What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 452 added, 274 removed, 343 unchanged (68% of the section changed)

3 unchanged sentences

(in thousands, except par value amount)

September 27,

Current assets:

Cash, cash equivalents and restricted cash

$ 24,685  

$ 21,548  

Accounts receivable, net of allowances for doubtful accounts of $0

1 unchanged sentence

Total current assets

30,105  

28,364  

Property and equipment, net

2 unchanged sentences

Intangible assets

$ 34,868  

$ 33,404  

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Revolving line of credit

$ 15,000  

Trade payables

4 unchanged sentences

Total current liabilities

18,792  

17,998  

Long-term liabilities:

2 unchanged sentences

Total liabilities

20,621  

19,581  

Commitments and contingencies (see Note 13)

2 unchanged sentences

10,000 shares authorized;

issued and outstanding

no shares issued and outstanding

Common stock, $0.001 par value;

200,000 authorized;

10,912 and 8,331

shares issued and outstanding as of June 28, 2020 and December 29, 2019, respectively

11,068 and 8,331 shares issued and outstanding as of September 27, 2020 and Balance at December 29, 2019, respectively

Additional paid-in capital

305,703  

297,073  

Accumulated deficit

( 291,467 )  

Total stockholders' equity

14,247  

13,823  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 34,868  

$ 33,404  

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Nine Months Ended

September 27, 2020

September 29, 2019

September 27, 2020

September 29, 2019

$ 1,780  

$ 2,158  

$ 6,134  

$ 7,439  

Cost of revenue

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Total operating expenses

11,045  

16,477  

Loss from operations

( 2,046 )  

( 4,193 )  

( 8,003 )  

Interest expense

( 36 )  

( 63 )  

( 299 )  

Interest income and other expense, net

Loss before income taxes

(Benefit from) provision for income taxes

( 2,055 )  

( 4,201 )  

( 8,208 )  

Provision for (benefit from) income taxes

$ ( 2,065 )  

$ ( 4,271 )  

$ ( 8,209 )  

Net loss per share:

Basic and diluted (1)

$ ( 0.19 )  

$ ( 0.51 )  

$ ( 0.88 )  

Weighted average shares outstanding:

Basic and diluted (1)

11,023  

Net loss equals to comprehensive loss for all periods presented.

(1) Net loss per share, and weighted average shares outstanding basic and diluted for the three- and six-months ended June 30, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019 .

(1) Net loss per share, and weighted average shares outstanding basic and diluted for the three and nine months ended September 29, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019 .

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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(in thousands)

Six Months Ended

Nine Months Ended

September 27,

September 29,

Cash flows from operating activities:

$ ( 8,209 )  

Adjustments to reconcile net loss to net cash used in operating activities:

7 unchanged sentences

Trade payables

Accrued liabilities and deferred revenue

Accrued liabilities

Deferred revenue  

( 113 )  

Other long-term liabilities

Net cash used in operating activities

( 5,145 )  

Cash flows from investing activities:

Capital expenditures for property and equipment

( 155 )  

Capitalized internal-use software

( 607 )  

Cash received from business acquisition

Net cash used in investing activities

( 762 )  

Cash flows from financing activities:

Payment of finance lease obligations

( 179 )  

Proceeds from paycheck protection program loan

Proceeds from line of credit

42,000  

32,000  

Repayment of line of credit

( 42,000 )  

Proceeds from issuance of common stock, net of issuance costs

Taxes paid related to net settlement of equity awards

( 67 )  

Net cash provided by financing activities

1 unchanged sentence

Cash, cash equivalents and restricted cash at beginning of period

21,548  

26,463  

Cash, cash equivalents and restricted cash at end of period

$ 24,685  

$ 24,822  

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

QUICKLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

(In thousands)

1 unchanged sentence

Balance at December 29, 2019

Common stock issued under stock plans and employee

stock purchase plan

$ 297,073  

$ ( 283,258 )  

$ 13,823  

Common stock issued under stock plans and employee stock purchase plan

( 25 )  

Stock-based compensation

( 398 )  

( 3,165 )  

Balance at March 29, 2020

Common stock issued under stock plans and employee

stock purchase plan

Common stock offering, net of issuance costs of $ 1.1 million

296,650  

( 286,423 )  

10,235  

Common stock issued under stock plans and employee stock purchase plan

( 31 )  

Common stock offering, net of issuance costs of $1,100

Stock-based compensation

( 2,979 )  

Balance at June 28, 2020

10,912  

305,013  

( 289,402 )  

15,622  

Common stock issued under stock plans and employee stock purchase plan  

( 13 )  

Common stock offering, net of issuance costs of $52  

Stock-based compensation  

Net loss  

( 2,065 )  

Balance at September 27, 2020  

11,068  

$ 305,703  

$ ( 291,467 )  

$ 14,247  

Common Stock (1)

1 unchanged sentence

Balance at December 30, 2018

Common stock issued under stock plans and employee

stock purchase plan

$ 285,062  

$ ( 267,814 )  

$ 17,255  

Common stock issued under stock plans and employee stock purchase plan

( 163 )  

Common stock issued for SensiML acquisition

Stock-based compensation

( 3,476 )  

Balance at March 31, 2019

Common stock issued under stock plans and employee

stock purchase plan

Common stock offering, net of issuance costs of $ 1.2 million

286,753  

( 271,290 )  

15,470  

Common stock issued under stock plans and employee stock purchase plan

Common stock offering, net of issuance costs of $1,200

Stock-based compensation

( 4,634 )  

Balance at June 30, 2019

Common stock shares and additional paid-in capital amounts as of December 31, 2018, and in the three-months ended March 31, 2019 and June 30, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

295,778  

( 275,924 )  

19,862  

Common stock issued under stock plans and employee stock purchase plan  

( 94 )  

Stock issuance costs  

Stock-based compensation  

Net loss  

( 4,271 )  

Balance at September 29, 2019  

$ 296,425  

$ ( 280,195 )  

$ 16,238  

Common stock shares and additional paid-in capital amounts as of December 31, 2018, and in the three-months ended March 31, 2019, June 30, 2019 and September 29, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and Basis of Presentation

QuickLogic Corporation (“QuickLogic” or “Company”) was founded in 1988 and reincorporated in Delaware in 1999.

The Company enables Original Equipment Manufacturers (“OEMs”) to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Hearable, Tablet and Internet-of-Things (“IoT devices”).

The Company is a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power Field Programmable Gate Arrays (“FPGAs”).

The Company’s wholly owned subsidiary, SensiML Corporation (“SensiML”) provides Analytics Toolkit, which is used in many of the applications where the Company’s ArcticPro™, eFPGA intellectual property (“IP”) plays a critical role.

Note 1 —

The Company and Basis of Presentation

QuickLogic Corporation (“QuickLogic”

or “Company”) was founded in 1988 and reincorporated in Delaware in 1999.

QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip (“SoC”) semiconductor solutions, embedded software, and algorithm solutions for always-on voice and sensor processing, and enhanced visual experiences. The Company is a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power Field Programmable Gate Arrays (“FPGAs”).

SensiML Analytics toolkit is an end-to-end software suite that provides OEMs a straightforward process for developing pattern matching sensor algorithms using machine learning technology that are optimized for ultra-low power consumption.

