QUICKLOGIC Corp 10-Q

Item 1. Financial Statements   QUICKLOGIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value amount)       October 1,     January 1,       2023     2023   ASSETS                 Current assets:                 Cash, cash equivalents and restricted cash   $ 18,625     $ 19,201   Accounts receivable, net of allowance for doubtful accounts of $ 16 and $ 18 , as of October 1, 2023 and January 1, 2023, respectively     481       2,689   Contract assets     4,015       1,987   Note receivable     1,186       —   Inventories     2,030       2,493   Prepaid expenses and other current assets     1,726       1,570   Total current assets     28,063       27,940   Property and equipment, net     4,547       465   Capitalized internal-use software, net     1,666       1,514   Right of use assets, net     1,082       1,397   Intangible assets, net     564       645   Non-marketable equity investment     300       300   Goodwill     185       185   Other assets     142       140   TOTAL ASSETS   $ 36,549     $ 32,586                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Revolving line of credit   $ 15,000     $ 15,000   Trade payables     3,851       2,391   Accrued liabilities     2,047       1,509   Deferred revenue     333       272   Lease liabilities, current     821       850   Total current liabilities     22,052       20,022   Long-term liabilities:                 Lease liabilities, non-current     284       544   Other liabilities, non-current     173       125   Total liabilities     22,509       20,691   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; 13,906 and 13,202 shares issued and outstanding as of October 1, 2023 and January 1, 2023, respectively     14       13   Additional paid-in capital     321,623       317,174   Accumulated deficit     ( 307,597 )     ( 305,292 ) Total stockholders' equity     14,040       11,895   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 36,549     $ 32,586     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 1,     October 2,     October 1,     October 2,       2023     2022     2023     2022   Revenue   $ 6,665     $ 3,459     $ 13,719     $ 12,096   Cost of revenue     1,537       1,781       4,998       5,413   Gross profit     5,128       1,678       8,721       6,683   Operating expenses:                                 Research and development     1,933       1,018       5,067       3,541   Selling, general and administrative     1,915       1,900       5,700       6,018   Total operating expenses     3,848       2,918       10,767       9,559   Operating income (loss)     1,280       ( 1,240 )     ( 2,046 )     ( 2,876 ) Interest expense     ( 48 )     ( 44 )     ( 156 )     ( 98 ) Interest income and other (expense) income, net     ( 36 )     ( 60 )     ( 99 )     ( 42 ) Income (loss) before income taxes     1,196       ( 1,344 )     ( 2,301 )     ( 3,016 ) Provision for income taxes     4       3       4       19   Net income (loss)   $ 1,192     $ ( 1,347 )   $ ( 2,305 )   $ ( 3,035 ) Net income (loss) per share:                                 Basic EPS   $ 0.09     $ ( 0.11 )   $ ( 0.17 )   $ ( 0.24 ) Diluted EPS   $ 0.08     $ ( 0.11 )   $ ( 0.17 )   $ ( 0.24 ) Weighted average shares outstanding:                                 Basic     13,859       12,664       13,377       12,401   Diluted     14,131       12,664       13,377       12,401     Note: Net income (loss) equals comprehensive income (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 1,     October 2,       2023     2022   Cash flows from operating activities:                 Net loss   $ ( 2,305 )   $ ( 3,035 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     697       516   ROU asset amortization     760       585   Stock-based compensation     1,917       1,347   Write-down of inventories and reclassifications     605       72   Gain on disposal of equipment     —       ( 27 ) Other     4       —   Changes in operating assets and liabilities:                 Accounts receivable     2,205       ( 2,611 ) Contract assets     ( 2,028 )     —   Inventories     ( 142 )     ( 195 ) Other assets     ( 1,343 )     ( 158 ) Trade payables     ( 836 )     668   Accrued liabilities     537       ( 52 ) Deferred revenue     61       ( 239 ) Lease Liabilities     ( 298 )     ( 272 ) Other long-term liabilities     48       ( 22 ) Net cash used in operating activities     ( 118 )     ( 3,423 ) Cash flows from investing activities:                 Capital expenditures for property and equipment     ( 2,015 )     ( 139 ) Capitalized internal-use software     ( 422 )     ( 495 ) Net cash used in investing activities     ( 2,437 )     ( 634 ) Cash flows from financing activities:                 Payment of finance lease obligations     ( 435 )     ( 299 ) Proceeds from line of credit     45,000       45,000   Repayment of line of credit     ( 45,000 )     ( 45,000 ) Proceeds from issuance of common stock     121       4,787   Proceeds from issuance of common stock to investors     