INTEVAC INC (Form: 10-Q, Received: 08/03/2023 16:07:46)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM

10-Q

(MARK ONE)

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

For the quarterly period ended July 1, 2023

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

For the transition period from

Commission file number

0-26946

INTEVAC, INC.

(Exact name of registrant as specified in its charter)


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

3560 Bassett Street

Santa Clara, California 95054

(Address of principal executive office, including Zip Code)

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

986-9888

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

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

non-accelerated

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

Rule 12b-2

of the Exchange Act:

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

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

Rule 12b-2

of the Act). ☐ Yes ☒ No

On July 31, 2023

26,302,666

shares of the registrant’s Common Stock, $0.001 par value, were outstanding.

INTEVAC, INC.

INDEX


No.		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Comprehensive Loss		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3.	Defaults Upon Senior Securities		38
Item 4.	Mine Safety Disclosures		38
Item 5.	Other Information		38
Item 6.	Exhibits		38

SIGNATURES			40

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	July 1, 2023			December 31, 2022

	(Unaudited)
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	43,976		$	68,904
Short-term investments		23,626			25,541
Trade and other accounts receivable, net of allowances of $0 at both July 1, 2023 and December 31, 2022		20,211			15,823
Inventories		46,293			30,003
Prepaid expenses and other current assets		1,914			1,898

Total current assets		136,020			142,169
Long-term investments		5,550			17,585
Restricted cash		785			786
Property, plant and equipment, net		7,288			3,658
Operating lease right-of-use-assets		2,266			3,390
Intangible assets, net of amortization of $ 110,000 at July 1, 2023 and $ 42,000 at December 31, 2022		1,022			1,090
Deferred income taxes and other long-term assets		4,187			4,381

Total assets	$	157,118		$	173,059

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current operating lease liabilities	$	2,456		$	3,404
Accounts payable		10,421			11,610
Accrued payroll and related liabilities		3,416			3,087
Other accrued liabilities		1,376			5,430
Customer advances		20,248			2,444

Total current liabilities		37,917			25,975
Noncurrent liabilities:
Noncurrent operating lease liabilities		687			1,417
Customer advances		1,482			22,215
Other noncurrent liabilities		29			—

Total noncurrent liabilities		2,198			23,632
Stockholders’ equity:
Common stock, $0.001 par value		26			26
Additional paid-in capital		208,672			206,355
Treasury stock, 5,087 shares at both July 1, 2023 and at December 31, 2022		(29,551	)		(29,551	)
Accumulated other comprehensive loss		(190	)		(193	)
Accumulated deficit		(61,954	)		(53,185	)

Total stockholders’ equity		117,003			123,452

Total liabilities and stockholders’ equity	$	157,118		$	173,059

Note:

Amounts as of December 31, 2022 are derived from the December 31, 2022 audited consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022

	(Unaudited)
	(In thousands, except per share amounts)
Net revenues	$	10,301		$	9,307		$	21,843		$	13,752
Cost of net revenues		7,731			4,820			14,554			8,543

Gross profit		2,570			4,487			7,289			5,209
Operating expenses:
Research and development		3,647			2,868			7,620			7,028
Selling, general and administrative		4,375			4,016			9,575			8,265

Total operating expenses		8,022			6,884			17,195			15,293

Loss from operations		(5,452	)		(2,397	)		(9,906	)		(10,084	)
Interest income and other income (expense), net		650			317			1,322			310

Loss from continuing operations before provision for income taxes		(4,802	)		(2,080	)		(8,584	)		(9,774	)
Provision for income taxes		116			500			502			526

Net loss from continuing operations, net of taxes		(4,918	)		(2,580	)		(9,086	)		(10,300	)

Net income (loss) from discontinued operations, net of taxes		40			(238	)		317			(373	)

Net loss	$	(4,878	)	$	(2,818	)	$	(8,769	)	$	(10,673	)

Net income (loss) per share:
Basic and diluted – continuing operations	$	(0.19	)	$	(0.10	)	$	(0.35	)	$	(0.41	)
Basic and diluted – discontinued operations	$	0.00		$	(0.01	)	$	0.01		$	(0.01	)
Basic and diluted – net loss	$	(0.19	)	$	(0.11	)	$	(0.34	)	$	(0.43	)

Weighted average common shares outstanding:
Basic and diluted		26,032			25,141			25,907			24,970

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022

	(Unaudited)
	(In thousands)
Net loss	$	(4,878	)	$	(2,818	)	$	(8,769	)	$	(10,673	)

Other comprehensive income (loss), before tax:
Change in unrealized net gain (loss) on available-for-sale investments		53			(161	)		222			(335	)
Foreign currency translation losses		(229	)		(219	)		(219	)		(252	)

Other comprehensive income (loss), before tax		(176	)		(380	)		3			(587	)
Income taxes related to items in other comprehensive income (loss)		—			—			—			—

Other comprehensive income (loss), net of tax		(176	)		(380	)		3			(587	)

Comprehensive loss	$	(5,054	)	$	(3,198	)	$	(8,766	)	$	(11,260	)

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
	July 1, 2023			July 2, 2022

	(Unaudited)
	(In thousands)
Operating activities
Net loss	$	(8,769	)	$	(10,673	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		681			776
Amortization of intangible assets		68			—
Net amortization (accretion) of investment premiums and discounts		(108	)		(20	)
Equity-based compensation		3,076			489
Straight-line rent adjustment and amortization of lease incentives		(554	)		(483	)
Deferred income taxes		183			345
(Gain) loss on disposal of equipment		(41	)		1,453
Changes in operating assets and liabilities		(27,931	)		(3,322	)

Total adjustments		(24,626	)		(762	)

Net cash and cash equivalents used in operating activities		(33,395	)		(11,435	)
Investing activities
Purchases of investments		(9,099	)		(45,663	)
Proceeds from sales and maturities of investments		23,029			7,263
Proceeds from sales of fixed assets		65			—
Purchases of leasehold improvements and equipment		(4,335	)		(888	)

Net cash and cash equivalents provided by (used in) investing activities		9,660			(39,288	)
Financing activities
Net proceeds from issuance of common stock		838			2,211
Payment of acquisition-related contingent consideration		(250	)		—
Taxes paid related to net share settlement		(1,563	)		(295	)

Net cash and cash equivalents provided by (used in) financing activities		(975	)		1,916
Effect of exchange rate changes on cash and cash equivalents		(219	)		(252	)

Net decrease in cash, cash equivalents and restricted cash		(24,929	)		(49,059	)
Cash, cash equivalents and restricted cash at beginning of period		69,690			103,514

Cash, cash equivalents and restricted cash at end of period	$	44,761		$	54,455

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

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Description of Business, Basis of Presentation and Significant Accounting Policy

Description of Business

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

Principles of Consolidation and Basis of Presentation

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

In the opinion of management, the unaudited interim condensed consolidated financial statements of Intevac included herein have been prepared on a basis consistent with the December 31, 2022 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein.

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

Reportable Segment

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

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

In March 2022, the Company approved and implemented a restructuring program to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several research and development (“R&D”) programs and product offerings. As part of this realignment effort, the Company ceased its efforts to develop and market several of its manufacturing platforms for the DCP, PV and ASP industries and ceased offering certain legacy products in these industries.

