10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 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

Registrant’s telephone number: (408-522-3100)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock ($0.001 par value)	NYSE MKT

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☐     No  ☒

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐    No  ☒

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  ☒    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  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements or any amendment to this Form 10-K.  ☒

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	☐	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting Company	☒

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

The aggregate value of the registrant’s common stock held by non-affiliates as of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter was approximately $42.7 million.

The number of shares of common stock outstanding as of February 27, 2015, the most recent practicable date prior to the filing of this Annual Report on Form 10-K, was 32,588,685 shares.

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  GIGOPTIX, INC.

ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2014

TABLE OF CONTENTS

			PAGE NO
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
	ITEM 1	BUSINESS	6
	ITEM 1A	RISK FACTORS	18
	ITEM 2	PROPERTIES	34
	ITEM 3	LEGAL PROCEEDINGS	34
	ITEM 4	MINE SAFETY PROCEDURES	34
PART II
	ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	35
	ITEM 6	SELECTED CONSOLIDATED FINANCIAL DATA	37
	ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
	ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	49
	ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	78
	ITEM 9A	CONTROLS AND PROCEDURES	78
	ITEM 9B	OTHER INFORMATION	78
PART III
	ITEM 10	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	79
	ITEM 11	EXECUTIVE COMPENSATION	81
	ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	91
	ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	92
	ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	93
PART IV
	ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	94
SIGNATURES			95

References in this Annual Report on Form 10-K to “we,” “us,” “our,” “GigOptix,” “GIG” and “GGOX” mean GigOptix, Inc. and all entities owned or controlled by GigOptix, Inc.

All brand names, trademarks and trade names referred to in this report are the property of their respective holders.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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. 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.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

· we have a history of incurring losses;

· our ability to remain competitive in the markets we serve;

· the effects of future economic, business and market conditions;

· consolidation in the industry we serve;

· our ability to continue to develop, manufacture and market innovative products and services that meet customer requirements for performance and reliability;

· our ability to establish and maintain effective internal controls over our financial reporting;

· risks relating to the transaction of business internationally;

· our failure to realize anticipated benefits from acquisitions or the possibility that such acquisitions could adversely affect us, and risks relating to the prospects for future acquisitions;

· the loss of key employees and the ability to retain and attract key personnel, including technical and managerial personnel;

· quarterly and annual fluctuations in results of operations;

· investments in research and development;

· protection and enforcement or our intellectual property rights and proprietary technologies;

· costs associated with potential intellectual property infringement claims asserted by a third party against us or asserted by us against a third party;

· our exposure to product liability claims resulting from the use of our products;

· the loss of one or more of our significant customers, or the diminished demand for our products;

· the loss of one or more of our critical vendors, particularly sole source suppliers of key components and wafers;

· our dependence on overseas and domestic foundries, contract manufacturing and outsourced supply chain, as well as the costs of materials;

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· our reliance on third parties to provide services for the operation of our business;

· our ability to be successful in identifying, acquiring and consolidating new acquisitions;

· our ability to successfully complete inception and funding of new joint ventures that we establish globally;

· the effects of war, terrorism, natural disasters or other catastrophic events;

· our success at managing the risks involved in the foregoing items; and

· other risks and uncertainties, including those listed under the heading “Risk Factors” herein.

The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except to the extent required by federal securities laws. These forward looking statements are found at various places throughout this Annual Report on Form 10-K. Any investor should consider all risks and uncertainties disclosed in our filings with the Securities and Exchange Commission, or the SEC, described below under the heading “Where You Can Find More Information,” all of which is accessible on the SEC’s website at www.sec.gov.

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PART I

ITEM 1. BUSINESS

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 the needs of emerging high-growth markets, such as long haul and metro telecommunications (telecom) applications, as well as Cloud data communications (datacom) and datacenter connectivity, point-to-point wireless backhaul, and interactive high speed applications for the consumer electronics, industrial, defense and avionics industries. 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 application-specific integrated circuits (ASICs), as well as wireless communications ICs, millimeter monolithic microwave integrated circuits (MMICs) and modules. We believe we are an industry leader in the fast growing market for electronic solutions that enable high-speed optical and wireless connections that are found in telecom, datacom and storage systems, and intend to maintain this position in consumer electronics and computing systems.

The business is made up of two product lines: our High-Speed Communications (HSC) product line and our Industrial product line. Our products are highly customized and typically developed in partnership with key “Lighthouse” customers, generating engineering project revenues through the development stage and larger future product revenue through these customers and general market availability.

Through our HSC product line, we offer a broad portfolio of high performance optical and wireless components to telecom and datacom customers, including (i) mixed signal radio frequency integrated circuits (RFIC); (ii) 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; (iii) power amplifiers and transceivers for MMIC wireless applications including power amplifiers and transceiver chips at frequencies higher than 50 GHz; (iv) integrated systems in a package (SIP) solutions for both fiber-optic and wireless applications; and (v) radio frequency (RF) chips for various consumer applications such as global navigation satellite systems (GNSS).

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.

Since inception in July 2007, we have expanded our customer base by acquiring and integrating seven businesses with complementary products and customers. In so doing, we have expanded our device product line in multiple areas, growing our communication device offering from a few leading 10 Gbps ultra-long haul optical drivers, to a line of products that includes: drivers, receivers and TIAs for 2 to 400 Gbps optical applications; power amplifiers; transceiver devices for 50 to 100 GHz; and custom ASICs spanning 0.6um to 40nm technology nodes. Our worldwide direct sales force is supported by a significant number of channel representatives and distributors that sell our products throughout North America, South America, Europe, Japan and Asia.

During the third quarter of 2014, we acquired substantially all of the assets of Tahoe RF Semiconductor, Inc. (Tahoe RF) by assuming at that time approximately $446,000 of liabilities of Tahoe RF.  The Company agreed to pay up to an additional $254,000 in Tahoe RF related expenses of which $20,000 has been accrued in other current liabilities on our consolidated balance sheet as of December 31, 2014. Such additional liabilities of Tahoe RF which we may assume in 2015 (up to a total of $254,000), will be recorded as part of the purchase price.  Through the acquisition, we have added 10 employees to our team, who are primarily High-Speed and High-Frequency SiGe RF engineers focused on high growth areas such as E-Band and V-Band wireless technologies. 

Historically, we have incurred net losses. For the years ended December 31, 2014 and 2013, we incurred net losses of $5.8 million and $1.9 million, respectively, where the latter included a one-time net gain of approximately $4.8 million pertaining to a litigation settlement.  For the years ended December 31, 2014 and 2013, we had cash inflows from operations of $2,000 and $3.3 million, respectively.  As of December 31, 2014 and 2013, we had an accumulated deficit of $102.3 million and $96.4 million, respectively.

Industry Background

HSC Product Line

Over the past several years, communications networks have undergone significant challenges as network operators have been pursuing more profitable service offerings while reducing operating costs. The growing demand by enterprises and consumers for bandwidth due to the explosion of data, voice and video usage across networks has driven service providers to continuously add higher speed access through Wi-Fi, 4G and 5G long term evolution (LTE), digital subscriber line (DSL), and cable and fiber to the destination (FTTx), as well as converge their separate data, voice and video-media networks into a single IP-based high capacity integrated network to more easily manage and provide these services. High bandwidth applications such as content downloading, video streaming, high-resolution and big-data, social networks, on-line gaming, cloud services and Internet protocol television (IPTV) are challenging network service providers to supply increasing bandwidth to their customers and results in increased network utilization across the entire core and edge of wire-line, wireless and cable networks. Additionally, enterprises and institutions are managing their rapidly escalating demand for data and bandwidth and are upgrading and deploying higher speed local, storage and wide area networks (LANs, SANs and WANs, respectively). The U.S. government, defense and homeland security efforts also add to the demand for bandwidth, as vast amounts of data are generated through sophisticated surveillance and defense network applications that are then transferred via a myriad of terrestrial and satellite communications channels. The U.S. government and its contractors are incorporating optical and high frequency wireless and satellite communications technologies into their systems and infrastructure to address these challenges.

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Optical and wireless networking technologies support higher speeds and added features, and offer greater interoperability to accommodate higher bandwidth requirements at lower cost. Leading network systems vendors are producing optical systems for carriers increasingly based on 100 Gbps and 400 Gbps speeds including multi-service switches, dense wave division multiplexing (DWDM) transport terminals, access multiplexers, routers, Ethernet switches and other networking systems. Moreover, these network system vendors now also offer wireless communications systems to address mobile access and backhaul demands with increased bandwidths capable of more than 1 Gbps, more so for the last kilometer connectivity applications at the dense urban areas. Mirroring the convergence of telecom and datacom networks, these systems vendors are increasingly addressing both telecom and datacom applications and are also looking to integrate their network equipment offerings into a single product. Faced with the technological and cost challenges of building fully integrated systems that can handle data, voice and video, original equipment manufacturers (OEMs) are re-focusing on core competencies of software and systems integration, and relying on outside module and component suppliers for the design, development and supply of critical electro–optic and wireless products that perform the critical transmit and receive functions.  In addition, the carriers are increasing their demands from the OEMs to also provide systems that enable the streaming of high speed information through their entire network which includes both optical and wireless equipment.

Industrial Product Line

Through our Industrial product line, we supply custom ASICs. Customers choose our custom ASICs for a number of reasons, including: to differentiate their products; to reduce cost or power consumption by using one custom IC; or to replace more costly and energy inefficient programmable devices such as field programmable gate arrays (FPGAs).

A custom ASIC makes sense where the merchant market of standard products does not provide a standard product that adequately serves a customer’s particular purpose or application. Many large semiconductor companies offer custom services for high volume customers. However, there is a large market for the next tier of applications where a custom chip is needed but the volumes are smaller and not served by the traditional ASIC suppliers.  Similarly, there is a market for the continuous supply of components to customers facing end-of-life situations for ASICs and FPGAs once supported by other vendors, as well as FPGA replacement, once demand and volume increases, that require cost reduction. This next tier is seeking a fast turn-around from design to production ready components, access to large libraries of pre-validated intellectual property (IP) portfolios, expertise with FPGA conversions and a wide array of ASIC solutions including structured ASICs, custom structured ASICs, and standard cells.

Challenges Faced by our Customers

HSC Product Line

The performance requirements of communications applications and the technical challenges associated with the datacom and telecom markets present difficult obstacles to service providers and Original Equipment Manufacturer (OEM) designers that serve those markets. The core challenges of processing and transmitting high quality broadband streams include:

· Performance: Network system OEMs require faster, higher performance components and systems due to the increasing demands for more bandwidth by network operators. These devices need to interoperate seamlessly with the other components that perform transmit and receive functions while running in some cases at extreme temperatures in a wide variety of operating environments.

· Power consumption: The increase in transmission speeds inherently leads to higher power consumption by the electronic components being used. This in turn results in thermal management challenges due to greater densities being demanded by customers. For instance, in datacenters, there are significant costs to cooling the facility.

· Size: Customers need to maximize the utilization of their central office space, tower space and rack size and therefore demand small solution footprints to maximize port density. Since 1999, the optical industry has responded by migrating from large line-cards to smaller transponders and pluggable transceivers resulting in significant reduction in size for communications components. This in turn puts severe size constraints on electronic, optical and radio frequency (RF) component suppliers to maintain the pace of size reduction roadmaps without compromising on performance. Similarly, the cellular backhaul segment has migrated from split mount systems to full outdoor units to minimize the equipment footprint at a cell site.

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· Cost: There are significant price pressures within the communications markets to reduce component and system costs. End users continually demand more bandwidth and features yet expect to pay similar or lower prices for this increased data usage. To support this pricing dynamic, the market is driven to increase the efficiency of network operators’ capital investments to provide for exponentially increasing bandwidths with linearly increasing user revenues.

· Complexity: Communications bandwidth increases are no longer being derived solely by driving the physical channel faster, due to the inherent physical limitations of the media. Recent bandwidth gains in both the optical and wireless markets are the result of utilizing complex signaling algorithms that encode more information per signal transition. This increasing technological complexity within communications systems and components, coupled with the growing pace of innovation and required cost reductions, have led customers to concentrate their supply chain on a smaller number of module and component suppliers on whom they can rely to invest in new innovative products and provide them with more comprehensive product portfolios, deeper product expertise and the ability to support future roadmaps.

· Manufacturability: The optical and millimeter wave wireless industries predominantly utilize discrete components in their systems. Many of these components are manufactured by different vendors and these discrete solutions lead to manufacturing inefficiencies and yield reductions. Integration has been a key enabler in the historical success of the silicon IC technology to reduce complexity and cost, improve system performance, and reduce overall size and cost by increasing the functionality that can be implemented on one device and thereby decreasing the component count.

· Interoperability: In order to enable the ever increasing demands of power consumption reduction, size reduction and cost reduction, optical and wireless transceivers need to be designed with a higher level of device integration.

Industrial Product Line

The demands of lower volume custom ASIC customers present a unique set of requirements to the supplier of the ASIC and the associated design services. We believe the key requirements for a successful design and supply of lower volume custom ASICs include:

· Experience: The demands of a custom ASIC design require a dedicated and experienced design team with the ability to execute on designs ranging from simple to complex, while assisting the customer with design assessment, product review and recommendations on the best solution.

· Access to IP portfolios and design libraries: With requirements ranging from industrial, to military and avionics, to medical, to communications, customers require a design team to have access to large design libraries over several families pre-validated IP portfolios with many IP cores while utilizing industry standard design tools.

· Speed of Design: Given the time to market constraints of certain customers and the impending end-of-life of parts for other customers, speed is a critical demand for customers that require custom ASIC chips.  These customers generally require a fast turn-around time with competitive non-recurring engineering (NRE) charges.  The speed and price demands require an efficient design team with a strong record of first-pass silicon success.

Our Solutions

HSC Product Line

We offer a comprehensive portfolio of 2 Gbps to 400 Gbps electro-optical products as we gear up toward the future generation of those products at even higher speeds of 1 terabit per second (Tbps). We provide bundled solutions that combine multiple chips and drivers. We also offer a comprehensive portfolio of MMIC products to support E-band wireless communications and defense markets. We combine high performance analog and mixed signal design skills, with experience in integrated systems, interoperability, power management and size optimization. We believe customers choose to work with us for several reasons including:

Superior Performance: We believe that our performance advantage is derived from industry-leading MMICs, MCMs, drivers, amplifiers and design capabilities. Our technology expertise allows us to design products that often exceed the current performance, power, size, temperature and reliability requirements of our customers.

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Broad Product Line: We have a comprehensive portfolio of products for telecom, datacom, consumer electronics high speed links and interactive interfaces, and defense and industrial applications designed for optical speeds from 3 Gbps to over 400 Gbps and for wireless frequencies up to 86GHz. Our products support a wide range of data rates, protocols, transmission distances and industry standards. This wide product offering allows us to serve as a “one-stop shop” to our customers in offering a comprehensive product arsenal, as well as allowing us to reduce costs as we leverage existing design building-blocks into new applications. Our portfolio comprises a wide family of products and includes mainly, the following products:

· Telecom laser drivers for 10 Gbps, 40 Gbps, 100 Gbps and 400 Gbps applications;

· Telecom receiver TIAs for 10 Gbps, 40 Gbps, 100 Gbps and 400 Gbps applications;

· Datacom vertical-cavity surface-emitting laser (VCSEL) driver & receiver chipsets for single, 4 and 12 channel parallel optics applications from 2 Gbps to 28 Gbps/channel;

· Direct-modulated-laser (DML) drivers for single and 4 channels of 28 Gbps/channel;

· Wideband RF MMIC amplifiers with flat gain response; and

· High Frequency RF MMIC Power Amplifiers with high gain and output power.

Power Consumption and Size Reduction: Our designs and enabling technologies utilize efficient circuit techniques and material technology to reduce energy usage without compromising performance.  Our designs also typically have smaller footprints than competing designs enabling an overall smaller transponder design.

Cost Reduction: We are a material-agnostic fabless design-house and are skilled in designing and utilizing a number of packaging and semiconductor process technologies such as indium phosphide, gallium arsenide, silicon germanium and complementary metal-oxide semiconductor (CMOS) silicon. This portfolio of enabling technologies provides the flexibility to optimize the cost/performance of our products to meet the challenge at hand and to provide the best of breed solutions to meet our customers’ needs. We believe that this, coupled with the ability to integrate more complex logic functions into the TIA designs, offers compelling value to our customers. By providing a broad portfolio of products to our customers we are able to achieve production efficiencies and thus offer attractive pricing.

Partnership: Through a deep understanding both of the system level challenges faced by our customers developing devices, MCMs, and optical transponders and wireless transceivers and of the capabilities of our technology, we are able to suggest and implement new system partitioning concepts to provide innovative new products that provide enhanced features and functionality, ease manufacturing, increase yields and reduce power and cost.

Technology Leadership and Innovation: Our products are built on a foundation of semiconductor technologies supported by over 20 years of innovation and research and development experience that has resulted in more than 100 patents awarded and patent applications pending worldwide. Our technology innovation extends from the design of ultra-high speed semiconductor integrated circuits, monolithic microwave integrated circuit design, multi-chip modules, and optical device design. These areas of competence include signal integrity, thermal modeling, power consumption and integration of multiple ICs into sub-system multi-chip module components. Our many years of experience allow us to design high-performance solutions. For these reasons, we have been selected as a partner for many Tier-1 customers in Japan, USA and Europe.  For example, we were a partner with a leading global equipment supplier to develop 100 Gbps coherent limiting drivers for the first commercially available 100 Gbps system that was launched in 2010. This partnership has grown to encompass the development of new generations of drivers such as the 100 Gbps coherent linear driver that was launched in 2014. Our high performance wideband amplifiers are utilized in a number of mission critical military applications. We conduct our development both independently and in close partnership cooperation with lead “Lighthouse” customers.

Horizontal Business Model: We deploy a fabless semiconductor device horizontal business model as opposed to a vertical integration model since it is our mission to serve a broad customer base in the optical and wireless communications and defense markets with the best-in-class semiconductor components. We believe this will be driven by the system vendor end-customers’ desire for continuing price reduction with increasing volumes and will be enabled by the growth of capable component suppliers such as GigOptix as well as the availability of high quality electronics contract manufacturers (ECMs). We cultivate a “Virtual Vertical Integrated” (VVI^TM) model, which is based on strong relationships with our customers, ECMs and other component vendors in the supply chain with aligned objectives.  We enable flattening and simplifying of the supply chain for faster, more cost-efficient and more effective development and delivery of products to the marketplace which results in more attractive prices.

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Industrial Product Line

We are a leading digital and mixed signal ASIC company with unique technology that allows our customers to reduce their costs, development cycles and risks associated with complex system-on-chip (SoC) and ASIC designs.  We offer value added services designing ASICs and taking these designs to volume production by integrating digital and mixed signal IP and using world renowned third party foundries, as well as fast and low cost conversions of field-programmable gate array (FPGA) devices into ASICs.

Experience: Our team of ASIC designers has a depth and breadth of experience that goes back over 20 years.  We believe our experience and proprietary structured ASIC technology give us an advantage when working with customers with unique and difficult issues and that are looking for quick design turns.  We are able to assist the customer with design assessment, product review and recommendations on the best solution that fits their requirements.

Broad Product Line: We have access to a comprehensive library of pre-validated IP portfolios, and expertise with ASIC and FPGA conversions that allow us to offer a wide array of ASIC solutions including:

· Structured ASIC;

· Custom Structured ASIC;

· Optical ASIC;

· Mixed Signal ASIC; and

· Standard Cell ASIC.

Growth Strategy

Our objective is to be the leading provider of high performance electronic and electro-optic components for the optically and wirelessly connected digital world thus enabling the end to end high speed information streaming on the network through telecom, datacom and consumer-electronic infrastructure, growing through both organic and strategic means. Elements of our strategy include the following:

Focus on High Growth Market Opportunities. We will continue to focus our product development resources on high growth market segments both within the markets we currently serve as well as in new markets that utilize our core technologies. We will continue to invest substantially in high performance products for 100 Gbps, 400 Gbps and beyond optical communications applications. We intend to leverage our extensive knowledge in fiber-optics telecom and datacom communications systems to continue to develop lead devices for high speed links for various emerging consumer electronic applications, such as optical connections, natural interfaces and 3D cameras such as time-of-flight (TOF) cameras. We will also focus on emerging high speed wireless point-to-point E-band and V-band communications enabled by our millimeter 71GHz to 86GHz, and 60GHz, respectively, MMIC solutions. We believe that high growth opportunities exist even within more established communications segments by virtue of introducing innovative device and system architectures as well as business models to disrupt the established players and value chain relationships. Outside of telecom and datacom, we are able to leverage the same designs re-characterized for RF systems for use in defense applications such as phased array radar and super-computers and in certain emerging areas of the consumer electronics market.

Grow Our Customer Base. We intend to continue to broaden our strategic relationship with certain key customers by maximizing design wins across their product lines. We intend to continue to leverage the approved vendor status we have with these key customers to qualify our products into additional optical and wireless systems, a process that is accelerated when we have already been qualified in a customer’s systems. We intend to add to our number of strategic relationships by selectively targeting certain customers with whom we are not yet a strategic vendor. We will expand our development efforts with these customers through initiatives including providing specialized sales and support resources, holding technology forums to align our product development effort with the customers’ needs and implementing custom manufacturing linkages.

Engage Customers Early in their Product Planning Cycle. By engaging our customers early in their system design process, we gain critical information regarding their system requirements and objectives that influence our component design. Our sales force, product marketing teams and development engineers engage regularly with our customers to understand their product development plans. Likewise, our early involvement in their system development processes also enables us to influence standards and introduce differentiated products early to market. Moreover, we believe that this interaction between ourselves and our customers provides us a competitive advantage, valuable insight and a close customer relationship that grows over each generation of products introduced by our customers and allows us to enhance and constantly improve our support and service to those customers.

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Partner for Innovation. Over the past few years, we have successfully partnered with lead “Lighthouse” commercial customers and contract manufacturers on research and development efforts for our electronic components. We see this as a core element of our strategy both to support the investment required to maintain our innovation as well as to align our research and development with the future needs of industry and defense markets. In order to maintain our position at the forefront of next generation optical modules and components, we intend to continue these relationships.  These partnerships with “Lighthouse” customers are generally done for the development of products required in a one to two-year time horizon, and often on a shared investment basis. We believe that this helps us stay aligned with market needs when considering the sometimes significant investment in a new development.

Strategic Acquisitions and Joint Ventures. To augment our organic growth strategy, we actively pursue acquisitions that provide an efficient alternative to in-house development of technology, products or revenue. The synergies we search for include efficient extension of our product offering to strengthen our market position, enhance our technology base, increase our revenue base, and expand our customer base in selected markets to provide cross selling opportunities or to enhance our geographic or market segment presence. We continuously evaluate potential acquisitions against the above criteria. Our process aims to conduct a swift integration to quickly eliminate duplicate and redundant costs thus providing accretive performance.  Where we deem appropriate for facilitating strategic growth, we will also look at entering into joint ventures or strategic licensing or collaborative arrangements as a means of gaining access to and advancing developing technology and products. As an example, in February 2014 we entered into a Joint Venture and Quotaholders Agreement (the Joint Venture Agreement) and established BrPhotonics Produtos Optoeletrônicos LTDA. (BrP) headquartered in Campinas, Brazil, as a new joint venture with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (CPqD), a lead optical and semiconductor development center in Brazil. BrP was formed as a newly-established joint venture company and will be a provider of advanced high-speed devices for optical communications and integrated transceiver components that enable information streaming over communications networks. Under the terms of the Joint Venture Agreement and pursuant the terms of BrP’s amended Articles of Association, we own 49% of the quotas of the capital in BrP, and CPqD owns the remaining 51% of the quotas of the capital of BrP. The Joint Venture Agreement has a term of thirty years, which automatically renews for a period of twenty years unless we or CPqD deliver written notice to the other at least fifteen months, and no later than twelve months, prior to the expiration of the thirty-year term that it wishes to terminate the Joint Venture Agreement.  In addition, during the third quarter of 2014, we acquired substantially all of the assets of Tahoe RF by assuming approximately $446,000 of liabilities.  Through the acquisition, we have added 10 employees to our team, who are primarily High-Speed and High-Frequency SiGe RF engineers focused on high growth areas such as E-Band and V-Band wireless technologies.

Technology and Research and Development

We utilize proprietary technology at many levels within our product development, ranging from basic materials research to sophisticated design concepts, integration and optimization techniques. In addition, we have a proven record of successfully productizing this research and bringing it to market in a swift and seamless manner. Our technology is protected by our patent portfolio and trade secrets developed in deployments with our extensive customer base. Our technologies include ultra-broadband MMIC design, MCM design, innovative ultra-low power laser driver and receiver IC design in silicon germanium, high speed analog and RF IC design, mixed signal IC design, and structured and hybrid ASIC infrastructure.  In particular, the following technology is central to our business:

High Speed Analog Semiconductor Design & Development. One of our core competences is circuit design for optimal signal integrity performance in high speed and high frequency applications. We use a variety of semiconductor processes to implement our designs including III-V processes such as indium phosphide (InP) and gallium arsenide (GaAs) for higher power applications such as long reach telecom transponders, as well as silicon processes such as silicon-germanium (SiGe) for low power consumption parallel optics such as for active-optical-cables (AOCs) for datacom datacenter connectivity as well as consumer electronics high speed links. Through our BrPhotonics joint venture we also drive development of new high speed optical devices using the newly developed technology of silicon-photonics.

Our research and development plans are driven by customer and partner input obtained by our sales and marketing teams, through our participation in various standards bodies, and by our long-term technology and product strategies. We review research and development priorities on a regular basis and advise key customers of our progress to achieve better alignment in our product and technology planning. For new components, research and development is conducted in close collaboration with our contract manufacturing partners to shorten the time to market and optimize the manufacturability of the products.

Products

Our business is made up of two product lines: our HSC products and our Industrial products. Through our product lines, we offer a broad array of solutions over a number of industries.

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Through our HSC product line we design and market products that amplify electrical signals during both the transmission (amplifiers and optical drivers) and reception (TIAs) of optical signals in the transmission of data. We have a comprehensive product portfolio, particularly at data rates that exceed 40 Gbps. The primary target market and application for our products include optical interface modules such as line-cards, transponders and transceivers within telecom and datacom switches and routers, high speed wireless point-to-point millimeter wave systems and defense systems. Our products are critical blocks used in telecom and datacom optical communications networks.  For telecom, these networks range from long haul to metro systems and for datacom, from access to data links to the consumers, where the conversion of data from the electrical domain to the optical domain occurs. Our optical drivers amplify the input digital data stream that is used to directly modulate the laser or to drive an external modulator that acts as a precise shutter to switch on and off the light that creates the optical data stream. At the other end of the optical fiber, our sensitive receiver TIAs detect and amplify the small currents generated by photo-diodes converting the received light into an electrical current. The TIAs amplify the small current signals into a larger voltage signal that can be read by the electronics and processors in the network servers. We supply an optimized component for each type of laser and photo-diode depending upon the speed, reach and required cost. Generally, the shorter the reach is, the higher the volume, the less demanding the product specifications and the greater the pressure to reduce costs. We implement our products in a number of process technologies and have been at the forefront of extracting optimal performance from each technology to be able to address each market segment’s individual requirements in a cost effective manner. Our microwave and millimeter wave amplifiers amplify small signal radio signals into more powerful signals that can be transmitted over long distances to establish high throughput data connections or enable radar based applications.   In some instances, we provide NRE design services for certain custom designs of our high-speed communications components in order to enhance our commercial partnership with these customers. The NRE work is included in development fees and other revenue.

Through our Industrial product line, we offer complex ASIC solutions and design work that are used in a number of applications such as defense and test and measurement applications to enable the high speed processing of complex signals.

Our product portfolio is designed to cover the broad range of solutions needed in these different areas. Our two product lines include the following four product series:

HSC Product Line

GX Series - The GigOptix GX Series of products services both the telecom and datacom markets with a broad portfolio of drivers and TIAs that address 10 Gbps, 40 Gbps, 100 Gbps and 400 Gbps speeds over distances that range from 100 to 10,000 kilometers. The GX Series devices are used in DWDM, SONET/SDH components and those based upon the OIF standards.

