What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-15 compared with 2023-08-16 · 125 added, 94 removed, 221 unchanged (50% of the section changed)

56 unchanged sentences

all of which are also included in the new product revenue category.

We currently have a total of six patent applications pending. 

We currently have a total of five patent applications pending. 

Our semiconductor solutions typically fall into one of four categories:

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We also collaborate with sensor and voice/audio software companies, helping them optimize their software technology on our silicon platforms in terms of performance, power consumption and user experience.

Our eFPGA IP are currently developed on 250nm, 130nm, 90nm, 65nm, 40nm, 28nm and 22nm process nodes.

Our eFPGA IP are currently developed on 12nm, 16nm, 22nm, 28nm, 40nm, 65nm, 90nm, 130nm, and 250nm process nodes.

The licensable IP is generated by an automated compiler tool, called Australis TM , that enables our engineers to create an eFPGA IP for our licensees that they can then integrate into their SoC without significant involvement by QuickLogic.

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Therefore, our revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our new solution platforms, IP, and software.

We are expecting revenue growth from EOS S3, SensiML AI SaaS, and eFPGA IP licensing in fiscal year 2023 .

We are expecting revenue growth primarily from eFPGA IP licensing and professional services in Q4 2023 and FY2024.

We continue to seek to expand our revenue, including pursuing high-volume sales opportunities in our target market segments, by providing solutions incorporating IP, or industry standard interfaces.

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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 2023, we generated total revenue of 

$2.9 million , a decrease  of 

During the third quarter of 2023, we generated total revenue of 

$6.7 million , an increase  of 

128%  compared to the prior quarter, and 

a decrease  of 

36%  compared to the same quarter last year. Our new product revenue in the second quarter was 

an increase  of 

93%  compared to the same quarter last year. Our new product revenue in the third quarter was 

$6.1 million , 

a decrease  of 

an increase  of 

173%  from the prior quarter and 

a decrease  of 

29%  from the second quarter of 

decrease  in new product revenue from the prior quarter was primarily driven by a $953 thousand reduction in eFPGA IP revenue, partially offset by an increase of $204 thousand in hardware product revenue.

Our mature product revenue was $0.7 million  in the second quarter of 

an increase  of 

171%  from the third quarter of 

increase  in new product revenue from the prior quarter was primarily driven by a $3.97 million increase in eFPGA professional services revenue, partially offset by a decrease of $119 thousand in hardware product revenue.

Our mature product revenue was $0.6 million  in the third quarter of 

2023 , a decrease  of 

17%  compared to the prior quarter, and a decrease  of 

51%  compared to the second quarter of 2022 .

53%  compared to the third quarter of 2022 .

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 eFPGA  IP l icensin g and SensiML initiatives.

Overall, we reported a net loss of $2.3 million  for the second quarter of 2023 , 

an increase of 

85%  compared with the prior quarter, and 

an increase  of 

333%  compared with the second quarter of 2022 .

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

Overall, we reported net income of $1.2 million  for the third quarter of 2023 , as compared to a net loss of $2.3 million in the prior quarter and a net loss of $1.3 million for the third quarter of 2022.

We have experienced net losses in recent years and expect losses to continue through at least fiscal year 2023 as we continue to develop new products, applications, and technologies.

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Our most recent Annual Report on Form 10-K for the year ended January 1, 2023 as filed with the SEC on March 28, 2023, provides additional information about our business and operations.

As of July 2, 2023, there have not been any material developments concerning the Cyber-Incident previously reported on our Form 10-K for the year ended January 1, 2023, which was filed with the Securities and Exchange Commission ("SEC") on March 28, 2023.

As of October 1, 2023, there have not been any material developments concerning the Cyber-Incident previously reported on our Form 10-K for the year ended January 1, 2023, which was filed with the Securities and Exchange Commission ("SEC") on March 28, 2023.

The Company's investigation is complete and there was no impact on the Company's financial systems.

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See Note 1, The Company and Basis of Presentation.

As of July 2, 2023, the Company had one operating lease with a remaining lease term of 0.75 years.

As of October 1, 2023, the Company had one operating lease with a remaining lease term of 0.5 years.

The operating lease relates to the Company's headquarters in San Jose, CA.

The Company fully intends to renew its lease upon its expiration in Q1'24 and continue at its current location.

On October 24, 2023, the Company renewed its lease at its current location for an additional three years.

The amended lease term will expire on April 14, 2027 with no change in terms.

