SecProbe.io

CORRESP
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February
14, 2007

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street, N.W.

Washington, DC 20549

Attention:
Kevin L. Vaughn, Branch Chief

Re:                             QuickLogic Corporation

Form 10-K for the Fiscal Year Ended January 1, 2006

Form 10-Q for the Quarterly Period Ended October 1, 2006

File No. 0-22671

Dear
Mr. Vaughn:

We are submitting this letter on behalf of QuickLogic Corporation (the “Company”)
in response to the Securities and Exchange Commission’s (the “Commission”)
letter dated January 31, 2007 (the “Comment Letter”) addressed to E. Thomas
Hart, Chief Executive Officer of the Company. For your convenience, we have
repeated your comments 1 through 2 below and the headings and numbered
responses in this response letter correspond to the headings and numbered
comments contained in the Comment Letter. Please feel free to contact me at the
number at the end of this response letter with any further questions or
comments you may have.

Form 10-K for the Fiscal Year Ended January 1, 2006

Note 1 — The Company and the Basis of Presentation, page 62

1.             We note that
although your fiscal year ends on the Sunday closest to December 31, you
present consolidated balance sheets and income statements as of and for the
periods ended December 31, 2005, 2004 and 2003 for presentation purposes.
Please revise future filings to present your financial statements so that the
year ends referred to in the filing correspond to your actual year ends.
Additionally please ensure that the Report of your Independent Registered Public
Accounting Firm also refers to your actual year ends.

Response:

In response to the Staff’s comment, in all future filings, the Company
intends to present its financial statements as of its actual fiscal year end
and will ensure that the Report of its Independent Registered Public Accounting
Firm also refers to the Company’s actual fiscal year end.

Form 10-Q for the Quarterly Period Ended October 1,
2006

Note 1 — The Company and Basis of Presentation, page 7

2.             We note your disclosure related to your adoption of
Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108). You state that
your review of employee stock option grants concluded that certain errors
committed in the process of documenting grants and accounting for stock options
were not material to any prior year end. However, given that the effect of
correcting these errors in 2006 would cause the 2006 consolidated financial
statements to be materially misstated, you have concluded that the cumulative
effect adjustment method of initially applying the guidance of SAB 108 was
appropriate.

Please note that the SAB 108 transition
provisions provide for a cumulative effect adjustment for errors determined to
be immaterial in prior periods under an issuer’s previous and properly applied
methodology, and after considering appropriate qualitative factors, but that
are material to those periods based on the guidance of SAB 108.
SAB 99 notes that a materiality evaluation must be based on all relevant
quantitative and qualitative factors. Based on your facts and circumstances,
and given the subject matter of the review, it is unclear whether the use of
the one-time cumulative effect adjustment permitted by SAB 108 is
appropriate. Please address the following:

·                  Provide us with your annual SAB 99 materiality analysis explaining
how you determined that the errors related to each prior period were immaterial
on both a quantitative and qualitative basis. Please ensure your response
addresses all of the qualitative factors outlined in SAB 99 and any other
relevant qualitative factors. Please also provide additional detail with
respect to the adjustments made to the employee grants after the grant date.

·                  If you have concluded that the effects of these errors on prior periods
would have been considered material in each period based on the guidance of
SAB 108, provide us with your SAB 108 materiality analysis for each
period.

·                  If you have concluded that the effects of these errors on prior periods
would not have been considered material in each period based on the guidance of
SAB 108, tell us why you believe the use of the one-time cumulative
effect adjustment permitted by SAB 108 is appropriate.

Response:

Background

Under the
direction of the Audit Committee of the Board of Directors and with the
assistance of Ireland San Filippo LLP, an independent accounting firm that
assists the Company with its Sarbanes-Oxley

 2

internal
controls testing, and Wilson Sonsini Goodrich & Rosati, the Company
voluntarily conducted an internal review of the Company’s historical stock
option granting practices and related accounting for the period from October
15, 1999, the date of its initial public offering, through July 28, 2006, the
date upon which stock option exercises were suspended subject to completion of
the stock option review. The review consisted of approximately 1,450 grants and
405 employee files, which covers all grants, terminations and new hires during
the period under review. The review took approximately five months to complete.

