Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties including those discussed under Part I, Item 1A, “Risk Factors.” These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
Overview
QuickLogic Corporation was founded in 1988 and reincorporated in Delaware in 1999. We provide innovative, programmable silicon and software platforms to enable our customers to develop custom hardware products in a fast time-to-market and cost-effective way. Specifically, we are a fabless semiconductor company with a variety of products: embedded FPGA ("eFPGA") intellectual property ("IP"), low power, multi-core semiconductor system-on-chips ("SoCs"), discrete FPGAs, and AI software. Our customers can use our eFPGA IP for hardware acceleration and pre-processing in their Application Specific Integrated Circuit (ASIC) products, our SoCs to run our customers' software and build their hardware around, and our discrete FPGAs to implement their custom functionality. The Analytics Toolkit from SensiML Corporation ("SensiML"), our wholly-owned subsidiary, provides an end-to-end Artificial Intelligence / Machine Learning solution with accurate sensor algorithms using AI technology. The full range of products, software tools, and eFPGA IP enables the practical and efficient field programmability for our customers across Aerospace, and Defense, Consumer/Industrial IoT, and Consumer Electronics markets.
Our new products include the following: eFPGA IP Licensing business, associated professional services, consisting of development and integration of eFPGA technology into custom semiconductor solutions, and our silicon products consisting of EOS™, QuickAI™, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products. In addition to delivering our own semiconductor solutions, our new products category includes our AI/ML Software Platform from our wholly-owned subsidiary company, SensiML, which includes Software as a Service (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 products revenue category. Our mature products include primarily FPGA families named PASIC®3 and QuickRAM®, as well as programming hardware and design software.
For our IP and silicon platforms, we collaborate with multiple partners on co-marketing and/or co-selling initiatives. These partners could have primary business lines in semiconductor IP, Design Services, semiconductor foundry, semiconductor assembly and test, and others. For our AI/ML Software, SensiML collaborates with several microcontroller and sensor manufacturers to integrate the microcontroller and/or sensor manufacturers’ development kits with SensiML’s Analytics Toolkit in order to showcase combined solutions for AI/ML applications. Currently, these collaborations include On Semiconductor Corp., Microchip Technology Inc., Silicon Laboratories, Inc., Arduino, NXP Semiconductors N.V., Raspberry Pi, and Nordic Semiconductor.
Our eFPGA IP is currently developed on 12nm, 16nm, 22nm, 28nm, 40nm, 65nm, 90nm, 130nm, and 250nm process nodes with a roadmap to more advanced, sub 10nm nodes. The licensable IP is generated by our automated compiler tool called Australis™, which enables our engineers to create an eFPGA IP for our licensees that they can then integrate into their SoC without significant involvement by QuickLogic. We believe this flow enables a scalable development and support model for QuickLogic. For our eFPGA strategy, we typically work with semiconductor manufacturing partners prior to this IP being licensed to a SoC company.
We have changed our manufacturing strategies to reduce the cost of our silicon solution platforms to enable their use in a range of unique products ranging from low to high volume. Our EOS S3, EOS S3AI, QuickAI and ArcticLink III silicon platforms combine mixed signal physical functions and hard-wired logic alongside our field programmable logic. Our EOS S3, EOS S3AI, and ArcticLink III solution platforms are manufactured on process nodes where we can benefit from smaller die sizes and lower power consumption. We typically implement sophisticated logic blocks and mixed signal functions in hard-wired logic because it is very cost-effective and energy efficient. We use small form factor packages, which are less expensive to manufacture and include smaller pin counts. Reduced pin counts result in lower costs for our customers' printed circuit board space and routing. Furthermore, our SRAM reprogrammable silicon platforms can be programmed in-system by our customers, and therefore, we do not incur programming costs, lowering the overall cost of ownership to our customers. We expect to continue to invest in silicon solution platforms and manufacturing technologies that make us competitive for the variety of markets and applications that programmable logic serves.
In order to grow our revenue from its current level, we depend upon increased revenue from our new products, including existing new product platforms and platforms currently in development. We expect our business growth to be driven mainly by eFPGA IP and our silicon solutions. Therefore, our revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sale, and marketing of our new solution platforms, IP, and software.
We market our programmable logic (FPGAs and eFPGA IP) solutions primarily to Defense Industrial Base contractors, U.S. Government entities, System OEMs, and fabless semiconductor companies. These customers may value one or more of our product categories. A solution can be based on our programmable technology, which enables customized designs, low power, flexibility, rapid time-to-market, longer time-in-market, and lower total cost of ownership. We are capable of providing complete solutions because of our investment in developing the low power IP and software required to implement specific functions, along with sensor software algorithms optimized for our architecture. In some cases, we develop the IPs and either software or firmware ourselves and, in other cases, we utilize third parties to develop the mixed signal physical layers, logic, and/or software.
We market our SoC and SensiML solutions to OEMs and ODMs offering differentiated Consumer/IoT products, to processor vendors wishing to expand their served available market, and to sensor manufacturers and sensor processing software companies wishing to expand their ecosystems. Our target markets for our SoC and SensiML products include Consumer/Industrial IoT and Consumer Electronics.
By using our silicon platforms, our IPs, our software, and our in-depth architecture knowledge, we can deliver energy efficient custom solutions that blend the benefits of traditional ASSPs with the flexibility, product proliferation, differentiation, and low total cost of ownership advantages of programmable logic.
