NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — The Company and Basis of Presentation
QuickLogic Corporation ("QuickLogic" or "the Company") was founded in 1988 and reincorporated in Delaware in 1999. The Company enables Original Equipment Manufacturers, or OEMs to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Tablet and Internet-of-Things, or IoT devices. QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip, or SoC semiconductor solutions, embedded software, and eFPGA IP licensing 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, or FPGAs.
The accompanying interim condensed consolidated financial statements are unaudited. In the opinion of management, these statements have been prepared in accordance with United States generally accepted accounting principles, or 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
January 1, 2017
, which was filed with the Securities and Exchange Commission or SEC on March 9, 2017. Operating results for the
three
months ended
April 2, 2017
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 the fiscal quarters each end on the Sunday closest to the end of each calendar quarter. QuickLogic's
first
fiscal quarters for
2017
and for
2016
ended on Sunday,
April 2, 2017
and
April 3, 2016
, respectively.
Liquidity
The Company has financed its operations and capital investments through sales of common stock, capital and operating leases, and bank lines of credit. As of
April 2, 2017
, the Company's principal sources of liquidity consisted of cash and cash equivalents of
$26.7 million
and
$6.0 million
available credit at Company's election under its revolving line of credit with Silicon Valley Bank, which expires on September 25, 2017. The Company has drawn down
$6.0 million
currently available credit under its revolving line of credit.
On September 25, 2015, the Company entered into a Second Amendment to the Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank to extend the line of credit for
two
years through September 25, 2017. This amendment modifies some of the financial covenants. This line of credit provides for committed loan advances of up to
$6.0 million
, subject to increases at the Company's election of up to
$12.0 million
. On February 10, 2016, the Company entered into a Third Amendment to the Third and Restated Loan and Security Agreement to further modify the covenants. See Note 5 for a description of the modified covenants. The Company is in compliance with all loan covenants as of the end of the current reporting period.
On March 28, 2017, the Company issued
11.3 million
shares of common stock at a price of
$1.50
per share,
$0.001
par value. The Company received net proceeds of approximately
$15.8 million
, after deducting underwriting commissions and other offering related expenses. The Company expects to use the net proceeds for working capital, to accelerate the development of next generation products and for general corporate purposes. The Company may also use a portion of the net proceeds to acquire and/or license technologies and acquire and/or invest in businesses when the opportunity arises; however, the Company currently has no commitments or agreements and are not involved in any negotiations with respect to any such transactions. The shares were offered pursuant to a shelf registration statement filed on December 9, 2016 with the Securities and Exchange Commission, or SEC, as amended on March 15, 2017, which was declared effective by the SEC on March 16, 2017, and as supplemented by a prospectus supplement dated March 23, 2017, which were filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended.
The Company currently uses its cash to fund its capital expenditures and operations. Based on past operating performance and current annual operating plans, the Company believes that its existing cash and cash equivalents, together with available financial resources from the revolving line of credit with Silicon Valley Bank will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next twelve months from the date the condensed unaudited consolidated financial statements as of and for the three-month period ended April 2, 2017 are available to be issued.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company's liquidity is affected by many factors 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 Sensor Processing solution platforms; fluctuations in revenue as a result of product end-of-life; fluctuations in revenue as a result of the stage in the product life cycle of its customers' products; costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchase commitments; customer credit terms; the amount and timing of research and development expenditures; the timing of new product introductions; production volumes; product quality; sales and marketing efforts; the value and liquidity of its investment portfolio; changes in operating assets and liabilities; the ability to obtain or renew debt financing and to remain in compliance with the terms of existing credit facilities; the ability to raise funds from the sale of equity in the Company; the issuance and exercise of stock options and participation in the Company's employee stock purchase plan; and other factors related to the uncertainties of the industry and global economics.
Over the longer term, the Company anticipates that the generation of sales from its new product offerings, existing cash and cash equivalents, together with financial resources from its revolving line of credit with Silicon Valley Bank, assuming renewal of the line of credit or the Company entering into a new debt agreement with an alternative lender prior to the expiration of this existing revolving line of credit in September 2017, 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.
Principles of Consolidation
The 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 condensed unaudited 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 investments, valuation of long-lived assets including mask sets, 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.
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 11 for information regarding concentrations associated with accounts receivable.
