QUICKLOGIC Corp - Quarter Report: 2022 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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FORM 10-Q

 

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(Mark One)

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

 

For the Quarterly Period Ended April 3, 2022

 

OR

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

 

For the Transition Period From              To

 

COMMISSION FILE NUMBER: 000-22671

 

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QUICKLOGIC CORPORATION

(Exact name of registrant as specified in its charter)

 

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Delaware		77-0188504
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

2220 Lundy Avenue, San Jose, CA 95131-1816

(Address of principal executive offices including zip code))

 

(408) 990-4000

(Registrant's telephone number, including area code)

 

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001 per share	QUIK	The Nasdaq Capital Market

 

 

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

 

As of May 13, 2022, there were 12,395,629 shares of registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

QUICKLOGIC CORPORATION

FORM 10-Q

April 3, 2022

 

TABLE OF CONTENTS

 

			Page
Part I - Financial Information			3
Item 1.	Unaudited Condensed Consolidated Financial Statements		3
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		4
	Consolidated Statements of Cash Flows		5
	Consolidated Statements of Changes in Stockholders’ Equity		6
	Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22
Item 4.	Controls and Procedures		22
Part II - Other Information			23
Item 1.	Legal Proceedings		23
Item 1A.	Risk Factors		23
Item 3.	Defaults Upon Senior Securities		23
Item 6.	Exhibits		24
Signatures			25

 

 

 

 

 

		April 3,				January 2,
		2022				2022
ASSETS
Current assets:
Cash, cash equivalents and restricted cash		$	20,140			$	19,605
Accounts receivable, net of allowances for doubtful accounts of $62			1,581				1,294
Inventories			2,292				2,078
Other current assets			1,119				1,181
Total current assets			25,132				24,158
Property and equipment, net			499				499
Capitalized internal-use software, net			1,291				1,241
Right of use assets			1,336				1,529
Intangible assets			725				752
Goodwill			185				185
Investment in privately-held non-affiliate			300				300
Other assets			306				309
TOTAL ASSETS		$	29,774			$	28,973
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit		$	15,000			$	15,000
Trade payables			1,332				934
Accrued liabilities			1,963				1,665
Deferred revenue			67				455
Lease liabilities, current			762				819
Total current liabilities			19,124				18,873
Long-term liabilities:
Lease liabilities, non-current			615				744
Other liabilities, non-current			125				147
Total liabilities			19,864				19,764
Commitments and contingencies (see Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.001 par value; 200,000 authorized; 12,362 and 11,863 shares issued and outstanding as of April 3, 2022 and January 2, 2022, respectively			12				12
Additional paid-in capital			312,087				310,222
Accumulated deficit			(302,189	)			(301,025	)
Total stockholders' equity			9,910				9,209
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	29,774			$	28,973

 

 

		Three Months Ended
		April 3,				April 4,
		2022				2021
Revenue		$	4,096			$	2,240
Cost of revenue			1,635				1,096
Gross profit			2,461				1,144
Operating expenses:
Research and development			1,333				1,887
Selling, general and administrative			2,137				1,947
Total operating expenses			3,470				3,834
Loss from operations			(1,009	)			(2,690	)
Interest expense			(33	)			(32	)
Gain on forgiveness of debt			—				1,192
Interest income and other income (expense), net			(123	)			(7	)
Loss before income taxes			(1,165	)			(1,537	)
(Benefit from) provision for income taxes			(1	)			152
Net loss		$	(1,164	)		$	(1,689	)
Net loss per share:
Basic and diluted		$	(0.10	)		$	(0.15	)
Weighted average shares outstanding:
Basic and diluted			12,126				11,264

 

