QUICKLOGIC Corp 10-Q

Item 1. Financial Statements   QUICKLOGIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value amount)       October 2,     January 2,       2022     2022   ASSETS                 Current assets:                 Cash, cash equivalents and restricted cash   $ 20,036     $ 19,605   Accounts receivable, net of allowance for doubtful accounts of $ 60 and $ 62 , respectively (1)     3,905       1,294   Inventories     2,201       2,078   Other current assets     1,357       1,181   Total current assets     27,499       24,158   Property and equipment, net     514       499   Capitalized internal-use software, net     1,451       1,241   Right of use assets     944       1,529   Intangible assets     672       752   Goodwill     185       185   Investment in privately-held non-affiliate     300       300   Other assets     191       309   TOTAL ASSETS   $ 31,756     $ 28,973                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Revolving line of credit   $ 15,000     $ 15,000   Trade payables     1,602       934   Accrued liabilities     1,513       1,665   Deferred revenue     216       455   Lease liabilities, current     646       819   Total current liabilities     18,977       18,873   Long-term liabilities:                 Lease liabilities, non-current     346       744   Other liabilities, non-current     125       147   Total liabilities     19,448       19,764   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; 13,110 and 11,863 shares issued and outstanding as of October 2, 2022 and January 2, 2022, respectively     13       12   Additional paid-in capital     316,355       310,222   Accumulated deficit     ( 304,060 )     ( 301,025 ) Total stockholders' equity     12,308       9,209   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 31,756     $ 28,973                     (1) Accounts receivables includes contract assets of $1,459 and $243, respectively                               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     Nine Months Ended       October 2,     October 3,     October 2,     October 3,       2022     2021     2022     2021   Revenue   $ 3,459     $ 3,858     $ 12,096     $ 8,980   Cost of revenue     1,781       1,126       5,413       3,638   Gross profit     1,678       2,732       6,683       5,342   Operating expenses:                                 Research and development     1,018       1,807       3,541       5,346   Selling, general and administrative     1,900       2,186       6,018       5,927   Total operating expenses     2,918       3,993       9,559       11,273   Loss from operations     ( 1,240 )     ( 1,261 )     ( 2,876 )     ( 5,931 ) Interest expense     ( 44 )     ( 35 )     ( 98 )     ( 99 ) Gain on forgiveness of debt     —       —       —       1,192   Interest income and other expense, net     ( 60 )     ( 7 )     ( 42 )     ( 59 ) Loss before income taxes     ( 1,344 )     ( 1,303 )     ( 3,016 )     ( 4,897 ) Provision for (benefit from) income taxes     3       ( 21 )     19       136   Net loss   $ ( 1,347 )   $ ( 1,282 )   $ ( 3,035 )   $ ( 5,033 ) Net loss per share:                                 Basic and diluted   $ ( 0.11 )   $ ( 0.11 )   $ ( 0.24 )   $ ( 0.44 ) Weighted average shares outstanding:                                 Basic and diluted     12,664       11,573       12,401       11,441     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)       Nine Months Ended       October 2,     October 3,       2022     2021   Cash flows from operating activities:                 Net loss   $ ( 3,035 )   $ ( 5,033 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     516       471   Stock-based compensation     1,347       1,455   Write-down of inventories and reclassifications     72       225   Gain on disposal of equipment     ( 27 )     ( 5 ) Gain on forgiveness of debt     —       ( 1,192 ) Bad debt expense     —       62   Changes in operating assets and liabilities:                 Accounts receivable     ( 2,611 )     ( 386 ) Inventories     ( 195 )     281   Other assets     ( 158 )     ( 90 ) Trade payables     981       699   Accrued liabilities     ( 52 )     251   Deferred revenue     ( 239 )     42   Other long-term liabilities     ( 22 )     167   Net cash used in operating activities     ( 3,423 )     ( 3,053 ) Cash flows from investing activities:                 Capital expenditures for property and equipment     ( 139 )     ( 178 ) Capitalized internal-use software     ( 495 )     ( 402 ) Net cash used in investing activities     ( 634 )     ( 580 ) Cash flows from financing activities:                 Payment of finance lease obligations     ( 299 )     ( 231 ) Proceeds from line of credit     45,000       45,000   Repayment of line of credit     ( 45,000 )     ( 45,000 ) Proceeds from issuance of common stock, net     4,787       1,182   Taxes paid related to settlement of equity awards     —       ( 485 ) Net cash provided by financing activities     4,488       466   Net increase (decrease) in cash, cash equivalents and restricted cash     431       ( 3,167 ) Cash, cash equivalents and restricted cash at beginning of period     19,605       22,748   Cash, cash equivalents and restricted cash at end of period   $ 20,036     $ 19,581     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 2, 2022     