What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-17 compared with 2021-08-18 · 101 added, 80 removed, 235 unchanged (44% 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 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.

During the third quarter of 2021, we generated total revenue of $3.9 million, which represents an increase of 34% compared to the prior quarter and an increase of 117% compared to the same quarter last year.

Our new product revenue in the third quarter was $2.8 million, which represents an increase of 119% from the prior quarter and an increase of 332% from the third quarter of 2020, primarily driven by our IP license revenue amounting to $1.0 million the current quarter.

Our mature product revenue was $1.1 million in the third quarter of 2021, which was  a decrease of 32% compared to the prior quarter and a decrease of 4% compared to the third 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 $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.  

Overall, we reported a net loss of $1.3 million for the third quarter of 2021, a decrease of 38% compared with the prior quarter and a decrease of 38% compared with the third 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 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.

The COVID-19 pandemic and its effects on our business in fiscal 2020, the three quarters 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.

2 unchanged sentences

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.

If COVID-19 cases surge and we experience more pronounced disruptions in our 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.

1 unchanged sentence

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 $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.

Pursuant to the restructuring plan, we recorded $624,000 restructuring costs during the nine months ended September 27, 2020, consisting primarily of employee severance related costs and facilities costs.

There were no restructuring charges incurred for nine months ended October 3, 2021.

Our employees and customers

13 unchanged sentences

However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements.

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.

During the three and nine months ended October 3, 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 nine months ended October 3, 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

Nine Months Ended

September 27,

Cost of revenue

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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 October 3, 2021 Compared to Three Months Ended September 27, 2020

The table below sets forth the changes in revenue for the three months ended October 3, 2021, as compared to the three months ended September 27, 2020 (in thousands, except percentage data): 

Three Months Ended

June 28, 2020

October 3, 2021

September 27, 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.

For all periods presented - New products include all products and related revenues manufactured on 180 nanometer or smaller semiconductor processes, eFPGA IP license and related revenue, 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 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 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):

Product revenue for the third quarter of 2021 compared to the third quarter of 2020 increased by $2.1 million.

The net increase of $2.1 million in the revenue of new products was primarily due to an increase of $1.0 million related to eFPGA IP license revenue as well as increases of connectivity and sensor product revenue.

The net decrease of 4% in mature product revenue compared to the third quarter of 2020 was due primarily to decrease in QuickRAM and other products, partially offset by an increase in Eclipse and Eclipse Plus products.

The table below sets forth the changes in gross profit for the three months ended October 3, 2021 as compared to the three months ended September 27, 2020 (in thousands, except percentage data):

Three Months Ended

June 28, 2020

October 3, 2021

September 27, 2020

Cost of revenue

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.

In the third quarter of 2021, gross profit increased $1.8 million or 196% as compared to the same quarter in the prior year.

This was primarily due to the increase in revenue of 117% including $1.0 million related to IP License revenue with minimal associated cost and product mix in the third quarter as compared to last year, and an increase of 31% in cost of revenue as compared to last year.

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

1 unchanged sentence

Operating Expenses

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):

The table below sets forth the changes in operating expenses for the three months ended October 3, 2021, as compared to the three months ended September 27, 2020 (in thousands, except percentage data):

Three Months Ended

June 28, 2020

October 3, 2021

September 27, 2020

Restructuring costs

2 unchanged sentences

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 $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.

The $427,000 increase in R&D expenses in the third quarter of 2021, as compared to the third quarter of 2020, was primarily attributable to an increase in stock-based compensation, salary and related expenses, allocable expenses, partially offset by lower outside services and depreciation expenses due primarily to our restructuring in 2020 and to reductions in spending caused by the COVID -19 pandemic.

Selling, General and Administrative

Our selling, general and administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management.  The $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.

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 $708,000 increase in SG&A expenses in the third quarter of 2021, as compared to the third quarter of 2020 was primarily attributable to outside legal and consulting costs, stock-based compensation expenses, and occupancy costs, partially offset by a decrease in salary and related costs.

Restructuring

1 unchanged sentence

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 $34,000 in the second quarter of 2020.

Pursuant to the restructuring plan, we recorded restructuring costs of $0 in the third quarter of 2021 as compared to $111,000 in the third quarter of 2020.

