plx_body10q-q114.htm

PLX TECHNOLOGY, INC.

INDEX TO

REPORT ON FORM 10-Q

FOR QUARTER ENDED MARCH 31, 2014

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 6.	Exhibits	35
Signature		36

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

	March 31,			December 31,
	2014			2013
ASSETS
Current Assets:
Cash and cash equivalents	$	11,551		$	11,021
Short-term marketable securities		9,256			8,295
Accounts receivable, net		13,742			12,835
Inventories		9,846			10,289
Other current assets		2,180			2,117
Total current assets		46,575			44,557
Property and equipment, net		10,163			10,333
Goodwill		20,461			20,461
Long-term marketable securities		764			1,108
Other assets		588			701
Total assets	$	78,551		$	77,160

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	6,388		$	6,511
Accrued compensation and benefits		2,435			4,050
Accrued commissions		461			480
Other accrued expenses		3,287			3,213
Total current liabilities		12,571			14,254
Long term borrowing against line of credit		5,000			5,000
Total liabilities		17,571			19,254

Stockholders' Equity:
Common stock, par value		46			46
Additional paid-in capital		194,272			193,391
Accumulated other comprehensive loss		(271	)		(277	)
Accumulated deficit		(133,067	)		(135,254	)
Total stockholders' equity		60,980			57,906
Total liabilities and stockholders' equity	$	78,551		$	77,160

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2014			2013
Net revenues	$	24,839		$	26,218
Cost of revenues		10,084			10,693
Gross margin		14,755			15,525

Operating expenses:
Research and development		6,390			5,961
Selling, general and administrative		6,097			6,419
Acquisition and restructuring related costs		-			291
Total operating expenses		12,487			12,671

Income from operations		2,268			2,854
Interest income (expense) and other, net		(29	)		(71	)
Income from continuing operations before provision for income taxes		2,239			2,783

Provision for income taxes		52			84

Income from continuing operations, net of tax		2,187		$	2,699
Loss from discontinued operations, net of tax		-			(57	)
Net income	$	2,187		$	2,642

Basic net income per share:
Income from continuing operations	$	0.05		$	0.06
Loss from discontinued operations	$	-		$	-
Net income	$	0.05		$	0.06

Diluted net income per share:
Income from continuing operations	$	0.05		$	0.06
Loss from discontinued operations	$	-		$	-
Net income	$	0.05		$	0.06

Shares used to compute per share amounts
Basic		45,841			45,366
Diluted		47,149			46,096

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2014		2013
Net income	$	2,187	$	2,642
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities, net		2		-
Foreign currency translation adjustments		4		(3	)
Comprehensive net income	$	2,193	$	2,639

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	2,187		$	2,642
Adjustments to reconcile net income to net cash flows from operating activities,
net of assets acquired and liabilities assumed:
Depreciation and amortization		512			603
Share-based compensation expense		463			594
Write-downs of inventories		40			110
Other non-cash items		13			13
Changes in operating assets and liabilities:
Accounts receivable		(907	)		(2,368	)
Inventories		403			820
Other current assets		(63	)		(218	)
Other assets		77			49
Accounts payable		(123	)		(3,434	)
Accrued compensation and benefits		(1,615	)		(2,087	)
Other accrued expenses		55			(499	)
Net cash provided by (used) in operating activities		1,042			(3,775	)

Cash flows from investing activities:
Purchases of marketable securities		(3,002	)		(1,438	)
Maturities of marketable securities		2,374			1,142
Purchase of property and equipment		(298	)		(125	)
Net cash used in investing activities		(926	)		(421	)

Cash flows from financing activities:
Proceeds from exercise of common stock options		418			1,107
Taxes paid related to net share settlement of equity awards		-			(321	)
Net cash provided by financing activities		418			786

Effect of exchange rate fluctuations on cash and cash equivalents		(4	)		(1	)

Net increase (decrease) in cash and cash equivalents		530			(3,411	)
Cash and cash equivalents at beginning of period		11,021			14,673
Cash and cash equivalents at end of period	$	11,551		$	11,262

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	95		$	-
Cash paid for interest	$	43		$	57

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PLX Technology, Inc. and its wholly-owned subsidiaries (collectively, “PLX” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) that management considers necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year.

On September 20, 2012, the Company completed the sale of its physical layer 10GBase-T integrated circuit (“PHY”) family of products pursuant to an Asset Purchase Agreement between the Company and Aquantia Corporation dated September 14, 2012. On July 6, 2012, the Company had also entered into an Asset Purchase Agreement (the “Entropic APA”) with Entropic Communications, Inc., pursuant to which the Company completed the sale of its digital channel stacking switch product line within the PHY product family, including certain assets exclusively related to the product line. The operations of the PHY related business have been segregated from continuing operations and are presented as discontinued operations in the Company’s consolidated statement of operations for all periods presented.

The unaudited condensed consolidated financial statements include all of the accounts of the Company and those of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

This financial data should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Use of Estimates

Accumulated Other Comprehensive Loss

The changes in the components of accumulated other comprehensive loss, net of tax, reflected in the Consolidated Statements of Stockholders' Equity and Comprehensive Income, consisted of the following (in thousands):

	Three Months Ended March 31, 2014
	Unrealized gain (loss)			Foreign currency
	on marketable securities			translation adjustments			Total
Balance at January 1, 2014	$	(1	)	$	(276	)	$	(277	)
Other comprehensive income before reclassifications		2			4			6
Balance at March 31, 2014	$	1		$	(272	)	$	(271	)

	Three Months Ended March 31, 2013
	Unrealized gain (loss)		Foreign currency
	on marketable securities		translation adjustments			Total
Balance at January 1, 2013	$	1	$	(227	)	$	(226	)
Other comprehensive income before reclassifications		-		(3	)		(3	)
Balance at March 31, 2013	$	1	$	(230	)	$	(229	)

There were no amounts reclassified from accumulated other comprehensive loss in the three months ended March 31, 2014 and 2013.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance, where applicable, has occurred, the fee is fixed or determinable and collection is reasonably assured.

Revenue from product sales to direct customers and distributors is recognized upon shipment and transfer of risk of loss, if the Company believes collection is reasonably assured and all other revenue recognition criteria are met. The Company assesses the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

The Company offers pricing protection to two distributors whereby the Company supports the distributor’s resale product margin on certain products held in the distributor’s inventory. The Company analyzes current requests for credit in process, also known as ship and debits, historical rates and amounts of credits issued and inventory at the distributor to determine the ending sales reserve required for this program. The Company also offers stock rotation rights to two distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. The Company analyzes inventory at distributors, current stock rotation requests and past experience to determine the ending sales reserve required at each reporting period. Provisions for reserves are charged directly against revenue and the related reserves are recorded as a reduction to accounts receivable.

2. Share-Based Compensation

Equity Incentive Plans

In May 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008 Plan”). The 2008 Plan was amended by the Company’s stockholders in May 2010 to increase the number of shares reserved for issuance under the Plan by 1,500,000 shares. In May 2011, the 2008 Plan was amended again by the Company’s stockholders to increase the number of shares reserved for issuance under the Plan by 2,300,000 shares. Under the 2008 Plan, there is currently authorized for issuance and available for awards an aggregate of 5,000,000 shares of the Company’s common stock, plus up to an additional 2,407,369 shares that otherwise would have reverted to the share reserve of the Company’s prior incentive plan, the Company’s 1999 Stock Incentive Plan, subject to an overall, aggregate share reserve limit of 7,407,369 shares. Awards under the 2008 Plan may include stock options, restricted stock, stock appreciation rights, performance awards, restricted stock units (“RSUs”) and other awards, provided that with respect to full value awards, such as restricted stock or restricted stock units, no more than 300,000 shares may be issued in the form of full value awards during the term of the 2008 Plan. Awards under the 2008 Plan may be made to the Company’s officers and other employees, its board members and consultants that it hires. Generally, options vest over a four-year period and expire no more than seven years after the date of grant. The 2008 Plan has a term of ten years.

Employee Stock Ownership Plan

In January 2009, the Company established the PLX Technology, Inc. Employee Stock Ownership Plan (the “ESOP”). The ESOP is a non-leveraged, tax-qualified defined contribution retirement plan that is non-contributory. PLX regular employees (other than nonresident aliens with no U.S.-source income, employees covered by a collective bargaining agreement, leased employees and employees of a non-participating subsidiary of PLX) who are at least 18 years old and have worked for PLX for at least 12 consecutive months are eligible to participate in the ESOP. The Company makes cash contributions equal to a percentage of eligible compensation that is determined annually by the Board of Directors. Compensation costs are recorded based on the cash contribution amounts. Eligible compensation is limited to $150,000. The contributions are used to purchase common stock of the Company. Since the adoption of the ESOP, the Company has made annual contributions of 2% of each employee's eligible compensation up to a maximum of $3,000 for any single employee (2% of $150,000 of eligible compensation). Eligible participants receive a share allocation at the end of the plan year based on the contributions plus an additional allocation for forfeitures that occurred during the plan year. The shares and forfeitures are allocated to each ESOP participant who is employed on the last day of the ESOP Plan Year (December 31) in the same proportion that the compensation (up to the $150,000 limit) of each ESOP participant bears to the eligible compensation of all ESOP participants.