The accompanying interim condensed consolidated financial statements are unaudited.

In the opinion of the Company’s management, these statements have been prepared in accordance with the United States generally accepted accounting principles (“U.S.

GAAP”), and include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of results for the interim periods presented.

The Company recommends that these interim condensed consolidated financial statements be read in conjunction with the Company's Form 10-K for the year ended December 29, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020.

Operating results for the three and six months ended June 28, 2020 are not necessarily indicative of the results that may be expected for the full year.

QuickLogic's fiscal year ends on the Sunday closest to December 31 and each fiscal quarter ends on the Sunday closest to the end of each calendar quarter.

QuickLogic's second fiscal quarters for 2020 and for 2019 ended on June 28, 2020 and June 30, 2019, respectively.

COVID-19 Risks and Uncertainties

On January 30, 2020, the World Health Organization (“WHO”) declared a global emergency due to the COVID-19 pandemic, and on February 28, 2020, the WHO raised its assessment of the threat from high to very high at a global level.

The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which the Company operates, and the imposition of shelter-in-place or similarly restrictive work-from-home orders impacting many of the Company’s offices and employees, including those located in the United States.

In the opinion of the Company’s management, these statements have been prepared in accordance with the United States generally accepted accounting principles (“U.S.

GAAP”), and include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of results for the interim periods presented.

The Company recommends that these interim condensed consolidated financial statements be read in conjunction with the Company's Form 

10 -K for the year ended December 29, 2019 , which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020.

Operating results for the three and nine months ended September 27, 2020 are not necessarily indicative of the results that may be expected for the full year.

QuickLogic's fiscal year ends on the Sunday closest to December 

31 and each fiscal quarter ends on the Sunday closest to the end of each calendar quarter.

QuickLogic's third fiscal quarters for 2020 and for 2019 ended on September 27, 2020 and September 29, 2019 , respectively.

COVID- 19 - Impact on Business

On January 30, 2020, the World Health Organization (“WHO”) declared a global emergency due to the COVID- 19 pandemic, and on February 28, 2020, the WHO raised its assessment of the threat from high to very high at a global level.

The social and economic impact of the COVID- 19 outbreak has continued to increase exponentially since this declaration.

The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID- 19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which the Company operates, and the imposition of shelter-in-place or similarly restrictive work-from-home orders impacting many of the Company’s offices and employees, including those located in the United States.

As a result, the Company has temporarily closed or substantially limited the presence of personnel in its offices in several impacted locations, implemented travel restrictions and withdrawn from various industry events.

The impact of the Company’s work-from-home policy that was implemented to protect its global workforce has contributed to delays in certain operational processes, including its routine quarterly financial statement close process for the first quarter of fiscal 2020.

The Company has also experienced some disruption and delays in its supply chain, customer deployment plans, and logistics challenges, including certain limitations on its ability to access customer fulfilment and service sites.

The COVID-19 pandemic and its potential effects on the Company’s business in its fiscal 2020 remain dynamic, and the broader implications for its business and results of operations remain uncertain.

These implications could include further disruptions or restrictions on the Company’s ability to source, manufacture or distribute its products, including temporary disruptions to the facilities of its contract manufacturers in China, Taiwan, Philippines and Singapore, or the facilities of its suppliers and their contract manufacturers globally.

As such, while COVID- 19  has had an impact on the Company's financial results on the 

three and 

nine  months ended September 27, 2020,  

the COVID- 19 pandemic and its potential effects on the Company’s business in its fiscal 2020 remain dynamic, and the broader implications for its business and future results of operations remain uncertain.

Additionally, multiple countries have imposed and may further impose restrictions on business operations and movement of people and products to limit the spread of COVID- 19.

Delays in production or delivery of components or raw materials that are part of the Company’s global supply chain due to restrictions imposed to limit the spread of COVID-19 could delay or inhibit its ability to obtain the supply of components and finished goods.

Delays in production or delivery of components or raw materials that are part of the Company’s global supply chain due to restrictions imposed to limit the spread of COVID- 19 could delay or inhibit its ability to obtain the supply of components and finished goods.

If COVID- 19 becomes more prevalent in the locations where the Company, its customers or suppliers conduct business, or the Company experiences more pronounced disruptions in its operations, the Company may experience constrained supply or curtailed demand that may materially adversely impact its business and results of operations.

In addition, any other widespread health crisis that could adversely affect global and regional economies, financial markets and overall demand environment for the Company's products could have a material adverse effect on the Company’s business, cash flows or results of operations.

It is difficult to accurately predict the full impact that COVID- 19 will have on the Company's future results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and related containment measures.

The Company will continue to closely monitor the pandemic's associated effects on all aspects of the business.

Restructuring

In January 2020, the Company implemented a restructuring plan to lower annual operating expenses and strategically align resources around the Company's open source, AI SaaS and IP Leasing businesses.

The restructuring plan was approved by the Company’s Board of Directors on January 24, 2020.

Pursuant to the restructuring plan, the Company recorded $624,000 of restructuring charges during the nine -month period ended September 27, 2020, consisting primarily of employee severance related costs and facility costs. During the third quarter, the Company incurred additional restructuring expenses of $111,000 relating to the closure of the San Diego and India facilities.

The Company has financed its operations and capital investments through sales of common stock, finance and operating leases, a revolving line of credit and cash flows from operations.

As of June 28, 2020, the Company's principal sources of liquidity consisted of cash and cash equivalents and restricted cash of $ 26.4 million, including $ 15.0 million drawn down from its revolving line of credit (“Revolving Facility”) with Heritage Bank of Commerce (“Heritage Bank”), and $ 1.2 million loan proceeds received under Paycheck Protection Program (“PPP”).

As of September 27, 2020 , the Company's principal sources of liquidity consisted of cash and cash equivalents and restricted cash of 

$ 24.7  

million, including $ 15.0  

million drawn down from its revolving line of credit (“Revolving Facility”) with Heritage Bank of Commerce (“Heritage Bank”), and 

$ 1.2  mi llion loan proceeds received under Paycheck Protection Program (“PPP”).

On November 6, 2019 the Company entered into a First Amendment to the Revolving Facility with Heritage Bank to extend the maturity date for one year through September 28, 2021.

1 unchanged sentence

On May 6, 2020, the Company entered into a loan agreement with Heritage Bank for a loan of $ 1.2 million pursuant to the PPP under the CARES Act enacted on March 27, 2020.

See Note 7 to the Unaudited Consolidated Financial Statements for the details.

See Note 6  to the Unaudited Condensed Consolidated Financial Statements for the details.

On June 22, 2020, the Company closed an underwritten public offering of 2.5 million shares of common stock, $ 0.001 par value per share at a price of $ 3.50 per share.

The Company received net proceeds from the offering of approximately $ 7.9 million, net of underwriter’s commission and other offering expenses.

Under the terms of the Underwriting Agreement, the Company granted the Underwriter a 30-day option to purchase up to an additional 375,000 shares of Common Stock to cover overallotments.

On July 21, 2020, the Underwriter’s partially exercised the option to purchase 141,733 additional shares of Common Stock in connection with the offering, resulting in additional net proceeds to the Company of approximately $ 461,000 after deduction of underwriting discounts.