11,863     $ 12     $ 310,222     $ ( 301,025 )   $ 9,209   Issuance of common stock under public stock offering, net of stock issuance cost     310       —       1,482       —       1,482   Common stock issued under stock plans and employee stock purchase plans     189       —       —       —       —   Stock-based compensation     —       —       383       —       383   Net loss     —       —       —       ( 1,164 )     ( 1,164 ) Balance at April 3, 2022     12,362       12       312,087       ( 302,189 )     9,910   Common stock issued under stock plans and employee stock purchase plan     66       —       122       —       122   Stock-based compensation     —       —       477       —       477   Net loss     —       —       —       ( 524 )     ( 524 ) Balance at July 3, 2022     12,428       12       312,686       ( 302,713 )     9,985   Common stock issued under stock plans and employee stock purchase plan     195       —       —       —       —   Common stock offering, net of issuance costs     487       1       3,182       —       3,183   Stock-based compensation     —       —       487       —       487   Net loss     —       —       —       ( 1,347 )     ( 1,347 ) Balance at October 2, 2022     13,110     $ 13     $ 316,355     $ ( 304,060 )   $ 12,308                           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 plans     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   Common stock issued under stock plans and employee stock purchase plan     79       —       —       —       —   Common stock offering, net of issuance costs of $45     199       —       1,034       —       1,034   Stock-based compensation     —       —       885       —       885   Net loss     —       —       —       ( 1,282 )     ( 1,282 ) Balance at October 3, 2021     11,790     $ 12     $ 309,036     $ ( 299,442 )   $ 9,606     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”), military, aerospace and defense products. 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. 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 2, 2022, which was filed with the Securities and Exchange Commission (“SEC”) on March 22, 2022. Operating results for the three and nine months ended October 2, 2022 are not necessarily indicative of the results that may be expected for the full fiscal 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 third fiscal quarter for 2022 and 2021 ended on October 2, 2022  and October 3, 2021 , respectively.   COVID- 19 - Impact on Business    There have been  no  material changes due to the impact of the Covid- 19  pandemic on our business from that disclosed in our most recently filed Annual Report. Our most recent Annual Report on Form  10 -K for the year ended  January 2, 2022  as filed with the SEC on  March 22, 2022  provides additional information about our business and operations.   Liquidity    The Company has financed its 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 with Heritage Bank (the "Revolving Facility"), partially offset by cash used in operations. In addition to the Company's $ 20.0  million of cash, cash equivalents and restricted cash, as of  October 2, 2022 other sources of liquidity included $ 45 million drawn down from the Revolving Facility and $ 4.8 million in net proceeds from the Company's sale of common stock in  nine months ended October 2, 2022 .   The Company was in compliance with all the Heritage Bank Revolving Facility loan covenants as of  October 2, 2022 . As of October 2, 2022 , the Company had $ 15.0  million outstanding on the Revolving Facility with an interest rate of 6.75 %.   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.    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, 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, market acceptance of existing and new products including solutions based on its eFPGA IP, ArcticLink ® , and PolarPro ® platforms, eFPGA, EOS S3 SoC, Quick AI solution, and SensiML software fluctuations in revenue as a result of product end-of-life, fluctuations in revenue as a result of the stage in the product life cycle of its customers’ products, costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchase commitments; customer credit terms; the amount and timing of research development expenditures; the timing of new product introductions; production volumes; 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 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, together with financial resources from its Revolving Facility, assuming renewal of the Revolving Facility or the Company entering into a new debt agreement with an alternative lender prior to the expiration of the Revolving Facility in December 2023,  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.    7 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 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, fair value measurements, 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. For additional information, please refer to the Company's most recent annual report which was filed with the SEC on  March 22, 2022.   Concentration of Risk   The Company's accounts receivable is 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  9,  Information Concerning Product Lines, Geographic Information and Revenue Concentration, for information regarding concentrations associated with accounts receivable.     