2,313       —   Stock issuance cost     ( 20 )     —   Net cash provided by financing activities     1,979       4,488   Net increase (decrease) in cash, cash equivalents and restricted cash     ( 576 )     431   Cash, cash equivalents and restricted cash at beginning of period     19,201       19,605   Cash, cash equivalents and restricted cash at end of period   $ 18,625     $ 20,036                     Supplemental disclosures of cash flow information:                 Interest paid   $ 59     $ 18   Income taxes paid   $ 11     $ 14                     Supplemental disclosures of noncash financing and investing items                 Purchases of fixed assets with financing lease   $ 445     $ —   Stock-based compensation capitalized as internal-use software   $ 119     $ —   Purchases of property and equipment in accounts payable   $ 2,296     $ —     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 1, 2023     13,202     $ 13     $ 317,174     $ ( 305,292 )   $ 11,895   Issuance of common stock under public stock offering, net of stock issuance cost     450       1       2,292       —       2,293   Common stock issued under stock plans and employee stock purchase plans     34       —       —       —       —   Stock-based compensation     —       —       715       —       715   Net loss     —       —       —       ( 1,228 )     ( 1,228 ) Balance at April 2, 2023     13,686       14       320,181       ( 306,520 )     13,675   Common stock issued under stock plans and employee stock purchase plan     39       —       122       —       122   Stock-based compensation     —       —       647       —       647   Net loss     —       —       —       ( 2,269 )     ( 2,269 ) Balance at July 2, 2023     13,725       14       320,950       ( 308,789 )     12,175   Common stock issued under stock plans and employee stock purchase plan     181       —       —       —       —   Common stock offering, net of issuance costs     —       —       —       —       —   Stock-based compensation     —       —       673       —       673   Net income     —       —       —       1,192       1,192   Balance at October 1, 2023     13,906     $ 14     $ 321,623     $ ( 307,597 )   $ 14,040                         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     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, the "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 or IoT hardware products, 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"). Starting in late  2021, the Company increased its professional engineering services business related to its eFPGA products for both civilian and military applications. The Company’s wholly owned subsidiary, SensiML Corp. ("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 1, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on March 28, 2023. Operating results for the three and nine months ended October 1, 2023 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 2023 and 2022 ended on October 1, 2023  and October 2, 2022 , respectively.   2023 Cybersecurity Incident                        On January 20, 2023, the Company detected a ransomware infection affecting a limited number of IT systems, including systems that contained personal information of our employees. Upon detection of the incident, the Company promptly began an assessment of all Company IT systems, notified law enforcement, and engaged legal counsel and other incident response professionals. Through counsel, the Company retained a leading cybersecurity forensics firm to review and investigate the incident. We have completed our forensic work and have found no impact on our financial systems. For potentially affected individuals or entities whose personally identifiable data may have been accessed, we are providing free credit monitoring services to them.   The Company is voluntarily taking steps to further secure its IT infrastructure, systems, and security. The Company believes the incident has not had nor will have a material impact on its business operations, ability to service its customers, or financial results. The Company carries insurance, including cyber insurance, commensurate with its size and the nature of its operations.   Liquidity    The Company has financed its operations and capital investments through the sale of common stock, finance and operating leases, a revolving line of credit with Heritage Bank (the "Revolving Facility"), and cash flows from operations. As of October 1, 2023 , the Company's principal sources of liquidity consisted of cash, cash equivalents and restricted cash of $ 18.6  million, inclusive of a $ 15.0  million advance from its Revolving Facility, and $ 2.3 million in net proceeds from the Company's sale of common stock in the nine months ended October 1, 2023 . 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.   The Company was in compliance with all the Revolving Facility loan covenants as of  October 1, 2023 . As of October 1, 2023 , the Company had $ 15.0  million outstanding on the Revolving Facility with an interest rate of 9.00 %.   