Various factors can affect the Company’s liquidity, including, among others:

The Company received total gross proceeds from the offering of approximately $ 9.3 million, including $ 0.5 million received from the overallotment under the terms of the Underwriting Agreement to purchase up to an additional 375,000 shares.

Underwriters partially exercised the option to purchase 141,733 additional shares of Common Stock.

The Company incurred approximately $1.2 million of stock issuance costs for this offering.

Total net proceeds received from this offering was $ 8.1 million after deducting underwriting discounts and other stock issuance costs.

See Note 8  to the Unaudited Condensed Consolidated Financial Statements for the details.

Various factors can affect the Company’s liquidity, including, among others:

the level of revenue and gross profit as a result of the cyclicality of the semiconductor industry;

the conversion of design opportunities into revenue;

market acceptance of existing and new products including solutions based on its ArcticLink ® , PolarPro ® platforms, eFPGA, EOS S3 SoC, Quick AI solution, and SensiML software;

market acceptance of existing and new products including solutions based on its ArcticLink ®

, PolarPro ®

platforms, eFPGA, EOS S3 SoC, Quick AI solution, and SensiML software tools;

fluctuations in revenue as a result of product end-of-life;

fluctuations in revenue as a result of the stage in the product life cycle of its customers’ products;

fluctuations in revenue as a result of the stage in the product life cycle of its customers’

costs of securing access to and availability of adequate manufacturing capacity;

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the ability to capitalize on synergies with our newly acquired subsidiary SensiML;

the issuance and exercise of stock options and participation in the Company’s employee stock purchase plan;

and other factors related to the uncertainties of the industry and global economics.

1 unchanged sentence

However, the Company cannot provide any assurance that it will be able to raise additional capital, if required, or that such capital will be available on terms acceptable to the Company.

The inability of the Company to generate sufficient sales from its new product offerings and/or raise additional capital if needed could have a material adverse effect on the Company’s operations and financial condition, including its ability to maintain compliance with its lender’s financial covenants.

Reverse Stock Split

Effective on December 23, 2019, the Company enacted a 1-for-14 reverse stock split of its outstanding common stock, in which, every 14 issued and outstanding shares of common stock of the Company were automatically combined into one issued and outstanding share of common stock without any change in the par value per share.

Effective on December 23, 2019, the Company enacted a 1 -for- 14  reverse stock split of its outstanding common stock, in which, every 14 issued and outstanding shares of common stock of the Company were automatically combined into one issued and outstanding share of common stock without any change in the par value per share.

Stockholders who would have otherwise been entitled to fractional shares of common stock as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares.

All share, equity awards, and per share amounts contained in this Form 10-Q and the accompanying Condensed Consolidated Financial Statements have been adjusted to reflect the reverse stock split for all prior periods presented.

All share, equity awards, and per share amounts contained in this Form 10 -Q and the accompanying Unaudited Condensed Consolidated Financial Statements have been adjusted to reflect the reverse stock split for all prior periods presented.

Warrants issued in connection with the May 2018 stock issuance were also adjusted to reflect the reverse stock split for all periods presented.

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Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is required to determine the Stand-alone Selling Price (“SSP”) for each distinct performance obligation.

The Company uses a range of amounts to estimate SSP when each of the products and services are sold separately and determines the discount to be allocated based on the relative SSP of the various products and services when products and services sold are bundled.

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The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

See Note 14 for information regarding concentrations associated with accounts receivable.

Note 2 — Significant Accounting Policies

During the six-month period ended June 28, 2020, there were no changes in the Company's significant accounting policies from its disclosures in the Annual Report on Form 10-K for the year ended December 29, 2019, except for the new accounting standards adopted during the six months ended June 28, 2020.

For a discussion of the significant accounting policies, please see the Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on March 13, 2020.

For a discussion of the new accounting standards adopted during the first six months of 2020, see “New Accounting Pronouncements” below.

Revenue Recognition

The Company applies Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers , to recognize revenue.

The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Under the new standard revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration it expects to receive in exchange for those products or services.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract;

Recognition of revenue when, or as, a performance obligation is satisfied.

As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk.

For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations.

In determining the transaction price, the price stated on the purchase order is typically fixed and represents the net consideration to which the Company expects to be entitled, and therefore there is no variable consideration.

As the Company’s standard payment terms are less than one year, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component.

The Company allocates the transaction price to each distinct product based on its relative stand-alone selling price.

The product price as specified on the purchase order is considered the stand-alone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances.

The Company applies Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) and related ASUs, which provide supplementary guidance and clarifications to account operating and finance leases .

Under Topic 842, all significant lease arrangements are generally recognized at lease commencement.

Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date.

A ROU asset and corresponding lease liability is not recorded for leases with an initial term of 12 months or less (short term leases) and the Company recognizes lease expense for these leases as incurred over the lease term.

ROU assets represent the Company’s right to use an underlying asset during the reasonably certain lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The Company primarily uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments.

The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives.

Lease expense is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

As of June 28, 2020, the Company’s right-of-use assets was approximately $ 2.2 million and lease liability was approximately $ 2.2 million as presented on the Company’s Consolidated Balance Sheet.

See Note 8 to the Unaudited Consolidated Financial Statements for more details.

Business Combinations

The Company recognizes assets acquired (including goodwill and identifiable intangible assets) and liabilities assumed at fair value on the acquisition date.

Subsequent changes to the fair value of such assets acquired and liabilities assumed are recognized in earnings, after the expiration of the measurement period, a period not to exceed 12 months from the acquisition date.

Acquisition-related expenses and acquisition-related restructuring costs are recognized in earnings in the period in which they are incurred

Goodwill and Intangible Assets

Goodwill represents the excess fair value of consideration transferred over the fair value of net assets acquired in business combinations.

The carrying value of goodwill and indefinite lived intangible assets are not amortized, but are annually tested for impairment and more often if there is an indicator of impairment.

Company recognized goodwill of $ 185,000 due to tax benefits that arose from intangible assets acquired in the SensiML acquisition.

Intangible assets with finite useful lives are amortized on a straight-line basis over the periods benefited.

The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable.

The assessment of possible impairment is based on the

Company's ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations.

If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value.

The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets.

No impairment has been recognized to-date.

See Note 12  to the Unaudited Condensed Consolidated Financial Statements for information regarding concentrations associated with accounts receivable.

Significant Accounting Policies

During the nine -month period ended September 27, 2020 , there were no changes in the Company's significant accounting policies from its disclosures in the Annual Report on Form 10 -K for the year ended December 29, 2019 , except for the new accounting standards adopted during the nine months ended September 27, 2020 .

For a discussion of the significant accounting policies, please see the Annual Report on Form 10 -K for the fiscal year ended December 29, 2019 , filed with the SEC on March 

For a discussion of the new accounting standards adopted during the first nine months of 2020 , see “New Accounting Pronouncements”

Fair Value Measurements

The Company’s cash, cash equivalents and restricted cash include money market account balance of $24.1  million and $20.9  million as of September 27, 2020 and December 29, 2019 , respectively.

Fair value of the Company’s money market account balance with Heritage Bank equals to book value.

Restricted cash

Cash, cash equivalent and restricted cash includes an amount of $ 100,000 pledged as cash security related to the use of credit cards as of June 28, 2020 and December 29, 2019.

