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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the Quarterly Period Ended June 28, 2020

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

 

QUICKLOGIC CORPORATION

(Exact name of registrant as specified in its charter)

 

 

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 July 31, 2020, there were 11,055,490 shares of registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 

 


QUICKLOGIC CORPORATION

FORM 10-Q

JUNE 28, 2020

 

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

 

23

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

Item 4.

Controls and Procedures

 

34

 

 

 

 

Part II - Other Information

 

36

 

 

 

 

Item 1.

Legal Proceedings

 

36

 

 

 

 

Item 1A.

Risk Factors

 

36

 

 

 

 

Item 6.

Exhibits

 

37

 

 

 

 

Signatures

 

 

38

 

 

 

 


PART I. Financial Information

Item 1. Financial Statements

QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amount)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

26,398

 

 

$

21,548

 

Accounts receivable, net of allowances for doubtful accounts of $0

 

 

1,124

 

 

 

1,991

 

Inventories

 

 

3,052

 

 

 

3,260

 

Other current assets

 

 

1,162

 

 

 

1,565

 

Total current assets

 

 

31,736

 

 

 

28,364

 

Property and equipment, net

 

 

591

 

 

 

830

 

Capitalized internal-use software, net

 

 

672

 

 

 

333

 

Right of use assets

 

 

2,212

 

 

 

2,370

 

Intangible assets

 

 

934

 

 

 

1,008

 

Goodwill

 

 

185

 

 

 

185

 

Other assets

 

 

291

 

 

 

314

 

TOTAL ASSETS

 

$

36,621

 

 

$

33,404

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

15,000

 

 

$

15,000

 

Trade payables

 

 

1,644

 

 

 

1,003

 

Accrued liabilities

 

 

890

 

 

 

1,133

 

Paycheck protection program loan

 

 

461

 

 

 

 

Deferred revenue

 

 

56

 

 

 

158

 

Lease liabilities-current

 

 

752

 

 

 

704

 

Total current liabilities

 

 

18,803

 

 

 

17,998

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Paycheck protection program loan, less current portion

 

 

730

 

 

 

 

Lease liabilities-non-current

 

 

1,466

 

 

 

1,583

 

Total liabilities

 

 

20,999

 

 

 

19,581

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

 

 

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; 10,912 and 8,331

   shares issued and outstanding as of June 28, 2020 and December 29, 2019, respectively

 

 

11

 

 

 

8

 

Additional paid-in capital

 

 

305,013

 

 

 

297,073

 

Accumulated deficit

 

 

(289,402

)

 

 

(283,258

)

Total stockholders' equity

 

 

15,622

 

 

 

13,823

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

36,621

 

 

$

33,404

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3


QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 28, 2020

 

 

June 30, 2019

 

 

June 28, 2020

 

 

June 30, 2019

 

Revenue

 

$

2,196

 

 

$

2,087

 

 

$

4,354

 

 

$

5,281

 

Cost of revenue

 

 

1,192

 

 

 

1,065

 

 

 

2,235

 

 

 

2,280

 

Gross profit

 

 

1,004

 

 

 

1,022

 

 

 

2,119

 

 

 

3,001

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,200

 

 

 

3,215

 

 

 

4,019

 

 

 

6,457

 

Selling, general and administrative

 

 

1,665

 

 

 

2,340

 

 

 

3,544

 

 

 

4,786

 

Restructuring costs

 

 

34

 

 

 

 

 

 

513

 

 

 

 

Total operating expenses

 

 

3,899

 

 

 

5,555

 

 

 

8,076

 

 

 

11,243

 

Loss from operations

 

 

(2,895

)

 

 

(4,533

)

 

 

(5,957

)

 

 

(8,242

)

Interest expense

 

 

(183

)

 

 

(124

)

 

 

(263

)

 

 

(207

)

Interest income and other expense, net

 

 

72

 

 

 

50

 

 

 

67

 

 

 

98

 

Loss before income taxes

 

 

(3,006

)

 

 

(4,607

)

 

 

(6,153

)

 

 

(8,351

)

(Benefit from) provision for income taxes

 

 

(27

)

 

 

27

 

 

 

(9

)

 

 

(241

)

Net loss

 

$

(2,979

)

 

$

(4,634

)

 

$

(6,144

)

 

$

(8,110

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

$

(0.35

)

 

$

(0.65

)

 

$

(0.73

)

 

$

(1.16

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

 

8,560

 

 

 

7,088

 

 

 

8,461

 

 

 

7,002

 

 

Note: Net loss equals to comprehensive loss for all periods presented.