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"). At the time, the Note bore an interest rate of 3.0 % compounded monthly. On June 28, 2023, the Company cancelled the original note and entered into a revised promissory note with the customer, where the interest rate changed to 4.69 % compounded monthly, or a 4.8 % effective annual interest rate, accruing from the date of the prior note. If not prepaid prior to the Note maturity date of June 28, 2024, the principal and all accrued and unpaid interest will be due and payable to the Company. If an event of default occurs, the interest rate will increase to 10.0 %. All other terms of the note remained the same.   On March 21, 2023,  the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 450 thousand shares of common stock, par value $ 0.001 , in a registered direct offering, resulting in net cash proceeds of approximately $ 2.3  million. Issuance costs related to the offering were negligible. The purchase price for each share of common stock was $ 5.14 . See Note 7  for additional information.   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 as of October 1, 2023, together with its revenues from operations, and the available financial resources from the Revolving Facility with Heritage Bank will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next  twelve  months.    7 Table of Contents   Various factors 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 ArcticLink® and PolarPro® platforms, ArcticPro™, EOS  S3  SoC, Quick AI solution, QuickAI™, SensiML Analytics Toolkit, Eclipse II products, and eFPGA IP licenses and professional services; 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 and 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 ability to capitalize on synergies with our subsidiary SensiML; the issuance and exercise of stock options and participation in the Company’s employee stock purchase plan; and other factors related to the uncertainties of the industry and global economics.    Over the longer term, the Company anticipates that sales generated from its new product offerings, existing cash and cash equivalents, together with financial resources from its Revolving Facility with Heritage Bank, 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 line of credit in  December 2024,  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.   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, and are insignificant for all periods presented.   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.   Although these estimates are based on the Company’s knowledge of current events and actions it  may  undertake in the future, actual results  may materially differ from these estimates and assumptions in regard to revenue recognition; and the valuation of inventories including identification of excess quantities, market value and obsolescence.   The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. 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 our most 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 accounting estimates include revenue recognition and determination of the standalone selling price 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 such consistent application results in 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. For additional information, please refer to the Company's most recent Annual Report on Form 10 -K which was filed with the SEC on  March 28, 2023.   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 does  not  require collateral. See Note 10,  Information Concerning Product Lines, Geographic Information and Revenue Concentration, for information regarding concentrations associated with accounts receivable.   As of October 1, 2023 and January 1, 2023, the Company had $ 15.0 million of revolving debt outstanding with Heritage Bank; the revolving debt carried an interest rate of 9.00 % and 8.00 % 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. The maturity date for advances under the revolving debt agreement is December 31, 2024. At October 1, 2023, the Company had utilized a significant portion of the revolving debt, and as a result, it maintains a substantial amount of cash deposits with Heritage Bank. The concentration of cash with one financial institution poses certain risks.   8 Table of Contents   For instance, adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance, could adversely impact the stability of Heritage Bank, leading to additional financial risks for the Company.   Any material decline in available funding or our ability to access our cash, cash equivalents, and liquidity resources, inclusive of those at Heritage Bank, could adversely impact our ability to meet our operating expenses, financial and contractual obligations, or result in breaches of our contractual obligations. Any of these impacts could have material adverse impacts on our operations and liquidity.   