UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 29, 2020

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              To

COMMISSION FILE NUMBER: 000-22671

 

QUICKLOGIC CORPORATION

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

77-0188504

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2220 Lundy Avenue, San Jose, CA 95131-1816

(Address of principal executive offices including zip code))

(408) 990-4000

(Registrant's telephone number, including area code)

 

Securities registered pursuant Section 12(b) of the act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

QUIK

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

[ ]

 

Accelerated Filer

 

[x]

 

 

 

 

 

 

 

Non-accelerated filer

 

[ ]  

 

Smaller Reporting Company

 

[x]

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

[ ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).

Yes  [ ]    No  [x]

As of May 15, 2020, there were 8,388,077 shares of registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 

 


QUICKLOGIC CORPORATION

FORM 10-Q

MARCH 29, 2020

 

TABLE OF CONTENTS

 

 

 

 

Page

Part I - Financial Information

 

3

 

 

 

 

Item 1.

Financial Statements (unaudited condensed)

 

3

 

 

 

 

 

Consolidated Balance Sheets

 

3

 

 

 

 

 

Consolidated Statements of Operations

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows

 

5

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity

 

6

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

Item 4.

Controls and Procedures

 

31

 

 

 

 

Part II - Other Information

 

32

 

 

 

 

Item 1.

Legal Proceedings

 

32

 

 

 

 

Item 1A.

Risk Factors

 

32

 

 

 

 

Item 6.

Exhibits

 

33

 

 

 

 

Signatures

 

 

34

 

 

 

 


PART I. Financial Information

Item 1. Financial Statements

QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amount)

 

 

 

March 29,

2020

 

 

December 29,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,898

 

 

$

21,448

 

Restricted cash

 

 

100

 

 

 

100

 

Accounts receivable, net of allowances for doubtful accounts of $0

 

 

1,376

 

 

 

1,991

 

Inventories

 

 

3,085

 

 

 

3,260

 

Other current assets

 

 

1,285

 

 

 

1,565

 

Total current assets

 

 

24,744

 

 

 

28,364

 

Property and equipment, net

 

 

713

 

 

 

830

 

Capitalized internal-use software

 

 

561

 

 

 

333

 

Right of use assets

 

 

2,444

 

 

 

2,370

 

Intangible assets

 

 

971

 

 

 

1,008

 

Goodwill

 

 

185

 

 

 

185

 

Other assets

 

 

293

 

 

 

314

 

TOTAL ASSETS

 

$

29,911

 

 

$

33,404

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

15,000

 

 

$

15,000

 

Trade payables

 

 

944

 

 

 

1,003

 

Accrued liabilities

 

 

1,223

 

 

 

1,133

 

Deferred revenue

 

 

95

 

 

 

158

 

Lease liabilities-current

 

 

775

 

 

 

704

 

Total current liabilities

 

 

18,037

 

 

 

17,998

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Lease liabilities-non-current

 

 

1,639

 

 

 

1,583

 

Total liabilities

 

 

19,676

 

 

 

19,581

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

 

 

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; 8,383 and 8,331

   shares issued and outstanding as of March 29, 2020 and December 29, 2019, respectively

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

296,650

 

 

 

297,073

 

Accumulated deficit

 

 

(286,423

)

 

 

(283,258

)

Total stockholders' equity

 

 

10,235

 

 

 

13,823

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

29,911

 

 

$

33,404

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3


QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Revenue

 

$

2,158

 

 

$

3,194

 

Cost of revenue

 

 

1,043

 

 

 

1,215

 

Gross profit

 

 

1,115

 

 

 

1,979

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

1,819

 

 

 

3,242

 

Selling, general and administrative

 

 

1,879

 

 

 

2,446

 

Restructuring costs

 

 

479

 

 

 

 

Total operating expenses

 

 

4,177

 

 

 

5,688

 

Loss from operations

 

 

(3,062

)

 

 

(3,709

)

Interest expense

 

 

(80

)

 

 

(83

)

Interest income and other (expense), net

 

 

(5

)

 

 

48

 

Loss before income taxes

 

 

(3,147

)

 

 

(3,744

)

Provision for (benefit from) income taxes

 

 

18

 

 

 

(268

)

Net loss

 

$

(3,165

)

 

$

(3,476

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

$

(0.38

)

 

$

(0.50

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

 

8,362

 

 

 

6,916

 

 

Note: Net loss equals to comprehensive loss for all periods presented.