Restructuring costs consists primarily of employee severance-related costs.

1 unchanged sentence

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 July 4, 2021 as compared to the three months ended June 28, 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 October 3, 2021 as compared to the three months ended September 27, 2020 (in thousands, except percentage data):

Three Months Ended

September 27,

Interest expense

2 unchanged sentences

Interest expense relates primarily to our line of credit facility.

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

For the three months ended October 3, 2021 interest income and other income (expense), net for this period was approximately ($7,000) as compared to $27,000 for the three months ended September 27, 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):

The table below sets forth the changes in the provisions for income tax for the three months ended October 3, 2021 as compared to the three months ended September 27, 2020 (in thousands, except percentage data):

Three Months Ended

September 27,

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.

The majority of the income tax expense for the quarter ended October 3, 2021 and September 27, 2020 relates to our foreign subsidiaries, which are cost-plus entities.

We are subject to U.S.

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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

Nine Months Ended October 3, 2021 Compared to Nine Months Ended September 27, 2020

The table below sets forth the changes in revenue for the nine months ended October 3, 2021, as compared to the nine months ended September 27, 2020 (in thousands, except percentage data): 

Nine Months Ended

October 3, 2021

September 27, 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

Product revenue for the nine months ended October 3, 2021 compared to the nine months ended September 27, 2020 increased by $2.8 million.

The net increase of $3.2 million in the revenue of new products was primarily due to an increase in eFPGA IP License revenue of approximately $1.1 million, and increases in connectivity and sensor product revenue.

The net decrease of $304,000 in mature product revenue compared to the nine months ended September 27, 2020 was due primarily to decreases in PASIC 3, QuickRAM, and other products, partially offset by increases in Eclipse and Eclipse Plus products.

The table below sets forth the changes in gross profit for the nine months ended October 3, 2021 as compared to the nine months ended September 27, 2020 (in thousands, except percentage data):

Nine Months Ended

October 3, 2021

September 27, 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.

In the nine months ended October 3, 2021, gross profit was higher by $2.3 million or 76% as compared to the nine months ended September 27, 2020.

This was primarily due to the increase revenue of $2.8 million or 46%, including the increase of IP License related revenue of $1.1 million with minimal associated costs, and product mix in the nine 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.

1 unchanged sentence

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

The table below sets forth the changes in operating expenses for the nine months ended October 3, 2021, as compared to the nine months ended September 27, 2020 (in thousands, except percentage data):

Nine Months Ended

October 3, 2021

September 27, 2020

Restructuring expenses

2 unchanged sentences

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.

R&D expenses decreased slightly for the nine months ended October 3, 2021 as compared to the nine months ended September 27, 2020.

The $53,000  decrease in R&D expenses in the nine months ended October 3, 2021 as compared to nine months ended September 27, 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.

The $905,000 million increase in SG&A expenses in the nine months ended October 3, 2021, as compared to the nine months ended September 27, 2020 was primarily attributable to outside legal and consulting costs, stock-based compensation, offset by decreases in salary and related expenses, travel and entertainment expenses and allocable expenses.

Restructuring

1 unchanged sentence

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.

Pursuant to the restructuring plan, we recorded restructuring costs of $0 in the third quarter of 2021 as compared to $624,000 in the third quarter of 2020.

Restructuring costs consists primarily of employee severance-related costs and facilities costs.

1 unchanged sentence

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

The table below sets forth the changes in interest expense and interest income and other income (expense), net for the nine months ended October 3, 2021 as compared to the nine months ended September 27, 2020 (in thousands, except percentage data):

Nine Months Ended

September 27,

Interest expense

2 unchanged sentences

Interest expense relates primarily to our line of credit facility.

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.

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. Gain on forgiveness of debt for the nine months ended October 3, 2021, relates to the gain related to the forgiveness of the PPP loan of $1.2 million recorded in the first quarter of fiscal 2021. Interest rates for this year as compared to the prior year were significantly lower, accounting for most of the decrease relating to interest income.

Interest income and other income (expense), net for this period was approximately ($59,000) as compared to the nine months ended September 27, 2020 of $94,000.

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

The table below sets forth the changes in the provisions for income tax for the nine months ended October 3, 2021 as compared to the nine months ended September 27, 2020 (in thousands, except percentage data):

Nine Months Ended

September 27,

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.

