QUICKLOGIC Corp 10-Q

Item 1. Financial Statements   QUICKLOGIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value amount)       July 4,     January 3,       2021     2021   ASSETS                 Current assets:                 Cash, cash equivalents and restricted cash   $ 18,996     $ 22,748   Accounts receivable, net of allowances for doubtful accounts of $ 32 and $ 0 , respectively     2,063       1,688   Inventories     2,205       2,688   Other current assets     984       1,066   Total current assets     24,248       28,190   Property and equipment, net     577       548   Capitalized internal-use software, net     1,135       986   Right of use assets     1,483       1,839   Intangible assets     806       860   Goodwill     185       185   Other assets     280       280   TOTAL ASSETS   $ 28,714     $ 32,888                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Revolving line of credit   $ 15,000     $ 15,000   Trade payables     1,316       935   Accrued liabilities     1,606       1,340   Deferred revenue     76       52   Lease liabilities, current     674       685   Total current liabilities     18,672       18,012   Long-term liabilities:                 Notes payable, non-current     —       1,192   Lease liabilities, non-current     884       1,197   Other long-term liabilities     189       —   Total liabilities     19,745       20,401   Commitments and contingencies (see Note 11)                     Stockholders' equity:                 Preferred stock, $ 0.001 par value; 10,000 shares authorized; no shares issued and outstanding     —       —   Common stock, $ 0.001 par value; 200,000 authorized; 11,512 and 11,094 shares issued and outstanding as of July 4, 2021 and January 3, 2021, respectively     12       11   Additional paid-in capital     307,117       306,885   Accumulated deficit     ( 298,160 )     ( 294,409 ) Total stockholders' equity     8,969       12,487   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 28,714     $ 32,888     See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.   3 Table of Contents     QUICKLOGIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)       Three Months Ended     Six Months Ended       July 4,     June 28,     July 4,     June 28,       2021     2020     2021     2020   Revenue   $ 2,882     $ 2,196     $ 5,122     $ 4,354   Cost of revenue     1,416       1,192       2,512       2,235   Gross profit     1,466       1,004       2,610       2,119   Operating expenses:                                 Research and development     1,652       2,200       3,539       4,019   Selling, general and administrative     1,794       1,665       3,741       3,544   Restructuring costs     —       34       —       513   Total operating expenses     3,446       3,899       7,280       8,076   Loss from operations     ( 1,980 )     ( 2,895 )     ( 4,670 )     ( 5,957 ) Interest expense     ( 32 )     ( 183 )     ( 64 )     ( 263 ) Gain on forgiveness of debt     —       —       1,192       —   Interest income and other income (expense), net     ( 45 )     72       ( 52 )     67   Loss before income taxes     ( 2,057 )     ( 3,006 )     ( 3,594 )     ( 6,153 ) Provision for (benefit from) income taxes     5       ( 27 )     157       ( 9 ) Net loss   $ ( 2,062 )   $ ( 2,979 )   $ ( 3,751 )   $ ( 6,144 ) Net loss per share:                                 Basic and diluted   $ ( 0.18 )   $ ( 0.35 )   $ ( 0.33 )   $ ( 0.73 ) Weighted average shares outstanding:                                 Basic and diluted     11,485       8,560       11,374       8,461     Note: Net loss equals comprehensive loss for all periods presented.   See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.   4 Table of Contents     QUICKLOGIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       Six Months Ended       July 4,     June 28,       2021     2020   Cash flows from operating activities:                 Net loss   $ ( 3,751 )   $ ( 6,144 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     323       490   Stock-based compensation     570       343   Write-down of inventories     229       43   Write-off of equipment     —       4   Gain on forgiveness of debt     ( 1,192 )     —   Allowance for bad debt     32       —   Changes in operating assets and liabilities:                 Accounts receivable     ( 407 )     867   Inventories     254       165   Other assets     82       425   Trade payables     569       574   Accrued liabilities and deferred revenue     290       ( 345 ) Other long-term liabilities     189       —   Net cash used in operating activities     ( 2,812 )     ( 3,578 ) Cash flows from investing activities:                 Capital expenditures for property and equipment     ( 174 )     ( 40 ) Capitalized internal-use software     ( 273 )     ( 396 ) Net cash used in investing activities     ( 447 )     ( 436 ) Cash flows from financing activities:                 Payment of finance lease obligations     ( 156 )     ( 120 ) Proceeds from paycheck protection program loan     —       1,191   Proceeds from line of credit     30,000       27,000   Repayment of line of credit     ( 30,000 )     ( 27,000 ) Proceeds from issuance of common stock, net of issuance costs     148       7,847   Taxes paid related to settlement of equity awards     ( 485 )     ( 54 ) Net cash (used in) provided by financing activities     ( 493 )     8,864   Net (decrease) increase in cash, cash equivalents and restricted cash     ( 3,752 )     4,850   Cash, cash equivalents and restricted cash at beginning of period     22,748       21,548   Cash, cash equivalents and restricted cash at end of period   $ 18,996     $ 26,398     See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.   5 Table of Contents     QUICKLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands)                       Additional             Total       Common Stock     Paid-In     Accumulated     Stockholders'       Shares     Amount     Capital     Deficit     Equity   Balance at January 3, 2021     11,094     $ 11     $ 306,885     $ ( 294,409 )   $ 12,487   Common stock issued under stock plans and employee stock purchase plan     354       —       ( 484 )     —       ( 484 ) Stock-based compensation     —       —       368       —       368   Net loss     —       —       —       ( 1,689 )     ( 1,689 ) Balance at April 4, 2021     11,448       11       306,769       ( 296,098 )     10,682   Common stock issued under stock plans and employee stock purchase plan     64       1       146       —       147   Stock-based compensation     —       —       202       —       202   Net loss     —       —       —       ( 2,062 )     ( 2,062 ) Balance at July 4, 2021     11,512     $ 12     $ 307,117     $ ( 298,160 )   $ 8,969                           Additional             Total       Common Stock     Paid-In     Accumulated     Stockholders'       Shares     Amount     Capital     Deficit     Equity   Balance at December 29, 2019     8,331     $ 8     $ 297,073     $ ( 283,258 )   $ 13,823   Common stock issued under stock plans and employee stock purchase plan     52       —       ( 25 )     —       ( 25 ) Stock-based compensation     —       —       ( 398 )     —       ( 398 ) Net loss     —       —       —       ( 3,165 )     ( 3,165 ) Balance at March 29, 2020     8,383       8       296,650       ( 286,423 )     10,235   Common stock issued under stock plans and employee stock purchase plan     29       —       ( 31 )     —       ( 31 ) Common stock offering, net of issuance costs of $ 1.1 million     2,500       3       7,653       —       7,656   Stock-based compensation     —       —       741       —       741   Net loss     —       —       —       ( 2,979 )     ( 2,979 ) Balance at June 28, 2020     10,912     $ 11     $ 305,013     $ ( 289,402 )   $ 15,622     See accompanying Notes to Unaudited Condensed Consolidated Financial Statements   6 Table of Contents   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”). 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”). 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. 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 Unaudited Condensed Consolidated Financial Statements be read in conjunction with the Company's Form  10 -K for the year ended January 3, 2021 , which was filed with the Securities and Exchange Commission (“SEC”) on March 23, 2021. Operating results for the three and six months ended July 4, 2021 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 2021 and 2020 ended on July 4, 2021 and June 28, 2020 , 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 and countries across the world continue to manage repeated waves of the pandemic, including variant strains of COVID- 19 amid uneven progress toward vaccination. 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 further shelter-in-place or similarly restrictive work-from-home orders would impact many of the Company’s offices and employees, including those located in the United States. As a result, the Company has substantially limited the presence of personnel in its offices in several impacted locations, implemented travel restrictions and withdrawn from various industry events. 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 fulfillment and service sites.   As such, while COVID- 19  has had an impact on the Company's financial results on the  three and six months ended July 4, 2021 , the COVID- 19 pandemic and its potential effects on the Company’s business in its fiscal 2021 remain dynamic, and the broader implications for its business and future results of operations remain uncertain and cannot be predicted. 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. 