QuickLogic
Annual Report 2016

Plain-text annual report

QUICKLOGIC CORPORATION FORM 10-K (Annual Report) Filed 03/09/17 for the Period Ending 01/01/17 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 2017, 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 1, 2017OR£ 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 July 3, 2016 , the registrant's most recently completed second fiscal quarter, was $57,912,775 basedupon 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 the outstandingshares 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. This determination is notnecessarily conclusive.At March 2, 2017 , the registrant had 68,173,965 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 26, 2017, 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 Factors14Item 1B . Unresolved Staff Comments23Item 2. Properties23Item 3. Legal Proceedings23Item 4. Mine Safety Disclosures23PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities24Item 6. Selected Financial Data26Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations27Item 7A. Quantitative and Qualitative Disclosures About Market Risk40Item 8. Financial Statements and Supplementary Data41Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure70Item 9A. Controls and Procedures70Item 9B. Other Information71PART III Item 10. Directors, Executive Officers and Corporate Governance72Item 11. Executive Compensation72Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters72Item 13. Certain Relationships, Related Transactions and Director Independence72Item 14. Principal Accounting Fees and Services72PART IV Item 15. Exhibits and Financial Statement Schedules73Signatures 2Table 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) our dependence on our relationships with third parties to manufacture our products and solutions; (iv) ourdependence upon single suppliers to fabricate and assemble our products; (v) the liquidity required to support our future operating and capital requirements;(vi) our ability to accurately estimate quarterly revenue; (vii) our expectations about market and product trends; (viii) our future plans for partnerships andcollaborations; (ix) our dependence upon a few customers for a significant portion of our total revenue; (x) our ability to forecast demand for our products; (xi)our dependence on our international business operations; (xii) our ability to attract and retain key personnel; (xiii) our ability to remain competitive in ourindustry; and (xiv) our ability to protect our intellectual property rights. Although we believe that the assumptions underlying the forward-looking statementscontained in this Annual Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will beaccurate. The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by suchforward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in Part I, Item 1A hereto and the risks, uncertaintiesand assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document arebased on information available to us as of the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, theinclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements orour objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. Wedisclaim any intention or obligation to update 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.3Table of ContentsPART IITEM 1. BUSINESS(a) General Development of BusinessQuickLogic Corporation (the "Company") was founded in 1988 and reincorporated in Delaware in 1999.(b) Financial Information About SegmentsSee Item 8, "Financial Statements and Supplementary Data - Note 11 - Information Concerning Product Lines, Geographic Information, AccountsReceivable and Revenue Concentration.OverviewQuickLogic Corporation was founded in 1988 and reincorporated in Delaware in 1999. Our vision is to transform the way people and devices interactwith each other and their surroundings. Our mission is to provide innovative platforms to successfully enable our customers to develop products that fundamentallychange the end-user experience. Specifically, we are a fabless semiconductor company that develops low power System on Chip, or SoCs, Field ProgrammableGate Arrays, or FPGAs and embedded FPGA intellectual property. QuickLogic’s products enable smartphone, wearable and IoT device Original EquipmentManufacturers, or OEMs, to deliver highly differentiated, immersive user experiences and long battery life for their customers.Our solutions are created from our new silicon platforms including its EOS™, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse IIproducts (which together comprise our new product category). Our mature products include primarily pASIC®3 and QuickRAM® as well as programminghardware and design software. We plan to deliver our eFPGA intellectual property or IP product ArcticPro™ in 2017. Our solutions typically fall into one of three categories: Sensor Processing, Display and Visual Enhancement, and Smart connectivity. Our solutionsinclude a unique combination of our silicon platforms, intellectual property cores, software drivers, and in some cases, firmware, and application software. All ofour silicon platforms are standard devices and must be programmed to be effective in a system. Our intellectual property that enables always-on context-awaresensor applications includes our Flexible Fusion Engine, our Sensor Manager and Communications Manager technologies as well as IP that (i)improvesmultimedia content, such as our Visual Enhancement Engine, or VEE, technology, and Display Power Optimizer, or DPO technology; and (ii) implementscommonly used mobile system interfaces, such as Low Voltage Differential Signaling, or LVDS, Mobile Industry Processor Interface, or MIPI, and Secure DigitalInput Output, or SDIO. We provide complete solutions by first architecting the solution jointly with our customer's or ecosystem partner’s engineering group,selecting the appropriate solution platform and Proven System Blocks or PSBs, providing custom logic, integrating the logic, programming the device with thePSBs and/or firmware, providing software drivers or application software required for the customer's application, and supporting the customer on-site duringintegration, verification and testing. In many cases, we may deliver software algorithms that have been optimized for use in a QuickLogic silicon platform.We also work with mobile processor manufacturers, sensor manufacturers, and/or voice recognition, sensor fusion and context awareness algorithmdevelopers in the development of reference designs, Qualified Vendor Lists, or QVLs, or “Catalog” solutions. Through reference designs that incorporate oursolutions, we believe mobile processor manufacturers, sensor manufacturers, and sensor and voice algorithm companies can expand the served available market fortheir respective products. Furthermore, should a solution development for a processor manufacturer or sensor and/or sensor algorithm company be applicable to aset of common OEMs or Original Design Manufacturers or ODMs, we can amortize our Research and Development or R&D, investment over that set of OEMs orODMs. We call this type of solution a Catalog solution and we are placing a greater emphasis on developing and marketing these types of solutions.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 II and PolarPro solution platforms include an innovative logic cell architecture which enables us to deliver twice theprogrammable logic in the same die size. Our EOS S3 and ArcticLink 3 silicon platforms combine mixed signal physical functions and hard-wired logic alongsideprogrammable logic. Our EOS S3 and ArcticLink III solution platforms are manufactured on an advanced process node where we can benefit from smaller diesizes. We typically implement sophisticated logic blocks and mixed signal functions in hard-wired logic because it is very cost-effective and energy efficient. Weuse small form factor packages, which are less expensive to manufacture and include smaller pin counts. Reduced pin counts result in lower costs for ourcustomer's printed circuit board4Table of Contentsspace and routing. In addition, we have dramatically reduced the time we require to program and test our devices, which has reduced our costs and lowered thecapital equipment required to program and test our devices. Furthermore, our SRAM reprogrammable silicon platforms can be programmed in-system by ourcustomers, and therefore we do not incur programming cost, lowering the overall cost of ownership to our customers. We expect to continue to invest in siliconsolution platforms and manufacturing technologies that make us cost and power consumption effective for high-volume, battery-powered applications.Our ArcticPro eFPGA IP are currently developed on 65nm and 40nm process nodes, and we have announced our intention to port this to 22nm fullydepleted silicon-on-insulator, or FDSOI, technology in 2017. The licensable IP is generated by a compiler tool that enables licensees to create an eFPGA block thatthey can integrate into their SoC without significant involvement by QuickLogic. We believe this flow would enable a scalable support model for QuickLogic. 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, algorithms and applications. The depth of these relationships varies depending on the partner and the dynamics of the end market beingtargeted, but is typically a co-marketing relationship that includes joint account calls, promotional activities and/or engineering collaboration and developments,such as reference designs. For our sensor processing solutions, we collaborate with sensor manufacturers to ensure interface compatibility. We also collaboratewith sensor software companies, helping them optimize their software technology on our silicon platforms in terms of performance, power consumption and userexperience.For our eFPGA strategy, we work with semiconductor manufacturing partners to ensure our eFPGA IP is proven for a given foundry and process nodebefore it is licensed to an SoC company.In order to grow our revenue from its current level, we depend upon increased revenue from our new products including existing new product platforms,eFPGA IP and platforms currently in development. We expect our business growth to be driven mainly by our silicon solutions and eFPGA IP and, therefore, ourrevenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our newsolution platforms, IP and software. New products contributed 49% of total revenue for the year ended January 1, 2017 , as compared to 63% in 2015 and 69% in2014.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 .Fiscal YearOur fiscal year ends on the Sunday closest to December 31. References to fiscal years 2016, 2015 and 2014 refer to the fiscal years ended January 1,2017, January 3, 2016 and December 28, 2014, respectively.5Table 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 OEMs, are launching in conjunction with Google Android and Real-Time operating systems, aswell 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 reduced6Table 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 ODMs, may require some level of customization at either thehardware or software level. Designers have only a few viable options to modify the base platform for their needs. Since mobile system designers require very lowpower consumption to maximize battery life in their applications, the high power consumption of conventional FPGAs is incompatible with their design goals. Thiseffectively limits the average mobile system designer to ASSPs, small PLDs, mobile-oriented FPGAs, and MCUs to create a virtual level playing field amongmobile system designers, and makes product proliferation and differentiation extremely hard to achieve. ASICs with their long development cycles, long lead timesand 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, IPs, custom logic, software drivers and our architectureconsulting. We partner with target customers in our focus markets to architect and design solutions and to integrate and test our solutions in our customers'products. A solution can be based on our programmable technology, which enables customized designs, low power, flexibility, rapid time-to-market, longer time-in-market and lower total cost of ownership. From a mobile system designer's perspective, a solution's function is known and complete, and consequently can bedesigned into systems with a minimum amount of effort and risk. We are capable of providing complete solutions because of our investment in developing the lowpower IP and software required to implement specific functions, along with sensor software algorithms optimized for our architecture. Because we are involvedwith our customers at the definition stage of their products, we are able to architect solutions that typically have more than one IP, absorbing more functionalitytraditionally implemented with multiple ASSPs. In cases where our solution has multiple IPs, significant system performance or battery life improvements can berealized by enabling direct data transfers between the IPs, or by offloading more processing tasks from the host processor to our solution. In some cases, wedevelop the IPs and either software or firmware ourselves and, in other cases, we utilize third parties to develop the mixed signal physical layers, logic and/orsoftware.We market our solutions to OEMs and ODMs offering differentiated mobile products, 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 and 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 IPs, it is easy to combineIPs 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 add otherfunctions to the solution, such as Universal Asynchronous Receiver Transmitter, or UARTs, keyboard scanning functions, Serial Peripheral Interface, or SPI, ports,which minimizes system size and cost, and InfraRed Data Association, or IRDA. We are able to develop these solutions from a common solution platform, andpartner with system designers to implement a range of solutions, or products, that address different geographic and market requirements. By using programmabletechnology instead of ASIC technology, we reduce the development time, development risk and total cost of ownership and are able to bring solutions to marketfar more quickly than other custom silicon alternatives.7Table of ContentsBy using our silicon platforms, our IPs, our software, and our in-depth architecture knowledge, we can deliver energy efficient custom solutions thatblend the benefits of traditional ASSPs with the flexibility, product proliferation, differentiation and low total cost of ownership advantages of 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. Our SRAM-reprogrammable logic is the basis of our ArcticPro eFPGA IPLicensing initiative.We also have our ViaLink programmable logic that uses proprietary and patented technology to meet the specific smart connectivity needs of the RadioFrequency, 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 our devices the ability to execute key actions faster than softwareimplementations, and at lower power.Second, our ArcticLink and EOS S3 solution platforms combine mixed signal physical functions, hard-wired logic and programmable logic on onedevice. Mixed signal capability supports the trend toward serial connectivity in mobile applications, where designers benefit from lower pin counts, simplifiedprinted circuit board, or PCB, layouts, simplified PCB interconnect and reduced signal noise. Adding hard-wired intellectual property enables us to deliver morelogic at lower cost and lower power while the programmable logic allows us to provide solutions that can be rapidly customized to differentiate products, addfeatures and reduce system development costs. This combination of mixed signal, hard-wired logic and programmable logic enables us to deliver low cost, smallform factor solutions that can be customized for particular customer or market requirements while lowering the total cost of ownership.Third, we develop and integrate innovative IP cores, intelligent data processing IP cores, or standard interfaces used in mobile products. We offer:•Sensor Processing IPs such as Flexible Fusion Engine, or FFE, Sensor Manager, or Communications Manager;•Display and Visual Enhancement s such as VEE, DPO or LCD controller interfaces, LVDS and MIPI;•Network IPs such as high speed Universal Asynchronous Receiver/Transmitters, or UARTs, to enable connectivity to Bluetooth devices;•Storage IPs such as Secure Digital High Capacity, or SDHC; and•Other IPs such as I2S, PCM, I2C, IRDA, PWM, and other general purpose interfaces. Fourth, we develop and optimize a software framework for use in conjunction with our sensor processing silicon platforms.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, proven logic IP cores, custom FPGA logic, software drivers, firmware and application software. We then workwith these customers to integrate and test solutions in their systems. The benefit of providing complete solutions is that we effectively become a virtual extensionof our customers' engineering organization.Marketing, Sales and CustomersWe are a sub-system integrator that monetizes solutions through silicon sales and eFPGA IP licensing. We specialize in enhancing the user experience inleading edge mobile devices and products. For our customers, we enable hardware and sensor algorithmic differentiation quickly and cost-effectively. For ourpartners, we expand their reach into new segments and new use cases thereby expanding the served available market for their existing devices.8Table of ContentsOur vision is to transform the way people and devices interact with each other and their surroundings. Our mission is to provide innovative platforms tosuccessfully enable our customers to develop products that fundamentally change the end-user experience. Specifically, we develop low power SoCs, FPGAs andembedded FPGA intellectual property. QuickLogic’s products enable smartphone, wearable and IoT device OEMs to deliver highly differentiated, immersive userexperiences and long battery life for their customers. Our multi-core sensor processing products such as ArcticLink 3 S1, ArcticLink 3 S2 and EOS 3 accomplish this result through the use of general purposeand targeted cores which provide an extremely power-efficient approach for real-time multi-modal (vision, motion, voice, location, biometric and environmental)sensor processing independently of the cloud. Our embedded FPGA technology gives SoC developers targeted IoT endpoint applications the flexibility to makedesign changes post production while keeping power consumption low. Market leading companies need to deliver new products quickly and cost-effectively. We believe our programmable technology allows us to delivercustomizable solutions with low power consumption and high IP security, while meeting system performance and BOM cost requirements. We believe oursolutions allow OEMs and ODMs to rapidly bring new and differentiated products to market quickly and cost-effectively. Our solutions enable energy and cost-efficient solutions on design platforms from which a range of products can be introduced.We recognize that our markets require a range of solutions, and we intend to work with market leading companies to combine silicon solution platforms,packaging technology, 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. Our business model includes a focused customer strategy in which we target market leading customers, who primarily serve the market for differentiatedmobile products. Our belief is that a large majority of our revenue will continue to come from less than 100 customers as we transition to this business model. Wehave identified and plan to continue to identify the customers we want to serve with our solutions. We are currently in different stages of engagement with anumber of these customers. We believe our solutions are resonating with our target customers who value the differentiated user experience, lower powerconsumption, platform design capability, rapid time-to-market, longer time-in-market and low total cost of ownership available through the use of our solutions.We sell our products through a network of sales managers in North America, Europe and Asia. In addition to our corporate headquarters in 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 33% of our total revenue for the year ended January 1, 2017 and43% for the year ended January 3, 2016 . In addition, a significant portion of our revenue comes from sales to customers located outside of the United States. SeeNote 11 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.9Table 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 IPs. 