower invested cash balances and lower interest rates.
For the first nine months of 2017 compared to the same period in 2016, the decrease in interest income was generally due to the same factors discussed above for the third quarter.
INCOME TAXES
| | |
| | | | |
(in thousands) | | | | |
Income tax (expense) | $(108) | $(4) | $(207) | $(12) |
Income tax (expense) for the third quarter of 2017 compared to same period in 2016, primarily resulted from foreign subsidiary income tax.
For the first nine months of 2017 compared to the same period in 2016, the change in income tax expense was generally due to the same factors discussed above for the third quarter.previously sequestered AMT credits. In addition,
The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances, as well as foreign taxes. We have a valuation allowance of $10.6$7.1 million as of SeptemberJune 30, 2017. Our2019. As of June 30, for both 2019 and 2018, our deferred tax assets and valuation allowance have been reduced by approximately $249,000$325,000 and $226,000$290,000, respectively, associated with the requirements of accounting for uncertain tax positions as of September 30, 2017 and December 31, 2016, respectively.positions. Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of net deferred tax assets associated withincluding our net operating losses and credit carryforwards and continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance. We expect to further analyze the level of valuation allowance during the remainder of 2017.
Financial Condition
LIQUIDITY AND CAPITAL RESOURCES
| | | | | | |
(in thousands) | | |
Working capital | $18,414 | $3,841 | $14,573 | $19,541 | $(1,524) | $21,065 |
At SeptemberJune 30, 20172019, our principal sources of liquidity consisted of existing cash positionand cash equivalents. Cash decreased $3.1 million from December 31, 2018 primarily from paying for 2018 accrued incentive compensation and share repurchases under the share repurchase program.
The working capital decline in the first six months of 2019 was $15.2 million,similarly due to share repurchases as well as to new GAAP accounting for leases (ASC 842) that went into effect on January 1, 2019 which recognizes a right-of-use asset and a corresponding lease liability, with $10.8the result being a gross up on the balance sheet. The liability is comprised of $667,000 in current liabilities and $1.5 million in long term liabilities as of June 30, 2019. The lease accounting adjustments have no impact on our statement of operations, but the USA andrecording of the balance in foreign subsidiaries. The change in cash duringcurrent liability reduces the quarter resulted primarily from earnings for the period and collections of our accounts receivable.working capital calculation.
Although we have no significant external capital expenditure plans currently, we expect that we will continue to make capital expenditures to support our business. We plan to increase our internally developed rental, security provisioning, sales demonstration and test equipment as we develop and release new products. Capital expenditures are currently expected to be funded by existing and internally generated funds.
As a result of our cyclical and seasonal industry, significant product development, customer support and selling and marketing efforts, we have required substantial working capital to fund our operations. We have tried to balance our level of development spending with the goal of profitable operations. We have implemented or have initiatives to implement geographic shifts in our operations, optimizedoptimize real estate usage, reducedreduce exposure to the impact of currency volatility and additionaltariffs, increase product development differentiation, and cost reductions.reduce costs.
We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through at least the next one-year period. We may require additional cash forat the U.S. operations,headquarters, which could cause potential repatriation of cash that is held in our foreign subsidiaries. Although we have no current repatriation plans, there may be tax and other impediments to any repatriation actions. Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases and business development initiatives including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time. Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek possible additional financing.
SHARE REPURCHASE PROGRAMS
On October 31, 2018, our Board of Directors approved a share repurchase program with provisions to buy back up to $2 million of our stock during the period from November 1, 2018 through October 31, 2019. The program was established with a 10b5-1 plan under the Exchange Act to provide flexibility to make purchases throughout the period. For the quarter ended June 30, 2019, 188,194 shares of stock were repurchased at an average price of $4.81 for a total of $904,595 plus $3,891 in commissions and charges.
The following is a summary of the stock repurchase program from November 1, 2018 through June 30, 2019:
Repurchases by Month | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program | Approximate Dollar Value of Shares that May Yet Be Purchased under the Program |
| | | | |
December 2018 | 101,975 | $5.23 | 101,975 | $1,466,537 |
January 2019 | 43,701 | $5.36 | 43,701 | $1,232,083 |
March 2019 | 13,911 | $5.47 | 13,911 | $1,156,048 |
April 2019 | 69,141 | $5.36 | 69,141 | $788,367 |
May 2019 | 69,798 | $4.61 | 69,798 | $467,643 |
June 2019 | 49,255 | $4.42 | 49,255 | $251,453 |
Total | 347,781 | $5.03 | 347,781 | |
OFF-BALANCE SHEET ARRANGEMENTS
Except as noted in the accompanying consolidated financial statements in Note 5, “Operating Lease Commitments” and Note 6, “Other Commitments”, we have no off-balance sheet arrangements.
NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURES
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $2.1 million in the third quarter of 2017 compared to $755,000 in the third quarter of 2016. Adjusted EBITDA, excluding equity compensation (a non-cash item) was $2.3 million in the third quarter of 2017, compared to $865,000 in the third quarter of 2016.
EBITDA was $4.7 million for the first nine months of 2017 compared to $1.3 in the first nine months of 2016. Adjusted EBITDA, excluding equity compensation was $5.3 million for the first nine months of 2017, compared to $1.7 million for the first nine months of 2016.