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. 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. The restructuring plan was approved by the Company’s Board of Directors on January 24, 2020. Pursuant to the restructuring plan, the Company recorded $ 34,000 and $ 513,000 restructuring costs 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.   7 Table of Contents   Liquidity    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 July 4, 2021 , the Company's principal sources of liquidity consisted of cash, cash equivalents and restricted cash of $ 19.0  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 forgiven in January of 2021.   On December 11, 2020, the Company entered into a Second Amendment (the “Second Amendment”) to the Amended and Restated Loan Agreement with Heritage Bank originally entered into on December 21, 2018 ( the "Amended and Restated Loan Agreement"). 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 July 4, 2021 . As of July 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 Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020, or CARES Act. 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 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.   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.  We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan.      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.   8 Table of Contents   Principles of Consolidation   The Unaudited Condensed Consolidated Financial Statements include the accounts of QuickLogic and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.   Foreign Currency   The functional currency of the Company's non-U.S. operations is the U.S. dollar. Accordingly, all monetary assets and liabilities of these foreign operations are translated into U.S. dollars at current period-end exchange rates and non-monetary assets and related elements of expense are translated using historical exchange rates. Income and expense elements are translated to U.S. dollars using the average exchange rates in effect during the period. Gains and losses from the foreign currency transactions of these subsidiaries are recorded as interest income and other income (expense), net in the unaudited condensed consolidated statements of operations.   Uses of Estimates   The preparation of these Unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the period. Actual results could differ materially from those estimates, particularly in relation to revenue recognition, the allowance for doubtful accounts, sales returns, valuation of long-lived assets including mask sets, 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, valuation of inventories including identification of excess quantities, market value and obsolescence, measurement of stock-based compensation awards, accounting for income taxes and estimating accrued liabilities.   Contracts with customers often include promises to transfer multiple products and services to a customer. 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. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers. In these instances, the Company may use information such as the size of the customer, customer tier, type of the technology used, customer demographics, geographic region and other factors in determining the SSP.   Concentration of Risk   The Company's accounts receivable are denominated in U.S. dollars and are derived primarily from sales to customers located in North America, Asia Pacific, and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. See Note 10  to the Unaudited Condensed Consolidated Financial Statements for information regarding concentrations associated with accounts receivable.     Note 2 — Significant Accounting Policies   During the six months period ended July 4, 2021 , 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 January 3, 2021 , except for the new accounting standards adopted during the six months ended July 4, 2021 . For a discussion of the significant accounting policies, please see the Annual Report on Form 10 -K for the fiscal year ended January 3, 2021 , filed with the SEC on March  23, 2021. For a discussion of the new accounting standards adopted during the  six months of 2021 , see “New Accounting Pronouncements” below.   9 Table of Contents   Fair Value Measurements   The Company’s cash, cash equivalents and restricted cash include money market account balance of $ 19.0 million and $ 22.7  million as of July 4, 2021 , and January 3, 2021 , 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 p ledged as cash security related to the use of credit cards as of July 4, 2021  , and January 3, 2021 .   