During its review,
the Company identified certain errors committed in the process of documenting
grants and accounting for stock options associated with measurement dates,
grants made to individuals prior to meeting the definition of an employee under
GAAP, non-employee grants, modification of options and previously reported
deferred stock compensation charges. While management did find errors, it did
not find any systematic or pervasive practices to account for stock options in
a manner inconsistent with GAAP or the Company’s stated policies and
procedures. It did not find evidence that the errors were motivated by any
intention to mislead investors or affect reported financial results.

The findings of
the Company’s review, its assessment of the findings, its materiality
assessment and the application of SAB 108 were reviewed by the Audit Committee,
external auditors and outside legal counsel prior to filing the Company’s 10-Q
for the second quarter of 2006 on December 22, 2006.

Accounting
Policies and Principles

Prior to fiscal
2006, the Company accounted for employee stock options using Accounting
Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees” (“APB 25”) and the disclosure-only
provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”). In 1997 and 1999, the Company recorded deferred stock compensation on
employee stock options issued prior to becoming a public company and amortized
the cheap stock charge over the vesting period of the options. Beginning in
fiscal 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).

Prior to the
adoption of Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (“SAB 108”) in fiscal 2006, the
Company used the rollover method to analyze the materiality of potential
adjustments to its financial statements.

Summary of the Financial Impact of Findings

A summary of
the financial impact of the Company’s findings from its review of stock option
granting practices and related accounting is as follows (all amounts are
pre-tax in thousands):

 3

  Description

  Amount

  1

  From October 1999 through May 2004, the date used to
  determine the exercise price for certain stock option grants preceded the
  finalization of the approval process of those grants for accounting purposes
  due to administrative errors in documenting or approving the grants. The
  total intrinsic value (the difference between the exercise price and the
  price of the Company’s stock on the measurement date) of these “in-the-money”
  grants should have been amortized over their vesting period in the Company’s
  previously issued consolidated financial statements.

  $

  787

  2

  From October 1999 through July 2002, certain
  individuals were granted options prior to meeting all of the criteria of an
  employee under GAAP, as defined by APB 25 and related interpretations, due to
  errors in documenting the individuals’ start of employment. The total intrinsic
  value of these grants should have been amortized over their vesting period in
  the Company’s previously issued consolidated financial statements.

  449

  3

  The Company found accounting errors related to
  non-employee option grants from January 2000 through October 2002 which
  should have been recorded over their vesting period.

  328

  4

  The Company found errors related to the modification
  of stock options to certain employees between March 2001 and August 2005, for
  which charges should have been recorded. The errors were the result of
  unclear documentation and lapses in communication concerning employee
  termination agreements. Generally, these modifications were made in the
  context of separation agreements that permitted additional vesting and/or
  time to exercise options after the employee had ceased performing services.

  132

  5

  In accordance with APB 25, the Company recorded
  deferred stock-based compensation in connection with grants of stock options
  to employees and directors prior to the Company’s initial public offering if
  the fair market value of the Company’s common stock determined for financial
  reporting purposes was greater than the fair value determined by the Board of
  Directors on the date of grant (commonly known as a “cheap stock” charge). As
  of October 15, 1999, the Company had approximately $1.6 million of deferred
  stock-based compensation recorded in the stockholders’ equity section of the
  balance sheet, which was amortized over the original vesting period of the
  stock options. During the review, the Company determined that the reported
  deferred stock-based compensation account was not properly adjusted to
  reflect forfeitures. If an option is forfeited, the deferred stock-based
  compensation balance related to unvested options should be reversed and no
  future expense recognized. As a result, total stock-based compensation
  expense was overstated from October 1999 through December 2003 due to this
  accounting error in the application of the provisions of APB 25.

  (732)

  Total

  $

  964

 4

The impact of
the errors if they had been appropriately recorded in the Company’s previously
issued statements of operations under the rollover method is as follows (in
thousands):

  Fiscal Year

  Net Income (Loss)

  (as previously

  reported)

  Adjustment

  Net Income (Loss)

  (as adjusted)

  Percentage of

  Reported Net

  Income (Loss)

  1999

  $

  3,161

  $

  45

  $

  3,206

  1.4

  %

  2000

  9,630

  (233

  )

  9,397

  2.4

  %

  2001

  (26,478

  )

  (195

  )

  (26,673

  )

  0.7

  %

  2002

  (31,287

  )

  (148

  )

  (31,435

  )

  0.5

  %

  2003

  (4,719

  )

  (118

  )

  (4,837

  )