Non-GAAP financial measures, such as EBITDA and adjusted EBITDA, should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s results and facilitate the comparison of results. A reconciliation of net income to EBITDA and adjusted EBITDA follows:
NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURE RECONCILIATION
| | | Three Months EndedJune 30, | |
| | | | | | | | |
(in thousands) | | |
Net Income | $1,728 | $625 | $3,913 | $901 | $127 | $486 | $153 | $616 |
Interest (income) expense | (6) | (11) | (19) | (34) | |
Interest (income) | | (10) | (9) | (22) | (16) |
Taxes | 108 | 4 | 207 | 12 | 27 | 42 | (2) | 87 |
Depreciation & amortization | 306 | 137 | 634 | 409 | 220 | 277 | 424 | 506 |
EBITDA earnings | $2,136 | $755 | $4,735 | $1,288 | $364 | $796 | $553 | $1,193 |
| | |
Equity compensation | 173 | 110 | 540 | 409 | 364 | 473 | 651 | 650 |
Adjusted EBITDA earnings, | | |
excluding equity compensation | $2,309 | $865 | $5,275 | $1,697 | $728 | $1,269 | $1,204 | $1,843 |
RECENT ACCOUNTING ANNOUNCEMENTS
In March 2016,Recently Adopted Accounting Pronouncements
We adopted the FASB issued ASU 2016-09, Compensation-Stock Compensation (ASU 2016-09), “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 requires excess tax benefits to be recognized innew lease accounting standard, ASC 842, on January 1, 2019 using the statement of operations as an income tax expensemodified retrospective transition method, and is applied prospectively by means ofrecorded a cumulative-effectbalance sheet adjustment of excess tax benefits from equity inon the perioddate of adoption. In 2018, we accounted for leases under ASC 840. The new lease standard establishes an alternative practical expedient for estimating the expected term of an award by recognizing the effects of forfeitures in compensation cost when the forfeitures occur. Adoption of the alternative practical expedient is applied prospectively on an entity-wide basis. The standard requires that amounts paid to a taxing authority on the employee’s behalf as a result of directly withholding shares for tax-withholding purposes are to be presented on a retrospective basis as a financing activity on the statement of cash flows. The standard became effective beginning January 1, 2017. The adoption of ASU 2016-09 was not material to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02). ASU 2016-02 requires lessees to recognize almost all leasesright-of-use assets and lease liabilities on the balance sheet for operating leases, and also requires additional quantitative and qualitative disclosures to enable users of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In adopting ASC 842, we utilized certain practical expedients available under the standard. These practical expedients include waiving reassessment of conclusions reached under the previous lease standard as ato whether contracts contain leases, not recording right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoptionlease liabilities for leases with terms of 12 months or less, how to classify leases identified and how to account for initial direct costs incurred. We also utilized the practical expedient to use hindsight as of the standard is allowed. The standard becomes effective beginning January 1, 2019. We are in the process of evaluating the impactdate of adoption onto determine the terms of our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides companies with a single modelleases and to evaluate our right-of-use assets for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” (ASU 2015-14), deferring the effective date of the new revenue recognition standard by one year and it now takes effect for public entities in fiscal years beginning after December 15, 2017. We plan to adopt the revenue standards as of January 1, 2018, utilizing the modified retrospective transition method. The Company is currently evaluating the potential impact of the adoption on our consolidated financial statements. As part of this process, the Company has identified its revenue streams and a preliminary analysis of how we currently account for revenue transactions compared to the revenue accounting required under the new standard. We intend to complete our adoption plan in fiscal year 2017. Because of the nature of the work that remains, at this time, we are unable to reasonably estimate the impact of adoption on our consolidated financial statements. We will continue our evaluation of revenue from our contracts with customers, and we will update our expectations of the impact of adoption of the new revenue standards on our consolidated financial statements in future filings.
QuantitativeQuantitative and Qualitative Disclosures About Market RiskNot applicable.
ControlsControls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable level of assurance. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
There were no changes made in our internal controls during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting which is still under the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).
PARTPART II - OTHER INFORMATION
Item 1.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of SeptemberJune 30, 2017,2019, we were not a party to any material pending legal proceedings.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the Risk Factors described in our Annual Report.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Defaults Upon Senior Securities
None
Not Applicable
None
Fifth Amendment to Lease, between Data I/O Corporation and BRE WA OFFICE OWNER LLC, made as of September 12, 2017
31
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:
Chief Executive Officer Certification
Chief Financial Officer Certification
32
Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:
Chief Executive Officer Certification
Chief Financial Officer Certification
101
Interactive Data Files Pursuant to Rule 405 of Regulation S-T
Table of ContentsItem 2. | Unregistered Sales of Equity Securities and Use of Proceeds None |
Item 3. | Defaults Upon Senior Securities |
| None |
Item 4. | |
| Not Applicable |
Item 5. | |
| None |
Item 6. | |
| (a)Exhibits |
| 10 | Material Contracts: |
| None
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| 31 | Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002: |
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| 32 | Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002: |
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| 101 | Interactive Data Files Pursuant to Rule 405 of Regulation S-T |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: November 9, 2017
| DATA I/O CORPORATION (REGISTRANT)
| |
| | | |
DATED: August 14, 2019 | By: | /s/ Anthony Ambrose | |
| | Anthony Ambrose | |
| | President and Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)
| |
DATA I/O CORPORATION
(REGISTRANT) |
| |
| | | |
| By: | /s/ Joel S. Hatlen | |
| | Joel S. Hatlen | |
| | Vice President and Chief Operating and Financial Officer Secretary and Treasurer (Principal Financial Officer and Duly Authorized Officer) | |
By: //S//Anthony Ambrose
Anthony Ambrose
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
By: //S//Joel S. Hatlen
Joel S. Hatlen
Vice President and Chief Operating and Financial Officer
Secretary and Treasurer
(Principal Financial Officer and Duly Authorized Officer)