New Accounting Pronouncements   Recently adopted accounting pronouncements   In December 2019, the FASB issued ASU No. 2019 - 12, Simplifying the Accounting for Income Taxes , which removes certain exceptions to the general principles of ASC 740, in order to reduce the cost and complexity of its application. These changes include elimination to the exceptions for ( 1 ) Intra-period tax allocation, ( 2 ) Deferred tax liabilities related to outside basis differences, and ( 3 ) Year-to-date losses in interim periods.  The Company adopted this standard prospectively effective January 4, 2021, with an insignificant impact to the Unaudited Condensed Consolidated Financial Statements.   New accounting pronouncements not yet adopted   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 Unaudited Condensed Consolidated Financial Statements.     Note  3 — 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. Diluted net loss per share was computed using the weighted average number of common shares outstanding during the period plus potentially dilutive common shares outstanding during the period under the treasury stock method. 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 July 4, 2021 and June 28, 2020 ,   254,895 and 626,178 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 not included in the diluted loss per share calculation of the three and six months ended July 4, 2021 and June 28, 2020 , as they were also considered anti-dilutive due to the net loss the Company experienced during these periods.    10 Table of Contents     Note  4 — Balance Sheet Components   The following table provides details relating to certain balance sheet line items as of July 4, 2021 , and January 3, 2021 (in thousands):       July 4,     January 3,       2021     2021   Inventories:                 Raw materials   $ 156     $ 191   Work-in-process     1,380       1,842   Finished goods     669       655       $ 2,205     $ 2,688   Other current assets:                 Prepaid taxes, royalties and other prepaid expenses   $ 792     $ 884   Other     192       182       $ 984     $ 1,066   Property and equipment, net:                 Equipment   $ 10,510     $ 10,471   Software     1,889       1,783   Furniture and fixtures     33       33   Leasehold improvements     466       466         12,898       12,753   Less: Accumulated depreciation and amortization     ( 12,321 )     ( 12,205 )     $ 577     $ 548   Capitalized internal-use software, net:                 Capitalized internal-use software   $ 1,439     $ 1,166   Less: Accumulated amortization     ( 304 )     ( 180 )     $ 1,135     $ 986   Accrued liabilities:                 Employee related accruals   $ 931     $ 762   Other     675       578       $ 1,606     $ 1,340     11 Table of Contents     Note 5  — Debt Obligations   Revolving Line of Credit   As of July 4, 2021 and January 3, 2021 , the Company had $ 15.0 million of revolving debt outstanding with an interest rates of 3.75 % 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. Interest expense recognized were $ 22,000  and $ 172,000  for the three months ended July 4, 2021 and June 28, 2020, respectively, and $ 46,000 and $ 242,000 for the six months ended July 4, 2021 and June 28, 2020, respectively.   Payroll Protection Program Loan   On May 6, 2020, the Company entered into a $ 1.2 million PPP loan agreement with Heritage Bank (“PPP Loan”) under the CARES Act as implemented by the U.S. Small Business Administration. The PPP Loan was evidenced by a promissory note (“PPP Note”) dated May 6, 2020 and matured  two years from the disbursement date. The PPP Note bore interest of 1.00 % per annum, with the first six months of interest deferred. Principal and interest were payable monthly commencing six months after the disbursement date. The Company applied for loan forgiveness in the fourth quarter of fiscal 2020 in accordance with the terms of the CARES Act.  On January 26, 2021, the Company received notice from Heritage Bank that amounts under the PPP Note had been forgiven. The gain related to the loan forgiveness of approximately $ 1.2 million is reported in other income as gain on forgiveness of debt on the Company’s Unaudited Condensed Statements of Operations for the six months ended July 4, 2021 .   12 Table of Contents     Note 6  — Leases   The Company entered into operating leases for office space for its headquarters, for its domestic and foreign subsidiaries and for its sales offices. Finance leases are primarily for engineering design software. Operating leases generally have lease terms of one to five years. Finance leases are generally two to  three years. As of July 4, 2021 , the balance of right-of-use assets was approximately $ 1.5  million and the lease liability was approximately $ 1.6  million for operating and finance leases for the headquarters in San Jose and for the operating subsidiaries of SensiML in Oregon and SensiML in India. The lease term of the San Diego facility expired in July  2020  and the office was closed. On July 10, 2020, the Indian subsidiary leased a smaller office premises of approximately 1,100 square feet for a period of eleven months to accommodate the reduced headcount. Effective July 2020, the rental expense of the unused office in India were expensed to restructuring charges. The lease term of the Indian facility expired in July 2021. Total rent expense for the three months ended  July 4, 2021 and June 28, 2020 was approximately $ 106,000 and $ 158,000 , respectively. Total rent expense for the six months ended July 4, 2021 and June 28, 2020 was approximately $ 213,000 and $ 305,000 , respectively.   