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, 2019, filed with the SEC on February 28, 2020. 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, 2020 or for any other future periods. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these condensed consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. The coronavirus pandemic first identified in December 2019 ( COVID- 19 ) has resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, while also disrupting sales channels, supply chains and other business operations for an unknown period of time until the disease is contained. These events could have a negative impact on the Companys sales and results of operations for the remainder of 2020, but the Company is currently unable to predict the size and duration of such impact. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require management to update the significant estimates and assumptions used in the preparation of the condensed consolidated financial statements, as compared to those disclosed in the Annual Report on Form 10 -K for the year ended December 31, 2019. As new events continue to evolve and additional information becomes available, these estimates and assumptions may change and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and assumptions, and any such differences may be material to the Companys financial statements. Recently Adopted Accounting Pronouncement s In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Company adopted the standard in the first quarter of 2020 and the adoption did not have a material impact 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 is the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities continues to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The Company adopted the standard in the first quarter of 2020 and the adoption did not have a material impact 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, the standard eliminates the concept of other-than-temporary impairment and entities are required to recognize an allowance for credit losses rather than reductions in the amortized cost of the securities. Entities are required to apply the standard by recording a cumulative-effect adjustment to retained earnings. The Company adopted the standard in the first quarter of 2020, which did not have a material impact on its consolidated financial statements. Recent Accounting Pronouncem ent Not Yet Adopted as of March 31, 2020 In December 2019, the FASB issued ASU No. 2019 - 12, Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard will be effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The standard will generally be applied prospectively, with certain exceptions. The Company is evaluating the impact of the adoption on its consolidated financial statements.