QuickLogic Annual Report 2015

Plain-text annual report

QUICKLOGIC CORPORATION FORM 10-K (Annual Report) Filed 03/18/16 for the Period Ending 01/03/16 Address Telephone CIK 1277 ORLEANS DR SUNNYVALE, CA 94089-1138 4089904000 0000882508 Symbol QUIK SIC Code Industry Sector Fiscal Year 3674 - Semiconductors and Related Devices Semiconductors Technology 12/29 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KS ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED JANUARY 3, 2016OR£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 000-22671QUICKLOGIC CORPORATION(Exact name of registrant as specified in its charter) Delaware 77-0188504(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)1277 Orleans DriveSunnyvale, CA 94089(Address of principal executive offices, including zip code)Registrant's telephone number, including area code: (408) 990-4000Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on which RegisteredCommon Stock, $0.001 par value The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act: None(Title of Class)Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes o No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer o Accelerated filer xNon-accelerated filer o (Do not check if a smaller reporting company) Smaller Reporting Company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No xThe aggregate market value of voting stock held by non-affiliates of the registrant as of June 28, 2015 , the registrant's most recently completed second fiscal quarter, was $81,507,156based upon the last sales price reported for such date on the Nasdaq Global Market. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of theoutstanding shares of common stock and shares held by executive officers and directors of the registrant have been excluded in that such persons may be deemed to be affiliates. Thisdetermination is not necessarily conclusive.At March 11, 2016 , the registrant had 56,976,921 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEItem 1 of Part 1 of this Form 10-K, Item 5 of Part II of this Form 10-K and Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate information by reference from the ProxyStatement for the registrant's Annual Meeting of Stockholders to be held on or about April 28, 2016, the "Proxy Statement". Except with respect to the information specifically incorporated byreference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof. Table of ContentsQUICKLOGIC CORPORATIONTABLE OF CONTENTS PagePART I Item 1. Business4Item 1A. Risk Factors15Item 1B . Unresolved Staff Comments22Item 2. Properties22Item 3. Legal Proceedings22Item 4. Mine Safety Disclosures22PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities23Item 6. Selected Financial Data25Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations26Item 7A. Quantitative and Qualitative Disclosures About Market Risk39Item 8. Financial Statements and Supplementary Data40Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure69Item 9A. Controls and Procedures69Item 9B. Other Information70PART III Item 10. Directors, Executive Officers and Corporate Governance71Item 11. Executive Compensation71Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters71Item 13. Certain Relationships, Related Transactions and Director Independence71Item 14. Principal Accounting Fees and Services71PART IV Item 15. Exhibits and Financial Statement Schedules72Signatures 2Table of ContentsFORWARD-LOOKING STATEMENTThis Annual Report on Form 10-K, including the information contained in "Management's Discussion and Analysis of Financial Condition and Results ofOperations", as well as information contained in “Risk Factors” in Item 1A and elsewhere in this Annual Report on Form 10-K, contains “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Forward-looking statements are generally written in the future tense and/or arepreceded by words such as “will,” “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” "future," "potential,""target," "seek," "continue," "if" or other similar words. Forward-looking statements include statements regarding (1) our revenue levels, including thecommercial success of our solutions, and new products, (2) the conversion of our design opportunities into revenue, (3) our liquidity, (4) our gross profit andbreakeven revenue level and factors that affect gross profit and the breakeven revenue level, (5) our level of operating expenses, (6) our research and developmentefforts, (7) our partners and suppliers (8) industry and market trends,(9) our manufacturing and product development strategies and (10) our competitive position.The forward-looking statements contained in this Annual Report involve a number of risks and uncertainties, many of which are outside of our control.Factors that could cause actual results to differ materially from projected results include, but are not limited to, risks associated with (i) the conversion of ourdesign opportunities into revenue; (ii) the commercial and technical success of our new products and our successful introduction of products and solutionsincorporating emerging technologies or standards; (iii) the expected proceeds from our recently announced public offering, which is subject to completion; (iv)our dependence on our relationships with third parties to manufacture our products and solutions; (v) our dependence upon single suppliers to fabricate andassemble our products; (vi) the liquidity required to support our future operating and capital requirements; (vii) our ability to accurately estimate quarterlyrevenue; (viii) our expectations about market and product trends; (ix) our future plans for partnerships and collaborations; (x) our dependence upon a fewcustomers for a significant portion of our total revenue; (xi) our ability to forecast demand for our products; (xii) our dependence on our international businessoperations; (xiii) our ability to attract and retain key personnel; (xiv) our ability to remain competitive in our industry; and (xv) our ability to protect ourintellectual property rights. Although we believe that the assumptions underlying the forward-looking statements contained in this Annual Report are reasonable,any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. The risks, uncertainties andassumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include,but are not limited to, those discussed under the heading “Risk Factors” in Part I, Item 1A hereto and the risks, uncertainties and assumptions discussed from timeto time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us asof the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should notbe regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation toupdate or revise any forward-looking statements, whether as a result of new information, future events or otherwise.As used herein, "QuickLogic", the "Company", "we", "our" and similar terms include QuickLogic Corporation and its subsidiaries, unless the contextindicates otherwise.3Table of ContentsPART IITEM 1. BUSINESSOverviewQuickLogic Corporation was founded in 1988 and reincorporated in Delaware in 1999. We develop and market low power customizable semiconductorand software algorithm solutions that enable customers to differentiate their products by adding new features, extending battery life and improving contextawareness and visual experience. Our solutions primarily target smartphones, wearable devices, tablets, and the Internet-of-Things or IoT. We are a fablesssemiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power Field Programmable GateArrays, or FPGAs. Our solutions integrate multi-core processing, programmable logic, sensor fusion and context aware algorithms, and embedded software. Oursolutions are created from our new silicon platforms including our EOS™, ArcticLink ® III, PolarPro ® 3, PolarPro II, PolarPro, and Eclipse II products (whichcomprise our new product category), our mature products, which are produced on semiconductor processes larger than 180 nanometers, primarily include ourpASIC ® 3 and QuickRAM ® as well as royalty revenue, programming hardware and design software. Our sensor algorithm software includes our SenseMe™software library.Our customer-specific solutions include a unique combination of our silicon platforms, proven system blocks, or PSBs, custom logic, sensor softwarealgorithms, software drivers, and in some cases, firmware, and application software. All of our silicon platforms are standard devices and must be programmed tobe effective in a system. Our PSBs range from intellectual property, or IP, which enables always-on context aware sensor applications, such as our Flexible FusionEngine, our Sensor Manager and Communications Manager technologies to IP that improves multimedia content, such as our Visual Enhancement Engine, or VEEtechnology, and Display Power Optimizer technology, or DPO; to IP which implements commonly used mobile system interfaces, such as Low VoltageDifferential Signaling, or LVDS, Mobile Industry Processor Interface, or MIPI, and Secure Digital Input Output, or SDIO. We provide complete solutions by firstarchitecting the solution jointly with our customer's or ecosystem partner’s engineering group, selecting the appropriate solution platform and PSBs, providingcustom logic, integrating the logic, programming the device with the PSBs and/or firmware, providing software drivers or application software required for thecustomer's application, and participating with the customer on-site during integration, verification and testing. In many cases, we may deliver sensor softwarealgorithms that have been optimized for use in a QuickLogic silicon platform.Our solutions are developed for specific power-sensitive applications that have differentiated features in terms of IP, intelligent sensor processing orconnectivity requirements. Our customers value (i) our ability to deliver solutions that extend battery life; (ii) the expertise we bring to design our solutions tooptimize for power and performance within our customers' constraints; (iii) the flexibility of programmable logic to address specific hardware-based productrequirements; (iv) the accuracies of our sensor algorithm software; and (v) the comprehensive software development environments that enable our customers totarget their own IP into our silicon devices. We increase their ability to meet the time-to-market and time-in-market pressures associated with their markets.The majority of our FPGA silicon platforms and our other product offerings, are based on our patented ViaLink ® metal-to-metal programmabletechnology. ViaLink provides flexible energy-efficient devices and solutions that deliver the high performance, high reliability, IP security and instant-on featuresthat our customers value. In October 2013, we announced a new Static Random Access Memory, or SRAM, reprogrammable logic technology. This SRAMtechnology offers ultra-low power consumption and is in-system reconfigurable, and is the basis for all of our sensor processing solutions today.In 2012, we introduced our third generation silicon platform family, ArcticLink III VX, which embeds our VEE/DPO technologies as well as differentcombinations of LVDS and/or MIPI. ArcticLink III VX combines mixed signal physical functions and hard-wired logic on one device. We also introduced ourfourth generation solution platform family, ArcticLink III BX. The BX family is identical to the VX family with the exception of the VEE/DPO technologies. TheBX family was introduced to provide potential customers with the ability to adopt needed display bridge requirements while evaluating the benefits of ourVEE/DPO technologies.During 2013, we introduced two new silicon platform families, both of which are based on our new SRAM reprogrammable logic technology. The firstwas PolarPro 3, an ultra-low power FPGA family from which we create solutions for the mobile market. The second was the ArcticLink 3 S1 silicon platformfamily, which was QuickLogic’s first family to implement sensor hub solutions.4Table of ContentsIn 2014, we introduced two silicon platform families. The first is PolarPro 3E, which is also based on our SRAM reprogrammable logic technology. Weuse this family to create solutions for the mobile market. The second is the ArcticLink 3 S2 silicon platform family, our second generation sensor hub. This siliconplatform is a more highly integrated sensor hub solution that reduces power consumption by almost 50% from our first generation sensor hub, ArcticLink 3 S1.In 2015, we introduced the third generation silicon platform for sensor processing - the EOS S3 platform. This multi-core System-On-a-Chip deliverseven further integration than its predecessors. It integrates an ARM Cortex-M4 Microcontroller, the third generation Flexible Fusion Engine, an optimized voicesub-system that contains a hardware implementation of Sensory Incorporated Low Power Sound Detector or LPSD, and a block of ultra-low power FPGA.In 2015, we formally introduced our sensor software algorithms to the market as the SenseMe™ Sensor Software Library. This library is designed todeliver always-on context awareness at very low power optimized for the EOS S3 and ArcticLink 3 S2 silicon platform families, as well as our roadmap of sensorprocessing system-On-a-Chip platforms.We have changed our manufacturing strategies to reduce the cost of our silicon solution platforms to enable their use in high volume, mass customizationproducts. Our PolarPro 3E, PolarPro 3, PolarPro II and PolarPro solution platforms include an innovative logic cell architecture which enables us to deliver twicethe programmable logic in the same die size. Our EOS S3 and ArcticLink 3 silicon platforms combine mixed signal physical functions and hard-wired logicalongside programmable logic. Our EOS S3 and ArcticLink III solution platforms are manufactured on an advanced process node where we can benefit fromsmaller die sizes. We typically implement sophisticated logic blocks and mixed signal functions in hard-wired logic because it is very cost effective and energyefficient. We have developed small form factor packages, which are less expensive to manufacture and include smaller pin counts. Reduced pin counts result inlower costs associated with our customer's printed circuit board space and routing. Our ability to sell programmed die as solutions greatly reduces our costs,allowing us to participate in high volume opportunities. In addition, we have dramatically reduced the time we require to program and test our devices, which hasreduced our costs and lowered the capital equipment required to program and test our devices. Furthermore, our SRAM reprogrammable silicon platforms can beprogrammed in-system by our customers, and therefore we do not incur programming cost, lowering the overall cost of ownership to our customers. We expect tocontinue to invest in silicon solution platforms and manufacturing technologies which make us cost and power consumption effective for high-volume, battery-powered applications.In addition to working directly with our customers, we partner with other companies that are experts in certain technologies to develop additionalintellectual property, reference platforms and system software to provide application solutions. We also work with mobile processor manufacturers and companiesthat supply sensor, storage, networking or graphics components. The depth of these relationships varies depending on the partner and the dynamics of the endmarket being targeted, but is typically a co-marketing relationship that includes joint account calls, promotional activities and/or engineering collaboration anddevelopments, such as reference designs. For our sensor processing solutions, we collaborate with sensor manufacturers to ensure interface compatibility as well asconsistency of user experience when using our SenseMe software algorithm library.In addition to competition in the semiconductor market, two other factors affect our future growth: (i) an expected increase in revenue should our sensorprocessing solution strategy prove successful, and (ii) an expected decline in revenue from mature products. New products contributed 63% of total revenue for theyear ended January 3, 2016 , as compared to 69% in 2014 and 70% in 2013. In order to maintain or grow our revenue from its current level, we depend uponincreased revenue from our existing products, and the development and marketing of additional new products and solutions.Available InformationOur corporate headquarters are located at 1277 Orleans Drive, Sunnyvale, California 94089. We can be reached at (408) 990-4000, and our websiteaddress is www.quicklogic.com . The information on our website is not incorporated herein by reference and is not a part of this Form 10-K. Our common stocktrades on the Nasdaq Global Market under the symbol “QUIK”. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-Kand amendments to such reports are available, free of charge, on our website home page as soon as reasonably practicable after we electronically file suchmaterials with, or furnish them to, the Securities and Exchange Commission, or SEC. Copies of the materials filed by the Company with the SEC are also availableat the Public Reference Room at 100 F Street, N.E., Washington, D.C., 20549. Information regarding the operation of the Public Reference Room is available bycalling the SEC at 1-800-SEC-0330. Reports, proxy and information statements and other information regarding issues that we file electronically with the SEC arealso available on the SEC's website at www.sec.gov .5Table of ContentsFiscal YearOur fiscal year ends on the Sunday closest to December 31. References to fiscal years 2015, 2014 and 2013 refer to the fiscal years ending January 3,2016, December 28, 2014 and December 29, 2013, respectively.6Table of ContentsIndustry BackgroundConsumer Electronics, or CE, products are a strong growth market for semiconductor products and sensor software algorithms, and the needs of thismarket bring a unique set of requirements. Three important trends in this market are (i)toward mobile devices, either handheld or worn on the body, (ii) an increasing adoption of sensors, and (iii) devices with wireless connectivity to the cloud.Important industry trends affecting the large market for mobile devices include the need for high bandwidth that enables the same user experience consumers areaccustomed to on the personal computer, or PC, such as internet browsing, social networking and streaming video, product miniaturization and the need to increasebattery life. Increased local computing power in mobile devices, coupled with more ubiquitous wireless access to the cloud and lower cost sensors has beenenabling the development of more intelligent software applications and consumer use cases. Many of these product requirements were, and continue to be, drivenby innovations from the Smartphone and Wearables solutions that original equipment manufacturers, or OEMs, are launching in conjunction with Google Androidand Real-Time operating systems, as well as Apple iPhone, Apple iPad, and Apple Watch.While advances in cost-effective cloud storage and power-efficient wireless technology have enabled consumer device manufacturers to enhance deviceconnectivity and offload some processing to the cloud, there continues to be a trend for feature-rich mobile devices to suffer from shorter battery lives. Thischallenge places a burden on the designers and manufacturers of these mobile CE products as they try to tailor multiple products with limited engineeringresources. Lastly, the fast pace at which consumer taste for these features changes exacerbates the development challenges and risks in launching successfulproducts to the marketplace.Another important trend is shrinking product life cycles. This drives a need for faster, lower risk product development. There is intense pressure on thebill of materials, or BOM, cost of these devices, including per unit component costs and non-recurring development costs. As more people experience theadvantages of a mobile lifestyle at home, they demand the same advantages in their professional lives. We believe that the trend toward mobile, handheld productsthat have a PC-like and cloud user experience, small form factor and maximize battery life will be prominent in the computing, industrial, medical and militarymarkets. One such example is the trend of Smartphone and Tablet makers to offer the new, smaller form factor Wearables.We believe these industry trends are shifting the demand among different classes of core silicon. The following are the four main classes of non-memorycore silicon: •Microcontrollers, or MCUs, are typically small, low power devices on a single integrated circuit that contain a processor core, memory and anumber of peripherals. They are designed to be programmed with software for embedded applications;•Application Specific Standard Products, or ASSPs, other than processors, are fixed function devices designed to address a relatively narrow setof applications. These devices typically integrate a number of common peripherals or functions and the functionality of these devices is fixedprior to wafer fabrication;•Programmable Logic Devices, or PLDs, are general purpose devices, which can be used by a variety of electronic systems manufacturers and arecustomized after purchase for a specific application. FPGAs are a subset of PLDs and are typically used to implement complex system functions;and•Application Specific Integrated Circuits, or ASICs, are custom devices designed and fabricated to meet the needs of one specific application forone end-customer. Structured ASICs, a sub-category of ASICs, provide a limited amount of custom content to broaden the applicability of adevice for additional applications.ASSPs are offered broadly to the market, making it challenging for a system designer to create differentiated products from these devices alone. In manysituations the available ASSPs may not directly implement the desired function and the system designer is required to use a combination of ASSPs to achieve thedesired result at the expense of increased cost, product size and power consumption. As standards evolve or new standards are developed, ASSPs may not beavailable to implement desired functions.System designers can customize their products using programmable logic ASICs or MCUs. The competitive dynamic between these classes of coresilicon are well understood. High development risks, development costs and opportunity costs are incurred when using ASICs to produce custom devices with verylow unit production cost. Suppliers of programmable logic devices, which have lower development and market risks and development costs relative to ASICs, haveaggressively reduced7Table of Contentsthe unit cost of their products over time, making programmable logic devices the solution of choice for custom products unless the volume is very high. These costreduction efforts have significantly increased the volume required to justify the total cost of an ASIC.Consumer devices incorporate complex, rapidly changing technology, require rapid product proliferation, and have short product life and developmentcycles. Therefore, most mobile designers design their products from a base platform, or reference design, provided to them by the vendor of the processor theyhave selected for their design. To differentiate their products from their competition, OEMs and original design manufacturers, or ODMs, may require some levelof customization at either the hardware or software level. Designers have only a few viable options to modify the base platform for their needs. Since mobilesystem designers require very low power consumption to maximize battery life in their applications, the high power consumption of conventional FPGAs isincompatible with their design goals. This effectively limits the average mobile system designer to ASSPs, small PLDs, mobile-oriented FPGAs, and MCUs tocreate a virtual level playing field among mobile system designers, and makes product proliferation and differentiation extremely hard to achieve. ASICs with theirlong development cycles, long lead times and high non-recurring development costs are only used in very high volume mainstream consumer products.The traditional military and industrial markets are well served by existing core silicon. Much of this market uses complex ASSPs since price, power andsize are not particularly critical design considerations. When there is a strong need for a custom solution in high volume applications, designers turn to an ASICand, in low to medium volume applications, they use FPGAs. QuickLogic FPGAs have a loyal following in certain segments of these markets, particularly wheninstant-on, energy efficiency, high reliability or intellectual property security is important. These markets are expected to follow a typical mature product trend, ascompared with the predicted growth in our business in the consumer market.Markets and Product TechnologyWe market our solutions primarily to mobile device OEMs and ODMs. We have complete solutions incorporating our EOS S3, ArcticLink III S2,ArcticLink III VX and BX, PolarPro 3, PolarPro II, PolarPro, and Eclipse II solution platforms, packaging, PSBs, custom logic, sensor software algorithms,software drivers and our architecture consulting. We partner with target customers in our focus markets to architect and design solutions and to integrate and testoursolutions in our customers' products. A solution can be based on our programmable technology, which enables customized designs, low power, flexibility, rapidtime-to-market, longer time-in-market and lower total cost of ownership. From a mobile system designer's perspective, a solution's function is known andcomplete, and consequently can be designed into systems with a minimum amount of effort and risk. We are capable of providing complete solutions because ofour investment in developing the low power PSBs and software required to implement specific functions, along with sensor software algorithms optimized for ourarchitecture. Because we are involved with our customers at the definition stage of their products, we are able to architect solutions that typically have more thanone PSB, absorbing more functionality traditionally implemented with multiple ASSPs. In cases where our solution has multiple PSBs, significant systemperformance or battery life improvements can be realized by enabling direct data transfers between the PSBs, or by offloading more processing tasks from the hostprocessor to our solution. In some cases, we develop the PSBs and either software or firmware ourselves and, in other cases, we utilize third parties to develop themixed signal physical layers, logic and/or software.We market our solutions to OEMs and ODMs offering differentiated mobile products, and to processor vendors wishing to expand their served availablemarket, and to sensor manufacturers wishing to expand their ecosystems. Our target mobile markets include: Tablets, Wearables, Smartphones and IoT. Oursolutions typically fall into one of three categories: Sensor Processing, Display & Visual Enhancement, or Smart Connectivity.Our new products are also being used in applications in our traditional markets, such as data communications, instrumentation and test and military-aerospace, where customers value the low power consumption, instant-on, IP security, reliability and fast time-to-market of our products.The fact that we use our programmable technology to customize these solutions provides two advantages over conventional ASSPs that are based onASIC technology. Foremost is the fact that our solutions can be tailored for a specific customer's requirements. Once we have developed PSBs, it is easy tocombine PSBs with a platform's fixed logic and utilize the remaining programmable logic to provide a unique set of features to a mobile system designer, or to addother functions to the solution, such as Universal Asynchronous Receiver Transmitter, or UARTs, keyboard scanning functions, Serial Peripheral Interface, or SPIports, which minimizes system size and cost, and InfraRed Data Association, or IRDA. We are able to develop these solutions from a common solution platform,and partner with system designers to implement a range of solutions, or products, that address different geographic and market requirements. By usingprogrammable technology instead of ASIC technology, we reduce the development time, development risk and total cost of ownership and are able to bringsolutions to8Table of Contentsmarket far more quickly than other custom silicon alternatives. Finally, with respect to our sensor hub products, by incorporating our proprietary sensor hubprocessing algorithms as part of the solution, we can increase the value of our solution to an individual OEM project, as well as increase the likelihood of beingused in multiple projects at the same OEM where consistency of solution is desired.By using our silicon platforms, our PSBs, our sensor software algorithms, and our in-depth architecture knowledge, we can deliver energy efficientcustom solutions that blend the benefits of traditional ASSPs with the flexibility, product proliferation, differentiation and low total cost of ownership advantagesof programmable logic.Our product technology consists of five major elements:First, our programmable logic allows us to hardware customize our platforms. We have two distinct types of programmable logic. We have an SRAM-reprogrammable logic architecture that utilizes a standard CMOS-logic process to meet the specific needs of the sensor and I/O subsystems of mobile devices: verylow standby power, low dynamic power, and in-system reprogrammable technology. We also have our ViaLink programmable logic that uses proprietary andpatented technology to meet the specific smart connectivity needs of the RF, Memory and Display subsystems of mobile products: non-volatility and instant-on,very low standby power, low dynamic power, small form factor, single chip solutions that power cycle easily and quickly. Hardware customization gives ourdevices the ability to execute key actions faster than software implementations, and at lower power.Second, our ArcticLink solution platform combines mixed signal physical functions, hard-wired logic and programmable logic on one device. Mixedsignal capability supports the trend toward serial connectivity in mobile applications, where designers benefit from lower pin counts, simplified PCB layout,simplified PCB interconnect and reduced signal noise. Adding hard-wired intellectual property enables us to deliver more logic at lower cost and lower powerwhile the programmable logic allows us to provide solutions that can be rapidly customized to differentiate products, add features and reduce system developmentcosts. This combination of mixed signal, hard-wired logic and programmable logic enables us to deliver low cost, small form factor solutions that can becustomized for particular customer or market requirements while lowering the total cost of