Critical Accounting Policies and Estimates

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The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

Based on this definition, our critical policies include revenue recognition, and determination of the Stand-Alone Selling Price ("SSP") for certain distinct performance obligations (such as for IP licensing and professional services contracts), and valuation of inventories including identification of excess quantities and product obsolescence.

Based on this definition, our critical policies include revenue recognition, and determination of the Stand-Alone Selling Price ("SSP") for certain distinct performance obligations (such as for IP licensing and professional services contracts), and the assessment of excess, obsolete, and unsaleable inventories.

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 2, 2023, 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 1, 2023, filed with the SEC on March 28, 2023.

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 1, 2023, 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 1, 2023, filed with the SEC on March 28, 2023.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

Cost of revenue

2 unchanged sentences

Selling, general and administrative

Loss from operations

Income (loss) from operations

Interest expense

Interest income and other income (expense), net

Loss before income taxes

Provision for (benefit from) income tax

Three Months Ended July 2, 2023 Compared to Three Months Ended July 3, 2022

The table below sets forth the changes in revenue in the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Three Months Ended October 1, 2023 Compared to Three Months Ended October 2, 2022

The table below sets forth the changes in revenue in the three months ended October 1, 2023 compared to the three months ended October 2, 2022 (in thousands, except percentage data):

Three Months Ended

October 1, 2023

October 2, 2022

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 2023 compared to the second quarter of 2022 decreased $1.6 million.

The decrease resulted primarily from decreases in revenue from devices, partially offset by an increase in professional services eFPGA revenues.

Product revenue for the third quarter of 2023 compared to the third quarter of 2022 increased $3.2 million.

The increase resulted primarily from increases in professional services eFPGA revenues, partially offset by a decrease in revenue from devices.

New Product Revenue

The table below sets forth the changes in new product revenue in the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):  

The table below sets forth the changes in new product revenue in the three months ended October 1, 2023 compared to the three months ended October 2, 2022 (in thousands, except percentage data):  

Three Months Ended

October 1, 2023

October 2, 2022

Hardware products

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Total new product revenue

eFPGA revenue for the three months ended July 2, 2023 was $1.9 million which was primarily comprised of professional services revenue.

eFPGA revenue for the three months ended July 3, 2022 was $1.6 million which was also primarily comprised of professional services revenue.

The table below sets forth the changes in gross profit for the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):

eFPGA IP revenue for the three months ended October 1, 2023 and October 2, 2022 was $5.8 million and $1.7 million, respectively, which were primarily professional services revenue.

The table below sets forth the changes in gross profit for the three months ended October 1, 2023 compared to the three months ended October 2, 2022 (in thousands, except percentage data):

Three Months Ended

October 1, 2023

October 2, 2022

Cost of revenue

In the second quarter of 2023 , gross profit decreased  

In the third quarter of 2023 , gross profit increased  

$3.5 million , or 206% , compared to the same quarter in the prior year.

The decrease in gross profit reflects a 36%  

decrease in revenues offset by a 14% net decrease in cost of revenue.

While there was a decrease in product costs resulting from lower devices volumes, it was slightly offset by an increase in eFPGA IP costs, which were primarily attributable to higher tooling and software costs on revenue projects.

The increase in gross profit reflects a 93%increase in revenues combined with a 14% net decrease in cost of revenue.

While there was a decrease in product costs resulting from lower devices volumes, the timing of certain professional services cost into the fourth quarter of 2023 had a favorable impact on third-quarter 2023 margins.

We expect the impact from the timing of these costs will result in higher costs of revenue in subsequent quarters in 2023 and 2024, with a commensurate decrease in gross margins for those quarters.

Additionally, certain tooling costs for the Company's eFPGA professional services projects were determined to qualify for capitalization.

As a result, the Company capitalized $2.1 million related to tooling to be utilized under its long-term professional services contracts.

The tooling will be depreciated over an estimated useful life of seven years.

The capitalization of this tooling also contributed to a reduced cost of revenues for the current period as compared with prior periods, resulting in a favorable impact on gross profit for the third quarter of 2023.

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 2, 2023, compared to the three months ended July 3, 2022 (in thousands, except percentage data):

The table below sets forth the changes in operating expenses for the three months ended October 1, 2023, compared to the three months ended October 2, 2022 (in thousands, except percentage data):

Three Months Ended

October 1, 2023

October 2, 2022

Total operating expenses

Research and Development

Our R&D expense s 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 $0.3 million  

increase  in R&D expenses in the second quarter of 2023 , as compared to the second quarter of 2022 , was primarily attributable to decreased R&D costs allocated to Cost of Goods Sold related to eFPGA professional services revenue and increases in compensation, inclusive of salary costs, partially offset by a decrease in subcontracting costs.