For the
three
months ended
April 2, 2017
, the Company generated
22%
of its total revenue from shipments to Samsung Electronics Co., Ltd. ("Samsung"). See Note 11 for information regarding concentrations associated with customers and distributors.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 — Significant Accounting Policies
During the
three
months ended
April 2, 2017
, there were no changes in the Company's significant accounting policies from its disclosure in the Annual Report on Form 10-K for the year ended
January 1, 2017
. For a discussion of the significant accounting policies, please see the Annual Report on Form 10-K for the fiscal year ended
January 1, 2017
, filed with the SEC, on
March 9, 2017
. In the first quarter of 2017, the Company started recognizing revenue from licensing eFPGA Intellectual Property, or IP. Following is the Company's revenue recognition policy for IP licensing.
The Company accounts for its IP license revenues and related services in accordance with FASB ASC No. 985-605, “Software Revenue Recognition.” Revenues are recognized when persuasive evidence of an arrangement exists and no further obligation exists, delivery has occurred, the license fee is fixed or determinable, and collection is reasonably assured. A license may be perpetual or time limited in its application.The Company’s IP license agreement contains multiple elements including post-contract customer support. For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (“VSOE”) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, revenue is deferred until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, revenue is deferred until such evidence exists for the undelivered elements, or until all elements are delivered, whichever is earlier. VSOE of each element is based on historical evidence of stand-alone sales of these elements to third parties including substantive renewal rate as stated in the agreement. When VSOE does not exist for undelivered items, the entire arrangement fee is recognized ratably over the performance period.
As the IP license agreement entered into during the quarter ended April 2, 2017 is the first such revenue agreement, no VSOE exists for any of the elements. Accordingly, the Company is recognizing revenue associated with this contract ratably over the performance period.
New Accounting Pronouncements
Recently adopted accounting pronouncements:
In July 2015, the Financial Accounting Standards Board or FASB issued Accounting Standards Update or ASU 2015-11,
Inventory (Topic 330):
Simplifying the measurement of Inventory,
which amends the accounting guidance on the valuation of inventory. The guidance requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendment applies to inventory valued at first-in, first-out or average cost. This guidance is effective for reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this guidance prospectively with no material effect on the consolidated financial statements.
Recently issued accounting pronouncements not yet adopted:
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. In July 2015, the FASB approved a one-year delay in the effective date by issuing ASU 2015-09, Revenue from Contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In March 2016, the FASB issued ASU No. 2016-08,
Revenue from contracts with customers (Topic 606):
Principal versus Agent Considerations Reporting Revenue Gross versus Net.
The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09. Public entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Private entities must apply the amendments one year later. The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements.
In May 2016, the FASB issued ASU No. 2016-12,
Revenue from contracts with customers (Topic 606)
:
Narrow Scope Improvements and Practical Expedients
. This update among other things: (1) clarify the object of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior period reporting is not required to disclose the effect of the accounting change for the period of adoption. This amendment is effective for public entities for annual reports beginning after December 15, 2017, including interim periods therein. For nonpublic entities one year later. The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15,
Statement of Cash Flows (Topic 230)
:
Classification of Certain Cash Receipts and Cash Payments
. This update clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and for interim periods therein with early adoption permitted and must be applied retrospectively to all periods presented. The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity transfers of assets other than inventory.
This update removes the requirement under which the income tax consequences of intra-entity transfers are deferred until the assets are ultimately sold to an outside party, except for transfers of inventory. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. The standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
Other new accounting pronouncements are disclosed on the Annual Report on Form 10-K for the fiscal year ended
January 1, 2017
filed with the SEC on
March 9, 2017
.
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.