Trade Accounts Receivable and Allowance for Credit Losses

The Company’s accounts receivable are recorded at invoiced amounts less allowance for any credit losses. In accordance with the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”)

2016-13 that

we adopted on January 1, 2023, the Company recognizes credit losses based on forward-looking current expected credit losses (“CECL”). The Company makes estimates of expected credit losses based upon its assessment of various factors, including the age of accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The allowance for credit losses are recognized in the consolidated statement of operations. The uncollectible accounts receivable are written off in the period in which a determination is made that all commercially reasonable means of recovering them have been exhausted. The total allowance for credit losses was $0 at both July 1, 2023 and December 31, 2022, and there was no

write-off

of accounts receivable for the periods presented.

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

2.	Divestiture and Discontinued Operations

Sale of Photonics

On December 30, 2021, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with EOTECH, LLC (“EOTECH”) governing the sale of the Company’s Photonics business to EOTECH in exchange for (i) $70.0 million in cash consideration, (ii) up to $30.0 million in earnout payments and (iii) the assumption by EOTECH of certain liabilities of the Photonics business as specified in the Purchase Agreement. The transaction closed on December 30, 2021. Under the Purchase Agreement, EOTECH also agreed to pay to the Company, if earned, earnout payments of up to an aggregate of $30.0 million based on achievement of fiscal year 2023, 2024 and 2025 Photonics segment revenue targets for the Integrated Visual Augmentation System (“IVAS”) program as specified in the Purchase Agreement. At any time prior to December 31, 2024, EOTECH may elect to pay to the Company $14.0 million, which would terminate EOTECH’s obligations with respect to any remaining earnout payments. As of July 1, 2023, there have been no earnout payments under the Purchase Agreement. The cash proceeds do not include any estimated future payments from the revenue earnout as the Company has elected to record the proceeds when the consideration is deemed realizable. The Company believes the disposition of the Photonics business will allow it to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.

In connection with the Photonics sale, the Company and EOTECH also entered into a Transition Service Agreement (the “TSA”) and a Lease Assignment Agreement. The TSA, which expired on June 30, 2022, outlined the information technology, people, and facility support the parties provided to each other for a period after the closing of the sale. The Lease Assignment Agreement assigns the lease obligation for two buildings in the Company’s California campus to EOTECH. As part of the assignment, the Company has agreed to subsidize a portion of EOTECH’s lease payments through the remainder of the lease term which expires in March 2024. In August 2022, Intevac and EOTECH entered into a Shared Services Agreement (the “Shared Services Agreement”) to share certain building maintenance costs.

TSA fees earned since the divestiture were $408,000 for the three months ended July 2, 2022 and $1.2 million for the six months ended July 2, 2022. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA fees were included in selling, general and administrative expenses and cost of sales, respectively, in the Company’s condensed consolidated statement of operations. Additionally, during the three and six months ended July 2, 2022, the Company sold inventory in the amount of $32,000 and $148,000, respectively to EOTECH. Fees earned under the Shared Services Agreement for the three and six months ended July 1, 2023 were $39,000 and $65,000, respectively. As of July 1, 2023 and December 31, 2022, accounts receivable from EOTECH of $41,000 and $49,000, respectively, were included in trade and other accounts receivable in the Company’s condensed consolidated balance sheets.

Based on its magnitude and because the Company exited certain markets, the sale of the Photonics segment represents a significant strategic shift that has a material effect on the Company’s operations and financial results, and the Company has separately reported the results of its Photonics segment as discontinued operations in the condensed consolidated statements of operations for the three and six months ended July 1, 2023 and July 2, 2022.

The key components from discontinued operations related to the Photonics segment are as follows:


	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July, 2022

	(In thousands)
Selling, general and administrative	$	(40	)	$	238		$	(317	)	$	373

Total operating expenses		(40	)		238			(317	)		373

Operating income (loss) – discontinued operations		40			(238	)		317			(373	)
Other income (expense) – discontinued operations		—			—			—			—

Income (loss) from discontinued operations before provision for income taxes		40			(238	)		317			(373	)
Provision for income taxes		—			—			—			—

Net income (loss) from discontinued operations, net of taxes	$	40		$	(238	)	$	317		$	(373	)

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

non-cash

information related to discontinued operations for the three and six months ended July 1, 2023 and July 2, 2022:


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023			July 2, 2022

	(In thousands)
Equity-based compensation	$	—	$	39	$	(260	)	$	(291	)

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended July 1, 2023 and July 2, 2022.

Major Products and Service Lines


	Three Months Ended July 1, 2023								Three Months Ended July 2, 2022

	(In thousands)
	HDD		PV		ASP		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	9,351	$	10	$	11	$	9,372	$	7,756	$	1	$	82	$	7,839
Field service		929		—		—		929		1,421		43		4		1,468

Total net revenues	$	10,280	$	10	$	11	$	10,301	$	9,177	$	44	$	86	$	9,307


	Six Months Ended July 1, 2023								Six Months Ended July 2, 2022

	(In thousands)
	HDD		PV		ASP		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	19,868	$	28	$	11	$	19,907	$	10,879	$	1	$	135	$	11,015
Field service		1,936		—		—		1,936		2,684		43		10		2,737

Total net revenues	$	21,804	$	28	$	11	$	21,843	$	13,563	$	44	$	145	$	13,752

Primary Geographical Markets


	Three Months Ended				Six Months Ended

	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022

	(In thousands)
United States	$	662	$	1,656	$	2,276	$	1,950
Asia		9,628		7,651		19,556		11,802
Europe		11		—		11		—

Total net revenues	$	10,301	$	9,307	$	21,843	$	13,752

Timing of Revenue Recognition


	Three Months Ended				Six Months Ended

	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022

	(In thousands)
Products transferred at a point in time	$	10,301	$	9,307	$	21,843	$	13,752
Products and services transferred over time		—		—		—		—

Total net revenues	$	10,301	$	9,307	$	21,843	$	13,752

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled, and our contract liabilities, which we classify as deferred revenue and customer advances, for the six months ended July 1, 2023:


	July 1, 2023		December 31, 2022		Six Months Change

	(In thousands)
Contract assets:
Accounts receivable, unbilled	$	1,023	$	424	$	599

Contract liabilities:
Deferred revenue	$	310	$	2,446	$	(2,136	)
Customer advances		21,730		24,659		(2,929	)

	$	22,040	$	27,105	$	(5,065	)

Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Accounts receivable, unbilled represents a contract asset for revenue that has been recognized in advance of billing the customer. For our system and certain upgrade sales, our customers generally pay in three installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price due upon completion of installation and acceptance of the system at the customer’s factory. Accounts receivable, unbilled generally represents the balance of the system price that is due upon completion of installation and acceptance, less the amount that has been deferred as revenue for the performance of the installation tasks. During the six months ended July 1, 2023, contract assets increased by $599,000 primarily due to the accrual of revenue for a system delivered in the quarter ended July 1, 2023 that was pending acceptance as of July 1, 2023 and the accrual of revenue related to the sale of upgrades to a customer during the six months ended July 1, 2023, offset in part by the billing of accrued revenue related to spare parts sold to a customer as of December 31, 2022.