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 $0.9 million increase in R&D expenses in the third quarter of 2023, as compared to the third quarter of 2022, was attributable to increases in time and effort spent by engineering personnel on internal R&D projects in the current quarter.

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 $0.1 milliondecrease in SG&A expenses in the second quarter of 2023 , as compared to the second quarter of 2022 was primarily attributable to decreases in consulting costs and in accounting and audit expenses.

These were partially offset by increases in compensation costs inclusive of salaries and contract work.

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 Company had a net, immaterial increases in S&GA expenses in the third quarter of 2023, as compared to the third quarter of 2022.

This is primarily attributable to some increases in compensation costs offset with decreases in legal and 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 July 2, 2023, compared to the three months ended July 3, 2022 (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 1, 2023, compared to the three months ended October 2, 2022 (in thousands, except percentage data):

Three Months Ended

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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 in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the second quarter of this year as compared to the same period in the prior year increased approximately $28 thousand which was comprised of a $11 thousand increase in interest expense related to software leases, a $15 thousand increase in interest expense related to our revolving line of credit facility, and a $2 thousand increase in interest expense related to IT hardware financing costs.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the third quarter of this year as compared to the same period in the prior year increased approximately $4 thousand which was comprised of a $10 thousand increase in interest expense related to software leases, a $8 thousand decrease in interest expense related to our revolving line of credit facility, and a $2 thousand increase in interest expense related to IT hardware financing costs.

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

Provision for (Benefit From) Income Taxes

The table below sets forth the changes in the provisions for income taxes in the three months ended July 2, 2023, compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Provision for Income Taxes

The table below sets forth the changes in the provisions for income taxes in the three months ended October 1, 2023, compared to the three months ended October 2, 2022 (in thousands, except percentage data):

Three Months Ended

Provision for (benefit from) income tax

The majority of the income tax expense (benefit) for the three months ended July 2, 2023 and July 3, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

Six Months Ended July 2, 2023 Compared to Six Months Ended July 3, 2022

The table below sets forth the changes in revenue in the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Provision for income taxes

The majority of the income tax expense for the three months ended October 1, 2023 and October 2, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

Nine Months Ended October 1, 2023 Compared to Nine Months Ended October 2, 2022

The table below sets forth the changes in revenue in the nine months ended October 1, 2023 compared to the nine months ended October 2, 2022 (in thousands, except percentage data):

Nine Months Ended

October 1, 2023

October 2, 2022

Mature products

2 unchanged sentences

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

Product revenue for the six months ending July 2, 2023 compared to the six months ending July 3, 2022 decreased $1.6 million.

The decrease resulted primarily from decreases in revenue from devices, partially offset by eFPGA revenues.

Product revenue for the nine months ending October 1, 2023 compared to the nine months ending October 2, 2022 increased $1.6 million.

The increase resulted primarily from increases in eFPGA revenues, partially offset by a decrease in revenue from devices.

New Product Revenue

The table below sets forth the changes in new product revenue in the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (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 1, 2023 compared to the nine months ended October 2, 2022 (in thousands, except percentage data):  

Nine Months Ended

October 1, 2023

October 2, 2022

Hardware products

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Total new product revenue

eFPGA revenue for the six months ended July 2, 2023 was $4.7 million which was comprised of approximately $4.5 million in professional services revenue and $0.2 million in eFPGA intellectual property license revenue.

eFPGA revenue for the six months ended July 3, 2022 was $3.2 million, which was primarily professional services revenue.

The table below sets forth the changes in gross profit for the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

eFPGA revenue for the nine months ended October 1, 2023 was $10.5 million which was comprised of approximately $10.3 million in professional services revenue and $0.2 million in eFPGA intellectual property license revenue.

eFPGA revenue for the nine months ended October 2, 2022 was $4.9 million, which was comprised of approximately $4.8 million in professional services revenue and $0.1 million in eFPGA intellectual property license revenue.

The table below sets forth the changes in gross profit for the nine months ended October 1, 2023 compared to the nine months ended October 2, 2022 (in thousands, except percentage data):

Nine Months Ended

October 1, 2023

October 2, 2022

Cost of revenue

In the six months ending July 2, 2023 , gross profit decreased  

In the nine months ended October 1, 2023 , gross profit increased  

$2.04 million , or 30% , as compared to the same period in the prior year.