(1) Net loss per share, and weighted average shares outstanding basic and diluted are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 29,

2020

 

 

March 31,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,165

)

 

$

(3,476

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

265

 

 

 

292

 

Stock-based compensation

 

 

(398

)

 

 

951

 

Write-down of inventories

 

 

17

 

 

 

80

 

Write-off of equipment

 

 

4

 

 

 

 

Tax benefit from acquisition

 

 

 

 

 

(282

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

615

 

 

 

(242

)

Inventories

 

 

158

 

 

 

185

 

Other assets

 

 

301

 

 

 

(344

)

Trade payables

 

 

1

 

 

 

327

 

Accrued liabilities and deferred revenue

 

 

27

 

 

 

(391

)

Other long-term liabilities

 

 

 

 

 

(16

)

Net cash used in operating activities

 

 

(2,175

)

 

 

(2,916

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(37

)

 

 

(111

)

Capitalized internal-use software

 

 

(253

)

 

 

 

Cash received from business acquisition

 

 

 

 

 

20

 

Net cash used in investing activities

 

 

(290

)

 

 

(91

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of finance lease obligations

 

 

(60

)

 

 

(74

)

Proceeds from line of credit

 

 

12,000

 

 

 

12,000

 

Repayment of line of credit

 

 

(12,000

)

 

 

(12,000

)

Proceeds from issuance of common stock

 

 

357

 

 

 

4

 

Taxes paid related to net settlement of equity awards

 

 

(382

)

 

 

(167

)

Net cash used in financing activities

 

 

(85

)

 

 

(237

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(2,550

)

 

 

(3,244

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

21,548

 

 

 

26,463

 

Cash, cash equivalents and restricted cash at end of period

 

$

18,998

 

 

$

23,219

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

5


QUICKLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

 

 

For the three months ended March 29, 2020

 

 

Common Stock (1)

 

 

Additional

Paid-In (1)

 

 

Retained

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 29, 2019

 

8,331

 

 

$

8

 

 

$

297,073

 

 

$

(283,258

)

 

$

13,823

 

Common stock issued under stock plans and employee

   stock purchase plan

 

52

 

 

 

 

 

 

(25

)

 

 

 

 

 

(25

)

Stock-based compensation

 

 

 

 

 

 

 

(398

)

 

 

 

 

 

(398

)

Net loss

 

 

 

 

 

 

 

 

 

 

(3,165

)

 

 

(3,165

)

Balance at March 29, 2020

 

8,383

 

 

$

8

 

 

$

296,650

 

 

$

(286,423

)

 

$

10,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2019

 

 

Common Stock (1)

 

 

Additional

Paid-In (1)

 

 

Retained

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 30, 2018

 

6,823

 

 

$

7

 

 

$

285,062

 

 

$

(267,814

)

 

$

17,255

 

Common stock issued under stock plans and employee

   stock purchase plan

 

35

 

 

 

 

 

 

(163

)

 

 

 

 

 

(163

)

Common stock issued for SensiML acquisition

 

84

 

 

 

 

 

 

903

 

 

 

 

 

 

903

 

Stock-based compensation

 

 

 

 

 

 

 

951

 

 

 

 

 

 

951

 

Net loss

 

 

 

 

 

 

 

 

 

 

(3,476

)

 

 

(3,476

)

Balance at March 31, 2019

 

6,942

 

 

$

7

 

 

$

286,753

 

 

$

(271,290

)

 

$

15,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1)

Common stock shares and additional paid-in capital amounts are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

6


 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and Basis of Presentation

QuickLogic Corporation, or QuickLogic or the Company, was founded in 1988 and reincorporated in Delaware in 1999. The Company enables Original Equipment Manufacturers, or OEMs to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Hearable, Tablet and Internet-of-Things, or IoT devices. QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip, or SoC, semiconductor solutions, embedded software, and algorithm solutions for always-on voice and sensor processing, and enhanced visual experiences. 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, or FPGAs. The Company’s wholly owned subsidiary, SensiML Corporation, or SensiML, provides Analytics Toolkit, which is used in many of the applications where the Company’s ArcticPro™, eFPGA intellectual property, or 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 unaudited 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, or 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 condensed consolidated financial statements be read in conjunction with the Company's Form 10-K for the year ended December 29, 2019, which was filed with the Securities and Exchange Commission, or SEC, on March 13, 2020. Operating results for the three months ended March 29, 2020 are not necessarily indicative of the results that may be expected for the full 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 first fiscal quarters for 2020 and for 2019 ended on March 29, 2020 and March 31, 2019, respectively.

COVID-19 Risks and Uncertainties

On January 30, 2020, the World Health Organization (“WHO”) declared a global emergency due to the COVID-19 pandemic, and on February 28, 2020, the WHO raised its assessment of the threat from high to very high at a global level. The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which the Company operates, and the imposition of shelter-in-place or similarly restrictive work-from-home orders impacting many of the Company’s offices and employees, including those located in the United States.

 As a result, the Company has temporarily closed or substantially limited the presence of personnel in its offices in several impacted locations, implemented travel restrictions and withdrawn from various industry events. The impact of the Company’s work-from-home policy that was implemented to protect its global workforce has contributed to delays in certain operational processes, including its routine quarterly financial statement close process for the first quarter of fiscal 2020. The Company has also experienced some disruption and delays in its supply chain, customer deployment plans, and logistics challenges, including certain limitations on its ability to access customer fulfilment and service sites.

 The COVID-19 pandemic and its potential effects on the Company’s business in its fiscal 2020 remain dynamic, and the broader implications for its business and results of operations remain uncertain. These implications could include further disruptions or restrictions on the Company’s ability to source, manufacture or distribute its products, including temporary disruptions to the facilities of its contract manufacturers in China, Taiwan, Philippines and Singapore, or the facilities of its suppliers and their contract manufacturers globally. Additionally, multiple countries have imposed and may further impose restrictions on business operations and movement of people and products to limit the spread of COVID-19. Delays in production or delivery of components or raw materials that are part of the Company’s global supply chain due to restrictions imposed to limit the spread of COVID-19 could delay or inhibit its ability to obtain the supply of components and finished goods. If COVID-19 becomes more prevalent in the locations where the Company, its customers or suppliers conduct business, or the Company experiences more pronounced disruptions in its operations, the Company may experience constrained supply or curtailed demand that may materially adversely impact its business and results of operations. In addition, any other widespread health crisis that could adversely affect global and regional economies, financial markets and overall demand environment for the Company's products could have a material adverse effect on the Company’s business, cash flows or results of operations.

7


 

Liquidity

The Company has financed its operations and capital investments through sales of common stock, finance and operating leases, a revolving line of credit and cash flows from operations. As of March 29, 2020, the Company's principal sources of liquidity consisted of cash and cash equivalents and restricted cash of $19.0 million, including $15.0 million drawn down from its revolving line of credit, or Revolving Facility with Heritage Bank of Commerce, or Heritage Bank. On November 6, 2019 the Company entered into a First Amendment to the Revolving Facility with Heritage Bank to extend the maturity date for one year through September 28, 2021. Under this amendment the Revolving Facility advances shall bear interest, on the outstanding daily balance thereof, at a rate per annum equal to the greater of (i) one half of one percentage point (0.50%) above the Prime Rate, or (ii) five and one half of one percentage points (5.50%). On May 6, 2020 we entered into a loan agreement with Heritage Bank for a loan of $1.2 million pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act enacted on March 27, 2020. See Note 18 to the Unaudited Consolidated Financial Statements for the details.

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 ArcticLink®, 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 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 newly acquired 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 the 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 September 2021, 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.

Reverse Stock Split

Effective on December 23, 2019, the Company enacted a 1-for-14 reverse stock split of its outstanding common stock, in which, every 14 issued and outstanding shares of common stock of the Company were automatically combined into one issued and outstanding share of common stock without any change in the par value per share. Stockholders who would have otherwise been entitled to fractional shares of common stock as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. All share, equity awards, and per share amounts contained in this Form 10-Q and the accompanying Condensed Consolidated Financial Statements have been adjusted to reflect the reverse stock split for all prior periods presented. Warrants issued in connection with the May 2018 stock issuance were also adjusted to reflect the reverse stock split for all periods presented.

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

8


 

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 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 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.

Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is required to determine the Stand-alone Selling Price, or SSP, for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when each of the products and services are sold separately and determines the discount to be allocated based on the relative SSP of the various products and services when products and services sold are bundled. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers. In these instances, the Company may use information such as the size of the customer, customer tier, type of the technology used, customer demographics, geographic region and other factors in determining the SSP.

Concentration of Risk

The Company's accounts receivable are 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 14 for information regarding concentrations associated with accounts receivable.

Note 2 — Significant Accounting Policies

During the three-month period ended March 29, 2020, 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 December 29, 2019, except for the new accounting standards adopted during the three months ended March 29, 2020. For a discussion of the significant accounting policies, please see the Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on March 13, 2020. For a discussion of the new accounting standards adopted during the three months of 2020, see “New Accounting Pronouncements” below.

Revenue Recognition

The Company applies Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, to recognize revenue. The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Under the new standard revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration it expects to receive in exchange for those products or services.

The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, a performance obligation is satisfied.

9


 

As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk. For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the price stated on the purchase order is typically fixed and represents the net consideration to which the Company expects to be entitled, and therefore there is no variable consideration. As the Company’s standard payment terms are less than one year, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative stand-alone selling price. The product price as specified on the purchase order is considered the stand-alone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances.

Leases

The Company applies Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842) and related ASUs, which provide supplementary guidance and clarifications to account operating and finance leases. Under Topic 842, all significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use, or ROU, assets and lease liabilities are recognized at the commencement date. A ROU asset and corresponding lease liability is not recorded for leases with an initial term of 12 months or less (short term leases) and the Company recognizes lease expense for these leases as incurred over the lease term.

ROU assets represent the Company’s right to use an underlying asset during the reasonably certain lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company primarily uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. As of March 29, 2020, the Company’s right-of-use assets was approximately $2.4 million and lease liability was approximately $2.4 million as presented on the Company’s Consolidated Balance Sheet. See Note 8 to the Unaudited Consolidated Financial Statements for more details.

Business Combinations 

The Company recognizes assets acquired (including goodwill and identifiable intangible assets) and liabilities assumed at fair value on the acquisition date. Subsequent changes to the fair value of such assets acquired and liabilities assumed are recognized in earnings, after the expiration of the measurement period, a period not to exceed 12 months from the acquisition date. Acquisition-related expenses and acquisition-related restructuring costs are recognized in earnings in the period in which they are incurred

Goodwill and Intangible Assets

Goodwill represents the excess fair value of consideration transferred over the fair value of net assets acquired in business combinations. The carrying value of goodwill and indefinite lived intangible assets are not amortized, but are annually tested for impairment and more often if there is an indicator of impairment. Company recognized goodwill of $185,000 due to tax benefits that arose from intangible assets acquired in the SensiML acquisition.

Intangible assets with finite useful lives are amortized on a straight-line basis over the periods benefited. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company's ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. No impairment has been recognized to-date.

Restricted cash

Restricted cash represents amounts pledged as cash security related to the use of credit cards.

10


 

New Accounting Pronouncements

Recently adopted accounting pronouncements:

In August 2018, the Financial Accounting Standards Board, or FASB, issued ASU, No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. The Company adopted this standard prospectively effective December 30, 2019 with no impact on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementations Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. Under the new standard, implementations costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs. The new standard also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortizations expenses. The effective date for public companies is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is fiscal years beginning after December 15, 2021. The Company adopted this standard prospectively effective December 30, 2019 with no impact on the Consolidated Financial Statements.

 

In June 2016, FASB issued ASU No. 2016-13, or ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. The Company adopted ASU 2016-13 using the modified retrospective approach on December 30, 2019 with no impact on the Condensed Consolidated Financial Statements.

New accounting pronouncements not yet adopted:

In December 2019, the FASB issued ASU No. 2019-2, Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of Accounting Standards Codification, or ASC 740, in order to reduce the cost and complexity of its application. These changes include elimination to the exceptions for (1) Intra-period tax allocation, (2) Deferred tax liabilities related to outside basis differences, and (3) Year-to-date losses in interim periods. This standard is effective from the fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact on its Consolidated Financial Statements.

Note 3 — Net Loss Per Share

Basic loss per share is computed by dividing net loss available to common stockholders 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 months ended March 29, 2020 and March 31, 2019, 699,000 and 597,000 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 386,100 shares were issued in connection with May 29, 2018 stock offering were also not included in the diluted loss per share calculation of the three months ended March 29, 2020 as they were also considered anti-dilutive due to the net loss the Company experienced during these periods.

All shares, equity awards, and per share amounts have been adjusted to reflect the 1-for-14 reverse stock split of the Company’s outstanding common stock for all periods presented.

11


 

Note 4 — Balance Sheet Components

The following table provides details relating to certain balance sheet line items as of March 29, 2020, and December 29, 2019 (in thousands):

 

 

 

March 29,

2020

 

 

December 29,

2019

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

222

 

 

$

222

 

Work-in-process

 

 

2,137

 

 

 

2,370

 

Finished goods

 

 

726

 

 

 

668

 

 

 

$

3,085

 

 

$

3,260

 

Other current assets:

 

 

 

 

 

 

 

 

Prepaid taxes, royalties and other prepaid expenses

 

$

1,072

 

 

$

1,296

 

Other

 

 

213

 

 

 

269

 

 

 

$

1,285

 

 

$

1,565

 

Property and equipment:

 

 

 

 

 

 

 

 

Equipment

 

$

10,676

 

 

$

10,694

 

Software

 

 

1,789

 

 

 

1,789

 

Furniture and fixtures

 

 

36

 

 

 

36

 

Leasehold improvements

 

 

509

 

 

 

474

 

 

 

 

13,010

 

 

 

12,993

 

Less: Accumulated depreciation and amortization

 

 

(12,297

)

 

 

(12,163

)

 

 

$

713

 

 

$

830

 

Capitalized internal-use software:

 

 

 

 

 

 

 

 

Capitalized during the period

 

$

618

 

 

$

365

 

Accumulated Amortization

 

 

(57

)

 

 

(32

)

 

 

$

561

 

 

$

333

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Employee related accruals

 

$

851

 

 

$

713

 

Other

 

 

372

 

 

 

420

 

 

 

$

1,223

 

 

$

1,133

 

 

Note 5— Business Acquisition

On January 3, 2019, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with SensiML for the purchase of all of its issued and outstanding common stock in exchange for the Company’s common stock.

SensiML has a software toolkit enabling IoT developers to quickly and easily create smart devices, transforming rich sensors into actionable event detectors.

The consolidated results of operations for the Company for the three months ended March 29, 2020 and March 31, 2019 include operating activities of SensiML.

Note 6 — Intangible Assets

The following table provides the details of the carrying value of intangible assets recorded from the acquisition of SensiML as of March 29, 2020 (in thousands):

 

 

 

March 29, 2020

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Developed technology

 

$

959

 

 

$

(120

)

 

$

839

 

Customer relationships

 

 

81

 

 

 

(50

)

 

 

31

 

Trade names and trademarks

 

 

116

 

 

 

(15

)

 

 

101

 

Total acquired identifiable intangible assets

 

$

1,156

 

 

$

(185

)

 

$

971

 

12


 

 

The following table provides the details of expected future annual amortization of intangible assets, based upon the current useful lives as of March 29, 2020 (in thousands):

 

 

 

Amount

 

Annual Fiscal Years

 

 

 

 

2020 (remaining period)

 

$

112

 

2021

 

 

107

 

2022

 

 

107

 

2023

 

 

107

 

2024

 

 

107

 

Thereafter

 

 

431

 

Total

 

$

971

 

 

Note 7 — Debt Obligations

Revolving Line of credit

On September 28, 2018, the Company entered into a Loan and Security Agreement or Loan Agreement with Heritage Bank. The Loan Agreement provided for, among other things, the Revolving Facility with aggregate commitments of $9,000,000.

On December 21, 2018, the Company entered into an Amended and Restated Loan and Security Agreement, or the Amended and Restated Loan Agreement with Heritage Bank to replace in its entirety the Loan Agreement. The Amended and Restated Loan Agreement increased the Revolving Facility from $9,000,000 to $15,000,000. The Amended and Restated Loan Agreement requires the Company to maintain at least $3,000,000 in unrestricted cash at Heritage Bank.

On November 6, 2019 the Company entered into a First Amendment to the Amended and Restated Loan Agreement to extend the maturity date of the Revolving Facility for one year through September 28, 2021. Under this amendment, the Revolving Facility advances shall bear interest, on the outstanding daily balance thereof, at a rate per annum equal to the greater of (i) one half of one percentage point (0.50%) above the Prime Rate, or (ii) five and one half of one percentage points (5.50%).

As of March 29, 2020 and December 29, 2019, the Company had $15.0 million of revolving debt outstanding with an interest rates of 5.5% per annum. The Company was in compliance with all loan covenants under the Amended and Restated Loan Agreement as of the end of the current reporting period.

The 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 Loan Agreement.

Note 8 — Leases

The Company entered into operating leases for office space for its headquarter, domestic and foreign subsidiaries and sales offices. Finance leases are primarily for engineering design software. Operating leases generally have lease terms of 1 year to 5 years. Finance leases are generally 2 years to 3 years. As of March 29, 2020, the Company recognized right-of-use assets of approximately $2.4 million and lease liability of approximately $2.4 million relating to the operating and finance leases signed for the premises of its headquarters in San Jose, its San Diego office, and its subsidiaries SensiML in Oregon and India. Total rent expense for the quarter ended March 29, 2020 and March 31, 2019 was approximately $147,000 and $170,000 respectively.

13


 

The following table provides the activity related to operating and finance leases (in thousands):

 

 

Three Months Ended

 

 

Mach 29, 2020

 

 

March 31, 2019

 

Operating lease costs:

 

 

 

 

 

 

 

Fixed

$

141

 

 

$

152

 

Variable

 

-

 

 

 

-

 

Short term

 

6

 

 

 

18

 

Total

$

147

 

 

 

170

 

Finance lease costs:

 

 

 

 

 

 

 

Amortization of ROU asset

$

49

 

 

 

90

 

Interest

 

7

 

 

 

6

 

Total

$

56

 

 

$

96

 

 

The following table provides the details of supplemental cash flow information. The 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 three months ended March 29, 2020 and March 31, 2019 (in thousands):

 

 

 

Three Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows used for operating leases

 

$

123

 

 

$

177

 

Operating cash flows used for finance leases

 

 

7

 

 

 

4

 

Financing cash flows used for financing leases

 

 

60

 

 

 

74

 

Total

 

$

190

 

 

$

255

 

Right-of-use assets obtained in exchange for obligations:

 

 

 

 

 

 

 

 

Operating leases

 

$

-

 

 

$

542

 

Finance leases

 

 

773

 

 

 

433

 

Total

 

$

773

 

 

$

975

 

 

The following table provides the details of right-of-use assets and lease liabilities as of March 29, 2020 and December 29, 2019 (in thousands):

 

 

 

March 29, 2020

 

 

December 29, 2019

 

Right-of-use assets:

 

 

 

 

 

 

 

 

Operating leases

 

$

1,618

 

 

$

2,200

 

Finance leases

 

 

826

 

 

 

170

 

  Total

 

$

2,444

 

 

$

2,370

 

Lease liabilities:

 

 

 

 

 

 

 

 

Operating leases

 

 

1,642

 

 

 

1,816

 

Finance leases

 

 

772

 

 

 

471

 

  Total

 

$

2,414

 

 

$

2,287

 

 

The following table provided the details of future lease payments for operating and finance leases as of March 29, 2020 (in thousands):

 

Annual Fiscal Years

 

Operating

 

 

Finance

 

2020 (Remaining period)

 

$

512

 

 

$

270

 

2021

 

 

473

 

 

 

281

 

2022

 

 

388

 

 

 

281

 

2023

 

 

388

 

 

 

 

2024

 

 

97

 

 

 

 

Total lease payments

 

 

1,858

 

 

 

832

 

Less: Interest

 

 

(216

)

 

 

(60

)

Present value of lease liabilities

 

$

1,642

 

 

$

772

 

14


 

 

The following table provides the details of lease terms and discount rates as of March 29, 2020 and December 29, 2019:

 

 

 

March 29, 2020

 

 

December 29, 2019

 

Right-of-use assets:

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (years)

 

 

 

 

 

 

 

 

Operating leases

 

 

3.63

 

 

 

3.81

 

Finance leases

 

 

4.44

 

 

 

2.65

 

Weighted-average discount rates:

 

 

 

 

 

 

 

 

Operating leases

 

 

6.00

%

 

 

6.00

%

Finance leases

 

 

5.66

%

 

 

5.81

%

 

Note 9 — Fair Value Measurements

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

The Company’s cash and cash equivalents include money market account balance of $18.4 million and $20.9 million as of March 29, 2020 and December 29, 2019, respectively. Fair value of the Company’s money market account balance with Heritage Bank equals to book value.

Note 10 — Stockholders' Equity

Common and preferred Stock

As of March 29, 2020, the Company was authorized to issue 200 million shares of common stock and has 10 million shares of authorized but unissued undesignated preferred stock. Without any further vote or action by the Company’s stockholders, the Board of Directors has the authority to determine the powers, preferences, rights, qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock.

Issuance of Common Stock

On March 15, 2019, the Company filed a shelf registration statement on Form S-3, under which the Company may, from time to time, sell securities in one or more offerings up to a total amount of $75 million. The Company’s shelf registration statement was declared effective on March 29, 2019.

On June 21, 2019, the Company closed an underwritten public offering of 1.3 million shares of common stock, $0.001 par value per share at a price of $7.00 per share, which included 171,429 shares issued pursuant to the underwriters’ full exercise of their over-allotment option. The Company received net proceeds from the offering of approximately $8.0 million, net of underwriter’s commission and other offering expenses.

 As of March 29, 2020, warrants exercisable for 386,100 shares of common stock at a price of $19.32 per share remain outstanding.

Note 11 — Employee Stock Plans

2009 Stock Plan

On April 24, 2019, the 2009 Stock Plan was replaced by the 2019 Stock Plan with an extended term of ten years through March 15, 2028. The remaining balance of available shares under the 2009 Plan of 299,070 were cancelled as of April 24, 2019.

15


 

2019 Stock Plan

On April 24, 2019, the Company’s Board of Directors and shareholders approved the 2019 Stock Plan, or 2019 Plan, to replace the 2009 Plan. Under the 2019 Plan, 357,143 shares of common stock are available for grants, plus any shares subject to any outstanding options or other awards granted under the Company’s 2009 Plan that expire, are forfeited, cancelled, returned to the Company for failure to satisfy vesting requirements, settled for cash or otherwise terminated without payment being made thereunder. As of March 29, 2020, approximately 51,493 shares of the Company’s common stock were reserved for issuance under the 2019 Plan.

The 2019 Plan was amended and restated by the Board of Directors on March 5, 2020 and approved by the Company’s stockholders on April 22, 2020 to, among other things, reserved an additional 550,000 shares of common stock for issuance under 2019 Plan.

Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan, or the 2009 ESPP, was adopted in March 2009. The 2009 ESPP was amended by the Board of Directors in January 2015 and in February 2017, and was approved by the Company's stockholders on April 23, 2015 and April 26, 2017, to reserve an additional 71,429 and 107,143 shares of common stock, respectively, for issuance under the 2009 ESPP. As of March 29, 2020, approximately 62,335 shares of the Company’s common stock were reserved for issuance under the 2009 ESPP.  

The 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020, and approved by the Company’s stockholders on April 22, 2020 to, among other things, extended the term of the plan until March 5, 2029.

Further, 2009 ESPP was amended and restated by the Board of Directors on March 5, 2020 and approved by the Company’s stockholders on April 22, 2020 to, among other things reserved an additional 300,000 shares of common stock for issuance under 2019 ESPP.

Note 12 — Stock-Based Compensation

Stock-based compensation expense included in the Company's consolidated financial statements for the three months ended March 29, 2020 and March 31, 2019 was as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 29,

2020

 

 

March 31,

2019

 

Cost of revenue

 

$

12

 

 

$

26

 

Research and development

 

 

(464

)

 

 

655

 

Selling, general and administrative

 

 

54

 

 

 

270

 

Total costs and expenses

 

$

(398

)

 

$

951

 

 

During the quarter ended March 29, 2020, the Company reversed certain stock-based compensation previously recorded due to the cancellation of certain performance based RSUs as established goals required for vesting were not achieved and due to the cancellation of RSUs due to restructuring related terminations.

 

No stock-based compensation was capitalized during any period presented above.

No stock options were granted during the three-month periods ended March 29, 2020 and March 31, 2019.

16


 

Stock-Based Compensation Award Activity

The following table summarizes the activity in the shares available for grant under the 2019 Plan during the three months ended March 29, 2020 (in thousands):

 

 

 

Shares Available for Grants

 

 

 

2019 Plan

 

Balance at December 29, 2019

 

 

272

 

RSUs granted

 

 

(256

)

PRSU's granted

 

 

(129

)

RSUs forfeited or expired

 

 

123

 

PRSUs forfeited or expired

 

 

42

 

Balance at March 29, 2020

 

 

52

 

 

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 three months ended March 29, 2020:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Term

 

 

Aggregate

Intrinsic

Value

 

 

 

(in thousands)

 

 

 

 

 

 

(in years)

 

 

(in thousands)

 

Balance outstanding at December 29, 2019

 

 

186

 

 

$

32.09

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

*

 

 

 

42.09

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Balance outstanding at March 29, 2020

 

 

186

 

 

$

32.08

 

 

 

3.06

 

 

$

 

Exercisable at March 29, 2020

 

 

179

 

 

$

32.80

 

 

 

2.93

 

 

$

 

Vested and expected to vest at March 29, 2020

 

 

186

 

 

$

32.11

 

 

 

3.05

 

 

$

 

* Shares expired were not material

 

There was no intrinsic value for the stock options based on the Company’s closing stock price of $3.04 per share as of March 29, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the three months ended March 29, 2020 and March 31, 2019 was $0. Total cash received from employees as a result of employee stock option exercises during the three months ended March 29, 2020 and March 31, 2019 was $0 and $3,600, respectively. The Company settles employee stock option exercises with newly issued common shares. In connection with these exercises, there was no tax benefit realized by the Company due to the Company's current loss position.

Total stock-based compensation related to stock options was approximately $14,000 and $25,000 for the three months ended March 29, 2020 and March 31, 2019, respectively. As of March 29, 2020, the fair value of unvested stock options, net of forfeitures, was approximately $24,000. This unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 0.45 year.

Restricted Stock Units

The Company grants restricted stock units or RSUs, 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 related to RSUs was approximately $(418,000) and $877,000 for the three months ended March 29, 2020 and March 31, 2019, respectively. Due to the cancellation of certain performance based RSUs and cancellations relating to restructuring, which was implemented in January 2020, the Company reversed stock-based compensation previously recorded resulting in a credit to the stock based compensation during the quarter ended March 29, 2020. As of March 29, 2020 and March 31, 2019, there was approximately $2.4 million and $3.2 million, respectively, in unrecognized compensation expense

17


 

related to RSUs. The remaining unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 1.24 years.

A summary of activity for the Company's RSUs for the three months ended March 29, 2020 is as follows:

 

 

 

RSUs & PRSUs Outstanding

 

 

 

Number of

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

 

(in thousands)

 

 

 

 

 

Nonvested at December 29, 2019

 

 

377

 

 

$

12.55

 

Granted

 

 

385

 

 

 

4.52

 

Vested

 

 

(84

)

 

 

11.40

 

Forfeited

 

 

(165

)

 

 

 

Nonvested at March 29, 2020

 

 

513

 

 

$

8.13

 

 

Employee Stock Purchase Plan

As of March 29, 2020, 62,335 shares remained available for issuance under the 2009 ESPP. For the three months ended March 29, 2020 and March 31, 2019, the Company recorded stock-based compensation expense related to the 2009 ESPP of approximately $0 and $49,000, respectively. The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's 2009 ESPP during the first quarter ended March 29, 2020 and March 31, 2019, was $0 and $.0.31, respectively, per right, respectively.

The fair value of rights issued pursuant to the Company's 2009 ESPP was estimated on the commencement date of each offering period using the following weighted average assumptions:

 

 

 

Three Months Ended

 

 

 

March 29,

2020

 

 

March 31,

2019

 

Expected term (months)

 

 

 

 

 

6.00

 

Risk-free interest rate

 

 

 

 

 

2.37

%

Volatility

 

 

 

 

 

53.77

%

Dividend yield

 

 

 

 

 

 

 

As of March 29, 2020, there was no unrecognized stock-based compensation expense relating to the Company's 2009 ESPP. ESPP grants were suspended until the extension of the term of 2009 ESPP was ratified by the shareholders in the annual general meeting on April 22, 2020.

Note 13 — Income Taxes

The Company recorded a net income tax expense of approximately $18,000 and benefit of $268,000 for the three months ended March 29, 2020 and March 31, 2019, respectively. A majority of the income tax expense for the first quarter of 2020 relates to the Company's foreign subsidiaries, which are cost-plus entities. A majority of the income tax benefit for the quarter ended March 31, 2019 relates to the deferred tax benefit arising from Intangible assets acquired from the acquisition of SensiML, which was offset by the income taxes from the Company's foreign subsidiaries, which are cost-plus entities.   

The Company believes it is more likely than not that federal and state net deferred tax assets will not be fully realized. In assessing the realizability of deferred tax assets, the Company’s management considers whether it is more likely than not that some portion or all of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized. Accordingly, the Company continues to maintain a valuation allowance against all of U.S. and certain foreign net deferred tax assets as of March 29, 2020. The Company continues to maintain a full valuation allowance against net federal, state and certain foreign deferred tax assets until there is sufficient evidence to support recoverability of the Company’s deferred tax assets.  

18


 

The Company had no unrecognized tax benefits as of March 29, 2020 and December 31, 2019, 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.

Under the Tax Reform Act of 1986, the amount of and the benefit from net operating loss carryforwards and credit carryforwards may be impaired or limited in certain circumstances. Events which may restrict utilization of a company's net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.

The Company has not undertaken a study to determine if its net operating losses are limited. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enacted date. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company is currently analysing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available. The Company will continue to make and refine the calculations as additional analysis is completed.

Note 14 — 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 line (in thousands):

 

 

 

Three Months Ended

 

 

 

March 29,

2020

 

 

March 31,

2019

 

Revenue by product line (1):

 

 

 

 

 

 

 

 

New products

 

$

486

 

 

$

687

 

Mature products

 

 

1,672

 

 

 

2,507