Note  2 — Significant Accounting Policies   During the  three and nine months ended October 2, 2022  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 2, 2022 . For a discussion of the significant accounting policies, please see the Annual Report on Form  10 -K for the fiscal year ended  January 2, 2022, filed with the SEC on  March  22,   2022.   Recent Accounting Standards Adopted   In May 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021 - 04, Issuer ’ s Accounting for Certain Modifications of Exchanges of Freestanding Equity-Classified Written Call Options to clarify the accounting for modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange. This ASU became effective for the Company on January 3, 2022 and did not have a material impact on the Company's consolidated financial statements.   New Accounting Standards Not Yet Adopted   In June 2022, the FASB issued ASU No. 2022 - 03, Fair Value Measurement (Topic 820 ) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify the measurement of the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and requires disclosures related to these types of equity securities. ASU No. 2022 - 03 becomes effective for the Company on January 2, 2023 and is not expected to have an impact on the Company's consolidated financial statements or disclosures.   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. ASU No. 2020 - 06 becomes effective for the Company on January 1, 2024. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.  The ASU is not expected to have an impact on the Company's financial statements.     Note  3 — Net Loss Per Share   Basic loss per share is computed by dividing net loss 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 nine months ended October 2, 2022   and  October 3, 2021 , 398 thousand and 691 thousand shares of common stoc k, 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 thousand shares were issued in connection with May 29, 2018, stock offering were not included in the diluted loss per share calculation of the periods presented as they were also considered anti-dilutive due to the net loss the Company experienced during these periods. The warrants are exercisable through May 29, 2023 at a price of $ 19.32 per share.       8 Table of Contents     Note  4 — Balance Sheet Components   The following table provides details relating to certain balance sheet line items as of October 2, 2022 , and January 2, 2022 (in thousands):       October 2,     January 2,       2022     2022   Accounts receivable:                 Trade account receivables   $ 2,506     $ 1,113   Less: Allowance for doubtful accounts     ( 60 )     ( 62 ) Trade account receivables, net     2,446       1,051   Contract assets     1,459       243       $ 3,905     $ 1,294   Inventories:                 Work-in-process   $ 1,455     $ 1,397   Finished goods     746       681       $ 2,201     $ 2,078   Other current assets:                 Prepaid taxes, royalties, and other prepaid expenses   $ 936     $ 921   Other     421       260       $ 1,357     $ 1,181   Property and equipment, net:                 Equipment   $ 10,173     $ 10,341   Software     1,803       1,878   Furniture and fixtures     21       32   Leasehold improvements     466       466         12,463       12,717   Less: Accumulated depreciation and amortization     ( 11,949 )     ( 12,218 )     $ 514     $ 499   Capitalized internal-use software, net:                 Capitalized internal-use software   $ 2,194     $ 1,699   Less: Accumulated amortization     ( 743 )     ( 458 )     $ 1,451     $ 1,241   Accrued liabilities:                 Accrued compensation   $ 679     $ 740   Accrued employee benefits     121       111   Accrued payroll tax     157       102   Other     556       712       $ 1,513     $ 1,665       Note 5  — Debt Obligations   Revolving Line of Credit   As of October 2, 2022 and January 2, 2022 , the Company had $ 15.0 million of revolving debt outstanding with an interest rate of 6.75 % and 3.75 % per annum, respectively. Heritage 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 agreement. The Company was in compliance with all loan covenants under the agreement as of the end of the current reporting period. Interest expense recognized were $ 11 tho usand and $ 50 thousand for th e   three and nine months ended October 2, 2022 , r espectively, an d $ 22 thousand and $ 68 thou sand for the  three and nine months ended October 3, 2021 , respectively.   On  April 4, 2022,  the Company entered into a Fifth Amendment (the "Amendment") to the  December 21, 2018  Amended and Restated Loan and Security Agreement (as amended, the "Agreement") with Heritage Bank. The purpose of the Fifth Amendment was primarily to clarify certain terms of the Agreement as follows: (i) added a definition of "Remaining Months Liquidity" to be defined as the Borrower's unrestricted cash maintained at Bank (including cash in the Pledged Account) minus the outstanding principal amount of the Advances, divided by the absolute value of the average trailing  three  ( 3 ) month EBITDA; and (ii) revised the minimum cash and remaining months liquidity financial covenants. The minimum cash covenant was revised such that the balance of unrestricted cash in the pledged account shall at all times exceed the principal amount of all advances owed that are outstanding at any time. The remaining months liquidity covenant specified that it should  not  be less than  nine  months. The Company does  not  believe that the clarifications of the terms in the Amendment will have a material impact on the Company's liquidity or utilization of the revolving loan under the Agreement.   