  2.5

  %

  2004

  (8,832

  )

  (230

  )

  (9,062

  )

  2.6

  %

  2005

  2,350

  (85

  )

  2,265

  3.6

  %

  $

  (964

  )

The impact of
the errors, if the cumulative amount of the errors including amounts related to
previous years had been recorded in one fiscal year under the iron curtain
method, is as follows (in thousands):

  Fiscal Year

  Net Income (Loss)

  (as previously

  reported)

  Adjustment

  Cumulative

  Adjustment

  Net Income (Loss)

  (as adjusted)

  Percentage of

  Reported Net

  Income (Loss)

  1999

  $

  3,161

  $

  45

  $

  45

  $

  3,206

  1.4

  %

  2000

  9,630

  (233

  )

  (188

  )

  9,442

  2.0

  %

  2001

  (26,478

  )

  (195

  )

  (383

  )

  (26,861

  )

  1.4

  %

  2002

  (31,287

  )

  (148

  )

  (531

  )

  (31,818

  )

  1.7

  %

  2003

  (4,719

  )

  (118

  )

  (649

  )

  (5,368

  )

  13.8

  %

  2004

  (8,832

  )

  (230

  )

  (879

  )

  (9,711

  )

  10.0

  %

  2005

  2,350

  (85

  )

  (964

  )

  1,386

  41.0

  %

  $

  (964

  )

SAB 99
Analysis

Quantitative Factors

The first step in analyzing materiality under SAB 99 is a quantitative
analysis.

The Company
has identified issues that resulted in: a) a charge to the financial
statements; b) a reversal of a charge already reflected in the financial
statements; and, c) no charge to the financial statements because the market
value of the common stock on the measurement date was below the exercise price.
The Company considered the adjustments on both an individual and aggregate
basis and concluded that all the adjustments are related to incorrectly
accounting for stock options and would be reported on the same financial
statement line items. Accordingly, the Company believes it is appropriate to
aggregate these errors for its materiality assessment. Furthermore, the Company
believes that the rollover method to

 5

analyze the
materiality of potential adjustments to its financial statements is the most
appropriate method since this was the method used prior to the adoption of SAB
108.

Rollover
Method Analysis

In the aggregate,
the total charges identified by the Company’s review were $964,000 affecting
fiscal years from 1999 through 2005. Net income (loss) is used in this analysis
since the Company operated at a loss in most reporting periods that are
encompassed by the review, the amounts that should have been recorded primarily
affect operating expenses, and the effects on the Company’s tax provision were
minimal. On an annual basis under the rollover method, the maximum amount that
relates to any one year is $233,000 and in no year is the amount more than 3.6%
of net income (loss) or more than 0.9% of operating expenses, which consists of
research and development and sales, general and administrative expenses. In
none of the seven fiscal years would the charge have resulted in net income
becoming a net loss. Therefore, management believes that, under the rollover
method, the result of recording the portion of the $964,000 total charge in the
appropriate year would not be material on a quantitative basis to that year.

As of June 30,
2006, the aggregate charge of $964,000 represented 0.8% of accumulated deficit
on the balance sheet and 2.3% of stockholders’ equity. If the aggregate charge
were fully recorded in the second quarter of 2006, the reported net loss would
have changed from $1.7 million to $2.7 million, representing 36% of the net
loss including the aggregate charge. If the aggregate charge were fully
recorded in fiscal 2006, management estimated that the net loss would have
changed from approximately $8.7 million to $9.7 million, representing 10.0% of
the net loss including the aggregate charge. At the time the Company’s analysis
was performed (which was prior to the end of fiscal 2006), the estimate for
fiscal 2006 was based on the Company’s most recent forecast and could have
changed by up to $1.0 million in either direction due to several factors
including revenue levels, spending levels, product mix and production
variances. If the estimated fiscal year loss was $1.0 million lower, the
estimated net loss would have been approximately $8.7 million after recording
the aggregate charge, which represented 11.1% of the net loss including the
aggregate charge. If the estimated fiscal year loss was $1.0 million higher,
the estimated net loss would have been approximately $10.7 million after
recording the aggregate charge, which represented 9.0% of the net loss.
Therefore, at the time, management believed that the result of recording the
aggregate charge of $964,000 in fiscal 2006 would have resulted in a change in
the Company’s net loss of between 9% and 11% and a change in the Com