The following table provides the expenses related to operating and finance leases (in thousands):       Three Months Ended     Six Months Ended       July 4, 2021     June 28, 2020     July 4, 2021     June 28, 2020   Operating lease costs:                                 Fixed   $ 101     $ 153     $ 204     $ 294   Short term     5       5       9       11   Total   $ 106     $ 158     $ 213     $ 305   Finance lease costs:                                 Amortization of ROU asset   $ 98     $ 52     $ 513     $ 101   Interest     6       8       52       14   Total   $ 104     $ 60     $ 565     $ 115     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 July 4, 2021 and June 28, 2020 (in thousands):       Six Months Ended       July 4,     June 28,       2021     2020   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows used for operating leases   $ 202     $ 260   Operating cash flows used for finance leases     5       14   Financing cash flows used for financing leases     156       120   Total   $ 363     $ 394                     Right-of-use assets obtained in exchange for finance lease obligations   $ —     $ 773     13 Table of Contents   The following table provides the details of right-of-use assets and lease liabilities as of July 4, 2021 and January 3, 2021 (in thousands):       July 4,     January 3,       2021     2021   Right-of-use assets:                 Operating leases   $ 974     $ 1,134   Finance leases     509       705   Total right-of-use assets   $ 1,483     $ 1,839   Lease liabilities:                 Operating leases   $ 1,045     $ 1,212   Finance leases     513       670   Total lease liabilities   $ 1,558     $ 1,882     The following table provided the details of future lease payments for operating and finance leases as of July 4, 2021 (in thousands):       Operating Leases     Finance Leases   2021 (Remaining period)   $ 200     $ 205   2022     409       334   2023     421       —   2024     107       —   Total lease payments     1,137       539   Less: Interest     ( 92 )     ( 26 ) Present value of lease liabilities   $ 1,045     $ 513     The following table provides the details of lease terms and discount rates as of July 4, 2021 and January 3, 2021 :       July 4,     January 3,       2021     2021   Right-of-use assets:                 Weighted-average remaining lease term (years)                 Operating leases     2.75       3.24   Finance leases     1.72       2.21   Weighted-average discount rates:                 Operating leases     6.00 %     6.00 % Finance leases     5.50 %     5.50 %   14 Table of Contents     Note 7  — Employee Stock Plans   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 Stock Plan. Under the 2019 Plan, 357,143 shares of common stock were made available for grants, plus any shares subject to any outstanding options or other awards granted under the Company’s 2009 Stock Plan that expire, including the 299,070 shares then available, or which 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, reserve an additional 550,000 shares of common stock for issuance under the 2019 Plan. The 2019 Plan was amended and restated by the Board of Directors on March 3, 2021 and approved by the Company’s stockholders on May 12, 2021  to, among other things, reserve an additional 600,000 shares of common stock for issuance under the 2019 Plan. As of July 4, 2021 , approximately 1,158,052 shares of the Company’s common stock were available for issuance under the 2019 Plan.   2009 Employee Stock Purchase Plan   The 2009 Employee Stock Purchase Plan ( “2009 ESPP”) was adopted in March  2009 and amended by the Board of Directors in January 2015 and in February 2017, and 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.  The amendment, among other things, extend the term of the plan until March 5, 2029 and reserved an additional 300,000 shares of common stock for issuance under the 2009 ESPP. As of July 4, 2021 , approximately 281,859 shares of the Company’s common stock were reserved for issuance under the 2009 ESPP.   15 Table of Contents     Note 8  — Stock-Based Compensation   Stock-based compensation expense included in the Company's consolidated financial statements for the three and six months ended July 4, 2021 and June 28, 2020 was as follows (in thousands):       Three Months Ended     Six Months Ended       July 4,     June 28,     July 4,     June 28,       2021     2020     2021     2020   Cost of revenue   $ 18     $ 31     $ 54     $ 43   Research and development     82       486       239       22   Selling, general and administrative     102       224       277       278   Total   $ 202     $ 741     $ 570     $ 343     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.   