What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-16 compared with 2023-05-17 · 118 added, 66 removed, 197 unchanged (48% of the section changed)

56 unchanged sentences

all of which are also included in the new product revenue category.

We currently have a total of five patent applications pending. 

We currently have a total of six patent applications pending. 

Our semiconductor solutions typically fall into one of four categories:

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The licensable IP is generated by an automated compiler tool, called Australis TM , that enables our engineers to create an eFPGA IP for our licensees that they can then integrate into their SoC without significant involvement by QuickLogic.

We believe this flow enables a scalable development and support model for QuickLogic.

We believe this flow enables a scalable development and support model for QuickLogic.

For our eFPGA strategy, we typically work with semiconductor manufacturing partners prior to this IP being licensed to a SoC company.

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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 2023, we generated total revenue of 

$4.1 million , an increase  of 

During the second quarter of 2023, we generated total revenue of 

$2.9 million , a decrease  of 

29%  compared to the prior quarter, and 

an increase  of 

1%  compared to the same quarter last year. Our new product revenue in the first quarter was 

a decrease  of 

36%  compared to the same quarter last year. Our new product revenue in the second quarter was 

$2.2 million , 

an increase  of 

a decrease  of 

27%  from the prior quarter and 

a decrease  of 

11%  from the first quarter of 

decrease  in new product revenue was primarily driven by a $1.7 million reduction in hardware product revenue, partially offset by an increase of $1.2 million in eFPGA IP revenue.

Our mature product revenue was $1.1 million  in the first quarter of 

29%  from the second quarter of 

decrease  in new product revenue from the prior quarter was primarily driven by a $953 thousand reduction in eFPGA IP revenue, partially offset by an increase of $204 thousand in hardware product revenue.

Our mature product revenue was $0.7 million  in the second quarter of 

2023 , a decrease  of 

13%  compared to the prior quarter, and an increase  of 

67%  compared to the first quarter of 2022 .

36%  compared to the prior quarter, and a decrease  of 

51%  compared to the second quarter of 2022 .

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 eFPGA  IP l icensin g and SensiML initiatives.

Overall, we reported a net loss of $1.2 million  for the first quarter of 2023 , 

a decrease of 

Overall, we reported a net loss of $2.3 million  for the second quarter of 2023 , 

an increase of 

85%  compared with the prior quarter, and 

an increase  of 

5%  compared with the first quarter of 2022 .

333%  compared with the second quarter of 2022 .

We have experienced net losses in recent years and expect losses to continue through at least fiscal year  2023 as we continue to develop new products, applications, and technologies.

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Our most recent Annual Report on Form 10-K for the year ended January 1, 2023 as filed with the SEC on March 28, 2023, provides additional information about our business and operations.

As of April 2, 2023, there have not been any material developments concerning the Cyber-Incident previously reported on our Form 10-K for the year ended January 1, 2023, which was filed with the Securities and Exchange Commission ("SEC") on March 28, 2023.

The Company's investigation and assessment of the incident's impact is ongoing.

As of July 2, 2023, there have not been any material developments concerning the Cyber-Incident previously reported on our Form 10-K for the year ended January 1, 2023, which was filed with the Securities and Exchange Commission ("SEC") on March 28, 2023.

The Company's investigation is complete and there was no impact on the Company's financial systems.

The Company believes the incident has not had nor will have a material impact on its business operations, ability to serve its customers, or financial results.

See Note 1, The Company and Basis of Presentation.

As of July 2, 2023, the Company had one operating lease with a remaining lease term of 0.75 years.

The operating lease relates to the Company's headquarters in San Jose, CA.

The Company fully intends to renew its lease upon its expiration in Q1'24 and continue at its current location.

Critical Accounting Policies and Estimates

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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 2, 2023, 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 1, 2023, filed with the SEC on March 28, 2023.

However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three and six months ended July 2, 2023, 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 1, 2023, filed with the SEC on March 28, 2023.

Results of Operations

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Three Months Ended

April 2, 2023

April 3, 2022

Six Months Ended

Cost of revenue

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Provision for (benefit from) income tax

Three Months Ended April 2, 2023 Compared to Three Months Ended April 3, 2022

The table below sets forth the changes in revenue in the three months ended April 2, 2023 compared to the three months ended April 3, 2022 (in thousands, except percentage data):

Three Months Ended July 2, 2023 Compared to Three Months Ended July 3, 2022

The table below sets forth the changes in revenue in the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Three Months Ended

April 2, 2023

April 3, 2022

Mature products

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Mature products include all products produced on semiconductor processes larger than 180 nanometer.

Product revenue for the first quarter of 2023 compared to the first quarter of 2022 increased $37 thousand.

The increase resulted primarily from increases in eFPGA professional services offset by decreases in revenue from devices.

