Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Jul. 25, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | DATA I/O CORP | |
Entity Central Index Key | 351,998 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 8,437,341 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,018 |
CONSOLIDATED BALANCE SHEETS (in
CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (Unaudited) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 16,634 | $ 18,541 |
Trade accounts receivable, net of allowance for doubtful accounts of $100 and $73, respectively | 5,363 | 3,769 |
Inventories | 4,320 | 4,168 |
Other current assets | 528 | 708 |
TOTAL CURRENT ASSETS | 26,845 | 27,186 |
Property, plant and equipment - net | 2,109 | 2,458 |
Income tax receivable | 598 | 598 |
Other assets | 220 | 45 |
TOTAL ASSETS | 29,772 | 30,287 |
CURRENT LIABILITIES: | ||
Accounts payable | 1,238 | 1,301 |
Accrued compensation | 1,842 | 3,536 |
Deferred revenue | 2,410 | 1,787 |
Other accrued liabilities | 946 | 858 |
Income taxes payable | 195 | 218 |
TOTAL CURRENT LIABILITIES | 6,631 | 7,700 |
Long-term other payables | 468 | 527 |
COMMITMENTS | 0 | 0 |
STOCKHOLDERS' EQUITY | ||
Preferred stock - Authorized, 5,000,000 shares, including 200,000 shares of Series A Junior Participating Issued and outstanding, none | 0 | 0 |
Common stock, at stated value - Authorized, 30,000,000 shares Issued and outstanding, 8,427,884 shares as of June 30, 2018 and 8,276,813 shares as of December 31, 2017 | 19,219 | 18,989 |
Accumulated earnings (deficit) | 2,705 | 2,089 |
Accumulated other comprehensive income | 749 | 982 |
TOTAL STOCKHOLDERS' EQUITY | 22,673 | 22,060 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 29,772 | $ 30,287 |
CONSOLIDATED BALANCE SHEETS (i3
CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
CURRENT ASSETS: | ||
Trade accounts receivable, net of allowance | $ 100 | $ 73 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, authorized shares (including Series A) | 5,000,000 | 5,000,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, authorized shares | 30,000,000 | 30,000,000 |
Common stock, issued shares | 8,427,884 | 8,276,813 |
Common stock, outstanding shares | 8,427,884 | 8,276,813 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income Statement [Abstract] | ||||
Net Sales | $ 7,204 | $ 9,135 | $ 14,834 | $ 16,359 |
Cost of goods sold | 2,955 | 3,933 | 6,169 | 6,990 |
Gross margin | 4,249 | 5,202 | 8,665 | 9,369 |
Operating expenses: | ||||
Research and development | 1,845 | 1,771 | 3,724 | 3,316 |
Selling, general and administrative | 2,158 | 2,163 | 4,351 | 3,981 |
Total operating expenses | 4,003 | 3,934 | 8,075 | 7,297 |
Operating income | 246 | 1,268 | 590 | 2,072 |
Non-operating income (expense): | ||||
Interest income | 9 | 6 | 16 | 13 |
Gain on sale of assets | 4 | 80 | 4 | 291 |
Foreign currency transaction gain (loss) | 269 | (62) | 93 | (92) |
Total non-operating income | 282 | 24 | 113 | 212 |
Income before income taxes | 528 | 1,292 | 703 | 2,284 |
Income tax (expense) | (42) | (86) | (87) | (99) |
Net income | $ 486 | $ 1,206 | $ 616 | $ 2,185 |
Basic earnings per share | $ 0.06 | $ 0.15 | $ 0.07 | $ 0.27 |
Diluted earnings per share | $ 0.06 | $ 0.14 | $ 0.07 | $ 0.26 |
Weighted-average basic shares | 8,356 | 8,104 | 8,321 | 8,067 |
Weighted-average diluted shares | 8,500 | 8,408 | 8,521 | 8,367 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Consolidated Statements Of Comprehensive Income Loss In Thousands | ||||
Net income | $ 486 | $ 1,206 | $ 616 | $ 2,185 |
Other comprehensive income: | ||||
Foreign currency translation gain (loss) | (534) | 272 | (233) | 354 |
Comprehensive income (loss) | $ (48) | $ 1,478 | $ 383 | $ 2,539 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 616 | $ 2,185 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 507 | 328 |
Gain on sale of assets | (4) | (291) |
Equipment transferred to cost of goods sold | 336 | 372 |
Share-based compensation | 650 | 367 |
Net change in: | ||
Trade accounts receivable | (1,650) | (2,299) |
Inventories | (179) | (702) |
Other current assets | 175 | (125) |
Accounts payable and accrued liabilities | (1,667) | 705 |
Deferred revenue | 627 | 774 |
Other long-term liabilities | (34) | (34) |
Deposits and other long-term assets | (175) | 18 |
Net cash provided by (used in) operating activities | (798) | 1,298 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property, plant and equipment | (495) | (815) |
Net proceeds from sale of assets | 4 | 291 |
Cash provided by (used in) investing activities | (491) | (524) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Net proceeds from issuance of common stock, less payments for shares withheld to cover tax | (420) | (491) |
Cash provided by (used in) financing activities | (420) | (491) |
Increase (decrease) in cash and cash equivalents | (1,709) | 283 |