HX Series - The GigOptix HX Series of products service the high performance computing (HPC), datacom and consumer markets with a portfolio of parallel VCSEL drivers and TIAs, as well as DML drivers that address 2 Gbps, 10 Gbps, 14 Gbps, 16 Gbps and 28 Gbps channel speeds over a few centimeters to 40 kilometer distances in single, 4 and 12 channel configurations. The HX Series devices are used in proprietary HPC formats, FibreChannel, Infiniband, Ethernet, optical HDMI and super-computing connectivity components.

EX Series - The GigOptix EX Series of products comprise a variety of high performance products that were developed, acquired or licensed over the last few years.  We focus these products on the high frequency E-Band trunk and V-Band small and micro-cell point-to-point-backhaul wireless infrastructure.  These products also address the defense and instrumentation markets where we differentiate ourselves by providing high power, high frequency amplifiers and high gain, broadband devices that exhibit minimal ripple across the frequency spectrum of the device to ensure optimum performance. Moreover, most of our devices have only a single voltage rail supply which both simplifies the board design and improves reliability of the system.

In addition to these three series of products, our prior Thin Film Polymer on Silicon (TFPS^TM) technology is now owned by our joint venture, BrP, which we formed with CPqD. In connection with the inception of BrP, CPqD transferred to BrP its Silicon Photonics (SiPh) technology, optical packaging expertise and design and testing capabilities, DSP and other Semiconductor IP, provided space for the BrP corporate headquarters and the funding for the BrP operations for the first year of the operation.  We transferred into BrP our knowledge-base and intellectual property of TFPS^TM technology. We also transferred to CPqD our inventory related to the TFPS^TM platform and the complete production line equipment that previously resided in the Bothell, Washington, facility for it to use in the BrP joint venture operations.

The roadmap of BrP is expected to include a 100G DP-QPSK Transmitting Optical Sub-Assembly (TOSA) and Receiving Optical Sub-Assembly (ROSA) for CFP2 form-factor reference platforms with the integration of a TFPS^TM modulator.  Future products of BrP are expected to include the development of a next generation 100 Gbps to 1Tbps TOSA and ROSA for CFP4 form factor reference platforms utilizing silicon photonics components. It is expected that BrP’s products will utilize both TFPS^TM and silicon photonics technologies in combination to advance 100 Gbps to 1Tbps fiber-optics long haul, metro links and cloud connectivity. BrP’s unique portfolio of small form factor components are expected to address and enable CFP2 and CFP4 applications by enabling greater network capacity through superior linearization, multi-level modulation, and other advanced techniques, and provide those reference platforms to its customers using the BrP components.

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Industrial Product Line

CX Series - The GigOptix CX Series of products offer a broad portfolio of distinct paths to digital and analog mixed signal ASICs with the capability of supporting designs of up to 10M gates and more in technologies ranging from 0.6µ through 40nm. The CX Series uses our proprietary technology in structured and custom structured ASICs to enable a generic ASIC solution that can be customized for a customer using only a few metal mask layers. This ensures fast turn-around times with significant cost advantages for customers over both FPGA and dedicated ASIC implementations. The CX Series also offers value-added ASIC services including integrating proven digital and mixed signal IP into designs and taking customers designs’ from register transfer level (RTL) or gate-level net list definitions to volume production with major third party foundries. The CX Series has a significant customer base in the industrial, military and avionics, medical and communications markets.

Customers

We have a global customer base in the telecom, datacom, wireless, consumer electronics, defense and industrial electronics markets. Our customers include many of the leading network system vendors worldwide.  During 2014, we sold to major customers including Alcatel-Lucent and other “Tier-One” equipment vendors in the United States, Europe, Japan and Asia, as well as to leading industrial, aerospace and defense companies. The number of leading network systems vendors which supply the global telecom, datacom and wireless markets is concentrated, and so, in turn, is our customer base.  Our customers in the industrial and commercial markets consist of a broader range of companies that design and manufacture electro-optics and high speed information management products. These include medical, industrial, test and measurement, scientific systems, printing engines for high-speed laser printers and defense and aerospace applications.

In fiscal years 2014 and 2013, one customer, Alcatel-Lucent, accounted for 25% and 33% of our total revenues, respectively. During fiscal year 2014 and 2013, no other customer accounted for more than 10% of our total revenues.

Of our total revenues in 2014, 38%, 31% and 29% were generated by customers located in Europe, Asia, and North America, respectively, compared with 43%, 27% and 27% , respectively, for the year ended December 31, 2013. For the year ended December 31, 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 year ended December 31, 2013, 86% of our revenue was contributed by product revenue and 14% of our revenue was contributed by development fees and other revenue.

Manufacturing

During 2011, we received an ISO9001:2008 certification and have maintained it seamlessly since then, including successful completion of a complete renewal audit during 2014. Our foundry and contract manufacturing partners are located in China, Japan, the Philippines, Taiwan, Thailand, and the United States.Some of our contract manufacturing partners that assemble or produce are strategically located close to our customers’ contract manufacturing facilities to shorten lead times and enhance flexibility.

We follow established new product introduction (NPI) processes that help to ensure product reliability and manufacturability by controlling when new products move from the sampling stage to mass production. We have stringent quality control processes in place for both internal and contract manufacturing. We utilize manufacturing planning systems to coordinate procurement and manufacturing to our customers’ forecasts. These processes and systems help us closely coordinate with our customers, support their purchasing needs and product release plans, and streamline our supply chain.

Electronic components: Integrated circuits (ICs) and multi-chip modules (MCMs): For our ICs and MCMs, we use an outsourced contract manufacturing model. We have a clean-room equipped prototype manufacturing and testing facility in our San Jose location which is used to optimize manufacturing and test procedures to achieve internal yield and quality requirements before transferring volume production to our contract manufacturing partners. We develop long-term relationships with strategic contract manufacturing partners to reduce assembly costs and provide greater manufacturing flexibility. The manufacture of some products such as certain low volume, high complexity or customized multi-chip modules may remain in-house during the full production stage to speed time to market and bypass manufacturing transfer costs.

For our less complex packaged chips and bare die products, we typically move new product designs directly to contract manufacturing partners. These products fit easily into a standard fabless semiconductor production flow and ramp up to greater volumes in mass production.

Sales, Marketing and Technical Support

HSC Product Line

In the communications market, we primarily sell our products through our direct sales force supported by a network of manufacturer representatives and distributors. Our sales force works closely with our engineers, product marketing and sales operations teams in an integrated approach to address a customer’s current and future needs. We assign account managers for each strategic customer account to provide a clear interface for our customers. The support provided by our engineers is critical in the product qualification stage. Optical transceiver modules and point-to-point (PtP) microwave and millimeter wireless backhaul transceivers are complex products that are subject to rigorous qualification procedures of both the product and the supplier and these procedures differ from customer to customer. Also, many customers have custom requirements in order to differentiate their products and meet design constraints. Our sales, product marketing and general management personnel interface with our customers’ product development staff to address customization requests, collect market intelligence to define future product development, and represent us in pertinent standards bodies.

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For our key customers, we hold periodic technology forums for their product development teams to interact directly with our research and development teams. These forums provide us insight into our customers’ longer term needs while helping our customers to adjust their plans to the product advances we can deliver. Also, our customers are increasingly utilizing contract manufacturers while retaining design and key component qualification activities. As this trend matures, we continually upgrade our sales operations and manufacturing support to maximize our efficiency, flexibility and coordination with our customers.

Industrial Product Line

In the industrial market, we sell directly to key customers and also sell through a network of manufacturing representatives and distributors to address the broad range of applications and industries in which our products are used. The sales effort is managed by an internal sales team and supported by engineers and our general management and marketing team. Through our customer interactions, we believe that we continually increase our knowledge of each application’s requirements and utilize this information to improve our sales effectiveness and guide product development.

Since inception, we have actively communicated the GigOptix brand worldwide through participation at trade shows and industry conferences, publication of research papers, bylined articles in trade media, advertisements in trade publications and interactive media, interactions with industry press and analysts, press releases and our company website, as well as through print and electronic sales material.

Competition

The market for high speed semiconductor and electro-optic devices is characterized by price competition, rapid technological change, short product life cycles, ever increased number of customers and suppliers, and global competition. While no one company competes against us in all of our product areas, or offers the breadth of our product portfolio, our competitors range from large, international companies offering a wide range of products to smaller companies specializing in narrow markets. Due to the increasing demands for high-speed, high-frequency components, we expect competition to increase the entry of new competitors into our target markets from existing semiconductor suppliers and from the internal operations of some companies producing products similar to ours for their own requirements.

We believe the principal competitive factors impacting all of our products are:

· product performance including size, speed, functionality, operating temperature range, power consumption and reliability;

· price to performance characteristics;

· delivery performance and lead times;

· development relationships with customers;

· time to market;

· breadth of product solutions;

· strong customer relationships;

· sales, technical and post-sales service and support;

· technical partnership in the early stage of product development;

· sales channels;

· ability to drive standards and comply with new industry MSAs and other standards;

· ability to partner with emerging companies to provide differentiating innovative solutions; and

· business and financial stability.

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HSC Product Line

GX Products - In the telecom and datacom segments, we compete with Qorvo, InPhi, Semtech, MicroSemi, Vitesse and M/A-Com. We compete with Qorvo (formerly TriQuint) predominantly in the 10 Gbps, 40 Gbps and 100 Gbps Mach Zehnder driver space; Oki, MicroSemi (formerly Centellax) and Vitesse predominantly in the 10 Gbps EML driver space; InPhi predominately in the TIA, the 40 Gbps and 100 Gbps driver spaces; Semtech predominately in the datacom space; Vitesse in the 10 Gbps TIA receiver space, and M/A-Com predominately in the telecom drivers and TIA space.

HX Products - In the market for physical medium dependent (PMD) ICs we compete with Avago, Finisar, Tyco Electronics (formerly Zarlink), Mellanox via their acquisition of IPtronics, and Semtech. Avago, Finisar and Tyco Electronics are vertically integrated transceiver module manufacturers with in-house PMD IC design capability.

EX Products - Our MMICs compete in the microwave and millimeter wave radio markets, an industry that is intensely competitive. We compete with Qorvo (formerly TriQuint), ADI (formerly Hittite), RFMD, Northrop Grumman (for internal use), Sumitomo and M/A-Com in this product area.

Industrial Product Line

CX Products - Our ASICs compete in the custom integrated circuit industry, an industry that is intensely competitive. In the low to medium volume market, the primary competitors include FPGA manufacturers like Xilinx, Altera, Lattice Semiconductor and Actel Corporation. In the medium to high volume market, there are over 30 companies competing in this market. Companies that we compete with most often include ON Semiconductor, eSilicon, Open Silicon, Faraday, Toshiba and eASIC.

We believe that important competitive factors specific to the custom integrated circuit industry include: Product pricing, time-to-market, product performance, reliability and quality, power consumption, availability and functionality of predefined IP cores, inventory management, access to cutting-edge process technology, track record of successful product execution and achieving first time working silicon, ability to provide excellent applications support and customer service, ability to offer a broad range of ASIC solutions to retain existing customers, and compliance with ITAR.

Patents and Other Intellectual Property Rights

We rely on patent, trademark, copyright and trade secret laws and internal controls and procedures to protect our technology. We believe that a robust technology portfolio that is assessed and refreshed periodically is an essential element of our business strategy. We believe that our success will depend in part on our ability to:

· obtain patent and other proprietary protection for the materials, processes and device designs that we develop;

· enforce and defend patents and other rights in technology, once obtained;

· operate without infringing the patents and proprietary rights of third parties; and

· preserve our company’s trade secrets.

  As of December 31, 2014, we and our subsidiaries have been issued 108 patents and have 6 patent applications pending. Patents have been issued in various countries with the main concentration in the United States. Our patent portfolio covers a broad range of intellectual property including semiconductor design and manufacturing, device packaging, module design and manufacturing and electrical circuit design. We follow well-established procedures for patenting intellectual property. The portfolio also represents a balanced compilation of intellectual property that has been filed by the various companies we have acquired, and hence protects all of our product lines. As of December 31, 2014, we also licensed patented technology from IBM, Northrop Grumman Corporation and the University of Washington. Many of the pending and issued U.S. patents have one or more corresponding international or foreign patents or applications.  Our existing significant U.S. patents will expire between August 2021 and September 2032.

We take extensive measures to protect our intellectual property rights and information. For example, every employee enters into a confidential information, non-competition and invention assignment agreement with us when they join and are reminded of their responsibilities when they leave. We also enter into and enforce a confidential information and invention assignment agreement with contractors.

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We have patents and patents pending covering technologies relating to:

High-Speed Integrated Circuits

· circuit topology to achieve ultra-large frequency bandwidth;

· efficient voltage control circuitry for broadband high voltage drivers; and

· control circuitry to stabilize over temperature gain control functionality.

RF Millimeter wave circuits

· waveguide transitions;

· component interconnect; and

· impedance compensating circuits.

RF Communications systems

· impedance compensating circuits;

· sectorized communications systems;

· sectorized multi-function communications systems; and

· wireless point to multi-point communications systems.

ASICs

· wireless point to multi-point communications;

· customizable integrated circuit devices;

· single metal programmability in a customizable integrated circuit device;

· configurable cell for customizable logic array device;

· in-circuit device, system and method to parallelize design and verification; and

· method of developing application specific integrated circuit devices.

Although we believe our patent portfolio is a valuable asset, the discoveries or technologies covered by the patents, patent applications or licenses may not have commercial value. Issued patents may not provide commercially meaningful protection against competitors. Other parties may be able to design around our issued patents or independently develop technology having effects similar or identical to our patented technology. The scope of our patents and patent applications is subject to uncertainty and competitors or other parties may obtain similar patents of uncertain scope.

Third parties may infringe the patents that we own or license, or claim that our potential products or related technologies infringe their patents. Any patent infringement claims that might be brought by or against our company may cause us to incur significant expenses, divert the attention of our management and key personnel from other business concerns and, if successfully asserted against us, require us to pay substantial damages. In addition, a patent infringement suit against our company could force us to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a patent covering a third party’s intellectual property.

We periodically evaluate our patent portfolio based on our assessment of the value of the patents and the cost of maintaining such patents, and may choose from time to time to let various patents lapse, terminate or be sold.

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Employees

As of December 31, 2014, we had 77 full-time employees, including 39 engineers, mainly electrical and materials; 22 employees in manufacturing, operations, and quality, 8 employees in global sales and marketing and 8 employees in general and administrative. In addition, we utilize the service of a number of independent contractors for various administrative, development, testing and manufacturing functions.

Environmental

Our operations involve the use, generation and disposal of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We believe that our products and operations at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated.

Government Regulations

We are subject to federal, state and local laws and regulations relating to the generation, handling, treatment, storage and disposal of certain toxic or hazardous materials and waste products that we use or generate in our operations. We regularly assess our compliance with environmental laws and management of environmental matters, and we believe that our products and operations at our facilities comply in all material respects with applicable environmental laws.

We are also subject to federal procurement regulations associated with U.S. government contracts. Violations of these regulations can result in civil, criminal or administrative proceedings involving fines, compensatory and punitive damages, restitution and forfeitures as well as suspensions or prohibitions from entering into government contracts. The reporting and appropriateness of costs and expenses under government contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an agency of the U.S. Department of Defense. The contracts and subcontracts to which we are a party are also subject to potential profit and cost limitations and standard provisions that allow the U.S. government to terminate such contracts at its convenience. We are entitled to reimbursement of our allowable costs and to an allowance for earned profit if the contracts are terminated by the U.S. government for convenience.

Sales of our products and services internationally may be subject to the policies and approval of the U.S. Department of State and Department of Commerce. Any international sales may also be subject to United States and foreign government regulations and procurement policies, including regulations relating to import-export control such as ITAR, investments, exchange controls and repatriation of earnings.

Where You Can Find More Information

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 free of charge as soon as possible after we electronically file them with, or furnish them to, the SEC. You can access our filings with the SEC by visiting our website. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC. 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 available at www.sec.gov.

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 Annual Report on Form 10-K.  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 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.

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ITEM 1A. RISK FACTORS

You should carefully consider the risks described below as well as the other information contained in this Form 10-K before making an investment decision. In addition to the risks described below, there may be additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may become material risks. Any of these risks could materially affect our businesses, financial condition or results of operations. In such case, you may lose all or part of your original investment.

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 years ended December 31, 2014 and 2013, we incurred net losses of $5.8 million and $1.9 million, respectively. For the years ended December 31, 2014 and 2013, we had cash inflows from operations of $2,000 and $3.3 million, respectively.  As of December 31, 2014 and 2013, we had an accumulated deficit of $102.3 million and $96.4 million, respectively. 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 or 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 face intense competition and expect competition to increase in the future, which could have an adverse effect on our revenue, revenue growth rate, if any, and market share.

The global semiconductor market in general is highly competitive. Increased competition could result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue, revenue growth rates and operating results.  We compete in different target markets to various degrees on the basis of a number of principal competitive factors, including our products’ performance, features and functionality, energy efficiency, size, ease of system design, customer support, products, reputation, reliability and price, as well as on the basis of our customer support, the quality of our product roadmap and our reputation. We expect competition to increase and intensify as more and larger semiconductor companies as well as the internal resources of large, integrated original equipment manufacturers, or OEMs, enter our markets.

Although we believe we currently compete favorably with our competitors, we cannot be certain that we will be able to compete successfully against either current or new competitors in the future.  Our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets and internal engineering groups within device manufacturers, some of which may be our customers.  Some of our competitors which are large public companies have longer operating histories and greater financial, technical, marketing resources than we have.  Our primary competitors include Qorvo, Vitesse, Oki, Inphi, M/A-Com, Semtech, Microsemi, Avago, Finisar, Tyco Electronics (formerly Zarlink) and Mellanox. We expect competition in the markets in which we participate to increase in the future as existing competitors improve or expand their product offerings. In addition, we believe that a number of other public and private companies are in the process of developing competing products for digital television and other broadband communications applications. Because our products often are “building block” semiconductors which provide functions that in some cases can be integrated into more complex integrated circuits, we also face competition from manufacturers of integrated circuits, some of which may be existing customers that develop their own integrated circuit products.

Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. During past periods of downturns in our industry, competition in the markets in which we operate intensified as manufacturers of semiconductors reduced prices in order to combat production overcapacity and high inventory levels. Many of our competitors have substantially greater financial and other resources with which to withstand similar adverse economic or market conditions in the future. Moreover, the competitive landscape is changing as a result of consolidation within our industry as some of our competitors have merged with or been acquired by other competitors, and other competitors have begun to collaborate with each other. These developments may materially and adversely affect our current and future target markets and our ability to compete successfully in those markets.

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.

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In fiscal year 2014, one customer accounted for 25% of total revenue.  In fiscal year 2013, one customer accounted for 33% of total revenue.  During fiscal year 2014 and 2013, no other customers accounted for more than 10% of total revenue.

Average selling prices of our products could decrease rapidly, which could have a material adverse effect on our revenue and gross margins.

We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices. From time to time, we have reduced the average unit price of our products in anticipation of competitive pricing pressures, new product introductions by us or our competitors and for other reasons. We expect that we will have to do so again in the future. If we are unable to offset any reductions in our average selling prices by increasing our sales volumes or introducing new products with higher operating margins, our revenue and gross margins will suffer. To maintain our gross margins, we must develop and introduce new products and product enhancements on a timely basis and continually reduce our and our customers’ costs. Failure to do so could cause our revenue and gross margins to decline.

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 December 31, 2014 increased by $2.9 million or 58% 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.

If we fail to develop and introduce new or enhanced products on a timely basis, our ability to attract and retain customers could be impaired and our competitive position could be harmed.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance and reliability and meet the cost expectations of our customers. The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies, or the emergence of new industry standards could render our existing or future products obsolete. Our failure to anticipate or develop in a timely manner new or enhanced products or technologies in response to technological shifts could result in decreased revenue. In particular, we may experience difficulties with product design, manufacturing, marketing or certification that could delay or prevent our development, introduction or marketing of new or enhanced products. If we fail to introduce new or enhanced products that meet the needs of our customers or penetrate new markets in a timely fashion, we will lose market share and our operating results will be adversely affected.

Our business is subject to foreign currency risk.

Sales to customers located outside of the United States comprised 74% and 76% of GigOptix’s revenue for the years ended December 31, 2014 and 2013, respectively. In addition, we have a subsidiary overseas in Switzerland 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.

We rely on a limited number of third parties to manufacture, assemble and test our products, and the failure to manage our relationships with our third-party contractors successfully could adversely affect our ability to market and sell our products.

In addition to our in-house manufacturing facilities, we operate an outsourced manufacturing business model that utilizes third-party foundry, assembly and test capabilities. As a result, we rely on third-party foundry wafer fabrication and assembly and test capacity, including sole sourcing, for many components or products. Currently, our semiconductor devices are manufactured by foundries operated by IBM Corp., WIN Semiconductors Cayman Islands Co., Ltd., Qorvo, UMC Group, Global Communication Semiconductors LLC., Sumitomo Electric Device, Tower Semiconductor Ltd., and Northrop Grumman Space & Mission Systems. We also use third-party contractors for our assembly and test operations, including, Bourns, SPEL Semiconductor Limited, ASE Group, and Fabrinet.

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Relying on third party manufacturing, assembly and testing presents significant risks to us, including the following:

· failure by us, or our customers or their end customers to qualify a selected supplier;

· capacity shortages during periods of high demand;

· reduced control over delivery schedules and quality;

· shortages of materials and potential lack of adequate capacity during periods of excess demand;

· misappropriation of our intellectual property;

· limited warranties on wafers or products supplied to us;

· potential increases in prices;

· inadequate manufacturing yields and excessive costs;

· difficulties selecting and integrating new subcontractors; and

· political instability in countries where third-party manufacturers are located.

The ability and willingness of our third-party contractors to perform is largely outside our control. If one or more of our contract manufacturers or other outsourcers fails to perform its obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could suffer. For example, in the event that manufacturing capacity is reduced or eliminated at one or more facilities, we could have difficulties fulfilling our customer orders and our net revenue could decline. In addition, if these third parties fail to deliver quality products and components on time and at reasonable prices, we could have difficulties fulfilling our customer orders, our net revenue could decline and our business, financial condition and results of operations would be adversely affected.

The loss of our relationship with any third-party semiconductor foundry without adequate notice would adversely impact our ability to fill customer orders and could damage our customer relationships.

The loss of our relationship with or access to any of the semiconductor foundries we currently use for the fabrication of custom designed components and any resulting delay or reduction in the supply to us of semiconductor devices, would severely impact our ability to fulfill customer orders and could damage our relationships with our customers.  For example, we may not be successful in forming alternative supply arrangements that provide us with a sufficient supply of gallium arsenide devices.  Gallium arsenide devices are used in many of the products we manufacture.  Because there are a limited number of semiconductor foundries that use the gallium arsenide process technologies we select for our products and that have sufficient capacity to meet our needs, using alternative or additional semiconductor foundries would require an extensive qualification process that could prevent or delay product shipments and revenues.  We estimate that it may take up to nine to twelve months to shift production of a given semiconductor circuit design to a new foundry.

Restrictive covenants under our credit facility with Silicon Valley Bank may adversely affect our operations.

If we utilize our loan and security agreement with Silicon Valley Bank, it contains a number of restrictive covenants that will impose significant operating and financial restrictions on our ability to, without prior written approval from Silicon Valley Bank:

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

· sell, lease, or otherwise transfer, or permit any of our subsidiaries to sell, lease or otherwise transfer, all or any part of our business or property, except in the ordinary course of business or in connection with certain indebtedness or investments permitted under the loan and security agreement;

· create, incur, or assume any indebtedness, other than certain indebtedness permitted under the loan and security agreement with Silicon Valley Bank;

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· pay any dividends (except in the form of our equity securities) or make any distributions or payment on, or redeem, retire or repurchase any capital stock; and

· make any investment, other than certain investments permitted under the loan and security agreement.

As of December 31, 2014, we did not have an outstanding balance on our line of credit.  However, if we make future borrowings, a failure to comply with the covenants contained in our loan and security agreement could result in an event of default under the agreement that, if not cured or waived, could result in the acceleration of the indebtedness and have a material adverse effect on our business, financial condition and results of operations.

We do not have any long-term supply contracts with our contract manufacturers or suppliers, and any disruption in our supply of products or materials could have a material adverse effect on our business, revenue and operating results.

We currently do not have long-term supply contracts with any of our third-party vendors. We make substantially all of our purchases on a purchase order basis, and our contract manufacturers are not required to supply us products for any specific period or in any specific quantity. We expect that it would take approximately nine to twelve months to transition performance of our foundry or assembly services to new providers. Such a transition would likely require a qualification process by our customers or their end customers. We generally place orders for products with some of our suppliers approximately four to five months prior to the anticipated delivery date, with order volumes based on our forecasts of demand from our customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate and cost-effective foundry or assembly capacity from our third-party contractors to meet our customers’ delivery requirements, or we may accumulate excess inventories. Our third-party contractors have not provided any assurance to us that adequate capacity will be available to us within the time required to meet additional demand for our products.  In addition, the effects of war, terrorism, natural disaster or other catastrophic events could disrupt our supply of products or materials which could have a material adverse effect on our business, revenue and operating results.

We may require additional capital to continue to fund our operations.  If we need but do not obtain additional capital, we may be required to substantially limit operations.

We may not generate sufficient cash from our operations to finance our anticipated operations for the foreseeable future from such operations.  We could require additional financing sooner than expected if we have poor financial results, including unanticipated expenses, or an unanticipated drop in projected revenues. Such financing may be unavailable when needed or may not be available on acceptable terms. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our current stockholders will be reduced, and these securities may have rights superior to those of its common stock. If adequate funds are not available to satisfy either short-term or long-term capital requirements, or if planned revenues are not generated, we may be required to limit our operations substantially. These limitations of operations may include a possible sale or shutdown of portions of our business, reductions in capital expenditures and reductions in staff and discretionary costs.

We have incurred net losses since inception.  As of December 31, 2014, we had an accumulated deficit of $102.3 million. We have incurred significant losses since inception, attributable to our efforts to design and commercialize our products. We have managed our liquidity during this time through a series of cost reduction initiatives and through increasing our line of credit with our bank. We had $18.4 million in cash and cash equivalents December 31, 2014.  However, while we have additional cash available, our ability to continue as a going concern may be dependent on many events outside of our direct control, including, among other things, obtaining additional financing either privately or through public markets, should this be necessary, and customers purchasing our products in substantially higher volumes.

Because of the shortages of some materials and components and our dependence on single source suppliers and custom components for our products for the optical communications, wireless and ASIC markets, we may be unable to obtain an adequate supply of materials and components of sufficient quality in a timely fashion, or may be required to pay higher prices or to purchase components of lesser quality.

Many of our products for the optical communications, wireless and ASIC markets are customized and must be qualified with our customers.  This means that we cannot change suppliers, materials and components used in our products easily without the risks and delays associated with requalification.  Accordingly, while a number of the components we use in our products are made by multiple suppliers, we may effectively have single source suppliers for many of these materials components.  Further, we have recently experienced extended lead times for some components.

In addition, we currently purchase a number of materials and components, some from single source suppliers, including, but not limited to:

· semiconductor wafers;

· semiconductor devices;

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· application-specific monolithic microwave integrated circuits;

· voltage regulators;

· passive components;

· unusual or low usage components;

· surface mount components compliant with the EU’s Restriction of Hazardous Substances, or RoHS, Directive;

· packages, housings and custom metal parts;

· high-frequency circuit boards;

· custom connectors; and

· chemicals and compounds.

Any delay or interruption in the supply of these or other components could impair our ability to manufacture and deliver these products, harm our reputation and cause a reduction in our revenues.  In addition, any increase in the cost of the components that we use in these products could make these products less competitive and lower our margins.  Shortages and quality issues could adversely impact our revenues.  Our single source suppliers could enter into exclusive agreements with or be acquired by one of our competitors, increase their prices, refuse to sell their products to us, discontinue products or go out of business.  Even to the extent alternative suppliers are available to us and their components are qualified with our customers on a timely basis, identifying them and entering into arrangements with them may be difficult and time consuming, and they may not meet our quality standards.  We may not be able to obtain sufficient quantities of required components on the same or substantially the same terms.

Our business, financial condition and operating results would be harmed if we do not achieve anticipated revenues.