Product revenue for the second quarter of 2023 compared to the second quarter of 2022 decreased $1.6 million.

The decrease resulted primarily from decreases in revenue from devices, partially offset by an increase in professional services eFPGA revenues.

New Product Revenue

The table below sets forth the changes in new product revenue in the three months ended April 2, 2023 compared to the three months ended April 3, 2022 (in thousands, except percentage data):  

The table below sets forth the changes in new product revenue in the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):  

Three Months Ended

April 2, 2023

April 3, 2022

Hardware products

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Total new product revenue

eFPGA revenue for the three months ended April 2, 2023 was $2.8 million which was comprised of approximately $2.6 professional services revenue and $0.2 million in eFPGA intellectual property license revenue.

eFPGA revenue for the three months ended April 3, 2022 was $1.6 million which was primarily professional services revenue.

Contract assets related to professional services were $2.3 million and $2.0 million at April 2, 2023 and April 3, 2022, respectively.

Contract liabilities related to professional services revenue were $0.3 million for both the three months ended April 2, 2023 and April 3, 2022, respectively.

The table below sets forth the changes in gross profit for the three months ended April 2, 2023 compared to the three months ended April 3, 2022 (in thousands, except percentage data):

eFPGA revenue for the three months ended July 2, 2023 was $1.9 million which was primarily comprised of professional services revenue.

eFPGA revenue for the three months ended July 3, 2022 was $1.6 million which was also primarily comprised of professional services revenue.

The table below sets forth the changes in gross profit for the three months ended July 2, 2023 compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Three Months Ended

April 2, 2023

April 3, 2022

Cost of revenue

In the first quarter of 2023 , gross profit , 

decreased  

$71 thousand , or 3% , as compared to the same quarter in the prior year.

In the second quarter of 2023 , gross profit decreased  

$1.3 million , or 53% , compared to the same quarter in the prior year.

The decrease in gross profit reflects a 36%  

increase in cost of revenue.

The $0.1 million increase in cost of revenues was due to the increase in eFPGA IP costs primarily attributable to higher tooling costs on revenue projects, and the decrease in hardware product costs reflected the reduction in volume of products sold, partially offset by higher outside cost and material price variances.

decrease in revenues offset by a 14% net decrease in cost of revenue.

While there was a decrease in product costs resulting from lower devices volumes, it was slightly offset by an increase in eFPGA IP costs, which were primarily attributable to higher tooling and software costs on revenue projects.

Our semiconductor products have historically had long product life cycles and obsolescence has not been a significant factor in the valuation of inventories.

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Operating Expenses

The table below sets forth the changes in operating expenses for the three months ended April 2, 2023, compared to the three months ended April 3, 2022 (in thousands, except percentage data):

The table below sets forth the changes in operating expenses for the three months ended July 2, 2023, compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Three Months Ended

April 2, 2023

April 3, 2022

Total operating expenses

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The $0.3 million  

increase  in R&D expenses in the first quarter of 2023 , as compared to the first quarter of 2022 , was primarily attributable to decreased R&D costs allocated to Cost of Goods Sold related to eFPGA professional services revenue and increases in stock-based compensation and related salary expenses in addition to increased software costs, partially offset by a decrease in consulting and web services.

increase  in R&D expenses in the second quarter of 2023 , as compared to the second quarter of 2022 , was primarily attributable to decreased R&D costs allocated to Cost of Goods Sold related to eFPGA professional services revenue and increases in compensation, inclusive of salary costs, partially offset by a decrease in subcontracting costs.

Selling, General and Administrative

Our selling, general an d administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. The $0.3 milliondecrease in SG&A expenses in the first quarter of 2023 , as compared to the first quarter of 2022 was primarily attributable to decreases in consulting costs, salary expenses, and in accounting and audit expenses.

These were partially offset by increases in stock-based compensation, insurance costs, and sales commissions.

Our selling, general an d administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. The $0.1 milliondecrease in SG&A expenses in the second quarter of 2023 , as compared to the second quarter of 2022 was primarily attributable to decreases in consulting costs and in accounting and audit expenses.

These were partially offset by increases in compensation costs inclusive of salaries and contract work.

Interest Expense, 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 2, 2023, compared to the three months ended April 3, 2022 (in thousands, except percentage data):

The table below sets forth the changes in interest expense and interest income and other income (expense), net, for the three months ended July 2, 2023, compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Three Months Ended

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Interest expense relates primarily to our revolving line of credit facility and finance leases liabilities.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned in our money market accounts. Changes in interest expense is related to our revolving loan's interest rate variability and the 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 increased approximately $25 thousand which was comprised of a $17 thousand increase related to software lease, and $8 thousand increase in 

interest expense related to our revolving line of credit facility.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the second quarter of this year as compared to the same period in the prior year increased approximately $28 thousand which was comprised of a $11 thousand increase in interest expense related to software leases, a $15 thousand increase in interest expense related to our revolving line of credit facility, and a $2 thousand increase in interest expense related to IT hardware financing costs.

