UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2014

or

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35520

GIGOPTIX, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-2439072
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

130 Baytech Drive

San Jose, CA  95134

Indicate 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 (or for 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  ¨

Indicate 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 posted pursuant 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 such files).    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   No  x

The number of shares of Common Stock outstanding as of May 2, 2014, the most recent practicable date prior to the filing of this Quarterly Report on Form 10-Q, was 32,178,899 shares.

Table of Contents

		PAGE NO
PART I FINANCIAL INFORMATION
ITEM 1	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of March 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the three months ended March 30, 2014 and March 31, 2013	4
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 30, 2014 and March 31, 2013	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2014 and March 31, 2013	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	25
ITEM 4	Controls and Procedures	25
PART II OTHER INFORMATION
ITEM 1	Legal Proceedings	25
ITEM 1A	Risk Factors	26
ITEM 6	Exhibits	27

2

PART I

FINANCIAL INFORMATION

GIGOPTIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	March 30,			December 31,
	2014			2013
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	19,865		$	20,377
Accounts receivable, net		6,065			5,021
Inventories		4,753			4,617
Prepaid and other current assets		308			434
Total current assets		30,991			30,449
Property and equipment, net		2,958			2,999
Intangible assets, net		3,064			3,287
Goodwill		9,860			9,860
Restricted cash		284			284
Other assets		159			183
Total assets	$	47,316		$	47,062
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,527		$	831
Accrued compensation		1,046			1,170
Other current liabilities		2,420			2,746
Total current liabilities		5,993			4,747
Pension liabilities		141			140
Deferred rent, noncurrent		162			177
Other long term liabilities		422			418
Total liabilities		6,718			5,482
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of March 30, 2014 and December 31, 2013		-			-
Common stock, $0.001 par value; 50,000,000 shares authorized as of March 30, 2014 and December 31, 2013; 32,178,795 and 32,067,616 shares issued and outstanding as of March 30, 2014 and December 31, 2013, respectively		32			32
Additional paid-in capital		140,627			139,710
Treasury stock, at cost; 701,754 shares as of March 30, 2014 and December 31, 2013, respectively		(2,209	)		(2,209	)
Accumulated other comprehensive income		488			490
Accumulated deficit		(98,340	)		(96,443	)
Total stockholders’ equity		40,598			41,580
Total liabilities and stockholders’ equity	$	47,316		$	47,062

See accompanying Notes to Condensed Consolidated Financial Statements

(1) The condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements as of that date.

3

GIGOPTIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 30, 2014			March 31, 2013
Total revenue	$	7,386		$	6,921
Total cost of revenue		3,126			2,636
Gross profit		4,260			4,285
Research and development expense		3,742			3,236
Selling, general and administrative expense		2,398			2,353
Restructuring expense		-			950
Special litigation-related expense		-			415
Total operating expenses		6,140			6,954
Loss from operations		(1,880	)		(2,669	)
Interest expense, net		(17	)		(54	)
Other income, net		10			168
Loss before provision for income taxes		(1,887	)		(2,555	)
Provision for income taxes		10			13
Net loss	$	(1,897	)	$	(2,568	)
Net loss per share—basic and diluted	$	(0.06	)	$	(0.12	)
Weighted average number of shares used in per share calculations - basic and diluted		31,435			21,547

See accompanying Notes to Condensed Consolidated Financial Statements

4

GIGOPTIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended
	March 30, 2014			March 31, 2013
Net loss	$	(1,897	)	$	(2,568	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		(2	)		8
Other comprehensive income (loss), net of tax		(2	)		8
Comprehensive loss	$	(1,899	)	$	(2,560	)

See accompanying Notes to Condensed Consolidated Financial Statements

5

GIGOPTIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 30,			March 31,
	2014			2013
Cash flows from operating activities:
Net loss	$	(1,897	)	$	(2,568	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		917			914
Stock-based compensation		1,010			1,770
Change in fair value of warrants		2			(15	)
Gain on sale of property and equipment		-			(131	)
Changes in operating assets and liabilities:
Accounts receivable, net		(1,044	)		(1,574	)
Inventories		(136	)		(226	)
Prepaid and other current assets		(25	)		(280	)
Other assets		25			12
Accounts payable		1,595			(12	)
Accrued restructuring		(29	)		13
Accrued compensation		(125	)		129
Other current liabilities		(487	)		(101	)
Other long-term liabilities		(13	)		(39	)
Net cash used in operating activities		(207	)		(2,108	)
Cash flows from investing activities:
Purchases of property and equipment		(123	)		(883	)
Proceeds from sale of property and equipment		-			131
Net cash used in investing activities		(123	)		(752	)
Cash flows from financing activities:
Proceeds from issuance of stock		10			-
Taxes paid related to net share settlement of equity awards		(103	)		(75	)
Net borrowings on line of credit		-			2,300
Repayment of capital lease		(89	)		(117	)
Net cash provided by (used in) financing activities		(182	)		2,108
Effect of exchange rates on cash and cash equivalents		-			58
Net decrease in cash and cash equivalents		(512	)		(694	)
Cash and cash equivalents at beginning of period		20,377			10,147
Cash and cash equivalents at end of period	$	19,865		$	9,453
Supplemental disclosure of cash flow information
Interest paid	$	17		$	54
Property, plant and equipment acquired with accounts payable	$	406		$	25

See accompanying Notes to Condensed Consolidated Financial Statements

6

GIGOPTIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

Organization

GigOptix Inc.(“GigOptix” or the “Company”) is a leading fabless supplier of high speed semiconductorcomponentsthat enable end-to-end information streaming over optical and wireless networks and address long haul and metro telecommunications applications as well as emerging high-growth opportunities for Cloud and datacenter connectivity, interactive applications for consumer electronics and the industrial, defense and avionics industries.  The business is made up of two product lines: the High-Speed Communications (“HSC”) product line and the Industrial product line.

The HSC product line offers a broad portfolio of high performance optical and wireless components to telecommunications (“telecom”) and data communications (“datacom”) customers, i) mixed signal radio frequency integrated circuits (“RFIC”), including 10 to 400 gigabit per second (“Gbps”) laser and optical drivers and trans-impedance amplifiers (“TIA”) for telecom, datacom, and consumer electronic fiber-optic applications; ii) power amplifiers and transceivers for microwave and millimeter monolithic microwave integrated circuit (“MMIC”) wireless applications including 73 Ghz and 83 GHz power amplifiers and transceiver chips; and iii) integrated systems in a package (“SIP”) solutions for both fiber-optic and wireless applications.  The HSC product line also partners with key customers on development projects that generate engineering project revenue for the Company while helping to position the Company for future product revenues with these key customers.

The Industrial product line offers a wide range of digital and mixed-signal application specific integrated circuit (“ASIC”) solutions for industrial, military, avionics, medical and communications markets. The Industrial product line partners with ASIC customers on development projects that generate engineering project revenue for the Company which generally leads to future product revenues with these ASIC customers.