In response to anticipated long lead times to obtain inventory and materials from outside contract manufacturers, suppliers and foundries, we may need to order materials in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors render our products less marketable. If we are forced to hold excess inventory or incur unanticipated inventory write-downs, our financial condition and operating results could be materially harmed.

Our expense levels are relatively fixed and are based on our expectations of future revenue. We have a limited ability to reduce expenses quickly in response to any revenue shortfalls. Changes to production volumes and impact of overhead absorption may result in a decline in our financial condition or liquidity.

Our strategy of growth through acquisitions and spin-outs could harm our business.

It is our intent to continue to grow through strategic acquisitions. Successful integration of newly acquired target companies may place a significant burden on our management and internal resources. The diversion of management’s attention and any difficulties encountered in the transition and integration processes could harm our business, financial condition and operating results. In addition, we may be unable to execute our acquisition strategy, resulting in under-utilized resources and a failure to achieve anticipated growth.  Our operating results and financial condition will be adversely affected if we are unable to achieve or achieve on a timely basis cost revenue opportunities from any future acquisitions, or incur unforeseen costs and expenses or experience unexpected operating difficulties from the integration of acquired businesses.

Our strategy of growth through establishing joint ventures with third-parties could harm our business.

It is our intent to continue to grow through strategic partnerships and joint ventures. Successful inception and funding of new strategic ventures may place a significant burden on our management and internal resources. In February 2014, together with CPqD, the Company incepted a new joint venture, named BrP.   The diversion of management’s attention and any difficulties encountered in the establishment of BrP or any other joint venture could harm our business, financial condition and operating results.   Furthermore, a joint venture involves certain risks including:

· It is possible that we may not (and with BrP we do not) maintain voting control in a joint venture;

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· It may not be possible to maintain good relationships with a joint venture partner;

· Our joint venture partners may in the future have economic or business interests that are inconsistent with our interests;

· Funding, planned for or otherwise, may not come to fruition or be sufficient for operation of a joint venture;

· Parties to a joint venture may fail to fulfill commitments, including providing accurate and timely accounting and financial information;

· It is possible that a joint venture may experience operating difficulties and financial losses, which may lead to asset write-downs or impairment charges that could negatively impact the operating results of the joint venture or us, or impose unforeseen costs and expenses to remedy; and

· It is possible that a joint venture could lose key personnel.

The occurrence of any of the foregoing risks or other failure of a joint venture may mean that we are unable to execute our partnership strategy or achieve on a timely basis revenue opportunities from a joint venture or anticipated growth, or may result in under-utilized resources.

We have made and continue to make strategic investments and enter into strategic licensing and collaborative partnerships and relationships with third parties.  The anticipated benefits of these investments, partnerships and relationships may never materialize and these investments, partnerships and relationships may instead disrupt our business and harm our financial condition.

We have made and will continue to make strategic investments in and enter into strategic licensing and collaborative partnerships and relationships with third parties with the goal of acquiring or gaining access to new and innovative semiconductor products and technologies on a timely basis. Negotiating and performing under these arrangements involves significant time and expense, and we cannot assure you that the anticipated benefits of these arrangements will ever materialize or that the products or technologies involved will ever be commercialized or that, as a result, we will not have write down a portion or all of our investment. We may end up with investments in, or owing various obligations and commitments to, third parties related to these arrangements. Such arrangements can magnify several risks for us, including loss of control over the development and development timeline of products being developed with third parties. Accordingly, we face increased risk that development activities may result in products that are not commercially successful or that are not available in a timely fashion. In addition, any third party with whom we enter into a development, product collaboration or technology licensing arrangement may fail to commit sufficient resources to the project, change its policies or priorities and abandon or fail to perform its obligations related to the collaboration. The failure to timely develop commercially successful products through our development projects or strategic investment activities as a result of any of these and other challenges could have a material adverse effect on our business, results of operations, and financial condition.  Other challenges and risks presented by use of strategic partnerships include:

· The acquisition of a partner with which we have an investment or strategic relationship by an unaffiliated third party that either delays or jeopardizes the original intent of the partnering relationship or investment; and

· Our inability to liquidate an investment in a privately held company when we believe it is prudent to do so which results in a significant reduction in value or loss of our entire investment

Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualification process which does not assure product sales.

Prior to purchasing our products, our customers require that both our products and our third-party contractors undergo extensive qualification processes, which involve testing of the products in the customer’s system and rigorous reliability testing. This qualification process may continue for six months or more. However, qualification of a product by a customer does not assure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision to the product, changes in our customer’s manufacturing process or our selection of a new supplier may require a new qualification process, which may result in delays and in us holding excess or obsolete inventory. After our products are qualified, it can take an additional six months or more before the customer commences volume production of components or devices that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of this product to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.

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We are subject to order and shipment uncertainties, and differences between our estimates of customer demand and product mix and our actual results could negatively affect our inventory levels, sales and operating results.

Our revenue is generated on the basis of purchase orders with our customers rather than long-term purchase commitments. In addition, our customers can cancel purchase orders or defer the shipments of our products under certain circumstances. Our products are manufactured using semiconductor foundry partners according to our estimates of customer demand, which requires us to make separate demand forecast assumptions for every customer, each of which may introduce significant variability into our aggregate estimate. We have limited visibility into future customer demand and the product mix that our customers will require, which could adversely affect our revenue forecasts and operating margins. Moreover, because our target markets are relatively new, many of our customers have difficulty accurately forecasting their product requirements and estimating the timing of their new product introductions, which ultimately affects their demand for our products. In addition, the rapid pace of innovation in our industry could render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or increases in our reserves that could adversely affect our business, operating results and financial condition. Conversely, if we were to underestimate customer demand or if sufficient manufacturing capacity were unavailable, we could forego revenue opportunities, potentially lose market share and damage our customer relationships. In addition, any significant future cancellations or deferrals of product orders or the return of previously sold products due to manufacturing defects could materially and adversely impact our profit margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations.

Winning business is subject to lengthy competitive selection processes that require us to incur significant expenditures. Even if we begin a product design, a customer may decide to cancel or change its product plans, which could cause us to generate reduced and/or delayed revenue from a product and adversely affect our results of operations.

The selection process for obtaining new business typically is lengthy and can require us to incur significant design and development expenditures and dedicate scarce engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. These risks are exacerbated by the fact that some of our customers’ products likely will have short life cycles. Failure to obtain business in a new product design could prevent us from offering an entire generation of a product, even though this has not occurred to date. This could cause us to lose revenue and require us to write off obsolete inventory, and could weaken our position in future competitive selection processes.

After securing new business, we may experience delays in generating revenue from our products as a result of the lengthy development cycle typically required. Our customers generally take a considerable amount of time to evaluate our products. The typical time from early engagement by our sales force to actual product introduction could run from 12 to 24 months. The delays inherent in these lengthy sales cycles increase the risk that a customer will decide to cancel, curtail, reduce or delay its product plans, causing us to lose anticipated sales. In addition, any delay or cancellation of a customer’s plans could materially and adversely affect our financial results, as we may have incurred significant expense and generated no revenue. Finally, our customers’ failure to successfully market and sell their products could reduce demand for our products and materially and adversely affect our business, financial condition and results of operations. If we were unable to generate revenue after incurring substantial expenses to develop any of our products, our business would suffer.

Many of our products will have long sales cycles, which may cause us to expend resources without an acceptable financial return and which makes it difficult to plan our expenses and forecast our revenue.

Many of our products will have long sales cycles that involve numerous steps, including initial customer contacts, specification writing, engineering design, prototype fabrication, pilot testing, regulatory approvals (if needed), sales and marketing and commercial manufacture. During this time, we may expend substantial financial resources and management time and effort without any assurance that product sales will result. The anticipated long sales cycle for some of our products makes it difficult to predict the quarter in which sales may occur. Delays in sales may cause us to expend resources without an acceptable financial return and make it difficult to plan expenses and forecast revenues.

We are subject to the cyclical nature of the semiconductor industry.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The industry experienced a significant downturn during the recent global recession. These downturns have been characterized by diminished product demand, production overcapacity, and high inventory levels and accelerated erosion of average selling prices. The recent downturn and any future downturns could have a material adverse effect on our business and operating results. Furthermore, any upturn in the semiconductor industry could result in increased competition for access to third-party foundry and assembly capacity. We are dependent on the availability of this capacity to manufacture and assemble our products, and our third-party manufacturers have not provided assurances that adequate capacity will be available to us in the future. Those delivery cycles can be in some cases longer than 6 months.

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A large proportion of our products are directed at the telecom, datacom, consumer electronics and networking markets, which continue to be subject to overcapacity and seasonality.

The technology equipment industry is cyclical and has experienced significant and extended downturns in the past, often in connection with, or in anticipation of, maturing product cycles, and capital spending cycles and declines in general economic conditions. The cyclical nature of these markets has led to significant imbalances in demand, inventory levels and production capacity. It has also accelerated the decrease of average selling prices per unit. We may experience periodic fluctuations in our financial results because of these or other industry-wide conditions.  Developments that adversely affect the telecom, datacom, consumer electronics and networking markets, including delays in traffic growth and changes in U.S. government regulation, could halt our efforts to generate revenue or cause revenue growth to be slower than anticipated from sales of electro-optic devices, semiconductors and related products. Reduced spending and technology investment by telecom companies may make it more difficult for our products to gain market acceptance. Our potential customers may be less willing to purchase new technology such as our technology or invest in new technology development when they have reduced capital expenditure budgets.

The spending cuts imposed by the Budget Control Act of 2011 (“BCA”) could impact our operating results and profit.

The U.S. government continues to focus on developing and implementing spending, tax, and other initiatives to stimulate the economy, create jobs, and reduce the deficit. One of these initiatives, the BCA, imposed greater constraints around government spending. In an attempt to balance decisions regarding defense, homeland security, and other federal spending priorities, the BCA immediately imposed spending caps that contain approximately $487 billion in reductions to the Department of Defense base budgets over the next ten years (2013 to 2021). Additionally, the BCA triggered an automatic sequestration process, effective March 1, 2013, unless modified by the enactment of new law. The sequestration process imposes additional cuts of approximately $50 billion per year to the currently proposed Department of Defense budgets for each fiscal year beginning with 2013 and continuing through 2021.

Although we cannot predict where these cuts will be made or how long they may last, we believe our portfolio of product offerings are well positioned and will not be materially impacted by the Department of Defense budget cuts. However, the possibility remains that any Department of Defense budget cuts could have an impact on sales of our products which can be used downstream in military applications, and thus, the revenues which we derive from such sales.

Our future success depends in large part on the continued service of our key senior management, design engineering, sales, marketing, and technical personnel and our ability to identify, hire and retain additional, qualified personnel.

Our future success depends to a significant extent upon the continued service of our senior management personnel, including our Chairman of the Board and Chief Executive Officer, Dr. Avi Katz, our Chief Technical Officer, Andrea Betti-Berutto and our Senior Vice President of Sales and Marketing, Dr. Raluca Dinu. We do not maintain key person life insurance on any of our executive officers. The loss of key senior executives could have a material adverse effect on our business. There is intense competition for qualified personnel in the semiconductor industries, and we may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our business, or to replace engineers or other qualified personnel who may leave our employment in the future. There may be significant costs associated with recruiting, hiring and retaining personnel. Periods of contraction in our business may inhibit our ability to attract and retain our personnel. Loss of the services of, or failure to recruit, key design engineers or other technical and management personnel could be significantly detrimental to our product development or other aspects of our business.

We are subject to the risks frequently experienced by small public companies.

The likelihood of our success must be considered in light of the risks frequently encountered by small public companies, especially those formed to develop and market new technologies. These risks include our potential inability to:

· establish product sales and marketing capabilities;

· establish and maintain markets for our potential products;

· identify, attract, retain and motivate qualified personnel;

· continue to develop and upgrade our technologies to keep pace with changes in technology and the growth of markets using semiconductors;

· develop expanded product production facilities and outside contractor relationships;

· maintain our reputation and build trust with customers;

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· improve existing and implement new transaction processing, operational and financial systems;

· scale up from small pilot or prototype quantities to large quantities of product on a consistent basis;

· contract for or develop the internal skills needed to master large volume production of our products; and

· fund the capital expenditures required to develop volume production due to the limits of available financial resources.

Our future growth will suffer if we do not achieve sufficient market acceptance of our products.

Our success depends, in part, upon our ability to maintain and gain market acceptance of our products. To be accepted, these products must meet the quality, technical performance and price requirements of our existing customers and potential new customers. The optical communications industry is currently fragmented with many competitors developing different technologies. Some of these technologies may not gain market acceptance. Our products may not be accepted by OEMs and systems integrators of optical communications networks and consumer electronics. In addition, even if we achieve some degree of market acceptance for our potential products in one industry, we may not achieve market acceptance in other industries for which we are developing products, which market acceptance is critical to meeting our financial targets.

Many of our current products are either in the final stages of development or are being tested by potential customers. We cannot be assured that our development efforts or customer tests will be successful or that they will result in actual material sales, or that such products will be commercially viable.

Achieving market acceptance for our products will require marketing efforts and the expenditure of financial and other resources to create product awareness and demand by customers. It will also require the ability to provide excellent customer service. We may be unable to offer products that compete effectively due to our limited resources and operating history. Also, certain large corporations may be predisposed against doing business with a company of our limited size and operating history. Failure to achieve broad acceptance of our products by customers and to compete effectively would harm our operating results.

Successful commercialization of current and future products will require us to maintain a high level of technical expertise.

Technology in our target markets is undergoing rapid change. To succeed in these target markets, we will have to establish and maintain a leadership position in the technology supporting those markets. Accordingly, our success will depend on our ability to:

· accurately predict the needs of target customers and develop, in a timely manner, the technology required to support those needs;

· provide products that are not only technologically sophisticated but are also available at a price acceptable to customers and competitive with comparable products;

· establish and effectively defend our intellectual property; and

· enter into relationships with other companies that have developed complementary technology into which our products may be integrated.

We cannot be certain that we will be able to achieve any of these objectives.

The failure to compete successfully could harm our business.

We face competitive pressures from a variety of companies in our target markets. The telecom, datacom, consumer opto-electronics markets are highly competitive and we expect that domestic and international competition will increase in these markets, due in part to deregulation, rapid technological advances, price erosion, changing customer preferences and evolving industry standards. Increased competition could result in significant price competition, reduced revenues or lower profit margins. Many of our competitors and potential competitors have or may have substantially greater research and product development capabilities, financial, scientific, marketing, and manufacturing and human resources, name recognition and experience than we do. As a result, these competitors may:

· succeed in developing products that are equal to or superior to our products or that will achieve greater market acceptance than our products;

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· devote greater resources to developing, marketing or selling their products;

· respond more quickly to new or emerging technologies or scientific advances and changes in customer requirements, which could render our technologies or potential products obsolete;

· introduce products that make the continued development of our potential products uneconomical;

· obtain patents that block or otherwise inhibit our ability to develop and commercialize potential products;

· withstand price competition more successfully than us;

· establish cooperative relationships among themselves or with third parties that enhance their ability to address the needs of prospective customers better than us; and

· take advantage of acquisitions or other opportunities more readily than us.

Competitors may offer enhancements to existing products, or offer new products based on new technologies, industry standards or customer requirements that are available to customers on a much timelier basis than comparable products from our company or that have the potential to replace or provide lower cost alternatives to our products. The introduction of enhancements or new products by competitors could render our existing and future products obsolete or unmarketable. Each of these factors could have a material adverse effect on our company’s business, financial condition and results of operations.

We may be unable to obtain effective intellectual property protection for our trade secrets, potential products and technology.

Any intellectual property that we have or may acquire, license or develop in the future may not provide meaningful competitive advantages. Our patents and patent applications, including those we license, may be challenged by competitors, and the rights granted under such patents or patent applications may not provide meaningful proprietary protection. For example, there are patents held by third parties that relate to electro-optic devices. These patents could be used as a basis to challenge the validity or limit the scope of our patents or patent applications. A successful challenge to the validity or limitation of the scope of our patents or patent applications could limit our ability to commercialize the technology and, consequently, reduce revenues.

Moreover, competitors may infringe our patents or those that we license, or successfully avoid these patents through design innovation. To combat infringement or unauthorized use, we may need to resort to litigation, which can be expensive and time-consuming and may not succeed in protecting our proprietary rights. In addition, in an infringement proceeding, a court may decide that our patents or other intellectual property rights are not valid or are unenforceable, or may refuse to stop the other party from using the intellectual property at issue on the grounds that it is non-infringing. Policing unauthorized use of our intellectual property is difficult and expensive, and we may not be able to, or have the resources to, prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect these rights as fully as the laws of the United States.

We also rely on the law of trade secrets to protect unpatented technology and know-how. We protect this technology and know-how by limiting access to those employees, contractors and strategic partners with a need to know this information and by entering into confidentiality agreements with these parties. Any of these parties could breach the agreements and disclose our trade secrets or confidential information to competitors, or such competitors might learn of the information in other ways. Disclosure of any trade secret not protected by a patent could materially harm our business.

We may be subject to patent infringement claims, or we may be required to defend or indemnify claims of patent infringements by others, which could result in substantial costs and liability and prevent us from commercializing potential products.

Third parties may claim that our potential products or related technologies infringe their patents. Any patent infringement claims brought against us may cause us to incur significant expenses, divert the attention of management and key personnel from other business concerns and, if successfully asserted, require us to pay substantial damages. In addition, as a result of a patent infringement suit, we may be forced to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a patent covering a third party’s intellectual property unless that party grants us rights to use its intellectual property. We may be unable to obtain these rights on acceptable terms, if at all. Even if we are able to obtain rights to a third party’s patented intellectual property, these rights may be non-exclusive, and therefore competitors may obtain access to the same intellectual property. Ultimately, we may be unable to commercialize our potential products or may have to cease some business operations as a result of patent infringement claims, which could severely harm our business.

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If our potential products infringe the intellectual property rights of others, we may be required to indemnify customers for any damages they suffer. Third parties may assert infringement claims against our current or potential customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of these customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be unable to continue selling such products.

The technology that we license from various third parties may be subject to government rights and retained rights of the originating research institution.

We license technology from various companies and entities. Many of these partners and licensors have obligations to government agencies or universities. Under their agreements, a government agency or university may obtain certain rights over the technology that we have developed and licensed, including the right to require that a compulsory license be granted to one or more third parties selected by the government agency.

In addition, our partners often retain certain rights under their licensing agreements, including the right to use the technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether such partners limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to this licensed technology in the event of misuse.

If we fail to develop and maintain the quality of our manufacturing processes, our operating results would be harmed.

The manufacture of our products is a multi-stage process that requires the use of high-quality materials and advanced manufacturing technologies. Manufacturing must occur in a highly controlled, clean room environment to minimize particles and other yield- and quality-limiting contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial percentage of the product in a lot to be defective. If we are unable to develop and continue to improve on our manufacturing processes or to maintain stringent quality controls, or if contamination problems arise, our operating results would be harmed.

The complexity of our products may lead to errors, defects and bugs, which could result in the necessity to redesign products and could negatively impact our reputation with customers.

Products as complex as ours may contain errors, defects and bugs when first introduced or as new versions are released. Delivery of products with production defects, reliability, quality or compatibility problems could significantly delay or hinder market acceptance of our products or result in a costly recall and could damage our reputation and adversely affect our ability to retain existing customers and to attract new customers. In particular, certain products are customized or designed for integration into specific network systems. If our products experience defects, we may need to undertake a redesign of the product, a process that may result in significant additional expenses.

We may also be required to make significant expenditures of capital and resources to resolve such problems. There is no assurance that problems will not be found in new products after commencement of commercial production, despite testing by us, our suppliers and our customers.

Our products may contain component, manufacturing or design defects or may not meet our customers’ performance criteria, which could cause us to incur significant expenses to repair, harm our customer relationships and industry reputation, and reduce our revenues and profitability.

Our product warranties typically last twelve months.  As a result of component, manufacturing or design defects, we may be required to repair or replace a substantial number of products under our product warranties, incurring significant expenses as a result.  Further, our customers may discover latent defects in our products that were not apparent when the warranty period expired.  These latent defects may cause us to incur significant repair or replacement expenses beyond the normal warranty period.  In addition, any component, manufacturing or design defect could cause us to lose customers or revenues or damage our customer relationships and industry reputation.

We could be exposed to significant product liability claims that could be time-consuming and costly and impair our ability to obtain and maintain insurance coverage.

We may be subject to product liability claims if any of our products are alleged to be defective or harmful. Product liability claims or other claims related to our potential products, regardless of their outcome, could require us to spend significant time and money in litigation, divert management’s time and attention from other business concerns, require us to pay significant damages, harm our reputation or hinder acceptance of our products. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially reasonable terms. Any inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could impair our ability to commercialize our products. In addition, certain of our products are sold under warranties. The failure of our products to meet the standards set forth in such warranties could result in significant expenses to us.

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If we fail to effectively manage our growth, and effectively transition from our focus on research and development activities to commercially successful products, our business could suffer.

Failure to manage growth of operations could harm our business. To date, a large number of our activities and resources have been directed at the research and development of our technologies and development of potential related products. The transition from a focus on research and development to being a vendor of products requires effective planning and management. Additionally, growth arising from the expected synergies from future acquisitions will require effective planning and management. Future expansion will be expensive and will likely strain management and other resources.

In order to effectively manage growth, we must:

· continue to develop an effective planning and management process to implement our business strategy;

· hire, train and integrate new personnel in all areas of our business; and

· expand our facilities and increase capital investments.

There is no assurance that we will be able to accomplish these tasks effectively or otherwise effectively manage our growth.

The industry and markets in which we compete are subject to constant consolidation, which may result in stronger competitors, fewer customers and reduced demand.

There has been continuous industry consolidation during the last few years among communications IC companies, network equipment companies and telecom companies. This consolidation is expected to continue as companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, fewer customers and reduced demand, which in turn could have a material adverse effect on our business, operating results, and financial condition.

Our operating results are subject to volume and price fluctuations because we have international sales.

International sales account for a large portion of our revenue and may account for an increasing portion of future revenue. The revenue derived from international sales may be subject to certain risks, including:

· foreign currency exchange fluctuations;

· changes in regulatory requirements;

· tariffs and other barriers;

· timing and availability of export licenses;

· political and economic instability;

· difficulties in accounts receivable collections;

· difficulties in staffing and managing foreign operations;

· difficulties in managing distributors;

· different and flexible holiday vacation periods;

· difficulties in obtaining governmental approvals for communications and other products;

· reduced or uncertain protection for intellectual property rights in some countries;

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· longer payment cycles to collect accounts receivable in some countries;

· the burden of complying with a wide variety of complex foreign laws and treaties; and

· potentially adverse tax consequences.

We are subject to regulatory compliance related to our operations.

We are subject to various U.S. governmental regulations related to occupational safety and health, labor and business practices. Failure to comply with current or future regulations could result in the imposition of substantial fines, suspension of production, alterations of our production processes, cessation of operations, or other actions, which could harm our business.

New regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our business reputation and may adversely impact our ability to conduct our business.

In August 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and derivative metals (referred to as “conflict minerals,” regardless of their actual country of origin) in their products. Some of these metals are commonly used in electronic equipment and devices, including our products. These new requirements will require companies to investigate, disclose and report whether or not such metals originated from the Democratic Republic of Congo or adjoining countries. We have a complex supply chain for the components and parts used in each of our products. We have numerous foreign suppliers, many of whom are not obligated by the new law to investigate their own supply chains. As a result, we may incur significant costs to comply with the diligence and disclosure requirements, including costs related to determining the source of any of the relevant metals used in our products. In addition, because our supply chain is complex, we may not be able to sufficiently verify the origin of all the relevant metals used in our products through the due diligence procedures we implement, which may harm our business reputation. We may have customers who will need to know our conflict mineral status to satisfy their own SEC reporting obligations (if any), and as a result we may also face difficulties in satisfying customers if they require that we prove or certify that our products are “conflict free.” Key components and parts that can be shown to be “conflict free” may not be available to us in sufficient quantity, or at all, or may only be available at significantly higher cost to us. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. Any of these outcomes could adversely impact our business, financial condition or operating results.

Although the SEC has provided temporary relief for products deemed to be “DRC Conflict Undeterminable” if we are unable to determine whether the minerals in our products originated from a covered country or were used to finance or benefit armed groups in the covered countries for a temporary two year period, or in the case of smaller reporting companies such as GigOptix for a period of four years, we will still be required to file a Conflict Minerals Report and include certain disclosures similar to those required for “Not DRC Conflict Free” products, but we will not be required to obtain an audit of that report.  We will nonetheless be required to disclose the steps we have taken or intend to take to mitigate the risk that the conflict minerals in our products are benefitting armed groups in the covered countries.  This additional reporting and compliance burden may increase our expenses and costs related to our supply chain and disclosure requirements.

We may incur a liability arising from our use of hazardous materials.

Our business and facilities are subject to a number of federal, state and local laws and regulations relating to the generation, handling, treatment, storage and disposal of certain toxic or hazardous materials and waste products that are used or generated in our operations. Many of these environmental laws and regulations subject current or previous owners or occupiers of land to liability for the costs of investigation, removal or remediation of hazardous materials. In addition, these laws and regulations typically impose liability regardless of whether the owner or occupier knew of, or were responsible for, the presence of any hazardous materials and regardless of whether the actions that led to their presence were taken in compliance with the law. Our domestic facilities use various chemicals in manufacturing processes that may be toxic and covered by various environmental controls. These hazardous materials may be stored on site. The waste created by use of these materials is transported off-site by an unaffiliated waste hauler. Many environmental laws and regulations require generators of waste to take remedial actions at an off-site disposal location even if the disposal was conducted lawfully. The requirements of these laws and regulations are complex, change frequently and could become more stringent in the future. Failure to comply with current or future environmental laws and regulations could result in the imposition of substantial fines, suspension of production, alteration of production processes, cessation of operations or other actions, which could severely harm our business.

Government regulation of the communications industry could limit the growth of the markets that we serve or could require costly alterations of our current or future products.

The markets that we serve are highly regulated. Communications service providers must obtain regulatory approvals to operate broadband wireless access networks within specified licensed bands of the frequency spectrum.  Further, the Federal Communications Commission and foreign regulatory agencies have adopted regulations that impose stringent RF emissions standards on the communications industry that could limit the growth of the markets that we serve or could require costly alterations of our current or future products.

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We may be unable to export some of our potential products or technology to other countries, convey information about our technology to citizens of other countries or sell certain products commercially, if the products or technology are subject to U.S. export or other regulations.

We are developing certain products that we believe the U.S. government and other governments may be interested in using for military, information gathering or antiterrorism activities. U.S. government export regulations may restrict us from selling or exporting these potential products into other countries, exporting our technology to those countries, conveying information about our technology to citizens of other countries or selling these potential products to commercial customers. We may be unable to obtain export licenses for products or technology if necessary. We currently cannot assess whether national security concerns would affect our potential products and, if so, what procedures and policies we would have to adopt to comply with applicable existing or future regulations.

We are subject to risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.

Various laws and regulations potentially affect the import and export of our products, including export control, tax and customs laws. Furthermore, some customer purchase orders and agreements are governed by foreign laws, which may differ significantly from laws in the United States. As a result, our ability to enforce our rights under such agreements may be limited compared with our ability to enforce our rights under agreements governed by laws in the United States.

There may be a limited public market for our common shares, and the ability of our stockholders to dispose of their common shares may be limited.

Our common shares are traded on the New York Stock Exchange. We cannot foresee the degree of liquidity that will be associated with our common shares. A holder of our common shares may not be able to liquidate his, her or its investment in a short time period or at the market prices that currently exist at the time the holder decides to sell. The market price for our common stock may fluctuate in the future, and such volatility may bear no relation to our performance.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

The sale of our outstanding common stock or shares issuable upon exercise of options or warrants, or the perception that such sales could occur, could cause the market price of our common stock to decline. As of February 27, 2015, we had approximately 32,588,685 shares of common stock outstanding, options to purchase 8,311,319 shares of our common stock, restricted stock units to purchase 1,645,095 shares of our common stock outstanding and warrants to purchase 658,240 shares of our common stock outstanding. These shares of common stock, including shares of common stock issued upon exercise of options and warrants, have either been registered under the Securities Act, and as such are freely tradable without further restriction, or are otherwise freely tradable without restriction (subject to the requirements of Rule 144 under the Securities Act), unless the shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 of the Securities Act. We may issue additional shares of our common stock in the future in private placements, public offerings or to finance mergers or acquisitions.