Note  2 — Significant Accounting Policies   During the  three and nine months ended October 1, 2023  there were no changes to the Company's significant accounting policies from its disclosures in the Annual Report on Form 10 -K for the year ended January 1, 2023 . For a discussion of the significant accounting policies, please see the Annual Report on Form  10 -K for the fiscal year ended  January 1, 2023, filed with the SEC on  March  28,   2023.   Reclassification   Certain amounts in the statement of cash flows for the nine months ended October 2, 2022 were reclassified to conform with the current period presentation. These reclassifications were within cash flows from operating activities with no impact to the net cash used in operating activities for the period.   Recent Accounting Standards Adopted   In August 2020, the FASB issued ASU No. 2020 - 06, Debt — Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging — Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. 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 Company early adopted ASU No. 2020 - 06 on January 2, 2023 and it had no  material impact on the Company's consolidated financial statements or related disclosures.   Recent 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. For public business entities, the amendments in this Update are effective for fiscal years beginning after  December 15, 2023,  and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have  not  yet been issued or made available for issuance. The adoption of this ASU is  not  expected to have an impact on the Company's consolidated financial statements or disclosures.   Note  3 — Net Income (Loss) Per Share   Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (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 income (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 periods in which the Company has reported a net loss, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders as dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.  For periods in which the Company has reported a net income, diluted net income per share attributable to common stockholders is different from basic net income per share attributable to common stockholders as dilutive common shares would increase the amount of shares outstanding reduced by the amounts of treasury shares repurchased from the proceeds at the average market price for the period.    For the three months ended October 1, 2023, 925 thousand shares of common stock associate 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. Of these, a 276 thousand share equivalent was determined to be dilutive and included in the computation of diluted net income per share for the period. Estimated proceeds for the dilutive shares were determined to be $ 147 thousand, which resulted in a reduction of dilutive shares by 4,672 using the treasury stock method at an average market price of $ 8.41 .   For the nine months ended October 1, 2023 and the three and nine months ended October 2, 2022,  925 thousand and 398 thousand shares of common stock, respectively, associated with equity awards and the estimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan were outstanding. These shares were not included in the computation of diluted net loss per share, as they were considered anti-dilutive due to the net losses the Company experienced during these periods. Warrants to purchase up to 386 thousand shares were issued in connection with the 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 were exercisable through May 29, 2023 at a price of $ 19.32 per share. The warrants expired unexercised on May 29, 2023 .     9 Table of Contents     Note  4 — Balance Sheet Components   The following table provides details relating to certain balance sheet line items as of October 1, 2023 , and January 1, 2023 (in thousands):       October 1,     January 1,       2023     2023   Accounts receivable:                 Trade account receivables   $ 497     $ 2,707   Less: Allowance for doubtful accounts     ( 16 )     ( 18 )     $ 481     $ 2,689   Inventories:                 Work-in-process   $ 1,898     $ 1,826   Finished goods     132       667       $ 2,030     $ 2,493   Prepaid expenses and other current assets:                 Prepaid taxes   $ 512     $ 510   Deferred charges     414       295   Other prepaid taxes, royalties, and other prepaid expenses     636       500   Other     164       265       $ 1,726     $ 1,570   Property and equipment, net:                 Equipment   $ 10,487     $ 10,133   Tooling (1)   $ 3,862         Software     1,803       1,803   Furniture and fixtures     65       65   Leasehold improvements     549       466         16,766       12,467   Less: Accumulated depreciation and amortization     ( 12,219 )     ( 12,002 )     $ 4,547     $ 465   Capitalized internal-use software, net:                 Capitalized internal-use software   $ 2,921     $ 2,370   Less: Accumulated amortization     ( 1,255 )     ( 856 )     $ 1,666     $ 1,514   Accrued liabilities:                 Accrued compensation   $ 1,293     $ 865   Accrued employee benefits     117       40   Accrued payroll tax     81       57   Other     556       547       $ 2,047     $ 1,509     ( 1 ) In the nine months ended October 1 2023, 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.     