The change in interest income and other income (expense), net reflected decreased foreign exchange losses over the prior period.

Provision for (Benefit From) Income Taxes

The table below sets forth the changes in the provisions for income taxes in the three months ended April 2, 2023, compared to the three months ended April 3, 2022 (in thousands, except percentage data):

The table below sets forth the changes in the provisions for income taxes in the three months ended July 2, 2023, compared to the three months ended July 3, 2022 (in thousands, except percentage data):

Three Months Ended

Provision for (benefit from) income tax

The majority of the income tax expenses for the three months ended April 2, 2023 and April 3, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

The majority of the income tax expense (benefit) for the three months ended July 2, 2023 and July 3, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

Six Months Ended July 2, 2023 Compared to Six Months Ended July 3, 2022

The table below sets forth the changes in revenue in the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Mature products

Total revenue

For all periods presented, new products include hardware products and related revenues manufactured on 180 nanometer or smaller semiconductor processes, intellectual property license, professional services, QuickAI and SensiML AI software as a service (SaaS) revenue.

Mature products include all products produced on semiconductor processes larger than 180 nanometer.

Product revenue for the six months ending July 2, 2023 compared to the six months ending July 3, 2022 decreased $1.6 million.

The decrease resulted primarily from decreases in revenue from devices, partially offset by eFPGA revenues.

New Product Revenue

The table below sets forth the changes in new product revenue in the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (in thousands, except percentage data):  

Six Months Ended

Hardware products

eFPGA IP and professional services

Total new product revenue

eFPGA revenue for the six months ended July 2, 2023 was $4.7 million which was comprised of approximately $4.5 million in professional services revenue and $0.2 million in eFPGA intellectual property license revenue.

eFPGA revenue for the six months ended July 3, 2022 was $3.2 million, which was primarily professional services revenue.

The table below sets forth the changes in gross profit for the six months ended July 2, 2023 compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Cost of revenue

In the six months ending July 2, 2023 , gross profit decreased  

$1.4 million , or 28% , as compared to the same period in the prior year.

The decrease in gross profit reflects an 18% decrease in revenues.

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 six months ended July 2, 2023, compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Total operating expenses

Research and Development

Our R&D expense s consist primarily of personnel, overhead and other costs associated with SoC and software development, programmable logic design, AI and eFPGA development.

The $0.6 million  

increase  in R&D expenses in the six months ending July 2, 2023 , as compared to the same period in the prior year , was primarily attributable to decreased R&D costs allocated to Cost of Goods Sold related to eFPGA professional services revenue, in addition to increases in compensation, inclusive of salary expenses, and software costs, partially offset by a decrease in contracting costs.

Selling, General and Administrative

Our selling, general an d administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. The $0.3 milliondecrease in SG&A expenses in the six months ending July 2, 2023 , as compared to the same period in the prior year , was primarily attributable to decreases in consulting costs and in accounting and audit expenses.

These were partially offset by increases in compensation and insurance costs.

Interest Expense, 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 six months ended July 2, 2023, compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Interest expense

Interest income and other expense, net

Total interest (expense), interest income and other income (expense), net

Interest expense relates primarily to our revolving line of credit facility and finance lease liabilities.

Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned in our money market accounts. Changes in interest expense are related to our revolving loan's interest rate variability. Interest expense for the six months ending July 2, 2023 , as compared to the same period in the prior year , increased approximately $53 thousand, which was comprised of a $26 thousand increase in interest expense related to software leases, a $26 thousand increase in interest expense related to our revolving line of credit facility, and a $5 thousand increase in interest expense related to IT hardware financing costs.

This was partially offset by a $3 thousand decrease in the annual facility fee associated with the revolving line of credit.

The change in interest income and other income (expense), net reflected increased foreign exchange losses over the prior period.

Provision for (Benefit From) Income Taxes

The table below sets forth the changes in the provisions for income taxes in the six months ended July 2, 2023, compared to the six months ended July 3, 2022 (in thousands, except percentage data):

Six Months Ended

Provision for income taxes

The majority of the income tax expenses for the six months ended July 3, 2022 are related to our foreign subsidiaries, which are cost-plus entities.

Liquidity and Capital Resources 

We have financed our operations and capital investments through public and private offerings of our common stock, finance and operating leases, and borrowings under a revolving line of credit and cash flows used in operations, partially offset by cash used in operations.

In addition to the Company's cash, cash equivalents and restricted cash of $20.9 million, as of April 2, 2023, 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 $2.3 million in net proceeds from the Company's sale of common stock on March 21, 2023.