Customer advances generally represent a contract liability for amounts billed to the customer prior to transferring goods. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These customer advances are liquidated when revenue is recognized. Deferred revenue generally represents a contract liability for amounts billed to a customer for completed systems at the customer site that are undergoing installation and acceptance testing where transfer of control has not yet occurred as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product. During the six months ended July 1, 2023, we recognized revenue of $3.0 million and $2.2 million that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

In May 2023, the Company received notice of the cancellation of a $54.6 million order for eight 200 Lean HDD systems due to the customer postponing previously planned media capacity additions, and, accordingly, the Company removed the order from backlog. The customer contract associated with the cancelled order requires the customer to pay the Company a prorated price based upon the percentage of work completed on the order. The Company has received customer advances in the amount of $19.1 million associated with the cancelled order, all of which will be utilized to settle this customer obligation.

On July 1, 2023, we had $58.2 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 37.9% of our remaining performance obligations as revenue in 2023 and 62.1% in 2024.

4.	Inventories

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


	July 1,		December 31,
	2023		2022

	(In thousands)
Raw materials	$	35,419	$	19,116
Work-in-progress		10,860		9,499
Finished goods		14		1,388

	$	46,293	$	30,003

Finished goods inventory at December 31, 2022 is comprised of a refurbished system at a customer location where the sales transaction did not meet our revenue recognition criteria. In May 2023, the Company received notice of the cancellation of a $54.6 million order for eight 200 Lean HDD systems. The customer contract associated with the cancelled order requires the customer to pay the Company a prorated price based upon the percentage of work completed on the order. The Company has received customer advances in the amount of $19.1 million associated with the cancelled order, all of which will be utilized to settle this customer obligation. In the second half of 2023 and into the beginning of 2024, as part of the cancellation of the order for eight 200 Lean HDD systems, the customer is expected to take delivery of $12.5 million of inventory on hand at July 1, 2023 and $11.4 million of inventory on order plus reimburse us for any supplier cancellation charges.

5.	Equity-Based Compensation

At July 1, 2023, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan, the 2022 Inducement Equity Incentive Plan (the “Inducement Plan”) (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan and the ESPP. The Plans permit the grant of incentive or

non-statutory

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

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(Unaudited)

On January 19, 2022, Intevac’s Board of Directors adopted the Inducement Plan and, subject to the adjustment provisions of the Inducement Plan, reserved 1,200,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the Company’s 2020 Equity Incentive Plan. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with that rule, awards under the Inducement Plan may only be made to individuals not previously employees or

non-employee

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

non-employment

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

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

six-month

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

six-month

purchase interval. Under the terms of the ESPP, employees can choose to have up to 50% of their base earnings withheld to purchase Intevac common stock (not to exceed $25,000 per year).

Compensation Expense

The effect of recording equity-based compensation for the three and six months ended July 1, 2023 and July 2, 2022 was as follows:


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023			July 2, 2022

	(In thousands)
Equity-based compensation by type of award:
Stock options	$	2	$	8	$	(11	)	$	(163	)
RSUs		756		729		1,355			336
PRSUs		534		566		1,332			231
ESPP purchase rights		203		222		400			85

Total equity-based compensation	$	1,495	$	1,525	$	3,076		$	489

Included in the table above are:

(a)

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

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

(b)

Equity-based compensation reported in discontinued operations of ($260,000) for the six months ended July 1, 2023. Equity-based compensation reported in discontinued operations of $39,000 and ($291,000) for the three and six months ended July 2, 2022, respectively. Equity-based compensation expense allocated to discontinued operations for the six months ended July 2, 2022 includes $75,000 related to the modification of certain stock-based awards and is net of a divestiture-related forfeiture benefit of $446,000 that was recognized when employees were conveyed to EOTECH upon closing of the Photonics divestiture. (See Note

2. Divestiture and Discontinued Operations.)

Stock Options and ESPP

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

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(Unaudited)

Option activity as of July 1, 2023 and changes during the six months ended July 1, 2023 were as follows:


	Shares			Weighted-Average Exercise Price

Options outstanding at December 31, 2022		383,099		$	7.07
Options cancelled and forfeited		(41,593	)	$	10.59
Options exercised		(52,813	)	$	5.15

Options outstanding at July 1, 2023		288,693		$	6.91

Options exercisable at July 1, 2023		288,568		$	6.91

Intevac issued 131,303 shares of common stock under the ESPP during the six months ended July 1, 2023.

Intevac estimated the weighted-average fair value of ESPP purchase rights using the following weighted-average assumptions:


	Six Months Ended
	July 1, 2023			July 2, 2022
ESPP Purchase Rights:
Weighted-average fair value of grants per share	$	2.23		$	1.85
Expected volatility		34.20	%		60.36	%
Risk-free interest rate		4.47	%		0.98	%
Expected term of purchase rights (in years)		1.0			1.2
Dividend yield		None			None

The computation of the expected volatility assumptions used in the Black-Scholes calculations for ESPP purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

RSUs

RSU activity as of July 1, 2023 and changes during the six months ended July 1, 2023 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested RSUs at December 31, 2022		1,309,792		$	5.14
Granted		277,269		$	5.40
Vested		(442,823	)	$	5.21
Cancelled and forfeited		(74,185	)	$	5.49

Non-vested RSUs at July 1, 2023		1,070,053		$	5.15

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

one-for-one

basis. Time-based RSUs typically are scheduled to vest over

three

or four years. For time-based RSUs granted beginning in May 2023, RSUs generally vest over a three-year period, with 33% vesting at the end of one year and the remaining vesting quarterly thereafter. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.

PRSUs

PRSU activity as of July 1, 2023 and changes during the six months ended July 1, 2023 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested PRSUs at December 31, 2022		1,089,339		$	3.54
Granted		525,656		$	4.92
Vested		(190,903	)	$	4.26
Cancelled and forfeited		(7,929	)	$	6.13

Non-vested PRSUs at July 1, 2023		1,416,163		$	3.94

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(Unaudited)

In May 2023, we granted to members of our senior management awards of performance-based restricted stock units (the “2023 PRSU Awards”) covering an aggregate of 525,656 shares of Intevac common stock (at maximum performance). The 2023 PRSU Awards are eligible to be earned based on achievement of five strategic goals during a three-year performance period commencing on May 18, 2023 and ending on May 31, 2026 (the “2023 Performance Period”). The 2023 PRSU Awards will vest, if at all, in five possible tranches. Each of the five tranches will vest only if the applicable strategic goal is achieved within the 2023 Performance Period, and each tranche may only be achieved once during the 2023 Performance Period. If a strategic goal is not achieved within the 2023 Performance Period, the corresponding PRSUs will not vest, and all unvested PRSUs at the end of the 2023 Performance Period will immediately be forfeited. Stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the PRSU grant. The Company evaluated the strategic goals in the context of its current long-range financial plan and its product development roadmap and determined the probability of achieving each goal for accounting purposes commencing in the quarter granted. Management expectations related to the achievement of performance goals associated with PRSUs with performance conditions are assessed regularly to determine whether such grants are expected to vest. The fair value of each PRSU is the Company’s stock price on the date of grant. Over the 2023 Performance Period, the number of shares expected to be issued may be adjusted upward or downward based upon the probability of achievement of the performance conditions.