26
Table of Contents
We monetize our technology through hardware product sales and eFPGA IP licenses, with any necessary corresponding work delivered via professional engineering services, SensiML Analytics Toolkit subscriptions, and per unit royalties. We specialize in enhancing the user experience in leading edge IoT hardware products. For our customers, we enable hardware and sensor algorithmic differentiation quickly, cost-effectively, and at low power. For our partners, we expand their reach into new segments and new use cases, thereby expanding the served available market for their existing hardware products.
Our embedded FPGA technology gives ASIC and SoC developers the benefit of flexibility to make post-manufacturing design changes at very fast time-to- and time-in-market, while keeping power consumption low. Our multi-core sensor processing products such as ArcticLink 3 S1, ArcticLink 3 S2, EOS 3, EOS S3 LV, and EOS S3AI provide an extremely power-efficient approach for real-time multi-modal (vision, motion, voice, location, biometric, and environmental) sensor processing independently of the cloud. Our SensiML Analytics Toolkit is cutting-edge software that enables ultra-low power IoT endpoints that implement AI to transform raw sensor data into meaningful insight at the device itself. The toolkit also provides an end-to-end development platform spanning data collection, labeling, algorithm and firmware auto generation, and testing.
We recognize that our markets require a range of solutions, and we intend to work with market-leading companies to combine silicon solution platforms, packaging technology, FPGA User Tools, sensor software algorithms, software drivers and firmware, to meet the product proliferation, high bandwidth, time-to-market, time-in-market, and form factor requirements of our customers. We intend to continue to define and implement compelling solutions for our target customers and partners.
We believe our solutions are resonating with our target customers who value lower power consumption, platform design flexibility, rapid time-to-market, longer time-in-market, and low total cost of ownership available through the use of our solutions.
We sell our products through a network of sales managers in North America, Europe, and Asia. In addition to our corporate headquarters in San Jose, California, we have international sales operations in Japan and the United Kingdom. Our sales personnel and independent sales representatives are responsible for sales and application support for a given region, focusing on major strategic accounts, and managing our channel sales partners such as distributors.
Customers typically order our products through our distributors. Currently, we have fourteen active distributors in North America and a network of nineteen active distributors and sales representatives throughout Europe and Asia to support our international business. eFPGA IP customers and SensiML SaaS subscribers typically enter into licensing agreements directly with QuickLogic and SensiML, respectively.
We also have an Aerospace and Defense, industrial, and IoT product customer base that purchases our mature silicon products. We expect to continue to offer silicon hardware products to these customers, as well as new eFPGA IP for when these customers choose to implement their own silicon platform solution.
New products revenue for the Fiscal Year ended December 29, 2024 was $16.1 million, a decrease of $2.1 million as compared to the Fiscal Year ended December 31, 2023 . Of the $16.1 million in new products revenue, approximately $13.1 million was generated from eFPGA IP revenue, primarily eFPGA-related professional engineering services, as compared to approximately $16.8 million in the Fiscal Year ended December 31, 2023 . Mature products revenue for the Fiscal Year ended December 29, 2024 was $4.0 million, an increase of $1.0 million compared to the Fiscal Year ended December 31, 2023 . We shipped new products into multiple end market segments including Aerospace and Defense, Industrial, IoT, Consumer, and SaaS revenue from the new Artificial Intelligence ("AI") market beginning in the Fiscal Year ended December 29, 2024. We reported a net loss of $3.8 million for the Fiscal Year ended December 29, 2024 compared to a net loss of $0.3 million in the Fiscal Year ended December 31, 2023 .
We have experienced net losses in the past years and expect to experience losses in at least some of the fiscal quarters during 2025 as we continue to develop new products, applications, and technologies. Our new hardware products and hardware products currently under development are generating stable gross margins year over year and higher margins than our mature products due to the markets that we have targeted, and the larger order quantities associated with these new products. New eFPGA products have been generating higher gross margins as a percentage of revenue. Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted, and our investment portfolio is subject to a degree of interest rate and liquidity risk. Unless such cash flow levels are achieved, in addition to the $3.2 million, $3.5 million, and $2.3 million in net proceeds that we received in December 2024 , March 2024, and March 2023, respectively, fro m the sale of our equity securities, and the revolving line of credit we may be able to draw down from Heritage Bank of Commerce, we may need to obtain additional funds through strategic divestiture, or sell debt or equity securities, or some combination thereof, to provide fundin g for our operations. Such additional funding may not be available on commercially reasonable terms, or at all.
Impact of Supply Chain Disruptions on Business
We continue to experience increased product and logistics costs and impacts from the worldwide semiconductor supply shortage. The semiconductor supply shortage is due, in part, to increased demand across multiple industries resulting in a slowdown in production schedules. The semiconductor supply shortage is also impacting our supply chain and our ability to meet demand for some of our customers.
Our Employees and Customers
QuickLogic nurtures a culture of teams of employees operating in a committed, execution-oriented, and globally collaborative environment. Our close-knit, family-oriented team welcomes and encourages all perspectives and ideas to improve and innovate in our space, providing exciting career opportunities for the future of technology. Collaboration is deeply ingrained in how we work with each other and our customers. We offer competitive compensation and benefits. Many of our personnel work from home except a few personnel required for minimum operations. We embrace remote work and enable our employees to do their best work from anywhere in the United States, allowing them to balance their work obligations with their personal lives. We are committed to our customers to provide the support they need to continue providing vital services and tools.
27
Table of Contents
Critical Accounting Policies and Estimates
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.
Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions. Areas where we use subjective judgment include, but are not limited to, revenue recognition, inventory valuation, including the identification of excess quantities, market value, and obsolescence, and valuation of goodwill and long-lived and intangible assets. We believe that we apply judgments and estimates in a consistent manner and that such consistent application results in consolidated financial statements and accompanying notes that fairly represent all periods presented. However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606 and related Accounting Standards Updates ("ASUs").