		Three Months Ended
		April 3,				April 4,
		2022				2021
Cash flows from operating activities:
Net loss		$	(1,164	)		$	(1,689	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			162				162
Stock-based compensation			383				368
Write-down of inventories and reclassifications			(26	)			15
Gain on forgiveness of debt			—				(1,192	)
Changes in operating assets and liabilities:
Accounts receivable			(287	)			386
Inventories			(188	)			183
Other assets			65				(304	)
Trade payables			467				518
Accrued liabilities			298				206
Deferred revenue			(388	)			114
Other long-term liabilities			(22	)			230
Net cash used in operating activities			(700	)			(1,003	)
Cash flows from investing activities:
Capital expenditures for property and equipment			(10	)			(144	)
Capitalized internal-use software			(139	)			(139	)
Net cash used in investing activities			(149	)			(283	)
Cash flows from financing activities:
Payment of finance lease obligations			(98	)			(43	)
Proceeds from line of credit			15,000				15,000
Repayment of line of credit			(15,000	)			(15,000	)
Proceeds from issuance of common stock			1,482				—
Taxes paid related to settlement of equity awards			—				(484	)
Net cash provided by (used in) financing activities			1,384				(527	)
Net (decrease) increase in cash, cash equivalents and restricted cash			535				(1,813	)
Cash, cash equivalents and restricted cash at beginning of period			19,605				22,748
Cash, cash equivalents and restricted cash at end of period		$	20,140			$	20,935

 

										Additional								Total
		Common Stock								Paid-In				Accumulated				Stockholders'
		Shares				Amount				Capital				Deficit				Equity
Balance at January 2, 2022			11,863			$	12			$	310,222			$	(301,025	)		$	9,209
Issuance of common stock under Public Stock Offering, net of stock issuance costs			310				—				1,482				—				1,482
Common stock issued under stock plans and employee stock purchase plans			189				—				—				—				—
Stock-based compensation			—				—				383				—				383
Net loss			—				—				—				(1,164	)			(1,164	)
Balance at April 3, 2022			12,362			$	12			$	312,087			$	(302,189	)		$	9,910

										Additional								Total
		Common Stock								Paid-In				Accumulated				Stockholders'
		Shares				Amount				Capital				Deficit				Equity
Balance at January 3, 2021			11,094			$	11			$	306,885			$	(294,409	)		$	12,487
Common stock issued under stock plans and employee stock purchase plans			354				—				(484	)			—				(484	)
Stock-based compensation			—				—				368				—				368
Net loss			—				—				—				(1,689	)			(1,689	)
Balance at April 4, 2021			11,448			$	11			$	306,769			$	(296,098	)		$	10,682

 

 

 

 

 

 

 

 

 

The following is a breakdown of revenue by shipment destination (in thousands): 

 

 

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On May 10, 2022 (the "Date") at the Company's Annual Meeting, a majority of shareowners approved the proposed Amendment to increase  the number of shares available for future awards under the 2019 Plan by 900,000 shares of common stock.  The approval of an additional 900,000 shares of common stock on the Date, increases the total number of available shares under the 2019 Plan to 1,422,027. The number of  shares available for future awards as of the date of the Annual Meeting are the sum of (1) 900,000, (2) the number of shares available for future awards under the plan immediately before such approval which were 522,027 shares and (3) any shares subject to outstanding awards under the 2019 Plan or the 2009 Plan, that are terminated, canceled, surrendered, or forfeited which was zero at the Date.  

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

The following Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained in “Risk Factors” in Part II, Item 1A and elsewhere in this Quarterly Report on Form 10-Q, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend that these forward-looking statements be subject to the safe harbor created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” "future," "potential," "target," "seek," "continue," "if" or other similar words.

 

The forward-looking statements contained in the Quarterly Report include statements regarding our strategies as well as (1) our revenue levels, including the commercial success of our solutions and new products, (2) the conversion of our design opportunities into revenue, (3) our liquidity, (4) our gross profit and breakeven revenue level and factors that affect gross profit and the break-even revenue level, (5) our level of operating expenses, (6) our research and development efforts, (7) our partners and suppliers, (8) industry and market trends, (9) our manufacturing and product development strategies and (10) our competitive position.

 

The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended January 2, 2022, found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 22, 2022. Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in Part II, Item 1A hereto and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that may arise after the date of this Quarterly Report on Form 10-Q.

 

Overview

 

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

 

Our new products include our EOS™, QuickAI™, SensiML Analytics Studio, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products (which together comprise our new product category). Our mature products include primarily FPGA families named pASIC®3 and QuickRAM® as well as programming hardware and design software. In addition to delivering our own semiconductor solutions, we have an IP business that licenses our eFPGA technology for use in other semiconductor companies SoCs. We began delivering our eFPGA IP product ArcticPro™ in 2017, which is included in the new product revenue category. Through the acquisition of SensiML, we now have an IoT AI software platform that includes SaaS subscriptions for development, per unit license fees when deployed in production, and proof-of-concept services – all of which are also included in the new product revenue category.  Inclusive of one pending, patent application disclosed in our fiscal 2021 annual report, at the end of  the first quarter of fiscal 2022 we had a total of five patent applications pending. 