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

30-day

period (the “Company Stock Price Hurdle”) during a three-year performance period commencing on May 18, 2022 and ending on May 31, 2025 (or earlier, upon a change in control, as defined in the Company’s 2022 Inducement Equity Incentive Plan or 2020 Equity Incentive Plan, as applicable) (the “2022 Performance Period”). The 2022 PRSU Awards will vest, if at all, in five possible tranches. Each of the five tranches will vest only if the applicable Company Stock Price Hurdle is achieved within the 2022 Performance Period, and each tranche may only be achieved once during the 2022 Performance Period. If a Company Stock Price Hurdle is not achieved within the 2022 Performance Period, the corresponding PRSUs will not vest, and all unvested PRSUs at the end of the 2022 Performance Period will immediately be forfeited. The first tranche of the awards vested on December 28, 2022. The second tranche of the awards vested on February 23, 2023. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation.

Intevac estimated the weighted-average fair value of the 2022 PRSU Awards using the following assumptions:


	Three and Six Months Ended
	July 2, 2022
Weighted-average fair value of grants per share	$	3.67
Expected volatility		54.42	%
Risk-free interest rate		2.82	%
Dividend yield		None

Warranty

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is subject to contract terms and, for its systems, the warranty typically ranges between 12 and 24 months from customer acceptance. During this warranty period any defective

non-consumable

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

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

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(Unaudited)

The following table displays the activity in the warranty provision account for the three and six months ended July 1, 2023 and July 2, 2022.


	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022

	(In thousands)
Opening balance	$	177		$	249		$	163		$	346
Expenditures incurred under warranties		(67	)		(54	)		(165	)		(225	)
Accruals for product warranties issued during the reporting period		72			36			172			72
Adjustments to previously existing warranty accruals		(1	)		(17	)		11			21

Closing balance	$	181		$	214		$	181		$	214

The following table displays the balance sheet classification of the warranty provision account at July 1, 2023 and at December 31, 2022.


	July 1 2023		December 31 2022

	(In thousands)
Other accrued liabilities	$	152	$	163
Other noncurrent liabilities		29		—

Total warranty provision	$	181	$	163

7.	Guarantees

Officer and Director Indemnifications

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

Other Indemnifications

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

Letters of Credit

As of July 1, 2023, we had letters of credit and bank guarantees outstanding totaling $785,000, including the standby letter of credit outstanding under the Santa Clara, California facility lease and various other guarantees with our bank. These letters of credit and bank guarantees are collateralized by $785,000 of restricted cash.

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(Unaudited)

8.	Cash, Cash Equivalents and Investments

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


	July 1, 2023
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value

	(In thousands)
Cash and cash equivalents:
Cash	$	22,389	$	—	$	—	$	22,389
Money market funds		16,188		—		—		16,188
Commercial paper		5,401		—		2		5,399

Total cash and cash equivalents	$	43,978	$	—	$	2	$	43,976
Short-term investments:
Asset-backed securities	$	1,015	$	—	$	1	$	1,014
Certificates of deposit		1,700		—		1		1,699
Commercial paper		5,212		—		3		5,209
Corporate bonds and medium-term notes		5,673		—		101		5,572
Municipal bonds		1,220		—		13		1,207
U.S. treasury securities		9,024		—		99		8,925

Total short-term investments	$	23,844	$	—	$	218	$	23,626
Long-term investments:
Asset-backed securities	$	3,162	$	—	$	29	$	3,133
Corporate bonds and medium-term notes		2,430		—		13		2,417

Total long-term investments	$	5,592	$	—	$	42	$	5,550

Total cash, cash equivalents, and investments	$	73,414	$	—	$	262	$	73,152

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(Unaudited)


	December 31, 2022
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value

	(In thousands)
Cash and cash equivalents:
Cash	$	26,465	$	—	$	—	$	26,465
Money market funds		9,589		—		—		9,589
Commercial paper		32,856		—		6		32,850

Total cash and cash equivalents	$	68,910	$	—	$	6	$	68,904
Short-term investments:
Asset-backed securities	$	2,012	$	—	$	13	$	1,999
Certificates of deposit		3,850		—		10		3,840
Commercial paper		9,443		—		28		9,415
Corporate bonds and medium-term notes		4,210		—		32		4,178
Municipal bonds		1,486		—		25		1,461
U.S. treasury securities		4,771		—		123		4,648

Total short-term investments	$	25,772	$	—	$	231	$	25,541
Long-term investments:
Asset-backed securities	$	6,749	$	—	$	85	$	6,664
Corporate bonds and medium-term notes		5,366		—		102		5,264
Municipal bonds		224		—		6		218
U.S. treasury and agency securities		5,493		—		54		5,439

Total long-term investments	$	17,832	$	—	$	247	$	17,585

Total cash, cash equivalents, and investments	$	112,514	$	—	$	484	$	112,030

The contractual maturities of investment securities at July 1, 2023 are presented in the following table.


	Amortized Cost		Fair Value

	(In thousands)
Due in one year or less	$	45,433	$	45,213
Due after one through five years		5,592		5,550

	$	51,025	$	50,763

We reassess our estimated credit losses on investments each reporting period. U.S. government securities and cash equivalents are under a

“zero-loss

exception” for credit losses, meaning no credit loss risk calculation is necessary on those instruments due to the exceptionally low rate of default, which continues to decrease as the securities approach maturity. We record changes in the allowance for credit losses for

available-for-sale

debt securities with a corresponding adjustment in credit loss expense on the consolidated statement of operations. No reversal of a previously recorded allowance for credit losses may be made to an amount below zero. The total allowance for credit losses was $0 at both July 1, 2023 and December 31, 2022.

Our investment portfolio includes both corporate and U.S. government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower

yield-at-cost

show a

mark-to-market

unrealized loss. Most of our unrealized losses are due to changes in market interest rates and bond yields. We believe that we have the ability to realize the full value of all these investments upon maturity. As of July 1, 2023, we had 56 investments in a gross unrealized loss position. The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of July 1, 2023.

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(Unaudited)


	July 1, 2023
	In Loss Position for Less than 12 Months				In Loss Position for Greater than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

	(In thousands)
Asset-backed securities	$	288	$	2	$	3,778	$	28
Certificates of deposit		499		1		—		—
Commercial paper		9,458		5		—		—
Corporate bonds and medium-term notes		3,171		30		4,103		84
Municipal bonds		—		—		1,207		13
U.S. treasury securities		4,025		4		4,900		95

	$	17,441	$	42	$	13,988	$	220

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

The following table represents the fair value hierarchy of Intevac’s investment securities measured at fair value on a recurring basis as of July 1, 2023.


	Fair Value Measurements at July 1, 2023
	Total		Level 1		Level 2

	(In thousands)
Recurring fair value measurements:
Investment securities
Money market funds	$	16,188	$	16,188	$	—
U.S. treasury and agency securities		8,925		5,429		3,496
Asset-backed securities		4,147		—		4,147
Certificates of deposit		1,699		—		1,699
Commercial paper		10,608		—		10,608
Corporate bonds and medium-term notes		7,989		—		7,989
Municipal bonds		1,207		—		1,207

Total recurring fair value measurements	$	50,763	$	21,617	$	29,146

9.	Derivative Instruments

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded in its condensed consolidated balance sheets as of July 1, 2023 and December 31, 2022.

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(Unaudited)


	Notional Amounts				Derivative Liabilities				Derivative Assets
Derivative Instrument	July 1, 2023		December 31, 2022		July 1, 2023				December 31, 2022

					Balance Sheet Line		Fair Value		Balance Sheet Line		Fair Value
	(In thousands)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	1,258		2,240		b	$	6		a	$	44

Total Hedges	$	1,258		2,240			$	6			$	44

a	Other current assets

b	Other accrued liabilities

10.

