UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2019~~ 2020

☐ 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: 001-37582

ADESTO TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		16-1755067
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)

Adesto Technologies Corporation
3600 Peterson Way
Santa Clara, CA 95054
(408) 400-0578

(Address and telephone number of Registrant’s executive offices)

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 ☒ 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 ☒ 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 ☒ Non-accelerated filer ☐ Smaller reporting company ☒ 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 Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock	IOTS	The Nasdaq Stock Market

Table of Contents

ADESTO TECHNOLOGIES CORPORATION

QUARTERLY REPORT ON FORM 10‑-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~MARCH 3031, ~~2019~~ 2020

INDEX

	PART I FINANCIAL INFORMATION
	PART I: FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
	Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018	4
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	4
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2019 and 2018	5
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2019 and 2018	6
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3738
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
	PART II OTHER INFORMATION
	PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	4849
Item 1B.	Unresolved Staff Comments	7275
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7275
Item 3.	Defaults Upon Senior Securities	7275
Item 4.	Mine Safety Disclosures	7275
Item 5.	Other Information	7275
Item 6.	Exhibits	7276
Signatures		7477

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30,		December 31,

	2019		2018
	March 31,		December 31,
Assets
	2020		2019
Current assets:
Assets
Cash and cash equivalents	$	37,205	$	8,630
Current assets:
Restricted cash		459		458
Cash and cash equivalents	$	9,965	$	21,262
Accounts receivable, net		33,913		23,211
Restricted cash		504		460
Inventories		16,343		18,635
Accounts receivable, net		38,074		40,492
Prepaid expenses		1,660		1,668
Inventories		22,210		20,023
Other current assets		403		871
Prepaid expenses		1,678		2,052
Total current assets		89,983		53,473
Other current assets		1,007		249
Property and equipment, net		8,040		7,085
Total current assets		73,438		84,538
Intangible assets, net		30,896		36,261
Property and equipment, net		7,798		8,113
Operating lease right-of-use assets		4,474		—
Intangible assets, net		27,320		29,108
Other non-current assets		2,300		1,729
Operating lease right-of-use assets		4,118		4,300
Goodwill		38,640		38,640
Other non-current assets		3,113		2,503
Total assets	$	174,333	$	137,188
Goodwill		38,640		38,640
Liabilities and Stockholders' Equity
Total assets	$	154,427	$	167,202
Current liabilities:
Liabilities and Stockholders' Equity
Accounts payable	$	20,778	$	16,146
Current liabilities:
Accrued compensation and benefits		4,359		4,038
Accounts payable	$	24,245	$	22,844
Accrued expenses and other current liabilities		5,772		5,172
Accrued compensation and benefits		1,941		5,279
Price adjustments and other revenue reserves		5,108		4,819
Accrued expenses and other current liabilities		7,106		9,368
Earn-out liability		10,130		10,450
Price adjustments and other revenue reserves		3,453		3,640
Operating lease liabilities, current		1,186		—
Earn-out liability		2,000		2,911
Term loan, current		—		141
Operating lease liabilities, current		1,266		1,230
Total current liabilities		4740,~~333~~011		4045,~~766~~272
Term loan, non-current		—		29,418
Convertible long-term debt		57,264		56,589
Convertible senior notes, net		55,315		—
Operating lease liabilities, non-current		4,400		4,726
Operating lease liabilities, non-current		5,048		—
Deferred tax liability, non-current		1,281		1,363
Deferred rent, non-current		—		1,947
Other non-current liabilities		401		476
Deferred tax liability, non-current		1,515		1,735
Total liabilities		103,357		108,426
Other non-current liabilities		608		580
Commitments and contingencies (See Note 10)
Total liabilities		109,819		74,446
Stockholders' equity:
Commitments and contingencies (See Note 10)
Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of March 31, 2020 and December 31, 2019; no shares issued and outstanding as of March 31, 2020 and December 31, 2019		—		—
Stockholders' equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized; 30,816,165 and 30,268,685 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		3		3
Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of September 30, 2019 and December 31, 2018; no shares issued and outstanding as of September 30, 2019 and December 31, 2018		—		—
Additional paid-in capital		209,984		206,356
Common stock, $0.0001 par value, 100,000,000 shares authorized; 30,119,051 and 29,442,065 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		3		3
Accumulated other comprehensive income (loss)		(10)		309
Additional paid-in capital		205,003		184,158
Accumulated deficit		(158,907)		(147,892)
Accumulated other comprehensive loss		(518)		(135)
Total stockholders' equity		51,070		58,776
Accumulated deficit		(139,974)		(121,284)
Total liabilities and stockholders’ equity	$	154,427	$	167,202
Total stockholders' equity		64,514		62,742
Total liabilities and stockholders’ equity	$	174,333	$	137,188

(1) The condensed consolidated balance sheet as of December 31, ~~2018~~2019 was derived from the audited consolidated financial statements as of that date.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

	Three Months Ended				Nine Months Ended

	September 30,				September 30,
	Three Months Ended
	2019		2018		2019		2018
	March 31,
Revenue, net	$	32,028	$	21,927	$	90,297	$	55,412
	2020		2019
Cost of revenue		15,781		12,344		46,384		30,885
Revenue, net	$	20,021	$	28,113
Gross profit		16,247		9,583		43,913		24,527
Cost of revenue		11,384		14,893
Operating expenses:
Gross profit		8,637		13,220
Research and development		7,384		5,297		22,353		13,139
Operating expenses:
Selling, general and administrative		8,461		5,795		24,554		14,762
Research and development		7,664		7,522
Amortization of intangible assets		1,789		1,138		5,365		2,119
Selling, general and administrative		8,823		7,935
Acquisition related expenses		—		4,776		227		6,793
Amortization of intangible assets		1,788		1,788
Restructuring and other charges		—		—		1,694		—
Acquisition related expenses		1,901		222
Total operating expenses		17,634		17,006		54,193		36,813
Impairment and other charges		—		1,694
Loss from operations		(1,387)		(7,423)		(10,280)		(12,286)
Total operating expenses		20,176		19,161
Other income (expense):
Loss from operations		(11,539)		(5,941)
Interest expense, net		(6,034)		(1,046)		(8,781)		(2,368)
Other income (expense):
Other income, net		190		8		359		17
Interest expense, net		(1,515)		(1,370)
Total other income (expense), net		(5,844)		(1,038)		(8,422)		(2,351)
Other income, net		1,936		220
Loss before benefit from income taxes		(7,231)		(8,461)		(18,702)		(14,637)
Total other income (expense), net		421		(1,150)
Provision for (benefit from) income taxes		337		(64)		236		(80)
Loss before benefit from income taxes		(11,118)		(7,091)
Net loss	$	(7,568)	$	(8,397)	$	(18,938)	$	(14,557)
Benefit from income taxes		(103)		(31)
Net loss per share:
Net loss	$	(11,015)	$	(7,060)
Basic and diluted	$	(0.25)	$	(0.30)	$	(0.64)	$	(0.61)
Net loss per share:
Weighted average number of shares used in computing net loss per share:
Basic and diluted	$	(0.36)	$	(0.24)
Basic and diluted		30,016,585		28,171,952		29,784,314		23,717,727
Weighted average number of shares used in computing net loss per share:
Basic and diluted		30,561,076		29,592,247

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

ADESTO TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net loss	$	(7,568)	$	(8,397)	$	(18,938)	$	(14,557)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment		(299)		(148)		(383)		(65)
Comprehensive loss	$	(7,867)	$	(8,545)	$	(19,321)	$	(14,622)


	Three Months Ended
	March 31,
	2020		2019
Net loss	$	(11,015)	$	(7,060)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment		(319)		(128)
Comprehensive loss	$	(11,334)	$	(7,188)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

ADESTO TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Nine Months Ended September 30, 2019
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balances as of January 1, 2019	29,442,065	$	3	$	184,158	$	(135)	$	(121,284)	$	62,742
ASC 842 adoption adjustment	—		—		—		—		248		248
Options exercised	9,712		—		26		—		—		26
Employee stock purchase plan	129,815		—		544		—		—		544
Restricted stock units, net of taxes paid related to net settlement of equity awards	66,995		—		(85)		—		—		(85)
Stock-based compensation	—		—		1,075		—		—		1,075
Foreign currency translation adjustments	—		—		—		(128)		—		(128)
Net loss	—		—		—		—		(7,060)		(7,060)
Balances as of March 31, 2019	29,648,587	$	3	$	185,718	$	(263)	$	(128,096)	$	57,362
Options exercised	53,275		—		127		—		—		127
Restricted stock units, net of taxes paid related to net settlement of equity awards	85,448		—		(53)		—		—		(53)
Stock-based compensation	—		—		1,364		—		—		1,364
Foreign currency translation adjustments	—		—		—		44		—		44
Net loss	—		—		—		—		(4,310)		(4,310)
Balances as of June 30, 2019	29,787,310	$	3	$	187,156	$	(219)	$	(132,406)	$	54,534
Options exercised	28,186		—		135		—		—		135
Employee stock purchase plan	154,116		—		649		—		—		649
Restricted stock units, net of taxes paid related to net settlement of equity awards	149,439		—		(84)		—		—		(84)
Stock-based compensation	—		—		1,635		—		—		1,635
Foreign currency translation adjustments	—		—		—		(299)		—		(299)
Purchase of capped calls	—		—		(6,150)		—		—		(6,150)
Equity component of convertible senior notes (net of issuance costs of $1 million)	—		—		21,662		—		—		21,662
Net loss	—		—		—		—		(7,568)		(7,568)
Balances as of September 30, 2019	30,119,051	$	3	$	205,003	$	(518)	$	(139,974)	$	64,514


	Three Months Ended March 31, 2020
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balances as of January 1, 2020	30,268,685	$	3	$	206,356	$	309	$	(147,892)	$	58,776
Options exercised	299,737		—		1,172		—		—		1,172
Employee stock purchase plan	128,601		—		777		—		—		777
Restricted stock units, net of taxes paid related to net settlement of equity awards	119,142		—		(246)		—		—		(246)
Stock-based compensation	—		—		1,925		—		—		1,925
Foreign currency translation adjustments	—		—		—		(319)		—		(319)
Net loss	—		—		—		—		(11,015)		(11,015)
Balances as of March 31, 2020	30,816,165	$	3	$	209,984	$	(10)	$	(158,907)	$	51,070

Table of Contents

ADESTO TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data) (continued)

	Nine Months Ended September 30, 2018
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balances as of January 1, 2018	21,291,833	$	2	$	133,087	$	(295)	$	(99,844)	$	32,950
Issuance of warrants	—		—		4,799		—		—		4,799
Options exercised	47,405		—		106		—		—		106
Employee stock purchase plan	55,806		—		223		—		—		223
Restricted stock units, net of taxes paid related to net settlement of equity awards	14,248		—		(55)		—		—		(55)
Stock-based compensation	—		—		443		—		—		443
Foreign currency translation adjustments	—		—		—		(17)		—		(17)
Net loss	—		—		—		—		(1,102)		(1,102)
Balances as of March 31, 2018	21,409,292	$	2	$	138,603	$	(312)	$	(100,946)	$	37,347
Options exercised	38,345		—		114		—		—		114
Restricted stock units, net of taxes paid related to net settlement of equity awards	75,388		—		(162)		—		—		(162)
Stock-based compensation	—		—		720		—		—		720
Foreign currency translation adjustments	—		—		—		100		—		100
Net loss	—		—		—		—		(5,058)		(5,058)
Balances as of June 30, 2018	21,523,025	$	2	$	139,275	$	(212)	$	(106,004)	$	33,061
Issuance of 7,705,000 shares of common stock @ $6.00 (net of issuance costs of $3.1 million)	7,705,000		1		42,662						42,663
Options exercised	22,472		—		43		—		—		43
Employee stock purchase plan	69,761		—		327		—		—		327
Restricted stock units, net of taxes paid related to net settlement of equity awards	47,529		—		(160)		—		—		(160)
Stock-based compensation	—		—		940		—		—		940
Foreign currency translation adjustments	—		—		—		(148)		—		(148)
Net loss	—		—		—		—		(8,397)		(8,397)
Balances as of September 30, 2018	29,367,787	$	3	$	183,087	$	(360)	$	(114,401)	$	68,329


	Three Months Ended March 31, 2019
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balances as of January 1, 2019	29,442,065	$	3	$	184,158	$	(135)	$	(121,284)	$	62,742
ASC 842 adoption adjustment	—		—		—		—		248		248
Options exercised	9,712		—		26		—		—		26
Employee stock purchase plan	129,815		—		544		—		—		544
Restricted stock units, net of taxes paid related to net settlement of equity awards	66,995		—		(85)		—		—		(85)
Stock-based compensation	—		—		1,075		—		—		1,075
Foreign currency translation adjustments	—		—		—		(128)		—		(128)
Net loss	—		—		—		—		(7,060)		(7,060)
Balances as of March 31, 2019	29,648,587	$	3	$	185,718	$	(263)	$	(128,096)	$	57,362

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Nine Months Ended

	September 30,
	Three Months Ended
	2019		2018
	March 31,
Cash flows from operating activities:
	2020		2019
Net loss	$	(18,938)	$	(14,557)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss	$	(11,015)	$	(7,060)
Stock-based compensation expense		4,074		2,103
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,226		1,687
Stock-based compensation expense		1,925		1,075
Amortization of intangible assets		5,365		2,119
Depreciation and amortization		997		646
Amortization of debt discount and issuance costs		5,149		707
Amortization of intangible assets		1,788		1,788
Prepayment premium and related costs		784		—
Amortization of debt discount and issuance costs		675		401
Deferred income taxes		(~~220~~82)		(~~463~~75)
Gain on investment		—		(1)
Decrease in fair value of earn-out liability		(911)		(320)
Gain on sale of equipment		—		(18)
Changes in assets and liabilities:
Decrease in fair value of earn-out liability		(320)		—
Accounts receivable		2,418		(9)
Changes in assets and liabilities:
Inventories		(2,187)		1,992
Accounts receivable		(10,702)		(12,826)
Prepaid expenses and other current assets		(384)		(301)
Inventories		2,292		(6,017)
Other non-current assets		(316)		176
Prepaid expenses and other current assets		475		949
Accounts payable		2,112		545
Other non-current assets		179		(8)
Accrued compensation and benefits		(3,338)		57
Accounts payable		3,712		5,834
Accrued expenses and other current liabilities		(2,262)		756
Accrued compensation and benefits		321		1,087
Price adjustments and other revenue reserves		(187)		1
Accrued expenses and other current liabilities		1,057		1,178
Other non-current liabilities		(365)		(303)
Price adjustments and other revenue reserves		289		5,202
Net cash used in operating activities		(11,132)		(631)
Other non-current liabilities		(771)		283
Cash flows from investing activities:
Deferred rent		—		(341)
Acquisition of property and equipment		(1,114)		(600)
Net cash used in operating activities		(5,028)		(13,082)
Investment in unconsolidated affiliate		(112)		(4)
Cash flows from investing activities:
Net cash used in investing activities		(1,226)		(604)
Acquisition of property and equipment		(2,518)		(2,631)
Cash flows from financing activities:
Acquisition of Echelon, net of cash acquired		—		(28,836)
Proceeds from exercise of stock options and employee stock purchase plan		1,949		570
Acquisition of S3 Semiconductors, net of cash acquired		—		(34,616)
Tax withholdings related to net share settlement of restricted stock units		(246)		(85)
Investment in unconsolidated affiliate		(346)		(434)
Payments on term loan		—		(437)
Net cash used in investing activities		(2,864)		(66,517)
Net cash provided by financing activities		1,703		48
Cash flows from financing activities:
Effect of exchange rates on cash, cash equivalents and restricted cash		(598)		203
Proceeds from public offering, net of underwriting discounts and commissions		—		42,658
Net decrease in cash, cash equivalents and restricted cash		(11,253)		(984)
Proceeds from exercise of stock options and employee stock purchase plan		1,481		813
Cash, cash equivalents and restricted cash - beginning of year		21,722		9,088
Tax withholdings related to net share settlement of restricted stock units		(222)		(372)
Cash, cash equivalents and restricted cash - end of period	$	10,469	$	8,104
Payment of debt issuance costs		(15)		—
Supplemental disclosures of other cash flow information:
Payments on revolving line of credit		—		(1,500)
Cash paid for interest expense	$	1,531	$	981
Proceeds from issuance of convertible senior notes, net of issuance costs		77,280		33,591
Supplemental disclosures of non-cash investing and financing information:
Payments on term loan		(35,492)		(12,000)
Purchase of property and equipment included in accounts payable	$	711	$	165
Purchase of capped calls		(6,150)		—
Net cash provided by financing activities		36,882		63,190
Effect of exchange rates on cash, cash equivalents and restricted cash		(414)		(396)
Net increase (decrease) in cash, cash equivalents and restricted cash		28,576		(16,805)
Cash, cash equivalents and restricted cash - beginning of year		9,088		30,078
Cash, cash equivalents and restricted cash - end of period	$	37,664	$	13,273
Supplemental disclosures of other cash flow information:
Cash paid for interest expense	$	2,882	$	1,777
Supplemental disclosures of non-cash investing and financing information:
Purchase of property and equipment included in accounts payable	$	632	$	159
Fair value of warrants issued in connection with term loan	$	—	$	4,799

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Organization and Summary of Significant Accounting Policies.

Organization and Nature of Operations.

Adesto Technologies Corporation (together with its subsidiaries; “Adesto”, “we”, “our”, “us” or the “Company”) was incorporated in the state of California in January 2006 and reincorporated in Delaware in October 2015. We are a leading provider of innovative, application-specific ~~semiconductors~~semiconductor and systems for the Internet of Things era. Our corporate headquarters are located in Santa Clara, California.

On May 9, 2018 we acquired 100% of the issued capital of S3 Asic Semiconductors Limited and on September 14, 2018 we acquired 100% of the issued capital of Echelon Corporation. Our financial results include the operating results of those entities from the date of acquisition.

On February 20, 2020, we entered into a definitive merger agreement with Dialog Semiconductor plc (“Dialog”), a company incorporated in England and Wales. According to the terms of the merger, Dialog will acquire 100% of the issued capital of the Company (see Note 17, “Merger with Dialog Semiconductor plc”).

Basis of Presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10‑ Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to complete annual consolidated financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented have been included. Operating results for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020, for any other interim period or for any other future year.

The condensed consolidated balance sheet as of December 31, ~~2018~~2019 was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10‑ K for the year ended December 31, ~~2018~~2019, filed with the Securities and Exchange Commission on March 18 16, ~~2019~~2020.

The condensed consolidated financial statements include the results of our operations, and the operations of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

There have been no material changes to our significant accounting policies described in Note 1, Organization and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of our Annual Report on Form 10‑ K for the year ended December 31, ~~2018~~2019 that have had a material impact on our condensed consolidated financial statements and related notes, except as described below. .

Recent Accounting Pronouncements.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. This ASU will have an impact on the Company's disclosures.~~

Inlevels ~~January 2017,~~of the ~~FASB~~fair ~~issued~~value ~~ASU~~hierarchy ~~No. 2017-04, Intangibles—Goodwill~~ and ~~Other~~the ~~(Topic~~valuation ~~350):~~processes ~~Simplifying~~for ~~the~~Level ~~Test~~3 ~~for~~fair ~~Goodwill~~value ~~Impairment~~measurements. ~~This~~Public ~~ASU~~companies ~~eliminates~~will ~~Step~~be 2required ~~from~~to disclose the ~~goodwill~~range ~~impairment~~and ~~test.~~weighted ~~Instead,~~average anused ~~entity~~to ~~should~~develop ~~recognize~~significant anunobservable ~~impairment~~inputs ~~charge~~ for ~~the~~Level ~~amount~~3 ~~by which the carrying value exceeds the reporting unit’s~~ fair value, ~~not to exceed the total amount of goodwill allocated to that reporting unit~~measurements. This ASU is effective for ~~annual~~public orentities ~~any~~for ~~interim~~annual ~~goodwill~~and ~~impairment~~interim ~~tests~~periods ~~in fiscal years~~ beginning after December 15, 2019. This ~~The~~ASU ~~Company~~was isadopted ~~currently~~on ~~evaluating~~January ~~the effect of the adoption of this ASU~~1, ~~but~~2020 ~~anticipates~~and ~~that~~changed ~~the~~disclosure ~~adoption will not have a material impact on its consolidated financial statements~~requirements.

In ~~June 2016~~January 2017, the FASB issued ASU No. ~~2016~~ 2017-1304, ~~Financial Instruments~~Intangibles—~~Credit~~Goodwill ~~Losses~~and Other (Topic ~~326~~350): ~~Measurement~~Simplifying ofthe ~~Credit~~Test ~~Losses~~for onGoodwill ~~Financial Instruments~~Impairment. This ASU ~~requires~~eliminates ~~instruments~~Step ~~measured~~2 atfrom ~~amortized~~the ~~cost~~goodwill toimpairment betest. ~~presented~~Instead, atan ~~the~~entity ~~net~~should ~~amount~~recognize ~~expected~~an toimpairment becharge ~~collected.~~for ~~Entities~~the ~~are~~amount ~~also~~by ~~required~~which tothe ~~record~~carrying ~~allowances~~value ~~for~~exceeds ~~available-for-sale~~the ~~debt~~reporting ~~securities~~unit’s ~~rather~~fair ~~than~~value, ~~reduce~~not to exceed the ~~carrying~~total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019,. ~~including~~This ~~interim~~ASU ~~periods~~was ~~within~~adopted ~~those~~on ~~fiscal~~January ~~years.~~1, ~~The~~2020 ~~Company~~and ~~expects~~did ~~that the adoption will~~ not have aan ~~material~~ impact on ~~its~~our consolidated ~~financial~~results ~~statements~~of operations or cash flows.

~~Recently~~In ~~Adopted~~June ~~Accounting~~2016, ~~Pronouncements~~the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvement to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU No. 2019-05, Financial Instruments Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, the FASB issued ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

~~Adoption~~Additionally, ASU No. 2019-10 defers the effective date for the adoption of ~~ASC~~the ~~842:~~ new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as a SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, Company does not expect the adoption of the ASU to have a material impact on its condensed consolidated financial statements and the related disclosures.

WeRevenue ~~adopted~~from ~~ASU~~contracts ~~No.~~with ~~2016-02, Leases (“Topic 842”), as of January 1, 2019, using the modified retrospective approach~~customers. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and we elected the hindsight practical expedient to determine the lease term for existing leases. We determined that most renewal options would not be reasonably certain in determining the expected lease term. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

~~Adoption~~ Revenue is recognized when control of the ~~new~~promised ~~standard~~goods ~~resulted~~or services is transferred to customers, in an amount that reflects the ~~recording~~consideration ofwe ~~right~~expect ofto ~~use~~be ~~assets~~entitled ofto ~~$4.9 million~~in ~~and~~exchange ~~lease~~for ~~liabilities~~those ofgoods $7or services.~~0 million~~ ~~and~~Sales ~~eliminating~~of ~~deferred~~products ~~rent~~with ofalternative ~~$2.4~~use ~~million,~~account asfor ofthe ~~January~~majority 1,of ~~2019.~~our ~~The~~revenue ~~standard~~and ~~did~~are ~~not~~recognized ~~have~~at ana ~~impact~~point onin ~~our~~time, ~~consolidated~~the ~~results~~timing of ~~operations~~such orrecognition ~~cash~~remained ~~flows~~the same under Topic 606.

~~The~~Taxes ~~effect~~assessed ofby ~~the~~a ~~changes~~governmental ~~made~~authority tothat ~~our~~are ~~consolidated~~both ~~January~~imposed 1on and concurrent with a specific revenue-producing transaction, ~~2019~~that ~~balance~~are ~~sheet~~collected ~~for~~by ~~the~~us ~~adoption~~from ofa customer and deposited with the ~~new~~relevant ~~lease~~government ~~standard~~authority, ~~was~~are asexcluded ~~follows~~from ~~(in~~revenue. ~~thousands):~~ Our revenue arrangements do not contain significant financing components.

	Balance as of		Adjustments		Balance as of
		December 31,		Due to		January 1,
	2018		ASC 842		2019
Operating lease right-of-use assets	$	—	$	4,877	$	4,877
Total assets	$	137,188	$	4,877	$	142,065
Operating lease liabilities, current	$	—	$	1,116	$	1,116
Operating lease liabilities, non-current	$	—	$	5,917	$	5,917
Deferred rent	$	2,404		(2,404)		—
Total liabilities	$	74,446	$	4,629	$	79,075
Accumulated deficit	$	(121,284)	$	248	$	(121,036)
Total stockholders' equity	$	62,742	$	248	$	62,990
Total liabilities and stockholders' equity	$	137,188	$	4,877	$	142,065

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~Revenue Recognition.~~

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales of products with alternative use account for the majority of our revenue and are recognized at a point in time, the timing of such recognition remained the same under Topic 606.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer and deposited with the relevant government authority, are excluded from revenue. Our revenue arrangements do not contain significant financing components.

Revenue is recognized over a period of time when it is assessed that performance obligations are satisfied over a period rather than at a point in time. When any of the following criteria is fulfilled, revenue is recognized over a period of time:


(a)	The customer simultaneously receives and consumes the benefits provided by the performance as Adesto performs.

(b)	Adesto’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.

(c)	Adesto’s performance does not create an asset with an alternative use, and Adesto has an enforceable right to payment for performance completed to date.

If revenue is recognized over a period of time, we would then select an appropriate method for measuring progress toward complete satisfaction of the performance obligation, usually costs incurred to date relative to the total expected costs to the satisfaction of that performance obligation. Typically, our revenue is recognized at a point in time.

Sales to certain distributors are made under arrangements which provide the distributors with price adjustments, price protection, stock rotation and other allowances under certain circumstances. These adjustments and allowances are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized. We believe that there will not be significant changes to our estimates of variable consideration.

If a customer pays consideration, or Adesto has a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as deferred income/ advances received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or it is due, whichever is earlier.

If the arrangement includes variable contingent consideration, we recognize revenue over time if we can reasonably measure its progress, or we are capable of providing reliable information that would be required to apply an appropriate method of measuring progress. To date, we have not had any arrangements incorporating contingent consideration.

Sales commissions are owed and are recorded at the time of sell through of our products to end customers. These costs are recorded within selling, general and administrative expenses.

The Company has entered into, and will continue to enter into, development agreements. Typically, revenue is recognized over time on a percentage of completion basis based on resources expended to date as compared to budgeted resources. Cost associated with these contracts can be classified as cost of revenue or research and development expense depending on the terms of the contract.

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

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Timing of Revenue Recognition.

		Three Months Ended						Nine Months Ended

		September 30,						September 30,
			Three Months Ended
	2019			2018			2019		2018
			March 31,
	(in thousands)
		2020			2019
Products transferred at a point in time	$	26,023		$	18,250		$	76,480	$	49,748

Products and services transferred over time		6,005			3,677			13,817		5,664
Products transferred at a point in time		$	18,009		$	24,135
	$	32,028		$	21,927		$	90,297	$	55,412
Products and services transferred over time			2,012			3,978
		$	20,021		$	28,113

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled and our contract liabilities which we classify as deferred revenue:

	September 30,		December 31,

	2019		2018		Change
	March 31,		December 31,
	(in thousands)
	2020		2019		Change
Contract assets:
	(in thousands)
Accounts receivable, unbilled	$	3,863	$	751	$	3,112
Contract assets:
Contract liabilities:
Accounts receivable, unbilled	$	5,593	$	4,795	$	798
Deferred revenue	$	649	$	1,848	$	(1,199)
Contract liabilities:
Deferred revenue	$	224	$	415	$	(191)

Accounts receivable, unbilled represents revenue recognized on certain development contracts for which invoicing has not yet occurred based on the terms of the development contract. As of September 30, 2019 and December 31, 2018, we had $3.9 million and $0.8 million, respectively, classified as unbilled accounts receivable within accounts receivable.

~~Deferred~~Accounts ~~revenue~~receivable, unbilled represents ~~amounts~~revenue ~~invoiced~~recognized toon ~~customers for~~ certain development contracts for which ~~revenue~~invoicing has not yet tooccurred ~~be recognized~~ based on ~~actual development hours performed. Typically,~~ the ~~timing of invoicing is based on the~~ terms of the development contract. As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, we had $05.6 million and $1.84 million, respectively, ~~of deferred revenue~~ classified as ~~accrued~~unbilled ~~expenses~~accounts ~~and~~receivable ~~other~~within ~~current~~accounts ~~liabilities~~receivable.

Deferred revenue represents amounts invoiced to customers for certain development contracts for which revenue has yet to be recognized based on actual development hours performed. Typically, the timing of invoicing is based on the terms of the contract. As of March 31, 2020 and December 31, 2019, we had $0.2 million and $0.4 million, respectively, of deferred revenue classified as accrued expenses and other current liabilities.

Reclassifications.

Certain reclassifications have been made to prior periods’ condensed consolidated financial statements to conform to the current period presentation. These reclassifications did not result in any change in previously reported total assets, stockholders’ equity or net loss.

Use of Estimates.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful accounts, price adjustments and other revenue reserves, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and Monte Carlo simulation techniques to value certain restricted stock units with market-based vesting conditions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful accounts, price adjustments and other revenue reserves, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and Monte Carlo simulation techniques to value certain restricted stock units with market-based vesting conditions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Product Warranty.

Our non-volatile memory (“NVM”) products are sold with a limited warranty for a period of one year, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, we have had insignificant returns of any defective production parts. During ~~2018~~2019 and the ~~nine~~first three months ~~ended~~of ~~September~~2020 ~~30, 2019,~~ we did not record any additional liability related to potential warranty claims. As of ~~September~~March 3031, ~~2019~~2020, and December 31, ~~2018~~2019, the warranty accrual related to NVM products was $51,000 and is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

At the time of the Echelon acquisition we recorded a warranty liability of $401,000 related to Echelon products. ~~During~~For ~~2018 and~~ the ~~nine~~period ~~months~~ ended ~~September~~December 3031, ~~2019,~~2018 ~~the~~we ~~warranty~~recorded ~~liability~~an ~~increased~~increase byin ~~$53,000~~the ~~and~~warranty ~~decreased~~liability byof $153,000~~, respectively~~. As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, the warranty accrual related to Echelon products was $453,000 ~~and~~of which $~~454~~186,000, ~~respectively,~~was ~~and~~recorded ~~is included~~ in accrued expenses and other current liabilities on the ~~condensed~~consolidated balance sheets and $267,000 is recorded in other long-term liabilities on the consolidated balance sheets.

Foreign Currency Translation.

The functional currency of our foreign subsidiaries is the local currency. In consolidation, we translate assets and liabilities at exchange rates in effect at the consolidated balance sheet date. We translate revenue and expense accounts at the average exchange rates during the period in which the transaction takes place. Net gains and losses from foreign currency translation of assets and liabilities were losses of $~~299~~319,000 and $~~148~~128,000 for the three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018, respectively, and $383,000 and $65,000 for the nine months ended September 30,~~ 2019 ~~and 2018,~~ respectively, and are included in the cumulative translation adjustment component of accumulated other comprehensive loss, net of tax, a component of stockholders’ equity. Net gains and losses arising from transactions denominated in currencies other than the functional currency were ~~gains of $181,000 and $9,000 for the three months ended September 30, 2019 and 2018, respectively, and~~ a gain of $31271,000 and a loss of $197,000 for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, respectively, and are included in other income, net in the condensed consolidated statements of operations.

Concentration of Risk.

Our products are primarily manufactured, assembled and tested by third-party foundries and other contractors in Asia and we are heavily dependent on a single foundry in Taiwan for the manufacture of wafers and a single contractor in the Philippines for assembly and testing of our products. We do not have long-term agreements with either of these suppliers. A significant disruption in the operations of these parties would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, investments and accounts receivables. We place substantially all of our cash and cash equivalents and investments on deposit with three reputable, high credit quality financial institutions in the United States of America. We believe that the banks that holds substantially all of our cash and cash equivalents and are investments is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the banks may exceed the amount of insurance provided on such deposits.

We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts as of March 31, 2020 and December 31, 2019 was $60,000 and $60,000, respectively.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

equivalents and investments on deposit with a reputable, high credit quality financial institution in the United States of America. We believe that the bank that holds substantially all of our cash and cash equivalents and investments is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the bank may exceed the amount of insurance provided on such deposits.

We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts as of September 30, 2019 and December 31, 2018 was $60,000 and $30,000, respectively.

Customer concentrations as a percentage of revenue, net were as follows:

	Three Months Ended					Nine Months Ended

	September 30,					September 30,
		Three Months Ended
	2019		2018			2019		2018
		March 31,
Customer A	*		20	%		17	%	21	%
		2020		2019
Customer B	23	%	*			12	%	*
Customer A		*	%	26	%
Customer B		12	%	*	%

* less than 10%

Customer concentrations as a percentage of gross accounts receivable were as follows:

	September 30,		December 31,

	2019		2018
	March 31,		December 31,
Customer B	28	%	13	%
	2020		2019
Customer C	47	%	45	%

Note 2. Acquisitions.

Echelon Corporation

On September 14, 2018, we acquired 100% of the issued capital of Echelon Corporation, a Delaware corporation (“Echelon”), pursuant to the terms of an Agreement and Plan of Merger dated as of June 28, 2018. The purchase price was approximately $44.1 million paid in cash.

The assets and liabilities of Echelon were recorded in our condensed consolidated balance sheet as of the acquisition date, at their respective fair values. Fair value is estimated based on one or a combination of income, cost and/or market approaches, as determined based on the nature of the asset or liability, and the level of inputs available. With respect to assets and liabilities, the determination of fair value requires management to make subjective judgments as to projections of future operating performance, the appropriate discount rate to apply, long-term growth rates, and other factors, which affect the amounts recorded in the purchase price allocation. The excess of the consideration transferred over the fair value of the identifiable assets, net of liabilities, is recorded as goodwill, which is indicative of the expected continued growth and development of Echelon. The purchase price allocation that follows is based on these estimated fair values of assets acquired and liabilities assumed. ~~We will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).~~

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table summarizes the fair values of assets acquired and liabilities assumed (in thousands):

Cash	$	15,270

Short term investments		1,274
Cash	$	15,270
Accounts receivable		3,020
Short term investments		1,274
Inventories		5,710
Accounts receivable		3,020
Other current assets		2,845
Inventories		5,710
Property and equipment, net		614
Other current assets		2,845
Intangible assets		17,690
Property and equipment, net		614
Goodwill		4,266
Intangible assets		17,690
Other non-current assets		252
Goodwill		4,266
Accounts payable		(3,630)
Other non-current assets		252
Other current liabilities		(2,642)
Accounts payable		(3,630)
Other non-current liabilities		(563)
Other current liabilities		(2,642)
Fair value of net assets acquired	$	44,106
Other non-current liabilities		(563)
Fair value of net assets acquired	$	44,106

Intangible assets reflect the following:

		Fair Value	UsefulLife (in Years)
	(in thousands)
Customer relationships	$	6,520	7
Developed technology		10,670	4
Trademarks		500	8
Total acquired intangible assets	$	17,690


		Fair Value	Useful Life (in Years)
	(in thousands)
Customer relationships	$	6,520	7
Developed technology		10,670	4
Trademarks		500	8
Total acquired intangible assets	$	17,690

S3 Asic Semiconductors Limited

On May 9, 2018, we acquired 100% of the issued capital of S3 Asic Semiconductors Limited, a private company limited by shares and incorporated in Ireland (“S3 Semiconductors”), pursuant to the Share Purchase Agreement dated May 9, 2018 (the “Agreement”). S3 Semiconductors is headquartered in Ireland and its subsidiaries are in the United States, Portugal and the Czech Republic. S3 Semiconductors and its subsidiaries are engaged in the business of providing advanced mixed signal semiconductor devices and intellectual property to customers in the industrial and communications markets. The aggregate consideration was approximately $35.0 million in cash and contingent consideration in the form of a $15.0 million earn-out. The earn-out is based on achievement of certain milestones through 2019, including minimum total revenue targets, revenue derived from sales of semiconductor devices and new customer engagements with minimum value thresholds. Based on revised estimates of performance against the earn-out thresholds we recorded a change in the fair value of the earn-out liability to approximately $10.5 million as of December 31, 2018. During 2019 we revalued the earn-out liability and recorded a reduction in that liability of approximately $0.3 million. In October 2019, we paid approximately $7.2 million against the liability and during the three months ended March 31, 2020 we revalued the earn-out liability and recorded a reduction in that liability of $0.9 million which was recorded as other income in the statement of operations. As of March 31, 2020, we estimated the fair value of the earn-out liability to be $2.0 million.

The assets and liabilities of S3 Semiconductors were recorded in our condensed consolidated balance sheet as of the acquisition date, at their respective fair values. Fair value is estimated based on one or a combination of income, cost and/or market approaches, as determined based on the nature of the asset or liability, and the level of inputs available. With respect to assets and liabilities, the determination of fair value requires management to make subjective judgments as to projections of future operating performance, the appropriate discount rate to apply, long-term growth rates, and other factors, which affect the amounts recorded in the purchase price allocation. The excess of the consideration transferred over the fair value of the identifiable assets, net of liabilities, is recorded as goodwill, which is indicative of the expected continued growth and development of S3. The purchase price allocation that follows is based on these estimated fair values of assets acquired and liabilities assumed. We will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

indicative of the expected continued growth and development of S3 Semiconductors. The purchase price allocation that follows is based on these estimated fair values of assets acquired and liabilities assumed.

The following table summarizes the fair values of assets acquired and liabilities assumed (in thousands):

Cash	$	267

Accounts receivable		192
Cash	$	267
Other current assets		883
Accounts receivable		192
Property and equipment, net		191
Other current assets		883
Intangible assets		15,340
Property and equipment, net		191
Goodwill		34,352
Intangible assets		15,340
Accounts payable		(37)
Goodwill		34,352
Deferred revenue		(129)
Accounts payable		(37)
Earn-out liability, current		(10,218)
Deferred revenue		(129)
Other current liabilities		(761)
Earn-out liability, current		(10,218)
Deferred tax liability		(1,918)
Other current liabilities		(761)
Earn-out liability, non-current		(3,279)
Deferred tax liability		(1,918)
Fair value of net assets acquired	$	34,883
Earn-out liability, non-current		(3,279)
Fair value of net assets acquired	$	34,883

Intangible assets reflect the following:

		Fair Value	UsefulLife (in Years)
	(in thousands)
Customer relationships	$	12,880	7
Contract backlog		210	0.5
Developed technology		1,080	5
Non-compete agreements		380	2
Trademarks		790	12
Total	$	15,340



		Fair Value	Useful Life (in Years)
	(in thousands)
Customer relationships	$	12,880	7
Contract backlog		210	0.5
Developed technology		1,080	5
Non-compete agreements		380	2
Trademarks		790	12
Total	$	15,340

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 3. Balance Sheet Components.

Accounts Receivable, Net.

Accounts receivable, net consisted of the following (in thousands):

	September 30,		December 31,

	2019		2018
	March 31,		December 31,
Accounts receivable	$	30,110	$	22,490
	2020		2019
Accounts receivable, unbilled		3,863		751
Accounts receivable	$	32,541	$	35,757
Allowance for doubtful accounts		(60)		(30)
Accounts receivable, unbilled		5,593		4,795
Total accounts receivable, net	$	33,913	$	23,211
Allowance for doubtful accounts		(60)		(60)
Total accounts receivable, net	$	38,074	$	40,492

Inventories.

Inventories consisted of the following (in thousands):

	September 30,		December 31,

	2019		2018
	March 31,		December 31,
Raw materials	$	2,213	$	1,427
	2020		2019
Work-in-process		8,019		11,451
Raw materials	$	1,843	$	6,081
Finished goods		6,111		5,757
Work-in-process		10,051		6,715
Total inventories	$	16,343	$	18,635
Finished goods		10,316		7,227
Total inventories	$	22,210	$	20,023

For the three months ended September 30, 2019, we recorded a benefit of $0.3 million related to excess inventory. For the three months ended September 30, 2018, we recorded a write-down of $16,000 related to excess inventory.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, we ~~recorded~~did anot ~~write-down~~record ofany ~~$0.3~~additional ~~million~~write-downs related to excess inventory. For the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, we ~~realized~~recorded a ~~benefit~~write-down of $0.93 million ~~from~~ ~~the~~related ~~sales~~to ofexcess ~~previously reserved products~~inventory.

Inventory write-downs are primarily associated with products built in excess of customer demand which resulted in excess inventory levels, legacy products for which no demand exists, lower of cost or net realizable value write-downs associated with products for which costs exceeded net realizable value, and write-downs associated with the closing of the Echelon lighting business.

Property and Equipment, Net.

Property and equipment, net consisted of the following (in thousands):


	March 31,		December 31,
	2020		2019
Machinery and equipment	$	17,057	$	17,522
Leasehold improvements		4,444		4,445
Computer software		4,791		4,142
Furniture and fixtures		744		733
Construction in progress		299		115
Property and equipment, at cost		27,335		26,957
Accumulated depreciation and amortization		(19,537)		(18,844)
Property and equipment, net	$	7,798	$	8,113

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~Property and Equipment, Net.~~

~~Property~~production manufacturing as the Company’s product development process has become more predictable and ~~equipment,~~thus ~~net~~supports ~~consisted~~capitalization of the ~~following~~mask. ~~(in~~The ~~thousands):~~ capitalized mask costs begin depreciating to cost of revenue once the products go into production. Depreciation is computed using the straight-line method over a three- year period which is the expected useful life of the mask. Previously mask sets were expensed to research and development.

	September 30,		December 31,
	2019		2018
Machinery and equipment	$	17,136	$	15,537
Leasehold improvements		4,418		4,422
Computer software		4,328		3,760
Furniture and fixtures		934		372
Construction in progress		115		52
Property and equipment, at cost		26,931		24,143
Accumulated depreciation and amortization		(18,891)		(17,058)
Property and equipment, net	$	8,040	$	7,085

Depreciation and amortization expense of property and equipment for the three months ended March 31, 2020 and 2019 was $1.0 million and $0.6 million, respectively.

The Company incurs costs for the fabrication of masks used by its foundry partners to manufacture its products. Beginning the first fiscal quarter of 2017, the Company capitalizes mask costs that are expected to be utilized in production manufacturing as the Company’s product development process has become more predictable and thus supports capitalization of the mask. The capitalized mask costs begin depreciating to cost of revenue once the products go into production. Depreciation is computed using the straight-line method over a three- year period which is the expected useful life of the mask. Previously mask sets were expensed to research and development.

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2019 was $0.9 million and $2.2 million, respectively.

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 was $0.6 million and $1.7 million, respectively.

Accrued Expenses and Other Current Liabilities.

Accrued expenses and other current liabilities consisted of the following (in thousands):

	September 30,		December 31,

	2019		2018
	March 31,		December 31,
Accrued sales commission payable	$	260	$	387
	2020		2019
Accrued manufacturing expenses		1,023		692
Accrued sales commission payable	$	258	$	389
Liabilities to certain customers		—		366
Accrued manufacturing expenses		1,686		1,106
Warranty reserve		504		505
Liabilities to certain customers		2,242		4,144
Lighting disposal liabilities		1,404		—
Warranty reserve		504		513
Deferred revenue, current portion		649		1,848
Income tax payable		513		132
Other accrued liabilities		1,932		1,374
Deferred revenue, current portion		224		415
Total accrued expenses and other current liabilities	$	5,772	$	5,172
Interest payable		171		950
Other accrued liabilities		1,508		1,719
Total accrued expenses and other current liabilities	$	7,106	$	9,368

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Fair Value Measurements.

Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3. Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.

Financial assets measured at fair value on a recurring basis were as follows:

	Fair Value Measurement at Reporting Date Using

			Significant
	Fair Value Measurement at Reporting Date Using
	Quoted Prices in		Other		Significant
			Significant
	Active Markets		Observable		Unobservable
	Quoted Prices in		Other		Significant
	for Identical		Inputs		Inputs
	Active Markets		Observable		Unobservable
	Assets (Level 1)		(Level 2)		(Level 3)		Total
	for Identical		Inputs		Inputs
	(in thousands)
	Assets (Level 1)		(Level 2)		(Level 3)		Total
As of September 30, 2019
	(in thousands)
Assets:
As of March 31, 2020
Money market funds	$	460	$	—	$	—	$	460
Assets:
U.S. government securities		300		—		—		300
Money market funds	$	504	$	—	$	—	$	504
	$	760	$	—	$	—	$	760
U.S. government securities		300		—		—		300
Liabilities:
	$	804	$	—	$	—	$	804
Earn-out liability	$	—	$	—	$	10,130	$	10,130
Liabilities:
As of December 31, 2018
Earn-out liability	$	—	$	—	$	2,000	$	2,000
Assets:

Money market funds	$	458	$	—	$	—	$	458
As of December 31, 2019
U.S. government securities		1,282		—		—		1,282
Assets:
	$	1,740	$	—	$	—	$	1,740
Money market funds	$	460	$	—	$	—	$	460
Liabilities:
U.S. government securities		300		—		—		300
Earn-out liability	$	—	$	—	$	10,450	$	10,450
	$	760	$	—	$	—	$	760
Liabilities:
Earn-out liability	$	—	$	—	$	2,911	$	2,911

As of September 30, 2019, we had an earn-out liability of $10.1 million, all of which related to the acquisition of S3 Semiconductors, which was completed in May 2018 (see Note 2). The earn-out liability was calculated using the present value of a probability weighted income approach.

As of March 31, 2020, we had an earn-out liability of $2.0 million, all of which related to the acquisition of S3 Semiconductors, which was completed in May 2018 (see Note 2). The earn-out liability was calculated using the present value of a probability weighted income approach. During the three months ended March 31, 2020 we reached a settlement on the final amount of the earn-out liability and reduced the balance to $2.0 million.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~Changes in the earn-out liability during 2019 was as follows (in thousands):~~

Balance as of January 1, 2019	$	10,450
Acquisitions		—
Change in fair value		(320)
Change in foreign currency exchange rate		—
Balance as of September 30, 2019	$	10,130

Changes in the earn-out liability during 2020 was as follows (in thousands):

The Company’s cash equivalents include U.S. government securities with a minimum and weighted average credit rating of A-1+. The Company values these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. As of September 30, 2019, the Company classified all of its fixed income securities as having Level 1 inputs. The Company's procedures include controls to ensure that appropriate fair values are recorded by comparing prices obtained from a third party independent source.

Note 5. Intangible Assets, net.


Balance as of January 1, 2020	$	2,911
Acquisitions		—
Change in fair value		(911)
Change in foreign currency exchange rate		—
Balance as of March 31, 2020	$	2,000

The Company’s cash equivalents include U.S. government securities with a minimum and weighted average credit rating of A-1+. The Company values these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. As of March 31, 2020 the Company classified all of its fixed income securities as having Level 1 inputs. The Company's procedures include controls to ensure that appropriate fair values are recorded by comparing prices obtained from a third party independent source.

Note 5. Purchased Intangible Assets and Goodwill

In 2012, in connection with our purchase of the serial flash memory product line assets from Atmel Corporation, we recorded $16.4 million of intangible assets.

In connection with the acquisition of S3 (Note 2), we recorded $15.3 million of intangible assets.

In connection with the acquisition of Echelon (Note 2), we recorded $17.7 million of intangible assets.

Intangible assets, net were as follows (in thousands):

			September 30, 2019

	Estimated UsefulLife (in Years)		Gross CarryingAmount			AccumulatedAmortization			Net Carrying Amount
			March 31, 2020
Developed technology	4 - 10		$	16,032		$	6,076		$	9,956
	Estimated UsefulLife (in Years)	Gross CarryingAmount			AccumulatedAmortization			Net Carrying Amount	Net Carrying Amount
Customer relationships	7 - 12			28,411			8,727			19,684
Developed technology	4 - 10		$	16,032		$	7,734		$	8,298
Customer backlog	1			2,779			2,779			—
Customer relationships	7 - 12			28,411			10,489			17,922
Contract backlog	0.5			210			210			—
Customer backlog	1			2,779			2,779			—
Non-compete agreement	2 - 5			662			541			121
Contract backlog	0.5			210			210			—
Trademarks	8 - 12			1,290			155			1,135
Non-compete agreement	2 - 5			662			635			27
Total intangible assets subject to amortization			$	49,384		$	18,488		$	30,896
Trademarks	8 - 12			1,290			217			1,073
Total intangible assets subject to amortization			$	49,384		$	22,064		$	27,320

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

		December 31, 2018
	Estimated UsefulLife (in Years)	Gross CarryingAmount		AccumulatedAmortization		Net Carrying Amount
Developed technology	4 - 10	$	16,032	$	3,593	$	12,439
Customer relationships	7 - 12		28,411		6,085		22,326
Customer backlog	1		2,779		2,779		—
Contract backlog	0.5		210		210		—
Non-compete agreement	2 - 5		662		398		264
Trademarks	8 - 12		1,290		58		1,232
Total intangible assets subject to amortization		$	49,384	$	13,123	$	36,261


		December 31, 2019
	Estimated Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	4 - 10	$	16,032	$	6,905	$	9,127
Customer relationships	7 - 12		28,411		9,608		18,803
Customer backlog	1		2,779		2,779		—
Contract backlog	0.5		210		210		—
Non-compete agreement	2 - 5		662		588		74
Trademarks	8 - 12		1,290		186		1,104
Total intangible assets subject to amortization		$	49,384	$	20,276	$	29,108

We recorded amortization expense related to the acquisition-related intangible assets as follows (in thousands):

	Three Months Ended				Nine Months Ended

	September 30,				September 30,
	Three Months Ended
	2019		2018		2019		2018
	March 31,
Operating expense category:
	2020		2019
Research and development	$	828	$	323	$	2,484	$	567
Operating expense category:
Selling, general and administrative		961		815		2,881		1,552
Research and development	$	828	$	828
Total	$	1,789	$	1,138	$	5,365	$	2,119
Selling, general and administrative		960		960
Total	$	1,788	$	1,788

The estimated future amortization expense of acquisition-related intangible assets subject to amortization after September 30, 2019 is as follows (in thousands):

Year Ended December 31,

2019 (remaining 3 months)	$	1,788
Year Ended December 31,
2020		7,037
2020 (remaining 9 months)	$	5,249
2021		6,962
2022		6,070
2023		3,735
Thereafter		5,304
2024		3,463
Total	$	30,896
Thereafter		1,841
Total	$	27,320

Note 6. Investment in Unconsolidated Affiliates.

During 2017 and 2016, we made investments in Semitech Semiconductor Pty. Ltd., an Australian corporation (“Semitech”), as part of a license and development agreement dated April 16, 2016. Semitech has developed Narrowband-Power Line Communications (“N-PLC”) products and market knowledge in the N-PLC devices space and plans to sell its products into the smart grid, solar, smart lighting and industrial space. Investments during 2016 through June 14, 2017 were recorded as notes receivable. On June 15, 2017, $0.4 million of notes receivable and accrued interest were converted into 233,335 shares of preferred stock in Semitech. In June 2018, we converted $0.5 million of notes receivable and accrued interest into 312,076 shares of preferred stock in Semitech. During the three months ended ~~September~~March 3031, ~~2019,~~2020 we invested $0.211 million in additional notes receivable in Semitech. This investment is recorded at cost in other non-current assets on the condensed consolidated balance sheets as of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019. As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, we held investments in notes receivable in Semitech in the amount of $0.68 million and $0.27 million, respectively, which were classified in other non-current assets on the condensed consolidated balance sheets.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7. Borrowings.

Western Alliance Bank Term Loan.

The Company was a party to that certain Business Financing Agreement dated July 7, 2016 and that certain Second Business Financing Modification Agreement, dated September 29, 2017, by and between Western Alliance Bank and the Company (“Credit Facility”). The Credit Facility provided for (i) a term loan of up to $18.0 million (the “Term Loan”) and (ii) a revolving credit line advance (the “Line of Credit”) in the aggregate amount of the lower of (x) $5.0 million and (y) 80% of certain of the Company’s receivables. The Term Loan bore interest at a rate per annum equal to the greater of the prime rate or 3.5%, plus 0.75% and was scheduled to mature in June 2019. The Line of Credit bore interest at a rate per annum equal to the greater of the prime rate or 3.5% plus 0.50%, and was scheduled to mature in July 2018. We made interest-only payments on the Term Loan from July 2016 through September 2016 and began making interest payments and principal payments in 33 equal monthly installments starting October 2016. Prior to the Amendment, the Credit Facility provided that any indebtedness we incurred thereunder was collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. We paid a facility fee of $150,000 as well as a $25,000 diligence fee upon entry into the Credit Facility and an additional $10,000 on July 7, 2017. Additional fees of $25,000 were incurred in connection with the amendment. These fees were recorded as a debt discount and were amortized over the life of the agreement.

Borrowings of $12.0 million under this facility were repaid in full in May 2018. In connection with the repayment of this facility, the remaining unamortized debt discount of $66,000 was recorded as interest expense in the condensed consolidated statements of operations.

Tennenbaum Capital Partners, LLC Term Loan.

~~One~~On May 8, 2018, we entered into a credit agreement with Tennenbaum Capital Partners, LLC (“Tennenbaum”) (“Credit Agreement”). The Credit Agreement ~~provided~~provides for a ~~1st~~first lien senior secured term loan of $35.0 million (“Term Loan”). The Term Loan bore interest at a rate per annum equal to the sum of the Libor Rate plus 8.75% and was payable in consecutive quarterly installments starting December 31, 2018. The Term Loan was scheduled to mature on May 8, 2022. The Credit Agreement provided that any indebtedness we incurred thereunder was collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. The Credit Agreement contained customary representations and warranties and affirmative and negative covenants, including maximum consolidated leverage ratios and minimum liquidity. Upon an occurrence of an event of default, under the Credit Facility we could have been required to pay interest on all outstanding obligations under the agreement at a rate of 2% above the otherwise applicable interest rate, and the lender could have accelerated our obligations under the agreement.

InThe ~~connection with the~~ Credit Agreement, ~~Tennenbaum~~as ~~received~~amended, acontained ~~warrant~~customary torepresentations ~~purchase~~and ~~850,000~~warranties ~~shares~~and ofaffirmative ~~common~~and ~~stock~~negative atcovenants, anincluding ~~exercise~~maximum ~~price~~consolidated ofleverage ~~$8.30~~ratios and aminimum ~~term~~liquidity. Upon an occurrence of ~~six~~an ~~years.~~event Inof ~~addition~~default, under the Credit Facility we ~~paid~~could ~~financing~~have ~~costs~~been ofrequired ~~$1.4~~to ~~million.~~pay ~~The~~interest ~~financing~~on ~~costs~~all ~~and~~outstanding obligations under the ~~value~~agreement ofat ~~the~~a ~~warrant,~~rate ~~$4.8~~of ~~million,~~2% ~~were~~above ~~recorded~~the asotherwise aapplicable ~~debt~~interest ~~discount~~rate, and ~~were~~the ~~being~~lender ~~amortized~~may ~~over~~have ~~the~~accelerated ~~life~~our ofobligations under the ~~Credit Agreement~~agreement.

~~Borrowings~~In ofconnection ~~$33.8~~with ~~million~~the ~~under~~Credit ~~this~~Agreement, ~~facility~~Tennenbaum ~~were~~received ~~repaid~~a inwarrant ~~full~~to inpurchase ~~September 2019. In addition~~850,000 ~~the~~shares ~~Company~~of ~~was~~common ~~required~~stock toat ~~pay~~an aexercise ~~prepayment~~price ~~premium~~ of $08.762 ~~million.~~and Ina ~~connection~~term ~~with~~of ~~the~~six ~~repayment~~years. ofIn ~~this facility~~addition, ~~the~~we ~~remaining~~paid ~~balance~~financing costs of ~~the~~$1.4 ~~debt~~million. ~~discount~~The ~~was~~financing ~~recognized~~costs asand ~~interest~~the ~~expense.~~value ~~Amortization~~ of ~~debt~~the ~~discount~~warrant, ~~was~~ $54.18 million ~~for the nine months ended September 30~~, ~~2019.~~were ~~Amortization~~recorded ofas a debt discount ~~was~~and ~~$0.7~~were ~~million~~being ~~for~~amortized over the ~~nine~~life ~~months~~of ~~ended~~the ~~September~~Credit ~~30, 2018~~Agreement.

~~Interest~~Borrowings ~~expense~~of ~~incurred~~$33.8 million under ~~our~~this ~~borrowings~~facility ~~was~~were ~~$6.0~~repaid ~~million~~in ~~and~~full $8in September 2019.8 ~~million~~In ~~for~~addition, the ~~three~~Company ~~and~~was ~~nine~~required ~~months~~to ~~ended~~pay ~~September~~a ~~30,~~prepayment ~~2019,~~premium ~~respectively~~of $0. 8 million which represented 2% of the outstanding loan balance.

22 Note 8. Convertible Notes.

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ADESTO TECHNOLOGIES CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

Interest expense incurred under our borrowings was $1.1 million and $2.4 million for the three and nine months ended September 30, 2018, respectively

Note 8. Convertible Senior Notes.

On September 23, 2019, the Company completed offering of $80.5 million aggregate principal amount of 4.25% Convertible Senior Notes due 2024 (the "Notes"). The Notes were sold pursuant to an indenture, dated September 23, 2019, between the Company and U.S. Bank National Association (the “Trustee”), referred to herein as the “Indenture.” The Notes are senior, unsecured obligations of the Company. The Notes pay interest at a rate equal to 4.25% per year. Interest on the Notes is payable semiannually in arrears on March 15 and September 15 of each year, beginning March 15, 2020. Interest accrues on the Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from September 23, 2019. Unless earlier converted, redeemed or repurchased, the Notes mature on September 15, 2024.

The implied estimated effective rate of the liability component of the Notes is 12.3%.

The Notes are convertible into Company common stock at an initial conversion rate of 83.3021 shares per $1,000 principal amount of Notes, subject to adjustment upon certain events.

The Notes are convertible, in whole or in part, at the option of the holder, at any time prior to the close of business on the business day immediately preceding June 15, 2024, but only in the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on such trading day;

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(2) during the five business day period immediately after any ten consecutive trading day period (the five consecutive trading day period being referred to as the ‘‘measurement period’’) in which the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day;

(3) upon the occurrence of certain specified corporate events, including fundamental changes (as described in the Indenture); or

(4) if the Company calls the Notes for redemption.

In addition, regardless of the foregoing circumstances, holders may convert their Notes at any time on or after June 15, 2024 and prior to the close of business on the day immediately preceding the maturity date of the Notes. Upon conversion, the Company may elect to settle by paying or delivering either solely cash, shares of Company common stock or a combination of cash and shares of common stock.

In accordance with ASC 470-20, the initial measurement of the Notes at fair value resulted in a liability of $57.9 million, as such, the calculated discount resulted in an implied value of the convertible feature recognized in Capital in excess of Par Value of $22.6 million. Issuance costs include initial purchasers’ discounts of $3.22 million and other costs of $0.3 million amounting to $3.5 million were allocated to components on a ratable basis as follows; Additional Paid-In Capital, $1.0 million, and Convertible ~~Senior~~ Notes, $2.5 million.

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ADESTO TECHNOLOGIES CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

The Indenture contains covenants that, among other things, restricts the Company’s ability to merge, consolidate or sell, or otherwise dispose of, all or substantially all of its assets. These limitations are subject to a number of important qualifications and exceptions.

The Indenture contains customary Events of Default (as defined in the Indenture), including default in the event the Company fails to pay interest on the Notes when due, and such failure continues for 30 days, or the Company fails to pay the principal of the Notes when due, including at maturity, upon redemption or otherwise; failure to comply with covenants and other obligations under the Indenture, including delivery of required notices and obligations in connection with conversion, in certain cases subject to notice and grace periods; payment defaults and accelerations with respect to other indebtedness of the Company and its significant subsidiaries in the aggregate principal amount of $15.0 million or more; failure by the Company or its significant subsidiaries to pay certain final judgments aggregating in excess of $15.0 million within 60 consecutive days of such final judgment; and specified events involving bankruptcy, insolvency or reorganization of the Company or its significant subsidiaries.

Upon an Event of Default, the trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all the Notes to be due and payable immediately. In the case of Events of Default relating to bankruptcy, insolvency or reorganization, all outstanding Notes will become due and payable immediately without further action or notice.

On September 18, 2019, in connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Transactions”) with each of Credit Suisse Capital LLC and Société Générale (the “option counterparties). On September 19, 2019, in connection with the exercise of the option in full by the initial purchasers, Adesto entered into additional privately negotiated capped call transactions (the “Additional Capped Call Transactions,” and together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the option counterparties.

The Capped Call Transactions relating to the Notes will initially cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Notes. The cap price of the Capped Call Transactions is initially $15.86 per share of common stock, representing a premium of 75.0% above the last reported

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

sales price of $9.06 per share of common stock on September 18, 2019, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce the potential dilution to the common stock as a result of any conversion of the Notes and/or offset any cash payments that Adesto would be required to make in excess of the principal amount upon conversion of the Notes, as the case may be, with such reduction or offset subject to a cap based on the cap price.

In connection with establishing their initial hedges of the Capped Call Transactions, the Company expects that the option counterparties or their respective affiliates will purchase shares of common stock and/or enter into various derivative transactions with respect to common stock concurrently with, or shortly after, the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of common stock or Notes at that time.

In addition, the Company expects that the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to common stock and/or purchasing or selling common stock in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes. This activity could cause or avoid an increase or decrease in the market price of common stock or the Notes which could affect holders’ ability to convert the Notes.

The Capped Call Transactions are separate transactions entered into by Adesto with the option counterparties, are not part of the terms of the Notes, and will not affect any holder’s rights under the Notes. Holders of the Notes will not have any right with respect to the Capped Calls Transactions. The premium paid for the purchase of the capped calls in the amount of $6.2 million has been recorded as a reduction to additional paid-in capital and will not be remeasured.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table summarizes information about the equity and liability components of the Notes (in thousands):

	September 30,

	2019
	March 31,
Fair value of 2024 notes outstanding	$	57,851
	2020
Unamortized discount (including unamortized debt issuance cost)		(2,536)
Principal amount	$	80,500
Total convertible senior notes	$	55,315
Unamortized discount		(20,908)
Equity component of notes	$	22,649
Unamortized debt issuance costs		(2,328)
Less: Issuance costs		(987)
Total convertible senior notes	$	57,264
Additional paid-in capital	$	21,662

Equity component, net of issuance costs	$	21,662

In September 2019, in connection with the issuance of the Notes, including the initial purchasers’ exercise of the option to purchase additional Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). The Capped Calls are expected to reduce potential dilution to our common stock upon conversion of the Notes and/or offset any cash payments that we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls have an initial strike price of $12.00 per share, subject to certain adjustments, which corresponds to the conversion option strike price in the Notes. The Capped Calls have a cap price equal to $15.86 per share, subject to certain adjustments. The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting us, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The premium paid for the purchase of the Capped Calls in the amount of $6.2 million has been recorded as a reduction to additional paid-in capital and will not be remeasured.

Note 9. Segment Information.

We operate in one business segment: application-specific, semiconductors and embedded systems. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results. Revenue is evaluated by product category and by geographic region. ~~All of our revenue results from contracts with customers; we have no additional sources of revenue.~~

Product revenue from customers is ~~disaggregated~~designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):

	Three Months Ended				Nine Months Ended

	September 30,				September 30,
	Three Months Ended
	2019		2018		2019		2018
	March 31,
United States	$	8,648	$	7,253	$	24,310	$	15,472
	2020		2019
Rest of Americas		1,015		583		4,608		868
United States	$	3,006	$	7,470
Europe		6,085		5,087		16,989		11,708
Rest of Americas		485		1,861
Asia Pacific		15,905		8,865		43,502		27,078
Europe		3,454		4,788
Rest of world		375		139		888		286
Asia Pacific		13,008		13,716
Total	$	32,028	$	21,927	$	90,297	$	55,412
Rest of world		68		278
Total	$	20,021	$	28,113

Long-lived assets are attributed to the geographic region where they are located. Long-lived assets by geographic region were as follows (in thousands):


	March 31,		December 31,
	2020		2019
United States	$	3,191	$	3,248
Asia Pacific		3,831		4,093
Europe		776		772
Total property and equipment, net	$	7,798	$	8,113


	March 31,		December 31,
	2020		2019
United States	$	1,985	$	2,078
Asia Pacific		171		185
Europe		1,962		2,037
Total operating lease right-of-use assets	$	4,118	$	4,300

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~Long-lived assets are attributed to the geographic region where they are located. Long-lived assets by geographic region were as follows (in thousands):~~

	September 30,		December 31,
	2019		2018
United States	$	3,415	$	3,879
Asia Pacific		3,868		2,968
Europe		757		238
Total property and equipment, net	$	8,040	$	7,085

	September 30,
	2019
United States	$	2,165
Asia Pacific		199
Europe		2,110
Total operating lease right-of-use assets	$	4,474

Note 10. Commitments and Contingencies.

Operating Leases.

We lease certain manufacturing facilities, warehouses, office space, and equipment under non-cancelable operating leases that expire at various times up to November 2033 and have options to renew most leases, with rentals to be negotiated. Certain of our leases contain provisions for rental adjustments. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The lease term is used to determine whether a lease is financing or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leasehold improvements is limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The following table reflects our lease assets and our lease liabilities at ~~September~~March 3031, ~~2019~~2020 and ~~January~~December 131, 2019 (in thousands).

	September 30,		January 1,

	2019		2019
	March 31,		December 31,
Assets:
	2020		2019
Operating lease right-of-use assets	$	4,474	$	4,877
Assets:
Liabilities:
Operating lease right-of-use assets	$	4,118	$	4,300
Operating lease liabilities, current	$	1,186	$	1,116

Operating lease liabilities, non-current	$	5,048	$	5,917
Liabilities:
Operating lease liabilities, current	$	1,266	$	1,230
Operating lease liabilities, non-current	$	4,400	$	4,726

Lease Costs:

The components of lease costs were as follows (in thousands):

As of March 31, 2020, the maturity of operating lease liabilities was as follows (in thousands):


(In thousands)
2020 (remaining 9 months)	$	1,512
2021		1,691
2022		1,552
2023		1,015
2024		221
Thereafter		1,954
Total lease payments		7,945
Less: Interest		(2,279)
Present value of lease liabilities	$	5,666

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

~~Lease Costs:~~

The components of lease costs were as follows (in thousands):

	Nine Months Ended
	September 30,
	2019
Operating lease cost	$	1,626

As of September 30, 2019, the maturity of operating lease liabilities was as follows (in thousands):

(In thousands)
2019 (remaining 3 months)	$	519
2020		1,962
2021		1,734
2022		1,569
2023		1,021
Thereafter		2,235
Total lease payments		9,040
Less: Interest		(2,806)
Present value of lease liabilities	$	6,234

Lease Term and Discount Rate:

	September 30,

	2019
	March 31,
Weighted-average remaining lease term (in years)	7.2
	2020
Weighted-average remaining lease term (in years)	7.3
Weighted-average discount rate	11.56	%

Other Information:

Supplemental ~~2019~~ cash flow information related to leases for the three months ended March 31, 2020 and 2019 was as follows (in thousands):

	Nine Months Ended

	September 30, 2019
	Three Months Ended		Three Months Ended
Operating cash outflows from operating leases	$	1,626
	March 31, 2020		March 31, 2019
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—
Operating cash outflows from operating leases	$	473	$	551
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	—

Purchase Commitments.

As of ~~September~~March 3031, ~~2019~~2020, we had purchase commitments with our third-party foundries of $59.01 million due within one year.

Litigation.

We are subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable.

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ADESTO TECHNOLOGIES CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable.

Indemnification.

During the normal course of business, we may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of our customers in connection with the sales of our products and indemnities for liabilities associated with the infringement of other parties’ technology based upon our products. Our exposure under these indemnification provisions is generally limited to the total amount paid by a customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in such capacities.

We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets. Where necessary, we accrue for losses for any known contingent liabilities, including those that may arise from indemnification provisions, when future payment is probable.

~~Note 11. Common Stock, Common Stock Warrants and Stock Option Plan.~~

~~Common Stock.~~ 27

We are authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share as of September 30, 2019 and December 31, 2018. Each holder of common stock is entitled to one vote per share. As of September 30, 2019, no dividends have been declared by the Board of Directors, however, the holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors.

We completed a follow-on offering of our common stock in June 2017. We sold 5,000,000 shares, including 625,000 shares upon exercise of the underwriters’ option to purchase additional shares. The shares were sold at a public offering price of $4.00 per share for net proceeds of $18.4 million to us, after deducting underwriting discounts, commissions and offering expenses.

We completed another follow-on offering of our common stock in July 2018. We sold 7,705,000 shares, including 1,005,000 shares upon exercise of the underwriters’ option to purchase additional shares. The shares were sold at a public offering price of $6.00 per share for net proceeds of $42.7 million to us, after deducting underwriting discounts, commissions and offering expenses.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 11. Common Stock, Common Stock Warrants and Stock Option Plan.

Common Stock.

We are authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share as of March 31, 2020 and December 31, 2019. Each holder of common stock is entitled to one vote per share. As of March 31, 2020, no dividends have been declared by the Board of Directors, however, the holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors.

Common Stock Reserved for Future Issuance.

As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, we had reserved shares of common stock for future issuances as follows:

	September 30,	December 31,

	2019	2018
	March 31,	December 31,
Warrants to purchase common stock	1,165,282	1,239,423
	2020	2019
Options outstanding	1,958,989	1,865,415
Warrants to purchase common stock	1,165,282	1,165,282
Restricted stock units outstanding	1,617,258	1,154,980
Options outstanding	1,626,244	1,929,391
Shares available for future grants	259,998	96,515
Restricted stock units outstanding	2,253,181	1,451,507
Shares available for ESPP	373,428	362,938
Shares available for future grants	557,671	288,813
Shares reserved for issuance upon conversion of the Notes	8,885,204	—
Shares available for ESPP	547,513	373,428
Total	14,260,159	4,719,271
Shares reserved for issuance upon conversion of the Notes	8,885,204	8,885,204
Total	15,035,095	14,093,625

Common Stock Warrants.

In connection with the Credit Agreement (Note 7), the Company issued Tennenbaum a warrant to purchase 850,000 shares of common stock at an exercise price of $8.3062 per share with a term of six years. The grant date fair value of the warrant was approximately $4.8 million which was recorded as a debt discount and amortized over the life of the Credit Agreement. The fair value of the warrant was determined using the Black-Scholes Model based on the following assumptions: common stock price on date of grant of $8.70, dividend yield of 0%, volatility of 69.73%, a risk-free interest rate 2.87% and a term of 6 years.

The following common stock warrants were outstanding:

As of September 30, 2019

Total amount of securities issuable
As of March 31, 2020
under the outstanding warrants	Exercise Price		Issuance Date	Expiration Date
Total amount of securities issuable
315,282	$	2.38	2014-2015	2022-2024
under the outstanding warrants	Exercise Price		Issuance Date	Expiration Date
850,000	$	8.30	2018	2024
315,282	$	2.38	2014-2015	2022-2024
1,165,282	$	8.11
850,000	$	8.62	2018	2024
1,165,282	$	6.93

Common stock warrants are exercisable at the option of the holder any time after the date of issuance into shares of our common stock. 74,141 warrants with an exercise price of $30.35 expired unexercised on September 27, 2019.

Common stock warrants are exercisable at the option of the holder any time after the date of issuance into shares of our common stock.

Employee Benefit Plans.

2007 Equity Incentive Plan.

In 2007, our Board of Directors and shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) under which 272,727 shares of common stock were reserved and available for the issuance of stock options and restricted stock to eligible participants. The 2007 Plan was subsequently amended to increase the number of shares of common stock reserved for issuance under the 2007 Plan to 787,878 and during the year ended December 31, 2015, the number of shares reserved for issuance under the 2007 Plan was increased to 2,651,515. Options and restricted stock awards were granted at a price per share not less than the 85% of the fair value at the date of grant or award, respectively. Restricted stock awarded to persons controlling more than 10% of our stock were granted at a price per

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

share not less than the 100% of the fair value at the date of the award. Options that were granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining to vest monthly thereafter, while options that were granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years from the date of grant. As of October 26, 2015, no shares were available for grant under the 2007 Plan and all outstanding options would continue to be governed and remain outstanding in accordance with their existing terms. In addition, any shares subject to outstanding awards under the 2007 Plan that are issuable upon the exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for future grant and issuance under the 2015 Equity Incentive Plan.

awards were granted at a price per share not less than the 85% of the fair value at the date of grant or award, respectively. Restricted stock awarded to persons controlling more than 10% of our stock were granted at a price per share not less than the 100% of the fair value at the date of the award. Options that were granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining to vest monthly thereafter, while options that were granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years from the date of grant. As of October 26, 2015, no shares were available for grant under the 2007 Plan and all outstanding options would continue to be governed and remain outstanding in accordance with their existing terms. In addition, any shares subject to outstanding awards under the 2007 Plan that are issuable upon the exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for future grant and issuance under the 2015 Equity Incentive Plan.

2015 Equity Incentive Plan.

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan became effective on the date immediately prior to the date of our initial public offering (“IPO”). As a result, 1,813,272 shares of common stock previously reserved but unissued under the 2007 Plan on the effective date of the 2015 Equity Incentive Plan became reserved for issuance under our 2015 Equity Incentive Plan, and we ceased granting awards under our 2007 Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on the first day of January of each of 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our Board of Directors may reduce the amount of the increase in any particular year.

Our 2015 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), performance awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 4,000,000 shares under the plan in the calendar year in which the employee commences employment. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2015 Equity Incentive Plan in any calendar year shall not exceed 300,000. Our 2015 Equity Incentive Plan provides that no more than 25,000,000 shares will be issued as incentive stock options.

2015 Employee Stock Purchase Plan.

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Employee Stock Purchase Plan (“ESPP”). The 2015 Employee Stock Purchase Plan became effective on the date of our IPO. We reserved 150,000 shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on the first day of January following the first offering date by the number of shares equal to 1% of the total outstanding shares of our common stock as of the immediately preceding December 31 (rounded to the nearest whole share). However, our Board of Directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed 2,250,000 shares of our common stock.

Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Eligible employees will be able to select a rate of payroll deduction up to 15% of their base cash compensation. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. Except for the first offering period, each offering period will run for no more than six months, with purchases occurring every six months. The first offering period began upon the effective date of our IPO and was originally set to end on June 30, 2016. On May 25, 2016, the Board of Directors extended the initial offering period to July 31, 2016. Subsequent purchase periods will be 6 months in duration beginning on August 1, 2016. On July 29, 2016, we issued 68,392 shares of common stock in conjunction with the end date of the initial purchase

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

window. During 2017, we issued 110,711 shares of common stock pursuant to the ESPP. On January 31, 2018 we issued 55,806 shares of common stock pursuant to the ESPP. On July 31, 2018 we issued 69,761 shares of common stock pursuant to the ESPP. On January 31, 2019 we issued 129,815 shares of common stock pursuant to the ESPP. On July 31, 2019 we issued 154,116 shares of common stock in conjunction with the end date of the latest purchase window.

offering period to July 31, 2016. Subsequent purchase periods will be 6 months in duration beginning on August 1, 2016. On July 29, 2016, we issued 68,392 shares of common stock in conjunction with the end date of the initial purchase window. During 2017, we issued 110,711 shares of common stock pursuant to the ESPP. On January 31, 2018 we issued 55,806 shares of common stock pursuant to the ESPP. On July 31, 2018 we issued 69,761 shares of common stock pursuant to the ESPP. On January 31, 2019 we issued 129,815 shares of common stock pursuant to the ESPP. On July 31, 2019 we issued 154,116 shares of common stock pursuant to the ESPP. On January 31, 2020 we issued 128,601 shares of common stock in conjunction with the end date of the latest purchase window.

No participant will have the right to purchase shares of our common stock in an amount that has a fair market value greater than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 2,500 shares during any one purchase period or a lesser amount as determined by our compensation committee.

Our 2015 Employee Stock Purchase Plan will continue until the earlier to occur of its termination by our Board of Directors, the issuance of all shares reserved for issuance under it or the tenth anniversary of its effective date.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

A summary of stock option and RSUs (including performance-based RSU) activity under the 2007 Plan and the 2015 Equity Incentive Plan is as follows:

	Stock Options

				Weighted-
	Stock Options
		Weighted-		Average
				Weighted-
		Average		Remaining	Aggregate
		Weighted-		Average
		Exercise		Contractual	Intrinsic
		Average		Remaining	Aggregate
	Shares	Price		Term (Years)	Value
		Exercise		Contractual	Intrinsic
	(aggregate intrinsic value in thousands)
	Shares	Price		Term (Years)	Value
Outstanding as of December 31, 2016	991,895	$	2.68	6.3	$	161
	(aggregate intrinsic value in thousands)
Granted	835,480		4.30
Outstanding as of December 31, 2017	1,560,453	$	3.63	7.6	$	4,632
Exercised	(230,123)		1.92
Granted	479,375		7.25
Canceled	(36,799)		4.16
Exercised	(112,965)		2.48
Outstanding as of December 31, 2017	1,560,453		3.63	7.6	$	4,632
Canceled	(61,448)		3.65
Granted	479,375		7.25
Outstanding as of December 31, 2018	1,865,415		4.63	7.6	$	1,540
Exercised	(112,965)		2.48
Granted	189,856		6.16
Canceled	(61,448)		3.65
Exercised	(112,647)		3.36
Outstanding as of December 31, 2018	1,865,415		4.63	7.6	$	1,540
Canceled	(13,233)		6.53
Granted	189,856		6.16
Outstanding as of December 31, 2019	1,929,391		4.84	6.9	$	7,146
Exercised	(91,173)		3.16
Granted	—		—
Canceled	(5,109)		7.26
Exercised	(299,737)		3.91
Outstanding as of September 30, 2019	1,958,989	$	4.84	7.2	$	7,371
Canceled	(3,410)		6.94
Options vested and expected to vest as of September 30, 2019	1,903,094	$	4.80	7.2	$	7,241
Outstanding as of March 31, 2020	1,626,244	$	5.01	6.9	$	10,057
Options vested and exercisable as of September 30, 2019	1,137,160	$	4.08	6.4	$	5,173
Options vested and expected to vest as of March 31, 2020	1,582,822	$	4.97	6.9	$	9,849
Options vested and exercisable as of March 31, 2020	1,034,771	$	4.42	6.3	$	7,002

	Restricted Stock Units
				Weighted-
		Weighted-		Average
		Average		Remaining	Aggregate
		Grant Date		Contractual	Intrinsic
	Shares	Fair Value		Term (Years)	Value
	(aggregate intrinsic value in thousands)
Outstanding as of December 31, 2016	490,954	$	5.80	0.5	$	908
Granted	541,513		2.88
Released	(497,009)		5.64
Forfeited/expired	(25,564)		5.98
Outstanding as of December 31, 2017	509,894		2.84	1.4	$	3,288
Granted	925,578		6.55
Released	(264,568)		4.02
Forfeited/expired	(15,924)		8.34
Outstanding as of December 31, 2018	1,154,980		5.50	1.4	$	5,082
Granted	965,313		6.33
Released	(361,742)		5.26
Forfeited/expired	(141,293)		4.88
Outstanding as of September 30, 2019	1,617,258	$	6.10	1.4	$	13,844


	Restricted Stock Units
				Weighted-
		Weighted-		Average
		Average		Remaining	Aggregate
		Grant Date		Contractual	Intrinsic
	Shares	Fair Value		Term (Years)	Value
	(aggregate intrinsic value in thousands)
Outstanding as of December 31, 2017	509,894	$	2.84	1.4	$	3,288
Granted	925,578		6.55
Released	(264,568)		4.02
Forfeited/expired	(15,924)		8.34
Outstanding as of December 31, 2018	1,154,980		5.50	1.4	$	5,082
Granted	978,851		6.35
Released	(512,703)		5.31
Forfeited/expired	(169,621)		5.15
Outstanding as of December 31, 2019	1,451,507		6.18	1.3	$	12,314
Granted	958,825		7.88
Released	(143,625)		5.40
Forfeited/expired	(13,526)		7.67
Outstanding as of March 31, 2020	2,253,181	$	6.94	1.5	$	25,182

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 12. Stock-based Compensation.

We record stock-based compensation based on fair value as of the grant date using the Black-Scholes option-pricing model for stock options granted and Monte Carlo simulation techniques for certain RSUs with performance-based vesting conditions. We recognize such costs as compensation expense on a straight-line basis over the employee’s requisite service period, which is generally four years. Our valuation assumptions ~~for stock options~~ are as follows:

Risk-free interest rate. We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option group.

Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumption is based on the simplified method in which the expected term is equal to the average of the stock-based award’s weighted-average vesting period and its contractual term. We expect to continue using the simplified method until sufficient information about historical behavior is available.

Volatility. We determine volatility based on the historical stock volatility of our publicly traded stock.

Dividend yield. We have never declared or paid any cash dividend and do not currently plan to pay a cash dividend in the foreseeable future. Consequently, we used an expected dividend yield of zero.

The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine fair value of stock options:

	Three Months Ended				Nine Months Ended

	September 30,				September 30,
		Three months ended
	2019		2018		2019		2018
		March 31, 2019
Volatility	57	%66	77%	%	65	%	72	%
Expected dividend yield	—	—	—		—		—
Risk-free rate	~~1.90~~	%2.27	~~2.80~~%	%	~~2.22~~	%	~~2.84~~	%
Expected term (in years)	6	6	5		6		6

The weighted-average grant date fair value of the options granted under the 2015 Equity Incentive Plan as calculated using the Black-Scholes option-pricing model was $4.40 and $3.68 per share for the three months and nine months ended September 30, 2019, respectively. There were no options granted during the three months ended September 30, 2019.

OnThe ~~April 1,~~weighted-average ~~2017,~~grant ~~our~~date ~~compensation~~fair ~~committee~~value ~~granted~~of ~~204,220~~the ~~RSUs~~options ~~that~~granted dounder ~~not begin vesting unless certain performance goals are met. All performance goals must be met in order for~~ the ~~shares~~2015 toEquity ~~begin~~Incentive ~~vesting.~~Plan ~~Vesting~~as ~~would~~calculated ~~begin~~using on the ~~one~~Black-~~year~~Scholes ~~anniversary~~option-pricing ofmodel ~~the~~was ~~grant date~~$3.57 ~~These~~per ~~performance~~share ~~goals~~for ~~relate to a)~~ the ~~price~~three ~~performance~~months ofended ~~our~~March ~~common stock one year from the grant date as compared to a threshold established by our compensation committee and b) revenue~~31, ~~gross profit and EBITDA performance relative to plan targets for fiscal 2017 established by our compensation committee~~2019. AsThere awere ~~result~~no ofoptions ~~these~~granted ~~performance-based~~during ~~vesting~~the ~~conditions~~three wemonths ~~valued~~ended ~~these~~March ~~RSUs~~31, ~~using Monte Carlo simulation techniques to establish a fair value per share of $0~~2020.~~81 at the time of grant.~~

On ~~April 1~~March 25, ~~2018~~2019, our compensation committee granted ~~102~~147,~~283~~954 RSUs that do not begin vesting unless certain performance goals are met. Vesting of these shares will not begin unless the stock price performance goals are met and the number of shares eligible to begin vesting are based on Adesto’s share performance as compared to the Russell 2000 stock index which is the performance threshold established by the compensation committee. The evaluation period for the stock performance is from ~~April~~March 215, ~~2018~~2019 through ~~June~~March 3015, ~~2019~~2020. Vesting would begin on the one-year anniversary of the grant date with 20% of the shares vesting immediately and the remaining 80% of the shares vesting over the next eight quarters. As a result of these performance-based vesting conditions we valued these RSUs using Monte Carlo simulation techniques to establish a fair value per share of $4.05 at the time of grant. Expense for these RSUs is being amortized over three years. As of March 15, 2020 it was determined that the performance criteria had been met and that these RSU’s had been earned and would begin vesting.

33 On February 17, 2019, our compensation committee granted 97,087 RSUs that do not begin vesting unless certain performance goals are met. Vesting of these shares will not begin unless the stock price performance goals are met and the number of shares eligible to begin vesting are based on Adesto’s share performance as compared to the Russell 2000 stock index which is the performance threshold established by the compensation committee. The

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

20% of the shares vesting immediately and the remaining 80% of the shares vesting over the next eight quarters. As a result of these performance-based vesting conditions we valued these RSUs using Monte Carlo simulation techniques to establish a fair value per share of $4.92 at the time of grant. As of September 30, 2019, Adesto’s share price did not meet the performance threshold and the PRSU’s were not awarded.

On March 25, 2019, our compensation committee granted 147,954 RSUs that do not begin vesting unless certain performance goals are met. Vesting of these shares will not begin unless the stock price performance goals are met and the number of shares eligible to begin vesting are based on Adesto’s share performance as compared to the Russell 2000 stock index which is the performance threshold established by the compensation committee. The evaluation period for the stock performance is from ~~March~~January 1531, ~~2019~~2020 through ~~March~~January 1531, ~~2020~~2021. Vesting would begin on ~~the~~January ~~one-year~~31, ~~anniversary~~2021 ~~of the grant date~~ with 2025% of the shares vesting ~~immediately~~every ~~and~~six ~~the~~months ~~remaining 80% of the shares vesting~~ over ~~the~~two ~~next eight quarters~~years. As a result of these performance-based vesting conditions we valued these RSUs using Monte Carlo simulation techniques to establish a fair value per share of $410.0575 at the time of grant. Expense for these RSUs is being amortized over three years.

The following table presents the effects of stock-based compensation for stock options, RSUs (including performance-based RSUs), and ESPP purchase rights (in thousands):

	Three Months Ended				Nine Months Ended

	September 30,				September 30,
	Three Months Ended
	2019		2018		2019		2018
	March 31,
Cost of revenue	$	80	$	56	$	212	$	129
	2020		2019
Research and development		638		356		1,517		786
Cost of revenue	$	142	$	65
Selling, general and administrative		917		528		2,345		1,188
Research and development		696		389
Total	$	1,635	$	940	$	4,074	$	2,103
Selling, general and administrative		1,087		621
Total	$	1,925	$	1,075

~~Stock-based compensation expense capitalized to inventories was not material during the nine months ended September 30, 2019 and 2018.~~

Stock-based compensation expense capitalized to inventories was not material during the three months ended March 31, 2020 and 2019.

We did not realize any income tax benefit from stock option exercises in any of the periods presented due to recurring losses and valuation allowances.

As of ~~September~~March 3031, ~~2019~~2020, the total unrecognized compensation cost related to stock options, net of estimated forfeitures, was approximately $21.69 million, and this amount is expected to be recognized over a weighted-average period of approximately 21.29 years.

As of ~~September~~March 3031, ~~2019~~2020, the total unrecognized compensation cost related to RSUs (including performance-based RSUs) and ESPP purchase rights was $712.91 million and $~~163,000,~~0.2 million respectively, and these amounts are expected to be recognized over 2.45 years and 0.3 years, respectively.

Note 13. Income Taxes.

We recorded a ~~provision for (~~benefit from) income tax of ~~$337,000 and~~ ($64103,000), ~~respectively, for the three months ended September 30, 2019~~ and ~~2018, respectively, and a provision for~~ (~~benefit from) income tax of~~ $~~236~~31,000 ~~and ($80,000~~), respectively, for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, respectively. The income tax provision is comprised of estimates of current and deferred taxes in domestic and foreign jurisdictions. The income tax provision reflects tax expense associated with foreign current and deferred taxes, state income tax, and uncertain tax positions. ~~and~~The ~~tax~~decrease ~~expense~~in ~~related to~~ the ~~recording~~tax ofprovision abetween ~~deferred~~2020 ~~tax~~and ~~liability~~2019 is ~~that~~primarily ~~results~~due ~~from~~to ~~the~~a ~~amortization~~deferred ~~for income~~ tax ~~purposes~~benefit ofassociated ~~acquisition-related~~with ~~goodwill.~~our ~~The~~foreign ~~decrease~~deferred ~~in the~~ tax ~~provision~~liability ~~between~~and ~~2019~~release ~~and~~of ~~2018 is~~tax ~~primarily~~reserves due to athe ~~deferred~~statute ~~tax~~of limitations lapse on such reserve.

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ADESTO TECHNOLOGIES CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

benefit associated with our foreign deferred tax liability and release of tax reserves due to the statute of limitations lapse on such reserve.

In December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact us, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017.

Due to the complexities involved in accounting for the recently enacted Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires that the Company include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such estimate has been determined. Pursuant to the SAB118, the Company is allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed the analysis relating to the Act currently available which resulted in no additional SAB 118 tax effect in the fourth quarter of 2018 for the year ended December 31, 2018.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the 2017 Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Effective January 1, 2018, we elected to treat any potential GILTI inclusions as a period cost as we are not projecting any material impact from GILTI inclusions and any deferred taxes related to any inclusion would be immaterial.

AsThe ofCoronavirus ~~September 30~~Aid, ~~2019~~Relief, ~~our~~and ~~deferred~~Economic ~~tax~~Security ~~assets~~Act ~~are~~(CARES ~~fully~~Act) ~~offset~~was byenacted a valuation allowance except in those jurisdictions where it is determined that a valuation allowance is not required. Accounting for income taxes provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based on ~~the~~March ~~weight of available evidence~~27, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against our net U2020.S. ~~deferred~~It ~~tax~~contains ~~assets.~~several Weprovisions ~~reassess~~that ~~the~~may ~~need~~have ~~for~~financial ~~our~~statement ~~valuation allowance on a quarterly basis~~effects. IfKey itAspects ~~is later determined that a portion or all~~ of the ~~valuation~~CARES ~~allowance~~Act isinclude ~~not required, it generally will be a benefit to~~ the ~~income tax provision in the period that such determination is made.~~ following:

We evaluate tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. We do not anticipate a material change in the total amount or composition of its unrecognized tax benefits within 12 months of September 30, 2019. 33

We file federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss and credit carryforwards, our income tax returns generally remain subject to examination by federal, state and international authorities.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

●

Repealed the 80% taxable income limitation for 2018, 2019 and 2020. Also allows those years to be carried back up to five years;

●

Allows corporations to claim 100% of AMT credits in 2019. It also provides for an election to take the entire refundable credit amount in 2018;

●

Section 163(j) Adjusted Taxable Income limit raised from 30% to 50% for businesses; and

●

Technical corrections to TCJA for Qualified Improvement Property (“QIP”). Designates as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation.

The CARES Act is not expected have a material impact to Income Taxes in the Company's financial statements.

As of March 31, 2020, our deferred tax assets are fully offset by a valuation allowance except in those jurisdictions where it is determined that a valuation allowance is not required. Accounting for income taxes provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based on the weight of available evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against our net U.S. deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, the valuation allowance release will generally be a benefit to the income tax provision in the period that such determination is made.

We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss and credit carryforwards, our income tax returns generally remain subject to examination by federal, state, and international authorities.

Note 14. Net Loss Per Share.

The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

	Three Months Ended		Nine Months Ended

	September 30,		September 30,
	Three Months Ended
	2019	2018	2019	2018
	March 31,
Stock options	1,958,989	1,844,030	1,958,989	1,844,030
	2020	2019
Restricted stock units	1,617,258	1,074,193	1,617,258	1,074,193
Stock options	1,626,244	2,018,469
Common stock warrants	1,165,282	1,239,423	1,165,282	1,239,423
Restricted stock units	2,253,181	1,346,031
Shares from the convertible senior notes	6,705,819	—	6,705,819	—
Common stock warrants	1,165,282	1,239,423
	11,447,348	4,157,646	11,447,348	4,157,646
Shares from the convertible senior notes	6,705,819	—
	11,750,526	4,603,923

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 15. Related Party Transactions.

The Company purchases certain wafers from Altis Semiconductor S.N.C., which was acquired by X-FAB Silicon Foundries, a stockholder of the Company, in 2016. There were no payments to X-Fab Silicon Foundries during the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019. As of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, there were no amounts due.

On July 27, 2019, Susan Uthayakumar, the president of Schneider Electric, Canada joined the Company’s board of directors. The Company, through Echelon, sells Embedded Systems products to Schneider Electric. From September 14, 2018 (the date on which the Company acquired 100% of the issued capital of Echelon) and through the period ending ~~September~~March 3031, ~~2019~~2020, the Company has recognized revenues of approximately $0.6 million from Schneider Electric. As of ~~September~~March 3031, ~~2019~~2020 we had approximately $1211,000 of outstanding accounts receivable with Schneider Electric.

Note 16. Restructuring

During the nine months ended September 30, 2019, the Company made the decision to close the lighting business which was acquired as part of the Echelon acquisition in September 2018. The lighting disposal liabilities, expected to be resolved in the next 12 months, include accrued costs for certain estimated warranty expenses, employee severance, additional inventory write-downs, additional bad debts, and additional materials at our subcontractors which have yet to be delivered. The Company recorded a restructuring expense of $1.7 million during the nine months ended September 30, 2019.

During 2019, the Company made the decision to close the lighting business which was acquired as part of the Echelon acquisition in September 2018. The lighting disposal liabilities included accrued costs for certain estimated warranty expenses, employee severance, additional inventory write-downs, additional bad debts, and additional materials at the Company’s subcontractors which have yet to be delivered.

Note 17. Merger with Dialog Semiconductor plc

On February 20, 2020, the Company, Dialog Semiconductor plc, a company incorporated in England and Wales (“ Parent ”), and Azara Acquisition Corp. (“ Merger Sub ”), a Delaware corporation and a wholly owned direct or indirect subsidiary of Parent, entered into an Agreement and Plan of Merger (the “ Merger Agreement ”). The Board of Directors of the Company has unanimously determined that the Merger is advisable and fair to, and in the best interests of, the Company and its stockholders, and unanimously recommended the adoption of the Merger Agreement by the holders of the Company’s common stock (the “ Shares ”).

Pursuant to the terms of, and subject to the conditions specified in, the Merger Agreement, Merger Sub will merge with and into the Company, and the Company will become a wholly owned direct or indirect subsidiary of Parent (the “ Merger ”). If the Merger is consummated, each Share outstanding as of immediately prior to the effective time of the Merger (other than (i) shares held, directly or indirectly, by any wholly owned subsidiary of the Company, (ii) shares held by the Company (or held in the Company’s treasury) or held, directly or indirectly by Parent, Merger Sub or any other wholly owned subsidiary of Parent and (iii) stockholders of the Company who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $12.55 in cash, without interest and subject to any required tax withholding.

The consummation of the Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things, (i) the adoption of the Merger Agreement by the holders of a majority of the Company’s Shares outstanding on the record date, which occurred on May 5, 2020 at a special meeting of the stockholders called for such purpose; (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended without the imposition of a Burdensome Condition (as defined in the Merger Agreement); (iii) obtainment of CFIUS Approval (as defined in the Merger Agreement); (iv) the absence of any order or other legal restraint or injunction preventing the consummation of the Merger and the absence of any law making the consummation of the Merger illegal, in any case, by any court or governmental entity having jurisdiction over the parties to the Merger Agreement; (v) the absence of certain legal proceedings brought by certain governmental entities relating to the Merger; (vi) the continued accuracy of the Company’s representations and warranties, subject to specified

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

materiality qualifications; (vii) the performance of the Company’s obligations and covenants under the Merger Agreement (to be performed at or prior to the consummation of the Merger) in all material respects and (vii) the absence of a Material Adverse Effect (as defined in the Merger Agreement). The transaction is not subject to a financing condition. The Company has filed the definitive proxy statement with the Securities and Exchange Commission on March 27, 2020. The Merger was approved by the stockholders of the Company on May 5, 2020. Subject to satisfaction of the closing conditions, the Company currently expects the merger to close in the second calendar quarter of 2020.

The Company has made customary representations and warranties in the Merger Agreement and has agreed to customary covenants, including (i) subject to certain limitations set forth in the Merger Agreement, to conduct the business and operations of the Company and its subsidiaries, in all material respects, in the ordinary course and in accordance with past practices prior to the consummation of the Merger and (ii) to not engage in certain specified transactions or activities prior to the consummation of the Merger without Parent’s prior written consent. In addition, the Company has agreed (i) not to solicit, initiate, knowingly encourage, or knowingly facilitate any alternative acquisition proposals or acquisition inquiries or take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry; (ii) not to furnish or otherwise provide access to any information regarding the Company or its subsidiaries to any person or entity in connection with or in response to an acquisition proposal or acquisition inquiry; (iii) not to engage in discussions or negotiations with any person or entity with respect to any acquisition proposal or acquisition inquiry; (iv) not to approve, endorse or recommend any acquisition proposal; and (v) not to enter into any letter of intent, memorandum of understanding, agreement in principle or similar document or any contract constituting or relating directly or indirectly to, or that contemplates or is intended or could reasonably be expected to result directly or indirectly in, an acquisition transaction, subject to customary exceptions in the exercise of the Board’s fiduciary duties.

The Merger Agreement contains customary termination rights for the parties, including the right to terminate the Merger Agreement if the Merger has not been consummated at or prior to 11:59 p.m. (California time) on August 20, 2020 (or, if so extended by either party in accordance with the terms of the Merger Agreement, November 20, 2020) (the “End Date”). The Merger Agreement provides that the Company will be required to pay Parent a termination fee of $15.76 million if the Merger Agreement is terminated under certain circumstances, including by the Company to accept a Superior Offer (as defined in the Merger Agreement) and enter into a definitive agreement providing for consummation of the transaction contemplated by such Superior Offer. The Merger Agreement also provides that Parent will be required to pay to the Company a termination fee of $15.76 million if the Merger is not consummated due to a failure to obtain CFIUS Approval prior to the End Date.

Note 18. Subsequent events.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. In addition, the Company’s personnel worldwide are subject to various travel restrictions, which limit the ability of the Company to provide services to customers and affiliates. This impacts the Company's normal operations. To date, the Company has been able to provide uninterrupted access to its products and services due to its globally distributed workforce, many of whom are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed

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~~Item 2.~~ADESTO ~~Management’s~~TECHNOLOGIES ~~Discussion~~CORPORATIONNOTES TO ~~and~~CONDENSED ~~Analysis~~CONSOLIDATED ofFINANCIAL ~~Financial Condition and Results of Operations~~ STATEMENTS(unaudited)

~~Forward-looking statements and factors that may affect future results~~

~~The~~consolidated ~~discussion~~financial ~~below contains forward-looking~~ statements, ~~which are subject to safe harbors under the Securities Act of 1933,~~ as ~~amended~~soon ~~(the “Securities Act”) and the Securities Exchange Act of 1934,~~ as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or to our future financial or operating performance. You can generally identify forward-looking statements because they ~~contain~~become words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intend,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentionsknown. WeActual ~~have based these forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition,~~ results of operations and prospects. Except as required by law, we do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ ~~materially~~ from those ~~projected~~estimates ~~in the forward-looking statements. These forward-looking statements involve risks~~ and ~~uncertainties,~~any ~~and~~such ~~our~~differences ~~actual~~may ~~results,~~be ~~performance,~~material orto ~~achievements could differ materially from those expressed or implied by~~ the ~~forward-looking~~financial statements ~~on the basis of several factors, including those that we discuss in Risk Factors, set forth in Part II, Item 1A, of this Quarterly Report on Form 10‑Q~~. ~~We encourage you to read that section carefully.~~

The following is a discussion and analysis of our financial condition and results of operations and should be read together with our condensed consolidated financial statements and related notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10‑Q and our audited consolidated financial statements and related notes to audited consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2018. In this Quarterly Report, unless otherwise specified or the context otherwise requires, “Adesto,” “we,” “us,” and “our” refer to Adesto Technologies Corporation and its consolidated subsidiaries.

~~Overview~~

We are a leading provider of innovative, application-specific semiconductors and embedded systems that provide the key building blocks of Internet of Things (“IoT”) edge devices operating on networks worldwide. Our broad portfolio of semiconductor and embedded technologies are optimized for connected IoT devices used in industrial, consumer, communications and medical applications. Through expert design, systems expertise and proprietary intellectual property, we enable our customers to differentiate their systems where it matters most for IoT: longer battery life, greater reliability, higher performance, integrated intelligence and lower cost. Through our solutions, we enable seamless access to data and control of ‘things’ in the connected world. Our product portfolio includes analog, digital and non-volatile memory (“NVM”) technologies delivered in the form of standard products, application-specific integrated circuits (“ASICs”) and intellectual property (“IP”) cores.

For the nine months ended September 30, 2019, our products were sold to more than 5,000 end customers. In general, we work directly with our customers to have our NVM devices designed into and qualified for their products.

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~~Although~~Item we2. ~~maintain direct sales, support and development relationships with our customers, once our products are designed into a customer~~Management’s ~~product,~~Discussion ~~we sell a majority of our products to those customers through distributors. We generated 61%~~ and ~~59%~~Analysis of ~~our~~Financial ~~revenue~~Condition ~~from distributors in each of the nine months ended September 30, 2019~~ and ~~September~~Results ~~30, 2018, respectively. Sales to three distributors generated approximately 38% and 32%~~ of our revenue during the nine months ended September 30, 2019 and September 30, 2018, respectively. Additionally, we derived approximately 73% and 72% of our revenue internationally during the nine months ended September 30, 2019 and September 30, 2018, respectively, the majority of which was recognized in the Asia Pacific (“APAC”) region. Revenue by geography is recognized based on the region to which our products are sold, and not to where the end products are shipped. Operations

~~We employ a fabless manufacturing strategy and use market~~Forward-~~leading~~looking ~~suppliers~~statements ~~for all phases of the manufacturing process, including wafer fabrication, assembly, testing~~ and ~~packaging.~~factors ~~This strategy significantly reduces the capital investment~~ that ~~would~~may ~~otherwise~~affect byfuture ~~required to operate manufacturing facilities of our own.~~ results

The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or to our future financial or operating performance. You can generally identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intend,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions. We have based these forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. Except as required by law, we do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties, and our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including those that we discuss in Risk Factors, ~~Affecting~~set ~~Our~~forth ~~Performance~~ in Part II, Item 1A, of this Quarterly Report on Form 10-Q. We encourage you to read that section carefully.

~~Product~~The ~~adoption~~following inis ~~new~~a ~~markets~~discussion and ~~applications.~~analysis Weof ~~optimize~~our financial condition and results of operations and should be read together with our ~~products~~condensed toconsolidated ~~meet~~financial ~~the~~statements ~~technical~~and ~~requirements~~related ofnotes ~~the~~to ~~emerging~~condensed ~~IoT~~consolidated ~~market.~~financial ~~The~~statements ~~growth~~included elsewhere in ~~the~~this ~~IoT~~Quarterly ~~market~~Report ison ~~dependent~~Form 10-Q onand ~~many~~our ~~factors,~~audited ~~most~~consolidated offinancial ~~which~~statements ~~are~~and ~~outside~~related ofnotes to audited consolidated financial statements included in our ~~control.~~Annual ~~Should~~Report on Form 10-K for the year ~~IoT~~ended ~~market~~December ~~not~~31, ~~develop~~2019. In this Quarterly Report, unless otherwise specified or ~~develop~~the ~~more~~context ~~slowly~~otherwise requires, “Adesto,” “we,” “us,” and “our” ~~financial~~refer ~~results~~to ~~could~~Adesto beTechnologies ~~adversely~~Corporation ~~affected~~and its consolidated subsidiaries.

~~Ability~~Impact ~~to attract and retain customers that make large orders. In 2018, our products were sold to more than 5,000 end customers,~~ of which approximately 25 generated more than half our revenue. One end customer accounted for 10% or more of our revenue in the first nine months of 2019. No end customer accounted for 10% or more of our revenue in 2017 or 2018. While we expect the composition of our customers to change over time, our business and operating results will depend on our ability to continually target new customers and retain existing customers that make large orders, particularly those in growth markets which are less dependent on macroeconomic conditions. COVID-19

~~Design~~The ~~wins~~global ~~with~~COVID-19 ~~new~~pandemic has impacted the operations and ~~existing~~purchasing ~~customers. We~~decisions ~~believe~~of ~~our~~companies ~~solutions~~worldwide. ~~significantly~~It ~~improve~~also ~~the~~has ~~performance~~created and ~~potentially~~may ~~lower~~continue ~~the~~to ~~system~~create ~~costs~~significant ofuncertainty ~~our~~in ~~customers’~~the ~~designs,~~global ~~particularly~~economy. We ifhave weundertaken ~~are~~measures ~~part~~to ofprotect ~~the~~our ~~early~~employees, ~~design~~partners, ~~phase. Accordingly~~customers, weand ~~work~~vendors. ~~closely~~In ~~with~~addition, our ~~customers~~personnel ~~and~~worldwide ~~targeted~~are ~~prospects~~subject to ~~understand~~various ~~their~~travel ~~product~~restrictions ~~roadmaps~~ and, ~~strategies.~~which Welimit ~~consider~~our ~~design~~ability ~~wins~~of to beprovide ~~critical~~services to ~~our~~customers ~~future~~and ~~success~~affiliates. WeThis ~~define~~impacts aour ~~design~~normal ~~win~~operations. asTo ~~the~~date, ~~successful~~We ~~completion~~have ofbeen ~~the~~able ~~evaluation~~to ~~stage,~~provide ~~where~~uninterrupted aaccess ~~customer~~to ~~has~~our ~~tested~~products ~~our~~and ~~product,~~services ~~verified~~due ~~that~~to our ~~product~~globally ~~meets~~distributed ~~its~~workforce, ~~requirements~~many ~~and~~of ~~qualified~~whom ~~our~~are ~~NVM~~working ~~device~~remotely, ~~for~~and ~~their~~our ~~products.~~pre-existing ~~The~~infrastructure ~~number~~that ofsupports secure access to our ~~design~~internal ~~wins~~systems. If, however, the COVID-19 pandemic has ~~grown~~a ~~from~~substantial ~~296~~impact inon ~~2016~~the toproductivity ~~417~~of inour ~~2017~~employees ~~and~~or toour ~~570~~partners’ inor ~~2018.~~customers’ ~~The~~decision ~~revenue~~to ~~that~~use weour ~~generate,~~products ifand ~~any~~services, ~~from~~the ~~each~~results ~~design~~of ~~win~~our ~~can~~operations ~~vary~~and ~~significantly.~~overall ~~Our~~financial ~~long-term~~performance ~~sales~~may ~~expectations~~be ~~are~~adversely ~~based~~impacted. onThe ~~forecasts~~extent ~~from~~of ~~customers,~~the ~~internal~~impact ~~estimates~~from ofthe ~~customer~~COVID-19 ~~demand~~pandemic ~~factoring~~on inour ~~expected~~business ~~time~~will todepend ~~market~~largely ~~for~~on ~~end~~future ~~customer~~developments ~~products~~that ~~incorporating~~are ~~our~~highly ~~solutions~~uncertain and ~~associated~~cannot ~~revenue~~be ~~potential~~predicted. ~~and~~For ~~internal~~a ~~estimates~~discussion of ~~overall~~risks ~~demand~~of ~~based~~COVID-19 onrelating ~~historical~~to ~~trends.~~our Webusiness, ~~had~~see ~~339~~“Part ~~new~~II: ~~design~~Other ~~wins~~Information-Item ~~during~~1A.- ~~the~~Risk ~~first~~Factors- ~~nine~~Risks ~~months~~Related ofto ~~2019,~~Our ~~compared~~Business ~~with~~and ~~423~~Our ~~new~~Industry- ~~design~~The ~~wins~~recent ~~during~~coronavirus ~~the~~outbreak ~~first~~could ~~nine months~~have ofan ~~2018~~adverse effect on our business. ”

Pricing, product cost and gross margins of our products. Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of fabricated wafers and assembly and test service costs, manufacturing yields and inventory write downs, if any. In general, newly introduced products and products with higher performance and more features tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In the normal course of business, we will seek to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-added products. More recently, certain of our suppliers have increased costs although such increase did not have a material impact on our results of operations for the nine months ended September 30, 2019. If we are unable to maintain overall average selling prices or offset any declines in average selling prices with realized savings on product costs, our gross margin will decline. Overview

38 We are a leading provider of innovative, application-specific semiconductors and embedded systems that provide the key building blocks of Internet of Things (“IOT”) edge devices operating on networks worldwide. Our broad portfolio of semiconductor and embedded technologies are optimized for connected IoT devices used in industrial, consumer, communications and medical applications. Through expert design, systems expertise and proprietary intellectual property, we enable our customers to differentiate their systems where it matters most for IoT: longer battery life, greater reliability, integrated intelligence and lower cost. Through our solutions, we enable seamless access to data and control of ‘things’ in the connected world. Our product portfolio includes analog, digital and non-volatile memory

~~Table of Contents~~ 38

~~Investment~~Table in growth. We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products and differentiated technologies to support our growth, and expanding our infrastructure. We expect our total operating expenses to increase in the foreseeable future to meet our growth objectives. We plan to continue to invest in our sales and support operations throughout the world, with a particular focus in adding additional sales and field applications personnel to further broaden our support and coverage of our existing customer base, in addition to developing new customer relationships and generating design wins. We also intend to continue to invest additional resources in research and development to support the development of our products and differentiated technologies. Any investments we make in our sales and marketing organization or research and development will occur in advance of experiencing any benefits from such investments, and the return on these investments may be lower than we expect. In addition, as we invest in expanding our operations internationally, our business and results will become further subject to the risks and challenges of international operations, including higher operating expenses and the impact of legal and regulatory developments outside the United States. Contents

~~Components~~(“NVM”) oftechnologies ~~Our~~delivered ~~Results~~in the form of ~~Operations~~ standard products, application-specific integrated circuits (“ASICs”) and intellectual property (“IP”) cores.

Our revenue is primarily derived from the sale of our NVM products, specifically our serial flash memory products, which represented substantially all of our revenue for the three months ended March 31, 2020. In recent years, we have invested in developing new flash memory products that are well suited for low-power, high-growth applications. Revenue from our next-generation NVM products were $13.7 million and $17.2 million for the three months ended March 31, 2020 and March 31, 2019, respectively. With the acquisition of S3 Semiconductors, in May 2018, we expanded our product offering and began selling analog, mixed-signal and radio frequency ASICs and IP blocks, and managing the supply of high-quality devices to our customers. We acquired 100% of the issued capital of Echelon Corporation, a Delaware corporation (“Echelon”), on September 14, 2018. During the three months ended March 31, 2020 and March 31, 2019 S3 Semiconductors and Echelon revenues were approximately $6.3 million and $10.9 million, respectively.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, weour ~~derived~~products ~~approximately~~were ~~61%~~sold ofto ~~our~~more ~~revenue~~than ~~through~~5,000 ~~the~~end ~~sale~~customers. ofIn general, we work directly with our customers to have our NVM devices designed into and qualified for their products. toAlthough ~~original~~we ~~equipment~~maintain ~~manufacturers~~direct ~~(“OEMs”)~~sales, support and ~~original~~development ~~design~~relationships ~~manufacturers~~with ~~(“ODMs”)~~our customers, ~~primarily~~once our products are designed into a customer’s product, we sell a majority of our products to those customers through distributors. We generated 6155%, and 5961% of our revenue from distributors ~~for~~in each of the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 and ~~September~~March 3031, ~~2018~~2019, respectively. We ~~derived~~Sales ~~approximately~~to ~~38%~~three ofdistributors ~~our~~generated ~~revenue~~approximately ~~from~~31% ~~the~~and ~~operations~~40% of S3our ~~and~~revenue ~~Echelon~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2019. Revenue~~2020 isand ~~recognized~~March ~~when~~31, ~~control~~2019, ofrespectively. ~~the~~Additionally, ~~promised~~we ~~goods~~derived orapproximately ~~services~~85% isand ~~transferred~~73% toof ~~customers,~~our inrevenue aninternationally ~~amount~~during ~~that~~the ~~reflects~~three ~~the~~months ~~consideration~~ended weMarch ~~expect~~31, to2020 beand ~~entitled~~March to31, in2019, ~~exchange~~respectively, ~~for~~the ~~those~~majority ~~goods~~of orwhich ~~services.~~was Werecognized ~~sell~~in the ~~majority~~Asia ofPacific ~~our~~(“APAC”) ~~NVM~~region. ~~products~~Revenue toby ~~distributors~~geography ~~and~~is ~~generally~~recognized ~~recognize~~based ~~revenue~~on ~~when we ship~~ the ~~product~~region ~~directly~~ to ~~the~~which ~~distributors~~our ~~since~~products ~~title~~are sold, and ~~risk~~not ofto ~~loss~~where ~~transfers~~the atend ~~that~~products ~~time~~are shipped.

~~Because~~We ~~our~~employ ~~distributors~~a ~~market~~fabless manufacturing strategy and ~~sell~~use ~~their~~market-leading ~~products~~suppliers ~~worldwide,~~for ~~our~~all ~~revenue~~phases byof ~~geographic~~the ~~location~~manufacturing isprocess, ~~not~~including ~~necessarily~~wafer ~~indicative~~fabrication, ofassembly, ~~where~~testing ~~our~~and ~~customers’~~packaging. ~~product~~This ~~sales~~strategy ~~and~~significantly ~~design~~reduces ~~win~~the ~~activity~~capital ~~occur,~~investment ~~but~~that ~~rather~~would ofotherwise ~~where~~be ~~their~~required to operate manufacturing ~~operations~~facilities ~~occur~~of our own.

~~Cost~~On February 20, 2020, we entered into the Merger Agreement with Dialog and Merger Sub, pursuant to which Merger Sub will, pursuant to the terms of ~~Revenue~~and subject to the conditions specified in the Merger Agreement, merge with and ~~Gross~~into ~~Margin~~ us, and we will be the surviving corporation of the Merger and become a wholly owned direct or indirect subsidiary of Dialog. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of our common stock (subject to certain exceptions) issued and outstanding immediately prior to the effective time of the Merger will be canceled and automatically converted into the right to receive $12.55 in cash, without interest and subject to any required tax withholding. Our Board of Directors has unanimously determined that the Merger is advisable and fair to, and in the best interests of, us and our stockholders, and unanimously recommended the adoption of the Merger Agreement by the holders of our common stock. The Company has filed the definitive proxy statement with the Securities and Exchange Commission on March 27, 2020. The Merger was approved by the stockholders of the Company on May 5, 2020. Subject to satisfaction of the closing conditions, we currently expect the merger to close in the second calendar quarter of 2020. For more information see Note 17, “Merger with Dialog Semiconductor plc,” in the notes to our condensed consolidated financial statements.

~~Cost~~Factors ofAffecting ~~revenue~~Our primarily consists of costs paid to our third-party manufacturers for wafer fabrication, assembly and testing of our NVM products, raw material purchases for embedded products, and write-downs of NVM and embedded inventory for excess and obsolete inventories. To a lesser extent, cost of revenue also includes depreciation of test equipment and expenses relating to manufacturing support activities, including personnel-related costs for both NVM and embedded products, logistics and quality assurance and shipping. Cost of revenue for ASIC and IP products is driven primarily by personnel-related costs including outside consultants along with facilities costs. Performance

~~Our~~Product ~~gross~~adoption ~~margin~~in ~~has~~new ~~been~~markets and ~~will~~applications. ~~continue~~We tooptimize beour ~~affected~~products byto ameet ~~variety~~the oftechnical ~~factors,~~requirements ~~including~~of the ~~timing~~emerging ofIoT ~~changes~~market. inThe ~~pricing,~~growth ~~shipment~~in ~~volumes,~~the ~~new~~IoT ~~product~~market ~~introductions,~~is ~~changes~~dependent inon ~~product~~many ~~mix~~factors, ~~changes~~most inof ~~our~~which ~~purchase~~are ~~price~~outside of ~~fabricated~~our ~~wafers~~control. ~~and~~Should ~~assembly~~the ~~and~~IoT ~~test~~market ~~service~~not ~~costs,~~develop ~~manufacturing~~or ~~yields~~develop ~~and~~more ~~inventory write downs~~slowly, ~~if any, and personnel-related costs required to support ASIC and IP contracts. We expect~~ our ~~gross~~financial ~~margin~~results tocould ~~fluctuate~~be ~~over~~adversely ~~time depending on the factors described above~~affected.

~~Operating~~Ability ~~Expenses~~ to attract and retain customers that make large orders. In 2019, our products were sold to more than 5,000 end customers, of which approximately 25 generated more than half of our revenue. One end customer accounted for 10% or more of our revenue in the first three months of 2020. One end customer accounted for 10% or more of our revenue in 2019. While we expect the composition of our customers to change over time, especially given our recent

Our operating expenses consist of research and development (“R&D”), selling, general and administrative (“SG&A”) expense, amortization of intangible assets, acquisition related expenses and restructuring and other charges. Personnel-related costs, including salaries, benefits, bonuses and stock-based compensation, are the most significant component of each of our R&D and SG&A expense categories. In addition, in the near term we expect to hire additional personnel, primarily in our selling and marketing functions, and increase research and development expenditures. Accordingly, we expect our operating expenses to increase in absolute dollars as we invest in these initiatives. 39

39 Table of Contents

~~Table~~acquisitions, ofour ~~Contents~~ business and operating results will depend on our ability to continually target new customers and retain existing customers that place large orders, particularly those in growth markets which are less dependent on macroeconomic conditions.

~~Research~~Design wins with new and ~~Development~~existing customers. ~~Our~~We ~~research~~believe our solutions significantly improve the performance and ~~development~~potentially ~~expenses~~lower ~~consist~~the ~~primarily~~system cost of ~~personnel-related~~our ~~costs~~customers’ ~~for~~designs, particularly if we are part of the early design ~~and~~phase. ~~development~~Accordingly, ofwe work closely with our ~~products~~customers and ~~technologies.~~targeted ~~Additional~~prospects ~~research~~to understand their product roadmaps and ~~development~~strategies. ~~expenses~~We ~~include~~consider ~~product~~design ~~prototype~~wins ~~costs,~~to ~~amortization~~be critical to our future success. We define a design win as the successful completion of ~~mask~~the ~~costs~~evaluation ~~and~~stage, ~~other~~where ~~materials~~a ~~costs~~customer has tested our product, ~~external~~verified ~~test~~that our product meets its requirements and ~~characterization~~qualified ~~expenses,~~our ~~depreciation,~~NVM ~~amortization~~device for their products. The number of our design ~~tool~~wins ~~software~~has ~~licenses,~~grown ~~and~~from ~~allocated~~417 ~~overhead~~in ~~expenses~~2017 to 570 in 2018. We ~~also~~had ~~incur~~459 ~~costs~~additional ~~related~~design towins ~~outsourced~~in ~~research~~2019. ~~and~~The ~~development~~revenue ~~activities~~that ~~and~~we ~~joint~~generate, ~~venture~~if ~~activities~~any, from each design win can vary significantly. WeOur ~~expect~~long-term ~~research~~sales ~~and~~expectations ~~development~~are ~~expenses~~based toon ~~increase~~forecasts infrom ~~absolute~~customers, ~~dollars~~internal ~~for~~estimates ~~the~~of ~~foreseeable~~customer ~~future~~demand asfactoring wein ~~continue~~expected time to ~~improve~~market for end customer products incorporating our ~~product~~solutions ~~features~~and associated revenue potential and ~~increase~~internal ~~our~~estimates ~~portfolio~~of overall demand based on historical trends. We had 159 new design wins during the first three months of ~~solutions~~2020.

~~Selling~~Pricing, ~~general~~product cost and ~~administrative~~gross margins of our products. ~~Selling,~~ ~~general,~~Our gross margin has been and ~~administrative~~will ~~expenses~~continue ~~consist~~to ~~primarily~~be ofaffected ~~personnel-related~~by ~~costs~~a ~~for~~variety ~~our~~of ~~sales~~factors, ~~business~~including ~~development~~the timing of changes in pricing, ~~marketing~~shipment volumes, ~~applications~~new ~~engineering~~product introductions, ~~finance~~changes in product mixes, changes in our purchase price of fabricated wafers and ~~human~~assembly ~~resources~~and ~~activities~~test service costs, ~~third-party~~the ~~sales~~cost ~~representative~~of ~~commissions~~raw materials for our embedded systems products, ~~promotional~~manufacturing yields and ~~other~~inventory ~~marketing~~write ~~expenses~~downs, ~~consulting~~if ~~expenses~~any. In general, newly introduced products and ~~professional~~products ~~fees~~with higher performance and ~~travel~~more ~~expenses.~~features ~~Professional~~tend ~~fees~~to ~~principally~~be ~~consist~~priced ofhigher ~~legal,~~than ~~audit~~older, ~~tax~~more ~~and~~mature ~~accounting~~products. ~~services~~Average selling prices in the semiconductor industry typically decline as products mature. WeConsistent ~~expect~~with ~~sales~~this historical trend, ~~general~~we ~~and~~expect ~~administrative~~that ~~expenses~~the toaverage ~~increase~~selling inprices ~~absolute~~of ~~dollars~~our ~~for~~products will decline as they mature. In the ~~foreseeable~~normal ~~future~~course asof business, we ~~hire~~will ~~additional~~seek ~~personnel~~to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-added products. More recently, certain of our suppliers have increased costs although such increase did not have a material impact on our ~~marketing~~results ~~activities~~of operations for the three months ended March 31, ~~and~~2020. ~~make~~If ~~improvements~~we are unable to ~~our~~maintain ~~infrastructure~~overall ~~and~~average ~~incur~~selling ~~additional~~prices ~~costs~~or ~~for~~offset ~~legal,~~any ~~insurance~~declines ~~and~~in ~~accounting~~average ~~expenses~~selling ~~associated~~prices with realized savings on product costs, our ~~recent~~gross ~~acquisitions~~margin will decline.

~~Amortization~~Investment ofin ~~intangible~~growth. ~~assets~~We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products and differentiated technologies to support our growth and expanding our infrastructure. ~~Amortization~~ ofWe ~~intangible~~expect ~~assets~~our istotal operating expenses to increase in the ~~periodic~~foreseeable ~~expense~~future ~~related~~to meet our growth objectives. We plan to ~~the~~continue ~~use~~to ofinvest ~~intangible~~in ~~assets~~our ~~created~~sales asand asupport ~~result~~operations ofthroughout the ~~acquisitions~~world, with ~~respect~~a particular focus in adding additional sales and field applications personnel to S3further broaden our support and coverage of our existing customer base, ~~Echelon~~in addition to developing new customer relationships and ~~Atmel~~generating ~~Corporation~~design wins. ~~The~~ ~~periodic~~We ~~expense~~also isintend ~~based~~to continue to invest additional resources in research and development to support the development of our products and differentiated technologies. Any investments we make in our sales and marketing organization or research and development will occur in advance of experiencing any benefits from such investments, and the return on ~~useful~~these ~~lives~~investments ~~determined~~may be lower than we expect. In addition, as ~~part~~we ofinvest in expanding our operations internationally, our business and results will become further subject to the ~~initial~~risks ~~valuation~~and challenges of international operations, including higher operating expenses and the ~~assets~~impact ~~acquired.~~of legal and regulatory developments outside the United States.

~~Acquisition~~Components ~~related expenses. Acquisition related expenses are those costs incurred as a result~~ of ~~the~~Our S3Results ~~and Echelon acquisitions and include banking fees, legal, accounting, and tax fees, and certain professional fees including costs related to the valuation~~ of ~~each acquisition.~~ Operations

~~Restructuring and other charges. Restructuring and other charges are costs incurred related to write-downs of certain equipment and assets, terminated projects and excess facilities.~~ Revenue

~~Other~~For ~~Income~~the three months ended March 31, 2020 we derived approximately 68% of our revenue through the sale of our NVM products to original equipment manufacturers (~~Expense~~“OEMs”) and original design manufacturers (“ODMs”), ~~Net~~ primarily through distributors. We generated 55%, and 61% of our revenue from distributors for the three months ended March 31, 2020 and March 31, 2019, respectively. We derived approximately 32% and 39% of our revenue from the operations of S3 Semiconductors and Echelon for the three months ended March 31, 2020 and March 31, 2019. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We sell the majority of our

Other income (expense), net is comprised of interest income (expense) and other income (expense). Interest expense consists of cash interest on our outstanding debt and the amortization of debt discount. Other expense, net consists of foreign exchange gains and losses and the change in the fair value of an earn-out liability which was part of the S3 share purchase agreement. The earn-out liability is tied to certain financial performance criteria defined in the S3 share purchase agreement. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates. 40

~~Provision~~Table ~~for~~of ~~(Benefit from) Income Taxes~~ Contents

~~Provision~~NVM ~~for~~products ~~(benefit~~to ~~from)~~distributors ~~income taxes consists primarily of U.S. federal~~ and ~~state~~generally ~~income~~recognize ~~taxes~~revenue inwhen ~~the United States and income taxes in certain foreign jurisdictions in which~~ we ~~conduct~~ship ~~business.~~the Weproduct ~~have~~directly ato ~~full~~the ~~valuation~~distributors ~~allowance~~since ~~for~~title ~~deferred~~and ~~tax~~risk ~~assets,~~of ~~including net operating~~ loss ~~carryforwards,~~transfers ~~and~~at ~~tax~~that ~~credits related primarily to research and development~~time. ~~We expect to maintain this full valuation allowance for the foreseeable future.~~

~~Comparison~~Because ofour ~~the~~distributors ~~nine~~market ~~months~~and ~~ended~~sell ~~September~~their 30products worldwide, ~~2019~~our revenue by geographic location is not necessarily indicative of where our end customers’ product sales and ~~2018~~design ~~(in~~win ~~thousands~~activity occur, ~~except percentage~~but ~~data):~~ rather of where their manufacturing operations occur.

Cost of Revenue and Gross Margin

		Three Months Ended							Nine Months Ended
		September 30,			Change				September 30,			Change
		2019		2018	$	%			2019		2018	$	%
Revenue, net	$	32,028	$	21,927	10,101	46	%	$	90,297	$	55,412	34,885	63	%

Cost of revenue primarily consists of costs paid to our third-party manufacturers for wafer fabrication, assembly and testing of our NVM products, raw material purchases for embedded products, and write-downs of NVM and embedded inventory for excess and obsolete inventories. To a lesser extent, cost of revenue also includes depreciation of test equipment and expenses relating to manufacturing support activities, including personnel-related costs for both NVM and embedded products, logistics and quality assurance and shipping. Cost of revenue for ASIC and IP products is driven primarily by personnel-related costs including outside consultants along with facilities costs.

40 Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mix, changes in our purchase price of fabricated wafers and assembly and test service costs, manufacturing yields and inventory write downs, if any. We expect our gross margin to fluctuate over time depending on the factors described above.

~~Table~~Operating ~~of Contents~~ Expenses

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by geography:
United States	27	%	32	%	27	%	28	%
Europe	19	%	23	%	19	%	21	%
Asia Pacific	50	%	41	%	48	%	49	%
Rest of world	4	%	4	%	6	%	2	%

Our operating expenses consist of research and development, selling, general and administrative expense, amortization of intangible assets, acquisition related expenses and impairment and other charges. Personnel-related costs, including salaries, benefits, bonuses and stock-based compensation, are the most significant component of each of our operating expense categories. In addition, in the near term we expect to hire additional personnel, primarily in our selling and marketing functions, and increase research and development expenditures. Accordingly, we expect our operating expenses to increase in absolute dollars as we invest in these initiatives.

~~Revenue~~Research ~~increased~~and ~~by $10~~Development.1 Our ~~million,~~research orand ~~46%,~~development ~~during~~expenses consist primarily of personnel-related costs for the ~~three~~design ~~months~~and ~~ended~~development ~~September~~of ~~30,~~our ~~2019~~products asand ~~compared~~technologies. toAdditional ~~the~~research ~~three~~and ~~months~~development ~~ended~~expenses ~~September~~include 30product prototype costs, ~~2018.~~amortization ~~This~~of ~~increase~~mask ~~was~~costs ~~due~~and ~~primarily~~other tomaterials ~~the~~costs, ~~contribution~~external test and characterization expenses, depreciation, amortization of ~~incremental~~design ~~revenues~~tool software licenses, amortization of ~~approximately~~acquisition-related ~~$12~~intangible assets and allocated overhead expenses.4 ~~million~~We ~~from~~also S3incur ~~and~~costs ~~Echelon~~related ~~during~~to ~~the~~outsourced ~~quarter~~research and ~~higher~~development ~~sales~~activities ofand ~~standard~~joint ~~memory~~venture ~~products~~activities. We expect research and development expenses to ~~Tier~~increase 1in ~~OEM~~absolute ~~customers.~~dollars ~~These~~for ~~increases~~the ~~were~~foreseeable ~~partially~~future ~~offset~~as bywe ~~slower~~continue ~~than~~to ~~expected~~improve ~~sales~~our ~~for~~product features and increase our ~~DataFlash-L~~portfolio ~~products~~of solutions.

~~Revenue~~Selling, ~~increased~~general byand ~~$34~~administrative.9 Selling, ~~million~~general, orand ~~63%,~~administrative ~~during~~expenses ~~the~~consist ~~nine~~primarily ~~months~~of ~~ended~~personnel-related ~~September~~costs 30for our sales, ~~2019~~business asdevelopment, ~~compared~~marketing, toand ~~the~~applications ~~nine~~engineering ~~months~~activities, ~~ended~~third-party ~~September~~sales 30representative commissions, ~~2018~~promotional and other marketing expenses, amortization of acquisition-related intangible assets and travel expenses. ~~This~~General ~~increase~~and ~~was~~administrative ~~due~~expenses consist primarily toof ~~increased~~personnel-related ~~unit~~costs, ~~shipments~~consulting expenses and professional fees. Professional fees principally consist of ~~NVM~~legal, ~~products~~audit, ~~along~~tax ~~with~~and ~~incremental~~accounting ~~revenue~~services. ~~from~~We expect sales, general and administrative expenses to increase in absolute dollars for the S3foreseeable future as we hire additional personnel, increase our marketing activities, and ~~Echelon~~make ~~acquisitions~~improvements ofto ~~$26.9~~our ~~million~~infrastructure and incur additional costs for legal, insurance and accounting expenses associated with our recent acquisitions.

~~Cost~~Amortization of ~~Revenue~~intangible assets. Amortization of intangible assets is the periodic expense related to the use of intangible assets created as a result of the acquisitions with respect to S3 Semiconductors, Echelon and ~~Gross~~Atmel ~~Margin~~ Corporation. The periodic expense is based on useful lives determined as part of the initial valuation of the assets acquired.

	Three Months Ended										Nine Months Ended
												September 30,					Change
	2019			2018			$		%		2019			2018			$		%
Cost of revenue	$	15,781		$	12,344		$	3,437	28	%	$	46,384		$	30,885		$	15,499	50	%
Gross profit		16,247			9,583			6,664	70	%		43,913			24,527			19,386	79	%
Gross margin		51	%		44	%						49	%		44	%

Acquisition related expenses. Acquisition related expenses are those costs incurred as a result of the S3 Semiconductors and Echelon acquisitions and the proposed merger with Dialog Semiconductor plc and include banking

Cost of revenue increased by $3.4 million, or 28%, during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This increase was due primarily to increased unit shipments of NVM products along with the incremental cost of revenue incurred as a result of our acquisitions of S3 and Echelon. 41

~~Cost~~Table of revenue increased by $15.5 million, or 50%, during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. This increase was due primarily to an increase in unit shipments of NVM products, the increased cost of revenue resulting from our S3 and Echelon acquisitions, and a reduction in the benefit associated with the write-down of inventory. Contents

~~Gross~~fees, ~~profit increased by $6.7 million~~legal, ~~or 70%~~accounting, ~~during~~and ~~the~~tax ~~three~~fees, ~~months~~and ~~ended~~certain ~~September~~professional ~~30,~~fees ~~2019~~including ascosts ~~compared~~related to the ~~three~~valuation ~~months ended September 30, 2018 due primarily to an increase in unit shipments~~ of ~~NVM~~each ~~products along with gross profit generated from our S3 and Echelon acquisitions~~acquisition.

~~Our~~Impairment ~~gross~~and ~~margin~~other ~~increased~~charges. Impairment ~~from~~and ~~44%~~other tocharges ~~51%~~are incosts ~~the~~incurred ~~three~~related ~~months ended September 30, 2019 as compared~~ to ~~the~~write-downs ~~three months ended September 30, 2018 primarily as a result~~ of ~~our~~certain S3equipment and ~~Echelon acquisitions~~assets, ~~which~~terminated ~~both~~projects ~~earn~~and ~~gross~~excess ~~margins which are higher than those on our NVM products, offset by increased shipments of standard flash products which carry a lower gross margin~~facilities.

~~Gross~~Other ~~profit~~Income ~~increased by $19.4 million~~(Expense), or 79%, during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 due primarily to an increase in unit shipments of NVM products along with increased revenues and gross profits resulting from the acquisitions of S3 and Echelon during 2018. Net

~~Our~~Other ~~gross~~income ~~margin~~(expense), ~~increased~~net ~~from~~is ~~44%~~comprised toof ~~49%~~interest ~~during~~income (expense) and other income (expense). Interest expense consists of cash interest on our outstanding debt and the ~~nine~~amortization ~~months~~of ~~ended~~debt ~~September~~discount. 30Other expense, ~~2019~~net asconsists ~~compared~~of toforeign exchange gains and losses and the ~~nine~~change ~~months~~in ~~ended~~the ~~September~~fair ~~30,~~value ~~2018~~of asthe aearn-out ~~result~~liability which was part of ~~our~~the S3 ~~and~~Semiconductors ~~Echelon~~share ~~acquisitions,~~purchase ~~which~~agreement. ~~both~~The earn-out ~~gross~~liability is tied to certain financial performance criteria defined in the S3 Semiconductors share purchase agreement. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

41 Benefit from Income Taxes

~~Table~~Benefit from income taxes consists primarily of ~~Contents~~ U.S. federal and state income taxes in the United States and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development. We expect to maintain this full valuation allowance for the foreseeable future.

~~margins~~Comparison ~~which~~of ~~are~~the ~~higher~~three ~~than~~months ~~those~~ended onMarch ~~our serial flash products~~31, ~~offset~~2020 byand ~~increased~~2019 ~~shipments~~(in ofthousands, ~~standard~~except percentage ~~flash products which carry a lower gross margin.~~ data):

~~Operating Expenses~~ Revenue

	Three Months Ended									Nine Months Ended

	September 30,				Change					September 30,				Change
		Three Months Ended
	2019		2018		$			%		2019		2018		$		%
		March 31,			Change
Operating expenses:
		2020		2019	$		%
Research and development	$	7,384	$	5,297	$	2,087		39	%	$	22,353	$	13,139	$	9,214	70	%
Revenue, net	$	20,021	$	28,113	(8,092)		-29	%
Selling, general and administrative		8,461		5,795		2,666		46			24,554		14,762		9,792	66
Amortization of intangible assets		1,788		1,138		650		57			5,365		2,119		3,246	153
Acquisition related expenses		—		4,776		(4,776)		(100)			227		6,793		(6,566)	(97)
Restructuring and other charges		—		—		—		0			1,694		—		1,694	0
Total operating expenses	$	17,633	$	17,006	$	627		4	%	$	54,193	$	36,813	$	17,380	47	%

Research and Development. Research and development expense increased by $2.1 million, or 39%, during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This increase was due primarily to a $1.2 million increase in personnel costs, and a $1.6 million increase in outsourced research development activities, offset by a $0.7 million R&D tax credit.

Research and development expense increased by $9.2 million, or 70%, during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. This increase was due primarily a $6.8 million increase in personnel cost, a $2.5 million increase in outsourced research development activities, a $0.6 million increase in facilities, and a $0.2 million increase in travel costs, offset by a $1.0 million R&D tax credit.


	Three Months Ended
	March 31,
	2020		2019
Revenue by geography:
United States	15	%	27	%
Europe	17	%	17	%
Asia Pacific	65	%	49	%
Rest of world	2	%	7	%

Selling, General and Administrative. Selling, general and administrative expense increased by $2.7 million, or 46%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This increase was due primarily to a $1.8 million increase in personnel costs, a $0.6 million increase in outsourced sales, marketing and administrative activities, a $0.1 million in travel costs, a $0.1 million increase in facilities and a $0.1 million increase in depreciation and amortization.

~~Selling,~~Revenue ~~general~~decreased ~~and administrative expense increased~~ by $9.8.1 million, or 6629%, ~~for~~during the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019. This ~~increase~~decrease was due primarily to adecreased ~~$6.7~~unit ~~million~~shipments ~~increase~~of inNVM ~~personnel~~products ~~costs,~~to ~~$2.2~~Tier ~~million~~1 ~~increase~~customers inalong ~~outsourced~~with ~~sales, marketing and administrative activities,~~ a ~~$0.5~~decrease ~~million increase~~ in ~~travel~~revenues ~~costs,~~from athe ~~$0.2~~S3 ~~million~~Semiconductors ~~increase~~and inEchelon ~~facilities~~businesses ~~and~~of $04.26 million ~~increase in depreciation and amortization~~.

~~Amortization~~Cost of ~~Intangible~~Revenue ~~Assets. Amortization~~and ofGross intangible assets increased by $0.7 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This increase was due primarily to additional amortization related to the Echelon acquisition. Margin

Amortization of intangible assets increased by $3.2 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. This increase was due primarily to additional amortization related to the S3 acquisition.


	Three Months Ended
		March 31,					Change
	2020			2019			$		%
Cost of revenue	$	11,384		$	14,893		$	(3,509)	-24	%
Gross profit		8,637			13,220			(4,583)	-35	%
Gross margin		43	%		47	%

Acquisition Related Expenses. Acquisition related expense decreased by $4.8 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This decrease is related to the S3 and Echelon acquisitions which occurred in 2018.

Table of Contents

~~Acquisition~~Cost ~~related~~of ~~expense~~revenue decreased by $63.65 million, or 24%, during the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019. This decrease iswas ~~related~~due primarily to ~~the~~a S3decrease ~~and~~in ~~Echelon~~unit ~~acquisitions~~shipments ~~which~~of ~~occurred~~NVM inproducts ~~2018,~~to Tier 1 customers offset by ~~impairment~~relatively ofstable ~~the~~expenses ~~ESD~~resulting ~~lighting~~from ~~business~~our ~~recorded~~S3 inSemiconductors ~~1Q19.~~and Echelon businesses.

~~Restructuring~~Gross ~~and~~profit ~~Other~~decreased ~~Charges~~by $4. ~~There~~6 ~~were~~million, noor ~~restructuring~~35%, ~~and~~during ~~other~~the ~~charges~~three ~~incurred~~months inended March 31, 2020 as compared to the three months ended ~~September~~March 3031, 2019 due primarily to a decrease in unit shipments of NVM products along with decreased revenues and ~~2018~~gross profits from S3 Semiconductors and Echelon.

~~Restructuring~~Operating and other charges were $1.7 million for the nine months ended September 30, 2019. These charges were primarily due to inventory write-downs and additional warranty and other liabilities related to exiting the Echelon lighting business. There were no restructuring and other charges incurred in the nine months ended September 30, 2018. Expenses

Other Income (Expense), Net


	Three Months Ended
	March 31,				Change
	2020		2019		$		%
Operating expenses:
Research and development	$	7,664	$	7,522	$	142	2	%
Selling, general and administrative		8,823		7,935		888	11
Amortization of intangible assets		1,788		1,788		—	—
Acquisition related expenses		1,901		222		1,679	756
Impairment and other charges		—		1,694		(1,694)	(100)
Total operating expenses	$	20,176	$	19,161	$	1,015	5	%

	Three Months Ended								Nine months ended
	September 30,				Change				September 30,				Change
	2019		2018		$		%		2019		2018		$		%
Interest expense, net	$	(6,034)		(1,046)	$	4,988	477	%	$	(8,781)		(2,368)	$	6,413	271	%
Other income (expense), net		190		8		182	2,275			359		17		342	2,012
Total other income (expense), net	$	(5,844)	$	(1,038)	$	5,170	498	%	$	(8,422)	$	(2,351)	$	6,755	287	%

~~Interest~~Research ~~expense,~~and ~~net~~Development. ~~increased~~Research byand ~~approximately~~development expense decreased by $5.0.1 million, or 2%, during the three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the three months ended ~~September~~March 3031, ~~2018,~~2019. ~~due~~This todecrease ~~the~~was ~~recognition~~due asprimarily ~~interest~~to ~~expense~~a ofreduction ~~the~~in ~~remaining~~outside ~~balance of the debt discount associated with the paydown of the Tennenbaum loan~~services.

~~Interest~~Selling, ~~expense~~General and Administrative. Selling, ~~net~~general and administrative expense increased by ~~approximately~~ $60.49 million, ~~during~~or 11%, for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018,~~2019. This increase was due primarily to ~~interest~~a ~~expense~~$0.4 ~~associated~~million ~~with~~increase ~~the~~in ~~Tennenbaum~~personnel-related ~~loan~~costs, ~~and~~a ~~the~~$0.2 ~~recognition~~million asincrease ~~interest~~in ~~expense~~legal ofand ~~the~~accounting ~~remaining~~costs, ~~balance~~a of$0.2 ~~the~~million ~~debt~~increase ~~discount~~in ~~associated~~facilities ~~with~~costs, ~~the~~and ~~paydown~~a of$0.1 ~~the~~million ~~Tennenbaum~~increase ~~loan~~in travel costs.

~~Other~~Amortization ~~income~~of ~~(expense),~~Intangible ~~net~~Assets. There ~~increased~~was byno ~~approximately~~change ~~$0.2~~in ~~million~~the ~~during~~amortization of intangible assets for the three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the three months ended ~~September~~March 3031, ~~2018 due primarily to both realized and unrealized foreign exchange gains~~2019.

~~Other~~Acquisition ~~income~~expenses. Acquisition ~~(expense),~~related ~~net~~expenses increased by ~~approximately~~ $01.37 million ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020 as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 ~~due~~and were primarily due to aincreased ~~change~~legal inand ~~the~~accounting ~~fair~~costs ~~value~~related ofto anthe ~~earn-out~~announced ~~liability~~acquisition ~~incurred~~of inthe ~~connection~~Company ~~with~~by ~~the~~Dialog S3Semiconductor ~~acquisition~~plc.

~~Provision~~Impairment and Other Charges. There was no impairment and other charges for ~~(Benefit~~the ~~from)~~three ~~Income~~months ~~Taxes~~ ended March 31, 2020. During the three months ended March 31, 2019 we recorded $1.7 million of impairment and other charges for inventory write-downs and additional warranty and other liabilities related to exiting the Echelon lighting business.

	Three Months Ended								Nine Months Ended
	September 30,					Change			September 30,				Change
	2019		2018		$		%		2019		2018		$		%
Provision for (benefit from) income taxes	$	337	$	(64)	$	(401)	(627)	%	$	236	$	(80)	$	(316)	(395)	%

Other Income (Expense), Net

Provision for (benefit from) income taxes increased by $0.4 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. The increase was due primarily to an increase in tax expense related to one of our foreign subsidiaries.


	Three months ended
	March 31,				Change
	2020		2019		$		%
Interest expense, net	$	(1,515)		(1,370)	$	(145)	(11)	%
Other income (expense), net		1,936		220		1,716	780
Total other income (expense), net	$	421	$	(1,150)	$	1,571	137	%

Provision for (benefit from) income taxes increased by $0.3 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. The increase was due primarily to an increase in tax expense related to one of our foreign subsidiaries.

43 Interest expense, net increased by approximately $0.1 million during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, as a result of our increased indebtedness related to the issuance of our convertible notes.

~~Table of Contents~~ 43

~~Liquidity~~Table ~~and~~of ~~Capital Resources~~ Contents

~~Our~~Other ~~principal~~income ~~source~~(expense), ofnet ~~liquidity~~increased asby ofapproximately ~~September~~$1.7 ~~30,~~million ~~2019~~during ~~consisted~~the ofthree ~~cash~~months ~~and~~ended ~~cash~~March ~~equivalents~~31, ~~and~~2020 ~~restricted~~as ~~cash~~compared ofto ~~$37.7 million.~~the ~~Our~~three ~~outstanding~~months ~~borrowings~~ended asMarch ~~of September 30~~31, 2019 ~~were~~due ~~$80.5 million~~primarily ~~exclusive~~to ofa ~~deferred~~change ~~issuance~~in ~~costs,~~the ~~due~~fair tovalue ~~issuance~~ of ~~our~~an ~~4.25%~~earn-out ~~Convertible~~liability ~~Senior~~incurred ~~Notes~~in ~~due~~connection ~~2024~~with (the ~~“Notes”).~~S3 ~~Substantially~~Semiconductors ~~all~~acquisition ~~of our cash~~ and ~~cash~~certain ~~equivalents~~other ~~are~~credits ~~held~~recognized inat ~~the~~S3 ~~United States~~Semiconductors.

WeBenefit believe our existing cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies. In the event that additional financing is required from ~~outside~~Income sources, we may not be able to raise it on terms acceptable to us or at all. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. Taxes

The following table summarizes our cash flows for the periods indicated:


	Three Months Ended
	March 31,				Change
	2020		2019		$		%
Benefit from income taxes	$	(103)	$	(31)	$	72	232	%

	Nine Months Ended
	September 30,
	2019		2018
Cash flows used in operating activities	$	(5,028)	$	(13,082)
Cash flows used in investing activities		(2,864)		(66,517)
Cash flows provided by financing activities		36,882		63,190

~~Cash~~Benefit ~~Flows~~ from ~~Operating~~income ~~Activities~~ taxes increased by $72,000 during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019. The increase was due primarily to a reduction in tax expense related to our foreign subsidiaries as well as an increase in the benefit related to deferred taxes in the United States.

~~Our~~Liquidity ~~primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by increases in sales~~ and ~~timing~~Capital of collections. Our primary uses of cash from operating activities have been for personnel costs, investments in research and development and sales and marketing, and procurement of inventory. Net cash used in operating activities for the periods presented consisted of net losses adjusted for certain noncash items and changes in working capital. Within changes in working capital, changes in accounts receivable, inventory and accounts payable generally account for the largest adjustments, as we typically use more cash to fund accounts receivable and build inventory as our business grows. Increases in accounts payable typically provides more cash as we do more business with our contract foundries and other third parties, depending on the timing of payments. Resources

~~During~~Our ~~the~~principal ~~nine~~source ~~months~~of ~~ended~~liquidity ~~September~~as ~~30, 2019, cash used in operating activities was approximately $5.0 million and was due primarily to a net loss~~ of ~~$18.9~~March ~~million~~31, ~~the~~2020 ~~decrease~~consisted ~~in the fair value~~ of ~~our earn-out liability of $0.3 million, partially offset by non-~~cash ~~charges of $4.1 million related to stock-based compensation, $2.2 million related to depreciation~~ and ~~amortization,~~cash ~~$5.4~~equivalents ~~million related to the amortization of intangible assets, $5.1 million related to amortization of debt discount~~ and ~~issuance~~restricted ~~costs,~~cash ~~$0.8 related to prepayment premiums and related costs, and an increase in our net assets and liabilities~~ of $~~3.7 million. The decrease in net assets and liabilities is due primarily to an increase in accounts receivable of $~~10.75 million~~, a decrease in inventories of $2~~.3 ~~million,~~Our aoutstanding ~~decrease~~borrowings inas ~~prepaids and other current assets and other non-current assets~~ of ~~$0.7~~March ~~million~~31, an2020 ~~increase~~were ~~in accounts payable of~~ $380.75 million~~, an increase in accrued compensation and benefits of $0~~.3 ~~million,~~Substantially anall ~~increase in accrued expenses and other current liabilities~~ of ~~$1.1~~our ~~million,~~cash ~~an increase in price adjustments~~ and ~~other~~cash ~~revenue~~equivalents ~~reserves~~are ofheld ~~$0.3 million and a decrease~~ in ~~other~~the ~~non-current~~United ~~liabilities of $0~~States.8 ~~million.~~

44 We believe our existing cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

~~Table~~The offollowing ~~Contents~~ table summarizes our cash flows for the periods indicated:

During the nine months ended September 30, 2018, cash used in operating activities was approximately $13.1 million and was due primarily to a net loss of $14.6 million, partially offset by non-cash charges of $2.1 million related to stock-based compensation expense, $1.7 million related to depreciation and amortization, $2.1 million related to the amortization of intangible assets, $0.7 million related to amortization of debt discount, and a decrease in our net assets and liabilities of $4.7 million. The decrease in net assets and liabilities is due primarily to an increase in accounts receivable of $12.8 million, an increase in inventories of $6.0 million, a decrease in deferred rent of $0.3 million, partially offset by an increase in price adjustments and other revenue reserves of $5.2 million, an increase in accounts payable, accrued compensation and other accrued expenses of $8.1 million, and a decrease in prepaid expenses and other current assets of $0.9 million..


	Three Months Ended
	March 31,
	2020		2019
Cash flows used in operating activities	$	(11,132)	$	(631)
Cash flows used in investing activities		(1,226)		(604)
Cash flows provided by financing activities		1,703		48

~~Cash Flows from Investing Activities~~

~~During~~Cash ~~the~~Flows ~~nine~~from ~~months~~Operating ended September 30, 2019, cash used in investing activities was $2.9 million, primarily due to purchases of equipment for our operations and research and development functions, and an investment of $0.3 million in the notes receivable of Semitech. Activities

~~During~~Our ~~the~~primary ~~nine~~source ~~months~~of ~~ended~~cash ~~September~~from ~~30,~~operating ~~2018,~~activities ~~cash~~has ~~used~~been infrom ~~investing~~cash ~~activities~~collections ~~was~~from ~~$66~~our customers.5 ~~million~~We ~~and~~expect ~~was~~cash ~~due~~inflows from operating activities to ~~our~~be ~~purchase~~affected ofby ~~all~~increases ~~the~~in ~~assets~~sales and timing of ~~S3,~~collections. ~~net~~Our primary uses of cash ~~acquired,~~from operating activities have been for ~~$34.6~~personnel ~~million~~costs, ~~the~~investments ~~acquisition~~in ofresearch ~~Echelon,~~and ~~net~~development ofand ~~cash~~sales ~~acquired~~and marketing, and procurement of ~~$28~~inventory.8 ~~million,~~Net ~~purchases~~cash used in operating activities for the periods presented consisted of ~~property~~net losses adjusted for certain noncash items and ~~equipment~~changes ofin $2working capital.6 ~~million~~Within ~~and~~changes anin ~~investment~~working capital, changes in accounts receivable, inventory and accounts payable generally account for the ~~notes~~largest adjustments, as we typically use more cash to fund accounts receivable ofand ~~Semitech~~build ~~for~~inventory ~~$0.4~~as ~~million~~our business grows. Increases in accounts payable typically

~~Cash Flows from Financing Activities~~ 44

~~During~~Table ~~the nine months ended September 30, 2019, cash provided by financing activities was $36.9 million and was due primarily to net proceeds~~ of $77.3 million from the issuance of convertible senior notes and the purchase of capped calls for $6.2 million, proceeds of $1.5 million from the exercise of stock options and purchases of stock associated with our employee stock purchase plan net of withholdings relate to the net settlement of restricted units, partly offset by a $35.5 million paydown of our Tennenbaum term loan. Contents

~~During~~provides ~~the~~more ~~nine~~cash ~~months~~as ~~ended~~we ~~September~~do ~~30,~~more ~~2018,~~business ~~cash~~with ~~provided~~our bycontract ~~financing~~foundries ~~activities was $63.2 million~~ and ~~was~~other ~~due~~third ~~primarily to proceeds from a term loan~~parties, ~~net~~depending ofon ~~fees, of $33.6 million, net proceeds from a public equity offering to finance~~ the ~~Echelon~~timing ~~acquisition~~ of ~~$42~~payments.7 million, and proceeds from the exercise of stock options and our employee stock purchase plan of $0.8 million offset in part by repayment of our line of credit and term loan with Western Alliance Bank of $13.5 million.

~~Off~~During ~~Balance~~the ~~Sheet~~three ~~Arrangements~~ months ended March 31, 2020, cash used in operating activities was approximately $11.1 million and was due primarily to a net loss of $11.0 million, partially offset by non-cash charges of $1.9 million related to stock-based compensation expense, $1.0 million related to depreciation and amortization, $1.8 million related to the amortization of intangible assets, $0.7 million related to amortization of debt discount, offset by the change in fair value of our earn-out liability of $0.9 million, and an increase in our net assets and liabilities of $4.6 million. The increase in net assets and liabilities is due primarily to an decrease in accounts receivable of $2.4, an increase in inventories of $2.2 million, an increase in prepaids and other current and non-current assets of $0.7 million, a decrease in accounts payable, accrued compensation and other accrued expenses of $3.5 million, and a decrease in price adjustments and other non-current liabilities of $0.6 million.

During the ~~periods~~three ~~presented~~months ended March 31, we2019, ~~did~~cash ~~not~~used ~~have~~in ~~any~~operating ~~relationships~~activities ~~with~~was ~~unconsolidated~~approximately ~~entities~~$0.6 ormillion ~~financial~~and ~~partnerships~~was due primarily to a net loss of $7.1 million, ~~such~~partially asoffset ~~entities~~by ~~often~~non-cash ~~referred~~charges of $1.1 million related to asstock-based ~~structured~~compensation ~~finance~~expense, or$0.6 ~~special~~million ~~purpose~~related ~~entities~~to depreciation and amortization, ~~which~~$1.8 ~~would~~million ~~have~~related ~~been~~to ~~established~~the ~~for~~amortization of intangible assets, $0.4 million related to amortization of debt discount, offset by the ~~purpose~~change in fair value of ~~facilitating~~our ~~off~~earn-out ~~balance~~liability ~~sheet~~of ~~arrangements~~$0.3 ormillion, and a decrease in our net assets and liabilities of $2.9 million. The decrease in net assets and liabilities is due primarily to an increase in accounts receivable of $9,000, a decrease in inventories of $2.0 million, a decrease in deferred rent of $0.3 million, an increase in accounts payable, accrued compensation and other ~~contractually~~accrued ~~narrow~~expenses orof ~~limited~~$1.3 ~~purpose~~million, and an increase in prepaid expenses and other current assets of $0. 1 million.

~~Credit~~Cash ~~Facility~~ Flows from Investing Activities

~~Western~~During ~~Alliance~~the ~~Bank~~three ~~Term~~months ~~Loan~~ended March 31, 2020, cash used in investing activities was $1. 2 million, primarily due to purchases of equipment for our operations and research and development functions along with investments in unconsolidated affiliates.

~~The~~During ~~Company~~the ~~was~~three amonths ~~party~~ended toMarch ~~that certain Business Financing Agreement dated July 7~~31, ~~2016 and that certain Second Business Financing Modification Agreement~~2019, ~~dated~~cash ~~September~~used 29, 2017, by and between Western Alliance Bank and the Company (“Credit Facility”). The Credit Facility provided for (i) a term loan of up to $18.0 million (the “Term Loan”) and (ii) a revolving credit line advance (the “Line of Credit”) in ~~the~~investing ~~aggregate~~activities ~~amount~~was ~~of the lower of (x)~~ $5.0 ~~million and (y) 80% of certain of the Company’s receivables~~.6 ~~The Term Loan bore interest at a rate per annum equal to the greater of the prime rate or 3.5%~~million, ~~plus~~primarily ~~0.75%~~due ~~and was scheduled~~ to ~~mature~~purchases ~~in June 2019. The Line~~ of ~~Credit~~equipment ~~bore~~for ~~interest~~our atoperations ~~a rate per annum equal to the greater of the prime rate or 3.5% plus 0.50%),~~ and ~~was~~research ~~scheduled to mature in July 2018. We made interest-only payments on the Term Loan from July 2016 through September 2016~~ and ~~began~~development functions.

45 Cash Flows from Financing Activities

~~Table~~During the three months ended March 31, 2020, cash provided by financing activities was $1.7 million and was due primarily to proceeds of ~~Contents~~ $1.7 million from the exercise of stock options and purchases of stock associated with our employee stock purchase plan net of withholdings related to the net settlement of restricted stock units.

~~making~~During ~~interest~~the ~~payments~~three ~~and~~months ~~principal~~ended ~~payments~~March in31, ~~33 equal monthly installments starting October 2016. Prior to the Amendment~~2019, ~~the~~cash ~~Credit Facility~~ provided ~~that~~by ~~any~~financing ~~indebtedness~~activities ~~we incurred thereunder~~ was ~~collateralized~~$48,000 ~~by substantially all assets of the Company~~ and ~~any~~was ~~domestic~~due ~~subsidiaries,~~primarily ~~subject~~ to ~~certain~~proceeds ~~customary~~of ~~exceptions~~$0.5 Wemillion ~~paid~~from athe ~~facility~~exercise ~~fee~~ of ~~$150,000~~stock asoptions ~~well~~and aspurchases aof ~~$25,000~~stock ~~diligence~~associated ~~fee~~with ~~upon~~our ~~entry~~employee ~~into~~stock ~~the~~purchase ~~Credit~~plan ~~Facility~~net ~~and~~of anwithholdings ~~additional~~related ~~$10,000~~to onthe ~~July~~net 7,settlement ~~2017. Additional fees~~ of ~~$25,000~~restricted ~~were~~units ~~incurred~~offset inby ~~connection~~a ~~with the amendment~~$0.4 ~~These~~million ~~fees~~paydown ~~were recorded as a debt discount and were amortized over the life~~ of ~~the~~our ~~agreement~~term loan.

~~Borrowings~~Off ofBalance ~~$12.0~~Sheet million under this facility were repaid in full in May 2018. In connection with the repayment of this facility, the remaining unamortized debt discount of $66,000 was recorded as interest expense in the condensed consolidated statements of operations. Arrangements

~~Tennenbaum~~During ~~Capital~~the ~~Partners~~periods presented, ~~LLC~~we ~~Term~~did ~~Loan.~~not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purpose.

One May 8, 2018, we entered into a credit agreement with Tennenbaum Capital Partners, LLC (“Tennenbaum”) (“Credit Agreement”). The Credit Agreement provided for a 1st lien senior secured term loan of $35.0 million (“Term Loan”). The Term Loan bore interest at a rate per annum equal to the sum of the Libor Rate plus 8.75% and was payable in consecutive quarterly installments starting December 31, 2018. The Term Loan was scheduled to mature May 8, 2022. The Credit Agreement provided that any indebtedness we incurred thereunder was collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. 45

~~The~~Table Credit Agreement, as amended, contained customary representations and warranties and affirmative and negative covenants, including maximum consolidated leverage ratios and minimum liquidity. Upon an occurrence of an event of default, under the Credit Facility we could have been required to pay interest on all outstanding obligations under the agreement at a rate of 2% above the otherwise applicable interest rate, and the lender could have accelerated our obligations under the agreement. Contents

~~In connection with the~~ Credit Agreement, Tennenbaum received a warrant to purchase 850,000 shares of common stock at an exercise price of $8.30 and a term of six years. We paid financing costs of $1.4 million. The financing costs and the value of the warrant, $4.8 million, were recorded as a debt discount and were being amortized over the life of the agreement. Amortization of debt discount was $1.2 million for the nine months ended September 30, 2019, prior to the loan payoff with the remaining $3.9 million of unamortized debt discount being recognized as interest expense for the nine months ended September 30, 2019. Borrowings of $33.8 million under this term loan were repaid in full on September 23, 2019 along with a contractual prepayment premium of $0.7 million which represented 2% of the outstanding loan balance. Facility

~~Senior~~Tennenbaum ~~Convertible~~Capital ~~Notes~~ Partners, LLC Term Loan.

On ~~September~~May 238, ~~2019~~2018, we ~~completed~~entered ~~offering~~into ofa ~~$80.5~~credit ~~million~~agreement ~~aggregate~~with ~~principal~~Tennenbaum ~~amount~~(“Credit ~~of the Notes~~Agreement”). The ~~Notes~~Credit ~~were~~Agreement ~~sold~~provided ~~pursuant~~for toa anfirst ~~indenture,~~lien ~~dated~~senior ~~September~~secured ~~23,~~term ~~2019,~~loan ~~between~~of ~~the Company and U~~$35.S.0 ~~Bank~~million ~~National~~(“Term ~~Association~~Loan”). ~~The~~ ~~Notes are senior, unsecured obligations of the Company.~~ The ~~Notes~~Term ~~pay~~Loan bore interest at a rate ~~equal to 4.25%~~ per ~~year.~~annum ~~Interest~~equal onto the ~~Notes~~sum ~~is payable semiannually in arrears on March 15 and September 15~~ of ~~each~~the ~~year,~~Libor ~~beginning~~Rate ~~March~~plus ~~15, 2020~~8.75% ~~Interest~~and ~~accrues~~was onpayable ~~the~~in ~~Notes~~consecutive ~~from~~quarterly ~~the~~installments ~~last~~starting ~~date~~December ~~to which interest has been paid or duly provided for or~~31, ~~if no interest has been paid or duly provided for, from September 23, 2019~~2018. ~~Unless~~The ~~earlier~~Term ~~converted,~~Loan ~~redeemed~~was orscheduled ~~repurchased,~~to ~~the Notes~~ mature on ~~September~~May 158, ~~2024~~2022. The InCredit ~~connection~~Agreement ~~with~~provided ~~the~~that ~~pricing~~any ofindebtedness ~~the~~we ~~Notes,~~incurred wethereunder ~~entered~~was ~~into~~collateralized ~~privately~~by ~~negotiated~~substantially ~~capped~~all ~~call~~assets ~~transactions~~of ~~with~~the ~~each~~Company ofand ~~Credit~~any ~~Suisse~~domestic ~~Capital~~subsidiaries, ~~LLC~~subject ~~and~~to ~~Société~~certain ~~Générale~~customary exceptions.

~~Contractual~~The ~~Obligations~~Credit Agreement, as amended, contained customary representations and ~~Commitments~~ warranties and affirmative and negative covenants, including maximum consolidated leverage ratios and minimum liquidity. Upon an occurrence of an event of default, under the Credit Facility we could have been required to pay interest on all outstanding obligations under the agreement at a rate of 2% above the otherwise applicable interest rate, and the lender could have accelerated our obligations under the agreement.

~~The~~In ~~following~~connection iswith the Credit Agreement, Tennenbaum received a ~~summary~~warrant to purchase 850,000 shares of ~~our~~common ~~contractual~~stock ~~obligations~~at an exercise price of $8.62 and ~~commitments~~a term of six years. We paid financing costs of $1.4 million. The financing costs and the value of the warrant, $4.8 million, were recorded as a debt discount and were being amortized over the life of the agreement. Amortization of debt discount was $1.2 million prior to the loan payoff with the remaining $3.6 million of unamortized debt discount being recognized as interest expense for the year ended December 31, 2019. Borrowings of $33.8 million under this term loan were repaid in full on September 3023, 2019: along with a contractual prepayment premium of $0.7 million which represented 2% of the outstanding loan balance.

			Payments due by period
Contractual Obligations	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		More than 5 Years
	(in thousands)
Operating leases (1)	$	9,040	$	1,986	$	4,762	$	455	$	1,837

Senior Convertible Notes

46 On September 23, 2019, we completed offering of $80.5 million aggregate principal amount of the Notes. The Notes were sold pursuant to an indenture, dated September 23, 2019, between the Company and U.S. Bank National Association. The Notes are senior, unsecured obligations of the Company. The Notes pay interest at a rate equal to 4.25% per year. Interest on the Notes is payable semiannually in arrears on March 15 and September 15 of each year, beginning March 15, 2020. Interest accrues on the Notes from the last date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from September 23, 2019. Unless earlier converted, redeemed or repurchased, the Notes mature on September 15, 2024. In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with each of Credit Suisse Capital LLC and Société Générale.

~~Table~~In accounting for the issuance of ~~Contents~~ the Notes, we separated the Notes into liability and equity components. The carrying amounts of the liability components of the Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity component represents the conversion option and was determined by deducting the fair value of the liability component from the par value of the respective Notes. This difference represents the debt discount that is amortized to interest expense over the respective term of the Notes using the effective interest rate method. The carrying amount of the equity component that represents the conversion option was $22.6 million gross and $21.6 million net of issuance costs. The equity component is recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

Inventory-related commitments (2)		14,701		14,701		—		—		—
Financing arrangements (3)		80,500		—		—		80,500		—
Interest obligation on convertible senior notes		17,106		3,421		10,264		3,421
Total contractual cash obligations	$	121,347	$	20,108	$	15,026	$	84,376	$	1,837

~~(1)~~Table ~~Operating leases primarily relate to our leases~~ of ~~office space with terms expiring through July 31, 2023.~~Contents

~~(2)~~Contractual ~~Represents~~Obligations ~~outstanding~~and ~~purchase orders for wafer commitments that we have placed with our suppliers as of September 30, 2019.~~Commitments

~~(3)~~The ~~Financing~~following ~~arrangements~~is ~~represent~~a ~~debt~~summary ~~maturities~~of ~~under~~ our ~~convertible~~contractual ~~senior~~obligations ~~notes.~~and commitments as of March 31, 2020:

As of September 30, 2019, we had a liability of $228,000 for uncertain tax positions.


			Payments due by period
Contractual Obligations	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		More than 5 Years
	(in thousands)
Operating leases (1)	$	7,945	$	1,512	$	4,258	$	2,175	$	—
Inventory-related commitments (2)		9,088		9,088		—		—		—
Financing arrangements (3)		80,500		—		—		80,500		—
Interest obligation on convertible senior notes		16,137		2,566		10,264		3,307
Total contractual cash obligations	$	113,670	$	13,166	$	14,522	$	85,982	$	—

In(1) ~~September~~Operating ~~2019,~~leases weprimarily ~~issued~~relate ~~$80.5~~to ~~million aggregate principal amount of the Notes and terminated~~ our ~~existing~~leases ~~$35.0 million credit facility, which included paying off the outstanding term loan thereunder. See Note 8, Convertible Senior Notes,~~ of ~~the~~office ~~Notes~~space towith ~~Condensed~~terms ~~Consolidated~~expiring ~~Financial~~through ~~Statements~~July ~~of Part I~~31, ~~Item 1 of this Quarterly Report on Form 10-Q for additional information~~2023.

~~Item 3.Quantitative~~(2) ~~and~~Represents ~~Qualitative~~outstanding ~~Disclosures~~purchase ~~About~~orders ~~Market~~for ~~Risk~~ wafer commitments that we have placed with our suppliers as of March 31, 2020.

We(3) ~~are~~Financing ~~exposed~~arrangements torepresent ~~market~~debt ~~risks~~maturities inunder ~~the ordinary course of~~ our ~~business.~~senior ~~These~~convertible ~~risks primarily include foreign exchange rate and interest rate sensitivities as follows:~~ notes.

~~Foreign Currency Risk~~

~~Our~~As ~~results~~ of ~~operations~~March ~~and~~31, ~~cash~~2020, ~~flows~~we ~~are~~had ~~subject~~a toliability ~~fluctuations~~of ~~due~~$274,000 tofor ~~changes~~uncertain intax ~~foreign currency exchange rates~~positions.

The majority of our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States and to a lesser extent in Europe, Middle East and Africa (“EMEA”) and APAC. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our historical consolidated financial statements.

~~We have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments~~Item 3.Quantitative ~~Although we transact the substantial majority of our business in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the competitiveness of our products~~ and ~~thus~~Qualitative ~~may~~Disclosures ~~impact~~About ~~our~~Market ~~results of operations and cash flows.~~ Risk

~~Interest~~We ~~Rate~~are ~~Sensitivity~~ exposed to market risks in the ordinary course of our business. These risks primarily include foreign exchange rate and interest rate sensitivities as follows:

WeForeign ~~had~~Currency cash and cash equivalents of $37.7 million as of September 30, 2019, consisting of bank deposits, money market funds and U.S. government securities. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding gross debt of $80.5 million offset by $21.7 million related to the conversion option recorded in equity and $2.5 million of issuance costs as of September 30, 2019. The outstanding debt relates to our 4.25% Convertible Senior Notes due 2024. See Note 8, Convertible Senior Notes, of the Notes to Condensed Consolidated Financial Statements of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. Risk

WeOur doresults ~~not~~of ~~enter~~operations ~~into investments for trading or speculative purposes~~ and ~~have~~cash ~~not~~flows ~~used~~are ~~any~~subject ~~derivative financial instruments~~ to ~~manage~~fluctuations ~~our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks~~ due to changes in ~~interest~~foreign ~~rates.~~currency ~~Our~~exchange ~~exposure to interest~~ rates ~~relates to the change in the amounts of interest we must pay on our variable rate borrowings~~. ~~A hypothetical 10% increase in our borrowing rates would result in a $0.3 million increase in annual interest expense on our gross principal balance of $80.5 million.~~

47 The majority of our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States and to a lesser extent in Europe, Middle East and Africa (“EMEA”) and APAC. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our historical consolidated financial statements.

~~Table~~We have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments. Although we transact the substantial majority of ~~Contents~~ our business in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the competitiveness of our products and thus may impact our results of operations and cash flows.

~~Item 4.Controls~~Interest ~~and~~Rate ~~Procedures.~~ Sensitivity

(We had cash and cash equivalents of $10.5 million as of March 31, 2020, consisting of bank deposits, money market funds and U.S. government securities. Such interest-earning instruments carry a) ~~Disclosure~~degree ~~Controls~~of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding gross debt of $80.5 million offset by $21.7 million related to the conversion option recorded in equity and ~~Procedures~~$2.3 million of issuance costs as of March 31, 2020. The outstanding debt relates to our 4.25% Convertible Senior Notes due 2024. See Note 8, Convertible Notes, of the Notes to Condensed Consolidated Financial Statements of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

We ~~maintain~~do ~~“disclosure~~not ~~controls~~enter ~~and~~into ~~procedures,”~~investments asfor ~~such~~trading term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or ~~submit~~speculative ~~under~~purposes ~~the Exchange Act is recorded, processed, summarized,~~ and ~~reported~~have ~~within~~not ~~the~~used ~~time~~any ~~periods~~derivative ~~specified~~financial ininstruments ~~Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated~~ to ~~our~~manage ~~management, including~~ our ~~Chief~~interest ~~Executive~~rate ~~Officer~~risk ~~(“CEO”)~~exposure. ~~and~~We ~~Chief~~have ~~Financial~~not ~~Officer~~been ~~(“CFO”),~~exposed ~~as appropriate~~to, tonor ~~allow~~do ~~timely~~we ~~decisions~~anticipate ~~regarding~~being ~~required~~exposed ~~disclosure.~~

Our management is responsible for establishing and maintaining our disclosure controls and procedures. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2019. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2019. 47

~~(b)~~Table ~~Changes~~of ~~in Internal Control over Financial Reporting~~Contents

~~There~~to, ~~were~~material norisks due to changes in ~~our~~interest ~~internal~~rates. ~~control~~Our ~~over~~exposure ~~financial~~to ~~reporting~~interest ~~that~~rates ~~occurred~~relates ~~during~~to the ~~nine~~change ~~months~~in ~~ended~~the ~~September~~amounts ~~30,~~of ~~2019~~interest ~~that~~we ~~have~~must ~~materially~~pay ~~affected,~~on ~~or are reasonably likely to materially affect,~~ our ~~internal~~variable ~~control~~rate ~~over~~borrowings. ~~financial~~A ~~reporting~~hypothetical ~~(as~~10% ~~defined~~increase in ~~Rules 13a‑15(f) and~~our ~~15d‑15(f) under~~borrowing ~~the~~rates ~~Exchange~~would ~~Act).~~result ~~Internal~~in ~~control over financial reporting means~~ a ~~process~~$0.3 ~~designed~~million toincrease ~~provide~~in ~~reasonable~~annual ~~assurance~~interest ~~regarding~~expense ~~the~~on ~~reliability~~our ofgross ~~financial~~principal ~~reporting~~balance ~~and the preparation~~ of ~~financial~~$80.5 ~~statements for external purposes in accordance with GAAP~~million.

~~PART II: OTHER INFORMATION~~

~~ITEM~~Item 14.~~Legal~~Controls ~~Proceedings~~ and Procedures.

~~We are not currently~~ (a) ~~party~~Disclosure toControls any legal proceedings which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results, financial condition or cash flows. We may, from time to time, become involved in legal proceedings arising in the ordinary course of our business and ~~as our business grows, we may become a party to an increasing number of legal proceedings.~~ Procedures

~~ITEM~~We maintain “disclosure controls and procedures,” as such term is defined in Rule ~~1A.Risk~~13a-15(e) under ~~Factors~~ the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

AnOur ~~investment~~management inis ~~our~~responsible ~~common~~for ~~stock~~establishing ~~involves~~and amaintaining ~~high~~our ~~degree~~disclosure ofcontrols ~~risk~~and procedures. Under ~~You should carefully consider~~ the ~~risks~~supervision and ~~uncertainties described below, together~~ with ~~all of~~ the ~~other~~participation ~~information~~of inour ~~this Quarterly Report on Form 10‑Q~~management, including ~~the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and~~ our ~~condensed~~CEO ~~consolidated financial statements~~ and ~~related notes~~CFO, ~~before~~we ~~making~~conducted aan ~~decision~~evaluation ~~to invest in our common stock. Our business, operating results, financial condition, or prospects could be materially and adversely affected by any~~ of ~~these risks and uncertainties. If any of these risks actually occur,~~ the ~~trading~~effectiveness ~~price~~ of our ~~common~~disclosure ~~stock~~controls ~~could decline~~ and ~~you~~procedures ~~might~~as ~~lose all or part~~ of ~~your~~March ~~investment~~31, 2020. ~~Our~~Based ~~business,~~on ~~operating~~this ~~results~~evaluation, ~~financial~~our ~~performance,~~CEO orand ~~prospects~~CFO ~~could~~concluded ~~also~~that beour ~~harmed~~disclosure bycontrols ~~risks~~ and ~~uncertainties~~procedures ~~not~~were ~~currently~~effective ~~known~~as toof usMarch or31, ~~that we currently do not believe are material~~2020.

~~Risks~~(b) ~~Related~~Changes toin ~~Our~~Internal ~~Business~~Control ~~and~~over ~~Our~~Financial ~~Industry~~ Reporting

WeThere were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2020 that have amaterially ~~history~~affected, ofor ~~losses~~are ~~which~~reasonably ~~may~~likely ~~continue~~to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the ~~future,~~Exchange Act). Internal control over financial reporting means a process designed to provide reasonable assurance regarding the reliability of financial reporting and wethe ~~cannot~~preparation beof ~~certain~~financial ~~that~~statements wefor ~~will~~external ~~achieve~~purposes orin ~~sustain~~accordance ~~profitability~~with GAAP.

We have incurred net losses since our inception. We incurred net losses of $21.4 million, $5.7 million, and $11.6 million for the years ended December 31, 2018, 2017 and 2016, respectively, and $18.9 million during the first nine months of 2019. As of September 30, 2019, we had an accumulated deficit of $140.0 million. We expect to incur

48 PART II: OTHER INFORMATION

~~Table~~ITEM 1.Legal ~~of Contents~~ Proceedings

~~significant~~We ~~expenses~~are ~~related~~not tocurrently ~~the~~a ~~continued~~party ~~development~~to ~~and~~any ~~expansion~~legal ofproceedings ~~our business~~which, ~~including~~if indetermined ~~connection~~adversely ~~with our efforts~~ to ~~pursue opportunities in emerging IoT markets~~us, ~~develop~~would ~~and~~individually ~~improve upon our products and technology, maintain and enhance our research and development and sales and marketing activities and hire additional personnel. Further, revenue may not grow~~ or ~~revenue~~in ~~may~~the ~~decline~~aggregate ~~for~~have a ~~number~~material ofadverse ~~possible~~effect ~~reasons,~~on ~~many of which are outside~~ our ~~control~~business, ~~including~~operating aresults, ~~decline~~financial incondition ~~demand~~or ~~for~~cash ~~our~~flows. ~~products,~~We ~~increased competition~~may, ~~business~~from ~~conditions~~time ~~that~~to ~~adversely affect the semiconductor industry~~time, ~~including~~become ~~reduced~~involved ~~demand~~in ~~for~~legal ~~products~~proceedings arising in the ~~end~~ordinary ~~markets~~course ~~that~~of ~~we serve, or~~ our ~~failure~~business toand ~~capitalize~~as ~~on growth opportunities. If we fail to generate sufficient revenue to support~~ our ~~operations~~business grows, we may ~~not~~become bea ~~able~~party to ~~achieve~~an orincreasing ~~sustain~~number ~~profitability~~of legal proceedings.

We rely on third parties to manufacture, package, assemble and test the semiconductor components comprising our products, which exposes us to a number of risks, including reduced control over manufacturing and delivery timing and potential exposure to price fluctuations, which could result in a loss of revenue or reduced profitability.

As a fabless semiconductor company, we outsource the manufacturing, packaging, assembly and testing of our semiconductor components to, and rely on a limited number of, third-party foundries and assembly and testing service providers. For example, we use three foundries, United Microelectronics Corporation in Taiwan, and XMC and SMIC in China, for the production of our flash memory products and a single foundry, Altis Semiconductor S.N.C. in France (acquired by X-FAB Silicon Foundries in 2016), for our Mavriq and Moneta products. Our primary assembly and testing contractors are Amkor Technology, Inc. in Taiwan, Korea, the Philippines, and Malaysia and Greatek Electronics in Taiwan. Our wafer probing is performed by King Yuan Electronics Co., Ltd. in Taiwan. 48

~~Relying~~Table ~~on third-party manufacturing, assembly and testing presents a number~~ of ~~risks, including but not limited to:~~ Contents

~~ capacity~~ITEM 1A.Risk ~~and materials shortages during periods of high demand;~~ Factors

~~ reduced~~An ~~control~~investment ~~over~~in ~~delivery~~our ~~schedules~~common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, ~~inventories~~together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and ~~quality;~~ Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, operating results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties. If any of these risks actually occurs, the trading price of our common stock could decline and you might lose all or part of your investment. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

~~ the~~Risks ~~unavailability~~Related ~~of, or potential delays in obtaining access~~ to, ~~key~~the ~~process technologies;~~ Merger

~~ the~~The ~~inability~~announcement and pendency of our agreement to ~~achieve~~be ~~required~~acquired ~~production~~by orDialog ~~test~~Semiconductor ~~capacity~~plc ~~and~~could ~~acceptable~~have ~~yields~~an onadverse aeffect ~~timely~~on ~~basis;~~ our business.

~~ misappropriation~~On February 20, 2020, we entered into the Merger Agreement with Dialog and Merger Sub, pursuant to which Merger Sub will, pursuant to the terms of, and subject to the conditions specified in, the Merger Agreement, merge with and into us, and we will be the surviving corporation in the Merger and become a wholly owned direct or indirect subsidiary of Dialog. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of our ~~intellectual~~common ~~property;~~ stock (subject to certain exceptions) issued and outstanding immediately prior to the effective time of the Merger will be canceled and automatically converted into the right to receive $12.55 in cash, without interest and subject to any required tax withholding. In connection with the closing of the Merger, we expect our common stock to be delisted from NASDAQ, deregistered under the Exchange Act, and will no longer trade.

 Uncertainty about the ~~third~~effect ~~parties’~~of ~~ability~~the proposed Merger on our employees, customers, partners, and suppliers may have an adverse effect on our business and operations that may be material to ~~perform~~our company. Our employees may experience uncertainty about their ~~obligations~~roles ~~due~~following the Merger. There can be no assurance we will be able to ~~bankruptcy~~attract and retain key talent, including senior leaders, to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material and adverse effect on our business and operations. In addition, we have diverted, and will continue to divert, significant management attention and resources towards the completion of the Merger, which could materially and adversely affect our business and operations. It is also possible that lawsuits related to the Merger (in addition to those that have already been filed and dismissed) may be filed against us and our Board of Directors, which could result in material and adverse effects on us, our business and the Merger. These or other ~~financial~~related ~~constraints;~~ lawsuits could require management to devote significant time and resources in defense thereof.

~~ limited~~Our ~~warranties~~customers onmay ~~wafers~~experience oruncertainty associated with the Merger, including with respect to concerns about possible changes to our products. ~~supplied~~Similarly, our partners and suppliers may experience uncertainty associated with the Merger, including with respect to current or future business relationships with us;. Uncertainty may cause customers to refrain from purchasing our products, and partners and suppliers may seek to change existing business relationships, which could result in an adverse effect on our business, operations, financial condition and prospects in a way that may be material to our company.

~~ potential~~Pursuant ~~increases~~to the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business, including the ability in ~~prices~~certain cases to enter into contracts, incur indebtedness or incur capital expenditures, until the Merger becomes effective or the Merger Agreement is terminated. These restrictions may prevent us from taking actions with respect to our business that we may consider advantageous and may result in our inability to respond effectively to competitive pressures and industry developments, and may otherwise harm our business and operations.

We currently do not have long-term supply contracts with our third-party contract manufacturers for the products we sell to generate the bulk of our revenue, our NVM products, including United Microelectronics Corporation and Amkor Technology, Inc. Therefore, they are not obligated to perform services or supply components to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. During periods of high demand and tight inventories, our third-party foundries and assembly and testing contractors may allocate capacity to the production of other companies’ components while reducing deliveries to us, or significantly raise their prices. In particular, they may allocate capacity to other customers that are larger and better financed than us or that have long-term agreements, decreasing the capacity available to us. Shortages of capacity available to us may be caused by the actions of their other, large customers that may be difficult to predict, such as major product launches. If we need other foundries or assembly and test contractors because of increased demand, or if we are unable to obtain timely and adequate deliveries from our providers, we might not be able to cost-effectively and quickly retain other vendors to satisfy our requirements. Because the lead-time needed to establish a relationship with a new third-party supplier could be several quarters, there is no readily available alternative source of supply for any specific component. In addition, the time and expense to qualify a new foundry could result in additional expense, diversion of resources or lost sales, any of which would negatively impact our financial results. 49

InTable ~~the event that we expand production~~ of a component to include a new contract manufacturer, it may take approximately 18 to 24 months to allow a transition from our current foundry or assembly services provider to the new provider. We may experience difficulty migrating production to a new contract manufacturer and, consequently, may experience reduced yields, delays in component deliveries and increased research and development expense. The inability by us or our third-party manufacturers to effectively and efficiently transition our technology to their Contents

49 The failure to complete the merger with Dialog could adversely affect our business.

~~Table~~Completion of ~~Contents~~ the Merger with Dialog is subject to conditions beyond our control that may prevent, delay, or otherwise adversely affect its completion in a material way. Such conditions include clearance from the Committee on Foreign Investment in the United States (“CFIUS”). If the Merger is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, the Merger Agreement provides that we will be required to pay Dialog a termination fee of $15.76 million in certain circumstances. Further, a failure to complete the Merger may result in negative publicity and a negative impression of us in the investment community. Any disruption to our business resulting from the announcement or pendency of the Merger or from intensifying competition from our competitors, including any adverse changes in our relationships with our customers, partners, and suppliers, could continue or accelerate in the event of a failure to complete the Merger. There can be no assurance that our business, these relationships, or our financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated.

~~infrastructure~~The ~~may~~Merger ~~adversely~~Agreement ~~affect~~limits our ~~operating~~ability ~~results~~to ~~and~~pursue ~~our~~alternative ~~gross~~transactions, ~~margin.~~which ~~There~~could ~~can~~deter bea ~~no assurance that we will be able to find suitable replacements for our~~ third-party ~~contract~~from ~~manufacturers~~proposing an alternative transaction.

IfThe ~~any~~Merger ofAgreement ~~our~~contains ~~current~~provisions orthat, ~~future~~subject ~~foundry~~to ~~partners~~the orexceptions ~~assembly~~set ~~and~~forth ~~test~~in ~~subcontractors~~the ~~significantly~~next ~~increases~~paragraph, ~~the~~limit ~~costs~~our ofability ~~wafers~~to orsolicit, ~~other materials~~initiate, ~~interrupts~~knowingly encourage or ~~reduces~~knowingly ~~our supply~~facilitate, ~~including~~or ~~for~~engage ~~reasons~~in ~~outside~~any ofdiscussions ~~their~~or ~~control~~negotiations regarding, or iffurnish ~~any~~information ofin ~~our~~response ~~relationships~~to inquiries with ~~our~~respect ~~suppliers is terminated~~to, ~~our~~an ~~operating~~alternative ~~results could be adversely affected~~transaction. It ~~During~~is ~~2017,~~possible ~~one~~that ofthese ~~our~~or ~~foundry~~other ~~partners~~provisions ~~increased~~in the ~~costs~~Merger ofAgreement ~~wafers~~might todiscourage ~~us.~~a ~~Although~~potential ~~such~~competing ~~increase~~acquirer ~~did~~that ~~not~~might have aan ~~material~~interest ~~impact~~in onacquiring ~~our~~all ~~results~~or ofa ~~operations~~significant ~~for~~part ~~the~~of ~~nine~~our ~~months~~outstanding ~~ended~~common ~~September~~stock ~~30,~~from ~~2019,~~considering ~~and~~or isproposing ~~not~~an ~~expected~~acquisition toor ~~have~~might aresult ~~material impact~~ in ~~the~~a ~~near~~potential ~~term,~~competing ~~there~~acquirer ~~can~~proposing beto nopay ~~assurances that any additional increases will not have~~ a ~~material~~lower ~~adverse~~per ~~impact~~share onprice ~~our~~to ~~future~~acquire ~~operating results. Any increases could also damage~~ our ~~customer~~common ~~relationships,~~stock ~~result~~than init ~~lost~~might ~~revenue,~~otherwise ~~cause~~have aproposed ~~loss~~to ~~in market share or damage our reputation~~ pay.

WeUnder ~~may~~the beterms ~~unable~~of the Merger Agreement, however, Adesto has the right to ~~match~~engage ~~production~~in negotiations with, ~~customer~~and ~~demand~~provide ~~for~~information, to a ~~variety~~third party that makes an unsolicited proposal that is received prior to the approval of ~~reasons~~the Merger by Adesto stockholders, ~~including~~if our ~~inability~~board toof ~~accurately~~directors ~~forecast~~determines ~~customer~~in ~~demand~~good faith, after consultation with our financial advisor and outside legal counsel, that (a) such proposal constitutes, or ~~the~~could ~~capacity~~reasonably ~~constraints~~be ofexpected ~~contract~~to ~~manufacturers~~result in, ~~which~~a superior offer and (b) failure to take such action could ~~adversely~~reasonably ~~affect~~be ~~our~~expected ~~operating~~to ~~results~~be inconsistent with its directors’ fiduciary obligations under applicable Delaware law.

We ~~make~~will ~~planning~~incur ~~and~~substantial ~~spending~~transaction ~~decisions,~~fees ~~including determining production levels, production schedules, component procurement commitments, personnel needs~~ and ~~other~~costs ~~resource~~in ~~requirements,~~connection ~~based on our estimates of product demand and customer requirements. Our products are typically purchased pursuant to individual purchase orders. While our customers may provide us~~ with their demand forecasts, they are not contractually committed to buy any quantity of products beyond purchase orders. Furthermore, many of our customers may increase, decrease, cancel or delay purchase orders already in place without significant penalty. The short-term nature of commitments by our customers and the ~~possibility of unexpected changes in demand for their products reduce our ability to accurately estimate future customer requirements~~Merger. On occasion, customers may require rapid increases in production, which can strain our resources, necessitate more onerous procurement commitments and reduce our gross margin. If we overestimate customer demand, we may purchase products that we may not be able to sell, which could result in decreases in our prices or write-downs of unsold inventory. Conversely, if we underestimate customer demand or if sufficient manufacturing capacity was unavailable, we would lose sales opportunities and could lose market share or damage our customer relationships. The rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or write-downs of inventory values that could adversely affect our business, operating results and financial condition.

~~Our~~We ~~quarterly~~have ~~operating~~and ~~results~~expect orto continue to incur significant costs, expenses and fees for professional services and other ~~operating~~transaction ~~metrics~~costs ~~may~~in ~~fluctuate~~connection ~~significantly~~with the Merger. A material portion of these expenses are payable by us whether or not the Merger is completed. Further, ~~which~~while we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could ~~cause~~affect the ~~trading~~total ~~price~~amount or the timing of ~~our~~these ~~common~~expenses. ~~stock~~Many of the expenses that will be incurred, by their nature, are difficult to ~~decline~~estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our business, financial condition, operating results and cash flows.

~~Our~~Risks ~~quarterly~~Related ~~operating results and other operating metrics have fluctuated in the past and may continue~~ to ~~fluctuate~~Our ~~from~~Business ~~quarter to quarter. We expect that this trend will continue as a result of a number of factors, many of which are outside of our control~~ and ~~may~~Our ~~be difficult to predict, including:~~ Industry

~~ the~~The ~~receipt,~~recent ~~reduction,~~coronavirus ~~delay~~outbreak orcould ~~cancellation~~have ofan ~~orders~~adverse byeffect ~~large~~on ~~customers;~~ our business.

 COVID-19 has caused significant volatility in financial markets and has raised the ~~gain~~prospect of an extended global recession. Public health problems resulting from COVID-19, and precautionary measures instituted by governments and businesses to mitigate the spread of COVID-19 in countries or ~~loss~~regions where we, our customers or our suppliers operate or are considering operations, including travel restrictions and quarantines, could contribute to a general slowdown in the global economy, adversely impact the businesses of ~~significant~~our customers, third-party foundries, assembly and ~~distributors;~~ testing service providers, logistic providers and other business partners, and disrupt our operations. Changes in our operations in response to COVID-19 or employee illnesses resulting from the pandemic may result in inefficiencies or delays, including in product development efforts and additional costs related to business continuity

~~ the timing and success of our launch of new or enhanced products and those of our competitors;~~ 50

~~ market~~Table ~~acceptance~~ of ~~our products and our customers’ products;~~ Contents

~~ the~~initiatives, ~~level~~that ofcannot ~~growth~~be orfully ~~decline~~mitigated inthrough ~~the~~succession ~~IoT~~planning, ~~market;~~ employees working remotely or teleconferencing technologies.

~~ the~~COVID-19 ~~timing~~ and ~~extent~~related governmental reactions may have a material negative impact on our business, liquidity, results of ~~research~~operations, and ~~development~~stock ~~and~~price ~~sales~~due ~~and~~to ~~marketing~~the ~~expenditures;~~ occurrence of some or all of the following events or circumstances among others:

~~ the~~● ~~amount~~We ~~and~~may ~~timing~~not ofbe ~~operating~~able ~~expenses~~to ~~related~~manage toour ~~the~~business ~~maintenance~~effectively ~~and~~due ~~expansion~~to ofkey ~~our~~employees ~~business~~becoming ill, ~~operations~~working from home inefficiently and ~~infrastructure;~~ being unable to travel to our facilities.

~~ changes~~● inWe and our ~~product~~third-party ~~mix;~~ foundries and assembly and testing service providers and other business partners may be prevented from operating worksites due to employee illness or reluctance to appear at work and "stay-at-home" regulations.

~~ our~~● ~~ability~~There tomay ~~reduce~~be ~~the~~interruptions ~~manufacturing~~in ~~costs of our products;~~ manufacturing.

~~ competitive~~● ~~pressures~~Industry ~~resulting~~trade inshows ~~lower~~that ~~than~~are ~~expected~~important ~~average~~for ~~selling~~our ~~prices;~~ business and our customers may be cancelled or have decreased attendance.

~~ fluctuations~~● inThe ~~sales~~growth ~~by and inventory levels~~ of ~~OEMs~~consumer ~~and~~demand ~~ODMs~~may ~~who~~slow ~~incorporate our products in their products;~~ down.

50 ● The operations of our customers or distributors may be disrupted thereby increasing the likelihood that our customers and distributors may attempt to delay or cancel orders, may reduce orders for our products in the future or may cease to operate as going concerns.

~~Table~~● Disruptions of ~~Contents~~ the operations of third party foundries and assembly and testing service providers have occurred and may continue to occur, which could impact our ability to purchase components at efficient prices and in sufficient amounts.

~~ cyclical~~● ~~and~~The ~~seasonal~~market ~~fluctuations~~price inof our ~~markets;~~ common stock may drop or remain volatile.

~~ fluctuations~~● inWe ~~the~~may ~~manufacturing~~incur ~~yields~~significant ofemployee ~~our~~health ~~third-party~~care ~~contract~~costs ~~manufacturers;~~ under our insurance programs.

~~ events~~● ~~that~~In ~~impact~~addition, ~~the~~a ~~availability~~prolonged ofeconomic ~~production~~downturn ~~capacity~~could atresult ~~our third-party subcontractors and other interruptions~~ in ~~the~~reduced ~~supply~~demand ~~chain~~for ~~including~~our ~~due~~products toand ~~geopolitical events, natural disasters, materials shortages, bankruptcy or other causes;~~ services.

~~ supply~~The ~~constraints~~extent ~~for~~of the impact of COVID-19 on our business and ~~changes~~financial inresults will depend largely on future developments, including the ~~cost~~duration of the ~~other~~spread ~~components~~of ~~incorporated~~the ~~into~~outbreak, the impact on capital and financial markets and the related impact on the financial circumstances of our customers’, ~~products;~~ distributors and retailers, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.

~~ the~~We ~~timing~~have a history of ~~expenses~~losses ~~related~~which tomay continue in the ~~acquisition~~future, and ~~integration~~we ofcannot ~~technologies~~be certain that we will achieve or ~~businesses;~~ sustain profitability.

~~ product rates of return or price concessions in excess of those expected or forecasted;~~

~~ costs~~We ~~associated~~have ~~with~~incurred net losses since our inception. We incurred net losses of $26.9 million, $21.4 million, and $5.7 million for the ~~repair~~years ended December 31, 2019, 2018 and ~~replacement~~2017, respectively and $11.0 during the first three months of ~~defective~~2020. As of March 31, 2020, we had an accumulated deficit of $158.9 million. We expect to incur significant expenses related to the continued development and expansion of our business, including in connection with our efforts to pursue opportunities in emerging IoT markets, develop and improve upon our products; and technology, maintain and enhance our research and development and sales and marketing activities and hire additional personnel. Further, revenue may not grow or revenue may decline for a number of possible reasons, many of which are outside our control, including a decline in demand for our products, increased competition, business conditions that adversely affect the semiconductor industry, including reduced demand for products in the end markets that we serve, or our failure to capitalize on growth

~~ unexpected inventory write-downs or write-offs;~~ 51

~~ costs~~Table ~~associated~~of ~~with litigation over intellectual property rights and other litigation;~~ Contents

~~ the~~opportunities. ~~length~~If ~~and~~we ~~unpredictability~~fail ofto ~~the~~generate ~~purchasing~~sufficient ~~and~~revenue ~~budgeting~~to ~~cycles~~support of our ~~customers;~~ operations, we may not be able to achieve or sustain profitability.

~~ loss of key personnel or the inability to attract qualified engineers; and~~

~~ geopolitical~~We ~~events~~rely on third parties to manufacture, ~~such~~package, asassemble ~~war~~and test the semiconductor components comprising our products, ~~threat~~which exposes us to a number of ~~war~~risks, orincluding ~~terrorist~~reduced ~~actions~~control over manufacturing and delivery timing and potential exposure to price fluctuations, orwhich ~~the~~could ~~occurrence~~result in a loss of ~~natural~~revenue ~~disasters~~or reduced profitability.

~~Any~~As ~~one~~a offabless semiconductor company, we outsource the ~~factors~~manufacturing, ~~above~~packaging, orassembly ~~other~~and ~~factors~~testing ~~not~~of ~~currently~~our ~~known~~semiconductor components to, usand orrely ~~that~~on a limited number of, third-party foundries and assembly and testing service providers. For example, we ~~currently~~use ~~deem~~three ~~immaterial~~foundries, orUnited ~~the~~Microelectronics ~~cumulative~~Corporation ~~effect~~in ofTaiwan, ~~some~~and XMC and SMIC in China, for the production of ~~such~~our ~~factors~~flash ~~may~~memory ~~result~~products and a single foundry, Altis Semiconductor S.N.C. in ~~significant~~France ~~fluctuations~~(acquired by X-FAB Silicon Foundries in 2016), for our ~~operating~~Mavriq ~~results~~and Moneta products. Our primary assembly and testing contractors are Amkor Technology, Inc. in Taiwan, Korea, the Philippines, and Malaysia and Greatek Electronics in Taiwan. Our wafer probing is performed by King Yuan Electronics Co., Ltd. in Taiwan.

~~The~~Relying ~~semiconductor~~on ~~industry~~third-party ~~is highly cyclical and our markets may experience significant cyclical fluctuations in demand as a result of changing economic conditions~~manufacturing, ~~budgeting~~assembly and ~~buying~~testing ~~patterns~~presents ~~of customers and other factors. As~~ a ~~result~~number of ~~these and other factors affecting demand for our products and our results of operations in any given period~~risks, ~~the~~including ~~results~~but ~~of any prior quarterly or annual periods should~~ not belimited ~~relied upon as indicative of our future revenue or operating performance. Fluctuations in our revenue and operating results could also cause our stock price~~ to ~~decline.~~ :

We● capacity ~~may~~and ~~experience~~materials ~~difficulties~~shortages induring ~~realizing~~periods ~~the expected benefits~~ of ~~the~~high ~~acquisitions of S3 and Echelon and may continue to incur significant acquisition-related costs and transition costs in connection with these completed acquisitions.~~ demand;

We● reduced ~~completed~~control ~~the~~over ~~acquisition~~delivery ~~of S3 on May 9~~schedules, ~~2018,~~inventories and the acquisition of Echelon on September 14, 2018. The integration of these businesses with ours has resulted in and continues to result in substantial financial costs and the investment of personnel time and attention and other resources. The success of each acquisition depends in part on our ability to realize the anticipated business opportunities, including certain cost savings and operational efficiencies or synergies, and growth prospects from combining the respective companies with Adesto in an efficient and effective manner. We may never realize these business opportunities and growth prospects and, we may incur additional costs to maintain employee morale and to retain key employees. Our management cannot ensure that the elimination of duplicative costs or the realization of other efficiencies will offset the transaction and integration costs in the near term or at all. quality;

~~Moreover, risks specific to~~ ● the ~~acquired~~unavailability ~~businesses and the sectors~~ of, ~~the~~or ~~semiconductor~~potential ~~market~~delays in ~~which~~obtaining ~~they~~access ~~compete~~to, ~~could~~key ~~also~~process ~~delay or prevent our achievement of the expected benefits from the respective acquisition.~~ technologies;

~~The~~● the ~~market~~inability ~~for~~to ~~semiconductor~~achieve ~~products~~required isproduction ~~characterized~~or bytest ~~declines~~capacity ~~in average selling prices, which we expect to continue,~~ and ~~which~~acceptable ~~could~~yields ~~negatively~~on ~~affect~~a ~~our~~timely ~~revenue and margins.~~ basis;

~~Our~~● misappropriation ~~customers expect the average selling price~~ of our ~~products~~intellectual to decrease year-over-year and we expect this trend to continue. When such pricing declines occur, we may not be able to mitigate the effects by selling more or higher margin units, or by reducing our manufacturing costs. In such circumstances, our operating results could be materially and adversely affected. Our flash memory products have experienced declining average selling prices over their life cycle. The rate of decline may be affected by a number of factors, including relative supply and demand, the level of competition, production costs and technological changes. As a result of the decreasing average selling prices of our products following their launch, our ability to increase or maintain our margins depends on our ability to introduce new or enhanced products with higher average selling prices and to reduce our per-unit cost of sales and our operating costs. property;

51 ● the third parties’ ability to perform their obligations due to bankruptcy or other financial constraints;

~~Table~~● limited ofwarranties ~~Contents~~ on wafers or products supplied to us;

We● potential ~~may~~increases not be able to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, and our costs may even increase because we do not operate our own manufacturing, assembly or testing facilities, which could also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as high margins as we expect. If we are unable to offset any reductions in ~~average selling~~ prices; ~~by introducing new products with higher average selling prices or reducing our costs, our revenue~~ and ~~margins will be negatively affected and may decrease.~~

~~The~~● potential ~~semiconductor~~manufacturing ~~market~~disruptions is(including ~~highly~~natural ~~cyclical~~disasters and has experienced severe downturns in the past, generally as a result of wide fluctuations in supply and demand, constant and rapid technological change, continuous new product introductions and price erosion. During downturns, periods of intense competition, or ~~the~~pandemics ~~presence~~such ~~of oversupply in the industry, the selling prices for our products may decline at a high rate over relatively short time periods~~ as ~~compared to historical rates of decline~~COVID-19). ~~We are unable to predict selling prices for any future periods and may experience unanticipated, sharp declines in selling prices for our products.~~

~~Our~~We ~~prospects~~currently do not have long-term supply contracts with our third-party contract manufacturers for ~~growth~~the ~~depend~~products onwe sell to generate the ~~growth~~bulk of our revenue, our NVM products, including United Microelectronics Corporation and ~~development~~Amkor Technology, Inc. Therefore, they are not obligated to perform services or supply components to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. During periods of high demand and tight inventories, our third-party foundries and assembly and testing contractors may allocate capacity to the ~~emerging~~production ~~IoT~~of ~~industry~~other companies’ components while reducing deliveries to us, or significantly raise their prices. In particular, they may allocate capacity to other customers that are larger and ifbetter financed than us or that have long-term agreements, decreasing the ~~market~~capacity ~~does~~available ~~not~~to ~~develop~~us. Shortages of capacity available to us may be caused by the actions of their other, large customers that may be difficult to predict, such as major product launches. If we ~~expect~~need other foundries or assembly and test contractors because of increased demand, or if we are unable to obtain timely and adequate deliveries from our ~~business~~providers, ~~prospects~~we ~~may~~might not be ~~harmed~~able to cost-effectively and quickly retain other vendors to satisfy our requirements. Because the lead-time needed to establish a relationship with a new third-party supplier could be several quarters, there is no readily available alternative source of supply for any specific component. In addition, the time and expense to qualify a new foundry could result in additional expense, diversion of resources or lost sales, any of which would negatively impact our financial results.

~~Our~~In ~~products~~the ~~are~~event ~~increasingly~~that ~~being~~we ~~utilized~~expand inproduction ~~IoT~~of ~~edge~~a ~~devices.~~component ~~The~~to ~~IoT~~include ~~industry~~a isnew ~~nascent~~contract ~~and is characterized by rapidly changing technologies~~manufacturer, ~~devices~~it ~~and~~may ~~connectivity~~take ~~requirements,~~approximately ~~evolving~~18 ~~industry~~to ~~standards~~24 ~~and~~months ~~changing~~to ~~customer~~allow ~~demands.~~a ~~The~~transition ~~continued~~from ~~development~~our ofcurrent ~~IoT~~foundry ~~depends~~or inassembly ~~part~~services onprovider ~~significant~~to ~~growth in~~ the ~~number~~new ~~of connected devices~~provider. ~~Such~~We ~~growth~~may isexperience ~~affected~~difficulty bymigrating ~~various~~production ~~factors, including the continued growth in the use of mobile operator networks and the Internet~~ to ~~connect~~a annew ~~increasing~~contract ~~number~~manufacturer and, ~~variety of devices~~consequently, ~~price~~may ~~reductions~~experience ~~for~~reduced ~~key hardware and software components~~yields, ~~innovation~~delays ofin ~~other~~component ~~components~~deliveries ofand ~~the~~increased ~~IoT~~research ~~nodes toward low-power formats,~~ and ~~the continued~~ development ~~of IoT standards and protocols~~expense. ~~Without~~The ~~these~~inability ~~continued~~by ~~developments, IoT~~us ~~might~~or ~~not gain widespread market acceptance and~~ our ~~business~~third-party ~~could~~manufacturers ~~suffer.~~to ~~Security~~effectively and ~~privacy~~efficiently ~~concerns,~~transition ~~evolving~~our ~~business~~technology ~~practices~~to ~~and~~their ~~consumer~~infrastructure ~~preferences~~ may ~~also~~adversely ~~slow~~affect ~~the growth and development of IoT. Because~~ our ~~revenue~~operating ~~growth~~results ~~ultimately~~and ~~depends upon the success of IoT,~~ our ~~business~~gross ~~may suffer as a result of slowing or declining growth in IoT adoption~~margin. ~~Even~~There ifcan ~~the~~be ~~IoT~~no ~~industry~~assurance ~~does~~that ~~develop,~~ we ~~may~~will ~~not~~ be ~~well positioned or~~ able to ~~penetrate~~find ~~and~~suitable ~~capitalize~~replacements onfor ~~this new market. As a result of these factors, the future revenue and income potential of~~ our ~~business~~third-party iscontract ~~uncertain~~manufacturers.

~~The~~If ~~markets~~any ~~for~~of our ~~products~~current ~~are~~or ~~evolving,~~future ~~and~~foundry ~~changing~~partners ~~market~~or ~~conditions,~~assembly ~~such~~and astest subcontractors significantly increases the ~~introduction~~costs of ~~new~~wafers ~~technologies~~ or ~~changes~~other ~~in customer preferences~~materials, ~~may~~interrupts ~~negatively~~or ~~affect~~reduces ~~demand for~~ our ~~products.~~supply, Ifincluding wefor ~~fail~~reasons tooutside ~~properly~~of ~~anticipate~~their ~~or respond to changing market conditions~~control, ~~our~~or ~~business~~if ~~prospects~~any ~~and results~~ of ~~operations will suffer.~~

The semiconductor industry is subject to constant and rapid changes in technology, frequent new product introductions, short product life cycles, rapid product obsolescence and evolving technical standards. New technologies may be introduced that make the current technologies on which our products are based less competitive or obsolete or require us to make changes to our technology that could be expensive and time consuming to implement. Due to the evolving nature of our markets, our future success depends on our ability to accurately anticipate and respond to changes in industry standards, technological requirements, customer and consumer preferences and other market conditions. Our technologies could become obsolete sooner than we expect because of faster than anticipated, or unanticipated, changes in one or more of the industry standards and technological requirements. We may be unable to develop and introduce new or enhanced technologies that satisfy customer requirements and achieve market acceptance in a timely manner or at all, succeed in commercializing the technologies on which we have focused our research and development expenditures to develop or otherwise made significant investments to acquire, and anticipate new industry standards and technological changes. If we fail to adapt successfully to technological changes or fail to obtain access to important new technologies, we may be unable to retain customers or attract new customers. Any decrease in demand for our products, or the need for low-power products in general, due to the emergence of competing technologies, changes in customer preferences and requirements or other factors, could adversely affect our business, results of operations and prospects. 52

WeTable ~~must continuously develop new and enhanced products, and if we are unable to successfully market our new and enhanced products for which we incur significant expenses to develop, our results~~ of ~~operations and financial condition will be materially adversely affected.~~ Contents

52 our relationships with our suppliers is terminated, our operating results could be adversely affected. During 2017, one of our foundry partners increased the costs of wafers to us. Although such increase did not have a material impact on our results of operations for the three months ended March 31, 2020, and is not expected to have a material impact in the near term, there can be no assurances that any additional increases will not have a material adverse impact on our future operating results. Any increases could also damage our customer relationships, result in lost revenue, cause a loss in market share or damage our reputation.

~~Table of Contents~~

In order to compete effectively in our markets, we must continually design, develop and introduce new and improved products with improved features in a cost-effective manner in response to changing technologies and market demand. This requires us to devote substantial financial and other resources to research and development. We ~~have developed and are continuing to develop next-generation products, such as our Moneta and EcoXiP products, which we expect to be one of the drivers of our future revenue growth. However, we~~ may ~~not succeed in developing and marketing these new and enhanced products. We also face the risk that customers may not value or~~ be ~~willing~~unable to ~~bear~~match ~~the~~production ~~cost of incorporating our new and enhanced products into their products, particularly if they believe their customers are satisfied~~ with ~~current~~customer ~~solutions.~~demand ~~Regardless~~for ofa ~~the~~variety ~~improved features or superior performance~~ of ~~our new and enhanced products~~reasons, ~~customers~~including ~~may be unwilling to adopt~~ our ~~solutions~~inability ~~due~~ to ~~design~~accurately orforecast ~~pricing~~customer ~~constraints,~~demand or ~~because they do not want to rely on a single or limited supply source. Because of~~ the ~~extensive~~capacity ~~time~~constraints ~~and resources that we invest in developing new and enhanced products, if we are unable to sell customers new generations~~ of ~~our~~contract ~~products~~manufacturers, ~~our~~which ~~revenue~~ could ~~decline~~adversely ~~and~~affect our ~~business,~~operating ~~financial condition,~~ results ~~of operations and cash flows would be negatively affected~~. For example, we have generated limited revenue from sales of our Mavriq products to date. While we expect revenue from our Mavriq products to grow, we may not be able to materially increase our revenue from this product family. Similarly, any of our more recently-introduced products or product families, such as Moneta and EcoXiP, may not achieve market acceptance and contribute significantly to our revenue. If we are unable to successfully develop and market our new and enhanced products that we have incurred significant expenses developing, our results of operations and financial condition will be materially and adversely affected.

~~Our~~We ~~success~~make planning and ~~future~~spending ~~revenue~~decisions, ~~depend~~including ondetermining ~~our~~production ~~ability~~levels, toproduction ~~secure~~schedules, ~~design~~component ~~wins~~procurement commitments, personnel needs and other resource requirements, based on our estimates of product demand and customer requirements. Our products are typically purchased pursuant to individual purchase orders. While our customers’ ~~ability~~may provide us with their demand forecasts, they are not contractually committed to ~~successfully~~buy ~~sell~~any ~~the~~quantity of products ~~that~~beyond ~~incorporate~~purchase orders. Furthermore, many of our ~~solutions~~customers may increase, decrease, cancel or delay purchase orders already in place without significant penalty. ~~Securing~~The ~~design~~short-term ~~wins~~nature isof acommitments ~~lengthy,~~by ~~expensive~~our customers and ~~competitive~~the ~~process~~possibility of unexpected changes in demand for their products reduce our ability to accurately estimate future customer requirements. On occasion, customers may require rapid increases in production, which can strain our resources, necessitate more onerous procurement commitments and reduce our gross margin. If we overestimate customer demand, we may purchase products that we may not be able to sell, which could result in ~~actual~~decreases ~~orders~~in ~~and~~our ~~sales~~prices or write-downs of unsold inventory. Conversely, ~~which~~if we underestimate customer demand or if sufficient manufacturing capacity was unavailable, we would lose sales opportunities and could ~~cause~~lose market share or damage our ~~revenue~~customer torelationships. ~~decline~~The rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or write-downs of inventory values that could adversely affect our business, operating results and financial condition.

We sell to customers that incorporate our products into their products. A design win occurs after a customer has tested our product, verified that it meets the customer’s requirements, qualified our solutions for their products and placed an order for the purchase of our products. Our ~~customers~~quarterly ~~may~~operating ~~need~~results ~~several~~or ~~months~~other to years to test, evaluate and adopt our product and additional time to begin volume production of the product that incorporates our solution. Due to this generally lengthy design cycle, we may experience significant delays from the time we increase our operating ~~expenses~~metrics and make investments in our products to the time that we generate revenue from sales of these products. Moreover, even if a customer selects our solution, we cannot guarantee that this will result in any sales of our products, as the customer may ~~ultimately~~fluctuate ~~change or cancel its product plans~~significantly, orwhich ~~efforts~~could bycause ~~our customer to market and sell its product may not be successful. We may not generate any revenue from design wins after incurring~~ the ~~associated~~trading ~~costs,~~price ~~which~~of ~~would cause~~ our ~~business~~common ~~and~~stock ~~operating results~~ to ~~suffer~~decline.

IfOur aquarterly ~~current~~operating orresults ~~prospective~~and ~~customer~~other ~~designs~~operating ametrics ~~competitor’s~~have ~~solution~~fluctuated ~~into~~in ~~its~~the ~~product,~~past itand ~~becomes~~may ~~significantly~~continue ~~more difficult for us~~ to ~~sell~~fluctuate ~~our~~from ~~solutions~~quarter to ~~that customer because changing suppliers involves significant time, cost, effort and risk for the customer even if our solutions remain compatible with their product design~~quarter. IfWe ~~current~~expect orthat ~~prospective~~this ~~customers~~trend dowill ~~not~~continue ~~include~~as ~~our~~a ~~solutions~~result inof ~~their~~a ~~products~~number ~~and~~of wefactors, ~~fail~~many toof ~~achieve~~which aare ~~sufficient~~outside ~~number~~ of ~~design wins,~~ our ~~results~~control ~~of operations~~ and ~~business~~ may be ~~harmed.~~ difficult to predict, including:

We rely on our relationships with OEMs and ODMs to enhance our solutions and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.

We develop our products for leading OEMs and ODMs that serve a variety of end markets and are developing devices for wearables, sensors, Bluetooth 4.0 and other IoT applications. For each application, manufacturers create products that incorporate specialized semiconductor technology, which makers of semiconductor products use as ● the ~~basis~~impact ~~for their products. These manufacturers set the specifications for many~~ of the key components to be used on each generation of their products and, in the case of memory components, generally qualify only a few vendors to provide memory components for their products. As each new generation of their products is released, vendors are validated in a similar fashion. We must work closely with semiconductor manufacturers to ensure our ~~products~~announced ~~become~~Merger ~~qualified for use in their products. As a result, maintaining close relationships~~ with leading product manufacturers that are developing devices for wearables, Bluetooth 4.0 and other IoT applications is crucial to the long-term success of our business. We could lose these relationships for a variety of reasons, including our failure to qualify as a vendor, our failure to Dialog;

53 ● the receipt, reduction, delay or cancellation of orders by large customers , a limited number of which we rely upon for a significant portion of our revenue;

~~Table~~● the gain or loss of ~~Contents~~ significant customers and distributors;

~~demonstrate~~ ● the ~~value~~timing ofand ~~our~~success ~~new~~of ~~solutions, declines in product quality, or if OEMs or ODMs seek to work with vendors with broader product suites, greater production capacity or greater financial resources. If~~ our ~~relationships~~launch ~~with~~of ~~key~~new ~~industry participants were to deteriorate~~ or ifenhanced ~~our~~products ~~solutions~~and ~~were~~those ~~not~~of ~~qualified by~~ our ~~customers, our market position and revenue could be materially and adversely affected.~~ competitors;

~~Our~~● market ~~business~~acceptance isof ~~dependent~~our onproducts ~~selling~~and ~~through~~our ~~distributors.~~ customers’ products;

~~Sales through distributors accounted for approximately 61% and 59% of our revenues during~~ ● the ~~first~~level ~~nine months~~ of ~~2019~~growth ~~and~~or ~~2018,~~decline ~~respectively.~~in Wethe doIoT ~~not have long-term agreements with our distributors, and we and our distributors may each terminate our relationship with little or no advance notice.~~ market;

~~Any future adverse conditions in~~ ● the ~~U.S.~~timing orand ~~global~~extent ~~economies or in the U.S. or global credit markets could materially impact the operations~~ of ~~our~~research distributors. Any deterioration in the financial condition of our distributors or any disruption in the operations of our distributors could adversely impact the flow of our products to our end customers and ~~adversely~~development ~~impact our results of operation. In addition, during an industry or economic downturn, it is possible there will be an oversupply of products~~ and asales ~~decrease in demand for our products from our distributors, which could reduce our revenues in a given period. Violations of the Foreign Corrupt Practices Act~~ and ~~similar~~marketing ~~regulations, or similar laws, by our distributors could have a material adverse impact on our business.~~ expenditures;

~~Changes~~● the toamount ~~industry~~and ~~standards~~timing ~~and~~of ~~technical~~operating ~~requirements~~expenses ~~relevant~~related to ~~our~~the ~~products~~maintenance and ~~markets~~expansion ~~could~~of ~~adversely affect~~ our business, ~~results of~~ operations and ~~prospects.~~ infrastructure;

~~Our~~● changes products are only a part of larger electronic systems. All products incorporated into these systems must comply with various industry standards and technical requirements created by regulatory bodies or industry participants in ~~order to operate efficiently together. Industry standards and technical requirements in~~ our markets are evolving and may change significantly over time. For our products, the industry standards are developed by the Joint Electron Device Engineering Council, an industry trade organization. In addition, large industry-leading semiconductor and electronics companies play a significant role in developing standards and technical requirements for the product ecosystems within which our products can be used. Our customers also may design certain specifications and other technical requirements specific to their products and solutions. These technical requirements may change as the customer introduces new or enhanced products and solutions. mix;

~~Our ability to compete in the future will depend on~~ ● our ability to ~~identify~~reduce and comply with evolving industry standards and technical requirements. The emergence of new industry standards and technical requirements could render our products incompatible with products developed by other suppliers or make it difficult for our products to meet the ~~requirements~~manufacturing ofcosts ~~certain~~ of our ~~customers in consumer, industrial, IoT and other markets. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our~~ products to ensure compliance with relevant standards and requirements. If our products are not in compliance with prevailing industry standards and technical requirements for a significant period of time, we could miss opportunities to achieve crucial design wins, our revenue may decline and we may incur significant expenses to redesign our products to meet the relevant standards, which could adversely affect our business, results of operations and prospects. ;

If● competitive ~~sales~~pressures ofresulting ~~our~~in ~~customers’~~lower ~~products~~than ~~decline~~expected oraverage ifselling ~~their products do not achieve market acceptance, our business and operating results could be adversely affected.~~ prices;

~~Our~~● fluctuations ~~revenue~~in ~~depends~~sales ~~on our customers’ ability to commercialize their products successfully. The markets for our customers’ products are extremely competitive and are characterized~~ by ~~rapid technological change. Competition in our customers’ markets is based on a variety of factors including price, performance, product quality, marketing~~ and ~~distribution~~inventory ~~capability,~~levels ~~customer support, name recognition and financial strength. As a result~~ of ~~rapid~~OEMs ~~technological change, the markets for our customers’ products are characterized by frequent product introductions, short product life cycles, fluctuating demand~~ and ~~increasing~~ODMs ~~product~~who ~~capabilities.~~incorporate ~~As a result,~~ our ~~customers’~~ products ~~may~~in ~~not achieve market success or may become obsolete. We cannot assure you that our customers will dedicate the resources necessary to promote and commercialize~~ their products~~, successfully execute their business strategies for such products, or be able to manufacture such products in quantities sufficient to meet demand or cost-effectively manufacture products at a high~~ ;

54 ● cyclical and seasonal fluctuations in our markets;

~~Table~~● fluctuations in the manufacturing yields of ~~Contents~~ our third-party contract manufacturers;

volume. Our customers do not have contracts with us that require them to manufacture, distribute or sell any products. Moreover, our customers may develop internally, or in collaboration with our competitors, technology that they may utilize instead of the technology available to them through us. Our customers’ failure to achieve market success for their products, including as a result of general declines in our customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in a decrease in our revenue and negatively affect our business and operating results. 53

~~Our~~Table ~~revenue also depends on the timely introduction, quality and market acceptance~~ of our customers’ products that incorporate our solutions. Our customers’ products are often very complex and subject to design complexities that may result in design flaws, as well as potential defects, errors and bugs. We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers. For example, in 2014, flaws in one of our customer’s products that were unrelated to our solutions generated negative publicity for our customer and delayed the product’s release until it could be redesigned. In the past, we have also been subject to delays and project cancellations as a result of changing market requirements, such as the customer adding a new feature, or because a customer’s product fails their end customer’s evaluation or field trial. Customer products may also be delayed due to issues with other vendors of theirs. We incur significant design and development costs in connection with designing our solutions for customers’ products. If our customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues with other vendors, they may delay, change or cancel a project. If we have already incurred significant development costs, we may not be able to recoup those costs, which in turn would adversely affect our business and financial results. Contents

We● events ~~face~~that ~~competition~~impact ~~and~~the ~~expect~~availability ~~competition~~of toproduction ~~increase~~capacity at our third-party subcontractors and other interruptions in the ~~future.~~supply Ifchain weincluding ~~fail~~due to ~~compete~~geopolitical ~~effectively~~events, ~~our~~natural ~~revenue~~disasters, ~~growth~~pandemics ~~and~~such ~~results~~as ofCOVID-19, ~~operations~~materials ~~will~~shortages, bebankruptcy ~~materially~~or ~~and~~other ~~adversely affected.~~ causes;

~~The~~● supply ~~global~~constraints ~~semiconductor~~for ~~market in general,~~ and ~~the~~changes ~~IoT semiconductor market~~ in particular, are highly competitive. We expect competition to increase and intensify as other semiconductor companies enter our markets, many of which have greater financial and other resources with which to pursue technology development, product design, manufacturing, marketing and sales and distribution of their products. Increased competition could result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue and operating results. Currently, our competitors range from large, international companies offering a wide range of semiconductor products or systems to companies specializing in other alternative, specialized emerging memory technologies. Our primary competitors include GigaDevice Semiconductor, Macronix International Co. Ltd., Microchip Technology Inc., Micron Technology, Inc., Cypress Semiconductor Corporation, Winbond Electronics Corp., Cree Inc., Digi International, General Electric, Maxim Integrated Products, Philips, Siemens, Silver Spring Networks, STMicroelectronics, Telensa, Texas Instruments, Tridium, On Semiconductor, Socionext, Ansem, IC Sense and Verisilicon. Key industry standard and trade group competitors include BACnet, DALI, DeviceNet, HART, Konnex, Profibus, ZigBee, and the ~~ZWave~~cost ~~Alliance in the IoT market. Each~~ of ~~these standards and/or alliances is backed by one or more competitors. In addition, as~~ the ~~IoT~~other ~~market~~components ~~opportunity~~incorporated ~~grows,~~into ~~we expect new entrants will enter these markets and existing competitors, including leading semiconductor companies, may make significant investments to compete more effectively against~~ our ~~products.~~customers’ ~~These competitors could develop technologies or architectures that make our~~ products ~~or technologies obsolete.~~ ;

~~Our~~● the ~~ability~~timing toof ~~compete~~expenses ~~successfully~~related ~~depends~~to onthe ~~factors~~acquisition ~~both within~~ and ~~outside~~integration of ~~our~~technologies ~~control,~~or ~~including:~~ businesses;

● ~~the~~product ~~functionality~~rates ~~and~~of ~~performance~~return ofor ~~our~~price ~~products~~concessions ~~and~~in ~~those~~excess of ~~our~~those ~~competitors~~expected or forecasted;

● ~~our~~costs ~~relationships~~associated with ~~our~~the ~~customers~~repair and ~~other~~replacement ~~industry~~of ~~participants~~defective products;

● ~~prices~~unexpected ofinventory ~~our~~write-downs ~~products~~or ~~and prices of our competitors’ products~~write-offs;

● ~~our~~costs ~~ability~~associated towith ~~develop~~litigation ~~innovative~~over ~~products~~intellectual property rights and other litigation;

● ~~our~~the ~~ability~~length toand ~~retain~~unpredictability ~~high-level~~of ~~talent,~~the ~~including~~purchasing ~~our~~and ~~management~~budgeting ~~team~~cycles ~~and~~of ~~engineers;~~our ~~and~~ customers;

● ~~the~~loss ~~actions~~ of ~~our~~key ~~competitors,~~personnel ~~including~~or ~~merger~~the ~~and~~inability ~~acquisition~~to ~~activity,~~attract ~~launches~~qualified ofengineers; ~~new products~~ and ~~other actions that could change the competitive landscape.~~

~~Competition~~● geopolitical ~~could result in pricing pressure~~events, ~~reduced~~such ~~revenue~~as ~~and profitability and loss of market share~~war, ~~any~~threat of ~~which~~war ~~could~~or ~~materially~~terrorist ~~and adversely affect our business~~actions, ~~results~~the occurrence of ~~operations~~natural ~~and~~disasters, ~~prospects.~~or Inpandemics ~~the~~such ~~event~~as ~~of a market~~ COVID-19.

55 Any one of the factors above or other factors not currently known to us or that we currently deem immaterial or the cumulative effect of some of such factors may result in significant fluctuations in our operating results.

~~Table~~The semiconductor industry is highly cyclical and our markets may experience significant cyclical fluctuations in demand as a result of ~~Contents~~ changing economic conditions, budgeting and buying patterns of customers and other factors. As a result of these and other factors affecting demand for our products and our results of operations in any given period, the results of any prior quarterly or annual periods should not be relied upon as indicative of our future revenue or operating performance. Fluctuations in our revenue and operating results could also cause our stock price to decline. In connection with the closing of the Merger, we expect our common stock to be delisted from NASDAQ, deregistered under the Exchange Act, and will no longer trade.

downturn, competition in the markets in which we operate may intensify as our customers reduce their purchase orders. Our competitors that are significantly larger and have greater financial, technical, marketing, distribution, customer support and other resources or more established market recognition than us may be better positioned to accept lower prices and withstand adverse economic or market conditions.

~~Our~~We ~~customers~~may ~~require~~experience ~~our~~difficulties ~~products~~in ~~and~~realizing ~~our~~the ~~third-party~~expected ~~contractors~~benefits toof ~~undergo~~the aacquisitions ~~lengthy~~of ~~and~~S3 ~~expensive~~Semiconductors ~~qualification~~and ~~process.~~Echelon Ifand wemay ~~are~~continue ~~unsuccessful~~to orincur ~~delayed~~significant inacquisition-related ~~qualifying~~costs ~~any~~and oftransition ~~our~~costs ~~products~~in connection with athese ~~customer,~~completed ~~our business and operating results would suffer~~acquisitions.

~~Prior~~We tocompleted ~~selecting~~the ~~and~~acquisition ~~purchasing~~of ~~our~~S3 ~~products,~~Semiconductors ~~our~~on ~~customers~~May 9, ~~typically require that our products undergo extensive qualification processes~~2018, ~~which~~and ~~involve~~the ~~testing~~acquisition of ~~our~~Echelon ~~products~~on inSeptember ~~the customers’ systems~~14, ~~as well as testing for reliability~~2018. ~~This~~The ~~qualification~~integration ~~process~~of ~~may~~these ~~continue~~businesses ~~for~~with ~~several~~ours ~~months~~has orresulted ~~years.~~in ~~However,~~and ~~obtaining~~continues ~~the~~to ~~requisite~~result ~~qualifications~~in ~~for~~substantial afinancial ~~product~~costs ~~does~~and ~~not~~the ~~assure~~investment ~~any sales~~ of ~~the~~personnel ~~product.~~time ~~Even~~and ~~after~~attention ~~successful qualification~~ and ~~sales~~other ofresources. aThe ~~product~~success toof aeach ~~customer,~~acquisition adepends ~~subsequent revision~~ in ~~our~~part ~~third-party~~on ~~contractors’ manufacturing process or~~ our ~~selection~~ability ofto arealize ~~new~~the ~~contract~~anticipated ~~manufacturer~~business ~~may require a new qualification process~~opportunities, ~~which~~including ~~may~~certain ~~result~~cost insavings ~~delays~~ and ~~excess~~operational efficiencies or ~~obsolete~~synergies, ~~inventory. After our products are qualified~~ and ~~selected,~~growth itprospects ~~can~~from ~~and~~combining ~~often~~the ~~does~~respective ~~take~~companies ~~several~~with ~~months~~Adesto orin ~~more~~an ~~before~~efficient ~~the~~and ~~customer~~effective ~~commences~~manner. ~~volume~~We ~~production~~may ofnever ~~systems~~realize ~~that~~these ~~incorporate~~business ~~our~~opportunities ~~products.~~and ~~Despite~~growth ~~these~~prospects ~~uncertainties~~and, we ~~devote~~may ~~substantial~~incur ~~resources,~~additional ~~including~~costs ~~design,~~to ~~engineering,~~maintain ~~sales,~~employee ~~marketing~~morale and ~~management efforts,~~ to ~~qualify~~retain ~~our~~key ~~products with customers in anticipation of sales~~employees. IfOur wemanagement ~~are~~cannot ~~unsuccessful~~ensure orthat ~~delayed~~the inelimination ~~qualifying any~~ of ~~our~~duplicative ~~products~~costs ~~with~~or athe ~~customer,~~realization ~~sales~~ of ~~those~~other ~~products~~efficiencies ~~may~~will beoffset ~~precluded~~the ortransaction ~~delayed,~~and ~~which~~integration ~~may~~costs ~~impede~~in ~~our~~the ~~growth~~near ~~and~~term ~~harm~~or ~~our~~at ~~business~~all.

~~Our~~Moreover, ~~costs~~risks ~~may~~specific ~~increase~~to ~~substantially~~the ifacquired ~~our~~businesses ~~third-party~~and ~~manufacturing~~the ~~contractors~~sectors doof ~~not~~the ~~achieve~~semiconductor ~~satisfactory~~market ~~product~~in ~~yields~~which they compete could also delay or ~~quality~~prevent our achievement of the expected benefits from the respective acquisition.

The fabrication process is extremely complicated and small changes in design, specifications or materials can result in material decreases in product yields or even the suspension of production. From time to time, the third-party foundries that we contract to manufacture our products may experience manufacturing defects and reduced manufacturing yields related to errors or problems in their manufacturing processes or the interrelationship of their processes with our designs. In some cases, our third-party foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner.

~~Generally,~~The inmarket ~~pricing~~for ~~our~~semiconductor products, weis ~~assume~~characterized ~~that~~by ~~manufacturing~~declines ~~yields~~in ~~will~~average ~~continue~~selling ~~to improve~~prices, ~~even~~which as the complexity of our products increases. Once our products are initially qualified with our third-party foundries, minimum acceptable yields are established. We are responsible for the costs of the units if the actual yield is above the minimum. If actual yields are below the minimum we ~~are~~expect ~~not required~~ to ~~purchase the units. Typically~~continue, ~~minimum acceptable yields for our new products are generally lower at first~~ and ~~gradually~~which ~~improve as we achieve full production. Unacceptably low product yields or other product manufacturing problems~~ could ~~substantially~~negatively ~~increase~~affect ~~overall production time and costs and adversely impact~~ our ~~operating~~revenue ~~results. Product yield losses will increase our costs~~ and ~~reduce our gross margin~~margins. ~~In addition to significantly harming our results of operations and cash flow, poor yields may delay shipment of our products and harm our relationships with existing and potential customers~~

~~The~~Our ~~complexity~~customers expect the average selling price of our products to decrease year-over-year and we expect this trend to continue. When such pricing declines occur, we may ~~lead~~not be able to ~~errors~~mitigate the effects by selling more or higher margin units, ~~defects~~or ~~and~~by ~~bugs~~reducing our manufacturing costs. In such circumstances, ~~which~~our operating results could ~~negatively~~be ~~impact~~materially ~~our~~and ~~reputation~~adversely ~~with~~affected. ~~customers~~Our flash memory products have experienced declining average selling prices over their life cycle. The rate of decline may be affected by a number of factors, including relative supply and ~~result~~demand, inthe ~~liability~~level of competition, production costs and technological changes. As a result of the decreasing average selling prices of our products following their launch, our ability to increase or maintain our margins depends on our ability to introduce new

Products as complex as ours may contain errors, defects and bugs when first introduced to customers or as new versions are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products or result in a costly recall and could damage our reputation and adversely affect our ability to retain existing customers and attract new customers. Errors, defects or bugs could cause problems with the functionality of our products, resulting in interruptions, delays or cessation of sales of these products to our customers. We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure you that 54

56 Table of Contents

~~Table~~or enhanced products with higher average selling prices and to reduce our per-unit cost of ~~Contents~~ sales and our operating costs. We may not be able to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, and our costs may even increase because we do not operate our own manufacturing, assembly or testing facilities, which could also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as high margins as we expect. If we are unable to offset any reductions in average selling prices by introducing new products with higher average selling prices or reducing our costs, our revenue and margins will be negatively affected and may decrease.

~~problems~~The ~~will~~semiconductor ~~not~~market beis ~~found~~highly cyclical and has experienced severe downturns in ~~new~~the ~~products~~past, ~~both~~generally ~~before~~as a result of wide fluctuations in supply and ~~after~~demand, ~~commencement~~constant ofand ~~commercial~~rapid ~~production~~technological change, ~~despite~~continuous ~~testing~~new byproduct usintroductions and price erosion. During downturns, ~~our~~periods ~~suppliers~~of intense competition, or the presence of oversupply in the industry, the selling prices for our ~~customers~~products may decline at a high rate over relatively short time periods as compared to historical rates of decline. ~~Any~~We ~~such~~are ~~problems~~unable ~~could~~to ~~result~~predict selling prices for any future periods and may experience unanticipated, sharp declines in: selling prices for our products.

~~ delays in development, manufacture and roll-out of new products;~~

~~ additional~~Our prospects for growth depend on the growth and development ~~costs;~~ of the emerging IoT industry, and if the market does not develop as we expect, our business prospects may be harmed.

~~ loss~~Our products are increasingly being utilized in IoT edge devices. The IoT industry is nascent and is characterized by rapidly changing technologies, devices and connectivity requirements, evolving industry standards and changing customer demands. The continued development of IoT depends in part on significant growth in the number of connected devices. Such growth is affected by various factors, orincluding ~~delays~~the continued growth in the use of mobile operator networks and the Internet to connect an increasing number and variety of devices, price reductions for key hardware and software components, innovation of other components of the IoT nodes toward low-power formats, and the continued development of IoT standards and protocols. Without these continued developments, IoT might not gain widespread market acceptance; and our business could suffer. Security and privacy concerns, evolving business practices and consumer preferences may also slow the growth and development of IoT. Because our revenue growth ultimately depends upon the success of IoT, our business may suffer as a result of slowing or declining growth in IoT adoption. Even if the IoT industry does develop, we may not be well positioned or able to penetrate and capitalize on this new market. As a result of these factors, the future revenue and income potential of our business is uncertain.

~~ diversion~~The ofmarkets ~~technical~~for our products are evolving, and ~~other~~changing ~~resources~~market ~~from~~conditions, such as the introduction of new technologies or changes in customer preferences, may negatively affect demand for our ~~other~~products. ~~development~~If ~~efforts;~~ we fail to properly anticipate or respond to changing market conditions, our business prospects and results of operations will suffer.

~~ claims~~The ~~for~~semiconductor ~~damages~~industry byis subject to constant and rapid changes in technology, frequent new product introductions, short product life cycles, rapid product obsolescence and evolving technical standards. New technologies may be introduced that make the current technologies on which our ~~customers~~products are based less competitive or ~~others~~obsolete ~~against~~or require us; to make changes to our technology that could be expensive and time consuming to implement. Due to the evolving nature of our markets, our future success depends on our ability to accurately anticipate and respond to changes in industry standards, technological requirements, customer and consumer preferences and other market conditions. Our technologies could become obsolete sooner than we expect because of faster than anticipated, or unanticipated, changes in one or more of the industry standards and technological requirements. We may be unable to develop and introduce new or enhanced technologies that satisfy customer requirements and achieve market acceptance in a timely manner or at all, succeed in commercializing the technologies on which we have focused our research and development expenditures to develop or otherwise made significant investments to acquire, and anticipate new industry standards and technological changes. If we fail to adapt successfully to technological changes or fail to obtain access to important new technologies, we may be unable to retain customers or attract new customers. Any decrease in demand for our products, or the need for low-power products in general, due to the emergence of competing technologies, changes in customer preferences and requirements or other factors, could adversely affect our business, results of operations and prospects.

~~ loss of credibility with our current and prospective customers.~~

~~Any such event could have a material adverse effect on our business, financial condition and results of operations.~~ 55

IfTable ~~our~~of ~~IoT solutions become subject to cyber-attacks, or if public perception is that they are vulnerable to cyber-attacks, our reputation and business would suffer.~~ Contents

We ~~have~~must ~~designed~~continuously ~~our~~develop ~~IoT~~new and enhanced products, ~~including~~and ~~our~~if ~~outdoor~~we ~~lighting~~are ~~solutions~~unable ~~products~~to ~~acquired~~successfully ~~from~~market ~~Echelon,~~our tonew ~~interoperate~~and ~~with~~enhanced ~~other third-party~~ products ~~and~~for ~~systems. Although~~which we ~~attempt~~incur tosignificant ~~safeguard~~expenses ~~our~~to ~~products and solutions from cybersecurity threats~~develop, ~~the~~our ~~potential~~results ~~for~~of ~~cyber~~operations ~~security attacks~~ and ~~other~~financial ~~incidents~~condition ~~continues~~will tobe ~~evolve~~materially inadversely ~~scope and frequency~~affected.

~~Advances~~In order to compete effectively in our markets, we must continually design, develop and ~~expanding~~introduce ~~availability~~new ofand ~~technical~~improved ~~tools~~products with improved features in a cost-effective manner in response to ~~enable~~changing ~~cybersecurity~~technologies ~~attacks~~and market demand. This requires us to devote substantial financial and other resources to research and development. We have developed and are continuing to develop next-generation products, such as our Moneta and ~~increasing~~EcoXiP ~~sophistication~~products, which we expect to be one of the ~~threats~~drivers of our future revenue growth. However, ~~deepen~~we may not succeed in developing and marketing these new and enhanced products. We also face the risk that customers may not value or be willing to bear the cost of ~~potential~~incorporating ~~security~~our ~~incidents~~new and enhanced products into their products, particularly if they believe their customers are satisfied with current solutions. ~~This~~ ~~risk~~Regardless ~~expands~~of asthe improved features or superior performance of our new ~~protocols~~and enhanced products, customers may be unwilling to adopt our solutions due to design or pricing constraints, or because they do not want to rely on a single or limited supply source. Because of the extensive time and ~~devices~~resources that we invest in developing new and enhanced products, if we are ~~implemented~~unable ~~into~~to sell customers new generations of our products, our revenue could decline and ~~systems~~our business, financial condition, results of operations and ascash ~~customer~~flows ~~requirements~~would ~~evolve~~be negatively affected. ~~Should~~ ~~our~~For ~~products~~example, orwe ~~the~~have ~~combination~~generated limited revenue from sales of our Mavriq products ~~into~~to ~~third~~date. ~~party~~While ~~systems,~~we ~~fail~~expect revenue from our Mavriq products to ~~prevent~~grow, orwe may not be ~~unable~~able to ~~withstand~~materially ~~any~~increase ~~such~~our ~~threats~~revenue orfrom ~~cyber-attacks~~this product family. Similarly, orany ifof our ~~partners~~more recently-introduced products or ~~customers~~product ~~fail~~families, tosuch ~~safeguard~~as ~~applicable~~Moneta ~~technologies~~and EcoXiP, ~~products~~may ornot ~~the~~achieve ~~systems~~market ~~with~~acceptance ~~adequate~~and ~~security~~contribute ~~policies~~significantly to our revenue. If we are unable to successfully develop and ~~measures~~market orour ~~otherwise~~new and enhanced products that we have incurred significant expenses developing, our ~~business~~results of operations and ~~reputation~~financial ~~may~~condition will be ~~harmed~~materially and adversely affected.

WeOur ~~have~~success ~~attempted~~and tofuture ~~design~~revenue ~~certain~~depend ofon our ~~products~~ability to ~~prevent~~secure ~~and~~design ~~monitor~~wins ~~unauthorized~~and ~~access,~~on ~~misuse,~~our ~~modification~~customers’ orability ~~other activities related~~ to ~~those~~successfully ~~products~~sell ~~and~~ the ~~systems into which the~~ products ~~are~~that ~~intended~~incorporate ~~to be placed. Despite~~ our security measures, our products or systems may be subject to unauthorized break ins, viruses, disruptions, high-jacking, cyber terrorism, misuse, tampering, other unauthorized access or modification, or unauthorized access to, or acquisition, loss, or alteration of, datasolutions. ~~Should~~Securing ~~our~~design ~~products~~wins ~~fail~~is ~~to perform, be unable to withstand~~ a ~~cyber-attack~~lengthy, orexpensive ~~otherwise~~and ~~suffer~~competitive ~~a security incident~~process, orand bemay ~~perceived~~not toresult ~~have~~in ~~suffered~~actual ~~any~~orders ~~kind~~and ~~of security vulnerability or cyber incidents~~sales, wewhich could ~~face~~cause ~~legal~~our ~~liability,~~revenue ~~and~~to ~~encounter material adverse financial and reputational harm~~decline.

InWe ~~addition,~~sell weto ~~believe~~customers that ~~there~~incorporate ~~could~~our beproducts ~~incidents~~into oftheir ~~security~~products. ~~breaches~~A indesign win occurs after a customer has tested our product, verified that it meets the ~~future~~customer’s ~~which~~requirements, ~~could~~qualified ~~receive~~our ~~significant~~solutions ~~publicity~~for their products and ~~visibility~~placed an order for the purchase of our products. ~~Any~~Our ~~such~~customers ~~publicity~~may orneed ~~visibility~~several months to years to test, ~~regardless~~evaluate ofand ~~whether~~adopt our product and additional time to begin volume production of the ~~problem~~product isthat ~~due~~incorporates orour ~~related~~solution. Due to this generally lengthy design cycle, we may experience significant delays from the ~~performance~~time orwe ~~security~~increase ~~measures~~our ofoperating expenses and make investments in our products orto ~~systems,~~the ~~could~~time ~~have~~that awe ~~negative~~generate ~~effect~~revenue onfrom ~~public~~sales ~~confidence~~of these products. Moreover, oreven ~~cause~~if a ~~perception~~customer ~~that~~selects our ~~solutions~~solution, ~~are~~we orcannot ~~could~~guarantee bethat ~~subject~~this towill ~~similar~~result ~~attacks~~in orany ~~breaches,~~sales ~~and~~of our ~~business~~products, ~~results~~as ofthe ~~operations~~customer ~~and~~may ~~financial~~ultimately ~~condition~~change ~~may~~or becancel ~~materially~~its ~~and~~product ~~adversely~~plans, ~~affected.~~or ~~Such~~efforts anby ~~event~~our ~~could~~customer ~~also~~to ~~result~~market inand asell ~~material~~its ~~adverse~~product ~~effect~~may onnot ~~the~~be ~~market~~successful. ~~price~~We ofmay ~~our~~not ~~common~~generate ~~stock,~~any ~~independent~~revenue offrom design wins after incurring the ~~direct~~associated ~~effects~~costs, onwhich would cause our business and operating results to suffer.

~~Furthermore,~~If ~~because~~a ~~some~~current ofor ~~the~~prospective ~~information~~customer ~~collected~~designs bya ~~some~~competitor’s ofsolution ~~our~~into ~~solutions~~its isproduct, orit ~~may~~becomes besignificantly ~~considered~~more ~~personal~~difficult ~~data~~for orus ~~otherwise may be alleged~~ to besell ~~confidential~~our orsolutions ~~proprietary~~ to ~~our~~that ~~customers~~customer orbecause ~~third~~changing ~~parties,~~suppliers ainvolves ~~cyber-attack~~significant ~~or other data security incident~~time, ~~including any unauthorized access to~~cost, ~~loss~~effort ~~of,~~and orrisk ~~acquisition~~for ofthe ~~data~~customer ~~collected~~even orif ~~maintained by~~ our solutions, ~~could~~remain ~~violate,~~compatible orwith betheir ~~alleged~~product todesign. ~~violate,~~If ~~applicable~~current ~~privacy, consumer~~ or ~~information~~prospective ~~security~~customers ~~laws,~~do ~~regulations~~not orinclude ~~other~~our ~~obligations.~~solutions ~~Any~~in oftheir ~~the~~products ~~foregoing~~and ~~could~~we ~~cause~~fail us to ~~face~~achieve ~~regulatory~~a ~~investigations~~sufficient ~~and~~number ~~enforcement~~of ~~actions,~~design ~~private litigation~~wins, ~~and other financial or legal liability, as well as harm to~~ our ~~reputation~~results ~~and business, any~~ of ~~which~~operations ~~could~~and ~~have a material adverse effect on our~~ business ~~and~~may ~~financial~~be ~~performance~~harmed.

We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could adversely affect our business and operating results.

57 We rely on our relationships with a limited number of OEMs and ODMs to enhance our solutions and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.

~~Table~~We develop our products for a limited number of ~~Contents~~ leading OEMs and ODMs that serve a variety of end markets and are developing devices for wearables, sensors, Bluetooth 4.0 and other IoT applications. For each application, manufacturers create products that incorporate specialized semiconductor technology, which makers of semiconductor products use as the basis for their products. These manufacturers set the specifications for many of the key components to be used on each generation of their products and, in the case of memory components, generally qualify only a few vendors to provide memory components for their products. As each new generation of their products is released, vendors

Personal privacy, data protection and information security are significant issues in the United States and the other jurisdictions where we offer our products and services. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies and various state, local and foreign bodies and agencies. 56

~~The~~Table ~~United States federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use and storage~~ of personal information of individuals, including end-customers and employees. In the United States, the Federal Trade Commission and many state attorneys general are applying federal and state consumer protection laws to the online collection, use and dissemination of data. Additionally, many foreign countries and governmental bodies, including in Australia, the European Union (“EU”), India, Japan and numerous other jurisdictions in which we operate or conduct our business, have laws and regulations concerning the collection and use of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations often are more restrictive than those in the United States. Such laws and regulations may require companies to implement new privacy and security policies, permit individuals to access, correct and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes. Contents

Weare ~~also~~validated ~~expect~~in ~~that~~a ~~there~~similar ~~will~~fashion. ~~continue~~We tomust bework ~~new~~closely ~~proposed~~with ~~laws,~~semiconductor ~~regulations~~manufacturers ~~and~~to ~~industry~~ensure ~~standards~~our ~~concerning~~products ~~privacy,~~become ~~data~~qualified ~~protection~~for ~~and~~use ~~information security~~ in ~~the~~their ~~United States, the EU and other jurisdictions, and we cannot yet determine the impact of such future laws, regulations and standards may have on our business~~products. ~~For~~As ~~example,~~a ~~in June 2018~~result, ~~California~~maintaining ~~passed~~close ~~the~~relationships ~~California~~with ~~Consumer~~leading ~~Privacy~~product ~~Act~~manufacturers ~~which~~that ~~provides~~are ~~new~~developing ~~data~~devices ~~privacy rights~~ for ~~consumers~~wearables, ~~and~~Bluetooth ~~new operational requirements for companies effective in 2020~~4.0 ~~Additionally, we expect that existing laws, regulations~~ and ~~standards~~other ~~may~~IoT beapplications ~~interpreted~~is ~~differently~~crucial into the ~~future.~~long-term ~~There~~success ~~remains~~of ~~significant~~our ~~uncertainty~~business. ~~surrounding~~We ~~the~~could ~~regulatory~~lose ~~framework~~these relationships for ~~the~~a ~~future~~variety of ~~personal~~reasons, ~~data~~including ~~transfers~~our ~~from~~failure ~~the EU~~ to ~~the~~qualify ~~United States with regulations such~~ as ~~the~~a ~~recently~~vendor, ~~adopted~~our ~~General~~failure ~~Data~~to ~~Protection~~demonstrate ~~Regulation~~the ~~(“GDPR”)~~value ~~which~~of ~~imposes~~our ~~more~~new ~~stringent EU data protection requirements~~solutions, ~~provides~~declines anin ~~enforcement~~product ~~authority~~quality, ~~and~~or ~~imposes~~if ~~large~~OEMs ~~penalties~~or ~~for~~ODMs ~~noncompliance.~~seek ~~Future~~to ~~laws,~~work ~~regulations,~~with ~~standards~~vendors ~~and~~with ~~other~~broader ~~obligations,~~product ~~including the adoption of the GDPR~~suites, asgreater ~~well~~production ascapacity ~~changes~~or ingreater ~~the~~financial ~~interpretation~~resources. ofIf ~~existing~~our ~~laws,~~relationships ~~regulations,~~with ~~standards~~key ~~and~~industry ~~other~~participants ~~obligations~~were ~~could impair our ability~~ to ~~collect,~~deteriorate ~~use~~ or ~~disclose~~if ~~information relating to individuals, which could decrease demand for~~ our ~~products,~~solutions ~~require~~were usnot toqualified ~~restrict~~by our ~~business operations~~customers, ~~increase~~ our ~~costs~~market ~~and~~position ~~impair our ability to maintain~~ and ~~grow~~revenue ~~our~~could ~~customer~~be ~~base~~materially and ~~increase~~adversely ~~our revenue~~affected.

Although we are working to comply with those federal, state and foreign laws and regulations, industry standards, contractual obligations and other legal obligations that apply to us, those laws, regulations, standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another, other requirements or legal obligations, our practices or the features of our products. As such, we cannot assure ongoing compliance with all such laws or regulations, industry standards, contractual obligations and other legal obligations. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal information or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and operating results.

WeOur ~~may~~business ~~experience~~is ~~difficulties~~dependent inon ~~transitioning~~selling tothrough ~~new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses~~distributors.

WeSales ~~aim~~through todistributors ~~use~~accounted ~~the~~for ~~most~~approximately ~~advanced~~55% ~~manufacturing~~and ~~process~~61% ~~technology~~of ~~appropriate for~~ our ~~solutions~~revenues ~~that~~during isthe ~~available~~first ~~from~~three ~~our~~months ~~third-party~~of 2020 ~~foundries.~~and ~~As a result~~2019, werespectively. ~~periodically~~We ~~evaluate~~do ~~the~~not ~~benefits~~have oflong-term ~~migrating~~agreements with our ~~solutions~~distributors, toand ~~other~~we ~~technologies in order to improve performance~~ and ~~reduce~~our ~~costs.~~distributors ~~These~~may ~~ongoing~~each ~~efforts~~terminate ~~require~~our usrelationship ~~from~~with ~~time~~little toor ~~time~~no toadvance notice.

58 Any future adverse conditions in the U.S. or global economies or in the U.S. or global credit markets could materially impact the operations of our distributors. Any deterioration in the financial condition of our distributors or any disruption in the operations of our distributors could adversely impact the flow of our products to our end customers and adversely impact our results of operation. In addition, during an industry or economic downturn, it is possible there will be an oversupply of products and a decrease in demand for our products from our distributors, which could reduce our revenues in a given period. Violations of the Foreign Corrupt Practices Act and similar regulations, or similar laws, by our distributors could have a material adverse impact on our business.

~~Table~~Changes to industry standards and technical requirements relevant to our products and markets could adversely affect our business, results of ~~Contents~~ operations and prospects.

~~modify~~Our ~~the~~products ~~manufacturing~~are ~~processes~~only ~~for~~a ~~our~~part ~~products~~of ~~and~~larger toelectronic ~~redesign~~systems. ~~some~~All products, ~~which~~incorporated ininto ~~turn~~these ~~may~~systems ~~result~~must incomply ~~delays~~with invarious ~~product~~industry ~~deliveries.~~standards Weand ~~may~~technical ~~face~~requirements ~~difficulties,~~created ~~delays~~by ~~and~~regulatory ~~increased~~bodies ~~expense~~or asindustry weparticipants ~~transition~~in ~~our~~order ~~products~~ to ~~new~~operate ~~processes,~~efficiently ~~and~~together. ~~potentially~~Industry tostandards ~~new~~and ~~foundries.~~technical Werequirements ~~will~~in ~~depend~~our onmarkets ~~our~~are ~~third-party~~evolving ~~foundries~~and asmay wechange ~~transition~~significantly toover ~~new processes~~time. WeFor ~~cannot assure you that~~ our ~~third-party~~products, ~~foundries~~the ~~will~~industry bestandards ~~able~~are todeveloped ~~effectively~~by ~~manage~~the ~~such~~Joint ~~transitions~~Electron orDevice ~~that~~Engineering weCouncil, ~~will~~an beindustry ~~able~~trade toorganization. ~~maintain~~In ~~our~~addition, ~~relationship~~large ~~with our third~~industry-~~party~~leading ~~foundries~~semiconductor orand ~~develop~~electronics ~~relationships~~companies ~~with~~play ~~new~~a ~~third-party~~significant ~~foundries.~~role Ifin wedeveloping orstandards ~~any~~and oftechnical ~~our~~requirements ~~third-party~~for ~~foundries~~the ~~experience~~product ~~significant~~ecosystems ~~delays~~within inwhich ~~transitioning~~our toproducts ~~new~~can ~~processes~~be orused. ~~fail~~Our tocustomers ~~efficiently~~also ~~implement~~may ~~transitions,~~design wecertain ~~could~~specifications ~~experience~~and ~~reduced~~other ~~manufacturing~~technical ~~yields,~~requirements ~~delays~~specific into ~~product~~their ~~deliveries~~products and ~~increased~~solutions. ~~expenses,~~These ~~any~~technical ofrequirements ~~which~~may ~~could~~change ~~harm~~as ~~our~~the ~~relationships~~customer ~~with~~introduces ~~our~~new ~~customers~~or ~~and~~enhanced ~~our~~products ~~operating~~and ~~results~~solutions.

AsOur ~~smaller~~ability ~~line~~to ~~width~~compete ~~geometry~~in ~~manufacturing~~the ~~processes~~future ~~become~~will ~~more~~depend ~~prevalent,~~on ~~we intend to move~~ our ~~future~~ability ~~products~~ to ~~increasingly~~identify ~~smaller~~and ~~geometries~~comply inwith ~~order~~evolving toindustry ~~reduce~~standards ~~costs~~and ~~while~~technical ~~integrating~~requirements. ~~greater~~The ~~levels~~emergence of ~~functionality~~new ~~into~~industry ~~our~~standards ~~products.~~and ~~This~~technical ~~transition~~requirements ~~will~~could ~~require~~render usour ~~and~~products ~~our~~incompatible ~~third-party~~with ~~foundries~~products todeveloped ~~migrate~~by toother ~~new~~suppliers ~~designs~~or ~~and~~make ~~manufacturing~~it ~~processes~~difficult for ~~smaller~~our ~~geometry~~ products. ~~We may not be able~~ to ~~achieve~~meet ~~smaller~~the ~~geometries~~requirements ~~with~~of ~~higher~~certain ~~levels~~ of ~~design~~our ~~integration~~customers orin toconsumer, ~~deliver~~industrial, IoT ~~new~~and ~~integrated~~other ~~products~~markets. onAs a ~~timely~~result, ~~basis.~~we Wecould ~~periodically~~be ~~evaluate~~required ~~the~~to ~~benefits,~~invest onsignificant atime ~~product-by-product~~and ~~basis,~~effort ofand ~~migrating~~ to ~~smaller~~incur ~~geometry~~significant ~~process~~expense ~~technologies~~ to ~~reduce~~redesign our ~~costs~~products ~~and~~to ~~increase~~ensure ~~performance.~~compliance Wewith ~~are~~relevant ~~dependent~~standards onand ~~our~~requirements. ~~relationships~~If ~~with~~ our ~~third-party~~products ~~foundries~~are tonot ~~transition~~in tocompliance ~~smaller~~with ~~geometry~~prevailing ~~processes~~industry ~~successfully.~~standards Weand ~~cannot~~technical ~~assure~~requirements ~~you~~for ~~that~~a ~~our~~significant ~~third-party~~period ~~foundries~~of ~~will~~time, bewe ~~able~~could miss opportunities to ~~effectively~~achieve ~~manage~~crucial ~~any~~design ~~such~~wins, ~~transition.~~our Ifrevenue wemay ordecline ~~our~~and ~~third-party~~we ~~foundries~~may ~~experience~~incur significant ~~delays~~expenses into ~~any~~redesign ~~such~~our ~~transition~~products ~~or fail~~ to ~~implement~~meet athe ~~transition~~relevant standards, ~~our~~which ~~business,~~could ~~financial~~adversely ~~condition~~affect ~~and~~our business, results of operations ~~could~~and ~~be materially harmed~~prospects.

If we fail to retain qualified finance personnel and strengthen our financial reporting systems and infrastructure, we may not be able to timely and accurately report our financial results or comply with the requirements of being a public company, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements.

~~Our~~If ~~ability~~sales ~~to timely and accurately report our financial results and comply with the requirements~~ of ~~being a public company depends on~~ our ~~maintaining~~customers’ ~~adequate~~products ~~numbers~~decline ~~of accounting and finance staff with technical accounting, Securities and Exchange Commission reporting and Sarbanes-Oxley Act compliance expertise. Any inability to recruit~~ or ~~retain~~if ~~qualified~~their ~~accounting~~products ~~and~~do ~~finance~~not ~~staff~~achieve ~~would~~market have an adverse impact on our ability to accurately and timely prepare our financial statements. We may be unable to hire qualified professionals with requisite technical and public company experience when and as neededacceptance, ~~including following any significant acquisitions such as~~ our acquisitions of S3 and Echelon in 2018, which increase the size of our operations and the requirements on our finance and accounting organization. In addition, new employees will require time and training to learn our business and operating ~~processes~~results and procedures. If our finance and accounting organization is unable for any reason to meet the demands of being a public company or increased requirements following any significant acquisitions, the quality and timeliness of our financial reporting may suffer, which could ~~result~~be inadversely ~~the identification of material weaknesses in our internal controls~~affected. Any consequences resulting from inaccuracies or delays in our reported financial statements could cause the trading price of our common stock to decline and could harm our business, operating results and financial condition.

IfOur werevenue ~~fail~~depends toon ~~strengthen~~ our ~~financial~~customers’ ~~reporting~~ability ~~systems, infrastructure and internal control over financial reporting~~ to ~~meet~~commercialize ~~the~~their ~~demands~~products ~~placed~~successfully. ~~upon~~The usmarkets asfor aour ~~public~~customers’ ~~company,~~products ~~including~~are ~~the~~extremely ~~requirements~~competitive ofand ~~the~~are ~~Sarbanes-Oxley~~characterized ~~Act,~~by werapid ~~may~~technological bechange. ~~unable~~Competition toin ~~report~~ our ~~financial~~customers’ ~~results~~markets ~~timely~~is ~~and~~based ~~accurately~~on ~~and~~a ~~prevent~~variety ~~fraud.~~of Wefactors ~~expect~~including toprice, ~~incur~~performance, ~~significant~~product ~~expense~~quality, marketing and ~~devote~~distribution ~~substantial~~capability, ~~management~~customer ~~effort~~support, ~~toward~~name ~~ensuring~~recognition ~~compliance~~and ~~with Section 404 the internal control over~~ financial ~~reporting~~strength. ~~requirements~~As ofa ~~Section~~result ~~404~~ of ~~the~~rapid ~~Sarbanes-Oxley~~technological ~~Act~~change, ~~particularly with respect to~~ the ~~requirement~~markets for anour ~~attestation~~customers’ ~~report~~products byare ~~our~~characterized ~~independent~~by ~~registered~~frequent ~~public~~product ~~accounting firm~~introductions, ~~which~~short weproduct ~~expect~~life ~~to be required to comply with beginning with our fiscal year ending December 31, 2020.~~

~~A breach of our security systems may damage our reputation and adversely affect our business.~~ 57

~~Our~~Table ~~security systems are designed to protect our customers’, suppliers’ and employees’ confidential information, as well as maintain the physical security~~ of our facilities. We also rely on a number of third-party “cloud-based” service providers of corporate infrastructure services relating to, among other things, human resources, electronic communication services and some finance functions, and we are, of necessity, dependent on the security systems of these third-party providers. Any security breaches or other unauthorized access by third parties to the systems of our cloud-based service providers or the existence of computer viruses in their data or software could expose us to a risk of Contents

59 cycles, fluctuating demand and increasing product capabilities. As a result, our customers’ products may not achieve market success or may become obsolete. We cannot assure you that our customers will dedicate the resources necessary to promote and commercialize their products, successfully execute their business strategies for such products, or be able to manufacture such products in quantities sufficient to meet demand or cost-effectively manufacture products at a high volume. Our customers do not have contracts with us that require them to manufacture, distribute or sell any products. Moreover, our customers may develop internally, or in collaboration with our competitors, technology that they may utilize instead of the technology available to them through us. Our customers’ failure to achieve market success for their products, including as a result of general declines in our customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in a decrease in our revenue and negatively affect our business and operating results.

~~Table~~Our revenue also depends on the timely introduction, quality and market acceptance of ~~Contents~~ our customers’ products that incorporate our solutions. Our customers’ products are often very complex and subject to design complexities that may result in design flaws, as well as potential defects, errors and bugs. We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers. For example, in 2014, flaws in one of our customer’s products that were unrelated to our solutions generated negative publicity for our customer and delayed the product’s release until it could be redesigned. In the past, we have also been subject to delays and project cancellations as a result of changing market requirements, such as the customer adding a new feature, or because a customer’s product fails their end customer’s evaluation or field trial. Customer products may also be delayed due to issues with other vendors of theirs. We incur significant design and development costs in connection with designing our solutions for customers’ products. If our customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues with other vendors, they may delay, change or cancel a project. If we have already incurred significant development costs, we may not be able to recoup those costs, which in turn would adversely affect our business and financial results.

~~information~~We ~~loss~~face competition and ~~misappropriation~~expect ofcompetition ~~confidential information. Accidental or willful security breaches or other unauthorized access by third parties~~ to ~~our~~increase ~~information~~in ~~systems or facilities, or~~ the existence of computer viruses in our data or software, could expose us to a risk of information loss and misappropriation of proprietary and confidential information belonging to us, our customers or our suppliersfuture. ~~Any~~If ~~theft~~we orfail ~~misuse of this information could result in, among other things, unfavorable publicity, damage~~ to ~~our~~compete ~~reputation~~effectively, ~~difficulty in marketing~~ our ~~products,~~revenue ~~allegations~~growth ~~by our customers that we have not performed our contractual obligations, litigation by affected parties~~ and ~~possible~~results ~~financial obligations for liabilities and damages related to the theft or misuse~~ of ~~this~~operations ~~information,~~will ~~any~~be ofmaterially ~~which could have a material adverse effect on our business, financial condition, our reputation,~~ and ~~our~~adversely ~~relationships with our customers and partners~~affected. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

~~Failure~~The global semiconductor market in general, and the IoT semiconductor market in particular, are highly competitive. We expect competition to ~~protect~~increase and intensify as other semiconductor companies enter our ~~intellectual~~markets, ~~property~~many of which have greater financial and other resources with which to pursue technology development, product design, manufacturing, marketing and sales and distribution of their products. Increased competition could ~~substantially~~result ~~harm~~in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue and operating results. Currently, our competitors range from large, international companies offering a wide range of semiconductor products or systems to companies specializing in other alternative, specialized emerging memory technologies. Our primary competitors include GigaDevice Semiconductor, Macronix International Co. Ltd., Microchip Technology Inc., Micron Technology, Inc., Cypress Semiconductor Corporation, Winbond Electronics Corp., Cree Inc., Digi International, General Electric, Maxim Integrated Products, Philips, Siemens, Silver Spring Networks, STMicroelectronics, Telensa, Texas Instruments, Tridium, On Semiconductor, Socionext, Ansem, IC Sense and Verisilicon. Key industry standard and trade group competitors include BACnet, DALI, DeviceNet, HART, Konnex, Profibus, ZigBee, and the ZWave Alliance in the IoT market. Each of these standards and/or alliances is backed by one or more competitors. In addition, as the IoT market opportunity grows, we expect new entrants will enter these markets and existing competitors, including leading semiconductor companies, may make significant investments to compete more effectively against our products. These competitors could develop technologies or architectures that make our products or technologies obsolete.

Outstanding at November 5, 2019

Common Stock, $0.0001 par value per share

30,260,296 shares

Outstanding at June 11, 2020

Common Stock, $0.0001 par value per share

31,249,484 shares

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