Effects of exchange rate changes on cash | (198) | 179 |
Cash and cash equivalents at beginning of period | 18,541 | 11,571 |
Cash and cash equivalents at end of period | 16,634 | 12,033 |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for: Income Taxes | $ 111 | $ 48 |
NOTE 1 - FINANCIAL STATEMENT PR
NOTE 1 - FINANCIAL STATEMENT PREPARATION | 6 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NOTE 1 - FINANCIAL STATEMENT PREPARATION | Data I/O Corporation (“Data I/O”, “We”, “Our”, “Us”) prepared the financial statements as of June 30, 2018 and June 30, 2017 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, 2017 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 six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017. Revenue Recognition Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue (“Topic 606”): Revenue from Contracts with Customers, using the modified retrospective method. Topic 606 provides a single, principles-based five-step model to be applied to all contracts with customers. It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer. For incremental contract acquisition costs, the Company has elected the practical expedient to capitalize and amortize incremental costs for obtaining contracts, primarily sales commissions, with terms that exceed one year. Our basic revenue recognition remains essentially the same as it was in 2017, but we have modified our policies and processes to be able to identify and properly defer contract acquisition costs. The adoption of Topic 606 did not have a material impact on our financial results. We generally recognize revenue at the time the product is shipped or when the service is delivered. The revenue related to products requiring installation that is perfunctory is generally recognized at the time of shipment. Installation that is considered perfunctory includes any installation that can 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. Contracts requiring acceptance are recognized when acceptance is received. 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. 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. We enter into multiple deliverable arrangements that arise during the sale of a system that may include consumables (adapters), an installation component, a service and support component and a software maintenance component. We allocate the value 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, we use the standard compensation provided as a discount to distributors or as additional commission to our representative channel which performs these components. For software maintenance components, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is generally 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. When we license software separately, we recognize software revenue upon shipment, provided that only inconsequential obligations remain on our part and substantive acceptance conditions, if any, have been met. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items. We transfer certain products out of service from their internal use and make them available for sale. The products transferred are our standard products and typically are service loaners, rental or test systems, engineering test systems or sales demonstration systems. Once transferred, the systems are sold by our regular sales channels as used inventory. These systems 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 system’s net book value and the sale transaction is accounted for as revenue and cost of goods sold. Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before we can recognize revenue. These amounts primarily relate to unamortized software and service contracts and other items invoiced but not recognized due to incomplete performance obligations, such as installation and acceptance requirements for systems. As of June 30, 2018, deferred revenue was $2.5 million which consisted of $2.4 million which will be recognized over the next twelve months, and the remaining balance to be recognized beyond that. Stock-Based Compensation Expense All stock-based compensation awards are measured based on estimated fair values on the date of grant 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 with tax matters are classified as general and administrative expense when incurred and amounts related 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 months ended June 30, 2018. Tax Reform impact was included in our 2017 financial statements, which primarily reflected the deemed repatriation (IRC 965 transition tax), the AMT credit receivable as a result of AMT repeal, and the revaluation of net deferred tax assets and valuation allowance as a result of the income tax rate reduction. 