Equity

Stock Repurchase Program

On November 21, 2013, Intevac announced that its Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 20, 2018, Intevac announced that its Board of Directors approved a $10.0 million increase to the original stock repurchase program for an aggregate authorized amount of up to $40.0 million. At July 1, 2023, $10.4 million remains available for future stock repurchases under the repurchase program. Intevac did not make any common stock repurchases during the three and six months ended July 1, 2023 and July 2, 2022.

Condensed Consolidated Statement of Changes in Equity

The changes in stockholders’ equity by component for the three and six months ended July 1, 2023 and July 2, 2022, are as follows (in thousands):


	Three Months Ended July 1, 2023
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity

Balance at April 1, 2023	$	207,489		$	(29,551	)	$	(14	)	$	(57,076	)	$	120,848
Common stock issued under employee plans		3			—			—			—			3
Shares withheld for net share settlement of RSUs		(289	)		—			—			—			(289	)
Equity-based compensation expense		1,495			—			—			—			1,495
Net loss		—			—			—			(4,878	)		(4,878	)
Other comprehensive loss		—			—			(176	)		—			(176	)

Balance at July 1, 2023	$	208,698		$	(29,551	)	$	(190	)	$	(61,954	)	$	117,003


	Six Months Ended July 1, 2023
	Common Stock and Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity

Balance at December 31, 2022	$	206,381		$	(29,551	)	$	(193	)	$	(53,185	)	$	123,452
Common stock issued under employee plans		804			—			—			—			804
Shares withheld for net share settlement of RSUs		(1,563	)		—			—			—			(1,563	)
Equity-based compensation expense		3,076			—			—			—			3,076
Net loss		—			—			—			(8,769	)		(8,769	)
Other comprehensive loss		—			—			3			—			3

Balance at July 1, 2023	$	208,698		$	(29,551	)	$	(190	)	$	(61,954	)	$	117,003

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(Unaudited)


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

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


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

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

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component for the three and six months ended July 1, 2023 and July 2, 2022, are as follows.


	Three Months Ended									Six Months Ended

	July 1, 2023
	Foreign currency			Unrealized holding gains (losses) on available- for-sale investments			Total			Foreign currency			Unrealized holding gains (losses) on available- for-sale investments			Total

	(In thousands)
Beginning balance	$	301		$	(315	)	$	(14	)	$	291		$	(484	)	$	(193	)
Other comprehensive income (loss) before reclassification		(229	)		53			(176	)		(219	)		222			3
Amounts reclassified from other comprehensive income (loss)		—			—			—			—			—			—

Net current-period other comprehensive income (loss)		(229	)		53			(176	)		(219	)		222			3

Ending balance	$	72		$	(262	)	$	(190	)	$	72		$	(262	)	$	(190	)

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


	Three Months Ended									Six Months Ended

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

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

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

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

11.	Net Loss Per Share

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


	Three Months Ended						Six Months Ended

	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022

	(In thousands, except per share amounts)
Net loss from continuing operations	$	(4,918	)	$	(2,580	)	$	(9,086	)	$	(10,300	)
Net income (loss) from discontinued operations, net of taxes	$	40		$	(238	)	$	317		$	(373	)

Net loss	$	(4,878	)	$	(2,818	)	$	(8,769	)	$	(10,673	)

Weighted-average shares – basic		26,032			25,141			25,907			24,970
Effect of dilutive potential common shares		—			—			—			—

Weighted-average shares – diluted		26,032			25,141			25,907			24,970

Basic and diluted net income (loss) per share:
Continuing operations	$	(0.19	)	$	(0.10	)	$	(0.35	)	$	(0.41	)

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

Net loss per share	$	(0.19	)	$	(0.11	)	$	(0.34	)	$	(0.43	)

As the Company is in a net loss position, all of the Company’s equity instruments are considered antidilutive.

12.	Income Taxes

107,000

and $

158,000

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

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into U.S. law. The IRA includes a new Corporate Alternative Minimum Tax (“CAMT”) that is effective for tax years beginning after December 31, 2022. The CAMT applies to corporations that report over $1.0 billion in profits to shareholders. The Company does not expect the provisions of the CAMT to have a material impact to the Company’s consolidated financial statements.

13.	Restructuring and Other Costs, Net

During the first quarter of fiscal 2022, Intevac substantially completed implementation of the 2022 cost reduction plan (the “2022 Cost Reduction Plan”), which was intended to reduce our overall cost structure and optimize our operational design, inclusive of the stranded overhead associated with the divestiture of the Photonics business. The restructuring program includes management reorganization and the right sizing of certain technology development, marketing and administrative functions. We incurred restructuring costs of $1.2 million in estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2022 Cost Reduction Plan include: (i) a benefit of $1.3 million related to the stock-based compensation forfeitures related to the employees affected by the reduction in workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost Reduction Plan reduced Intevac’s workforce by 6 percent. The cost of implementing the 2022 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Implementation of the 2022 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis.

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


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

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

Balance at July 2, 2022 (b)	$	333

(a)	Acceleration of equity awards.

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

During the fourth quarter of fiscal 2021, the Company recorded asset impairment and restructuring charges associated with the sale of the Photonics division including (i) $693,000 in severance and other employee-related costs related to the termination of the Photonics general manager; (ii) $1.2 million in asset impairment charges on the Company’s ROU asset and (iii) $665,000 in accruals for common area charges associated with an unused space commitment to EOTECH. In consideration of EOTECH’s assumption of certain lease obligations related to the Company’s Santa Clara, California campus, which assumed lease obligations pertain in part to excess space beyond that required by EOTECH’s currently anticipated operation of the Photonics division, the Company agreed to pay EOTECH the amount of $2.1 million, which is payable in (i) one initial installment of $308,000 on January 10, 2022 and (ii) seven equal quarterly installments of $259,000. The Company recorded an asset impairment charge against its ROU asset in the amount of $1.2 million associated with the excess space noted above. The Company recorded a liability to EOTECH in the amount of $665,000, the amount related to common area charges which are not included in the base rental payments or the lease liability on the Company’s condensed consolidated balance sheet. During the first quarter of fiscal 2022, the Company recorded restructuring charges associated with the sale of the Photonics division including $37,000 in severance and other employee-related costs related to the termination of employment of four Photonics employees and $75,000 in stock-based compensation associated with the modification of certain stock-based awards for eighty Photonics employees.

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The changes in restructuring reserves, which resulted from cash-based severance payments and other employee-related costs and other exit costs associated with the Photonics divestiture for the three and six months ended July 1, 2023 and July 2, 2022 were as follows.


	Other Exit Costs
	(In thousands)

Balance at December 31, 2022	$	318
Provision for restructuring charges associated with Photonics divestiture (a)		3
Cash payments made		(81	)

Balance at April 1, 2023	$	240
Provision for restructuring charges associated with Photonics divestiture (a)		2
Cash payments made		(80	)

Balance at July 1, 2023	$	162


	Employee Termination Costs			Other Exit Costs			Total

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

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

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

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

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

(b)	Acceleration of equity awards.