We earn revenue from principal activities by (i) delivering standard hardware products, (2) delivering and providing eFPGA IP products and professional services, (iii) and providing software as a service to customers, as well as (iv) other miscellaneous revenue.
In accordance with ASC 606, we apply a five-step model for recognizing revenue:
1.
Identification of the contract, or contracts, with a customer,
2.
Identification of the performance obligations in the contract,
3.
Determination of the transaction price. We estimate 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. Our contracts with customers containing variable consideration are generally sales-based royalties, which is fully constrained.
4.
Allocation of the transaction price to the performance obligations in the contract, and
5.
Recognition of revenue when, or as, we satisfy a performance obligation.
When entering into a new contract, we evaluate certain factors including the customer’s ability to pay, or credit risk.
The following is a description of our revenue recognition policy by principal activity:
Hardware Product Revenue
We generate 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 us, 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. Our promise to transfer hardware products is identified as a distinct performance obligation. We recognize revenue on hardware products when we transfer control of the promised products to the customer. Transfer of control of hardware products occurs when our performance obligation is satisfied, which typically occurs upon shipment from our manufacturing site or headquarters. We recognize revenue in an amount that reflects the consideration we expect to receive in exchange for those products, which also represents the standalone selling price ("SSP") of our performance obligation. Hardware product prices are fixed. We elected a practical expedient in which we do not assess whether a contract has a significant financing component since our standard payment terms are less than one year. We allocate the transaction price of customer contracts to each distinct product based on its relative SSP. The sale of hardware products does not typically involve significant judgment or estimates by management. However, we do record an allowance for hardware product sales returns, which requires some judgment by management.
We recognized hardware product revenue of approxima tely $6.1 million, or 30% of total revenue, $4.0 million, or 19% of total revenue, and $8.1 million, or 50% of total revenue, in the Fiscal Years ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively.
Hardware Product Sales Return Allowance
While the terms and conditions of the sale of hardware products generally do not allow for refunds or product returns other than for warranty repairs, we do record an allowance for hardware product sales returns. The allowance for sales returns is based on a historical returns analysis of the prior four quarters that is performed on a quarterly basis. Amounts recorded for hardware product sales returns were $1 thousand, $8 thousand, and $2 thousand for the years ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively, on our consolidated statements of operations. While hardware product sales returns have not been material to the company in recent reporting periods, we note there is an inherent uncertainty in estimating this allowance. In the case where actual results may significantly vary from management estimates, we may be required to make future adjustments to our revenues and operating results.
eFPGA IP Revenue
eFPGA IP revenue is comprised of eFPGA intellectual property revenue, eFPGA-related professional services revenue, and eFPGA-related support and maintenance revenue. We recognize eFPGA intellectual property revenue from licensing our eFPGA intellectual property to customers and recognize eFPGA-related professional services revenue from the fees associated with the custom development and integration of our technology solutions into hardware products. We recognize 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 for which we recognize as revenue ratably over the service term. The majority of our revenue is derived from sales of eFPGA IP licenses and professional services.
28
Table of Contents
eFPGA IP contractual arrangements often include promises to transfer intellectual property licenses, to customize hardware products, and to provide professional services and technical support services. We must determine whether the promised goods and services are distinct performance obligations that should be accounted for separately or are a single, combined performance obligation and should be accounted for together. In accordance with ASC 606, we must evaluate whether the customer can benefit from each good or service on its own or together with other resources that are readily available to the customer and whether the transfer of each good or service can be separately identifiable. We also must evaluate when control of the performance obligation is transferred to and accepted by the customer. We note these determinations, in addition to identifying contractual terms and conditions within the contract, including termination for convenience clauses, enforceable rights to payment for performance completed-to-date, and consideration of the alternative use of the asset, require significant judgment. In these judgments, we consider the context of the contract, historical experience with similar contracts, and the interdependency of the promised goods and services.
Additionally, judgment is required by management to allocate the transaction price to the separately identifiable performance obligations in the contract. We allocate the transaction price of the contract to each performance obligation based on its relative SSP. We rarely sell eFPGA intellectual property licenses on a standalone basis. Generally, we will provide eFPGA-related professional services and support and maintenance services to customers in conjunction with eFPGA IP licenses based on unique contractual arrangement terms and conditions. As such, we are required to estimate the SSP for each performance obligation.
In instances where the SSP is not directly observable because we do not sell the promised goods or services separately, we typically determine the SSP using either the adjusted market assessment approach, residual approach, or the expected cost plus a margin approach, depending on the characteristics and context of the deliverable. The selected method is applied by us consistently for similar arrangements and deliverables. The factors used to select the most appropriate estimation method, as well as select the most appropriate SSP include, but are not limited to, the extent of internal costs required to provide the promised performance obligation, margins achieved on standalone sales of similar products, profit objectives, cost structure, location-specific factors, and competition.
In other instances, we 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, we may use information such as our overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, customer type, customer tier, type of the technology used, customer demographics, and geographic locations, among other factors. We also provide eFPGA-related professional services on a time-and-material basis.
Generally, we satisfy eFPGA-related contractual performance obligations over time as the customer simultaneously receives and consumes the benefits provided by our performance as we perform, our performance creates or enhances an asset that the customer controls as it is created or enhanced, or our performance does not create an asset with an alternative use to the company and we have an enforceable right to payment for performance completed to date. When we satisfy performance obligations over time, we recognize revenue by applying an over-time methodology that faithfully depicts our performance toward satisfaction of the performance obligation.