ownership.Third, we develop and integrate PSBs which are innovative IP cores, intelligent data processing IP cores, or standard interfaces used in mobile products.We offer:•Sensor Processing PSBs such as FFE, Sensor Manager, or Communications Manager;•Display and Visual Enhancement PSBs such as VEE, DPO or LCD controller interfaces, LVDS and MIPI;•Network PSBs such as high speed Universal Asynchronous Receiver/Transmitters, or UARTs, to enable connectivity to Bluetooth devices;•Storage PSBs such as Secure Digital High Capacity, or SDHC; and•Other PSBs such as I2S, PCM, I2C, IRDA, PWM, and other general purpose interfaces. Fourth, we develop and optimize sensor software algorithms for use in conjunction with our sensor processing silicon platforms. We offer the SenseMe™software algorithm library to detect a multitude of consumer use cases from the sensors included in mobile devices, including:•Contexts such as Walking, Running, InCar, or OnBike;•Gestures such as unique combinations of Device Rotation, Twist, or Tap;•Well-being algorithms such as heart rate monitoring, or sleep analysis; and•Unique combinations of the above that can be used to intelligently control the frequency of use and/or power to other devices in a mobile deviceto minimize power consumption and extend battery life.Fifth, our unique customer engagement model enables us to develop complete solutions for target customers who wish to bring differentiated, mobileproducts to market quickly and cost effectively. We partner with customers to define solutions specific to their requirements, and combine all of the abovetechnologies using one of our solution platforms, PSBs, which are9Table of Contentsproven logic IP cores, custom FPGA logic, sensor software algorithms, software drivers, firmware and application software. We then work with these customers tointegrate and test solutions in their systems. The benefit of providing complete solutions is that we effectively become a virtual extension of our customers'engineering organization.Marketing, Sales and CustomersWe are a sub-system integrator that monetizes solutions through silicon sales. We specialize in enhancing the user experience in leading edge mobiledevices and products. For our customers, we enable hardware and sensor algorithmic differentiation quickly and cost effectively. For our partners, we expand theirreach into new segments and new use cases thereby expanding the served available market for their existing devices.Our objective is to enable mobile market leaders to achieve mass customization with innovative solutions. Market leading companies need to deliver newproducts quickly and cost effectively. We believe our programmable technology allows us to deliver customizable solutions with low power consumption and highIP security, while meeting system performance and BOM cost requirements. We believe our solutions allow OEMs and ODMs to rapidly bring new anddifferentiated products to market quickly and cost effectively. Our solutions enable energy and cost efficient solutions on design platforms from which a range ofproducts can be introduced. Our sensor software algorithms enable OEMs to bring compelling mobile products to market without needing to develop thesealgorithms internally or source them from a third party.We recognize that our markets require a range of solutions, and we intend to work with market leading companies to combine silicon solution platforms,PSBs, packaging technology, 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 mobile device manufacturers. We expect solutions to range from devices with mixed signal and visual enhancementcapability to devices which provide off-load engines from the host processor to save power and extend system battery life. We intend to continue to define andimplement compelling solutions for our target customers and partners.As a part of our objective to empower mobile market leaders to achieve mass customization with innovative solutions, our business model includes afocused customer strategy in which we target market leading customers, who primarily serve the market for differentiated mobile products. Our belief is that alarge majority of our revenue will continue to come from less than 100 customers as we transition to this business model. We have identified and plan to continueto identify the customers we want to serve with our solutions. We are currently in different stages of engagement with a number of these customers. We believe oursolutions are resonating with our target customers who value the platform design capability, rapid time-to-market, longer time-in-market and low total cost ofownership available through the use of our solutions. We expect to expand our partner activities with top tier customers to define new silicon solution platformsand PSBs.We sell our products through a network of sales managers in North America, Europe and Asia. In addition to our corporate headquarters in Sunnyvale,California, we have international sales operations in China, Japan, Taiwan, South Korea and the United Kingdom. Our sales personnel and independent salesrepresentatives are responsible for sales and application support for a given region, focusing on major strategic accounts.Our customers typically order our products through our distributors. Currently, we have two distributors in North America and a network of sixteendistributors throughout Europe and Asia to support our international business.We have a military, industrial and mobile product customer base that purchases our mature silicon products. We expect to continue to offer silicondevices to these customers.One of our tier one customers, Samsung Electronics Co., Ltd. or ("Samsung") represented 43% of our total revenue for the year ended January 3, 2016and 52% for the year ended December 28, 2014 , respectively. In addition, a significant portion of our revenue comes from sales to customers located outside ofthe United States. See Note 13 to the Consolidated Financial Statements for information on our revenue by geography, market segment and key customers.In the past, there has not been a predictable seasonal pattern to our business. However, we may experience seasonal patterns in the future due to globaleconomic conditions, the overall volatility of the semiconductor industry and the inherent seasonality of the mobile and consumer markets.10Table of ContentsBacklogWe do not believe that backlog as of any particular date is indicative of future results. A majority of our quarterly shipments typically are booked duringthe quarter. Our sales are made primarily pursuant to standard purchase orders issued by OEM customers and distributors.CompetitionA number of companies offer products that compete with one or more of our products and solutions. Our competitors include: (i) suppliers of ASSPs suchas Toshiba; (ii) suppliers of mobile and/or application processors; (iii) suppliers of ASICs; (iv) suppliers of mobile-oriented FPGAs such as Lattice; and (v)suppliers of low power microcontrollers such as Atmel, ST Microelectronics and NXP. Our existing competitors for conventional FPGAs include suppliers of lowpower CPLDs and FPGAs such as Lattice, Xilinx, Intel and MicroSemi.ASSPs offer proven functionality which reduces development time, risk and cost, but it is difficult to offer a differentiated product using standard devices,and ASSPs that meet the system design objectives are not always available. Conventional programmable logic may be used to create custom functions that provideproduct differentiation or make up for deficiencies in available ASSPs. PLDs require more designer input since the designer has to develop and integrate the IP andmay have to develop the software to drive the IP. PLDs are more expensive and consume more power than ASSPs or ASICs, but they offer fast time-to-market andare typically reprogrammable. Mobile-oriented FPGAs have been adopted by OEMs in the mobile product market, but offer very little in terms of hard logic blocksthat may decrease power consumption or selling price to the OEM. ASICs have a large development cost and risk and a long time to market. As a result, ASICs aregenerally only used for single designs with very high volumes. MCUs offer extensive software flexibility, but often do not offer sensor software algorithms, thelowest power, nor any hardware flexibility. Our solutions enable custom functions and system designs with fast time-to-market and longer time-in-market sincethey are customized by us using our solution platforms that contain programmable logic. In addition, because they are complete solutions, they reduce the systemdevelopment cost and risk. Finally, our solutions are very energy efficient as a result of our programmable logic and how we intelligently architect our PSBs. Theyare very suitable for OEMs or ODMs offering mobile differentiated products.Research and DevelopmentWe are focused on developing our solutions. Our solutions combine our silicon platforms with PSBs, software drivers, sensor algorithm software, andother system software. Our future success will depend to a large extent on our ability to rapidly develop, enhance and introduce our solutions that meet emergingindustry standards and satisfy changing customer requirements. We have made and expect to continue to make substantial investments in research anddevelopment. Our research and development expenses for the year ended January 3, 2016 , December 28, 2014 and December 29, 2013 were $14.1 million ( 75%of revenue), $12.2 million ( 44% of revenue), and $8.4 million ( 32% of revenue) respectively.As of the end of 2015 , our research and development staff consisted of 50 employees located in California and India.•Our system software group creates the drivers and other system code required to connect our silicon devices to Application Processors, driversand microcode to support our sensor hubs.•Our sensor algorithm group creates the algorithms used in our sensor processors, as well as for licensing to run on other vendors’microcontrollers and application processors.•Our hardware group develops and verifies Proven System Blocks that can be programmed into our programmable logic and develops referencedesigns to showcase and verify our solutions.•Our EDA software group develops the design libraries, interface routines and place and route software that allow our engineers to use third partydesign environments to develop designs that are incorporated into our programmable devices, and develops the design tools that supportalgorithm development for our sensor hubs.•Our platform engineering group develops low power programmable devices and analog circuits targeted for mobile or battery poweredembedded systems that can be used in standalone solution platforms such as PolarPro 3E, or combined with standard functions in solutionplatforms such as EOS S3.11Table of Contents•Our product engineering group oversees product manufacturing and process development with our third party foundries, and is involved inongoing process improvements to increase yields and optimize device characteristics.•The Office of the CTO investigates future trends and requirements in order to define the next generation of solutions and platforms.ManufacturingWe have close relationships with third-party manufacturers for our wafer fabrication, package assembly, and testing requirements to help ensure stabilityin the supply of our products and to allow us to focus our internal efforts on product and solution design and sales.We currently outsource our wafer manufacturing, primarily to eSilicon Corporation, or eSilicon, GLOBALFOUNDRIES, Taiwan SemiconductorManufacturing Company Limited, or TSMC, and TowerJazz. We outsource our product packaging primarily to Amkor Technology, Inc.. eSilicon produces ourArcticLink III VX and BX products, using a 65nm CMOS process on twelve-inch wafers at GLOBALFOUNDRIES and packaging at STATS-ChipPAC.GLOBALFOUNDRIES manufactures our PolarPro 3E and ArcticLink 3 S2 Sensor Hub products. TSMC manufactures our pASIC 3, QuickRAM and certainQuickPCI products, using a 0.35 micron complementary metal oxide semiconductor, or CMOS, process. TSMC also manufactures our Eclipse and other matureproducts, PolarPro III, ArcticLink 3 S1 and Sensor Hub products, using a 65nm CMOS process on twelve-inch wafers. TowerJazz manufactures our ArcticLink,ArcticLink II, PolarPro, and PolarPro II products, using a 0.18 micron CMOS process. We purchase products from eSilicon, GLOBALFOUNDRIES, TSMC, andTowerJazz on a purchase order basis.Outsourcing of wafer manufacturing enables us to take advantage of the high volume economies of scale offered by these suppliers. We may establishadditional foundry relationships as such arrangements become economically useful or technically necessary.EmployeesAs of January 3, 2016 , we had a total of 91 employees worldwide. We believe our future success depends in part on our continued ability to attract, hireand retain qualified personnel. None of our employees are represented by a labor union and we believe our employee relations are favorable.Intellectual PropertyWe believe that it is important to maintain a large patent portfolio to protect our innovations. We currently hold 51 active U.S. patents and have fivepending applications for additional U.S. patents. Our patents contain claims covering various aspects of programmable integrated circuits, programmableinterconnect structures and programmable metal devices. In Europe and Asia, we have been granted a total of 11 patents and have two pending applications. Ourissued patents expire between 2016 and 2034.In most cases, revenue will decline from a decrease in demand for our mature products long before the expiration of pending or issued patents relating tothe underlying technology in such products. The decision to cease maintaining a patent is made based on the importance of the patent in our current or futureproduct offerings.We have seven trademarks registered with the U.S. Patent and Trademark Office.12Table of ContentsExecutive Officers and DirectorsOur executive officers are appointed by, and serve at the discretion of, our Board of Directors. There are no family relationships among our directors andofficers.The following table sets forth certain information concerning our current executive officers and directors as of March 11, 2016 : Name Age PositionAndrew J. Pease 65 President and Chief Executive Officer; DirectorMaxime Bouvat-Merlin 40 Vice President, Worldwide EngineeringBrian Faith 41 Vice President, Worldwide Sales and MarketingRajiv Jain 55 Vice President, Worldwide OperationsSuping (Sue) Cheung 52 Principal Accounting Officer and Corporate ControllerCatherine S. Rousteau 51 Vice President, Human ResourcesTimothy Saxe 60 Senior Vice President and Chief Technology OfficerE. Thomas Hart 74 Chairman of the BoardMichael R. Farese 69 DirectorArturo Krueger 76 DirectorDaniel A. Rabinovitsj 51 DirectorChristine Russell 66 DirectorGary H. Tauss 61 DirectorAndrew J. Pease has served as a member of our Board of Directors since April 2011. He joined QuickLogic in November 2006 and has served as ourPresident and Chief Executive Officer since January 2011 and as our President since March 2009. Prior to March 2009, Mr. Pease served as our Vice President ofWorldwide Sales from November 2006. From July 2003 to June 2006, Mr. Pease was Senior Vice President of Worldwide Sales at Broadcom Corporation, aglobal leader in semiconductors for wired and wireless communications. From March 2000 to July 2003, Mr. Pease was Vice President of Sales at Syntricity, Inc.,a company providing software and services to better manage semiconductor production yields and improve design-to-production processes. From 1984 to 1996,Mr. Pease served in a number of sales positions at Advanced Micro Devices, or AMD, a global semiconductor manufacturer, where his last assignment was GroupDirector, Worldwide Headquarters Sales and Operations. Mr. Pease previously held Vice President of Sales positions at Integrated Systems Inc., an embeddedsoftware manufacturer (1996-1997), and Vantis Corporation, a programmable logic subsidiary of AMD (1997-1999). Mr. Pease holds an M.S. in computer sciencefrom the Naval Postgraduate School in Monterey, California and a B.S. degree from the United States Naval Academy.Maxime Bouvat-Merlin joined QuickLogic in October 2013 and has served as our Vice President of Worldwide Engineering since that time. From June2012 to September 2013, Mr. Bouvat-Merlin was Director, product management for roadmap strategy and the Wi-Fi technology roadmap at Qualcomm-Atheros.From 2008 to 2012, Mr. Bouvat-Merlin held several senior technical leadership roles at Broadcom Corporation including, Director, technical program managementoffice mobile application processor and Director, engineering power management unit. Prior experiences include multiple technical management roles at TexasInstruments in the OMAP and wireless business units. Mr. Bouvat-Merlin holds an M.S.E.E. degree in Micro-Electronics Sciences from ESINSA, Nice, Franceand a B.S.E.E. in Physics from the AIX-Marseille University. Brian Faith joined QuickLogic in June 1996 and has served as our Vice President of Worldwide Marketing since November 2008. During the periodApril 2011 to September 2015, Mr. Faith held the dual title of Vice President of Worldwide Sales & Marketing. From 2001 through 2008, Mr. Faith served invarious marketing positions including Vice President of Solutions Marketing and Senior Director of Marketing. Prior to 2001, Mr. Faith was an EngineeringProgram Manager, served in a Field Application Engineering role and held various Customer Application Engineering roles, including Customer ApplicationEngineering Manager. Mr. Faith has served as the Chairman of the Marketing Committee for the CE-ATA Organization. He holds a B.S.C.E. degree in ComputerEngineering from Santa Clara University and also served as Adjunct Lecturer at Santa Clara University for Programmable Logic courses.Rajiv Jain joined QuickLogic in August 1992. He has served as our Vice President of Worldwide Operations since April 2014. Prior to this role, Mr. Jainserved as QuickLogic’s Senior Director of Operations and Development Engineering from 2011 to 2014, Senior Director of System Solutions and ProcessTechnology from 2009 to 2011, Director of Process13Table of ContentsTechnology from 1997 to 2009, and Senior Process Technologist from 1992 to 1997. Prior to joining QuickLogic, Mr. Jain was a Senior Yield Engineer atNational Semiconductor from 1991 to 1992, where he focused on BiCMOS product yield improvements, and at Monolithic Memories from 1985 to 1988, where hefocused on BiPolar product yield and engineering wafer sort improvements. Mr. Jain holds a Masters degree in Chemical Engineering from the University ofCalifornia, Berkeley and a B.S. degree in Chemical Engineering from the University of Illinois, Champaign/Urbana.Suping (Sue) Cheung joined QuickLogic in May 2007. She has served as our Principal Accounting Officer and Corporate Controller since May 2015.Prior to this role, Dr. Cheung served as QuickLogic’s Corporate Controller from 2008 to 2015 and Assistant Controller from 2007 to 2008. Prior to joiningQuickLogic, Dr. Cheung was a Senior Manager of SEC Reporting and Technical Accounting at Dell SonicWALL from 2006 to 2007 and was the SeniorAccounting Manager at VeriFone System, Inc. from 2005 to 2006. Prior to 2005, Dr. Cheung held various senior accounting and financial management roles inboth publicly traded and privately held companies. Dr. Cheung began her career with PricewaterhouseCoopers (PWC) where she served as an auditor and as a taxconsultant. Dr. Cheung holds a Ph.D. in Business Administration and a Masters in Accounting from the Florida International University in Miami. She is aCertified Public Accountant.Catherine Simin Rousteau joined QuickLogic in February 2015 as our Vice President, Human Resources. Prior to joining QuickLogic, Ms. Rousteau wasDirector, Human Resources at Ericsson Inc., a world leader in communications technology, from October 2013 to January 2015. From June 2008 to October 2013,Ms. Rousteau served as Director, Human Resources at Qualcomm Incorporated, a global semiconductor company. Beginning in 1991 through 2008, Ms. Rousteauheld various management and consulting roles with Texas Instruments Inc., Nokia, Inc., PageNet and GTE where she focused on end-to-end strategic HR planning,HR services delivery and business partnerships. Ms. Rousteau studied Engineering at the University of Texas at Austin. She received a M.S. degree inOrganizational Psychology from the University of North Texas and a certificate in Mediation and Conflict Resolution from the University of California, Berkel ey.Timothy Saxe (Ph.D) joined QuickLogic in May 2001 and has served as our Sr. Vice President and Chief Technology Officer since November 2008. Priorto this role, Dr. Saxe served as our Chief Technology Officer and Sr. Vice President, Engineering from August 2006 to November 2008 and as Vice President,Software Engineering from May 2001 to August 2006. From November 2000 to February 2001, Dr. Saxe was Vice President of FLASH Engineering at ActelCorporation, a semiconductor manufacturing company. Dr. Saxe joined GateField Corporation, a design verification tools and services company formerly knownas Zycad, in June 1983 and was a founder of their semiconductor manufacturing division in 1993. Dr. Saxe became GateField's Chief Executive Officer inFebruary 1999 and served in that capacity until GateField was acquired by Actel in November 2000. Mr. Saxe holds a B.S.E.E. degree from North Carolina StateUniversity, and an M.S.E.E. degree and a Ph.D. in electrical engineering from Stanford University.Information regarding the backgrounds of our directors is set forth under the caption “Proposal One, Election of Directors” in our Proxy Statement, whichinformation is incorporated herein by reference.14Table of ContentsITEM 1A. RISK FACTORSIn addition to other information in this Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission, thefollowing risk factors should be carefully considered in evaluating our business as they may have a significant impact on our business, operating results andfinancial condition. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materiallyand adversely affected. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not beconsidered as a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods.If we fail to successfully develop, introduce and sell new solutions and new products, or if our design opportunities do not generate the revenue we expect, we maybe unable to compete effectively in the future.The market for differentiated mobile devices is highly competitive and dynamic, with short end market product life cycles and rapid obsolescence ofexisting products. To compete successfully, we must obtain access to advanced fabrication capacity and dedicate significant resources to specify, design, develop,manufacture and sell new or enhanced solutions that provide increasingly higher levels of performance, low power consumption, new features, meeting current andemerging industry standards, reliability and/or cost savings to our customers. Due to the short product life cycle of these devices our revenue is subject tofluctuation in a short period of time and our ability to grow our business depends on accelerating our design win activity. We often make significant investments insolutions, sensor algorithm software and silicon platform development, selling and marketing, long before we generate revenue, if any, from our efforts. Themarkets we are targeting typically have higher volumes and greater price pressure than our traditional business. In addition, we quote opportunities in anticipationof future cost reductions and may aggressively price products to gain market share. In order to react quickly to opportunities or to obtain favorable wafer prices, wemake significant investments in and commitments to purchase inventories and capital equipment before we have firm commitments from customers.We expect our business growth to be driven by new products, and new product revenue growth needs to be strong enough to achieve profitability. Thegross margin associated with our new products is generally lower than the gross margin of our mature products, due primarily to the price-sensitive nature of thehigher volume mobile consumer opportunities that we are pursuing with new products, particularly our sensor processing solutions. Because the product life cycleof mobile products is short, we must replace revenue at the end of a product life cycle with sales from new design opportunities. While we expect revenue andgross profit growth from new products will offset the expected decline in revenue and gross profit from our mature products, there is no assurance whether or whenthis will occur. In order to increase our revenue from its current level, we depend upon increased revenue from our existing products, especially solutions based onour EOS S3, ArcticLink and PolarPro solution platforms, the development of additional new products and solutions. If (i) we are unable to design, produce and sell new products and solutions that meet design specifications, address customer requirements and generatesufficient revenue and gross profit; (ii) market demand for our new products and other products fails to materialize; (iii) we are unable to obtain adequatefabrication capacity on a timely basis; (iv) we are unable to develop new silicon platforms or solutions in a timely manner; or (v) our customers do not successfullyintroduce products incorporating our devices, or choose a competing offering, our revenue and gross margin will be materially harmed, our liquidity and cash flowswill be materially affected, we may be required to write-off related inventories and long-lived assets or there may be other adverse effects on our business or theprice of our common stock.We have incurred losses in the past years since 2011 and anticipate that we will incur continued losses through at least the next year, we may not be able to raiseadditional financing to fund future losses, we cannot assure you that the net proceeds that we expect to receive from our recent sales of our equity securities will besufficient to support our liquidity and may not be able to continue to operate as a going concern.We have experienced net losses in the past years and expect such losses to continue through at least the year ending January 1, 2017 as we continue todevelop new products, applications and technologies. Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted.Unless such cash flow levels are achieved in addition to the proceeds that we expect to receive from our recent sale of our equity securities, which is expected toclose on or about March 21, 2016, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding forour operations, Such additional funding may not be available on commercially reasonable terms, or at all. Additionally, we cannot assure you that the net proceeds that we expect to receive from our recent sale of our equity securities will be sufficient for us tocontinue as a going concern. If the proceeds that we expect to receive from our recent sale of our equity securities are insufficient, it could make it more difficultfor us to raise additional capital, should it be needed, or15Table of Contentscause our customers, suppliers and other business partners to lose confidence in us thereby resulting in a reduction of revenue, loss of supply resources and othereffects that would be significantly harmful to our business. If the Company is unable to generate sufficient sales from its new products or adequate funds are notavailable when needed, our liquidity, financial condition and operating results would be materially and adversely affected, and we may not be able to operate ourbusiness without significant changes in our operations or at all.We currently depend on a limited number of significant customers, including Samsung, for a significant portion of our revenue and the loss of or reduction inorders from such significant customers could adversely affect our revenue and harm our business financial condition, operating results and cash flows. A small number of end-customers represented a significant portion our total revenue in our fiscal year ended January 3, 2016. For example, duringour fourth quarter and our fiscal year ended January 3, 2016 , Samsung accounted for 36% and 43%, respectively, of our total revenue. Additionally, during ourfourth quarter and our fiscal year ended January 3, 2016, two customers, including Samsung accounted for 47% and 56%, respectively, of our total revenue. Weexpect this high level of customer concentration to continue as we expect to continue target market our solutions to leading manufacturers of high-volume mobileapplications. As in the past, future demand from these customers may fluctuate significantly from quarter to quarter. These customers typically order products withshort requested delivery lead times, and do not provide a commitment to purchase product past the period covered by purchase orders, which may be rescheduledor canceled. In addition, our manufacturing lead times are longer than the delivery lead times requested by these customers, and we make significant purchases ofinventory and capital expenditures in anticipation of future demand. If revenue from any significant customer were to decline substantially, we may be unable tooffset this decline with increased revenue and gross margin from other customers and we may purchase excess inventories. These factors could severely harm ourbusiness.We may make a significant investment in long-lived assets for the production of our products based upon historical and expected demand. If demand forour products or gross margin generated from our products does not meet our expectations or if we are unable to collect amounts due from significant customers, wemay be required to write-off inventories, provide for uncollectible accounts receivable or incur charges against long-lived assets, which would materially harm ourbusiness.Our products are subject to a lengthy sales cycle and our customers may cancel or change their product plans after we have expended substantial time andresources in the design of their products.Our customers often evaluate our products for six months or more before designing them into their systems, and they may not commence volumeshipments for up to an additional six to twelve months, if at all. During this lengthy sales cycle, our potential customers may cancel or change their product plans.Customers may also discontinue products incorporating our devices at any time or they may choose to replace our products with lower cost semiconductors. Inaddition, we are working with leading customers in our target markets to define our future products. If customers cancel, reduce or delay product orders from us orchoose not to release products that incorporate our devices after we have spent substantial time and resources developing products or assisting customers with theirproduct design, our revenue levels may be less than anticipated and our business could be materially harmed.We depend on our relationships with third parties to manufacture our new products.We depend upon eSilicon, GLOBALFOUNDRIES, TSMC and Amkor to manufacture our new products. The inability of any one of these companies tocontinue manufacture of our new products for any reason would require us to identify and qualify a new foundry to manufacture our new products. This would betime consuming, difficult and result in unforeseen operational problems. Alternate foundries might not be available to fabricate our new products, or if available,might be unwilling or unable to offer services on acceptable terms and our ability to operate our business or deliver our products to our customers could beseverely impaired.We depend upon third parties for silicon IP, detailed RTL design, physical design, verification and assembly of our silicon platforms and any failure to meet ourrequirements in a timely fashion may adversely impact our time to market and revenue.Our move to a variable cost or outsourced engineering development model allows us access to the best design resources for developing new siliconplatforms. This includes access to leading edge silicon IP as well as RTL design and physical design expertise. However, outsourcing the design of a complexsilicon platform typically involves multiple companies in multiple locations, which increase the risk of costly design errors. Any delays or errors in the design ofour new silicon platforms could significantly increase the cost of development as well as adversely impact our time to market and revenue.16Table of ContentsWe depend upon partnering with other companies to develop IP, reference platforms, algorithm and system software.In addition to working directly with our customers, we partner with other companies that are experts in certain technologies to develop additionalintellectual property, reference platforms, algorithm and system software to provide application solutions. We also work with mobile processor manufacturers andcompanies that supply sensor, storage, networking or graphics components for embedded systems. The depth of these relationships varies depending on the partnerand the dynamics of the end market being targeted, but is typically a co-marketing relationship that includes joint account calls, promotional activities and/orengineering collaboration and developments, such as reference designs. If we are unable to license new technologies, maintain a close working relationship withour partners, fail to continue to develop and introduce leading technologies or if these technologies fail to generate the revenue we expect, we may not be able tocompete effectively in the future.We depend upon third parties to fabricate, assemble, test and program our products, and they may discontinue manufacturing our products, fail to give ourproducts priority, be unable to successfully manufacture our products to meet performance, volume or cost targets, or inaccurately report inventories to us.We contract with third parties to fabricate, assemble, test and program our devices. In general, each of our devices is fabricated, assembled andprogrammed by a single supplier, and the loss of a supplier, transfer of manufacturing to a new location, expiration of a supply agreement or the inability of oursuppliers to manufacture our products to meet volume, performance, quality and cost targets could have a material adverse effect on our business. Our relationshipwith our suppliers could change as a result of a merger or acquisition. If for any reason these suppliers or any other vendor becomes unable or unwilling tocontinue to provide services of acceptable quality, at acceptable costs and in a timely manner, our ability to operate our business or deliver our products to ourcustomers could be severely impaired. We would have to identify and qualify substitute suppliers, which could be time consuming, difficult and result inunforeseen operational problems, or we could announce an end-of-life program for these products. Alternate suppliers might not be available to fabricate,assemble, test and program our devices or, if available, might be unwilling or unable to offer services on acceptable terms. In addition, if competition for wafermanufacturing capacity increases, if we need to migrate to more advanced wafer manufacturing technology, or if competition for assembly services increases, wemay be required to pay or invest significant amounts to secure access to this capacity. The number of companies that provide these services is limited and some ofthem have limited operating histories and financial resources. In the event our current suppliers refuse or are unable to continue to provide these services to us, or ifwe are unable to secure sufficient capacity from our current suppliers on commercially reasonable terms, we may be unable to procure services from alternatesuppliers in a timely manner, if at all. Moreover, our reliance on a limited number of suppliers subjects us to reduced control over delivery schedules, qualityassurance and costs. This lack of control may cause unforeseen product shortages or may increase our cost to manufacture and test our products, which wouldadversely affect our operating results and cash flows.We may not have the liquidity to support our future operations and capital requirements.Our new products and products currently under development have been generating lower gross margin as a percentage of revenue than the rest of ourhistorical business due to the markets that we have targeted and the larger order quantities associated with these applications. Whether we can achieve cash flowlevels 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 and our investment portfolio remains liquid and its capital is preserved, we may need to borrow additional funds or selldebt or equity securities, or some combination thereof, to provide funding for our operations. Such additional funding may not be available on commerciallyreasonable terms, or at all. If adequate funds are not available when needed, our financial condition and operating results would be materially and adverselyaffected and we may not be able to operate our business without significant changes in our operations, or at all.If we fail to adequately forecast demand for our products, we may incur product shortages or excess product inventories.Our agreements with certain suppliers require us to provide forecasts of our anticipated manufacturing orders, and place binding manufacturingcommitments in advance of receiving purchase orders from our customers. We are limited in our ability to increase or decrease our forecasts under suchagreements. Other manufacturers supply us with product on a purchase order basis. The allocation of capacity is determined solely by our suppliers over which wehave no direct control. Additionally, we may place orders with our suppliers in advance of customer orders to allow us to quickly respond to changing customerdemand or to obtain favorable product costs. Furthermore, we provide our suppliers with equipment which is used to program our products to customerspecifications. The programming equipment is manufactured to our specifications and has significant17Table of Contentsorder lead times. These factors may result in product shortages or excess product inventories. Obtaining additional supply in the face of product, programmingequipment or capacity shortages may be costly, or not possible, especially in the short term since most of our products and programming equipment are supplied bya single supplier. Our failure to adequately forecast demand for our products could materially harm our business or the relationship with our customers.Our approach to developing solutions for potential customers involves developing solutions for and aligning our roadmap with application processor,sensor, and flash memory vendors. We have entered into informal partnerships with other parties that involve the development of solutions that interface with theirdevices or standards. These informal partnerships also may involve joint marketing campaigns and sales calls. If our solutions are not incorporated into customerproducts, if our partners discontinue production of or integration of our solution into their product offerings, or if the informal partnerships do not grow as expectedor if they are significantly reduced or terminated by acquisition or other means, our revenue and gross margin will be materially harmed and we may be required towrite-off related inventories and long-lived assets. Fluctuations in our manufacturing processes, yields and quality, especially for new products, may increase ourcosts.Difficulties encountered during the complex semiconductor manufacturing process can render a substantial percentage of semiconductor devicesnonfunctional. New manufacturing techniques or fluctuations in the manufacturing process may change the performance distribution and yield of our products. Wehave, in the past, experienced manufacturing runs that have contained substantially reduced or no functioning devices, or that generated devices with below normalperformance characteristics. Our reliance on third party suppliers may extend the period of time required to analyze and correct these problems. Once corrected,our customers may be required to redesign or re-qualify their products. As a result, we may incur substantially higher manufacturing costs, shortages of inventoriesor reduced customer demand.Yield fluctuations frequently occur in connection with the manufacture of newly introduced products, with changes in product architecture, withmanufacturing at new facilities, on new fabrication processes or in conjunction with new backend manufacturing processes. Newly introduced solutions andproducts are often more complex and more difficult to produce, increasing the risk of manufacturing related defects. New manufacturing facilities or processes areoften more complex and take a period of time to achieve expected quality levels and manufacturing efficiencies. While we test our products, including our softwaredevelopment tools, they may still contain errors or defects that are found after we have commenced commercial production. Undetected errors or defects may alsoresult from new manufacturing processes or when new intellectual property is incorporated into our products. If our products or software development toolscontain undetected or unresolved defects, we may lose market share, experience delays in or loss of market acceptance, reserve or scrap inventories or be requiredto issue a product recall. In addition, we would be at risk of product liability litigation if defects in our products were discovered. Although we attempt to limit ourliability to end users through disclaimers of special, consequential and indirect damages and similar provisions, we cannot assure you that such limitations ofliability will be legally enforceable.We may be unable to accurately estimate quarterly revenue, which could adversely affect the trading price of our stock. Due to our relatively long product delivery cycle and the inability of our customers in the rapidly evolving mobile market to confirm product requirementson a timely basis, we may have low visibility to product demand in any given quarter. If our customers cannot provide us with accurate delivery lead times, wemay not be able to deliver product to our customers in a timely fashion. Furthermore, our ability to respond to increased demand is limited to inventories on handor on order, the capacity available at our contract manufacturers and our capacity to program products to customer specifications. If we fail to accurately estimatecustomer demand, record revenue, or if our available capacity is less than needed to meet customer demand, our results of operations could be harmed and ourstock price could materially fluctuate.We will be unable to compete effectively if we fail to anticipate product opportunities based upon emerging technologies and standards or fail to develop productsand solutions that incorporate these technologies and standards in a timely manner.We spend significant resources designing and developing silicon solution platforms, PSBs and software and reference designs, and adopting emergingtechnologies. We intend to develop additional products and solutions and to adopt new technologies in the future. If system manufacturers adopt alternativestandards or technologies, if an industry standard or emerging technology that we have targeted fails to achieve broad market acceptance, if customers choose lowpower offerings from our competitors, or if we are unable to bring the technologies or solutions to market in a timely and cost-effective manner, we may be unableto generate significant revenue from our research and development efforts. As a result, our business would be materially harmed and we may be required to write-off related inventories and long-lived assets.Our future operating results are likely to fluctuate and therefore may fail to meet expectations, which could cause our stock price to decline.18Table of ContentsOur operating results have varied widely in the past and are likely to do so in the future. In addition, our past operating results may not be an indicator offuture operating results. Our future operating results will depend on many factors and may fail to meet our expectations for a number of reasons, including those setforth in these risk factors. Any failure to meet expectations could cause our stock price to significantly fluctuate or decline.Factors that could cause our operating results to fluctuate include, without limitation: (i) successful development and market acceptance of our productsand solutions; (ii) our ability to accurately forecast product volumes and mix, and to respond to rapid changes in customer demand; (iii) changes in sales volume orexpected sales volume, product mix, average selling prices or production variances that affect gross profit; (iv) the effect of end-of-life programs; (v) a significantchange in sales to, or the collectability of accounts receivable from, our largest customers; (vi) our ability to adjust our product features, manufacturing capacityand costs in response to economic and competitive pressures; (vii) our reliance on subcontract manufacturers for product capacity, yield and quality; (viii) ourcompetitors' product portfolio and product pricing policies; (ix) timely implementation of efficient manufacturing technologies; (x) errors in applying or changes inaccounting and corporate governance rules; (xi) the issuance of equity compensation awards or changes in the terms of our stock plan or employee stock purchaseplan; (xii) mergers or acquisitions; (xiii) the impact of import and export laws and regulations; (xiv) the cyclical nature of the semiconductor industry and generaleconomic, market, political and social conditions in the countries where we sell our products and the related effect on our customers, distributors and suppliers; and(xv) our ability to obtain capital, debt financing and insurance on commercially reasonable terms . Although certain of these factors are out of our immediatecontrol, unless we can anticipate and be prepared with contingency plans that respond to these factors, our business may be materially harmed.We may encounter periods of industry wide semiconductor oversupply, resulting in pricing pressure, as well as undersupply, resulting in a risk that wecould be unable to fulfill our customers' requirements. The semiconductor industry has historically been characterized by wide fluctuations in the demand for, andsupply of, its products. These fluctuations have resulted in circumstances when supply of and demand for semiconductors has been widely out of balance. Anindustry wide semiconductor oversupply could result in severe downward pricing pressure from customers. In a market with undersupply of manufacturingcapacity, we would have to compete with larger foundry and assembly customers for limited manufacturing resources. In such an environment, we may be unableto have our products manufactured in a timely manner, at a cost that generates adequate gross profit or in sufficient quantities. Since we outsource all of ourmanufacturing and generally have a single source of wafer supply, test, assembly and programming for our products, we are particularly vulnerable to such supplyshortages and capacity limitations. As a result, we may be unable to fulfill orders and may lose customers. Any future industry wide oversupply or undersupply ofsemiconductors could materially harm our business.We may be unable to successfully grow our business if we fail to compete effectively with others to attract and retain key personnel.We believe our future success depends upon our ability to attract and retain highly competent personnel. Our employees are at-will and not subject toemployment contracts. Hiring and retaining qualified sales, technical and financial personnel are difficult due to the limited number of qualified professionals,economic conditions and the size of our company. In addition, new hires frequently require extensive training before they achieve desired levels of productivity.Failure to attract, hire, train and retain personnel could materially harm our business.Problems associated with international business operations could affect our ability to manufacture and sell our products.Most of our products are manufactured outside of the United States at manufacturing facilities operated by our suppliers in Asia, South Asia and theMiddle East regions. As a result, these manufacturing operations and new product introductions are subject to risks of political instability.A significant portion of our total revenue comes from sales to customers located outside the United States. We anticipate that sales to customers locatedoutside the United States will continue to represent a significant portion of our total revenue in future periods. In addition, most of our domestic customers selltheir products outside of North America, thereby indirectly exposing us to risks associated with foreign commerce and economic instability. In addition to overseassales offices, we have significant research and development activities in India. Accordingly, our operations and revenue are subject to a number of risks associatedwith foreign commerce, including the following: (i) staffing and managing foreign offices; (ii) managing foreign distributors; (iii) collecting amounts due;(iv) political and economic instability; (v) foreign currency exchange fluctuations; (vi) changes in tax laws, import and export regulations, tariffs and freight rates;(vii) timing and availability of export licenses; (viii) supplying products that meet local environmental regulations; and (ix) inadequate protection of intellectualproperty rights.19Table of ContentsWe denominate sales of our products to foreign countries exclusively in U.S. dollars. As a result, any increase in the value of the U.S. dollar relative to thelocal currency of a foreign country will increase the price of our products in that country so that our products become relatively more expensive to customers intheir local currency. As a result, sales of our products in that foreign country may decline. If the local currency of a foreign country in which we conduct businessstrengthens against the U.S. dollar, our payroll and other local expenses will be higher, and since sales are transacted in U.S. dollars, would not be offset by anyincrease in revenue. To the extent any such risks materialize, our business could be materially harmed.In addition, we incur costs in foreign countries that may be difficult to reduce quickly because of employee related laws and practices in those foreigncountries.Our solutions face competition from suppliers of ASSPs, suppliers of integrated application processors, low power FPGAs, low power MCUs, suppliers of ASICs,and suppliers of sensor algorithm software whose software is running on competitors' devices.We face competition from companies that offer ASSPs. While it is difficult to provide a unique solution through the use of ASSPs, ASSPs generally arecost effective standard products and have short lead times. In certain design opportunities, ASSPs can be combined to achieve system design objectives.Manufacturers of integrated application processors often integrate new features when they introduce new products. A system designer could elect the use of anintegrated processor that includes the features offered in our solutions and/or a widely accepted feature of our solutions could be integrated into a competitor'sASSP. Some vendors offer low power FPGAs that can be adopted by a mobile device for hardware differentiation that is similar in functionality, physical size,power consumption and price to what we offer with our programmable logic-based solutions. We face competition from low power MCU companies. While MCUscannot be customized at the hardware level for product differentiation, they do have the ability to run custom software algorithms written in standard C code whichmay yield similar functionality as what we can provide with our products. Companies that supply ASICs, which may be purchased for a lower price at highervolumes and typically have greater logic capacity, additional features and higher performance than our products. In addition, we face competition from companiesthat provide sensor algorithm software, which may be licensed directly by an OEM, or licensed for use through an MCU company. Our inability to successfullycompete in any of the following areas could materially harm our business: (i) the development of new products, solutions and advanced manufacturingtechnologies; (ii) the quality, power characteristics, performance characteristics, price and availability of devices, programming hardware and softwaredevelopment tools; (iii) the ability to engage with companies that provide synergistic products and services, including algorithms that may be preloaded into ourdevice at configuration; (iv) the incorporation of industry standards in our products and solutions; (v) the diversity of product offerings available to customers; or(vi) the quality and cost effectiveness of design, development, manufacturing and marketing efforts.Our industry is in the midst of a consolidation phase which could result in stronger and better resourced competitors in the markets in which the companycompetes. Mergers and acquisitions activity is at a high level in the semiconductor industry, as large companies have perceived attractive opportunities in today’smarket to acquire new technologies and product lines by buying smaller companies. If our small and mid-sized competitors become targets of M&A activity andsome of them are actually acquired by larger companies with much greater resources than us, we would face heightened competition that could result in lost salesand eroded margins. We may be unable to adequately protect our intellectual property rights and may face significant expenses as a result of future litigation.Protection of intellectual property rights is crucial to our business, since that is how we keep others from copying our innovations and those of thirdparties that are central to our existing and future products. From time to time, we receive letters alleging patent infringement or inviting us to license other parties'patents. We evaluate these requests on a case-by-case basis. These situations may lead to litigation if we reject the offer to obtain the license. In the past, we have been involved in litigation relating to our alleged infringement of third party patents or other intellectual property rights. This type oflitigation is expensive and consumes large amounts of management time and attention. Because it is critical to our success that we continue to prevent competitors from copying our innovations, we intend to continue to seek patent and tradesecret protection for our products. The process of seeking patent protection can be long and expensive, and we cannot be certain that any currently pending orfuture applications will actually result in issued patents or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningfulprotection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around thepatents we own. We also rely on trade secret protection for our technology, in part through confidentiality agreements with20Table of Contentsour employees, consultants and other third parties. However, these parties may breach these agreements and we may not have adequate remedies for any breach. Inany case, others may come to know about or determine our trade secrets through a variety of methods. In addition, the laws of certain territories in which wedevelop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.The market price of our common stock may fluctuate significantly and could lead to securities litigation. Stock prices for many companies in the technology and emerging growth sectors have experienced wide fluctuations that have often been unrelated to theoperating performance of such companies. In the past, securities class action litigation has often been brought against companies following periods of volatility inthe market price of its securities. In the future, we may be the subject of similar litigation. Securities litigation could result in substantial costs and divertmanagement's attention.We may engage in manufacturing, distribution or technology agreements that involve numerous risks, including the use of cash, erosion of margins due to royaltyobligations or revenue sharing and diversion of resources.We have entered into and, in the future, intend to enter into agreements that involve numerous risks, including the use of significant amounts of our cash;royalty obligations or revenue sharing; diversion of resources from other development projects or market opportunities; our ability to collect amounts due underthese contracts; and market acceptance of related products and solutions. If we fail to recover the cost of these or other assets from the cash flow generated by therelated products, our assets will become impaired and our financial results would be harmed.Our business is subject to the risks of earthquakes, other catastrophic events and business interruptions for which we may maintain limited insurance.Our operations and the operations of our suppliers are vulnerable to interruption by fire, earthquake, power loss, flood, terrorist acts and other catastrophicevents beyond our control. In particular, our headquarters are located near earthquake fault lines in the San Francisco Bay Area. In addition, we rely on certainsuppliers to manufacture our products and would not be able to qualify an alternate supplier of our products for several quarters. Our suppliers often holdsignificant quantities of our inventories which, in the event of a disaster, could be destroyed. In addition, our business processes and systems are vulnerable tocomputer viruses, break-ins and similar disruptions from unauthorized tampering. Any catastrophic event, such as an earthquake or other natural disaster, thefailure of our computer systems or networks, including due to computer viruses, security breaches, war or acts of terrorism, could significantly impair our ability tomaintain our records, subject us to third party liabilities, pay our suppliers, or design, manufacture or ship our products. The occurrence of any of these eventscould also affect our customers, distributors and suppliers and produce similar disruptive effects upon their business. If there is an earthquake or other catastrophicevent near our headquarters, our customers' facilities, our distributors' facilities or our suppliers' facilities, our business could be seriously harmed.We do not maintain sufficient business interruption and other insurance policies to compensate us for all losses that may occur. Any losses or damagesincurred by us as a result of a catastrophic event or any other significant uninsured loss could have a material adverse effect on our business.Our Certificate of Incorporation, Bylaws and Delaware law contain provisions that could discourage a takeover that is beneficial to stockholders.Provisions of our Certificate of Incorporation, our Bylaws and Delaware law could make it difficult for a third party to acquire us, even if doing so wouldbe beneficial to our stockholders.If we do not maintain compliance with the listing requirements of the Nasdaq Global Market, our common stock could be delisted, which could, among otherthings, reduce the price of our common stock and the levels of liquidity available to our stockholders.We are listed on the Nasdaq Global Market and our securities could be delisted in the future if we do not meet the specific listing requirements the NasdaqGlobal Market.Changes to existing accounting pronouncements or taxation rules or practices may cause adverse revenue fluctuations, affect our reported financial results or howwe conduct our business.Generally accepted accounting principles in the United States, or GAAP, are promulgated by, and are subject to the interpretation of the FinancialAccounting Standards Board, or FASB, and the SEC. New accounting pronouncements or21Table of Contentstaxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. Any future changes inaccounting pronouncements or taxation rules or practices may have a significant effect on how we report our results and may even affect our reporting oftransactions completed before the change is effective. In addition, a review of existing or prior accounting practices may result in a change in previously reportedamounts. This change to existing rules, future changes, if any, or the questioning of current practices may adversely affect our reported financial results, our abilityto remain listed on the Nasdaq Global Market, or the way we conduct our business and subject us to regulatory inquiries or litigation.We have implemented import and export control procedures to comply with United States regulations but we are still exposed to potential risks from import andexport activity.Our products, solutions, technology and software are subject to import and export control laws and regulations which, in some instances, may imposerestrictions on business activities, or otherwise require licenses or other authorizations from agencies such as the U.S. Department of State, U.S. Department ofCommerce and U.S. Department of the Treasury. These restrictions may impact deliveries to customers or limit development and manufacturing alternatives. Wehave import and export licensing and compliance procedures in place for purposes of conducting our business consistent with U.S. and applicable internationallaws and regulations, and we periodically review these procedures to maintain compliance with the requirements relating to import and export regulations. If weare not able to remain in compliance with import and export regulations, we might be subject to investigation, sanctions or penalties by regulatory authorities. Suchpenalties can include civil, criminal or administrative remedies such as loss of export privileges. We cannot be certain as to the outcome of an evaluation,investigation, inquiry or other action or the impact of these items on our operations. Any such action could adversely affect our financial results and the marketprice of our common stock.ITEM 1B. UNRESOLVED STAFF COMMENTSNot applicable.ITEM 2. PROPERTIESOur principal administrative, sales, marketing, research and development and final testing facility is located in a building of approximately 42,600 squarefeet in Sunnyvale, California. This facility is leased through December 2018. We lease a 7,400 square foot facility in Bangalore, India for the purpose of softwaredevelopment. This facility is leased through June 2016. We also lease office space in Shanghai, China, which expires in April 2016; London, England, whichexpires in February 2017; Taipei, Taiwan which expires in March 2017; and Seongnam City, South Korea on month-to-month basis. We believe that our existingfacilities are adequate for our current needs.ITEM 3. LEGAL PROCEEDINGSFrom time to time, we are involved in legal actions arising in the ordinary course of business, including but not limited to intellectual propertyinfringement and collection matters. Absolute assurance cannot be given that third-party assertions will be resolved without costly litigation in a manner that is notadverse to our financial position, results of operations or cash flows or without requiring royalty or other payments in the future which may adversely impact grossprofit. We are not currently a party to any material pending legal proceedings. See Note 15 to the Consolidated Financial Statements for the discussion oncontingency liabilities.