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

14.	Acquisition of Hia, Inc.

On August 26, 2022 (the “Closing Date”), the Company completed the acquisition of Hia, Inc., a supplier of magnetic bars, to bring the manufacturing of these magnetic bars

in-house

and to protect our technology and product quality while continuing to improve our products. Pursuant to the Stock Purchase Agreement, dated August 26, 2022, between the Company, Hia and the other parties thereto, the Company paid an aggregate purchase price of $700,000 to Hia’s stockholders on the Closing Date. Further contingent consideration will consist of amounts payable upon achievement of certain development and commercialization milestones, which consideration is estimated to be up to $500,000. The first milestone was achieved and contingent consideration in the amount of $250,000 was paid on January 17, 2023 and was accrued in the fourth quarter of 2022. The Company is also obligated to pay a royalty of $1,500 for each magnetic bar sold through December 31, 2030. If at any time prior to December 31, 2030, the Company effects a change of control or a sale, license, transfer or other disposition to a third party (other than an affiliate of Intevac) of all or substantially all of the assets or rights associated with the magnetic bars, then, upon the closing of such transaction, a payment of $1.7 million (minus any royalty payments previously paid) will immediately become due and payable, which payment shall fulfill the Company’s royalty obligations. Transaction costs incurred in connection with the Hia acquisition totaled $63,000, which are included as a component of the purchase price paid in connection with the Hia acquisition.

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The Company determined this transaction represented an asset acquisition as substantially all of the value was in the technology intangible assets of Hia. Contingent consideration is not recorded in an asset acquisition until the contingency is resolved (when the contingent consideration is paid or becomes payable) or when probable and reasonably estimable. The first milestone was achieved and contingent consideration in the amount of $250,000 was paid on January 17, 2023. The technology intangible assets are being amortized on a straight-line basis over a period of 8.3 years. Total amortization expense during the three and six months ended July 1, 2023 was $34,000 and $68,000, respectively. Annual amortization expense related to the acquired technology intangible assets in each of the succeeding years is estimated to be approximately $68,000 for the remainder of fiscal 2023 and approximately $136,000 per year from fiscal 2024 through fiscal 2030.

The following table represents the carrying amount of the Hia technology intangible assets at July 1, 2023 (in thousands):


Gross carrying amount at July 1, 2023	$	1,132
Accumulated amortization		(110	)

Net carrying amount at July 1, 2023	$	1,022

15.	Commitments and Contingencies

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

Legal Matters

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

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

non-exempt

California employees. The former employee subsequently added class action claims to his original complaint. The parties participated in a confidential mediation on February 1, 2022, and reached a settlement resolving the case. The court approved the settlement in November 2022 and payment on the claims was made on January 20, 2023. The settlement effectively extinguishes the Quiusky v. Intevac, Inc., et al lawsuit. The settlement includes the dismissal of all claims against the Company and related parties in the Quiusky lawsuit and claim under the PAGA, without any admission of liability or wrongdoing attributed to the Company. Because of the uncertainty surrounding this litigation, no litigation reserve had been previously established by the Company resulting in the full $1.0 million settlement expense being recognized in the fourth quarter of fiscal 2021.

16.	Subsequent Event

During the third quarter of fiscal 2023, Intevac substantially completed implementation of a cost reduction plan (the “2023 Cost Reduction Plan”), which is intended to reduce expenses by reducing our workforce by

between 23 to

25 percent including employees and contractors. Intevac expects to incur restructuring costs of $1.8 million in estimated severance and other employee-related expenses associated with the 2023 Cost Reduction Plan. Substantially all cash outlays in connection with the 2023 Cost Reduction Plan are expected to occur in the third quarter of fiscal 2023. Implementation of the 2023 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses and contractor payments by approximately $4.0 million on an annual basis.

Item 2.

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

This Quarterly Report on Form 10-Q contains forward-looking statements, which involve risks and uncertainties. Words such as “believes,” “expects,” “anticipates” and the like indicate forward-looking statements. These forward-looking statements include comments related to Intevac’s shipments, projected revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in 2023 and beyond; projected customer requirements for Intevac’s new and existing products, and when, and if, Intevac’s customers will place orders for these products; the timing of delivery and/or acceptance of the systems and products that comprise Intevac’s backlog for revenue and the Company’s ability to achieve cost savings. Intevac’s actual results may differ materially from the results discussed in the forward-looking statements for a variety of reasons, including those set forth under “Risk Factors” and in other documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on February 16, 2023, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

Intevac’s trademarks include the following: “200 Lean^®,” and “INTEVAC TRIO^™.”

Discontinued Operations

On December 30, 2021, the Company completed the sale of its Photonics business to EOTECH, LLC, a Michigan limited liability company (“EOTECH”). As a result of the disposition, the results of operations from the Photonics reporting segment are reported as “Net loss from discontinued operations, net of taxes” in the condensed consolidated financial statements. All discussion herein, unless otherwise noted, refers to Intevac’s remaining operating segment after the disposition, the Thin Film Equipment (“TFE”) business. See Note 2 “Divestiture and Discontinued Operations” to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Overview

Intevac is a provider of vacuum deposition equipment for a wide variety of thin-film applications. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the hard disk drive (“HDD”) and display cover panel (“DCP”) industries. Intevac’s customers include manufacturers of hard disk media and DCPs. Intevac operates in a single segment: TFE. Product development and manufacturing activities occur in North America and Asia. Intevac also has field offices in Asia to support its customers. Intevac’s products are highly technical and are sold primarily through Intevac’s direct sales force.

Intevac’s results of operations are driven by a number of factors including success in its equipment growth initiatives in the DCP market and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, and the end-user demand for PCs, enterprise data storage, nearline “cloud” applications, video players and video game consoles that include such drives. Intevac continues to execute its strategy of diversification beyond the HDD industry by focusing on the Company’s ability to provide proprietary tools to enhance scratch protection and durability for the DCP market and by working to develop the next generation of high volume DCP manufacturing equipment. Intevac believes that its renewed focus on the DCP market will result in incremental equipment revenues for Intevac and decrease Intevac’s dependence on the HDD industry. Intevac’s equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs and cell phones as well as other factors such as global economic conditions and technological advances in fabrication processes.

The following table presents certain significant measurements for the three and six months ended July 1, 2023 and July 2, 2022:


	Three months ended									Six months ended
	July 1, 2023			July 2, 2022			Change over prior period			July 1, 2023			July 2, 2022			Change over prior period

	(In thousands, except percentages and per share amounts)
Net revenues	$	10,301		$	9,307		$	994		$	21,843		$	13,752		$	8,091
Gross profit	$	2,570		$	4,487		$	(1,917	)	$	7,289		$	5,209		$	2,080
Gross margin percent		24.9	%		48.2	%		(23.3) points			33.4	%		37.9	%		(4.5) points
Loss from operations	$	(5,452	)	$	(2,397	)	$	(3,055	)	$	(9,906	)	$	(10,084	)	$	178
Loss from continuing operations	$	(4,918	)	$	(2,580	)	$	(2,338	)	$	(9,086	)	$	(10,300	)	$	1,214
Income (loss) from discontinued operations	$	40		$	(238	)	$	278		$	317		$	(373	)	$	690
Net loss	$	(4,878	)	$	(2,818	)	$	(2,060	)	$	(8,769	)	$	(10,673	)	$	1,904
Net loss per diluted share	$	(0.19	)	$	(0.11	)	$	(0.08	)	$	(0.34	)	$	(0.43	)	$	0.09