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 cyclical capital spending, we have limited the recognition of net deferred tax assets associated with 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 will continue to analyze the level of valuation allowance in future periods. There were $290,000 and $272,000 of unrecognized tax benefits related to uncertain tax positions and a corresponding valuation allowance as of June 30, 2018 and December 31, 2017, respectively. Tax years that remain open for examination include 2014 through 2018 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. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, “ Leases In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09) (“Topic 606”). ASU 2014-09 provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance, including industry-specific 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 now takes effect for public entities in fiscal years beginning after December 15, 2017. We have adopted the revenue standard as of January 1, 2018, which did not have a material impact on our consolidated financial statements. We have implemented changes to our accounting policies, internal controls, and disclosures to support the new standard, however, these changes were not material. |
NOTE 2 - INVENTORIES
NOTE 2 - INVENTORIES | 6 Months Ended |
Jun. 30, 2018 | |
Inventory Disclosure [Abstract] | |
NOTE 2 - INVENTORIES | Inventories consisted of the following components: June 30, 2018 December 31, 2017 (in thousands) Raw material $2,695 $2,392 Work-in-process 1,091 1,091 Finished goods 534 685 Inventories $4,320 $4,168 |
NOTE 3 - PROPERTY, PLANT AND EQ
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET | 6 Months Ended |
Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET | Property and equipment consisted of the following components: June 30, 2018 December 31, 2017 (in thousands) Leasehold improvements $411 $416 Equipment 5,411 5,279 Sales demonstration equipment 1,131 1,315 6,953 7,010 Less accumulated depreciation 4,844 4,552 Property and equipment, net $2,109 $2,458 |
NOTE 4 - OTHER ACCRUED LIABILIT
NOTE 4 - OTHER ACCRUED LIABILITIES | 6 Months Ended |
Jun. 30, 2018 | |
Note 4 - Other Accrued Liabilities | |
NOTE 4 - OTHER ACCRUED LIABILITIES | Other accrued liabilities consisted of the following components: June 30, 2018 December 31, 2017 (in thousands) Product warranty $530 $530 Sales return reserve 99 80 Other taxes 189 109 Other 128 139 Other accrued liabilities $946 $858 The changes in our product warranty liability for the six months ending June 30, 2018 are as follows: June 30, 2018 (in thousands) Liability, beginning balance $530 Net expenses 500 Warranty claims (500) Accrual revisions - Liability, ending balance $530 |
NOTE 5 - OPERATING LEASE COMMIT
NOTE 5 - OPERATING LEASE COMMITMENTS | 6 Months Ended |
Jun. 30, 2018 | |
Notes to Financial Statements | |
NOTE 5 - OPERATING LEASE COMMITMENTS | We have commitments under non-cancelable operating leases and other agreements, primarily for factory and office space, with initial or remaining terms of one year or more as follows: For the years ending December 31: Operating Leases (in thousands) 2018 (remaining) $538 2019 927 2020 925 2021 459 2022 232 Thereafter - Total $3,081 During the third quarter of 2017, we amended our lease agreement for the Redmond, Washington headquarters facility effective September 12, 2017, extending the lease to July 31, 2022, waiving a potential space give back provision and receiving lease inducement incentives. Previously on June 8, 2015 the lease had been amended to relocate our headquarters to a nearby building and lower the 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. We signed a lease agreement effective November 1, 2015 that extends through October 31, 2021 for a new facility located in Shanghai, China which we moved into during the first quarter of 2016. The new lease is for approximately 19,400 square 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 through February 28, 2022. The new lease is for approximately 4,895 square feet. |
NOTE 6 - OTHER COMMITMENTS
NOTE 6 - OTHER COMMITMENTS | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
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 June 30, 2018, the purchase commitments and other obligations totaled $1,798,000 of which all but $9,000 are expected to be paid over the next twelve months. |
NOTE 7 - CONTINGENCIES
NOTE 7 - CONTINGENCIES | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
NOTE 7 - CONTINGENCIES | As of June 30, 2018, 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
NOTE 8 - EARNINGS PER SHARE | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share [Abstract] | |
