QUICKLOGIC Corp 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   Forward-Looking Statements   The following Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained in “Risk Factors” in Part II, Item 1A and elsewhere in this Quarterly Report on Form 10-Q, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend that these forward-looking statements be subject to the safe harbor created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” "future," "potential," "target," "seek," "continue," "if" or other similar words. Forward-looking statements include statements regarding our strategies as well as (1) our revenue levels, including the commercial success of our solutions and new products, (2) the conversion of our design opportunities into revenue, (3) our liquidity, (4) our gross profit and breakeven revenue level and factors that affect gross profit and the break-even revenue level, (5) our level of operating expenses, (6) our research and development efforts, (7) our partners and suppliers, (8) industry and market trends, (9) our manufacturing and product development strategies and (10) our competitive position.   The following discussion should be read in conjunction with the attached Unaudited Condensed Consolidated Financial Statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended January 3, 2021, found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 23, 2021. Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in Part II, Item 1A hereto and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that may arise after the date of this Quarterly Report on Form 10-Q.   Overview   We develop low power, multi-core semiconductor platforms and IP for AI, voice and sensor processing. The solutions include an eFPGA for hardware acceleration and pre-processing, and heterogeneous multi-core SoCs that integrate eFPGA with other processors and peripherals. The SensiML Analytics Toolkit from our recently acquired wholly owned subsidiary, SensiML completes the “full stack” end-to-end solution with accurate sensor algorithms using AI technology. The full range of platforms, software tools and eFPGA IP enables the practical and efficient adoption of AI, voice and sensor processing across mobile, wearable, hearable, consumer, industrial, edge and endpoint IoT applications.    Our new products include our EOS™, QuickAI™, SensiML Analytics Studio, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products (which together comprise our new product category). Our mature products include primarily FPGA families named pASIC®3 and QuickRAM® as well as programming hardware and design software. In addition to delivering our own semiconductor solutions, we have an IP business that licenses our eFPGA technology for use in other semiconductor companies SoCs. We began delivering our eFPGA IP product ArcticPro™ in 2017, which is included in the new product revenue category. Through the acquisition of SensiML, we now have an IoT AI software platform that includes SaaS subscriptions for development, per unit license fees when deployed in production, and proof-of-concept services – all of which are also included in the new product revenue category.   Our semiconductor solutions typically fall into one of three categories: Sensor Processing, Display and Visual Enhancement, and Smart Connectivity. Our solutions include a unique combination of our silicon platforms, IP cores, software drivers, and in some cases, firmware and application software. All of our silicon platforms are standard devices and must be programmed to be effective in a system. Our IP that enables always-on context-aware sensor applications includes our Flexible Fusion Engine, our Sensor Manager and Communications Manager technologies as well as IP that (i) improves multimedia content, such as our Visual Enhancement Engine, or VEE, technology, and Display Power Optimizer, or DPO, technology; and (ii) implements commonly used mobile system interfaces, such as Low Voltage Differential Signaling, or LVDS, Mobile Industry Processor Interface, or MIPI, and Secure Digital Input Output, or SDIO.   20 Table of Contents   Through the acquisition of SensiML, our core IP also includes the SensiML AI Toolkit that enables OEMs to develop AI software for a broad array of resource-constrained time-series sensor endpoint applications. These include a wide range of consumer and industrial sensing applications.   We also work with mobile processor manufacturers, sensor manufacturers, and voice recognition, sensor fusion and context awareness algorithm developers in the development of reference designs. Through reference designs that incorporate our solutions, we believe mobile processor manufacturers, sensor manufacturers, and sensor and voice algorithm companies can expand the available market for their respective products. Furthermore, should a solution developed for a processor manufacturer or sensor and/or sensor algorithm company be applicable to a set of common OEMs or Original Design Manufacturers, or ODMs, we can amortize our Research and Development, or R&D, investment over that set of OEMs or ODMs. There may also be cases when platform providers that intend to use always-on voice recognition will dictate certain performance requirements for the combined software/hardware solution before the platform provider certifies and/or qualifies our product for use by end customers.   In addition to working directly with our customers, we partner with other companies that are experts in certain technologies to develop additional IP, reference platforms and system software to provide application solutions, particularly in the area of hardware acceleration for AI-type applications. We also work with mobile processor and communications semiconductor device manufacturers and companies that supply sensor, algorithms and applications. For our sensor processing solutions, we collaborate with sensor manufacturers to ensure interface compatibility. We also collaborate with sensor and voice/audio software companies, helping them optimize their software technology on our silicon platforms in terms of performance, power consumption and user experience.   