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.22Table of ContentsPART IIITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock has been traded on the Nasdaq Global Market under the symbol “QUIK” since October 15, 1999, the date of our initial publicoffering. The following table sets forth, for the periods indicated, the high and low closing sales prices for our common stock, as reported on the Nasdaq GlobalMarket: High LowFiscal Year Ending January 3, 2016: Fourth Quarter (through January 3, 2016)$1.73 $1.10Third Quarter (through September 27, 2015)$1.93 $1.11Second Quarter (through June 28, 2015)$2.10 $1.49First Quarter (through March 29, 2015)$3.27 $1.81Fiscal Year Ending December 28, 2014: Fourth Quarter (through December 28, 2014)$3.21 $2.54Third Quarter (through September 28, 2014)$5.28 $3.03Second Quarter (through June 29, 2014)$5.54 $3.25First Quarter (through March 30, 2014)$5.44 $3.79StockholdersThe closing price of our common stock on the Nasdaq Global Market was $1.20 per share on March 11, 2016 . As of March 11, 2016 there were56,976,921 shares of common stock outstanding that were held of record by 172 stockholders. The actual number of stockholders is greater than this number ofholders of record since this number does not include stockholders whose shares are held in trust by other entities.Dividend PolicyWe have never declared or paid any dividends on our capital stock. We currently expect to retain future earnings, if any, for use in the operation andexpansion of our business and do not anticipate paying any cash dividends in the foreseeable future.Equity Compensation Plan InformationThe information required by this item regarding equity compensation plans is set forth under the caption "Equity Compensation Plan Summary" in ourProxy Statement which information is incorporated by reference herein.23Table of ContentsStock Performance GraphThe following graph compares the cumulative total return to stockholders of our common stock from January 2, 2011 to January 3, 2016 to thecumulative total return over such period of (i) the S&P 500 Index and (ii) the S&P Semiconductors Index. The graph assumes that $100 was invested on January 2,2011 in QuickLogic's common stock and in each of the other two indices and the reinvestment of all dividends, if any, through January 3, 2016The information contained in the Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall suchinformation be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,except to the extent that QuickLogic specifically incorporates it by reference into any such filing. The graph is presented in accordance with SEC requirements.Stockholders are cautioned against drawing any conclusions from the data contained therein, as past results are not necessarily indicative of future performance. 12/31/201012/31/201112/31/201212/29/201312/28/20141/3/2016 QuickLogic Corporation100.0040.6233.9160.3150.0017.66S&P 500 Index100.00102.11118.45156.82178.29180.75S&P Semiconductors Index100.00102.2498.75134.24181.05182.64The stock price performance included in this graph is not necessarily indicative of future stock price performance.24Table of ContentsITEM 6. SELECTED FINANCIAL DATA Fiscal Years 2015 2014 2013 2012 2011 (in thousands, except per share amount)Statements of Operations: Revenue$18,956 $27,845 $26,072 $14,944 $20,969Cost of revenue11,411 16,796 17,305 7,878 8,517Gross profit7,545 11,049 8,767 7,066 12,452Operating expenses: Research and development14,144 12,186 8,375 8,743 9,836Selling, general and administrative10,619 11,663 12,002 10,481 9,965Restructuring costs (1)295 — 181 — —Loss from operations(17,513) (12,800) (11,791) (12,158) (7,349)Gain on sale of TowerJazz Semiconductor Ltd. shares(2)— — 181 — —Interest expense(82) (85) (54) (61) (36)Interest income and other expense, net(107) (126) (157) (77) (159)Loss before income taxes(17,702) (13,011) (11,821) (12,296) (7,544)Provision for income taxes146 68 455 18 50Net loss$(17,848) $(13,079) $(12,276) $(12,314) $(7,594)Net loss per share: Basic$(0.32) $(0.23) $(0.27) $(0.29) $(0.21)Diluted$(0.32) $(0.23) $(0.27) $(0.29) $(0.21)Weighted average shares: Basic56,472 55,401 45,762 41,831 36,792Diluted56,472 55,401 45,762 41,831 36,792 January 3, 2016 December 28, 2014 December 29, 2013 December 30, 2012 January 1, 2012 (in thousands)Balance Sheet Data: Cash and cash equivalents$19,136 $30,050 $37,406 $22,578 $20,203Working capital$19,132 $33,395 37,801 $24,840 $22,840Total assets$28,461 $41,139 $49,126 $31,024 $28,963Long-term obligations, excluding current portion (3)$2,341 $1,267 $254 $407 $294Total stockholders' equity$20,325 35,567 $40,598 $27,278 $24,938__________________________(1)We incurred restructuring costs of $295,000 and $181,000 in 2015 and 2013, respectively. In 2015, we implemented a restructuring plan to re-align theorganization to support our sensor processing provider business model and growth strategy. The expenses in 2013 relate to the Company's effort toconsolidate and streamline its engineering organization.(2) During the second quarter of 2013, we sold our remaining 42,970 TowerJazz ordinary shares which reflect the 1-to-15 reverse stock split. This saleresulted in a gain of $181,000 .(3) Prior year's numbers are reclassed to confirm current year classification.25Table of ContentsITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notesincluded in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks anduncertainties including those discussed under Part I, Item 1A, “Risk Factors.” These risks and uncertainties may cause actual results to differ materially from thosediscussed in the forward-looking statements.OverviewWe develop and market low power customizable semiconductor and software algorithm solutions that enable customers to differentiate their products byadding new features, extending battery life, becoming more contextually aware, and improving the visual experience with their mobile, consumer and enterpriseproducts. Our targeted mobile market segments include Smartphones, Wearables, Tablets, Iot and Mobile Enterprise. Our solutions typically fall into one of threecategories: Sensor Hubs, Display and Visual Enhancement, and Smart Connectivity. We are a fabless semiconductor company that designs, markets, and supportsprimarily silicon solutions, and, secondarily, Field Programmable Gate Arrays, or FPGAs, sensor software algorithms, software drivers, associated design softwareand programming hardware. Our solutions are created from our new silicon platforms including our EOS™, ArcticLink ® III, PolarPro ® 3, PolarPro II, PolarPro,and Eclipse II products (which together comprise our new product category). Our mature products include primarily pASIC ® 3 and QuickRAM ® as well asprogramming hardware and design software.Our customer-specific solutions include a unique combination of our silicon platforms, proven system blocks, or PSBs, custom logic, sensor softwarealgorithms, software drivers, and in some cases, firmware, and application software. All of our silicon platforms are standard devices and must be programmed tobe effective in a system. Our PSBs range from intellectual property, or IP, which enables always-on context aware sensor applications, such as our Flexible FusionEngine, or FFE, and our Sensor Manager and Communications Manager technologies; to IP that improves multimedia content, such as our Visual EnhancementEngine, or VEE technology, and Display Power Optimizer technology, or DPO; to IP which implements commonly used mobile system interfaces, such as LowVoltage Differential Signaling, or LVDS, Mobile Industry Processor Interface, or MIPI, Secure Digital Input Output, or SDIO. We provide complete solutions byfirst architecting the solution jointly with our customer's or ecosystem partner’s engineering group, selecting the appropriate solution platform and PSBs, providingcustom logic, integrating the logic, programming the device with the PSBs and/or firmware, providing software drivers or application software required for thecustomer's application, and participating with the customer on-site during integration, verification and testing. In many cases, we may deliver sensor softwarealgorithms that have been optimized for use in a QuickLogic silicon platform.We also work with mobile processor manufacturers, sensor manufacturers, and/or sensor fusion and context awareness algorithm developers in thedevelopment of reference designs, Qualified Vendor Lists, or QVLs, or “Catalog” solutions. Through reference designs that incorporate our solutions, we believemobile processor manufacturers, sensor manufacturers, and sensor algorithm companies can expand the served available market for their respective products.Furthermore, should a solution development for a processor manufacturer or sensor and/or sensor algorithm company be applicable to a set of common OEMs orODMs, we can amortize our R&D investment over that set of OEMs/ODMs. We call this type of solution a Catalog solution and we are placing a greater emphasison developing and marketing these solutions.In order to grow our revenue from its current level, we depend upon increased revenue from our new products including existing new product platformsand platforms currently in development. We expect our business growth to be driven by silicon solutions and our solutions revenue growth needs to be strongenough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our new solution platforms and PSBs. The grossmargin associated with our solutions is generally lower than the gross margin of our FPGA products, due primarily to the price sensitive nature of the highervolume mobile consumer opportunities that we are pursuing with our solutions.During 2015 , we generated total revenue of $19.0 million which represents a 32% decrease from 2014 . Our new product revenue was $12.0 millionwhich represents a 38% decrease from 2014 while our mature product revenue was $6.9 million which represents a 19% decrease from 2014 . We shipped our newproducts into four of our targeted mobile market segments: Smartphones, Wearables, Mobile Enterprise, and Tablets. Overall, we reported a net loss of $17.8million for 2015 compared to a net loss of $13.1 million for 2014.We have experienced net losses in the past years and expect such losses to continue through at least the year ending January 1, 2017 as we continue todevelop new products, applications and technologies. Whether we can achieve cash flow26Table of Contentslevels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved in addition to the proceeds that we expect toreceive from our recent sale of our equity securities, which is expected to close on or about March 21, 2016, we may need to borrow additional funds or sell debt orequity securities, or some combination thereof, to provide funding for our operations, such additional funding may not be available on commercially reasonableterms, or at all.Critical Accounting Policies and EstimatesThe methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in ourconsolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition andresults 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 areinherently uncertain. Based on this definition, our critical policies include revenue recognition including sales returns and allowances, valuation of inventoriesincluding identification of excess quantities and product obsolescence, allowance for doubtful accounts, valuation of investments, valuation of long-lived assets,measurement of stock-based compensation, accounting for income taxes, and estimating accrued liabilities. We believe that we apply judgments and estimates in aconsistent manner and that such consistent application results in consolidated financial statements and accompanying notes that fairly represent all periodspresented. However, any factual errors or errors in these judgments and estimates may have a material impact on our financial statements.Revenue RecognitionWe supply standard products which must be programmed before they can be used in an application. Our products may be programmed by us, distributors,end-customers or third parties.We recognize revenue as products are shipped if evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable,collection of the resulting receivable is reasonably assured and product returns are reasonably estimable. Revenue is recognized upon shipment of programmed andunprogrammed parts to both OEM customers and distributors, provided that legal title and risk of ownership have transferred. Parts held by distributors may bereturned for quality reasons only under our standard warranty policy. See Note 2 to the Consolidated Financial Statements for our standard warranty policy. Wehave not had a history of significant product returns.Valuation of InventoriesInventories are stated at the lower of standard cost or net realizable value. Standard cost approximates actual cost on a first-in, first-out basis. Weroutinely evaluate quantities and values of our inventories in light of current market conditions and market trends and record reserves for quantities in excess ofdemand and product obsolescence. The evaluation may take into consideration historic usage, expected demand, anticipated sales price, the stage in the product lifecycle 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 ofinventories could differ from forecasted demand and this difference could have a material impact on our gross margin and inventory balances based on additionalprovisions for excess or obsolete inventories or a benefit from inventories previously written down. We also regularly review the cost of inventories againstestimated 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 amaterial impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previouslywritten down.Our semiconductor products have historically had an unusually long product life cycle and obsolescence has not been a significant factor in the valuationof inventories. However, as we pursue opportunities in the mobile market and continue to develop new products, we believe our new product life cycle will beshorter and increase the potential for obsolescence. A significant decrease in demand could result in an increase in the amount of excess inventory on hand.Although we make every effort to ensure the accuracy of our forecasts of future product demand, due to our small customer base and limited CSSP engagements,any significant unanticipated changes in demand could have a significant impact on the value of our inventory and our results of operations.27Table of ContentsValuation of Long-Lived AssetsWe assess annually whether the value of identifiable intangibles and long-lived assets, including property and equipment, has been impaired and whenevents or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Our assessment of possible impairment isbased on our ability to recover the carrying value of an asset or asset group from their expected future pre-tax cash flows, undiscounted and without interestcharges, of the related operations. If these cash flows are less than the carrying value of the asset or asset group, we recognize an impairment loss for the differencebetween estimated fair value and carrying value, and the carrying value of the related assets is reduced by this difference. The measurement of impairment requiresmanagement to estimate future cash flows and the fair value of long-lived assets. Based on this analysis there were no significant impairments to our long livedassets.Stock-Based CompensationWe account for stock-based compensation under the provisions of the amended authoritative guidance and related interpretations which require themeasurement and recognition of expense related to the fair value of stock-based compensation awards. The fair value of stock-based compensation awards ismeasured at the grant date and re-measured upon modification, as appropriate. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the date of grant require judgment.We use the Black-Scholes option pricing model to estimate the fair value of employee stock options and rights to purchase shares under the Company's2009 Stock Plan and 2009 Employee Stock Purchase Plan, or ESPP, consistent with the provisions of the amended authoritative guidance. This fair value isexpensed on a straight-line basis over the requisite service period of the award. Using the Black-Scholes pricing model requires us to develop highly subjectiveassumptions including the expected term of awards, expected volatility of our stock, expected risk-free interest rate and expected dividend rate over the term of theaward. Our expected term of awards is based primarily on our historical experience with similar grants. Our expected stock price volatility for both stock optionsand ESPP shares is based on the historic volatility of our stock, using the daily average of the opening and closing prices and measured using historical dataappropriate for the expected term. The risk-free interest rate assumption approximates the risk-free interest rate of a Treasury Constant Maturity bond with amaturity approximately equal to the expected term of the stock option or ESPP shares.In addition to the assumptions used in the Black-Scholes pricing model, the amended authoritative guidance requires that we recognize compensationexpense only for awards ultimately expected to vest; therefore we are required to develop an estimate of the historical pre-vest forfeiture experience and apply thisto all stock-based awards. The fair value of restricted stock awards, or RSAs, and restricted stock units, or RSUs, is based on the closing price of our commonstock on the date of grant. RSA and RSU awards which vest with service are expensed over the requisite service period. RSAs and RSU awards which are expectedto vest based on the achievement of a performance goal are expensed over the estimated vesting period. We regularly review the assumptions used to compute thefair value of our stock-based awards and we revise our assumptions as appropriate. In the event that assumptions used to compute the fair value of our stock-basedawards are later determined to be inaccurate or if we change our assumptions significantly in future periods, stock-based compensation expense and our results ofoperations could be materially impacted. See Note 11 to the Consolidated Financial Statements.Accounting for Income TaxesAs part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different tax and accountingtreatment of items, such as deferred revenue, allowance for doubtful accounts, the impact of equity awards, depreciation and amortization, and employee relatedaccruals. These differences result in deferred tax assets and liabilities, which are included on our balance sheets. We must then assess the likelihood that ourdeferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance.To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statements ofoperations.Significant management judgment is required in determining our provision for income taxes, deferred tax assets, liabilities and any valuation allowancerecorded against our net deferred tax assets. Our deferred tax assets, consisting primarily of net operating loss carryforwards, amounted to $69.4 million , taxeffected as of the end of 2015 . In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all availablepositive and negative evidence, including schedule reversals of deferred tax liabilities, uncertainty of projecting future taxable income and results of recentoperations. As of January 3, 2016, we have federal and state income tax net operating loss (NOL) and credit carryforwards of $134.4 million and $50.8 million ,which will expire at various dates from 2015 through 2035. We believe that28Table of Contentsit is more likely than not that the deferred tax assets and benefits from these federal and state NOL and credit carryforwards will not be realized. In recognition ofthis risk, we have recorded a valuation allowance of $69.3 million , tax effected as of the end of 2015 due to uncertainties related to our ability to utilize our U.S.deferred tax assets before they expire.29Table of ContentsResults of OperationsThe following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated: Fiscal Years 2015 2014 2013Statements of Operations: Revenue100 % 100 % 100 %Cost of revenue60 % 60 % 66 %Gross profit40 % 40 % 34 %Operating expenses: Research and development75 % 44 % 32 %Selling, general and administrative56 % 42 % 46 %Restructuring costs2 % — % 1 %Loss from operations(92)% (46)% (45)%Gain on sale of TowerJazz Semiconductor Ltd.— % — % 1 %Interest expense— % — % — %Interest income and other expense, net(1)% — % (1)%Loss before income taxes(93)% (46)% (45)%Provision for income taxes1 % — % 2 %Net loss(94)% (46)% (47)%30Table of ContentsComparison of Fiscal Years 2015 and 2014Revenue . The table below sets forth the changes in revenue for fiscal year ended January 3, 2016 , as compared to fiscal year ended December 28, 2014(in thousands, except percentage data): Fiscal Years 2015 2014 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue by product family (1) : New products$12,020 63% $19,311 69% $(7,291) (38)%Mature products6,936 37% 8,534 31% (1,598) (19)%Total revenue$18,956 100% $27,845 100% $(8,889) (32)%_________________(1) For all periods presented: New products include all products manufactured on 180 nanometer or smaller semiconductor processes. Mature products include allproducts produced on semiconductor processes larger than 180 nanometers.The decrease in new product revenue was primarily due to lower shipments to Samsung which had designed our ArcticLink III VX product into its tabletplatform and also due to lower shipments of connectivity product Eclipse II. In 2015 shipments of ArcticLink III were $8.3 million compared to $15.0 million in2014. Revenue generated from Samsung accounted for 68% of our new product revenue and 43% of our total revenue in 2015. Eclipse II revenue in 2015 was $1.2million compared to $2.6 million in 2014. The decrease in revenue from ArcticLink III and Eclipse II products was partially offset by revenue from other newproducts. The decrease in mature product revenue is due primarily to decreased orders from our customers in the aerospace, test and instrumentation sectors. Weanticipate that our revenue from Tablets and mature products will decline over time.In order to grow our revenue from its current level, we depend upon increased revenue from our new products, especially revenue from solutions designedusing our ArcticLink, ArcticLink II, ArcticLink III, ArcticLink 3 S1, ArcticLink 3 S2, PolarPro, PolarPro II, PolarPro III, PolarPro 3E, EOS S3 and Eclipse IIplatforms and the development of additional new products and solution platforms.We continue to seek to expand our revenue, including pursuing high-volume sales opportunities in our target market segments, by providing solutionsincorporating our intellectual property, or industry standard interfaces. Our industry is characterized by intense price competition and by lower margins as ordervolumes increase. While winning large volume sales opportunities will increase our revenue, we believe these opportunities may decrease our gross profit as apercentage of revenue.Gross Profit. The table below sets forth the changes in gross profit for fiscal year 2015 as compared to fiscal year 2014 (in thousands, except percentagedata): Fiscal Years 2015 2014 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue$18,956 100% $27,845 100% $(8,889) (32)%Cost of revenue11,411 60% 16,796 60% (5,385) (32)%Gross Profit$7,545 40% $11,049 40% $(3,504) (32)%The decrease in gross profit was primarily due to reduction in sales of both new and matured products. Effect of price reductions in 2015 on gross profitwas approximately $702,000 or 4%. The gross profit margin percentage in 2015 as compared to 2014 was flat at 40% despite lower sales and price reductions in2015 compared to 2014, due to a higher relative concentration of our product mix in mature products, which have higher gross margins than the new products andalso due to restructuring plan implemented in the second quarter. The sale of previously reserved inventories was $201,000 and $603,000 in 2015 and 2014respectively. Inventory write down in 2015 was $229,000 compared to $119,000 in 2014.31Table of ContentsOur semiconductor products have historically had a long product life cycle and obsolescence has not been a significant factor in the valuation ofinventories. However, as we pursue opportunities in the mobile market and continue to develop new CSSPs and products, we believe our product life cycle will beshorter and increase the potential for obsolescence. We also regularly review the cost of inventories against estimated market value and record a lower of cost ormarket reserve, or LCM reserve, for inventories that have a cost in excess of estimated market value. This could have a material impact on our gross margin andinventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down. There were no adjustments to theLCM reserve in fiscal year 2015.Operating Expenses. The table below sets forth the changes in operating expenses for fiscal year 2015 as compared to fiscal year 2014 (in thousands, exceptpercentage data): Fiscal Years 2015 2014 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChangeR&D expense$14,144 75% $12,186 44% $1,958 16 %SG&A expense10,619 56% 11,663 42% (1,044) (9)%Restructuring costs295 2% — —% 295 100 %Total operating expenses$25,058 132% $23,849 86% $1,209 5 %Research and Development Expense. Our research and development expenses consist primarily of personnel, overhead and other costs associated withengineering process improvements, programmable logic design, CSSP design and software development. Research and development expense was $14.1 millionand $12.2 million in 2015 and 2014 , respectively, which represented 75% and 44% of revenue for those periods. The $2.0 million increase in R&D expenses in2015 as compared to 2014 is attributable primarily to a $1.4 million increase in compensation expense due to increased headcount, $1.1 million increase in the costof outside services due to an increase in third-party chip design costs, and $170,000 increase in equipment and supplies costs. These increases were partially offsetby a reduction in IP purchases of $261,000, and lower stock based compensation cost of $226,000.Selling, General and Administrative Expense. Our selling, general and administrative or SG&A expenses consist primarily of personnel and relatedoverhead costs for sales, marketing, finance, administration, human resources and legal. SG&A expense was $10.6 million and $11.7 million in 2015 and 2014 ,respectively, which represented 56.0% and 41.9% of revenue for those periods. The $1.0 million decrease in SG&A expenses in 2015 as compared to 2014 isattributable primarily to the decrease in stock based compensation of $643,000 and lower outside services costs of $545,000, partially offset by higher depreciationcosts of $151,000.Restructuring Costs. In June 2015, the Company implemented a restructuring plan to re-align the organization to support the Company's sensorprocessing provider business model and growth strategy. This re-alignment resulted in a reduction of nine employees or 9% of the Company's global workforce.Pursuant to the restructuring plan, the Company recorded $295,000 of restructuring liabilities in 2015, consisting primarily of employee severance related costs.See Note 17 to the Consolidated Financial Statements for more details. Interest Expense and Interest Income and Other Expense, net The table below sets forth the changes in interest expense and interest income and other expense, net for 2015 as compared to 2014 (in thousands, exceptpercentage data): Fiscal Years Change 2015 2014 Amount Percentage Interest expense$(82) $(85) $(3) (4)%Interest income and other expense, net(107) (126) (19) (15)% $(189) $(211) $(22) (10)%32Table of ContentsThe change in interest expense was insignificant in 2015 compared to 2014 as the debt balance remained the same for most of 2015. At the end ofDecember 2015, an additional $1 million draw down was made from our line of credit, which had an insignificant impact on interest expense in 2015. The changein interest income and other expense, net was due primarily to a decrease in foreign exchange losses in 2015 as compared to 2014 .We conduct a portion of our research and development activities in Canada and India and we have sales and marketing activities in various countriesoutside of the United States. Our Canadian operations were closed in December 2015. Most of these international expenses are incurred in local currency. Foreigncurrency transaction gains and losses are included in interest and other income (expense), net, as they occur. We do not use derivative financial instruments tohedge our exposure to fluctuations in foreign currency and, therefore, our results of operations are and will continue to be susceptible to fluctuations in foreignexchange gains or losses.Provision for Income Taxes. The table below sets forth the changes in provision for income taxes in 2015 as compared to 2014 (in thousands, exceptpercentage