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: Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 (in thousands except per share data) Numerator for basic and diluted earnings per share: Net income $486 $1,206 $616 $2,185 Denominator for basic earnings per share: Weighted-average shares 8,356 8,104 8,321 8,067 Employee stock options and awards 144 304 200 300 Denominator for diluted earnings per share: Adjusted weighted-average shares & assumed conversions of stock options 8,500 8,408 8,521 8,367 Basic and diluted earnings per share: Total basic earnings per share $0.06 $0.15 $0.07 $0.27 Total diluted earnings per share $0.06 $0.14 $0.07 $0.26 Options to purchase 25,000 and 60,111 shares were outstanding as of June 30, 2018 and 2017, respectively, 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 COMPENSATI
NOTE 9 - SHARE-BASED COMPENSATION | 6 Months Ended |
Jun. 30, 2018 | |
Share-based Compensation [Abstract] | |
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 six months ended June 30, 2018 and 2017, respectively, was as follows: Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 (in thousands) Cost of goods sold $11 $8 $15 $10 Research and development 107 63 149 88 Selling, general and administrative 355 199 486 269 Total share-based compensation $473 $270 $650 $367 Equity awards granted during the three and six months ended June 30, 2018 and 2017 were as follows: Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 Restricted Stock 204,856 223,600 205,856 235,600 There were no stock option awards granted during the three and six months ended June 30, 2018 and 2017. Non-employee directors Restricted Stock Units (“RSU’s”) vest over one year and options vest over three years and have a six year exercise period. Employee RSU’s vest over four years and employee Non-Qualified stock options vest quarterly over 4 years and have a six 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 June 30, 2018 are: Jun. 30, 2018 Unamortized future equity compensation expense (in thousands) $3,373 Remaining weighted average amortization period (in years) 3.04 |
NOTE 1 - FINANCIAL STATEMENT 16
NOTE 1 - FINANCIAL STATEMENT PREPARATION (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Note 1 - Financial Statement Preparation | |
Revenue Recognition | Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue (“Topic 606”): Revenue from Contracts with Customers, using the modified retrospective method. Topic 606 provides a single, principles-based five-step model to be applied to all contracts with customers. It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer. For incremental contract acquisition costs, the Company has elected the practical expedient to capitalize and amortize incremental costs for obtaining contracts, primarily sales commissions, with terms that exceed one year. Our basic revenue recognition remains essentially the same as it was in 2017, but we have modified our policies and processes to be able to identify and properly defer contract acquisition costs. The adoption of Topic 606 did not have a material impact on our financial results. We generally recognize revenue at the time the product is shipped or when the service is delivered. The revenue related to products requiring installation that is perfunctory is generally recognized at the time of shipment. Installation that is considered perfunctory includes any installation that can 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. Contracts requiring acceptance are recognized when acceptance is received. 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. 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. We enter into multiple deliverable arrangements that arise during the sale of a system that may include consumables (adapters), an installation component, a service and support component and a software maintenance component. We allocate the value 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, we use the standard compensation provided as a discount to distributors or as additional commission to our representative channel which performs these components. For software maintenance components, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is generally 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. When we license software separately, we recognize software revenue upon shipment, provided that only inconsequential obligations remain on our part and substantive acceptance conditions, if any, have been met. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items. We transfer certain products out of service from their internal use and make them available for sale. The products transferred are our standard products and typically are service loaners, rental or test systems, engineering test systems or sales demonstration systems. Once transferred, the systems are sold by our regular sales channels as used inventory. These systems 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 system’s net book value and the sale transaction is accounted for as revenue and cost of goods sold. Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before we can recognize revenue. These amounts primarily relate to unamortized software and service contracts and other items invoiced but not recognized due to incomplete performance obligations, such as installation and acceptance requirements for systems. As of June 30, 2018, deferred revenue was $2.5 million which consisted of $2.4 million which will be recognized over the next twelve months, and the remaining balance to be recognized beyond that. |