Share-Based Compensation Expense

The fair value of share-based awards is calculated using the Black-Scholes option pricing model, which requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.

The weighted-average fair value of share-based compensation to employees is based on the multiple option valuation approach. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of share-based compensation awards to employees is amortized using the straight-line method over the vesting period of the awards. The weighted-average fair value calculations are based on the following weighted average assumptions:

	Three Months Ended
	March 31,
	2014			2013
Risk-free interest rate		1.55	%		0.66	%
Expected volatility		54.30	%		62.90	%
Expected life (years)		4.56			4.34

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

Expected Life: The Company’s expected life represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected life is based on the observed and expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive an employee behavioral pattern used to forecast expected exercise patterns.

Expected Volatility: The Company believes that historical volatility best represents expected volatility due to the lack of market data consistently available to calculate implied volatility. The historical volatility is based on the weekly closing prices of its common stock over a period equal to the expected term of the option and is a strong indicator of the expected future volatility.

These factors could change in the future, which would affect the share-based compensation expense in future periods.

As share-based compensation expense recognized in the unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The following tables show total share-based compensation and employee stock ownership plan expenses recorded for the three months ended March 31, 2014 and 2013, included in the respective line items of the Condensed Consolidated Statements of Operations (in thousands):

	Three Months Ended March 31, 2014
	Stock Options
	and RSUs		ESOP		Total
Cost of revenues	$	10	$	3	$	13
Research and development		152		69		221
Selling, general and administrative		301		51		352
Total share-based compensation expense	$	463	$	123	$	586

	Three Months Ended March 31, 2013
	Stock Options
	and RSUs			ESOP		Total
Cost of revenues	$	(23	)	$	-	$	(23	)
Research and development		163			62		225
Selling, general and administrative		508			55		563
Discontinued operations (1)		(54	)		-		(54	)
Total share-based compensation expense	$	594		$	117	$	711

(1)	Recorded in loss from discontinued operations in the Condensed Consolidated Statements of Operations.

A summary of option activity under the Company’s stock equity plans during the three months ended March 31, 2014 is as follows:

				Weighted Average
				Remaining	Aggregate
	Number of	Weighted Average		Contractual Term	Intrinsic
Options	Shares	Exercise Price		(in years)	Value
Outstanding at December 31, 2013	4,652,563	$	4.26	4.09	$	11,427,206
Granted	14,000		6.22
Exercised	(108,606)		3.85
Cancelled	(183,593)		8.34

Outstanding at March 31, 2014	4,374,364	$	4.10	3.97	$	8,888,279

Exercisable at March 31, 2014	2,760,178	$	3.91	3.05	$	6,243,331

The Black-Scholes weighted average fair values of options granted during the three months ended March 31, 2014 and 2013 were $2.82 and $2.33, respectively.

The following table summarizes ranges of outstanding and exercisable options as of March 31, 2014:

	Options Outstanding				Options Exercisable
		Weighted Average
		Remaining	Weighted			Weighted
		Contractual Term	Average			Average
Range of Exercise Prices	Number	(in years)	Exercise Price		Number	Exercise Price
$1.80-$2.69	934,112	2.09	$	2.11	878,095	$	2.07
$2.70-$4.10	1,288,991	4.20		3.84	826,971		3.79
$4.11-$4.55	909,000	5.95		4.54	63,000		4.53
$4.56-$6.15	879,837	3.48		4.93	697,499		4.93
$6.16-$15.58	362,424	4.18		7.08	294,613		7.19
Total	4,374,364	3.97	$	4.10	2,760,178	$	3.91

The total intrinsic value of options exercised during the three months ended March 31, 2014 and 2013 was $0.2 million and $0.3 million, respectively. The fair value of options vested during the three months ended March 31, 2014 was approximately $0.6 million. As of March 31, 2014, total unrecognized compensation costs related to nonvested stock options including estimated forfeitures was $1.1 million which is expected to be recognized as expense over a weighted average period of approximately 1.25 years.

The following table summarizes the activity for our nonvested restricted stock units (“RSUs”) during the three months ended March 31, 2014:

	Nonvested Restricted Stock Units
	Number of		Weighted Average
	Shares		Grant-Date Fair Value
December 31, 2013		-	$	-
Granted		10,000	$	5.94
March 31, 2014		10,000	$	5.94

As of March 31, 2014, total unrecognized compensation cost related to nonvested RSUs was $57,000 which is expected to be recognized as expense over a weighted average period of approximately 3.85 years.

3. Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market (net realizable value). Inventories were as follows (in thousands):

	March 31,		December 31,
	2014		2013
Work-in-process	$	5,138	$	5,561
Finished goods		4,708		4,728
Total	$	9,846	$	10,289

The Company evaluates the need for potential inventory write downs by considering a combination of factors including the life of the product, sales history, obsolescence, sales forecasts and expected sales prices.

4. Net Income Per Share

The Company uses the treasury stock method to calculate the weighted average shares used in the diluted earnings per share. The following table sets forth the computation of basic and diluted income per share from continuing operations (in thousands, except per share data):

	Three Months Ended
	March 31,
	2014		2013
Income from continuing operations	$	2,187	$	2,699

Weighted average shares outstanding - basic		45,841		45,366
Dilutive effect of stock options and RSUs		1,308		730
Weighted average shares outstanding - diluted		47,149		46,096

Basic income per share from continuing operations	$	0.05	$	0.06
Diluted income per share from continuing operations	$	0.05	$	0.06

Weighted average employee stock options to purchase approximately 0.4 million and 1.9 million shares for the three month periods ended March 31, 2014 and 2013, respectively, were outstanding, but were not included in the computation of diluted earnings per share as the exercise price of the options was greater than the average share price of the Company’s stock or the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense and exercise prices was greater than the weighted average number of shares underlying outstanding option and, therefore, the effect would have been anti-dilutive. Dilutive securities are comprised of options to purchase common stock and RSUs.

5. Fair Value Measurements

The accounting guidance for fair value measurements provides a framework for measuring fair value and expands related disclosures. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The guidance also establishes a hierarchy which requires an entity to maximize the use of observable inputs, when available. The guidance requires fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the level 1 category is based on quoted prices that are readily and regularly available in an active market.

Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based upon quoted prices in markets that are not active and incorporate available trade, bid and other market information.

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.

The fair value of financial assets and liabilities measured on a recurring basis is as follows (in thousands):

			Fair Value Measurement as of Reporting Date Using
			Quoted Prices in Active Markets		Significant Other		Significant
			for Identical Assets or Liabilities		Observable Inputs		Unobservable Inputs
	March 31, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Certificate of deposit	$	8,130	$	-	$	8,130	$	-
Marketable securities		2,139		-		2,139		-
Total	$	10,269	$	-	$	10,269	$	-

			Fair Value Measurement as of Reporting Date Using
			Quoted Prices in Active Markets		Significant Other		Significant
			for Identical Assets or Liabilities		Observable Inputs		Unobservable Inputs
	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	1	$	1	$	-	$	-
Certificate of deposit		7,555		-		7,555		-
Marketable securities		2,716		-		2,716		-
Total	$	10,272	$	1	$	10,271	$	-

The fair value of the Company’s money-market funds classified as Level 1 is valued using prices in active markets. The fair values of the Company’s investments classified as Level 2 are valued using inputs that include actual trade data, benchmark yields, broker/dealer quotes and other similar data. These inputs are obtained from quoted market prices, independent pricing vendors or other sources.

6. Investments

As of March 31, 2014, the Company’s securities consisted of certificate of deposits and debt securities and were designated as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices or prices quoted in markets that are not active, with unrealized gains and losses reported in a separate component of stockholders’ equity. The amortized cost of debt securities is adjusted for the amortization of premiums and the accretion of discounts to maturity, both of which are included in interest income. Realized gains and losses are recorded on the specific identification method.