The Company’s products focus on the specification, design, development and sale of analog semiconductor integrated circuits (“ICs”), multi-chip module (“MCM”) solutions, and digital and mixed signal ASICs, as well as wireless communications MMICs and modules.

GigOptix, Inc., the successor to GigOptix LLC, was formed as a Delaware corporation in March 2008 in order to facilitate a combination between GigOptix LLC and Lumera Corporation (“Lumera”). Before the combination, GigOptix LLC acquired the assets of iTerra Communications LLC in July 2007 (“iTerra”) and Helix Semiconductors AG (“Helix”) in January 2008. On November 9, 2009, GigOptix acquired ChipX, Incorporated (“ChipX”). On June 17, 2011, GigOptix acquired Endwave Corporation (“Endwave”). As a result of the acquisitions, Helix, Lumera, ChipX and Endwave all became wholly owned subsidiaries of GigOptix.  In March 2013, the Company established a German subsidiary, GigOptix GmbH. The subsidiary is engaged in research and development for the Company’s HSC product line including electro-optical products.

In February 2014, together with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (“CPqD”), the Company incepted a new joint venture of which the Company owns 49% and CPqD owns 51%, BrPhotonics Produtos Optoeletrônicos LTDA. (“BrP”), based in Campinas, Brazil, which will be a provider of advanced high-speed devices for optical communications and integrated transceiver components that enable information streaming over communications networks. This joint venture is engaged in research and development of Silicon-Photonics (“SiPh”) advanced electro-optical products.  As noted in the Company’s Annual Report for the year ended December 31, 2013 on Form 10-K (the “2013 Form 10-K”), the Company is transferring into BrP its knowledge-base and intellectual property of Thin Film Polymer on Silicon (“TFPS^TM”) technology, inventory related to the TFPS^TM platform, as well as the complete production line equipment that previously resided at its Bothell, Washington, facility.  Currently, BrP holds the rights to the Company’s TFPS^TM technology.   As of March 30, 2014, the Company had not transferred its inventory related to the TFPS^TM platform, or the production line equipment into BrP.

Basis of Presentation

The Company’s fiscal year ends on December 31. For quarterly reporting, the Company employs a five-week, four-week, four-week, reporting period. The first quarter of 2014 ended on Sunday, March 30, 2014. The first quarter of 2013 ended on Sunday, March 31, 2013. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements as of March 30, 2014 and for the three months ended March 30, 2014 and March 31, 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X, and include the accounts of the Company and all of its subsidiaries. Accordingly, they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of March 30, 2014 and the results of operations and cash flows for the three months ended March 30, 2014 and March 31, 2013. The condensed consolidated results of operations for the three months ended March 30, 2014 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2014. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s 2013 Form 10-K.

7

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of these estimates and assumptions are included in the 2013 Form 10-K and the Company encourages you to read its 2013 Form 10-K for more information about such estimates and assumptions.

NOTE 2—BALANCE SHEET COMPONENTS

Accounts receivable, net consisted of the following (in thousands):

	March 30,			December 31,
	2014			2013
Accounts receivable	$	6,130		$	5,241
Allowance for doubtful accounts		(65	)		(220	)
	$	6,065		$	5,021

Property and equipment, net consisted of the following (in thousands, except depreciable life):

	Life		March 30,			December 31,
	(In years)		2014			2013
Network and laboratory equipment		3 – 5	$	11,676		$	11,250
Computer software and equipment		2 – 3		4,018			3,928
Furniture and fixtures		3 – 7		176			176
Office equipment		3 – 5		137			137
Leasehold improvements		1 – 5		378			378
				16,385			15,869
Accumulated depreciation and amortization				(13,427	)		(12,870	)
Property and equipment, net			$	2,958		$	2,999

For the three months ended March 30, 2014 and March 31, 2013, depreciation expense related to property and equipment was $543,000 and $572,000, respectively.

In addition to the property and equipment above, the Company has prepaid licenses. For the three months ended March 30, 2014 and March 31, 2013, amortization related to these prepaid licenses was $151,000 and $89,000, respectively.

8

Inventories consisted of the following (in thousands):

	March 30,		December 31,
	2014		2013
Raw materials	$	2,278	$	2,103
Work in process		734		780
Finished goods		1,741		1,734
	$	4,753	$	4,617

Accrued and other current liabilities consisted of the following (in thousands):

	March 30,		December 31,
	2014		2013
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		315		330
Customer deposits		355		313
Capital lease obligations, current portion		196		284
Restructuring liabilities, current portion		-		30
Sales return reserve		196		151
Other		1,167		1,447
	$	2,420	$	2,746

The Company generally offers a one year warranty on its products. The Company records a liability based on estimates of the costs that may be incurred under its warranty obligations and charges to the cost of product revenue the amount of such costs at the time revenues are recognized. The warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. The estimates of anticipated rates of warranty claims and costs per claim are primarily based on historical information and future forecasts.

Changes in the Company’s product warranty liability during the three months ended March 30, 2014 and March 31, 2013 are as follows (in thousands):

	Three months ended
	March 30, 2014			March 31, 2013
Beginning balance	$	330		$	612
Warranties accrued		112			127
Warranties settled or reversed		(127	)		(253	)
Ending balance	$	315		$	486

9

NOTE 3—FAIR VALUE

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 30, 2014 and December 31, 2013 (in thousands):

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 30, 2014:
Assets:
Cash equivalents:
Money market funds	$	16,357	$	16,357	$	-	$	-
	$	16,357	$	16,357	$	-	$	-
Current liabilities:
Liability warrants	$	17	$	-	$	-	$	17
December 31, 2013:
Assets:
Cash equivalents:
Money market funds	$	1,356	$	1,356	$	-	$	-
	$	1,356	$	1,356	$	-	$	-
Current liabilities:
Liability warrants	$	15	$	-	$	-	$	15

 The Company’s financial assets and liabilities are valued using market prices on active markets (“Level 1”), less active markets (“Level 2”) and unobservable markets (“Level 3”). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments.  Level 3 instruments are valued using unobservable market values in which there is little or no market data, and which require the Company to apply judgment to determine the fair value.

For the period ended March 30, 2014, the Company did not have any significant transfers between Level 1, Level 2 and Level 3.

The amounts reported as cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other current liabilities approximate fair value due to their short-term maturities. The carrying value of the Company’s line of credit and capital lease obligations approximates fair value and is based upon borrowing rates currently available to the Company for loans and capital leases with similar terms.