The following shares were not included in the calculation of diluted net loss per share for the
three
months ended
April 2, 2017
and
April 3, 2016
: (i)
7.3 million
and
7.5 million
of common shares associated with equity awards outstanding and the estimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan, respectively, and (ii) warrants to purchase up to
2.3 million
shares of common stock as of
April 2, 2017
and
April 3, 2016
, respectively. These shares were not included as they were considered anti-dilutive due to the net loss the Company experienced during these periods.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 — Balance Sheet Components
The following provides details relating to certain balance sheet accounts as of
April 2, 2017
, and January 1, 2017:
|
|
|
|
|
|
|
|
|
|
As of
|
|
April 2,
2017
|
|
January 1,
2017
|
|
(in thousands)
|
Inventories:
|
|
|
|
Work-in-process
|
$
|
2,239
|
|
|
$
|
1,538
|
|
Finished goods
|
622
|
|
|
479
|
|
|
$
|
2,861
|
|
|
$
|
2,017
|
|
Other current assets:
|
|
|
|
Prepaid expenses
|
$
|
836
|
|
|
$
|
960
|
|
Other
|
141
|
|
|
163
|
|
|
$
|
977
|
|
|
$
|
1,123
|
|
Property and equipment:
|
|
|
|
Equipment
|
$
|
11,552
|
|
|
$
|
11,524
|
|
Software
|
2,749
|
|
|
2,624
|
|
Furniture and fixtures
|
41
|
|
|
41
|
|
Leasehold improvements
|
708
|
|
|
708
|
|
|
15,050
|
|
|
14,897
|
|
Accumulated depreciation and amortization
|
(12,484
|
)
|
|
(12,132
|
)
|
|
$
|
2,566
|
|
|
$
|
2,765
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
Employee related accruals
|
$
|
1,632
|
|
|
$
|
1,222
|
|
Other
|
384
|
|
|
358
|
|
|
$
|
2,016
|
|
|
$
|
1,580
|
|
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 — Financing Obligations
The following provides details relating to the Company’s financing obligations as of
April 2, 2017
and January 1, 2017:
|
|
|
|
|
|
|
|
|
|
As of
|
|
April 2,
2017
|
|
January 1,
2017
|
|
(in thousands)
|
Debt and capital lease obligations:
|
|
|
|
|
|
Revolving line of credit
|
$
|
6,000
|
|
|
$
|
6,000
|
|
Capital leases
|
213
|
|
|
209
|
|
|
6,213
|
|
|
6,209
|
|
Current portion of debt and capital lease obligations
|
(6,171
|
)
|
|
(6,209
|
)
|
Long term portion of debt and capital lease obligations
|
$
|
42
|
|
|
$
|
—
|
|
Revolving Line of Credit
On September 25, 2015, the Company entered into the Second Amendment to the Third Amended and Restated Loan and Security Agreement dated September 25, 2015 ("the Loan Agreement") with Silicon Valley Bank (the "Bank"). The terms of the Loan Agreement include a
$6.0 million
revolving line of credit available through
September 25, 2017
, subject to increases at the Company's election of up to
$12 million
. Upon each advance, the Company can elect a Prime Rate advance, which is the prime rate plus the prime rate margin, or a LIBOR advance, which is LIBOR rate plus the LIBOR rate margin. As of the
first
quarter ended
April 2, 2017
, the Company had
$6.0 million
of revolving debt outstanding with an interest rate of
3.94%
.
On February 10, 2016, the Company entered into a Third Amendment to the Third Amended and Restated Loan and Security Agreement with the Bank to amend certain covenants contained in the Loan Agreement. As amended, the Company is required to maintain, beginning in the quarter ending March 31, 2016, (i) a tangible net worth of at least
$12.0 million
, plus (a)
50%
of the proceeds from any equity issuance, plus (b)
50%
of the proceeds from any investments, tested as of the last day of each month; (ii) unrestricted cash or cash equivalents at the Bank or Bank's affiliates at all times in an amount of at least
$6.0 million
; and (iii) a ratio of quick assets to the results of (i) current liabilities minus (ii) the current portion of deferred revenue plus (iii) the long-term portion of the obligations of at least
2.00
to 1.00, tested as of the last day of each month. Beginning with the second fiscal quarter of 2016, the tangible net worth requirement, is reduced as follows: For the quarter ending June 30, 2016, at least
$10.0 million
; for the quarter ending September 30, 2016, at least
$8.0 million
; for the quarter ending December 31, 2016, at least
$6.0 million
; for the quarter ending March 31, 2017, at least
$4.0 million
; for the quarter ending June 30, 2017, at least
$8.0 million
. Beginning with the third fiscal quarter of 2016, the Company is required to maintain a ratio of quick assets to the results of (i) current liabilities minus (ii) the current portion of deferred revenue plus (iii) the long-term portion of the obligations of at least
1.50
to 1.00 in the fiscal quarters ended September 30, 2016 and December 31, 2016 and of at least
1.25
to 1.00 in the fiscal quarters ended March 31, 2017 and June 30, 2017.
The Bank has a first priority security interest in substantially all of the Company's tangible and intangible assets to secure any outstanding amounts under the Loan Agreement.
Capital Leases
In February 2017, the Company leased design software under a
three
-year capital lease at an imputed interest rate of
5.57%
per annum. Terms of the agreement require the Company to make annual payments of approximately
$44,300
through February 15, 2019, for a total of
$132,800
. As of
April 2, 2017
,
$82,000
was outstanding under the capital lease,
$40,000
of which was classified as a current liability.
In December 2015, the Company leased design software under a
two
-year capital lease at an imputed interest rate of
4.88%
per annum. Terms of the agreement require the Company to make quarterly payments of approximately
$22,750
through November 2017, for a total of
$182,000
. As of
April 2, 2017
,
$67,000
was outstanding under the capital lease, all of which was classified as a current liability.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In July 2015, the Company leased design software under a
three
-year capital lease at an imputed interest rate of
4.91%
per annum. Terms of the agreement require the Company to make annual payments of approximately
$67,300
through July 2017, for a total of
$202,000
. As of
April 2, 2017
,
$64,000
was outstanding under the capital lease, all of which was classified as a current liability.
In July 2014, the Company leased design software under a
41
-month capital lease at an imputed interest rate of
3.15%
per annum. Terms of the agreement require the Company to make payments of principal and interest of
$42,000
in August 2014,
$16,000
in December 2014,
$58,000
in January 2016 and
$58,000
in January 2017. The total payments for the lease was
$174,000
. The lease was fully paid off in January 2017.
In May 2014, the Company leased design software under a
three
-year capital lease at an imputed interest rate of
4.8%
per annum. Terms of the agreement require the Company to make annual payments of approximately
$84,000
through April 2016, for a total of
$252,000
. As of
April 2, 2017
, there was
no
balance outstanding.
Note 6 — Fair Value Measurements
The following table presents the Company's financial assets that are measured at fair value on a recurring basis as of
April 2, 2017
and
January 1, 2017
, consistent with the fair value hierarchy provisions of the authoritative guidance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2017
|
|
January 1, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
(1)
|
$
|
26,152
|
|
|
$
|
16,285
|
|
|
$
|
9,867
|
|
|
$
|
—
|
|
|
$
|
14,692
|
|
|
$
|
1,338
|
|
|
$
|
13,354
|
|
|
$
|
—
|
|
Total assets
|
$
|
26,152
|
|
|
$
|
16,285
|
|
|
$
|
9,867
|
|
|
$
|
—
|
|
|
$
|
14,692
|
|
|
$
|
1,338
|
|
|
$
|
13,354
|
|
|
$
|
—
|
|
_________________
(1)
Money market funds are presented as a part of cash and cash equivalents on the accompanying consolidated balance sheets as of
April 2, 2017
and
January 1, 2017
.
Note 7 - Stockholders' Equity
Common Stock and Preferred Stock
As of April 2, 2017, the Company is authorized to issue
100 million
shares of common stock and has
10 million
shares of authorized but unissued shares of preferred stock. Without any further vote or action by the Company's stockholders, the Board of Directors has the authority to determine the powers, preferences, rights, qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock.
On April 26, 2017, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares of common stock from one hundred million (
100,000,000
) to two hundred million (
200,000,000
). The proposal for the amendment was approved by the Company’s stockholders at its 2017 Annual Meeting of Stockholders held on April 26, 2017.
Issuance of Common Stock and Warrants
On December 6, 2016, the Company filed a shelf registration statement on Form S-3 as amended on March 15, 2017,
under which the Company may, from time to time, sell securities in one or more offerings up to a total dollar amount of
$40.0 million
. The Company's shelf registration statement was declared effective on March 16, 2017.
Under the above shelf registration, in March 2017, the Company issued an aggregate of
11.3 million
shares of common stock,
$0.001
par value, in an underwritten public offering at a price of
$1.50
per share. The Company received net proceeds from this offering of approximately
$15.8 million
, net of underwriter's commission and other offering expenses.
In March 2016, the Company issued an aggregate of
10.0 million
shares of common stock,
$0.001
par value, in an underwritten public offering at a price of
$1.00
per share under the shelf registration that was effective on August 30, 2013 and expired on August 30, 2016. The Company received net proceeds from the offering of approximately
$8.8 million
, net of underwriter's commission and other offering expenses.
As of
April 2, 2017
,
2.3 million
warrants were outstanding. The
2.3 million
warrants with a strike price of
$2.98
were issued in conjunction with a June 2012 financing. These warrants will expire in June 2017 and can only be exercised on a cashless basis.
Note 8 — Employee Stock Plans
2009 Stock Plan
The 2009 Stock Plan, or 2009 Plan, was amended and restated by the Board of Directors in January 2015 and approved by the Company's stockholders on April 23, 2015 to, among other things, reserve an additional
2.5 million
shares of common stock for issuance under the 2009 Plan. As of
April 2, 2017
, approximately
10.2 million
shares were reserved for issuance under the 2009 Plan. On April 26, 2017, Company's stockholders among other things, approved to reserve an additional
1.5 million
shares of common stock for issuance under the 2009 Plan.
Equity awards granted under the 2009 Plan have a term of up to
ten
years. Options typically vest at a rate of
25%
one
year after the vesting commencement date, and one forty-eighth for each month of service thereafter. RSUs typically vest at a rate of
25%
one
year after the vesting commencement date, and one eighth every six months thereafter. The Company may implement different vesting schedules in the future with respect to any new equity awards.
Employee Stock Purchase Plan
The 2009 Employee Stock Purchase Plan, or 2009 ESPP, was adopted in March 2009. In January 2015, the 2009 ESPP was amended by the Board of Directors and approved by the Company's stockholders on April 23, 2015 to reserve an additional
1.0 million
shares of common stock for issuance under the 2009 ESPP. As of
April 2, 2017
, approximately
3.3 million
shares were reserved for issuance under the 2009 ESPP Plan. On April 26, 2017, Company's stockholders among other things, approved to reserve an additional
1.5 million
shares of common stock for issuance under the 2009 ESPP Plan.
The 2009 ESPP provides for
six
month offering periods. Participants purchase shares through payroll deductions of up to
20%
of an employee's total compensation (maximum of
20,000
shares per offering period). The 2009 ESPP permits the Board of Directors to determine, prior to each offering period, whether participants purchase shares at: (i)
85%
of the fair market value of the common stock at the end of the offering period; or (ii)
85%
of the lower of the fair market value of the common stock at the beginning or the end of an offering period. The Board of Directors has determined that, until further notice, future offering periods will be made at
85%
of the lower of the fair market value of the common stock at the beginning or the end of an offering period.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 — Stock-Based Compensation
The stock-based compensation expense included in the Company's consolidated financial statements for the
three
months ended
April 2, 2017
and
April 3, 2016
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2017
|
|
April 3,
2016
|
Cost of revenue
|
$
|
33
|
|
|
$
|
38
|
|
Research and development
|
139
|
|
|
291
|
|
Selling, general and administrative
|
146
|
|
|
233
|
|
Total costs and expenses
|
$
|
318
|
|
|
$
|
562
|
|
No stock-based compensation was capitalized during any period presented above.
No stock options were granted in the first quarter of 2017 and 2016. As of
April 2, 2017
and
April 3, 2016
, the fair value of unvested stock options, net of expected forfeitures, was approximately
$413,000
and
$656,000
, respectively. This unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of
2.91
years.
Stock-Based Compensation Award Activity
The following table summarizes the activity in the shares available for grant under the 2009 Plan during the
three
months ended
April 2, 2017
:
|
|
|
|
|
Shares
Available for Grant
|
|
(in thousands)
|
Balance at January 1, 2017
|
2,632
|
|
Options forfeited or expired
|
80
|
|
RSUs granted
|
(136
|
)
|
RSUs forfeited or expired
|
101
|
|
Balance at April 2, 2017
|
2,677
|
|
Stock Options
The following table summarizes stock options outstanding and stock option activity under the 2009 Plan, and the related weighted average exercise price, for the first
three
months of
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted
Average Exercise
Price
|
|
Weighted
Average
Remaining Term
|
|
Aggregate
Intrinsic Value
|
|
(in thousands)
|
|
|
|
(in years)
|
|
(in thousands)
|
Balance outstanding at January 1, 2017
|
4,979
|
|
|
$
|
2.35
|
|
|
|
|
|
Forfeited or expired
|
(80
|
)
|
|
$
|
3.01
|
|
|
|
|
|
Exercised
|
(53
|
)
|
|
1.31
|
|
|
|
|
|
Balance outstanding at April 2, 2017
|
4,846
|
|
|
$
|
2.35
|
|
|
3.88
|
|
$
|
1,136
|
|
Exercisable at April 2, 2017
|
3,976
|
|
|
$
|
2.61
|
|
|
2.74
|
|
$
|
449
|
|
Vested and expected to vest at April 2, 2017
|
4,685
|
|
|
$
|
2.39
|
|
|
3.70
|
|
$
|
999
|
|
The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's closing stock price of
$1.78
as of the end of the Company's current reporting period, which would have been received by the option holders had all option holders exercised their options as of that date.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The total intrinsic value of options exercised during the first
three
months of
2017
and
2016
was
$27,000
and
$0
, respectively. Total cash received from employees as a result of employee stock option exercises during the first
three months
of
2017
and
2016
was approximately
$70,000
and
$0
respectively. The Company settles employee stock option exercises with newly issued common shares. In connection with these exercises, there was no tax benefit realized by the Company due to the Company's current loss position. Total stock-based compensation related to stock options was
$62,000
for the
three
months ended
April 2, 2017
.
Restricted Stock Units and Performance-based Restricted Stock Units
The Company began issuing RSUs and PRSUs in the third quarter of 2007. RSUs entitle the holder to receive, at no cost, one common share for each RSU as it vests. In general, the Company's policy is to withhold shares in settlement of employee tax withholding obligations upon the vesting of RSUs. The stock-based compensation related to RSUs and PRSUs was
$156,000
and
$0
for the
three
months ended
April 2, 2017
, respectively. As of
April 2, 2017
and April, 3, 2016, there was
$1.0 million
and
$1.7 million
, respectively, in unrecognized compensation expense related to RSUs and PRSUs.
A summary of activity for the Company's RSUs and PRSUs for the
three months
ended
April 2, 2017
and information regarding RSUs and PRSUs outstanding and expected to vest as of
April 2, 2017
is as follows:
|
|
|
|
|
|
|
|
|
RSUs & PRSUs Outstanding
|
|
Number of Shares
|
|
Weighted Average
Grant Date Fair Value
|
|
(in thousands)
|
|
|
Nonvested at January 1, 2017
|
1,370
|
|
|
$
|
1.68
|
|
Granted
|
136
|
|
|
1.70
|
|
Vested
|
(52
|
)
|
|
1.72
|
|
Forfeited
|
(101
|
)
|
|
—
|
|
Nonvested at April 2, 2017
|
1,353
|
|
|
$
|
1.68
|
|
Employee Stock Purchase Plan
The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's 2009 ESPP during the
first
quarters of
2017
and
2016
was
$0.23
and
$0.38
per right, respectively.
As of
April 2, 2017
,
687,000
shares remained available for issuance under the 2009 ESPP. For the
three
months ended
April 2, 2017
, the Company recorded stock-based compensation expense related to the 2009 ESPP of
$67,000
.
The fair value of rights issued pursuant to the Company's 2009 ESPP was estimated on the commencement date of each offering period using the following weighted average assumptions:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2017
|
|
April 3,
2016
|
Expected term (months)
|
6.00
|
|
|
6.00
|
|
Risk-free interest rate
|
0.57
|
%
|
|
0.31
|
%
|
Volatility
|
48.69
|
%
|
|
57.16
|
%
|
Dividend yield
|
—
|
|
|
—
|
|
As of
April 2, 2017
, the unrecognized stock-based compensation expense relating to the Company's 2009 ESPP was
$31,000
and is expected to be recognized over a weighted average period of approximately
1.4
months.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 10 — Income Taxes
In the
first
quarters of
2017
and
2016
, the Company recorded a net income tax expense of
$36,000
and
$64,000
, respectively. The income tax expense for the first quarters of 2017 and 2016 relates to income taxes from the Company's foreign operations.
Based on the available objective evidence, management believes it is more likely than not that the Company's US domestic net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against the associated deferred tax assets. The Company will continue to assess the realizability of the deferred tax assets in future periods.
Note 11 — Information Concerning Product Lines, Geographic Information and Revenue Concentration
The Company identifies its business segment based on business activities, management responsibility and geographic location. For all periods presented, the Company operated in a single reportable business segment.
The following is a breakdown of revenue by product line (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2017
|
|
April 3,
2016
|
Revenue by product line
(1)
:
|
|
|
|
|
|
New products
|
$
|
1,912
|
|
|
$
|
1,492
|
|
Mature products
|
1,258
|
|
|
1,458
|
|
Total revenue
|
$
|
3,170
|
|
|
$
|
2,950
|
|
_________________
(1)
For all periods presented: New products include all products manufactured on 180 nanometer or smaller semiconductor processes. Mature products include all products produced on semiconductor processes larger than 180 nanometers. eFPGA IP license revenue is also included in new product revenue.
The following is a breakdown of revenue by shipment destination (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2017
|
|
April 3,
2016
|
Revenue by geography:
|
|
|
|
|
|
Asia Pacific
(1)
|
$
|
1,733
|
|
|
$
|
1,727
|
|
North America
(2)
|
1,133
|
|
|
819
|
|
Europe
|
304
|
|
|
404
|
|
Total revenue
|
$
|
3,170
|
|
|
$
|
2,950
|
|
___________
(1)
Asia Pacific includes revenue from South Korea of
$542,000
, or
17%
, of total revenue and
$1.1 million
, or
37%
, of total revenue for the quarters ended April 2, 2017 and April 3, 2016, respectively.
(2)
North America includes revenue from the United States of
$1.1 million
, or
35%
, of total revenue and
$802,000
or
27%
, for the quarters ended April 2, 2017 and April 3, 2016, respectively.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following distributors and customers accounted for 10% or more of the Company's revenue for the periods presented:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
April 2,
2017
|
|
April 3,
2016
|
Distributor "A"
|
30
|
%
|
|
28
|
%
|
Distributor "E"
|
10
|
%
|
|
*
|
|
Customer "B"
|
*
|
|
|
18
|
%
|
Customer "G"
|
22
|
%
|
|
35
|
%
|
Customer "H"
|
13
|
%
|
|
*
|
|
The following distributors and customers accounted for 10% or more of the Company's accounts receivable as of the dates presented:
|
|
|
|
|
|
|
|
April 2,
2017
|
|
January 1,
2017
|
Distributor "A"
|
35
|
%
|
|
32
|
%
|
Distributor "G"
|
*
|
|
|
11
|
%
|
Distributor "H"
|
*
|
|
|
13
|
%
|
Distributor "I"
|
*
|
|
|
15
|
%
|
Customer "G"
|
15
|
%
|
|
*
|
|
Customer "I"
|
*
|
|
|
12
|
%
|
Customer "K"
|
26
|
%
|
|
*
|
|
|
|
*
|
Represents less than 10% of accounts receivable as of the date presented.
|
As of
April 2, 2017
, less than 10% of the Company's long-lived assets, including property and equipment and other assets, were located outside the United States.
Note 12 — Commitments and Contingencies
Commitments
The Company's manufacturing suppliers require us to forecast wafer starts several months in advance. The Company is required to take delivery of and pay for a portion of forecasted wafer volume. As of
April 2, 2017
, and
January 1, 2017
, the Company had
$1.5 million
and
$1.6 million
respectively, of outstanding commitments for the purchase of wafer and finished goods inventory.
The Company has obligations with certain suppliers for the purchase of other goods and services entered into in the ordinary course of business. As of
April 2, 2017
, total outstanding purchase obligations for other goods and services were
$882,000
, all of which are due within the next twelve months, except for
$2,000
relating to capital lease maintenance commitment.
The Company leases its primary facility under a non-cancelable operating lease that expires at the end of 2018. In addition, the Company rents development facilities in India as well as sales offices in Europe and Asia. Total rent expense for the
first
quarters of
2017
and
2016
was approximately
$211,000
and
$198,000
, respectively.
QUICKLOGIC CORPORATION
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 13 — Litigation
From time to time, the Company may become involved in legal actions arising in the ordinary course of business including, but not limited to, intellectual property infringement and collection matters. Absolute assurance cannot be given that any such third party assertions will be resolved: (i) without costly litigation; (ii) in a manner that is not adverse to the Company's financial position, results of operations or cash flows; or (iii) without requiring royalty or other payments which may adversely impact gross profit.