The exercise of options and warrants and other issuances of shares of common stock or securities convertible into common stock would dilute the interest of our shareholders.

As of February 27, 2015, there were outstanding options to purchase an aggregate of 8,311,319 shares of our common stock at a weighted-average exercise price of $2.33 per share, of which options to purchase 7,425,100 shares at a weighted-average exercise price of $2.36 per share were exercisable as of such date. As of February 27, 2015, there were outstanding restricted stock units to purchase an aggregate of 1,645,095 shares of our common stock at a weighted-average grant date price of $1.48 per share. As of February 27, 2015, there were warrants outstanding to purchase 658,240 shares of our common stock, at a weighted average exercise price of $3.15 per share. The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our capital stock in connection with in connection with vesting of restricted stock units, acquisitions or in connection with other financing efforts.

Any issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised, or if we issue restricted stock, stockholders may experience further dilution.

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In addition, certain warrants to purchase shares of our common stock currently contain an exercise price above the current market price for the common stock (these warrants are known as “above-market” warrants). As a result, these warrants may not be exercised prior to their expiration and we may not realize any proceeds from their exercise.

Our stockholder rights plan may deter or adversely affect an attempt to acquire us or otherwise prevent a change in control.

On December 16, 2014, we entered into an Amended and Restated Rights Agreement to extend the expiration date of our initial stockholder rights plan that was put in place in December 16, 2011.  The Amended and Restated Rights Agreement amends the Rights Agreement previously adopted by (i) extending the expiration date by three years to December 16, 2017, (ii) decreasing the exercise price per right issued to stockholders pursuant to the stockholder rights plan from $8.50 to $5.25, and (iii) making certain other technical and conforming changes. Under the rights plan, we issued a dividend of one preferred share purchase right for each share of our common stock held by stockholders of record as of January 6, 2012, and we will issue one preferred stock purchase right to each share of common stock issued by us between January 6, 2012 and the earlier of either the rights’ exercisability or the expiration of the rights agreement. Each right entitles stockholders to purchase one one-thousandth of our Series A Junior Preferred Stock. In addition, in connection with the Amended and Restated Rights Agreement, on December 15, 2014, we adopted an Amended and Restated Certificate of Designation of Series A Junior Preferred Stock, which increased the number of authorized shares of Series A Junior Preferred Stock from 300,000 shares to 750,000 shares, and sets forth the rights, preferences and privileges of the Series A Junior Preferred Stock. Each share of Series A Junior Preferred stock retains the rights, preferences and privileges set forth above from the Original Certificate of Designation regarding redemption, dividends, voting rights, and liquidation preference.

In general, the exercisability of the rights to purchase preferred stock will be triggered if any person or group, including persons knowingly acting in concert to affect our control, is or becomes a beneficial owner of 10% or more of the outstanding shares of our common stock after the Adoption Date.  Stockholders or beneficial ownership groups who owned 10% or more of the outstanding shares of our common stock on or before the Adoption Date will not trigger the preferred share purchase rights unless they acquire an additional 1% or more of the outstanding shares of our common stock. Each right entitles a holder with the right upon exercise to purchase one one-thousandth of a share of preferred stock at an exercise price that is currently set at $5.25 per right, subject to purchase price adjustments as set forth in the rights agreement. Each share of preferred stock has voting rights equal to one thousand shares of common stock. In the event that exercisability of the rights is triggered, each right held by an acquiring person or group would become void. As a result, upon triggering of exercisability of the rights, there would be significant dilution in the ownership interest of the acquiring person or group, making it difficult or unattractive for the acquiring person or group to pursue an acquisition of us.  These rights expire in December of 2017, unless earlier redeemed or exchanged by us.

Our quarter-to-quarter performance may vary substantially, and this variance, as well as general market conditions, may cause our stock price to fluctuate greatly and potentially expose us to litigation.

The revenues for our product lines and our quarterly operating results may vary significantly based on many factors, including:

· additions of new customers;

· fluctuating demand for our products and technologies;

· announcements or implementation by competitors of technological innovations or new products;

· the status of particular development programs and the timing of performance under specific development agreements;

· timing and amounts relating to the expansion of operations;

· costs related to possible future acquisitions of technologies or businesses;

· communications, information technology and semiconductor industry conditions;

· fluctuations in the timing and amount of customer requests for product shipments;

· the reduction, rescheduling or cancellation of orders by customers, including as a result of slowing demand for our products or our customers’ products;

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· changes in the mix of products that our customers buy;

· competitive pressures on selling prices;

· the ability of our customers to obtain components from their other suppliers;

· fluctuations in manufacturing output, yields or other problems or delays in the fabrication, assembly, testing or delivery of our products or our customers’ products; and

· increases in the costs of products or discontinuance of products by suppliers.

We base our current and future expense estimates, in large part, on estimates of future revenue, which is difficult to predict. We expect to continue to make significant operating and capital expenditures in the area of research and development and to invest in and expand production, sales, marketing and administrative systems and processes. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If our increased expenses are not accompanied by increased revenue in the same quarter, our quarterly operating results would be harmed.

In future quarters, our results of operations may fall below the expectations of investors and the trading price of our common stock may decline as a consequence. We believe that quarter-to-quarter comparisons of our operating results will not be a good indication of future performance and should not be relied upon to predict the future performance of our stock price. In the past, companies that have experienced volatility in the market price of their stock have often been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation could result in substantial costs and divert our attention from other business concerns, which could seriously harm our business.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may prevent takeover attempts that could be beneficial to our stockholders.

Provisions of our certificate of incorporation and bylaws could discourage a takeover of our company even if a change of control would be beneficial to the interests of our stockholders. These charter provisions include the following:

· a requirement that our Board of Directors be divided into three classes, with approximately one-third of the directors to be elected each year; and

· supermajority voting requirements (two-thirds of outstanding shares) applicable to the approval of any merger or other change of control transaction that is not approved by our continuing directors. The continuing directors are all of the directors as of the effective time of a merger or who are elected to the board upon the recommendation of a majority of the continuing directors.

We have never paid dividends on our capital stock, and we do not anticipate paying cash dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our common stock for the foreseeable future. We currently intend to retain all available funds and future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of potential gain for the foreseeable future.

Our data and information systems and network infrastructure may be subject to hacking or other cyber security threats.  If our security measures are breached and an unauthorized party obtains access to our customer data or our proprietary business information, our information systems may be perceived as being unsecure, which could harm our business and reputation, and our proprietary business information could be misappropriated which could have an adverse effect on our business and results of operations.

In our operations, we store and transmit our proprietary information and that of our customers. We have offices, research and development, and production facilities throughout the world, including key research and development facilities outside of the United States. Our operations are dependent upon the connectivity and continuity of our facilities and operations throughout the world. Despite our security measures, our information systems and network infrastructure may be vulnerable to cyber-attacks or could be breached due to an employee error or other disruption that could result in unauthorized disclosure of sensitive information which has the potential to significantly interfere with our business operations. Breaches of our security measures could expose us to a risk of loss or misuse of this information, litigation and potential liability. Since techniques used to obtain unauthorized access or to sabotage information systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures in advance of such an attack on our systems. In addition, if we select a vendor that uses cyber or “Cloud” storage of information as part of their service or product offerings, despite our attempts to validate the security of such services, our proprietary information may be misappropriated by third parties. In the event of an actual or perceived breach of our security, or the security of one of our vendors, the market perception of the effectiveness of our security measures could be harmed and we could suffer damage to our reputation or our business, or lose existing customers and lose our ability to obtain new customers. Additionally, misappropriation of our proprietary business information could prove competitively harmful to our business.

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ITEM 2. PROPERTIES

Our principal properties as of December 31, 2014 are set forth below:

Location	Square Feet	Principal Use	Ownership	Lease Expiration
Zurich, Switzerland	2,724	Research and Development, Operations	Lease	12-month notice on either March 31 or September 30
Bellevue, Washington	2,086	Research and Development, Operations	Lease	April 30, 2015
San Jose, California	32,805	Administration, Sales, Marketing, Research and Development, Operations	Lease	February 28, 2017
Auburn, California	6,100	Research and Development, Operations	Lease	November 30, 2017

We believe our existing facilities are adequate to meet our current needs and we can renew our existing leases or obtain alternate space on terms that would not have a material impact on our financial results.

ITEM 3. 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.

ITEM 4. MINE SAFETY PROCEDURES

Not Applicable

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NYSE MKT under the symbol “GIG” starting from April 25, 2012. Prior to that time, our common stock traded on the OTC Bulletin Board under the symbol “GGOX” beginning on December 10, 2008. There was no public market for our common stock prior to December 10, 2008. The following table sets forth the low and high sale price of our common stock, based on the last daily sale, in each of our last eight fiscal quarters as quoted on the NYSE MKT and OTC.

	Price per Share of Common Stock
	High		Low
Fiscal 2014 quarter ended:
3/30/2014	$	1.80	$	1.53
6/29/2014	$	1.83	$	1.32
9/28/2014	$	1.38	$	1.17
12/31/2014	$	1.30	$	0.99
Fiscal 2013 quarter ended:
3/31/2013	$	2.10	$	1.05
6/30/2013	$	1.78	$	0.85
9/29/2013	$	1.59	$	1.02
12/31/2013	$	1.92	$	1.22

Also, on February 27, 2015, the most recent practicable date prior to the filing of this Annual Report on Form 10-K, we had approximately 64 stockholders of record and the last reported sale price of our common stock on the NYSE MKT was $1.33 per share.

We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain any future earnings to fund our operations and do not anticipate paying dividends on the common stock in the foreseeable future.

On December 19, 2013, we entered into an underwriting agreement with Roth Capital Partners, LLC relating to a public offering an aggregate of 8,325,000 shares of the Company’s common stock, par value $0.001 per share at a public offering price of $1.42 per share. 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 and the sale of additional shares of common stock pursuant to the over-allotment option granted to the underwriters, resulting in the issuance of a total of 9,573,750 common shares of the our common stock in the aggregate. We received $12.3 million from the public offering, which is net of $1.3 million for underwriters, registration and other transaction costs.   More detailed information about the public offering is available below in the section entitled Public Offering on page 47.

On March 23, 2012, we announced the commencement of our modified Dutch auction tender offer to purchase up to $2.0 million in value of our common stock, $0.001 par value per share, at a price not greater than $3.10 nor less than $2.85 per share.

On May 22, 2012, we completed our modified Dutch auction tender offer and repurchased 701,754 shares of our common stock, at a price of $2.85 per share and at a total cost of $2.2 million, which included $209,000 for investment banking, registration and other transaction costs.  The repurchased shares are included as treasury shares in the consolidated balance sheet as of December 31, 2013.

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Equity Compensation Plan Information

The following table reflects information for our equity compensation plans as of December 31, 2014.

Equity Compensation Plan Information

	(a)		(b)		(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options and Restricted Stock Units		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)
Equity compensation plans approved by security holders*		10,717,018	$	2.35		3,540,247

* The terms of our 2008 Equity Incentive Plan provide for an annual increase in the number of shares of our common stock authorized under the plan, effective as of the first day of each subsequent fiscal year, pursuant to the terms and conditions underlined in the plan. On January 1, 2014, the number of additional shares available for issuance under our 2008 Equity Incentive Plan was automatically increased by 1,603,381 shares. On January 1, 2015, the number of additional shares available for issuance under our 2008 Equity Incentive Plan was automatically increased by 1,655,604 shares.

PerformanceMeasurement Comparison

The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on December 31, 2009 in (i) our common stock, (ii) the NASDAQ Stock Market Index (U.S. Companies) and (ii) the NASDAQ Telecommunications Index. Our stock price performance shown in the graph below is not indicative of future stock price performance.

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	12/09	12/10	12/11	12/12	12/13	12/14
GigOptix, Inc.	100.00	130.95	85.71	91.43	72.86	57.14
NASDAQ Composite	100.00	117.43	118.27	138.47	196.27	223.17
NASDAQ Telecommunications	100.00	107.95	96.16	100.40	139.11	148.68

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Not Applicable

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ITEM 7. 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 this Annual Report on Form 10-K. 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” in Item 1A of this Annual Report on Form 10-K and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K,including Note 1—Organization and Basis of Presentation, to such consolidated financial statements and elsewhere as set forth in this Annual Report on Form 10-K. We assume no obligation to update the forward-looking statements or such risk factors. Please see “Special Note Regarding Forward- Looking Statements” above.

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 the needs of emerging high-growth markets, such as long haul and metro telecommunications applications as well as Cloud data communications (datacom) and datacenter connectivity, point-to-point wireless backhaul, and interactive high speed applications for the consumer electronics, industrial, defense and avionics industries. 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 application-specific integrated circuits (ASICs), as well as wireless communications ICs, millimeter monolithic microwave integrated circuits (MMICs) and modules. We believe we are an industry leader in the fast growing market for electronic solutions that enable high-speed optical and wireless connections that are found in telecom, datacom and storage systems, and intend to maintain this position in consumer electronics and computing systems.

The business is made up of two product lines: our High-Speed Communications (HSC) product line and our Industrial product line. Our products are highly customized and typically developed in partnership with key ‘Lighthouse” customers, generating engineering project revenues through the development stage and larger future product revenue through these customers and general market availability.

Through our HSC product line, we offer a broad portfolio of high performance optical and wireless components to telecom and datacom customers, including (i) mixed signal radio frequency integrated circuits (RFIC); (ii) 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; (iii) power amplifiers and transceivers for MMIC wireless applications including power amplifiers and transceiver chips at frequencies higher than 50 GHz; (iv) integrated systems in a package (SIP) solutions for both fiber-optic and wireless applications; and (v) radio frequency (RF) chips for various consumer applications such as global navigation satellite systems (GNSS).

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.

Since inception in July 2007, we have expanded our customer base by acquiring and integrating seven businesses with complementary products and customers. In so doing, we have expanded our device product line in multiple areas, growing our communication device offering from a few leading 10 Gbps ultra-long haul optical drivers, to a line of products that includes: drivers, receivers and TIAs for 2 to 400 Gbps optical applications; power amplifiers; transceiver devices for 50 to 100 GHz; and custom ASICs spanning 0.6um to 40nm technology nodes. Our worldwide direct sales force is supported by a significant number of channel representatives and distributors that sell our products throughout North America, South America, Europe, Japan and Asia.

During the third quarter of 2014, we acquired substantially all of the assets of Tahoe RF Semiconductor, Inc. (Tahoe RF) by assuming at that time approximately $446,000 of liabilities of Tahoe RF.  The Company agreed to pay up to an additional $254,000 in Tahoe RF related expenses of which $20,000 has been accrued in other current liabilities on our consolidated balance sheet as of December 31, 2014. Such additional liabilities of Tahoe RF which we may assume in 2015 (up to a total of $254,000), will be recorded as part of the purchase price.  Through the acquisition, we have added 10 employees to our team, who are primarily High-Speed and High-Frequency SiGe RF engineers focused on high growth areas such as E-Band and V-Band wireless technologies. 

Historically, we have incurred net losses. For the years ended December 31, 2014 and 2013, we incurred net losses of $5.8 million and $1.9 million, respectively, where the latter included a one-time net gain of approximately $4.8 million pertaining to a litigation settlement.  For the years ended December 31, 2014 and 2013, we had cash inflows from operations of $2,000 and $3.3 million, respectively.  As of December 31, 2014 and 2013, we had an accumulated deficit of $102.3 million and $96.4 million, respectively.

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Our total revenues by product line are set forth in the following table (in thousands):

	Years ended December 31,
	2014		2013
HSC	$	22,280	$	19,886
Industrial		10,667		9,040
Total revenue	$	32,947	$	28,926

We market and sell our products in Asia, North America, Europe and other locations through our direct sales force, distributors and sales representatives. The percentage of our sales shipped outside the United States was approximately 74% and 76% in fiscal 2014 and fiscal 2013, respectively. We measure sales location by the shipping destination, even if the customer is headquartered in the U.S. We anticipate that sales to international customers will continue to represent a significant percentage of our net sales.

Our sales are generally made by purchase orders. Since industry practice allows customers to reschedule or cancel orders on relatively short notice, backlog may not be a good indicator of our future sales. Cancellations of customer orders or changes in product specifications could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses.

Since a significant portion of our revenue is from the telecom and datacom markets, our business may be subject to seasonality, with increased revenues in the third and fourth calendar quarters of each year, when customers place orders to meet year-end demand. However, due to the complex nature of the markets we serve and the broad fluctuations in economic conditions in the U.S. and other countries, it is difficult for us to assess the impact of seasonal factors on our business.

We are subject to the risks of conducting business internationally, including economic conditions in Asia, particularly Taiwan, Japan and China, changes in trade policy and regulatory requirements, duties, tariffs and other trade barriers and restrictions, the burdens of complying with foreign laws and, possibly, political instability. Most of our foundries and assembly and test subcontractors are located in Asia. Although our international sales are largely denominated in U.S. dollars, we have foreign operations where expenses are generally denominated in the local currency. Such transactions expose us to the risk of exchange rate fluctuations. We monitor our exposure to foreign currency fluctuations, but have not adopted any hedging strategies to date. There can be no assurance that exchange rate fluctuations will not harm our business and operating results in the future.

Due to the continued uncertain economic conditions, in the markets which we serve, our current or potential customers may delay or reduce purchases of our products, which would adversely affect our revenues and harm our business and financial results.  We expect our business to be adversely impacted by any future downturn in the U.S. or global economies. In the past, industry downturns have resulted in reduced demand and declining average selling prices for our products which adversely affected our business. We expect to continue to experience these adverse business conditions in the event of further downturns.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to product returns, bad debts, inventories, asset impairments, deferred tax assets, accrued warranty reserves, restructuring costs, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We also have other key accounting policies that are less subjective, and therefore, their application would not have a material impact on our reported results of operations. The following is a discussion of our critical accounting policies, as well as the estimates and judgments involved.

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Revenue Recognition

Revenue from sales of optical drivers and receivers, MCMs, ASICs and other products is recognized when persuasive evidence of a sales arrangement exists, transfer of title occurs, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. Revenue for product shipments is recognized upon delivery of the product to the customer. Provisions are made for sales returns and warranties at the time revenue is recorded.

Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations, outside of our standard product warranty. We assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction. Collectibility is assessed based primarily on the credit worthiness of the customer as determined through ongoing credit evaluations of the customer’s financial condition, as well as consideration of the customer’s payment history.

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.  Excluding the revenue and gross profit associated with development programs and other non-product revenue, gross margin was 54% and 54% for the years ended December 31, 2014 and 2013, respectively.

We sell some products to distributors at the price listed in our price book for that distributor. Certain distributor agreements provide for semi-annual stock rotation privileges of 5% to 10% of net sales for the previous six-month period. At the time of sale, we record a sales reserve for stock rotations approved by management. We offset the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations. Each month we adjust the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors. When the distributors pay our invoices, they may claim stock rotations when appropriate. Once claimed, we process the requests against the prior authorizations and reduce the reserve previously established for that customer.  As of December 31, 2014 and 2013, the reserve for stock rotations was $412,000 and $151,000, respectively, and is recorded in other current liabilities on the consolidated balance sheets.

We record transaction-based taxes including, but not limited to, sales, use, value added, and excise taxes, on a net basis in our consolidated statements of operations.

Allowance for Doubtful Accounts

We make ongoing assumptions relating to the collectibility of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the amount of the allowance, we make judgments about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. We also consider our historical level of credit losses. As of December 31, 2014 and 2013, our allowances for doubtful accounts were $48,000 and $220,000, respectively.

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost on a first in, first out basis) or market (net realizable value).  Cost includes labor, material and overhead costs. Determining fair market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. As a result of this analysis, when fair market values are below our costs, we record a charge to cost of revenue in advance of when the inventory is scrapped or sold.

We evaluate our ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes an analysis of historical and forecasted sales quantities by product. Inventories on hand in excess of estimated future demand are written down. In addition, we write-off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles when determining obsolescence. Increases to the provision for excess and obsolete inventory are charged to cost of revenue. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. If this lower-cost inventory is subsequently sold, the related provision is matched to the movement of related product inventory, which may result in lower costs and higher gross margins for those products.

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Our inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than we estimate, we may be required to take additional inventory write-downs.

Long-Lived Assets and Intangible Assets

Long-lived assets include equipment, furniture and fixtures, licenses, leasehold improvements, semiconductor masks used in production and intangible assets. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we test for recoverability based on an estimate of undiscounted cash flows as compared to the asset’s carrying amount. If the carrying value exceeds the estimated future cash flows, the asset is considered to be impaired. The amount of impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. Factors we consider important that could trigger an impairment review include continued operating losses, significant negative industry trends, significant underutilization of the assets and significant changes in the way we plan to use the assets.  In addition, we must use our judgment in determining the groups of assets for which impairment tests are separately performed.

The estimation of future cash flows involves numerous assumptions, which require our judgment, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future-selling prices for our products and future production and sales volumes.

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net purchased tangible and intangible assets acquired and is carried at cost. Goodwill is not amortized, but is reviewed annually for impairment. We perform our annual goodwill impairment analysis in the fourth quarter of each year or more frequently if we believe indicators of impairment exist. Factors that we consider important which could trigger an impairment review include the following:

· significant underperformance relative to historical or projected future operating results;

· significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

· significant negative industry or economic trends; and

· significant decline in the Company’s market capitalization.

When evaluating goodwill for impairment, we may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, we continue to the first step of a two-step impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting unit is determined based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates andassumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparable. We base these fair value estimates on reasonable assumptions but they are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that we determine that the value of goodwill has become impaired, we will record a charge for the amount of impairment during the fiscal quarter in which the determination is made.  We operate in one reporting unit.  We conducted our 2014 annual goodwill impairment analysis in the fourth quarter of 2014 and no goodwill impairment was indicated.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure and assessing temporary differences resulting from differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we establish a valuation allowance or increase this allowance in a period; we will include an additional tax provision in our consolidated statement of operations.

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We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.

Stock-based Compensation

Stock-based compensation is measured at the date of grant, based on the fair value of the award. For options, we amortize the compensation costs on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. For restricted stock units (RSUs), we amortize the compensation costs on a straight-line basis over the requisite service period of the RSU grant, which is generally the vesting term of one to four years. The benefits of tax deductions in excess of recognized compensation expense must be reported as a financing cash flow, rather than as an operating cash flow. This may reduce future net cash flows from operations and increase future net financing cash flows.  All of our stock compensation is accounted for as an equity instrument. We estimate the fair value of stock options granted using a Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, along with certain policy elections, including the options’ expected life and the price volatility of our underlying stock. Actual volatility, expected lives, interest rates and forfeitures may be different from our assumptions, which would result in an actual value of the options being different from estimated.

Expected Term—Our expected term used in the Black-Scholes option-pricing model represents the period that the Company’s stock options are expected to be outstanding and is measured using the technique described in Staff Accounting Bulletin No. 107.

Expected Volatility—Our expected volatility used in the Black-Scholes option-pricing model is derived from a combination of historical and implied volatility of “guideline” companies selected based on similar industry and product focus.

Expected Dividend—We have never paid dividends and currently do not intend to do so, and accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected term of the option.

We make an estimate of expected forfeitures and recognize compensation costs only for those equity awards expected to vest. When estimating forfeitures, we consider voluntary termination behavior as well as an analysis of actual option forfeitures.

For RSUs, stock-based compensation is based on the fair value of our common stock at the grant date. The fair value of RSUs granted is the product of the number of shares granted and the grant date fair value of our common stock. RSUs are converted into shares of our common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee's continuing service.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standard Board (FASB) issued an accounting standard update clarifying the accounting guidance on how to account for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. This standard is effective for periods beginning after December 15, 2015 and early adoption is permitted. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

In May 2014, the FASB issued an accounting standard clarifying the principles for recognizing revenue by amending the FASB Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers.The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. We are currently evaluating the impact of the adoption on our condensed consolidated financial statements.

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Results of Operations

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

The following table sets forth our consolidated results of operations for the fiscal years ended December 31, 2014 and  2013, and the year-over-year increase (decrease) in our results, expressed both in dollar amounts (thousands) and as a percentage of total revenues, except where indicated:

	Years Ended December 31,
	2014						2013
	Amount (in thousands)			% of Revenue			Amount (in thousands)			% of Revenue			Change (in thousands)			% Change
Revenue
Product	$	29,787			90	%	$	24,841			86	%	$	4,946			20	%
Development fees and other		3,160			10	%		4,085			14	%		(925	)		-23	%
Total revenue		32,947			100	%		28,926			100	%		4,021			14	%
Total cost of revenue		13,711			42	%		11,522			40	%		2,189			19	%
Gross profit		19,236			58	%		17,404			60	%		1,832			11	%
Research and development expense		13,732			42	%		13,878			48	%		(146	)		-1	%
Selling, general and administrative expense		10,503			32	%		9,388			32	%		1,115			12	%
Restructuring expense, net		343			1	%		950			3	%		(607	)		-64	%
Special litigation-related expense		-			0	%		(4,786	)		-17	%		4,786			-100	%
Total operating expenses		24,578			75	%		19,430			67	%		5,148			26	%
Loss from operations		(5,342	)		-16	%		(2,026	)		-7	%		(3,316	)		164	%
Interest expense, net		(39	)		0	%		(127	)		0	%		88			69	%
Other income, net		70			0	%		257			1	%		(187	)		-73	%
Loss before provision for income taxes		(5,311	)		-16	%		(1,896	)		-7	%		(3,415	)		180	%
Provision for income taxes		54			0	%		50			0	%		4			8	%
Loss from consolidated companies		(5,365	)		-16	%		(1,946	)		-7	%		(3,419	)		176	%
Loss on equity investment		(456	)		-1	%		-			0	%		(456	)		100	%
Net Loss	$	(5,821	)		-18	%	$	(1,946	)		-7	%	$	(3,875	)		199	%

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Revenue

	Years Ended December 31,
	2014			2013
	(in thousands)
Product	$	29,787		$	24,841
Development fees and other		3,160			4,085
Total revenue	$	32,947		$	28,926
Increase period over period	$	4,021
Percentage increase, period over period		14	%

Total revenue for the year ended December 31, 2014 was $32.9 million, an increase of $4.0 million or 14%, compared with $28.9 million for the year ended December 31, 2013. For the year ended December 31, 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 year ended December 31, 2013, 86% of our revenue was contributed by product revenue and 14% of our revenue was contributed by development fees and other revenue.

Product revenue for the year ended December 31, 2014 was $29.8 million, an increase of $4.9 million or 20%, compared with $24.8 million for the year ended December 31, 2013. The increase in product revenue during 2014 was primarily due to the increased demand for both our HSC and Industrial products.

Development fees and other revenue for the year ended December 31, 2014 was $3.2 million, a decrease of $925,000 or 23%, compared with $4.1 million for the year ended December 31, 2013.   We experienced a decrease in development fees and other revenue primarily due to a decrease in the number and size of development projects in our HSC product line.

Gross Profit and Cost of Revenue

	Years Ended December 31,
	2014			2013
	(in thousands)
Total cost of revenue	$	13,711		$	11,522
Gross profit	$	19,236		$	17,404
Gross margin		58	%		60	%
Increase period over period	$	1,832
Percentage increase, period over period		11	%

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; allocated facilities costs; 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.

Gross profit for the year ended December 31, 2014 was $19.2 million, or a gross margin of 58%, compared to a gross profit of $17.4 million, or a gross margin of 60%, for the year ended December 31, 2013. The decrease in gross margin is primarily due to 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 contingent upon acceptance 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.

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Development project revenue and other non-product revenue for the year ended December 31, 2014 was $3.2 million compared with $4.1 million for the year ended December 31, 2013.  Excluding the revenue and gross profit associated with development programs and other non-product revenue, gross margin was 54% and 54% for the years ended December 31, 2014 and 2013, respectively.

Research and Development Expense

	Years Ended December 31,
	2014			2013
	(in thousands)
Research and development expense	$	13,732		$	13,878
Percentage of revenue		42	%		48	%
Decrease period over period	$	(146	)
Percentage decrease, period over period		-1	%

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 year ended December 31, 2014 was $13.7 million compared to $13.9 million for the year ended December 31, 2013, a decrease of $146,000 or 1%.   Research and development costs decreased in absolute dollars compared to 2013 primarily due to a $253,000 decrease in material and project-related services partially offset by an increase of $102,000 in personnel related expenses.

Selling, General and Administrative Expense

	Years Ended December 31,
	2014			2013
	(in thousands)
Selling, general and administrative expense	$	10,503		$	9,388
Percentage of revenue		32	%		32	%
Increase period over period	$	1,115
Percentage increase, period over period		12	%

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.

Selling, general and administrative expense for the year ended December 31, 2014 was $10.5 million compared to $9.4 million for the year ended December 31, 2013, an increase of $1.1 million or 12%.  Selling, general and administrative expenses increased in absolute dollars compared to 2013 primarily due to a $532,000 increase in stock-based compensation.  In addition, for the year ended December 31, 2014, we had $466,000 in acquisition and strategic activities related costs and $334,000 for a change of executive severance and related costs.

Restructuring Expense, Net

	Years Ended December 31,
	2014			2013
	(in thousands)
Restructuring expense	$	343		$	950
Percentage of revenue		1	%		3	%
Decrease period over period	$	(607	)
Percentage decrease, period over period		-64	%

During the three months ended September 28, 2014, we recorded $36,000 in restructuring expenses to reduce headcount in our engineering team. The component of the restructuring charge included $36,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations.

During the second quarter of 2014, we recorded $307,000 in restructuring expenses in order to end our lease in the Bothell, Washington location and reduce our headcount.The components of the restructuring charge included $43,000 of cash expenses for cleanup services, $210,000 of restricted cash and rent deposit forfeiture to move out of the Bothell facility, $45,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations, and $9,000 of non-cash expenses associated with the acceleration restricted stock units (“RSUs”).

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During 2013, we recorded a restructuring expense of $950,000. 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 Benefit

During 2014, we did not incur any special litigation-related expense.

During 2013, we incurred a special litigation-related benefit of $4.8 million, which was due to a $7.3 million one-time litigation settlement for the M/A-Com (“Optomai”) case, partially offset by $2.5 million of legal fees associated with the Optomai case and $108,000 of legal fees associated with the Advantech case. See Note 14—Legal Settlement of our notes to consolidated financial statements for further detail related to Optomai.

Interest Expense, Net, and Other Income, Net

	Years Ended December 31,
	2014				2013
	(in thousands)
Interest expense, net		$	(39	)	$	(127	)
Other income, net			70			257
Total		$	31		$	130

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 year ended December 31, 2014 was $39,000 compared to $127,000 for the year ended December 31, 2013. Interest expense, net decreased compared to 2013 primarily due to a $50,000 decrease in interest on capital leases and a $34,000 decrease in loan fees.

Other income, net for the year ended December 31, 2014 was income of $70,000 which primarily consisted of $47,000 of gain on foreign currency exchange. Other income, net for the year ended December 31, 2013 was income of $257,000 which primarily consisted of $160,000 gain on the sale of property and equipment and $95,000 gain on sale of materials.

Provision for Income Taxes

	Years Ended December 31,
	2014			2013
	(in thousands)
Provision for income taxes	$	54		$	50
Decrease period over period	$	4
Percentage decrease, period over period		8	%

Income tax expense was $54,000 and $50,000 in the years ended December 31, 2014 and 2013, respectively, and our effective tax rate was approximately less than 1% and 3% for those periods. The income tax provision for the years ended December 31, 2014 and 2013 were due primarily to state taxes, United States withholding taxes and foreign taxes due.  We have incurred book losses in all tax jurisdictions, except Switzerland, and have a full valuation allowance against such losses.

Loss on Equity Investment

In February 2014, together with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (“CPqD”), we incepted a new joint venture, of which we own 49% and CPqD owns 51%, BrPhotonics Produtos Optoeletrônicos LTDA. (“BrP”).  It is based in Campinas, Brazil.  BrP will be a provider of advanced high-speed devices for optical communications and integrated transceiver components for information networks and is engaged in research and development of Silicon-Photonics (“SiPh”) advanced electro-optical products.

For the year ended December 31, 2014, our allocated portion of BrP’s operating results was a loss of $456,000.

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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):

	As of the years ended December 31,
	2014		2013
Cash and cash equivalents	$	18,438	$	20,377

	Years ended December 31,
	2014			2013
Net cash provided by (used in) operating activities	$	2		$	3,321
Net cash used in investing activities	$	(1,119	)	$	(1,376	)
Net cash provided by (used in) financing activities	$	(743	)	$	8,113

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 provided $2,000 of cash in the year ended December 31, 2014.  Our net loss from continuing operations, adjusted for depreciation, stock-based compensation, loss on equity investment, non-cash restructuring expense and other non-cash items, was an income of $2.7 million. The remaining use of $2.7 million of cash in 2014 was primarily due to an increase in accounts receivable of $2.9 million, an increase in inventories of $767,000, an increase in prepaid and other current assets of $707,000 and a decrease in accrued compensation of $440,000 which were partially offset by an increase in accounts payable of $1.8 million and an increase in other current and long-term liabilities of $278,000.

Operating activities provided $3.3 million of cash in the year ended December 31, 2013. Our net loss from continuing operations, adjusted for depreciation, stock-based compensation and other non-cash items, was an income of $6.0 million. The remaining use of $2.7 million of cash in 2013 was primarily due to a decrease in accounts payable of $1.5 million, an increase in prepaid and other current assets of $797,000, an increase in inventories of $506,000, a decrease in other current and long-term liabilities of $203,000 and a decrease in accrued restructuring of $140,000 which were partially offset by an increase in accrued compensation of $324,000.  In addition, we incurred a special litigation-related benefit of $4.8 million, which was due to a $7.3 million one-time litigation settlement for the Optomai case, partially offset by $2.5 million of legal fees associated with the Optomai case.

Investing Activities

Net cash used in investing activities for year ended December 31, 2014 was $1.1 million and consisted of $1.2 million of purchases of property and equipment partially offset by a $75,000 decrease in restricted cash as a deposit for our credit card.

Net cash used in investing activities for year ended December 31, 2013 was $1.4 million and consisted of $1.5 million of purchases of property and equipment partially offset by $160,000 proceeds from sale of property and equipment.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2014 was $743,000 and consisted primarily of $514,000 of taxes paid related to net share settlement of equity awards, $284,000 repayment of capital lease and $176,000 payment of debt assumed in acquisition, which were partially offset by $231,000 of proceeds from issuance of stock.

47

Net cash provided by financing activities during the year ended December 31, 2013 was $8.1 million and consisted primarily of $12.3 million of proceeds from our public offering, net of costs, in December 2013, partially offset by a $3.6 million repayment of the line of credit, $194,000 of taxes paid related to net share settlement of equity awards and $405,000 for capital lease payments.

Historically we have incurred net losses.  For the years ended December 31, 2014 and 2013, we incurred net losses of $5.8 million and $1.9 million, respectively, and cash inflows from operation of $2,000 and $3.3 million respectively. As of December 31, 2014 and 2013, we had an accumulated deficit of $102.3 million and $96.4 million, respectively. We have incurred significant losses since inception, attributable to our efforts to design and commercialize our products. We have managed our liquidity during this time through a series of cost reduction initiatives, raising cash through the sale of our stock, and through increasing our line of credit with our bank and sales of our securities.

Material Commitments

The following table summarizes our future cash obligations for current debt, operating leases, and capital leases, in thousands of dollars, as of December 31, 2014:

Contractual Obligations	Total		Less than One Year		One to Three Years		More than Three Years
Operating lease obligations	$	1,094	$	531	$	563	$	-
Capital lease obligations (including interest)		10		4		6		-
Total	$	1,104	$	535	$	569	$	-

GigOptix did not have any material commitments for capital expenditures as of December 31, 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.

48

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	50
Financial Statements:
Consolidated Balance Sheets—December 31, 2014 and 2013	51
Consolidated Statements of Operations—Years Ended December 31, 2014 and 2013	52
Consolidated Statements of Comprehensive Loss—Years Ended December 31, 2014 and 2013	53
Consolidated Statements of Stockholders’ Equity—Years Ended December 31, 2014 and 2013	54
Consolidated Statements of Cash Flows—Years Ended December 31, 2014 and 2013	55
Notes to Consolidated Financial Statements	56

 49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

of GigOptix, Inc.

We have audited the accompanying consolidated balance sheets of GigOptix, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2014.These consolidated financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GigOptix, Inc. and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

/s/ BURR PILGER MAYER, INC.

San Jose, California

March 17, 2015

50

GIGOPTIX, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	18,438		$	20,377
Accounts receivable, net		7,955			5,021
Inventories		5,139			4,617
Prepaid and other current assets		433			434
Total current assets		31,965			30,449
Property and equipment, net		1,916			2,999
Intangible assets, net		2,394			3,287
Goodwill		10,306			9,860
Restricted cash		53			284
Other assets		116			183
Total assets	$	46,750		$	47,062
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,731		$	831
Accrued compensation		730			1,170
Other current liabilities		2,902			2,746
Total current liabilities		6,363			4,747
Pension liabilities		326			140
Other long term liabilities		556			595
Total liabilities		7,245			5,482
Commitments and contingencies(Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of December 31, 2014 and 2013		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized; 33,112,086 and 32,067,616 shares issued and outstanding as of December 31, 2014 and 2013, respectively		32			32
Additional paid-in capital		143,661			139,710
Treasury stock, at cost; 701,754 shares as of December 31, 2014 and 2013, respectively		(2,209	)		(2,209	)
Accumulated other comprehensive income		285			490
Accumulated deficit		(102,264	)		(96,443	)
Total stockholders’ equity		39,505			41,580
Total liabilities and stockholders’ equity	$	46,750		$	47,062

See accompanying Notes to Consolidated Financial Statements

51

GIGOPTIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Years Ended December 31,
	2014			2013
Revenue
Product	$	29,787		$	24,841
Development fees and other		3,160			4,085
Total revenue		32,947			28,926
Total cost of revenue		13,711			11,522
Gross profit		19,236			17,404
Operating expenses
Research and development expense		13,732			13,878
Selling, general and administrative expense		10,503			9,388
Restructuring expense, net		343			950
Special litigation benefit		-			(4,786	)
Total operating expenses		24,578			19,430
Loss from operations		(5,342	)		(2,026	)
Interest expense, net		(39	)		(127	)
Other income, net		70			257
Loss before provision for income taxes		(5,311	)		(1,896	)
Provision for income taxes		54			50
Loss from consolidated companies		(5,365	)		(1,946	)
Loss on equity investment		456			-
Net loss	$	(5,821	)	$	(1,946	)
Net loss per share—basic and diluted	$	(0.18	)	$	(0.09	)
Weighted average number of shares used in basic and diluted net loss per share calculations		31,851			21,826

See accompanying Notes to Consolidated Financial Statements

52

GIGOPTIX, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Years ended December 31,
	2014			2013
Net loss	$	(5,821	)	$	(1,946	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		(55	)		91
Change in pension liability in connection with actuarial gain (loss)		(150	)		101
Other comprehensive income (loss), net of tax		(205	)		192
Comprehensive loss	$	(6,026	)	$	(1,754	)

See accompanying Notes to Consolidated Financial Statements

53

GIGOPTIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

For each of the two years in the period ended December 31, 2014

	Common Stock				Treasury Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders' Equity
	Shares		Amount		Shares		Amount
Balance as of December 31, 2012		22,205,746	$	22		701,754	$	(2,209	)	$	123,386		$	(94,497	)	$	298		$	27,000
Stock-based compensation		-		-		-		-			4,216			-			-			4,216
Issuance of common stock in connection with exercise of options		12,221		-		-		-			13			-			-			13
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards		275,899		-		-		-			(194	)		-			-			(194	)
Issuance of common stock in connection with the public offering, net of direct issuance costs		9,573,750		10		-		-			12,289									12,299
Foreign currency translation adjustment, net of tax		-		-		-		-			-			-			91			91
Change in pension liability in connection with actuarial loss, net of tax		-		-		-		-			-			-			101			101
Net loss		-		-		-		-			-			(1,946	)		-			(1,946	)
Balance as of December 31, 2013		32,067,616		32		701,754		(2,209	)		139,710			(96,443	)		490			41,580
Stock-based compensation		-		-		-		-			4,234			-			-			4,234
Issuance of common stock in connection with exercise of options		225,678		-		-		-			231			-			-			231
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards		818,792		-		-		-			(514	)		-			-			(514	)
Foreign currency translation adjustment, net of tax		-		-		-		-			-			-			(55	)		(55	)
Change in pension liability in connection with actuarial loss, net of tax		-		-		-		-			-			-			(150	)		(150	)
Net loss		-		-		-		-			-			(5,821	)		-			(5,821	)
Balance as of December 31, 2014		33,112,086	$	32		701,754	$	(2,209	)	$	143,661		$	(102,264	)	$	285		$	39,505

See accompanying Notes to Consolidated Financial Statements

54

GIGOPTIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years ended December 31,
	2014			2013
Cash flows from operating activities:
Net loss	$	(5,821	)	$	(1,946	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		3,656			3,882
Stock-based compensation		4,234			4,216
Change in fair value of warrants		(7	)		(9	)
Write down of property and equipment		8			-
Non-cash restructuring expense		210			(118	)
Loss on equity investment		456			-
Accounts receivable		(2,934	)		35
Inventories		(767	)		(506	)
Prepaid and other current assets		(707	)		(797	)
Other assets		22			45
Accounts payable		1,843			(1,462	)
Accrued restructuring		(29	)		(140	)
Accrued compensation		(440	)		324
Other current liabilities		252			(83	)
Other long-term liabilities		26			(120	)
Net cash provided by operating activities		2			3,321
Cash flows from investing activities:
Purchases of property and equipment		(1,194	)		(1,536	)
Proceeds from sale of property and equipment		-			160
Change in restricted cash		75			-
Net cash used in investing activities		(1,119	)		(1,376	)
Cash flows from financing activities:
Proceeds from public offering of stock, net of costs		-			12,299
Proceeds from issuance of stock		231			13
Taxes paid related to net share settlement of equity awards		(514	)		(194	)
Net borrowings on line of credit		-			(3,600	)
Payment of debt assumed in acquisition		(176	)		-
Repayment of capital lease		(284	)		(405	)
Net cash provided by (used in) financing activities		(743	)		8,113
Effect of exchange rates on cash and cash equivalents		(79	)		172
Net increase (decrease) in cash and cash equivalents		(1,939	)		10,230
Cash and cash equivalents at beginning of year		20,377			10,147
Cash and cash equivalents at end of year	$	18,438		$	20,377
Supplemental disclosure of cash flow information
Interest paid	$	41		$	127
Property, plant and equipment acquired under capital lease	$	-		$	13
Property, plant and equipment acquired with accounts payable	$	83		$	23
Investment in unconsolidated affiliate acquired with property and equipment and inventories	$	456		$	-
Liabilities assumed in acquisition	$	446		$	-
Taxes paid	$	300		$	42

See accompanying Notes to Consolidated Financial Statements

55

GIGOPTIX, INC.

NOTES TO 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. Its products address the needs of emerging high-growth markets, such as long haul and metro telecommunications (“telecom”) applications, as well as Cloud data communications (“datacom”) and datacenter connectivity, point-to-point wireless backhaul, and interactive high speed applications for the consumer electronics, 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.  Its products are highly customized and typically developed in partnership with key ”Lighthouse” customers, generating engineering project revenues through the development stage and larger future product revenue through these customers and general market availability.

The HSC product line offers a broad portfolio of high performance optical and wireless components to telecom and datacom customers, including (i) mixed signal radio frequency integrated circuits (“RFIC”); (ii) 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; (iii) power amplifiers and transceivers for microwave and millimeter monolithic microwave integrated circuit (“MMIC”) wireless applications including power amplifiers and transceiver chips at frequencies higher than 50 GHz; (iv) integrated systems in a package (“SIP”) solutions for both fiber-optic and wireless applications; and (v) radio frequency (“RF’) chips for various consumer applications such as global navigation satellite systems (“GNSS”).

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.

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; however it is in the process of being dissolved.

In February 2014, together with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (“CPqD”), the Company formed 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.  During the second quarter of 2014, the Company transferred its inventory related to the Thin Film Polymer on Silicon (“TFPS^TM”) platform and the production line equipment for use by BrP (see also Note 9).

In June 2014, the Company signed a definitive agreement to acquire, for cash only by way of assuming specified liabilities, substantially all of the assets of Tahoe RF Semiconductor, Inc. (“Tahoe RF”), a provider of RF/analog RFICs, intellectual property, and fully integrated systems and subsystems on a chip. That acquisition closed on June 30, 2014, which was the first day of the Company’s third quarter of fiscal 2014.

Basis of Presentation

The Company’s fiscal year ends on December 31.  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, reserves for stock rotation rights, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identified intangible assets and goodwill, valuation of deferred taxes and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and to estimate the carrying value of its warrant liability. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

56

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, its business can be affected by a variety of factors. For example, changes in any of the following areas could have a negative effect in terms of its future financial position, results of operations or cash flows: a downturn in the overall semiconductor industry or communications semiconductor market; regulatory changes; fundamental changes in the technology underlying telecom products or incorporated in customers’ products; market acceptance of its products under development; litigation or other claims against the Company; litigation or other claims made by the Company; the hiring, training and retention of key employees; integration of businesses acquired; successful and timely completion of product development efforts; and new product introductions by competitors.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities. The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that the Company will be required to sell the security prior to any anticipated recovery in fair value. When there is no readily available market data, fair value estimates may be made by the Company, which may not necessarily represent the amounts that could be realized in a current or future sale of these assets.

Revenue Recognition

Revenue from sales of optical drivers and receivers, multi-chip modulators, and other products is recognized when persuasive evidence of a sales arrangement exists, transfer of title occurs, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. Provisions are made for warranties at the time revenue is recorded. See Note 13—Commitments and Contingencies for further detail related to the warranty provision.

Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations, outside of standard product warranty. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction. Collectibility is assessed based primarily on the credit worthiness of the customer as determined through ongoing credit evaluations of the customer’s financial condition, as well as consideration of the customer’s payment history.

The Company records revenue from non-recurring engineering projects associated with product development that the Company enters into with certain customers.  In general, these projects are associated with complex technology development, and as such the Company does not have certainty about its ability to achieve the program milestones. Achievement of the milestone is dependent on the Company’s performance and is typically accepted by the customer.  The payment associated with achieving the milestone is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable.  Therefore, the Company records the expenses related to these projects in the periods incurred and recognizes revenue only when the Company has earned the revenue and achieved the development milestones. Revenue from these projects are 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 the Company’s overall product development programs beyond the specific project requested by our customer.

The Company sells some products to distributors at the price listed in its price book for that distributor. The Company's distributor agreements provide for semi-annual stock rotation privileges of 5% to 10% of net sales for the previous six-month period. At the time of sale, the Company records a sales reserve for stock rotations approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors. When the distributors pay the Company's invoices, they may claim stock rotations when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.  As of December 31, 2014 and 2013, the reserve for stock rotations was $412,000 and $151,000, respectively, and is recorded in other current liabilities on the consolidated balance sheets.

The Company records transaction-based taxes including, but not limited to, sales, use, value added, and excise taxes, on a net basis in its consolidated statements of operations.

57

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectibility of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of December 31, 2014, the Company’s accounts receivable balance was $8.0 million, which was net of an allowance for doubtful accounts of $48,000. As of December 31, 2013, the Company’s accounts receivable balance was $5.0 million, which was net of an allowance for doubtful accounts of $220,000.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained at various financial institutions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. At any time, amounts held at any single financial institution may exceed federally insured limits. The Company believes that the concentration of credit risk in its accounts receivable is substantially mitigated by its credit evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral.

As of December 31, 2014, two customers accounted for 20% and 16% of total accounts receivable.  As of December 31, 2013, two customers accounted for 29% and 17% of total accounts receivable.

For the year ended December 31, 2014, one customer accounted for 25% of total revenue. For the year ended December 31, 2013, one customer accounted for 33% of total revenue.

Concentration of Supply Risk

The Company relies on third parties to manufacture its products, and depends on them for the supply and quality of its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products, or cause it to carry excess or obsolete inventory or redesign its products. The Company relies on a third party for the fulfillment of its customer orders, and the failure of this third party to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products, which could adversely affect the Company’s business.

Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market (net realizable value). Cost includes labor, material and overhead costs. Determining fair market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. As a result of this analysis, when fair market values are below costs, the Company records a charge to cost of revenue in advance of when the inventory is scrapped or sold.

  The Company evaluates its ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes analysis of historical and forecasted sales levels by product against inventories on-hand. Inventories on-hand in excess of estimated future demand are reviewed by management to determine if a write-down is required. In addition, the Company writes-off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles when determining obsolescence. Excess and obsolete inventories are charged to cost of revenue and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

The Company’s inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than forecasted amounts, the Company may be required to take additional inventory write-downs.

58

Property and Equipment

Property and equipment, including leasehold improvements, are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from one to seven years. Leasehold improvements and assets acquired under capital leases are depreciated over the shorter of their estimated useful lives or the remaining lease term of the respective assets. Repairs and maintenance costs are charged to expenses as incurred.

Long-lived Assets and Intangible Assets

Long-lived assets include equipment, furniture and fixtures, licenses, leasehold improvements, semiconductor masks used in production and intangible assets. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the Company tests for recoverability by comparing the estimate of undiscounted cash flows to be generated by the assets against the assets’ carrying amount. If the carrying value exceeds the estimated future cash flows, the assets are considered to be impaired. The amount of impairment equals the difference between the carrying amount of the assets and their fair value. Factors the Company considers important that could trigger an impairment review include continued operating losses, significant negative industry trends, significant underutilization of the assets and significant changes in how it plans to use the assets.

Intangible assets are amortized on a straight-line basis over their estimated economic lives of six to seven years for existing technology, acquired in business combinations;  sixteen years for patents acquired in business combinations, based on the term of the patent or the estimated useful life, whichever is shorter;  one year for order backlog, acquired in business combinations;  ten years for trade name, acquired in business combinations; and six to eight years for customer relationships, acquired in business combinations.

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net purchased tangible and intangible assets acquired and is carried at cost. Goodwill is not amortized, but is reviewed annually for impairment. The Company performs its annual goodwill impairment analysis in the fourth quarter of each year or more frequently if it believes indicators of impairment exist. Factors that it considers important which could trigger an impairment review include the following:

· significant underperformance relative to historical or projected future operating results;

· significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

· significant negative industry or economic trends; and

· significant decline in the Company’s market capitalization.

When evaluating goodwill for impairment, the Company may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, the Company continues to the first step of a two step impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates andassumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. The Company bases these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that the Company determines that the value of goodwill has become impaired, it will record a charge for the amount of impairment during the fiscal quarter in which the determination is made.  The Company operates in one reporting unit.  The Company conducted its 2014 annual goodwill impairment analysis in the fourth quarter of 2014 and no goodwill impairment was indicated.

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Restricted Cash

Restricted cash as of December 31, 2014 was $53,000 which is a security deposit held in an escrow account related to the Company’s facility lease in Zurich, Switzerland.  Restricted cash as of December 31, 2013 was $284,000 which consisted of $58,000 for the Company’s facility lease in Zurich, Switzerland and $151,000 to satisfy the letter of credit provisions of the Company’s Bothell and Washington facility lease.

Pension Liabilities

The Company maintains a defined benefit pension plan covering minimum requirements according to Swiss law for its Zurich, Switzerland employees. The Company recognizes the funded status of its defined benefit pension plan on its consolidated balance sheets and changes in the funded status are reflected in accumulated other comprehensive income, net of tax, a component of stockholders’ equity.

Net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of its pension plans.

Foreign Currency

The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as their functional currency. Accordingly, all assets and liabilities for these subsidiaries are translated into U.S. dollars at the current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these subsidiaries’ financial statements are reported as a separate component of accumulated other comprehensive income, net of tax, a component of stockholders’ equity. The Company records foreign currency transaction gains and losses, realized and unrealized, in other income (expense), net in the consolidated statements of operations. The Company recorded approximately $47,000 of net transaction gain in 2014 and $11,000 of net transaction loss in 2013.

Product Warranty

The Company’s products typically carry a standard warranty period of approximately one year which provides for the repair, rework or replacement of products (at its option) that fail to perform within stated specification. The Company provides for the estimated cost to repair or replace the product at the time of sale. The warranty accrual is estimated based on historical claims and assumes that it will replace products subject to claims.

Shipping Costs

The Company charges shipping costs to cost of revenue as incurred.

Research and Development Expense

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.

Advertising Expense

Advertising costs are expensed as incurred. Advertising expenses, which are recorded in selling, general and administrative expenses, were approximately $29,000 and $46,000 for the years ended December 31, 2014 and 2013, respectively.

Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the fair value of the award. For options, the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. For restricted stock units (“RSU”), the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the RSU grant, which is generally the vesting term of one to four years. The benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. All of the stock compensation is accounted for as an equity instrument.

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For RSUs, stock-based compensation is based on the fair value of the Company’s common stock at the grant date.

Stock-based compensation expense is measured at grant date, based on the estimated fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. The Company uses the Black-Scholes option-pricing model to measure the fair value of its stock-based awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Management estimates expected forfeitures and records the stock compensation expense only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of actual option forfeitures. Forfeitures are required to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on its operating results. The assumptions the Company uses in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes option-pricing model changes significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously.

The fair value of RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock. 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.

Warrants

Warrants issued as equity awards are recorded based on the estimated fair value of the awards at the grant date.  The Company uses the Black-Scholes option-pricing model to measure the fair value of its equity warrant awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Warrants with certain features, including down-round protection, are recorded as liability awards.  These warrants are valued using a Black-Scholes option-pricing model which requires various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.  The warrants are remeasured each reporting period, and the change in the fair value of the liability is recorded as other income (expense), net until the warrant is exercised or cancelled.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding. The number of shares used in the computation of diluted net loss per share is the same as those used for the computation of basic net loss per share as the inclusion of dilutive securities would be anti-dilutive because the Company is in a loss position for the periods presented. Potentially dilutive securities are composed of the incremental common shares issuable upon the exercise of stock options and the vesting of RSUs awards. For purposes of the diluted net loss per share calculation, RSUs, stock options to purchase common stock and warrants to purchase common stock are considered to be dilutive securities.

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of December 31, 2014, and 2013. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be materially impacted.

The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

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Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. Accumulated other comprehensive income in the accompanying consolidated balance sheets includes foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries and its pension liabilities. Comprehensive income (loss) is presented net of income tax and the tax impact is immaterial.

The components of accumulated other comprehensive income (loss) were as follows (in thousands):

	December 31,
	2014			2013
Accumulated comprehensive income:
Foreign currency translation adjustment, net of tax	$	298		$	353
Change in pension liability in connection with actuarial gain, net of tax		(13	)		137
Total	$	285		$	490

NOTE 2—BALANCE SHEET COMPONENTS

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

	December 31,
	2014			2013
Accounts receivable	$	8,003		$	5,241
Allowance for doubtful accounts		(48	)		(220	)
	$	7,955		$	5,021

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

	Life		December 31,
	(In years)		2014			2013
Network and laboratory equipment		3 – 5	$	11,252		$	11,250
Computer software and equipment		2 – 3		3,877			3,928
Furniture and fixtures		3 – 7		165			176
Office equipment		3 – 5		131			137
Leasehold improvements		1 – 5		276			378
				15,701			15,869
Accumulated depreciation and amortization				(13,785	)		(12,870	)
Property and equipment, net			$	1,916		$	2,999

Depreciation and amortization expense related to property and equipment was $2.1 million and $2.2 million for the years ended December 31, 2014 and 2013, respectively.

In addition to the property and equipment above, the Company has prepaid licenses. For the years ended December 31, 2014 and 2013, amortization related to these prepaid licenses was $707,000 and $660,000, respectively.

Inventories consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Raw materials	$	1,676	$	2,103
Work in process		1,421		780
Finished goods		2,042		1,734
	$	5,139	$	4,617

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Other current liabilities consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		334		330
Customer deposits		599		313
Capital lease obligations, current portion		3		284
Sales return reserve		412		151
Other		1,363		1,477
	$	2,902	$	2,746

NOTE 3—FAIR VALUE MEASUREMENTS

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 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)
December 31, 2014:
Assets:
Cash equivalents:
Money market funds	$	12,360	$	12,360	$	-	$	-
	$	12,360	$	12,360	$	-	$	-
Current liabilities:
Liability warrants	$	8	$	-	$	-	$	8
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.

As of December 31, 2014 and 2013, the Company did not have any significant transfers of investments 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 based upon borrowing rates currently available to the Company for loans and capital leases with similar terms.

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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.

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

	As of December 31, 2014			As of December 31, 2013
Stock price	$	1.20		$	1.53
Exercise price	$	2.51		$	2.51
Expected life	2.55 years			3.55 years
Risk-free interest rate		1.10	%		1.30	%
Volatility		69	%		65	%
Fair value per share	$	0.27		$	0.52

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

													Year Ended December 31, 2014					Year Ended December 31, 2013
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value December 31, 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	$	8	$	15		-	$	(7	)		-	$	(9	)	Credit Agreement

The change in the fair value of Level 3 liabilities is as follows (in thousands):

Fair value as of December 31, 2012	$	24
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of December 31, 2013		15
Exercise of warrants		-
Change in fair value		(7	)
Fair value as of December 31, 2014	$	8

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

NOTE 4—INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following (in thousands):

	As of December 31, 2014							As of December 31, 2013
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	3,277	$	(2,119	)	$	1,158	$	3,277	$	(1,697	)	$	1,580
Existing technology		3,783		(2,881	)		902		3,783		(2,473	)		1,310
Order backlog		732		(732	)		-		732		(732	)		-
Patents		457		(402	)		55		457		(397	)		60
Trade name		659		(380	)		279		659		(322	)		337
Total	$	8,908	$	(6,514	)	$	2,394	$	8,908	$	(5,621	)	$	3,287

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During the year ended December 31, 2014 and 2013, amortization of intangible assets was as follows (in thousands):

	December 31, 2014		December 31, 2013
Cost of revenue	$	413	$	484
Selling, general and administrative expense		480		499
	$	893	$	983

Estimated future amortization expense related to intangible assets as of December 31, 2014 is as follows (in thousands):

Years ending December 31,
2015	$	893
2016		869
2017		487
2018		63
2019		82
Total	$	2,394

The Company performs a review of the carrying value of its intangible assets, if circumstances warrant. In its review, it compares the gross, undiscounted cash flows expected to be generated by the underlying assets against the carrying value of those assets. To the extent such cash flows do not exceed the carrying value of the underlying asset; it will record an impairment charge.  During the fourth quarter of 2014, the Company performed an impairment analysis and did not find any indicators of impairment for its intangibles.  The Company did not record an impairment charge on any intangibles, including goodwill, during the years ended December 31, 2014 and 2013.

As of December 31, 2014, the Company had $10.3 million of goodwill in connection with the acquisitions of ChipX, Endwave and Tahoe RF. During the third quarter of 2014, the Company completed its acquisition of Tahoe RF which resulted in $446,000 of goodwill.  During 2014, the Company assumed approximately $446,000 of liabilities of Tahoe RF and added RF/analog RFIC technology to the Company’s product portfolio and approximately 10 employees,  primarily High-Speed and High-Frequency SiGe RF engineers focused on high growth areas such as E-Band and V-Band technologies. The Company agreed to pay up to an additional $254,000 in Tahoe RF related expenses of which $20,000 has been accrued in other current liabilities on the Company’s consolidated balance sheet as of December 31, 2014. Such additional liabilities of Tahoe RF which the Company may assume in 2015 (up to a total of $254,000), will be recorded as part of the purchase price and increase goodwill.  If the final additional assumed grossed-up liabilities are less than $254,000, the Company will pay bonus payments in 2015 to these employees provided certain milestones are met and they remain employed by the Company. In addition, beginning in July 2016 and continuing annually through July 2020, these employees will be entitled to a retention bonus of approximately $100,000 in the aggregate if they remain employed with the Company. These payments will be recorded as compensation expense when incurred.

The consolidated financial statements include the operating results of Tahoe RF from the date of acquisition. Pro forma results of operations for the Tahoe RF acquisition have not been presented because the effect of the acquisition was not material to the Company’s financial results.

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 $7.0 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;

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· 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 December 31, 2014 and 2013.

NOTE 6—STOCKHOLDERS’ EQUITY

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.

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 November 2014, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 shares to 100,000,000 shares 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 750,000 shares have been designated Series A Junior Preferred Stock with powers, preferences and rights as set forth in the amended and restated certificate of designation dated December 15, 2014; 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 December 31, 2014 and 2013, there were no shares of preferred stock issued or outstanding.

On December 16, 2014, the Company entered into an Amended and Restated Rights Agreement to extend the expiration date of its stockholder rights plan that may have the effect of deterring, delaying, or preventing a change in control.  The Amended and Restated Rights Agreement amends the Rights Agreement previously adopted by (i) extending the expiration date by three years to December 16, 2017, (ii) decreasing the exercise price per right issued to stockholders pursuant to the stockholder rights plan from $8.50 to $5.25, and (iii) making certain other technical and conforming changes. The Amended and Restated Rights Agreement was not adopted in response to any acquisition proposal.   Under the rights plan, the Company issued a dividend of one preferred share purchase right for each share of common stock held by stockholders of record as of January 6, 2012, and the Company will issue one preferred stock purchase right to each share of common stock issued between January 6, 2012 and the earlier of either the rights’ exercisability or the expiration of the Rights Agreement. Each right entitles stockholders to purchase one one-thousandth of the Company’s Series A Junior Preferred Stock.

In general, the exercisability of the rights to purchase preferred stock will be triggered if any person or group, including persons knowingly acting in concert to affect the control of the Company, is or becomes a beneficial owner of 10% or more of the outstanding shares of the Company’s common stock after the Adoption Date.  Stockholders or beneficial ownership groups who owned 10% or more of the outstanding shares of common stock of the Company on or before the Adoption Date will not trigger the preferred share purchase rights unless they acquire an additional 1% or more of the outstanding shares of the Company’s common stock. Each right entitles a holder with the right upon exercise to purchase one one-thousandth of a share of preferred stock at an exercise price that is currently set at $5.25 per right, subject to purchase price adjustments as set forth in the rights agreement. Each share of preferred stock has voting rights equal to one thousand shares of common stock. In the event that exercisability of the rights is triggered, each right held by an acquiring person or group would become void. As a result, upon triggering of exercisability of the rights, there would be significant dilution in the ownership interest of the acquiring person or group, making it difficult or unattractive for the acquiring person or group to pursue an acquisition of the Company.  These rights expire in December of 2017, unless earlier redeemed or exchanged by the Company.

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Warrants

As of December 31, 2014, the Company had a total of 658,240 warrants to purchase common stock outstanding under all warrant arrangements.  There were no warrants exercised during the years ended December 31, 2014 and 2013.  During the years ended December 31, 2014 and 2013, 809,999 and 348,800 warrants expired, respectively. Many 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.

				Warrants Outstanding as of December 31,				Warrants Expired During the Year Ended December 31,		Warrants Expired During the Year Ended December 31,
Holder	Exercise Price per Share		Expiration Date	2014		2013		2014		2013
Alliance Advisors LLC	$	1.75	7/20/2014		-		25,000		25,000		-
Bridge Bank	$	2.51	7/7/2017		29,115		29,115		-		-
Warrants issued to PIPE investors	$	2.50	12/28/2013		-		-		-		242,500
Sandgrain Securities Inc.	$	2.50	12/28/2013		-		-		-		4,000
Warrants issued to investors in connection with the Lumera Merger	$	24.00	2/21/2013		-		-		-		22,500
Warrants issued to investors in connection with the Lumera Merger	$	6.08	1/16/2014		-		284,999		284,999		-
Silicon Valley Bank	$	0.73	10/5/2017		4,125		4,125		-		-
Silicon Valley Bank	$	4.00	4/23/2017		125,000		125,000		-		-
Warrants issued to GigOptix LLC executives in connection with the Lumera Merger	$	6.08	7/16/2013		-		-		-		79,800
DBSI Liquidating Trust	$	2.60	4/8/2014		-		500,000		500,000		-
DBSI Liquidating Trust	$	3.00	4/8/2015		500,000		500,000		-		-
					658,240		1,468,239		809,999		348,800

Equity Incentive Plan

As of December 31, 2014 and 2013, there were 8,801,160 options and 10,306,671 options outstanding under all stock option plans.  As of December 31, 2014 and 2013, there were 1,915,858 and 1,313,801 RSUs outstanding under the 2008 Equity Incentive Plan. 

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, 2014, the stockholders had approved 16,624,634 shares for future issuance. On January 1, 2014, there was an automatic increase of 1,603,381 shares. As of December 31, 2014, 10,274,154 options to purchase common stock and RSUs were outstanding and 3,540,247 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 incentive stock option (“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 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 December 31, 2014, options to purchase a total of 376,436 shares of common stock and 4,125 warrants to purchase common stock were outstanding.

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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 December 31, 2014, no additional options can be granted under the Lumera Plan, and options to purchase a total of 66,428 shares of common stock were outstanding.

Stock-based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense for fiscal years 2014 and 2013 (in thousands):

	Years ended December 31,
	2014		2013
Cost of revenue	$	336	$	263
Research and development expense		1,100		1,034
Selling, general and administrative expense		2,789		2,257
Restructuring expense		9		662
	$	4,234	$	4,216

For the year ended December 31, 2014, the $4.2 million of stock-based compensation expense included $9,000 in restructuring expense to accelerate the vesting of stock options (see Note 8 - Restructuring).

For the year ended December 31, 2013, the $4.2 million of stock-based compensation expense included $662,000 in restructuring expense to accelerate the vesting of stock options (see Note 8 - Restructuring).

During the years ended December 31, 2014 and 2013, the Company granted options to purchase 25,000 and 689,010 shares of common stock, respectively, with an estimated total grant-date fair value of $28,000 and $436,000, respectively, or $1.10 and $0.63 per share, respectively.

During the year ended December 31, 2014, the Company granted 1,954,085 RSUs with a grant-date fair value of $3.3 million, or $1.67 per share.  During the year ended December 31, 2013, the Company granted 1,578,373 RSUs with a grant-date fair value of $1.8 million, or $1.16 per share.

As of December 31, 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 $1.4 million and $2.3 million, respectively. Unrecognized compensation will be amortized on a straight-line basis over a weighted-average period of approximately 1.44 years for stock options and approximately 3.11 years for RSUs.

The Company generally estimates the fair value of stock options granted using a Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, including the options expected life and the price volatility of the Company’s underlying stock. Actual volatility, expected lives, interest rates and forfeitures may be different from the Company’s assumptions, which would result in an actual value of the options being different from estimated. This fair value of stock option grants is amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The majority of the stock options that the Company grants to its employees provide for vesting over a specified period of time, normally a four-year period, with no other conditions to vesting.   However, the Company may also grant stock options for which vesting occurs not only on the basis of elapsed time, but also on the basis of specified company performance criteria being satisfied.  In this case, the Company makes a determination regarding the probability of the performance criteria being achieved and uses a Black-Scholes option-pricing model to value the options incorporating management’s assumptions for the expected holding period, risk-free interest rate, stock price volatility and dividend yield. Compensation expense is recognized ratably over the vesting period, if it is expected that the performance criteria will be met.

The fair value of the Company’s stock options granted to employees was estimated using the following weighted-average assumptions:

Expected Term—Expected term used in the Black-Scholes option-pricing model represents the period that the Company’s stock options are expected to be outstanding and is measured using the technique described in Staff Accounting Bulletin No. 107.

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Expected Volatility—Expected volatility used in the Black-Scholes option-pricing model is derived from a combination of historical and implied volatility of guideline companies selected based on similar industry and product focus.

Expected Dividend—The Company has never paid dividends and currently does not intend to do so, and accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected term of the option.

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:

	Years Ended December 31,
	2014									2013
	Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, beginning of year		10,306,671		$	2.34						10,100,429		$	2.42
Granted		25,000		$	1.59						689,010		$	0.92
Exercised		(225,678	)	$	1.02			$	84		(12,221	)	$	1.09			$	3
Forfeited/Expired		(1,304,833	)	$	2.47						(470,547	)	$	2.12
Balance, end of year		8,801,160		$	2.35		5.91	$	483		10,306,671		$	2.34		6.96	$	1,405
Vested and exercisable and expected to vest, end of year		8,636,840		$	2.35		5.88	$	471		10,101,382		$	2.34		6.93	$	1,379
Vested and exercisable, end of year		7,738,685		$	2.38		5.70	$	393		7,297,096		$	2.39		6.47	$	1,017

The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price of $1.20 as of December 31, 2014.

The following table summarizes information about options outstanding and exercisable under the Company’s equity incentive plans as of December 31, 2014:

		Options Outstanding						Options Exercisable
		Number of Shares Outstanding		Weighted-average Remaining Contractual Life, in Years		Weighted- average Exercise Price		Exercisable		Weighted- average Exercise Price
$	0.73 - $1.48		2,225,242		6.08	$	1.07		1,922,948	$	1.07
$	1.57 - $2.40		1,882,434		6.04	$	2.00		1,835,185	$	2.00
$	2.50 - $3.25		4,415,423		6.69	$	2.78		3,702,491	$	2.78
$	3.50 - $28.32		231,682		3.03	$	17.36		231,682	$	17.36
$	28.80 - $57.44		46,379		1.61	$	40.01		46,379	$	40.01
			8,801,160		5.91	$	2.35		7,738,685	$	2.38

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.

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

	Years Ended December 31,
	2014									2013
	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, January 1		1,313,801		$	1.19		1.85	$	2,010		199,005		$	2.78		0.16	$	382
Granted		1,954,085			1.67						1,578,373			1.16
Released		(1,176,993	)		1.35						(426,141	)		1.83
Forfeited/expired		(175,035	)		1.49						(37,436	)		1.19
Outstanding, December 31		1,915,858		$	1.55		3.11	$	1,990		1,313,801		$	1.19		1.85	$	2,010

The majority of the RSUs that vested in the year ended December 31, 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 year ended December 31, 2014, 1,176,993 shares of RSUs vested with an intrinsic value of approximately $1,412,392. The Company withheld 358,201 shares to satisfy approximately $514,000 of employees’ minimum tax obligation on the vested RSUs.

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NOTE 7—BENEFIT PLANS

In connection with the Company’s Swiss subsidiary, the Company maintains a pension plan covering minimum requirements according to Swiss law. It has set up the occupational benefits by means of an affiliation to a collective foundation, the Swisscanto Collective Foundation.

Funding Policy

The Company’s practice is to fund the pension plan in an amount at least sufficient to meet the minimum requirements of Swiss law.

Benefit Obligations and Plan Assets

The following tables summarize changes in the benefit obligation, the plan assets and the funded status of the pension benefit plan as well as the components of net periodic benefit costs, including key assumptions (in thousands).

	Years ended December 31,			Years ended December 31,
	2014			2013
Change in projected benefit obligation:
Beginning benefit obligation	$	648		$	692
Service cost		29			35
Interest cost		15			16
Plan participants contributions		24			21
Foreign exchange adjustments		(84	)		16
Actuarial loss (gain)		190			(132	)
Transfer in/(out)		-			-
Ending benefit obligation	$	822		$	648
Change in plan assets:
Beginning fair value of plan assets	$	508		$	440
Employer contributions		24			21
Plan participants' contributions		24			21
Foreign exchange adjustments		(54	)		14
Expected return on plan assets		(6	)		12
Transfer in/(out)		-			-
Ending fair value of plan assets	$	496		$	508
Benefits paid	$	-		$	-

The following table summarizes the funding status as of December 31, 2014 and 2013 (in thousands):

	Years ended December 31,
	2014			2013
Projected benefit obligation	$	(822	)	$	(648	)
Fair value of plan assets		496			508
Funded status of the plan at the end of the year, recorded as a long-term liability	$	(326	)	$	(140	)

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The total net periodic pension cost for the year ending December 31, 2015 is expected to be approximately $66,000. The following are the components of estimated net periodic pension cost in 2015 (in thousands):

	Year ending December 31, 2015
Service cost (net)	$	61
Interest cost		13
Expected return on plan assets		(8	)
Net periodic benefit cost	$	66

Assumptions

Weighted average assumptions used to determine benefit obligations as of December 31, 2014 for the plan were a discount rate of 1.50%, a rate of compensation increase of 2.00%, and an expected return on assets of 1.50%.  The GigOptix-Helix Plan is reinsured with the Helvetia Swiss Life Insurance Company via the Swisscanto Collective Foundation.  The expected return on assets is derived as follows: Swiss pension law requires that the insurance company pay an interest rate of at least 1.5% per annum on old-age savings accounts.

Weighted average assumptions used to determine costs for the plan as of December 31, 2013 were a discount rate of 2.25%, rate of compensation increase of 2.00%, and expected return on assets of 2.25%.

Net Periodic Benefit Cost

The net periodic benefit cost for the plan included the following components (in thousands):

	Years ended December 31,
	2014		2013
Service cost (net)	$	29	$	35
Interest cost		15		16
Net periodic benefit cost	$	44	$	51

Plan Assets

The benefits are fully insured. There are no retirees and the plan assets are equal to the sum of the old-age savings and of various other accounts within the affiliation contract.

The allocation of the assets of the plan at the measurement dates were in cash, bonds, stocks, mutual funds, hedge funds, and commodities. The Company is required by Swiss law to contribute to retirement funds for the employees of its Swiss subsidiary. Funds are managed by third parties according to statutory guidelines. Cash equivalents may be valued using quoted prices in markets that are not active, resulting in a Level 2 fair value measurement within the hierarchy set forth in the accounting guidance for fair value measurements.

Contributions

The Company anticipates contributions to the plan of approximately $27,000 in the year ending December 31, 2015. Actual contributions may differ from expected contributions due to various factors, including performance of plan assets, interest rates and potential legislative changes. The Company is not able to estimate expected contributions beyond fiscal year 2015.

Estimated Future Benefit Payments

The Company does not expect benefit payments through 2024.

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Israel Severance Plan liability

Under Israeli law, the Company is required to make severance payments to its retired or dismissed Israeli employees and Israeli employees leaving its employment in certain other circumstances. The Company’s severance pay liability to its Israeli employees is calculated based on the salary of each employee multiplied by the number of years of such employee’s employment and is presented in its balance sheet in long-term liabilities, as if it was payable at each balance sheet date on an undiscounted basis. This liability is partially funded by the purchase of insurance policies in the name of the employees. The surrender value of the insurance policies of $9,000 is presented in long-term assets. Severance pay expense for the year ended December 31, 2014 was $0. As of December 31, 2014, accrued severance liability and severance assets were $12,000 and $9,000, respectively.

GigOptix 401(k) Plan

The Company has a 401(k) retirement plan which was adopted by GigOptix, LLC as of January 4, 2008.  In December 2011, the GigOptix 401k plan merged into the Endwave 401k plan.  This plan is intended to be a qualified retirement plan under the Internal Revenue Code.  It is a defined contribution as opposed to a defined benefit plan.  The Company made $65,000 and $59,000 matching contributions during fiscal 2014 and 2013, respectively.

NOTE 8—RESTRUCTURING

During the first 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.

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 components of the restructuring charge included $43,000 of cash expenses for cleanup services, $210,000 of restricted cash and rent deposit forfeiture to move out of the Bothell facility, $45,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations, and $9,000 of non-cash expenses associated with the acceleration of RSUs. The total charge for these restructuring activities was $307,000.

During the third quarter of 2014, the Company undertook restructuring activities to reduce its expenses. The component of the restructuring charge included $36,000 of cash expenses for severance associated with employee terminations.

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

	Year ending December 31,
	2014			2013
Beginning balance	$	30		$	168
Charges		343			950
Uses and adjustments		(373	)		(1,088	)
Ending balance	$	-		$	30

As of December 31, 2014, the Company had no balance in accrued restructuring.

NOTE 9—INVESTMENT IN UNCONSOLIDATED AFFILIATE

In February 2014, together with CPqD, the Company incepted a new joint venture, named BrP, of which the Company owns 49% and CPqD owns 51% of BrP. It is based in Campinas, Brazil. BrP will be a provider of advanced high-speed devices for optical communications and integrated transceiver components for information networks. It is engaged in research and development of SiPh advanced electro-optical products.

The Company transferred into BrP its knowledge-base and intellectual property of TFPS^TM technology. The Company transferred to CPqD, its inventory related to the TFPS^TM platform and the complete production line equipment that previously resided at its Bothell, Washington, facility for CPqD to use for the BrP joint venture. As of the transfer date, the Company’s net book value of the inventory and property and equipment was $245,000 and $211,000, respectively, which resulted in a $456,000 investment in BrP.

For the year ended December 31, 2014, the Company had a $456,000 loss on equity investment for the Company’s allocated portion of BrP’s results.  Since the Company’s share of the loss exceeded the Company’s carrying cost of its investment in BrP, the Company’s investment in an unconsolidated affiliate was written down to zero as of December 31, 2014.

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NOTE 10—INCOME TAXES

The components of loss before provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014			2013
United States	$	(5,266	)	$	1,480
International		(45	)		(3,376	)
Loss before provision for income taxes	$	(5,311	)	$	(1,896	)

Components of provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014		2013
Current
United States	$	41	$	37
International		-		-
State		13		13
Total		54		50
Deferred
United States		-		-
International		-		-
Total		-		-
Provision for income taxes	$	54	$	50

Provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate to loss before taxes as follows:

	Years ended December 31,
	2014			2013
Income tax at the federal statutory rate		(34.00	)%		(34.00	)%
State tax, net of federal benefit		0.23	%		0.71	%
Foreign tax rate differential		0.27	%		60.55	%
Permanent items and other		0.69	%		1.93	%
Losses not benefited		33.75	%		(26.55	)%
Effective tax rate		0.94	%		2.64	%

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The components of the net deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2014			2013
Deferred tax asset (liability), net
Net operating losses	$	20,134		$	20,398
Tax credits		2,915			3,022
Accrued and reserves		2,063			1,872
Foreign Deferreds		3			-
Fixed assets		890			966
Other		2,224			2,176
Total deferred tax asset		28,229			28,434
Valuation allowance		(27,707	)		(27,587	)
Net deferred tax asset		522			847
Pension other comprehensive income		-			(40	)
Intangible assets		(522	)		(847	)
Deferred tax liability		(522	)		(887	)
Net deferred tax asset (liability)	$	-		$	(40	)

As of December 31, 2013, the deferred tax liability is included in other long term liabilities on the consolidated balance sheet.

The Company has a full valuation allowance on deferred tax assets in excess of deferred tax liabilities. Because of its limited operating history and cumulative losses, management believes it is more likely than not that the remaining deferred tax assets will not be realized.

The Company’s valuation allowance increased by approximately $120,000 during the year ended December 31, 2014 and decreased by approximately $311,000 during the year ended December 31, 2013.

The Company has approximately $44.6 million of federal net operating losses carryforwards and $21.0 million of state net operating loss carryforwards as of December 31, 2014. The federal and state net operating losses expire starting in 2014 through year 2033. The Company has approximately $3.5 million of federal research and development tax credit (“R&D credit”) carryforwards and $3.5 million of California R&D credit carryforwards as of December 31, 2014. The federal R&D credit carryforwards begin to expire in 2029 while the California R&D credits are not subject to a carryforward limitation.  Utilization of a portion of the net operating losses and credit carryforwards are subject to an annual limitation due to the ownership change provision of the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company also has approximately $13.5 million of net operating loss carryforwards in Israel related to its acquisition of ChipX which can be carried forward indefinitely.

Any interest and penalties incurred on the settlement of outstanding tax positions would be recorded as a component of income tax expense.  The Company recorded $12,000 and $11,000 of interest and penalty expenses during the years ended December 31, 2014 and 2013, respectively.

The Company’s unrecognized tax benefits as of December 31, 2014 relate to various domestic and foreign jurisdictions.  As of December 31, 2014, the Company had total gross unrecognized tax benefits of $3.0 million, which if recognized would affect the effective tax rate.  As of December 31, 2014 and 2013, the amount of long-term income taxes payable for unrecognized tax benefits, including accrued interest, was $415,000 and $368,000, respectively.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Total
Balance as of December 31, 2012	$	2,523
Increases related to current year tax positions		205
Increases related to prior year tax positions		37
Decreases related to prior year tax positions		-
Balance as of December 31, 2013		2,765
Increases related to current year tax positions		223
Increases related to prior year tax positions		16
Decreases related to prior year tax positions		-
Balance as of December 31, 2014	$	3,004

The Company files tax returns in the U.S. federal, U.S. state and foreign tax jurisdictions.  The Company’s major tax jurisdictions are the U.S., California, Switzerland, Germany and Israel. The Company’s fiscal years through 2014 remain subject to examination by the tax authorities for U.S. federal, U.S. state and foreign tax purpose.

NOTE 11—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:

	December 31,
	2014		2013
Stock options and RSUs		10,717,018		11,620,472
Common stock warrants		658,240		1,468,239
Total		11,375,258		13,088,711

NOTE 12—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):

	Years ended December 31,
	2014		2013
North America	$	9,637	$	7,943
Asia		10,363		7,700
Europe		12,511		12,306
Other		436		977
	$	32,947	$	28,926

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

During fiscal year 2014, Italy and the United States accounted for 33% and 26% of revenue, respectively. During fiscal year 2013, Italy, the United States and Japan accounted for 39%, 24% 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):

	Years ended December 31,
	2014		2013
HSC	$	22,280	$	19,886
Industrial		10,667		9,040
Total revenue	$	32,947	$	28,926

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

	December 31,
	2014		2013
United States	$	1,687	$	2,004
Switzerland		229		995
	$	1,916	$	2,999

Long-lived assets, comprising property and equipment, are reported based on the location of the assets.

NOTE 13—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 rental expense for 2014 and 2013 was $458,000 and $560,000, respectively.

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 lease 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
2015	$	4		$	531
2016		3			439
2017 and beyond		3			124
Total minimum lease payments		10		$	1,094
Less: Amount representing interest		(1	)
Total capital lease obligations		9
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	6

The gross and net book value of the fixed assets purchased under capital lease was as follows (in thousands):

	As of the years December 31,
	2014			2013
Acquired cost	$	1,666		$	1,666
Accumulated amortization		(1,656	)		(1,378	)
Net book value	$	10		$	288

The amortization of fixed assets acquired under capital lease is included in depreciation expense.

Contingencies

Tax Contingencies

The Company’s income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. Its tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due.

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 it believes a loss is probable and can be reasonably estimated, it accrues the estimated loss in its consolidated financial statements. Where the outcome of these matters is not determinable, it does not make a provision in its financial statements until the loss, if any, is probable and can be reasonable estimated or the outcome becomes known.

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Product Warranties

The Company’s products typically carry a standard warranty period of approximately one year. 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.

The table below summarizes the movement in the warranty accrual, which is included as a component of other current liabilities, for the years ended December 31, 2014 and 2013 (in thousands):

	December 31,
	2014			2013
Balance at January 1	$	330		$	612
Warranties accrued		492			510
Warranties settled or reversed		(488	)		(792	)
Balance at December 31	$	334		$	330

NOTE 14—LEGAL SETTLEMENT

On September 24, 2013, pursuant to the terms of a settlement agreement with M/A-COM Technology Solutions, Inc. (“MACOM”), Optomai, Inc., and three former employees of GigOptix, the Company received a payment of $7.25 million.  The $7.25 million has been recorded as special litigation-related income, net of related legal fees in the operating section of the consolidated statements of operations.

NOTE 15—RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standard Board (“FASB”) issued an accounting standard update clarifying the accounting guidance on how to account for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. This standard is effective for periods beginning after December 15, 2015 and early adoption is permitted. The Company does not expect the adoption will have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued an accounting standard clarifying the principles for recognizing revenue by amending the FASB Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers.The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact of the adoption on the Company’s condensed consolidated financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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 (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining our disclosure controls and procedures.  Our CEO and CFO have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014 and have concluded that these controls and procedures were effective. We believe that a control system, no matter how well designed and operated, can only provide reasonable assurance and cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.  Our CEO and CFO have concluded that our consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014 based upon the framework in "Internal Control – Integrated Framework" (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal control over financial reporting was effective as of that date.

As a smaller reporting company, pursuant to the rules of the SEC, this Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The table below sets forth information regarding the members of our Board of Directors and non-director executive officers as of February 27, 2015. Our certificate of incorporation divides the Board of Directors into three classes with overlapping three-year terms. One class is elected each year at the annual meeting of stockholders, and the classes are to be as nearly equal in number as possible. Each director shall hold office until his or her successor is duly qualified. Our Board of Directors and executive officers are as follows:

Name	Age	Position	Director Since
Dr. Avi Katz	56	Chairman of the Board of Directors, Chief Executive Officer and President	2008
Darren Ma	35	Vice President and Chief Financial Officer	N/A
Andrea Betti-Berutto	49	Senior Vice President and Chief Technical Officer	N/A
Dr. Raluca Dinu	41	Senior Vice President of Global Sales and Marketing	N/A
Joseph J. Lazzara	63	Director	2011
John J. Mikulsky	69	Director	2011
Neil J. Miotto	68	Director	2008
Frank Schneider	72	Director	2010
Kimberly D.C. Trapp	56	Director	2008

Dr. Avi Katz is a serial entrepreneur.  Since founding GigOptix LLC., the predecessor company to GigOptix Inc. in July 2007, he served as the Chairman of the Board of directors, Chief Executive Officer and President of the company and all its subsidiaries, including its overseas operations BrPhotonics Produtos Optoeletronicos LTda in Brazil, GigOptix-Helix AG in Switzerland, and GigOptix Israel LTD.  He led the company through the public listing on OTC Exchange in December 2008, and the listing on the NYSE-Mkt in April 2012. Prior to founding the GigOptix group of companies, Dr. Katz was the Managing Partner of APU-Global, which he founded in 2005, the Chief Executive Officer, President and a board member of Intransa, Inc., from 2003 to 2005, and of Equator Technologies, Inc., from 2000 to 2003. Earlier in his career he held various sales and marketing, business development, technology and operational corporate executive positions, following his tenure as a Member of the Technical Staff with AT&T Bell Labs, Murray Hill, NJ, between 1988 and 1995. He holds more than 70 U.S. and international patents, has published about 300 technical papers and is the editor of a number of technical books. Dr. Katz received his Ph.D. in materials engineering and a B.S. in engineering from Technion-IIT, Israel, and is a graduate of the Israeli Naval Academy.  As our co-founder, and the CEO since the inception, Dr. Katz has the benefit of understanding our company's complete history. This background, together with his extensive executive experience and exceptional technical skills, make Dr. Katz uniquely qualified to serve on our Board of Directors.

Darren Ma is our Vice President and Chief Financial Officer, joined GigOptix in November 2014. He brings over 12 years of semiconductor experience and financial leadership to GigOptix. He began his career at Intel Corporation from 2002 to 2008, where he worked in various finance positions, specializing in budgeting, cost and inventory, strategic financial planning, and P&L management. Prior to joining GigOptix, he worked in roles of increasing responsibility at Semtech Corporation from 2009 to 2014, and served as the primary financial partner to several members of the executive staff. He contributed to increasing the profitability of the Power Management business unit, and, most recently, and was the Business Unit Controller for the Power Management and High Reliability and Systems Innovation business units at Semtech Corporation. From 2008 to 2009 he also held a senior financial position at Fisher Investments, supporting the M&A, Institutional, and United Kingdom investment groups. Darren holds a Managerial Economics B.S. degree from the University of California, Davis and received his MBA from W.P. Carey School of Business at Arizona State University.

Andrea Betti-Berutto our Senior Vice President and Chief Technical Officer and has served as the Chief Technology Officer of the company since its inception in 2007 through the acquisition of the iTerra LLC assets, where he was a co-founder and served as the Vice President of Engineering since the inception in 2001. In iTerra LLC he led the development of analog and digital high speed ICs for the 10 Gb/s and 40Gb/s optical network, wireless application and instrumentation. Previously, Mr. Betti-Berutto worked at Fujitsu Compound Semiconductor as manager of product development for microwave and millimeter-wave IC for point-to-point and satellite communication applications, at Space Engineering S.p.A Rome, Italy, and European Space Agency R&D laboratory, Noordwijk, The Netherlands, as payload system engineer and MMIC designer. Mr. Betti-Berutto has more than 20 years of experience in the design of high speed ICs and multichip modules for microwave, millimeter-wave, and fiber optics application. He is the author of several papers in technical journals in the area of power amplifiers, high-speed ICs, and broadband design for optical network applications and received his M.Sc. degree in electrical engineering from the University of Rome “La Sapienza”.

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Dr. Raluca Dinu is our Senior Vice President of Global Sales and Marketing. Shehas more than 15 years of experience in the telecommunication industry. A visionary executive with an established track record of driving increased revenue and profitability, building and leading cross functional teams, and developing and commercializing advanced technologies, Dr. Dinu joined GigOptix as the Vice President of Product Development in 2008 through the acquisition of Lumera Inc., were she served as the Vice President of the Electro-Optic Business Unit since 2007. From 2001 to 2007, Dr. Dinu served Lumera in various capacities as technology and business leader. In her current role, she leads the global marketing and sales organizations for GigOptix. She has an exceptional ability to manage and lead in rapidly changing and competitive environments while demonstrating an innate ability to achieve corporate goals within defined resources.  Dr. Dinu holds more than 15 patents, obtained her B.Sc. in Optics, and Ph.D. in Physics, at the University of Bucharest in 2000 specializing in ferroelectric thin films for random access memories, and also graduated from the Executive MBA program at the AeA/Stanford Institute in 2007.

Joseph J. Lazzara has over 30 years of public company Board of Directors experience. He joined the GigOptix board in July, 2011 with the acquisition of Endwave where he served as a director since February 2004. From 2006 to 2008, Mr. Lazzara served as the Vice Chairman and a director of Omron Scientific Technologies, Inc. (formerly Scientific Technologies, Inc. (NASDAQ: STIZ)), a manufacturer of factory automation products acquired by Omron Corporation in 2006.  Mr. Lazzara served in various executive positions with Scientific Technologies, including as the Chief Executive Officer, President and Director and other positions between 1984 and 2006. Since 2006, he has served as the Vice Chairman and Director of Automation Products Group, Inc., a privately held manufacturer of automation sensors. Mr. Lazzara received a B.S. in Engineering from Purdue University and an M.B.A. from Santa Clara University.  We believe that Mr. Lazzara’s extensive business expertise, both as the Chief Executive Officer and Board Member of a publicly traded company as well as his technical background qualify him to serve on our Board of Directors.

John J. Mikulsky has served on our Board of Directors since June 2011. Mr. Mikulsky served as President and Chief Executive Officer of Endwave Corporation from December 2009 until June 2011, when Endwave was acquired by GigOptix. From May 1996 until November 2009, Mr. Mikulsky served Endwave in a multitude of capacities including Vice President of Product Development, Vice President of Marketing and Business Development and Chief Operating Officer. Prior to Endwave, Mr. Mikulsky worked as a Technology Manager for Balazs Analytical Laboratory, from 1993 until 1996, a provider of analytical services to the semiconductor and disk drive industries. Prior to 1993, Mr. Mikulsky worked at Raychem Corporation, most recently as a Division Manager for its Electronic Systems Division. Mr. Mikulsky holds a B.S. in electrical engineering from Marquette University, an M.S. in electrical engineering from Stanford University and an S.M. in Management from the Sloan School at the Massachusetts Institute of Technology.  We believe Mr. Mikulsky’s extensive industry knowledge and experience, including his years of experience at Endwave Corporation in both technical and leadership roles, qualify him to serve on our Board of Directors.

Neil J. Miotto joined the GigOptix Board of Directors in December, 2008. Mr. Miotto is a financial consultant and a retired assurance partner of KPMG LLP where he was a partner for twenty-seven years until his retirement in September 2006. Since his retirement from KPMG  Mr. Miotto has provided high level financial consulting services to companies in need of timely accounting assistance and in serving on public company boards including Micrel Inc.. He is deemed to be a ‘financial expert ´under SEC and NYSE rules. While at KPMG Mr. Miotto focused on serving large public companies, primarily semiconductor companies. Among the clients he served were National Semiconductor Corporation, Fairchild Semiconductor Corp, and  nVIDIA Corporation. Mr. Miotto also served as an SEC reviewing partner while at KPMG. He is a member of the American Institute of Certified Public Accountants. He holds a Bachelor of Business Administration degree from Baruch College, of The City University of New York. He also serves on the board of directors of Micrel, Incorporated.  Mr. Miotto brings extensive financial risk assessment and financial reporting experience to our Board of Directors. We believe that Mr. Miotto’s extensive experience with public companies and financial accounting matters makes him well qualified to be on our Board of Directors.

Frank W. Schneider joined our Board of Directors in June 2010. Frank W. Schneider has over 40 years of experience in the electronics and semiconductor industries, serving on the boards and executive management teams of both privately held and publicly traded companies. He retired in 2009 from MKS Instruments Inc., where he served as vice president and general manager. Previously, he served as president and CEO at both ION Systems Inc., a privately held manufacturer of electrostatic management systems, and GHz Technology Inc., a privately held manufacturer of RF power transistors that was merged into Advanced Power Technology Inc. (NASDAQ: APTI), where he served as COO of the RF products group during the years 2002 & 2003. Additionally, he was a member of the technical advisory board of Neomagic Inc., a display controller chip company, and was a member of the Board of Directors of GMT Microelectronics, Inc. He began his career at Corning Electronics and subsequently moved to Philips Semiconductor, then known as Signetics Corporation, where he held many senior positions during his tenure. He also was a group vice president at Sharp Electronics.  We believe Mr. Schneider is well qualified to serve on our Board of Directors due to his leadership skills and industry experience, which he has demonstrated through more than 40 years of management and experience in the semiconductor, electronic component and systems industries.

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Kimberly D.C. Trapp has served on our Board of Directors since December 2008. Kimberly D.C. Trapp has more than 30 years of experience in the optoelectronics industry. She served as the Industry Liaison Officer for the Center of Optical Technologies at Lehigh University until her retirement in 2010. Before joining Lehigh University, she served as the Director of Marketing Operations of Agere Systems until 2002 and was responsible for business operations, customer marketing, technical product support, product engineering, and program management of Agere’s optoelectronic business and product portfolio. From 1980 until 1995, she served in the development and research organizations of AT&T Bell Laboratories and Lucent Technologies. Ms. Trapp has a BS in Chemistry from Purdue University and an MS in Inorganic Chemistry from Fairleigh Dickinson University. She also has MBA from an AT&T sponsored executive program.  From her industry and academic experience of more than 30 years, Ms. Trapp brings a tremendous amount of technical expertise, especially in the area of optical and electro-optic technologies, that we believe makes her uniquely qualified to sit on our Board of Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4 and 5 furnished to us and written representations that no other reports were required, we believe that each of our directors, executive officers and beneficial owners of greater than 10% of our common stock complied during fiscal year 2013 with the reporting requirements of Section 16(a) of the Exchange Act.

Code of Ethics

We have adopted a Code of Business Ethics and Conduct that applies to our directors, executive officers and employees. We will disclose any future amendments to, or waivers from, the Code of Business Ethics and Conduct on our website http://www.gigoptix.com within four business days following the date of the amendment or waiver. We will provide to any person, without charge, a copy of Code of Business Ethics and Conduct upon written request to:

GigOptix, Inc.

130 Baytech Drive

San Jose, California 95134

Attn: Investor Relations

Audit Committee

We have a separately designated standing Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee is comprised of not less than three directors, each of whom is independent as determined by the Board of Directors and as defined by Rule 10A-3(b)(1) under the Exchange Act and Section 803(a)(2) of the NYSE MKT Company Guide. The Board of Directors has also determined that Mr. Miotto is an “audit committee financial expert” as defined in SEC rules and Section 803(b)(2)(iii) of the NYSE MKT Company Guide. This designation does not impose on Mr. Miotto any duties, obligations or liabilities that are greater than is generally imposed on him as a member of our Audit Committee or our Board of Directors. The current members of the Audit Committee are Mr. Miotto (who serves as chairman of the committee), Mr. Lazzara, Mr. Mikulsky, Mr. Schneider and Ms. Trapp.

The Audit Committee is responsible for monitoring and overseeing: (i) our accounting and financial reporting processes; (ii) the preparation and integrity of our financial statements; (iii) our compliance with financial statement and regulatory requirements; (iv) the performance of our internal finance and accounting personnel and our independent registered accounting firm and (v) the qualification and independence of our independent registered public accounting firm.

The Audit Committee has the authority to retain legal, accounting or other experts that it deems necessary to carry out its duties. It also has the authority to determine the compensation of such advisors, as well as that of our independent registered accounting firm, and to determine appropriate funding needs for ordinary administrative expenses that are necessary or appropriate for carrying out its duties.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

Our primary objectives with respect to executive compensation are to attract and retain the best possible executive talent, to link annual compensation (cash and stock-based) and long-term stock-based compensation to achievement of measurable corporate goals and individual performance, and to align executives’ incentives with stockholder value creation. To achieve these objectives, we have implemented and maintain compensation plans that tie a portion of executives’ overall compensation to our financial performance and common stock price. Overall, the total compensation opportunity is intended to create an executive compensation program that is competitive with comparably-sized companies where we are based, as it is these companies with whom we compete most vigorously for executive and technical talent.

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Compensation Committee

Our Compensation Committee approves, administers and interprets our named executive officer compensation and benefit policies and plans. Our Compensation Committee is appointed by our Board of Directors, and consists entirely of independent directors who are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The current members of the Compensation Committee are Ms. Trapp (who serves as chairperson of the committee), Mr. Lazzara, Mr. Mikulsky, Mr. Miotto and Mr. Schneider.

Our Compensation Committee has primary responsibility for ensuring that our executive compensation and benefit program is consistent with our compensation philosophy and is responsible for determining the executive compensation packages offered to our named executive officers. The responsibilities of the Compensation Committee, as stated in its charter, include the following:

• Review and approve goals and objectives relevant to CEO and other named executive officer compensation, evaluate the CEO’s and other named executive officers’ performance in light of these corporate goals and objectives, and set CEO and other named executive officer compensation levels consistent with its evaluation and the company philosophy;

• Approve the salaries, bonus and other compensation for all named executive officers;

• Adopt, administer, amend or terminate compensation plans applicable to the employees of the Company and/or any subsidiary of the Company, and review and make recommendations concerning long-term incentive compensation plans, including the use of stock options and other equity-based plans; and

• Undertake all further actions and discharge all further responsibilities imposed upon the Committee from time to time by the Board, the federal securities laws or the rules and regulations of the SEC.

Our Compensation Committee plays an integral role in setting the named executive officer compensation each year. Generally, during the fourth quarter of each year and leading up to the adoption by the Board of the annual operating plan for the following year, the Compensation Committee meets to discuss recent data and current trends in executive compensation and equity ownership programs for comparable companies.  During such meeting, an independent compensation consultant engaged by the committee provides a report to the Compensation Committee regarding this information. Generally, in the first quarter or the early part of the following year, our Compensation Committee holds a regular meeting in which our Chief Executive Officer and Chief Financial Officer review with the Compensation Committee GigOptix’ financial and business performance for the prior year and management’s business outlook and operating plan for the current year as adopted by the Board at the end of the prior year. In reviewing the prior year’s performance, the Compensation Committee compares our performance to the financial and operational goals set for such year and any management by objectives targets set for such year. In this meeting, the Chief Executive Officer also reviews with the Compensation Committee his assessment of the individual performance of each named executive officer, including his own performance, according to a variety of qualitative and quantitative performance criteria and salary and bonus trends. Taking into account the information conveyed and discussed at these meetings and the recommendations of our Chief Executive Officer and the independent compensation consultant engaged by the committee, the Compensation Committee then determines:

• The amount and type of any bonus compensation to be awarded to each named executive officer in respect of their performance;

• Whether to raise, lower or maintain the named executive officer’s base salary for the current year; and

• Option grants and restricted stock units, if any, to be awarded to each named executive officer.

Each element of our named executive compensation system is described in more detail below.

Comparable Company Comparisons

Each year, the Compensation Committee reviews the named executive officer compensation programs and amounts at comparable companies. GigOptix’ total cash compensation packages are designed to be in the range between the median up to the 75^th percentile of total target cash compensation among comparable companies for performance by comparable executives. Our equity compensation program is designed to provide a percentage ownership of GigOptix that is relatively comparable to the median percentage ownership among these comparable companies. However, the individual elements of our executive program (base salary, annual incentive compensation, equity compensation and benefits) may vary from group medians as the Compensation Committee deems appropriate. In addition, we may reduce cash compensation and award RSUs vesting over the course of the following year to make up for such cash compensation reduction.  On occasion, the Compensation Committee may award special bonuses to the named executive officers.

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Each year, we engage an independent outside firm which specializes in executive compensation.  During 2013 and 2014, we engaged Compensia.  For this purpose, for 2014, the Compensation Committee looked at companies with less than $50 million in annual revenues as described by the Proprietary 2014 Executive Compensation Survey published by Compensia as well as peer company proxy filings.  We believe those two data sources are appropriate for benchmarking executive compensation because: the companies surveyed are similar in size, both in terms of revenues and market capitalization, to GigOptix; are primarily located in the same geographic market as GigOptix; GigOptix competes with many of the surveyed companies for executive and technical talent; and companies in the indices are selected independently by Compensia. We do not benchmark our executive compensation solely against companies in our industry because few of our competitors are close to our size. Most of our competitors are very large, diversified companies or very small, privately-held companies. Rather, we focus on the companies with whom we compete most vigorously for executive and technical talent.

Elements of Named Executive Officer Compensation

Our named executive officer compensation consists of base salary, annual cash and equity incentives, equity plan participation and customary broad-based employee benefits. In addition, on occasion, the Compensation Committee may award special bonuses to the named executive officers.  Consistent with our pay for performance philosophy, we believe that we can better motivate the named executive officers to enhance stockholder return if a portion of their compensation is “at risk”— that is, contingent upon the achievement of performance objectives and overall strong company performance. The mix of base salary, annual bonus opportunity based on achievement of objectives and anticipated long-term stock-based compensation incentive (in the form of appreciation in shares underlying stock options and restricted stock units) varies depending on the officer’s position and level. Long-term stock-based compensation has always been a significant component of the named executive officer compensation, as we believe that best aligns our named executive officers’ interests with that of our stockholders. An annual bonus opportunity may also form a significant component of the named executive compensation; however, as explained in more detail below, it was not a component of the named executive compensation in 2014.  However, the named executive officers did receive special one-time bonuses as discussed below.

Base Salary:  Base salaries for our named executive officers are established based on the scope of their responsibilities, taking into account market compensation paid by comparable companies for equivalent positions. Base salaries are reviewed on an annual basis and any increases are similar in scope to our overall corporate salary increase, if any. For comparison purposes, we have utilized compensation survey data from Compensia and the peer company proxy filings. Our philosophy is to target the named executive officer base salaries to be in the range between the median up to the 75^th percentile of salaries for executives in equivalent positions at comparable companies. We believe targeting the named executive officer salaries to be in the range between the median up to the 75^th percentile of salaries relative to comparable companies reflects our best efforts to ensure we are neither overpaying nor underpaying our named executive officers.

Annual Cash Incentive:  Our employment contracts with our named executive officers provide them with an opportunity to receive annual cash incentive compensation consisting of the possibility of receipt of a cash bonus award, payable once per year.  Any such cash bonus would be dependent, in part, upon attaining stated corporate objectives for the prior fiscal year. Our goal with bonuses to our named executive officers is to reward executives in a manner that is commensurate with the level of achievement of certain financial and strategic goals that we believe, if attained, result in greater long-term stockholder value. The Board of Directors approves these financial and strategic goals on an annual basis. These financial and strategic goals typically have a one-year time horizon. For the year 2013, the Board of Directors determined that the objectives necessary to make awards of cash incentive compensation had not been met, due to the difficult economic environment and its impact on GigOptix’s financial performance. Therefore, there were no payments of annual cash bonuses to our Chief Executive Officer or our other named executive officers in 2014 for the year 2013.

Warrants, Stock Options and Restricted Stock Units:  We believe that stock ownership is an important factor in aligning corporate and individual goals. Therefore, we utilize stock options and, beginning in 2012, restricted stock units, to encourage long-term performance, with excellent corporate performance (as manifested in our common stock price) and extended officer tenure producing potentially significant value. Upon joining GigOptix, the named executive officers have received an initial stock option grant. This grant has been based on relevant industry comparisons, including data from Compensia, and was intended to be commensurate with the experience level and scope of responsibilities of the incoming executive officer. In addition, all named executive officers receive annual option grants, and beginning in 2012, restricted stock unit grants (with only restricted stock units being granted beginning in 2013).  On an annual basis, the Compensation Committee, reviews with the Board the percentage ownership of GigOptix held by employees, and compares that to the employee ownership of comparable companies. The Compensation Committee uses this metric because it is easy to measure and compare to comparable companies. Based on its review, the Compensation Committee approves an annual grant.

All restricted stock unit grants for named executive officers are approved by the Compensation Committee.

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Special Bonuses:  On occasion, the Compensation Committee may award special bonuses to the named executive officers.  As disclosed in our Current Report on Form 8-K filed with the SEC on February 11, 2014, in connection with the formation of the BrP Joint Venture, the Compensation Committee on February 7, 2014 approved special one-time cash bonuses to Dr. Dinu for $15,000 and for the named executive officers as identified in that Current Report. Also, as disclosed in our Current Report on Form 8-K filed with the SEC on May 9, 2014, in conjunction with the April 2, 2014 approval of the release of proceeds as requested by CPqD before FINEP – Agência Brasileira da Inovação and the resulting effectiveness of the Joint Venture Agreement in connection with the formation of BrP, the Compensation Committee on May 8, 2014 approved special one-time special bonuses for Dr. Dinu of $30,000 and for the named executive officers as identified in that Current Report, Furthermore, as disclosed in our Current Report on Form 8-K filed with the SEC on December 23, 2014, the Compensation Committee on December 17, 2014 and December 22, 2014, respectively, approved special one-time cash bonuses for Dr. Katz for his service in 2014 on behalf of the Company as the Chairman of the board of directors of BrP, and in connection with the completion of the acquisition of the assets of Tahoe RF Semiconductor, Inc.  On December 17, 2014, the Compensation Committee also approved the payment to Dr. Dinu of $25,000 as compensation for her service in 2014 on behalf of the Company as a member of the board of directors of BrP,

Other Benefits:  Named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, group life, disability, and accidental death and dismemberment insurance and our 401(k) plan. During 2013 and 2014, we made group life insurance payments as reflected in the Summary Compensation Table below. We do not maintain any pension plan, retirement benefit or deferred compensation arrangements other than our 401(k) plan.

The table below sets forth the compensation earned by our Chief Executive Officer and our two other most highly compensated executive officers for the fiscal years ended December 31, 2014 and 2013 whose compensation exceeded $100,000. These individuals are collectively referred to as our named executive officers.

Summary Compensation Table

Name and Principal Position	Year	Salary		Bonus		Severance		RSU's(1)		Option Awards(1)		All Other Compensation		Total
										(a)
Dr. Avi Katz	2014	$	409,500	$	475,000	$	-	$	666,600	$	-	$	1,988	$	1,553,088
Chairman of the Board of Directors, Chief Executive Officer and President	2013	$	354,375	$	210,000	$	-	$	643,231	$	-	$	3,310	$	1,210,916
Andrea Betti-Berutto	2014	$	254,100	$	45,000	$		$	162,525	$	-	$	517	$	462,142
Senior Vice President and Chief Technology Officer	2013	$	226,735	$	70,000	$	-	$	189,823	$	-	$	399	$	486,957
Curt Sacks (2)	2014	$	255,874	$	80,000	$	254,100	$	152,625	$	-	$	302	$	742,901
Senior Vice President and Chief Financial Officer	2013	$	226,735	$	70,000	$	-	$	180,766	$	-	$	263	$	477,764
Raluca Dinu	2014	$	227,057	$	70,000	$	-	$	86,130	$	-	$	187	$	383,374
Senior Vice President of Global Sales and Marketing

(1) The amounts in column (a) represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 6-Stockholders’ Equity, to our audited financial statements for the fiscal year ended December 31, 2014 and 2013 included in this Form 10-K.

(2) Mr. Sacks tendered his resignation effective on November 17, 2014 to pursue other interests.

Narrative Disclosure to Summary Compensation Table

The Summary Compensation Table sets forth the aggregate compensation earned by each of our named executive officers in 2014 and 2013.

The components of executive compensation consist of base salary, annual and special bonus incentives, equity plan participation and customary broad-based employee benefits, as set forth in more detail above. Annual cash and/or stock-based compensation bonuses are awarded in the discretion of the Compensation Committee of the Board of Directors after a review and evaluation of each executive officer’s performance during the year. Beginning in 2013, equity grants generally consist of restricted stock units and are intended to serve respectively as long-term compensation and short-term awards in lieu of higher cash payouts. On occasion, the Compensation Committee may also authorize special compensation awards in the form of cash and/or equity grants to recognize extraordinary efforts or results.

Equity awards such as options and restricted stock units are generally granted pursuant to the GigOptix, Inc. 2008 Equity Incentive Plan.  Option grants to our executive officers generally vest as to 25% of the underlying award on the one-year anniversary of the grant date and monthly thereafter for a period of three years.  However, certain options grants to our executive officers vest in accordance with certain performance goals being achieved, as discussed in more detail below in the vesting schedules for such option grant.   In the case of stock options, the exercise price is set at 100% of the fair market value of the underlying common stock on the date of grant.  Restricted stock unit grants generally vest quarterly over the period between one and four years.  Upon vesting, a restricted stock unit is converted to an actual share of stock.

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We have entered into an employment agreement with each of our executive officers, which governs the terms of employment as well as provides for certain payments upon termination of employment. The employment agreements for the named executive officers are discussed in more detail below under the caption “Employment Arrangements with Named Executive Officers.”

Outstanding Equity Awards at December 31, 2014

	Option Awards
Name and Principal Position	Grant Date	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Exercise Price ($)		Option Expiration Date		Number of Securities Underlying Unvested Restricted Stock Units (#) Unvested
Dr. Avi Katz	8/1/07		166,606		-	$	0.73	8/1/17
Chief Executive Officer and President	12/17/08		581,338		-	$	1.10	12/17/18
	3/19/09		77,764		-	$	0.95	3/19/19
	11/9/09		130,000		-	$	3.50	11/9/19
	3/17/10		324,100		-	$	1.95	3/17/20
	10/27/10		348,345		-	$	2.40	10/27/20
	2/3/11		388,473		16,891	$	2.50	2/3/21
	6/17/11		396,185		28,027	$	2.65	6/17/21
	3/27/12		369,531		167,969	$	2.70	3/27/22
	8/1/13		8,050		-	$	-		N/A		72,450
	8/1/13		-		-	$	-		N/A		101,377
	2/7/14		-		-	$	-		N/A		22,500
	2/7/14		-		-	$	-		N/A		314,000
Andrea Betti-Berutto	8/1/07		112,612		-	$	0.73	8/1/17
Senior Vice President and Chief Technology Officer	12/17/08		238,913		-	$	1.10	12/17/18
	3/19/09		36,025		-	$	0.95	3/19/19
	11/9/09		38,011		-	$	3.50	11/9/19
	3/17/10		101,500		-	$	1.95	3/17/20
	10/27/10		139,554		-	$	2.40	10/27/20
	2/3/11		135,400		5,887	$	2.50	2/3/21
	6/17/11		76,748		10,965	$	2.65	6/17/21
	3/27/12		138,574		62,989	$	2.70	3/27/22
	8/1/13		3,018		-	$	-		N/A		27,170
	8/1/13		-		-	$	-		N/A		26,974
	2/7/14		-		-	$	-		N/A		5,625
	2/7/14		-		-	$	-		N/A		76,000
Raluca Dinu	3/23/05		2,000		-	$	40.96	3/23/15
Senior Vice President of Global Sales and Marketing	4/13/06		5,000		-	$	30.56	4/13/16
	3/1/07		7,499		-	$	34.24	3/1/17
	3/4/08		9,375		-	$	18.16	3/4/18
	12/17/08		39,733		-	$	1.10	12/17/18
	3/19/09		6,598		-	$	0.95	3/19/19
	11/9/09		6,962		-	$	3.50	11/9/19
	3/17/10		69,000		-	$	1.95	3/17/20
	10/27/10		42,020		-	$	2.40	10/27/20
	2/3/11		51,434		1	$	2.50	2/3/21
	6/17/11		23,887		3,413	$	2.65	6/17/21
	3/27/12		72,243		32,838	$	2.70	3/27/22
	5/1/13		15,551		23,719	$	-		N/A		10,925
	2/10/14		-		-	$	-		N/A		42,375
Curt Sacks (1)	6/17/11		281,875		-	$	2.65	6/17/21
Senior Vice President and Chief Financial Officer	3/27/12		130,176		-	$	2.70	3/27/22

(1) Curt Sacks, our former Chief Financial Officer, resigned from the company as of November 17, 2014.