data) : Fiscal Years Change 2015 2014 Amount Percentage Income tax provision$146 $68 $78 115%The income tax expense for 2015 and 2014 is primarily from our foreign operations which are cost-plus entities.As of the end of 2015 , our ability to utilize our U.S. deferred tax assets in future periods is uncertain and, accordingly, we have recorded a full valuationallowance against the related U.S. tax asset. We will continue to assess the realizability of deferred tax assets in future periods.Comparison of Fiscal Years 2014 and 2013Revenue . The table below sets forth the changes in revenue for fiscal year 2014 as compared to fiscal year 2013 (in thousands, except percentage data): Fiscal Years 2014 2013 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue by product family (1) : New products$19,311 69% $18,219 70% $1,092 6%Mature products8,534 31% 7,853 30% 681 9%Total revenue$27,845 100% $26,072 100% $1,773 7%_________________(1) For all periods presented: New products include all products manufactured on 180 nanometer or smaller semiconductor processes. Mature products include allproducts produced on semiconductor processes larger than nanometers.The increase in new product revenue was primarily due to shipments to Samsung which designed our ArcticLink III VX product into a new tabletplatform. Revenue generated from Samsung accounted for 75% of our new product revenue and 52% of our total revenue in 2014. The increase in mature productrevenue was due primarily to increased orders from our customers in the aerospace, test and instrumentation sectors.Gross Profit. The table below sets forth the changes in gross profit for fiscal year 2014 as compared to fiscal year 2013 (in thousands, except percentagedata): Fiscal Years 2014 2013 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue$27,845 100% $26,072 100% $1,773 7 %Cost of revenue16,796 60% 17,305 66% (509) (3)%Gross Profit$11,049 40% $8,767 34% $2,282 26 %The increase in gross profit in 2014 as compared to 2013 was primarily due to customer and product mix of $1.3 million, favorable purchase priceadjustments and standard cost variance of $863,000 due to higher shipments of both new and mature products. The sale of previously reserved inventories was$603,000 and $596,000 in 2014 and 2013 respectively. Operating Expenses. The table below sets forth the changes in operating expenses for fiscal year 2014 as compared to fiscal year 2013 (in thousands,except percentage data): Fiscal Years 2014 2013 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChangeR&D expense$12,186 44% $8,375 32% $3,811 46 %SG&A expense11,663 42% 12,002 46% (339) (3)%Restructuring Costs— —% 181 1% (181) (100)%Total operating expenses$23,849 86% $20,558 79% $3,291 16 %Research and Development Expense. Our research and development expenses consist primarily of personnel, overhead and other costs associated withengineering process improvements, programmable logic design, CSSP design and software development. Research and development expense was $12.2 millionand $8.4 million in 2014 and 2013 respectively, which represented 44% and 32% of revenue for those periods. The $3.8 million increase in R&D expenses in 2014as compared to 2013 is attributable primarily to a $1.7 million increase in compensation expense due to increased headcount, $835,000 increase in the cost ofoutside services due to an increase in third-party chip design costs, $429,000 increase in purchased intellectual property, and $386,000 increase in stock basedcompensation costs. These increases were partially offset by a reduction of $131,000 in engineering equipment and supplies expense.Selling, General and Administrative Expense. Our selling, general and administrative expenses consist primarily of personnel and related overhead costsfor sales, marketing, finance, administration, human resources and legal. Selling, general and administrative, or SG&A, expense was $11.7 million and $12.0million in 2014 and 2013 , respectively, which represented 41.9% and 46.0% of revenue for those periods. The $339,000 decrease in SG&A expenses in 2014 ascompared to 2013 is attributable primarily to the decrease in executive bonus payments.Restructuring Costs. In an effort to consolidate and streamline its engineering organization, the Company incurred restructuring costs of $181,000 in 2013to pay for employee severance benefits.Interest Expense and Interest Income and Other Expense, net The table below sets forth the changes in interest expense and interest income and other expense, net for 2014 as compared to 2013 (in thousands, exceptpercentage data): Fiscal Years Change 2014 2013 Amount Percentage Interest expense$(85) $(54) $(31) 57 %Interest income and other expense, net(126) (157) 31 (20)% $(211) $(211) $— — %The increase in interest expense is due primarily to the increase of our capital software lease obligation to $357,000 in 2014 from $310,000 in 2013 . Thechange in interest income and other expense, net was due primarily to a decrease of foreign exchange losses in 2014 as compared to 2013 .Provision for Income Taxes. The table below sets forth the changes in provision for (benefit from) income taxes for 2014 as compared to 2013 (inthousands, except percentage data): Fiscal Years Change 2014 2013 Amount Percentage Income tax provision$68 $455 $(387) (85)%The income tax expense for 2014 and 2013 respectively, was primarily for our foreign operations which are cost-plus entities. Included within theprovision for income taxes for 2013 was a charge in the amount of $273,000 relating to our investment in TowerJazz. This expense was previously recorded as acomponent of other comprehensive income and reclassified to the provision for income taxes upon the sale of our investment in TowerJazz.As of the end of 2014 , our ability to utilize our U.S. deferred tax assets in future periods was uncertain and, accordingly, we recorded a full valuationallowance against the related U.S. tax asset. We will continue to assess the realizability of deferred tax assets in future periods.33Table of ContentsLiquidity and Capital ResourcesWe have financed our operations and capital investments through sales of common stock, capital and operating leases, a bank line of credit and cash flowfrom operations. As of January 3, 2016 , our principal sources of liquidity consisted of our cash and cash equivalents of $19.1 million and available credit underour revolving line of credit with Silicon Valley Bank of $4.0 million , which expires in September 25, 2017. Additionally, we have an accumulated deficit ofapproximately $221 million and experienced net losses in the past years and expect such losses to continue through at least the year ending January 1, 2017 as wecontinue to develop new products, applications and technologies.On March 16, 2016, we announced the pricing of the Company's firm underwritten public offering of an aggregate of 10.0 million newly issued shares ofcommon stock at a price of $1.00 per share, $0.001 par value. We expect to receive gross proceeds of approximately $10.0 million, before deducting underwritingdiscounts and other estimated offering expenses. The net proceeds from the Offering are expected to be approximately $8.9 million after deduction of underwritingdiscounts and assuming no exercise of the underwriters' over-allotment option. The underwriters have also been granted a 30-day option to purchase up to 1.5million shares of common stock to cover over-allotments, if any. We expect to use the net proceeds from the Offering for working capital and other generalcorporate purposes. We may also use a portion of the net proceeds to acquire and/or license technologies and acquire and/or invest in businesses when theopportunity arises. See Note 18 to the Consolidated Financial Statements for the details.The Shares are being offered by us pursuant to a shelf registration statement previously filed with the SEC, which was declared effective by the SEC onAugust 30, 2013, and as supplemented by a prospectus supplement dated March 17, 2016 filed with the SEC pursuant to Rule 424(b) under the Securities Act of1933, as amended. See Notes 14 and 18 to the Consolidated Financial Statements for details.Over the longer term, the Company anticipates that the generation of sales from its new product offerings, existing cash and cash equivalents, togetherwith financial resources from its revolving line of credit with Silicon Valley Bank and its ability to raise additional capital in the public capital markets will besufficient to satisfy its operations and capital expenditures. However, the Company cannot provide any assurance that it will be able to raise additional capital, ifrequired, 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 productofferings and/or raise additional capital if needed could have a material adverse effect on the Company’s operations and financial condition, including its ability tomaintain compliance with its lender’s financial covenants.On September 25, 2015, we entered into a Second Amendment to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bankto extend the line of credit for two years through September 25, 2017. This amendment modifies some of the financial covenants. See Note 6 to the ConsolidatedFinancial Statements for information regarding the financial covenants. This line of credit provides for committed loan advances of up to $6.0 million, subject toincreases at our election of up to $12.0 million. On February 10, 2016 we entered into a Third Amendment to Third and Restated Loan and Security Agreement tofurther modify the covenants. See Note 18 to the Consolidated Financial Statements for a description of the modified covenants. We were in compliance with allloan covenants as of the end of the current reporting period. As of January 3, 2016 we had $2.0 million of outstanding revolving debt with an interest rate of 3.4%As of January 3, 2016 , there was no material difference between the fair value and the carrying amount of capital software leasing arrangements.Most of our cash and cash equivalents were invested in money market funds rated AAAm/Aaa. Our interest-bearing debt consisted of $489,000outstanding under capital software leases. See Note 6 to the Consolidated Financial Statements for details. Cash balances held at our foreign subsidiaries were approximately $1.2 million and $868,000 at January 3, 2016 and December 28, 2014 , respectively.Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested. We do not expect such reinvestment to affect our liquidity and capitalresources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy. Factorswhich affect our liquidity, capital resources and global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax efficientmanner, funding requirements for operations and investment activities, acquisitions and divestitures and capital market conditions.In summary, our cash flows were as follows (in thousands):34Table of Contents Fiscal Year 2015 20142013Net cash (used in) operating activities$(11,829) $(10,754)$(9,056)Net cash (used in) investing activities(346) (1,044)(992)Net cash provided by financing activities1,261 4,44224,876Net Cash from Operating ActivitiesIn 2015 , net cash used in operating activities was $11.8 million , and resulted primarily from a net loss of $17.8 million offset by $3.7 million in non-cashcharges. These non-cash charges included write-downs of inventories in the amount of $229,000 to reflect excess quantities, depreciation and amortization of ourlong-lived assets of $1.4 million and stock-based compensation of $1.9 million . In addition, changes in working capital accounts provided cash of $2.0 million as aresult of an increase in accounts payable of $260,000 , decrease in gross inventory of $1.8 million and, decrease of other assets of $300,000 , partially offset by adecrease of accrued liabilities of $94,000 and an increase in accounts receivable of $49,000 . Inventory decrease was primarily due to sale of existing ArcticLinkIII and PolarPro products inventory purchased in prior year.In 2014, net cash used in operating activities was $10.8 million, and resulted primarily from a net loss of $13.1 million offset by $3.8 million in non-cashcharges. These non-cash charges included write-downs of inventories in the amount of $119,000 to reflect excess quantities, depreciation and amortization of ourlong-lived assets of $1.5 million and stock-based compensation of $2.2 million. In addition, changes in working capital accounts used cash of $2.1 million as aresult of a decrease in accounts payable of $2.0 million, an increase in gross inventory of $935,000 and a decrease of accrued liabilities of$882,000, partially offsetby a decrease in accounts receivable of $1.7 million. The decrease of accounts payable was primarily due to payment of invoices approximately $1.6 millionrelated to purchases of ArcticLink III products in 2014, which were purchased in 2013. We were expecting significant increase in sales volume of ArcticLink IIIproduct to Samsung in 2014.In 2013, net cash used for operating activities was $9.1 million, and resulted from changes in working capital offset by a net loss of $12.3 million whichincluded $4.1 million in non-cash charges. These non-cash charges included write-downs of inventories in the amount of $551,000 to reflect excess quantities,depreciation and amortization of our long-lived assets of $1.3 million, and stock-based compensation of $2.0 million. In addition, changes in working capitalaccounts used cash of $748,000 as a result of an increase in accounts receivable of $2.0 million, an increase in inventory of $1.7 million, and an increase inaccounts payable of $1.4 million.Net Cash from Investing ActivitiesNet cash used for investing activities in 2015 was $346,000 , primarily for capital expenditures to acquire manufacturing equipment and software.In 2014 and 2013, net cash used for investing activities was $1.0 million, as a result of capital expenditures made primarily to acquire mask sets, leaseholdimprovements, software used in the development and production of our products and solutions and other manufacturing equipment.Net Cash from Financing ActivitiesIn 2015 net cash provided by financing activities was $1.3 million , resulting from the additional borrowing of $1.0 million under the line of credit andfrom proceeds of $554,000 related to the issuance of common shares to employees under our equity plans. These proceeds were partially offset by payments of$293,000 under the terms of our capital software lease obligations.In 2014 net cash provided by financing activities was $4.4 million, resulting from proceeds of $4.7 million related to the issuance of common shares toemployees under our equity plans. These proceeds were partially offset by payments of $300,000 under the terms of our capital software lease obligations.In 2013, net cash provided by financing activities was $24.9 million, resulting from $23.1 million of net proceeds related to the issuance of commonshares under the underwritten public offering; $1.0 million borrowed under a revolving debt facility with an interest rate of 3.75%; and $1.0 million of proceedsrelated to the issuance of common shares to employees under our equity plans. These proceeds were offset by payments of $216,000 under the terms of our capitalsoftware lease obligations.35Table of ContentsWe require substantial cash to fund our business. However, we believe that our existing cash and cash equivalents, together with available financialresources from the revolving line of credit facility and our sale of common stock in March 2016 will be sufficient to satisfy our operations and capital expendituresover the next twelve months. After the next twelve months, our cash requirements will depend on many factors including our level of revenue and gross profit, themarket acceptance of our existing and new products, the levels at which we maintain inventories and accounts receivable, costs of securing access to adequatemanufacturing capacity, new product development efforts, capital expenditures and the level of our operating expenses. In order to satisfy our longer term liquidityrequirements, we may be required to raise additional equity or debt financing. There can be no assurance that financing will be available or at commerciallyacceptable terms.36Table of ContentsContractual Obligations and Commercial CommitmentsThe following table summarizes our contractual obligations and commercial commitments as of the end of 2015 and the effect such obligations andcommitments are expected to have on our liquidity and cash flows in future fiscal periods (in thousands): Payments Due by Period Total Less than 1 year 1-3 Years More than 3 YearsContractual cash obligations: Operating leases$2,149 $804 $1,345 Wafer purchases (1)1,425 1,425 — —Other purchase commitments1,520 1,265 255 —Total contractual cash obligations5,094 3,494 1,600 —Other commercial commitments (2): Revolving line of credit2,000 — 2,000 —Capital software lease obligations489 281 208 —Total commercial commitments2,489 281 2,208 —Total contractual obligations and commercial commitments (3)$7,583 $3,775 $3,808 $—____________________(1)Certain of our wafer manufacturers require us to forecast wafer starts several months in advance. We are committed to take delivery of and pay for aportion of forecasted wafer volume. Wafer purchase commitments of $1.4 million include firm purchase commitments and a portion of our forecastedwafer starts as of the end of 2015 .(2)Other commercial commitments are included as liabilities on our consolidated balance sheets as of the end of 2015 .(3)Does not include unrecognized tax benefits of $696,000 as of the end of 2015 . See Note 8 of the Consolidated Financial Statements.Concentration of SuppliersWe depend on a limited number of contract manufacturers, subcontractors, and suppliers for wafer fabrication, assembly, programming and testing of ourdevices, and for the supply of programming equipment. These services are typically provided by one supplier for each of our devices. We generally purchase thesesingle or limited source services through standard purchase orders. Because we rely on independent subcontractors to perform these services, we cannot directlycontrol product delivery schedules, costs or quality levels. Our future success also depends on the financial viability of our independent subcontractors. Thesesubcontract manufacturers produce products for other companies and we must place orders in advance of expected delivery. As a result, we have only a limitedability 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 ourability 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. Thedecision 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 asignificant impact on our business. Increased demand from other companies could result in these subcontract manufacturers allocating available capacity tocustomers 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, orwe may experience delays or interruption in supply. Additionally, volatility of economic, market, social and political conditions in countries where these suppliersoperate may be unpredictable and could result in a reduction in product revenue or increase our cost of revenue and could adversely affect our business, financialcondition and results of operations.Off-Balance Sheet ArrangementsWe do not maintain any off-balance sheet partnerships, arrangements or other relationships with unconsolidated entities or others, often referred to asstructured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow orlimited purposes.37Table of ContentsRecently Issued Accounting Pronouncements See Note 2 to the Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoptionand estimated effects on financial condition and results of operations, which is incorporated herein by reference. 38Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInterest Rate RiskOur exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt. We do not use derivativefinancial instruments to manage our interest rate risk. We are adverse to principal loss and ensure the safety and preservation of invested funds by limiting default,market risk and reinvestment risk. Our investment portfolio is generally comprised of investments that meet high credit quality standards and have activesecondary and resale markets. Since these securities are subject to interest rate risk, they could decline in value if interest rates fluctuate or if the liquidity of theinvestment portfolio were to change. Due to the short duration and conservative nature of our investment portfolio, we do not anticipate any material loss withrespect to our investment portfolio. A 10% change in interest rates during 2015 would have had an immaterial effect on our financial position, results of operationsand cash flows.Foreign Currency Exchange Rate RiskAll of our sales and cost of manufacturing are transacted in U.S. dollars. We conduct a portion of our research and development activities in Canada andIndia and have sales and marketing offices in several locations outside of the United States. At the end of the fiscal year ended January 3, 2016 , we closed Canadaactivities. We use the U.S. dollar as our functional currency. Most of the costs incurred at these international locations are in local currency. If these localcurrencies strengthen against the U.S. dollar, our payroll and other local expenses will be higher than we currently anticipate. Since our sales are transacted in U.S.dollars, this negative impact on expenses would not be offset by any positive effect on revenue. Operating expenses denominated in foreign currencies wereapproximately 17% , 18% and 19% of total operating expenses in 2015 , 2014 and 2013 , respectively. A majority of these foreign expenses were incurred in India,the United Kingdom and Korea in 2015. A currency exchange rate fluctuation of 10% would have caused our operating expenses to change by approximately$419,000 in 2015 , $432,000 in 2014 and $400,000 in 2013.39Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm-BDO USA, LLP41Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting42Report of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP43Consolidated Balance Sheets as of January 3, 2016 and December 28, 201444Consolidated Statements of Operations for the Fiscal Years 2015, 2014 and 201345Consolidated Statements of Comprehensive Loss for the Fiscal Years 2015, 2014 and 201346Consolidated Statements of Cash Flows for the Fiscal Years 2015, 2014 and 201347Consolidated Statements of Stockholders' Equity for the Fiscal Years 2015, 2014 and 201348Notes to Consolidated Financial Statements49 40Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and StockholdersQuickLogic CorporationSunnyvale, CaliforniaWe have audited the accompanying consolidated balance sheets of QuickLogic Corporation as of January 3, 2016 and December 28, 2014 and the relatedconsolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended January 3, 2016. Inconnection with our audits of the financial statements, we have also audited the financial statement schedule, Valuation and Qualifying Accounts, as of and for theyears ended January 3, 2016 and December 28, 2014 listed in Item 15(a)2. These financial statements and schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of QuickLogic Corporation atJanuary 3, 2016 and December 28, 2014, and the results of its operations and its cash flows for each of the two years in the period ended January 3, 2016 , inconformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedule, Valuation and Qualifying Accounts as of and for the years ended January 3, 2016 and December 28, 2014,when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), QuickLogic Corporation's internalcontrol over financial reporting as of January 3, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) and our report dated March 18, 2016 expressed an unqualified opinion thereon./s/ BDO USA, LLPSan Jose, CaliforniaMarch 18, 201641Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and StockholdersQuickLogic Corporation,Sunnyvale, CaliforniaWe have audited QuickLogic Corporation’s internal control over financial reporting as of January 3, 2016, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). QuickLogic Corporation’smanagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinionon the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.In our opinion, QuickLogic Corporation maintained, in all material respects, effective internal control over financial reporting as of January 3, 2016, based on theCOSO criteria .We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets ofQuickLogic Corporation as of January 3, 2016 and December 28, 2014, and the related consolidated statements of operations, comprehensive loss, stockholders’equity, and cash flows for each of the two years in the period ended January 3, 2016 and our report dated March 18, 2016 expressed an unqualified opinionthereon./s/ BDO USA, LLPSan Jose, CaliforniaMarch 18, 201642Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of QuickLogic Corporation:In our opinion, the consolidated balance sheet as of December 29, 2013 and the related consolidated statements of operations, statements of comprehensive income(loss), stockholders’ equity, and cash flows for the year ended December 29, 2013 present fairly, in all material respects, the financial position of QuickLogicCorporation and its subsidiaries at December 29, 2013 and the results of their operations and their cash flows for the year ended December 29, 2013, in conformitywith accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year endedDecember 29, 2013 presents fairly, in all material respects, the information set for the therein when read in conjunction with the related consolidated financialstatements.These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits. We conducted our audit of these statements in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 6, 201443Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except par value amount) January 3, 2016 December 28, 2014ASSETS Current assets: Cash and cash equivalents$19,136 $30,050Accounts receivable, net of allowances for doubtful accounts of $01,601 1,552Inventories2,878 4,952Other current assets1,312 1,146Total current assets24,927 37,700Property and equipment, net3,315 3,217Other assets219 222TOTAL ASSETS$28,461 $41,139 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade payables$4,032 $2,506Accrued liabilities1,482 1,574Current portion of capital software lease obligations281 225Total current liabilities5,795 4,305Long-term liabilities: Revolving line of credit2,000 1,000Capital software lease obligations, less current portion208 191 Other long-term liabilities133 76Total liabilities8,136 5,572Commitments and contingencies (Note 15) Stockholders' equity: Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued and outstanding— —Common stock, $0.001 par value; 100,000 shares authorized; 56,904 and 56,182 shares issued and outstanding57 56Additional paid-in capital241,024 238,419Accumulated deficit(220,756) (202,908)Total stockholders' equity20,325 35,567TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$28,461 $41,139The accompanying notes form an integral part of these Consolidated Financial Statements.44Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Fiscal Years 2015 2014 2013 Statements of Operations: Revenue$18,956 $27,845 $26,072Cost of revenue11,411 16,796 17,305Gross profit7,545 11,049 8,767Operating expenses: Research and development14,144 12,186 8,375Selling, general and administrative10,619 11,663 12,002Restructuring costs295 — 181Loss from operations(17,513) (12,800) (11,791)Gain on sale of TowerJazz Semiconductor Ltd. Shares— — 181Interest expense(82) (85) (54)Interest income and other expense, net(107) (126) (157)Loss before income taxes(17,702) (13,011) (11,821)Provision for income taxes146 68 455Net loss$(17,848) $(13,079) $(12,276)Net loss per share: Basic$(0.32) $(0.23) $(0.27)Diluted$(0.32) $(0.23) $(0.27)Weighted average shares: Basic56,472 55,401 45,762Diluted56,472 55,401 45,762The accompanying notes form an integral part of these Consolidated Financial Statements.45Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Fiscal Years 2015 2014 2013Net loss$(17,848) $(13,079)$(12,276)Other comprehensive income, net of tax: Change in unrealized gain on available-for-sale investments (Note 4)— — 11Total comprehensive loss$(17,848) $(13,079) $(12,265)The accompanying notes form an integral part of these Consolidated Financial Statements. 46Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Years 2015 2014 2013Cash flows from operating activities: Net loss$(17,848) $(13,079) $(12,276)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization1,409 1,510 1,338Shares issued to third parties for services provided87 — —Stock-based compensation1,941 2,242 1,979Write-down of inventories229 119 551Gain on TowerJazz Semiconductor Ltd. Shares— — (181) Tax effect on other comprehensive income (loss)— — 273Loss on disposal of equipment— — 27Write-off of equipment8 5 96Bad debt expense— — (20)Changes in operating assets and liabilities: Accounts receivable(49) 1,709 (1,999)Inventories1,845 (935) (1,659)Other assets300 604 (361)Trade payables260 (2,002) 1,379Accrued liabilities(94) (882) 1,817Deferred income26 — — Other long-term liabilities57 (45) (20)Net cash used in operating activities(11,829) (10,754) (9,056)Cash flows from investing activities: Capital expenditures for property and equipment(346) (1,046) (1,257)Proceeds from sale of equipment— 2 — Proceeds from sale provided by TowerJazz Semiconductor Ltd. shares— — 265Net cash used in investing activities(346) (1,044) (992)Cash flows from financing activities: Payment of capital software lease obligations(293) (300) (216)Stock issuance cost 40 (2,219)Proceeds from line of credit1,000 — 1,000Proceeds from issuance of common stock554 4,702 26,311Net cash provided by financing activities1,261 4,442 24,876Net (decrease)/increase in cash and cash equivalents(10,914) (7,356) 14,828Cash and cash equivalents at beginning of period30,050 37,406 22,578Cash and cash equivalents at end of period$19,136 $30,050 $37,406Supplemental disclosures of cash flow information: Interest paid$77 $85 $44Income taxes paid$121 $48 $100Supplemental schedule of non-cash investing and financing activities : Capital software lease obligation to finance capital expenditures$489 $416 $310Purchase of equipment included in accounts payable$977 $441 $33Issuance of restricted stock units for accrued compensation$— $1,064 $—Stock Warrants exercised in cashless transactions, net$— $78 $—The accompanying notes form an integral part of these Consolidated Financial Statements.47Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in thousands) Common Stock atPar Value AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome (Loss) AccumulatedDeficit TotalStockholders'Equity Shares Amount Balance at December 30, 201244,506 $45 $204,797 $(11) $(177,553) $27,278Common stock issued under stock plans and employee stockpurchase plans542 1 965 — — 966Private stock offering, net of issuance costs and warrants8,740 8 23,118 — — 23,126Change in unrealized gain on available-for-sale securities (SeeNote 4)— — — 11 — 11Stock-based compensation— — 1,493 — — 1,493Net loss— — — — (12,276) (12,276)Balance at December 29, 201353,788 54 230,373— (189,829) 40,598Common stock issued under stock plans and employee stockpurchase plans2,358 2 4,700 — — 4,702Adjustment of Common stock and Warrants issuance costs— — 40 — — 40Issuance of Common stock from exercise of Warrants36 — — — — —Stock-based compensation— — 3,306 — — 3,306Net loss— — — — (13,079) (13,079)Balance at December 28, 201456,182 56 238,419 — (202,908) 35,567Common stock issued under stock plans and employee stockpurchase plans722 1 553 — — 554Stock-based compensation— — 2,052 — — 2,052Net loss— — — — (17,848) (17,848)Balance at January 3, 201656,904 $57$241,024$—$(220,756)$20,325The accompanying notes form an integral part of these Consolidated Financial Statements. 