The fair value of available-for-sale investments is as follows (in thousands):

	March 31, 2014
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gain		Loss		Fair Value
Certificate of deposit	$	8,130	$	-	$	-	$	8,130
Marketable securities:
Municipal bonds		1,633		1		-		1,634
US treasury and government agencies securities		505		-		-		505
Total	$	10,268	$	1	$	-	$	10,269
Less amounts classified as cash equivalents								(249	)
Total short and long-term available-for-sale investments							$	10,020

Contractual maturity dates for investments:
Less than one year:								9,256
One to two years:								764
							$	10,020

	December 31, 2013
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gain		Loss			Fair Value
Certificate of deposit	$	7,557	$	-	$	(2	)	$	7,555
Marketable securities:
Municipal bonds		2,125		1		-			2,126
US treasury and government agencies securities		590		-		-			590
Total	$	10,272	$	1	$	(2	)	$	10,271
Less amounts classified as cash equivalents									(868	)
Total short and long-term available-for-sale investments								$	9,403

Contractual maturity dates for investments:
Less than one year:									8,295
One to two years:									1,108
								$	9,403

As of March 31, 2014, the Company had an aggregate unrealized loss of less than $1,000. The following tables show the gross unrealized losses and fair value for investments in an unrealized loss position as of December 31, 2013, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

	December 31, 2013
	Less than 12 Months					12 months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Certificate of deposit	$	1,956	$	(2	)	$	-	$	-	$	1,956	$	(2	)
Total	$	1,956	$	(2	)	$	-	$	-	$	1,956	$	(2	)

The Company reviews its available for sale investments for impairment at the end of each period. Investments in debt securities are considered impaired when the fair value of the debt security is below its amortized cost. If an impairment exists and the Company determines it has intent to sell the debt security or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis, an other-than-temporary impairment loss is recognized in earnings to write the debt security down to its fair value. However, even if the Company does not expect to sell the debt security, it must evaluate expected cash flows to be received and determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recognized in other comprehensive income. The Company did not record any other-than-temporary write-downs in the accompanying financial statements.

7. Acquisition and Restructuring Costs

In the three months ended March 31, 2013, the Company recorded approximately $0.3 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations, related to the termination of 4 employees worldwide as part of the restructuring of SG&A activities as a result of the 2012 divestiture of the PHY business. As of December 31, 2013 all of the severance and benefit accruals were paid.

In the three months ended March 31, 2013, the Company recorded $12,000 of outside legal and accounting costs associated with the wrap up of the IDT acquisition activities, which were terminated in December 2012. These expenses were also included in operating expenses under acquisition and restructuring related costs in the Company’s Condensed Consolidated Statement of Operations.

8. Segments of an Enterprise and Related Information

The Company has one operating segment, the sale of semiconductor devices. The Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) because he has final authority over resource allocation decisions and performance assessment. The CODM does not receive discrete financial information about individual components of the Company’s business. The majority of the Company’s assets are located in the United States.

Revenues from continuing operations by geographic region based on customer location were as follows (in thousands):

	Three Months Ended
	March 31,
	2014		2013
Revenues:
China	$	6,174	$	7,036
Taiwan		5,086		4,110
United States		4,756		5,833
Germany		3,017		2,407
Singapore		2,822		4,468
Other Asia Pacific		2,688		1,802
Europe, Middle East and Africa		151		444
The Americas - excluding United States		145		118
Total	$	24,839	$	26,218

There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues from continuing operations:

	Three Months Ended
	March 31,
	2014			2013
Excelpoint Systems Pte Ltd		27	%		34	%
Avnet, Inc.		25	%		27	%
Answer Technology, Inc.		15	%		11	%

There were no direct end customers that accounted for more than 10% or more of the total accounts receivable balance. The following distributors accounted for 10% or more of the total accounts receivable balance:

	March 31,
	2014			2013
Excelpoint Systems Pte Ltd		30	%		42	%
Answer Technology, Inc.		20	%		15	%
Avnet, Inc.		18	%		15	%

9. Line of Credit

On September 30, 2011, the Company entered into an agreement with Silicon Valley Bank to establish a two-year $10.0 million revolving loan facility. On April 22, 2013, the agreement was amended to increase the facility to $15.0 million and extend the maturity date to September 30, 2015. The facility provides for revolving advances based on a borrowing-base formula tied to the Company’s receivables and also provides for month-end and fiscal quarter-end advances beyond the borrowing-base formula subject to certain limitations and requirements. Borrowings under the credit facility bear interest at rates equal to the prime rate announced from time to time in The Wall Street Journal. As of March 31, 2014 the prime rate was 3.25%. The facility also provides for commitment, unused facility and letter-of-credit fees. The facility is secured by liens on the Company’s personal property assets except for intellectual property, which is subject to a negative pledge against encumbrance. As of March 31, 2014 there is $5.0 million outstanding against the facility. In addition, the Company issued an irrevocable letter of credit of $0.8 million against the facility for the bond issued as a result of the judgment in the Internet Machines litigation. Borrowing availability as of March 31, 2014 was $9.2 million. Interest payments are paid monthly with principal due at maturity.

The facility is subject to certain financial covenants for EBITDA, as defined in the agreement, and a monthly quick ratio computation (PLX’s cash, investments and accounts receivable divided by current liabilities). The Company was in compliance with all financial covenants associated with this facility as of March 31, 2014.

10. Contingencies

To date, Internet Machines LLC ("Internet Machines") has filed three separate lawsuits against PLX. The first suit was filed on February 2, 2010, which has been served on PLX, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, Tyler Division (the “First Suit”). This First Suit alleges infringement by PLX and the other defendants in the lawsuit of two patents held by Internet Machines. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines' patents. On May 14, 2010, the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. On December 6, 2010, the Court held a case-management conference and subsequently entered a scheduling order in this matter, and set the trial for February 2012.

On February 21, 2012, through February 29, 2012, the claims and defenses asserted in the First Suit were tried to a seven-member jury in the United States District Court for the Eastern District of Texas, Tyler Division. On February 29, 2012, the jury returned its verdict, finding the patents-in-suit valid and infringed and awarded money damages against PLX in the amount of $1.0 million. On June 19, 2013, the Court issued its ruling on the post-verdict motions filed by the parties and entered an appealable judgment, affirming the jury’s findings of validity and infringement. The judgment entered by the Court further affirmed the monetary award found by the jury. On July 17, 2013, the Company filed a notice of appeal with the Court and on October 7, 2013 it filed the appeal brief, appealing the judgment to the United States Court of Appeals for the Federal Circuit. The Company intends to continue to vigorously seek reversal of the jury’s verdict and the Court’s judgment on appeal.

Internet Machines' second lawsuit, which has also been served on PLX, was filed on October 17, 2010, again in the United States District Court for the Eastern District of Texas, Tyler Division (the “Second Suit”). This Second Suit, entitled Internet Machines LLC v. ASUS Computer International, et al., alleges infringement by PLX of another patent held by Internet Machines. The complaint also asserts infringement claims against a separate group of defendants not named in the first Internet Machines lawsuit, and accuses those defendants of infringing the two patents asserted against PLX in the First Suit, as well as the additional patent listed in this Second Suit. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines' patents. On December 28, 2010, the Company filed its answer to the live complaint in the second lawsuit and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit.

On May 17, 2011, Internet Machines filed a third lawsuit entitled Internet Machines LLC v. Avnet, Inc., et al., again in the United States District Court for the Eastern District of Texas, Tyler Division (the “Third Suit”). The third lawsuit has been served on PLX and alleges that PLX infringes a fourth patent held by Internet Machines. This lawsuit also accuses a new group of defendants of infringing each of Internet Machines' patents at issue in the First and Second Suits, as well as the fourth patent asserted against PLX in this Third Suit. The complaint in the Third Suit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines' patents. On September 27, 2011, the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit.

On January 20, 2012, the Court entered an order consolidating the Second and Third Suits into one action. The Court further ordered that the schedule entered in the Third Suit would govern the consolidated action. As a result, the consolidated action was originally set for trial in February 2013.

On March 25, 2011, a related entity, Internet Machines MC LLC, filed a lawsuit against PLX, entitled Internet Machines MC LLC v. PLX Technology, Inc., et al., in the United States District Court for the Eastern District of Texas, Marshall Division. Internet Machines MC LLC, however, did not serve the initial complaint on PLX. Instead, on August 26, 2011, Internet Machines MC LLC filed a first amended complaint, which has now been served on PLX, alleging infringement by PLX and the other defendants in the lawsuit of one patent held by Internet Machines MC LLC. The complaint in this lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines MC LLC's patents. On November 11, 2011, the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. On March 5, 2012, the Court held an initial case-management conference in this matter. The Court entered a scheduling order in this matter, and trial was originally set for July 2013.

