NOTE

REVENUE RECOGNITION

May 2014,

the FASB issued new guidance related to revenue recognition, which outlines a comprehensive revenue recognition model and supersedes most prior revenue recognition guidance. ASC

606

requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. It defines a

five

-step approach for recognizing revenue, which

may

require a company to use more judgment and make more estimates than under the prior guidance. The Company adopted ASC

606

January 1, 2018

for all open contracts on the date of initial application, and applied the standard using modified retrospective approach, with the cumulative effect of applying ASC

606

recognized as an adjustment to the opening retained earnings balance. Results for reporting periods beginning after

January 1, 2018

are presented under ASC

606,

while prior period amounts are

not

adjusted and continue to be reported under the accounting standards in effect for the prior periods. The Company recorded a net increase to opening retained earnings of

$8,555

as of

January 1, 2018

due to the cumulative impact of adopting ASC

606.

The impact to revenues for the year ended

December 31, 2018

was an increase of

$4,078,

as a result of adopting ASC

606.

With respect to the Company’s licensing business, the adoption of ASC

606

had a significant impact on the Company’s financial statements as certain deliverables

may

now be considered as distinct performance obligations separate from other performance obligations, and will be measured using the relative standalone selling price basis, and recognized as revenue accordingly. Under the accounting standards in effect during prior periods, revenue earned on licensing arrangements involving multiple elements were allocated to each element based on the “residual method” when Vendor Specific Objective Evidence (“VSOE”) of fair value existed for all undelivered elements and VSOE did

not

exist for

one

of the delivered elements. If VSOE of fair value did

not

exist for the undelivered elements, the revenue would have been deferred until all elements of the arrangement were delivered or VSOE was developed for the undelivered elements, whichever came first.

With respect to the Company’s royalty business, ASC

606

had a significant impact as well. Under the accounting standards in effect during prior periods, the Company recognized sales-based royalties as revenues during the quarter when such royalties were reported by licensees, which reflected the licensees’ prior quarter sales and when all other revenue recognition criteria were met. Under ASC

606,

the Company is required to estimate and recognize sales-based royalties during the period when the associated sales occurred. Accordingly, the Company has an increase in unbilled receivables of

$8,597

in the statement of financial position.

Under ASC

606,

an entity recognizes revenue when or as it satisfies a performance obligation by transferring IP license or services to the customer, either at a point in time or over time. The Company recognizes most of its revenues at a point in time upon delivery of its IP. The Company recognizes revenue over time on significant license customization contracts that are covered by contract accounting standards using cost inputs to measure progress toward completion of its performance obligations, which is similar to the method prior to the adoption of ASC

606.

The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenues do

not

include amounts of royalties or unexercised contract renewals:

		2019				2020				2021
License and related revenues		$	12,567			$	3,948			$	1,500

In connection with the adoption of ASC

606,

the Company is required to capitalize incremental costs that are related to sales during the period, consisting primarily of sales commissions earned when contracts are signed. As of

January 1, 2018,

the date the Company adopted ASC

606,

the Company capitalized

$239

in contract acquisition costs related to contracts that were

not

completed. For contracts that have a duration of less than

one

year, the Company follows ASC

606’s

practical expediency, and expenses these costs when incurred; for contracts with life exceeding

one

year, the Company records these costs in proportion to each completed contract performance obligation. For the year ended

December 31, 2018,

the amount of amortization was

$120,

and there was

impairment loss in relation to costs capitalized. Deferred sales commission amounted to

$223

as of

December

31,

2018.

Disaggregation of revenue:

The following table provides information about disaggregated revenue by primary geographical market, major product line and timing of revenue recognition (in thousands):

	Year ended December 3 1 , 2018 (audited)
	Licensing and related revenues		Royalties		Total
Primary geographical markets
United States	$	6,260	$	2,094	$	8,354
Europe and Middle East		3,672		13,698		17,370
Asia Pacific		30,514		21,639		52,153
Total	$	40,446	$	37,431	$	77,877

Major product/service lines
DSP products (DSP cores and platforms)	$	25,369	$	34,097	$	59,466
Connectivity products (Bluetooth, Wi-Fi and SATA/SAS)		15,077		3,334		18,411
Total	$	40,446	$	37,431	$	77,877

Timing of revenue recognition
Products transferred at a point in time	$	30,744	$	37,431	$	68,175
Products and services transferred over time		9,702		—		9,702
Total	$	40,446	$	37,431	$	77,877

Contract balances:

The following table provides information about trade receivables, unbilled receivables and contract liabilities from contracts with customers (in thousands):

	December 3 1 , 2018

Trade receivables	$	9,971
Unbilled receivables (associated with licensing and other)		6,745
Unbilled receivables (associated with royalties)		9,440
Deferred revenues (short-term contract liabilities)		3,593

The Company receives payments from customers based upon contractual payment schedules; trade receivable are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables associated with licensing and other include amounts related to the Company’s contractual right to consideration for completed performance objectives

not

yet invoiced. Unbilled receivables associated with royalties are recorded as the Company recognizes revenues from royalties earned during the quarter, but

not

yet invoiced, either by actual sales data received from customers, or, when applicable, by the Company’s estimation. Contract liabilities (deferred revenue) include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

During the year ended

December 31, 2018,

the Company recognized

$3,728

that was included in deferred revenues (short-term contract liability) balance at

January 1, 2018.

In accordance with ASC

606,

the disclosure of the impact of adoption to the Company’s condensed consolidated statements of income and balance sheets is as follows:

	Year ended December 3 1 , 2018
	As reported			Balance without adopting ASC 606			Effect of change higher/(lower)
Revenues:
Licensing and related revenue	$	40,446		$	35,873		$	4,573
Royalties		37,431			37,926			(495	)
Total revenues		77,877			73,799			4,078
Cost of revenues		7,951			7,951			—
Gross profit		69,926			65,848			4,078
Operating expenses:
Sales and marketing		12,161			12,139			22
Other operating expenses		59,010			59,010			—
Total operating expenses		71,171			71,149			22
Operating loss		(1,245	)		(5,301	)		4,056
Financial income, net		3,418			3,418			—
Revaluation of investment in other company		(870	)		(870	)		—
Income (loss) before taxes on income		1,303			(2,753	)		4,056
Income taxes		729			356			373
Net income (loss)	$	574		$	(3,109	)	$	3,683

Basic net income (loss) per share	$	0.03		$	(0.14	)	$	0.17
Diluted net income (loss) per share	$	0.03		$	(0.14	)	$	0.16

	December 3 1 , 2018
	As reported		Balance without adopting ASC 606		Effect of change higher/(lower)
Assets:
Trade receivables	$	26,156	$	12,875	$	13,281
Prepaid expenses and other current assets	$	5,264	$	6,307	$	(1,043	)

Stockholders' equity:
Retained earnings	$	62,853	$	50,615	$	12,238

Practical Expediency and Exemptions:

The Company generally expenses sales commissions when incurred because the amortization period would have been less than

one

year. The Company records these costs within sales and marketing expenses on the Company’s consolidated statements of income.

The Company does

not

assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be

one

year or less.