(1) Net loss per share, and weighted average shares outstanding basic and diluted for the three- and six-months ended June 30, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


QUICKLOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,144

)

 

$

(8,110

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

490

 

 

 

592

 

Stock-based compensation

 

 

343

 

 

 

1,742

 

Write-down of inventories

 

 

43

 

 

 

88

 

Write-off of equipment

 

 

4

 

 

 

2

 

Tax benefit from acquisition

 

 

 

 

 

(282

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

867

 

 

 

690

 

Inventories

 

 

165

 

 

 

247

 

Other assets

 

 

425

 

 

 

(150

)

Trade payables

 

 

574

 

 

 

77

 

Accrued liabilities and deferred revenue

 

 

(345

)

 

 

(850

)

Other long-term liabilities

 

 

 

 

 

(16

)

Net cash used in operating activities

 

 

(3,578

)

 

 

(5,970

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(40

)

 

 

(523

)

Capitalized internal-use software

 

 

(396

)

 

 

 

Cash received from business acquisition

 

 

 

 

 

20

 

Net cash used in investing activities

 

 

(436

)

 

 

(503

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of finance lease obligations

 

 

(120

)

 

 

(194

)

Proceeds from paycheck protection program loan

 

 

1,191

 

 

 

 

Proceeds from line of credit

 

 

27,000

 

 

 

20,000

 

Repayment of line of credit

 

 

(27,000

)

 

 

(20,000

)

Proceeds from issuance of common stock, net of issuance costs

 

 

7,847

 

 

 

8,548

 

Taxes paid related to net settlement of equity awards

 

 

(54

)

 

 

(193

)

Net cash provided by financing activities

 

 

8,864

 

 

 

8,161

 

Net increase in cash, cash equivalents and restricted cash

 

 

4,850

 

 

 

1,688

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

21,548

 

 

 

26,463

 

Cash, cash equivalents and restricted cash at end of period

 

$

26,398

 

 

$

28,151

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

 

5


QUICKLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 29, 2019

 

8,331

 

 

$

8

 

 

$

297,073

 

 

$

(283,258

)

 

$

13,823

 

Common stock issued under stock plans and employee

   stock purchase plan

 

52

 

 

 

 

 

 

(25

)

 

 

 

 

 

(25

)

Stock-based compensation

 

 

 

 

 

 

 

(398

)

 

 

 

 

 

(398

)

Net loss

 

 

 

 

 

 

 

 

 

 

(3,165

)

 

 

(3,165

)

Balance at March 29, 2020

 

8,383

 

 

 

8

 

 

 

296,650

 

 

 

(286,423

)

 

 

10,235

 

Common stock issued under stock plans and employee

   stock purchase plan

 

29

 

 

 

-

 

 

 

(31

)

 

 

 

 

 

(31

)

Common stock offering, net of issuance costs of $1.1 million

 

2,500

 

 

 

3

 

 

 

7,653

 

 

 

 

 

 

7,656

 

Stock-based compensation

 

 

 

 

 

 

 

741

 

 

 

 

 

 

741

 

Net loss

 

 

 

 

 

 

 

 

 

 

(2,979

)

 

 

(2,979

)

Balance at June 28, 2020

 

10,912

 

 

$

11

 

 

$

305,013

 

 

$

(289,402

)

 

$

15,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock (1)

 

 

Additional

Paid-In (1)

 

 

Retained

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 30, 2018

 

6,823

 

 

$

7

 

 

$

285,062

 

 

$

(267,814

)

 

$

17,255

 

Common stock issued under stock plans and employee

   stock purchase plan

 

35

 

 

 

 

 

 

(163

)

 

 

 

 

 

(163

)

Common stock issued for SensiML acquisition

 

