QUICKLOGIC CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

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The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and related notes
included in this Annual Report on Form 10-K. This discussion may contain
forward-looking statements based upon current expectations that involve risks
and uncertainties including those discussed under Part I, Item 1A, "Risk
Factors." These risks and uncertainties may cause actual results to differ
materially from those discussed in the forward-looking statements.



Overview



We develop low power, multi-core semiconductor platforms and IP for AI, voice
and sensor processing. The solutions include an eFPGA for hardware acceleration
and pre-processing, and heterogeneous multi-core SoCs that integrate eFPGA with
other processors and peripherals. The SensiML Analytics Toolkit from our
recently acquired wholly owned subsidiary, SensiML completes the "full stack"
end-to-end solution with accurate sensor algorithms using AI technology. The
full range of platforms, software tools and eFPGA IP enables the practical and
efficient adoption of AI, voice and sensor processing across Consumer/Industrial
IoT, Consumer Electronics, Military, Aerospace and Defense applications.



Our new products include our EOS™, QuickAI™, SensiML Analytics Studio,
ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products
(which together comprise our new product category). Our mature products include
primarily FPGA families named pASIC®3 and QuickRAM® as well as programming
hardware and design software. In addition to delivering our own semiconductor
solutions, we have an IP business that licenses our eFPGA technology for use in
other semiconductor companies SoCs. We began delivering our eFPGA IP product
ArcticPro™ in 2017, which is included in the new product revenue category.
Through the acquisition of SensiML, we now have an IoT AI software platform that
includes SaaS subscriptions for development, per unit license fees when deployed
in production, and proof-of-concept services - all of which are also included in
the new product revenue category.



Our semiconductor solutions typically fall into one of three categories: Sensor
Processing, Display and Smart Connectivity. Our solutions include a unique
combination of our silicon platforms, IP cores, software drivers, and in some
cases, firmware and application software. All of our silicon platforms are
standard devices and must be programmed to be effective in a system. Our IP that
enables always-on context-aware sensor applications includes our Flexible Fusion
Engine, our Sensor Manager and Communications Manager technologies as well as IP
that (i) improves multimedia content, such as our Visual Enhancement Engine, or
VEE, technology, and Display Power Optimizer, or DPO, technology; and (ii)
implements commonly used mobile system interfaces, such as Low Voltage
Differential Signaling, or LVDS, Mobile Industry Processor Interface, or MIPI,
and Secure Digital Input Output, or SDIO.



Through the acquisition of SensiML, our core IP also includes the SensiML AI
Toolkit that enables OEMs to develop AI software for a broad array of
resource-constrained time-series sensor endpoint applications. These include a
wide range of consumer and industrial sensing applications.



We also work with processor manufacturers, sensor manufacturers, and voice
recognition, sensor fusion and context awareness algorithm developers in the
development of reference designs. Through reference designs that incorporate our
solutions, we believe processor manufacturers, sensor manufacturers, and sensor
and voice algorithm companies can expand the available market for their
respective products. Furthermore, should a solution developed for a processor
manufacturer or sensor and/or sensor algorithm company be applicable to a set of
common OEMs or Original Design Manufacturers, or ODMs, we can amortize our
Research and Development, or R&D, investment over that set of OEMs or ODMs.
There may also be cases when platform providers that intend to use always-on
voice recognition will dictate certain performance requirements for the combined
software/hardware solution before the platform provider certifies and/or
qualifies our product for use by end customers.



In addition to working directly with our customers, we partner with other
companies that are experts in certain technologies to develop additional IP,
reference platforms and system software to provide application solutions,
particularly in the area of hardware acceleration for AI-type applications. We
also work with mobile processor and communications semiconductor device
manufacturers and companies that supply sensor, algorithms and applications. For
our sensor processing solutions, we collaborate with sensor manufacturers to
ensure interface compatibility. We also collaborate with sensor and voice/audio
software companies, helping them optimize their software technology on our
silicon platforms in terms of performance, power consumption and user
experience.



Our ArcticPro eFPGA IP are currently developed on 65nm, 40nm and 22nm process
nodes. The licensable IP is generated by a compiler tool that enables licensees
to create an eFPGA block that they can integrate into their SoC without
significant involvement by QuickLogic. We believe this flow enables a scalable
support model for QuickLogic. For our eFPGA strategy, we work with semiconductor
manufacturing partners to ensure our eFPGA IP is proven for a given foundry and
process node before it is licensed to a SoC company.



In order to grow our revenue from its current level, we depend upon increased
revenue from our new products including existing new product platforms, eFPGA IP
and platforms currently in development. We expect our business growth to be
driven mainly by our silicon solutions, eFPGA IP and SensiML AI Software.
Therefore, our revenue growth needs to be strong enough to enable us to sustain
profitability while we continue to invest in the development, sales and
marketing of our new solution platforms, IP and software. We are expecting
revenue growth from EOS S3, SensiML AI SaaS, and eFPGA IP license in fiscal year
2021.


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We continue to seek to expand our revenue, including pursuing high-volume sales
opportunities in our target market segments, by providing solutions
incorporating IP, or industry standard interfaces. Our industry is characterized
by intense price competition and by lower margins as order volumes increase.
While winning large volume sales opportunities will increase our revenue, we
believe these opportunities may decrease our gross profit as a percentage of
revenue.



During 2021 we generated total revenue of $12.7 million, which represents a
46.9% increase from $8.6 million in fiscal 2020. Our new product revenue during
fiscal 2021 was $7.8 million, which represents an 179% increase from
fiscal 2020. Of the $7.8 million in fiscal 2021 new product revenue,
approximately $2.7 million was generated by professional engineering services
related to our eFPGA IP.  Our mature product revenue during 2021 was $4.9
million, which represents a 16% decrease from 2020. We shipped our new products
into four of our targeted mobile market segments: Smartphones, Wearables, Mobile
Enterprise, Tablets, and SaaS revenue from the new Artificial Intelligence or AI
market beginning in 2020. Overall, with the improvements in reduced operating
expenses achieved by our restructuring activities implemented in early fiscal
2020, offset partially by the impact of the COVID-19 pandemic in 2021, we
reported a net loss of $6.6 million for 2021 compared to a net loss of $11.2
million for 2020



We have experienced net losses in the past years and expect to experience losses
in at least some of the fiscal quarters during 2022, as we continue to develop
new products, applications and technologies. Our new products and products
currently under development have been generating lower gross margin as a
percentage of revenue than our mature products due to the markets that we have
targeted and the larger order quantities associated with these applications.
Whether we can achieve cash flow levels sufficient to support our operations
cannot be accurately predicted, and our investment portfolio is subject to a
degree of interest rate and liquidity risk. Unless such cash flow levels are
achieved, in addition to the approximately $1 million in proceeds that we
received in September 2021 from the sale of our equity securities, the
subsequent event of the sale of our equity securities for approximately $1.5
million in proceeds during February 2022, and the credit line we may be able to
draw down from Heritage Bank of Commerce, we may need to obtain additional funds
through strategic divestiture, or sell debt or equity securities, or some
combination thereof, to provide funding for our operations. Such additional
funding may not be available on commercially reasonable terms, or at all.



On December 6, 2019, the Board of Directors of the Company approved a
1-for-14 reverse stock split of the Company's outstanding Common Stock, which
became effective on December 23, 2019, which was approved by the Company's
shareholders in a special meeting held on November 26, 2019. At the effective
time of the Reverse Stock Split, every 14 issued and outstanding shares of the
Company Common Stock 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 award, and per share
amounts contained in this Form 10-K and the accompanying Consolidated Financial
Statements have been adjusted to reflect the Reverse Stock Split for all prior
periods presented.



COVID-19 Response



 The COVID-19 pandemic and its potential effects on the Company's business in
fiscal 2022 and beyond remain uncertain. There have been further restrictions by
the governmental authorities as a result of a surge in COVID-19 cases during the
year 2021 and continuing into fiscal 2022. These restrictions and other impacts
from COVID-19 could cause 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. This might cause delays in production
or delivery of components or raw materials that are part of the Company's global
supply chain. If COVID-19 cases surge and 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.


The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, restrictions on travel, transportation and other containment measures, the success and the availability of the recent vaccine, our compliance with these measures and the impact on our employees, customers, contractors and supply chain, all of which are uncertain and unpredictable.



Restructuring



In January 2020, the Company implemented a restructuring plan to lower annual
operating expenses. The restructuring plan was approved by the Company's Board
of Directors on January 24, 2020. Pursuant to the restructuring plan, the
Company recorded $753,000 of restructuring charges during the twelve months of
fiscal year 2020, consisting primarily of employee severance related costs and
facilities costs. See Note 1to the Consolidated Financial Statements for
additional information.



Our employees and customers



Our top priority during the ongoing COVID-19 pandemic remains the health and
safety of our employees and their families, as well as our customers. As global
governments institute restrictions    on commercial operations, we are working
to ensure our compliance while also maintaining business continuity for
operations.



Most of our personnel continue to work from home except few personnel, who are
required for minimum operations. We only allow employees in our facilities who
are essential to the facilities' operations under best practices guidelines on
maintaining physical distancing, utilizing enhanced cleaning protocols and usage
of personal protective equipment.



We are committed to our customers to enable the support they need to continue
providing vital services and tools. Our global offices remain operational to
meet customer needs during the pandemic in compliance with the orders and
restrictions imposed by local authorities in each of our locations, and we are
working with our customers to meet their specific shipment needs. While the
pandemic has created delays on the inbound supply chain at our partners and our
own facilities and both inbound and outbound logistical challenges, we have been
able to identify alternative solutions such that none of the issues have had a
material impact on our ability to fulfill demand.



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Significant Accounting Policies and Estimates



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
policies include revenue recognition and determination of the Stand-Alone
Selling Price ("SSP") for certain distinct performance obligations (such as for
IP licensing and professional services contracts), goodwill and intangible
assets, valuation of inventories including identification of excess quantities
and product obsolescence, allowance for doubtful accounts, valuation of
long-lived assets, leases,  measurement of stock-based compensation, and
accounting for income taxes. 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.



Revenue Recognition



We recognize revenue in accordance with ASC 606 and related ASUs, which provide
supplementary guidance, and clarifications. The results for reporting periods
beginning after January 1, 2018 within this Form 10-K, are presented in
accordance with ASC 606, although comparative information for the reporting
periods prior to January 1, 2018 have not been restated and continue to be
reported under the accounting standards and policies in effect for those
periods. Under ASC 606 and related ASUs, revenue is recognized as follows:


We provide standard products that must be programmed before they can be used in an application. Our products may be programmed by us, distributors, end customers or third parties. Moreover, we provide professional engineering services to our customers.


Revenue is recognized upon transfer of control of promised products or services
to customers in an amount that reflects the consideration we expect to receive
in exchange for those products or services.



We determine 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, we satisfy a performance obligation.




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 standalone selling price. The product price as specified
on the purchase order is considered the standalone selling price as it is an
observable source that depicts the price as if sold to a similar customer in
similar circumstances.


Revenue arrangements  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. 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

Product revenue

The Company generates most of its revenue by supplying standard hardware
products, which must be programmed before they can be used in an application.
The Company's contracts with customers are generally for product only, and do
not include other performance obligations such as services, extended warranties
or other material rights.

The Company recognizes revenue from hardware products when control of the products is transferred to customers, when the Company’s performance obligation is satisfied, which typically occurs upon shipment from the Company’s manufacturing site. or its head office.

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Income from intellectual property and software licenses



The Company generates revenue from licensing their intellectual property or IP,
software tools and royalties from licensing its technology. The Company also
recognized approximately $1.1 million of IP and software licensing revenue
during fiscal 2021 and diminimis amounts in fiscal 2020 respectively
Additionally, the Company recognizes IP and Software License revenue at the
point of time when the control of IP or software license has been transferred.



Some of the IP and Software License contracts with customers contain multiple
performance obligations. For these contracts, the Company accounts for
individual performance obligations separately if they are distinct. The
transaction price is allocated to the separate performance obligations on a
relative standalone selling price basis. The Company determines the standalone
selling prices based on our overall pricing objectives, taking into
consideration market conditions and other factors, including the value of our
contracts, type of the customer, customer tier, type of the technology used,
customer demographics, geographic locations, and other factors.



ASC 606 provides for three methods to establishing SSP:  Adjusted market
assessment, Cost-plus-margin, and the Residual method. For IP license
revenue, the Company utilized a market assessment approach based on discounted,
expected future net cash flows to determine the value of the IP in order to
establish SSP. This method was chosen as QuickLogic had cash flow information
available from historical commercialization of similar IP.  The discount rate
utilized was 12%, equal to the company's estimated weighted average cost of
capital.

There are no variable consideration estimates associated with either combined
development and IP arrangements or for standalone arrangements involving either
the sale or licensing of IP.

Professional services income

Professional services revenue consists of professional engineering fees associated with the custom integration of the Company’s technology solutions into its customers’ products. Customization professional engineering services contract revenue, including eFPGA customization, was approximately
$1.5 million and $0.3 million in fiscal years 2021 and 2020, respectively.



An initial revenue arrangement may consist of significant software customization
services and support and maintenance services that include post-implementation
customer support on a time-and-materials basis as-needed.

Revenue from the company’s personalization services based on the duration of the project and the specific terms and deliverables of each contract:

? a pattern over time, measured using the input method such as work units

  ? an over time model measured using the output method such as specific
    deliverables produced




Due to the nature of the work performed in these arrangements, the estimation of
the over-time model is complex and involves significant judgment. In the case of
the input methods, the key factors reviewed by management to estimate costs to
complete each contract is the estimated labor days-effort necessary to complete
the project, budgeted hours, hourly cost to the Company, profit margins, and
engineering hours at cut-off when projects extend beyond a reporting period. In
relation to the output method, key factors reviewed by the Company are the
specific deliverables specified in the contracts with customers.

Significant judgments and estimates

Except as noted below, no significant judgment has generally been required in determining the amount and timing of revenue from the Company’s contracts with customers.

• The Company has implemented methods and controls to monitor the days of work committed

    in completing customization and other professional services as well as
    quantifying changes in estimates.

• For revenue derived from time and materials, the Company estimates a

overhead for labor and materials needed

• In 2021, the Company entered into a revenue contract with an unaffiliated company

customer, where the customer provided cash in addition to common stock

stock as payment in exchange for an IP license, know-how and professional

engineering services. The client is a private company and, as such,

its common shares are not traded on the stock exchange. This contract obliges the Company

apply significant judgment in the inputs for estimating the fair value of

common shares of a private company for the purpose of determining the

all consideration received under the contract with the customer. Submissions

involved in estimating the fair value of private company common stock

include the selection of a group of peer companies, the estimated volatility of

equity, based on a basket of common shares of public companies of peers, the

discount rate, discount for lack of commercialization and release time

materially affect the estimated fair value of the non-monetary consideration

has received. Consequently, to January 2, 2022the company has recognized $300,000 like

an investment in a private, unaffiliated company on its consolidated balance sheet

balance sheet and the same corresponding amount in deferred revenue. See Note 9 and

Note 14 to the consolidated financial statements for more information.

• The Company does not currently have any revenue contracts with

    consideration.




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Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to the
Company's customers due to contractual terms. The Company records contract
assets when revenue is recognized prior to invoicing, and a contract liability
when revenue is recognized subsequent to invoicing. The contract assets are
transferred to receivables when billing occurs and contract liabilities are
transferred to revenue once the related performance obligation is satisfied.



Software as a Service Revenue, or SaaS Revenue

Software products that are offered to customers with a right to use the hosted
software over the contract period without taking the possession of it are billed
on a subscription basis. Revenue that are billed on a subscription basis is
recognized ratably over the contract period.

Maintenance income

The Company recognizes revenue from maintenance ratably over the term of the
underlying maintenance contract term. Renewals of maintenance contracts create
new performance obligations that are satisfied over the term with the revenues
recognized ratably over the term.

Royalty revenue

The Company recognizes royalty revenue when the later of the following events
occurs: (a) The subsequent sale or usage occurs. (b) The performance obligation
to which some or all of the sales-based royalty has been allocated has been
satisfied


Deferred Revenue



Receivables are recognized in the period we ship the product. Payment terms on
invoiced amounts are based on contractual terms with each customer. When we
receive consideration, or such consideration is unconditionally due, prior to
transferring goods or services to the customer under the terms of a sales
contract, we record deferred revenue, which represents a contract liability. We
recognize deferred revenue as net sales once control of goods and/or services
have been transferred to the customer and all revenue recognition criteria have
been met and any constraints have been resolved. We defer the product costs
until recognition of the related revenue occurs.



Assets recognized from the costs of obtaining a contract with a customer


We recognize an asset for the incremental costs of obtaining a contract with a
customer if we expect the benefit of those costs to be longer than one year. We
have concluded that none of the costs we have incurred to obtain and fulfill our
ASC, 606 contracts meet the capitalization criteria, and as such, there are no
costs deferred and recognized as assets on the consolidated balance sheets at
January 2, 2022and January 3, 2021.



Practical expedients and exemptions

(i) Taxes collected from customers and remitted to government authorities and

related to the sales of our products are excluded from income.

(ii) Sales commissions are expensed as incurred because the amortization

period would have been one year or less. These costs are accounted for in

Selling, general and administrative expenses in the Consolidated Consolidated

Income statements.

  (iii) We do not disclose the value of unsatisfied performance obligations for
        (i) contracts with original expected lengths of one year or less or (ii)
        contracts for which we recognize revenue at the amount to which we have
        the right to invoice for the services performed.




We record allowance for sales returns. Amounts recorded for sales returns for
the year ended January 2, 2022, January 3, 2021, and December 29, 2019 were
approximately ( $13,000 ), $30,000,  and $60,000 respectively on the Company's
Consolidated Statement of Operations. The allowance for sales returns is based
on a historical returns analysis performed on a quarterly basis.



The Company regularly assesses the creditworthiness of its new and returning customers. The Company has never had collectability issues from its customers and has had no amounts, or immaterial amounts, of allowances for doubtful accounts in accounts receivable, net of allowances for doubtful accounts on its consolidated balance sheets. for all years presented in this Form 10K.


Cost of Revenue



We record all costs associated with product sales and professional services in
cost of revenue. These costs include the cost of materials, contract
manufacturing fees, shipping costs and quality assurance. Cost of revenue also
includes indirect costs such as warranty, excess and obsolete inventory charges,
general overhead costs, depreciation and amortization of certain capitalized
software. Cost of revenue related to professional services primarily comprise
the cost of labor was approximately $0.4 million for fiscal 2021 and was de
minimis for each of fiscal 2020 and fiscal 2019.



Allowance for doubtful accounts

The Company regularly assesses the creditworthiness of its new and returning customers. Historically, the Company has not had collection issues from its customers and has not had insignificant amounts or amounts in accounts receivable, net of allowances for doubtful accounts on its consolidated balance sheets for all years presented. in this 10K form.

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Valuation of Inventories



Inventories are stated at the lower of standard cost or net realizable value.
Standard cost approximates actual cost on a first-in, first-out basis. We
routinely evaluate quantities and values of our inventories in light of current
market conditions and market trends and record reserves for quantities in excess
of demand and product obsolescence. The evaluation may take into consideration
historic usage, expected demand, anticipated sales price, the stage in the
product life cycle of our customers' products, new product development
schedules, the effect new products might have on the sale of existing products,
product obsolescence, customer design activity, customer concentrations, product
merchantability and other factors. Market conditions are subject to change.
Actual consumption of inventories could differ from forecasted demand and this
difference could have a material impact on our gross margin and inventory
balances based on additional provisions for excess or obsolete inventories or a
benefit from inventories previously written down. We also regularly review the
cost of inventories against estimated market value and record a lower of cost or
market reserve for inventories that have a cost in excess of estimated market
value, which could have a material impact on our gross margin and inventory
balances based on additional write-downs to net realizable value or a benefit
from inventories previously written down.



Our semiconductor products have historically had an unusually long product life
cycle and obsolescence has not been a significant factor in the valuation of
inventories. However, as we pursue opportunities in the IoT market and continue
to develop new products, we believe our new product life cycle may be shorter,
which could increase the potential for obsolescence. A significant decrease in
demand could result in an increase in excess inventory on hand. Although we make
every effort to ensure the accuracy of our forecasts of future product demand,
any significant unanticipated changes in demand or frequent new product
developments could have a significant impact on the value of our inventory and
our results of operations.



Leases



We account for operating and finance leases in accordance with ASU, No. 2016-02,
Leases (Topic 842), or ASC 842, Leases. Under ASC 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.



Upon adoption of the ASU No. 2016-02, the Company recognized right-of-use assets
of approximately $975,000 and lease liabilities of approximately $939,000 on the
Company's Consolidated Balance Sheet as of March 31, 2019 with no material
impact to its Consolidated Statements of Operations. The Company utilized
weighted average discount rates of 5.88% and 6.36% for estimation of its ROU
assets and ROU liabilities respectively.



Good will 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.



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. Key
estimates utilized are the useful lives applied and assessment for impairment.
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.



Valuation of long-lived assets



We assess annually whether the value of identifiable long-lived assets,
including property and equipment, have been impaired and when events or changes
in circumstances indicate that the carrying value of an asset or asset group may
not be recoverable. Key estimates are the useful lives applied and impairment
assessment. Our assessment of possible impairment is based on our ability to
recover the carrying value of an asset or asset group from their 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 the asset or
asset group, we recognize an impairment loss for the difference between
estimated fair value and carrying value, and the carrying value of the related
assets is reduced by this difference. The measurement of impairment requires
management to estimate future cash flows and the fair value of long-lived
assets.  Based on this analysis, there are no significant impairments to our
long-lived assets.


Stock-Based Compensation Valuation



We account for stock-based compensation under the provisions of the amended
authoritative guidance and related interpretations, which require the
measurement and recognition of expense related to the fair value of stock-based
compensation awards. The fair value of stock-based compensation awards is
measured at the grant date and re-measured upon modification, as appropriate.
Determining the appropriate fair value model and calculating the fair value of
stock-based awards at the date of grant require judgment.



We use the Black-Scholes option pricing model to estimate the fair value of
employee stock options and rights to purchase shares under our 2019 Stock Plan,
2009 Stock Plan and 2009 Employee Stock Purchase Plan, or ESPP, consistent with
the provisions of the amended authoritative guidance. This fair value is
expensed on a straight-line basis over the requisite service period of the
award. Using the Black-Scholes pricing model requires us to develop highly
subjective assumptions, including the expected term of awards, expected
volatility of our stock, expected risk-free interest rate and expected dividend
rate over the term of the award. Our expected term of awards is based primarily
on our historical experience with similar grants. Our expected stock price
volatility for both stock options and ESPP shares is based on the historic
volatility of our stock, using the daily average of the opening and closing
prices and measured using historical data appropriate for the expected term. The
risk-free interest rate assumption approximates the risk-free interest rate of a
Treasury Constant Maturity bond with a maturity approximately equal to the
expected term of the stock option or ESPP shares.


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In addition to the assumptions used in the Black-Scholes pricing model, the
amended authoritative guidance requires that we recognize compensation expense
only for awards ultimately expected to vest; therefore, we are required to
develop an estimate of the historical pre-vest forfeiture experience and apply
this to all stock-based awards. The fair value of restricted stock awards, or
RSAs, and restricted stock units, or RSUs, is based on the closing price of our
common stock on the date of grant. RSA and RSU awards which vest with service
are expensed over the requisite service period. RSAs and RSU awards that are
expected to vest based on the achievement of a performance goal are expensed
over the estimated vesting period, which is estimated by management. We
regularly review the assumptions used to compute the fair value of our
stock-based awards and we revise our assumptions as appropriate.  See Note 13 to
the Consolidated Financial Statements for additional information.



Accounting for Income Taxes



As part of the process of preparing our financial statements, we are required to
estimate our income taxes in each of the jurisdictions in which we operate. This
process involves estimating our actual current tax exposure together with
assessing temporary differences resulting from different tax and accounting
treatment of items, such as deferred revenue, allowance for doubtful accounts,
the impact of equity awards, depreciation and amortization, and employee-related
accruals. These differences result in deferred tax assets and liabilities, which
are included on our balance sheets. We must then assess the likelihood that our
deferred tax assets will be recovered from future taxable income. To the extent
we believe that recovery is not likely, we must establish a valuation allowance.
To the extent we establish a valuation allowance or increase this allowance in a
period, we must include an expense within the tax provision in the statements of
operations.



Significant management judgment is required in determining our provision for
income taxes, deferred tax assets, liabilities and any valuation allowance
recorded against our net deferred tax assets. Our deferred tax assets net of
deferred tax liabilities relating to an ROU asset of $0.4 million, consisted
primarily of net operating loss carryforwards, depreciation and amortization,
amounted to approximately $61 million, tax effected, as of the end of 2021. In
evaluating our ability to recover our deferred tax assets within the
jurisdiction from which they arise, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax liabilities,
uncertainty of projecting future taxable income and results of recent
operations. As of January 2, 2022, we had federal and state income tax net
operating loss, or NOL, carryforwards of approximately $183.9 million and $94.4
million, respectively, which will expire at various dates from 2022 through
2041. Federal net operating losses generated in 2019 and forward of $55.3
million can be carried forward indefinitely. We had research credit
carryforwards of approximately $3.7 million for federal and $4.7 million for
state income tax purposes as of January 2, 2022. If not utilized, the federal
carryforwards will expire at various dates from 2022. The California credit can
be carried forward indefinitely. We believe that it is more likely than not that
the deferred tax assets and benefits from these federal and state NOL and credit
carryforwards will not be realized. In recognition of this risk, we have
recorded a valuation allowance of $60 million, tax-effected, as of the end of
fiscal year 2021, due to uncertainties related to our ability to utilize our
U.S. deferred tax assets before they expire.



Results of Operations


The following table shows the percentage of revenue for certain items in our statements of income for the periods indicated:


                                                    Fiscal Years
                                            2021        2020        2019
Statements of Operations:
Revenue                                       100 %       100 %       100 %
Cost of revenue                                42 %        51 %        43 %
Gross profit                                   58 %        49 %        57 %
Operating expenses:
Research and development                       55 %        87 %       120 %
Selling, general and administrative            63 %        79 %        86 %
Restructuring costs                             - %         9 %         - %
Loss from operations                          (59 )%     (126 )%     (149 )%
Interest expense                               (1 )%       (4 )%       (3 )%
Gain on forgiveness of PPP Loan                 9 %         - %         - %

Interest income and other charges, net – % 1% 2% Loss before income taxes

                      (51 )%     (129 )%     (151 

)%

Provision for (benefit from) income taxes       1 %         1 %        (1 )%
Net loss                                      (52 )%     (130 )%     (150 )%





The impact of inflation and product price changes on our revenue and revenue was negligible in 2021, 2020 and 2019.

Comparison of fiscal years 2021 and 2020



Revenue. The table below sets forth the changes in revenue for fiscal year ended
January 2, 2022, as compared to fiscal year ended January 3, 2021 (in thousands,
except percentage data):



                                               Fiscal Years
                                   2021                            2020
                                       % of Total                      % of Total
                         Amount         Revenues         Amount         Revenues            Year-Over-Year Change
Revenue by product
family (1):
New products            $   7,761                61 %   $   2,782                32 %   $      4,979              179 %
Mature products             4,924                39 %       5,852                68 %           (928 )            (16 )%
Total revenue           $  12,685               100 %   $   8,634               100 %   $      4,051               47 %


————————————————– ——————————

(1) New products include all products made to 180 nanometers or less

semiconductor processes, eFPGA IP license, 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.



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The 179% increase in new product revenue in 2021 compared to 2020 was
primarily due to  professional services revenue growth of approximately $1.5
million and growth in all product lines within this category. In 2021, mature
product revenue was 39% of total revenue compared to 68% in the prior year.
Mature product revenue decreased by 16% compared to 2020. The decrease in mature
product revenue was due primarily to decreases in most mature product
categories, offset by QuickPCI product orders.



Gross Profit. The table below sets forth the changes in gross profit for fiscal
year ended January 2, 2022, as compared to fiscal year ended January 3, 2021 (in
thousands, except percentage data):



                                               Fiscal Years
                                   2021                            2020
                                       % of Total                      % of Total
                         Amount         Revenues         Amount         Revenues            Year-Over-Year Change
Revenue                 $  12,685               100 %   $   8,634               100 %   $       4,051               47 %
Cost of revenue             5,266                42 %       4,386                51 %             880               20 %
Gross profit            $   7,419                58 %   $   4,248                49 %   $       3,171               75 %




The increase in gross profit and gross profit percentage was substantially due
to strong revenue growth in new products, primarily in eFPGA IP license,
connectivity, and sensors combined with higher margin professional engineering
services in fiscal 2021. The sale of inventories that were previously
written-off was approximately $123,000 and $65,000 in fiscal 2021 and
fiscal 2020, respectively. Inventory written-down in 2021 was
approximately $225,000 compared to $199,000 in 2020.



In 2021 and 2020, the Company capitalized costs of approximately $533 thousand
and $801 thousand, respectively, associated with internal-use software. For
fiscal  years 2021 and 2020 the Company recognized $278 thousand and $148
thousand, respectively, for amortization of internal-use software in cost of
goods sold on its Consolidated Statements of Operations.



Our semiconductor products have historically had a long product life cycle and
obsolescence has not been a significant factor in the valuation of inventories.
However, as we pursue opportunities in the IoT market and continue to develop
new CSSPs and products, we believe our product life cycle may be shorter, which
will increase the potential for obsolescence. In general, our standard
manufacturing lead times are longer than the binding forecasts we receive from
customers.



Operating Expenses. The table below sets forth the changes in operating expenses
for fiscal year ended January 2, 2022, as compared to fiscal year ended January
3, 2021 (in thousands, except percentage data):



                                                  Fiscal Years
                                      2021                            2020
                                          % of Total                      % of Total
                            Amount         Revenues         Amount         Revenues            Year-Over-Year Change
R&D expenses               $   6,927               55 %    $   7,544               87 %    $       (617 )             (8 )%
SG&A expenses              $   8,008               63 %    $   6,820               79 %    $      1,188               17 %
Restructuring costs        $       -                - %    $     753                9 %    $       (753 )            100 %
Total operating expenses   $  14,935             (118 )%   $  15,117             (175 )%   $       (182 )             (1 )%




Research and Development Expenses. Our research and development, or R&D,
expenses consist primarily of personnel, overhead and other costs associated
with System on Chip (SoC) and software development, programmable logic design,
AI and eFPGA development. R&D expenses were $6.9 million and $7.5 million in
2021 and 2020, respectively, which represented 55% and 87%, respectively, of
revenue for those periods. The $0.6 million decrease in R&D expenses in 2021 as
compared to 2020 was primarily attributable to lower compensation costs,
including stock-based compensation resulting from the reduced head-count given
effect by the restructuring plan implemented in January 2020.  Lower outside
service costs and lower travel expenses due to COVID-19 also contributed to the
decrease of R&D expenses. In 2021, 2020, and 2019, the Company capitalized costs
of approximately $533 thousand, $801 thousand, and $365 thousand,
respectively, associated with internal-use software.



Selling, General and Administrative Expenses. Our selling, general and
administrative, or SG&A, expenses consist primarily of personnel and related
overhead costs for sales, marketing, finance, administration, human resources
and general management. SG&A expenses were $8.0 million and $6.8 million in 2021
and 2020, respectively, which represented 63% and 79% of revenue for those
periods. The $1.2 million increase in SG&A expenses in 2021 as compared to 2020
was primarily attributable to outside services of $1.2 million, inclusive of
consulting and small increases in other minor spend offset by decreases in
salaries of $0.3million.

Restructuring. In January 2020, the Company implemented a restructuring plan to
lower annual operating expenses. The restructuring plan was approved by the
Company's Board of Directors on January 24, 2020. Pursuant to the restructuring
plan, the Company recorded $753,000 of restructuring charges during fiscal year
2020, consisting primarily of employee severance related costs and facilities
costs. See Note 1 to the Consolidated Financial Statements for additional
information.



Interest Expense and Interest Income and Other Expense, net. The table below
sets forth the changes in interest expense and interest income and other
expense, net, for the fiscal year ended January 2, 2022, as compared to fiscal
year ended January 3, 2021 (in thousands, except percentage data):



                                                Fiscal Years                Year-Over-Year Change
                                             2021          2020           Amount           Percentage
Interest income (expense)                  $    (130 )   $    (328 )   $        198                 (60 )%
Gain on forgiveness of PPP Loan                1,190             -            1,190                 100 %

Interest income and other (expenses), net (43 ) 97

   (140 )              (144 )%
                                           $   1,017     $    (231 )   $      1,248                (540 )%




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Interest expense relates primarily to our line of credit facility and our PPP
Loan. Interest income and other expenses, net, relates to the interest earned on
our money market accounts and foreign exchange gain or losses recorded. In
fiscal 2021,  the Company's PPP loan was forgiven under the Federal Government's
CARES act. As a result, the Company subsequently recognized a gain of
approximately $1.2  million on its Consolidated Statement of Operations for
fiscal 2021.



Provision for Income Taxes. The table below sets forth the changes in provision
for income taxes in the fiscal year ended January 2, 2022, as compared to the
fiscal year ended January 3, 2021 (in thousands, except percentage data):



                                Fiscal Years            Year-Over-Year Change
                              2021        2020       Amount           Percentage
Provision for income taxes   $   119      $  51     $      68                 133 %



                   Income tax expense for 2021 relates primarily to foreign
income tax provision on our foreign entities, primarily India and the UK. The
income tax expense for 2020 primarily relates to the deferred tax liability
arising from intangible assets acquired from the acquisition of SensiML which
offsets a released a portion of the Company's valuation allowance outside of
acquisition accounting.



As of the end of 2021, our ability to utilize our U.S. deferred tax assets in
future periods is uncertain and, accordingly, we have recorded a full valuation
allowance against the related U.S. deferred tax assets. We will continue to
assess the realizability of deferred tax assets in future periods.



Comparison of fiscal years 2020 and 2019



For discussion related to the results of operations and changes in financial
condition for fiscal 2020 compared to fiscal 2019, please refer to "Part II,
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations" in our fiscal 2020 Form 10-K, which was originally filed with the
SEC on March 23, 2021.


Cash and capital resources



We have financed our operating losses and capital investments through sales of
common stock, capital and operating leases, a revolving line of credit and cash
flows from operations. As of January 2, 2022, the Company's principal sources of
liquidity consisted of cash, cash equivalents and restricted cash of
$19.6million, including $15.0 million drawn down from its revolving line of
credit ("Revolving Facility") with Heritage Bank of Commerce ("Heritage Bank").
Subsequent to 2021, in February 2022, the Company sold 310,000 shares of its
common stock in a registered direct offering. The February 2022 share
placement resulted in gross cash proceeds of approximately $1.5 million.  See
Note 16 to the Consolidated Financial Statements for additional information.



Credit Agreement


At September 28, 2018we have entered into a loan and guarantee agreement (“loan agreement”) with Heritage Bank. The loan agreement provided for, among other things, the revolving facility, with aggregate commitments of $9.0 million.

At December 21, 2018we have entered into an amended and restated loan and security agreement (the “Amended and Restated Loan Agreement”) with Heritage Bank to supersede the entire Loan Agreement. The amended and restated loan agreement increased the revolving facility by $9.0 million for $15.0 million. The Amended and Restated Loan Agreement requires the Company to maintain at least $3.0 million in cash without restriction Heritage Bank.



On November 6, 2019, we Company entered into a First Amendment to the Amended
and Restated Loan Agreement with Heritage Bank 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%).



On December 11, 2020, we entered into a Second Amendment (the "Second
Amendment") to the Amended and Restated Loan Agreement with Heritage Bank. The
Second Amendment extended the loan maturity date for one year through September
28, 2022 and amended the interest rate to a rate per annum equal to one half of
one percentage point (0.50%) above the prime rate.



On August 16, 2021, the Company entered into a Third Amendment to the Amended
and Restated Loan Agreement with Heritage Bank (the "Third Amendment"). The
Third Amendment (a) waived the Company's non-compliance with the minimum cash
covenant which  obligated the Company to maintain at least $3.0 million of
unrestricted cash at all times and (b) amended this obligation such that the
Company shall now be required to maintain unrestricted cash in its accounts at
the Bank in an amount of at least $3.0 million measured i) immediately prior to
the funding of any credit extension, and ii) at all times that any advance is
outstanding.



On November 16, 2021, the Company entered into a Fourth Amendment (the "Fourth
Amendment") to the Amended and Restated Loan Agreement with Heritage Bank. The
Fourth Amendment extended the loan maturity date through December 31, 2023, and
amended and restated an annual, non-refundable Facility Fees of Forty-Five
Thousand Dollars ($45,000)- due, prorated to approximately $11 thousand, on
December 31, 2021 and in full on each anniversary of the Closing Date of
November 16, for so long as the Revolving Facility is in place.



On January 2, 2022 and January 3, 2021, the Company had $15.0 million of
outstanding revolving line of credit with interest rates of 3.75% and 3.75%,
respectively.  We were in compliance with all loan covenants under the Amended
and Restated Loan Agreement, as amended, as of the end of the current reporting
period. See Note 1 and Note 7 to the Consolidated Financial Statements for
additional information.



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Common Stock Offerings



On June 22, 2020, we closed an underwritten public offering of 2.5 million
shares of common stock, $0.001 par value per share at a price of $3.50 per
share, which included 141,733 additional shares pursuant to the underwriters'
exercise of their over-allotment option. We received net proceeds from the
offering of approximately $8.1 million, net of underwriter's commission and
other offering expenses. See Note 11 to the Consolidated Financial Statements
for additional information.



On September 22, 2021, the Company entered into a Share Subscription Agreement
for the sale of 125,000 shares of our common stock (the "Private Placement"). On
September 30, 2021, the Company entered into a Common Stock Purchase Agreement
for the sale of 73,664 shares of our common stock, in a registered direct
offering pursuant to our effective shelf registration statement on Form S-3
(File No. 333-230352) (the "Registered Direct Offering," and together with the
Private Placement, the "Share Placements"). The net proceeds to the Company from
the Share Placements in aggregate, after deducting equity issuance costs of
approximately $45,000, was approximately $1.0 million. See Note 11 to the
Consolidated Financial Statements for additional information.



Subsequent to 2021, in February 2022, the Company sold 310,000 shares of its
common stock in a registered direct offering. These February 2022
financing resulted in gross cash proceeds of approximately $1.5 million.  See
Note 16 to the Consolidated Financial Statements for additional information.



Paycheck Protection Program



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, or PPP Loan under
the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27,
2020, or CARES Act. On June 5, 2020, the President of the United States of
America signed into law the Paycheck Protection Flexibility Act ("PPPFA") to
address many concerns expressed by the small business community. As of September
27, 2020, we fully utilized the loan proceeds in compliance
with PPPFA guidelines. We applied for the full loan forgiveness in the fourth
quarter of 2020. On January 26, 2021 we received a notice from Heritage Bank
that amounts under the PPP Loan had been forgiven. See Note 7 to the
Consolidated Financial Statements for additional information.



Cash Flows



As of January 2, 2022, most of our cash and cash equivalents were invested in a
Heritage Bank Money Market account. As of January 2, 2022, our interest-bearing
debt consisted of $0.7 million outstanding under finance leases and $15.0
million outstanding under our Revolving Facility. See Note 7 to the Consolidated
Financial Statements for additional information.



Cash balances held at our foreign subsidiaries were approximately $401,000 and
$342,000 at January 2, 2022 and January 3, 2021, respectively. Earnings from our
foreign subsidiaries are currently deemed to be indefinitely reinvested. We do
not expect such reinvestment to affect our liquidity and capital resources, and
we continually evaluate our liquidity needs and ability to meet global cash
requirements as a part of our overall capital deployment strategy. Factors which
affect our liquidity, capital resources and global capital deployment strategy
include anticipated cash flows, the ability to repatriate cash in a tax
efficient manner, funding requirements for operations and investment activities,
acquisitions and divestitures and capital market conditions.



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


                                                        Fiscal Year
                                              2021         2020          2019
Net cash (used in) operating activities     $ (2,859 )   $ (11,594 )   $ (12,638 )
Net cash (used in) investing activities         (718 )        (921 )        (288 )
Net cash provided by financing activities        434         7,600        22,862



Net cash operating activities



In 2021, net cash used in operating activities was $2.9 million, which was
primarily due to a net loss of $6.6 million, adjusted for non-cash charges of
$2.2 million. Non-cash charges consisted primarily stock-based compensation
expense of $2.5 million and depreciation and amortization of long-lived assets
and certain definite-lived intangible assets of $0.6 million. In addition,
changes in working capital accounts provided cash of $3.1 million as a result of
decreases in accounts receivable $0.3 million, inventory of $0.4 million and
other assets of $0.4 million, and increases in accounts payable of $0.4 million
and accrued liabilities of $0.3 million, partially offset by cash inflow from a
decrease in deferred revenue of $0.4 million.



In 2020, net cash used in operating activities was $6.7 million, which was
primarily due to a net loss of $11.2 million, adjusted for non-cash charges
of $2.8 million. Non-cash charges consisted primarily stock-based compensation
expense of $1.7 million and depreciation and amortization of long-lived assets
and certain definite lived intangible assets of $0.8 million. In addition,
changes in working capital accounts provided cash of $1.6 million as a result of
decreases in accounts receivable $0.3 million, inventory of $0.4 million and
other assets of $0.5 million, and increases in accounts payable of $0.3 million
and accrued liabilities of $0.2 million, partially offset by cash inflow from a
decrease in deferred revenue of $0.1 million.



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Net cash investment activities



Net cash used for investing activities in 2021 was approximately $0.7 million,
which was primarily attributable to the capitalization of internal use software
of $533 and capital expenditures primarily related to computer equipment of
$185,000.



Net cash used for investing activities in 2020 was $1.1 million, which was
primarily attributable to the leasehold improvements and computer equipment at
the new office premises of $253,000 and capitalization of internal use software
of $801 thousand.


Net cash from financing activities



In 2021, net cash provided by financing activities was $0.4 million, primarily
attributable to the collective net proceeds of approximately $1.0 million
related to the issuance of 198,664 shares of common stock sold on September 30,
2021. The proceeds from the share issuances were partially offset by $0.6
million in payments related to financing leases.



In 2020, net cash provided by financing activities was $9.0 million, primarily
attributable to the net proceeds of $8.1 million from the issuance of 2.5
million shares of common stock in June 2020 and over allotment of 141,733 share
to underwriters in July 2020, and proceeds from the PPP Loan of $1.2 million,
partially offset by $0.3 million for scheduled repayments of finance lease
obligations and tax payments related to net settlement of stock awards.

We require substantial cash to fund our business. However, we believe that our
existing cash and cash equivalents, together with available financial resources
from the Revolving Facility will be sufficient to satisfy our operations and
capital expenditures over the next twelve months. Our Revolving Facility will
expire in December 2023. Further, any violations of debt covenants may restrict
our access to any additional cash draws from the revolving line of credit, and
may require our immediate repayment of the outstanding debt amounts. After the
next twelve months, our cash requirements will depend on many factors, including
our level of revenue and gross profit, the market acceptance of our existing and
new products, the levels at which we maintain inventories and accounts
receivable, costs of securing access to adequate manufacturing capacity, new
product development efforts, capital expenditures and the level of our operating
expenses. In order to satisfy our longer-term liquidity requirements, we may be
required to raise additional equity or debt financing. There can be no assurance
that financing will be available at commercially acceptable terms or at all.

Contractual obligations and commercial commitments



The following table summarizes our non-cancelable contractual obligations and
commercial commitments as of the end of 2021 and the effect such obligations and
commitments are expected to have on our liquidity and cash flows in future
fiscal periods (in thousands):



                                                    Payments Due by Period
                                                Less than 1                                        More than 5
                                    Total          year          1-3 Years        4-5 Years           Years
Contractual cash obligations:
Operating leases                  $     937     $       409     $       528     $           -     $           -
Finance software lease
obligations                             689             452             237                 -                 -
Wafer purchases (1)                     972             972               -                 -                 -
Other purchase commitments              939             878              61                 -                 -
Total contractual cash
obligations                           3,537           2,711             826                 -                 -
Other commercial commitments
Revolving line of credit (2)         15,000          15,000               -                 -                 -
Total commercial commitments         15,000          15,000               -                 -                 -
Total contractual obligations
and commercial commitments        $  18,537     $    17,711     $       826     $           -     $           -


————————————————– ——————————

(1) Some of our wafer manufacturers ask us to predict wafer starts

several months in advance. We undertake to receive and pay

part of the expected platelet volume. (2) The current maturity date of our revolving line of credit is the 31st of December,

2023. However, we include this amount in the less than one year due category

the revolving nature of the balance and our intended use of the credit line

credit. See note 7 of the consolidated financial statements for additional information

    information.




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Concentration of Suppliers



We depend on a limited number of contract manufacturers, subcontractors, and
suppliers for wafer fabrication, assembly, programming and testing of our
devices, and for the supply of programming equipment. These services are
typically provided by one supplier for each of our devices. We generally
purchase these single or limited source services through standard purchase
orders. Because we rely on independent subcontractors to perform these services,
we cannot directly control product delivery schedules, costs or quality levels.
Our future success also depends on the financial viability of our independent
subcontractors. These subcontract manufacturers produce products for other
companies, and we must place orders in advance of expected delivery. As a
result, we have only a limited ability to react to fluctuations in demand for
our products, which could cause us to have an excess or a shortage of
inventories of a particular product, and our ability to respond to changes in
demand is limited by these suppliers' ability to provide products with the
quantity, quality, cost and timeliness that we require. The decision not to
provide these services to us or the inability to supply these services to us,
such as in the case of a natural or financial disaster, would have a significant
impact on our business. Increased demand from other companies could result in
these subcontract manufacturers allocating available capacity to customers that
are larger or have long-term supply contracts in place and we may be unable to
obtain adequate foundry and other capacity at acceptable prices, or we may
experience delays or interruption in supply. Additionally, volatility of
economic, market, social and political conditions in countries where these
suppliers operate may be unpredictable and could result in a reduction in
product revenue or increase our cost of revenue and could adversely affect our
business, financial condition and results of operations.



Off-balance sheet arrangements



We do not maintain any off-balance sheet partnerships, arrangements or other
relationships with unconsolidated entities or others, often referred to as
structured finance or special purpose entities, which are established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes.


Recently issued accounting pronouncements



See Note 2 to the Consolidated Financial Statements for a full description of
recent accounting pronouncements, including the expected dates of adoption and
estimated effects on financial condition and results of operations, which is
incorporated herein by reference.

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