 

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

 

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

 

 

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

 

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

 

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

 

In order to grow our revenue from its current level, we depend upon increased revenue from our new products including existing new product platforms, eFPGA IP and platforms currently in development. We expect our business growth to be driven mainly by our silicon solutions, eFPGA IP and SensiML AI Software. Therefore, our revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our new solution platforms, IP and software. We are expecting revenue growth from EOS S3, SensiML AI SaaS, and eFPGA IP licensing in fiscal year 2022.

 

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

 

During the first quarter of 2022, we generated total revenue of $4.1 million, which represents an increase of 11% compared to the prior quarter and an increase of 83% compared to the same quarter last year. Our new product revenue in the first quarter of 2022 was $3.5 million, an increase of 29% from the prior quarter and an increase of 221% from the first quarter of 2021. Our mature product revenue was $0.6 million in the first quarter of 2022, which was a decrease of 38% compared to the prior quarter and a decrease of 45% compared to the first quarter of 2021. We expect our mature product revenue to continue to fluctuate over time.

 

We devote substantially all of our development, sales and marketing efforts to our new sensor processing solutions using our EOS^TM S3 platforms, derivative products based on software-driven features, development of additional new products and solution platforms, our new eFPGA IP licensing and QuickAI initiatives. Overall, we reported a net loss of $1.2 million for the first quarter of 2022, a decrease of 26% compared with the prior quarter and a decrease of 31% compared with the first quarter of 2021. 

 

We have experienced net losses in the recent years and expect losses to continue through at least fiscal year 2022 as we continue to develop new products, applications and technologies. Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved in addition to the proceeds we received from our recent sale of our equity securities, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations, and such additional funding may not be available on commercially reasonable terms, or at all.

 

There have been no material changes due to the impact of the Covid-19 pandemic on our business from that disclosed in our most recently filed Annual Report. Our most recent Annual Report on Form 10-K for the year ended January 2, 2022 as filed with the SEC on March 22, 2022 provides additional information about our business and operations.

 

 

 

Critical Accounting Policies and Estimates

 

The methodologies, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our unaudited condensed consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical policies include revenue recognition, and determination of the Stand-Alone Selling Price ("SSP") for certain distinct performance obligations (such as for IP licensing and professional services contracts), goodwill and intangible assets, valuation of inventories including identification of excess quantities and product obsolescence, allowance for doubtful accounts, valuation of long-lived assets, leases, measurement of stock-based compensation, and accounting for income taxes. We believe that we apply judgments and estimates in a consistent manner and that this consistent application results in our consolidated financial statements and accompanying notes that fairly represent all periods presented. However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three months ended April 3, 2022, there were no changes in our critical accounting policies from our disclosure in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, filed with the SEC on March 22, 2022.

 

Results of Operations

 

The following table sets forth the percentage of revenue for certain items in our unaudited condensed consolidated statements of operations for the periods indicated:

 

		Three Months Ended
		April 3, 2022				April 4, 2021
Revenue			100	%			100	%
Cost of revenue			40	%			49	%
Gross profit			60	%			51	%
Operating expenses:
Research and development			33	%			84	%
Selling, general and administrative			52	%			87	%
Loss from operations			(25	)%			(120	)%
Interest expense			—	%			(2	)%
Gain on forgiveness of debt			—	%			53	%
Interest income and other income (expense), net			(3	)%			—	%
Loss before income taxes			(28	)%			(69	)%
(Benefit from) provision for income taxes			—	%			6	%
Net loss			(28	)%			(75	)%

 

Three Months Ended April 3, 2022 Compared to Three Months Ended April 4, 2021

 

Revenue

 

The table below sets forth the changes in revenue for the three months ended April 3, 2022, as compared to the three months ended April 4, 2021 (in thousands, except percentage data): 

 

		Three Months Ended
		April 3, 2022								April 4, 2021								Change
						% of Total								% of Total
		Amount				Revenues				Amount				Revenues				Amount				Percentage
New products		$	3,450				84	%		$	1,075				48	%		$	2,375				221	%
Mature products			646				16	%			1,165				52	%			(519	)			(45	)%
Total revenue		$	4,096				100	%		$	2,240				100	%		$	1,856				83	%

 

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Note: For all periods presented, New products include all products and related revenues manufactured on 180 nanometer or smaller semiconductor processes, eFPGA IP license, professional services, QuickAI and SensiML AI software as a service (SaaS) revenues. Mature products include all products produced on semiconductor processes larger than 180 nanometer.