Due to the nature of the work performed under contractual arrangements, the selection and application of an over-time methodology is complex and involves significant judgment. In the case of the selection of an input method, the key factors reviewed by management to estimate costs to complete each contract include, but are not limited to, 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 selection of an output method, key factors reviewed by management include, but are not limited to, the specific deliverables specified in the contracts with customers and the duration of performance, inclusive of delays. We have methods and controls in place for tracking labor-days incurred in completing eFPGA IP contracts, as well as quantifying changes in estimates used within the chosen methodology. We consider labor-days to be a critical estimate as any significant variation of labor and time required to complete a contractual arrangement could cause a revenue claw-back from prior periods and deferral of revenue to future periods.
When the expected consideration from a revenue contract with a customer is less than the expected costs of fulfilling the contract, we are required to first impair any capitalized costs associated with the contract. We are also required to recognize a provision for contract losses as a liability on our balance sheet. This would result in an unfavorable impact to income from operations.
We recognized eFPGA IP revenue of approximately $13.1 million, or 65% of total revenue, $16.8 million, or 79% of total revenue, and $7.5 million, or 47% of total revenue, in the Fiscal Years ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively.
SaaS and Other Revenue
SaaS & Other Revenue is comprised primarily of software as a service ("SaaS") revenue and software-related professional services revenue. SaaS revenue is generated when we license our software to customers and allow customers to access the software over a short-term subscription basis. We grant the customer the right to access and use software at the outset of the arrangement and throughout the entire term of the arrangement. We recognize SaaS revenue ratably over the license term. We recognize revenue from software-related professional services as services are provided to the customer.
Other miscellaneous revenue is comprised primarily of royalties from licensing our technology. We recognize 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.
We recognized SaaS and Other Revenue of approxim ately $0.9 million , or 4% of total revenue, $0.4 million, or 2% of total revenue, and $0.6 million, or 3% of total revenue, in the Fiscal Years ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively.
29
Table of Contents
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.
•
We do 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.
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. We routinely evaluate quantities and values of our inventories in light of current market conditions and trends and record reserves for quantities in excess of demand and for 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, and product merchantability, among other factors. 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. We also regularly review the cost of inventories against estimated market value and record 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 our 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. Estimates of market value for our products require subjective criteria such as anticipated demand and market acceptance for unique products. Differences between these estimates and actual results could result in gross margin volatilities from period to period.
Our 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 we continue to develop new products, we believe our 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 we make every effort to ensure the accuracy of our 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 our inventory and our results of operations.
Goodwill
Goodwill represents the excess fair value of consideration transferred over the fair value of net assets acquired in a business combination. The carrying value of $0.2 million associated with our goodwill is not amortized but is annually tested for impairment during our fourth fiscal quarter, and more often if there is an indicator of impairment. We either perform a qualitative assessment under ASC 350, including the consideration of factors such as macroeconomic conditions, industry and market considerations, and overall financial performance, or a quantitative assessment under ASU No. 2017-14, which involves comparing the carrying value of the reporting unit to its fair value. Subsequent to our annual impairment testing in the fourth quarters of 2024 and 2023, there were no indicators of impairment that gave cause for additional impairment testing of goodwill. No impairment of goodwill has been recognized to date.
Long-Lived and Intangible Assets
Our long-lived assets include property and equipment, software, tooling, furniture and fixtures, leasehold improvements, and internal-use software. These assets are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of long-lived assets is calculated on a straight-line basis over the estimated useful lives of the assets, generally one to ten years, with the amortization period of internal-use software being generally five years and the amortization period of leasehold improvements being the shorter of the lease term or the estimated useful lives of the assets, which is generally three to five years. We note the estimation of the useful lives of our long-lived assets involves judgment and estimation by management. In the determination of an asset’s useful life, we consider the following factors: obsolescence, competition, historical product life cycles, and industry and market considerations, among others. Refer to Note 5 for additional information on the useful life ranges of our long-lived assets.
We recognize assets for pre-production design and development costs for which there is a contractual reimbursement by the customer. These assets are classified under 'tooling' within property and equipment and are depreciated over the estimated useful lives of the assets, generally seven years. Refer to Note 4 for additional information.
We capitalize costs related to the development and enhancement of hosted services we provide to our customers and the development and enhancement of other internally used engineering software as internal-use software. Costs incurred in the application development phase are capitalized and amortized on a straight-line basis over their useful lives, which are generally five to seven years. Costs related to planning and other preliminary project activities and post-implementation activities are expensed as incurred. We also capitalize costs related to internally used enterprise-level business and finance software in support of our operational needs as software.
Acquired intangible assets with finite useful lives are amortized on a straight-line basis over the periods benefited. We review the recoverability of our long-lived assets annually and when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. We assess possible impairment based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations, as well as the useful lives applied to the assets. If these cash flows are less than the carrying value of the asset or asset group, an impairment loss is recognized for the difference between the estimated fair value and the carrying value, and the carrying value of the related assets is reduced by this difference. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. In estimating future cash flows and the fair value of our long-lived assets, we consider changes in legal factors and the business climate, product and technology obsolescence, and competition. We performed an annual impairment assessment in the fourth quarters of 2024 and 2023 and deemed no impairment was necessary for the current or prior year. Subsequent to our annual impairment testing in the fourth quarters of 2024 and 2023, there were no indicators of impairment that gave cause for additional impairment testing of our long-lived assets. No impairment of intangible assets has been recognized to date. Additionally, we did not recognize any gains or losses on the disposal of equipment in the years ended December 29, 2024 or December 31, 2023.