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 our IPs, software drivers, and other system software. Ourfuture success will depend to a large extent on our ability to rapidly develop, enhance and introduce our solutions that meet emerging industry standards and satisfychanging customer requirements. We have made and expect to continue to make substantial investments in research and development. Our research anddevelopment expenses for the years ended January 1, 2017 , January 3, 2016 , and December 28, 2014 , were $12.3 million ( 107% of revenue), $14.1 million (75% of revenue), and $12.2 million ( 44% of revenue) respectively.As of the end of 2016 , our research and development staff consisted of 39 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 platform engineering group develops low power programmable devices and system IP targeted for mobile or battery powered embeddedsystems that can be used in standalone solution platforms such as PolarPro 3E, or combined in solution platforms such as EOS S3.•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 hardware group develops and verifies IP Blocks that can be programmed into our programmable logic and develops reference designs toshowcase and verify our solutions.•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.10Table of Contents•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, GLOBALFOUNDRIES, and Taiwan Semiconductor ManufacturingCompany Limited, or TSMC. We outsource our product packaging primarily to Amkor Technology, Inc.. eSilicon produces our ArcticLink III VX and BXproducts, using a 65nm CMOS process on twelve-inch wafers at GLOBALFOUNDRIES and packaging at STATS-ChipPAC. GLOBALFOUNDRIESmanufactures our EOS S3 Sensor Hub in a 40 nm CMOS process, and PolarPro 3E and ArcticLink 3 S2 Sensor Hub in a 65 nm CMOS process. TSMCmanufactures our pASIC 3, QuickRAM and certain QuickPCI products, using a 0.35 micron complementary metal oxide semiconductor, or CMOS, process.TSMC also manufactures our Eclipse and other mature products, PolarPro III, ArcticLink 3 S1 and Sensor Hub products, using a 65nm CMOS process on twelve-inch wafers. We purchase products from eSilicon, GLOBALFOUNDRIES, and TSMC 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 1, 2017 , we had a total of 76 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 thirty 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 eleven patents and have five pending applications.Our issued patents expire between 2018 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.11Table 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 2, 2017 : Name Age PositionBrian C. Faith 42 President and Chief Executive Officer; DirectorSuping (Sue) Cheung 53 Chief Financial Officer and Vice President, FinanceRajiv Jain 56 Vice President, Worldwide OperationsTimothy Saxe 61 Senior Vice President Engineering and Chief Technology OfficerE. Thomas Hart 75 Chairman of the BoardAndrew J. Pease 66 DirectorMichael R. Farese 70 DirectorArturo Krueger 77 DirectorDaniel A. Rabinovitsj 52 DirectorChristine Russell 67 DirectorGary H. Tauss 62 DirectorBrian C. Faith joined QuickLogic in June 1996. Mr. Faith was promoted to CEO in June 2016 after having served as Vice President of WorldwideMarketing and Vice President of Worldwide Sales & Marketing between 2008 and 2016. Mr. Faith during the last 20 years has held a variety of managerial andexecutive leadership positions in engineering, product line management, marketing and sales. Mr. Faith has also served as the Chairman of the MarketingCommittee for the CE-ATA Organization. He holds a B.S. degree in Computer Engineering from Santa Clara University and was an Adjunct Lecturer at SantaClara University for Programmable Logic courses.Suping (Sue) Cheung joined QuickLogic in May 2007. Dr.Cheung was promoted to Chief Financial Officer in February 2017 after having served as VicePresident of Finance and Chief Accounting Officer since August 2016. Prior to this role, Dr. Cheung served as QuickLogic’s Principal Accounting Officer inaddition to Corporate Controller since May 2015, Corporate Controller from 2008 to April 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.Rajiv Jain joined QuickLogic in August 1992. Mr. Jain has served as our Vice President of Worldwide Operations since April 2014. Prior to this role, Mr.Jain served 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 Process Technology from 1997 to 2009, and Senior Process Technologist from 1992 to 1997. Prior to joiningQuickLogic, Mr. Jain was a Senior Yield Engineer at National Semiconductor from 1991 to 1992, where he focused on BiCMOS product yield improvements, andat Monolithic Memories from 1985 to 1988, where he focused on BiPolar product yield and engineering wafer sort improvements. Mr. Jain holds a Masters degreein Chemical Engineering from the University of California, Berkeley and a B.S. degree in Chemical Engineering from the University of Illinois,Champaign/Urbana. Timothy Saxe (Ph.D) joined QuickLogic in May 2001. Dr. Saxe has served as our Senior Vice President of Engineering since August 2016 and SeniorVice President and Chief Technology Officer since November 2008. Previously, Dr. Saxe has held a variety of executive leadership positions in QuickLogicincluding Vice President of Engineering and Vice President of Software Engineering. Dr. Saxe was Vice President of FLASH Engineering at Actel Corporation, asemiconductor manufacturing company from November 2000 to February 2001. Dr. Saxe joined GateField Corporation, a design verification tools and servicescompany formerly known as Zycad, in June 1983 and was a founder of their semiconductor manufacturing12Table of Contentsdivision in 1993. Dr. Saxe became GateField's Chief Executive Officer in February 1999 and served in that capacity until GateField was acquired by Actel inNovember 2000. Dr. Saxe holds a B.S.E.E. degree from North Carolina State University, and an M.S.E.E. degree and a Ph.D. in Electrical Engineering fromStanford 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.13Table of ContentsITEM 1A. RISK FACTORS In 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 new products, eFPGA IP Product and other new solutions or if our design opportunities do not generatethe revenue we expect, we may be unable to compete effectively in the future and our future gross margins and operating results will be lower.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, which currently include EOS™, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, andEclipse II products. We also launched a business that licenses our FPGA technology for use in other semiconductor companies’ SoCs and plan to deliver oureFPGA IP product ArcticPro™ in 2017. The new product revenue growth of our new products and eFPGA IP product needs to be strong enough to achieveprofitability. The gross 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 the higher volume mobile consumer opportunities that we are pursuing with new products and eFPGA IP product. 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 and eFPGA IP product will offset the expected decline in revenue and gross profit from our mature products, there is noassurance whether or when this will occur. In order to increase our revenue from its current level, we depend upon increased revenue from our existing newproducts, especially solutions based on our EOS S3, ArcticLink and PolarPro solution platforms, the eFPGA IP product and the development of additional newproducts and solutions. If (i) we are unable to design, produce and sell new products, eFPGA IP product and solutions that meet design specifications, address customerrequirements and generate sufficient revenue and gross profit; (ii) market demand for our new products, eFPGA IP product and other products fails to materialize;(iii) we are unable to obtain adequate fabrication 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 successfully introduce products incorporating our devices, or choose a competing offering, our revenue and gross margin of the newproducts and eFPGA IP product will be materially harmed, which could have an overall adverse and potentially disproportionate effect on our business, results ofoperations and financial condition.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 togenerate sufficient revenue or raise additional financing to fund future losses, and we may not be able to sustain sufficient liquidity to continue to operate as agoing concern.We have experienced net losses in the past years and expect such losses to continue through at least the year ending December 31, 2017 as we continue todevelop new products, applications and technologies. Our new products and products currently under development have been generating lower gross margin as apercentage of revenue than our mature products due to the markets that we have targeted and the larger order quantities associated with these applications. Whetherwe can achieve cash flow levels sufficient to support our operations cannot be accurately predicted, and our investment portfolio is subject to a degree of interestrate and liquidity risk. Unless such cash flow levels are achieved, in addition to the proceeds that we received on March 21, 2016 from the sale of our equitysecurities, and the credit line we may be able to draw down from Silicon Valley14Table of ContentsBank under the Third Amendment to the Third Amended and Restated Loan and Security Agreement dated as of February 10, 2016, we may need to obtainadditional funds through strategic divesture, or sell debt or equity securities, or some combination thereof, to provide funding for our operations. Such additionalfunding may not be available on commercially reasonable terms, or at all. If we are unable to generate sufficient sales from its new products or adequate funds are not available when needed, our liquidity, financial condition andoperating results would be materially and adversely affected, and we may not be able to operate our business 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 1, 2017. For example, duringour fourth quarter and our fiscal year ended January 1, 2017 , Samsung accounted for 29% and 33%, respectively, of our total revenue. Additionally, during ourfourth quarter and our fiscal year ended January 1, 2017, two customers, including Samsung accounted for 39% and 48%, respectively, of our total revenue. Weexpect this high level of customer concentration to continue as we expect to continue to target market our solutions to leading manufacturers of high-volumemobile applications. As in the past, future demand from these customers may fluctuate significantly from quarter to quarter. These customers typically orderproducts with short requested delivery lead times, and do not provide a commitment to purchase product past the period covered by purchase orders, which may berescheduled or canceled. In addition, our manufacturing lead times are longer than the delivery lead times requested by these customers, and we make significantpurchases of inventory and capital expenditures in anticipation of future demand. If revenue from any significant customer were to decline substantially, we maybe unable to offset this decline with increased revenue and gross margin from other customers and we may purchase excess inventories. These factors could have amaterial adverse impact on our business, results of operations and financial condition. 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 may have a materialadverse effect on our business, results of operations and financial condition.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, results of operations and financial condition could be materially adverselyaffected.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 registered-transfer level, or RTL, design, physical design, verification and assembly of our silicon platformsand any failure to meet our requirements in a timely fashion may adversely impact our time to market and revenue.15Table of ContentsOur 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 may increase the risk of costly design errors. Any delays or errors in the designof our new silicon platforms could significantly increase the cost of development as well as adversely impact our time to market, which may have a materialadverse effect on our business, results of operations and financial condition.We 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, algorithms 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, which may have a material adverse effect on our business, results of operations and financial condition.We depend upon third parties to fabricate, assemble, test and program our products, and to provide logistics services. Any problems at these third parties couldadversely affect our business, results of operations and financial condition.We contract with third parties to fabricate, assemble, test and program our devices, and vendors for logistics. In general, each of our devices is fabricated,assembled and programmed by a single supplier, and the loss of a supplier, transfer of manufacturing to a new location, expiration of a supply agreement or theinability of our suppliers to manufacture our products to meet volume, performance, quality and cost targets could have a material adverse effect on our business.Our relationship with our suppliers could change as a result of a merger or acquisition. If for any reason these suppliers or any other vendor becomes unable orunwilling to continue to provide services of acceptable quality, at acceptable costs and in a timely manner, our ability to operate our business or deliver ourproducts to our customers could be severely impaired. We would have to identify and qualify substitute suppliers, which could be time consuming, difficult andresult in unforeseen 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.We utilize third party logistics services, including transportation, warehouse and shipping services. These service providers are subject to interruptionsthat affect their ability to service us, including the availability of transportation services, disruptions related to work stoppages, volatility in fuel prices and securityincidents or natural events at manufacturing, shipping or receiving points or along transportation routes.In the event any of our third party suppliers or vendors were to experience financial, operational, production or quality assurance difficulties resulting in areduction or interruption in supply or providing services to us, our business, results of operations and financial condition may be materially adversely affected.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 significant16Table 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. If we fail to adequately forecast demand for our products, our business, the relationship with our customers,our results of operations and financialcondition could be materially adversely affected.We entered into informal partnerships with certain third parties for the development of solutions. Our business could be adversely affected if such informalpartnerships fail to grow as we expected.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 the informal partnerships do not grow as expectedor if they are significantly reduced or terminated by acquisition or other means, our business, results of operations and financial condition could be materiallyadversely effected and we may be required to write-off related inventories and long-lived assets.Our business could be advisedly affected by undetected errors or defect in our products.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 or estimated revenue in any given quarter. If our customers cannot provide us with accuratedelivery lead times, we may not be able to deliver product to our customers in a timely fashion. Furthermore, our ability to respond to increased demand is limitedto inventories on hand or on order, the capacity available at our contract manufacturers and our capacity to program products to customer specifications. If we failto accurately estimate customer demand, or if our available capacity is less than needed to meet customer demand, we may not be able to accurately estimate ourquarterly revenue, which may have a material adverse effect on our results of operations and financial condition, and our stock price could be materially fluctuateas a result.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, IP 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, results17Table of Contentsof operations and financial condition could be materially adversely affected and we may be required to write-off related inventories and long-lived assets.The semiconductor business is subject to downward price pressure.The market for our products has been characterized by declining selling prices, and we anticipate that our average selling prices will decrease in futureperiods, although the timing and amount of these decreases cannot be predicted with any certainty. The pricing pressure in the semiconductor industry in past yearshas been due to a large number of factors, many of which were not easily foreseeable, such as currency crisis, industry-wide excess manufacturing capacity, weakeconomic growth, the slowdown in capital spending that followed the "dot-com" collapse, the reduction in capital spending by telecom companies and satellitecompanies, and the effects of the tragic events of terrorism on September 11, 2001. Similar to past years, recent unfavorable economic conditions have resulted in atightening of the credit markets. If signs of improvement in the global economy do not progress as expected and global economic conditions worsen, we mayexperience a decline in our average selling prices. In addition, our competitors have in the past, and may again in the future, lower prices in order to increase theirmarket share. Continued downward price pressure in the industry may harm our competitive position and materially and adversely affect our financial condition,cash flows, and results of operations.Our future operating results are likely to fluctuate and therefore may fail to meet expectations, which could cause our stock price to decline.Our 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.