The decrease in gross profit reflects an 18% decrease in revenues.

The increase in gross profit reflects an 13% increase in revenues combined with an 8% net decrease in cost of revenue.

We expect the impact from the timing of these costs will result in higher costs of revenue in subsequent quarters in 2023 and 2024, with a commensurate decrease in gross margins for those quarters.

Additionally, certain tooling costs for the Company's eFPGA professional services projects were determined to qualify for capitalization.

As a result, the Company capitalized $3.86 million related to tooling to be utilized under its long-term professional services contracts.

The tooling will be depreciated over an estimated useful life of seven years.

The capitalization of this tooling also contributed to a reduced cost of revenues for the current year-to-date period as compared with prior periods, resulting in a favorable impact on gross profit for the nine months ended October 1, 2023.

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 2, 2023, compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

The table below sets forth the changes in operating expenses for the nine months ended October 1, 2023, compared to the nine months ended October 2, 2022 (in thousands, except percentage data):

Nine Months Ended

October 1, 2023

October 2, 2022

Total operating expenses

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The $1.5 million  

increase  in R&D expenses in the six months ending July 2, 2023 , as compared to the same period in the prior year , was primarily attributable to decreased R&D costs allocated to Cost of Goods Sold related to eFPGA professional services revenue, in addition to increases in compensation, inclusive of salary expenses, and software costs, partially offset by a decrease in contracting costs.

increase  in R&D expenses in the nine months ending October 1, 2023 , as compared to the same period in the prior year, was attributable to increases in time and effort spent by engineering personnel on internal R&D projects in the current year.

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 $0.3 milliondecrease in SG&A expenses in the six months ending July 2, 2023 , as compared to the same period in the prior year , was primarily attributable to decreases in consulting costs and in accounting and audit expenses.

These were partially offset by increases in compensation and insurance 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 $0.3 million decrease in SG&A expenses in the nine months ending October 1, 2023, as compared to the same period in the prior year, was primarily attributable to decreases in legal, insurance, and accounting and audit expenses.

These were partially offset by increases in compensation.

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 six months ended July 2, 2023, compared to the six months ended July 3, 2022 (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 1, 2023, compared to the nine months ended October 2, 2022 (in thousands, except percentage data):

Nine Months Ended

Interest expense

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Interest expense relates primarily to our revolving 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 in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the six months ending July 2, 2023 , as compared to the same period in the prior year , increased approximately $53 thousand, which was comprised of a $26 thousand increase in interest expense related to software leases, a $26 thousand increase in interest expense related to our revolving line of credit facility, and a $5 thousand increase in interest expense related to IT hardware financing costs.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the nine months ending October 1, 2023 , as compared to the same period in the prior year , increased approximately $58 thousand, which was comprised of a $36 thousand increase in interest expense related to software leases, a $18 thousand increase in interest expense related to our revolving line of credit facility, and a $7 thousand increase in interest expense related to IT hardware financing costs.

This was partially offset by a $3 thousand decrease in the annual facility fee associated with the revolving line of credit.

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

Provision for (Benefit From) Income Taxes

The table below sets forth the changes in the provisions for income taxes in the six months ended July 2, 2023, compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Provision for Income Taxes

The majority of the income tax expenses for the six months ended July 3, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

The table below sets forth the changes in the provisions for income taxes in the nine months ended October 1, 2023, compared to the nine months ended October 2, 2022 (in thousands, except percentage data):

Nine Months Ended

Provision for income taxes

The majority of the income tax expenses for the nine months ended October 2, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

Balance Sheet Activities

Balance sheet amounts at October 1, 2023 compared to January 1, 2023 resulted from typical and usual activities in the normal course of business.  

Total assets increased by approximately $4.0 million primarily due to the capitalization of $3.86 million in semiconductor tooling, an increase of $2.0 million in contract assets (due to the $14.9 million professional services contract signed later in the quarter), a $2.0 million decrease in accounts receivable due to an offsetting reclassification of $1.2 million in trade accounts receivable to a note receivable in other current assets with the remainder $0.8 million decrease due to collections activity, a $0.6 million decrease in cash, a decrease in device inventories of $0.4 million due to write-downs, and amortization of ROU assets in the amount of $0.3 million.

Liabilities increased by approximately $1.8 million due to an increase of $1.5 million in trade payables resulting from fulfilling revenue contracts with customers, and similarly for the $0.5 million increase in accrued liabilities offset by a net collective decrease of $0.2 million in lease liabilities and other non-current liabilities.

