What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-16 compared with 2022-08-17 · 121 added, 95 removed, 196 unchanged (52% of the section changed)

84 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 2022, we generated total revenue of $4.5 million, an increase of 11% compared to the prior quarter, and an increase of 58% compared to the same quarter last year. Our new product revenue in the second quarter was $3.1 million, a decrease of 9% from the prior quarter and an increase of 148% from the second quarter of 2021.

The increase in new product revenue was primarily driven by professional services revenue of $1.6 million in the current quarter.

Our mature product revenue was $1.4 million in the second quarter of 2022, an increase of 118% compared to the prior quarter, and a decrease of 13% compared to the second quarter of 2021.

During the third quarter of 2022, we generated total revenue of $3.5 million, a decrease of 24% compared to the prior quarter, and a decrease of 10% compared to the same quarter last year. Our new product revenue in the third quarter was $2.3 million, a decrease of 28% from the prior quarter and a decrease of 18% from the third quarter of 2021.

The decrease in new product revenue was primarily driven by a $1.4 million reduction in hardware product revenue, partially offset by increases of $0.7 million in eFPGA IP revenue and $0.2 million in SaaS & Other revenue in the current quarter.

Our mature product revenue was $1.2 million in the third quarter of 2022, a decrease of 14% compared to the prior quarter, and an increase of 10% compared to the third quarter of 2021.

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 l icensin g and QuickAI initiatives.

Overall, we reported a net loss of $0.5 million for the second quarter of 2022, a decrease of 55% compared with the prior quarter, and a decrease of 75% compared with the second quarter of 2021.

We devote substantially all of our development, sales and marketing efforts to our new FPGA  IP l icensin g and SensiML initiatives.

Overall, we reported a net loss of $1.3 million for the third quarter of 2022, an increase of 157% compared with the prior quarter, and an increase of 5% compared with the third quarter of 2021.

We have experienced net losses in the recent years and expect losses to continue through at least fiscal year 2022 as we continue to develop new products, applications, and technologies.

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We believe that we apply judgments and estimates in a consistent manner and that this consistent application results in our consolidated financial statements and accompanying notes that fairly represent all periods presented.

However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three and six months ended July 3, 2022, 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 2, 2022, filed with the SEC on March 22, 2022.

However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three and nine months ended October 2, 2022, 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 2, 2022, filed with the SEC on March 22, 2022.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

October 2, 2022

October 3, 2021

October 2, 2022

October 3, 2021

Cost of revenue

7 unchanged sentences

Loss before income taxes

Provision for income taxes

Three Months Ended July 3, 2022 Compared to Three Months Ended July 4, 2021

The table below sets forth the changes in revenue in the three months ended July 3, 2022 compared to the three months ended July 4, 2021 (in thousands, except percentage data):

Provision for (benefit from) income taxes

Three Months Ended October 2, 2022 Compared to Three Months Ended October 3, 2021

The table below sets forth the changes in revenue in the three months ended October 2, 2022 compared to the three months ended October 3, 2021 (in thousands, except percentage data):

Three Months Ended

October 2, 2022

October 3, 2021

Mature products

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

Product revenue for the second quarter of 2022 compared to the second quarter of 2021 increased $1.7 million.

The $1.9 million increase in new products revenue was partially offset by a 13% net decrease in mature product revenue from a reduction in QECL and Eclipse Plus products, partially offset by an increase in PASIC4 products. 

Product revenue for the third quarter of 2022 compared to the third quarter of 2021 decreased $0.4 million.

The decrease was comprised of a $0.5 million 

decrease in new products revenue, partially offset by a $0.1 million increase in mature product revenue.

New Product Revenue

The table below sets forth the changes in new product revenue in the three months ended July 3, 2022 compared to the three months ended July 4, 2021 (in thousands, except percentage data):  

The table below sets forth the changes in new product revenue in the three months ended October 2, 2022 compared to the three months ended October 3, 2021 (in thousands, except percentage data):  

Three Months Ended

October 2, 2022

October 3, 2021

Hardware products

Total new product revenue

The $0.4 million increase in new hardware product revenue was primarily comprised of a $0.8 million increase smart connectivity products partially offset by a $0.4 million decrease in sensor revenue.

eFPGA IP revenue increased $1.5 million, or 993%, as compared to the same quarter in the prior year.