No stock-based compensation was capitalized during any period presented above.   No stock options were granted during the three and six months ended July 4, 2021  and June 28, 2020. 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 July 4, 2021 (in thousands):       Shares Available for Grants   Balance at January 3, 2021     320   Authorized shares     600   RSUs granted     ( 30 ) Options cancelled     11   RSUs forfeited or expired     19   PRSUs forfeited or expired     239   Balance at July 4, 2021     1,159     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 July 4, 2021 :               Weighted     Weighted                       Average     Average     Aggregate       Number of     Exercise     Remaining     Intrinsic       Shares     Price     Term     Value       (in thousands)             (in years)     (in thousands)   Balance outstanding at January 3, 2021     121     $ 28.46       3.75       —   Forfeited or expired     ( 11 )   $ 19.59                   Balance outstanding at July 4, 2021     110     $ 29.31       3.16     $ —   Exercisable at July 4, 2021     110     $ 29.31       3.16     $ —   Vested and expected to vest at July 4, 2021     110     $ 29.31       3.16     $ —     16 Table of Contents   No stock options were granted during the three and six months ended July 4, 2021  and June 28, 2020.   Total stock-based compensation related to stock options was approximately $ 0  and $ 14,000  for the three months ended July 4, 2021 and June 28, 2020 respectively, and $ 0 and $ 28,000 for the six months ended July 4, 2021 and June 28, 2020 , respectively. As of July 4, 2021 , the fair value of unvested stock options, net of forfeitures, was $ 0 .    Restricted Stock Units   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 expense related to RSUs and PRSUs was approximately $ 165,920 and $ 719,000 for the three months ended July 4, 2021 and June 28, 2020 respectively, and $ 503,943 and $ 306,000 for the six months ended July 4, 2021  and June 28, 2020 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 July 4, 2021 and June 28, 2020 , there was approximately $ 225,011  and $ 1.7  million, respectively, in unrecognized compensation expense related to RSUs. The remaining unrecognized stock-based compensation expense as of July 4, 2021 is expected to be recorded over a weighted average period of 1.17  years.   A summary of activity for the Company's RSUs and PRSUs for the six months ended July 4, 2021 is as follows:       RSUs & PRSUs Outstanding               Weighted               Average       Number of     Grant Date       Shares     Fair Value       (in thousands)           Nonvested at January 3, 2021     800     $ 4.99   Granted     30       5.11   Vested     ( 458 )     4.88   Forfeited     ( 258 )     4.98   Nonvested at July 4, 2021     114     $ 5.46     17 Table of Contents   Employee Stock Purchase Plan   Total stock-based compensation related to the Company's ESPP was approximately $ 36,000  and $ 8,000  for the three months ended July 4, 2021 and June 28, 2020, respectively, and $ 66,000  and $ 8,000 for the six months ended July 4, 2021 and June 28, 2020 , respectively.     Note 9  — Income Taxes   The Company recorded a net income tax expense of $ 5,000 and a net income benefit of $ 27,000 for the three months ended July 4, 2021 and June 28, 2020, respectively, and a net income tax expense of $ 157,000 and a net income tax benefit of $9,000 for the six months ended July 4, 2021 and June 28, 2020 , respectively.   A majority of the income tax expense for the first quarter of 2021 relates to the Company's foreign subsidiaries, which are cost-plus entities and withholding tax of $ 125,000 related to one -time distribution resulting from restructuring in India. A tax expense resulting from the assessment and statutory closing of prior years’ foreign tax returns relates to 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 July 4, 2021 . 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 July 4, 2021  and January 3, 2021 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.   Accrued interest and penalties related to unrecognized tax benefits are recognized as part of the income tax provision in the condensed consolidated statements of operations.   The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which the Company operates. 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.   