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, results of operations and financial conditioncould be materially adversely affected, which could cause our stock price to significantly fluctuate or decline.We may also encounter periods of industry wide semiconductor oversupply, resulting in pricing pressure, as well as undersupply, resulting in a risk thatwe could be unable to fulfill our customers' requirements. The semiconductor industry has historically been characterized by wide fluctuations in the demand for,and supply 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 therefore have a material adverse affect on our business, results of operations and financial condition.We may be unable to successfully grow our business if we fail to compete effectively with others to attract and retain our executive officers, and other keymanagement or technical 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. We could potentially lose the services of any of our senior management personnel at any time due to a variety of factors that could include,without limitation, death, incapacity, military18Table of Contentsservice, personal issues, retirement, resignation or competing employers. Our ability to execute current plans could be adversely affected by such a loss. We mayfail to attract and retain qualified technical, sales, marketing and managerial personnel required to continue to operate our business successfully. Personnel with theexpertise necessary for our business are scarce and competition for personnel with proper skills is intense. In addition, new hires frequently require extensive training before they achieve desired levels of productivity. Also, attrition in personnel can result from,among other things, changes related to acquisitions, retirement and disability. We may not be able to retain existing key technical, sales, marketing and managerialemployees or be successful in attracting, developing or retaining other highly-qualified technical, sales, marketing and managerial personnel, particularly at suchtimes in the future as we may need to fill a key position. If we are unable to continue to develop and retain existing executive officers or other key employees or areunsuccessful in attracting new highly-qualified employees, our financial condition, cash flows, and results of operations could be materially and adversely affected.We may have increasing difficulty attracting and retaining qualified outside board members.The directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits andshareholder claims, as well as governmental and creditor claims that may be made against them in connection with their positions with publicly held companies.Outside directors are becoming increasingly concerned with the availability of directors' and officers' liability insurance to pay on a timely basis the costs incurredin defending shareholder claims. Directors' and officers' liability insurance is expensive and difficult to obtain. The SEC and the NASDAQ Stock Market have alsoimposed higher independence standards and certain special requirements on directors of public companies. Accordingly, it may become increasingly difficult toattract and retain qualified outside directors to serve on our board of directors.Our company's global operations are subject to risks and uncertainties.Most of our products are manufactured outside of the United States at manufacturing facilities operated by our suppliers in Asia and South Asia. 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.International operations are subject to certain risks inherent in conducting business outside the U.S., such as changes in currency exchange rates, tax laws,price and currency exchange controls, export and import restrictions, environmental regulations, protection of intellectual property rights, nationalization,expropriation and other governmental action. Accordingly, our operations and revenue are subject to a number of risks associated with foreign commerce,including the following: (i) staffing and managing foreign offices; (ii) managing foreign distributors; (iii) collecting amounts due; (iv) political and economicinstability; (v) foreign currency exchange fluctuations; (vi) changes in tax laws, import and export regulations, tariffs and freight rates; (vii) timing and availabilityof export licenses; (viii) supplying products that meet local environmental regulations; and (ix) inadequate protection of intellectual property rights. In addition, weincur costs in foreign countries that may be difficult to reduce quickly because of employee related laws and practices in those foreign countries.Our globaloperations also may be adversely affected by political events and domestic or international terrorist events and hostilities. Current events, including the recent U.S.presidential election, the United Kingdom's vote to exit the European Union, potential changes in immigration policies and tax reform proposals, create a level ofuncertainty for multi-national companies. As U.S. companies continue to expand globally, increased complexity exists due to the possibility of renegotiated tradedeals, revised international tax law treaties, and changes to the U.S. corporate tax code. These uncertainties could have a material adverse effect on our businessand our results of operations and financial condition. As we continue to expand our business globally, our success will depend, in part, on our ability to anticipateand effectively manage these and other risks.Exchange rate fluctuations could adversely affect our company’s results of operations and financial condition.We 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 which may cause sales of our products in that foreign country to decline. If the local currency of a foreign country in which we conductbusiness strengthens against the U.S. dollar, our payroll and other local expenses will be higher, and since sales are transacted in U.S. dollars, would19Table of Contentsnot be offset by any increase in revenue. To the extent any such risks materialize, our business, results of operations and financial condition could be materiallyadversely affected.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 also face competition from low power MCU companies. WhileMCUs cannot be customized at the hardware level for product differentiation, they do have the ability to run custom software algorithms written in standard C codewhich may yield similar functionality as what we can provide with our products. Companies that supply ASICs, which may be purchased for a lower price athigher volumes and typically have greater logic capacity, additional features and higher performance than our products. In addition, we face competition fromcompanies that provide sensor algorithm software, which may be licensed directly by an OEM, or licensed for use through an MCU company. If we are unable tosuccessfully compete with companies that supply ASSPs, lower power FPGAs, MCUs, ASICs or sensor algorithm softwarein any of the following areas, our business, results of operations and financial condition will be materially adversely affected: (i) the development of new products,solutions and advanced manufacturing technologies; (ii) the quality, power characteristics, performance characteristics, price and availability of devices,programming hardware and software development tools; (iii) the ability to engage with companies that provide synergistic products and services, includingalgorithms that may be preloaded into our device at configuration; (iv) the incorporation of industry standards in our products and solutions; (v) the diversity ofproduct offerings available to customers; and (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.Litigation could adversely impact our consolidated financial position.We have been and may be in the future involved in various litigation matters arising in the ordinary course of business, including, but not limited to,litigation relating to employment matters, commercial transactions, intellectual property matters, contracts, environmental matters and matters related tocompliance with governmental regulations. Litigation is inherently uncertain and unpredictable. The potential risks and uncertainties include, but are not limited to,such factors as the costs and expenses of litigation and the time and attention required of management to attend to litigation. An unfavorable resolution of anyparticular legal claim or proceeding, and/or the costs and expenses incurred in connection with a legal claim or proceeding, could have a material and adverseeffect on our results of operations and financial condition. 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. 20Table of ContentsBecause 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 with our employees, consultants and otherthird parties. However, these parties may breach these agreements and we may not have adequate remedies for any breach. In any case, others may come to knowabout or determine our trade secrets through a variety of methods. In addition, the laws of certain territories in which we develop, manufacture or sell our productsmay 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 results of operations and financial condition could be materially adversely affected.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, pay our suppliers, or design, manufacture or ship our products and could subject us to third party liabilities. The occurrence of any of theseevents could also affect our customers, distributors and suppliers and produce similar disruptive effects upon their business. If there is an earthquake or othercatastrophic event 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.There may be some potential effects of system outages or data security breaches, which could adversely affect our operations, financial results or reputation.We face risks from electrical or telecommunications outages, computer hacking or other general system failure. We rely heavily on our internalinformation and communications systems and on systems or support services from third parties to manage our operations efficiently and effectively. Any of theseare subject to failure. System-wide or local failures that affect our information processing could have a material adverse effect on our business, financial condition,results of operations and cash flows. In addition, a system failure or data security breach could also result in the unintentional disclosure of confidentialinformation about us, our customers or our employees, which could result in our incurring costs for remedial or preventative actions, damage our reputation withcustomers and reduce demand for our products and services. Further, insurance coverage does not generally protect21Table of Contentsfrom normal wear and tear, which can affect system performance. Any applicable insurance coverage for an occurrence could prove to be inadequate. Coveragemay be or become unavailable or inapplicable to any risks then prevalent.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 have the effect of discouraging takeover attempts that certainstockholders might deem to be in their interest. These anti-takeover provisions may make us a less attractive target for a takeover bid or merger, potentiallydepriving shareholders of an opportunity to sell their shares of common stock at a premium over prevailing market prices as a result of a takeover bid or merger.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.Although we are listed on the Nasdaq Global Market and our shares are currently in compliance with the listing requirements of the Nasdaq GlobalMarket, we may not be able to meet the continued listing requirements of Nasdaq in the future, which require, among other things, a minimum bid price of $1.00per share for common shares listed on the exchange. While we would consider implementation of customary options, including a reverse stock split, if ourcommon stock does not trade at the required level that regains compliance, and if we are unable to satisfy the Nasdaq criteria for maintaining our listing, oursecurities could be subject to delisting. As a consequence of any such delisting, our shareholders would likely find it more difficult to dispose of or to obtainaccurate quotations as to the prices of our securities, and there is likely to be less liquidity in our stock. In the event of a delisting, we could face significantmaterial adverse consequences including a limited availability of market quotations for our securities; a limited amount of news and analyst coverage for ourcompany; and a decreased ability to issue additional securities or obtain additional financing in the future.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 or taxation rules and varying interpretations of accounting pronouncementsor taxation practices have occurred and may occur in the future. Any future changes in accounting pronouncements or taxation rules or practices may have asignificant effect on how we report our results and may even affect our reporting of transactions completed before the change is effective. In addition, a review ofexisting or prior accounting practices may result in a change in previously reported amounts. This change to existing rules, future changes, if any, or thequestioning of current practices may adversely affect our reported financial results, our ability to remain listed on the Nasdaq Global Market, or the way weconduct our business and subject us to regulatory inquiries or litigation.If, in the future, we conclude our internal control over financial reporting is not effective, investors could lose confidence in the reliability of our financialstatements, which could result in a decrease in the value of our common stock.As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management onthe companies' internal control over financial reporting in their annual reports on Form 10-K, including an assessment by management of the effectiveness of thefiling company's internal control over financial reporting. In addition, the independent registered public accounting firm auditing a public company's financialstatements must attest to the effectiveness of the company's internal control over financial reporting. There is a risk that in the future we may identify internalcontrol deficiencies that suggest that our controls are no longer effective. This could result in an adverse reaction in the financial markets due to a loss ofconfidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and make it more difficult for us tofinance our operations.Both our customers and we are subject to laws, regulations and similar requirements, changes to which may adversely affect our business, results of operationsand financial condition.Both our customers and we are subject to laws, regulations and similar requirements that affect our business, results of operations and financial condition,including, but not limited to, the areas of commerce, import and export control, financial disclosures, intellectual property, income and other taxes, anti-trust, anti-corruption, labor, environmental, health and safety. Our compliance in these areas may be costly, especially in areas where there are inconsistencies between thevarious jurisdictions in which we operate. While we have implemented policies and procedures to comply with laws and regulations, there can be no22Table of Contentsassurance our employees, contractors, suppliers or agents will not violate such laws and regulations or our policies. Any such violation or alleged violation couldmaterially and adversely affect our business, financial condition, cash flows and results of operations. Any changes or potential changes to laws, regulations orsimilar requirements, or our ability to respond to these changes, may significantly increase our costs to maintain compliance or result in our decision to limit ourbusiness, products or jurisdictions in which we operate, any of which could materially and adversely affect our results of operations and financial condition.Federal and state regulatory agencies, including the United States Federal Communications Commission and the various state public utility commissions andpublic service commissions, regulate most of our domestic telecommunications customers. Similar government oversight also exists in the international market.While we may not be directly affected by this legislation, such regulation of our customers may negatively impact our business. For instance, the sale of ourproducts may be affected by the imposition upon certain of our customers of common carrier tariffs and the taxation of telecommunications services. Theseregulations are continuously reviewed and changed by the various governmental agencies. Changes in current or future laws or regulations, in the United States orelsewhere, could materially and adversely affect our results of operations and financial condition.The Dodd-Frank Wall Street Reform and Consumer Protection Act includes provisions regarding certain minerals and metals, known as conflict minerals,mined from the Democratic Republic of Congo and adjoining countries. These provisions require companies to undertake due diligence procedures and report onthe use of conflict minerals in its products, including products manufactured by third parties. Compliance with these provisions has caused and will continue tocause us to incur costs to determine whether our supply chain is conflict free and we may face difficulties if our suppliers are unwilling or unable to verify thesource of their materials. Our ability to source these minerals and metals may also be adversely impacted. In addition, our customers may require that we providethem with a certification and our inability to do so may disqualify us as a supplier.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 COMMENTSNone.ITEM 2. PROPERTIESOur principal administrative, sales, marketing, research and development and final testing facility is located in a building of approximately 34,000 squarefeet in Sunnyvale, California. This facility is leased through December 2018. We lease a 9,400 square foot facility in Bangalore, India for the purpose of softwaredevelopment. This facility is leased through June 2021. We also lease office space in Shanghai, China; in London, England; in Taipei, Taiwan; and in SeongnamCity, South Korea. We believe that our existing facilities 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.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.23Table 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 Ended January 1, 2017: Fourth Quarter (through January 1, 2017)$1.51 $0.76Third Quarter (through October 2, 2016)$1.03 $0.76Second Quarter (through July 3, 2016)$1.20 $0.89First Quarter (through April 3, 2016)$1.62 $1.04Fiscal Year Ended 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 $1.81StockholdersThe closing price of our common stock on the Nasdaq Global Market was $1.62 per share on February 27, 2017 . As of February 27, 2017 there were68,162,715 shares of common stock outstanding that were held of record by 164 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.24Table of ContentsStock Performance GraphThe following graph compares the cumulative total return to stockholders of our common stock from January 1, 2012 to January 1, 2017 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 1,2012 in QuickLogic's common stock and in each of the other two indices and the reinvestment of all dividends, if any, through January 1, 2017The 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. 1/1/201212/30/201212/29/201312/28/20141/3/20161/1/2017 QuickLogic Corporation100.0086.54148.46123.0843.4653.46S&P 500 Index100.00116.00153.58174.60177.01198.18S&P Semiconductors Index100.0096.58131.30177.08178.63228.56The stock price performance included in this graph is not necessarily indicative of future stock price performance.25Table of ContentsITEM 6. SELECTED FINANCIAL DATA Fiscal Years 2016 2015 2014 2013 2012 (in thousands, except per share amount)Statements of Operations: Revenue$11,421 $18,956 $27,845 $26,072 $14,944Cost of revenue7,648 11,411 16,796 17,305 7,878Gross profit3,773 7,545 11,049 8,767 7,066Operating expenses: Research and development12,265 14,144 12,186 8,375 8,743Selling, general and administrative10,310 10,619 11,663 12,002 10,481Restructuring costs (1)— 295 — 181 —Loss from operations(18,802) (17,513) (12,800) (11,791) (12,158)Gain on sale of TowerJazz Semiconductor Ltd. shares(2)— — — 181 —Interest expense(175) (82) (85) (54) (61)Interest income and other expense, net(106) (107) (126) (157) (77)Loss before income taxes(19,083) (17,702) (13,011) (11,821) (12,296)Provision for income taxes65 146 68 455 18Net loss$(19,148) $(17,848) $(13,079) $(12,276) $(12,314)Net loss per share: Basic$(0.29) $(0.32) $(0.23) $(0.27) $(0.29)Diluted$(0.29) $(0.32) $(0.23) $(0.27) $(0.29)Weighted average shares: Basic65,377 56,472 55,401 45,762 41,831Diluted65,377 56,472 55,401 45,762 41,831 January 1, 2017 January 3, 2016 December 28, 2014 December 29, 2013 December 30, 2012 (in thousands)Balance Sheet Data: Cash and cash equivalents$14,870 $19,136 $30,050 $37,406 $22,578Working capital$9,042 $19,132 33,395 $37,801 $24,840Total assets$21,844 $28,461 $41,139 $49,126 $31,024Long-term obligations, excluding current portion$49 $2,341 $1,267 $254 $407Total stockholders' equity$11,988 20,325 $35,567 $40,598 $27,278__________________________(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 ordinary shares of TowerJazz, which reflect the 1-to-15 reverse stock split. This saleresulted in a gain of $181,000 .26Table 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 enable OEMs to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Tablet and IoTdevices. We deliver these benefits through industry leading ultra-low power customer programmable SoC semiconductor solutions, embedded software, andalgorithm solutions for always-on voice and sensor processing, and enhanced visual experiences. In addition to our delivering our own semiconductor solutions, wehave an IP business that licenses our FPGA technology for use in other semiconductor companies SoCs.We are also a fabless semiconductor company that designs, markets, and supports primarily silicon solutions, as well as Field Programmable Gate Arrays,or FPGAs, software drivers, associated design software and programming hardware, and, eFPGA IP called ArcticPro. Our solutions are created from our newsilicon platforms including our EOS™, ArcticLink® III, PolarPro®3, PolarPro II, PolarPro, and Eclipse II products (which together comprise our new productcategory). Our mature products include primarily pASIC®3 and QuickRAM® as well as programming hardware and design software. Our solutions typically fall into one of three categories: Sensor Processing, Display and Visual Enhancement, and Smart Connectivity. Our solutionsinclude a unique combination of our silicon platforms, IP, custom logic, software drivers, and in some cases, firmware, and application software. All of our siliconplatforms are standard devices and must be programmed to be effective in a system. Our IPs range from that those enable always-on context-aware sensorapplications, such as our FFE, and our Sensor Manager and Communications Manager technologies, to IP that (i) improves multimedia content, such as our VEEtechnology, and DPO; and (ii) implements commonly used mobile system interfaces, such as LVDS, MIPI, and 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 IPs, providingcustom logic, integrating the logic, programming the device with the IPs and/or firmware, providing software drivers or application software required for thecustomer's application, and supporting the customer on-site during integration, verification and testing. We also work with mobile processor manufacturers, sensor manufacturers, and/or voice recognition, sensor fusion and context awareness algorithmdevelopers in the development of reference designs, QVLs, or “Catalog” solutions. Through reference designs that incorporate our solutions, we believe mobileprocessor 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 or ODMs, we canamortize 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 emphasis on developingand marketing these types of solutions.In order to grow our revenue from its current level, we depend upon increased revenue from our new products including existing new product platforms,eFPGA IP and platforms currently in development. We expect our business growth to be driven by silicon solutions and eFPGA IP and therefore our solutionsrevenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development, sales and marketing of our newsolution platforms and IPs. The gross margin associated with our solutions is generally lower than the gross margin of our FPGA products, which is primarily dueto the price sensitive nature of the higher volume mobile consumer opportunities that we are pursuing with our solutions. The gross margin from our eFPGA IPlicensing is generally higher than the gross margins of our semiconductor device due to the nature of IP having a lower cost of sales.In order to grow and diversify our revenue from its current level, we are partnering with Tier 1 foundries to license our eFPGA software tool in additionto the sale of our new and existing products. We are expecting revenue growth from eFPGA IP licensing starting in fiscal year 2017.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 sales27Table of Contentsopportunities will increase our revenue, we believe these opportunities may decrease our gross profit as a percentage of revenue.During 2016 , we generated total revenue of $11.4 million which represents a 40% decrease from 2015 . Our new product revenue during 2016 was $5.6million , which represents a 53% decrease from 2015 while our mature product revenue during 2016 was $5.8 million , which represents a 16% decrease from2015 . We shipped our new products into four of our targeted mobile market segments: Smartphones, Wearables, Mobile Enterprise, and Tablets. Overall, wereported a net loss of $19.1 million for 2016 compared to a net loss of $17.8 million for 2015.We have experienced net losses in the recent years and expect such losses to continue through at least the year ending December 31, 2017 as we continueto develop new products, applications and technologies. Whether we can achieve cash flow levels sufficient to support our operations cannot be accuratelypredicted. Unless such cash flow levels are achieved in addition to the proceeds we received from our recent sale of our equity securities, we may need to borrowadditional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations, and such additional funding may not beavailable on commercially reasonable terms, 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 long-lived assets, measurement of stock-basedcompensation and accounting for income taxes. We believe that we apply judgments and estimates in a consistent manner and that such consistent applicationresults in consolidated financial statements and accompanying notes that fairly represent all periods presented. However, any factual errors or errors in thesejudgments 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. Werecord an allowance for sales returns. We have 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, which could increase the potential for28Table of Contentsobsolescence. A significant decrease in demand could result in an increase in excess inventory on hand. Although we make every effort to ensure the accuracy ofour forecasts of future product demand, due to our small customer base and limited CSSP engagements, any significant unanticipated changes in demand couldhave a significant impact on the value of our inventory and our results of operations.Valuation of Long-Lived AssetsWe assess annually whether the value of identifiable long-lived assets, including property and equipment, have been impaired and when events or changesin circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Our assessment of possible impairment is based on our abilityto recover the carrying value of an asset or asset group from their expected future pre-tax cash flows, undiscounted and without interest charges, of the relatedoperations. If these cash flows are less than the carrying value of the asset or asset group, we recognize an impairment loss for the difference between estimatedfair value and carrying value, and the carrying value of the related assets is reduced by this difference. The measurement of impairment requires management toestimate future cash flows and the fair value of long-lived assets. Based on this analysis there are no significant impairments to our long-lived assets.Measurement of 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 10 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 primarily29Table of Contentsof net operating loss carryforwards, amounted to $79.2 million , tax effected as of the end of 2016 . In evaluating our ability to recover our deferred tax assetswithin the jurisdiction from which they arise, we consider all available positive and negative evidence, including schedule reversals of deferred tax liabilities,uncertainty of projecting future taxable income and results of recent operations. As of January 1, 2017, we have federal and state income tax net operating loss(NOL) carryforwards of approximately $148.7 million and $57.4 million , which will expire at various dates from 2017 through 2037. The Company has researchcredit carryforwards of approximately $4.0 million for federal and $4.1 million for state income tax purposes as of January 1, 2017, If not utilized, the federalcarryforwards will expire at various dates from 2018. The California credit can be carried forward indefinitely. We believe that it is more likely than not that thedeferred tax assets and benefits from these federal and state NOL and credit carryforwards will not be realized. In recognition of this risk, we have recorded avaluation allowance of $79.2 million , tax-effected, as of the end of 2016 , due to uncertainties related to our ability to utilize our U.S. deferred tax assets beforethey expire.30Table 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 2016 2015 2014Statements of Operations: Revenue100 % 100 % 100 %Cost of revenue67 % 60 % 60 %Gross profit33 % 40 % 40 %Operating expenses: Research and development107 % 75 % 44 %Selling, general and administrative90 % 56 % 42 %Restructuring costs— % 2 % — %Loss from operations(164)% (93)% (46)%Interest expense(2)% — % — %Interest income and other expense, net(1)% (1)% — %Loss before income taxes(167)% (94)% (46)%Provision for income taxes1 % 1 % — %Net loss(168)% (95)% (46)%31Table of ContentsComparison of Fiscal Years 2016 and 2015Revenue . The table below sets forth the changes in revenue for fiscal year ended January 1, 2017 , as compared to fiscal year ended January 3, 2016 (inthousands, except percentage data): Fiscal Years 2016 2015 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue by product family (1) : New products$5,622 49% $12,020 63% $(6,398) (53)%Mature products5,799 51% 6,936 37% (1,137) (16)%Total revenue$11,421 100% $18,956 100% $(7,535) (40)%_________________(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 in 2016 was primarily due to lower shipments to Samsung which had designed our ArcticLink III VX product intoits tablet platform and also due to lower shipments of connectivity products. In 2016, shipments of ArcticLink III were $4.4 million compared to $8.3 million in2015. Revenue from connectivity products was $1.0 million in 2016 compared to $3.5 million in 2015. Revenue generated from Samsung accounted for 68% ofour new product revenue and 33% of our total revenue in 2016. The decrease in mature product revenue is due primarily to decreased orders from our customers inthe aerospace, test and instrumentation sectors. We anticipate that our revenue from tablets and mature products will continue to decline over time.Gross Profit. The table below sets forth the changes in gross profit for fiscal year 2016 as compared to fiscal year 2015 (in thousands, except percentagedata): Fiscal Years 2016 2015 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChange Revenue$11,421 100% $18,956 100% $(7,535) (40)%Cost of revenue7,648 67% 11,411 60% (3,763) (33)%Gross Profit$3,773 33% $7,545 40% $(3,772) (50)%The decrease in gross profit was primarily due to a reduction in sales of both new and matured products, which was due to fluctuations in end-customers'revenue forecasts. The gross margin decrease of 7% in 2016 compared to 2015 was due to the decrease of (i) high margin matured product revenue by $1.1 millionand (ii) a $6.4 million reduction in lower margin new product revenue. The effect of price reductions in 2016 on gross profit was approximately $120,000 or 1%.The sale of inventories that were previously written-off was $106,000 and $201,000 in 2016 and 2015 respectively. Inventory written-down in 2016 was $296,000compared to $229,000 in 2015.Our 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, which will increase the potential for obsolescence. We also regularly review the cost of inventories against estimated market value and record a lower ofcost or market 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 marginand inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down. There were no adjustmentsto the LCM reserve in fiscal year 2016.Operating Expenses. The table below sets forth the changes in operating expenses for fiscal year 2016 as compared to fiscal year 2015 (in thousands,except percentage data):32Table of Contents Fiscal Years 2016 2015 Amount % of TotalRevenues Amount % of TotalRevenues Year-Over-YearChangeR&D expense$12,265 107% $14,144 75% $(1,879) (13)%SG&A expense10,310 90% 10,619 56% (309) (3)%Restructuring costs— —% 295 2% (295) 100 %Total operating expenses$22,575 197% $25,058 133% $(2,483) (10)%Research and Development Expense. Our research and development or R&D expenses consist primarily of personnel, overhead and other costsassociated with engineering process improvements, programmable logic design, CSSP design and software development. Research and development expense was$12.3 million and $14.1 million in 2016 and 2015 , respectively, which represented 107% and 75% of revenue for those periods. The $1.9 million decrease in R&Dexpenses in 2016 as compared to 2015 is attributable to cost cutting measures implemented in 2016, which resulted in a decrease of outside services cost by$892,000 and salaries cost by $723,000.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 functions. SG&A expense was $10.3 million and $10.6 million in 2016 and2015 , respectively, which represented 90% and 56% of revenue for those periods. The $309,000 decrease in SG&A expenses in 2016 as compared to 2015 isattributable primarily to the decrease in salaries cost of $638,000, attributable to cost reduction measures implemented in 2016, which was partially offset byhigher outside services costs of $342,000. Interest Expense and Interest Income and Other Expense, net The table below sets forth the changes in interest expense and interest income and other expense, net for 2016 as compared to 2015 (in thousands, exceptpercentage data): Fiscal Years Year-Over-YearChange 2016 2015 Amount Percentage Interest expense$(175) $(82) $93 113 %Interest income and other expense, net(106) (107) (1) (1)% $(281) $(189) $92 49 %The change in interest expense increased by $93,000 in 2016 compared to 2015 due to additional draw down of $4.0 million from our line of credit in2016. The change in interest income and other expense, net was due primarily to a decrease in foreign exchange losses in 2016 as compared to 2015 .We conduct a portion of our research and development activities in India and we have sales and marketing activities in various countries outside of theUnited States. Most of these international expenses are incurred in local currency. Foreign currency transaction gains and losses are included in interest and otherincome (expense), net, as they occur. We do not use derivative financial instruments to hedge our exposure to fluctuations in foreign currency and, therefore, ourresults of operations are and will continue to be susceptible to fluctuations in foreign exchange gains or losses.Provision for Income Taxes. The table below sets forth the changes in provision for income taxes in 2016 as compared to 2015 (in thousands, exceptpercentage data) : Fiscal Years Year-Over-YearChange 2016 2015 Amount Percentage Income tax provision$65 $146 $(81) (55)%The income tax expense for 2016 and 2015 is primarily from our foreign operations which are cost-plus entities.33Table of ContentsAs of the end of 2016 , 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. deferred tax assets. We will continue to assess the realizability of deferred tax assets in future periods.Comparison of Fiscal Years 2015 and 2014Revenue . The table below sets forth the changes in revenue for fiscal year 2015 as compared to fiscal year 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 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.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 of 2015. 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. Operating Expenses. The table below sets forth the changes in operating expenses for fiscal year 2015 as compared to fiscal year 2014 (in thousands,except percentage 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$25,058 133% $23,849 86% $1,209 5 %Research and Development Expense. Our R&D expenses consist primarily of personnel, overhead and other costs associated with engineering processimprovements, programmable logic design, CSSP design and software development. Research and development expense was $14.1 million and $12.2 million in2015 and 2014, respectively, which represented 75% and 44% of revenue for those periods. The $2.0 million increase in R&D expenses in 2015 as compared to2014 is attributable primarily to a $1.4 million increase in compensation expense due to increased headcount, $1.1 million increase in the cost of outside servicesdue to an increase in third-party chip design costs, and a $170,000 increase in equipment and supplies costs. These increases were partially offset by a reduction inIP purchases of $261,000, and lower stock-based compensation cost of $226,000.Selling, General and Administrative Expense. Our SG&A expenses consist primarily of personnel and related overhead 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 was attributable primarily to the decrease instock-based compensation of $643,000 and lower outside services costs of $545,000, which was partially offset by higher depreciation costs of $151,000.Restructuring Costs. In June 2015, we implemented a restructuring plan to re-align the organization to support our sensor processing provider businessmodel and growth strategy. This re-alignment resulted in a reduction of nine employees or 9% of the global workforce. Pursuant to the restructuring plan, werecorded $295,000 of restructuring liabilities in 2015, consisting primarily of employee severance-related costs.Interest Expense and Interest Income and Other Expense, net The table below sets forth the changes in interest expense and interest income and other expense, net for 2015 as compared to 2014 (in thousands, exceptpercentage data): Fiscal Years Year-Over-Year Change 2015 2014 Amount Percentage Interest expense$(82) $(85) $(3) (4)%Interest income and other expense, net(107) (126) (19) (15)% $(189) $(211) $(22) 10 %The change in interest expense was insignificant in 2015 compared to 2014 as the debt balance remained the same for most of 2015. In December 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 change in interest incomeand other expense, net was due primarily to a decrease of foreign exchange losses in 2015 as compared to 2014.Provision for Income Taxes. The table below sets forth the changes in provision for (benefit from) income taxes for 2015 as compared to 2014 (inthousands, except percentage data): Fiscal Years Year-Over-Year Change 2015 2014 Amount Percentage Income tax provision$146 $68 $78 115%The income tax expense for 2015 and 2014 was primarily for 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 was uncertain and, accordingly, we recorded a full valuationallowance against the related U.S. tax asset.34Table of ContentsLiquidity andCapital 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 1, 2017 , our principal sources of liquidity consisted of our cash and cash equivalents of $14.9 million and an additional $6.0million line of credit available at our election. As of January 1, 2017, we have drawn down $6.0 million from our revolving line of credit with Silicon Valley Bank.Under the Third Amendment to the Third and Restated Loan and Security Agreement dated as of February 10, 2016, the revolving line of credit is subject toincreases at our election up to $12.0 million, subject to certain requirements included in our debt agreement with Silicon Valley Bank. Our revolving line of creditwill expire in September 2017 and we would need to renew this line of credit or find an alternative lender prior to the expiration date. Further, any violations ofdebt covenants during 2017 will restrict our access to any additional cash draws from the revolving line of credit, and may require our immediate repayment of theoutstanding debt amounts. Additionally, we have an accumulated deficit of approximately $240 million , experienced net losses in past years, and expect suchlosses to continue through at least the year ending December 31, 2017 as we continue to develop new products, applications and technologies.On March 21, 2016, we issued 10.0 million shares of common stock at a price of $1.00 per share. We received net proceeds of approximately $8.8million, after deducting underwriting commissions and other offering-related expenses. We have used and plan to continue to use the net proceeds from theoffering for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire and/or license technologies and acquireand/or invest in businesses when the opportunity arises. The shares were offered pursuant to a shelf registration statement filed with the SEC, which was declaredeffective by the SEC on August 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 of 1933, as amended.On December 9, 2016, the Company filed a new shelf registration statement on Form S-3 under which the Company may, from time to time, sellsecurities in one or more offerings up to a total dollar amount of $40.0 million . The Company's earlier shelf registration statement filed on July 31, 2013 expiredon August 30, 2016. Over the longer term, we anticipate that the generation of sales from our new product offerings, existing cash and cash equivalents, together with financialresources from our revolving line of credit with Silicon Valley Bank and our ability to raise additional capital in the public capital markets will be sufficient tosatisfy our operations and capital expenditures. Our revolving line of credit will expire in September 2017 and we would need to renew this line of credit or find analternative lender prior to the expiration date. Further, any violations of debt covenants during 2017 will restrict our access to any additional cash draws from therevolving line of credit, and may require our immediate repayment of the outstanding debt amounts. We believe that we will be able to either renew the revolvingline of credit or obtain alternative financing on the acceptable terms. We cannot provide any assurance that we will be able to raise additional capital, if required, orthat such capital will be available on terms acceptable to the Company. Our inability to generate sufficient sales from our new product offerings and/or raiseadditional capital if needed could have a material adverse effect on the Company’s operations and financial condition, including our ability to maintain compliancewith our lender’s financial covenants.We were in compliance with all loan covenants as of the end of the current reporting period. As of January 1, 2017 we had $6.0 million of outstandingrevolving line of credit with an interest rate of 3.75%As of January 1, 2017 , there was no material difference between the fair value and the carrying amount of capital software leasing arrangements.As of January 1, 2017 , most of our cash and cash equivalents were invested in JP Morgan U.S. government money market funds rated AAAm/Aaa. As ofJanuary 1, 2017 , our interest-bearing debt consisted of $209,000 outstanding under capital leases and $6.0 million outstanding under our revolving line of credit.See Note 5 to the Consolidated Financial Statements for details. Cash balances held at our foreign subsidiaries were approximately $544,000 and $1.2 million at January 1, 2017 and January 3, 2016 , respectively.Earnings from our foreign subsidiaries are currently deemed to be indefinitely reinvested. We do not expect such reinvestment to affect our liquidity and capitalresources, and we continually evaluate our liquidity needs and ability to meet global cash requirements as a part of our overall capital deployment strategy. Factorswhich affect our liquidity, capital resources and global capital deployment strategy include anticipated cash flows, the ability to repatriate cash in a tax efficientmanner, funding requirements for operations and investment activities, acquisitions and divestitures and capital market conditions.35Table of ContentsIn summary, our cash flows were as follows (in thousands): Fiscal Year 201620152014Net cash (used in) operating activities$(15,259)$(11,829)$(10,754)Net cash (used in) investing activities(1,954)(346)(1,044)Net cash provided by financing activities12,9471,2614,442Net Cash from Operating ActivitiesIn 2016 , net cash used in operating activities was $15.3 million , and resulted primarily from a net loss of $19.1 million , which was offset by $3.6million in non-cash charges. These non-cash charges included write-downs of inventories in the amount of $296,000 to reflect excess quantities, depreciation andamortization of our long-lived assets of $1.3 million and stock-based compensation of $1.6 million . In addition, changes in working capital accounts provided cashof $88,000 as a result of a decrease in accounts receivable of $762,000 , decrease of gross inventory $565,000 , and an increase of accrued liabilities of $124,000 ,partially offset by a decrease of accounts payable of $1.3 million and decrease of deferred revenue of $26,000 .In 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. The inventory decrease was primarily due to sale of existingArcticLink III 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 offset by a decrease in accounts receivable of $1.7 million. The decrease of accounts payable was primarily due to payment of invoicesapproximately $1.6 million related to purchases of ArcticLink III products in 2014, which were purchased in 2013.Net Cash from Investing ActivitiesNet cash used for investing activities in 2016 was $1,954,000 , primarily for capital expenditures to acquire mask sets for our new products and othermanufacturing equipment and softwareIn 2015, net cash used for investing activities was $346,000, primarily for capital expenditures to acquire manufacturing equipment and software.In 2014, net cash used for investing activities was $1.0 million primarily to acquire mask sets, leasehold improvements, software used in the developmentand production of our products and solutions and other manufacturing equipment.Net Cash from Financing ActivitiesIn 2016 , net cash provided by financing activities was $12.9 million , resulting from the additional borrowing of $4.0 million under the line of credit,proceeds of $8.8 million from our stock offering in March 2016 and proceeds of $424,000 from the issuance of common shares to employees under our equityplans, net of taxes paid related to net settlement of equity awards of $703,000 . These proceeds were partially offset by payments of $280,000 under the terms ofour capital software lease obligations.36Table of ContentsIn 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 andproceeds of $554,000 from the issuance of common shares to employees under our equity plans. These proceeds were partially offset by payments of $293,000under 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 from 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.We 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 will be sufficient to satisfy our operations and capital expenditures over the next twelve months. Our revolvingline of credit will expire in September 2017 and we would need to renew this line of credit or find an alternative lender prior to the expiration date. Further, anyviolations of debt covenants during 2017 will restrict our access to any additional cash draws from the revolving line of credit, and may require our immediaterepayment of the outstanding debt amounts. After the next twelve months, our cash requirements will depend on many factors including our level of revenue andgross profit, the market acceptance of our existing and new products, the levels at which we maintain inventories and accounts receivable, costs of securing accessto adequate manufacturing capacity, new product development efforts, capital expenditures and the level of our operating expenses. In order to satisfy our longerterm liquidity requirements, we may be required to raise additional equity or debt financing. There can be no assurance that financing will be available atcommercially acceptable terms or at all.37Table of ContentsContractual Obligations and Commercial CommitmentsThe following table summarizes our non-cancelable contractual obligations and commercial commitments as of the end of 2016 and the effect suchobligations and commitments 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$2,018 $800 $972 $246Wafer purchases (1)1,636 1,636 — —Other purchase commitments1,179 1,177 2 —Total contractual cash obligations4,833 3,613 974 246Other commercial commitments (2): Revolving line of credit6,000 6,000 — —Capital software lease obligations209 209 — —Total commercial commitments6,209 6,209 — —Total contractual obligations and commercial commitments (3)$11,042 $9,822 $974 $246____________________(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 $1.6 million include firm purchase commitments and a portion of our forecastedwafer starts as of the end of 2016 .(2)Other commercial commitments are included as liabilities on our consolidated balance sheets as of the end of 2016 .(3)Does not include unrecognized tax benefits of $2.0 million as of the end of 2016 . See Note 7 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.38Table 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. 39Table 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 2016 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 India andhave sales and marketing offices in several locations outside of the United States. We use the U.S. dollar as our functional currency. Most of the costs incurred atthese international locations are in local currency. If these local currencies strengthen against the U.S. dollar, our payroll and other local expenses will be higherthan 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 were approximately 18% , 17% and 18% of total operating expenses in 2016 , 2015 and 2014 , respectively.A majority of these foreign expenses were incurred in India, the United Kingdom and Korea in 2016. A currency exchange rate fluctuation of 10% would havecaused our operating expenses to change by approximately $398,000 in 2016 , $419,000 in 2015 and $432,000 in 2014.40Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm-Moss Adams LLP42Report of Independent Registered Public Accounting Firm-BDO USA, LLP43Consolidated Balance Sheets as of January 1, 2017 and January 3, 201644Consolidated Statements of Operations for the Fiscal Years 2016, 2015 and 201445Consolidated Statements of Cash Flows for the Fiscal Years 2016, 2015 and 201446Consolidated Statements of Stockholders' Equity for the Fiscal Years 2016, 2015 and 201447Notes to Consolidated Financial Statements48 41Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersQuickLogic CorporationWe have audited the accompanying consolidated balance sheet of QuickLogic Corporation (the Company), as of January 1, 2017, and the related consolidatedstatements of operations, comprehensive loss, stockholders' equity and cash flows for the year then ended. In connection with our audit, we have also audited thefinancial statement schedule, Valuation and Qualifying Accounts as of and for the year ended January 1, 2017, listed in Item 15(a) 2. We also have audited theCompany's internal control over financial reporting as of January 1, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these consolidated financialstatements and schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control overfinancial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibilityis to express an opinion on these consolidated financial statements and schedule and an opinion on the Company's internal control over financial reporting based onour 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 the consolidated financial statements are free of material misstatement and whethereffective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, ona test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinions.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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of QuickLogicCorporation, as of January 1, 2017, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accountingprinciples generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, Valuation and Qualifying Accounts as of andfor the year ended January 1, 2017, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein. Also in our opinion, QuickLogic Corporation maintained, in all material respects, effective internal control overfinancial reporting as of January 1, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission./s/ Moss Adams LLPSan Francisco, CaliforniaMarch 9, 201742Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and StockholdersQuickLogic CorporationSunnyvale, CaliforniaWe have audited the accompanying consolidated balance sheet of QuickLogic Corporation as of January 3, 2016 and the related consolidated statements ofoperations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years ended January 3, 2016. In connection with our audits of thefinancial statements, we have also audited the financial statement schedule, Valuation and Qualifying Accounts, as of and for the years ended January 3, 2016 andDecember 28, 2014 listed in Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is toexpress 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 the results of its operations and its cash flows for each of the two years ended January 3, 2016 , in conformity with accounting principlesgenerally 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, 2014listed in Item 15(a)2, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, theinformation set forth therein./s/ BDO USA, LLPSan Jose, CaliforniaMarch 18, 201643Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except par value amount) January 1, 2017 January 3, 2016ASSETS Current assets: Cash and cash equivalents$14,870 $19,136Accounts receivable, net of allowances for doubtful accounts of $0839 1,601Inventories2,017 2,878Other current assets1,123 1,312Total current assets18,849 24,927Property and equipment, net2,765 3,315Other assets230 219TOTAL ASSETS$21,844 $28,461 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving line of credit$6,000 $—Trade payables2,018 4,032Accrued liabilities1,580 1,482Current portion of capital software lease obligations209 281Total current liabilities9,807 5,795Long-term liabilities: Revolving line of credit— 2,000Capital software lease obligations, less current portion— 208 Other long-term liabilities49 133Total liabilities9,856 8,136Commitments (Note 12) 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; 68,134 and 56,904 shares issued and outstanding as ofJanuary 1, 2017 and January 3, 2016, respectively68 57Additional paid-in capital251,824 241,024Accumulated deficit(239,904) (220,756)Total stockholders' equity11,988 20,325TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$21,844 $28,461The accompanying notes form an integral part of these Consolidated Financial Statements.44Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Fiscal Years 2016 2015 2014 Statements of Operations: Revenue$11,421 $18,956 $27,845Cost of revenue7,648 11,411 16,796Gross profit3,773 7,545 11,049Operating expenses: Research and development12,265 14,144 12,186Selling, general and administrative10,310 10,619 11,663Restructuring costs— 295 —Loss from operations(18,802) (17,513) (12,800)Interest expense(175) (82) (85)Interest income and other expense, net(106) (107) (126)Loss before income taxes(19,083) (17,702) (13,011)Provision for income taxes65 146 68Net loss$(19,148) $(17,848) $(13,079)Net loss per share: Basic$(0.29) $(0.32) $(0.23)Diluted$(0.29) $(0.32) $(0.23)Weighted average shares: Basic65,377 56,472 55,401Diluted65,377 56,472 55,401Note: Net Loss equals to comprehensive loss for the fiscal years 2016, 2015 and 2014The accompanying notes form an integral part of these Consolidated Financial Statements.45Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Years 2016 2015 2014Cash flows from operating activities: Net loss$(19,148) $(17,848) $(13,079)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization1,332 1,409 1,510Shares issued to third parties for services provided— 87 —Stock-based compensation1,584 1,941 2,242Write-down of inventories296 229 119Write-off of equipment368 8 5Changes in operating assets and liabilities: Accounts receivable762 (49) 1,709Inventories565 1,845 (935)Other assets305 300 604Trade payables(1,337) 260 (2,002)Accrued liabilities124 (94) (882)Deferred income(26) 26 — Other long-term liabilities(84) 57 (45)Net cash used in operating activities(15,259) (11,829) (10,754)Cash flows from investing activities: Capital expenditures for property and equipment(1,954) (346) (1,046)Proceeds from sale of equipment— — 2Net cash used in investing activities(1,954) (346) (1,044)Cash flows from financing activities: Payment of capital software lease obligations(280) (293) (300)Proceeds from issuance of common stock11,127 910 6,638Stock issuance costs(1,197) — 40 Taxes paid related to net settlement of equity awards(703) (356) (1,936)Borrowings from line of credit4,000 1,000 —Net cash provided by financing activities12,947 1,261 4,442Net (decrease) in cash and cash equivalents(4,266) (10,914) (7,356)Cash and cash equivalents at beginning of period19,136 30,050 37,406Cash and cash equivalents at end of period$14,870 $19,136 $30,050Supplemental disclosures of cash flow information: Interest paid$183 $77 $85Income taxes paid$128 $121 $48Supplemental schedule of non-cash investing and financing activities : Capital software lease obligation to finance capital expenditures$209 $489 $416Purchase of equipment included in accounts payable$— $977 $441Issuance of restricted stock units for accrued compensation$— $— $1,064Stock warrants exercised in cashless transactions, net$— $— $78The accompanying notes form an integral part of these Consolidated Financial Statements.46Table of ContentsQUICKLOGIC CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in thousands) Common Stock atPar Value AdditionalPaid-InCapital AccumulatedDeficit TotalStockholders'Equity Shares Amount Balance at December 29, 201353,788 $54 $230,373 $(189,829) $40,598Common stock issued under stock plans and employee stock purchaseplans2,358 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 stock purchaseplans722 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) 20,325Common stock issued under stock plans and employee stock purchaseplans1,230 1 423 — 424Private stock offering, net of issuance costs10,000 10 8,793 — 8,803Stock-based compensation— — 1,584 — 1,584Net loss— — — (19,148) (19,148)Balance at January 1, 201768,134 $68$251,824$(239,904)$11,988The accompanying notes form an integral part of these Consolidated Financial Statements. 47Table of ContentsNOTE 1-THE COMPANY AND BASIS OF PRESENTATIONQuickLogic Corporation, ("QuickLogic", the "Company"), was founded in 1988 and reincorporated in Delaware in 1999. The Company enables OriginalEquipment Manufacturers or OEMs to maximize battery life for highly differentiated, immersive user experiences with Smartphone, Wearable, Tablet andInternet-of-Things or IoT devices. QuickLogic delivers these benefits through industry leading ultra-low power customer programmable System on Chip or SoCsemiconductor solutions, embedded software, and algorithm solutions for always-on voice and sensor processing, and enhanced visual experiences. The Companyis a fabless semiconductor provider of comprehensive, flexible sensor processing solutions, ultra-low power display bridges, and ultra-low power FieldProgrammable Gate Arrays, or FPGAs.QuickLogic's fiscal year ends on the Sunday closest to December 31. Fiscal years 2016 , 2015 and 2014 ended on January 1, 2017 , January 3, 2016 andDecember 28, 2014 , 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 1, 2017 , the Company's principal sources of liquidity consisted of its cash and cash equivalents of $14.9 million and an additional $6.0 millioncredit line is available for draw at the Company's election upon credit approval under its revolving line of credit arrangement with Silicon Valley Bank. Therevolving line of credit will expire in September 2017 and the Company would need to renew this line of credit or find an alternative lender prior to the expirationdate. Further, any violations of debt covenants during 2017 will restrict the Company’s access to any additional cash draws from the revolving line of credit, andmay require immediate repayment of the outstanding debt amounts. Additionally, the Company has an accumulated deficit of approximately $240 million , hasexperienced net losses in the past years and expects such losses to continue through at least the end of fiscal year 2017 as the Company continues to develop newproducts, applications and technologies.On September 25, 2015, the Company entered into a Second Amendment to Third Amended and Restated Loan and Security Agreement with SiliconValley Bank to extend the line of credit for two years through September 25, 2017 . This amendment modifies some of the financial covenants. This line of creditprovides for committed loan advances of up to $6.0 million , subject to increases at the Company's election of up to $12.0 million if the Company meets certainrequirements in the debt agreement. On February 10, 2016, the Company entered into a Third Amendment to Third and Restated Loan and Security Agreement tofurther modify the covenants. See Note 5 for a description of the modified covenants. The Company is in compliance with all loan covenants as of the end of thecurrent reporting period.On March 21, 2016, the Company issued 10.0 million shares of common stock at a price of $1.00 per share, $0.001 par value. The Company received netproceeds of approximately $8.8 million , after deducting underwriting commissions and other offering related expenses. The Company uses the net proceeds fromthe offering for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds to acquire and/or licensetechnologies and acquire and/or invest in businesses when the opportunity arises. The shares were offered pursuant to a shelf registration statement previously filedwith the SEC, which was declared effective by the SEC on August 30, 2013, and as supplemented by a prospectus supplement dated March 17, 2016 filed with theSecurities and Exchange Commission or SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended.On December 9, 2016, the Company filed a new shelf registration statement on Form S-3 under which the Company may, from time to time, sellsecurities in one or more offerings up to a total dollar amount of $40.0 million . The Company's earlier shelf registration statement filed on July 31, 2013 expiredon August 30, 2016.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 Bankwill be sufficient to fund its operations and capital expenditures and provide adequate working capital for the next twelve months. The Company’s revolving lineof credit with Silicon Valley Bank will expire in September 2017 and the Company would need to renew this line of credit or find an alternative lender prior to theexpiration date. Further, any violations of debt covenants during 2017 will restrict the Company’s access to any additional cash draws from the revolving line ofcredit, and may require immediate repayment of the outstanding debt amounts. Management believes that it is probable that the Company will be able to eitherrenew the revolving line of credit or obtain alternative financing on the acceptable terms.48Table of ContentsThe 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, assuming renewal of the line of credit or the Company entering into a new debtagreement with an alternative lender prior to the expiration of the revolving line of credit in September 2017, and its ability to raise additional capital in the publiccapital markets will be sufficient to satisfy its operations and capital expenditures. However, the Company cannot provide any assurance that it will be able to raiseadditional capital, if required, or that such capital will be available on terms acceptable to the Company. The inability of the Company to generate sufficient salesfrom its new product offerings and/or raise additional capital if needed could have a material adverse effect on the Company’s operations and financial condition,including its ability to maintain compliance with its lender’s financial covenants. Principles of ConsolidationThe consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles, in the United States of Americaor US GAAP 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.Foreign 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 11 for informationregarding concentrations associated with accounts receivable.For the twelve months ended January 1, 2017 , the Company generated 33% of its total revenue from shipments to a tier one customer, SamsungElectronics Co., Ltd. ("Samsung"). See Note 11 for information regarding revenue concentrations associated with our customers and distributors.49Table of ContentsNOTE 2-SIGNIFICANT ACCOUNTING POLICIESCash EquivalentsThe Company considers all short-term, highly liquid investments with an original or a remaining maturity at purchase of ninety days or less to be cash equivalents.The Company's investment portfolio included in cash equivalents is generally comprised of investments that meet high credit quality standards. The Company'sinvestment portfolio consists of money market funds.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 India and has sales and marketing activities in various countries outside of the United States. Most of these international expenses are incurred in localcurrency. Foreign currency transaction gains and losses, which are not significant, are included in interest income and other expense, net, as they occur. Operatingexpenses denominated in foreign currencies were approximately 18% , 17% and 18% of total operating expenses in 2016 , 2015 and 2014 respectively. TheCompany incurred a majority of these foreign currency expenses in India, the United Kingdom and Korea in 2016, 2015 and 2014. The Company has not usedderivative financial instruments to hedge its exposure to fluctuations in foreign currency and, therefore, is susceptible to fluctuations in foreign exchange gains orlosses 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 which could increase the potential for obsolescence. A significant decrease in demand could result in anincrease in excess inventory on hand. Although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significantunanticipated changes in demand or frequent new product developments could have a significant impact on the value of its inventory and its results of operations.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.50Table of ContentsLong-Lived AssetsThe Company reviews the recoverability of its long-lived assets, such as property and equipment, annually and when events or changes in circumstancesoccur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company'sability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows, undiscounted and without interest charges, of therelated operations. If these cash flows are less than the carrying value of the asset or asset group, an impairment loss is recognized for the difference between theestimated fair value and the 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. During 2016 , 2015 and 2014 the Company wrote-off equipment with a net bookvalue of $368,000 , $8,000 and $5,000 , 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.The 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. Amounts recorded forsales returns were $93,000 and $19,000 for the years ended January 1, 2017 and January 3, 2016, respectivelyWarranty 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 $51,000 in 2016, $60,000 in 2015, and were not material in 2014.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 10 for further details.51Table of ContentsAccounting for Income TaxesThe Company is required to estimate its income taxes in each of the jurisdictions in which the Company operates. This process involves estimating theCompany's actual current tax exposure together with assessing temporary differences resulting from different tax and accounting treatment of items, such asdeferred revenue, allowance for doubtful accounts, the impact of equity awards, depreciation and amortization and employee related accruals. These differencesresult in deferred tax assets and liabilities, which are included on the Company's balance sheets. The Company must then assess the likelihood that its deferred taxassets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, it must establish a valuation allowance.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 $79.2 million tax effected as of the end of 2016 . The Company has also recorded a valuation allowance of $79.2 million , tax effected,as of the end of 2016 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 available evidence indicates that it is more likely than not that the position will besustained 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 ismore than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that itanticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.Accrued interest and penalties are included within the related tax liability line in the Consolidated 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 11 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. The Company'scomprehensive loss equaled to net loss for all periods presented.New Accounting Pronouncements Recently adopted accounting pronouncements: In August 2014, the Financial Accounting Standards Board or FASB issued Accounting Standards Update or ASU No. 2014-15, Presentation of FinancialStatements - Going Concern (Sub Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . This ASU 2014-15provides guidance to an entity’s management with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that arecurrently52Table of Contentscommonly provided by entities in the financial statement footnotes. This ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interimperiods within annual periods beginning after December 15, 2016. The Company adopted this guidance prospectively with no material effect on the consolidatedfinancial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) : Improvements to Employee Share-Based PaymentAccounting. This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees.The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on thestatement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equityclassification and the classification of those taxes paid on the statement of cash flows. The Company has decided to early adopt ASU 2016-09 in Q4 2016 and haselected to continue to estimate their forfeiture rate rather than recognizing forfeitures as they occur. The ASU 2016-09 is considered to be effective from thebeginning of the year of adoption. In the year of adoption, ASU 2016-09 requires that the cumulative effect adjustment be recorded to retained earnings. Due to thefull valuation allowance, there is no cumulative effect adjustment to record. Excess windfall net operating loss carryforwards are converted into deferred tax netoperating losses with a corresponding increase in valuation allowance as of the beginning of 2016; the year of adoption.Recently issued accounting pronouncements not yet adopted:In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which supersedes nearly all existing 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. In July 2015, the FASB approved a one-year delay in the effective date by issuing ASU 2015-09, Revenue from Contracts with customers. ASU 2014-09 iseffective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company iscurrently evaluating the impact of the adoption of ASU 2014-09 on its consolidated 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 the consolidated financial statements and footnote disclosures. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases . The new standard establishes a right-of-use (ROU) model thatrequires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as eitherfinance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal yearsbeginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees forcapital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certainpractical expedients available. The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financialstatements. In March 2016, the FASB issued ASU No. 2016-08, Revenue from contracts with customers (Topic 606): Principal versus Agent ConsiderationsReporting Revenue Gross versus Net. The amendments are intended to improve the operability and understandability of the implementation guidance on principalversus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of theguidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09. Public entities should apply theamendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018,for a calendar year entity). The Company is currently evaluating the impact of our pending adoption of the new standard on the consolidated financial statements. In May 2016, the FASB issued ASU No. 2016-12, Revenue from contracts with customers (Topic 606) : Narrow Scope Improvements and Practical Expedients. This update among other things: (1) clarify the object of the collectability criterion for53Table of Contentsapplying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from transaction price; (3)specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregateeffect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations,determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contractfor purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application,and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior period reporting is not required to disclose the effect of theaccounting change for the period of adoption. This amendment is effective for public entities for annual reports beginning after December 15, 2017, includinginterim periods therein. For nonpublic entities one year later. The Company is currently evaluating the impact of our pending adoption of the new standard on theconsolidated financial statements. In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230) : Classification of CertainCash Receipts and Cash Payments . This update clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and for interim periods therein with early adoption permittedand must be applied retrospectively to all periods presented. The Company is currently evaluating the impact of our pending adoption of the new standard on theconsolidated financial statements.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity transfers of assets other than inventory. This updateremoves the requirement under which the income tax consequences of intra-entity transfers are deferred until the assets are ultimately sold to an outside party,except for transfers of inventory. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. The standard is effective forannual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company iscurrently evaluating the impact of adopting this guidance on the consolidated financial statements.NOTE 3-NET LOSS PER SHAREBasic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common sharesoutstanding during the period. Diluted net loss per share was computed using the weighted average number of common shares outstanding during the period pluspotentially dilutive common shares outstanding during the period under the treasury stock method. In computing diluted net loss per share, the weighted averagestock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants. For 2016 , 2015 and 2014 , 7.4 million shares, 7.6 million shares, and 7.0 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.54Table of ContentsNOTE 4-BALANCE SHEET COMPONENTS January 1, 2017 January 3, 2016 (in thousands)Inventories: Raw materials$— $—Work-in-process1,538 1,720Finished goods479 1,158 $2,017 $2,878Other current assets: Prepaid expenses$960 $1,184Other163 128 $1,123 $1,312Property and equipment: Equipment$11,524 $14,531Software2,624 3,114Furniture and fixtures41 131Leasehold improvements708 714 14,897 18,490Accumulated depreciation and amortization(12,132) (15,175) $2,765 $3,315Accrued liabilities: Employee compensation related accruals$1,222 $1,237Other358 245 $1,580 $1,482The Company recorded depreciation and amortization expense of $1.3 million , $1.4 million and $1.5 million for 2016 , 2015 and 2014 , respectively.Assets acquired under capital leases and included in property and equipment were $772,000 and $1.0 million at the end of 2016 and 2015 , respectively. TheCompany recorded accumulated depreciation on leased assets of $515,000 and $503,000 as of the end of 2016 and 2015 , respectively. As of January 1, 2017 andJanuary 3, 2016 ,the capital lease obligation relating to these assets was $209,000 and $489,000 respectively.NOTE 5-OBLIGATIONS January 1, 2017 January 3, 2016 (in thousands)Debt and capital software lease obligations: Revolving line of credit$6,000 $2,000Capital software leases209 489 6,209 2,489Current portion of debt and capital software lease obligations(6,209) (281)Long term portion of debt and capital software lease obligations$— $2,208Revolving 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 1, 2017 , the Company has $ 6.0 million of revolving debt outstanding with an interest rate of 3.75% .55Table of ContentsOn February 10, 2016, the Company entered into a Third Amendment to the Loan and Security Agreement with the Bank to amend certain covenants. Asamended, 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% ofthe proceeds from any equity issuance, plus (b) 50% of the proceeds from any investments, tested as of the last day of each month; (ii) unrestricted cash or cashequivalents 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 liabilitiesminus (ii) the current portion of deferred revenue plus (iii) the long-term portion of the obligations of at least 2.00 to 1.00, tested as of the last day of each month.Beginning with the second fiscal quarter of 2016, the tangible net worth requirement, is reduced as follows: For the quarter ending June 30, 2016, at least$10,000,000 ; for the quarter ending September 30, 2016, at least $8,000,000 ; for the quarter ending December 31, 2016, at least $6,000,000 ; for the quarterending 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, theCompany is required to maintain a ratio of quick assets to the results of (i) current liabilities minus (ii) the current portion of deferred revenue plus (iii) the long-term portion of the obligations of at least 1.50 to 1.00 in the fiscal quarters ended September 30, 2016 and December 31, 2016 and of at least 1.25 to 1.00 in thefiscal quarters ended March 31, 2017 and June 30, 2017. The Bank has a first priority security interest in substantially all of the Company's tangible and intangible assets to secure any outstanding amounts 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. Thesecovenants were modified in the second and third amendments as explained above. The Loan 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, thegranting of liens, cash balances with subsidiaries and the payment of dividends. The Company was in compliance with the financial covenants of the LoanAgreement as of the end of the current reporting period.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 1, 2017 ,$89,000 was outstanding under the capital lease, all 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 1, 2017 , $64,000was outstanding under the capital lease, all of which was classified as a current liability.In July 2014, the Company leased design software under a 41 month capital lease at an imputed interest rate of 3.15% per annum. Terms of theagreement require the Company to make payments of principal and interest of $42,000 in August 2014, $16,000 in December 2014, $58,000 in January 2016 and$58,000 in January 2017. The total payments for the lease will be $174,000 . As of January 1, 2017 , $56,000 was outstanding under this capital lease, all of whichwas classified 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 fully paid off in May 2016.56Table of ContentsNOTE 6-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 1, 2017 and January 3, 2016 consistent with the fair value hierarchy provisions of the authoritative guidance (in thousands): As of January 1, 2017 As of January 3, 2016 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3Assets: Money market funds (1)$14,692 $1,338 $13,354 $— $18,021 $2,137 $15,884 $—Total assets$14,692 $1,338 $13,354 $— $18,021 $2,137 $15,884 $—___________________________(1)Money market funds are presented as a part of cash and cash equivalents on the accompanying consolidated balance sheets as of January 1, 2017 andJanuary 3, 2016 .57Table of ContentsNOTE 7-INCOME TAXESThe following table presents the U.S. and foreign components of consolidated income (loss) before income taxes and the provision for (benefit from)income taxes (in thousands): Fiscal Years 2016 2015 2014Income (loss) before income taxes: U.S.$(19,340) $(17,897) $(13,172)Foreign257 195 161Income (loss) before income taxes$(19,083) $(17,702) $(13,011)Provision for (benefit from) income taxes: Current: Federal$— $37 $—State(3) 2 —Foreign75 99 95Subtotal72 138 95Deferred: Federal— — —State— — —Foreign(7) 8 (27)Subtotal(7) 8 (27)Provision for income taxes$65 $146 $68 Based on the available objective evidence, management believes it is more likely than not that the U.S. 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 1, 2017 . 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 1, 2017 January 3, 2016Deferred tax assets: Net operating losses$53,924 $45,148Capital losses2,938 2,938Accruals and reserves1,875 1,732Credits carryforward5,080 5,831Depreciation and amortization14,415 12,738Stock-based compensation968 1,012 79,200 69,399Valuation allowances(79,150) (69,349)Deferred tax asset$50 $50Deferred tax liability— —A rate reconciliation between income tax provisions at the U.S. federal statutory rate and the effective rate reflected in the consolidated statements ofoperations is as follows: 58Table of Contents Fiscal Years 2016 2015 2014Income tax (benefit) at statutory rate$(6,489) $(5,962) $(4,423)State taxes(3) 2 —Stock compensation and other permanent differences211 286 6Foreign taxes(19) 41 22Benefit allocated from other comprehensive income (loss)— — —Future benefit of deferred tax assets not recognized6,365 5,779 4,463Provision for income taxes$65 $146 $68As of January 1, 2017 , the Company had net operating loss carryforwards of approximately $148.7 million for federal and $57.4 million for state incometax purposes. If not utilized, these carryforwards will expire beginning in 2017 for federal and state purposes. The Company has decided to early adopt ASU 2016-09 in Q4 2016 and has elected to continue to estimate their forfeiture rate rather than recognizing forfeitures as they occur. The ASU 2016-09 is considered to beeffective from the beginning of the year of adoption. In the year of adoption, ASU 2016-09 requires that the cumulative effect adjustment be recorded to retainedearnings. Due to the full valuation allowance, there is no cumulative effect adjustment to record. Excess windfall net operating loss carryforwards are convertedinto deferred tax net operating losses with a corresponding increase in valuation allowance as of the beginning of 2016; the year of adoption.The Company has research credit carryforwards of approximately $4.0 million for federal and $4.1 million for state income tax purposes as of January 1,2017. 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. In the eventthe Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses andresearch and development credit carryovers available in any taxable year could be limited and may expire unutilized.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 $500,000 of undistributed earnings for certain foreign subsidiaries as of the end of fiscal 2016 . 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 1, 2017 January 3, 2016 December 28, 2014Beginning balance of unrecognized tax benefits$696 $516 $79Additions for tax positions related to the prior year1,204 (3) 330Additions for tax positions related to the current year150 199 162Lapse of statues of limitations(36) (16) (55)Ending balance of unrecognized tax benefits$2,014 $696 $51659Table of ContentsOut of $2.0 million of unrecognized tax benefits, there were no unrecognized tax benefits that would result in a change in the Company's effective tax rateif recognized in future years. For the twelve month period ended January 1, 2017, the Company does not have any interest accrued related to uncertain taxpositions. As of January 1, 2017 and January 3, 2016 the Company had approximately $0 and $17,000 , respectively, of accrued interest and penalties related touncertain 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 the 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 1, 2017 , fiscal years 2012 onward remain open to examination by the U.S. taxing authorities. The U.S. tax years from 1990 forward remaineffectively open to examination due to the carryover of unused net operating losses and tax credits.NOTE 8-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 December 9, 2016, the Company filed a shelf registration statement on Form S-3 under which the Company may, from time to time, sell securities inone or more offerings up to a total dollar amount of $40.0 million . The Company's earlier shelf registration statement filed on July 31, 2013 expired on August 30,2016. See below for the details of the previous shelf registration.On 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 expiredon August 30, 2016. Under this shelf registration the Company issued Common stock in March 2016 and November 2016 as follows: a) In March 2016, the Company issued an aggregate of 10,000,000 shares of common stock, $0.001 par value, in an underwritten public offering at a priceof $1.00 per share. The Company received net proceeds from the offering of approximately $8.8 million , net of underwriter's commission and other offeringexpenses of $1.2 million .b) 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 the offering of approximately $23.1 million , net of underwriter's commission and otheroffering expenses of $2.2 million .As of January 1, 2017, 2.3 million warrants to purchase the Company's common stock were outstanding. The 2.3 million warrants with a strike price of$2.98 were issued in conjunction with a June 2012 financing. These warrants will expire in June 2017. After August 2016, the warrants can only be exercised on acashless basis. NOTE 9-EMPLOYEE STOCK PLANS2009 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 1, 2017 approximately10.2 million shares were reserved for issuance under the 2009 Plan. Equity awards granted under the 2009 Plan have a term of up to ten years. Options typicallyvest at a rate of 25% one year after the vesting commencement date, and one forty-eighth for each month of service thereafter. RSUs60Table of Contentstypically vest at a rate of 25% one year after the vesting commencement date, and one eighth every six months thereafter. The Company may implement differentvesting 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 1, 2017 , 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 10-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 2016 ,2015 , and 2014 was as follows (in thousands): Fiscal Years 2016 2015 2014Cost of revenue$132 $109 $137Research and development658 826 924Selling, general and administrative794 1,064 1,181Restructuring costs (1)— 29 —Total costs and expenses$1,584 $2,028 $2,242(1) Stock-based compensation related to restructuring plan initiated in the second quarter of fiscal year 2015.No stock-based compensation was capitalized during any period presented above. In 2016 , the Company granted restricted stock units, or RSUs, to employees with various vesting terms. Total stock-based compensation related to RSUswas $953,000 in 2016 . The Company issued net shares for the vested RSUs, withholding shares in settlement of employee tax withholding obligations. In 2016 ,the Company granted PRSUs to certain officers and cancelled PRSUs granted to certain employees in the prior year. Net credit received to stock-basedcompensation in 2016 due to the cancellation of PRSUs was $113,000 .The amount of stock-based compensation included in inventories at the end of 2016 , 2015 and 2014 was not significant.Valuation AssumptionsThe 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 to61Table of Contentsdevelop highly subjective assumptions including the expected term of awards, expected volatility of its stock, expected risk-free interest rate and expected dividendrate over the term of the award. The Company's expected term of awards assumption is based primarily on its historical experience with similar grants. TheCompany's expected stock price volatility assumption for both stock options and ESPP shares is based on the historical volatility of the Company's stock, using thedaily average of the opening and closing prices and measured using historical data appropriate for the expected term. The risk-free interest rate assumptionapproximates the risk-free interest rate of a Treasury Constant Maturity bond with a maturity approximately equal to the expected term of the stock option or ESPPshares. This fair value is expensed over the requisite service period of the award. The fair value of RSUs and PRSUs is based on the closing price of the Company'scommon stock on the date of grant. Equity compensation awards which vest with service are expensed using the straight-line attribution method over the requisiteservice 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 2016 2015 2014Expected term (years)7.1 6.3 6.6Risk-free interest rate1.40% 1.75% 1.98%Expected volatility52% 56% 58%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 2016 , 2015 and 2014 was $0.46 , $0.87 , and $1.99 per option, respectively. As ofthe end of 2016 , the fair value of unvested stock options, net of expected forfeitures, was approximately $1.6 million . This unrecognized stock-basedcompensation expense is expected to be recorded over a weighted average period of 3.10 years.62Table of ContentsStock-Based Compensation Award ActivityThe following table summarizes the shares available for grant under the 2009 Plan : SharesAvailable for Grant (in thousands)Balance at January 3, 20162,929Authorized—Options granted(842)Options forfeited or expired1,129RSUs granted(1,629)RSUs forfeited789PRSUs granted(193)PRSU's forfeited or expired449Balance at January 1, 20172,632 Stock OptionsThe following table summarizes stock options outstanding and stock option activity under the 2009 Plan, and the related weighted average exercise price,for 2016 , 2015 and 2014 : Number of Shares Weighted AverageExercise Price Weighted AverageRemaining Term Aggregate IntrinsicValue (in thousands) (in years) (in thousands)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 Granted842 0.86 Forfeited or expired(1,129) 2.61 Exercised— — Balance outstanding at January 1, 20174,979 $2.35 4.06 $586Exercisable at January 1, 20174,078 $2.59 2.90 $199Vested and expected to vest at January 1, 20174,740 $2.41 3.78 $473The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's closing stock price of $1.39 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 2016 , 2015 and 2014 was $0 , $83,000 and $3.7 million , respectively. Total cash received fromemployees as a result of employee stock option exercises during 2016 , 2015 and 2014 was approximately $0 , $117,000 and $4.5 million , respectively. TheCompany settles employee stock option exercises with newly issued common shares. In connection with these exercises, there was no tax benefit realized by theCompany due to the Company's current loss position. Total stock-based compensation related to stock options was $486,000 , $861,000 , and $1.1 million for 2016, 2015 , and 2014 , respectively. 