The increase in eFPGA IP revenue was primarily driven by an increase in professional services revenue of $1.5 million partially offset by a 2% decrease in IP revenue.

The table below sets forth the changes in gross profit for the three months ended July 3, 2022 compared to the three month ended July 4, 2021 (in thousands, except percentage data):

The $1.4 million decrease in new hardware product revenue was primarily comprised of a $0.9 million from smart connectivity products revenue and $0.5 million from sensor revenue.

eFPGA IP revenue increased $0.7 million, or 70%, as compared to the same quarter in the prior year.

The increase in eFPGA IP revenue was primarily driven by an increase in eFPGA-related professional services revenue of $1.7 million partially offset by $1.0 million decrease in eFPGA IP revenue.

The increase in SaaS & Other was primarily driven by an increase in software-related professional services revenue.

The table below sets forth the changes in gross profit for the three months ended October 2, 2022 compared to the three months ended October 3, 2021 (in thousands, except percentage data):

Three Months Ended

October 2, 2022

October 3, 2021

Cost of revenue

In the second quarter of 2022, gross profit increased $1.1 million, or 74%, as compared to the same quarter in the prior year.

The increase in gross profit reflects a 58% increased in revenue, primarily composed of an increase of $0.4 million in new product hardware revenue and an increase of $1.5 million in eFPGA IP revenue, partially offset by a $0.2 million decrease in mature product revenue.

The net increase in revenue was partially offset by a $0.6 million increase in cost of revenues, primarily comprised of $0.8 million in costs related to eFPGA IP, and partially offset by a $0.2 million decrease in product cost standards.

eFPGA IP revenue and costs related to eFPGA IP revenue were c omprised eFPGA intellectual property license revenue and costs, respectively, and professional services revenue and costs, respectively.

In the third quarter of 2022, gross profit decreased $1.1 million, or 39%, as compared to the same quarter in the prior year.

The decrease in gross profit reflects a 10% decrease in revenue, primarily composed of a decrease of $1.4 million in new product hardware revenue partially offset by increases of $0.7 million and $0.2 million in eFPGA IP and SaaS and other revenues, respectively and $0.1 million in mature product revenue.

The $0.7 million increase in cost of revenues was primarily comprised of $0.9 million increase in costs related to eFPGA IP, and partially offset by a $0.3 million decrease in hardware product costs.

The increase in eFPGA IP costs are primarily attributable to R&D costs allocable to cost of revenue related to eFPGA IP revenue and higher tooling costs on revenue projects, and the decrease in hardware product costs reflected the reduction in volume of products sold, partially offset by higher outside cost and material price variances.

In addition, revenue in the third quarter of 2021 was partially comprised of $1.0 million in eFPGA IP license revenue with minimal associated costs.

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

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Operating Expenses

The table below sets forth the changes in operating expenses for the three months ended July 3, 2022, compared to the three months ended July 4, 2021 (in thousands, except percentage data):

The table below sets forth the changes in operating expenses for the three months ended October 2, 2022, compared to the three months ended October 3, 2021 (in thousands, except percentage data):

Three Months Ended

October 2, 2022

October 3, 2021

Total operating expenses

2 unchanged sentences

The $0.8 million  

decrease  in R&D expenses in the second quarter of 2022 , as compared to the second quarter of 2021 , was primarily attributable to R&D costs allocable to cost of revenue 

related to eFPGA IP revenue , a reduction in amortization and depreciation, and in expensed software.

These were partially offset by increases in salary and related expenses, higher recruiting expenses, increased printing expenses, consulting and other outside services. R&D costs allocable to cost of revenue related to 

eFPGA IP revenue included costs related to eFPGA intellectual property license revenue and professional services revenue.

decrease  in R&D expenses in the third quarter of 2022 , as compared to the third quarter of 2021 , was primarily attributable to R&D costs allocable to cost of revenue 

related to eFPGA IP revenue , a reduction in stock-based compensation expense, and in salary and related expenses, partially offset by an increase in tooling costs .

R&D costs allocable to cost of revenues in support of eFGPA IP 

included costs related to eFPGA intellectual property development and eFPGA professional services revenue.

Selling, General and Administrative

Our selling, general an d administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management. The $0.2 millionincrease in SG&A expenses in the second quarter of 2022 , as compared to the second quarter of 2021 was primarily attributable to increases in salary and related expenses, stock-based compensation expenses, legal expenses and occupancy costs, and accounting and audit expenses, partially offset by a decrease in selling expenses and consulting costs.

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 3, 2022, compared to the three months ended July 4, 2021 (in thousands, except percentage data):

Our selling, general an d administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. The $0.3 milliondecrease in SG&A expenses in the third quarter of 2022 , as compared to the third quarter of 2021 was primarily attributable to decreases in consulting costs and stock-based compensation expenses.

These were partially offset by increases in salary and related expenses, legal expenses and insurance costs, utilities, accounting and audit expenses.

Interest Expense, 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 October 2, 2022, compared to the three months ended October 3, 2021 (in thousands, except percentage data):

Three Months Ended

Interest expense

Interest income and other income (expense), net

Total interest income and other income (expense), net

Interest expense relates primarily to our revolving line of credit facility.

Interest income and other income (expense), net, relates to the interest earned on our money market accounts and foreign exchange gain or losses recorded. Changes in interest expense related for our revolving loan relate to the variability and timing of our outstanding loan balance. Interest expense for the second quarter of this year as compared to the same period in the prior year decreased approximately $10 thousand, which reflected a reduction in interest expense from finance lease liabilities partially offset by an increase in interest rates on our revolving line of credit loan.

Interest income and other income (expense), net, was a net income of approximately $0.1 million and a net expense of approximately $77 thousand for the three months ended July 3, 2022 and July 4, 2021, respectively.

The increase in total interest income and other income (expense), net reflected an increase in net foreign exchange gains and in other income and a reduction in interest expense over the prior period presented.

Provision for Income Taxes

The table below sets forth the changes in the provisions for income taxes in the three months ended July 3, 2022, compared to the three months ended July 4, 2021 (in thousands, except percentage data):

Interest income and other expense, net

Total interest expense, interest income and other income (expense), net

Interest expense relates primarily to our revolving line of credit facility and finance leases liabilities.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned on our money market accounts. Changes in interest expense related to our revolving loan's interest rate variability and the timing of our outstanding loan balance. Interest expense for the third quarter of this year as compared to the same period in the prior year increased approximately $9 thousand which was comprised of a $29 thousand increase in interest expense in finance lease liabilities partially offset by a $20 thousand decrease in interest rates on our revolving line of credit loan.

The change in interest income and other income (expense), net reflected increased foreign exchange losses over the prior period.

Total interest income and other income (expense), net, was a net expense of approximately $0.1 million and $42 thousand for the three months ended October 2, 2022 and October 3, 2021, respectively.

Provision for (Benefit From) Income Taxes

The table below sets forth the changes in the provisions for income taxes in the three months ended October 2, 2022, compared to the three months ended October 3, 2021 (in thousands, except percentage data):

Three Months Ended

Provision for income taxes

The majority of the income tax expense for the three months ended July 3, 2022 and July 4, 2021 related to our foreign subsidiaries, which are cost-plus entities.

Six Months Ended July 3, 2022 Compared to Six Months Ended July 4, 2021

The table below sets forth the changes in revenue for the six months ended July 3, 2022, compared to the six months ended July 4, 2021 (in thousands, except percentage data):

Six Months Ended

Provision for (benefit from) income taxes

The majority of the income tax expense for the three months ended October 2, 2022 and October 3, 2021 related to our foreign subsidiaries, which are cost-plus entities.

Nine Months Ended October 2, 2022 Compared to Nine Months Ended October 3, 2021

The table below sets forth the changes in revenue for the nine months ended October 2, 2022, compared to the nine months ended October 3, 2021 (in thousands, except percentage data):

Nine Months Ended

October 2, 2022

October 3, 2021

Mature products

2 unchanged sentences

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

Product revenue for the six months ended July 3, 2022, as compared to the six months ended July 4, 2021 increased $3.5 million. The increase in product revenue was comprised of a $4.2 million increase in new product revenue partially offset by a 26% decrease in mature product revenue.

Product revenue for the nine months ended October 2, 2022, as compared to the nine months ended October 3, 2021 increased $3.1 million. The increase in product revenue was comprised of a $3.7 million 

increase in new product revenue partially offset by a $0.6 million 

decrease in mature product revenue.

New Product Revenue

The table below sets forth the changes in new product revenue in the six months ended July 3, 2022 compared to the six months ended July 4, 2021 (in thousands, except percentage data):  

Six Months Ended

The table below sets forth the changes in new product revenue in the nine months ended October 2, 2022 compared to the nine months ended October 3, 2021 (in thousands, except percentage data):  

Nine Months Ended

October 2, 2022

October 3, 2021

Hardware products

Total new product revenue

The $1.2 million increase in new hardware product revenue was primarily comprised of $1.0 million in higher connectivity product revenue, $1.0 million in higher display product revenue, partially offset by decrease a $0.7 million decrease in sensor product revenue. eFPGA IP revenue increased $3.0 million, or 2054%, as compared to the same period in the prior year, primarily driven by an increase in professional services.

eFPGA IP revenue was comprised of eFPGA intellectual property license revenue and professional services revenue.

The table below sets forth the changes in gross profit for the six months ended July 3, 2022, compared to the six months ended July 4, 2021 (in thousands, except percentage data):

Six Months Ended

The $0.2 million decrease in new hardware product revenue was primarily comprised of a reduction of $1.2 million in sensor product revenue, partially offset by increases of $1.0 million in higher display product revenue and $0.2 million in connectivity product revenue.

eFPGA IP revenue was primarily comprised of eFPGA intellectual property license revenue and eFPGA-related professional services revenue.

eFPGA IP revenue increased $3.8 million, or 327%, as compared to the same period in the prior year, primarily driven by a $4.7 million increase in professional services revenue, partially offset by a $1.0 million decrease in IP product revenue.

SaaS & Other revenue increased $0.2 million primarily driven by increased software-related professional services revenue.

The table below sets forth the changes in gross profit for the nine months ended October 2, 2022, compared to the nine months ended October 3, 2021 (in thousands, except percentage data):

Nine Months Ended

October 2, 2022

October 3, 2021

Cost of revenue

Gross profit for the six months ended July 3, 2022, as compared to the six months ended July 4, 2021, increased $2.4 million, or 92%. The increase was primarily due to an increase revenue of $3.5 million or 69%.

The increase in revenue was primarily composed of an increase of $1.2 million in new product revenue and an increase in eFPGA IP revenue of $3.1 million was partially offset a decrease of $0.7 million in mature product revenue.

The increase in revenue was partially offset by an increase of $1.2 million in eFPGA IP cost of revenue, partially offset by a reduction in product cost of revenue due to the mix of products sold.

Gross profit for the nine months ended October 2, 2022, as compared to the nine months ended October 3, 2021, increased $1.3 million, or 25%. The increase was primarily due to an increase in revenue of $3.1 million or 35%, partially offset by an increase in cost of revenue of $1.8 million, or 49%.

The increase in revenue was primarily comprised of an increase of $3.8 million in eFPGA IP revenue, a $0.2 million increase in SaaS & Other revenue, partially offset decreases of $0.2 million in new hardware product revenue and $0.6 million in mature product revenue.

The increase in revenue was partially offset by an increase of $1.8 million increase in cost of revenue comprised primarily of $1.7 million in engineering labor and tooling costs on eFPGA revenue projects costs, partially offset by a reduction in hardware product costs due to lower volume and the mix of products sold.The increase in eFPGA IP engineering labor costs are primarily attributable to R&D costs allocable to cost of revenue related to eFPGA IP revenue and higher tooling costs on revenue projects. In addition, revenue in the nine months ended October 3, 2021 was partially comprised of $1.1 million in eFPGA IP license revenue with minimal associated costs.

eFPGA IP revenue and costs related to eFPGA IP revenue were c omprised eFPGA intellectual property license revenue and costs, respectively, and eFPGA professional services revenue and costs, respectively.

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

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Operating Expenses

The table below sets forth the changes in operating expenses for the six months ended July 3, 2022, compared to the six months ended July 4, 2021 (in thousands, except percentage data):

Six Months Ended

The table below sets forth the changes in operating expenses for the nine months ended October 2, 2022, compared to the nine months ended October 3, 2021 (in thousands, except percentage data):

Nine Months Ended

October 2, 2022

October 3, 2021

Total operating expenses

1 unchanged sentence

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.

R&D expenses in the six months ended July 3, 2022, as compared to the six months ended July 4, 2021, decreased $1 million. The decrease in R&D expenses was 

R&D expenses in the nine months ended October 2, 2022, as compared to the nine months ended October 3, 2021, decreased $1.8 million. The decrease in R&D expense was 

primarily attributable to R&D costs allocable to cost of revenue in support of 

eFPGA IP 

and decreases in stock-based compensation costs and consulting services, partially offset increases in salary and related expenses, and amortization expense. 

and decreases in stock-based compensation costs and consulting services, partially offset increases in salary and related expenses, tooling and outside services. 

R&D costs allocable to cost of revenues in support of eFGPA IP 

included costs related to eFPGA intellectual property license revenue and professional services revenue.

included costs related to eFPGA intellectual property license revenue and eFPGA professional services revenue.

Selling, General and Administrative

SG&A expenses in the six months ended July 3, 2022, as compared to the six months ended July 4, 2021, increased $0.4 million.

SG&A expenses in the nine months ended October 2, 2022, as compared to the nine months ended October 3, 2021, increased $0.1 million.

The increase was primarily attributable to higher stock-based compensation expenses, legal fees and accounting and audit expenses, outside services expenses, insurance costs, dues and subscriptions and director service fees, partially offset by reductions in consulting expenses.

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 3, 2022, compared to the six months ended July 4, 2021 (in thousands, except percentage data):

Six Months Ended

Interest Expense, 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 nine months ended October 2, 2022, compared to the nine months ended October 3, 2021 (in thousands, except percentage data):

Nine Months Ended

Interest expense

1 unchanged sentence

Interest income and other expense, net

Interest expense relates primarily to our line of credit facility.

Interest expense for the six months ended July 3, 2022 compared to the same period in the previous year declined $9 thousand, which reflected a decrease in interest expense from finance lease liabilities partially offset by an increase in interest rates on our revolving line of credit loan. Interest income and other expense, net, for the six months ended July 3, 2022 compared to the same period in the previous year, increased $71 thousand, which primarily reflected an increase in net foreign exchange gains.

Interest expense and interest income and other income (expense), net, for the six months ended July 4, 2021 was $1.1 million and which included a gain on forgiveness of debt relates to the gain related to the forgiveness of the PPP loan of $1.2 million.

Total interest expense, interest income and other income (expense), net

Interest expense relates primarily to our line of credit facility and finance lease liabilities.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned on our money market accounts.

Changes in interest expense related to our revolving loan's interest rate variability and timing of our outstanding loan balance.

Interest expense for the nine months ended October 2, 2022 compared to the same period in the previous year decreased $1 thousand, which reflected a $27 thousand decrease in interest expense on our revolving line of credit loan, partially offset by increased interest expense from finance lease liabilities. Interest income and other expense, net, for the nine months ended October 2, 2022 compared to the same period in the previous year, decreased $17 thousand, primarily due to a reduction in foreign exchange losses over the previous year.

Total interest expense and interest income and other income (expense), net, for the nine months ended October 3, 2021 was $1 million which included a gain on forgiveness of debt relates to the gain related to the forgiveness of the PPP loan of $1.2 million.

Provision for Income Taxes

The table below sets forth the changes in provision for income taxes for the six months ended July 3, 2022, compared to the six months ended July 4, 2021 (in thousands, except percentage data):

Six Months Ended

The table below sets forth the changes in provision for income taxes for the nine months ended October 2, 2022, compared to the nine months ended October 3, 2021 (in thousands, except percentage data):

Nine Months Ended

Provision for income taxes

The majority of the income tax expense for the six months ended July 3, 2022 and July 4, 2021 relates to our foreign subsidiaries, which are cost-plus entities.

Included in the provision for the six months 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 nine months ended October 2, 2022 and October 3, 2021 relates to our foreign subsidiaries, which are cost-plus entities.

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

Liquidity and Capital Resources 

We have financed our operations and capital investments through public and private offerings of our common stock, finance and operating leases, and borrowing under a revolving line of credit and cash flows used in operations, partially offset by cash used in operations.

In addition to the Company's cash, cash equivalents and restricted cash of $18.5 million, as of July 3, 2022 other sources of liquidity included a $15.0 million drawn down from our revolving line of credit ("Revolving Facility") with Heritage Bank of Commerce (“Heritage Bank”), and $1.6 million in net proceeds from the Company's sale of common stock, of which $1.5 million represented a registered direct offering in February 2022.

On February 9, 2022, the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 310,000 shares of common stock, par value $0.001 in a registered direct offering.

These share placements resulted in net cash proceeds of approximately $1.5 million.

Issuance costs related to this offering were negligible.

The purchase price for each share of common stock in this placement was $4.78.

The Company currently intends to use the net proceeds from the financing for working capital, the development of next generation eFPGA-based products, including AI and open-source hardware or software, and general corporate purposes

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of July 3, 2022.

As of July 3, 2022, we had $15.0 million of outstanding on the Revolving Facility with an interest rate of 5.25%.

We have financed our operations and capital investments through public and private offerings of our common stock, finance and operating leases, and borrowings under a revolving line of credit and cash flows used in operations, partially offset by cash used in operations.

In addition to the Company's cash, cash equivalents and restricted cash of $20.0 million, as of October 2, 2022, other sources of liquidity included a $45.0 million drawn down from our revolving line of credit ("Revolving Facility") with Heritage Bank of Commerce (“Heritage Bank”), and $4.8 million in net proceeds from the Company's sale of common stock, of which $4.7 million represented the net proceeds from registered direct offerings.

On September 14, 2022 and February 9, 2022, the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 487,279 and 310,000 shares of common stock, respectively, par value $0.001, in registered direct offerings, resulting in net cash proceeds of approximately $3.2 million and $1.5 million, respectively.

Issuance costs related to September 14, 2022 and the February 9, 2022 offering were immaterial.

The purchase price for each share of common stock in the September 14, 2022 and in the February 9, 2022 placements were $6.57 and $4.78, respectively.

The Company currently intends to use the net proceeds from financings for working capital, the development of next generation eFPGA-based products, including AI and open source hardware or software, and general corporate purposes, and may also use a portion of the net proceeds to acquire and/or license technologies and acquire and/or invest in businesses when the opportunity arises;

however, the Company currently has no commitments or agreements and is not involved in any negotiations with respect to any such transactions. 

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of October 2, 2022.

As of October 2, 2022, we had $15.0 million of outstanding on the Revolving Facility with an interest rate of 6.75%.

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

24 unchanged sentences

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

As of July 3, 2022, most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

As of July 3, 2022, our interest-bearing debt consisted of $0.5 million outstanding under finance leases and $15.0 million outstanding under our Revolving Facility. See Note 5, Debt Obligations, to the unaudited condensed consolidated financial statements for more details.