Under the Tax Reform Act of 1986, the amount of and the benefit from net operating loss carryforwards and credit carryforwards may be impaired or limited in certain circumstances. Events which may restrict utilization of a company's net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.   The Company has not undertaken a study to determine if its net operating losses are limited. 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 United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) as a result of the Coronavirus pandemic. The Act includes provisions relating to loan programs for small businesses ("Paycheck Protection Program" or "PPP"), refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications of the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company applied for and received $1.2M of the PPP loan in Q2 2020 and the amount was utilized on qualified business expenses under the guidance of PPP. On December 27, 2020, the President signed the Consolidated Appropriations Act 2021 (the "Bill") into law. The Bill confirms the business expenses paid out of PPP loans maybe deducted for federal income tax purposes and the borrower's tax basis and other attributes of the borrower's assets will not be reduced as a result of the loan forgiveness. The Company applied for the loan forgiveness and the application was approved by the lender on January 26, 2021. The loan was reclassified to gain on forgiveness of debt in Q1 2021 for GAAP and is not taxable for federal purposes according to the CARES Act.   California has issued specific guidance regarding its conformity to the CARES Act. No provisions are expected to have a material impact on the Company, except for that under Assembly Bill 80 ("AB 80" ), which was signed into law on April 29, 2021, the business expenses paid out of the PPP loan is not deductible for publicly-traded companies for California tax purposes.   On June 29, 2020, California Governor Gavin Newsom signed Assembly Bill 85 ("AB 85" ) into law, which temporarily suspends net operating loss deductions for most businesses and limits certain general business credits. These provisions will be applied retroactively to tax years beginning on or after January 1, 2020 through December 31, 2022. However, the law provides for a small business exemption for taxpayers with income subject to tax under $1 million. The Company has evaluated the current legislation and does not anticipate AB 85 to have a material impact on its financial statements.   On December 18, 2019, the FASB issued new guidance ASU 2019 - 12 that simplifies the accounting for income taxes to reduce complexity in accounting standards which the Company adopted on January 4, 2021. The majority of the key provisions of the ASU 2019 - 12 does not have a material impact on the Company's consolidated financial statements. We considered the majority of our non-U.S. subsidiaries’ undistributed earnings to be permanently reinvested. Therefore no U.S. or foreign income taxes have been recorded on the permanently reinvested amount as of July 4, 2021. Due to potential restructuring plans in India, there may be a one -time distribution in 2021. As a result, we have recorded withholding taxes of approximately $ 125,000 on the potential one -time distribution. However, the rest of our foreign subsidiaries’ earnings continue to be permanently reinvested with no deferred tax liabilities necessary.   We considered the majority of our non-U.S. subsidiaries’ undistributed earnings to be permanently reinvested. Therefore no U.S. or foreign income taxes have been recorded on the permanently reinvested amount as of July 4, 2021. Due to potential restructuring plans in India, there may be a one -time distribution in 2021. As a result, we have recorded withholding taxes of approximately $ 125,000 on the potential one -time distribution. However, the rest of our foreign subsidiaries’ earnings continue to be permanently reinvested with no deferred tax liabilities necessary.     18 Table of Contents     Note  10  — Information Concerning Product Lines, Geographic Information and Revenue Concentration   The Company identifies its business segment based on business activities, management responsibility and geographic location. For all periods presented, the Company operated in a single reportable business segment.   The following is a breakdown of revenue by product line (in thousands):       Three Months Ended     Six Months Ended       July 4,     June 28,     July 4,     June 28,       2021     2020     2021     2020   New products   $ 1,262     $ 820     $ 2,337     $ 1,306   Mature products     1,620       1,376       2,785       3,048   Total revenue   $ 2,882     $ 2,196     $ 5,122     $ 4,354     Note: 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”) revenue. Mature products include all products produced on semiconductor processes larger than 180 nanometer and includes related royalty revenue.   