QUICKLOGIC CORPORATION Forward-Looking Statements
The following Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained in "Risk Factors" in Part II, Item 1A and elsewhere in this Quarterly Report on Form 10-Q, contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend that these forward-looking statements be subject to the safe harbor created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as "will," "may," "should," "forecast," "could," "expect," "suggest," "believe," "anticipate," "intend," "plan," "future," "potential," "target," "seek," "continue," "if" or other similar words. The forward-looking statements contained in the Quarterly Report include statements regarding our strategies as well as (1) our revenue levels, including the commercial success of our solutions and new products, (2) the conversion of our design opportunities into revenue, (3) our liquidity, (4) our gross profit and breakeven revenue level and factors that affect gross profit and the break-even revenue level, (5) our level of operating expenses, (6) our research and development efforts, (7) our partners and suppliers, (8) industry and market trends, (9) our manufacturing and product development strategies and (10) our competitive position. The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year endedJanuary 2, 2022 , found in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 22, 2022 . Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading "Risk Factors" in Part II, Item 1A hereto and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements, or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that may arise after the date of this Quarterly Report on Form 10-Q. Overview We develop low power, multi-core semiconductor platforms and IP for AI, voice and sensor processing. The solutions include an eFPGA for hardware acceleration and pre-processing, and heterogeneous multi-core SoCs that integrate eFPGA with other processors and peripherals. The SensiML Analytics Toolkit from our wholly owned subsidiary,SensiML completes the "full stack" end-to-end solution with accurate sensor algorithms using AI technology. The full range of platforms, software tools and eFPGA IP enables the practical and efficient adoption of AI, voice, and sensor processing across Consumer/Industrial IoT, Consumer electronics, Military, Aerospace and Defense applications. Our new products include our EOS™, QuickAI™,SensiML Analytics Studio , ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products (which together comprise our new product category). Our mature products include primarily FPGA families named pASIC®3 and QuickRAM® as well as programming hardware and design software. In addition to delivering our own semiconductor solutions, we have an IP business that licenses our eFPGA technology for use in other semiconductor companies SoCs. We began delivering our eFPGA IP product ArcticPro™ in 2017, which is included in the new product revenue category. Through the acquisition ofSensiML , we now have an IoT AI software platform that includes SaaS subscriptions for development, per unit license fees when deployed in production, and proof-of-concept services - all of which are also included in the new product revenue category. Inclusive of one pending, patent application disclosed in our fiscal 2021 annual report, at the end of the second quarter of fiscal 2022 we had a total of five patent applications pending. Our semiconductor solutions typically fall into one of three categories: Sensor Processing, Display and Smart Connectivity. Our solutions include a unique combination of our silicon platforms, IP cores, software drivers, and in some cases, firmware, and application software. All of our silicon platforms are standard devices and must be programmed to be effective in a system. Our IP that enables always-on context-aware sensor applications includes our Flexible Fusion Engine, ourSensor Manager and Communications Manager technologies as well as IP that (i) improves multimedia content, such as our Visual Enhancement Engine, ("VEE"), technology, and Display Power Optimizer, ("DPO"), technology; and (ii) implements commonly used mobile system interfaces, such as Low Voltage Differential Signaling, ("LVDS"), Mobile Industry Processor Interface, ("MIPI"), and Secure Digital Input Output, ("SDIO"). Through the acquisition ofSensiML , our core IP also includes the SensiML AI Toolkit that enables OEMs to develop AI software for a broad array of resource-constrained time-series sensor endpoint applications. These include a wide range of consumer and industrial sensing applications. 15
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We also work with processor manufacturers, sensor manufacturers, and voice
recognition, sensor fusion and context awareness algorithm developers in the
development of reference designs. Through reference designs that incorporate our
solutions, we believe mobile processor manufacturers, sensor manufacturers, and
sensor and voice algorithm companies can expand the available market for their
respective products. Furthermore, should a solution developed for a processor
manufacturer or sensor and/or sensor algorithm company be applicable to a set of
common OEMs or Original Design Manufacturers, ("ODMs"), we can amortize our
Research and Development, ("R&D"), investment over that set of OEMs or ODMs.
There may also be cases when platform providers that intend to use always-on
voice recognition will dictate certain performance requirements for the combined
software/hardware solution before the platform provider certifies and/or
qualifies our product for use by end customers.
In addition to working directly with our customers, we partner with other
companies that are experts in certain technologies to develop additional IP,
reference platforms and system software to provide application solutions,
particularly in the area of hardware acceleration for AI-type applications. We
also work with mobile processor and communications semiconductor device
manufacturers and companies that supply sensor, algorithms, and applications.
For our sensor processing solutions, we collaborate with sensor manufacturers to
ensure interface compatibility. We also collaborate with sensor and voice/audio
software companies, helping them optimize their software technology on our
silicon platforms in terms of performance, power consumption and user
experience.
Our ArcticPro eFPGA IP are currently developed on 65nm, 40nm and 22nm process
nodes. The licensable IP is generated by a compiler tool that enables licensees
to create an eFPGA block that they can integrate into their SoC without
significant involvement by QuickLogic . We believe this flow enables a scalable
support model for QuickLogic . For our eFPGA strategy, we work with semiconductor
manufacturing partners to ensure our eFPGA IP is proven for a given foundry and
process node before it is licensed to a SoC company.
In order to grow our revenue from its current level, we depend upon increased
revenue from our new products including existing new product platforms, eFPGA IP
and platforms currently in development. We expect our business growth to be
driven mainly by our silicon solutions, eFPGA IP and SensiML AI Software .
Therefore, our revenue growth needs to be strong enough to enable us to sustain
profitability while we continue to invest in the development, sales and
marketing of our new solution platforms, IP, and software. We are expecting
revenue growth from EOS S3, SensiML AI SaaS, and eFPGA IP licensing in fiscal
year 2022.
We continue to seek to expand our revenue, including pursuing high-volume sales
opportunities in our target market segments, by providing solutions
incorporating IP, or industry standard interfaces. Our industry is characterized
by intense price competition and by lower margins as order volumes increase.
While winning large volume sales opportunities will increase our revenue, we
believe these opportunities may decrease our gross profit as a percentage of
revenue.
During the third quarter of 2022, we generated total revenue of $3.5 million , a
decrease of 24% compared to the prior quarter, and a decrease of 10% compared to
the same quarter last year. Our new product revenue in the third quarter
was $2.3 million , a decrease of 28% from the prior quarter and a
decrease of 18% from the third quarter of 2021. The decrease in new product
revenue was primarily driven by a $1.4 million reduction in hardware product
revenue, partially offset by increases of $0.7 million in eFPGA IP revenue and
$0.2 million in SaaS & Other revenue in the current quarter. Our mature product
revenue was $1.2 million in the third quarter of 2022, a
decrease of 14% compared to the prior quarter, and an increase of 10% compared
to the third quarter of 2021. We expect our mature product revenue to continue
to fluctuate over time.
We devote substantially all of our development, sales and marketing efforts to
our new FPGA IP licensing and SensiML initiatives. Overall, we reported a net
loss of $1.3 million for the third quarter of 2022, an increase of 157% compared
with the prior quarter, and an increase of 5% compared with the third quarter of
2021.
We have experienced net losses in the recent years and expect losses to continue
through at least fiscal year 2022 as we continue to develop new products,
applications, and technologies. Whether we can achieve cash flow levels
sufficient to support our operations cannot be accurately predicted. Unless such
cash flow levels are achieved in addition to the proceeds we received from our
recent sale of our equity securities, we may need to borrow additional funds or
sell debt or equity securities, or some combination thereof, to provide funding
for our operations, and such additional funding may not be available on
commercially reasonable terms, or at all.
There have been no material changes due to the impact of the Covid-19 pandemic
on our business from that disclosed in our most recently filed Annual Report.
Our most recent Annual Report on Form 10-K for the year ended January 2, 2022 as
filed with the SEC on March 22, 2022 provides additional information about our
business and operations.
Critical Accounting Policies and Estimates
The methodologies, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our unaudited condensed consolidated financial statements. TheSEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical policies include revenue recognition, and determination of the Stand-Alone Selling Price ("SSP") for certain distinct performance obligations (such as for IP licensing and professional services contracts), goodwill and intangible assets, valuation of inventories including identification of excess quantities and product obsolescence, allowance for doubtful accounts, valuation of long-lived assets, leases, measurement of stock-based compensation, and accounting for income taxes. We believe that we apply judgments and estimates in a consistent manner and that this consistent application results in our consolidated financial statements and accompanying notes that fairly represent all periods presented. However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements. During the three and nine months endedOctober 2, 2022 , there were no changes in our critical accounting policies from our disclosure in our Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2022 , filed with theSEC onMarch 22, 2022 . 16
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Results of Operations
The following table sets forth the percentage of revenue for certain items in
our unaudited condensed consolidated statements of operations for the periods
indicated:
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 51 % 29 % 45 % 41 %
Gross profit 49 % 71 % 55 % 59 %
Operating expenses:
Research and development 29 % 47 % 29 % 60 %
Selling, general and administrative 56 % 57 % 50 % 66 %
Loss from operations (36 )% (33 )% (24 )% (66 )%
Interest expense (1 )% (1 )% - % (1 )%
Gain on forgiveness of debt - % - % - % 13 %
Interest income and other income
(expense), net (2 )% - % (1 )% (1 )%
Loss before income taxes (39 )% (34 )% (25 )% (55 )%
Provision for (benefit from) income
taxes - % (1 )% - % 1 %
Net loss (39 )% (33 )% (25 )% (56 )%
Three Months Ended
Revenue
The table below sets forth the changes in revenue in the three months
ended
Three Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
New
products $ 2,252 65 % $ 2,758 71 % $ (506 ) (18 )%
Mature
products 1,207 35 % 1,100 29 % 107 10 %
Total
revenue $ 3,459 100 % $ 3,858 100 % $ (399 ) (10 )%
-------------------------------------------------------------------------------- Note: For all periods presented, New products include hardware products and related revenues manufactured on 180 nanometer or smaller semiconductor processes, intellectual property license, professional services, QuickAI and SensiML AI software as a service (SaaS) revenues. Mature products include all products produced on semiconductor processes larger than 180 nanometer. Product revenue for the third quarter of 2022 compared to the third quarter of 2021 decreased$0.4 million . The decrease was comprised of a$0.5 million decrease in new products revenue, partially offset by a$0.1 million increase in mature product revenue. New Product Revenue
The table below sets forth the changes in new product revenue in the three
months ended
Three Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount PercentageHardware products$ 308 9 %$ 1,720 45 %$ (1,412 ) (82 )% eFPGA IP 1,700 49 % 1,000 26 % 700 70 % SaaS & Other 244 7 % 38 -- % 206 542 % Total new product revenue$ 2,252 65 %$ 2,758 71 %$ (506 ) (18 )% The$1.4 million decrease in new hardware product revenue was primarily comprised of a$0.9 million from smart connectivity products revenue and$0.5 million from sensor revenue. eFPGA IP revenue increased$0.7 million , or 70%, as compared to the same quarter in the prior year. The increase in eFPGA IP revenue was primarily driven by an increase in eFPGA-related professional services revenue of$1.7 million partially offset by$1.0 million decrease in eFPGA IP revenue. The increase in SaaS & Other was primarily driven by an increase in software-related professional services revenue. 17
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The table below sets forth the changes in gross profit for the three months
ended
Three Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
Revenue $ 3,459 100 % $ 3,858 100 % $ (399 ) (10 )%
Cost of revenue 1,781 51 % 1,126 29 % 655 58 %
Gross profit $ 1,678 49 % $ 2,732 71 % $ (1,054 ) (39 )%
In the third quarter of 2022, gross profit decreased $1.1 million , or 39%, as
compared to the same quarter in the prior year. The decrease in gross profit
reflects a 10% decrease in revenue, primarily composed of a decrease of $1.4
million in new product hardware revenue partially offset by increases of $0.7
million and $0.2 million in eFPGA IP and SaaS and other revenues, respectively
and $0.1 million in mature product revenue. The $0.7 million increase in cost of
revenues was primarily comprised of $0.9 million increase in costs related
to eFPGA IP, and partially offset by a $0.3 million decrease in hardware product
costs. The increase in eFPGA IP costs are primarily attributable to R&D costs
allocable to cost of revenue related to eFPGA IP revenue and higher tooling
costs on revenue projects, and the decrease in hardware product costs reflected
the reduction in volume of products sold, partially offset by higher outside
cost and material price variances. In addition, revenue in the third quarter of
2021 was partially comprised of $1.0 million in eFPGA IP license revenue with
minimal associated costs.
Our semiconductor products have historically had long product life cycles and
obsolescence has not been a significant factor in the valuation of inventories.
However, as we continue to pursue opportunities in the mobile market and develop
new solutions and products, our product life cycle will be shorter, and the risk
of obsolescence will increase. In general, our standard manufacturing lead times
are longer than the binding forecasts we receive from customers.
Operating Expenses
The table below sets forth the changes in operating expenses for the three
months ended
Three Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
R&D expense $ 1,018 29 % $ 1,807 47 % $ (789 ) (44 )%
SG&A expense 1,900 56 % 2,186 57 % (286 ) (13 )%
Total operating expenses $ 2,918 85 % $ 3,993 103 % $ (1,075 ) (27 )%
Research and Development
Our R&D expenses consist primarily of personnel, overhead and other costs
associated with System on Chip (SoC) and software development, programmable
logic design, AI and eFPGA development. The $0.8 million decrease in R&D
expenses in the third quarter of 2022, as compared to the third quarter of 2021,
was primarily attributable to R&D costs allocable to cost of revenue related
to eFPGA IP revenue, a reduction in stock-based compensation expense, and in
salary and related expenses, partially offset by an increase in tooling costs.
R&D costs allocable to cost of revenues in support of eFGPA IP included costs
related to eFPGA intellectual property development and eFPGA professional
services revenue.
Selling, General and Administrative
Our selling, general and administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. The$0.3 milliondecrease in SG&A expenses in the third quarter of 2022, as compared to the third quarter of 2021 was primarily attributable to decreases in consulting costs and stock-based compensation expenses. These were partially offset by increases in salary and related expenses, legal expenses and insurance costs, utilities, accounting and audit expenses. 18
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Interest Expense, Interest Income and Other Income (Expense), Net
The table below sets forth the changes in interest expense and interest income and other income (expense), net, for the three months endedOctober 2, 2022 , compared to the three months endedOctober 3, 2021 (in thousands, except percentage data): Three Months Ended Change October 2, October 3, 2022 2021 Amount Percentage Interest expense$ (44 ) $ (35 ) $ (9 ) 26 % Interest income and other expense, net (60 ) (7 ) (53 ) 757 % Total interest expense, interest income and other income (expense), net$ (104 ) $ (42 ) $ (62 ) 148 % Interest expense relates primarily to our revolving line of credit facility and finance leases liabilities. Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned on our money market accounts. Changes in interest expense related to our revolving loan's interest rate variability and the timing of our outstanding loan balance. Interest expense for the third quarter of this year as compared to the same period in the prior year increased approximately$9 thousand which was comprised of a$29 thousand increase in interest expense in finance lease liabilities partially offset by a$20 thousand decrease in interest rates on our revolving line of credit loan. The change in interest income and other income (expense), net reflected increased foreign exchange losses over the prior period. Total interest income and other income (expense), net, was a net expense of approximately$0.1 million and$42 thousand for the three months endedOctober 2, 2022 andOctober 3, 2021 , respectively.
Provision for (Benefit From) Income Taxes
The table below sets forth the changes in the provisions for income taxes in
the three months ended
Three Months Ended Change
October 2, October 3,
2022 2021 Amount Percentage
Provision for (benefit from) income taxes $ 3 $ (21 ) $ 24 (114 )%
The majority of the income tax expense for the three months ended
Nine Months Ended
Revenue
The table below sets forth the changes in revenue for the nine months
ended
Nine Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
New products $ 8,833 73 % $ 5,095 57 % $ 3,738 73 %
Mature products 3,263 27 % 3,885 43 % (622 ) (16 )%
Total revenue $ 12,096 100 % $ 8,980 100 % $ 3,116 35 %
-------------------------------------------------------------------------------- Note: For all periods presented, New products include all products and related revenues manufactured on 180 nanometer or smaller semiconductor processes, eFPGA IP license, professional services, QuickAI and SensiML AI software as a service (SaaS) revenues. Mature products include all products produced on semiconductor processes larger than 180 nanometer.
Product revenue for the nine months ended
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The table below sets forth the changes in new product revenue in the nine months
ended
Nine Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
Hardware products $ 3,607 30 % $ 3,794 42 %$ (187 ) (5 )% eFPGA IP 4,911 41 % 1,150 13 % 3,761 327 % SaaS & Other 315 2 % 151 2 % 164 109 % Total new product revenue$ 8,833 73 %$ 5,095 57 %$ 3,738 73 % The$0.2 million decrease in new hardware product revenue was primarily comprised of a reduction of$1.2 million in sensor product revenue, partially offset by increases of$1.0 million in higher display product revenue and$0.2 million in connectivity product revenue. eFPGA IP revenue was primarily comprised of eFPGA intellectual property license revenue and eFPGA-related professional services revenue. eFPGA IP revenue increased$3.8 million , or 327%, as compared to the same period in the prior year, primarily driven by a$4.7 million increase in professional services revenue, partially offset by a$1.0 million decrease in IP product revenue. SaaS & Other revenue increased$0.2 million primarily driven by increased software-related professional services revenue. Gross Profit
The table below sets forth the changes in gross profit for the nine months
ended
Nine Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
Revenue $ 12,096 100 % $ 8,980 100 % $ 3,116 35 %
Cost of revenue 5,413 45 % 3,638 41 % 1,775 49 %
Gross profit $ 6,683 55 % $ 5,342 59 % $ 1,341 25 %
Gross profit for the nine months ended October 2, 2022 , as compared to
the nine months ended October 3, 2021 , increased $1.3 million , or 25%. The
increase was primarily due to an increase in revenue of $3.1 million or 35%,
partially offset by an increase in cost of revenue of $1.8 million , or 49%. The
increase in revenue was primarily comprised of an increase of $3.8 million in
eFPGA IP revenue, a $0.2 million increase in SaaS & Other revenue, partially
offset decreases of $0.2 million in new hardware product revenue and $0.6
million in mature product revenue. The increase in revenue was partially offset
by an increase of $1.8 million increase in cost of revenue comprised primarily
of $1.7 million in engineering labor and tooling costs on eFPGA revenue projects
costs, partially offset by a reduction in hardware product costs due to lower
volume and the mix of products sold.The increase in eFPGA IP engineering labor
costs are primarily attributable to R&D costs allocable to cost of
revenue related to eFPGA IP revenue and higher tooling costs on revenue
projects. In addition, revenue in the nine months ended October 3, 2021 was
partially comprised of $1.1 million in eFPGA IP license revenue with minimal
associated costs. eFPGA IP revenue and costs related to eFPGA IP revenue were
comprised eFPGA intellectual property license revenue and costs,
respectively, and eFPGA professional services revenue and costs, respectively.
Our semiconductor products have historically had long product life cycles and
obsolescence has not been a significant factor in the valuation of inventories.
However, as we continue to pursue opportunities in the mobile market and develop
new solutions and products, our product life cycle will be shorter, and the risk
of obsolescence will increase. In general, our standard manufacturing lead times
are longer than the binding forecasts we receive from customers.
Operating Expenses
The table below sets forth the changes in operating expenses for the nine months
ended October 2, 2022 , compared to the nine months ended October 3, 2021 (in
thousands, except percentage data):
Nine Months Ended
October 2, 2022 October 3, 2021 Change
% of Total % of Total
Amount Revenues Amount Revenues Amount Percentage
R&D expense $ 3,541 29 % $ 5,346 60 % $ (1,805 ) (34 )%
SG&A expense 6,018 50 % 5,927 66 % 91 2 %
Total operating expenses $ 9,559 79 % $ 11,273 126 % $ (1,714 ) (15 )%
Research and Development
Our research and development (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. R&D expenses
in the nine months ended October 2, 2022 , as compared to the nine months ended
October 3, 2021 , decreased $1.8 million . The decrease in R&D expense
was primarily attributable to R&D costs allocable to cost of revenue in support
of eFPGA IP and decreases in stock-based compensation costs and consulting
services, partially offset increases in salary and related expenses, tooling and
outside services. R&D costs allocable to cost of revenues in support of eFGPA
IP included costs related to eFPGA intellectual property license revenue and
eFPGA professional services revenue.
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Selling, General and Administrative
Our selling, general and administrative (SG&A) expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources, and general management. SG&A expenses in the nine months endedOctober 2, 2022 , as compared to the nine months endedOctober 3, 2021 , increased$0.1 million . The increase was primarily attributable to higher stock-based compensation expenses, legal fees and accounting and audit expenses, outside services expenses, insurance costs, dues and subscriptions and director service fees, partially offset by reductions in consulting expenses.
Interest Expense, Interest Income and Other Income (Expense), Net
The table below sets forth the changes in interest expense and interest income and other income (expense), net, for the nine months endedOctober 2, 2022 , compared to the nine months endedOctober 3, 2021 (in thousands, except percentage data): Nine Months Ended Change October 2, October 3, 2022 2021 Amount Percentage Interest expense$ (98 ) $ (99 ) $ 1 (1 )% Gain on forgiveness of debt - 1,192 (1,192 ) (100 )% Interest income and other expense, net (42 ) (59 ) 17 (29 )% Total interest expense, interest income and other income (expense), net$ (140 ) $ 1,034 $ (1,174 ) (114 )% Interest expense relates primarily to our line of credit facility and finance lease liabilities. Interest income and other income (expense), net, relates to net foreign exchange losses recorded, partially offset by interest earned on our money market accounts. Changes in interest expense related to our revolving loan's interest rate variability and timing of our outstanding loan balance. Interest expense for the nine months endedOctober 2, 2022 compared to the same period in the previous year decreased$1 thousand , which reflected a$27 thousand decrease in interest expense on our revolving line of credit loan, partially offset by increased interest expense from finance lease liabilities. Interest income and other expense, net, for the nine months endedOctober 2, 2022 compared to the same period in the previous year, decreased$17 thousand , primarily due to a reduction in foreign exchange losses over the previous year. Total interest expense and interest income and other income (expense), net, for the nine months endedOctober 3, 2021 was$1 million which included a gain on forgiveness of debt relates to the gain related to the forgiveness of the PPP loan of$1.2 million . Provision for Income Taxes
The table below sets forth the changes in provision for income
taxes for the nine months ended
Nine Months Ended Change
October 2, October 3,
2022 2021 Amount Percentage
Provision for income taxes $ 19 $ 136 $ 117 86 %
The majority of the income tax expense for the nine months ended October 2, 2022
and October 3, 2021 relates to our foreign subsidiaries, which are cost-plus
entities. Included in the provision for the nine months ended October 3,
2021 was a $125,000 deferred tax provision related to a one-time repatriation of
funds from our India entity.
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Liquidity and Capital Resources
We have financed our operations and capital investments through public and private offerings of our common stock, finance and operating leases, and borrowings under a revolving line of credit and cash flows used in operations, partially offset by cash used in operations. In addition to the Company's cash, cash equivalents and restricted cash of$20.0 million , as ofOctober 2, 2022 , other sources of liquidity included a$45.0 million drawn down from our revolving line of credit ("Revolving Facility") withHeritage Bank of Commerce ("Heritage Bank "), and$4.8 million in net proceeds from the Company's sale of common stock, of which$4.7 million represented the net proceeds from registered direct offerings. OnSeptember 14, 2022 andFebruary 9, 2022 , the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 487,279 and 310,000 shares of common stock, respectively, par value$0.001 , in registered direct offerings, resulting in net cash proceeds of approximately$3.2 million and$1.5 million , respectively. Issuance costs related toSeptember 14, 2022 and theFebruary 9, 2022 offering were immaterial. The purchase price for each share of common stock in theSeptember 14, 2022 and in theFebruary 9, 2022 placements were$6.57 and$4.78 , respectively. The Company currently intends to use the net proceeds from financings for working capital, the development of next generation eFPGA-based products, including AI and open source hardware or software, and general corporate purposes, and 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 is not involved in any negotiations with respect to any such transactions.
We were in compliance with all the Heritage Bank Revolving Facility loan
covenants as of
We currently use our cash to fund our working capital to accelerate the development of next generation products and for general corporate purposes. Based on past performance and current expectations, we believe that its existing cash and cash equivalents, together with available financial resources from the Revolving Facility withHeritage Bank , will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next twelve months. Various factors affect the Company's liquidity, including, among others: the level of revenue and gross profit as a result of the cyclicality of the semiconductor industry; the conversion of design opportunities into revenue; market acceptance of existing and new products including solutions based on its eFPGA IP, ArcticLink® and PolarPro® platforms, eFPGA, EOS S3 SoC, Quick AI solution, andSensiML software; fluctuations in revenue as a result of product end-of-life; fluctuations in revenue as a result of the stage in the product life cycle of its customers' products; costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchase commitments; customer credit terms; the amount and timing of research and development expenditures; the timing of new product introductions; production volumes; product quality; sales and marketing efforts; the value and liquidity of its investment portfolio; changes in operating assets and liabilities; the ability to obtain or renew debt financing and to remain in compliance with the terms of existing credit facilities; the ability to raise funds from the sale of equity in the Company; the issuance and exercise of stock options and participation in the Company's employee stock purchase plan; and other factors related to the uncertainties of the industry and global economics. Over the longer term, the Company anticipates that sales generated from its new product offerings, existing cash and cash equivalents, together with financial resources from its Revolving Facility withHeritage 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 inDecember 2023 , and its ability to raise additional capital in the public capital markets will be sufficient to satisfy its operations and capital expenditures. However, the Company cannot provide any assurance that it will be able to raise additional capital, if required, or that such capital will be available on terms acceptable to the Company. The inability of the Company to generate sufficient sales from its new product offerings and/or raise additional capital if needed could have a material adverse effect on the Company's operations and financial condition, including its ability to maintain compliance with its lender's financial covenants. As ofOctober 2, 2022 , most of our cash, cash equivalents and restricted cash were invested in a money market account atHeritage Bank . As ofOctober 2, 2022 , our interest-bearing debt consisted of$0.4 million outstanding under finance leases and$15.0 million outstanding under our Revolving Facility. See Note 5, Debt Obligations, to the unaudited condensed consolidated financial statements for more details. Cash balances held at our foreign subsidiaries was approximately$0.2 million and$0.4 million as ofOctober 2, 2022 andJanuary 2, 2022 , respectively. Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested. We do not expect such reinvestment to affect our liquidity and capital resources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy. Factors that affect our global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax-efficient manner, funding requirements for operations and investment activities, acquisitions and divestitures and capital market conditions. 22
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In summary, our cash flows were as follows (in thousands):
Nine Months Ended
October 2 , October 3,
2022 2021
Net cash used in operating activities
(634 ) (580 )
Net cash provided by financing activities 4,488 466
Net cash used in operating activities
For the nine months endedOctober 2, 2022 , net cash used in operating activities was$3.4 million , which was primarily due to the net loss of$3 million and a$27 thousand loss on the disposal of equipment, adjusted for net non-cash charges of$1.9 million , which included$1.3 million of stock-based compensation, depreciation and amortization expenses of$0.5 million , and an inventory write-downs of$72 thousand . Cash outflows from changes in operating assets and liabilities were approximately$2.3 million and were primarily due to an increase in accounts receivable, reflecting an increase in revenues during the period, increases in inventory and other assets and a decrease in deferred revenue, partially offset by an increase in trade payables, which are subject to variability of the timing of payments. For the nine months endedOctober 3, 2021 , net cash used in operating activities was$3.1 million , which was primarily due to the net loss of$5.0 million , adjusted for net non-cash charges of$1.0 million including$1.5 million of stock-based compensation, depreciation and amortization expenses of$471,000 , and inventory write-downs of$225,000 partially offset by the gain recognized from the forgiveness of debt of$1.2 million related to the PPP loan which was forgiven in the first quarter of fiscal 2021. Cash inflows from changes in operating assets and liabilities were approximately$1.0 million , primarily due to a decrease in inventory, and increases in trade payables and accrued liabilities subject to the variability of the timing of payments, partially offset by an increase in trade receivables due to the increase in revenue during the third quarter.
Net cash used in investing activities
For the nine months ended
Net cash provided by financing activities
Cash flows from financing activities includes the draw-downs and repayments of our line of credit. For the quarter ended of 2021 and 2020, these draw-downs and repayments netted to zero. For the nine months endedOctober 2, 2022 , cash provided by financing activities was$4.5 million , which was primarily derived from the net proceeds of$4.8 million from the stock issuances, partially offset by finance lease obligation payments. We continue to use and repay our revolving line of credit as our cash needs require. For the nine months endedOctober 3, 2021 , cash provided by financing activities was$0.5 million and was primarily derived from the net proceeds of$1.0 million from the stock issuances, partially offset by taxes paid relating to stock-based compensation equity awards. 23
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Part I. Financial Information (continued)
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet partnerships, arrangements or other relationships with unconsolidated entities or others, often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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