Our ArcticPro eFPGA IP are currently developed on 65nm, 40nm and 22nm process nodes. The licensable IP is generated by a compiler tool that enables licensees to create an eFPGA block that they can integrate into their SoC without significant involvement by QuickLogic. We believe this flow enables a scalable support model for QuickLogic. For our eFPGA strategy, we work with semiconductor manufacturing partners to ensure our eFPGA IP is proven for a given foundry and process node before it is licensed to a SoC company.   In order to grow our revenue from its current level, we depend upon increased revenue from our new products including existing new product platforms, eFPGA IP and platforms currently in development. We expect our business growth to be driven mainly by our silicon solutions, eFPGA IP and SensiML AI Software. Therefore, our revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our new solution platforms, IP and software. We are expecting revenue growth from EOS S3, SensiML AI SaaS, and eFPGA IP licensing in fiscal year 2021.   We continue to seek to expand our revenue, including pursuing high-volume sales opportunities in our target market segments, by providing solutions incorporating IP, or industry standard interfaces. Our industry is characterized by intense price competition and by lower margins as order volumes increase. While winning large volume sales opportunities will increase our revenue, we believe these opportunities may decrease our gross profit as a percentage of revenue.   During the first quarter of 2021, we generated total revenue of $2.2 million, which represents a decrease of 10% compared to the prior quarter and an increase of 4% compared to the same quarter last year. Our new product revenue in the first quarter was $1.1 million, which represents an increase of 28% from the prior quarter and increase of 121% from the first quarter of 2020. Our mature product revenue was $1.2 million in the first quarter of 2021, which was a decrease of 30% compared to the prior quarter and a decrease of $507,000 compared to the first quarter of 2020. We expect our mature product revenue to continue to fluctuate over time.     21 Table of Contents   We devote substantially all of our development, sales and marketing efforts to our new sensor processing solutions using our EOS TM S3 platforms, derivative products based on software-driven features, development of additional new products and solution platforms, our new eFPGA IP licensing and QuickAI initiatives. Overall, we reported a net loss of $1.7 million for the first quarter of 2021, a decrease of 43% compared with the prior quarter and a decrease of 47%  compared with the first quarter of 2020.     We have experienced net losses in the recent years and expect losses to continue through at least fiscal year 2021 as we continue to develop new products, applications and technologies. Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved in addition to the proceeds we received from our recent sale of our equity securities, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations, and such additional funding may not be available on commercially reasonable terms, or at all.   COVID-19 Response   The COVID-19 pandemic and its effects on the Company’s business in its fiscal 2020, the first quarter of fiscal 2021, and potential effects on the remainder of fiscal 2021 and beyond remain uncertain. There have been further restrictions by the governmental authorities as a result of a surge in COVID-19 cases during the winter of 2020 and continuing into fiscal 2021. These restrictions and other impacts from COVID-19 could cause 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. 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. This might cause delays in production or delivery of components or raw materials that are part of the Company’s global supply chain. If COVID-19 cases surge and 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.   The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, restrictions on travel, transportation and other containment measures, the success and availability of the recent vaccine, our compliance with these measures and the impact on our employees, customers, contractors and supply chain, all of which are uncertain and cannot be predicted.   Restructuring   In January 2020, we implemented a restructuring plan to lower annual operating expenses. The restructuring plan was approved by our Board of Directors on January 24, 2020. Pursuant to the restructuring plan, we recorded $479,000 restructuring charges during the first quarter of fiscal year 2020, consisting primarily of employee severance related costs and facilities costs. There were no restructuring charges incurred in the quarter ended April 4, 2021.     Our employees and customers   Our top priority during the ongoing COVID-19 pandemic remains the health and safety of our employees and their families, as well as our customers. As global governments institute restrictions on commercial operations, we are working to ensure our compliance while also maintaining business continuity for operations.   Most of our personnel continue to work from home except few personnel, who are required for minimum operations. We only allow employees in our facilities who are essential to the facilities’ operations under best practices guidelines on maintaining physical distancing, utilizing enhanced cleaning protocols and usage of personal protective equipment.   