9 Table of Contents     Note 6  — Leases   The Company entered into operating leases for office space for its headquarters. The Company has elected the practical expedient to apply to recognition requirements to short-term leases for its domestic and foreign subsidiaries and for its sales offices and recognized rent payments on short-term leases on a straight-line basis over the lease term. 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  October 2, 2022  and  January 2, 2022 , the balance of right-of-use assets was approximately $ 0.9 million and $ 1.5 million, respectively, and the lease liability was approximately $ 1 million and $ 1.6 million, respectively, for operating and finance leases for the headquarters in San Jose and for the operating subsidiaries of SensiML in Oregon and the Company's subsidiary in India. Total rent expense was $ 0.1 million and $ 0.3 million for the  three and nine months ended October 2, 2022  and October 3, 2021 , respectively.   The following table provides the expenses related to operating and finance leases (in thousands):       Three Months Ended     Nine Months Ended       October 2, 2022     October 3, 2021     October 2, 2022     October 3, 2021   Operating lease costs:                                 Fixed   $ 100     $ 101     $ 300     $ 306   Short term     4       4       16       13   Total   $ 104     $ 105     $ 316     $ 319   Finance lease costs:                                 Amortization of ROU asset   $ 109     $ 87     $ 328     $ 591   Interest     5       6       18       57   Total   $ 114     $ 93     $ 346     $ 648     The following table provides the details of supplemental cash flow information. 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  nine months ended October 2, 2022  and the  nine months ended October 3, 2021  were $ 0 and $ 0.4 million, respectively (in thousands):       Nine Months Ended       October 2, 2022     October 3, 2021   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows used for operating leases   $ 306     $ 100   Operating cash flows used for finance leases     18       9   Financing cash flows used for finance leases     299       231   Total   $ 623     $ 340                     Right-of-use assets obtained in exchange for finance lease obligations   $ —     $ 397     The following table provides the details of right-of-use assets and lease liabilities as of October 2, 2022 and January 2, 2022 (in thousands):       October 2, 2022     January 2, 2022   Right-of-use assets:                 Operating leases   $ 552     $ 809   Finance leases     392       720   Total right-of-use assets   $ 944     $ 1,529   Lease liabilities:                 Operating leases   $ 601     $ 873   Finance leases     391       690   Total lease liabilities   $ 992     $ 1,563       The following table provided the details of future lease payments for operating and finance leases as of October 2, 2022 (in thousands):       Operating Leases     Finance Leases   2022 (remaining period)   $ 103     $ 159   2023     421       141   2024     106       105   Total lease payments     630       405   Less: Interest     ( 29 )     ( 14 ) Present value of lease liabilities   $ 601     $ 391       10 Table of Contents     The following table provides the details of lease terms and discount rates as of October 2, 2022 and January 2, 2022 :       October 2, 2022     January 2, 2022   Right-of-use assets:                 Weighted-average remaining lease term (years)                 Operating leases     1.50       2.25   Finance leases     1.77       2.15   Weighted-average discount rates:                 Operating leases     6.00 %     6.00 % Finance leases     4.29 %     4.57 %     Note   7  —  Capital Stock   Employee Stock Plan   On May 10, 2022  at the Company's Annual Meeting, Company stockholders approved increasing the reservation of the additional shares under the 2019 Stock Plan, as amended on May 10, 2022.  The approval of an additional 900 thousand shares of common stock increased the total number of available shares to 1.4 million under the 2019 Stock Plan, as amended. The number of shares available for future awards as of the date of the Annual Meeting are the sum of ( 1 ) 900 thousand, ( 2 ) the number of shares available for future awards under the plan immediately before such approval which were 522 thousand shares and ( 3 ) any shares subject to outstanding awards under the 2019 Plan or the 2009 Plan, that are terminated, canceled, surrendered, or forfeited as of May 10, 2022.  On May 19, 2022, the Company filed a Registration Statement on Form S- 8  with the SEC to register an additional  900 thousand shares of its common stock that may be issued under the Company’s 2019 Stock Plan, as amended.     Registration Statement   On August 17, 2022, the Company filed a Registration Statement on Form S- 3 with the SEC, under which we may sell, from time-to-time common stock, preferred stock, depositary shares, warrants, debt securities, and units, individually or as units comprised of one or more of the other securities or a combination thereof. The Company's registration statement became effective on August 26, 2022.     