Note 5  — Debt Obligations   Revolving Line of Credit   As of October 1, 2023 and January 1, 2023 , the Company had $ 15.0 million of revolving debt outstanding with an interest rate of 9.00 % a nd 8.00 % 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. Related interest expenses and annual facility fees recognized were $ 30 tho usand and $ 92 thousand for th e   three and nine months ended October 1, 2023 a nd $ 20 thousand and $ 59 thousand for the three and nine months ended October 2, 2022 , respectively.     Note 6  — Leases   The Company's principal research and development and corporate facilities are leased office buildings located in the United States. These lease facilities are classified as operating leases and have lease terms of  one  to  five  years. The Company maintains sales offices out of which it conducts sales and marketing activities in various countries outside of the United States which are rented under short-term leases. The Company has elected the practical expedient to apply to recognition requirements to short-term leases and recognizes rent payments on short-term leases on a straight-line basis over the lease term. Finance leases are primarily for engineering design software and have leases terms of generally  two  to  three  years. Total rent expenses were $ 0.1 million and $ 0.3 million for t he  three and nine months ended October 1, 2023 and  $ 0.1 million and $ 0.3 million for t he  three and nine months ended October 2, 2022 , respectively.   10 Table of Contents   Right-of-use assets were approximately $ 1.1 million and $ 1.4 million as of October 1, 2023  and  January 1, 2023 , respectively. Lease liabilities were approximately $ 1.1 million and $ 1.4 million as of  October 1, 2023  and  January 1, 2023 , respectively.   The following table provides the expenses related to operating and finance leases (in thousands):       Three Months Ended     Nine Months Ended       October 1, 2023     October 2, 2022     October 1, 2023     October 2, 2022   Operating lease costs:                                 Fixed   $ 100     $ 100     $ 301     $ 300   Short term     4       4       13       16   Total   $ 104     $ 104     $ 314     $ 316   Finance lease costs:                                 Amortization of ROU asset   $ 163     $ 109     $ 486     $ 328   Interest     18       5       59       18   Total   $ 181     $ 114     $ 545     $ 346     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 1, 2023  and   October 2, 2022  was $ 445 thousand and $ 0 , respectively.    The following table provides the details of supplemental cash flow information (in thousands):     Nine Months Ended       October 1, 2023     October 2, 2022   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows used for operating leases   $ 315     $ 306   Operating cash flows used for finance leases     59       18   Financing cash flows used for finance leases     435       299   Total   $ 809     $ 623     Non-cash ROU assets related to operating leases included in the operating cash flows for the nine months ended October 1, 2023 and October 2, 2022 were $ 274 thousand and $ 257 thousand, respectively. Non-cash ROU assets related to finance leases included in the financing cash flows for the nine months ended October 1, 2023 and October 2, 2022 were $ 486 thousand and $ 328 thousand, respectively.   The following table provides the details of right-of-use assets and lease liabilities as of October 1, 2023 and January 1, 2023 (in thousands):       October 1, 2023     January 1, 2023   Right-of-use assets:                 Operating leases   $ 190     $ 464   Finance leases     892       933   Total right-of-use assets   $ 1,082     $ 1,397   Lease liabilities:                 Operating leases   $ 208     $ 507   Finance leases     897       887   Total lease liabilities   $ 1,105     $ 1,394     The following table provided the details of future lease payments for operating and finance leases as of October 1, 2023 (in thousands):       Operating Leases     Finance Leases   2023 (remaining period)   $ 106     $ 165   2024     106       624   2025     —       168   Total lease payments     212       957   Less: Interest     ( 4 )     ( 60 ) Present value of lease liabilities   $ 208     $ 897     The following table provides the details of lease terms and discount rates as of October 1, 2023 and January 1, 2023 :       October 1, 2023     January 1, 2023   Right-of-use assets:                 Weighted-average remaining lease term (years)                 Operating leases (1)     0.50       1.25   Finance leases     1.84       1.91   Weighted-average discount rates:                 Operating leases     6.00 %     6.00 % Finance leases     6.77 %     5.95 %   ( 1 ) The operating lease relates to the Company's headquarters in San Jose, CA. 