Cash, cash equivalent and restricted cash includes an amount of $ 100,000 p ledged as cash security related to the use of credit cards as of September 27, 2020 and December 29, 2019 .

New Accounting Pronouncements

Recently adopted accounting pronouncements:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU, No.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU"), No.

2018 - 13, Fair Value Measurement (Topic 820 ):

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In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementations Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

2018 - 15, Intangibles - Goodwill and Other –

Internal-Use Software (Subtopic 350 - 40 ):

Customer’s Accounting for Implementations Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

Under the new standard, implementations costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs.

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In June 2016, FASB issued ASU No.

2016-13 (“ASU 2016-13”) Financial Instruments-Credit Losses (Topic 326):

2016 - 13 (“ASU 2016 - 13”

) Financial Instruments-Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments , which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

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The Company is currently evaluating the potential impact on its Consolidated Financial Statements.

Note 3 — Net Loss Per Share

In August 2020, the FASB issued ASU No.

2020 - 06, Debt—Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity.

This amendment is effective for public business entities that meet the definition of a Securities and Exchange Commission ("SEC") filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the potential impact on its Consolidated Financial Statements.

Net Loss Per Share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period.

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In computing diluted net loss per share, the weighted average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

For the three and six months ended June 28, 2020 and June 30, 2019, 626,178 and 571,970 shares of common stock, respectively, associated with equity awards and the estimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan were outstanding.

These shares were not included in the computation of diluted net loss per share as they were considered anti-dilutive due to the net losses the Company experienced during these

Warrants to purchase up to 386,100 shares were issued in connection with May 29, 2018 stock offering were also not included in the diluted loss per share calculation of the three and six months ended June 2 8 , 2020 and June 30, 2019 as they were also considered anti-dilutive due to the net loss the Company experienced during these periods.

All shares, equity awards, and per share amounts have been adjusted to reflect the 1-for-14 reverse stock split of the Company’s outstanding common stock for all periods presented.

Note 4 — Balance Sheet Components

The following table provides details relating to certain balance sheet line items as of June 28, 2020, and December 29, 2019 (in thousands):

For the three and nine months ended September 27, 2020 and September 29, 2019 , 979,363 and 559,587  shares of common stock, respectively, associated with equity awards and the estimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan were outstanding.

These shares were not included in the computation of diluted net loss per share as they were considered anti-dilutive due to the net losses the Company experienced during these periods.

Warrants to purchase up to 386,100 shares were issued in connection with May 29, 2018 stock offering were also not included in the diluted loss per share calculation of the three and nine months ended September 27, 2020 and September 29, 2019 as they were also considered anti-dilutive due to the net loss the Company experienced during these periods.

All shares, equity awards, and per share amounts have been adjusted to reflect the 1 -for- 14  reverse stock split of the Company’s outstanding common stock for all periods presented.

Balance Sheet Components

The following table provides details relating to certain balance sheet line items as of September 27, 2020 , and December 29, 2019 (in thousands):

September 27,

Raw materials

1 unchanged sentence

Finished goods

$ 3,138  

$ 3,260  

Other current assets:

Prepaid taxes, royalties and other prepaid expenses

$ 1,296  

$ 1,167  

$ 1,565  

Property and equipment, net:

$ 10,426  

$ 10,694  

Furniture and fixtures

Leasehold improvements

12,711  

12,993  

Accumulated depreciation and amortization

( 12,148 )  

Capitalized internal-use software, net:

Capitalized software

Capitalized internal-use software

Accumulated amortization

( 128 )  

Accrued liabilities:

Employee related accruals

Note 5— Business Acquisition

On January 3, 2019, the Company entered into a stock purchase agreement with SensiML for the purchase of all of its issued and outstanding common stock in exchange for the Company’s common stock.

SensiML has a software toolkit enabling IoT developers to quickly and easily create smart devices, transforming rich sensors into actionable event detectors.

The consolidated results of operations for the Company for the three and six months ended June 28, 2020 and June 30, 2019 include operating activities of SensiML.

Note 6 — Intangible Assets

The following table provides the details of the carrying value of intangible assets recorded from the acquisition of SensiML as of June 28, 2020 (in thousands):

June 28, 2020

$ 1,011  

$ 1,368  

$ 1,133  

Note 5  —

Intangible Assets

The following table provides the details of the carrying value of intangible assets recorded from the acquisition of SensiML as of September 27, 2020 (in thousands):

September 27, 2020

Gross Carrying Amount

1 unchanged sentence

Net Carrying Amount

Developed technology

Customer relationships

Trade names and trademarks

Developed technology  

$ ( 168 )  

Customer relationships  

( 70 )  

Trade names and trademarks  

( 21 )  

Total acquired identifiable intangible assets

The following table provides the details of expected future annual amortization of intangible assets, based upon the current useful lives as of June 28, 2020 (in thousands):

$ 1,156  

$ ( 259 )  

The following table provides the details of expected future annual amortization of intangible assets, based upon the current useful lives as of September 27, 2020 (in thousands):

Annual Fiscal Years

2020 (remaining period)

Note 7 — Debt Obligations

2020 (remaining period)  

Thereafter  

Note 6  —

Debt Obligations

Revolving Line of credit

On September 28, 2018, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Heritage Bank.

The Loan Agreement provided for, among other things, the Revolving Facility with aggregate commitments of $9,000,000.

On December 21, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (“Amended and Restated Loan Agreement”) with Heritage Bank to replace in its entirety the Loan Agreement.

The Amended and Restated Loan Agreement increased the Revolving Facility from $9,000,000 to $ 15,000,000 .

The Amended and Restated Loan Agreement requires the Company to maintain at least $3,000,000 in unrestricted cash at Heritage Bank.

On November 6, 2019 the Company entered into a First Amendment to the Amended and Restated Loan Agreement (“First Amendment”) to extend the maturity date of the Revolving Facility for one year through September 28, 2021 .

Under this First Amendment, the Revolving Facility advances shall bear interest, on the outstanding daily balance thereof, at a rate per annum equal to the greater of (i) one half of one percentage point ( 0.50% ) above the Prime Rate, or (ii) five and one half of one percentage points ( 5.50% ).

As of June 28, 2020 and December 29, 2019, the Company had $ 15.0 million of revolving debt outstanding with an interest rates of 5.5 % per annum.

The Company was in compliance with all loan covenants under the Amended and Restated Loan Agreement as of the end of the current reporting period.

On June 29, 2020, the Company repaid the $ 15.0 million loan.

As of September 27, 2020 and December 29, 2019 , the Company had $15.0 million of revolving debt outstanding with an interest rates of 5.5% per annum.

The Bank has a first priority security interest in substantially all of the Company's tangible and intangible assets to secure any outstanding amounts under the Amended and Restated Loan Agreement.

The Company was in compliance with all loan covenants under the Amended and Restated Loan Agreement as of the end of the current reporting period.

On September 

28, 2020, the Company repaid the $15.0 million loan.

Payroll Protection Program Loan

On May 6, the Company entered into a loan agreement with Heritage Bank (“PPP Loan”) for a loan of $ 1,191,687.77 pursuant to the PPP under the CARES Act, as implemented by the U.S.