Note 8  — Stock-Based Compensation   Stock-based compensation expense included in the Company's consolidated financial statements for the three and  nine months ended October 2, 2022  and October 3, 2021  was as follows (in thousands):       Three Months Ended     Nine Months Ended       October 2, 2022     October 3, 2021     October 2, 2022     October 3, 2021   Cost of revenue   $ 44     $ 78     $ 217     $ 132   Research and development     149       282       325       521   Selling, general and administrative     294       525       805       802   Total   $ 487     $ 885     $ 1,347     $ 1,455     There was  no  stock -based compensation expense reversal related to the cancellation of certain unvested performance-based RSUs for the  three and nine months ended October 2, 2022  and  October 3, 2021 .   No stock-based compensation was capitalized during any period presented above.   No stock options were granted during the three and nine months ended October 2, 2022  and  October 3, 2021 . Stock-Based Compensation Award Activity The following table summarizes the activity in the shares available for grant under the 2019 Plan during the  nine months ended October 2, 2022  (in thousands):     Shares Available for Grants   Balance at January 2, 2022   594   Authorized   912   RSUs granted   ( 159 ) RSUs forfeited or expired   22   Balance at October 2, 2022   1,369       11 Table of Contents   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  nine months ended October 2, 2022 :               Weighted     Weighted                       Average     Average     Aggregate       Number of     Exercise     Remaining     Intrinsic       Shares     Price     Term     Value       (in thousands)             (in years)     (in thousands)   Balance outstanding at January 2, 2022     93     $ 27.49                   Expired     ( 13 )   $ 42.90                   Balance outstanding at October 2, 2022 *     80     $ 24.95       2.85     $ —   *Exercisable and fully vested.                                                                   No stock options were granted, exercised, forfeited, or expired during the  nine months ended October 2, 2022 and October 3, 2021 .   Total stock-based compensation related to stock options was $ 0 during the  nine months ended October 2, 2022 and October 3, 2021 .    As of October 2, 2022 , 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 $ 0.5 million and $ 1.3 million for the  three and nine months ended October 2, 2022 , respectively, and approximately $ 0.9 million and $ 1.4 million for the  three and nine months ended October 3, 2021 , respectively.   As of  October 2, 2022 and October 3, 2021 , there was approximately $ 1.1 million  and $ 2.1 million , respectively, in unrecognized compensation expense related to RSUs. The remaining unrecognized stock-based compensation expense as of October 2, 2022  is expected to be recorded over a weighted average period of 1.51  years.   A summary of activity for the Company's RSUs and PRSUs for the  nine months ended October 2, 2022  is as follows:     RSUs & PRSUs Outstanding         Weighted         Average   Number of   Grant Date   Shares   Fair Value   (in thousands)       Nonvested at January 2, 2022   568   $ 5.86 Granted   159     6.11 Vested   ( 423 )   5.98 Forfeited   ( 22 )   5.09 Nonvested at October 2, 2022   282   $ 5.92   Employee Stock Purchase Plan   Total stock-based compensation related to the Company's Employee Stock Purchase Plan was approximately $ 20 thousand and $ 54 thousand for the  three and nine months ended October 2, 2022 , respectively, and $ 31 thousand and $ 97 thousand for the  three and nine months ended October 3, 2021 , respectively.     Note 9 — Income Taxes   The Company recorded a net income tax expense of $ 3 thousand and $ 19 thousand for the  three and nine months ended October 2, 2022 , respectively, and a net income tax benefit of $ 21 thousand and a net income tax expense of $ 0.1 million for the  three and nine months ended October 3, 2021 , respectively. A majority of the income tax expense for the three months ended  October 2, 2022  was related to the Company's foreign subsidiaries, which are cost-plus entities, and state minimum income taxes. A majority of the income tax expense for the  nine months ended October 2, 2022  was related to income tax expense of the Company's foreign subsidiaries and state minimum income taxes, partially offset by tax benefits from foreign income tax returns related to the Company's foreign subsidiaries. The difference between the estimated annual effective income tax benefit rate of 1.2 % and the 21 % U.S. federal statutory expense rate reflects state income taxes, foreign income taxes, the effect of certain permanent differences, and a full valuation allowance against net deferred tax assets.   