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.   11 Table of Contents       Note   7  —  Capital Stock    Issuance of Common Stock   On March 21, 2023,  the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 450  thousand shares of common stock in registered direct offerings pursuant to our effective shelf registration statement on Form S- 3  (File  No.   333 - 266942 ), resulting in net cash proceeds of approximately $ 2.3 million. Issuance costs related to the registered direct offering were insignificant. The purchase price for each share of common stock was $ 5.14 .   On August 17, 2022, the Company filed a Registration Statement on Form S- 3 (File No. 333 - 266942 ) 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 1, 2023  and October 2, 2022  was as follows (in thousands):       Three Months Ended     Nine Months Ended       October 1, 2023     October 2, 2022     October 1, 2023     October 2, 2022   Cost of revenue   $ 73     $ 44     $ 239     $ 217   Research and development     171       149       513       325   Selling, general and administrative     372       294       1,165       805   Total   $ 616     $ 487     $ 1,917     $ 1,347     The Company capitalized stock-based compensation amounts to capitalized internal-use software and tooling, net of $ 119 thousand and $ 0 for the   nine months ended October 1, 2023  and October 2, 2022 , respectively.   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 1, 2023  (in thousands):       Shares Available for Grants   Balance at January 1, 2023     960   Authorized     —   Restricted stock units (RSUs) granted     ( 393 ) RSUs forfeited or expired     15   Options expired     2   Balance at October 1, 2023     584     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 1, 2023 :               Weighted     Weighted                       Average     Average     Aggregate       Number of     Exercise     Remaining     Intrinsic       Shares     Price     Term     Value       (in thousands)             (in years)     (in thousands)   Balance outstanding at January 1, 2023     75     $ 24.50       2.80     $ —   Forfeited or expired     ( 2 )   $ 32.93                   Balance outstanding, exercisable, and vested at October 1, 2023     73     $ 24.24       2.13     $ —     No stock options were granted or exercised during the nine months ended October 1, 2023. No stock options were granted, exercised, forfeited, or expired during the nine months ended October 2, 2022.   Total stock-based compensation related to stock options was $ 0 during the  nine months ended October 1, 2023 and October 2, 2022 .    12 Table of Contents   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 were approximately  $ 0.6 million  and $ 1.8 million for the  three and nine months ended October 1, 2023 and approximately  $ 0.5 million  and $ 1.3 million for the  three and nine months ended October 2, 2022, respectively.   As of  October 1, 2023 and October 2, 2022 , there was approximately $ 3.7 million  and $ 1.1 million , respectively, in unrecognized compensation expense related to RSUs. The remaining unrecognized stock-based compensation expense as of October 1, 2023  is expected to be recorded over a weighted average period of 1.52  years.   A summary of activity for the Company's RSUs and PRSUs for the  nine months ended October 1, 2023  is as follows:       RSUs & PRSUs Outstanding               Weighted               Average       Number of     Grant Date       Shares     Fair Value       (in thousands)           Nonvested at January 1, 2023     630     $ 6.05   Granted     393       8.07   Vested and released     ( 224 )     6.14   Forfeited     ( 15 )     6.73   Nonvested at October 1, 2023     784     $ 7.02     Employee Stock Purchase Plan   Total stock-based compensation related to the Company's Employee Stock Purchase Plan was approximately $ 25 thousand and $ 100 thousand for the  three and nine months ended October 1, 2023 , respectively, and $ 20 thousand and $ 54 thousand for the  three and nine months ended October 2, 2022, respectively.     Note 9 — Income Taxes   The Company recorded a net income tax expense of $ 4 thousand and $ 4 thousand for the  three and nine months ended October 1, 2023 , respectively, and a net income tax expense of $ 3 thousand and $ 19 thousand for the  three and nine months ended October 2, 2022 , respectively. The difference between the estimated annual effective tax rate of 2.67 % and the U.S. federal statutory tax rate of 21 % is primarily due to the Company's valuation allowance movement in each period presented. It is more likely than not that the Company will not realize the federal, state, and certain foreign deferred tax assets as of October 1, 2023. As such, the Company continues to maintain a full valuation allowance against all of its US and certain foreign net deferred tax assets as of October 1, 2023.     