We are committed to our customers to enable the support they need to continue providing vital services and tools. Our global offices remain operational to meet customer needs during the pandemic in compliance with the orders and restrictions imposed by local authorities in each of our locations, and we are working with our customers to meet their specific shipment needs. While the pandemic has created delays on the inbound supply chain at our partners and our own facilities and both inbound and outbound logistical challenges, we have been able to identify alternative solutions such that none of the issues have had a material impact on our ability to fulfill demand.     22 Table of Contents   Critical Accounting Estimates   The methodologies, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our Unaudited Condensed Consolidated Financial Statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical policies include revenue recognition, valuation of inventories, including identification of excess quantities and product obsolescence, valuation of investments, valuation of long-lived assets, valuation of goodwill, capitalized internal-use software and related amortizable lives and intangibles related to the acquisition of SensiML, including the estimated useful lives of acquired intangible assets, measurement of stock-based compensation and estimation of accrued liabilities. We believe that we apply judgments and estimates in a consistent manner and that this consistent application results in our financial statements and accompanying notes that fairly represent all periods presented. However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three months ended April 4, 2021, there were no changes in our critical accounting policies from our disclosure in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021, filed with the SEC on March 23, 2021, except for the new accounting standards adopted in the first quarter of 2021 as described in Note 2 to the Unaudited Condensed Consolidated Financial Statements as of and for the three months ended April 4, 2021 filed herewith. For a discussion of critical accounting policies and estimates, please see Item 7 in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021, filed with the SEC on March 23, 2021.   23 Table of Contents   Results of Operations   The following table sets forth the percentage of revenue for certain items in our condensed consolidated statements of operations for the periods indicated:       Three Months Ended       April 4,     March 29,       2021     2020   Revenue     100 %     100 % Cost of revenue     49 %     48 % Gross profit     51 %     52 % Operating expenses:                 Research and development     84 %     84 % Selling, general and administrative     87 %     87 % Restructuring costs     0 %     22 % Loss from operations     (120 )%     (142 )%                   Interest expense     (1 )%     (4 )% Gain on forgiveness of debt     53 %     0 % Interest income and other income (expense), net     (0 )%     (0 )% Loss before income taxes     (69 )%     (146 )% Provision for income taxes     7 %     1 % Net loss     (75 )%     (147 )% Note: Insignificant percentages are rounded to zero percentage (0%) for disclosure   Three Months Ended April 4, 2021 Compared to Three Months Ended March 29, 2020   Revenue   The table below sets forth the changes in revenue for the three months ended April 4, 2021, as compared to the three months ended March 29, 2020 (in thousands, except percentage data):        Three Months Ended                       April 4, 2021     March 29, 2020     Change               % of Total             % of Total                       Amount     Revenues     Amount     Revenues     Amount     Percentage   New products   $ 1,075       48 %   $ 486       23 %   $ 589       121 % Mature products     1,165       52 %     1,672       77 %     (507 )     (30 )% Total revenue   $ 2,240       100 %   $ 2,158       100 %   $ 82       4 % Note: For all periods presented - New products include all products manufactured on 180 nanometer or smaller semiconductor processes, eFPGA IP license, QuickAI and SensiML AI SaaS revenues. Mature products include all products produced on semiconductor processes larger than 180 nanometer and includes related royalty revenue.   Product revenue for the first quarter of 2021 compared to the first quarter of 2020 was relatively unchanged. The net increase of $589,000 in the revenue of new products was primarily due to increases of connectivity and sensor product revenue. The net decrease of $507,000 in mature product revenue compared to the first quarter of 2020 was due primarily to decreases in PASIC 3, QuickRAM, ECLP and QECL products, partially offset by an increase in other products and an increase in royalty revenue.   24 Table of Contents   Gross Profit   The table below sets forth the changes in gross profit for the three months ended April 4, 2021 as compared to the three months ended March 29, 2020 (in thousands, except percentage data):       Three Months Ended                       April 4, 2021     March 29, 2020     Change               % of Total             % of Total                       Amount     Revenues     Amount     Revenues     Amount     Percentage   Revenue   $ 2,240       100 %   $ 2,158       100 %   $ 82       4 % Cost of revenue     1,096       49 %     1,043       48 %     53       5 % Gross profit   $ 1,144       51 %   $ 1,115       52 %   $ 29       3 %   In the first quarter of 2021, gross profit was higher by $29,000 or 3% as compared to the same quarter in the prior year. This was primarily due to an increase in revenue of 4% this quarter as compared to last year. The sale of previously reserved inventory was $12,000 and $17,000 in the first quarters of 2021 and 2020, respectively.   