The valuation allowance primarily resulted from  not  having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of certain deferred tax assets. Based on the estimated reversal patterns of the Company’s deferred tax assets and liabilities, it is more likely than  not  that the Company will  not  realize the federal, state, and certain foreign deferred tax assets generated as there is insufficient projected income from reversals of deferred tax liabilities. Accordingly, the Company continues to maintain a full valuation allowance against all of U.S. and certain foreign net deferred tax assets as of October 2, 2022 .   12 Table of Contents   The Company had no unrecognized tax benefits as of October 2, 2022  and January 2, 2022  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.     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. We derive revenue from sales to customers located in North America, Europe and Asia Pacific.   The following is a breakdown of revenue by product family (in thousands):       Three Months Ended     Nine Months Ended       October 2, 2022     October 3, 2021     October 2, 2022     October 3, 2021   New products   $ 2,252     $ 2,758     $ 8,833     $ 5,095   Mature products     1,207       1,100       3,263       3,885   Total revenue   $ 3,459     $ 3,858     $ 12,096     $ 8,980     New products revenue consists of revenues from the sale of hardware products manufactured on  180  nanometer or smaller semiconductor processes, eFPGA intellectual property licenses, professional services, and QuickAI and SensiML AI software as a service (“SaaS”) revenue. Mature products include all products produced on semiconductor processes larger than  180  nanometer.   The following is a breakdown of new product revenue (in thousands):       Three Months Ended     Nine Months Ended       October 2, 2022     October 3, 2021     October 2, 2022     October 3, 2021   Hardware products   $ 308     $ 1,720     $ 3,607     $ 3,794   eFPGA IP     1,700       1,000       4,911       1,150   SaaS & Other     244       38       315       151   New products revenue   $ 2,252     $ 2,758     $ 8,833     $ 5,095     eFPGA IP revenue is comprised primarily of eFGPA intellectual property license revenue and eFGPA-related professional services revenue, eFPGA IP revenue was $ 1.7 million and $ 4.9 million for the  three and nine months ended October 2, 2022 , respectively, and $ 1 million and $ 1.2 million for the  three and nine months ended October 3, 2021 , respectively. SaaS & Other revenue is comprised primarily of software as a service revenue and software-related professional services revenue. SaaS & Other revenue was $ 0.2 million and $ 0.3 million for the three and nine months ended October 2, 2022 , respectively, and $ 38 thousand and $ 0.2 million for the  three and nine months ended October 3, 2021 , respectively. Contract liabilities related to professional services revenue of $ 0 and $ 0.3  million and were included in deferred revenue on the consolidated balance sheets as of October 2, 2022 and  January 2, 2022, respectively.    The tables below present disaggregated revenues by geographical location. Revenue attributed to geographic location is based on the destination of the product or service. Substantially all revenues in North America were in the United States. Revenue in the United States was $ 2.3 million, or 67 % of total revenue, and $ 7.8 million, or 64 % of total revenue for the  three and nine months ended October 2, 2022 , respectively, and $ 2.6 million, or 67 % of total revenue, and $ 4.4 million, or 49 % of total revenue for the  three and nine months ended October 3, 2021 , respectively.    The following is a breakdown of revenue by destination (in thousands):          Three Months Ended     Nine Months Ended       October 2, 2022     October 3, 2021     October 2, 2022     October 3, 2021   Asia Pacific   $ 783     $ 763     $ 3,114     $ 2,440   North America     2,389       2,605       7,904       4,429   Europe     287       490       1,078       2,111   Total revenue   $ 3,459     $ 3,858     $ 12,096     $ 8,980       13 Table of Contents   The following distributors and customers accounted for 10% or more of the Company's revenue for the periods presented:       Three Months Ended     Nine Months Ended       October 2,     October 3,     October 2,     October 3,       2022     2021     2022     2021   Distributor "A"     20 %     12 %     15 %     13 % Distributor "B"     *       17 %     16 %     24 % Distributor "C"     10 %     *       *       12 % Customer "A"     30 %     *       *       *   Customer "B"     13 %     *       *       *   Customer "C"     12 %     25 %     20 %     15 % Customer "D"     *       17 %     *       24 % Customer "F"     *       25 %     16 %     11 % Customer "H"     *       *       *       14 % * Represents less than 10% of revenue as of the dates presented.   The following distributors and customers accounted for 10% or more of the Company's accounts receivable as of the dates presented:     October 2,   January 2,     2022   2022   Distributor "A"   *     42 % Distributor "B"   *     22 % Distributor "C"   *     17 % Customer "A"   28 %   *   Customer "C"   18 %   *   Customer "F"   30 %   10 % * 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 October 2, 2022 , the Company had $ 0.5 million of outstanding commitments for the purchase of wafer 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 October 2, 2022 , total outstanding purchase obligations for other goods and services were $ 0.8 million 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.     14 Table of Contents