Note 10 — Information Concerning Product Lines, Geographic Information and Revenue Concentration   The Company identifies its business segment based on business activities, management responsibility and geographic location. For all periods presented, the Company operated in a single reportable business segment.   The following is a breakdown of revenue by product family (in thousands):       Three Months Ended     Nine Months Ended       October 1, 2023     October 2, 2022     October 1, 2023     October 2, 2022   New products   $ 6,096     $ 2,252     $ 11,384     $ 8,833   Mature products     569       1,207       2,335       3,263   Total revenue   $ 6,665     $ 3,459     $ 13,719     $ 12,096     New products revenue consists of revenues from the sale of hardware products manufactured on  180  nanometer or smaller semiconductor processes, eFPGA IP license and eFPGA-related professional services, QuickAI and SensiML AI software as a service (SaaS) revenue. Mature products include all products produced on semiconductor processes larger than  180  nanometer.   13 Table of Contents   The following is a breakdown of new product revenue (in thousands):       Three Months Ended     Nine Months Ended       October 1, 2023     October 2, 2022     October 1, 2023     October 2, 2022   Hardware products   $ 248     $ 308     $ 776     $ 3,607   eFPGA IP and professional services     5,838       1,700       10,505       4,911   SaaS & Other     10       244       103       315   New products revenue   $ 6,096     $ 2,252     $ 11,384     $ 8,833     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.   Contract assets related to professional services revenue were $ 4.0 million and $ 1.5 million as of October 1, 2023 and October 2, 2022, respectively. Contract liabilities related to professional services revenue were $ 304 thousand and $ 165 thousand as of October 1, 2023 and October 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 $ 6.0 million, or 91 % of total revenue, and $ 11.7 million, or 85 % of total revenue for the  three and nine months ended October 1, 2023 , respectively, and $ 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.   The following is a breakdown of revenue by destination (in thousands):        Three Months Ended     Nine Months Ended       October 1, 2023     October 2, 2022     October 1, 2023     October 2, 2022   Asia Pacific   $ 371     $ 783     $ 1,540     $ 3,114   North America     6,051       2,389       11,739       7,904   Europe     243       287       440       1,078   Total revenue   $ 6,665     $ 3,459     $ 13,719     $ 12,096     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 1,     October 2,     October 1,     October 2,       2023     2022     2023     2022   Distributor "A"     *       20 %     11 %     15 % Distributor "B"     *       *       *       16 % Distributor "C"     *       10 %     *       *   Customer "A"     84 %     30 %     67 %     *   Customer "B"     *       13 %     *       *   Customer "C"     *       12 %     *       20 % Customer "F"     *       *       *       16 % * 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 1,     January 1,       2023     2023   Distributor "A"     *       14 % Customer "A"     89 %     *   Customer "C"     *       22 % Customer "F"     *       44 %     Note  11 — Commitments and Contingencies   Commitments   The Company's principal contractual commitments include purchase obligations, re-payments of draw-downs from the revolving line of credit, and payments under operating and finance leases. Purchase obligations are largely comprised of open purchase order commitments to suppliers and to subcontractors under professional services agreements. Our risk associated with the purchase obligations under professional services agreements is limited to the termination liability provisions within those contracts, and as such, we do  not  believe they represent a material liquidity risk to us.   Certain wafer manufacturers require the Company to forecast wafer starts several months in advance. The Company is committed to taking delivery of and paying for a portion of forecasted wafer volume. As of October 1, 2023 , the Company had no significant outstanding commitments for the purchase of wafer inventory.   14 Table of Contents   Purchase Obligations   Purchase obligations represent contractual agreements to purchase goods or services entered into in the ordinary course of business. Purchase obligations are legally binding and amongst other things, specify a minimum or a range of quantities, pricing, and approximate timing of the transaction. Purchase obligations include amounts that are recorded on the Company's consolidated balance sheets, as well as amounts that are  not  recorded on the Company's consolidated balance sheets. As of October 1, 2023 , total outstanding purchase obligations for other goods and services were $ 6.1 million due within the next twelve months, not recorded on the Company's consolidated balance sheet.   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.   15 Table of Contents