Our semiconductor products have historically had long product life cycles and obsolescence has not been a significant factor in the valuation of inventories. However, as we continue to pursue opportunities in the mobile market and develop new solutions and products, our product life cycle will be shorter and the risk of obsolescence will increase. In general, our standard manufacturing lead times are longer than the binding forecasts we receive from customers.   Operating Expenses   The table below sets forth the changes in operating expenses for the three months ended April 4, 2021, as compared to the three months ended March 29, 2020 (in thousands, except percentage data):       Three Months Ended                       April 4, 2021     March 29, 2020     Change               % of Total             % of Total                       Amount     Revenues     Amount     Revenues     Amount     Percentage   R&D expense   $ 1,887       84 %   $ 1,819       84 %   $ 68       4 % SG&A expense     1,947       87 %     1,879       87 %     68       4 % Restructuring costs     —       0 %     479       22 %     (479 )     (100 )% Total operating expenses   $ 3,834       171 %   $ 4,177       194 %   $ (343 )     (8 )%   Research and Development   Our R&D expenses consist primarily of personnel, overhead and other costs associated with System on Chip (SoC) and software development, programmable logic design, AI and eFPGA development. The $68,000 increase in R&D expenses in the first quarter of 2021, as compared to the first quarter of 2020, was primarily attributable to a mix of offsetting increases and decreases. The increase in Research and Development costs was related primarily to stock based compensation, allocable expenses and other, offset by reduced salary and related expenses, outside services, facility and depreciation expenses related primarily to our restructuring activities in the first quarter of fiscal 2020, due to reduced spending related to our restructuring plan implemented in January 2020 and to reduced spending related to the COVID-19 pandemic.   Selling, General and Administrative   Our selling, general and administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management.  The $68,000 increase in SG&A expenses in the first quarter of 2021, as compared to the first quarter of 2020 was primarily attributable to outside legal and consulting costs, offset by a decrease in stock-based compensation and reduced travel and entertainment related to the company’s restructuring in the first quarter of 2020 and reductions in spending related to COVID-19 restrictions.   Restructuring   In January 2020, we implemented a restructuring plan to lower annual operating expenses. The restructuring plan was approved by our Board of Directors on January 24, 2020. Pursuant to the restructuring plan, we recorded restructuring costs of $0 in the first quarter of 2021 as compared to $479,000 in the first quarter of 2020. Restructuring costs consists primarily of employee severance-related costs and facilities costs. See Note 1 to the Unaudited Condensed Consolidated Financial Statements for details.   25 Table of Contents   Interest Expense and Interest Income and Other Income (Expense), Net   The table below sets forth the changes in interest expense and interest income and other income (expense), net for the three months ended April 4, 2021 as compared to the three months ended March 29, 2020 (in thousands, except percentage data):       Three Months Ended     Change       April 4,     March 29,                       2021     2020     Amount     Percentage   Interest expense   $ (32 )   $ (80 )   $ 48       (60 )% Gain on forgiveness of debt     1,192       -       1,192       *   Interest income and other income (expense), net     (7 )     (5 )     (2 )     *   Total interest income and other income (expense), net   $ (39 )   $ (85 )   $ 46       *   * Percentage change was omitted as the result was not meaningful.   Interest expense relates primarily to our line of credit facility. Interest income and other income (expense), net, relates to the interest earned on our money market accounts and foreign exchange gain or losses recorded. Changes in interest expense related for our revolving loan relate to the variability and timing of our outstanding loan balance. Interest rates for the first quarter of this year as compared to the prior year were significantly lower, accounting for most of the decrease. Gain on forgiveness of debt relates to the gain related to the forgiveness of the PPP loan of $1.2 million for the three months ended April 4, 2021 . Other interest income and other income (expense), net for this period was approximately $8,000, approximately flat compared with the three months ended March 29, 2020.   Provision for Income Taxes   The table below sets forth the changes in the provisions for income tax for the three months ended April 4, 2021 as compared to the three months ended March 29, 2020 (in thousands, except percentage data):       Three Months Ended     Change       April 4,     March 29,                       2021     2020     Amount     Percentage   Provision for income taxes   $ 152     $ 18     $ 134       744 %   The majority of the income tax expense for the quarter ended April 4, 2021 and March 29, 2020 relates to our foreign subsidiaries, which are cost-plus entities. Included in the provision for the quarter ended April 4, 2021, was a $125,000 deferred tax provision  related to a one time repatriation of funds from our India entity.   We are subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which we operate. The U.S. tax years from 1999 forward remain effectively open to examination due to the carryover of unused net operating losses and tax credits.       Liquidity and Capital Resources   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 April 4, 2021, the Company's principal sources of liquidity consisted of cash, cash equivalents and restricted cash of $20.9 million, including $15.0 million drawn down from its revolving line of credit with Heritage Bank of Commerce (“Heritage Bank”) and $1.2 million loan received under the Paycheck Protection Program (“PPP”) which was subsequently forgiven.   On September 28, 2018, the Company entered into a Loan and Security Agreement (the "Loan Agreement"), with Heritage Bank. The Loan Agreement provided for, among other things, a revolving line of credit facility (the “Revolving Facility”) with aggregate commitments of $9.0 million.    On December 21, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (the “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 $9.0 million to $15.0 million. The Amended and Restated Loan Agreement requires the Company to maintain at least $3.0 million in unrestricted cash at Heritage Bank.   On November 6, 2019, the Company entered into a First Amendment to the Amended and Restated Loan Agreement with Heritage Bank to extend the maturity date for one year through September 28, 2021 (the “First Amendment”). 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%).   On December 11, 2020, the Company entered into a Second Amendment (the “Second Amendment”) to the Amended and Restated Loan Agreement with Heritage Bank. The Second Amendment extended the loan maturity date for one year through September 28, 2022 and amended the interest to a rate per annum equal to one half of one percentage point (0.50%) above the prime rate.   The Company was in compliance with all loan covenants as of April 4, 2021. As of April 4, 2021, the Company had $15.0 million of outstanding revolving line of credit with an interest rate of 3.75%.   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. On January 26, 2021, the Company received notice from Heritage Bank that amounts under the loan agreement had been forgiven. See Note 5 to these 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 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.   The Company currently uses its cash to fund its working capital to accelerate the development of next generation products and for general corporate purposes. Based on past performance and current expectations, the Company believes that its existing cash and cash equivalents, together with available financial resources from the Revolving Facility with Heritage Bank, will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next twelve months.    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, the 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, the fluctuations in revenue as a result of product end-of-life, the fluctuations in revenue as a result of the stage in the product life cycle of its customers’ products, the costs of securing access to and availability of adequate manufacturing capacity, the levels of inventories and wafer purchase commitments, customer credit terms, the amount and timing of research and development expenditures, the timing of new product introductions, production volumes and product quality, sales and marketing efforts, the value and liquidity of its investment portfolio, changes in operating assets and liabilities, the ability to obtain or renew debt financing and to remain in compliance with the terms of existing credit facilities, the ability to raise funds from the sale of equity in the Company, 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.   Over the longer term, the Company anticipates that sales generated from its new product offerings and existing cash and cash equivalents, with financial resources from its Revolving Facility with the Heritage Bank and its ability to raise additional capital in the public capital markets, will be sufficient to satisfy its operations and capital expenditures. 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   26 Table of Contents   As of April 4, 2021, most of our cash, cash equivalents and restricted cash were invested in the money market account at Heritage Bank. As of April 4, 2021, our interest-bearing debt consisted of $626,000 outstanding under finance leases and $15.0 million outstanding under our Revolving Facility. See Note 6 and Note 5 to the Unaudited Condensed Consolidated Financial Statements for more details.   Cash balances held at our foreign subsidiaries were approximately $756,000 and $342,000 as of April 4, 2021 and January 3, 2021, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested. We do not expect such reinvestment to affect our liquidity and capital resources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy. Factors that affect our global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax-efficient manner, funding requirements for operations and investment activities, acquisitions and divestitures and capital market conditions.   In summary, our cash flows were as follows (in thousands):       Three Months Ended       April 4,     March 29,       2021     2020   Net cash (used in) operating activities   $ (1,003 )   $ (2,175 ) Net cash (used in) investing activities     (283 )     (290 ) Net cash (used in) financing activities     (527 )     (85 )   Net cash (used in) operating activities   For the three months ended April 4, 2021, net cash used in operating activities was $1.0 million, which was primarily due to the net loss of $1.7 million, adjusted for non-cash charges of $647,000 including the gain recognized from the forgiveness of the PPP loan of $1.2 million. Other non-cash charges consisted primarily of $368,000 of stock-based compensation and depreciation and amortization expenses of $162,000. Cash inflows from changes in operating assets and liabilities were $1.3 million, primarily due to a decrease in trade receivables from our collection efforts and an increase in accrued liabilities subject to the variability of the timing of payments, partially offset by an increase in other assets.   27 Table of Contents   For the three months ended March 29, 2020, net cash used in operating activities was $2.2 million, which was primarily due to the net loss of $3.2 million, adjusted for non-cash charges of $112,000. Non-cash charges consisted primarily of $398,000 net gain from reversal of stock-based compensation expense of $265,000. The net gain from the reversal of stock-based compensation was a result of the cancellation of certain performance based RSUs, as established goals required for vesting were not achieved and cancellation of RSUs due to restructuring related terminations. Cash inflows from changes in operating assets and liabilities were $1.1 million, primarily due to a decrease in inventory and a decrease in trade receivables.   Net cash (used in) investing activities   For the three months ended April 4, 2021, cash used in investing activities was $283,000, which was primarily attributable to the capitalized internal-use software and capital expenditure relating to leasehold improvements and computer equipment.   For the three months ended March 29, 2020, cash used in investing activities was $290,000, which was primarily attributable to capital expenditure relating to leasehold improvements and computer equipment at the new office premises.   Net cash (used in) financing activities   Cash flows from financing activities includes the draw-downs and repayments of our line of credit.  For the first quarter of 2021 and 2020, these draw-downs and repayments netted to zero.   For the three months ended April 4, 2021, cash used in financing activities was $527,000, which was primarily attributable to taxes paid relating to stock-based compensation equity awards.  We continue to use and repay our revolving line of credit as our cash needs require.   For the three months ended March 29, 2020 cash used in financing activities was $85,000, primarily attributable to the scheduled repayments of finance lease obligations and tax payments related to net settlement of stock awards, partially offset by net proceeds from the issuance of common stock under our equity plans.   Contractual Obligations and Commercial Commitments   The following table summarizes our contractual obligations and commercial commitments as of April 4, 2021 and the effect such obligations and commitments are expected to have on our liquidity and cash flows in future fiscal periods (in thousands):       Payments Due by Period               Less than                       Total     1 Year     1-3 Years     4-5 Years   Contractual obligations:                                 Operating leases   $ 1,237     $ 400     $ 837     $ —   Finance and software lease obligations     627       370       257       —   Wafer purchases (1)     262       262       —       —   Other purchase commitments     810       810       —       —   Total contractual obligations   $ 2,936     $ 1,842     $ 1,094     $ —   Other commercial commitments:                                 Revolving line of credit   $ 15,000     $ 15,000     $ —     $ —   Total commercial commitments     15,000       15,000       —       —   Total contractual and commercial obligations   $ 17,936     $ 16,842     $ 1,094     $ —   (1) Certain of our wafer manufacturers require us to forecast wafer starts several months in advance. We are committed to accept the delivery of and pay for a portion of forecasted wafer volume.   As of April 4, 2021, we have no contractual obligations or commercial commitments beyond three years.   Concentration of Suppliers   We depend on a limited number of contract manufacturers, subcontractors, and suppliers for wafer fabrication, assembly, programming and testing, and for the supply of programming equipment. These services are typically provided by one supplier for each of our devices. We generally purchase these single or limited source services through standard purchase orders. Because we rely on independent subcontractors to perform these services, we cannot directly control product delivery schedules, costs or quality levels. Our future success also depends on the financial viability of our independent subcontractors. The decision not to provide these services to us or the inability to supply these services to us, such as in the case of a natural or financial disaster, would have a significant impact on our business. In addition, these subcontracted manufacturers produce products for other companies and we must place orders up to several months in advance of expected delivery. Increased demand from other companies could result in these subcontract manufacturers allocating available capacity to customers that are larger or have long-term supply contracts in place and we may be unable to obtain adequate foundry and other capacity at acceptable prices, or we may experience delays or interruption in supply. As a result, we have only a limited ability to react to fluctuations in demand for our products, which could cause us to have an excess or a shortage of inventories of a particular product. Additionally, volatility of economic, market, social and political conditions in countries where these suppliers operate may be unpredictable and could result in a reduction in product revenue or increase our cost of revenue and could adversely affect our business, financial condition and results of operations.   28 Table of Contents   Off-Balance Sheet Arrangements   We do not maintain any off-balance sheet partnerships, arrangements or other relationships with unconsolidated entities or others, often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.   Recently Issued Accounting Pronouncements   See Note 2 to the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the respective dates of adoption and expected effects on the results of our operations and financial condition.   Item 3. Quantitative and Qualitative Disclosures about Market Risk   Not Applicable.