Cash balances held at our foreign subsidiarie s was approximately $0.1 million and $0.4 million  as of July 3, 2022 and January 2, 2022, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

As of October 2, 2022, most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

As of October 2, 2022, our interest-bearing debt consisted of $0.4 million outstanding under finance leases and $15.0 million outstanding under our Revolving Facility. See Note 5, Debt Obligations, to the unaudited condensed consolidated financial statements for more details.

Cash balances held at our foreign subsidiarie s was approximately $0.2 million and $0.4 million  as of October 2, 2022 and January 2, 2022, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

We do not expect such reinvestment to affect our liquidity and capital resources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy.

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

Six Months Ended

Nine Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net cash used in operating activities

For the six months ended July 3, 2022, net cash used in operating activities was $2.1 million, which was primarily due to the net loss of $1.7 million, adjusted for net non-cash charges of $1.2 million, which included $0.9 million of stock-based compensation, depreciation and amortization expenses of $0.3 million, an inventory write-downs of $54 thousand, partially offset by a gain on disposal of equipment of $76 thousand.

Cash outflows from changes in operating assets and liabilities were approximately $1.5 million and were primarily due to an increases in accounts receivable, reflecting the increase in revenues during the period, a decrease in deferred revenue, and an increase in inventory.

This was partially offset by an increase in trade payables, which are subject to variability of the timing of payments.

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 thousand including the gain recognized from the forgiveness of the PPP loan of $1.2 million.

Other non-cash charges consisted primarily of $0.6 million of stock-based compensation, depreciation and amortization expenses of $0.3 million, and inventory write-downs of $0.2 million.

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 nine months ended October 2, 2022, net cash used in operating activities was $3.4 million, which was primarily due to the net loss of $3 million and a $27 thousand loss on the disposal of equipment, adjusted for net non-cash charges of $1.9 million, which included $1.3 million of stock-based compensation, depreciation and amortization expenses of $0.5 million, and an inventory write-downs of $72 thousand. Cash outflows from changes in operating assets and liabilities were approximately $2.3 million and were primarily due to an increase in accounts receivable, reflecting an increase in revenues during the period, increases in inventory and other assets and a decrease in deferred revenue, partially offset by an increase in trade payables, which are subject to variability of the timing of payments.

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.

Cash inflows from changes in operating assets and liabilities were approximately $1.0 million, primarily due to a decrease in inventory, and increases in trade payables 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 third quarter.

Net cash used in investing activities

For the six months ended July 3, 2022, cash used in investing activities was $0.4 million, which was primarily attributable to the capitalized internal-use software and capital expenditures relating to licensed software and computer equipment.

For the six months ended July 4, 2021, cash used in investing activities was $0.4 million, which was primarily attributable to the capitalized internal-use software and capital expenditure relating to leasehold improvements and computer equipment.

Net cash provided by (used in) financing activities

For the nine months ended October 2, 2022, and October 3, 2021 cash used in investing activities was $0.6 million, which was primarily attributable to the capitalized internal-use software and capital expenditures relating to licensed software and computer equipment.

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 3, 2022, cash provided by financing activities was $1.4 million, which was primarily derived from the net proceeds of $1.6 million from the stock issuances. We continue to use and repay our revolving line of credit as our cash needs require.

For the six months ended July 4, 2021 cash used in financing activities was $0.5 million and was primarily attributable to taxes paid relating to stock-based compensation equity awards.

For the nine months ended October 2, 2022, cash provided by financing activities was $4.5 million, which was primarily derived from the net proceeds of $4.8 million from the stock issuances, partially offset by finance lease obligation payments. We continue to use and repay our revolving line of credit as our cash needs require.

For the nine months ended October 3, 2021, cash provided by financing activities was $0.5 million and was primarily derived from the net proceeds of $1.0 million from the stock issuances, partially offset by taxes paid relating to stock-based compensation equity awards.

Financial Information (continued)

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What changed 10-Q

Item 2. Management’s Discussion and Analysis