On May 6, 2020, the Company entered into a loan agreement with Heritage Bank (“PPP Loan”) for a loan of $1.2 million pursuant to the PPP under the CARES Act, as implemented by the U.S.

Small Business Administration.

The PPP Loan is evidenced by a promissory note (“Note”) dated May 6, 2020, and matures two years from the disbursement date.

The Note bears interest at a rate of 1.00% per annum, with the first six months of interest deferred.

5 unchanged sentences

Installments must be paid by the fifth calendar day of each month.

On June 5, 2020, the Paycheck Protection Flexibility Act (“PPPFA”) was signed into law.

Among other changes, the PPPFA (i) reduces the amount of the loan required to be spent on payroll from 75 % to 60 %, (ii) extends the covered period to 24 weeks from 8 weeks, and (iii) extends the repayment term of PPP loan from 2 years to 5 years.

For the loans disbursed before June 5, 2020, the PPPF provides the option to opt for 24 weeks for spending the loan instead of 8 weeks.

The Company has opted for 24 weeks to spend the loan.

As of June 28, 2020, the unutilized loan proceeds were $ 89,322 , which is expected to be utilized in the third quarter.

The loan amount can be fully or partially forgiven if the funds are used as per revised guidelines under the PPPFA.

The Company intends to use the loan proceeds in compliance with the guidelines and will apply for the loan forgiveness, when the funds are fully utilized.

Note 8 — Leases

On June 5, 2020, the Paycheck Protection Flexibility Act (“PPPFA”) was signed into law.

Among other changes, the PPPFA (i) reduced the amount of the loan required to be spent on payroll from 75% to 60%, (ii) extended the covered period to 24 weeks from 8 weeks, and (iii) extended the repayment term of PPP loan from 2 years to 5 years.

For the loans disbursed before June 5, 2020, the PPPFA provides the option to opt for 24 weeks for spending the loan instead of 8 weeks.

The Company has opted for 24 weeks to spend the PPP Loan.

As of September 27, 2020 , the Company fully utilized the loan proceeds in compliance with the PPPFA guidelines.

The Company expects to apply for the full loan forgiveness in the fourth quarter of 2020.

Forgiveness of this loan will only be recognized if/when legal release is received.

Note 7  —

The Company entered into operating leases for office space for its headquarter, domestic and foreign subsidiaries and sales offices.

2 unchanged sentences

Finance leases are generally 2 years to 3 years.

As of June 28, 2020, the Company recognized right-of-use assets of approximately $ 2.2 million and lease liability of approximately $ 2.2 million relating to the operating and finance leases signed for the premises of its headquarters in San Jose, its San Diego office, and its subsidiaries SensiML in Oregon and India.

Total rent expense for the three months ended June 28, 2020 and June 30, 2019 was approximately $ 158,000 and $ 268,000 , respectively.

Total rent expense for the six months ended June 28, 2020 and June 30, 2019 was approximately $ 305,000 and $ 438,000 , respectively.

The following table provides the activity related to operating and finance leases (in thousands):

As of September 27, 2020 , the balance of right-of-use assets was approximately $ 2.0  million and lease liability was approximately $ 2.0  million relating to the operating and finance leases signed for the premises of its headquarters in San Jose and its subsidiaries SensiML in Oregon and India.

Lease term of San Diego facility expired in July, 2020.

The Company did not renew the lease agreement as San Diego office was closed.

On July 10, 2020, Indian subsidiary leased a smaller office premises of approximately 1100 square feet for a period of eleven months to accommodate the reduced headcount.

Effective July 2020, the rental expense of the old office is expensed to restructuring charges.

Total rent expense for the three months ended September 27, 2020 and September 29, 2019 was approximately $ 150,000  and $ 192,000 , respectively.

Total rent expense for the nine months ended September 27, 2020 and September 29, 2019 was approximately $ 455,000 and $ 629,000 , respectively.

The following table provides the expenses related to operating and finance leases (in thousands):

Three Months Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Nine Months Ended

September 27, 2020

September 29, 2019

September 27, 2020

September 29, 2019

Operating lease costs:

2 unchanged sentences

The following table provides the details of supplemental cash flow information.

The right-of-use assets obtained in exchange for new finance and operating lease liabilities represent the new operating and finance leases entered into during the six months ended June 28, 2020 and June 30, 2019 (in thousands):

Six Months Ended

The right-of-use assets obtained in exchange for new finance and operating lease liabilities represent the new operating and finance leases entered into during the nine months ended September 27, 2020 and September 29, 2019 (in thousands):

Nine Months Ended

September 27,

September 29,

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Operating leases

$ 1,920  

Finance leases

The following table provides the details of right-of-use assets and lease liabilities as of June 28, 2020 and December 29, 2019 (in thousands):

June 28, 2020

$ 2,170  

The following table provides the details of right-of-use assets and lease liabilities as of September 27, 2020 and December 29, 2019 (in thousands):

September 27, 2020

December 29, 2019

1 unchanged sentence

Operating leases

$ 1,344  

$ 2,200  

Finance leases

Total right of use assets

$ 1,995  

$ 2,370  

Lease liabilities:

Operating leases

$ 1,386  

$ 1,816  

Finance leases

The following table provided the details of future lease payments for operating and finance leases as of June 28, 2020 (in thousands):

Total lease liabilities

$ 2,006  

$ 2,287  

The following table provided the details of future lease payments for operating and finance leases as of September 27, 2020 (in thousands):

Annual Fiscal Years

2020 (Remaining period)

Operating Leases

Finance Leases

2020 (Remaining period)  

Total lease payments

Interest  

( 149 )  

Present value of lease liabilities

The following table provides the details of lease terms and discount rates as of June 28, 2020 and December 29, 2019:

June 28, 2020

$ 1,386  

The following table provides the details of lease terms and discount rates as of September 27, 2020 and December 29, 2019 :

September 27, 2020

December 29, 2019

2 unchanged sentences

Operating leases

Finance leases

Weighted-average discount rates:

Operating leases

Finance leases

Note 9 — Fair Value Measurements

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

The Company’s cash, cash equivalents and restricted cash include money market account balance of $ 25.9 million and $ 20.9 million as of June 28, 2020 and December 29, 2019, respectively.

Fair value of the Company’s money market account balance with Heritage Bank equals to book value.

Note 10 — Stockholders' Equity

6.00 %  

Finance leases  

5.50 %  

Note 8  —

Stockholders' Equity

Common and Preferred Stock

As of June 28, 2020, the Company was authorized to issue 200 million shares of common stock and had 10 million shares of authorized but unissued undesignated preferred stock.

Without any further vote or action by the Company’s

stockholders, the Board of Directors has the authority to determine the powers, preferences, rights, qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock.

As of September 27, 2020 , the Company was authorized to issue 200 million shares of common stock and had 10 million shares of authorized but unissued undesignated preferred stock.

Without any further vote or action by the Company’s stockholders, the Board of Directors has the authority to determine the powers, preferences, rights, qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock.

Issuance of Common Stock

On March 15, 2019, the Company filed a shelf registration statement on Form S- 3, under which the Company may, from time to time, sell securities in one or more offerings up to a total amount of $ 75 million.

The Company’s shelf registration statement was declared effective on March 29, 2019.