On September 4, 2012, the Court entered an order staying the Second and Third Suits and the lawsuit brought by Internet Machines MC LLC discussed in the preceding paragraph. Pursuant to the Court’s order, those lawsuits are stayed until a final non-appealable judgment is entered in the First Suit, again styled Internet Machines LLC v. Alienware Corp., et al., Cause No. 6:10-CV-023, in the United States District Court for the Eastern District of Texas. While it is not possible to determine the ultimate outcome of these suits, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position, but it is unable to estimate a range of possible loss, if any.

As a result of the jury’s February 29, 2012 verdict on the First Suit, the Company accrued $1.0 million as of December 31, 2011. Based on the June 19, 2013 Court’s ruling, the Company accrued an additional $0.9 million. As noted above, the Company has filed an appeal of the jury’s verdict and the Court’s judgment issued in the First Suit. The Company will continue to accrue royalties, under the Court’s direction, until the appeal is finalized. A change in the ruling as a result of that appeal could change the estimated liability in the period in which the outcome of the appeal is known.

From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. Any claims or proceedings against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require the Company to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to the Company or at all. If management believes that a loss arising from these matters is probable and can be reasonably estimated, the Company will record a reserve for the loss.

11. Income Taxes

A provision for income tax from continuing operations of $52,000 has been recorded for the three month period ended March 31, 2014, compared to a provision of $84,000 for the same period in 2013. Income tax expense for the three months ended March 31, 2014 and 2013 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes.

Due to operating losses incurred, the Company created a full valuation allowance as of December 2002 for deferred tax assets. As of March 31, 2014, a valuation allowance continues to be recorded for the net deferred tax asset based on management’s assessment that the realization of deferred tax assets is uncertain due to the history of losses, the variability of operating results and the inability to conclude that it is more likely than not that sufficient taxable income would be generated in future periods to realize those deferred tax assets. The Company will maintain a full valuation allowance until sufficient positive evidence exists to support a reversal of the valuation allowance. As of December 31, 2013, the Company has a valuation allowance against net deferred assets of $67.2 million. Other than the estimated usage of the Company’s net operating losses for the year, there were no material changes in the amount of net deferred assets during the three months ended March 31, 2014.

The Company intends to review on a quarterly basis the conclusions reached about the appropriate amount of its deferred income tax asset valuation allowance and expects a significant benefit to be recorded in the period the valuation allowance reversal is recorded and a significantly higher effective tax rate in periods following the valuation allowance reversal.

As of December 31, 2013, the Company had unrecognized tax benefits of approximately $5.9 million of which none, if recognized, would result in a reduction of the Company’s effective tax rate. There were no material changes in the amount of unrecognized tax benefits during the three months ended March 31, 2014. Future changes in the balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. The Company does not believe the amount of its unrecognized tax benefits will significantly change within the next twelve months.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The tax years 2009 through 2012 remain open to examination by the federal and most state tax authorities. Net operating loss and tax credit carryforwards generated in prior periods remain open to examination.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, hopes, intentions, beliefs or strategies regarding the future. Forward-looking statements include statements regarding our PCI Express and Connectivity product revenue growth in the second quarter of 2014 including expectations that the first quarter supply constraint discussed below will be temporary, our future gross margins, our future research and development expenses, our future deferred tax valuation and unrecognized tax benefits, our ability to meet our capital requirements for the next twelve months, our future capital requirements, that current high turns fill requirements will continue indefinitely and our anticipation that sales to a small number of customers will account for a significant portion of our sales. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ include unexpected changes in the mix of our product sales, unexpected pricing pressures, unexpected capital requirements that may arise due to other possible acquisitions or other events, unanticipated changes in the businesses of our suppliers, and unanticipated cash shortfalls. Actual results could also differ for the reasons noted under the sub-heading “Factors That May Affect Future Operating Results” in Item 1A, Risk Factors in Part II of this report on Form 10-Q and in other sections of this report on Form 10-Q. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this report on Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

OVERVIEW

PLX Technology, Inc. (“We”, "PLX" or the "Company"), a Delaware corporation established in 1986, designs, develops, manufactures and sells integrated circuits that perform critical system connectivity functions. These interconnect products are fundamental building blocks for standards-based electronic equipment. We market our products to major customers worldwide that sell electronic systems in the enterprise, consumer, server, storage, communications, personal computer (PC), peripheral and embedded markets.

The explosive growth of cloud-based computing has provided a significant opportunity for PLX, since the data centers that house cloud data and applications have traditionally been limited by their ability to offer high-performance, low-cost, low-power, scalable interconnections. Large public and private data center companies are aggressively promoting open architectures for all types of equipment and software that enables use of off-the-shelf components and systems, allowing significant cost and density improvements. The level of integration is increasing, and the need for rapid expansion forces these customers to build their systems using standards-based, off-the-shelf devices.

PLX is a market share leader in PCI Express switches and bridges. We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors and have deployed multiple generations of products to serve a general-purpose market. In addition to enabling customer differentiation through our product features, the breadth of those products’ range is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to specific system requirements. PLX supplies an industry-leading, extensive portfolio of PCI Express switches; PCI Express bridges that allow backward compatibility to the previous PCI standard; and other bridging technology that enables seamless interoperability between two of the most popular mainstream interconnects: PCI Express and Universal Serial Bus (USB). Our extensive experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate in non-ideal, real-world system environments.

PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, software drivers and firmware solutions that enable added-value features in our products. We differentiate our products by offering higher performance at lower power, enabling a richer customer experience based on proprietary features that enable system-level customer advantages, offering the industry’s broadest PCI Express portfolio and providing capabilities that enable a customer to get to market more quickly.

We utilize a “fabless” semiconductor business model whereby we purchase wafers and packaged and tested semiconductor devices from independent manufacturing foundries. This approach allows us to focus on defining, developing and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

We rely on a combination of direct sales personnel, distributors and manufacturers’ representatives throughout the world to sell a significant portion of our products. We pay manufacturers’ representatives a commission on sales while we sell products to distributors at a discount from the selling price.

The time period between initial customer evaluation and design completion is generally between six and twelve months, though it can be longer in some circumstances. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer requests volume production of our products. Due to the variability and length of these design cycles and variable demand from customers, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to introduce new products. While new products typically generate little or no revenues during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time before our customers request volume production, significant revenues from our new products typically occur twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See –“Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues” in Item 1A, Risk Factors, in Part II of this report on Form 10-Q.

Discontinued operations

On September 20, 2012, we completed the sale of our physical layer 10GBase-T integrated circuit (“PHY”) family of products pursuant to an Asset Purchase Agreement between the Company and Aquantia Corporation dated September 14, 2012. On July 6, 2012, we had also entered into an Asset Purchase Agreement (the “Entropic APA”) with Entropic Communications, Inc., pursuant to which we completed the sale of our digital channel stacking switch product line within the PHY product family, including certain assets exclusively related to the product line. The operations of the PHY related business have been segregated from continuing operations and are presented as discontinued operations in our consolidated statement of operations for all periods presented.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND MARCH 31, 2013

Net Revenues

The following table shows the revenue by type (in thousands) and as a percentage of net revenues:

	Three Months Ended
	March 31
	2014				2013
PCI Express Revenue	$	17,511	70.5	%	$	18,644	71.1	%
Connectivity Revenue		7,328	29.5	%		7,574	28.9	%
	$	24,839			$	26,218

Net revenues consist primarily of product revenues generated principally by sales of our semiconductor devices. Net revenues for the three months ended March 31, 2014 decreased 5.3%, or $1.4 million, compared to the same period in 2013. The decrease was primarily due to lower sales of our PCI Express Gen 2 products as a result of temporary supply constraints due to assembly issues at one of our assembly manufacturers. These assembly issues have been addressed and are not expected to be a limitation in the second quarter of 2014.

There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:

	Three Months Ended
	March 31,
	2014			2013
Excelpoint Systems Pte Ltd		27	%		34	%
Avnet, Inc.		25	%		27	%
Answer Technology, Inc.		15	%		11	%

We currently expect to see revenue growth through 2014 for our PCI Express products and continued declines of our Connectivity products. However, due to timing of customer last time buys, we expect to see a slight increase in revenues for our Connectivity products compared to the first quarter of 2014. Future demand for our products is uncertain and is highly dependent on general economic conditions and the demand for products that contain our chips. Customer demand for semiconductors can change quickly and unexpectedly. Our revenue levels have been highly dependent on the amount of new orders that are received for products to be delivered to the customer within the same quarter, also called “turns fill” orders. Because of the long cycle time to build our products and our lack of visibility into demand when turns fill orders are high, it is difficult to predict which products to build to match future demand. We believe the current high turns fill requirements will continue indefinitely. The high turns fill orders pattern, together with the uncertainty of product mix and pricing, makes it difficult to predict future levels of sales and profitability and may require us to carry higher levels of inventory.