Liability Warrants

The Company issued warrants to Bridge Bank in connection with a waiver of certain events of default that arose under a November 2009 loan and security agreement with Bridge Bank. Certain provisions in the warrant agreements provided for down-round protection if the Company raised equity capital at a per share price which was less than the per share price of the warrants. Such down-round protection also requires the Company to classify the value of the warrants as a liability on the issuance date and then record changes in the fair value through the consolidated statements of operations for each reporting period until the warrants are either exercised or cancelled. The fair value of the liability is recalculated and adjusted each quarter with the differences being charged to other income (expense), net on the consolidated statements of operations. The fair value of these warrants was determined using a Black-Scholes option-pricing model, which requires the use of significant unobservable market values.  As a result, these warrants are classified as Level 3 financial instruments. On July 7, 2010, the Company raised additional equity through an offering of 2,760,000 shares at $1.75 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank. On December 24, 2013, the Company raised additional equity through an offering of 9,573,750 shares at $1.42 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank.

10

The fair value of the warrants was estimated using the following assumptions:

	As of March 30, 2014			As of December 31, 2013
Stock price	$	1.67		$	1.53
Strike price	$	2.51		$	2.51
Expected life	3.30 years			3.55 years
Risk-free interest rate		0.90	%		1.30	%
Volatility		65	%		65	%
Fair value per share	$	0.57		$	0.52

The following table summarizes the warrants subject to liability accounting as of March 30, 2014 and December 31, 2013 (in thousands, except share and per share amounts) (see also Note 6):

													Three Months Ended March 30, 2014				Three Months Ended March 31, 2013
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value March 30, 2014		Fair Value December 31, 2013		Exercise of Warrants		Change in Fair Value		Exercise of Warrants		Change in Fair Value			Related Agreement
Bridge Bank		20,000		29,115	4/7/2010	7/7/2017	$	2.51	$	17	$	15		-	$	2		-	$	(15	)	Credit Agreement

The change in the fair value of the Level 3 liability warrants during the three months ended March 30, 2014 is as follows (in thousands):

Fair value at December 31, 2013	$	15
Exercise of warrants		-
Change in fair value		2
Fair value at March 30, 2014	$	17

The warrant liability is included in other current liabilities on the condensed consolidated balance sheets.

NOTE 4—INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following (in thousands):

	March 30, 2014							December 31, 2013
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	3,277	$	(1,803	)	$	1,474	$	3,277	$	(1,697	)	$	1,580
Existing technology		3,783		(2,575	)		1,208		3,783		(2,473	)		1,310
Order backlog		732		(732	)		-		732		(732	)		-
Patents		457		(398	)		59		457		(397	)		60
Trade name		659		(336	)		323		659		(322	)		337
Total	$	8,908	$	(5,844	)	$	3,064	$	8,908	$	(5,621	)	$	3,287

For the three months ended March 30, 2014 and March 31, 2013, amortization of intangible assets was as follows (in thousands):

	Three Months Ended
	March 30, 2014		March 31, 2013
Cost of revenue	$	103	$	122
Selling, general and administrative expense		120		131
	$	223	$	253

11

Estimated future amortization expense related to intangible assets as of March 30, 2014 is as follows (in thousands):

Years ending December 31,
2014	$	670
2015		893
2016		869
2017		487
2018		145
Total	$	3,064

As of March 30, 2014, the Company had $9.9 million of goodwill in connection with the acquisitions of ChipX and Endwave. In addition to its annual review, the Company also performs a review of the carrying value of its intangible assets if the Company believes that indicators of impairment exist. During the first quarter of 2014, there were no factors which indicated impairment. The Company did not record impairment on any intangibles, including goodwill, for the three months ended March 30, 2014.  In addition, the Company did not record an impairment of goodwill for the year ended December 31, 2013.

NOTE 5—CREDIT FACILITIES

On March 25, 2013, the Company entered into a second amended and restated loan and security agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”) to replace the amended and restated loan and security agreement entered on December 9, 2011. Pursuant to the Loan Agreement, the total aggregate amount that the Company is entitled to borrow from SVB has increased to $7 million, which is now split into two different credit facilities, comprised of (i) the existing Revolving Loan facility which was amended to provide that the Company is entitled to borrow from SVB up to $3.5 million, based on net eligible accounts receivable after an 80% advance rate and subject to limits based on the Company’s eligible accounts as determined by SVB and (ii) a new facility under which the Company is entitled to borrow from SVB up to $3.5 million without reference to accounts receivable under which the principal balance and accrued interest must be repaid within 3 business days after the date of any advance under the facility. In addition, the Loan Agreement eliminates the financial covenants contained in the previous loan agreement.

The Loan Agreement with SVB is secured by all of the Company’s assets, including all accounts, equipment, inventory, receivables, and general intangibles. The Loan Agreement contains certain restrictive covenants that will impose significant operating and financial restrictions on its operations, including, but not limited to restrictions that limit its ability to:

• Sell, lease, or otherwise transfer, or permit any of its subsidiaries to sell, lease or otherwise transfer, all or any part of its business or property, except in the ordinary course of business or in connection with certain indebtedness or investments permitted under the amended and restated loan agreement;

• Merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its subsidiaries to acquire, all or substantially all of the capital stock or property of another person;

• Create, incur, assume or be liable for any indebtedness, other than certain indebtedness permitted under the amended and restated loan and security agreement;

• Pay any dividends or make any distribution or payment on, or redeem, retire, or repurchase, any capital stock; and

• Make any investment, other than certain investments permitted under the amended and restated loan and security agreement.

The Company had no outstanding balance on its line of credit as of March 30, 2014.

NOTE 6—STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Public Offering

On December 19, 2013, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC as representative of several underwriters to the Underwriting Agreement relating to a public offering of an aggregate of 8,325,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share at a public offering price of $1.42 per share. The Shares are accompanied by the associated rights to purchase shares of Series A Junior Preferred Stock, par value $0.001 per share, of the Company created by the Rights Agreement, dated December 16, 2011, between the Company and the American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agreement”).  Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30 day option to purchase up to an additional 1,248,750 shares of common stock to cover over-allotments.

12

On December 24, 2013, the Company completed its public offering of 9,573,750 newly issued shares of common stock at a price to the public of $1.42 per share. The number of shares sold in the offering included the underwriter’s full exercise on December 24, 2013 of their over-allotment option of 1,248,750 shares of common stock. The net proceeds to the Company from the offering was approximately $12.3 million which consisted of $12.5 million after underwriting discounts, commissions and expenses less an additional $250,000 for legal, accounting, registration and other transaction costs related to the public offering.

Common and Preferred Stock

In December 2008, the Company’s stockholders approved an amendment to the Certificate of Incorporation to authorize 50,000,000 shares of common stock of par value $0.001. In addition, the Company is authorized to issue 1,000,000 shares of preferred stock of $0.001 par value of which 300,000 shares have been designated Series A Junior Preferred Stock with powers, preferences and rights as set forth in the certificate of designation dated December 16, 2011; the remainder of the shares of preferred stock are undesignated, for which the Board of Directors is authorized to fix the designation, powers, preferences and rights. As of March 30, 2014 and December 31, 2013, there were no shares of preferred stock issued or outstanding.