63Table of ContentsSignificant exercise price ranges of options outstanding, related weighted average exercise prices and contractual life information at the end of 2016 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 - $0.784 2.17 $0.78 5 $0.780.86 - 0.86726 9.68 0.86 — —0.90 - 1.32463 2.62 0.96 414 0.921.63 - 1.63731 1.92 1.63 731 1.632.17 - 2.76446 4.04 2.29 446 2.292.78 - 2.781,299 3.08 2.78 1,299 2.782.82 - 3.39635 5.20 3.29 530 3.283.48 - 3.82185 5.63 3.60 164 3.573.92 - 3.922 4.28 3.92 1 3.924.17 - 4.17488 0.79 4.17 488 4.17$0.78 - $4.174,979 4.06 $2.35 4,078 $2.59Restricted 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 $953,000 , $834,000 , $854,000 in 2016 , 2015 and 2014 , respectively. In 2016 , the Company cancelled PSU's issued to certain officers, which resultedin a credit of $113,000 to the stock-based compensation. RSUs & PRSUs Outstanding Number of Shares Weighted AverageGrant Date Fair Value (in thousands) Nonvested at December 29, 2013225 $3.17Granted947 3.74Vested(480) 3.86Forfeited(42) —Nonvested at December 28, 2014650 3.47Granted1,128 1.46Vested(221) 1.42Forfeited(122) —Nonvested at January 3, 20161,435 2.30Granted1,822 0.97Vested(649) 1.07Forfeited(1,238) —Nonvested at January 1, 20171,370 $1.68 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 during2016 , 2015 and 2014 was $0.62 , $ 0.42 and $ 0.96 , respectively. Sales under the ESPP were64Table of Contents732,000 shares of common stock at an average price of $0.81 for 2016 , 458,000 shares of common stock at an average price of $1.26 for 2015 , and 278,000shares of common stock at an average price of $2.76 for 2014 .Under the 2009 ESPP, the Company issued 732,000 shares at an average price of $0.81 per share during 2016 . As of January 1, 2017 , 687,000 sharesunder the 2009 ESPP remained available for issuance. For 2016 , the Company recorded compensation expenses related to the ESPP of $258,000 , $232,000 and$255,000 in 2016, 2015 and 2014, respectively.The 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 2016 2015 2014Expected life (months)6.1 6.06.0Risk-free interest rate0.97% 0.21%0.07%Volatility59.3% 55%49%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 2016 , the unrecognized stock-based compensation expense relating to the Company's ESPP was $97,000 and was expected to berecognized over a weighted average period of approximately 4.5 months.NOTE 11-INFORMATION CONCERNING PRODUCT LINES, GEOGRAPHIC INFORMATION, ACCOUNTS RECEIVABLE 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.The following is a breakdown of revenue by product family (in thousands): Fiscal Years 2016 2015 2014Revenue by product line (1) : New products$5,622 $12,020$19,311Mature products5,799 6,9368,534Total revenue$11,421 $18,956$27,845___________________________(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 nanometers65Table of ContentsThe following is a breakdown of revenue by shipment destination (in thousands): Fiscal Years 2016 2015 2014Revenue by geography: Asia Pacific (1)$7,131 $12,650 $20,157Europe1,386 1,859 3,371North America (2)2,904 4,447 4,317Total revenue$11,421 $18,956 $27,845__________________________(1) Asia Pacific includes revenue from South Korea of $3.6 million or 31% of total revenue in 2016 and 8.3 million or 44% of total revenue in 2015.(2) North America includes revenue from the United States of $2.8 million or 25% of total revenue in 2016 and 4.3 million or 22% of total revenue in 2015.The following distributors and customers accounted for 10% or more of the Company's revenue for the periods presented: Fiscal Years 2016 2015 2014Distributor “A”26% 23% 16%Customer “B”14% 13% *Customer "G"33% 43% 52%___________________________* 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 1, 2017 January 3, 2016Distributor “A”32% 24%Distributor “B”* 11%Distributor "G"11% 11%Distributor "H"13% *Distributor "I"15% *Customer "G"* 20%Customer "H"* 11%Customer "I"12% *___________________________* Represents less than 10% of accounts receivable as of the date presented.As of January 1, 2017 , less than 10% of the Company's long-lived assets, including property and equipment and other assets were located outside theUnited States.NOTE 12-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 2016 and 2015 , the Company had $1.6 million and $1.4 million respectively, of outstandingcommitments for the purchase of wafer inventory.66Table of ContentsThe Company has purchase obligations with certain suppliers for the purchase of goods and services entered into in the ordinary course of business. As ofJanuary 1, 2017 , total outstanding purchase obligations due within the next 12 months were $1.2 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 2016 , 2015 and 2014 wasapproximately $834,000 , $878,000 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 2017$80020188032019 and after415 $2,01867Table of ContentsNOTE 13-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 14-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. The Company paid out the outstanding balance of $121,000 of restructuring charges in 2016. There were no new charges in 2016. Theactivities affecting the restructuring liabilities for the year ended January 1, 2017 and January 3, 2016 are summarized as follows: Restructuring Liabilities In ThousandsBalance at December 28, 2014$—Accruals295Payments and non-cash items adjustments(166)FX translation adjustment(8)Balance at January 3, 2016121Payments and non-cash items adjustments(121)Balance at January 1, 2017$—68Table of ContentsSUPPLEMENTARY FINANCIAL DATAQUARTERLY DATA (UNAUDITED) Quarter Ended January 1, 2017 October 2,2016 July 3, 2016 April 3, 2016 January 3, 2016 September 27, 2015 June 28, 2015 March 29, 2015 (in thousands, except per share amount)Statements of Operations: Revenue$2,945 $2,809 $2,717 $2,950 $3,630 $4,194 $4,973 $6,159Cost of revenue1,995 1,918 1,941 1,794 2,349 2,952 2,830 3,280Gross profit (1)950 891 776 1,156 1,281 1,242 2,143 2,879Operating expenses: Research and development2,380 2,755 3,683 3,447 3,490 3,684 3,493 3,477Selling, general and administrative2,322 2,704 2,591 2,693 2,461 2,508 2,690 2,960Restructuring Costs (2)— — — — 49 77 169 —Loss from operations(3,752) (4,568) (5,498) (4,984) (4,719) (5,027) (4,209) (3,558)Interest expense(66) (37) (34) (38) (18) (35) (15) (14)Interest income and other expense, net(43) (41) (15) (7) (9) (39) (33) (26)Loss before taxes(3,861) (4,646) (5,547) (5,029) (4,746) (5,101) (4,257) (3,598)Provision for (benefit from) income taxes(3) (23) 27 64 100 (15) 21 40Net loss$(3,858) $(4,623) $(5,574) $(5,093) $(4,846) $(5,086) $(4,278) $(3,638)Net loss per share: Basic and Diluted$(0.05) $(0.07) $(0.08) $(0.09) $(0.09) $(0.09) $(0.08) $(0.06)Weighted average shares: Basic and Diluted67,941 67,781 67,415 58,371 56,729 56,588 56,359 56,190___________________________(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.69Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has performed an evaluation of our disclosure controlsand procedures as required by the applicable rules of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that, as of January 1, 2017 our disclosure controls and procedures were effective.Management'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 Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally acceptedaccounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect 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 accounting principles, and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized 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 Chief Financial Officer, we conducted anassessment 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 makingthis assessment, we used the criteria based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “InternalControl - Integrated Framework (2013).” Based on the results of this assessment, management (including our Chief Executive Officer and Chief Financial Officer)has concluded that, as of January 1, 2017 our internal control over financial reporting was effective.The effectiveness of the Company's internal control over financial reporting as of January 1, 2017 has been audited by Moss Adams LLP, an independentregistered public accounting firm, as stated in their report appearing in this Annual Report on Form 10-K.70Table of ContentsChanges 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.71Table of ContentsPART IIICertain information required by Part III is incorporated by reference from the definitive Proxy Statement regarding our 2017 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 Moss Adams LLP and BDO USA, LLP during FiscalYears 2016 and 2015 " in our Proxy Statement, which information is incorporated herein by reference. 72Table 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 2016$— $— $— $—Fiscal Year 2015$— $— $— $—Fiscal Year 2014$— $— $— $— Allowance for Deferred Tax Assets: Fiscal Year 2016$69,349 $9,801 $— $79,150Fiscal Year 2015$66,618 $2,731 $— $69,349Fiscal Year 2014$63,528 $3,090 $— $66,618All 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) Third Amended and Restated Certificate of Incorporation of the Registrant.3.2 (2) Bylaws of the Registrant.3.3 (3) Certificate of Elimination of the Series A Junior Participating Preferred Stock.4.1 (1) Specimen Common Stock certificate of the Registrant.4.2 (4) Form of Common Stock Warrant.10.1 (5) Form of Indemnification Agreement for directors and executive officers.10.2 (1,5) Lease dated June 17, 1996, as amended, between Kairos, LLC and Orchard Moffet Investors as Landlord and the Registrant for theRegistrant's facility located in Sunnyvale, California.10.2.1 (6) Second Amendment to Lease Agreement between NetApp, Inc. (as successor-in-interest to Orchard Moffett Investors and Kairos, LLC,) andQuickLogic Corporation effective September 25, 2008.73Table of Contents10.2.2 (7) Third Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated August 3, 2012.10.2.3 (8) Fourth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated April 4, 2014.10.2.4 (11) Fifth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated May 22, 2015.10.3 (1) Patent Cross License Agreement dated August 25, 1998 between the Registrant and Actel Corporation.10.4 (9) Form of Change of Control Severance Agreement.10.5 (9) Form of Change of Control Severance Agreement for Chief Executive Officer10.6 (10) 2005 Executive Bonus Plan, as restated.10.7 (11) QuickLogic Corporation 2009 Stock Plan.10.8 (11) QuickLogic Corporation 2009 Employee Stock Purchase Plan.10.9 (12) Form of Notice of Grant and Stock Option Agreement under the 2009 Stock Plan.10.10 (12) Form of Notice of Grant of Stock Purchase Rights and Restricted Stock Purchase Agreement under the 2009 Stock Plan.10.11 (12) Form of Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement under the 2009 Stock Plan.10.12 (13) Form of Subscription Agreement.10.13 (14) Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effective June 30, 2014.10.13.1 (15) First Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 26, 2014.10.13.2 (16) Second Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2015.10.13.3 (17) Third Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveFebruary 10, 2016.10.14 Consulting Agreement between QuickLogic Corporation and Andrew J. Pease, dated July 6, 2016. 21 Subsidiaries of the registrant.23.1 Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.23.2 Consent of BDO USA, LLP Independent Registered Public Accounting Firm24 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).74Table of Contents(2)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 5.03) filed on May 2, 2005).(3)Incorporated by reference to Quicklogic's Current Report on Form 8-K (Item 5.03) filed on November 26, 2013.(4)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on November 17, 2009.(5)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 13, 2002 (Commission File No. 000-22671).(6)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 6, 2008 (Commission File No. 000-22671).(7)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 3, 2012 (Commission File No. 000-22671).(8)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 8, 2014.(9)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 11, 2008 (Commission File No. 000-22671).(10)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 28, 2008.(11)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 3, 2015 (Commission File No. 000-22671).(12)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on August 4, 2009.(13)Incorporated by reference to QuickLogic's Current Report on Form 8-K/A (Item 1.01) filed on November 17, 2009.(14)Incorporated by reference to QuickLogic’s Current Report on Form 8-K (Item 1.01) filed on July 2, 2014.(15)Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on November 4, 2014 (Commission File No. 000-22671).(16)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2015.(17)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on February 10, 2016.75Table 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 9, 2017 . Q UICK L OGIC C ORPORATION By:/ S / Brian C. Faith Brian C. FaithPresident and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian C. Faith 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/ B RIAN C. F AITHBrian C. Faith President and Chief Executive Officer; Director(Principal Executive Officer) March 9, 2017 / S / S UPING (S UE ) C HEUNGSuping (Sue) Cheung Vice President, Finance and Chief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer) March 9, 2017 / S / E. T HOMAS H ARTE. Thomas Hart Chairman of the Board March 9, 2017 /s/ A NDREW J. P EASE Andrew J.Pease Director March 9, 2017 / S / M ICHAEL R. F ARESEMichael R. Farese Director March 9, 2017 / S / A RTURO K RUEGERArturo Krueger Director March 9, 2017 /s/ D ANIEL A. R ABINOVITSJ Daniel A.Rabinovitsj Director March 9, 2017 / S / C HRISTINE R USSELLChristine Russell Director March 9, 2017 / S / G ARY H. T AUSSGary H. Tauss Director March 9, 201776EXHIBIT INDEXExhibitNumber Description3.1 (1) Third Amended and Restated Certificate of Incorporation of the Registrant.3.2 (2) Bylaws of the Registrant.3.3 (3) Certificate of Elimination of the Series A Junior Participating Preferred Stock.4.1 (1) Specimen Common Stock certificate of the Registrant.4.2 (4) Form of Common Stock Warrant.10.1 (5) Form of Indemnification Agreement for directors and executive officers.10.2 (1,5) Lease dated June 17, 1996, as amended, between Kairos, LLC and Orchard Moffet Investors as Landlord and the Registrant for theRegistrant's facility located in Sunnyvale, California.10.2.1 (6) Second Amendment to Lease Agreement between NetApp, Inc. (as successor-in-interest to Orchard Moffett Investors and Kairos, LLC,) andQuickLogic Corporation effective September 25, 2008.10.2.2 (7) Third Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated August 3, 2012.10.2.3 (8) Fourth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated April 4, 2014.10.2.4 (11) Fifth Amendment to Lease between NetApp, Inc. and QuickLogic Corporation dated May 22, 2015.10.3 (1) Patent Cross License Agreement dated August 25, 1998 between the Registrant and Actel Corporation.10.4.9 (9) Form of Change of Control Severance Agreement.10.5 (9) Form of Change of Control Severance Agreement for Chief Executive Officer10.6 (10) 2005 Executive Bonus Plan, as restated.10.7 (11) QuickLogic Corporation 2009 Stock Plan.10.8 (11) QuickLogic Corporation 2009 Employee Stock Purchase Plan.10.9 (12) Form of Notice of Grant and Stock Option Agreement under the 2009 Stock Plan.10.10 (12) Form of Notice of Grant of Stock Purchase Rights and Restricted Stock Purchase Agreement under the 2009 Stock Plan.10.11 (12) Form of Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement under the 2009 Stock Plan.10.12 (13) Form of Subscription Agreement.10.13 (14) Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effective June 30, 2014.10.13.1 (15) First Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 26, 2014.10.13.2 (16) Second Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveSeptember 25, 2015.10.13.3 (17) Third Amendment to Third Amended and Restated Loan and Security Agreement between Silicon Valley Bank and the registrant effectiveFebruary 10, 2016.10.14 Consulting Agreement between QuickLogic Corporation and Andrew J. Pease, dated July 6, 2016.” 21 Subsidiaries of the registrant.23.1 Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.23.2 Consent of BDO USA, LLP Independent Registered Public Accounting Firm24 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 2002.77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 Current Report on Form 8-K (Item 5.03) filed on May 2, 2005.(3)Incorporated by reference to Quicklogic's Current Report on Form 8-K (Item 5.03) filed on November 26, 2013.(4)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on November 17, 2009.(5)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 13, 2002 (Commission File No. 000-22671).(6)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 6, 2008 (Commission File No. 000-22671).(7)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on August 3, 2012 (Commission File No. 000-22671).(8)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 8, 2014.(9)Incorporated by reference to QuickLogic's Annual Report on Form 10-K filed on March 11, 2008 (Commission File No. 000-22671).(10)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on April 28, 2008.(11)Incorporated by reference to QuickLogic's Quarterly Report on Form 10-Q filed on November 3, 2015 (Commission File No. 000-22671).(12)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01 and Item 5.02) filed on August 4, 2009.(13)Incorporated by reference to QuickLogic's Current Report on Form 8-K/A (Item 1.01) filed on November 17, 2009.(14)Incorporated by reference to QuickLogic’s Current Report on Form 8-K (Item 1.01) filed on July 2, 2014.(15)Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on November 4, 2014 (Commission File No. 000-22671).(16)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on October 1, 2015.(17)Incorporated by reference to QuickLogic's Current Report on Form 8-K (Item 1.01) filed on February 10, 2016. 78­ ­ ­ ­ ­ ­ ­ ­ Subsidiaries of QuickLogic CorporationName JurisdictionQuickLogic International, Inc. DelawareQuickLogic Kabushiki Kaisha JapanQuickLogic (India) Private Limited India EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLogic CorporationSunnyvale, California We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-34898, 333-34900, 333-34902, 333-76022, 333-123515, 333-159498, and 333-208060), and Form S-3 (No. 333-215030) of our report dated March 9, 2017, relating to the consolidated financial statements of QuickLogicCorporation, and the effectiveness of internal control over financial reporting of QuickLogic Corporation, appearing in this Annual Report on Form 10-K for theyear ended January 1, 2017./s/ Moss Adams LLPSan Francisco, CaliforniaMarch 9, 2017EXHIBIT 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLogic CorporationSunnyvale, CaliforniaWe hereby consent to the incorporation by reference in the Registration Statements on Form S­3 (Nos. 333-190277, 333-161501, 333-126528, 333-208060, 333-88706 and 333-215030) and Form S-8 (Nos. 333-159498, 333-123515, 333-76022, 333-34898, 333-34900, 333-34902 and 333-208060) of QuickLogicCorporation of our report dated March 18, 2016, relating to the consolidated financial statements and financial statement schedule, as of January 3, 2016 and forthe years ended January 3, 2016 and December 28, 2014, which appears in this Form 10-K./s/ BDO USA, LLPSan Jose, CaliforniaMarch 9, 2017EXHIBIT 31.1CERTIFICATIONSI, Brian C. Faith, 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 9, 2017 /s/ Brian C. Faith Brian C. Faith President and Chief Executive OfficerEXHIBIT 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 9, 2017 /s/ Suping (Sue) Cheung Suping (Sue) Cheung Vice President, Finance and Chief Financial OfficerEXHIBIT 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, Brian C. Faith, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Reportof QuickLogic Corporation on Form 10-K for the fiscal year ended January 1, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition andresults of operations of QuickLogic Corporation. By:/s/ Brian C. FaithDate:March 9, 2017Name:Brian C. FaithTitle: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 1, 2017 , 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 9, 2017Name:Suping (Sue) CheungTitle:Vice President, Finance and Chief Financial Officer

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