30
Table of Contents
Results of Operations
The following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated:
Fiscal Years
2024
2023
2022
Statements of Operations:
Revenue
100
%
100
%
100
%
Cost of revenue
41
%
32
%
46
%
Gross profit
59
%
68
%
54
%
Operating expenses:
Research and development
32
%
30
%
31
%
Selling, general and administrative
44
%
38
%
46
%
Operating income (loss)
(17
)%
—
%
(23
)%
Interest expense
(2
)%
(1
)%
(1
)%
Interest income and other (expense) income, net
—
%
(1
)%
(2
)%
Income (loss) before income taxes
(19
)%
(2
)%
(26
)%
Provision for income taxes
—
%
—
%
—
%
Net income (loss)
(19
)%
(2
)%
(26
)%
Co mparison of Fiscal Years 2024 and 2023
Revenue . The table below sets forth the changes in revenue for Fiscal Year ended December 29, 2024, compared to Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
2024
2023
Year-Over-Year Change
Amount
% of Total Revenues
Amount
% of Total Revenues
Amount
Percentage
New products
$
16,128
80
%
$
18,211
86
%
$
(2,083
)
(11
)%
Mature products
3,984
20
%
2,987
14
%
997
33
%
Total revenue
$
20,112
100
%
$
21,198
100
%
$
(1,086
)
(5
)%
New products revenue consists of revenues from the sale of hardware products 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.
Total revenue decreased approximately $1.1 million, or (5)% in Fiscal Year ended December 29, 2024 as compared to the Fiscal Year ended December 31, 2023 . The decrease in total revenue was comprised of a decrease of $2.1 million in new product revenue, partially offset by an increase of $1.0 million in mature product revenue.
New Products Revenue . The table below sets forth the changes in new products revenue for Fiscal Year ended December 29, 2024 , compared to Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
2024
2023
Year-Over-Year Change
Amount
% of Total Revenues
Amount
% of Total Revenues
Amount
Percentage
Hardware products
$
2,547
13
%
$
1,230
6
%
$
1,317
107
%
eFPGA IP
13,120
65
%
16,839
79
%
(3,719
)
(22
)%
SaaS & Other
461
2
%
142
1
%
319
225
%
Total new products revenue
$
16,128
80
%
$
18,211
86
%
$
(2,083
)
(11
)%
The decrease in new product revenue was primarily driven by a decrease in eFPGA IP revenue, partially offset by increases in new hardware product revenue and SaaS & Other revenue. eFPGA IP revenue is comprised primarily of eFPGA intellectual property revenue, eFPGA-related professional services revenue, and eFPGA-related support and maintenance revenue. eFPGA IP revenue decreased approximately $3.7 million, or (22)%, as compared to the Fiscal Year ended December 31, 2023 . The decrease in eFPGA IP revenue was primarily comprised of a $3.5 million decrease in eFPGA-related professional services revenue. SaaS & Other revenue increased approximately $0.3 million, or 225% as compared to the Fiscal Year ended December 31, 2023. The increase in SaaS & Other revenue was driven by a $0.3 million increase in SaaS IP revenue. New hardware revenue increased by approximately $1.3 million, or 107%, in the Fiscal Year ended December 29, 2024 compared to the Fiscal Year endedDecember 31, 2023 . The increase in new hardware product revenue was primarily comprised of an increase of $1.1 million in connectivity product revenue and $0.2 million in display product revenue.
Contract liabilities (deferred revenue) associated with eFPGA-related professional services revenue was $0.4 million and $1.0 million and were included in deferred revenue on the consolidated balance sheets as of December 29, 2024 and December 31, 2023, respectively. Contract assets associated with eFPGA-related professional services revenue was $2.7 million and $3.6 million on the consolidated balance sheets as of December 29, 2024 and December 31, 2023, respectively.
31
Table of Contents
Gross Profit. The table below sets forth the changes in gross profit for Fiscal Year ended December 29, 2024 , compared to Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
2024
2023
Year-Over-Year Change
Amount
% of Total Revenues
Amount
% of Total Revenues
Amount
Percentage
Revenue
$
20,112
100
%
$
21,198
100
%
$
(1,086
)
(5
)%
Cost of revenue
8,226
41
%
6,711
32
%
1,515
23
%
Gross profit
$
11,886
59
%
$
14,487
68
%
$
(2,601
)
(18
)%
Gross profit in Fiscal Year 2024 compared to Fiscal Year 2023 decreased approximately $2.6 million, or (18)%. The change in gross profit reflects a decrease in revenue of $1.1 million, or (5)%, accompanied by an increase in cost of revenue of $1.5 million, or 23%. The decrease in revenue was driven by a $2.1 million decrease in new product revenue, primarily due to reductions in eFPGA IP professional services revenue, partially offset by a $1.0 million increase in mature product rev enu e. The $1.5 million increase in cost of revenue was primarily comprised of increases in labor, tooling, and tooling-related depreciation expense, offset by decreases in consulting costs, all collectively associated with performing for revenue contracts, including device production, and additionally further offset by changes in inventory reserves.
In Fiscal Years 2024 and 2023, we capitalized costs associated with internal-use software of approxima tely $1.1 million and $1.1 million, respectively. For Fiscal Years 2024 and 2023, we recognized $0.7 million and $0.6 million, respectively in amortiza tion expense of internal-use software in cost of revenues on our consolidated statements of operations.