2008 Equity Incentive Plan

In December 2008, the Company adopted the 2008 Equity Incentive Plan (the “2008 Plan”) for directors, employees, consultants and advisors to the Company or its affiliates. Under the 2008 Plan, 2,500,000 shares of common stock were reserved for issuance upon the completion of a merger with Lumera Corporation (“Lumera”) on December 9, 2008. On January 1 of each year, starting in 2009, the aggregate number of shares reserved for issuance under the 2008 Plan increase automatically by the lesser of (i) 5% of the number of shares of common stock outstanding as of the Company’s immediately preceding fiscal year, or (ii) a number of shares determined by the Board of Directors. The maximum number of shares of common stock to be granted is up to 21,000,000 shares. Forfeited options or awards generally become available for future awards.As of December 31, 2013, the stockholders had approved 15,021,253 shares for future issuance. On January 1, 2014, there was an automatic increase of 1,603,381 shares. As of March 30, 2014, 12,255,761 options to purchase common stock and restricted stock were outstanding and 3,379,835 shares are authorized for future issuance under the 2008 equity incentive plan.

Under the 2008 Plan, the exercise price of a stock option is at least 100% of the stock’s fair market value on the date of grant, and if an ISO is granted to a 10% stockholder at least 110% of the stock’s fair market value on the date of grant. Vesting periods for awards are recommended by the chief executive officer and generally provide for stock options to vest over a four-year period, with a one year vesting cliff of 25%, and have a maximum life of ten years from the date of grant. The Company has also issued restricted stock units (“RSUs”) which generally vest over a one to four-year period.

2007 Equity Incentive Plan

In August 2007, GigOptix LLC adopted the GigOptix LLC Equity Incentive Plan (the "2007 Plan"). The 2007 Plan provided for grants of options to purchase membership units, membership awards and restricted membership units to employees, officers and non-employee directors, and upon the completion of the merger with Lumera were converted into grants of up to 632,500 shares of stock. Vesting periods are determined by the Board of Directors and generally provide for stock options to vest over a four-year period and expire ten years from date of grant. Vesting for certain shares of restricted stock is contingent upon both service and performance criteria. The 2007 Plan was terminated upon the completion of merger with Lumera on December 9, 2008 and the remaining 864 stock options not granted under the 2007 Plan were cancelled. No shares of the Company’s common stock remain available for issuance of new grants under the 2007 Plan other than for satisfying exercises of stock options granted under this plan prior to its termination. As of March 30, 2014, options to purchase a total of 414,936 shares of common stock and 4,125 warrants to purchase common stock were outstanding.

Lumera 2000 and 2004 Stock Option Plan

In December 2008, in connection with the merger with Lumera, the Company assumed the existing Lumera 2000 Equity Incentive Plan and the Lumera 2004 Stock Option Plan (the “Lumera Plan”). All unvested options granted under the Lumera Plan were assumed by the Company as part of the merger. All contractual terms of the assumed options remain the same, except for the converted number of shares and exercise price based on merger conversion ratio of 0.125. As of March 30, 2014, no additional options can be granted under the Lumera Plan, and options to purchase a total of 72,428 shares of common stock were outstanding.

Warrants

As of December 31, 2013, the Company had a total of 1,468,239 warrants to purchase common stock outstanding under all warrant arrangements. During the three months ended March 30, 2014, no warrants were exercised and 284,999 warrants expired. As a result, as of March 30, 2014, the Company had 1,183,240 warrants to purchase common stock outstanding under all warrant arrangements. Some of the warrants have anti-dilution provisions which adjust the number of warrants available to the holder such as, but not limited to, stock dividends, stock splits and certain reclassifications, exchanges, combinations or substitutions. These provisions are specific to each warrant agreement.

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Stock-based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense for the three months ended March 30, 2014 and March 31, 2013 (in thousands):

	Three Months Ended
	March 30, 2014		March 31, 2013
Cost of revenue	$	76	$	80
Research and development expense		275		323
Selling, general and administrative expense		659		705
Restructuring expense		-		662
	$	1,010	$	1,770

 For the three months ended March 31, 2013, included in the $1.8 million of stock-based compensation expense was $662,000 in restructuring expense to modify the exercise period and accelerate the vesting of stock options and RSUs (see Note 7).

The Company did not grant any options during the three months ended March 30, 2014 and March 31, 2013.

During the three months ended March 30, 2014, the Company granted 1,405,085 RSUs with a grant-date fair value of $2.4 million or $1.70 per share. The Company did not grant any RSUs during the three months ended March 31, 2013.

As of March 30, 2014, the total compensation cost not yet recognized in connection with unvested stock options and RSUs under the Company’s equity compensation plans was approximately $3.3 million and $3.3 million, respectively. Unrecognized compensation will be amortized on a straight-line basis over a weighted-average period of approximately 1.9 years for stock options and approximately 2.33 years for RSUs.

Stock Option and RSU Activity

The following is a summary of option activity for the Company’s equity incentive plans, including both the 2008 Plan and other prior plans for which there are outstanding options but no new grants since the 2008 Plan was adopted:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term, in Years
Outstanding, December 31, 2013		10,306,671		$	2.34		6.96
Granted		-
Exercised		(9,075	)	$	1.08
Forfeited/Expired		(98,309	)	$	2.71
Ending balance, March 30, 2014		10,199,287					6.71
Vested and exercisable and expected to vest, March 30, 2014		10,024,189		$	2.34		6.68
Vested and exercisable, March 30, 2014		7,629,091		$	2.39		6.27

The aggregate intrinsic value of options vested, exercisable and expected to vest, based on the fair value of the underlying stock options as of March 30, 2014 was approximately $1.7 million. The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price of $1.67 as of March 28, 2014.

The total intrinsic value of options exercised during the three months ended March 30, 2014 was $5,000. During the three months ended March 31, 2013, the Company did not have any options exercised.

RSUs are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of one to four years and are expensed ratably on a straight line basis over their respective vesting period net of estimated forfeitures. The fair value of the RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock.

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The following is a summary of RSU activity for the indicated periods:

	Number of Shares			Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Vesting Term, Years		Aggregate Intrinsic Value
								(In thousands)
Outstanding, December 31, 2013		1,313,801		$	1.19		1.85	$	2,010
Granted		1,405,085			1.70
Released		(161,700	)		1.14
Forfeited/expired		(13,348	)		0.86
Outstanding, March 30, 2014		2,543,838		$	1.48		2.33	$	4,248

The majority of the RSUs that vested in the three months ended March 30, 2014 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. For the three months ended March 30, 2014, 161,700 shares of RSUs vested with an intrinsic value of approximately $270,000. The Company withheld 60,000 shares to satisfy approximately $103,000 of employees’ minimum tax obligation on the vested RSUs.