48Table of ContentsNOTE 1-THE COMPANY AND BASIS OF PRESENTATIONQuickLogic Corporation, referenced herein as QuickLogic or the Company, was founded in 1988 and reincorporated in Delaware in 1999. The Companydevelops and markets low power customizable semiconductor and software algorithm solutions that enable customers to differentiate their products by adding newfeatures, extending battery life, becoming more contextually aware and improving the visual experience of the Smartphone, Wearable, Tablet, Internet-of-Things(IoT) and electronics markets. The Company is a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power displaybridges, and ultra-low power Field Programmable Gate Arrays, or FPGAs.QuickLogic's fiscal year ends on the Sunday closest to December 31. Fiscal years 2015 , 2014 and 2013 ended on January 3, 2016 , December 28, 2014 ,and December 29, 2013 , respectively.LiquidityThe Company has financed its operations and capital investments through sales of common stock, capital and operating leases, and bank lines of credit.As of January 3, 2016 , the Company's principal sources of liquidity consisted of its cash and cash equivalents of $19.1 million and $4.0 million in available creditunder its revolving line of credit with Silicon Valley Bank, which expires on September 25, 2017 . Additionally, we have an accumulated deficit of approximately$221 million and experienced net losses in the past years and expect such losses to continue through at least the year ending January 1, 2017 as we continue todevelop new products, applications and technologies.The Company currently uses its cash to fund its capital expenditures and operating losses. Based on past performance and current expectations, theCompany believes that its existing cash and cash equivalents, together with available financial resources from the revolving line of credit with Silicon Valley Bankand equity funding raised during March 2016 will be sufficient to fund its operations and capital expenditures and provide adequate working capital for the nexttwelve months.The Company's liquidity is affected by many factors including, among others: the level of revenue and gross profit as a result of the cyclicality of thesemiconductor industry; the conversion of design opportunities into revenue; market acceptance of existing and new products including solutions based on itsArcticLink ® and PolarPro ® solution platforms; fluctuations in revenue as a result of product end-of-life; fluctuations in revenue as a result of the stage in theproduct life cycle of its customers' products; costs of securing access to and availability of adequate manufacturing capacity; levels of inventories; wafer purchasecommitments; customer credit terms; the amount and timing of research and development expenditures; the timing of new product introductions; productionvolumes; product quality; sales and marketing efforts; the value and liquidity of its investment portfolio; changes in operating assets and liabilities; the ability toobtain 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 theCompany; the issuance and exercise of stock options and participation in the Company's employee stock purchase plan; and other factors related to theuncertainties of the industry and global economics.Over the longer term, the Company anticipates that the generation of sales from its new product offerings, existing cash and cash equivalents, togetherwith financial resources from its revolving line of credit with Silicon Valley Bank and its ability to raise additional capital in the public capital markets will besufficient to satisfy its operations and capital expenditures. However, the Company cannot provide any assurance that it will be able to raise additional capital, ifrequired, 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 productofferings and/or raise additional capital if needed could have a material adverse effect on the Company’s operations and financial condition, including its ability tomaintain compliance with its lender’s financial covenants.See Note 18 for the details of the subsequent event relating to the announcement of new Common Stock offering and pricing of the offering.Principles of ConsolidationThe consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles, or GAAP, in the United Statesof America and the applicable rules and regulations of the Securities and Exchange Commission, or SEC, and include the accounts of QuickLogic and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.49Table of ContentsForeign CurrencyThe functional currency of the Company's non-U.S. operations is the U.S. dollar. Accordingly, all monetary assets and liabilities of these foreignoperations are translated into U.S. dollars at current period-end exchange rates and non-monetary assets and related elements of expense are translated usinghistorical exchange rates. Income and expense elements are translated to U.S. dollars using the average exchange rates in effect during the period. Gains and lossesfrom the foreign currency transactions of these subsidiaries are recorded as interest income and other expense, net in the statements of operations.Use of EstimatesThe preparation of these consolidated financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during theperiod. Actual results could differ from those estimates, particularly in relation to revenue recognition; the allowance for doubtful accounts; sales returns; valuationof investments; valuation of long-lived assets; valuation of inventories including identification of excess quantities, market value and obsolescence; measurementof stock-based compensation awards; accounting for income taxes and estimating accrued liabilities.Concentration of RiskThe Company's accounts receivable are denominated in U.S. dollars and are derived primarily from sales to customers located in North America, AsiaPacific, and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. See Note 13 for informationregarding concentrations associated with accounts receivable.For the twelve months ended January 3, 2016 , the Company generated 43% of its total revenue from shipments to a tier one customer, SamsungElectronics Co., Ltd. ("Samsung"). See Note 13 for information regarding revenue concentrations associated with our customers and distributors.NOTE 2-SIGNIFICANT ACCOUNTING POLICIESCash EquivalentsAll highly liquid investments purchased with a remaining maturity of ninety days or less are considered cash equivalents. The Company's investmentportfolio included in cash equivalents is generally comprised of investments that meet high credit quality standards. The Company's investment portfolio consistsof money market funds, which are precluded from investing in auction rate securities. These funds invest in U.S. government obligations and repurchaseagreements secured by U.S. Treasury obligations, U.S. government agency obligations, high quality commercial papers and other short term debt securities of U.S.and foreign corporations, debt securities issued or guaranteed by qualified U.S. and foreign banks, asset backed securities, repurchase agreements and reversepurchase agreements and taxable municipal obligations. The fair value of this portfolio is based on market prices for securities with active secondary and resalemarkets.Fair ValueThe guidance for the fair value option for financial assets and financial liabilities provides companies the irrevocable option to measure many financialassets and liabilities at fair value with changes in fair value recognized in earnings or equity. The Company has not elected to measure any financial assets orliabilities at fair value that were not previously required to be measured at fair value.Foreign Currency TransactionsAll of the Company's sales and cost of manufacturing are transacted in U.S. dollars. The Company conducts a portion of its research and developmentactivities in Canada and India and has sales and marketing activities in various countries outside of the United States. Canada operations were closed down at theend of fiscal year 2015 as a part of restructuring plan initiated in the second quarter. Most of these international expenses are incurred in local currency. Foreigncurrency transaction gains and losses, which are not significant, are included in interest income and other expense, net, as they occur. Operating expensesdenominated in foreign currencies were approximately 17% , 18% and 19% of total operating expenses in 2015 , 2014 , and 2013 , respectively. The Companyincurred a majority of these foreign currency expenses in India, the United Kingdom and Korea in 2015, 2014 and 2013. The Company has not used derivativefinancial instruments to hedge its exposure to fluctuations50Table of Contentsin foreign currency and, therefore, is susceptible to fluctuations in foreign exchange gains or losses in its results of operations in future reporting periods.InventoriesInventories are stated at the lower of standard cost or net realizable value. Standard cost approximates actual cost on a first-in, first-out basis. TheCompany routinely evaluates quantities and values of its inventories in light of current market conditions and market trends and records reserves for quantities inexcess of demand and product obsolescence. The evaluation, which inherently involves judgments as to assumptions about expected future demand and the impactof market conditions on these assumptions, takes into consideration historic usage, expected demand, anticipated sales price, the stage in the product life cycle ofits customers' products, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, customerdesign activity, customer concentrations, product merchantability and other factors. Market conditions are subject to change. Actual consumption of inventoriescould differ from forecast demand, and this difference could have a material impact on the Company's gross margin and inventory balances based on additionalprovisions for excess or obsolete inventories or a benefit from inventories previously written down. The Company also regularly reviews the cost of inventoriesagainst 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 havea material impact on the Company's gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventoriespreviously written down.The Company's semiconductor products have historically had an unusually long product life cycle and obsolescence has not been a significant factor inthe valuation of inventories. However, as the Company pursues opportunities in the mobile market and continues to develop new solutions and products, theCompany believes its product life cycle will be shorter and increase the potential for obsolescence. A significant decrease in demand could result in an increase inthe amount of excess inventory on hand. Although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, anysignificant unanticipated changes in demand or frequent new product developments could have a significant impact on the value of its inventory and its results ofoperations.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over theestimated useful lives of the assets, generally one to seven years. Amortization of leasehold improvements and capital leases is computed on a straight-line basisover the shorter of the lease term or the estimated useful lives of the assets, generally one to seven years.Long-Lived AssetsThe Company reviews the recoverability of its long-lived assets, such as property and equipment, and investments, annually and when events or changesin circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based onthe Company's ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows, undiscounted and without interestcharges, of the related operations. If these cash flows are less than the carrying value of the asset or asset group, an impairment loss is recognized for the differencebetween the estimated fair value and the carrying value, and the carrying value of the related assets is reduced by this difference. The measurement of impairmentrequires management to estimate future cash flows and the fair value of long-lived assets. During 2015 , 2014 and 2013 , the Company wrote-off equipment with anet book value of $8,000 , $5,000 and $96,000 , respectively.Licensed Intellectual PropertyThe Company licenses intellectual property that is incorporated into its products. Costs incurred under license agreements prior to the establishment oftechnological feasibility are included in research and development expense as incurred. Costs incurred for intellectual property once technological feasibility hasbeen established and that can be used in multiple products are capitalized as a long-term asset. Once a product incorporating licensed intellectual property hasproduction sales, the amount is amortized over the estimated useful life of the asset, generally up to five years.Revenue RecognitionThe Company supplies standard products which must be programmed before they can be used in an application. The Company's products may beprogrammed by us, distributors, end-customers or third parties.51Table of ContentsThe Company recognizes revenue as products are shipped if evidence of an arrangement exists, delivery has occurred, the sales price is fixed ordeterminable, collection of the resulting receivable is reasonably assured and product returns are reasonably estimable. Revenue is recognized upon shipment ofprogrammed and unprogrammed parts to both OEM customers and distributors, provided that legal title and risk of ownership have transferred. Parts held bydistributors may be returned for quality reasons only under its standard warranty policy. The Company records allowance for sales returns.Warranty CostsThe Company warrants finished goods against defects in material and workmanship under normal use for twelve months from the date of shipment. TheCompany does not have significant product warranty related costs or liabilities.AdvertisingCosts related to advertising and promotion expenditures are charged to “Selling, general and administrative” expense in the consolidated statements ofoperations as incurred. Costs related to advertising and promotion expenditures were $60,000 in 2015. In 2014 and 2013 these costs were not material.Stock-Based CompensationThe Company accounts for stock-based compensation under the provisions of the amended authoritative guidance, and related interpretations whichrequire the measurement and recognition of expense related to the fair value of stock-based compensation awards. The fair value of stock-based compensationawards is measured at the grant date and re-measured upon modification, as appropriate. The Company uses the Black-Scholes option pricing model to estimate thefair value of employee stock options and rights to purchase shares under the Company's 1999 Employee Stock Purchase Plan, or ESPP, consistent with theprovisions of the amended authoritative guidance. The fair value of restricted stock awards, or RSAs, and restricted stock units, or RSUs, is based on the closingprice of the Company's common stock on the date of grant. Equity compensation awards which vest with service are expensed on a straight-line basis over therequisite service period. Service based Performance awards are expensed on a straight-line basis over the vesting period. If performance conditions are other thanservice, an accelerated method of amortization is used, which treats each vesting tranche as a separate award over the expected life of the unit. The Companyregularly reviews the assumptions used to compute the fair value of its stock-based awards and it will revise its assumptions as appropriate. In the event thatassumptions used to compute the fair value of its stock-based awards are later determined to be inaccurate or if the Company changes its assumptions significantlyin future periods, stock-based compensation expense and the results of operations could be materially impacted. See Note 11 for further details.Accounting for Income TaxesAs part of the process of preparing the Company's financial statements, it's required to estimate its income taxes in each of the jurisdictions in which theCompany operates. This process involves estimating the Company's actual current tax exposure together with assessing temporary differences resulting fromdifferent tax and accounting treatment of items, such as deferred revenue, allowance for doubtful accounts, the impact of equity awards, depreciation andamortization and employee related accruals. These differences result in deferred tax assets and liabilities, which are included on the Company's balance sheets. TheCompany must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent the Company believes thatrecovery is not likely, it must establish a valuation allowance. To the extent the Company establishes a valuation allowance or increase this allowance in a period,it must include an expense within the tax provision in the statements of operations.Significant management judgment is required in determining the Company's provision for income taxes, the Company's deferred tax assets and liabilitiesand any valuation allowance recorded against the Company's net deferred tax assets. The Company's deferred tax assets, consisting primarily of net operating losscarryforwards, amounted to $69.4 million tax effected as of the end of 2015 . The Company has also recorded a valuation allowance of $69.3 million , tax effectedas of the end of 2015 due to uncertainties related to the Company's ability to utilize its U.S. deferred tax assets before they expire. In making such determination,the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, ability to project futuretaxable income, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of its netrecorded amount, the Company would make an adjustment to the deferred tax assets valuation allowance, which would reduce its provision for income taxes.The Company accounts for uncertainty in income taxes using a two-step approach for recognizing and measuring uncertain tax positions. The first step isto evaluate the tax position for recognition by determining if the weight of available52Table of Contentsevidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies theliability for unrecognized tax benefits as current to the extent that it anticipates payment (or receipt) of cash within one year. Interest and penalties related touncertain tax positions are recognized in the provision for income taxes. Accrued interest and penalties are included within the related tax liability line in theConsolidated Balance Sheet.Concentration of Credit and SuppliersFinancial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents andaccounts receivable. Cash and cash equivalents are maintained with high quality institutions. The Company's accounts receivable are denominated in U.S. dollarsand are derived primarily from sales to customers located in North America, Europe and Asia Pacific. The Company performs ongoing credit evaluations of itscustomers and generally does not require collateral. See Note 13 for information regarding concentrations associated with accounts receivable.The Company depends on a limited number of contract manufacturers, subcontractors, and suppliers for wafer fabrication, assembly, programming andtest of its devices, and for the supply of programming equipment, and these services are typically provided by one supplier for each of the Company's devices. TheCompany generally purchases these single or limited source services through standard purchase orders. Because the Company relies on independent subcontractorsto perform these services, it cannot directly control its product delivery schedules, costs or quality levels. The Company's future success also depends on thefinancial viability of its independent subcontractors.Comprehensive Income (Loss)Comprehensive income (loss) includes all temporary changes in equity (net assets) during a period from non-owner sources.New Accounting Pronouncements In February 2016, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update No. 2016-02, Leases . The new standardestablishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Thenew standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospectivetransition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative periodpresented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the newstandard on our consolidated financial statements. In November 2015, FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This update eliminates thecurrent requirement for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Instead, organizations willbe required to classify all deferred tax assets and liabilities as noncurrent. The amendments are effective for annual reporting periods beginning after December 15,2016 and interim periods beginning after December 15, 2016 for public business entities, and for all other entities annual periods beginning December 15, 2017and interim periods beginning after December 15, 2017. The amendments may be applied prospectively to all deferred assets and liabilities, or retrospectively forall periods presented. Early adoption of the amendments is permitted. The Company early adopted ASU 2015-17 retrospectively in the current reporting period.Adoption had no impact on our consolidated balance sheets. No reclassification was required in the prior year financial statements. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the measurement of Inventory,which amends the accounting guidanceon the valuation of inventory. The guidance requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is theestimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurementis unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured using last-in, first-out(LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) oraverage cost. This guidance is effective for reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. The Companyis currently evaluating the impact of ASU 2015-11 on its consolidated financial statements and footnote disclosures. 53Table of ContentsIn April 2015, the FASB issued ASU 2015-03, Simplifying Presentation of Debt Issuance Costs, which amends the accounting guidance on thepresentation of debt issuance costs. The guidance requires an entity to present debt issuance costs related to a recognized debt liability as a direct deduction fromthe carrying amount of that debt, consistent with debt discounts. The guidance is effective for annual reporting periods beginning after December 31, 2015 andinterim periods beginning after December 15, 2016, and must be applied retrospectively to each prior reporting period presented. The Company is currentlyevaluating the impact of ASU 2015-03 on its consolidated financial statements and footnote disclosures. In February 2015, the FASB, issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis(ASU 2015-02), which is intended to improve the targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liabilitycorporations and securitization structures. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASBaccounting standards codification and improves the current U.S. GAAP by: placing more emphasis on risk of loss when determining a controlling financialinterest; reducing the frequency of the application of related party guidance when determining a controlling financial interest in a variable interest entity, or VIEand changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. This ASU2015-02 is effective for annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2015. We are currently evaluatingthe impact of our pending adoption of the new standard on our consolidated financial statements.In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying IncomeStatement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01). This ASU 2015-01 eliminates from U.S. GAAP the concept ofextraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, requires that an entity separately classify, present and discloseextraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of a reporting entity unless evidenceclearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required tosegregate the extraordinary item from the results of ordinary operations and show such item separately in the income statement, net of tax, after income fromcontinuing operations. The entity is also required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to theextraordinary item. This ASU 2015-01 is effective for annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2015.We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenuerecognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customersin an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process toachieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existingGAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transitionmethods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practicalexpedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includesadditional footnote disclosures). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers. The amendments in this ASU defer the effective date of ASU2014-09. Public companies should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periodswithin that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reportingperiods within that reporting period. We continue to evaluate the expected impact of this new guidance and available adoption methods. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Sub Topic 205-40): Disclosure ofUncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). This ASU 2014-15 provides guidance to an entity’s management withprinciples and definitions that are intended to reduce diversity in the timing and content of disclosures that are currently commonly provided by entities in thefinancial statement footnotes. This ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periodsbeginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previouslybeen issued.54Table of ContentsNOTE 3-NET LOSS PER SHAREBasic net loss per share is computed by dividing net income loss available to common stockholders by the weighted average number of common sharesoutstanding during the period. Diluted net income (loss) per share was computed using the weighted average number of common shares outstanding during theperiod plus potentially dilutive common shares outstanding during the period under the treasury stock method. In computing diluted net income (loss) per share,the weighted average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options andwarrants. For 2015 , 2014 , and 2013 , 7.6 million shares, 7.0 million shares, and 8.0 million shares, respectively, associated with equity awards outstanding and theestimated number of shares to be purchased under the current offering period of the 2009 Employee Stock Purchase Plan were not included in the calculation ofdiluted net loss per share, as they were considered antidilutive due to the net loss the Company experienced during those years.NOTE 4-INVESTMENT IN TOWERJAZZ SEMICONDUCTOR LTD.During the second quarter of fiscal year 2013, the Company sold its remaining 42,970 TowerJazz ordinary shares. This sale resulted in a gain of $181,000 .The number of TowerJazz ordinary shares sold by the Company reflect the 1 -to- 15 reverse stock split implemented by TowerJazz effective August 3, 2012.NOTE 5-BALANCE SHEET COMPONENTS January 3, 2016 December 28, 2014 (in thousands)Inventories: Raw materials$— $—Work-in-process1,720 1,191Finished goods1,158 3,761 $2,878 $4,952Other current assets: Prepaid expenses$1,184 $1,042Other128 104 $1,312 $1,146Property and equipment: Equipment$14,531 $14,047Software3,114 3,332Furniture and fixtures131 710Leasehold improvements714 595 18,490 18,684Accumulated depreciation and amortization(15,175) (15,467) $3,315 $3,217Accrued liabilities: Employee related accruals$1,237 $1,356 Other$245 218 $1,482 $1,574The Company recorded depreciation and amortization expense of $1.4 million , $1.5 million and $1.3 million for 2015 , 2014 and 2013 , respectively.Assets acquired under capital leases and included in property and equipment were $1.0 million and $1.2 million at the end of 2015 and 2014 , respectively. TheCompany recorded accumulated depreciation on leased assets of $503,000 and $689,000 as of the end of 2015 and 2014 , respectively. As of January 3, 2016 andDecember 28, 2014 , the capital lease obligation relating to these assets was $489,000 and $416,000 respectively.55Table of ContentsNOTE 6-OBLIGATIONS January 3, 2016 December 28, 2014 (in thousands)Debt and capital software lease obligations: Revolving line of credit$2,000 $1,000Capital software leases489 416 2,489 1,416Current portion of debt and capital software lease obligations(281) (225)Long term portion of debt and capital software lease obligations$2,208 $1,191Revolving Line of Credit On September 25, 2015, the Company entered into the Second Amendment to the Third Amended and Restated Loan and Security Agreement datedSeptember 25, 2015 ("the Loan Agreement") with Silicon Valley Bank ("The Bank") to extend the line of credit for two years through September 25, 2017. TheSecond Amendment to the Loan Agreement provides for committed loan advances of up to $6.0 million , subject to increases at the Company's election of up to$12.0 million . Upon each advance, the Company can elect a prime rate advance, which is the prime rate plus the prime rate margin, or a LIBOR rate advance,which is LIBOR plus the LIBOR rate margin. As of January 3, 2016 , the Company has $ 2.0 million of revolving debt outstanding with an interest rate of 3.38% . The Bank has a first priority security interest in substantially all of the Company's tangible and intangible assets to secure any outstanding amounts underthe Third Loan Agreement. Under the terms of the Loan Agreement, the Company must maintain (i) a tangible net worth of at least $12 million , plus (a) 50% ofthe proceeds from any equity issuance, plus (b) 50% of the proceeds from any investments, tested as of the last day of each fiscal quarter; (ii) unrestricted cash orcash equivalents at the Bank or Bank's affiliates at all times in an amount of at least $6 million ; (iii) a ratio of quick assets to the results of (a) current liabilitiesminus (b) the current portion of deferred revenue, plus (c) the long-term portion of the obligations of at least 1.1 -to-1 tested as of the last day of each month. TheLoan Agreement also has certain restrictions including, among others, restrictions on the incurrence of other indebtedness, the maintenance of depository accounts,the disposition of assets, mergers, acquisitions, investments, the granting of liens, cash balances with subsidiaries and the payment of dividends. The Company wasin compliance with the financial covenants of the Loan Agreement as of the end of the current reporting period. See Note 18 for subsequent event regarding thenew terms of the line of credit.Capital LeasesIn December 2015, the Company leased design software under a two -year capital lease at an imputed interest rate of 4.88% per annum. Terms of theagreement require the Company to make quarterly payments of approximately $22,750 through November 2017, for a total of $182,000 . As of January 3, 2016 ,$173,000 was outstanding under the capital lease, $85,000 of which was classified as a current liability.In July 2015, the Company leased design software under a three -year capital lease at an imputed interest rate of 4.91% per annum. Terms of theagreement require the Company to make annual payments of approximately $67,300 through July 2017, for a total of $202,000 . As of January 3, 2016 , $125,000was outstanding under the capital lease, of which $61,000 was classified as a current liability.In July 2014, the Company leased design software under a 41 month capital lease at an imputed interest rate of 3.15% per annum. Terms of the agreementrequire the Company to make payments of principal and interest of $42,000 in August 2014, $16,000 in December 2014, $58,000 in January 2016 and $58,000 inJanuary 2017. The total payments for the lease will be $174,000 . As of January 3, 2016 , $111,000 was outstanding under this capital lease, of which $55,000 wasclassified as a current liability.In May 2014, the Company leased design software under a three -year capital lease at an imputed interest rate of 4.8% per annum. Terms of the agreementrequire the Company to make annual payments of approximately $84,000 through April 2016, for a total of $252,000 . As of January 3, 2016 , $80,000 wasoutstanding under the capital lease, all of which was classified as a current liability.56Table of ContentsNOTE 7-FAIR VALUE MEASUREMENTSPursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received fromselling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair valuemeasurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market and itconsiders assumptions that market participants would use when pricing the asset or liability.The accounting guidance for fair value measurement also specifies a hierarchy of valuation techniques based upon whether the inputs to those valuationtechniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect thecompany's own assumption of market participant valuation (unobservable inputs). The fair value hierarchy consists of the following three levels: •Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities inmarkets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally fromor corroborated by observable market data.