Our hardware products have historically had a long product life cycle and obsolescence has not been a significant factor in the valuation of inventories. However, as we pursue opportunities in the IoT market and continue to develop new products, we believe our product life cycle may be shorter, which will increase the potential for obsolescence. In general, our standard manufacturing lead times are longer than the binding forecasts we receive from customers. The sale of inventories previously written-off was approximately $0.1 million and $0.1 million in Fiscal Years 2024 and 2023, respectively. We wrote down approximately $0.1 million and $0.6 million to inventory reserves in Fiscal Years 2024 and 2023.
Operating Expenses. The table below sets forth the changes in operating expenses for Fiscal Year ended December 29, 2024 compared to Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
2024
2023
Year-Over-Year Change
Amount
% of Total Revenues
Amount
% of Total Revenues
Amount
Percentage
Research and development
$
6,544
32
%
$
6,448
30
%
$
96
1
%
Selling, general and administrative
8,773
44
%
7,969
38
%
804
10
%
Total operating expenses
$
15,317
75
%
$
14,417
68
%
$
900
6
%
Research and Development Expenses. Our research and development expenses consist primarily of personnel, overhead, and other costs associated with System on Chip ("SoC") and software development, programmable logic design, and AI and eFPGA development. R&D expenses were $6.5 million and $6.4 million in Fiscal Years 2024 and 2023, respectively, which represented 32% and 30%, respectively, of revenue for those periods. The $0.1 million increase in R&D expenses in Fiscal Year 2024 as compared to Fiscal Year 2023 was primarily attributable to increases in employee salaries, financing arrangement expenses, and reductions in the allocation of R&D expenses to cost of revenues, partially offset by a decrease in consulting costs, software maintenance costs, and amortization expense associated with software tools. R&D costs allocable to cost of revenues are included in cost of revenue in the consolidated statements of operations.
Selling, General and Administrative Expenses. 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 were $8.8 million and $8.0 million in Fiscal Years 2024 and 2023, respectively, which represented 44% and 38%, respectively, of revenue for those periods. The $0.8 million increase in SG&A expenses in Fiscal Year 2024 as compared to Fiscal Year 2023 was primarily attributable to an increase in salaries and stock-based compensation costs, partially offset by a decrease in incentive compensation.
Interest Expense and Interest Income and Other (Expense) Income, net. The table below sets forth the changes in interest expense and interest income and other (expense) income, net, for the Fiscal Year ended December 29, 2024, as compared to Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
Year-Over-Year Change
2024
2023
Amount
Percentage
Interest expense
$
(406
)
$
(215
)
$
191
89
%
Interest income and other (expense) income, net
$
(1
)
$
(116
)
(115
)
(99
)%
Total interest expense and interest income and other (expense) income, net
$
(407
)
$
(331
)
$
76
23
%
Interest expense relates primarily to our line of credit facility. Interest income and other (expenses) income, net, relates to the interest earned on our money market accounts and foreign exchange gain or losses recorded.
32
Table of Contents
Provision for Income Taxes. The table below sets forth the changes in provision for income taxes in the Fiscal Year ended December 29, 2024 compared to the Fiscal Year ended December 31, 2023 (in thousands, except percentage data):
Fiscal Years
Year-Over-Year Change
2024
2023
Amount
Percentage
Provision for income taxes
$
3
$
2
$
1
50
%
Income tax expense for the Fiscal Year 2024 and 2023 relates primarily to foreign income tax provisions.
As of the end of Fiscal Year 2024, our ability to utilize our U.S. deferred tax assets in future periods is uncertain and, accordingly, we have recorded a full valuation allowance against the related U.S. deferred tax assets. We will continue to assess the realizability of deferred tax assets in future periods.
Comparison of Fiscal Years 2023 and 2022
For discussion related to the results of operations and changes in financial condition for Fiscal Year 2023 compared to Fiscal Year 2022, please refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Fiscal Year 2023 Form 10-K, which was originally filed with the SEC on March 27, 2024.
Key Performance Indicators
Sales, operating income, and net income are some of the key performance indicators that management uses to manage the business. Management uses sales, operating income (loss), and net income (loss) to evaluate the company's financial condition and operating performance, as well as evaluate income generated in deciding whether to reinvest profits into the company or to use such profits for other purposes, such as for acquisitions or share repurchases. These key performance indicators are also used to monitor budget versus actual results, as well as in competitive analyses by benchmarking to our competitors.
Liquidity and Capital Resources
We have historically financed our operating losses and capital investments through the sale of our common stock, financing arrangements, operating leases, and cash flows provided by operations. We also have the ability to draw advances from our revolving facility with Heritage Bank of Commerce ("Heritage Bank"). As of December 29, 2024, our principal sources of liquidity consisted of cash, cash equivalents, and restricted cash of $21.9 million, inclusive of $18 million in advances from our $20 million revolving facility. The revolving credit facility with Heritage Bank expires on December 31, 2025, and the Company fully expects to renew it before expiration.
Our principal contractual commitments include purchase obligations, re-payments of advances from our revolving facility, and payments under financing arrangements and operating leases. Purchase obligations include amounts that are recorded on our consolidated balance sheets, as well as amounts that are not recorded on our consolidated balance sheets. Purchase obligations that are recorded on our consolidated balance sheets are largely comprised of open purchase order commitments to suppliers and to subcontractors. Our risk associated with these purchase obligations is limited to the termination liability provisions within those contracts and as such, we do not believe they represent a material liquidity risk to us. Purchase obligations not recorded on our consolidated balance sheets represent significant future obligations associated with ongoing eFPGA IP revenue contracts. These obligations are dependent on numerous variables and therefore, it is difficult to predict the amount and timing of payments which could differ materially from our estimates.
Credit Agreement
On December 21, 2018 , we entered into an Amended and Restated Loan and Security Agreement with Heritage Bank (as amended, the "Loan Agreement") which among other things, provided a revolving facility ("Revolving Facility") allowing us to draw advances up to $15.0 million. The Revolving Facility includes a number of customary and restrictive financial covenants including maintaining certain minimum cash levels with the lender. On December 8, 2023, we entered into the Seventh Amendment to the Loan Agreement, which increased the line of credit to $20.0 million, extended the maturity date from December 31, 2024 to December 31, 2025, and increased the annual facility fee to $60 thousand from $45 thousand, payable each December 31st. Advances under the Revolving Facility bear a variable annual interest rate equal to one half of one percentage point (0.50%) above the prime rate. On December 29, 2024, we had an $18 million outstanding balance on the Revolving Facility with an interest rate of 8.00%. On December 31, 2023, we had a $20 million outstanding balance on the Revolving Facility with an interest rate of 9.00%. We were in compliance with all loan covenants under the Loan Agreement, as of the end of the current reporting period.
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 the Loan Agreement. Se e Note 7 to the consolidated fi nancial statements for additional information.
Common Stock Offerings
On March 6, 2025, we entered into common stock purchase agreements with certain institutional investors for the sale of an aggregate of 256 thousand shares of common stock in a registered direct offering pursuant to an effective shelf registration statement on Form S-3. These share placements resulted in gross proceeds of approximately $1.5 million. Issuance costs related to the offering are accounted for as a reduction in proceeds, and they were immaterial. Refer to Note 16 to the consolidated financial statements for additional information.
On February 25, 2025, we entered into an At Market Issuance Sales Agreement with Needham & Company, LLC (the "Agent"), pursuant to which we may offer and sell, from time to time, through the Agent, as sales agent, shares of the Company's common stock, having an aggregate offering price of up to $20,000,000.
On December 5, 2024, we entered into common stock purchase agreements with certain institutional investors and their affiliated entities for the sale of an aggregate of 424 thousand shares of common stock in a registered direct offering pursuant to an effective shelf registration statement on Form S-3, resulting in net cash proceeds of approximately $3.2 million. Issuance costs related to the offering were $27 thousand and are accounted for as a reduction in proceeds.
33
Table of Contents
On March 13, 2024, we entered into common stock purchase agreements with certain institutional investors and their affiliated entities for the sale of an aggregate of 223 thousand shares of common stock in a registered direct offering pursuant to an effective shelf registration statement on Form S-3, resulting in net cash proceeds of approximately $3.5 million. Issuance costs related to the offering were $24 thousand.
On March 21, 2023, we entered into common stock purchase agreements with certain investors for the sale of an aggregate of 450 thousand shares of our common stock, in a registered direct offering pursuant to an effective shelf registration statement on Form S-3, resulting in net cash proceeds of approximately $2.3 million. Issuance costs related to the offering were immaterial.
On September 14, 2022 and February 9, 2022, we 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 pursuant to an effective shelf registration statement on Form S-3, resulting in net cash proceeds of approximately $3.2 million and $1.5 million, respectively. Issuance costs related to the September 14, 2022 and February 9, 2022 offerings were immaterial.
On August 17, 2022, we filed a new Registration Statement on Form S-3 with the SEC to replace a previously expired Registration on Form S-3, under which we may sell, from time-to-time common stock, preferred stock, depositary shares, warrants, debt securities, and units, individually or as units comprised of one or more of the other securities or a combination thereof. Our registration statement became effective on August 26, 2022.
See N ote 11 to the consolid ated financial statements for additional information.
Cash Flows
As of December 29, 2024, most of our cash and cash equivalents were invested in a Heritage Bank money market account. As of December 29, 2024, our interest-bearing debt consisted of $3.1 million outstanding under finance arrangements and $18 million outstanding under our Revolving Facility. Se e Note 7 t o the consolidated financial statements for additional information.
Cash balances held at our foreign subsidiaries were approximately $0.1 million and $0.1 million as of December 29, 2024 and December 31, 2023 , 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 which affect our liquidity, capital resources, and 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.
Our cash flows were as follows (in thousands):
Fiscal Year
2024
2023
2022
Net cash provided by (used in) operating activities
$
27
$
4,847
$
(4,056
)
Net cash provided by (used in) investing activities
(6,465
)
(6,339
)
(814
)
Net cash provided by (used in) financing activities
3,712
6,897
4,466
Net Cash provided by (used in) Operating Activities
In Fiscal Year 2024, net cash provided by operating activities was $27 thousand, which was primarily due to non-cash charges of $8.6 million. Non-cash charges primarily consisted of stock-based compensation expense of $4.6 million, depreciation and amortization of long-lived assets and certain definite-lived intangible assets of $3.9 million, and write-down of inventories of $0.1 million. Non-cash charges were partially offset by a net loss of $3.8 million and changes in working capital of $4.7 million. Changes in working capital consisted of a decrease in trades payable of $3.6 million, a decrease in accrued liabilities of $1.1 million, an increase in accounts receivable of $0.8 million, a decrease in deferred revenue of $0.6 million, and a decrease in lease liabilities of $0.3 million, partially offset by a decrease in contract assets of $0.9 million, a decrease in other assets of $0.6 million, and a decrease in inventories of $0.3 million. Historically, our operating cash flows represented cash used in operating activities.
In Fiscal Year 2023, net cash provided by operating activities was $4.8 million, which was primarily due to non-cash charges of $5.3 million. Non-cash charges primarily consisted of stock-based compensation expense of $2.5 million, depreciation and amortization of long-lived assets and certain definite-lived intangible assets of $2.2 million, and write-down of inventories of $0.6 million. Non-cash charges were partially offset by a net loss of $0.1 million and changes in working capital of $0.3 million. Changes in working capital consisted of an increase in contract assets of $1.6 million, an increase in other assets of $1.2 million, and a decrease in lease liabilities of $0.4 million, partially offset by a decrease in accounts receivable of $1.0 million, an increase in accrued liabilities of $1.0 million, and an increase in deferred revenue of $0.8 million. Historically, our operating cash flows represented cash used in operating activities.
Net Cash provided by (used in) Investing Activities
Net cash used in investing activities in Fiscal Year 2024 was approximately $6.5 million, which was primarily attributable to capital expenditures related to property and equipment of $5.4 million, $0.1 million in expenditures related to intangible assets, and the capitalization of internal-use software in the amount of $1.1 million, partially offset by stock-based compensation capitalized to property and equipment and internal-use software in the amount of $9 thousand and $149 thousand, respectively.
Net cash used in investing activities in Fiscal Year 2023 was approximately $6.3 million, which was primarily attributable to capital expenditures primarily related to property and equipment of $5.6 million and the capitalization of internal-use software in the amount of $1.0 million, partially offset by stock-based compensation capitalized to internal-use software in the amount of $0.2 million.
Net Cash provided by (used in) Financing Activities
In Fiscal Year 2024, net cash provided by financing activities was $3.7 million, primarily attributable to proceeds from the issuance of common stock in the amount of $7.1 million, partially offset by $1.4 million in payments related to financing arrangements primarily for tooling related to revenue contracts with customers and $2.0 million in greater payments than borrowings on the Company's revolving line of credit.
34
Table of Contents
In Fiscal Year 2023, net cash provided by financing activities was $6.9 million, primarily attributable to an increase in our revolving credit facility in the amount of $5.0 million and proceeds from the issuance of common stock in the amount of $2.5 million, partially offset by $0.7 million in payments related to financing arrangements primarily for tooling related to revenue contracts with customers.
We require substantial cash to fund our business. However, we believe that our existing cash and cash equivalents, together with available financial resources from the revolving facility will be sufficient to satisfy our operations and capital expenditures over the next twelve months. Our revolving facility will expire on December 31, 2025. Further, any violations of debt covenants may restrict our access to any additional cash draws from the revolving line of credit and may require our immediate repayment of the outstanding debt amounts. After the next twelve months, our cash requirements will depend on many factors, including our level of revenue and gross profit, the market acceptance of our existing and new products, the levels at which we maintain inventories and accounts receivable, costs of securing access to adequate manufacturing capacity, new product development efforts, capital expenditures, and the level of our operating expenses. In order to satisfy our longer-term liquidity requirements, we may be required to raise additional equity or debt financing. There can be no assurance that financing will be available at commercially acceptable terms or at all.
Material Cash Requirements
The following discussion describes the material cash requirements from known contractual obligations and other obligations, and the effect such obligations are expected to have on our liquidity and cash flows in future fiscal periods. The following summarizes our material cash requirements as of December 29, 2024:
Payments Due by Period
Total
Less than 1 year
1-3 Years
4-5 Years
More than 5 Years
Operating lease obligations
$
816
$
339
$
477
$
—
$
—
Financing arrangements
3,404
2,123
1,281
—
—
Revolving Facility (1)
18,000
18,000
—
—
—
Purchase obligations:
Wafer purchases (2)
—
—
—
—
—
Other purchase commitments
1,272
1,192
80
—
—
Total material cash requirements
$
23,492
$
21,654
$
1,838
$
—
$
—
(1)
The current maturity date on our Revolving Facility is December 31, 2025. See Note 7 to th e consolidated financial statements for additional information.
(2)
Certain wafer manufacturers require us to forecast wafer starts several months in advance. We are committed to take delivery of and pay for a portion of forecasted wafer volume.
Concentration of Suppliers
We depend on a limited number of contract manufacturers, subcontractors, and suppliers for wafer fabrication, assembly, programming, and testing of our hardware products and for the supply of programming equipment. These services are typically provided by one supplier for each of our hardware products. We generally purchase these single or limited source services through standard purchase orders. Since we rely on independent subcontractors to perform these services, we cannot directly control product delivery schedules, costs, or quality levels. Our future success also depends on the financial viability of our independent subcontractors. These subcontract manufacturers produce products for other companies and we must place orders in advance of expected delivery. As a result, we have only a limited ability to react to fluctuations in demand for our products, which could cause us to have an excess or a shortage of inventories of a particular product, and our ability to respond to changes in demand is limited by these suppliers’ ability to provide products with the quantity, quality, cost, and timeliness that we require. The decision not to provide these services to us or the inability to supply these services to us, such as in the case of a natural or financial disaster, would have a significant impact on our business. Increased demand from other companies could result in these subcontract manufacturers allocating available capacity to customers that are larger or have long-term supply contracts in place and we may be unable to obtain adequate foundry and other capacity at acceptable prices, or we may experience delays or interruption in supply. Additionally, volatility of economic, market, social, and political conditions in countries where these suppliers operate may be unpredictable and could result in a reduction in product revenue or increase our cost of revenue and could adversely affect our business, financial condition, and results of operations.
Off-Balance Sheet Arrangements
We do not maintain any off-balance arrangements within the meaning of Item 303(b) of Regulation S-K.
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which is incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
35
Table of Contents