On June 21, 2019, the Company closed an underwritten public offering of 1.3 million shares of common stock, $ 0.001 par value per share at a price of $ 7.00 per share, which included 171,429 shares issued pursuant to the underwriters’ full exercise of their over-allotment option.

The Company received net proceeds from the offering of approximately $ 8.0 million, net of underwriter’s commission and other offering expenses.

The Company’s shelf registration statement was declared effective on March 29, 2019.

full exercise of their over-allotment option.

The Company received net proceeds from the offering of approximately $ 8.0 million, net of underwriter’s commission and other offering expenses.

On June 22, 2020, the Company closed an underwritten public offering of 2.5 million shares of common stock, $ 0.001 par value per share at a price of $ 3.50 per share.

The Company received net proceeds from the offering of approximately $ 7.9 million, net of underwriter’s commission and other offering expenses.

The Company received gross proceeds from the offering of approximately $ 8.8 million and incurred stock issuance costs of approximately $ 1.1 million.

Under the terms of the underwriting agreement, the Company granted the underwriter a 30 -day option to purchase up to an additional 375,000 shares of common stock to cover overallotments.

On July 21, 2020, the Underwriter’s partially exercised the option to purchase 141,733 additional shares of Common Stock in connection with the Offering, resulting in additional net proceeds to the Company of approximately $ 461,000 after deduction of underwriting discounts.

As of June 28, 2020, warrants exercisable for 386,100 shares of common stock at a price of $ 19.32 per share remain outstanding.

Note 11 — Employee Stock Plans

On July 21, 2020, the underwriter’s partially exercised the option to purchase 141,733 additional shares of common stock in connection with the offering, resulting in additional gross proceeds to the Company of approximately $ 0.5 million and incurred additional stock issuance costs of approximately $ 52,000 .

Total gross proceeds received from this offering was approximately $ 9.3  million and incurred total stock issuance costs of approximately $1.2

Net proceeds received from this offering after deducting stock issuance costs was approximately $ 8.1 million.

 As of September 27, 2020 , warrants exercisable for 386,100 shares of common stock at an exercise price of $ 19.32 per share remain outstanding.

Note 9  —

Employee Stock Plans

2009 Stock Plan

2 unchanged sentences

2019 Stock Plan

On April 24, 2019, the Company’s Board of Directors and shareholders approved the 2019 Stock Plan (“2019 Plan”) to replace the 2009 Plan.

Under the 2019 Plan, 357,143 shares of common stock are available for grants, plus any shares subject to any outstanding options or other awards granted under the Company’s 2009 Plan that expire, are forfeited, cancelled, returned to the Company for failure to satisfy vesting requirements, settled for cash or otherwise terminated without payment being made thereunder.

The 2019 Plan was amended and restated by the Board of Directors on March 5, 2020 and approved by the Company’s stockholders on April 22, 2020 to, among other things, reserved an additional 550,000 shares of common stock for issuance under 2019 Plan.

As of June 28, 2020, approximately 657,876 shares of the Company’s common stock were reserved for issuance under the 2019 Plan.

On April 24, 2019, the Company’s Board of Directors and shareholders approved the 2019 Stock Plan ( “2019 Plan”) to replace the 2009 Plan.

As of September 27, 2020 , approximately 286,628  shares of the Company’s common stock were reserved for issuance under the 2019 Plan.

2009 Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (“2009 ESPP”) was adopted in March 2009.

The 2009 ESPP was amended by the Board of Directors in January 2015 and in February 2017, and was approved by the Company's stockholders on April 23, 2015 and April 26, 2017, to reserve an additional 71,429 and 107,143 shares of common stock, respectively, for issuance under the 2009 ESPP.

The 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020, and approved by the Company’s stockholders on April 22, 2020 to, among other things, extended the term of the plan until March 5, 2029.

Further, 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020 and approved by the Company’s stockholders on April 22, 2020 to, among other things reserved an additional 300,000 shares of common stock for

issuance under 20 0 9 ESPP.

As of June 28, 2020 , approximately 362,335 shares of the Company’s common stock were reserved for issuance under the 2009 ESP P.

Note 12 — Stock-Based Compensation

Stock-based compensation expense included in the Company's consolidated financial statements for the three and six months ended June 28, 2020 and June 30, 2019 was as follows (in thousands):

The 2009 Employee Stock Purchase Plan ( “2009 ESPP”) was adopted in March 

The 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020, and approved by the Company’s stockholders on April 22, 2020 to, among other things, extend the term of the plan until March 5, 2029.

Further, the 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020 and approved by the Company’s stockholders on April 22, 2020 to, among other things reserved an additional 300,000 shares of common stock for issuance under the 2009 ESPP.

As of September 27, 2020 , approximately 362,335  shares of the Company’s common stock were reserved for issuance under the 2009 ESPP.

Note 10  —

Stock-Based Compensation

Stock-based compensation expense included in the Company's consolidated financial statements for the three and nine months ended September 27, 2020 and September 29, 2019 was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 29,

September 27,

September 29,

Cost of revenue

1 unchanged sentence

Selling, general and administrative

Total costs and expenses

During the six months ended June 28, 2020, the Company reversed stock-based compensation expense related to the cancellation of certain unvested performance based RSUs and restructuring related terminations.

During the second quarter of 2020, the Company issued fully vested RSUs in lieu of cash for variable compensation to certain employees.

$ 2,490  

During the nine months ended September 27, 2020 , the Company reversed stock-based compensation expense related to the cancellation of certain unvested performance based RSUs and restructuring-related terminations.

During the second  quarter of 2020 , the Company issued fully vested RSUs in lieu of cash for variable compensation to certain employees.

No stock-based compensation was capitalized during any period presented above.

No stock options were granted during the three and six months ended June 28, 2020 and June 30, 2019.

No stock options were granted during the three and nine months ended September 27, 2020 and September 29, 2019 .

Stock-Based Compensation Award Activity

The following table summarizes the activity in the shares available for grant under the 2019 Plan during the six months ended June 28, 2020 (in thousands):

The following table summarizes the activity in the shares available for grant under the 2019 Plan during the nine months ended September 27, 2020 (in thousands):

Shares Available for Grants

Balance at December 29, 2019

Authorized shares

PRSU's granted

Options cancelled

RSUs forfeited or expired

PRSUs forfeited or expired

Balance at June 28, 2020

Authorized shares  

RSUs granted  

PRSU's granted  

Options cancelled  

RSUs forfeited or expired  

PRSUs forfeited or expired  

Balance at September 27, 2020

Stock Options

The following table summarizes stock options outstanding and stock option activity under the 2009 Plan and the 2019 Plan, and the related weighted average exercise price, for the six months ended June 28, 2020:

(in thousands)

1 unchanged sentence

Balance outstanding at December 29, 2019

$ 32.09  

Forfeited or expired

Balance outstanding at June 28, 2020

Exercisable at June 28, 2020

Vested and expected to vest at June 28, 2020

There was no intrinsic value for the stock options based on the Company’s closing stock price of $ 3.16 per share as of June 28, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the six months ended June 28, 2020 and June 30, 2019 was $ 0 .

Total cash received from employees as a result of employee stock option exercises during the six months ended June 28, 2020 and June 30, 2019 was $ 0 and $ 3,600 , respectively.

