QUICKLOGIC Corp

Previous wording

During the first quarter of 2024, we generated total revenue of $6.0 million, a decrease of 20% compared to the prior quarter, and an increase of 45% compared to the same quarter last year. Our new product revenue in the first quarter was $4.9 million, a decrease of 29% from the prior quarter and an increase of 60% from the first quarter of 2023. Our mature product revenue was $1.1 million in the first quarter of 2024, an increase of 73% compared to the prior quarter, and an increase of 5% compared to the first quarter of 2023. We expect our mature product revenue to continue to fluctuate over time.

Current wording

During the second quarter of 2024, we generated total revenue of $4.1 million, a decrease of 31% compared to the prior quarter, and an increase of 41% compared to the same quarter last year. Our new product revenue in the second quarter was $3.1 million, a decrease of 37% from the prior quarter and an increase of 37% from the second quarter of 2023. Our mature product revenue was $1.1 million in the second quarter of 2024, a decrease of 5% compared to the prior quarter, and an increase of 56% compared to the second quarter of 2023. We expect our mature product revenue to continue to fluctuate over time.

Previous wording

We devote substantially all of our development, sales, and marketing efforts to our neweFPGA IP licensing and professional services and SensiML initiatives. Overall, we reported net income of $0.1 million for the first quarter of 2024, as compared to a net income of $2.0 million in the prior quarter and a net loss of $1.2 million for the first quarter of 2023.

Current wording

We devote substantially all of our development, sales, and marketing efforts to our neweFPGA IP licensing and professional services and SensiML initiatives. Overall, we reported a net loss of $1.6 million for the second quarter of 2024, as compared to a net income of $0.1 million in the prior quarter and a net loss of $2.3 million for the second quarter of 2023.

Previous wording

As of March 31, 2024, we had one operating lease with a remaining lease term of 3.00 years. The operating lease relates to our company headquarters in San Jose, CA.

Current wording

As of June 30, 2024, we had one operating lease with a remaining lease term of 2.92 years. The operating lease relates to our company headquarters in San Jose, CA.

Previous wording

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 consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of the company's financial condition and results of operations and requires us to make our most 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 accounting policies include revenue recognition, inventory valuation, including the identification of excess quantities, market value, and obsolescence, and valuation of goodwill and long-lived and intangible assets. We believe that we apply judgments and estimates in a consistent manner and that such consistent application results in 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 March 31, 2024, 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 December 31, 2023, which was filed with the SEC on March 27, 2024.

Current wording

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 consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of the company's financial condition and results of operations and requires us to make our most 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 accounting policies include revenue recognition, inventory valuation, including the identification of excess quantities, market value, and obsolescence, and valuation of goodwill and long-lived and intangible assets. We believe that we apply judgments and estimates in a consistent manner and that such consistent application results in 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 and six months ended June 30, 2024, 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 December 31, 2023, which was filed with the SEC on March 27, 2024.

Previous wording

Product revenue for the first quarter of 2024 compared to the first quarter of 2023 increased $1.9 million. The increase resulted primarily from increases in professional services eFPGA revenues and revenue from devices.

Current wording

Product revenue for the second quarter of 2024 compared to the second quarter of 2023 increased $1.2 million. The increase resulted primarily from increases in professional services eFPGA revenues and revenue from devices and royalties.

Previous wording

eFPGA IP revenue for the three months ended March 31, 2024 and April 2, 2023 was $4.0 million and $2.8 million, respectively, which were primarily professional services revenue.

Current wording

eFPGA IP revenue for the three months ended June 30, 2024 and July 2, 2023 was $2.5 million and $1.9 million, respectively, which were primarily professional services revenue.

Previous wording

In the first quarter of 2024, gross profit increased $1.6 million, or 67%, compared to the same quarter in the prior year. The increase in gross profit reflects a 45% increase in revenues, offset by a 16% net increase in cost of revenue. Revenue increased from the same quarter in the prior year due to revenues associated with Department of Defense contracts, as well as increases in device sale revenues. The increase in cost of revenues was primarily due to the increased activity commensurate with the professional services revenue contracts. Labor, semiconductor tooling, and increased depreciation expenses substantially comprised this increase.

Current wording

In the second quarter of 2024, gross profit increased $2.5 million, or 69%, compared to the same quarter in the prior year. The increase in gross profit reflects a 44% increase in revenues, offset by a 17% net increase in cost of revenue. Revenue increased from the same quarter in the prior year due to revenues associated with Department of Defense contracts, as well as increases in device sale and royalty revenues. The increase in cost of revenues was primarily due to the increased activity commensurate with the professional services revenue contracts. Labor, semiconductor tooling, and increased depreciation expenses, offset by decreases in consulting expenses, substantially comprised this increase.

Previous wording

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 $0.2 million decrease in R&D expenses in the first quarter of 2024, as compared to the first quarter of 2023, was primarily due to allocations to cost of revenue resulting from labor and tooling costs attributable to professional services revenue contracts.

Current wording

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 $0.1 million decrease in R&D expenses in the second quarter of 2024, as compared to the second quarter of 2023, was primarily due to allocations to cost of revenue resulting from labor and tooling costs attributable to professional services revenue contracts.

Previous wording

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 $0.5 million increase in SG&A expenses in the first quarter of 2024, as compared to the first quarter of 2023, was attributable to increases in consulting and outside services.

Current wording

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 $0.7 million increase in SG&A expenses in the second quarter of 2024, as compared to the second quarter of 2023, was attributable to increases in equity compensation expenses.

Previous wording

Interest expense relates primarily to our revolving line of credit facility and notes payable. 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 first quarter of this year as compared to the same period in the prior year increased approximately $11 thousand, which was comprised of a $8 thousand increase in interest expense related to notes payable, a $9 thousand increase in interest expense related to our revolving line of credit facility, and a $6 thousand decrease in interest expense related to IT hardware financing costs. The favorable change in interest income and other income (expense), net reflected decreased foreign exchange losses over the prior period.

Current wording

Interest expense relates primarily to our revolving line of credit facility and notes payable. 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 $1 thousand, which was comprised of an $8 thousand increase in interest expense related to notes payable, a $6 thousand decrease in interest expense related to our revolving line of credit facility, and a $1 thousand decrease in interest expense related to IT hardware financing costs. The favorable change in interest income and other income (expense), net reflected decreased foreign exchange losses over the prior period.

Previous wording

There was no change in the income tax expense for the three months ended March 31, 2024 and April 2, 2023. The projected annual effective tax rate before certain discrete items as of the first quarter of 2024 is 0.80%, as compared to the projected annual effective tax rate of (3.95)% for the same period in the prior year.

Current wording

There was a slight change in the income tax expense for the six months ended June 30, 2024 as compared to the six months ended July 2, 2023. The computed tax rate for the six months ended June 30, 2024 was 0.10% as compared to 0.02% for the six months ended July 2, 2023. The difference between the estimated annual effective income expense of 0.10% and the U.S. federal statutory tax rate of 21% is primarily due to the Company's valuation allowance movement in each period presented. It is more likely than not that the Company will not realize the federal, state, and certain foreign deferred tax assets as of June 30, 2024. As such, the Company continues to maintain a full valuation allowance against all of its US and certain foreign net deferred tax assets as of June 30, 2024. The projected annual effective tax rate before certain discrete items as of the second quarter of 2024 is 6.38%, as compared to the projected annual effective tax rate of (3.04)% for the same period in the prior year.

Previous wording

Liabilities decreased by approximately $1.3 million due to payment of accrued liabilities of $1.2 million and the recognition of deferred revenue of $0.3 million. This was partially offset by an increase in trade payables of $0.2 million resulting from fulfilling revenue contracts with customers. Equity increased $5.5 million due to a $5.2 million increase in additional paid in capital arising from the sale of shares of common stock and recognition of stock-based compensation and a $0.2 million net income for the three months ended March 31, 2024.

Current wording

Liabilities decreased by approximately $5.3 million due to payment of trade payables of $3.2 million, accrued liabilities of $1.4 million, and debt and lease obligations of $0.4 million, as well as the recognition of deferred revenue of $0.3 million. Equity increased $4.9 million due to a $6.4 million increase in additional paid in capital arising from the sale of shares of common stock and recognition of stock-based compensation, partially offset by a $1.4 million net loss for the six months ended June 30, 2024.

Previous wording

We have financed our operations and capital investments through public and private offerings of our common stock, financing arrangements, operating leases, borrowings under a revolving line of credit, and cash flows from operations. In addition to our cash, cash equivalents and restricted cash of $27.4 million, as of March 31, 2024, other sources of liquidity included a $20.0 million drawn down from our revolving line of credit ("Revolving Facility") with Heritage Bank of Commerce (“Heritage Bank”), and $3.5 million in net proceeds from the sale of our common stock on March 13, 2024. Costs related to the offering were immaterial. Our restricted cash balance as of March 31, 2024 was $0.1 million and relates to amounts pledged as cash security for the use of credit cards.

Current wording

We have financed our operations and capital investments through public and private offerings of our common stock, financing arrangements, operating leases, borrowings under a revolving line of credit, and cash flows from operations. In addition to our cash, cash equivalents and restricted cash of $23.3 million, as of June 30, 2024, other sources of liquidity included a $20.0 million drawn down from our revolving line of credit ("Revolving Facility") with Heritage Bank of Commerce (“Heritage Bank”), and $3.5 million in net proceeds from the sale of our common stock on March 13, 2024. Costs related to the offering were immaterial. Our restricted cash balance as of June 30, 2024 was $0.1 million and relates to amounts pledged as cash security for the use of credit cards.

Previous wording

On April 28, 2023, we 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 3.00% compounded monthly. On June 28, 2023, we 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 4.80% 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 us. If an event of default occurs, the interest rate will increase to 10.00%. All other terms of the Note remained the same. As of March 31, 2024, the related note receivable balance was $1.21 million, including $54 thousand in accrued interest.

Current wording

On April 28, 2023, we converted accounts receivable for a customer in the amount of approximately $1.16 million to notes receivable (the "Original Note"). At the time, the Original Note bore an interest rate of 3.0% compounded monthly. On June 28, 2023, we cancelled the Original Note and entered into a revised promissory note ("Second Revised 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 Original Note. On June 27, 2024, we cancelled the Second Revised Note and entered into a revised promissory note ("Current Note") with the customer, where the interest rate changed to 10.0% per annum. Accrued but unpaid interest will be compounded monthly, accruing from the date of the Current Note. Additionally, if not prepaid prior to the Current Note maturity date of the earlier of (i) 24 months from June 28, 2024 or (ii) the closing of the customer's Series B financing, the principal and all accrued and unpaid interest will be due and payable to us. If an event of default occurs, the interest rate will increase to 15.31%. All other terms of the Note remained the same. As of June 30, 2024, the related note receivable balance was $1.23 million, including $66 thousand in accrued interest.

Previous wording

As of March 31, 2024, most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank. As of March 31, 2024, our interest-bearing debt consisted of$1.4 million outstanding under notes payable and$20.0 million outstanding under our Revolving Facility. See Note 7, Debt Obligations, to the unaudited condensed consolidated financial statements for more details.

Current wording

As of June 30, 2024, most of our cash, cash equivalents and restricted cash were invested in a money market account at Heritage Bank. As of June 30, 2024, our interest-bearing debt consisted of$1.2 million outstanding under notes payable and$20.0 million outstanding under our Revolving Facility. See Note 7, Debt Obligations, to the unaudited condensed consolidated financial statements for more details.

Previous wording

For the three months ended March 31, 2024, net cash provided by operating activities was $0.1 million, which was primarily due to the net income of $0.2 million, adjusted for net non-cash charges of $2.4 million, which included $1.6 million of stock-based compensation, $0.8 million in depreciation and amortization expenses, and $0.1 million in ROU asset amortization expenses. Cash outflow from changes in operating assets and liabilities was approximately $2.5 million and was primarily due to decreases in accounts payable and accrued liabilities, partially offset by a decrease in contract assets.

Current wording

For the six months ended June 30, 2024, net cash used in operating activities was $0.1 million, which was primarily due to the net loss of $1.4 million, adjusted for net non-cash charges of $4.3 million, which included $2.5 million of stock-based compensation, $1.7 million in depreciation and amortization expenses, and $0.1 million in ROU asset amortization expenses. Cash outflow from changes in operating assets and liabilities was approximately $2.9 million and was primarily due to decreases in accounts payable and accrued liabilities, partially offset by a decrease in contract assets and accounts receivable.

Previous wording

For the three months ended April 2, 2023, net cash used in operating activities was $0.4 million, which was primarily due to the net loss of $1.2 million, adjusted for net non-cash charges of $1.3 million, which included $0.7 million of stock-based compensation, $0.4 million in depreciation and amortization expenses, $0.2 million in write-downs of inventories, and $0.1 million in ROU asset amortization expenses. Cash outflow from changes in operating assets and liabilities was approximately $0.5 million and was primarily due to increases in contract assets and inventory and decreases in accounts payable, partially offset by decreases in accounts receivable.

Current wording

For the six months ended July 2, 2023, net cash used in operating activities was $0.3 million, which was primarily due to the net loss of $3.5 million, adjusted for net non-cash charges of $2.4 million, which included $1.3 million of stock-based compensation, $0.7 million in depreciation and amortization expenses, $0.2 million in write-downs of inventories, and $0.2 million in ROU asset amortization expenses. Cash inflow from changes in operating assets and liabilities was approximately $0.7 million and was primarily due to increases in accounts receivable and decreases in contract assets, partially offset by decreases in accounts payable and other assets.

Previous wording

For the three months ended March 31, 2024 and April 2, 2023 cash used in investing activities was $0.6 million and $0.2 million, respectively, which were primarily attributable to the capital expenditures relating to licensed software, capitalized internal-use software, and purchase of specialized semiconductor tooling, which was capitalized.

Current wording

For the six months ended June 30, 2024 and July 2, 2023 cash used in investing activities was $4.5 million and $0.5 million, respectively, which were primarily attributable to the capital expenditures relating to licensed software, capitalized internal-use software, and purchase of specialized semiconductor tooling, which was capitalized.

Previous wording

For the three months ended March 31, 2024, cash provided by financing activities was $3.3 million, which was primarily derived from the net proceeds of $3.5 million from the common stock issuance, partially offset by $0.2 million in payments related to financing arrangements.

Current wording

For the six months ended June 30, 2024, cash provided by financing activities was $3.2 million, which was primarily derived from the net proceeds of $3.7 million from the common stock issuance, partially offset by $0.5 million in payments related to financing arrangements.

Previous wording

For the three months ended April 2, 2023, cash provided by financing activities was $2.2 million and was primarily derived from the net proceeds of $2.3 million from the common stock issuances and borrowings of notes payable of $0.1 million, partially offset by $0.2 million in payments related to financing arrangements.

Current wording

For the six months ended July 2, 2023, cash provided by financing activities was $2.2 million and was primarily derived from the net proceeds of $2.4 million from the common stock issuances and borrowings of notes payable of $0.1 million, partially offset by $0.3 million in payments related to financing arrangements.