1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the Company or MPS) in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Companys audited consolidated financial statements and notes thereto included in the Annual Report on Form 10 -K for the year ended December 31, 2018, filed with the SEC on March 1, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Companys financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Form 10 -Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other future periods. Summary of Significant Accounting Policies Except for the changes related to leases discussed in Note 6, there have been no other changes to the Companys significant accounting policies during the three and six months ended June 30, 2019, as compared to the significant accounting policies described in the Companys audited consolidated financial statements included in the Annual Report on Form 10 -K for the year ended December 31, 2018. Recently Adopted Accounting Pronouncement In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016 - 02, Leases (Topic 842 ), which requires entities to recognize right-of-use (ROU) assets and lease liabilities on the balance sheets for leases with terms greater than 12 months. In addition, the standard applies to leases embedded in service or other arrangements. The Company adopted the standard on January 1, 2019 using the modified retrospective method and did not restate comparative periods, as permitted by the standard. In addition, the Company elected the transition practical expedients to not reassess its contracts that existed prior to January 1, 2019. Upon adoption, the Company recognized ROU assets and lease liabilities of its outstanding operating leases on the Condensed Consolidated Balance Sheets, primarily related to real estate. The adoption did not have a material impact on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. See Note 6 for further discussion. Recent Accounting Pronouncement s Not Yet Adopted as of June 30 , 2019 In August 2018, the FASB issued ASU No. 2018 - 13, Fair Value Measurement (Topic 820 ): Disclosure Framework  Changes to the Disclosure Requirements for Fair Value Measurement, which changes certain disclosure requirements, including those related to Level 3 fair value measurements. The standard will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of the adoption on its disclosures. In January 2017, the FASB issued ASU No. 2017 - 04, Intangibles  Goodwill and Other (Topic 350 ), which simplifies the accounting for goodwill impairment. The guidance removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The standard will be applied prospectively, and will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of the adoption on its annual goodwill impairment test. In June 2016, the FASB issued ASU No. 2016 - 13, Financial Instruments  Credit Losses (Topic 326 ), which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than reductions in the amortized cost of the securities. The standard will be effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018. Entities will apply the standard by recording a cumulative-effect adjustment to retained earnings. The Company is evaluating the impact of the adoption on its consolidated financial position, results of operations, cash flows and disclosures.