The following is a breakdown of revenue by shipment destination (in thousands):       Three Months Ended     Six Months Ended       July 4,     June 28,     July 4,     June 28,       2021     2020     2021     2020   Asia Pacific (1)   $ 1,075     $ 779     $ 1,828     $ 1,185   North America (2)     565       1,282       1,824       2,234   Europe     1,242       135       1,470       935   Total revenue   $ 2,882     $ 2,196     $ 5,122     $ 4,354     ( 1 ) Asia Pacific includes revenue from Japan of $9 17 ,000, or 32 % of tota l revenue and $ 771,000 or 35 % of total revenue for the quarters ended July 4, 2021 and June 28, 2020, respectively. For the six months ended July 4, 2021 and June 28, 2020, revenue from Japan was $ 1.6 million, or 32 % of total revenue, and $ 1.2 million, or 27 % of total revenue, respectively. ( 2 ) North America includes revenue from the United States of $562,000, or 19 % of total revenue, and $ 1.3 million, or 58 % of total revenue, for the three months ended July 4, 2021 and June 28, 2020, respectively. For the six months ended July 4, 2021 and June 28, 2020 revenue from the United States was $1.8 million, or 35 % of total revenue, and $ 2.2 million, or 51 % 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       July 4,     June 28,     July 4,     June 28,       2021     2020     2021     2020   Distributor "A"     14 %     25 %     13 %     31 % Distributor "C"     *       *       16 %     17 % Distributor "E"     29 %     29 %     29 %     21 % Customer "B"     *       12 %     *       13 % Customer "E"     35 %     *       20 %     *   Customer "F"     29 %     29 %     29 %     21 % Customer "M"     *       12 %     *       *     * Represents less than 10% of revenue as of the dates presented.   19 Table of Contents   The following distributors and customers accounted for 10% or more of the Company's accounts receivable as of the dates presented:       July 4,     January 3,       2021     2021   Distributor "A"     11 %     *   Distributor "C"     10 %     *   Distributor "E"     22 %     *   Distributor "P"     *       67 % Distributor "Q"     *       10 % Distributor "J"     51 %     *   * Represents less than 10% of accounts receivable as of the dates presented.       Note  11  — Commitments and Contingencies   Commitments   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 this forecasted wafer volume. As of July 4, 2021 , and January 3, 2021 , the Company had $ 559,000  and $ 60,000 , 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 July 4, 2021 , total outstanding purchase obligations for other goods and services were $ 945,000  due within the next twelve months.   Litigation   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 July 4, 2021 , the Company was not involved in any litigation.   India Transfer Pricing Notice   On January 27, 2021, the Company received an order from the Income Tax Department of the Ministry of Finance in India (the "DRP, or "the Department") disputing the transfer pricing rate the Company used for Assessment Years  2017 - 18, the result of which may affect later years. It is the intention of the Company to appeal such order as the rate requested by the government of India is not representative of the results of operations of the company, as well as other factors. In addition, on April 30, 2021, the Company filed an appeal with the DRP, citing various issues with the Department's calculations and choice of comparable entities used to arrive at its initial assessment. The Company does not expect a response to such appeal for six to nine months, or more due in part to the complete closure of most governmental offices including the Ministry of Finance related to India's COVID- 19 pandemic.  The Company is in the process of evaluating the effect such order may have on its foreign tax provision. Such effect, if any, would be to the tax provision and amounts owed under taxes to foreign jurisdictions only.     Note  12  — Subsequent Events   On August 16, 2021, the Company entered into a Third Amendment (the "Third Amendment") to the Amended and Restated Loan Agreement with Heritage Bank. The Third Amendment (a) waived the Company’s non-compliance with the minimum cash covenant which obligated the Company to maintain at least $ 3.0 million of unrestricted cash at all times and (b) amended this obligation such that the Company shall now be required to maintain unrestricted cash in its accounts at the Bank in an amount of at least $ 3.0 million measured i) immediately prior to the funding of any credit extension, and ii) at all times that any advance is outstanding. In connection with the Third Amendment, the Company was obligated to pay Heritage Bank a waiver and amendment fee equal to $ 5,000 plus all bank expenses incurred through the date of the Third Amendment.       20 Table of Contents