In addition to the Company's cash, cash equivalents and restricted cash of $20.6 million, as of July 2, 2023, 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 $2.3 million in net proceeds from the Company's sale of common stock on March 21, 2023.

Costs related to the offering were immaterial.

The Company's restricted cash balance as of July 2, 2023 was $0.1 million and relates to amounts pledged as cash security for the use of credit cards.

On April 28, 2023, the Company converted accounts receivable for a customer in the amount of approximately $1.16 million to notes receivable (the "Note").

At the time, the Note bore an interest rate of 3.0% compounded monthly.

On June 28, 2023, the Company cancelled the original note and entered into a revised promissory note with the customer, where the interest rate changed to 4.69% compounded monthly, or a 4.8% effective annual interest rate, accruing from the date of the prior note.

If not prepaid prior to the Note maturity date of June 28, 2024, the principal and all accrued and unpaid interest will be due and payable to the Company.

If an event of default occurs, the interest rate will increase to 10.0%.

All other terms of the note remained the same.

On September 14, 2022 and February 9, 2022, the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 487,279 and 310,000 shares of common stock, respectively, par value $0.001, in registered direct offerings, resulting in net cash proceeds of approximately $3.2 million and $1.5 million, respectively.

Issuance costs related to September 14, 2022 and the February 9, 2022 offering were immaterial.

Issuance costs related to the September 14, 2022 and the February 9, 2022 offerings were immaterial.

The purchase price for each share of common stock in the September 14, 2022 and in the February 9, 2022 placements were $6.57 and $4.78, respectively. 

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of April 2, 2023.

As of April 2, 2023, we had $15.0 million outstanding on the Revolving Facility with an interest rate of 8.5%.

We were in compliance with all the Heritage Bank Revolving Facility loan covenants as of July 2, 2023.

As of July 2, 2023, we had $15.0 million outstanding on the Revolving Facility with an interest rate of 8.75%.

We currently use our cash to fund our working capital to accelerate the development of next generation products and for general corporate purposes.

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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 2, 2023 , most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

April 2, 2023 , our interest-bearing debt consisted of $1.2 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 subsidiarie s were approximately $0.2 million and $0.2 million  as of April 2, 2023 and January 1, 2023, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

As of July 2, 2023 , most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank.

July 2, 2023 , our interest-bearing debt consisted of $1 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 subsidiarie s were approximately $0.15 million and $0.2 million  as of July 2, 2023 and January 1, 2023, respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested.

We do not expect such reinvestment to affect our liquidity and capital resources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy.

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

Three Months Ended

Six Months Ended

Net cash used in operating activities

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Net cash used in operating activities

For the three months ended April 2, 2023, net cash used in  operating acti vities was $0.3 million, whic h was primarily due to the net loss of $1.2 million, adjus ted for net non-cash charges of $1.1 million, which included $0.7 million of stock-based compensation, and $0.2 depreciation and amortization expenses.

Cash inflow from changes in operating assets and liabilities were approximately $65 thousand and were primarily due to a decrease in accounts receivable, increases in accrued liabilities and lease liabilities, partially offset by an increase in contract assets, increase in prepaid expenses and other current assets and decrease in trade payables.

For the six months ended July 2, 2023, net cash used in  operating acti vities was $0.2 million, whic h was primarily due to the net loss of $3.5 million, adjus ted for net non-cash charges of $1.9 million, which included $1.3 million of stock-based compensation, and $0.4 million in depreciation and amortization expenses.

Cash inflow from changes in operating assets and liabilities was approximately $1.3 million and was primarily due to a decrease in accounts receivable, increases in accrued liabilities and lease liabilities, and decreases in contract assets.

This was partially offset by an increase in prepaid expenses and other current assets and a decrease in trade payables.

Net cash used in investing activities

For the three months ended April 2, 2023, and April 3, 2022 cash used in  investing activities was 

For the six months ended July 2, 2023, and July 3, 2022 cash used in  investing activities was 

$0.5 million , which was primarily attributable to the capitalized internal-use software and capital expenditures relating to licensed software and computer equipment.

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 For the quarter ended 2023 and 2022, these draw-downs and repayments netted to zero.

For the three months ended April 2, 2023, 

For the six months ended July 2, 2023, 

provided by  financing activities was 

$2.2 million , which was primarily derived from the net proceeds of $2.3 million from the stock issuances, partially offset by finance lease obligation payments. We continue to use and repay our revolving line of credit as our cash needs requi re.

For the three months ended April 3, 2022, cash 

$2.1 million , which was primarily derived from the net proceeds of $2.3 million from the stock issuance, partially offset by finance lease obligation payments. We continue to use and repay our revolving line of credit as our cash needs requi re.

For the six months ended July 3, 2022, cash 

provided by financing activities was 

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis