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Note 1 - The Company and Basis of Presentation | 12 Months Ended
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Jan. 01, 2023
Notes to Financial Statements |
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block] | 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 "(OEMs"), to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Hearable, Tablet and Internet-of-Things or IoT hardware products, Military, Aerospace and Defense products. QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip or SoC semiconductor solutions, embedded software, and algorithm solutions for always-on voice and sensor processing. The Company is a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power Field Programmable Gate Arrays"(FPGAs"). Starting in late 2021 the Company increased its professional engineering services business related to its eFPGA products for both civilian and military applications. The Company’s wholly owned subsidiary, SensiML Corp.("SensiML"), provides Analytics Toolkit, which is used in many of the applications where the Company’s ArcticPro™, eFPGA intellectual property "(IP") plays a critical role. SensiML Analytics toolkit is an end-to-end software suite that provides OEMs a straightforward process for developing pattern matching sensor algorithms using machine learning technology that are optimized for ultra-low power consumption. QuickLogic’s Fiscal Year ends on the Sunday closest to December 31. Fiscal Years 2022, 2021, and 2020 ended on January 1, 2023, January 2, 2022 and January 3, 2021, respectively. Supply Chain Disruptions Global, supply chain constraints have not had a material impact on the Company's business. While the Company has experienced some volatilities with input material costs and supplier costs in accordance with domestic and global economic conditions, none of these have had a material impact to its business during the year ended January 1, 2023. The Company does not expect material increases in costs over the next twelve months; however, it expects to be subject to continued, broader-based inflationary, labor, and supplier costs increases in alignment with domestic and global economic conditions. The Company expects any increases in costs to be dilutive to its gross profit; and it may be limited in its ability to offset any increased costs with price increases to customers. This may have a negative impact to its results from operations and cash flows. The conflict between Russia and Ukraine has negatively impacted the global economy and led to various economic sanctions being imposed by the U.S., United Kingdom, European Union and other countries against Russia. While the impacts of the conflict have not been material on the Company's results of operations, as the Company does not have operations or material customers or suppliers in either country, it is not possible to predict the broader consequences of this conflict. Changing U.S. Government export regulations, particularly relating to advanced semiconductors may limit the Company's ability to provide customers with certain goods and services in China. 2023 Cybersecurity Incident On January 20, 2023, the Company detected a ransomware infection affecting a limited number of IT systems, including systems that contained personal information of our employees. Upon detection of the incident, the Company promptly began an assessment of all Company IT systems, notified law enforcement, and engaged legal counsel and other incident response professionals. The Company continued its business operations during this incident and successfully restored all of its critical operational data. The Company has also taken steps to further secure its IT systems. Based on the ongoing investigation and information currently known at this time, the Company believes the incident has not had nor will have a material impact on its business, operations, ability to serve its customers, or financial results. See Note 15 for additional information. Liquidity The Company has financed its operations and capital investments through the sale of common stock, finance and operating leases, a revolving line of credit and cash flows from operations. As of January 1, 2023, the Company’s principal sources of liquidity consisted of cash and cash equivalents of $19.1 million, inclusive of a $15.0 million advance from its Revolving Facility with Heritage Bank of Commerce ("Heritage Bank"). The Company's principal contractual commitments include purchase obligations, re-payments of draw downs from the revolving line of credit, and payments under operating and finance leases. Purchase obligations are largely comprised of open purchase order commitments to suppliers. The Company's risk associated with the purchase obligations is limited to the termination liability provisions within those contracts, and as such, the Company does not believe they represent a material liquidity risk. See Note 6 for additional information. Heritage Bank has a first priority security interest in substantially all of the Company’s tangible and intangible assets to secure any outstanding amounts under a loan agreement. See Note 6 for additional information. On September 14, 2022 and February 9, 2022, the Company entered into common stock purchase agreements with certain investors for the sale of an aggregate of 487 thousand and 310 thousand shares of common stock, respectively, in registered direct offerings which resulted in net cash proceeds of approximately $3.2 million and $1.5 million, respectively. Issuance costs related to the September 14, 2022 and the February 9, 2022 offerings were immaterial. On September 22, 2021, the Company entered into a share subscription agreement for the sale of 125 thousand shares of Company's common stock, and on September 30, 2021, the Company entered into a common stock purchase agreement for the sale of 74 thousand shares of the Company's common stock in a registered direct offering, which resulted in net cash proceeds of approximately $1.0 million, net of $45 thousand in issuance costs. See Note 10 for additional information. The Company currently uses its cash to fund its working capital, to accelerate the development of next generation products and for general corporate purposes. Based on past performance and current expectations, the Company believes that its existing cash and cash equivalents, together with $3.2 million and $1.5 million gross cash proceeds from the September 14, 2022 and February 9, 2022 financings, respectively, its revenues from operations, and the available financial resources from the Revolving Facility with Heritage 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, ArcticLink® and PolarPro® platforms, ArcticPro™, EOS S3 SoC, Quick AI solution, and ™, QuickAI™, SensiML Analytics Toolkit, Eclipse II products, eFPGA IP licenses and professional services ; fluctuations in revenue as a result of product end-of-life; fluctuations in revenue as a result of the stage in the product life cycle of its customers’ products; costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchase commitments; customer credit terms; the amount and timing of research and development expenditures; the timing of new product introductions; production volumes; product quality; sales and marketing efforts; the value and liquidity of its investment portfolio; changes in operating assets and liabilities; the ability to obtain or renew debt financing and to remain in compliance with the terms of existing credit facilities; the ability to raise funds from the sale of equity in the Company; the ability to capitalize on synergies with our newly acquired subsidiary SensiML; the issuance and exercise of stock options and participation in the Company’s employee stock purchase plan; and other factors related to the uncertainties of the industry and global economics. Over the longer term, the Company anticipates that sales generated from its new product offerings, existing cash and cash equivalents, together with financial resources from its Revolving Facility with Heritage Bank, assuming renewal of the Revolving Facility or the Company entering into a new debt agreement with an alternative lender prior to the expiration of the revolving line of credit in December 2024, 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 have been prepared in accordance with Generally Accepted Accounting Principles, in the United States of America or ("US GAAP"), and the applicable rules and regulations of the Securities and Exchange Commission, ("SEC"), and include the accounts of QuickLogic and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Critical Accounting Policies and Use 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. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions in regards to revenue recognition; and the valuation of inventories including identification of excess quantities, market value and obsolescence. The methods, 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 our financial condition and results of operations and require 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 and determination of the standalone selling price ("SSP") for certain distinct performance obligations (such as for IP licensing and professional services contracts) and valuation of inventories. 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. Licensed Intellectual Property The Company licenses intellectual property that is incorporated into its products. Costs incurred under license agreements prior to the establishment of technological feasibility are included in research and development expense as incurred. Costs incurred for intellectual property once technological feasibility has been established and that can be used in multiple products are capitalized as a long-term asset. Once a product incorporating licensed intellectual property has production sales, the amount is amortized over the estimated useful life of the asset, generally up to five years. Licensed intellectual property is included in intangible assets, net on the Company’s consolidated balance sheet. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") Topic No. 606 and related Accounting Standards Updates ("ASUs"). The Company earns revenue from principal activities by delivering standard hardware products, eFPGA IP products, and software as a service to customers and other revenue. The Company applies a five-step model for recognizing revenue: • Identification of the contract, or contracts, with a customer, • Identification of the performance obligations in the contract, • Determination of the transaction price. The Company estimates the transaction price based on the amount expected to be received for transferring the performance obligations in the contract, which may include both fixed consideration and variable consideration. The Company's contracts with customers containing variable consideration are generally sales based royalties, which is fully constrained. • Allocation of the transaction price to the performance obligations in the contract, and • Recognition of revenue when, or as, we satisfy a performance obligation. As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk. The following is a description the Company's revenue recognition policy by principal activity: Hardware Product Revenue The Company generates revenue by supplying standard hardware products, which must be programmed before they can be used in an application. Standard hardware products may be programmed by the Company, distributors, end-customers or third parties. Contracts with customers for hardware products generally do not include other performance obligations such as services, extended warranties or other material rights. The Company's promise to transfer hardware products is identified as a distinct performance obligation. The Company recognizes revenue on hardware products when it transfers control of the promised products to the customer. Transfer of control of hardware products occurs when its performance obligation is satisfied, which typically occurs upon shipment from the Company's manufacturing site or headquarters. The Company recognizes revenue in an amount that reflects the consideration it expects to receive in exchange for those products, which also represents the SSP of its performance obligation. Hardware product prices are fixed. The Company's standard payment terms are less than one year, and it elected a practical expedient in which it does not assess whether a contract has a significant financing component. The Company allocates the transaction price of customer contracts to each distinct product based on its relative SSP. The majority of the Company's revenue is derived from hardware product sales. eFPGA IP Revenue eFPGA IP revenue is comprised primarily of eFPGA intellectual property revenue, eFPGA-related professional services revenue, and eFPGA-related support and maintenance. The Company recognizes eFPGA intellectual property revenue from licensing its eFPGA intellectual property to customers and recognizes eFPGA-related professional services revenue from the fees associated with custom development and integration of the Company's technology solutions into hardware products. The Company recognizes eFPGA revenue from support and maintenance services for post-implementation customer support ratably over the service term. Renewals of support and maintenance contracts create new performance obligations which the Company recognizes as revenue ratably over the service term. e FPGA IP contractual arrangements often include promises to transfer intellectual property licenses, to customize hardware products, and to provide professional services and technical support services. These contracts require the Company to apply judgment in identifying and evaluating contractual terms and conditions which may impact revenue recognition. Determining whether promised goods and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some contractual arrangements, the Company has concluded that the promised goods and services are distinct from each other and then these promised goods and services are considered individual performance obligations. In other contractual arrangement, the promised goods and services are deemed to not be distinct from each other and the Company has concluded that these promised goods and services are a single, combined performance obligation. Judgment is required to determine the SSP for each performance obligation. The Company rarely sell eFPGA IP on a standalone basis. Generally, the Company provides eFPGA-related professional services to customers based on unique contractual arrangement terms and conditions, with unique deliverables, often in conjunction with other performance obligations. As such, we are required to estimate the SSP for each performance obligation. In instances where the SSP is not directly observable because the Company does sell the promised goods or services separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company may have more than one SSP for individual performance obligations due to the stratification of those items by classes of customers and circumstances. In these instances, the Company may use information such as its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, type of the customer, customer tier, type of the technology used, customer demographics, geographic locations, and other factors. When contractual agreements contain multiple performance obligations, the Company accounts for individual performance obligations s eparately if they are distinct. The Company allocates the transaction price to the separate performance obligations based on their relative SSP. The Company also provides eFPGA-related professional services on a time-and-material basis. The Company recognizes revenue on contracts with a customer with a single performance obligation to transfer eFPGA intellectual property when the Company transfers control to the customer, which is generally upon product delivery to the customer assuming all other criteria for revenue recognition have been met. Generally, the Company satisfies contractual performance obligations over time. When the Company satisfies performance obligations over time, it recognizes revenue by applying an over-time methodology that provides a faithful depiction of the transfer of the contractual arrangement's deliverables to the customer. These over-time methodologies may include: • Model measured using the input method such as units of labor, • Model measured using the input method reflecting a generally consistent effort to satisfy those performance obligations throughout the contractual arrangement term, • Model measured using the output method such as the specific deliverables produced, • Model measured using the input method such as time and material for professional engineering services provided. For time and material derived revenue, the Company estimates a fully-burdened overhead rate for the labor and any materials required. Due to the nature of the work performed under contractual arrangements, the estimation of the over-time model is complex and involves significant judgment. In the case of the input methods, the key factors reviewed by management to estimate costs to complete each contract is the estimated labor days-effort necessary to complete the project, budgeted hours, hourly cost to the Company, profit margins, and engineering hours at cut-off when projects extend beyond a reporting period. In the case of the output method, key factors reviewed by the Company are the specific deliverables specified in the contracts with customers. The Company has methods and controls in place for tracking labor-days incurred in completing customization and other professional services as well as quantifying changes in estimates. In the Fiscal Year ended January 2, 2022, the Company recognized revenue from a contractual arrangement with an unaffiliated customer on the sale of eFPGA IP. The eFPGA IP included an eFPGA intellectual property license, know-how and eFPGA-related professional services. Consideration in the contractual arrangement was comprised of cash and non-cash. Non-cash consideration consisted of shares of common stock in the customer. The customer was, and continues to be, a privately held company and its common stock was not publicly traded. The Company applied significant judgement to estimate the fair value of the shares as a portion of the total contractual consideration. The Company recognized a $0.3 million non-marketable equity investment on its consolidated balance sheet and a corresponding amount in deferred revenue. This deferred revenue was recognized to revenue during the year ended January 1, 2023. See Note 8 for additional information. SaaS & Other Revenue SaaS & Other revenue is comprised primarily of software as a s ervice ("SaaS") revenue, software-related professional services revenue, and royalties from licensing the Company's technology. SaaS revenue is generated when the Company licenses its software to customers and allows customers to access the software over a short-term subscription basis. The Company grants the customer the right to access and use software at the outset of the arrangement and throughout the entire term of the arrangement. The Company recognizes SaaS revenue ratably over the license term. The Company recognizes revenue from software-related professional services as services are provided to the customer. The Company recognizes royalty revenue on the later of (i) the subsequent sale or usage, or (ii) satisfaction of a performance obligation to which some or all of the sales-based royalty has been allocated. Practical Expedients, Elections, and Exemptions • Taxes collected from customers and remitted to government authorities and that are related to the sales of our products are excluded from revenues. • Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in selling, general and administrative expense in the consolidated statements of operations. • The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with original expected lengths of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed. Contract Balances Due to the terms in contractual agreements with customers, the timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in accounts receivables, contract assets, or contract liabilities on the Company’s consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to invoicing if the Company does not have the unconditional right to invoice the customer. The Company records a contract liability (deferred revenue) when revenue is recognized subsequent to invoicing and also when consideration is received in advance of satisfying performance obligations. Balances in contract assets are transferred to accounts receivable when the Company has an unconditional right to invoice the customer. Balances in contract liabilities (deferred revenue) are recognized as revenue once the performance obligations are satisfied, as control of goods and services are transferred to the customer, all revenue recognition criteria have been met and any constraints have been resolved. Payment terms and conditions vary by term of contracts with the customer. The Company's contracts do not include a significant financing component. The Company's invoicing terms provide customers with simplified and predictable ways of purchasing the Company's goods and services and not to facilitate financing arrangements. The timing between invoicing and when payment is due is not significant. We defer costs until related revenue is recognized. The Company had contract asset s of approximately $2.0 million and $0.3 million and contract liabilities (reflected as deferred revenue) of $0 and $0.3 million on the consolidated balance sheets at January 1, 2023 and January 2, 2022, respectively. Assets Recognized from Costs to Obtain a Contract with a Customer The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has concluded that none of the costs it has incurred to obtain and fulfill its ASC 606 contracts during the years ended January 1, 2023 and January 2, 2022 met the capitalization criteria, and as such, there are no costs deferred nor recognized as assets on the consolidated balance sheets at January 1, 2023, and January 2, 2022. Hardware Product Sales Return Allowance The Company records an allowance for hardware product sales returns. The allowance for sales returns is based on a historical returns analysis performed on a quarterly basis. Amounts recorded for hardware product sales returns were $1 thousand and a $13 thousand sales return reversal, and $30 thousand for the years ended January 1, 2023, January 2, 2022 and January 3, 2021, respectively, on the Company's consolidated statements of operations. Cost of Revenues The Company records costs of revenue associated with hardware product revenues, eFPGA IP revenue and SaaS revenue. Hardware product costs include the cost of materials, contract manufacturing fees, shipping costs, and quality assurance. Hardware product costs also includes indirect costs such as warranty, excess and obsolete inventory charges, general overhead costs, depreciation and amortization of certain capitalized software. eFPGA IP and SaaS costs includes costs related to services under contractual agreements over the term of their respective agreements. These costs are primarily comprised of employee salary and benefits and other employee-related costs to perform work on revenue-generating contracts with customers, software tool utilization costs and contract engineering costs. Valuation of Inventories Hardware product inventories are stated at the lower of standard cost or net realizable value. Standard cost approximates actual cost on a first-in, first-out basis. The Company routinely evaluates quantities and values of its inventories in light of current market conditions and market trends and record reserves for quantities in excess of demand and product obsolescence. The evaluation may take into consideration historic usage, expected demand, anticipated sales price, the stage in the product life cycle of our customers’ products, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, customer design activity, customer concentrations, product merchantability and other factors. Market conditions are subject to change. Actual consumption of inventories could differ from forecasted demand and this difference could have a material impact on our gross margin and inventory balances based on additional provisions for excess or obsolete inventories or a benefit from inventories previously written down. The Company also regularly reviews the cost of inventories against estimated market value and records a lower of cost or market reserve for inventories that have a cost in excess of estimated market value, which could have a material impact on its hardware product gross margin and hardware product inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down. The Company's hardware products have historically had an unusually long product life cycle and obsolescence has not been a significant factor in the valuation of inventories. However, as the Company pursues opportunities in the IoT market and continue to develop new products, the Company believes its new product life cycle may be shorter, which could increase the potential for obsolescence. A significant decrease in demand could result in an increase in excess inventory on hand. Although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or frequent new product developments could have a significant impact on the value of its inventory and its results of operations.

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