( 50 )  

Balance outstanding at September 27, 2020

$ 29.37  

Exercisable at September 27, 2020

$ 29.37  

Vested and expected to vest at September 27, 2020

$ 29.37  

There was no intrinsic value for the stock options based on the Company’s closing stock price of $ 3.12  per share as of September 27, 2020 , which would have been received by the option holders had all option holders exercised their options as of that date.

There were no stock options exercises for the three and nine months ended September 27, 2020 .

The total intrinsic value of options exercised during the three and 

nine months ended September 27, 2020 was $ 0 .

Total cash received from employees as a result of employee stock option exercises during the 

nine months ended September 29, 2019 was $ 3,600 .

The Company settles employee stock option exercises with newly issued common shares.

In connection with these exercises, there was no tax benefit realized by the Company due to the Company's current loss position.

Total stock-based compensation related to stock options was approximately $ 14,000 and $ 24,000 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 28,000 and $ 49,000 for the six months ended June 28, 2020 and June 30, 2018, respectively.

As of June 28, 2020, the fair value of unvested stock options, net of forfeitures, was approximately $ 11,000 .

This unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 2.4 months.

Total stock-based compensation related to stock options was approximately $ 11,000  and $ 24,000 for the three months ended September 27, 2020 and September 29, 2019 , respectively, and $ 39,000 and $ 73,000 for the nine months ended September 27, 2020 and September 29, 2019 , respectively.

As of September 27, 2020 , the fair value of unvested stock options, net of forfeitures, was $ 0 . 

Restricted Stock Units

The Company grants restricted stock units (“RSUs”) to employees and directors with various vesting terms.

The Company grants restricted stock units (“RSUs”) and performance restricted stock units ("PRSUs") to employees and directors with various vesting terms.

RSUs entitle the holder to receive, at no cost, one common share for each RSU as it vests.

In general, the Company's policy is to withhold shares in settlement of employee tax withholding obligations upon the vesting of RSUs.

The stock-based compensation related to RSUs was approximately $ 719,000 and $ 756,000 for the three months ended June 28, 2020 and June 30, 2019 and $ 306,000 and $ 1.6 million for the six months ended June 28, 2020 and June 30, 2019, respectively.

Due to the cancellation of certain performance based RSUs and cancellations relating to restructuring, which was implemented in January 2020, the Company reversed stock-based compensation previously recorded resulting in a credit to the stock based compensation during the six months ended June 28, 2020.

As of June 28, 2020 and June 30, 2019, there was approximately $ 1.7 million and $ 3.1 million, respectively, in unrecognized compensation expense related to RSUs.

The remaining unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 1.0 year.

A summary of activity for the Company's RSUs for the six months ended June 28, 2020 is as follows:

The stock-based compensation related to RSUs was approximately $ 231,000 and $ 724,000 for the three months ended September 27, 2020 and September 29, 2019 and $ 538,000 and $ 2.4  million for the nine months ended September 27, 2020 and September 29, 2019 , respectively.

As of September 27, 2020 and September 29, 2019 , there was approximately $ 1.2  million and $ 2.7  million, respectively, in unrecognized compensation expense related to RSUs.

The remaining unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 0.59  year.

A summary of activity for the Company's RSUs for the nine months ended September 27, 2020 is as follows:

RSUs & PRSUs Outstanding

1 unchanged sentence

Nonvested at December 29, 2019

Nonvested at June 28, 2020

$ 12.55  

Granted  

$ 3.99  

Vested  

( 137 )  

$ 10.59  

Forfeited  

( 210 )  

Nonvested at September 27, 2020

$ 6.24  

2009 Employee Stock Purchase Plan

As of June 28, 2020, 362,335 shares remained available for issuance under the 2009 ESPP.

For the three months ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to the 2009 ESPP of approximately $ 8,000 and $ 11,000 , respectively.

For the six months ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to the 2009 ESPP of $ 8,000 and $ 60,000 , respectively.

The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's 2009 ESPP during the quarter ended June 28, 2020 and June 30, 2019, was $ 1.83 and $.

0.31 , respectively, per right, respectively.

As of September 27, 2020 , 

362,335  shares remained available for issuance under the 2009 ESPP.

For the three months ended September 27, 2020 and September 29, 2019 , the Company recorded stock-based compensation expense related to the 2009 ESPP of approximately $ 16,000 and $ 0 , respectively.

For the nine months ended September 27, 2020 and September 29, 2019 , the Company recorded stock-based compensation expense related to the 2009 ESPP of $ 24,000 and $ 60,000 , respectively.

The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's 2009 ESPP during the quarter ended September 27, 2020 and September 29, 2019 , was $ 1.83  and $ 0 , respectively, per right, respectively.

The fair value of rights issued pursuant to the Company's 2009 ESPP was estimated on the commencement date of each offering period using the following weighted average assumptions:

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 29,

September 27,

September 29,

Expected term (months)

Risk-free interest rate

0.15 %  

88.35 %  

Dividend yield

As of June 28, 2020, there was $ 25,000 an unrecognized stock-based compensation expense relating to the Company's 2009 ESPP, which is expected to be recognized over a period of 4.7 months.

Note 13 — Income Taxes

The Company recorded a net income tax benefit of approximately $ 27,000 and income tax expense of $ 27,000 for the three months ended June 28, 2020 and June 30, 2019, respectively.

For the six months ended June 28, 2020 and June 30, 2019 the Company recorded net income tax benefits of $ 9,000 and $ 241,000 respectively.

A majority of the income tax benefit for the second quarter of 2020 and expense for the second quarter of 2019 relates to the Company's foreign subsidiaries, which are cost-plus entities.

A majority of the income tax benefit for the six months ended June 28, 2020 relates to foreign subsidiaries and benefit for the six months ended June 30, 2019 relates to the deferred tax benefit arising from Intangible assets acquired from the acquisition of SensiML, which was offset by the income taxes from the Company's foreign subsidiaries, which are cost-plus entities.

As of September 27, 2020 , there was $ 9,000 an unrecognized stock-based compensation expense relating to the Company's 2009 ESPP, which is expected to be recognized over a period of 1.7  months.  

11  —

The Company recorded a net income tax expense of approximately $ 10,000 and $ 70,000 for the three months ended September 27, 2020 and September 29, 2019 , respectively.

For the nine months ended September 27, 2020 and September 29, 2019 the Company recorded net income tax expense of $ 1,000 and benefit of $ 171,000 respectively.

A majority of the income tax expense for the third quarter of 2020 and 

2019 relates to the Company's foreign subsidiaries, which are cost-plus entities.

A majority of the income tax expense for the nine months ended September 27, 2020 relates to foreign subsidiaries and benefit for the nine months ended September 29, 2019 relates to the deferred tax benefit arising from Intangible assets acquired from the acquisition of SensiML, which was offset by the income taxes from the Company's foreign subsidiaries, which are cost-plus entities. 

The Company believes it is more likely than not that federal and state net deferred tax assets will not be fully realized.

In assessing the realizability of deferred tax assets, the Company’s management considers whether it is more likely than not that some portion or all of our deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized.

Accordingly, the Company continues to maintain a valuation allowance against all of U.S.

and certain foreign net deferred tax assets as of June 28, 2020.