 

Product revenue for the first quarter of 2022 compared to the first quarter of 2021 increased by $1.9 million. New product revenue increased $2.4 million primarily due to $1.6 millionincrease in professional engineering services revenue related to eFPGA IP and a $0.8 million increase in smart connectivity and display product revenue. Mature product revenue decreased 45% compared to the first quarter of 2021. The decrease in mature product revenue was primarilydue toa reduction in QPCID, other products, and royalty revenue, partially offset by a increases in PASIC 3 and QuickRAM.

 

 

 

Gross Profit

 

The table below sets forth the changes in gross profit for the three months ended April 3, 2022 as compared to the three months ended April 4, 2021 (in thousands, except percentage data):

 

		Three Months Ended
		April 3, 2022								April 4, 2021								Change
						% of Total								% of Total
		Amount				Revenues				Amount				Revenues				Amount				Percentage
Revenue		$	4,096				100	%		$	2,240				100	%		$	1,856				83	%
Cost of revenue			1,635				40	%			1,096				49	%			539				49	%
Gross profit		$	2,461				60	%		$	1,144				51	%		$	1,317				115	%

 

In the first quarter of 2022, gross profit increased $1.3 million or 115% as compared to the same quarter in the prior year. This was primarily due to an increase in revenue of 83%, which was comprised of $2.4 million in new product revenue, of which $1.6 million was related to higher margin eFPGA IP professional engineering services, and $0.8 million related to smart connectivity and display product revenue. The increase in gross profit from new product revenue was partially offset by a $0.5 million decrease in mature product revenue.

 

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

 

Operating Expenses

 

The table below sets forth the changes in operating expenses for the three months ended April 3, 2022, as compared to the three months ended April 4, 2021 (in thousands, except percentage data):

 

		Three Months Ended
		April 3, 2022								April 4, 2021								Change
						% of Total								% of Total
		Amount				Revenues				Amount				Revenues				Amount				Percentage
R&D expense		$	1,333				33	%		$	1,887				84	%		$	(554	)			(29	)%
SG&A expense			2,137				52	%			1,947				87	%			190				10	%
Total operating expenses		$	3,470				85	%		$	3,834				171	%		$	(364	)			(9	)%

 

Research and Development

 

Our R&D expenses consist primarily of personnel, overhead and other costs associated with System on Chip (SoC) and software development, programmable logic design, AI and eFPGA development. The $0.6 million decrease in R&D expenses in the first quarter of 2022, as compared to the first quarter of 2021, was primarily attributable to a decrease in allocable expense, consulting costs, and stock-based compensation, partially offset by increases in salary and related expenses.

 

Selling, General and Administrative

 

Our selling, general and administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management. The $0.2 million increase in SG&A expenses in the first quarter of 2022, as compared to the first quarter of 2021 was primarily due to an increase in stock-based compensation, accounting costs, and other outside service expenses, partially offset by a reduction in consulting costs.

 

 

 

Interest Expense and Interest Income and Other Income (Expense), Net

 

The table below sets forth the changes in interest expense and interest income and other income (expense), net, for the three months ended April 3, 2022 as compared to the three months ended April 4, 2021 (in thousands, except percentage data):

 

		Three Months Ended								Change
		April 3,				April 4,
		2022				2021				Amount				Percentage
Interest expense		$	(33	)		$	(32	)		$	(1	)			3	%
Gain on forgiveness of debt			—				1,192				(1,192	)			(100	)%
Interest income and other income (expense), net			(123	)			(7	)			(116	)			1657	%
Total interest income and other income (expense), net		$	(156	)		$	1,153			$	(1,309	)			(114	)%

 

Interest expense relates primarily to our revolving line of credit facility. Interest income and other income (expense), net, relates to the interest earned on our money market accounts and foreign exchange gain or losses recorded. Changes in interest expense related for our revolving loan relate to the variability and timing of our outstanding loan balance. Interest expense for the first quarter of this year as compared to the same period in the prior year remained fairly flat. The gain on forgiveness of debt relates to the gain related to the forgiveness of the PPP loan of $1.2 million for the three months ended April 4, 2021. For the three months ended April 3, 2022 interest income and other income (expense), net, was an expense of approximately $0.1 million as compared to $7 thousand for the three months ended April 4, 2021 and, reflecting an increase in net foreign exchange losses and other expenses.

 

(Benefit from) provision for Income Taxes

 

The table below sets forth the changes in the provisions for income tax for the three months ended April 3, 2022 as compared to the three months ended April 4, 2021 (in thousands, except percentage data):

		Three Months Ended								Change
		April 3,				April 4,
		2022				2021				Amount				Percentage
(Benefit from) provision for income taxes		$	(1	)		$	152			$	(153	)			(101	)%

 

The income tax benefit for the first quarter ended April 3, 2022 relates primarily to tax benefits from foreign income tax returns related to the Company's foreign subsidiaries, which are cost-plus entities, partially offset by state minimum income taxes. The majority of income tax expense for the quarter ended April 4, 2021 relates to taxes from our foreign subsidiaries.

 

We are subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which we operate. The U.S. tax years from 1999 forward remain effectively open to examination due to the carryover of unused net operating losses and tax credits. 

 

 

 

Liquidity and Capital Resources 

 

We have financed our operations and capital investments through sales of common stock, finance and operating leases, a revolving line of credit and cash flows used in operations. In addition to the Company's cash, cash equivalents and restricted cash of $20.1 million as of April 3, 2022, other sources of liquidity included a $15.0 million drawn down from our revolving line of credit ("Revolving Facility") with Heritage Bank of Commerce (“Heritage Bank”), and $1.5 million in net proceeds from the Company's sale of common stock in February 2022.

 

On February 9, 2022, the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 310,000 shares of common stock, par value $0.001 in a registered direct offering. These share placements resulted in net cash proceeds of approximately $1.5 million. Issuance costs related to this offering were negligible. The purchase price for each share of common stock in this placement was $4.78. The Company currently intends to use the net proceeds from the financing for working capital, the development of next generation eFPGA-based products, including AI and open-source hardware or software, and general corporate purposes

 

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of April 3, 2022. As of April 3, 2022, we had $15.0 million of outstanding Revolving Facility with an interest rate of 4.00%.

 

We currently use our cash to fund our working capital to accelerate the development of next generation products and for general corporate purposes. Based on past performance and current expectations, we believe that its existing cash and cash equivalents, together with available financial resources from the Revolving Facility with Heritage Bank, will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next twelve months.

 

Various factors affect the Company’s liquidity, including, among others: the level of revenue and gross profit as a result of the cyclicality of the semiconductor industry; the conversion of design opportunities into revenue; market acceptance of existing and new products including solutions based on its eFPGA IP, ArcticLink® and PolarPro® platforms, eFPGA, EOS S3 SoC, Quick AI solution, and SensiML software; fluctuations in revenue as a result of product end-of-life; fluctuations in revenue as a result of the stage in the product life cycle of its customers’ products; costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchase commitments; customer credit terms; the amount and timing of research and development expenditures; the timing of new product introductions; production volumes; product quality; sales and marketing efforts; the value and liquidity of its investment portfolio; changes in operating assets and liabilities; the ability to obtain or renew debt financing and to remain in compliance with the terms of existing credit facilities; the ability to raise funds from the sale of equity in the Company; the issuance and exercise of stock options and participation in the Company’s employee stock purchase plan; and other factors related to the uncertainties of the industry and global economics.

 

Over the longer term, the Company anticipates that sales generated from its new product offerings, existing cash and cash equivalents, together with financial resources from its Revolving Facility with Heritage Bank, assuming renewal of the Revolving Facility or the Company entering into a new debt agreement with an alternative lender prior to the expiration of the revolving line of credit in December 2023, and its ability to raise additional capital in the public capital markets will be sufficient to satisfy its operations and capital expenditures. However, the Company cannot provide any assurance that it will be able to raise additional capital, if required, or that such capital will be available on terms acceptable to the Company. The inability of the Company to generate sufficient sales from its new product offerings and/or raise additional capital if needed could have a material adverse effect on the Company’s operations and financial condition, including its ability to maintain compliance with its lender’s financial covenants.

 

As of April 3, 2022, most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank. As of April 3, 2022, our interest-bearing debt consisted of $0.6 million outstanding under finance leases and $15.0 million outstanding under our Revolving Facility. See Note 5, Debt Obligations, to the unaudited condensed consolidated financial statements for more details.

 

Cash balances held at our foreign subsidiaries was approximately $0.4 million as of April 3, 2022 and January 2, 2022. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested. We do not expect such reinvestment to affect our liquidity and capital resources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy. Factors that affect our global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax-efficient manner, funding requirements for operations and investment activities, acquisitions and divestitures and capital market conditions.

 

 

 

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

		Three Months Ended
		April 3,				April 4,
		2022				2021
Net cash used in operating activities		$	(700	)		$	(1,003	)
Net cash used in investing activities			(149	)			(283	)
Net cash provided by (used in) financing activities			1,384				(527	)

 

Net cash used in operating activities

 

For the three months ended April 3, 2022, net cash used in operating activities was $0.7 million, which was primarily comprised of the net loss of $1.2 million, adjusted for net non-cash charges of $0.5 million comprised of $0.4 million of stock-based compensation, $0.2 million of depreciation and amortization expenses, partially offset by non-cash inventory reclassifications of $26 thousand and outflows from changes in operating assets and liabilities. The outflows from changes in operating assets and liabilities were approximately $0.1 million due increases in accounts receivable related to higher revenue, partially offset by an increase in accrued liabilities and trade payables, and a decrease in deferred revenue.

 

For the three months ended April 4, 2021, net cash used in operating activities was $1.0 million, which was primarily due to the net loss of $1.7 million, adjusted for non-cash charges of $0.6 million including the gain recognized from the forgiveness of the PPP loan of $1.2 million. Other non-cash charges consisted primarily of $0.4 million of stock-based compensation and depreciation and amortization expenses of $0.2 million. Cash inflows from changes in operating assets and liabilities were $1.3 million, primarily due to a decrease in trade receivables from our collection efforts and an increase in accrued liabilities subject to the variability of the timing of payments, partially offset by an increase in other assets.

 

Net cash used in investing activities

 

Cash used in investing activities was $0.1 million and 0.3 million for the three months ended April 3, 2022 and April 4, 2021, respectively. Cash used in investing activities was primarily attributable to the capitalized internal-use software and capital expenditure relating to computer equipment.

 

Net cash provided by (used in) financing activities

 

For the three months ended April 3, 2022, cash provided by financing activities was $1.4 million, which was primarily derived from the proceeds from the sale of common stock, offset by payments of finance lease obligations.

 

For the three months ended April 4, 2021 cash used in financing activities was $0.5 million, which was primarily attributable to taxes paid relating to stock-based compensation equity awards.

 

Off-Balance Sheet Arrangements

 

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

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Based on management's evaluation as of April 3, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, to allow timely decisions regarding required disclosure.

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors 

 

There have been no material changes to the risk factors set forth in our 2021 Annual Report on Form 10-K for the year ended January 2, 2022, filed with the SEC on March 22, 2022, which includes a detailed discussion of our risk factors at Part I, Item 1A, Risk Factors, which discussion is hereby incorporated by reference into this Part II, Item 1A.

 

 

Item 3. Defaults Upon Senior Securities

 

None.
 

 

 

 

 

Item 6. Exhibits

 

a.     Exhibits 

 

The following Exhibits are filed or incorporated by reference into this report:

 

Exhibit Number		Description
10.1		Fifth Amendment to Amended and Restated Loan and Security Agreement, dated April 4, 2022, between the Company and Heritage Bank.
31.1		Certification of Brian C. Faith, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Elias Nadar, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Brian C. Faith, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Elias Nader, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		The cover page from the Company’s quarterly report on Form 10-Q for the quarter ended April 3, 2022, has been formatted in Inline XBRL and contained in exhibit 101.

 

 

 

 

 

 

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		QUICKLOGIC CORPORATION
		/s/ Elias Nader
Date:	May 18, 2022	Elias Nader
		Chief Financial Officer and Senior Vice-President, Finance (as Principal Financial Officer and on behalf of the Registrant)