The majority of the income tax expense for the quarter ended October 3, 2021 and September 27, 2020 relates to our foreign subsidiaries, which are cost-plus entities.

Included in the provision for the quarter ended October 3, 2021, was a $125,000 deferred tax provision related to a one-time repatriation of funds from our India entity.

We are subject to U.S.

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

Liquidity and Capital Resources

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.

As of October 3, 2021, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash of $19.6 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.

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 August 16, 2021, the Company entered into a Third Amendment to the Amended and Restated Loan Agreement with Heritage Bank (the "Third Amendment"). 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. 

We were in compliance with all loan covenants as of October 3, 2021.

As of October 3, 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.

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

On September 22, 2021, we entered into a Share Subscription Agreement for the sale of 125,000 shares of our common stock (the “Private Placement”).

On September 30, 2021, the Company entered into a Common Stock Purchase Agreement for the sale of 73,664 shares of our common stock, in a registered direct offering pursuant to our effective shelf registration statement on Form S-3 (File No.

333-230352) (the “Registered Direct Offering,”

and together with the Private Placement, the “Share Placements”).

The net proceeds to us from the Share Placements, after deducting equity issuance costs of approximately $45,000, were approximately $1.0 million.

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

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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.

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 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.

On November 16, 2021, we entered into a Fourth Amendment to extend the Amended and Restated Loan Agreement with Heritage Bank to extend the maturity date to December 31, 2023 

As of October 3, 2021, most of our cash, cash equivalents and restricted cash were invested in the money market account at Heritage Bank.

As of October 3, 2021, our interest-bearing debt consisted of $836,000 outstanding under finance leases and $15.0 million outstanding under our Revolving Facility. See Note 5 and Note 6 to the Unaudited Condensed Consolidated Financial Statements for more details.

Cash balances held at our foreign subsidiaries were approximately $379,000 and $342,000 as of October 3, 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):

Six Months Ended

Nine Months Ended

September 27,

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Net cash used in operating activities

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.

For the nine months ended October 3, 2021, net cash used in operating activities was $3.1 million, which was primarily due to the net loss of $5.0 million, adjusted for net non-cash charges of $1.0 million including $1.5 million of stock-based compensation, depreciation and amortization expenses of $471,000, and inventory write-downs of $225,000 partially offset by the gain recognized from the forgiveness of debt of $1.2 million related to the PPP loan which was forgiven in the first quarter of fiscal 2021.

For the nine months ended September 27, 2020, net cash used in operating activities was $5.1 million, which was primarily due to the net loss of $8.2 million, adjusted for non-cash charges of $1.3 million.

Non-cash charges consisted primarily of $601,000 net gain from reversal of stock-based compensation expense of and depreciation and amortization expense of $644,000.

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 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

For the nine months ended October 3, 2021, cash used in investing activities was $580,000, which was primarily attributable to the capitalized internal-use software and capital expenditures relating to licensed software and computer equipment.

For the nine months ended September 27, 2020, cash used in investing activities was $762,000, which was primarily attributable to the capitalized internal-use software.

Net cash provided by financing activities

Cash flows from financing activities includes the draw-downs and repayments of our line of credit. 

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. 

For the nine months ended October 3, 2021, cash provided by financing activities was $466,000, which was primarily derived from the net proceeds of $1.0 million from the stock issuance of 199,000 shares, partially offset by 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 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 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):

For the nine months ended September 27, 2020 cash provided by financing activities was $9.0 million, primarily derived from the net proceeds of $8.1 million from the stock issuance of 2.5 million shares of common stock in June 2020 and overallotment of 141,733 shares to underwriters in July 2020, proceeds from the PPP loan of $1.2 million, partially offset by scheduled repayments of $179,000 for finance lease obligations.

Contractual Obligations and Commercial Commitments 

The following table summarizes our contractual obligations and commercial commitments as of October 3, 2021 and the effect such obligations and commitments are expected to have on our liquidity and cash flows in future fiscal periods.

There are neither contractual obligations nor commercial commitments over three years (in thousands):

Payments Due by Period

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What changed 10-Q

Item 2. Management’s Discussion and Analysis