Net revenues increased during the three and six months ended July 1, 2023 compared to the same periods in the prior year primarily due to systems sales. We recognized revenue on one 200 Lean HDD system and one refurbished 200 Lean HDD system in the second quarter of 2023. We did not recognize revenue on any system sales in the first half of fiscal 2022. Lower gross margin in the three and six months ended July 1, 2023, versus the same periods in the prior year, reflected the lower-margin contributions from the 200 Lean HDD system and the refurbished 200 Lean HDD system and lower factory utilization. Gross margins in the first half of fiscal 2022 reflected the impact of $755,000 in charges for excess and obsolete inventory as part of the Company’s realignment effort. In March 2022, the Company’s management approved a restructuring plan to realign the Company’s operational focus, scale the business and improve costs. R&D expenses for the first half of fiscal 2022 include $1.5 million in expenditures related to the disposal of certain lab equipment as part of the realignment effort. The cost of employee severance associated with the fiscal 2022 realignment effort of $1.2 million was offset in full by stock-based compensation forfeitures related to the employees affected by the reduction in workforce. Fees earned pursuant to the TSA with EOTECH since the divestiture of Photonics (“TSA fees”) were $408,000 for the three months ended July 2, 2022, of which $14,000 was reported as a reduction of cost of net revenues and $394,000 was reported as a reduction of selling, general and administrative expenses and $1.2 million for the six months ended July 2, 2022, of which $23,000 was reported as a reduction of cost of net revenues and $1.2 million was reported as a reduction of selling, general and administrative expenses. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA concluded in June 2022, and the Company did not receive any TSA fees in the first half of fiscal 2023. The Company reported a larger net loss for the three months ended July 1, 2023 compared to same period in the prior year due to lower gross profit and higher operating costs, offset in part by higher revenues. The Company reported a smaller net loss for the six months ended July 1, 2023 compared to same period in the prior year due to higher revenues and higher gross profit, offset in part by higher operating costs.

We believe fiscal 2023 will continue to be a challenging year, and Intevac does not expect to be profitable in fiscal 2023. While we expect that HDD equipment sales will be higher in 2023 than 2022 levels, we expect that HDD equipment sales in 2024 will be lower than 2023 levels. We expect to begin recognizing revenue from our TRIO platform in fiscal 2024. In May 2023, a customer cancelled an order for eight 200 Lean HDD systems and we recorded a backlog reduction of $54.6 million. Additionally, in the second half of 2023 and into the beginning of 2024, we expect to recognize cancellation charges associated with the cancelled order as the associated customer contract requires the customer to pay us a prorated price based upon the percentage of work completed on the order.

Our results of operations and growth prospects could be impacted by macroeconomic conditions such as a global economic slowdown, global economic instability and political conflicts, wars, and public health crises. Rising inflation and interest rates may impact demand for our products and services and our cost to provide products and services. Further, the impacts of inflation and interest rate fluctuations on our business and the broader economy may impact our financial condition and results of operations. Our customers may delay or cancel orders due to reduced demand and supply chain disruptions.

Results of Operations

Net revenues


	Three months ended						Six months ended
	July 1, 2023		July 2, 2022		Change over prior period		July 1, 2023		July 2, 2022		Change over prior period

	(In thousands)
Net revenues	$	10,301	$	9,307	$	994	$	21,843	$	13,752	$	8,091

Revenue for the three months ended July 1, 2023 increased compared to the same period in the prior year as a result of higher sales of systems, offset in part by lower sales of technology upgrades, spare parts and field service. Revenue for the six months ended July 1, 2023 increased compared to the same period in the prior year as a result of higher sales of systems and technology upgrades, offset in part by lower sales of spare parts and field service.We recognized revenue on one 200 Lean HDD system and one refurbished 200 Lean HDD system for each of the three and six months ended July 1, 2023. Revenue for the three and six months ended July 2, 2022 did not include revenue recognized for any systems.

Backlog


	July 1, 2023		December 31, 2022		July 2, 2022

	(In thousands)
Backlog	$	58,157	$	121,743	$	100,194

Backlog at July1, 2023 included two 200 Lean HDD systems. Backlog at both December 31, 2022 and July 2, 2022 included eleven 200 Lean HDD systems. In May 2023, a customer cancelled an order for eight 200 Lean HDD systems and we recorded a backlog reduction of $54.6 million. Our HDD revenues through the remainder of 2023 are expected to consist primarily of HDD upgrade sales, spare parts sales and field service sales. On July 1, 2023, we had $58.2 million of backlog and expect to recognize as revenue: 37.9% in 2023 and 62.1% in 2024. However, our customers may cancel their contracts with us prior to contract completion. In the case of a termination for convenience, we would not receive anticipated future revenues, but would generally be permitted to recover all or a portion of our incurred costs and fees for work performed.

Revenue by geographic region


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022

	(In thousands)
United States	$	662	$	1,656	$	2,276	$	1,950
Asia		9,628		7,651		19,556		11,802
Europe		11		—		11		—

Total net revenues	$	10,301	$	9,307	$	21,843	$	13,752

International sales include products shipped to overseas operations of U.S. companies. The decrease in sales to the U.S. region in the three months ended July 1, 2023 versus the three months ended July 2, 2022, reflected lower HDD upgrade sales, lower spare parts and lower field service sales. The increase in sales to the U.S. region in the six months ended July 1, 2023 versus the six months ended July 2, 2022, reflected higher HDD upgrade sales, offset in part by lower spare parts and lower field service sales. The increase in sales to the Asia region in the three months ended July 1, 2023 versus the three months ended July 2, 2022, reflected higher HDD system sales, offset in part by lower upgrade, spare parts and field service sales. The increase in sales to the Asia region in the six months ended July 1, 2023 versus the six months ended July 2, 2022, reflected higher HDD system and higher upgrade sales, offset in part by lower spare parts and field service sales. Sales to the Asia region for each of the three and six months ended July 1, 2023 included one 200 Lean HDD system and one refurbished 200 Lean HDD system. Sales to the Asia region in the three and six months ended July 2, 2022, did not include any systems.

Gross profit


	Three months ended									Six months ended
	July 1, 2023			July 2, 2022			Change over prior period			July 1, 2023			July 2, 2022			Change over prior period

	(In thousands, except percentages)
Gross profit	$	2,570		$	4,487		$	(1,917	)	$	7,289		$	5,209		$	2,080
% of net revenues		24.9	%		48.2	%					33.4	%		37.9	%

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

Gross margin was 24.9% in the three months ended July 1, 2023 compared to 48.2% in the three months ended July 2, 2022 and was 33.4% in the six months ended July 1, 2023 compared to 37.9% in the six months ended July 2, 2022. The decrease in the gross margin percentage for the three and six months ended July 1, 2023 compared to the same periods in the prior year was due primarily to the lower-margin contributions from the 200 Lean HDD system and the refurbished 200 Lean HDD system, and lower factory utilization. Gross margins will vary depending on a number of factors, including revenue levels, product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.

Research and development expense


	Three months ended						Six months ended
	July 1, 2023		July 2, 2022		Change over prior period		July 1, 2023		July 2, 2022		Change over prior period

	(In thousands)
Research and development expense	$	3,647	$	2,868	$	779	$	7,620	$	7,028	$	592

Research and development spending during the three and six months ended July 1, 2023 increased compared to the same periods in the prior year primarily due to higher spending on TRIO and HDD R&D programs. R&D spending during the six months ended July 2, 2022 included $1.5 million in expenditures related to the disposal of certain lab equipment as part of the realignment effort.

Selling, general and administrative expense


	Three months ended						Six months ended
	July 1, 2023		July 2, 2022		Change over prior period		July 1, 2023		July 2, 2022		Change over prior period

	(In thousands)
Selling, general and administrative expense	$	4,375	$	4,016	$	359	$	9,575	$	8,265	$	1,310

Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expense for the three months ended July 1, 2023 increased compared to the same period in the prior year as higher legal fees, higher consulting fees and higher travel expenses were offset in part by lower variable compensation expenses. Selling, general and administrative expense for the six months ended July 1, 2023 increased compared to the same period in the prior year as higher stock compensation expenses, higher variable compensation expenses, higher consulting fees, higher training expenses and higher travel expenses were offset in part by lower legal fees. Selling, general and administrative expense for the six months ended July 2, 2022 included one-time severance charges associated with the 2022 Cost Reduction Plan. Selling, general and administrative expense for the three and six months ended July 2, 2022, is net of $394,000 and $1.2 million, respectively, in TSA fees earned since the Photonics divestiture. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services.

Cost reduction plan

In March 2022, the Company’s management approved a restructuring plan to realign the Company’s operational focus, scale the business and improve costs. The restructuring program includes (i) reducing the Company’s headcount and (ii) eliminating several R&D programs and product offerings. As part of this re-alignment effort, the Company will no longer be pursuing several DCP projects including the coating of the backside covers of smartphones, solar ion implantation (also known as ENERGi^®), and advanced packaging for semiconductor manufacturing. We incurred restructuring costs of $1.2 million for estimated severance and the related modification of certain stock-based awards. Other costs incurred as part of the 2022 cost reduction plan include: (i) a benefit of $1.3 million related to the stock-based compensation forfeitures related to the employees affected by the reduction in workforce, (ii) $1.5 million for fixed asset disposals and (iii) $755,000 for write-offs of excess inventory. The 2022 Cost Reduction Plan reduced our workforce by 6 percent. The cost of implementing the 2022 Cost Reduction Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Implementation of the 2022 Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis and reduce depreciation expense by $720,000 on an annual basis. Substantially all cash outlays in connection with the 2022 Cost Reduction Plan occurred in fiscal 2022.

Interest income and other income (expense), net


	Three months ended						Six months ended
	July 1, 2023		July 2, 2022		Change over prior period		July 1, 2023		July 2, 2022		Change over prior period

	(In thousands)
Interest income and other, income (expense), net	$	650	$	317	$	333	$	1,322	$	310	$	1,012

Interest income and other income (expense), net in the three months ended July 1, 2023 included $567,000 of interest income on investments, $24,000 of various other income and $59,000 of foreign currency gains. Interest income and other income (expense), net in the six months ended July 1, 2023 included $1.3 million of interest income on investments and $64,000 of various other income, offset in part by $19,000 of foreign currency losses. Interest income and other income (expense), net in the three months ended July 2, 2022 included $166,000 of interest income on investments, $11,000 of various other income and $140,000 of foreign currency gains. Interest income and other income (expense), net in the six months ended July 2, 2022 included $175,000 of interest income on investments, $28,000 of various other income and $107,000 of foreign currency gains. The increase in interest income in the three and six months ended July 1, 2023 compared to the same periods in the prior year resulted from higher interest rates on Intevac’s investments, offset in part by lower invested balances.

Provision for income taxes


	Three months ended							Six months ended
	July 1, 2023		July 2, 2022		Change over prior period			July 1, 2023		July 2, 2022		Change over prior period

	(In thousands)
Provision for income taxes	$	116	$	500	$	(384	)	$	502	$	526	$	(24	)

Intevac recorded income tax provisions of $116,000 and $502,000 for the three and six months ended July 1, 2023, respectively, and income tax provisions of $500,000 and $526,000 for the three and six months ended July 2, 2022, respectively. The income tax provisions for these three and six month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which Intevac operates. For the three month period ended July 1, 2023, Intevac recorded a $44,000 income tax benefit on losses of its international subsidiaries and recorded $158,000 for withholding taxes on royalties paid to the United States from Intevac’s Singapore subsidiary as a discrete item. For the six month period ended July 1, 2023, Intevac recorded a $180,000 income tax provision on income of its international subsidiaries and recorded $320,000 for withholding taxes on royalties paid to the United States from Intevac’s Singapore subsidiary as a discrete item. For the three and six month periods ended July 2, 2022, Intevac recorded income tax provisions on profits of its international subsidiaries of $390,000 and $364,000, respectively, and recorded $107,000 and $158,000, respectively, for withholding taxes on royalties paid to the United States from Intevac’s Singapore subsidiary as discrete items. For all periods presented, Intevac utilized net operating loss carry-forwards to offset the impact of global intangible low-taxed income. Intevac’s tax rate differs from the applicable statutory rates due primarily to the establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors, including the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.

The income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business and foreign withholding taxes. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss carry-forwards and certain domestic tax credits. Intevac’s effective tax rate differs from the U.S. statutory rate in both 2023 and 2022 primarily due to the Company not recognizing an income tax benefit on the domestic loss.

Income (loss) from discontinued operations, net of taxes


	Three months ended							Six months ended
	July 1, 2023		July 2, 2022			Change over prior period		July 1, 2023		July 2, 2022			Change over prior period

	(In thousands)
Income (loss) from discontinued operations, net of taxes	$	40	$	(238	)	$	278	$	317	$	(373	)	$	690

The income (loss) from discontinued operations consists primarily of the results of operations of the Photonics business which was sold to EOTECH on December 30, 2021. Income from discontinued operations for the three months ended July 1, 2023 is comprised primarily of accretion on the lease liability that was assigned to EOTECH. Income from discontinued operations for the six months ended July 1, 2023 is comprised primarily of a stock based compensation forfeiture benefit recognized upon the termination of certain mutual employees of both the Company and EOTECH that were terminated by the Company upon the completion of the assignment and novation of all government contracts to EOTECH in the first quarter of fiscal 2023. Loss from discontinued operations for the three and six months ended July 2, 2022 includes salaries and wages and employee benefits up to and including January, 4, 2022, the date when employees were conveyed to EOTECH, severance for several employees that were not hired by EOTECH, stock based compensation expense associated with the acceleration of stock awards and incremental legal expenses associated with the divestiture, offset in part by a stock based compensation divestiture-related forfeiture benefit.

Liquidity and Capital Resources

At July 1, 2023, Intevac had $73.9 million in cash, cash equivalents, restricted cash and investments compared to $112.8 million at December 31, 2022. During the first six months of fiscal 2023, cash, cash equivalents, restricted cash and investments decreased by $38.9 million due primarily to cash used by operating activities, purchases of leasehold improvements and equipment, payment of contingent consideration and tax payments on net share settlements offset in part by cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans.

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


	July 1, 2023		December 31, 2022

	(In thousands)
Cash and cash equivalents	$	43,976	$	68,904
Restricted cash		785		786
Short-term investments		23,626		25,541
Long-term investments		5,550		17,585