84

 

 

 

 

 

 

903

 

 

 

 

 

 

903

 

Stock-based compensation

 

 

 

 

 

 

 

951

 

 

 

 

 

 

951

 

Net loss

 

 

 

 

 

 

 

 

 

 

(3,476

)

 

 

(3,476

)

Balance at March 31, 2019

 

6,942

 

 

 

7

 

 

 

286,753

 

 

 

(271,290

)

 

 

15,470

 

Common stock issued under stock plans and employee

   stock purchase plan

 

38

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

Common stock offering, net of issuance costs of $1.2 million

 

1,314

 

 

 

1

 

 

 

8,024

 

 

 

 

 

 

8,025

 

Stock-based compensation

 

 

 

 

 

 

 

791

 

 

 

 

 

 

791

 

Net loss

 

 

 

 

 

 

 

 

 

 

(4,634

)

 

 

(4,634

)

Balance at June 30, 2019

 

8,294

 

 

$

8

 

 

$

295,778

 

 

$

(275,924

)

 

$

19,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1)

Common stock shares and additional paid-in capital amounts as of December 31, 2018, and in the three-months ended March 31, 2019 and June 30, 2019 are adjusted to reflect 1-for-14 reverse stock split effected on December 23, 2019.

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

6


 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and Basis of Presentation

QuickLogic Corporation (“QuickLogic” or “Company”) was founded in 1988 and reincorporated in Delaware in 1999. The Company enables Original Equipment Manufacturers (“OEMs”) to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Hearable, Tablet and Internet-of-Things (“IoT devices”). QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip (“SoC”) semiconductor solutions, embedded software, and algorithm solutions for always-on voice and sensor processing, and enhanced visual experiences. The Company is a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power Field Programmable Gate Arrays (“FPGAs”). The Company’s wholly owned subsidiary, SensiML Corporation (“SensiML”) provides Analytics Toolkit, which is used in many of the applications where the Company’s ArcticPro™, eFPGA intellectual property (“IP”) plays a critical role. SensiML Analytics toolkit is an end-to-end software suite that provides OEMs a straightforward process for developing pattern matching sensor algorithms using machine learning technology that are optimized for ultra-low power consumption.

The accompanying interim condensed consolidated financial statements are unaudited. In the opinion of the Company’s management, these statements have been prepared in accordance with the United States generally accepted accounting principles (“U.S. GAAP”), and include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of results for the interim periods presented. The Company recommends that these interim condensed consolidated financial statements be read in conjunction with the Company's Form 10-K for the year ended December 29, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020. Operating results for the three and six months ended June 28, 2020 are not necessarily indicative of the results that may be expected for the full year.

QuickLogic's fiscal year ends on the Sunday closest to December 31 and each fiscal quarter ends on the Sunday closest to the end of each calendar quarter. QuickLogic's second fiscal quarters for 2020 and for 2019 ended on June 28, 2020 and June 30, 2019, respectively.

COVID-19 Risks and Uncertainties

On January 30, 2020, the World Health Organization (“WHO”) declared a global emergency due to the COVID-19 pandemic, and on February 28, 2020, the WHO raised its assessment of the threat from high to very high at a global level. The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which the Company operates, and the imposition of shelter-in-place or similarly restrictive work-from-home orders impacting many of the Company’s offices and employees, including those located in the United States.

 As a result, the Company has temporarily closed or substantially limited the presence of personnel in its offices in several impacted locations, implemented travel restrictions and withdrawn from various industry events. The impact of the Company’s work-from-home policy that was implemented to protect its global workforce has contributed to delays in certain operational processes, including its routine quarterly financial statement close process for the first quarter of fiscal 2020. The Company has also experienced some disruption and delays in its supply chain, customer deployment plans, and logistics challenges, including certain limitations on its ability to access customer fulfilment and service sites.

 The COVID-19 pandemic and its potential effects on the Company’s business in its fiscal 2020 remain dynamic, and the broader implications for its business and results of operations remain uncertain. These implications could include further disruptions or restrictions on the Company’s ability to source, manufacture or distribute its products, including temporary disruptions to the facilities of its contract manufacturers in China, Taiwan, Philippines and Singapore, or the facilities of its suppliers and their contract manufacturers globally. Additionally, multiple countries have imposed and may further impose restrictions on business operations and movement of people and products to limit the spread of COVID-19. Delays in production or delivery of components or raw materials that are part of the Company’s global supply chain due to restrictions imposed to limit the spread of COVID-19 could delay or inhibit its ability to obtain the supply of components and finished goods. If COVID-19 becomes more prevalent in the locations where the Company, its customers or suppliers conduct business, or the Company experiences more pronounced disruptions in its operations, the Company may experience constrained supply or curtailed demand that may materially adversely impact its business and results of operations. In addition, any other widespread health crisis that could adversely affect global and regional economies, financial markets and overall demand environment for the Company's products could have a material adverse effect on the Company’s business, cash flows or results of operations.

7


 

Liquidity

The Company has financed its operations and capital investments through sales of common stock, finance and operating leases, a revolving line of credit and cash flows from operations. As of June 28, 2020, the Company's principal sources of liquidity consisted of cash and cash equivalents and restricted cash of $26.4 million, including $15.0 million drawn down from its revolving line of credit (“Revolving Facility”) with Heritage Bank of Commerce (“Heritage Bank”), and $1.2 million loan proceeds received under Paycheck Protection Program (“PPP”). On November 6, 2019 the Company entered into a First Amendment to the Revolving Facility with Heritage Bank to extend the maturity date for one year through September 28, 2021. Under this amendment the Revolving Facility advances shall bear interest, on the outstanding daily balance thereof, at a rate per annum equal to the greater of (i) one half of one percentage point (0.50%) above the Prime Rate, or (ii) five and one half of one percentage points (5.50%).

On May 6, 2020, the Company entered into a loan agreement with Heritage Bank for a loan of $1.2 million pursuant to the PPP under the CARES Act enacted on March 27, 2020. See Note 7 to the Unaudited Consolidated Financial Statements for the details.

On June 22, 2020, the Company closed an underwritten public offering of 2.5 million shares of common stock, $0.001 par value per share at a price of $3.50 per share. The Company received net proceeds from the offering of approximately $7.9 million, net of underwriter’s commission and other offering expenses. Under the terms of the Underwriting Agreement, the Company granted the Underwriter a 30-day option to purchase up to an additional 375,000 shares of Common Stock to cover overallotments. On July 21, 2020, the Underwriter’s partially exercised the option to purchase 141,733 additional shares of Common Stock in connection with the offering, resulting in additional net proceeds to the Company of approximately $461,000 after deduction of underwriting discounts.

Various factors can 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 ArcticLink®, 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 ability to capitalize on synergies with our newly acquired subsidiary SensiML; 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 the 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 September 2021, 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.

Reverse Stock Split

Effective on December 23, 2019, the Company enacted a 1-for-14 reverse stock split of its outstanding common stock, in which, every 14 issued and outstanding shares of common stock of the Company were automatically combined into one issued and outstanding share of common stock without any change in the par value per share. Stockholders who would have otherwise been entitled to fractional shares of common stock as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. All share, equity awards, and per share amounts contained in this Form 10-Q and the accompanying Condensed Consolidated Financial Statements have been adjusted to reflect the reverse stock split for all prior periods presented. Warrants issued in connection with the May 2018 stock issuance were also adjusted to reflect the reverse stock split for all periods presented.

8


 

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of QuickLogic and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Foreign Currency

The functional currency of the Company's non-U.S. operations is the U.S. dollar. Accordingly, all monetary assets and liabilities of these foreign operations are translated into U.S. dollars at current period-end exchange rates and non-monetary assets and related elements of expense are translated using historical exchange rates. Income and expense elements are translated to U.S. dollars using the average exchange rates in effect during the period. Gains and losses from the foreign currency transactions of these subsidiaries are recorded as interest income and other expense, net in the unaudited condensed consolidated statements of operations.

Uses of Estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the period. Actual results could differ materially from those estimates, particularly in relation to revenue recognition, the allowance for doubtful accounts, sales returns, valuation of long-lived assets including mask sets, valuation of goodwill, capitalized internal-use software and related amortizable lives and intangibles related to the acquisition of SensiML, including the estimated useful lives of acquired intangible assets, valuation of inventories including identification of excess quantities, market value and obsolescence, measurement of stock-based compensation awards, accounting for income taxes and estimating accrued liabilities.

Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is required to determine the Stand-alone Selling Price (“SSP”) for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when each of the products and services are sold separately and determines the discount to be allocated based on the relative SSP of the various products and services when products and services sold are bundled. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers. In these instances, the Company may use information such as the size of the customer, customer tier, type of the technology used, customer demographics, geographic region and other factors in determining the SSP.

Concentration of Risk

The Company's accounts receivable are denominated in U.S. dollars and are derived primarily from sales to customers located in North America, Asia Pacific, and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. See Note 14 for information regarding concentrations associated with accounts receivable.

Note 2 — Significant Accounting Policies

During the six-month period ended June 28, 2020, there were no changes in the Company's significant accounting policies from its disclosures in the Annual Report on Form 10-K for the year ended December 29, 2019, except for the new accounting standards adopted during the six months ended June 28, 2020. For a discussion of the significant accounting policies, please see the Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on March 13, 2020. For a discussion of the new accounting standards adopted during the first six months of 2020, see “New Accounting Pronouncements” below.

Revenue Recognition

The Company applies Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, to recognize revenue. The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

9


 

Under the new standard revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration it expects to receive in exchange for those products or services.

The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, a performance obligation is satisfied.

As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk. For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the price stated on the purchase order is typically fixed and represents the net consideration to which the Company expects to be entitled, and therefore there is no variable consideration. As the Company’s standard payment terms are less than one year, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative stand-alone selling price. The product price as specified on the purchase order is considered the stand-alone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances.

Leases

The Company applies Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and related ASUs, which provide supplementary guidance and clarifications to account operating and finance leases. Under Topic 842, all significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date. A ROU asset and corresponding lease liability is not recorded for leases with an initial term of 12 months or less (short term leases) and the Company recognizes lease expense for these leases as incurred over the lease term.

ROU assets represent the Company’s right to use an underlying asset during the reasonably certain lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company primarily uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. As of June 28, 2020, the Company’s right-of-use assets was approximately $2.2 million and lease liability was approximately $2.2 million as presented on the Company’s Consolidated Balance Sheet. See Note 8 to the Unaudited Consolidated Financial Statements for more details.

Business Combinations 

The Company recognizes assets acquired (including goodwill and identifiable intangible assets) and liabilities assumed at fair value on the acquisition date. Subsequent changes to the fair value of such assets acquired and liabilities assumed are recognized in earnings, after the expiration of the measurement period, a period not to exceed 12 months from the acquisition date. Acquisition-related expenses and acquisition-related restructuring costs are recognized in earnings in the period in which they are incurred

Goodwill and Intangible Assets

Goodwill represents the excess fair value of consideration transferred over the fair value of net assets acquired in business combinations. The carrying value of goodwill and indefinite lived intangible assets are not amortized, but are annually tested for impairment and more often if there is an indicator of impairment. Company recognized goodwill of $185,000 due to tax benefits that arose from intangible assets acquired in the SensiML acquisition.

Intangible assets with finite useful lives are amortized on a straight-line basis over the periods benefited. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the

10


 

Company's ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. No impairment has been recognized to-date.

Restricted cash

Cash, cash equivalent and restricted cash includes an amount of $100,000 pledged as cash security related to the use of credit cards as of June 28, 2020 and December 29, 2019.

New Accounting Pronouncements

Recently adopted accounting pronouncements:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU, No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. The Company adopted this standard prospectively effective December 30, 2019 with no impact on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementations Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. Under the new standard, implementations costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs. The new standard also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortizations expenses. The effective date for public companies is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is fiscal years beginning after December 15, 2021. The Company adopted this standard prospectively effective December 30, 2019 with no impact on the Consolidated Financial Statements.

 

In June 2016, FASB issued ASU No. 2016-13 (“ASU 2016-13”) Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. The Company adopted ASU 2016-13 using the modified retrospective approach on December 30, 2019 with no impact on the Condensed Consolidated Financial Statements.

New accounting pronouncements not yet adopted:

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of ASC 740, in order to reduce the cost and complexity of its application. These changes include elimination to the exceptions for (1) Intra-period tax allocation, (2) Deferred tax liabilities related to outside basis differences, and (3) Year-to-date losses in interim periods. This standard is effective for the fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact on its Consolidated Financial Statements.

Note 3 — Net Loss Per Share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share was computed using the weighted average number of common shares outstanding during the period plus potentially dilutive common shares outstanding during the period under the treasury stock method. In computing diluted net loss per share, the weighted average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.

For the three and six months ended June 28, 2020 and June 30, 2019, 626,178 and 571,970 shares of common stock, respectively, associated with equity awards and the estimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan were outstanding. These shares were not included in the computation of diluted net loss per share as they were considered anti-dilutive due to the net losses the Company experienced during these

11


 

periods. Warrants to purchase up to 386,100 shares were issued in connection with May 29, 2018 stock offering were also not included in the diluted loss per share calculation of the three and six months ended June 28, 2020 and June 30, 2019 as they were also considered anti-dilutive due to the net loss the Company experienced during these periods.

All shares, equity awards, and per share amounts have been adjusted to reflect the 1-for-14 reverse stock split of the Company’s outstanding common stock for all periods presented.

Note 4 — Balance Sheet Components

The following table provides details relating to certain balance sheet line items as of June 28, 2020, and December 29, 2019 (in thousands):

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

222

 

 

$

222

 

Work-in-process

 

 

2,145

 

 

 

2,370

 

Finished goods

 

 

685

 

 

 

668

 

 

 

$

3,052

 

 

$

3,260

 

Other current assets:

 

 

 

 

 

 

 

 

Prepaid taxes, royalties and other prepaid expenses

 

$

975

 

 

$

1,296

 

Other

 

 

187

 

 

 

269

 

 

 

$

1,162

 

 

$

1,565

 

Property and equipment, net:

 

 

 

 

 

 

 

 

Equipment

 

$

10,676

 

 

$

10,694

 

Software

 

 

1,789

 

 

 

1,789

 

Furniture and fixtures

 

 

36

 

 

 

36

 

Leasehold improvements

 

 

509

 

 

 

474

 

 

 

 

13,010

 

 

 

12,993

 

Less: Accumulated depreciation and amortization

 

 

(12,419

)

 

 

(12,163

)

 

 

$

591

 

 

$

830

 

Capitalized internal-use software, net:

 

 

 

 

 

 

 

 

Capitalized software

 

$

761

 

 

$

365

 

Less: Accumulated amortization

 

 

(89

)

 

 

(32

)

 

 

$

672

 

 

$

333

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Employee related accruals

 

$

537

 

 

$

713

 

Other

 

 

353

 

 

 

420

 

 

 

$

890

 

 

$

1,133

 

 

Note 5— Business Acquisition

On January 3, 2019, the Company entered into a stock purchase agreement with SensiML for the purchase of all of its issued and outstanding common stock in exchange for the Company’s common stock.

SensiML has a software toolkit enabling IoT developers to quickly and easily create smart devices, transforming rich sensors into actionable event detectors.

The consolidated results of operations for the Company for the three and six months ended June 28, 2020 and June 30, 2019 include operating activities of SensiML.

Note 6 — Intangible Assets

The following table provides the details of the carrying value of intangible assets recorded from the acquisition of SensiML as of June 28, 2020 (in thousands):

 

12


 

 

 

June 28, 2020

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Developed technology

 

$

959

 

 

$

(144

)

 

$

815

 

Customer relationships

 

 

81

 

 

 

(60

)

 

 

21

 

Trade names and trademarks

 

 

116

 

 

 

(18

)

 

 

98

 

Total acquired identifiable intangible assets

 

$

1,156

 

 

$

(222

)

 

$

934

 

 

The following table provides the details of expected future annual amortization of intangible assets, based upon the current useful lives as of June 28, 2020 (in thousands):

 

 

 

 

 

 

Annual Fiscal Years