What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-18 compared with 2021-05-19 · 129 added, 87 removed, 186 unchanged (54% of the section changed)

67 unchanged sentences

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.

During the second quarter of 2021, we generated total revenue of $2.9 million, which represents an increase of 29% compared to the prior quarter and an increase of 31% compared to the same quarter last year.

Our new product revenue in the second quarter was $1.3 million, which represents an increase of 17% from the prior quarter and increase of 54% from the second quarter of 2020.

Our mature product revenue was $1.6 million in the second quarter of 2021, which was an increase of 39% compared to the prior quarter and an increase of  18% compared to the second quarter of 2020.

We expect our mature product revenue to continue to fluctuate over time.

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.  

Overall, we reported a net loss of $2.1 million for the second quarter of 2021, an increase of 22% compared with the prior quarter and a decrease of 31% compared with the second 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.

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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.

The COVID-19 pandemic and its effects on our 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, as a result of variant strains of COVID-19 amid uneven progress toward vaccination.

These restrictions and other impacts from COVID-19 could cause further disruptions or restrictions on our 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.

This might cause delays in production or delivery of components or raw materials that are part of our global supply chain.

If COVID-19 cases surge and we 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.

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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.

Pursuant to the restructuring plan, we recorded $34,000 and $513,000 of restructuring charges for the three and six months ended June 28, 2020, respectively, consisting primarily of employee severance related costs and facilities costs.

There were no restructuring charges incurred for the three and six months ended July 4, 2021.

Our employees and customers

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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.

During the three and six months ended July 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 and six months ended July 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.

Results of Operations

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Three Months Ended

Six Months Ended

Cost of revenue

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Loss before income taxes

Provision for income taxes

Insignificant percentages are rounded to zero percentage (0%) for disclosure

Three Months Ended April 4, 2021 Compared to Three Months Ended March 29, 2020

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): 

Provision for (benefit from) income taxes

Insignificant percentages are rounded to zero percentage (—%) for disclosure

Three Months Ended July 4, 2021 Compared to Three Months Ended June 28, 2020

The table below sets forth the changes in revenue for the three months ended July 4, 2021, as compared to the three months ended June 28, 2020 (in thousands, except percentage data): 

Three Months Ended

April 4, 2021

March 29, 2020

June 28, 2020

Mature products

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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.

Product revenue for the second quarter of 2021 compared to the second quarter of 2020 increased $686,000.

The net increase of $442,000 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.

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):

The net increase of 18% in mature product revenue compared to the second quarter of 2020 was due primarily to increases in Eclipse ORAM, BAE/CTG, eFPGA license and QECL products, partially offset by an decrease in PASIC3, QPCID and other products.

The table below sets forth the changes in gross profit for the three months ended July 4, 2021 as compared to the three months ended June 28, 2020 (in thousands, except percentage data):

Three Months Ended

April 4, 2021

March 29, 2020

June 28, 2020

Cost of revenue

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.

In the second quarter of 2021, gross profit increased $462,000 or 46% as compared to the same quarter in the prior year.

This was primarily due to the increase in revenue of 31% and product mix in the second quarter as compared to last year, partially offset by a write down in raw materials inventory of approximately $156,000.

Our semiconductor products have historically had long product life cycles and obsolescence has not been a significant factor in the valuation of inventories.

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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):

The table below sets forth the changes in operating expenses for the three months ended July 4, 2021, as compared to the three months ended June 28, 2020 (in thousands, except percentage data):

Three Months Ended

April 4, 2021

March 29, 2020

June 28, 2020

Restructuring costs

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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.

The $548,000 decrease in R&D expenses in the second quarter of 2021, as compared to the second quarter of 2020, was primarily attributable to a decrease in stock-based compensation, salary and related expenses, outside services and depreciation expenses due primarily to our restructuring in 2020 and to reductions in spending caused by the COVID -19 pandemic, offset by other and allocable expenses.

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.

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 $129,000 increase in SG&A expenses in the second quarter of 2021, as compared to the second quarter of 2020 was primarily attributable to outside legal and consulting costs, partially offset by a decrease in stock-based compensation expenses, equipment and supplies and allocable costs.

Restructuring

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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.

Pursuant to the restructuring plan, we recorded restructuring costs of $0 in the second quarter of 2021 as compared to $34,000 in the second quarter of 2020.

Restructuring costs consists primarily of employee severance-related costs.

See Note 1 to the Unaudited Condensed Consolidated Financial Statements for details.

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):

The table below sets forth the changes in interest expense and interest income and other income (expense), net for the three months ended July 4, 2021 as compared to the three months ended June 28, 2020 (in thousands, except percentage data):

Three Months Ended

Interest expense

Gain on forgiveness of debt

Interest income and other income (expense), net

Total interest income and other income (expense), net

* 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):

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 second quarter of this year as compared to the prior year were significantly lower, accounting for most of the decrease.

For the three months ended July 4, 2021Interest income and other income (expense), net for this period was approximately $45,000 as compared to $72,000 foe the three months ended June 28, 2020

Provision for (Benefit from) Income Taxes

The table below sets forth the changes in the provisions for income tax for the three months ended July 4, 2021 as compared to the three months ended June 28, 2020 (in thousands, except percentage data):

Three Months Ended

Provision for income taxes

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 

Provision for (benefit from) income taxes

The majority of the income tax expense for the quarter ended July 4, 2021 and June 28, 2020 relates to our foreign subsidiaries, which are cost-plus entities.

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.

tax years from 1999 forward remain effectively open to examination due to the carryover of unused net operating losses and tax credits.    

Six Months Ended July 4, 2021 Compared to Six Months Ended June 28, 2020

The table below sets forth the changes in revenue for the six months ended July 4, 2021, as compared to the six months ended June 28, 2020 (in thousands, except percentage data): 

Six Months Ended

June 28, 2020

Mature products

Total revenue

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 six months ended July 4, 2021 compared to the six months ended June 28, 2020 increased $768,000.

The net increase of $1.0 million in the revenue of new products was primarily due to increases of connectivity and sensor product revenue.

The net decrease of $263,000 in mature product revenue compared to the six months ended June 28, 2020 was due primarily to decrease in PASIC 3, QuickRAM, products, partially offset by an increase in ECLP and QECL, BAT/CTG, eFPGA license.

The table below sets forth the changes in gross profit for the six months ended July 4, 2021 as compared to the six months ended June 28, 2020 (in thousands, except percentage data):

Six Months Ended

June 28, 2020

Cost of revenue

In the six months ended July 4, 2021, gross profit increased by $491,000 or 23% as compared to the six months ended June 28, 2020.

This was primarily due to an increase in revenue of $768,000 or 18%, and product mix in the first six months of 2021, as compared to same period last year, partially offset by cost variances and write-downs of excess and obsolete inventories.

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 six months ended July 4, 2021, as compared to the six months ended June 28, 2020 (in thousands, except percentage data):

Six Months Ended

June 28, 2020

Restructuring expenses

Total operating expenses

Research and Development

Our research and development (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 $480,000 decrease in R&D expenses in the six months ended July 4, 2021as compared to the six months ended June 28, 2020, was primarily attributable to decreases in salary and related expenses, outside services, occupancy costs and lower depreciation due primarily to restructuring in 2020 and to reductions in spending caused by the COVID-19 pandemic, partially offset primarily by an increase in stock-based compensation and allocable expenses.

Selling, General and Administrative

The $197,000 increase in SG&A expenses in the six months ended July 4, 2021, as compared to the six months ended June 28, 2020 was primarily attributable to outside legal and consulting costs, offset by a decrease in stock-based compensation, salary and related expenses, and reduced travel and entertainment.

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 second quarter of 2021 as compared to $513,000 in the second 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.

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 six months ended July 4, 2021 as compared to the six months ended June 28, 2020 (in thousands, except percentage data):

Six Months Ended

Interest expense

Gain on forgiveness of debt

Interest income and other expense, net

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 half 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 six months ended July 4, 2021. Interest income and other income (expense), net for this period was approximately $52,000 as compared to the six months ended June 28, 2020 of $67,000.

Provision for (Benefit from) Income Taxes

The table below sets forth the changes in the provisions for income tax for the six months ended July 4, 2021 as compared to the six months ended June 28, 2020 (in thousands, except percentage data):

Six Months Ended

Provision for (benefit from) income taxes

The majority of the income tax expense for the quarter ended July 4, 2021 and June 28, 2020 relates to our foreign subsidiaries, which are cost-plus entities.

Included in the provision for the quarter ended July 4, 2021, was a $125,000 deferred tax provision 

related to a one time repatriation of funds from our India entity.

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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.

We have financed our 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 July 4, 2021, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash of $19.0 million, including $15.0 million drawn down from our 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 forgiven in January 2021.

On December 11, 2020, we 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.

We were in compliance with all loan covenants as of July 4, 2021.

As of July 4, 2021, we had $15.0 million of outstanding revolving line of credit with an interest rate of 3.75%.

On May 6, 2020, we 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, we 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 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 gross proceeds to the Company of approximately $496,000 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 million.

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

We currently use our cash to fund our working capital to accelerate the development of next generation products and for general corporate purposes.

Based on past performance and current expectations, we believe 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 our 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®

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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

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.

the issuance and exercise of stock options and participation in our employee stock purchase plan and other factors related to the uncertainties of the industry and global economics.

Over the longer term, we anticipate that sales generated from our new product offerings and existing cash and cash equivalents, with financial resources from our Revolving Facility with the Heritage Bank and our ability to raise additional capital in the public capital markets, will be sufficient to satisfy our operations and capital expenditures.

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

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

As of July 4, 2021, most of our cash, cash equivalents and restricted cash were invested in the money market account at Heritage Bank.

As of July 4, 2021, our interest-bearing debt consisted of $513,000 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 $582,000 and $342,000 as of July 4, 2021 and January 3, 2021, respectively.

Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

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In summary, our cash flows were as follows (in thousands):

Three Months Ended

Six Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) financing activities

Net cash (used in) provided by financing activities

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.

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.

For the six months ended July 4, 2021, net cash used in operating activities was $2.8 million, which was primarily due to the net loss of $3.8 million, adjusted for net non-cash charges of $38,000 including the gain recognized from the forgiveness of the PPP loan of $1.2 million.

Other non-cash charges consisted primarily of $570,000 of stock-based compensation, depreciation and amortization expenses of $323,000, and inventory write-downs of 229,000.

Cash inflows from changes in operating assets and liabilities were approximately $1.0 million, primarily due to a decrease in inventory, and increases in accounts payable and accrued liabilities subject to the variability of the timing of payments, partially offset by an increase in trade receivables due to the increase in revenue during the second quarter.

For the six months ended June 28, 2020, net cash used in operating activities was $3.6 million, which was primarily due to the net loss of $6.1 million, adjusted for non-cash charges of $880,000. Non-cash charges consisted primarily of $343,000 net gain from reversal of stock-based compensation expense of and depreciation and amortization expense of $490,000.

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 approximately $1.7 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

For the six months ended July 4, 2021, cash used in investing activities was $447,000, which was primarily attributable to the capitalized internal-use software and capital expenditure relating to leasehold improvements and computer equipment.

For the six months ended June 28, 2020, cash used in investing activities was $436,000, which was primarily attributable to the capitalized internal-use software.

Net cash (used in) provided by 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. 

For the quarter ended of 2021 and 2020, these draw-downs and repayments netted to zero.

For the six months ended July 4, 2021, cash used in financing activities was $493,000, 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.

For the six months ended June 28, 2020 cash provided by financing activities was $8.9 million, primarily derived from the net proceeds of $7.9 million from the stock issuance of 2.5 million shares of common stock in June 2020, proceeds from the PPP loan of $1.2 million and scheduled repayments of $120,000 for finance lease obligations.

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):

The following table summarizes our contractual obligations and commercial commitments as of July 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

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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

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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 2. Management’s Discussion and Analysis