Stock-Based Compensation Expense | All stock-based compensation awards are measured based on estimated fair values on the date of grant 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 with tax matters are classified as general and administrative expense when incurred and amounts related 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 months ended June 30, 2018. Tax Reform impact was included in our 2017 financial statements, which primarily reflected the deemed repatriation (IRC 965 transition tax), the AMT credit receivable as a result of AMT repeal, and the revaluation of net deferred tax assets and valuation allowance as a result of the income tax rate reduction. 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 cyclical capital spending, we have limited the recognition of net deferred tax assets associated with 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 will continue to analyze the level of valuation allowance in future periods. There were $290,000 and $272,000 of unrecognized tax benefits related to uncertain tax positions and a corresponding valuation allowance as of June 30, 2018 and December 31, 2017, respectively. Tax years that remain open for examination include 2014 through 2018 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. |
Recent Accounting Pronouncements | In February 2016, the FASB issued ASU 2016-02, “ Leases In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09) (“Topic 606”). ASU 2014-09 provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance, including industry-specific 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 now takes effect for public entities in fiscal years beginning after December 15, 2017. We have adopted the revenue standard as of January 1, 2018, which did not have a material impact on our consolidated financial statements. We have implemented changes to our accounting policies, internal controls, and disclosures to support the new standard, however, these changes were not material. |
NOTE 2 - INVENTORIES (Tables)
NOTE 2 - INVENTORIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Note 2 - Inventories | |
INVENTORIES | Inventories consisted of the following components: June 30, 2018 December 31, 2017 (in thousands) Raw material $2,695 $2,392 Work-in-process 1,091 1,091 Finished goods 534 685 Inventories $4,320 $4,168 |
NOTE 3 - PROPERTY, PLANT AND 18
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Note 3 - Property Plant And Equipment Net | |
PROPERTY, PLANT AND EQUIPMENT, NET | June 30, 2018 December 31, 2017 (in thousands) Leasehold improvements $411 $416 Equipment 5,411 5,279 Sales demonstration equipment 1,131 1,315 6,953 7,010 Less accumulated depreciation 4,844 4,552 Property and equipment, net $2,109 $2,458 |
NOTE 4 - OTHER ACCRUED LIABIL19
NOTE 4 - OTHER ACCRUED LIABILITIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Other Accrued Liabilities Tables Abstract | |
Other accrued liabilities | June 30, 2018 December 31, 2017 (in thousands) Product warranty $530 $530 Sales return reserve 99 80 Other taxes 189 109 Other 128 139 Other accrued liabilities $946 $858 |
Product warranty liability | June 30, 2018 (in thousands) Liability, beginning balance $530 Net expenses 500 Warranty claims (500) Accrual revisions - Liability, ending balance $530 |
NOTE 5 - OPERATING LEASE COMM20
NOTE 5 - OPERATING LEASE COMMITMENTS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Note 5 - Operating Lease Commitments | |
OPERATING LEASE COMMITMENTS | Operating Leases (in thousands) 2018 (remaining) $538 2019 927 2020 925 2021 459 2022 232 Thereafter - Total $3,081 |
NOTE 8 - EARNINGS PER SHARE (Ta
NOTE 8 - EARNINGS PER SHARE (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Note 8 - Earnings Per Share | |
EARNINGS PER SHARE | Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 (in thousands except per share data) Numerator for basic and diluted earnings per share: Net income $486 $1,206 $616 $2,185 Denominator for basic earnings per share: Weighted-average shares 8,356 8,104 8,321 8,067 Employee stock options and awards 144 304 200 300 Denominator for diluted earnings per share: Adjusted weighted-average shares & assumed conversions of stock options 8,500 8,408 8,521 8,367 Basic and diluted earnings per share: Total basic earnings per share $0.06 $0.15 $0.07 $0.27 Total diluted earnings per share $0.06 $0.14 $0.07 $0.26 |
NOTE 9 - SHARE-BASED COMPENSA22
NOTE 9 - SHARE-BASED COMPENSATION (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Note 9 - Share-based Compensation | |