•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.Money market funds classified within Level 2 because they are not actively traded, have been valued using quoted market prices or alternative pricingsources and models utilizing observable market inputs. The following table presents the Company's financial assets that are measured at fair value on a recurringbasis as of January 3, 2016 and December 28, 2014 , consistent with the fair value hierarchy provisions of the authoritative guidance (in thousands): As of January 3, 2016 As of December 28, 2014 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3Assets: Money market funds (1)$18,021 $2,137 $15,884 $— $29,425 $874 $28,551 $—Total assets$18,021 $2,137 $15,884 $— $29,425 $874 $28,551 $—___________________________(1)Money market funds are presented as a part of cash and cash equivalents on the accompanying consolidated balance sheets as of January 3, 2016 andDecember 28, 2014 .57Table of ContentsNOTE 8-INCOME TAXESThe following table presents the U.S. and foreign components of consolidated income (loss) before income taxes and the provision for (benefit from)income taxes (in thousands): Fiscal Years 2015 2014 2013Income (loss) before income taxes: U.S.$(17,897) $(13,172) $(11,888)Foreign195 161 67Income (loss) before income taxes$(17,702) $(13,011) $(11,821)Provision for (benefit from) income taxes: Current: Federal$37 $— $58State2 — 1Foreign99 95 83Subtotal138 95 142Deferred: Federal— — 225State— — 48Foreign8 (27) 40Subtotal8 (27) 313Provision for income taxes$146 $68 $455 Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable.Accordingly, the Company has provided a full valuation allowance against its U.S. federal and state deferred tax assets at January 3, 2016 . Any future release ofthe valuation allowance may be recorded as a tax benefit increasing net income or as an adjustment to paid-in capital, based on tax ordering requirements. TheCompany believes it is more likely than not it will be able to realize its foreign deferred tax assets. Deferred tax balances are comprised of the following (inthousands): January 3, 2016 December 28, 2014Deferred tax assets: Net operating losses$45,148 $42,049Capital losses2,938 5,143Accruals and reserves1,732 2,247Credits carryforward5,831 5,455Depreciation and amortization12,738 10,709Stock-based compensation1,012 1,078 69,399 66,681Valuation allowances(69,349) (66,618)Deferred tax asset$50 $63Deferred tax liability— —In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes. ASU 2017-17 requires that deferred taxassets and liabilities be classified as non-current in a statement of financial position. QuickLogic early adopted this guidance in the Company’s current fiscal yearending January 3, 2016 on a retrospective basis. Adoption of this guidance resulted in no reclassification of the net current deferred tax asset to the net non-currentdeferred tax asset in the consolidated balance sheet as of January 3, 2016 and December 28, 2004.58Table of ContentsA rate reconciliation between income tax provisions at the U.S. federal statutory rate and the effective rate reflected in the consolidated statements ofoperations is as follows: Fiscal Years 2015 2014 2013Income tax (benefit) at statutory rate$(5,962) $(4,423) $(4,019)State taxes2 — 1Stock compensation and other permanent differences286 6 316Foreign taxes41 22 101Benefit allocated from other comprehensive income (loss)— — 273Future benefit of deferred tax assets not recognized5,779 4,463 3,783Provision for income taxes$146 $68 $455As of January 3, 2016 , the Company had net operating loss carryforwards of approximately $134.4 million for federal and $50.8 million for state incometax purposes. If not utilized, these carryforwards will expire beginning in 2016 for federal and state purposes. Included in the net operating loss carryforwardsamount is $9.6 million for federal and $4.3 million for state income tax purposes, in which, the Company expects to record a credit to additional paid-in capitalwhen the windfall tax benefits are realized in the future.The Company has research credit carryforwards of approximately $3.5 million for federal and $4.2 million for state income tax purposes as of January 3,2016. If not utilized, the federal carryforwards will expire in various amounts beginning in 2018. The California credit can be carried forward indefinitely.Under the Tax Reform Act of 1986, the amount of and the benefit from net operating loss carryforwards and credit carryforwards may be impaired orlimited in certain circumstances. Events which may restrict utilization of a company's net operating loss and credit carryforwards include, but are not limited to,certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change ofownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating losscarryforwards and credit carryforwards before utilization. The Company has not undertaken a study to determine if its net operating losses are limited.U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on a cumulativetotal of $400,000 of undistributed earnings for certain foreign subsidiaries as of the end of fiscal 2015 . The Company intends to reinvest these earnings indefinitelyin the Company's foreign subsidiaries. The Company believes that future domestic cash generation will be sufficient to meet future domestic cash needs. TheCompany has not recorded a deferred tax liability on the undistributed earnings of non-U.S. subsidiaries. If these earnings were distributed to the United States inthe form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject toadditional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. The additional net taxes due would be immaterial orwould not have a material impact on the Company’s financial position and results of operation. If the Company decides to repatriate foreign earnings, the Companywould need to adjust its income tax provision in the period in which it is determined that the earnings will no longer be indefinitely reinvested outside the UnitedStates.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): January 3, 2016 December 28, 2014 December 29, 2013Beginning balance of unrecognized tax benefits$516 $79 $79Additions for tax positions related to the prior year(3) 330 —Additions for tax positions related to the current year199 162 —Lapse of statues of limitations(16) (55) —Ending balance of unrecognized tax benefits$696 $516 $7959Table of ContentsOut of $696,000 of unrecognized tax benefits, approximately $36,000 of unrecognized tax benefit would result in a change in the Company's effective taxrate if recognized in future years. For the twelve month period ended January 3, 2016, the Company accrued $3,000 of interest. As of January 3, 2016 andDecember 28, 2014 the Company had approximately $17,000 and $25,000 of accrued interest and penalties related to uncertain tax positions.The Company is not currently under exam and the Company's historical net operating loss and credit carryforwards may be adjusted by the InternalRevenue Service, or IRS, and other tax authorities until the statute closes on the year in which such attributes are utilized. The Company estimates that itsunrecognized tax benefits will not change significantly within next twelve months.The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which the Company operates.As of January 3, 2016 , fiscal years 2011 onward remain open to examination by the U.S. taxing authorities and fiscal years 2007 onward remain open toexamination in Canada. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period dueto significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes.NOTE 9-STOCKHOLDERS' EQUITYCommon and Preferred StockThe Company is authorized to issue 100 million shares of common stock and has 10 million shares of authorized but unissued undesignated preferredstock. Without any further vote or action by the Company's stockholders, the Board of Directors has the authority to determine the powers, preferences, rights,qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock.Issuance of Common StockOn July 31, 2013, the Company filed a shelf registration statement on Form S-3 under which the Company may, from time to time, sell securities in oneor more offerings up to a total dollar amount of $40.0 million . The Company's shelf registration statement was declared effective on August 30, 2013 and expiresin August 2016 .In November 2013, the Company issued an aggregate of 8,740,000 shares of common stock, $0.001 par value, in an underwritten public offering at aprice of $2.90 per share. The Company received net proceeds from this offering of $23.1 million , net of underwriter's commission and other offering expenses of$2.2 million .As of January 3, 2016, 2.3 million warrants were outstanding. Approximately 1.9 million warrants with a strike price of $2.15 were issued in conjunctionwith a November 2009 financing. These warrants expired in May 2015. Approximately 2.3 million warrants with a strike price of $2.98 were issued in conjunctionwith a June 2012 financing. These warrants expire in June 2017. After August 2016, the warrants can only be exercised on a cashless basis. See Note 18 for the details of the subsequent event relating to the announcement of new Common Stock offering and pricing of the offering.NOTE 10-EMPLOYEE STOCK PLANS1999 Stock PlanThe 1999 Stock Plan, or 1999 Plan, provided for the issuance of incentive and nonqualified options, restricted stock units ("RSUs") and restricted stock.Equity awards granted under the 1999 Plan have a term of up to ten years. Options typically vest at a rate of 25% one year after the vesting commencement date,and one forty-eighth for each month of service thereafter. In March 2009, the Board adopted the 2009 Stock Plan, which was approved by the Company'sstockholders on April 22, 2009. Effective April 22, 2009, no further stock options may be granted under the 1999 Plan.2009 Stock PlanThe 2009 Stock Plan, or 2009 Plan, was amended and restated by the Board of Directors in January 2015 and approved by the Company's stockholders onApril 23, 2015 to, among other things, reserve an additional 2.5 million shares of common stock for issuance under the Plan. As of January 3, 2016 approximately9.7 million shares were reserved for issuance under the 2009 Plan. Equity awards that are cancelled, forfeited or repurchased under the 1999 Plan become availablefor grant under the 2009 Plan, up to a maximum of an additional 10.0 million shares. Equity awards granted under the 2009 Plan have a60Table of Contentsterm of up to ten years. Options typically vest at a rate of 25% one year after the vesting commencement date, and one forty-eighth for each month of servicethereafter. RSUs typically vest at a rate of 25% one year after the vesting commencement date, and one eighth every six months thereafter. The Company mayimplement different vesting schedules in the future with respect to any new equity awards.Employee Stock Purchase PlanThe 2009 Employee Stock Purchase Plan, or 2009 ESPP, was adopted in March 2009. In January 2015, the 2009 ESPP was amended by the Board ofDirectors and approved by the Company's stockholders on April 23, 2015 to reserve an additional 1.0 million shares of common stock for issuance under the 2009ESPP. As of January 3, 2016 , approximately 3.3 million shares were reserved for issuance under the 2009 ESPP. The 2009 ESPP provides for six month offeringperiods. Participants purchase shares through payroll deductions of up to 20% of an employee's total compensation (maximum of 20,000 shares per offeringperiod). The 2009 ESPP permits the Board of Directors to determine, prior to each offering period, whether participants purchase shares at: (i) 85% of the fairmarket value of the common stock at the end of the offering period; or (ii) 85% of the lower of the fair market value of the common stock at the beginning or theend of an offering period. The Board of Directors has determined that, until further notice, future offering periods will be made at 85% of the lower of the fairmarket value of the common stock at the beginning or the end of an offering period.NOTE 11-STOCK-BASED COMPENSATIONThe Company's equity incentive program is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as wellas align stockholder and employee interests. The Company provides stock-based incentive compensation, or awards, to eligible employees and non-employeedirectors. Awards that may be granted under the program include non-qualified and incentive stock options, restricted stock units, or RSUs, performance-basedrestricted stock units, or PRSUs, and stock bonus units. To date, awards granted under the program consist of stock options, RSUs and PRSUs. The majority ofstock-based awards granted under the program vest over four years. Stock options granted under the program have a maximum contractual term of ten years.Stock-based compensation expense is recognized in the Company's consolidated statements of operations and includes compensation expense for the stock-based compensation awards granted or modified subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions ofthe amended authoritative guidance. The impact on the Company's results of operations of recording stock-based compensation expense for fiscal years 2015 ,2014 , and 2013 was as follows (in thousands): Fiscal Years 2015 2014 2013Cost of revenue$109 $137 $232Research and development826 924 666Selling, general and administrative1,064 1,181 1,081Restructuring costs*29 — —Total costs and expenses$2,028 $2,242 $1,979* Stock-based compensation related to restructuring plan initiated in Q2-15.No stock-based compensation was capitalized during any period presented above. In 2015 , the Company granted restricted stock units, or RSUs, to employees with various vesting terms. Total stock-based compensation related to RSUswas $834,000 in 2015 . The Company issued net shares for the vested RSUs, withholding shares in settlement of employee tax withholding obligations. In 2015 ,the Company also granted performance-based restricted stock units, or PRSUs, to new employees and the stock-based compensation related to PRSUs was$101,000 .The amount of stock-based compensation included in inventories at the end of 2015 , 2014 and 2013 was not significant.Valuation Assumptions61Table of ContentsThe Company uses the Black-Scholes option pricing model to estimate the fair value of employee stock options and rights to purchase shares under theCompany's 2009 ESPP. Using the Black-Scholes pricing model requires the Company to develop highly subjective assumptions including the expected term ofawards, expected volatility of its stock, expected risk-free interest rate and expected dividend rate over the term of the award. The Company's expected term ofawards assumption is based primarily on its historical experience with similar grants. The Company's expected stock price volatility assumption for both stockoptions and ESPP shares is based on the historical volatility of the Company's stock, using the daily average of the opening and closing prices and measured usinghistorical data appropriate for the expected term. The risk-free interest rate assumption approximates the risk-free interest rate of a Treasury Constant Maturitybond with a maturity approximately equal to the expected term of the stock option or ESPP shares. This fair value is expensed over the requisite service period ofthe award. The fair value of RSUs and PRSUs is based on the closing price of the Company's common stock on the date of grant. Equity compensation awardswhich vest with service are expensed using the straight-line attribution method over the requisite service period.In addition to the assumptions used in the Black-Scholes pricing model, the amended authoritative guidance requires that the Company recognize expensefor awards ultimately expected to vest; therefore the Company is required to develop an estimate of the number of awards expected to be forfeited prior to vesting,or forfeiture rate. The forfeiture rate is estimated based on historical pre-vest cancellation experience and is applied to all share-based awards.The following weighted average assumptions are included in the estimated fair value calculations for stock option grants: Fiscal Years 2015 2014 2013Expected term (years)6.3 6.6 6.1Risk-free interest rate1.75% 1.98% 1.74%Expected volatility56% 58% 59%Expected dividend— — —The methodologies for determining the above values were as follows:•Expected term: The expected term represents the period that the Company's stock-based awards are expected to be outstanding and is estimatedbased on historical experience.•Risk-free interest rate: The risk-free interest rate assumption is based upon the risk-free rate of a Treasury Constant Maturity bond with a maturityappropriate for the expected term of the Company's employee stock options.•Expected volatility: The Company determines expected volatility based on historical volatility of the Company's common stock according to theexpected term of the options.•Expected dividend: The expected dividend assumption is based on the Company's intent not to issue a dividend under its dividend policy.The weighted average estimated fair value for options granted during 2015 , 2014 and 2013 was $0.87 , $1.99 , and $1.82 per option, respectively. As ofthe end of 2015 , the fair value of unvested stock options, net of expected forfeitures, was approximately $2.7 million . This unrecognized stock-basedcompensation expense is expected to be recorded over a weighted average period of 2.45 years.62Table of ContentsStock-Based Compensation Award ActivityThe following table summarizes the shares available for grant under the 2009 Plan for 2015 : SharesAvailable for Grant (in thousands)Balance at December 28, 20141,139Authorized2,500Options granted(225)Options forfeited or expired521RSUs granted(817)RSUs forfeited122PRSUs granted(311)Balance at January 3, 20162,929 Stock OptionsThe following table summarizes stock options outstanding and stock option activity under the 1999 Plan and the 2009 Plan, and the related weightedaverage exercise price, for 2015 , 2014 and 2013 : Number of Shares Weighted AverageExercise Price Weighted AverageRemaining Term Aggregate IntrinsicValue (in thousands) (in years) (in thousands)Balance outstanding at December 30, 20126,960 $2.55 Granted716 3.26 Forfeited or expired(269) 2.65 Exercised(165) 2.21 Balance outstanding at December 29, 20137,242 2.62 Granted428 3.51 Forfeited or expired(219) 3.56 Exercised(1,769) 2.57 Balance outstanding at December 28, 20145,682 2.67 Granted225 1.64 Forfeited or expired(521) 2.87 Exercised(120) 0.98 Balance outstanding at January 3, 20165,266 $2.64 4.56 $94Exercisable at January 3, 20164,546 $2.63 3.94 $94Vested and expected to vest at January 3, 20165,132 $2.64 4.45 $94The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's closing stock price of $1.13 as of theend of the Company's current reporting period, which would have been received by the option holders had all option holders exercised their options as of that date.The total intrinsic value of options exercised during 2015 , 2014 and 2013 was $83,000 , $3.7 million and $139,000 , respectively. Total cash receivedfrom employees as a result of employee stock option exercises during 2015 , 2014 and 2013 was approximately $117,000 , $4.5 million and $365,000 ,respectively. The Company settles employee stock option exercises with newly issued common shares. In connection with these exercises, there was no tax benefitrealized by the Company due to the Company's current loss position. Total stock-based compensation related to stock options was $861,000 , $1.1 million , and$1.1 million for 2015 , 2014 , and 2013 , respectively. 63Table of ContentsSignificant exercise price ranges of options outstanding, related weighted average exercise prices and contractual life information at the end of 2015 wereas follows: Options Outstanding Options ExercisableRange of Exercise PricesOptionsOutstanding WeightedAverageRemainingContractualLife Weighted AverageExercise Price Options Vested andExercisable Weighted AverageExercise Price (in thousands) (in years) (in thousands) $0.78 - $1.55552 4.63 $1.04 407 $0.90 1.63 - 1.63793 3.10 1.63 792 1.63 2.00 - 2.52529 6.69 2.21 367 2.25 2.65 - 2.7641 3.15 2.73 38 2.73 2.78 - 2.781,459 4.53 2.78 1,460 2.78 2.82 - 3.20585 3.74 3.02 451 2.97 3.21 - 3.48612 7.09 3.40 416 3.40 3.54 - 3.92166 7.71 3.69 86 3.68 4.17- 4.17501 1.82 4.17 501 4.17 5.94 - 5.9428 0.32 5.94 28 5.94$0.78 - $5.945,266 4.56 $2.64 4,546 $2.63Restricted Stock UnitsRSUs entitle the holder to receive, at no cost, one common share for each restricted stock unit on the vesting date as it vests. The Company withholdsshares in settlement of employee tax withholding obligations upon the vesting of restricted stock units. The stock-based compensation related to grants of vestedRSUs was $834,000 in 2015 . In 2015 , the Company also granted PRSUs to new employees and the stock-based compensation related to PRSUs was $101,000 . RSUs & PRSUs Outstanding Number of Shares Weighted AverageGrant Date Fair Value (in thousands) Nonvested at December 28, 2014650 $3.47Granted1,128 1.46Vested(221) 1.42Forfeited(122) —Nonvested at January 3, 20161,435 $2.30 Employee Stock Purchase PlanThe weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's ESPP during2015 , 2014 and 2013 was $0.42 , $ 0.96 and $ 0.71 , respectively. Sales under the ESPP were 458,000 shares of common stock at an average price of $1.26 for2015 , 278,000 shares of common stock at an average price of $2.76 for 2014 , and 357,000 shares of common stock at an average price of $1.74 for 2013 .Under the 2009 ESPP, the Company issued 458,000 shares at an average price of $1.26 per share during 2015 . As of January 3, 2016 , 1,420,000 sharesunder the 2009 ESPP remained available for issuance. For 2015 , the Company recorded compensation expenses related to the ESPP of $232,000 .64Table of ContentsThe fair value of rights issued pursuant to the Company's ESPP was estimated on the commencement date of each offering period using the followingweighted average assumptions: Fiscal Years 2015 2014 2013Expected life (months)6.0 6.06.1Risk-free interest rate0.21% 0.07%0.09%Volatility55% 49%39%Dividend yield— ——The methodologies for determining the above values were as follows:•Expected term: The expected term represents the length of the purchase period contained in the ESPP.•Risk-free interest rate: The risk-free interest rate assumption is based upon the risk-free rate of a Treasury Constant Maturity bond with amaturity appropriate for the term of the purchase period.•Volatility: The Company determines expected volatility based on historical volatility of the Company's common stock for the term of thepurchase period.•Dividend Yield: The expected dividend assumption is based on the Company's intent not to issue adividend under its dividend policy.As of the end of 2015 , the unrecognized stock-based compensation expense relating to the Company's ESPP was $102,000 and was expected to berecognized over a weighted average period of approximately 4.4 months.NOTE 12-ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)There were no reclassifications out of accumulated other comprehensive income (loss) for the year ended January 3, 2016 and December 28, 2014.The following table provides details about reclassification out of accumulated other comprehensive income (loss) for the year ended December 29, 2013: Change in unrealized gainson available for salesecurities (in thousands)Accumulated other comprehensive income (loss), net of tax, as of December 30, 2012 $(11) Other comprehensive income (loss) before reclassifications(77) Amounts reclassified from accumulated other comprehensive income (loss)88 Net change in other comprehensive income (loss)11 Accumulated other comprehensive income (loss), net of tax, as of December 29, 2013 $—NOTE 13-INFORMATION CONCERNING PRODUCT LINES, GEOGRAPHIC INFORMATION, ACCOUNTSRECEIVABLE ANDREVENUE CONCENTRATIONThe Company identifies its business segments based on business activities, management responsibility and geographic location. For all periods presented,the Company operated in a single reportable business segment.65Table of ContentsThe following is a breakdown of revenue by product family (in thousands): Fiscal Years 2015 2014 2013Revenue by product line (1) : New products$12,020 $19,311$18,219Mature products6,936 8,5347,853Total revenue$18,956 $27,845$26,072___________________________(1) For all periods presented: New products include all products manufactured on 180 nanometer or smaller semiconductor processes. Mature productsinclude all products produced on semiconductor processes larger than 180 nanometersThe following is a breakdown of revenue by shipment destination (in thousands): Fiscal Years 2015 2014 2013Revenue by geography: Asia Pacific (1)$12,650 $20,157 $20,099Europe1,859 3,371 1,788North America (2)4,447 4,317 4,185Total revenue$18,956 $27,845 $26,072__________________________(1)Asia Pacific includes revenue from South Korea of $8.3 million or 44% of total revenue in 2015 and $14.4 million or 52% of total revenue in 2014.(2) North America includes revenue from the United States of $4.3 million or 22% of total revenue in 2015 and $4.1 million or 14% of total revenue in 2014.The following distributors and customers accounted for 10% or more of the Company's revenue for the periods presented: Fiscal Years 2015 2014 2013Distributor “A”23% 16% 18%Customer “B”13% * *Customer "G"43% 52% 56%___________________________* Represents less than 10% of revenue for the period presented. The following distributors and customers accounted for 10% or more of the Company's accounts receivable as of the dates presented: January 3, 2016 December 28, 2014Distributor “A”24% 34%Distributor “B”11% *Distributor "G"11% *Customer "G"20% 28%Customer "H"11% *___________________________* Represents less than 10% of accounts receivable as of the date presented.66Table of ContentsAs of January 3, 2016 , less than 10% of the Company's long-lived assets, including property and equipment and other assets were located outside theUnited States.NOTE 14-SHELF REGISTRATION STATEMENTOn July 31, 2013, the Company filed a shelf registration statement on Form S-3 under which the Company may, from time to time, sell securities in oneor more offerings up to a total dollar amount of $40.0 million . The Company's shelf registration statement was declared effective on August 30, 2013 and expiresin August 2016.In November 2013, the Company received net proceeds of $23.1 million , net of underwriter's commission and other expenses of $2.2 million , by issuingan aggregate of 8,740,000 shares of Common Stock, $0.001 par value in an underwritten public offering at a price of $2.90 per share. As of January 3, 2016, theremaining balance on the shelf was approximately $14.7 million .See Note 18 for the details of the subsequent event relating to the announcement of new Common Stock offering and pricing of the offering pursuant tothe above shelf registration.NOTE 15-COMMITMENTS AND CONTINGENCIESCommitmentsCertain wafer manufacturers require the Company to forecast wafer starts several months in advance. The Company is committed to take delivery of andpay for a portion of forecasted wafer volume. As of the end of 2015 and 2014 , the Company had $1.4 million and $552,000 respectively, of outstandingcommitments for the purchase of wafer inventory.The Company has purchase obligations with certain suppliers for the purchase of goods and services entered into in the ordinary course of business. As ofJanuary 3, 2016 , total outstanding purchase obligations due within the next 12 months were $1.3 million .The Company leases its primary facility under a non-cancelable operating lease that expires on December 31, 2018. In addition, the Company rentsdevelopment facilities in India as well as sales offices in Europe and Asia. Total rent expense, net of sublease income, during 2015 , 2014 and 2013 wasapproximately $878,000 , $947,000 and $947,000 respectively. Future minimum lease commitments under the Company's operating leases, net of sublease income and excluding property taxes and insurance are asfollows: Operating Leases (in thousands)Fiscal Years 201680420177042018641 $2,149Contingencies One of the Company's licensors contends that the Company owes back royalties on sales of the Company's ArcticLink III VX devices. Based on the termsand conditions of the Amended and Restated License Agreement between the parties, the Company does not believe it is liable for any royalty payments on thesesales. The parties have agreed to mediate the matter and are in the process of selecting a mediator. As of January 3, 2016, the Company estimates the possible lossrelating to this matter to be in the range of $25,000 to $250,000 .67Table of ContentsNOTE 16-LITIGATIONFrom time to time, the Company may become involved in legal actions arising in the ordinary course of business including, but not limited to, intellectualproperty infringement and collection matters. Absolute assurance cannot be given that any such third party assertions will be resolved without costly litigation; in amanner that is not adverse to the Company's financial position, results of operations or cash flows; or without requiring royalty or other payments which mayadversely impact gross profit.NOTE 17-RESTRUCTURING CHARGESIn June 2015, the Company implemented a restructuring plan to re-align the organization to support the Company's sensor processing provider businessmodel and growth strategy. This re-alignment resulted in a reduction of nine employees or 9% of the Company's global workforce. Pursuant to the restructuringplan, the Company recorded $169,000 , $77,000 and $49,000 of restructuring charges in the second, third and fourth quarter of 2015, respectively, consistingprimarily of employee severance related costs. The restructuring liabilities are included in the "Liabilities" line item in the consolidated balance sheet. Theactivities affecting the restructuring liabilities for the year ended January 3, 2016 are summarized as follows: Restructuring Liabilities In ThousandsBalance at December 28, 2014$—Accruals295Payments and non-cash items adjustments(166)FX translation adjustment(8)Balance at January 3, 2016$121NOTE 18-SUBSEQUENT EVENTSa) On February 10, 2016, the Company entered into a Third Amendment to Third Amended and Restated Loan and Security Agreement with the Bankto amend certain covenants contained in the Loan Agreement. As amended, the Company is required to maintain, beginning in the quarter ending March 31, 2016,(i) a tangible net worth of at least $12,000,000 , plus (a) 50% of the proceeds from any equity issuance, plus (b) 50% of the proceeds from any investments, testedas of the last day of each month; (ii) unrestricted cash or cash equivalents at the Bank or Bank's affiliates at all times in an amount of at least $6,000,000 ; and(iii) a ratio of quick assets to the results of (i) current liabilities minus (ii) the current portion of deferred revenue plus (iii) the long-term portion of the obligationsof at least 2.00 to 1.00, tested as of the last day of each month. Beginning with the second fiscal quarter of 2016, the tangible net worth requirement, is reduced asfollows: For the quarter ending June 30, 2016, at least $10,000,000 ; for the quarter ending September 30, 2016, at least $8,000,000 ; for the quarter endingDecember 31, 2016, at least $6,000,000 ; for the quarter ending March 31, 2017, at least $4,000,000 ; for the quarter ending June 30, 2017, at least $8,000,000 .Beginning with the third fiscal quarter of 2016, the Company is required to maintain a ratio of quick assets to the results of (i) current liabilities minus (ii) thecurrent portion of deferred revenue plus (iii) the long-term portion of the obligations of at least 1.50 to 1.00 in the fiscal quarters ended September 30, 2016 andDecember 31, 2016 and of at least 1.25 to 1.00 in the fiscal quarters ended March 31, 2017 and June 30, 2017.b) On March 16, 2016 the Company announced the pricing of its firm underwritten public offering of an aggregate of 10.0 million newly issued sharesof common stock at a price of $1.00 per share, $0.001 par value. The Company expects to receive gross proceeds of $10.0 million , before deducting underwritingdiscounts and other estimated offering expenses. The net proceeds to the Company from the Offering are expected to be approximately $8.9 million after deductionof underwriting discounts and assuming no exercise of the underwriters' over-allotment option. The underwriters have also been granted a 30 -day option topurchase up to 1.5 million shares of common stock to cover over-allotments, if any. The Company expects to use the net proceeds from the Offering for workingcapital and other general corporate purposes. The Company may also use a portion of the net proceeds to acquire and/or license technologies and acquire and/orinvest in businesses when the opportunity arises.The Shares are being offered by the Company pursuant to a shelf registration statement previously filed with the the SEC, which was declared effectiveby the SEC on August 30, 2013, and as supplemented by a prospectus supplement dated March 17, 2016 filed with the Securities and Exchange Commissionpursuant to Rule 424(b) under the Securities Act of 1933, as amended. See Note 14 for details.68Table of ContentsSUPPLEMENTARY FINANCIAL DATAQUARTERLY DATA (UNAUDITED) Quarter Ended January 3, 2016 September 27, 2015 June 28, 2015 March 29, 2015 December 28, 2014 September 28, 2014 June 29, 2014 March 30, 2014 (in thousands, except per share amount)Statements of Operations: Revenue$3,630 $4,194 $4,973 $6,159 $5,721 $4,124 $6,836 $11,164Cost of revenue2,349 2,952 2,830 3,280 3,509 2,361 3,820 7,106Gross profit (1)1,281 1,242 2,143 2,879 2,212 1,763 3,016 4,058Operating expenses: Research and development3,490 3,684 3,493 3,477 3,432 3,057 3,056 2,641Selling, general and administrative2,461 2,508 2,690 2,960 2,771 2,579 2,848 3,465Restructuring Costs (2)49 77 169 — — — — —Loss from operations(4,719) (5,027) (4,209) (3,558) (3,991) (3,873) (2,888) (2,048)Interest expense(18) (35) (15) (14) (18) (34) (17) (16)Interest income and other expense, net(9) (39) (33) (26) (47) (17) (36) (26)Loss before taxes(4,746) (5,101) (4,257) (3,598) (4,056) (3,924) (2,941) (2,090)Provision for (benefit from) income taxes100 (15) 21 40 86 6 (44) 20Net loss$(4,846) $(5,086) $(4,278) $(3,638) $(4,142) $(3,930) $(2,897) $(2,110)Net loss per share: Basic and Diluted$(0.09) $(0.09) $(0.08) $(0.06) $(0.07) $(0.07) $(0.05) $(0.04)Weighted average shares: Basic and Diluted56,729 56,588 56,359 56,190 55,982 55,812 55,379 54,433___________________________(1) Gross profit percentage ranged between 30% to 47% in the last 8 quarters primarily as a result of changes in customer and product mix, favorablepurchase price adjustments, and favorable standard cost variances during these quarters.(2) Restructuring costs in 2015 were related to the Company's effort to re-align the organization to support the Company's sensor processing providerbusiness model and growth strategy.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot ApplicableITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit pursuant tothe Securities and Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified inthe rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including ourChief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.Management, with the participation of the Chief Executive Officer and Principal Accounting Officer, has performed an evaluation of our disclosurecontrols and procedures as required by the applicable rules of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Principal AccountingOfficer have concluded that, as of January 3, 2016 our disclosure controls and procedures were effective.69Table of ContentsManagement's Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is the process designed by, or under the supervision of, ourChief Executive Officer and Principal Accounting Officer, and effected by our board of directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generallyaccepted accounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect our transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation ofconsolidated financial statements in accordance with generally accepted account principles, and that receipts and expenditures of the Company are being made onlyin accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.Because of its inherent limitations, cost effective internal control over financial reporting cannot provide absolute assurance of achieving financialreporting objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment andbreakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override.Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financialreporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions or that the degree of compliance with established policies or procedures may deteriorate.Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, weconducted an assessment of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K. In making this assessment, we used the criteria based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commissionin “Internal Control - Integrated Framework (2013).” Based on the results of this assessment, management (including our Chief Executive Officer and our PrincipalAccounting Officer) has concluded that, as of January 3, 2016 our internal control over financial reporting was effective.The effectiveness of the Company's internal control over financial reporting as of January 3, 2016 has been audited by BDO USA, an independentregistered public accounting firm, as stated on their report appearing in this Annual Report on Form 10-K.Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.70Table of ContentsPART IIICertain information required by Part III is incorporated by reference from the definitive Proxy Statement regarding our 2016 Annual Meeting ofStockholders and will be filed not later than 120 days after the end of the fiscal year covered by this Report.ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation regarding the backgrounds of our officers is contained herein under Item 1, “Executive Officers and Directors.”Information regarding the backgrounds of our directors is set forth under the caption “Proposal One, Election of Directors” in our Proxy Statement, whichinformation is incorporated herein by reference.There are no family relationships between any of our directors, executive officers, or persons nominated or chosen to be a director or officer, and no suchpersons have been involved during the last ten years, in any legal proceedings material to their abilities or integrity.Information regarding our Audit Committee, our Audit Committee financial expert, the procedures by which security holders may recommend nomineesto our Board and our Code of Conduct and Ethics is hereby incorporated herein by reference from the section entitled “Board Meetings, Committees and CorporateGovernance” in the Proxy Statement. A copy of our Code of Conduct and Ethics is posted on our website at http://www.quicklogic.com/corporate/about-us/management. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, this Code of Conductand Ethics by posting such information on our website http://www.quicklogic.com/corporate/about-us/management.Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference from thesection entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.ITEM 11. EXECUTIVE COMPENSATIONThe information required by Item 11 is set forth under the captions “Compensation Committee Interlocks and Insider Participation,” and “ExecutiveCompensation, Compensation Discussion and Analysis” in our Proxy Statement, which information is incorporated herein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by Item 12 is set forth under the captions “Equity Compensation Plan Summary”, "Post-Employment and Change of ControlCompensation" and “Security Ownership” in our Proxy Statement, which information is incorporated herein by reference.ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by Item 13 is set forth under the captions “Board Meetings, Committees and Corporate Governance” and “Transactions withRelated Persons” in our Proxy Statement, which information is incorporated herein by reference.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by Item 14 is set forth under the caption “Fees Billed to QuickLogic by BDO USA, LLP during Fiscal Years 2015 and 2014 " inour Proxy Statement, which information is incorporated herein by reference. 71Table of ContentsPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)1. Financial Statements Reference is made to Item 8 for a list of all financial statements and schedules filed as a part of this Report.2. Financial Statement SchedulesQuickLogic CorporationValuation and Qualifying Accounts(in thousands) Balance atBeginningof Period Charged toCosts andExpenses Deductions/Write-offs Balance atEnd of PeriodAllowance for Doubtful Accounts: Fiscal Year 2015$— $— $— $—Fiscal Year 2014$— $— $— $—Fiscal Year 2013$20 $(20) $— $— Allowance for Deferred Tax Assets: Fiscal Year 2015$66,618 $2,731 $— $69,349Fiscal Year 2014$63,528 $3,090 $— $66,618Fiscal Year 2013$60,223 $3,305 $— $63,528All other schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financialstatements or notes hereto. 3. ExhibitsThe exhibits listed under Item 15(b) hereof are filed as part of this Annual Report on Form 10-K.(b) Exhibits The following exhibits are filed with or incorporated by reference into this Report: ExhibitNumber Description3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant.3.2 (5) Bylaws of the Registrant.3.3 (27) Certificate of Elimination of the Series A Junior Participating Preferred Stock.4.1 (1) Specimen Common Stock certificate of the Registrant.4.3 (19) Form of Common Stock Warrant.10.1 (4,11) Form of Indemnification Agreement for directors and executive officers.10.2 (10,11) QuickLogic Corporation 1999 Stock Plan.72Table of Contents10.3 (10,11) Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement under the 1999 Stock Plan.10.4 (10,11) Notice of Grant of Stock Options and Stock Option Award Agreement under the 1999 Stock Plan.10.5 (10,11) Notice of Grant of Stock Purchase Right and Restricted Stock Purchase Agreement under the 1999 Stock Plan.10.6 (8,11) QuickLogic Corporation 1999 Employee Stock Purchase Plan.10.8 (1,3) Lease dated June 17, 1996, as amended, between Kairos, LLC and Moffet Orchard Investors as Landlord and the Registrant for theRegistrant's facility located in Sunnyvale, California.10.9 (1) Patent Cross License Agreement dated August 25, 1998 between the Registrant and Actel Corporation.10.13 (11,15) Form of Change of Control Severance Agreement.10.14 (11,15) Form of Change of Control Severance Agreement for E. Thomas Hart.10.15 (7,11) 2005 Executive Bonus Plan, as restated.10.17 (6) Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effective June 30, 2006.10.18 (9) First Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 27, 2007.10.19 (12) Second Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 27, 2008.10.20 (12) Third Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJuly 31, 2008.10.21 (13) Fourth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveAugust 19, 2008.10.23 (14) Second Amendment to Lease Agreement between NetApp, Inc. and QuickLogic Corporation effective September 25, 2008.10.24 (11,16) QuickLogic Corporation 2009 Stock Plan.10.25 (11,16) QuickLogic Corporation 2009 Employee Stock Purchase Plan.10.26 (11,17) Form of Notice of Grant and Stock Option Agreement under the 2009 Stock Plan.10.27 (11,17) Form of Notice of Grant of Stock Purchase Rights and Restricted Stock Purchase Agreement under the 2009 Stock Plan.10.28 (11,17) Form of Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement under the 2009 Stock Plan.10.29 (18) Fifth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2009.10.30 (20) Form of Subscription Agreement.10.31 (21) Sixth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 28, 2010.10.32 (22) Seventh Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 9, 2011.10.33 (23) QuickLogic Corporation 2009 Stock Plan (Amended and Restated March 10, 2011)10.34 (24) Eighth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 4, 2012.10.35 (25) Third Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated August 3, 2012.10.36 (26) Ninth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 14, 2013.73Table of Contents10.37 (28) Fourth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated April 4, 2014.10.38 (29) First Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 26, 2014.10.39 (30) Second Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2015.10.40 (31) Third Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveFebruary 10, 2016.21.1 (2) Subsidiaries of the registrant.23.1 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.23.2 Consent of PricewaterhouseCoopers, LLP Independent Registered Public Accounting Firm24.1 Power of Attorney.31.1 CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32 CEO and CFO Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document ______________________(1)Incorporated by reference to QuickLogic's Registration Statement on Form S-1 declared effective October 14, 1999 (Commission File No. 333-28833).(2)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 14, 2002 (Commission File No. 000-22671).(3)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 13, 2002 (Commission File No. 000-22671).(4)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 17, 2005 (Commission File No. 000-22671).(5)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 5.03) filed on May 2, 2005.(6)Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on December 22, 2006 (Commission File No. 000-22671).(7)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 28, 2008.(8)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 15, 2007 (Commission File No. 000-22671).(9)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 10, 2007 (Commission File No. 000-22671).(10)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on September 4, 2007.(11)This exhibit is a management contract or compensatory plan or arrangement.(12)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 7, 2008 (Commission File No. 000-22671).(13)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on August 19, 2008.(14)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 6, 2008 (Commission File No. 000-22671).(15)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 11, 2008 (Commission File No. 000-22671).(16)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on April 28, 2009.74Table of Contents(17)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on August 4, 2009.(18)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2009.(19)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on November 17, 2009.(20)Incorporated by reference to QuickLogic's Current Report on Form 8-K/A (Item 1.01) filed on November 17, 2009.(21)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on July 1, 2010.(22)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on June 14, 2011.(23)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 11, 2011 (Commission File No. 000-22671).(24)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on June 28, 2012.(25)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 3, 2012 (Commission File No. 000-22671).(26)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on June 18, 2013.(27)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 5.03) filed on November 26, 2013.(28)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 8, 2014.(29)Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on November 4, 2014 (Commission File No. 000-22671).(30)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2015.(31)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on February 10, 2016.75Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized on this March 18, 2016 . Q UICK L OGIC C ORPORATION By:/ S / Andrew J. Pease Andrew J. PeasePresident and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew J. Pease and Suping(Sue) Cheung and each of them singly, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name,place and stead, in any and all capacities to sign this Annual Report on Form 10-K filed herewith and any or all amendments to said report, and to file the same,with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact andagents the full power and authority to do and perform each and every act and the thing requisite and necessary to be done in and about the foregoing, as to allintents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or hissubstitute, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of theregistrant and in the capacities and on the dates indicated below. Signature Title Date /s/ A NDREW J. P EASEAndrew J. Pease President and Chief Executive Officer; Director(Principal Executive Officer) March 18, 2016 / S / S UPING (S UE ) C HEUNGSuping (Sue) Cheung Principal Accounting Officer and Corporate Controller (Principal Financial Officerand Principal Accounting Officer) March 18, 2016 / S / E. T HOMAS H ARTE. Thomas Hart Chairman of the Board March 18, 2016 / S / M ICHAEL R. F ARESEMichael R. Farese Director March 18, 2016 / S / A RTURO K RUEGERArturo Krueger Director March 18, 2016 /s/ D ANIEL A. R ABINOVITSJ Daniel A.Rabinovitsj Director March 18, 2016 / S / C HRISTINE R USSELLChristine Russell Director March 18, 2016 / S / G ARY H. T AUSSGary H. Tauss Director March 18, 201676EXHIBIT INDEXExhibitNumber Description3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant.3.2 (5) Bylaws of the Registrant.3.3 (27) Certificate of Elimination of the Series A Junior Participating Preferred Stock.4.1 (1) Specimen Common Stock certificate of the Registrant.4.3 (19) Form of Common Stock Warrant.10.1 (4,11) Form of Indemnification Agreement for directors and executive officers.10.2 (10,11) QuickLogic Corporation 1999 Stock Plan.10.3 (10,11) Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement under the 1999 Stock Plan.10.4 (10,11) Notice of Grant of Stock Options and Stock Option Award Agreement under the 1999 Stock Plan.10.5 (10,11) Notice of Grant of Stock Purchase Right and Restricted Stock Purchase Agreement under the 1999 Stock Plan.10.6 (8,11) QuickLogic Corporation 1999 Employee Stock Purchase Plan.10.8 (1,3) Lease dated June 17, 1996, as amended, between Kairos, LLC and Moffet Orchard Investors as Landlord and the Registrant for theRegistrant's facility located in Sunnyvale, California.10.9 (1) Patent Cross License Agreement dated August 25, 1998 between the Registrant and Actel Corporation.10.13 (11,15) Form of Change of Control Severance Agreement.10.14 (11,15) Form of Change of Control Severance Agreement for E. Thomas Hart.10.15 (7,11) 2005 Executive Bonus Plan, as restated.10.17 (6) Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effective June 30, 2006.10.18 (9) First Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 27, 2007.10.19 (12) Second Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 27, 2008.10.20 (12) Third Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJuly 31, 2008.10.21 (13) Fourth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveAugust 19, 2008.10.23 (14) Second Amendment to Lease Agreement between NetApp, Inc. and QuickLogic Corporation effective September 25, 2008.10.24 (11,16) QuickLogic Corporation 2009 Stock Plan.10.25 (11,16) QuickLogic Corporation 2009 Employee Stock Purchase Plan.10.26 (11,17) Form of Notice of Grant and Stock Option Agreement under the 2009 Stock Plan.7710.27 (11,17) Form of Notice of Grant of Stock Purchase Rights and Restricted Stock Purchase Agreement under the 2009 Stock Plan.10.28 (11,17) Form of Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement under the 2009 Stock Plan.10.29 (18) Fifth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2009.10.30 (20) Form of Subscription Agreement.10.31 (21) Sixth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 28, 2010.10.32 (22) Seventh Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 9, 2011.10.33 (23) QuickLogic Corporation 2009 Stock Plan (Amended and Restated March 10, 2011)10.34 (24) Eighth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 4, 2012.10.35 (25) Third Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated August 3, 2012.10.36 (26) Ninth Amendment to Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveJune 14, 2013.10.37 (28) Fourth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated April 4, 2014.10.38 (29) First Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 26, 2014.10.39 (30) Second Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2015.10.40 (31) Third Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveFebruary 10, 2016.21.1 (2) Subsidiaries of the registrant.23.1 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.23.2 Consent of PricewaterhouseCoopers, LLP Independent Registered Public Accounting Firm24.1 Power of Attorney.31.1 CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32 CEO and CFO Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document ______________________(1)Incorporated by reference to QuickLogic's Registration Statement on Form S-1 declared effective October 14, 1999 (Commission File No. 333-28833).(2)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 14, 2002 (Commission File No. 000-22671).(3)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 13, 2002 (Commission File No. 000-22671).(4)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 17, 2005 (Commission File No. 000-22671).78(5)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 5.03) filed on May 2, 2005.(6)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on December 22, 2006 (Commission File No. 000-22671).(7)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 28, 2008.(8)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 15, 2007 (Commission File No. 000-22671).(9)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 10, 2007 (Commission File No. 000-22671).(10)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on September 4, 2007.(11)This exhibit is a management contract or compensatory plan or arrangement.(12)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 7, 2008 (Commission File No. 000-22671).(13)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on August 19, 2008.(14)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 6, 2008 (Commission File No. 000-22671).(15)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 11, 2008 (Commission File No. 000-22671).(16)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on April 28, 2009.(17)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on August 4, 2009.(18)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2009.(19)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on November 17, 2009.(20)Incorporated by reference to QuickLogic's Current Report on Form 8-K/A (Item 1.01) filed on November 17, 2009.(21)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on July 1, 2010.(22)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on June 14, 2011.(23)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 11, 2011 (Commission File No. 000-22671).(24)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on June 28, 2012.(25)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 3, 2012 (Commission File No. 000-22671).(26)Incorporated by reference to Quicklogic's Current Report on Form 8-K (Item 1.01) filed on June 18, 2013.(27)Incorporated by reference to Quicklogic's Current Report on Form 8-K (Item 5.03) filed on November 26, 2013.(28)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 8, 2014.(29)Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on November 4, 2014 (Commission File No. 000-22671).(30)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2015.(31)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on February 10, 2016. 79EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLogic CorporationSunnyvale, California We hereby consent to the incorporation by reference in the Registration Statements on Form S3 (No. 333-190277, No. 333-161501, No. 333-126528 and No. 333-88706) and Form S8 (No. 333-159498, No. 333-123515, No. 333-76022, No. 333-34898, No. 333-34900, No. 333-34902 and No. 333-208060) of QuickLogicCorporation of our reports dated March 18, 2016, relating to the consolidated financial statements and financial statement schedule, and the effectiveness ofQuickLogic Corporation’s internal control over financial reporting , which appear in this Form 10-K./s/ BDO USA, LLPSan Jose, CaliforniaMarch 18, 2016EXHIBIT 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-208060, No. 333-159498, No. 333-123515, No. 333-76022, No. 333-34898, No. 333-34900 and No. 333-34902) and Form S-3 (No. 333-190277) of QuickLogic Corporation of our report dated March 6, 2014 relatingto the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers, LLPSan Jose, CaliforniaMarch 18, 2016EXHIBIT 31.1CERTIFICATIONSI, Andrew J. Pease, certify that:1.I have reviewed this annual report on Form 10-K of QuickLogic Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting. Date: March 18, 2016 /s/ Andrew J. Pease Andrew J. Pease President and Chief Executive OfficerEXHIBIT 31.2I, Suping (Sue) Cheung, certify that:1.I have reviewed this annual report on Form 10-K of QuickLogic Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting. Date: March 18, 2016 /s/ Suping (Sue) Cheung Suping (Sue) Cheung Principal Accounting Officer and Corporate ControllerEXHIBIT 32CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Andrew J. Pease, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport of QuickLogic Corporation on Form 10-K for the fiscal year ended January 3, 2016 fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial conditionand results of operations of QuickLogic Corporation. By:/s/ Andrew J. PeaseDate:March 18, 2016Name:Andrew J. PeaseTitle:President and Chief Executive OfficerI, Suping (Sue) Cheung, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport of QuickLogic Corporation on Form 10-K for the fiscal year ended January 3, 2016 , fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial conditionand results of operations of QuickLogic Corporation. By:/s/ Suping (Sue) CheungDate:March 18, 2016Name:Suping (Sue) CheungTitle:Principal Accounting Officer and Corporate Controller

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