NOTE 7—RESTRUCTURING

During the first of quarter of 2013, the Company undertook restructuring activities to reduce its expenses.  The components of the restructuring charge included $662,000 of non-cash expenses associated with the acceleration of stock options and RSUs, $288,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations.  The net charge for these restructuring activities was $950,000. The Company had no restructuring activities during the three months ended March 30, 2014.

The following is a summary of the restructuring activity (in thousands):

	Three Months Ended
	March 30, 2014			March 31, 2013
Beginning balance	$	30		$	168
Charges		-			950
Uses and adjustments		(30	)		(936	)
Ending balance	$	-		$	182

During the three months ended March 30, 2014, the Company paid out its remaining balance in accrued restructuring, which was the deposit for the Palo Alto facilities. As of March 30, 2014, the Company had no balance in accrued restructuring.

As of March 31, 2013, the Company had $182,000 in accrued restructuring, which was included in other current liabilities.

NOTE 8—INCOME TAXES

The Company recorded a provision for income taxes of $10,000 for the three months ended March 30, 2014, and $13,000 for the three months ended March 31, 2013. The Company's effective tax rate was less than 1% for the three months ended March 30, 2014 and March 31, 2013.

The income tax provision for the three months ended March 30, 2014 and March 31, 2013 was due primarily to state taxes and foreign taxes due. The Company has incurred book losses in all tax jurisdictions and has a full valuation allowance against such losses.

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. In order to support a conclusion that a valuation allowance is not needed, positive evidence of sufficient quantity and quality is necessary to overcome negative evidence. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding realization of the asset including lack of profitability through March 30, 2014 and the uncertainty over future operating profitability and taxable income. The Company will continue to evaluate the potential realization of the deferred tax assets on a quarterly basis.

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The Company files tax returns as prescribed by the tax laws of the jurisdictions it operates which include U.S. federal, U.S. state and foreign tax returns.  The Company’s major tax jurisdictions are the U.S., California, Switzerland, Germany and Israel. The Company’s federal and state tax returns for the years 2000 through 2013 remain subject to examination.

NOTE 9—NET LOSS PER SHARE

The following table summarizes total securities outstanding which were not included in the calculation of diluted net loss per share because to do so would have been anti-dilutive:

	March 30,		December 31,
	2014		2013
Stock options and RSUs		12,743,125		11,620,472
Common stock warrants		1,183,240		1,468,239
Total		13,926,365		13,088,711

NOTE 10—SEGMENT AND GEOGRAPHIC INFORMATION

The Company has determined that it operates as a single operating and reportable segment. The following tables reflect the results of the Company’s reportable segment consistent with the management system used by the Company’s Chief Executive Officer, the chief operating decision maker.

The following table summarizes revenue by geographic region (in thousands):

	Three Months Ended
	March 30, 2014				March 31, 2013
North America	$	2,227	30	%	$	1,979	29	%
Asia		2,158	29	%		2,280	33	%
Europe		2,909	40	%		2,163	31	%
Other		92	1	%		499	7	%
	$	7,386	100	%	$	6,921	100	%

The Company determines geographic location of its revenue based upon the destination of shipments of its products.

For the three months ended March 30, 2014, one customer accounted for 28% of total revenue. For the three months ended March 31, 2013, one customer accounted for 26% of our total revenue. No other customers accounted for more than 10% of total revenue during the periods presented.

During three months ended March 30, 2014, Italy, the United States, and Japan accounted for 36%, 28%, and 15% of revenue, respectively. During three months ended March 31, 2013 the United States, Italy, and Japan accounted for 29%, 26%, and 13% of revenue, respectively. No other countries accounted for more than 10% of the Company’s consolidated revenue during the periods presented.

The following table summarizes revenue by product line (in thousands):

	Three Months Ended
	March 30, 2014		March 31, 2013
HSC	$	5,282	$	4,565
Industrial		2,104		2,356
Total revenue	$	7,386	$	6,921

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The following table summarizes long-lived assets by country (in thousands):

	March 30, 2014		December 31, 2013
United States	$	2,181	$	2,004
Switzerland		777		995
	$	2,958	$	2,999

Long-lived assets, comprised of property and equipment, are reported based on the location of the assets at each balance sheet date.

NOTE 11—COMMITMENTS AND CONTINGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options.  The Company also leases certain software licenses under operating leases. Total facilities rent expense for the three months ended March 30, 2014 was $141,000, and for the three months ended March 31, 2013 was $140,000.

As of April 2014, the Company moved out of its Bothell, Washington facility which comprised 11,666 square feet and entered into a new one-year lease located in Bellevue, Washington which comprises approximately 2,100 square feet.

Aggregate non-cancelable future minimum rental payments under capital and operating leases are as follows (in thousands):

	Capital Leases			Operating Leases
Years ending December 31,	Minimum lease  payments			Minimum lease payments
2014	$	209		$	358
2015		4			432
2016		3			339
2017		3			57
Total minimum lease payments		219		$	1,186
Less: Amount representing interest		(14	)
Total capital lease obligations		205
Less: current portion		(196	)
Long-term portion of capital lease obligations	$	9

Legal Contingencies

From time to time, the Company may become involved in legal proceedings, claims and litigation arising in the ordinary course of business. When the Company believes a loss is probable and can be reasonably estimated, the Company accrues the estimated loss in the consolidated financial statements. Where the outcome of these matters is not determinable, the Company does not make a provision in the financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known.  There are no known losses at this time.

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NOTE 12—RECENT ACCOUNTING PRONOUNCEMENTS

In April 2014, the Financial Accounting Standards Board issued an accounting standards update improving the definition of discontinued operation and expanding the related disclosure. The discontinued operations reporting is limited to the disposals of components of an entity, which can be a business, a nonprofit activity, or an equity method investment, that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The additional disclosures include major classes of line items constituting the pretax profit and loss, cash flows, and assets and liabilities. An entity also needs to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. This standard is effective for beginning after December 15, 2014 and early adoption is permitted if disposals or classifications as held for sale have not been reported previously. The Company does not expect the adoption will have a material impact on the Company’s condensed consolidated financial statements.

NOTE 13—SUBSEQUENT EVENTS

During the second quarter of 2014, the Company undertook restructuring activities to reduce its expenses.  In conjunction with the creation of the BrP joint venture and the subsequent relocation of the related manufacturing activities to BrP, the Company ended its lease in the Bothell, Washington location and reduced its headcount.  The Company estimates that its restructuring charges will be approximately $300,000 which will include expenses to move out of the facility and expenses for severance, benefits and payroll taxes and other costs associated with employee terminations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2013. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2013 and this Quarterly Report on Form 10-Q. We assume no obligation to update the forward-looking statements or such risk factors.

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference include forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are also made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Overview

We are a leading fabless supplier of high speed semiconductorcomponentsthat enable end-to-end information streaming over optical and wireless networks.  Our products address long haul and metro telecommunications applications as well as emerging high-growth opportunities for Cloud and datacenter connectivity, interactive applications for consumer electronics and the industrial, defense and avionics industries. The business is made up of two product lines: High-Speed Communications (HSC) product line and Industrial product line.

Through our HSC product line we offer a broad portfolio of high performance optical and wireless components to telecommunications (telecom) and data communications (datacom) customers, including i) mixed signal radio frequency integrated circuits (RFIC), including 10 to 400 gigabit per second (Gbps) laser and optical drivers and trans-impedance amplifiers (TIA) for telecom, datacom, and consumer electronic fiber-optic applications; ii) power amplifiers and transceivers for microwave and millimeter monolithic microwave integrated circuit (MMIC) wireless applications including 71 to 73 Ghz and 81 to 83 Ghz power amplifiers and transceiver chips; and iii) integrated systems in a package (SIP) solutions for both fiber-optic and wireless applications.  The HSC product line also partners with key customers on development projects that generate engineering project revenue and helps to position us for future product revenues with these key customers.

Through our Industrial product line, we offer a wide range of digital and mixed-signal application specific integrated circuit (ASIC) solutions for industrial, military, avionics, medical and communications markets. The Industrial product line partners with ASIC customers on development projects that generate engineering project revenue and which generally lead to future product revenues with these ASIC customers.

We focus on the specification, design, development and sale of analog semiconductor integrated circuits (ICs), multi-chip module (MCM) solutions, and digital and mixed signal ASICs, as well as wireless communications MMICs and modules. We believe we are an industry leader in the fast growing market for electronic solutions that enable high-bandwidth optical connections found in telecom, datacom and storage systems, and, increasingly, in consumer electronics and computing systems.

Since inception, we have expanded our customer base with the acquisition and integration of five businesses with complementary products and customers. In so doing, we have expanded our product line from a few leading 10Gbps ultra-long haul optical drivers at our inception in July 2007 to a line of products today that include: drivers, receivers and TIAs for 10 to 400Gbps optical applications; power amplifiers; and custom ASICs spanning 0.6um to 65nm technology nodes. Our direct sales force is based in three countries and is supported by a significant number of channel representatives and distributors that sell our products throughout North America, Europe, Japan and Asia.

Historically, we have incurred net losses. For the three months ended March 30, 2014 and the year ended December 31, 2013, we incurred net losses of $1.9 million and $1.9 million, respectively. For the three months ended March 30, 2014, we had cash outflows from operations of $207,000. For the year ended December 31, 2013, we had cash inflows from operations of $3.3 million. As of March 30, 2014 and December 31, 2013, we had an accumulated deficit of $98.3 million and $96.4 million, respectively.

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Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board issued an accounting standards update improving the definition of discontinued operation and expanding the related disclosure. The discontinued operations reporting is limited to the disposals of components of an entity, which can be a business, a nonprofit activity, or an equity method investment, that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The additional disclosures include major classes of line items constituting the pretax profit and loss, cash flows, and assets and liabilities. An entity also needs to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. This standard is effective for beginning after December 15, 2014 and early adoption is permitted if disposals or classifications as held for sale have not been reported previously. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

Results of Operations

Revenue

Revenue for the periods reported was as follows (in thousands, except percentages):

	Three Months Ended
	March 30, 2014			March 31, 2013
Product	$	6,679		$	5,684
Development fees and other		707			1,237
Total revenue	$	7,386		$	6,921
Increase period over period	$	465
Percentage increase, period over period		7	%

Total revenue for the three months ended March 30, 2014 was $7.4 million, an increase of $0.5 million or 7%, compared with $6.9 million for the three months ended March 31, 2013. For the three months ended March 30, 2014, 90% of our revenue was contributed by product revenue and 10% of our revenue was contributed by development fees and other revenue.For the three months ended March 31, 2013, 82% of our revenue was contributed by product revenue and 18% of our revenue was contributed by development fees and other revenue.

Product revenue for the three months ended March 30, 2014 was $6.7 million, an increase of $1.0 million or 18%, compared with $5.7 million for the three months ended March 31, 2013. The increase in product revenue during the three months ended March 30, 2014 was primarily due to the increased demand for our HSC product line, including both our Optics and RF E-band products, which was partially offset by a decrease in revenue from our Industrial ASIC product line

Development fees and other revenue for the three months ended March 30, 2014 was $0.7 million, a decrease of $0.5 million or 43%, compared with $1.2 million for the three months ended March 31, 2013. We experienced a decrease in development fees and other revenue due to a decrease in the number and size of development projects in our HSC and Industrial product lines.

Cost of Revenue and Gross Profit

 Cost of revenue and gross profit for the periods presented was as follows (in thousands, except percentages):

	Three Months Ended
	March 30, 2014			March 31, 2013
Total cost of revenue	$	3,126		$	2,636
Gross profit	$	4,260		$	4,285
Gross margin		58	%		62	%
Decrease, period over period		(25	)
Percentage decrease, period over period		-1	%

Gross profit consists of revenue less cost of revenue. Cost of revenue consists primarily of the costs to manufacture saleable chips, including outsourced wafer fabrication and testing; costs of direct materials; equipment depreciation; costs associated with procurement, production control and quality assurance; fees paid to our offshore manufacturing vendors; reserves for potential excess or obsolete material; costs related to stock-based compensation; accrued costs associated with potential warranty returns; and amortization of certain identified intangible assets. Amortization expense of identified intangible assets, namely existing technology, is presented within cost of revenue, as the intangible assets were determined to be directly attributable to revenue generating activities.

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Gross profit for the three months ended March 30, 2014 was $4.3 million, or a gross margin of 58%, compared to a gross profit of $4.3 million, or a gross margin of 62%, for the three months ended March 31, 2013. The decrease in gross margin is primarily due to a change in product mix and lower revenue from development projects.

We record revenue from non-recurring engineering projects associated with product development that we enter into with certain customers. In general, these projects are associated with complex technology development, and as such we do not have certainty about our ability to achieve the program milestones. Achievement of the milestone is dependent on our performance and is typically accepted by the customer. The payment associated with achieving the milestone is generally commensurate with our effort or the value of the deliverable and is nonrefundable. Therefore, we record the expenses related to these projects in the periods incurred and recognize revenue only when we have earned the revenue and achieved the development milestones. Revenue from these projects is typically recorded at 100% gross margin because the costs associated with these projects are expensed as incurred and generally included in research and development expense. These efforts generally benefit our overall product development programs beyond the specific project requested by our customer.

Development project revenue and other non-product revenue for the three months ended March 30, 2014 was $0.7 million compared with $1.2 million for the three months ended March 31, 2013. Excluding the revenue and gross profit associated with development programs and other non-product revenue, gross margin was 53% and 54% for the three months ended March 30, 2014 and March 31, 2013, respectively.

Research and Development Expense

Research and development expense for the periods presented was as follows (in thousands, except percentages):

	Three Months Ended
	March 30, 2014			March 31, 2013
Research and development expense	$	3,742		$	3,236
Percentage of revenue		51	%		47	%
Increase, period over period	$	506
Percentage increase, period over period		16	%

Research and development expenses are expensed as incurred. Research and development expense consists primarily of salaries and related expenses for research and development personnel, consulting and engineering design, non-capitalized tools and equipment, engineering related semiconductor masks, depreciation for equipment, engineering expenses paid to outside technology development suppliers, allocated facilities costs and expenses related to stock-based compensation.

Research and development expense for the three months ended March 30, 2014 was $3.7 million compared to $3.2 million for the three months ended March 31, 2013, an increase of $506,000 or 16%. Research and development costs increased as compared to the first quarter of 2013 primarily due to a $526,000 increase in expenses for materials and project-related services for developing new products.

We expect research and development expense to moderately decrease from the first quarter of 2014 to the second quarter of 2014.

Selling, General and Administrative Expense

Selling, general and administrative expense for the periods presented was as follows (in thousands, except percentages):

	Three Months Ended
	March 30, 2014			March 31, 2013
Selling, general and administrative expense	$	2,398		$	2,353
Percentage of revenue		32	%		34	%
Increase, period over period	$	45
Percentage increase, period over period		2	%

Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, accounting, finance, sales, marketing and administration personnel, professional fees, allocated facilities costs, promotional activities and expenses related to stock-based compensation.

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Selling, general and administrative expense for the three months ended March 30, 2014 and March 31, 2013 was flat at $2.4 million. During the three months ended March 30, 2014 compared to March 31, 2013, a $76,000 increase in professional services relating to our newly established joint venture, BrPhotonics Produtos Optoeletrônicos LTDA in Campinas, Sao Paolo, Brazil, was partially offset by a $46,000 decrease in stock based compensation.

We expect selling, general and administrative expense to moderately decrease from the first quarter of 2014 to the second quarter of 2014.

Restructuring Expense, Net

During the three months ended March 30, 2014, we did not incur any restructuring expense.

During the three months ended March 31, 2013, we recorded a restructuring expense of $950,000 to reduce our expenses.  The components of the restructuring charge included $662,000 of non-cash expenses associated with the acceleration of stock options and restricted stock units and $288,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations.

Special Litigation-Related Expense

During the three months ended March 30, 2014, we did not incur any special litigation-related expense.

During the three months ended March 31, 2013, we incurred special litigation-related expenses of $415,000, which was primarily due to $298,000 of legal fees associated with the misappropriation of trade secrets and breach of contract case against M/A-COM Technology Solutions, Inc. (“MACOM”), MACOM’s wholly-owned subsidiary Optomai, Inc., and three former employees of GigOptix who founded Optomai, and $108,000 of legal fees associated with the case against Advantech, the parent company of Allgon Microwave Corporation AB, or Allgon, for breach of contract.

Interest Expense, Net and Other Income, Net

	Three Months Ended
	March 30, 2014			March 31, 2013
Interest expense, net	$	(17	)	$	(54	)
Other income (expense), net		10			168
Total	$	(7	)	$	114

Interest expense, net and other income, net consist primarily of gains and losses related to foreign currency transactions, gains and losses related to property and equipment disposals, interest on line of credit, interest on capital leases and amortization of loan fees in connection with our Silicon Valley Bank line of credit and loan.

Interest expense, net for the three months ended March 30, 2014 was $17,000 compared to $54,000 for the three months ended March 31, 2013. Interest expense, net decreased as compared to the first quarter of 2013 primarily due to a $19,000 decrease in loan fees and an $11,000 decrease in interest on capital leases.

Other income, net for the three months ended March 30, 2014 was income of $10,000. Other income, net for the three months ended March 31, 2013 was income of $168,000, which primarily consisted of $131,000 gain on the sale of property and equipment.

Provision for Income Taxes

	Three Months Ended
	March 30, 2014			March 31, 2013
Provision for income taxes	$	10		$	13
Percentage of revenue		0	%		0	%
Decrease, period over period	$	(3	)
Percentage decrease, period over period		-23	%

Income tax expense was $10,000 and $13,000 for three months ended March 30, 2014 and March 31, 2013, respectively, and our effective tax rate was less than 1% for those periods. The income tax provision for the three months ended March 30, 2014 and March 31, 2013 were due primarily to state taxes and foreign taxes due. We have incurred book losses in all tax jurisdictions and have a full valuation allowance against such losses.

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Liquidity and Capital Resources

 Cash and cash equivalents and cash flow data for the periods presented were as follows (in thousands):

	March 30, 2014		December 31, 2013
Cash and cash equivalents	$	19,865	$	20,377

	Three Months Ended
	March 30, 2014			March 31, 2013
Net cash used in operating activities	$	(207	)	$	(2,108	)
Net cash used in investing activities	$	(123	)	$	(752	)
Net cash provided by (used in) financing activities	$	(182	)	$	2,108

Public Offering

On December 19, 2013, we entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC as representative of several underwriters to the Underwriting Agreement relating to a public offering of an aggregate of 8,325,000 shares (the “Shares”) of our common stock, par value $0.001 per share at a public offering price of $1.42 per share. The Shares are accompanied by the associated rights to purchase shares of Series A Junior Preferred Stock, par value $0.001 per share, created by the Rights Agreement, dated December 16, 2011, between us and the American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agreement”).  Under the terms of the Underwriting Agreement, we granted the underwriters a 30 day option to purchase up to an additional 1,248,750 shares of common stock to cover over-allotments.

On December 24, 2013, we completed our public offering of 9,573,750 newly issued shares of common stock at a price to the public of $1.42 per share. The number of shares sold in the offering included the underwriter’s full exercise on December 24, 2013 of their over-allotment option of 1,248,750 shares of common stock. The net proceeds from the offering was approximately $12.3 million which consisted of $12.5 million after underwriting discounts, commissions and expenses less an additional $250,000 for legal, accounting, registration and other transaction costs related to the public offering.

Operating Activities

Operating activities used cash of $207,000 in the three months ended March 30, 2014. Our net loss from continuing operations, adjusted for depreciation, stock-based compensation and other non-cash items, was an income of $32,000. The remaining use of $239,000 of cash was primarily due to an increase in accounts receivable, net of $1.0 million, a decrease in other current liabilities of $487,000, an increase in inventories of $136,000, and a decrease in accrued compensation of $125,000 which were partially offset by an increase in accounts payable of $1.6 million.

Operating activities used cash of $2.1 million in the three months ended March 31, 2013. This resulted from a net loss of $2.6 million and we experienced cash usage for working capital for an increase in accounts receivable, net of $1.6 million, an increase in inventories of $226,000, an increase in prepaid and other current assets of $280,000, and a decrease in other current liabilities of $101,000. These decreases were partially offset by an increase in accrued compensation of $129,000. In addition, these uses were partially offset by non-cash expenses of stock based compensation of $1.8 million and depreciation and amortization of $914,000.

Investing Activities

Net cash used in investing activities for the three months ended March 30, 2014 was $123,000 from purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2013 was $752,000 and consisted of $883,000 of purchases of fixed assets partially offset by $131,000 proceeds from sale of property and equipment.

Financing Activities

Net cash used in financing activities for the three months ended March 30, 2014 was $182,000 and consisted primarily of $103,000 taxes paid related to net share settlement of equity awards and $89,000 for capital lease payments.

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Net cash provided by financing activities for the three months ended March 31, 2013 was $2.1 million and consisted primarily of $2.3 million of net borrowings on our line of credit facilities with Silicon Valley Bank partially offset by $117,000 for capital lease payments.

Material Commitments

The following table summarizes our future net cash obligations for current debt, operating leases, and capital leases, in thousands of dollars, as of March 30, 2014:

Contractual Obligations at March 30, 2014:	Total		Less than One Year		One to Three Years		More than Three Years
Operating lease obligations		1,186		358		771		57
Capital lease obligations (including interest)		219		209		7		3
Total	$	1,405	$	567	$	778	$	60

GigOptix did not have any material commitments for capital expenditures as of March 30, 2014.

Impact of Inflation and Changing Prices on Net Sales, Revenue and Income

Inflation and changing prices have not had a material impact on the materials used in our production process during the periods and at balance sheet dates presented in this report.

Off-Balance Sheet Arrangements

GigOptix does not use off-balance-sheet arrangements with unconsolidated entities, nor does it use other forms of off-balance-sheet arrangements such as special purpose entities and research and development arrangements. Accordingly, GigOptix is not exposed to any financing or other risks that could arise if it had such relationships.

WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended are available on our website at http://www.gigoptix.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Quarterly Report on Form 10-Q.

Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We intend to also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

• GigOptix Twitter Account (https://twitter.com/GigOptix)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q.  Further, the references to the URLs for these websites are intended to be inactive textual references only.

You can also read and copy any document that we file, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can electronically access our SEC filings there.  Additionally, the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, by our predecessor registrant Lumera are also available at http://www.sec.gov.

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ITEM 3. QUANTITATIVE AND QUALTATIVE DISCLOSURES ABOUT MARKET RISK

This item has been omitted based on GigOptix’ status as a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining our disclosure controls and procedures. Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the effectiveness of our disclosure controls and procedures as of March 30, 2014. Our CEO and CFO have concluded that our disclosure controls and procedures were effective as of that date and have also concluded that our consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in legal proceedings, claims and litigation arising in the ordinary course of business. When we believe a loss is probable and can be reasonably estimated, we accrue the estimated loss in our consolidated financial statements. Where the outcome of these matters is not determinable, we do not make a provision in our financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known.

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ITEM 1A. RISK FACTORS

We have revised the risk factors that relate to our business, as set forth below. These risks include any material changes to and supersede any similar the risks previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2013 and otherwise supplement those risks. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as well as those contained in Part 1, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.

We have incurred substantial operating losses in the past and we may not be able to achieve profitability in the future.

Historically, we have incurred net losses. For the three months ended March 30, 2014 and the years ended December 31, 2013 and 2012, we incurred net losses of $1.9 million, $1.9 million and $7.0 million, respectively. For the three months ended March 30, 2014, we had cash outflows from operations of $207,000. For the year ended December 31, 2013, we had cash inflows from operations of $3.3 million. For the year ended December 31, 2012, we had cash outflows from operations of $2.0 million. As of March 30, 2014, we had an accumulated deficit of $98.3 million. We expect development, sales and other operating expenses to increase in the future as we expand our business. If our revenue does not grow to offset these current expenses, we may not be profitable. In fact, in future quarters we may not have any revenue growth and our revenues could decline. Furthermore, if our operating expenses exceed expectations, financial performance will be adversely affected and we may continue to incur significant losses in the future.

We derive a significant portion of our revenue from a small number of customers and the loss of one or more of these key customers, the diminished demand for our products from a key customer, or the failure to obtain certifications from a key customer or its distribution channel could significantly reduce our revenue and profits.

A relatively small number of customers account for a significant portion of our revenue in any particular period. One or more of our key customers may discontinue operations as a result of consolidation, liquidation or otherwise, or reduce significantly its business with us due to the current economic conditions or their current situation. Reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers could significantly reduce our revenue and profits. There is no assurance that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

For the three months ended March 30, 2014, one customer accounted for 28% of total revenue. For the three months ended March 31, 2013, one customer accounted for 26% of our total revenue. No other customers accounted for more than 10% of total revenue during the periods presented.

We could suffer unrecoverable losses on our customers’ accounts receivable, which would adversely affect our financial results.

Our operating cash flows are dependent on the continued collection of receivables. Although our accounts receivable as of March 30, 2014 increased by $1.0 million or 21% compared to the balance as of December 31, 2013, we have not had significant uncollectable accounts. However, if a customer is unable or refuses to pay we could suffer additional accounting losses as well as a reduction in liquidity. A significant increase in uncollectible accounts would have an adverse impact on our business, liquidity and financial results.

Our business is subject to foreign currency risk.

Sales to customers located outside the United States comprised 72% and 71% of our revenue for the three months ended March 30, 2014 and March 31, 2013, respectively. In addition, we have two subsidiaries overseas (Switzerland and Germany) that record their operating expenses in a foreign currency.  Since sales of our products have been denominated to date primarily in U.S. dollars, increases in the value of the U.S. dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in GigOptix’ results of operations. We currently do not have hedging or other programs in place to protect against adverse changes in the value of the U.S. dollar as compared to other currencies to minimize potential adverse effects.

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description
10.1*	First Amendment to the Articles of Association of BrPhotonics Produtos Optoeletrônicos LTDA.
10.2*	Joint Venture and Quotaholders Agreement by and between GigOptix, Inc., Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (CPqD), and BrPhotonics Produtos Optoeletrônicos LTDA.
31.1*	Chief Executive Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Chief Financial Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Chief Executive Officer certification pursuant to Rule 13a-14(b) or Rule 13d-14(b) and Section 1350, Chapter 63 of Title 18 United States Code (18 U.S.C. 1350) as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2*	Chief Financial Officer certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States Code (18 U.S.C. 1350) as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101.INS*	Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*           Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GIGOPTIX, INC.
Date: May 9, 2014	/S/    AVI S. KATZ
	Dr. Avi S. Katz
	Chief Executive Officer and Chairman of the Board
Date: May 9, 2014	/S/ CURT P. SACKS
	Curt P. Sacks
	Chief Financial Officer

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