Impact on operations of recording share-based compensation | Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 (in thousands) Cost of goods sold $11 $8 $15 $10 Research and development 107 63 149 88 Selling, general and administrative 355 199 486 269 Total share-based compensation $473 $270 $650 $367 |
Equity award activity | Three Months Ended Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 Restricted Stock 204,856 223,600 205,856 235,600 |
Future equity compensation expense | Jun. 30, 2018 Unamortized future equity compensation expense (in thousands) $3,373 Remaining weighted average amortization period (in years) 3.04 |
NOTE 1 - FINANCIAL STATEMENT 23
NOTE 1 - FINANCIAL STATEMENT PREPARATION (Details Narrative) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Unrecognized tax benefits | $ 290 | $ 272 |
NOTE 2 - INVENTORIES (Details)
NOTE 2 - INVENTORIES (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Raw material | $ 2,695 | $ 2,392 |
Work-in-process | 1,091 | 1,091 |
Finished goods | 534 | 685 |
Inventories | $ 4,320 | $ 4,168 |
NOTE 3 - PROPERTY, PLANT AND 25
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET (Details) (in thousands) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Property, Plant and Equipment [Abstract] | ||
Leasehold improvements | $ 411 | $ 416 |
Equipment | 5,411 | 5,279 |
Sale demonstration equipment | 1,131 | 1,315 |
Property and equipment gross | 6,953 | 7,010 |
Less accumulated depreciation | 4,844 | 4,552 |
Property and equipment, net | $ 2,109 | $ 2,458 |
NOTE 4 - OTHER ACCRUED LIABIL26
NOTE 4 - OTHER ACCRUED LIABILITIES (Details) (in thousands) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Payables and Accruals [Abstract] | ||
Product warranty | $ 530 | $ 530 |
Sales return reserve | 99 | 80 |
Other taxes | 189 | 109 |
Other | 128 | 139 |
Other accrued liabilities | $ 946 | $ 858 |
NOTE 4 - OTHER ACCRUED LIABIL27
NOTE 4 - OTHER ACCRUED LIABILITIES (Details 1) (in thousands) $ in Thousands | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Payables and Accruals [Abstract] | |
Liability, beginning balance | $ 530 |
Net expenses | 500 |
Warranty claims | (500) |
Accrual revisions | 0 |
Liability, ending balance | $ 530 |
NOTE 5 - OPERATING LEASE COMM28
NOTE 5 - OPERATING LEASE COMMITMENTS (Details) (in thousands) $ in Thousands | Jun. 30, 2018USD ($) |
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |
2018 (remaining) | $ 538 |
2,019 | 927 |
2,020 | 925 |
2,021 | 459 |
2,022 | 232 |
Thereafter | 0 |
Total | $ 3,081 |
NOTE 6 - OTHER COMMITMENTS (Det
NOTE 6 - OTHER COMMITMENTS (Details Narrative) $ in Thousands | Jun. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
Purchase and other obligations | $ 1,798 |
After 2,018 | $ 9 |
NOTE 8 - EARNINGS PER SHARE (In
NOTE 8 - EARNINGS PER SHARE (In thousands, except per share data) (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Earnings Per Share [Abstract] | ||||
Numerator for basic and diluted earnings per share: Net income (loss) | $ 486 | $ 1,206 | $ 616 | $ 2,185 |
Denominator for basic earnings per share: weighted average shares | 8,356 | 8,104 | 8,321 | 8,067 |
Employee stock options and awards | 144 | 304 | 200 | 300 |
Denominator for diluted earnings per share: adjusted weighted-average shares and assumed conversions of stock options | 8,500 | 8,408 | 8,521 | 8,367 |
Total basic earnings (loss) per share | $ 0.06 | $ 0.15 | $ 0.07 | $ 0.27 |
Total diluted earnings (loss) per share | $ 0.06 | $ 0.14 | $ 0.07 | $ 0.26 |
NOTE 8 - EARNINGS PER SHARE (De
NOTE 8 - EARNINGS PER SHARE (Details Narrative) - shares | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Earnings Per Share [Abstract] | ||
Anti dilutive options to purchase shares | 25,000 | 60,111 |
NOTE 9 - SHARE-BASED COMPENSA32
NOTE 9 - SHARE-BASED COMPENSATION (Details) (in thousands, except per share data) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Total share-based compensation | $ 473 | $ 270 | $ 650 | $ 367 |
Cost Of Goods Sold | ||||
Total share-based compensation | 11 | 8 | 15 | 10 |
Research and Development | ||||
Total share-based compensation | 107 | 63 | 149 | 88 |
Selling, general and administrative | ||||
Total share-based compensation | $ 355 | $ 199 | $ 486 | $ 269 |
NOTE 9 - SHARE-BASED COMPENSA33
NOTE 9 - SHARE-BASED COMPENSATION (Details 1) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Sharebased Compensation Details 1Abstract | ||||
Restricted stock granted | 204,856 | 223,600 | 205,856 | 235,600 |
NOTE 9 - SHARE-BASED COMPENSA34
NOTE 9 - SHARE-BASED COMPENSATION (Details 2) $ in Thousands | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Note 10Sharebased Compensation Details Narrative Abstract | |
Unamortized future equity compensation expense | $ 3,373 |
Remaining weighted average amortization period | 3 years 14 days |