Equity increased $2.1 million due to a $4.4 million increase in additional paid in capital arising from the sale of shares of common stock and recognition of stock-based compensation, offset by $2.3 million increase in its accumulated deficit from recurring losses.

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 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 $20.6 million, as of July 2, 2023, 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 $2.3 million in net proceeds from the Company's sale of common stock on March 21, 2023.

In addition to the Company's cash, cash equivalents and restricted cash of $18.6 million, as of October 1, 2023, 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 $2.3 million in net proceeds from the Company's sale of common stock on March 21, 2023.

Costs related to the offering were immaterial.

The Company's restricted cash balance as of July 2, 2023 was $0.1 million and relates to amounts pledged as cash security for the use of credit cards.

The Company's restricted cash balance as of October 1, 2023 was $0.1 million and relates to amounts pledged as cash security for the use of credit cards.

On April 28, 2023, the Company converted accounts receivable for a customer in the amount of approximately $1.16 million to notes receivable (the "Note").

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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. 

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of July 2, 2023.

As of July 2, 2023, we had $15.0 million outstanding on the Revolving Facility with an interest rate of 8.75%.

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of October 1, 2023.

As of October 1, 2023, we had $15.0 million outstanding on the Revolving Facility with an interest rate of 9.00%.

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 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 2, 2023 , most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

July 2, 2023 , our interest-bearing debt consisted of $1 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 were approximately $0.15 million and $0.2 million  as of July 2, 2023 and January 1, 2023, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

As of October 1, 2023 , most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

October 1, 2023 , our interest-bearing debt consisted of $0.9 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 were approximately $0.15 million and $0.2 million  as of October 1, 2023 and January 1, 2023, 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.

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

Net cash used in operating activities

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Net cash used in operating activities

For the six months ended July 2, 2023, net cash used in  operating acti vities was $0.2 million, whic h was primarily due to the net loss of $3.5 million, adjus ted for net non-cash charges of $1.9 million, which included $1.3 million of stock-based compensation, and $0.4 million in depreciation and amortization expenses.

Cash inflow from changes in operating assets and liabilities was approximately $1.3 million and was primarily due to a decrease in accounts receivable, increases in accrued liabilities and lease liabilities, and decreases in contract assets.

This was partially offset by an increase in prepaid expenses and other current assets and a decrease in trade payables.

For the nine months ended October 1, 2023, net cash used in  operating acti vities was $0.1 million, whic h was primarily due to the net loss of $2.3 million, adjus ted for net non-cash charges of $4 million, which included $1.9 million of stock-based compensation, $0.7 million in depreciation and amortization expenses, $0.8 million in ROU asset amortization expenses, and $0.6 million in write-downs of inventories.

Cash outflow from changes in operating assets and liabilities was approximately $1.0 million and was primarily due to a reclassification of a trade payable to a note payable, increases in contract assets, offset by increases in accrued liabilities and trade payables.

For the nine months ended October 2, 2022, net cash used in operating activities was $3.4 million, was was primarily due to the net loss of $3.0 million and a $27 thousand loss on the disposal of equipment, adjusted for net non-cash charges of $2.5 million, which included $1.3 million of stock-based compensation, $0.6 million in ROU asset amortization expenses, $0.5 million in depreciation and amortization expenses, and $0.1 million in write-downs of inventories.

Cash outflow from changes in operating assets and liabilities was approximately $2.9 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.

Net cash used in investing activities

For the six months ended July 2, 2023, and July 3, 2022 cash used in  investing activities was 

$0.5 million , 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 October 1, 2023, and October 2, 2022 cash used in  investing activities was 

$2.4 million and $0.6 million, respectively, which were primarily attributable to the capital expenditures relating to licensed software, capitalized internal-use software, and purchase of specialized semiconductor tooling.

Net cash provided by financing activities

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

 For the quarter ended 2023 and 2022, these draw-downs and repayments netted to zero.

For the six months ended July 2, 2023, 

 For the quarters ended October 1, 2023 and October 2, 2022, these draw-downs and repayments netted to zero.

For the nine months ended October 1, 2023, 

provided by  financing activities was 

$2 million , which was primarily derived from the net proceeds of $2.3 million from the stock issuance, partially offset by finance lease obligation payments. We continue to use and repay our revolving line of credit as our cash needs requi re.

For the six months ended July 3, 2022, cash 

For the nine months ended October 2, 2022, cash 

provided by financing activities was 

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What changed 10-Q

Item 2. Management’s Discussion and Analysis