Gross Margin

Gross margin represents net revenues less the cost of revenues. Cost of revenues includes the cost of (1) purchasing semiconductor devices or wafers from our independent foundries, (2) packaging, assembly and test services from our independent foundries, assembly contractors and test contractors and (3) our operating costs associated with the procurement, storage and shipment of products as allocated to production.

	Three Months Ended
	March 31
	2014			2013
	in thousands
Gross profit	$	14,755		$	15,525
Gross margin		59.4	%		59.2	%

Gross profit for the three months ended March 31, 2014 decreased by 5.0%, or $0.8 million compared to the same period in 2013 while gross margin was relatively flat. The decrease in absolute dollars was due to decreased revenues. The three months ended March 31, 2014 includes the royalty accrual of $0.3 million associated with the Internet Machines litigation, which had approximately a 1.0 percentage point impact on gross margin. The fluctuation was primarily due to product and customer mix of our PCI Express products as well as the last time buys of our connectivity products. See Note 10 of the condensed consolidated financial statements for more information on the Internet Machines litigation.

Future gross profit and gross margin are highly dependent on the product and customer mix, our ability to secure cost reductions from our suppliers, provisions and sales of previously written down inventory, the position of our products in their respective life cycles and specific manufacturing costs. Accordingly, we are not able to predict future gross profit levels or gross margins with certainty. However, we do expect that in the near term gross margins will return to similar levels seen in the second half of 2013.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of tape-out costs at our independent foundries, salaries and related costs, including share-based compensation and expenses for outside engineering consultants.

	Three Months Ended
	March 31
	2014			2013
	in thousands
R&D expenses	$	6,390		$	5,961
As a percentage of revenues		25.7	%		22.7	%

R&D expenses increased by $0.4 million or 7.2% in the three months ended March 31, 2014 compared to the same period in 2013. The increase in R&D in absolute dollars and as a percentage of revenue was primarily due to an increase in spending on compensation and benefit related expenses of $0.4 million due to the increase in average headcount of approximately 11%.

We believe continued spending on research and development to develop new products is critical to our success. R&D spending will continue to fluctuate due to timing of projects and tape-out related activities. We are expecting a significant tape-out in the second quarter of 2014 resulting in an increase in R&D expenses compared to the first quarter of 2014.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and related costs, including share-based compensation, commissions to manufactures’ representatives and professional fees, as well as trade show and other promotional expenses.

	Three Months Ended
	March 31
	2014			2013
	in thousands
SG&A expenses	$	6,097		$	6,419
As a percentage of revenues		24.5	%		24.5	%

SG&A expenses decreased by $0.3 million or 5.0% in the three months ended March 31, 2014 compared to the same period in 2013. The decrease in SG&A in absolute dollars was due primarily to the fully vested option grants in connection with the 2012 Board of Directors election were granted in the first quarter of 2013 while the option grants for the 2013 Board of Directors election were granted in the fourth quarter of 2013.

Acquisition and Restructuring Related Costs

	Three Months Ended
	March 31
	2014		2013
	in thousands
Severance costs	$	-	$	279
Deal costs		-		12
	$	-	$	291

In the three months ended March 31, 2013, we recorded approximately $0.3 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations, related to the termination of 4 employees worldwide as part of the restructuring of SG&A activities as a result of the divestiture of the PHY business.

In the three months ended March 31, 2013, we recorded $12,000 of outside legal and accounting costs associated with the wrap up of the IDT acquisition activities, which were terminated in December 2012. These expenses were also included in operating expenses under acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations.

Interest Income (Expense) and Other, Net

	Three Months Ended
	March 31
	2014			2013
	in thousands
Interest income	$	9		$	4
Interest expense		(41	)		(65	)
Other income (expense)		3			(10	)
	$	(29	)	$	(71	)

Interest income reflects interest earned on cash, cash equivalents and short-term and long-term investment balances.

Interest expense reflects interest recorded on the line of credit borrowings.

Other income (expense) includes other miscellaneous transactions and foreign currency transaction gains and losses. Other income may fluctuate significantly due to currency fluctuations.

Provision for Income Taxes

A provision for income tax of $52,000 has been recorded for the three month period ended March 31, 2014, compared to a provision of $84,000 for the same period in 2013. Income tax expense for the three months ended March 31, 2014 and 2013 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes.

As of March 31, 2014, we have a valuation allowance against net deferred assets. While encouraged by the pretax profit earned in 2013 and in the first quarter of 2014 and by the favorable trend of our recent financial results, management believes it is appropriate to obtain confirmatory evidence that the improvement in our results in operations is sustainable, and the realization of at least some of the deferred income tax assets is more likely than not, before reversing a portion of the valuation allowance to earnings.

We intend to review, on a quarterly basis, the conclusions reached about the appropriate amount of our deferred income tax asset valuation allowance. If we continue to generate profits in 2014 and beyond, it is possible that the US valuation allowance position will be reversed in the foreseeable future. We expect a significant benefit to be recorded in the period the valuation allowance reversal is recorded and a significantly higher effective tax rate in periods following the valuation allowance reversal.

As of December 31, 2013, we had unrecognized tax benefits of approximately $5.9 million of which none, if recognized, would result in a reduction of our effective tax rate. There were no material changes in the amount of unrecognized tax benefits during the three months ended March 31, 2014. Future changes in the balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. We do not believe the amount of our unrecognized tax benefits will significantly change within the next twelve months.

Liquidity and Capital Resources

Cash and Investments

We invest excess cash predominantly in certificate of deposits and debt instruments that are highly liquid, of high-quality investment grade, and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. As of March 31, 2014 cash, cash equivalents, short and long-term marketable securities were $21.6 million, an increase of $1.2 million from $20.4 million at December 31, 2013.

Operating Activities

	Three Months Ended
	March 31
	2014			2013
	in thousands
Income from continuing operations, net of non-cash items	$	3,215		$	4,072
Loss from discontinued operations, net of non-cash items		-			(111	)
Changes in working capital		(2,173	)		(7,736	)
Net cash provided by (used) in operating activities	$	1,042		$	(3,775	)

Cash provided by (used in) operating activities primarily consists of net income adjusted for certain non-cash items including depreciation, share-based compensation expense, provisions for excess and obsolete inventories, other non-cash items and the effect of changes in working capital and other activities. Cash provided by operating activities for the three months ended March 31, 2014 was $1.0 million compared to cash used in operating activities of $3.8 million for the same period in 2013. The increase in cash flow provided by operations was primarily due to changes in our working capital as a result of larger vendor payments related to the IDT acquisition activities and employee variable compensation payments in the first quarter of 2013, which were accrued in 2012 and timing of customer shipments, partially offset by a decrease in income from continuing operations, net of non-cash items. Our days sales outstanding increased due to stronger shipments late in March 2014 compared to March 2013. Our days payable outstanding and inventory were relatively flat.

Investing Activities

Our investing activities are primarily driven by investment of our excess cash, sales of investments and capital expenditures. Capital expenditures have generally been comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures. The cash used in investing activities for the three months ended March 31, 2014 of $0.9 million was due to purchases of investments (net of sales and maturities) of $0.6 million and capital expenditures of $0.3 million. Cash used in investing activities for the three months ended March 31, 2013 of $0.4 million was due to the sales and maturities of investments (net of purchases) of $0.3 million and capital expenditures of $0.1 million.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2014 of $0.4 million was due to the proceeds from the exercise of stock options. Cash provided by financing activities for the three months ended March 31, 2013 of $0.8 million was due to the proceeds from the exercise of stock options of $1.1 million, partially offset by the taxes paid related to net share settlements of restricted stock units of $0.3 million.

Obligations

As of March 31, 2014, we had the following significant contractual obligations and commercial commitments (in thousands):

	Payments due in
			Less than		1-3		More than
	Total		1 Year		Years		3 Years
Operating leases - facilities and equipment	$	363	$	244	$	119	$	-
Software licenses		3,553		3,380		173		-
Inventory purchase commitments		7,626		7,626		-		-
Borrowing against line of credit		5,000		-		5,000		-
Total cash obligations	$	16,542	$	11,250	$	5,292	$	-

On September 30, 2011, we entered into an agreement with Silicon Valley Bank to establish a two-year $10.0 million revolving loan facility. On April 22, 2013, the agreement was amended to increase the facility to $15.0 million and extend the maturity date to September 30, 2015. Borrowings under the credit facility bear interest at rates equal to the prime rate announced from time to time in The Wall Street Journal. As of March 31, 2014 the prime rate was 3.25%. The facility also provides for commitment, unused facility and letter-of-credit fees. As of March 31, 2014 there is $5.0 million outstanding against the facility. In addition, the company issued an irrevocable letter of credit of $0.8 million against the facility for the bond issued as a result of the judgment in the Internet Machines litigation. The facility is subject to certain financial covenants for EBITDA, as defined in the agreement, and a monthly quick ratio computation (PLX’s cash, investments and accounts receivable divided by current liabilities). We were in compliance with all financial covenants associated with this facility as of March 31, 2014. See Note 9 of the condensed consolidated financial statements for additional information.

Based on the June 19, 2013 Court’s ruling in the Internet Machines litigation, we were required to issue a bond of $2.7 million for pre-judgment damages awarded and future royalties. As of March 31, 2014, we accrued $2.6 million of the $2.7 million judgment under other accrued expenses in our Condensed Consolidated Balance Sheet. Future royalties will be accrued as incurred. See Note 10 of the condensed consolidated financial statements for more information on the Internet Machines litigation.

We believe that our existing resources, together with cash generated from our operations will be sufficient to meet our capital requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including the level of investment we make in new technologies and improvements to existing technologies and the levels of monthly expenses required to launch new products. To the extent that existing resources and future earnings are insufficient to fund our future activities, we may need to raise additional funds through public or private financings. Additional funds may be difficult to obtain and may not be available or, if available, we may not be able to obtain them on terms favorable to us and our stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance, where applicable, has occurred, the fee is fixed or determinable, and collection is reasonably assured.

Revenue from product sales to direct customers and distributors is recognized upon shipment and transfer of risk of loss, if we believe collection is reasonably assured and all other revenue recognition criteria are met. We assess the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

As of March 31, 2014, we offer pricing protection to two distributors whereby the Company supports the distributor’s resale product margin on certain products held in the distributor’s inventory. We analyze current requests for credit in process, also known as ship and debits, historical rates and amounts of credits issued and inventory at the distributor to determine the ending sales reserve required for this program. We also offer stock rotation rights to two distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. We analyze inventory at distributors, current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required at each reporting period. Provisions for reserves are charged directly against revenue and related reserves are recorded as a reduction to accounts receivable.

Inventory Valuation

We evaluate the need for potential inventory provisions by considering a combination of factors, including the life of the product, sales history, obsolescence, sales forecasts and expected sales prices. Any adverse changes to our future product demand may result in increased provisions, resulting in decreased gross margin. In addition, future sales on any of our previously written down inventory may result in increased gross margin in the period of sale.

Allowance for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on length of time the receivables are past due. Generally, our customers have between thirty and forty five days to remit payment of invoices. We record reserves for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Once we have exhausted collection efforts, we will reduce the related accounts receivable against the allowance established for that receivable. We have certain customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers’ creditworthiness or other matters affecting the collectability of amounts due from such customers could have a material adverse effect on our results of operations in the period in which such changes or events occur. Historically, our write-offs have been insignificant.

Goodwill

Our methodology for allocating the purchase price related to business acquisitions is determined through established valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the amounts assigned to identifiable tangible and intangible assets acquired less assumed liabilities. We have one operating segment and business reporting unit, the sales of semiconductor devices, and we perform goodwill impairment tests annually during the fourth quarter and between annual tests if indicators of potential impairment exist.

Long-lived Assets

We review long-lived assets, principally property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. In addition, if we determine the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful life.

Share-Based Compensation

We estimate the value of employee stock options on the date of grant using the Black-Scholes model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards and the actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. We calculate expected volatility using the historical volatility of stock. We estimate the amount of forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The fair value of employee restricted stock units is equal to the market value of our common stock on the date the award is granted.

Taxes

We account for income taxes using the asset and liability method. Deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. As of March 31, 2014, we have determined that negative evidence supports the need for a full valuation allowance against our net deferred tax assets. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of a deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which those temporary differences become deductible. We continue to review our conclusions about the appropriate amount of our deferred income tax asset valuation allowance in light of circumstances existing in current periods and considering the expected future period results and will maintain a full valuation until sufficient positive evidence exists to support a reversal of the valuation allowance. If we continue to generate profits in 2014 and beyond, it is possible that the US valuation allowance position will be reversed in the foreseeable future. We expect a significant benefit to be recorded in the period the valuation allowance reversal is recorded and a significantly higher effective tax rate in periods following the valuation allowance reversal.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have an investment portfolio of fixed income securities, including amounts classified as cash equivalents, short-term investments and long-term investments of $10.3 million at March 31, 2014. These securities are subject to interest rate fluctuations and will decrease in market value if interest rates increase.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. We invest primarily in high quality, short-term and long-term debt instruments. A hypothetical 100 basis point increase in interest rates would result in less than a $49,000 decrease (less than 1%) in the fair value of our available-for-sale securities.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Based on their evaluation as of March 31, 2014, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and instructions for Form 10-Q and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained under the caption “Contingencies” in Note 10 of our notes to the consolidated financial statements included in Part I, Item 1, of this Form 10-Q is incorporated by reference into this Item 1.

ITEM 1A. RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

This quarterly report on Form 10-Q contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statements as a result of certain factors, including those set forth below. The following risk factors have been updated from those set forth in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013, and are included herein in their entirety.

Our Operating Results May Fluctuate Significantly Due To Factors Which Are Not Within Our Control

Our quarterly operating results have fluctuated significantly in the past and are expected to fluctuate significantly in the future based on a number of factors, many of which are not under our control. Our operating expenses, which include product development costs and selling, general and administrative expenses, are relatively fixed in the short-term. If our revenues are lower than we expect because we sell fewer semiconductor devices, delay the release of new products or the announcement of new features, or for other reasons, we may not be able to quickly reduce our spending in response.

Other circumstances that can affect our operating results include:

·	the timing of significant orders, order cancellations and reschedulings;

·	the loss of one or more significant customers;

·	introduction of products and technologies by our competitors or partners;

·	the availability of production capacity at the fabrication facilities that manufacture our products;

·	our significant customers could lose market share that may affect our business;

·	integration of our product functionality into our customers’ products;

·	our ability to develop, introduce and market new products and technologies on a timely basis;

·	unexpected issues that may arise with devices in production;

·	shifts in our product mix toward lower margin products;

·	changes in our pricing policies or those of our competitors or suppliers, including decreases in unit average selling prices of our products;

·	contractual terms of supply agreements with our customers;

·	the availability and cost of materials to our suppliers;

·	costs associated with third party legal actions;

·	general macroeconomic conditions;

·	environmental related conditions, such as natural disasters; and

·	the political climate.

These factors are difficult to forecast, and these or other factors could adversely affect our business. Any shortfall in our revenues would have a direct impact on our business. In addition, fluctuations in our quarterly results could adversely affect the market price of our common stock in a manner unrelated to our long-term operating performance.

The Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances In The Demand For Our Products

In the past, the semiconductor industry has been characterized by significant downturns and wide fluctuations in supply and demand. Also, the industry has experienced significant fluctuations in anticipation of changes in general economic conditions. This cyclicality has led to significant variances in product demand and production capacity. It has also accelerated erosion of average selling prices per unit. We may experience periodic fluctuations in our future financial results because of industry-wide conditions.

Global Economic Conditions May Continue to Have an Adverse Effect on Our Businesses and Results of Operations

In late 2008 and 2009, the severe tightening of the credit markets, turmoil in the financial markets and weakening global economy contributed to slowdowns in the industries in which we operate. Economic uncertainty exacerbated negative trends in spending and caused certain customers to push out, cancel, or refrain from placing orders, which reduced revenue. We have seen market conditions improve; however, a slowdown in the economic recovery or worsening global economic conditions may result in difficulties in obtaining capital and uncertain market conditions may lead to the inability of some customers to obtain affordable financing, resulting in lower sales. Customers with liquidity issues may lead to additional bad debt expense. These conditions may also similarly affect key suppliers, which could affect their ability to deliver parts and result in delays in the availability of product. Further, these conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions and identify the risks that may affect our business, financial condition and results of operations. If the current improving economic conditions are not sustained or begin to deteriorate again, or if we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition or results of operations may be materially and adversely affected.

Because A Substantial Portion Of Our Net Revenues Are Generated By A Small Number Of Large Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net Revenues And Earnings Will Be Harmed

Historically, a relatively small number of customers have accounted for a significant portion of our net revenues in any particular period. See Note 8 of the consolidated financial statements for customer concentrations.

We have no long-term volume purchase commitments from any of our significant customers. We cannot be certain that our current customers will continue to place orders with us, that orders by existing customers will continue at the levels of previous periods or that we will be able to obtain orders from new customers. In addition, some of our customers supply products to end-market purchasers and any of these end-market purchasers could choose to reduce or eliminate orders for our customers' products. This would in turn lower our customers' orders for our products.

We anticipate that sales of our products to a relatively small number of customers will continue to account for a significant portion of our net revenues. Due to these factors, the following have in the past and may in the future reduce our net revenues or earnings:

·	the reduction, delay or cancellation of orders from one or more of our significant customers;

·	the selection of competing products or in-house design by one or more of our current customers;

·	the loss of one or more of our current customers; or

·	a failure of one or more of our current customers to pay our invoices.

Intense Competition In The Markets In Which We Operate May Reduce The Demand For Or Prices Of Our Products

Competition in the semiconductor industry is intense. If our main target market, the microprocessor-based systems market, continues to grow, the number of competitors may increase significantly. In addition, new semiconductor technology may lead to new products that can perform similar functions as our products. Some of our competitors and other semiconductor companies may develop and introduce products that integrate into a single semiconductor device the functions performed by our semiconductor devices. This would eliminate the need for our products in some applications.

In addition, competition in our markets comes from companies of various sizes, many of which are significantly larger and have greater financial and other resources than we do and thus can better withstand adverse economic or market conditions. Therefore, we cannot assure you that we will be able to compete successfully in the future against existing or new competitors, and increased competition may adversely affect our business. See “Business – Products,” and “—Competition” in Part I of Item 1 of our Form 10-K for the year ended December 31, 2013.

Our Independent Manufacturers May Not Be Able To Meet Our Manufacturing Requirements

We do not manufacture any of our semiconductor devices. Therefore, we are referred to in the semiconductor industry as a “fabless” producer of semiconductors. Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers located in China, Japan, Korea, Malaysia and Taiwan that can produce semiconductors which meet our needs. However, as the semiconductor industry continues to progress towards smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the semiconductor industry and our status as a fabless semiconductor company, we could encounter fabrication-related problems that may affect the availability of our semiconductor devices, delay our shipments or increase our costs.

Only a small number of our semiconductor devices are currently manufactured by more than one supplier. We place our orders on a purchase order basis and do not have a long term purchase agreement with any of our existing suppliers. In the event that the supplier of a semiconductor device was unable or unwilling to continue to manufacture our products in the required volume, we would have to identify and qualify a substitute supplier. Introducing new products or transferring existing products to a new third party manufacturer or process may result in unforeseen device specification and operating problems. These problems may affect product shipments and may be costly to correct. Silicon fabrication capacity may also change, or the costs per silicon wafer may increase. Manufacturing-related problems may have a material adverse effect on our business.

Failure To Translate Design Wins Into Revenue Could Result in Delayed or Lack of Revenue Growth

We had seen strong design activity with our PCI Express Gen2 products in 2009 resulting in PCI Express revenue growth between 2010 and 2012, when these designs moved into production. We are currently seeing significantly greater design activity and potential revenue with our Gen3 products. We believe that our revenue growth over the next several years will be driven by these programs moving to production. However, if these programs do not materialize, our revenue growth may be delayed or may be quite limited or may not even occur.

Lower Demand For Our Customers’ Products Will Result In Lower Demand For Our Products

Demand for our products depends largely on the development and expansion of the high-performance microprocessor-based systems markets including networking and telecommunications, enterprise and consumer storage, imaging and industrial applications. The size and rate of growth of these microprocessor-based systems markets may in the future fluctuate significantly based on numerous factors. These factors include the adoption of alternative technologies, capital spending levels and general economic conditions. Demand for products that incorporate high-performance microprocessor-based systems may not grow.

Our Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our Expected Revenues

Our customers typically perform numerous tests and extensively evaluate our products before incorporating them into their systems. The time required for test, evaluation and design of our products into a customer’s equipment can range from six to twelve months or more. It can take an additional six to twelve months or more before a customer commences volume shipments of equipment that incorporates our products. Because of this lengthy sales cycle, we may experience a delay between the time when we increase expenses for research and development and sales and marketing efforts and the time when we generate higher revenues, if any, from these expenditures.

In addition, the delays inherent in our lengthy sales cycle raise additional risks of customer decisions to cancel or change product plans. When we achieve a design win, there can be no assurance that the customer will ultimately ship products incorporating our products. Our business could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release products incorporating our products.

Failure To Have Our Products Designed Into The Products Of Electronic Equipment Manufacturers Will Result In Reduced Sales

Our future success depends on electronic equipment manufacturers that design our semiconductor devices into their systems. We must anticipate market trends and the price, performance and functionality requirements of current and potential future electronic equipment manufacturers and must successfully develop and manufacture products that meet these requirements. In addition, we must meet the timing requirements of these electronic equipment manufacturers and must make products available to them in sufficient quantities. These electronic equipment manufacturers could develop products that provide the same or similar functionality as one or more of our products and render these products obsolete in their applications.

We do not have purchase agreements with our customers that contain minimum purchase requirements. Instead, electronic equipment manufacturers purchase our products pursuant to short-term purchase orders that may be canceled without charge. We believe that in order to obtain broad penetration in the markets for our products, we must maintain and cultivate relationships, directly or through our distributors, with electronic equipment manufacturers that are leaders in the embedded systems markets. Accordingly, we will incur significant expenditures in order to build relationships with electronic equipment manufacturers prior to volume sales of new products. If we fail to develop relationships with additional electronic equipment manufacturers to have our products designed into new microprocessor-based systems or to develop sufficient new products to replace products that have become obsolete, our business would be materially adversely affected.

Defects In Our Products Could Increase Our Costs And Delay Our Product Shipments

Our products are complex and we use third party developed intellectual property, including serdes, in the design of our products. While we test our products, these products may still have errors, defects or bugs that we find only after commercial production has begun. We have experienced errors, defects and bugs in the past in connection with new products.

Our customers may not purchase our products if the products have reliability, quality or compatibility problems. This delay in acceptance could make it more difficult to retain our existing customers and to attract new customers. Moreover, product errors, defects or bugs could result in additional development costs, diversion of technical and other resources from our other development efforts, claims by our customers or others against us, or the loss of credibility with our current and prospective customers. In the past, the additional time required to correct defects has caused delays in product shipments and resulted in lower revenues. We may have to spend significant amounts of capital and resources to address and fix problems in new products.

We must continuously develop our products using new process technology with smaller geometries to remain competitive on a cost and performance basis. Migrating to new technologies is a challenging task requiring new design skills, methods and tools and is difficult to achieve.

Failure Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial Condition

We believe that our growth prospects depend upon our ability to gain customer acceptance of our products and technology. Market acceptance of products depends upon numerous factors, including compatibility with other products, adoption of relevant interconnect standards, perceived advantages over competing products and the level of customer service available to support such products. There can be no assurance that growth in sales of new products will continue or that we will be successful in obtaining broad market acceptance of our products and technology.

We expect to spend a significant amount of time and resources to develop new products and refine existing products. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of any new products. Our ability to commercially introduce and successfully market any new products is subject to a wide variety of challenges during this development cycle, including start-up bugs, design defects and other matters that could delay introduction of these products to the marketplace. In addition, since our customers are not obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be cancelled. As a result, if we do not achieve market acceptance of new products, we may not be able to realize sufficient sales of our products in order to recoup research and development expenditures. The failure of any of our new products to achieve market acceptance would harm our business, financial condition, results of operation and cash flows.

A Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors Who May Terminate Their Relationships With Us At Any Time

We depend on distributors to sell a significant portion of our products. Sales through distributors for the three months ended March 31, 2014 and 2013 accounted for approximately 86% and 89%, respectively, of our net revenues. Some of our distributors also market and sell competing products. Distributors may terminate their relationships with us at any time. Our future performance will depend in part on our ability to attract additional distributors that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. We may lose one or more of our current distributors or may not be able to recruit additional or replacement distributors. The loss of one or more of our major distributors could have a material adverse effect on our business, as we may not be successful in servicing our customers directly or through manufacturers’ representatives.

The Demand For Our Products Depends Upon Our Ability To Support Evolving Industry Standards

A majority of our revenues are derived from sales of products, which rely on the PCI Express, PCI and USB standards. If markets move away from these standards and begin using new standards, we may not be able to successfully design and manufacture new products that use these new standards. There is also the risk that new products we develop in response to new standards may not be accepted in the market. In addition, these standards are continuously evolving, and we may not be able to modify our products to address new specifications. Any of these events would have a material adverse effect on our business.

We Must Make Significant Research And Development Expenditures Prior To Generating Revenues From Products

To establish market acceptance of a new semiconductor device, we must dedicate significant resources to research and development, production and sales and marketing. We incur substantial costs in developing, manufacturing and selling a new product, which often significantly precede meaningful revenues from the sale of this product. Consequently, new products can require significant time and investment to achieve profitability. Investors should understand that our efforts to introduce new semiconductor devices or other products or services may not be successful or profitable. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive.

We record as expenses the costs related to the development of new semiconductor devices and other products as these expenses are incurred. As a result, our profitability from quarter to quarter and from year to year may be adversely affected by the number and timing of our new product launches in any period and the level of acceptance gained by these products.

We Could Lose Key Personnel Due To Competitive Market Conditions And Attrition

Our success depends to a significant extent upon our senior management and key technical and sales personnel. The loss of one or more of these employees could have a material adverse effect on our business. We do not have employment contracts with any of our executive officers.

Our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel. Competition for such personnel in the semiconductor industry is intense, and we may not be able to retain our key personnel or to attract, assimilate or retain other highly qualified personnel in the future. In addition, we may lose key personnel due to attrition, including health, family and other reasons. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our business could be materially adversely affected.

The Successful Marketing And Sales Of Our Products Depend Upon Our Third Party Relationships, Which Are Not Supported By Written Agreements

When marketing and selling our semiconductor devices, we believe we enjoy a competitive advantage based on the availability of development tools offered by third parties. These development tools are used principally for the design of other parts of the microprocessor-based system but also work with our products. We will lose this advantage if these third party tool vendors cease to provide these tools for existing products or do not offer them for our future products. This event could have a material adverse effect on our business. We have no written agreements with these third parties, and these parties could choose to stop providing these tools at any time.

Our Limited Ability To Protect Our Intellectual Property And Proprietary Rights Could Adversely Affect Our Competitive Position

Our future success and competitive position depend upon our ability to obtain and maintain proprietary technology used in our principal products. Currently, we have limited protection of our intellectual property in the form of patents and rely instead on trade secret protection. Our existing or future patents may be invalidated, circumvented, challenged or licensed to others. The rights granted there under may not provide competitive advantages to us. In addition, our future patent applications may not be issued with the scope of the claims sought by us, if at all. Furthermore, others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned or licensed by us. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in foreign countries where we may need protection. We cannot be sure that steps taken by us to protect our technology will prevent misappropriation of the technology.

We may from time to time receive notifications of claims that we may be infringing patents or other intellectual property rights owned by third parties.

See Note 10 of the condensed consolidated financial statements for a description of the four lawsuits filed against us by a company alleging patent infringement.

During the course of the litigations as well as any other future intellectual property litigations, we will incur costs associated with defending or prosecuting these matters. These litigations could also divert the efforts of our technical and management personnel, whether or not they are determined in our favor. In addition, if it is determined in such a litigation that we have infringed the intellectual property rights of others, we may not be able to develop or acquire non-infringing technology or procure licenses to the infringing technology under reasonable terms. This could require expenditures by us of substantial time and other resources. Any of these developments would have a material adverse effect on our business.

Acquisitions Could Adversely Affect Our Financial Condition And Could Expose Us To Unanticipated Liabilities

As part of our business strategy, we expect to continue to review acquisition prospects that would complement our existing product offerings, improve market coverage or enhance our technological capabilities. Potential future acquisitions could result in any or all of the following:

·	potentially dilutive issuances of equity securities;

·	large acquisition-related write-offs;

·	potential patent and trademark infringement claims against the acquired company;

·	the incurrence of debt and contingent liabilities or amortization expenses related to other intangible assets;

·	difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies;

·	the incurrence of additional operating losses and expenses of companies we may acquire;

·	possible delay or failure to achieve expected synergies;

·	diversion of management’s attention from other business concerns;

·	risks of entering geographic and business markets in which we have no or limited prior experience;

·	potential loss of key employees; and

·	potential lawsuits from shareholders.

Because We Sell Our Products To Customers Outside Of The United States And Because Our Products Are Incorporated With Products Of Others That Are Sold Outside Of The United States We Face Foreign Business, Political And Economic Risks

Sales outside of the United States accounted for 81% and 78% of our net revenues in the three months ended March 31, 2014 and 2013, respectively. Sales outside of the United States may fluctuate in future periods and may continue to account for a large portion of our revenues. In addition, equipment manufacturers who incorporate our products into their products sell their products outside of the Unites States, thereby exposing us indirectly to foreign risks. Further, most of our semiconductor products are manufactured outside of the United States. Accordingly, we are subject to international risks, including:

·	difficulties in managing distributors;

·	difficulties in staffing and managing foreign subsidiary and branch operations;

·	political and economic instability;

·	foreign currency exchange fluctuations;

·	difficulties in accounts receivable collections;

·	potentially adverse tax consequences;

·	timing and availability of export licenses;

·	changes in regulatory requirements, tariffs and other barriers;

·	difficulties in obtaining governmental approvals for telecommunications and other products; and

·	the burden of complying with complex foreign laws and treaties.

Because sales of our products have been denominated to date exclusively in United States dollars, increases in the value of the United States dollar will increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, which could lead to a reduction in sales and profitability in that country.

We May Be Required To Record A Significant Charge To Earnings If Our Goodwill Or Other Long Lived Asset Become Impaired

Under generally accepted accounting principles, we review our long lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment annually during the fourth quarter and between annual tests in certain circumstances. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or other long lived assets may not be recoverable, include a persistent decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. We have recorded goodwill related to prior acquisitions, and may do so in connection with any potential future acquisitions. We may be required to record a significant charge in our financial statements during the period in which any additional impairment of our goodwill or other long lived assets is determined, which would adversely impact our results of operations.

Customer Demands And New Regulations Related To Conflict-Free Minerals May Force Us To Incur Additional Expenses

In August 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and derivative metals (referred to as “conflict minerals,” regardless of their actual country of origin) in their products. These new requirements will require companies to investigate, disclose and report whether or not such metals originated from the Democratic Republic of Congo or adjoining countries. In January 2013, the SEC’s conflicts minerals disclosure rules became effective, requiring companies to make their first conflict minerals disclosures on or before May 31, 2014 for the 2013 calendar year. We are currently evaluating the disclosure requirements in order to comply with these disclosures, if any, within the prescribed time frame.

In the semiconductor industry, these minerals are most commonly found in metals. As there may be only a limited number of suppliers offering “conflict free” metals, we cannot be sure that we will be able to obtain necessary metals in sufficient quantities or at competitive prices. Also, since our supply chain is complex and some suppliers will not share their confidential supplier information, we may face challenges with our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are “conflict free.” Some customers may choose to disqualify us as a supplier and we may have to write off inventory in the event that it becomes unsalable as a result of these regulations.

Our Business Could Be Materially Adversely Affected As A Result Of Natural Disasters, Acts Of War Or Terrorism

Our operations and those of our suppliers and customers are vulnerable to interruption by fire, earthquake, flood and other natural disasters, as well as act of terrorism, war and other events beyond our control. If such events were to occur, it could result in a significant reduction of end-customer demand and/or availability of materials, a disruption of the global supply chain and an increase in the cost of products that we purchase. Any of these events would have a material adverse effect on our business.

Our Principal Stockholders Have Significant Voting Power And May Take Actions That May Not Be In The Best Interests Of Our Other Stockholders

Our executive officers, directors and other principal stockholders, in the aggregate, beneficially own a substantial amount of our outstanding common stock. Although these stockholders do not have majority control, they currently have, and likely will continue to have, significant influence with respect to the election of our directors and approval or disapproval of our significant corporate actions. This influence over our affairs might be adverse to the interests of other stockholders. In addition, the voting power of these stockholders could have the effect of delaying or preventing a change in control of PLX.

The Anti-Takeover Provisions In Our Certificate of Incorporation And Bylaws Could Adversely Affect The Rights Of The Holders Of Our Common Stock

Anti-takeover provisions of Delaware law, our Certificate of Incorporation and our Bylaws may make a change in control of PLX more difficult, even if a change in control would be beneficial to the stockholders. These provisions may allow the Board of Directors to prevent changes in the management and control of PLX.

As part of our anti-takeover devices, our Board of Directors has the ability to determine the terms of preferred stock and issue preferred stock without the approval of the holders of the common stock. Our Certificate of Incorporation allows the issuance of up to 5,000,000 shares of preferred stock. There are no shares of preferred stock outstanding. However, because the rights and preferences of any series of preferred stock may be set by the Board of Directors in its sole discretion without approval of the holders of the common stock, the rights and preferences of this preferred stock may be superior to those of the common stock. Accordingly, the rights of the holders of common stock may be adversely affected. Consistent with Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.

ITEM 6. EXHIBITS

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PLX TECHNOLOGY, INC.

Date: May 6, 2014

By /s/ Arthur O. Whipple

Arthur O. Whipple

Chief Financial Officer

(Principal Financial Officer and duly authorized signatory)

EXHIBIT INDEX

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Delaware	94-3008334
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)