The Company continues to maintain a full valuation allowance against net federal, state and certain foreign deferred tax assets until there is sufficient evidence to support recoverability of the Company’s deferred tax assets.

The Company had no unrecognized tax benefits as of June 28, 2020 and December 31, 2019, which would affect the Company's effective tax rate.

As of September 27, 2020 , the Company continues to maintain a full valuation allowance against net federal, state and certain foreign deferred tax assets until there is sufficient evidence to support recoverability of the Company’s deferred tax assets.

The Company had no unrecognized tax benefits as of September 27, 2020 and December 31, 2019, which would affect the Company's effective tax rate.

The Company does not anticipate any material changes to its unrecognized tax benefits during the next 12 months.

10 unchanged sentences

In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act (“CARES”) was signed into law and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enacted date.

The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll

taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The Company is currently analy s ing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act (“CARES ACT”) was signed into law and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enacted date.

The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The Company is currently analyzing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available.

The Company will continue to make and refine the calculations as additional analysis is completed.

Note 14 — Information Concerning Product Lines, Geographic Information and Revenue Concentration

On June 29, 2020, California's Legislature passed Assembly Bill 85 ( "A.B.85" ), which includes a three -year suspension of the use of net operating losses for medium and large business and a three -year cap on the use of business incentive tax credits to offset no more than $5 million of tax per year.

Generally, A.B.85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for tax payers with taxable income of $1 million or more and applies to any taxable year beginning on or after January 1, 2020, and before January 1, 2023.

Both sections of A.B.85 will not have a material impact to the company in 2020 as per the annual forecast.

12  —

Information Concerning Product Lines, Geographic Information and Revenue Concentration

The Company identifies its business segment based on business activities, management responsibility and geographic location.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 29,

September 27,

September 29,

Revenue by product line (1):

$ 1,015  

$ 1,945  

$ 2,413  

Mature products

Total revenue

$ 1,780  

$ 2,158  

$ 6,134  

$ 7,439  

For all periods presented:

New products include all products manufactured on 180 nanometer or smaller semiconductor processes, eFPGA IP license, Quick AI and SensiML AI software as a service (“SaaS”) revenues.

Mature products include all products produced on semiconductor processes larger than 180 nanometer.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 29,

September 27,

September 29,

Revenue by geography:

Asia Pacific (1)

$ 1,505  

$ 2,496  

North America (2)

Total revenue

Asia Pacific includes revenue from Japan of $ 771,000 , or 35 % of total revenue and $ 330,000 or 16 % of total revenue for the quarters ended June 28, 2020, and June 30, 2019, respectively.

For the six months ended June 28, 2020 and June 30, 2019, revenue from Japan was $ 1.2 million, or 27 % of total revenue, and $ 764,000 , or 14 % of total revenue, respectively.

North America includes revenue from the United States of $ 1.3 million, or 58 % of total revenue, and $ 1.1 million, or 51 % of total revenue, for the three months ended June 28, 2020 and June 30, 2019, respectively.

For the six months ended June 28, 2020 and June 30, 2019 revenue from the United States was $ 2.2 million, or 51 % of total revenue, and $ 2.2 million, or 42 % of total revenue, respectively.

$ 1,780  

$ 2,158  

$ 6,134  

$ 7,439  

Asia Pacific includes revenue from Japan of $ 271,000 , or 15 % of total revenue and $ 510,000 or 24 % of total revenue for the quarters ended September 27, 2020 and September 29, 2019 , respectively.

For the nine months ended September 27, 2020 and September 29, 2019 , revenue from Japan was $ 1.4  million, or 23 % of total revenue, and $ 1.3 million, or 17 % of total revenue, respectively.

North America includes revenue from the United States of $ 1.1  million, or 61 % of total revenue, and $ 1.4  million, or 67 % of total revenue, for the three months ended September 27, 2020 and September 29, 2019 , respectively.

For the nine months ended September 27, 2020 and September 29, 2019 revenue from the United States was $ 3.3  million, or 

54 % of total revenue, and $ 3.6  million, or 49 % of total revenue, respectively.

The following distributors and customers accounted for 10% or more of the Company's revenue for the periods presented:

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 29,

September 27,

September 29,

Distributor "A"

2 unchanged sentences

Distributor "G"

Customer "K"  

Customer "N"  

The following distributors and customers accounted for 10% or more of the Company's accounts receivable as of the dates presented:

September 27,

Distributor "A"

2 unchanged sentences

Distributor "J"

Distributor "K"

_______________

Represents less than 10% of revenue and accounts receivable as of the date presented.

As of June 28, 2020, 7 % of the Company's long-lived assets, including property and equipment and other assets, were located outside the United States.

Note 15 — Commitments and Contingencies

As of September 27, 2020 , 6 % of the Company's long-lived assets, including property and equipment and other assets, were located outside the United States.

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Commitments and Contingencies

The Company's manufacturing suppliers require the forecast of wafer starts several months in advance.

The Company is required to take delivery of and pay for a portion of forecasted wafer volume.

As of June 28, 2020, and December 29, 2019, the Company had $ 35,000 and $ 57,000 , respectively, of outstanding commitments for the purchase of wafer and finished goods inventory.

The Company is required to take delivery of and pay for a portion of forecasted wafer volume. As of September 27, 2020 , and December 29, 2019 , the Company had $ 141,000 and $ 57,000 , respectively, of outstanding commitments for the purchase of wafer and finished goods inventory.

The Company has purchase obligations with certain suppliers for the purchase of other goods and services entered into in the ordinary course of business.

As of June 28, 2020, total outstanding purchase obligations for other goods and services were $ 817,000 , which are due within the next twelve months.

Note 16 — Litigation

As of September 27, 2020 , total outstanding purchase obligations for other goods and services were $ 469,000 , which are due within the next twelve months.

14  —

From time to time, the Company may become involved in legal actions arising in the ordinary course of business including, but not limited to, intellectual property infringement and collection matters.

Absolute assurance cannot be given that any such third party assertions will be resolved without costly litigation;

in a manner that is not adverse to the Company’s financial position, results of operations or cash flows;

or without requiring royalty or other payments which may adversely impact gross profit.

As of June 28, 2020, the Company was not involved in any litigation.

Note 17 — Restructuring

In January 2020, the Company implemented a restructuring plan to lower annual operating expenses.

The restructuring plan was approved by the Company’s Board of Directors on January 24, 2020.

Pursuant to the restructuring plan, the Company recorded $ 513,000 of restructuring charges during the six-month period ended June 28, 2020, consisting primarily of employee severance related costs.

There are no accruals remaining as of June 28, 2020 as all amounts were disbursed during the six-month period ended June 28, 2020.

Note 18 – Subsequent Event

On July 21, 2020, the Company completed the sale of 141,733 additional shares of common stock pursuant to the partial exercise of the underwriter’s option to purchase additional shares of common stock for the purpose of covering over-allotments in connection with the public offering closed on June 22, 2020, resulting in additional net proceeds to the Company of approximately $ 461,000 after deduction of underwriting discounts.

See Note 10 to the Unaudited Condensed Consolidated Financial Statements for more details.

As of September 27, 2020 , the Company was not involved in any litigation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements