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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K


Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934

For the month of November 2020

Commission File Number: 001-35135

Sequans Communications S.A.
(Translation of Registrant’s name into English)

15-55 Boulevard Charles de Gaulle
92700 Colombes, France
Telephone: +33 1 70 72 16 00
(Address of Principal Executive Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F R Form 40-F £
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes £ NoR
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes £ NoR
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.  

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: Yes £ NoR
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_______________.




The information in this Report on Form 6-K is being filed to furnish the registrant’s Unaudited Condensed Consolidated Financial Statements at September 30, 2020 and for the nine months ended September 30, 2020 and 2019 and the related Management’s Discussion and Analysis. The information in this report shall be incorporated by reference into each of the following Registration Statements under the Securities Act of 1933, as amended, of the registrant: Form S-8 (File Nos. 333-177919, 333-180487, 333-187611, 333-194903, 333-203539, 333-211011, 333-214444, 333-215911, 333-219430, 333-226458, 333-233473 and 333-239968) and Form F-3 (File No 333-221919).


2




FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements at September 30, 2020 and for the nine months ended September 30, 2019 and 2020
a) Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and 20204
b) Unaudited Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2019 and 20205
c) Unaudited Condensed Consolidated Statements of Financial Position at December 31, 2019 and at September 30, 20206
d) Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit) for the nine months ended September 30, 2019 and 20207
e) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 20209
f) Notes to the Unaudited Condensed Consolidated Financial Statements10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations27








3



FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements at September 30, 2020 and for the nine months ended
    September 30, 2019 and 2020

 
 
Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Operations
Nine months ended September 30,  
 Note20192020
  (in thousands, except ADS and per ADS amounts)
Revenue:   
  Product revenue $16,093 $25,855 
  Other revenue 4,805 9,270 
     Total revenue320,898 35,125 
Cost of revenue:   
  Cost of product revenue 12,169 17,449 
  Cost of other revenue 1,450 1,340 
     Total cost of revenue13,619 18,789 
Gross profit 7,279 16,336 
Operating expenses:   
  Research and development 418,135 22,917 
  Sales and marketing 6,104 5,909 
  General and administrative 6,446 6,763 
     Total operating expenses30,685 35,589 
Operating loss (23,406)(19,253)
Financial income (expense):   
  Interest expense5(6,488)(11,037)
  Interest income5 206 
  Change in fair value of convertible debt derivative15 (13,240)
  Convertible debt amendment15 1,399 
  Foreign exchange gain (loss), net893 (715)
Loss before income taxes (28,996)(42,640)
Income tax expense (benefit)6(409)575 
Loss $(28,587)$(43,215)
Attributable to:    
Shareholders of the parent $(28,587)$(43,215)
Non-controlling interests   
Basic earnings (loss) per ADS$(1.20)$(1.59)
Diluted earnings (loss) per ADS$(1.20)$(1.59)
Weighted average number of ADS used for computing:   
  Basic per ADS 23,736,950 27,120,905 
  Diluted per ADS 23,736,950 27,120,905 

4



 
Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
 
Nine months ended September 30,
20192020
(in thousands)
Loss for the period$(28,587)$(43,215)
Other comprehensive income (loss)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods :
Net gain (loss) on cash flow hedge (18)(58)
Exchange differences on translation of foreign operations(42)(50)
Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods(60)(108)
Other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods :
Re-measurement gains (losses) on defined benefit plans(21)(35)
Net other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods(21)(35)
Total other comprehensive income (loss)(81)(143)
Total comprehensive loss$(28,668)$(43,358)
Attributable to:
Shareholders of the parent$(28,668)$(43,358)
Non-controlling interests  
 


5



Sequans Communications S.A.

Unaudited Condensed Consolidated Statements of Financial Position
 
Note
At December 31, 2019 At September 30, 2020 
 (in thousands)
ASSETS   
Non-current assets:   
Property, plant and equipment $8,858 $8,748 
Intangible assets716,696 24,618 
Deposits and other receivables 401 449 
Other non-current financial assets 335 349 
   Total non-current assets 26,290 34,164 
Current assets:   
Inventories86,664 5,801 
Trade receivables98,390 14,084 
Contract assets91,587 1,028 
Prepaid expenses20901 1,226 
Other receivables 2,253 4,367 
Research tax credit receivable43,132 3,287 
Short-term deposits10 14,900 
Cash and cash equivalents1014,098 10,385 
   Total current assets 37,025 55,078 
Total assets $63,315 $89,242 
EQUITY AND LIABILITIES   
Equity:   
Issued capital euro 0.02 nominal value, 121,248,638 ordinary shares, issued and outstanding at September 30, 2020 (95,587,146 at December 31, 2019)
11$2,403 $2,962 
Share premium11233,720 262,641 
Other capital reserves12 . 1443,656 41,012 
Accumulated deficit (308,733)(351,948)
Other components of equity (607)(750)
   Total equity (29,561)(46,083)
Non-current liabilities:   
Government grant advances and loans136,150 11,148 
Venture debt147,071 3,469 
Convertible debt1523,342 34,984 
Convertible debt embedded derivative15 18,506 
Lease liabilities173,204 3,978 
Trade payables191,139 1,050 
Provisions181,905 1,885 
Deferred tax liabilities6 . 19429 18 
Contract liabilities1911,572 4,341 
   Total non-current liabilities 54,812 79,379 
Current liabilities:   
Trade payables 8,834 17,204 
Interest-bearing receivables financing164,068 14,449 
Venture debt145,109 5,694 
Convertible debt157,329  
Lease liabilities17900 806 
Government grant advances and loans 1,472 3,026 
Contract liabilities195,812 8,018 
Other current liabilities and provisions184,540 6,749 
   Total current liabilities 38,064 55,946 
Total equity and liabilities $63,315 $89,242 

6



Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit)
 Attributable to the shareholders of the parent
 
Ordinary shares 
Share
premium
Other
capital
reserves
Accumulated
deficit
Cumulative
translation
adjustments
Accumulated
other
comprehensive
income (loss)
Total
equity
 
Shares 
Amount
 (Note 11)(Note 11)(Note 11)(Note 11) 
 (in thousands, except share and per share amounts)
At January 1, 201994,732,539 $2,384 $225,470 $39,768 $(272,036)$(368)$(237)$(5,019)
Loss for the period(28,587)(28,587)
Re-measurement gains (losses) on defined benefit plans (21)(21)
Foreign currency translation     (42) (42)
Net gain on cash flow hedge     (18)(18)
   Total comprehensive income (loss)   (28,587)(42)(39)(28,668)
Issue of shares in connection with the exercise of options and warrants, and vesting of restricted shares awards430,663 10 (10) 
Warrants issued to a strategic partner in February 2019 (Note 11)8,360 8,360 
Transaction costs(91)(91)
Issuance of convertible debt (Note 15)2,864 2,864 
Deferred tax effect of debt instruments with equity components (Note 6)(776)(776)
Share-based payments1,279 1,279 
At September 30, 201995,163,202 $2,394 $233,729 $43,135 $(300,623)$(410)$(276)$(22,051)


7



Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit)
Attributable to the shareholders of the parent
Ordinary shares 
Share
premium
Other
capital
reserves
Accumulated
deficit
Cumulative
translation
adjustments
Accumulated
other
comprehensive
income (loss)
Total
equity
Shares 
Amount
(Note 11)(Note 11)(Note 11)(Note 11)
(in thousands, except share and per share amounts)
At December 31, 201995,587,146 $2,403 $233,720 $43,656 $(308,733)$(319)$(288)$(29,561)
Loss for the period(43,215)(43,215)
Re-measurement gains (losses) on defined benefit plans (35)(35)
Foreign currency translation      (50) (50)
Net loss on cash flow hedge     (58)(58)
   Total comprehensive income (loss)   (43,215)(50)(93)(43,358)
Issue of shares in connection with the exercise of options and warrants, and vesting of restricted shares awards645,336 14 18 32 
Issue of shares in connection with the public offering of May 2020 (Note 11)22,330,096 487 28,263 28,750 
Issue of shares in connection with the ATM program (Note 11)970,584 21 1,592 1,613 
Conversion of loan (Note 11)1,715,476 37 2,005 2,042 
Transaction costs (Note 11)(2,957)(2,957)
Convertible debt amendments (Note 15)(5,266)(5,266)
Deferred tax effect of debt instruments with equity components (Note 6)809 809 
Share-based payments  1,813    1,813 
At September 30, 2020121,248,638 $2,962 $262,641 $41,012 $(351,948)$(369)$(381)$(46,083)

8



Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Cash Flows
 
Nine months ended September 30,
 20192020
  (in thousands)
Operating activities: 
Loss before income taxes$(28,996)$(42,640)
Non-cash adjustment to reconcile loss before tax to net cash used in operating activities:  
Amortization and impairment of property, plant and equipment2,900 2,845 
Amortization and impairment of intangible assets3,310 4,314 
Share-based payment expense1,279 1,813 
Decrease in provisions68 (55)
Interest expense, net6,483 10,831 
Change in fair value of convertible debt embedded derivative 13,240 
Convertible debt amendment (1,399)
Foreign exchange loss (gain)(1,059)1,200 
Loss on disposal of property, plant and equipment(32) 
Bad debt expense635 63 
Working capital adjustments: 
Decrease (Increase) in trade receivables and other receivables2,031 (7,670)
Decrease in inventories839 863 
Decrease (Increase) in research tax credit receivable1,376 716 
Increase (Decrease) in trade payables and other liabilities466 5,762 
Decrease in contract liabilities(631)(7,564)
Increase (Decrease) in government grant advances245 12 
Income tax paid(247)(269)
Net cash flow used in operating activities$(11,333)$(17,938)
Investing activities:  
Purchase of intangible assets and property, plant and equipment(2,888)(5,073)
Capitalized development expenditures(3,537)(4,776)
Sale (Purchase) of financial assets32 (62)
Increase of short-term deposit (14,900)
Interest received5 21 
Net cash flow used in investing activities$(6,388)$(24,790)
Financing activities:  
Proceeds from issue of warrants, exercise of stock options/warrants 32 
Public equity offering proceeds, net of transaction costs paid 27,496 
Proceeds from issuing of warrants to a strategic partner, net of transaction costs paid8,269  
Proceeds from (repayment of) interest-bearing receivables financing(2,300)10,381 
Proceeds from governments loans, net of transaction costs 5,392 
Proceeds from interest-bearing research project financing1,126 405 
Proceeds from convertible debt, net of transaction costs7,970 2,050 
Payment of lease liabilities(1,048)(894)
Repayment of interest-bearing research project financing (177)
Repayment of government loans(335)(118)
Repayment of venture debt (3,775)
Interest paid(1,788)(1,777)
Net cash flows from financing activities$11,894 $39,015 


9





Sequans Communications S.A.
Unaudited Condensed Consolidated Statements of Cash Flows (Continued)



Nine months ended September 30,
20192020
(in thousands)
Net increase (decrease) in cash and cash equivalents(5,827)(3,713)
Net foreign exchange difference(8) 
Cash and cash equivalents at January 112,086 14,098 
Cash and cash equivalents at period end$6,251 $10,385 

10


Sequans Communications S.A
Notes to the Unaudited Condensed Consolidated Financial Statements

1. Corporate information
Sequans Communications S.A. (“Sequans”) is organized as a limited liability company (“société anonyme”) incorporated and domiciled in the French Republic, with its principal place of business at 15-55 boulevard Charles de Gaulle, 92700 Colombes, France. Sequans, together with its subsidiaries (the “Company”), is a fabless designer, developer and provider of semiconductor chips and modules for IoT devices. The Company’s solutions incorporate baseband processor and radio frequency transceiver integrated circuits along with proprietary signal processing techniques, algorithms and software stacks.
2. Basis of preparation and changes to the Company’s accounting policies
2.1. Basis of preparation
The Condensed Consolidated Financial Statements for the nine months ended September 30, 2020 are prepared in accordance with IAS 34 Interim Financial Reporting and were authorized for issue in accordance with a resolution of the board of directors on November 10, 2020.
The Condensed Consolidated Financial Statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company’s annual financial statements as at December 31, 2019.
These Condensed Consolidated Financial Statements for the nine months ended September 30, 2020 have been prepared on a going concern assumption. During 2019 and the nine months ended September 30, 2020, we financed our operations primarily through gross proceeds from the issue of shares through public offerings ($30.4 million in 2020), government loans ($7.6 million in 2020 of which $2.2 million was converted into equity in May 2020), convertible notes ($8.0 million in 2019) and warrants to a strategic partner ($8.3 million in 2019). We expect to continue to incur significant expense related to the development of our 4G and 5G products and expansion of our business, including research and development and sales and administrative expenses. In addition, we will incur expense to meet our commitments to our customers under various purchase orders and contracts. The Company will be required to obtain additional financing, including through a combination of government research and development funding, strategic licensing and/or service agreements, or additional equity offerings, to meet these cash flow needs.
The Company’s internal cash forecast which is built from sales forecasts by products and by customer, assumes a slightly increasing operating cost structure, ongoing and new government funding of research programs and new strategic funding activities. The Company expects to be able to obtain additional funding through one or more possible license agreements, business partnerships or other similar arrangements; or from financing from institutional or strategic investors, from the capital markets, or a combination of the above. However, the Company cannot guarantee if or when any such transactions will occur or whether they will be on satisfactory terms. Furthermore, the effects of COVID-19 coronavirus pandemic may continue to have a negative impact on the production of the Company's products, the Company's ability to source components needed for production or on the demand for the Company's products by customers whose supply chain or end demand are negatively affected by COVID-19, and as a result could affect the Company’s financial condition. The effects of COVID-19 also have and may continue to have a prolonged negative impact on the capital markets globally which could in turn negatively impact the ability of the Company to raise funds to meet its financial needs in the next twelve months and beyond.
While the Company has taken and will continue to take actions to obtain new funding, the above factors raise substantial doubt about the Company’s ability to continue as a going concern as there is no assurance that the Company will be successful in satisfying its future cash needs.
2.2. Changes in accounting policy and disclosures
New and amended standards and interpretations
The accounting policies adopted in preparation of the Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Company’s annual financial statements for the year ended December 31, 2019 except for the following new and amended IFRS and IFRIC interpretations effective as of January 1, 2020:
Amendments to IFRS 7, IFRS 9, IAS 39: The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an
alternative nearly risk-free interest rate (an RFR). The amendments became effective on January 1, 2020. Adoption of these amendments had no impact on the Condensed Consolidated Financial Statements.

Amendments to IFRS 3: The amendments include a revised definition of at business. The amendments became effective on January 1, 2020. Adoption of these amendments had no impact on the Condensed Consolidated Financial Statements.

Amendments to IAS 1 and IAS 8: Definition of Material: The amendments clarify that materiality will depend on the
nature or magnitude of information, or both. An entity needs to assess whether the information, either individually or
in combination with other information, is material in the context of the financial statements. The amendments became effective on January 1, 2020. Adoption of these amendments had no impact on the Condensed Consolidated Financial Statements.

Amendment in Conceptual Framework for Financial Reporting. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards.”. The Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. This amendment became effective on January 1, 2020. Adoption of this amendment had no impact on the Condensed Consolidated Financial Statements.

Standards issued but not yet effective
Standards and interpretations issued but not yet effective up to the date of issue of the Company’s Condensed Consolidated Financial Statements are listed below. The Company intends to adopt these standards when they become effective:
Covid-19-Related Rent Concessions – Amendment to IFRS 16: In May 2020, the IASB amended IFRS 16 Leases to provide relief to lessees from applying the IFRS 16 guidance on lease modifications to rent concessions arising as a direct consequence of the COVID-19 pandemic. This amendment is effective for annual periods beginning on or after June 1, 2020 and can be early adopted.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current: In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be applied retrospectively. The Company is currently assessing the impact of the amendments.

Amendments to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use. In May 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Company.

COVID-19
Management has considered what effect the COVID-19 pandemic has on the amounts recognized in the financial statements. Management has identified potential risks related to the impact on the production of the Company's products in China or elsewhere, on the Company's ability to source components required for production and on the demand for the Company's products by customers impacted by the pandemic. As of September 30, 2020, the Company has not identified any impact on its assets and liabilities.

2.3. Other information
No impairment tests on property, plant and equipment or on intangible assets were performed as of September 30, 2020 as no events or changes in circumstances indicated that the carrying amount of those assets was not recoverable.
There is no major seasonality in Sequans’ revenue, although the first quarter tends to be seasonally the weakest for product revenue.

11


Sequans Communications S.A
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)


3. Segment information and disaggregated revenue disclosures
The Company has one operating segment, which is the design and marketing of semiconductor components for cellular wireless systems. All information required to be disclosed under IFRS 8 Operating Segments is shown in the Condensed Consolidated Financial Statements and these associated Notes.
Sales to external customers disclosed below are based on the geographical location of the customers. The following table sets forth the Company’s total revenue by region for the periods indicated. The Company categorizes its total revenue geographically based on the location to which it invoices.
Nine months ended September 30,
20192020
(In thousands)
Asia:
 Taiwan$10,276 $7,557 
  Korea 3,700 15,840 
  China (including Hong Kong)1,521 387 
  Rest of Asia95 48 
     Total Asia15,592 23,832 
United States of America4,951 9,427 
Rest of world355 1,866 
Total revenue$20,898 $35,125 
Of our total revenue, 99.7% is attributable to international sales for the nine months ended September 30, 2020 and 2019.
The Company categorizes its total revenue based on technology.
Nine months ended September 30,
20192020
(In thousands)
Broadband and Critical IoT$6,953 $17,443 
Massive IoT10,486 8,641 
Vertical3,459 9,041 
Total revenue$20,898 $35,125 

Additionally, the Company categorizes its total revenue based on product and other revenue.
Nine months September 30,
20192020
(In thousands)
Product$16,093 $25,855 
License350  
Development and other services4,455 9,270 
Total revenue
$20,898 $35,125 

The substantial majority of the Company’s non-current assets are held by the parent company, Sequans Communications S.A and located in France.
For the nine-month periods ended September 30, 2019 and 2020, customers representing more than 10% of revenue, and related accounts receivables at the end of the period, were:
Customer Customer Location
% of total revenues for the nine months ended September 30,
Trade receivables at
20192020September 30, 2020
A South Korea18 %45%$7,205,850
B Taiwan36 %21%$4,992,728
C United States of America
Less than 10%
20%$
D Taiwan13 %
Less than 10%
$879,606
Revenues from development contracts where no related direct costs were identified amounted to $100,000 and $669,000 for the nine months ended September 30, 2020, and 2019, respectively.
When the Company performs under contracts by transferring goods or services before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional. Where the Company has an unconditional right to payment, these are included in unbilled revenue until billing occurs and classified as trade receivables. As of September 30, 2020, the transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) was $1,784,000 all of which is expected to be recognized in the next year and excluding the amounts related to the development service contract entered into in October 2019, described under Note 19.
4. Research tax credit receivable and product development costs capitalized
The research tax credit in France is deducted from corporate income taxes due; if taxes due are not sufficient to cover the full amount of the credit, the balance is received in cash three years later (one year later if the Company is below certain size criteria). Total research tax credit receivable available in France and in United Kingdom as of September 30, 2020 is $3,287,000 and reflects the amount earned to date in 2020. Research tax credits earned in those countries through December 31, 2019 have all been collected in 2020.
In the nine months ended September 30, 2020 and 2019, the Company capitalized costs, in compliance with the applicable criteria under IAS 38, Intangible Assets, related to the development of the chipsets for LTE Category M and NB-IoT (the Monarch N and Monarch 2) and LTE Category 1 (the Calliope 2), and related to certification. Total amount of capitalized cost in each period was $3,999,000 and $3,113,000, respectively.
5. Interest expenses
The table below presents the major components of interest expenses:
Nine months September 30,
20192020
(In thousands)
Interest on loans$5,646 $10,049 
Interest on lease contract471 487 
Other bank fees and financial charges371 501 
    Total interest expenses$6,488 $11,037 

For the nine months ended September 30, 2020, interest on loans included $7,510,000 related to convertible debt issued in 2019, 2018, 2016 and 2015, venture debt issued in 2018 and government loans granted in 2015 and in 2020 ($5,646,000 in the nine months ended September 30, 2019), and interest (financing component) related to an upfront payment from a development services agreement signed in October 2019 for an amount of $2,539,000 ($619,000 in the nine months ended September 30, 2019).

6. Income tax
The major components of income tax expense are:
Nine months ended
September 30,
20192020
(in thousands)
Condensed Consolidated Statement of Operations
    Current income tax expense$120 $177 
    Deferred income tax expense (benefit)(529)398 
Income tax expense (benefit) reported in the Condensed Consolidated Statement of Operations$(409)$575 

During the nine months ended September 30, 2020, the Company recognized (through equity) a reversal of deferred tax liabilities of $809,000 on the equity component of the convertible debts amended during the period partially offset by a deferred tax expense of $398,000 related to the impact of the extinguishment of the debt following the amendment (See Note 15).

During the nine months ended September 30, 2019, the Company recognized (through equity) a deferred tax liability of $776,000 on the equity component of the convertible debt issued during the period partially offset by a deferred tax benefit of $529,000 related to unused tax losses which can be utilized in the period in which taxable temporary differences are expected to reverse.
At December 31, 2019, the Company recognized a net deferred tax liability of $429,000 related mainly to a deferred tax liability on the equity component of the convertible debt including $2,591,000 related to the convertible notes, recorded in equity, largely offset by a deferred tax asset related to unused tax losses which can be utilized in the period in which taxable temporary differences are expected to reverse.
At September 30, 2020, the Company recognized a net deferred tax liability of $18,000 related to origination and reversal of timing differences.

7. Intangible assets
Intangible assets include:
 Capitalized development costsLicensesTotal
 (in thousands)
Cost:
At December 31, 2019$10,737 $20,818 $31,555 
Additions3,997 8,239 12,236 
Exchange difference (6)(6)
At September 30, 2020$14,734 $29,051 $43,785 
Amortization and impairment:
At December 31, 20191,755 13,104 14,859 
Amortization1,125 3,189 4,314 
Exchange difference (6)(6)
At September 30, 2020$2,880 $16,287 $19,167 
Net book value:
At January 1, 2020$8,982 $7,714 $16,696 
At September 30, 2020$11,854 $12,764 $24,618 

In the nine months ended September 30, 2020, the Company purchased licenses for the 5G product development with payments spread over up to 18 months.

8. Inventories
 At December 31, 2019At September 30, 2020
 (in thousands)
Components$2,645 $1,724 
Finished goods4,702 4,765 
Total inventories at cost$7,347 $6,489 
Depreciation of components$2 $2 
Depreciation of finished goods681 686 
Total depreciation$683 $688 
Components, net$2,643 $1,722 
Finished goods, at the lower of cost and net realizable value4,021 4,079 
Total net inventories$6,664 $5,801 
At December 31, 2019, the amount of $681,000 in depreciation is related to finished goods that have been damaged or units on hand in excess of the units needed to serve the expected demand for identified customers and projects. During the nine months ended September 30, 2020, there was no significant change in the provision on components and finished goods.

9. Trade receivables and contract assets

Trade receivables are non-interest bearing and are generally on 30-90 day payment terms.
 
At December 31, 2019 At September 30, 2020
 (in thousands)
Trade receivables $11,957 $17,367 
Contract assets1,587 1,028 
Provision for credit notes to be issued(848)(543)
Provisions on trade receivables(2,719)(2,740)
Net trade receivables$9,977 $15,112 
Contract assets are related to the earned consideration in exchange for services transferred to the customer before the customer pays consideration or before payment is due.
In the year ended December 31, 2019 and in the nine months ended September 30, 2020, the Company recorded credit notes related to special customers programs such as rebates.
The movements in the provision for impairment of receivables were as follows:
 Year ended December 31,
2019
Nine months ended September 30, 2020 
 (in thousands)
At January 1,$2,592 $2,719 
Charge for the period515 64 
Utilized amounts(388) 
Unutilized amounts (43)
At period end$2,719 $2,740 

Trade receivables impaired are related primarily to significantly aged receivables, which the Company no longer expects to collect although still subject to enforcement.

The aging analysis of trade receivables and contract assets that were not impaired is as follows:
 
Total
 
Neither past
due nor
Impaired
Past due but not impaired
 
   <30 days30-60 days60-120 days>120 days
 (in thousands)
At December 31, 2019$9,977 $6,265 $2,125 $130 $371 $1,086 
At September 30, 2020$15,112 $10,747 $3,171 $406 $ $788 
The Company does not assign credit risk rating grades to its trade receivables, but assesses credit risk at the customer level. Based on an analysis of historical credit losses, the Company has not applied any expected credit losses to its outstanding receivables as of the reporting date beyond specific provisions for doubtful accounts.

10. Cash and cash equivalents; short-term deposits
 At December 31, 2019 At September 30, 2020
 (in thousands)
Cash at banks$2,591 $10,378 
Cash equivalents11,507 7 
Short-term deposits 14,900 
Cash, cash equivalents and deposits$14,098 $25,285 
Cash at banks earns no interest. Cash equivalents in money market funds and term deposits are invested for short-term periods depending on the immediate cash requirements of the Company, and earn interest at market rates for short-term investments. The fair value of cash and cash equivalents is equal to book value. Most of the cash and cash equivalents is held in U.S. dollar and euros as follows:
 At December 31, 2019At September 30, 2020
 
(in thousands)

U.S. dollar denominated accounts$13,702 $21,006 
Euro denominated accounts301 4,033 
GBP denominated accounts37 58 
SGP denominated accounts12 59 
NIS denominated accounts19 97 
RMB denominated accounts11 13 
Other currencies denominated accounts16 19 
Cash, cash equivalents and deposits$14,098 $25,285 

11. Issued capital and reserves
Authorized capital, in number of shares

Authorized capital includes all shares issued as well as all potential shares which may be issued upon exercise of stock options, founders warrants, other warrants, restricted share awards and conversion of convertible debt, or which the shareholders have otherwise authorized for specific capital increases. At December 31, 2019, authorized capital was 244,254,014 ordinary shares with a nominal value of €0.02 each. At September 30, 2020, the following resolutions for capital increases were approved by the shareholders in June 2020: authorized capital was 280,910,002 ordinary shares with a nominal value of €0.02 each. On November 29, 2019, the Company modified the ratio of shares to ADS from one ordinary share to four ordinary shares per ADS. This has been reflected in the ADS disclosures for all periods presented.
Shares issued and fully paid
At December 31, 2019, 95,587,146 ordinary shares were issued and outstanding, representing a nominal value of €1,912,000 ($2,403,000). At September 30, 2020, 121,248,638 ordinary shares were issued and outstanding, representing a nominal value of €2,425,000 ($2,962,000).
Capital transactions
On May 14, 2020, the Company increased its capital in connection with a public offering by issuing 22,330,096 ordinary shares (including 2,912,620 shares from the underwriters' over-allotment option) at $1.2875 per share. The total offering amounted to $28,749,999. Accordingly, issued capital in the Consolidated Statement of Financial Position was increased by $486,761 recorded in share capital and by $28,263,238 in share premium. Costs directly attributable to the equity transaction amounting to approximately $2.3 million were deducted from the share premium.
On April 2, 2020, the Company entered into a Shareholder Loan Agreement with Bpifrance Participations, providing for an unsecured shareholder loan in an aggregate principal amount of $2.2 million. The loan accrued interest at 4.0% per annum. On May 15, 2020, the Company completed a private placement of 428,869 ADSs to Bpifrance Participations at a price of $5.15 per ADS, which equaled the offering price to the public of ADSs sold in the underwritten public offering that closed on May 14, 2020. As a result of the issuance of ADSs to BPI in the private placement, the loan from BPI pursuant to the Shareholder Loan Agreement between the Company and BPI was discharged and issued capital in the Consolidated Statement of Financial Position was increased by $37,253 recorded in share capital and by $2,073,689 recorded in share premium.
On March 31, 2020, the Company entered into an At The Market ("ATM") Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR, Inc., as agent, pursuant to which the Company could offer and sell, from time to time, through B. Riley FBR, ADSs having an aggregate offering price of up to $35,000,000. In April 2020, the Company sold 242,646 ADS (970,584 ordinary shares) under this agreement, representing $1,613,116 of gross proceeds ($1.1 million of net proceeds taking into account all fees for putting in place the ATM program as well as the agent fees related to the ADSs sold). Accordingly, issued capital in the Condensed Consolidated Statement of Financial Position was increased by $21,114 recorded in share capital and by $1,592,002 recorded in share premium. On June 1, 2020, the Company terminated, effective June 5, 2020, the ATM agreement.

On February 18, 2019, the Company issued warrants to purchase 9,392,986 ordinary shares to a strategic investor for a total subscription price of $8,360,000. The warrants are exercisable upon 61 days' notice to Sequans at an exercise price of €0.02 per share (€0.08 per ADS). The warrants expire 15 years from the issuance date. Upon issuance of the warrants, $8,360,000 was recorded in share premium in the Consolidated Statement of Financial Position.

12. Share-based payment plans
The expense recognized for employee and other services received during the nine months ended September 30, 2020 arising from equity-settled share-based payment transactions was $1,813,000 (nine months ended September 30, 2019: $1,279,000).
The breakdown is as follows:
Nine months ended 
September 30,
 20192020
 (in thousands)
Cost of revenue$7 $13 
Research and development$371 $748 
Sales and marketing$182 $339 
General and administrative$719 $713 
Total$1,279 $1,813 
During the nine months ended September 30, 2020, the board of directors granted 1,102,400 restricted share awards (RSA). RSA vest over four years, with either 25% vesting after the one-year anniversary of the grant or 50% vesting after the two-year anniversary, and the remaining portion of the grant vesting quarterly over the remaining years. In June 2020, following approval at the annual meeting of shareholders, 252,000 warrants were issued to members of the board of directors at an exercise price of $1.51 per ordinary share. The warrants vest one third annually over three years.
During the nine months ended September 30, 2020, 375,731 stock options, restricted shares and warrants were canceled. During this period, 24,828 stock options were exercised resulting in the issuance of 24,828 ordinary shares and an increase of nominal capital of $540 and an increase of share premium of $31,425. During the nine months ended September 30, 2020, 620,508 restricted shares vested and were issued as ordinary shares.


13. Government grant advances and loans
On April 30, 2020, the Company finalized €5 million of new French government debt financing that was received in May 2020 as part of the French COVID-19 economic support plan. The French loan is unsecured and can, at Sequans’ option, be repaid in full in one year plus 1.75% interest or, with one to four months’ notice before April 30, 2021, be repaid over the following five years. The Company intends to exercise the option to repay over an additional five years (from May 2021 to May 2026). As of September 30, 2020, $1,131,000 has been classified as current.

14. Venture debt
On October 26, 2018, the Company entered into a bond issuance agreement with Harbert European Specialty Lending Company II S.a.r.l (the “Harbert”) whereby Harbert agreed to loan to the Company €12 million ($14.0 million using the
exchange rate as of October 26, 2018), at a stated rate of interest of 9%, to be repaid monthly over 42 months. The Company may redeem or repurchase the notes before the maturity date, subject to making certain contractual payments. The contract also requires the Company to pay an additional fee equal to 2.5% of the principal at the end of the term. The Bond is secured by various assets of the Company, including intellectual property, and is senior to all the convertible notes. Also on October 26, 2018, the Company issued to Harbert, for a total subscription price of $1.00, warrants to acquire 816,716 shares at an exercise price of $1.34 per share ($5.36 per ADS after the modification of the ratio of shares per ADS). Such warrants are exercisable at any time and expire October 26, 2028.
The amounts received from Harbert, net of transaction costs, were allocated to (i) the warrants for an amount of €712,000 ($819,000), which was recorded in Other Capital Reserves in shareholders’ equity, and (ii) the liability component for €10.9 million ($12.8 million).
During the first twelve months, Sequans was only required to make interest payments. Beginning in November 2019, the Company began to make monthly principal and interest payments of €448,000 ($525,000 using the exchange rate as of September 30, 2020) which will continue over the remaining 19 months until April 26, 2022. Interest expense related to the venture debt recorded during the nine months ended September 30, 2020 amounted to $1,134,000, of which $737,000 was paid during the period. Repayments of principal during the nine months ended September 30, 2020 amounted to € 3,372,000 ($3,775,000 using the actual exchange rates during the period).

15. Convertible debt

Changes over the 9 month-period ended September 30, 2019
On May 7, 2019, the Company entered into a convertible note agreement with Nokomis Capital, L.L.C. in the principal amount of $3.0 million (the "2019-1 notes"). The convertible note matures in April 2021 and is convertible, at the holder’s option, into the company’s shares at a conversion rate of $1.21 per share (representing $4.84 per ADS).

On August 16, 2019, the Company entered into a convertible note agreement with Nokomis Capital, L.L.C. in the principal amount of $5.0 million (the "2019-2 notes"). The convertible note matures in August 2022 and is convertible, at the holder’s option, into the Company’s shares at a conversion rate of $1.03 per share (representing $4.12 per ADS).

The 2019 notes were accounted for as compound financial instruments with two components:
A liability component reflecting the Company’s contractual obligation to pay interest and redeem the bonds in cash;
and
An equity component for the value of the conversion option.
The initial fair value of the notes was split between these two components.

The fair value of the equity component of the 2019-1 note and 2019-2 note on the issuance date of May 7, 2019 and August 16, 2019 were calculated to be $989,000 and $1,874,000, respectively, and were recorded in Other Capital Reserves in shareholders’ equity, net of transaction costs. The Company has used 31.22% and 25.36% as the market rate of interest in order to value the liability component of the 2019-1 and 2019-2 notes, respectively.
Interest expense related to convertible notes recorded during the nine months ended September 30, 2019 amounted to $4,128,000. No repayments occurred during that period.

Changes over the 9 month-period ended September 30, 2020
Effective February 11, 2020, the Company amended the terms of the convertible note issued April 27, 2016 to Nokomis Capital, L.L.C., to extend the maturity of the note to April 14, 2021. In addition, the conversion price was reduced from $2.25 to $1.225 per ordinary share.
Effective March 20, 2020, the convertible notes issued in April 2015, April 2016, September 2018, May 2019 and August 2019 were amended to grant the Company three options to extend the term of each note, except for the August 2019 notes which have two options. Each option will give the Company the right to extend the term of such note by one year and consequently reset the conversion price to a 20% premium above the 20-day volume weighted average price (VWAP) if it is lower than the existing conversion price. On the first option exercise, the payment-in-kind interest (PIK) will stay at 7% but the holder will be granted a warrant for 10% of the value of the note with a three-year term, at an exercise price of 20% premium above 20-day VWAP. On the second option exercise, the PIK will be adjusted to 9.5%, the previous warrants granted on the first option exercise will be extended by one year and the holder will be granted an additional warrant for 15% of the value of the note with a three year term, at an exercise price of 20% premium above 20-day VWAP. On the third option exercise, the PIK will be adjusted to 13.5%, and the holder will be granted an additional warrant for 20% of the value of the note with a three year term, at an exercise price of 20% premium above 20-day VWAP. If at any time, the holder converts a note prior to the date of April 2022, it will receive an extra year’s worth of PIK so as to incentivize early conversion. In consideration for entering into the amendments, the warrants that Nokomis owns that were scheduled to expire April 2021 were extended to April 2024 upon the signing of the note amendments.
From an accounting perspective, the amendment of the convertible notes resulted in the extinguishment of the existing notes and issuance of five new notes, accounted for as compound financial instruments with two components:
A liability component reflecting the Company’s contractual obligation to pay interest and redeem the notes in cash; and
An embedded derivative, which reflects the Company's call options to extend the term of each note, the conversion option of Nokomis and in certain cases a repricing to decrease the conversion price.
The change in the liability component before and after the amendment was recorded as financial gain for an amount of $1,399,000.
The fair value of the liability component on the amendment date represented the fair value of a similar liability that does not have an associated equity conversion feature, calculated as the net present value of contractually determined future cash flows, discounted at the rate of interest applied by the market at the time of issue to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option. The Company used 26.3% as the market rate of interest in order to value the liability components.
The embedded derivatives of the notes were valued using the Geometric Brownian Motion framework relying on Monte-Carlo simulations. On March 20, 2020, the initial fair value of the embedded derivative of the notes was calculated to be $5,266,000 and recorded in Other Capital reserves in shareholders' equity. The change in fair value is remeasured and recorded as financial income or loss at each balance sheet date. At September 30, 2020, the recalculated fair value was $18,506,000 and the change of the fair value of $13,240,000 for the nine-months ended September 30, 2020 was recorded in the Condensed Consolidated Statement of Operations.

Interest accrues on the notes at the rate of 7% per year, paid in kind annually on the anniversaries of the issuance of the notes.

Interest expense related to convertible notes recorded during the nine months ended September 30, 2020 amounted to $5,880,000. No repayments of principal nor payment of interest occurred during that period.

16. Accounts receivable financing agreement
In June 2014, the Company entered into a factoring agreement with a French financial institution whereby a line of credit was made available equal to 90% of the face value of accounts receivable from product sales to qualifying customers. In July 2017, the Company signed an amendment to the initial agreement to include financing of accounts receivable from service revenue up to $800,000. The Company transfers to the finance company all invoices issued to qualifying customers, and the customers are instructed to settle the invoices directly with the finance company. The Company pays a commission on the face value of the accounts receivable submitted and interest on any draw-down of the resulting line of credit. In the event that the customer does not pay the invoice within 60 days of the due date, the receivable is excluded from the line of credit, and recovery becomes the Company’s responsibility. At September 30, 2020, $11,631,000 had been drawn on the line of credit and recorded as a current borrowing (December 31, 2019: $4,068,000).
In May 2020, the Company entered into an agreement to finance the 2020 research tax credit as it is earned over the year. At September 30, 2020, the amount financed was $2,818,000 and does not include hold backs of $437,000, which are expected to be received in 2021 ($320,000) and in 2026 ($117,000). The effective interest rate of 6.15% includes expenses related to the financing.

17. Lease liabilities
The table below present the carrying amounts of right-of-use assets recognized and the movements during the period:
Real-estateIT and office equipment