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Grant Date	Vesting Schedule for Dr. Katz
2/7/14	The grant of 90,000 restricted stock units with one fourth of the the total award vesting on the following dates - 5/1/2014, 8/1/2014, 11/1/2014 and 2/1/2015.
2/7/14	The grant of 314,000 restricted stock units will vest as to 25% of the underlying award on 2/1/15, and one twelfth of the remaining award vesting on May 1, August 1, November 1 and February 1 over the next twelve quarters thereafter, with the last vesting date occurring on Feb. 1, 2018.
8/1/13	The grant of 354,832 restricted stock units vested with one seventh of the total award on 11/1/2013, and the remaining restricted stock units will vest on the following dates 2/1/2014, 5/1/2014, 8/1/2014, 11/1/2014, 2/1/2015, and 5/1/2015.
8/1/13	The grant of 128,800 restricted stock units will vest as to 25% of the underlying award on 5/1/2014, and one twelfth of the remaining award vesting on August 1, November 1, February 1 and May 1 over the next twelve quarters thereafter, with the last vesting date occurring on May 1, 2017.
5/3/12	The grant of 62,296 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
3/27/12	The grant of 537,500 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/27/12	The grant of 158,967 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
6/17/11	In total Dr. Katz was granted 424,212 options on 6/17/11. 100,000 of the options were vested on the day of grant.  An additional 100,000 options vested on the six month anniversary of the day of grant.  The remaining 224,212 options will be vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
2/3/11	The grant of 405,364 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
10/27/10	The vesting of 116,115 shares of the grant of 348,344 stock options was subject to our meeting certain financial goals for the first two quarters of 2011.  As the Board of directors determined that the underlying goals were satisfied, 29,029 shares of the underlying award were vested on July 27, 2011, and an additional 87,086 shares are to be vested on a monthly basis thereafter over a 39 month period; in addition 58,057 shares of the underlying award vested on October 27, 2011, and the remaining 174,172 shares of the stock options will vest on a monthly basis thereafter over a 36 month period.
3/17/10	In total Dr. Katz was granted 503,000 options on 3/17/10.  203,000 stock options vests as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the remaining options every month thereafter for three years. An additional 121,100 options were vested on April 1, 2011 as the average closing price of the Company’s common stock during March 2011 was greater than $2.50; 122,100 options were cancelled on April 1, 2012 because the average closing price of the Company’s common stock during March 2012 was below $3.50; and an additional 56,800 options will vest on April 1, 2013 if the average closing price of the Company’s common stock during March 2013 is equal to or greater than $5.00; if not, then these options will be cancelled.
11/9/09	The grant of 130,000 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/19/09	The grant of 77,764 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
12/17/08	Grant of 581,338 stock options vests as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
8/1/07	The grant of 137,500 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years, and then 50% of the unvested options were fully vested upon the closing of the GigOptix LLC merger with Lumera Corporation and the other 50% will be vested on 12/31/2009. The grant of 10,313 stock options, which was to vest upon the schedule closing of a financing event, fully vested upon the closing of the GigOptix LLC merger with Lumera Corporation. The grants of 27,500 stock options and 6,875 stock options were fully vested on the grant date.

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Grant Date	Vesting Schedule for Mr. Betti-Berutto
2/7/14	The grant of 22,500 restricted stock units with one fourth of the the total award vesting on the following dates - 5/1/2014, 8/1/2014, 11/1/2014 and 2/1/2015.
2/7/14	The grant of 76,000 restricted stock units will vest as to 25% of the underlying award on 2/1/15, and one twelfth of the remaining award vesting on May 1, August 1, November 1 and February 1 over the next twelve quarters thereafter, with the last vesting date occurring on Feb. 1, 2018.
8/1/13	The grant of 94,424 restricted stock units vested with one seventh of the total award on 11/1/2013, and the remaining restricted stock units will vest on the following dates 2/1/2014, 5/1/2014, 8/1/2014, 11/1/2014, 2/1/2015, and 5/1/2015.
8/1/13	The grant of 48,300 restricted stock units will vest as to 25% of the underlying award on 5/1/2014, and one twelfth of the remaining award vesting on August 1, November 1, February 1 and May 1 over the next twelve quarters thereafter, with the last vesting date occurring on May 1, 2017.
5/3/12	The grant of 22,283 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
3/27/12	The grant of 201,563 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/27/12	The grant of 39,457 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
6/17/2011	The grant of 87,713 stock options will be vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
2/3/2011	The grant of 141,287 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
10/27/10	The vesting of 46,518 shares of the grant of 139,554 stock options was subject to our meeting certain financial goals for the first two quarters of 2011.  As the Board of directors determined that the underlying goals were satisfied, 11,630 shares of the underlying award were vested on July 27, 2011, and an additional 34,888 shares will vest on a monthly basis thereafter over a 39 month period; in addition 23,259 shares of the underlying award vested on October 27, 2011, and the remaining 69,777 shares of the stock options will vest on a monthly basis thereafter over a 36 month period.
3/17/10	In total Mr. Betti-Berutto was granted 162,000 options on 3/17/10. 61,500 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the remaining options every month thereafter for three years. An additional 40,000 options were vested on April 1, 2011 as the average closing price of the Company’s common stock during March 2011 was greater than $2.50; 43,000 options were cancelled on April 1, 2012 because the average closing price of the Company’s common stock during March 2012 was below $3.50; and an additional 17,500 options will vest on April 1, 2013 if the average closing price of the Company’s common stock during March 2013 is equal to or greater than $5.00; if not, then these options will be cancelled.
11/9/09	The grant of 38,011 stock options vested as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/19/09	The grant of 36,025 stock options vested as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
12/16/08	The grant of 238,913 stock options vested as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
8/1/07	The grant of 68,200 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years, and then 50% of the unvested option were fully vested upon the closing of the GigOptix LLC merger with Lumera Corporation and the other 50% vested on 12/31/2009. The grant of 44,412 stock options was fully vested on the grant date.

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Grant Date	Vesting Schedule for Ms. Raluca Dinu
2/10/14	The grant of 40,000 restricted stock units with one fourth of the the total award vesting on the following dates - 5/1/2014, 8/1/2014, 11/1/2014 and 2/1/2015.
2/10/14	The grant of 9,500 restricted stock units will vest as to 25% of the underlying award on 2/1/15, and one twelfth of the remaining award vesting on May 1, August 1, November 1 and February 1 over the next twelve quarters thereafter, with the last vesting date occurring on Feb. 1, 2018.
5/1/13	The grant of 43,721 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
5/1/13	The grant of 39,270 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
5/3/12	The grant of 7,657 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
3/27/12	The grant of 17,283 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
3/27/12	The grant of 105,081 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
6/17/11	The grant of 27,300 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
2/3/11	The grant of 51,435 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
10/27/10	Grant of 42,020 stock options.
3/17/10	Grant of 100,000 stock options.
11/9/09	The grant of 6,962 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/19/09	The grant of 6,598 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
12/17/08	Grant of 39,733 stock options vests as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/4/08	Grant of 9,375 stock options vests as to 25% of the underlying award on the one year anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/17/07	The grant of 7,499 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
4/13/06	The grant of 5,000 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.
3/23/05	The grant of 2,000 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.

88

Grant Date	Vesting Schedule for Mr. Sacks
2/7/14	The grant of 22,500 restricted stock units with one fourth of the the total award vesting on the following dates - 5/1/2014, 8/1/2014, 11/1/2014 and 2/1/2015.   Pursuant to Mr. Sacks separation agreement, 5,625 restricted stock units were accelerated.
2/7/14	The grant of 70,000 restricted stock units will vest as to 25% of the underlying award on 2/1/15, and one twelfth of the remaining award vesting on May 1, August 1, November 1 and February 1 over the next twelve quarters thereafter, with the last vesting date occurring on May 1, 2018.  Pursuant to Mr. Sacks separation agreement, 17,500 restricted stock units were accelerated.
8/1/13	The grant of 87,614 restricted stock units vested with one seventh of the total award on 11/1/2013, and the remaining restricted stock units will vest on the following dates 2/1/2014, 5/1/2014, 8/1/2014, 11/1/2014, 2/1/2015, and 5/1/2015.    Pursuant to Mr. Sacks separation agreement, 25,029 restricted stock units were accelerated.
8/1/13	The grant of 48,300 restricted stock units will vest as to 25% of the underlying award on 5/1/2014, and one twelfth of the remaining award vesting on August 1, November 1, February 1 and May 1 over the next twelve quarters thereafter, with the last vesting date occurring on May 1, 2017.    Pursuant to Mr. Sacks separation agreement, 30,188 restricted stock units were accelerated.
5/3/12	The grant of 11,025 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.
3/27/12	The grant of 201,563 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.  As of the separation date, the vesting of the stock options ceased.
3/27/12	The grant of 39,457 restricted stock units vested as to 25% of the underlying award on the following dates 5/10/2012, 8/10/2012, 11/09/2012, and 3/1/2013.  As of the separation date, Mr. Sacks the vesting of the stock options ceased.
6/17/11	The grant of 330,000 stock options vested as to 25% of the underlying award on the first anniversary of the grant date and as to 1/36 of the underlying award every month thereafter for three years.

Employment Arrangements with Named Executive Officers

We do not have deferred compensation plans, pension plans or other similar arrangements or plans for our executive officers, except a tax-qualified 401(k) Plan, which is available generally to all of our employees.

On December 17, 2014, the Compensation Committee, approved an amendment and restatement to the Employment Agreement of Dr. Katz, our Chief Executive Officer, which otherwise would have expired on December 31, 2014 (the “Amended Employment Agreement”). Under the Amended Employment Agreement, Dr. Katz will receive a base salary of $438,000 per year commencing in 2015, which is an increase from Dr. Katz’s base salary of $409,500 per year which Dr. Katz was receiving since restoration of that amount in 2013. This increase represents the standard industry annual increase of 4% and in addition, an amount of $12,000 in lieu of the annual life insurance policy amount that was authorized as part of the prior Employment Agreement, and which under the terms of the Amended Employment Agreement is no longer being purchased or paid for by the Company. Like the prior Employment Agreement, Dr. Katz would be entitled to receive a pro-rated annual bonus plus an amount equal to three years of his then existing annual base salary and three years of his average bonus for the prior two fiscal years, which includes both any annual bonus and any special achievement bonus paid in the prior two fiscal years. In addition, the Amended Employment Agreement similarly provides that Dr. Katz would be entitled to receive such compensation if his employment with the Company is terminated without “cause” or he resigns for “good reason” (as those terms are defined in the Amended Employment Agreement) in the absence of a change of control transaction.

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On December 17, 2014, the Compensation Committee approved, and the Company entered into, a Second Amended and Restated Employment Agreement (the “Dinu Employment Agreement”) to amend and restate the Amended and Restated Employment Agreement dated as of March 27, 2012. Under the Dinu Employment Agreement with Dr. Raluca Dinu, the Company’s Senior Vice President of Global Sales and Marketing. Dr. Dinu will receive a base salary of $280,000 per year commencing in calendar year 2015, which is subject to annual review by the Compensation Committee. Ms. Dinu is eligible to receive an annual performance bonus under such executive incentive plan as is applicable to executives of the Company generally, with target bonus and performance metrics to be determined by the Board or the Compensation Committee. The Dinu Employment Agreement provides that Dr. Dinu would be entitled to receive compensation if her employment with the Company is terminated without “cause” or she resigns for “good reason” (as those terms are defined in the Dinu Employment Agreement) in the absence of a change of control transaction. In such event, the amount shall be equal to a pro-rated performance bonus plus an amount equal to six months of her then existing annual base salary, and 50% of Dr. Dinu’s outstanding unvested equity awards shall vest and, if the awards require exercise, be exercisable for a period of three (3) months following termination of employment, and 50% of the remaining undelivered shares shall be delivered for such awards that are of stock units, including RSUs.  The Dinu Employment Agreement also provides that if in connection with a change of control transaction Dr. Dinu’s employment with the Company is terminated without “cause” or she resigns for “good reason”, then in addition to the compensation described above, all outstanding unvested equity awards shall vest, and, if the awards require exercise, be exercisable for a period of three (3) months following termination of employment, and all of the remaining undelivered shares shall be delivered for such awards that are of stock units, including RSUs.

On November 17, 2014, Senior Vice President and Chief Financial Officer Curt Sacks tendered his resignation to pursue other interests, pursuant to which the Compensation Committee approved the entry into by the Company with Mr. Sacks of a mutually acceptable separation agreement (the “Separation Agreement”), dated as of the same date. The Company agreed to pay Mr. Sacks the equivalent of $254,100, reflecting his annual base salary, in a lump sum. Additionally, the Company agreed to accelerate vesting on 78,343 unvested restricted stock units that represent the accumulation of four separate grants previously granted to Mr. Sacks by the Company. Additionally, the Company agreed to pay Mr. Sacks 12 months of COBRA coverage payments of the Company’s employer portion of premiums.

On March 27, 2012 and August 10, 2012 the Board of Directors, upon recommendation of the Compensation Committee, approved an amendment to the Employment Agreement of Mr. Betti-Berutto, our Chief Technical Officer. The agreement establishes his annual salary, bonuses and eligibility for health benefits, among other provisions and clarify the severance which either is entitled to receive in the event that his employment with the Company is terminated without “cause” or either resigns for “good reason” (as those terms are defined in his Employment Agreement). Mr. Betti-Berutto would be entitled to receive a pro-rated annual bonus plus severance in installments over a six month period, in an amount of up to six months of their respective annual base salary then in effect and a lump sum payment equal to six months of their respective annual base salary following the initial six month period plus the vesting of all outstanding, unvested awards. In the event that such termination occurs within twelve months following a Change of Control (as such term is defined in his respective Employment Agreement), then Mr. Betti-Berutto will be entitled to a pro-rated annual bonus plus lump sum severance amount equal to one year worth of their respective annual base salary plus average annual bonuses, the vesting of all outstanding, unvested awards and a potential tax equalization payment or gross-up payment which would place him in the same after-tax position as if any excise tax penalty did not apply.

The GigOptix, Inc. 2008 Equity Incentive Plan contains certain provisions for change in control transactions. In the event of a Covered Transaction (as defined in the plan), the outstanding awards must either be assumed or substituted by the successor company or will be fully accelerated prior to the closing of the Covered Transaction.

Director Compensation

The following table sets forth the compensation earned for services performed for us as a director by each member of our Board of Directors, other than any directors who are also our named executive officers, during the fiscal year ended December 31, 2014.

	2014 Director Compensation Table
	Fees Earned or Paid in Cash		Restricted Stock Units		Total
Name
Frank Schneider	$	21,000	$	73,066	$	94,066
John J. Mikulsky	$	18,000	$	60,980	$	78,980
Joseph J. Lazzara	$	18,000	$	60,980	$	78,980
Kimberly D.C. Trapp	$	18,000	$	60,980	$	78,980
Neil J. Miotto	$	21,000	$	73,066	$	94,066

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As of December 31, 2014, each current director, other than directors who are also our named executive officers, held the following outstanding options and restricted stock unit awards:

Name	Aggregate Number of Shares Underlying Stock Options (#)		Aggregate Number of Shares Underlying Restricted Stock Units (#)
Frank Schneider		167,500		42,576
John J. Mikulsky		65,000		37,094
Joseph J. Lazzara		65,000		37,094
Kimberly D.C. Trapp		188,776		37,094
Neil J. Miotto		216,100		42,576

ITEM 12. SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of our common stock as of February 27, 2015 by:

· each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

· each of our named executive officers and directors; and

· all of our current executive officers and current directors, as a group.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.   Applicable percentages are based on 32,588,685shares of our common stock outstanding as of February 27, 2015, adjusted as required by such rules.  As provided by such rules, shares of our common stock issuable pursuant to options to purchase or other rights to acquire shares of common stock that are exercisable within 60 days of February 27, 2015 are deemed to be both beneficially owned by the person holding such options and outstanding for the purpose of computing ownership of such person, but are not treated as outstanding for the purpose of computing the ownership of any other person.  Except as indicated by footnote, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.  The information contained in the following table is not necessarily indicative of beneficial ownership for any other purpose and the inclusion of any shares in the table does not constitute an admission of beneficial ownership of those shares.

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	Beneficial Ownership of Our Common Stock as of February 27, 2015 Common Stock (1)
5% Stockholders	Shares		Percent of Class
Diker Management, LLC (2)		2,870,229		8.6	%
Laurence W. Lytton (3)		1,704,180		5.1	%
PENN Capital Management (4)		1,674,468		5.0	%
Name Executive Officers and Directors
Dr. Avi Katz (5) (6)		3,219,188		8.9	%
Andrea Betti-Berutto (5)		1,106,936		3.2	%
Curt Sacks (9)		192,942		*
Darren Ma		-		*
Raluca Dinu (5)		388,730		1.2	%
Neil J. Miotto (4)		333,140		1.0	%
Kimberly D.C. Trapp (5)		252,061		*
Frank Schneider (5) (7)		262,033		*
John J. Mikulsky (5)		231,912		*
Joseph J. Lazzara (5) (8)		151,950		*
All current directors and executive officers; 9 persons		5,945,950		15.6	%

* Represents less than 1% of our outstanding common stock.

(1) Unless otherwise indicated, each person’s address is c/o GigOptix, Inc., 130 Baytech Drive, San Jose, California 95134.

(2) The information as to Diker Management, LLC. is derived from a Schedule 13G filed with the SEC on February 17, 2015. The principal business address is 730 Fifth Avenue, 15^th Floor, New York, NY 10019.

(3) The information as to Laurence W. Lytton is derived from a Schedule 13G filed with the SEC on February 6, 2015. The principal business address is 467 CPW, New York, NY 10025.

(4) The information as to PENN Capital Management is derived from a Schedule 13G filed with the SEC on February 12, 2015. The principal business address is Navy Yard Corporate Center, Three Crescent Drive, Suite 400, Philadelphia, PA 19112.

(5) Includes options to purchase shares of common stock exercisable within 60 days of February 27, 2015 as follows:  2,853,366 for Dr. Katz, 1,031,078 for Mr. Betti-Berutto, 365,610 for Ms. Dinu, 208,491 for Mr. Miotto, 182,357 for Ms. Trapp; 160,104 for Mr. Schneider, 57,603 for Mr. Mikulsky, and 57,603 for Mr. Lazzara.

(6) Dr. Katz exceeded 5% beneficial ownership of our common stock on August 18, 2011, as initially reported in his Schedule 13D filed on August 19, 2011, as most recently amended in his Schedule 13D/A Amendment No. 7 filed on December 23, 2014

(7) Includes 12,542 shares held in the Schneider Family Trust.

(8) Includes 15,743 shares held in the Lazzara Family Trust.

(9) Although Curt Sacks is a named executive officer for the fiscal year of 2014, he tendered his resignation effective on November 17, 2014.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence

The Board of Directors has determined that Mr. Lazzara, Mr. Mikulsky, Mr. Miotto, Mr. Schneider, and Ms. Trapp are “independent” directors.

The Company uses the independence standards set forth by Section 803(a)(2) of the NYSE MKT Company Guide. In reviewing the independence of our directors against these standards, we consider relationships and transactions between each director and members of the director’s family with us and our affiliates. Each member of our two standing committees, the Audit Committee and the Compensation Committee, is independent as defined by Section 803(a)(2) of the NYSE MKT Company Guide, and each member of our Audit Committee is also independent as defined by Rule 10A-3(b)(1) under the Exchange Act.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees billed or to be billed by Burr Pilger Mayer, Inc. for auditing and other services provided to GigOptix for the fiscal year 2014 and 2013.

	Burr Pilger Mayer, Inc.
	2014		2013
Audit Fees (1)	$	279,646	$	239,880
Audit-Related Fees (2)	$	13,220	$	14,428
Tax Fees (3)	$	-	$	-

(1) Audit fees include fees for professional services rendered by our principal accountant for the audit of our annual financial statements, review of financial statements included in our Forms 10-Q and other services normally provided by accountants in connection with statutory and regulatory filings or engagements for those fiscal years.

(2) Audit-related fees include fees for professional services rendered by Burr Pilger Mayer, Inc. related to the audit of the GigOptix 401(k) Plan.

(3) Fees for tax services relate to tax return preparation and other compliance services.

In considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and our management to determine that they are permitted under the rules and regulations concerning auditors’ independence promulgated by the Securities and Exchange Commission, as well as the American Institute of Certified Public Accountants.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee pre-approves all audit services and all permitted non-audit services by the independent registered public accounting firm. The Audit Committee evaluates whether our use of the independent registered public accounting firm for permitted non-audit services is compatible with maintaining the independence of the independent registered public accounting firm. The Audit Committee’s policies prohibit us from engaging the independent registered public accounting firm to provide any services relating to bookkeeping or other services related to accounting records or financial statements, financial information systems design and implementation, appraisal or valuation services, fairness opinions or contribution-in-kind reports, actuarial services, or internal audit outsourcing services unless it is reasonable to conclude that the results of these services will not be subject to audit procedures. The Audit Committee’s policies prohibit us from engaging the independent registered public accounting firm to provide any services relating to any management function, expert services not related to the audit, legal services, broker-dealer, investment adviser, or investment banking services or human resource consulting. The Audit Committee approved in advance all fees for services provided by our independent registered public accounting firm, Burr Pilger Mayer, Inc., for the year ended December 31, 2014 and 2013 and has concluded that the provision of these services is compatible with the accountants’ independence.

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a) Documents filed as part of the report

(1) Financial Statements

Consolidated Balance Sheets – December 31, 2014 and 2013

Consolidated Statement of Operations – Years Ended December 31, 2014 and 2013

Consolidated Statements of Comprehensive Loss – Years Ended December 31, 2014 and  2013

Consolidated Statements of Stockholders’ Equity– Years Ended December 31, 2014 and 2013

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013

(2) Financial Statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

(3) Exhibits

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
By:	/S/    DR. AVI S. KATZ
	Dr. Avi S. Katz, Chief Executive Officer and Chairman of the Board

Date: March 17, 2015

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Dr. Avishay S. Katz, as his true and lawful attorney-in-fact and agent, with power to act with full power of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the U.S. Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission thereunder in connection with the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Annual Report”), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of the registrant and the name of the undersigned, individually and in his capacity as a director or officer of the registrant, to the Annual Report as filed with the U.S. Securities and Exchange Commission, to any and all amendments thereto, and to any and all instruments or documents filed as part thereof or in connection therewith; and each of the undersigned hereby ratifies and confirms all that said attorney and agent shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

NAME	TITLE	DATE
/S/    DR. AVI S. KATZ	Chief Executive Officer and Chairman of the Board	March 17, 2015
Dr. Avi S. Katz	(Principal Executive Officer)
/S/    DARREN MA	Vice President and Chief Financial Officer	March 17, 2015
Darren Ma	(Principal Financial Officer and Principal Accounting Officer)
/S/    JOSEPH J. LAZZARA	Director	March 17, 2015
Joseph J. Lazzara
/S/    JOHN J. MIKULSKY	Director	March 17, 2015
John J. Mikulsky
/S/    NEIL J. MIOTTO	Director	March 17, 2015
Neil J. Miotto
/S/    FRANK SCHNEIDER	Director	March 17, 2015
Frank Schneider
/S/    KIMBERLY D.C. TRAPP	Director	March 17, 2015
Kimberly D.C. Trapp

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EXHIBIT INDEX

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated as of November 9, 2009, among GigOptix, Inc., Ahoy Acquisition Corporation and ChipX, Incorporated. Filed previously with the Registrant’s Current Report on Form 8-K filed on November 10, 2009.
2.2	Agreement and Plan of Merger, dated as of February 4, 2011, among GigOptix, Inc., Aerie Acquisition Corporation and Endwave Corporation. Filed previously with the Registrant’s Current Report on Form 8-K filed on February 7, 2011.
3.1	Form of Amended and Restated Certificate of Incorporation of the Registrant. Filed previously with the Registrant’s Registration Statement on Form S-4 filed on September 8, 2008, SEC File No. 333-153362.
3.2	Amended and Restated Bylaws of the Registrant. Filed previously with the Registrant’s Current Report on Form 8-K filed on August 5, 2013.
3.3	Certificate of Designation of Series A Junior Preferred Stock.  Filed previously with the Registrant’s Registration Statement on Form 8-A filed on December 2011, SEC File No.  000-54572.
3.4	Amended and Restated Certificate of Designation of Series A Junior Preferred Stock.  Filed previously with the Registrant’s Registration Statement on Form 8-A/A Amendment No. 1 filed on December 19, 2014, SEC File No.  000-54572.
3.5	Form of Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant. Filed as Appendix A to the Registrant’s Proxy Statement on Schedule 14-A filed on October 3, 2014 (File No. 001-35520).
4.1	Form of Certificate representing the Common Stock, par value $0.001 per share, of the Registrant. Filed previously with the Registrant’s Amendment No. 2 to Registration Statement on Form S-4 filed on October 24, 2008, SEC File No. 333-153362.
4.2	Warrant issued by GigOptix, Inc. to Bridge Bank, N.A. on April 7, 2010 in connection with the Loan and Security Agreement.  Filed previously with the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 3, 2011.
4.3	Warrant for 500,000 shares of GigOptix common stock at $2.60 per share, dated April 8, 2011 between GigOptix, Inc. and the DBSI Liquidating Trust. Filed previously with the Registrant’s Current Report on Form 8-K filed on April 8, 2011.
4.4	Warrant for 500,000 shares of GigOptix common stock at $3.00 per share, dated April 8, 2011 between GigOptix, Inc. and the DBSI Liquidating Trust.  Filed previously with the Registrant’s Current Report on Form 8-K filed on April 8, 2011.
4.5	Rights Agreement, dated as of December 16, 2011, between GigOptix, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent, including the Summary of Rights as Exhibit A, the Form of Rights Certificate as Exhibit B and the Certificate of Designation of Series A Junior Preferred Stock as Exhibit C.  Filed previously with the Registrant’s Registration Statement on Form 8-A filed on December 2011, SEC File No.  000-54572.
4.6	Amended and Restated Rights Agreement, dated as of December 16, 2014, between GigOptix, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent, including the Summary of Rights as Exhibit A, the Form of Rights Certificate as Exhibit B and the Amended and Restated Certificate of Designation of Series A Junior Preferred Stock as Exhibit C.  Filed previously with the Registrant’s Registration Statement on Form 8-A/A Amendment No. 1 filed on December 19, 2014, SEC File No.  000-54572.
10.1	2000 Stock Option Plan of Lumera Corporation. Filed previously with Amendment No. 1 to Lumera Corporation’s Registration Statement on Form S-1 filed on June 24, 2004.
10.2	GigOptix, Inc. Amended and Restated 2008 Equity Incentive Plan. Filed previously as Appendix A to the Registrant's Proxy Statement on Schedule 14-A filed on September 29, 2011, SEC File No. 333-153362.
10.3	2004 Equity Incentive Plan of Lumera Corporation. Filed previously with Amendment No. 1 to Lumera Corporation’s Registration Statement on Form S-1 filed on June 24, 2004.

96

10.4	2007 GigOptix LLC Equity Incentive Plan. Filed previously with the Registrant’s Registration Statement on Form S-4 filed on September 8, 2008, SEC File No. 333-153362.
10.5	Lease Agreement, dated as of July 11, 2005, by and between S/I North Creek and Lumera Corporation for facilities located at 19910 North Creek Parkway, Bothell, WA. Filed previously with Lumera Corporation’s Current Report on Form 8-K filed on July 12, 2005.
10.6	First Amendment dated as of January 26, 2009 by and between EOP-Embarcadero Place, L.L.C. and the Company. Filed previously with Registrant’s Current Report on Form 8-K filed on January 21, 2008.
10.7	License Agreement dated August 31, 2007 by and between Digimimic S.r.l. and GigOptix LLC. Filed previously with the Registrant’s Registration Statement on Form S-4 filed on September 8, 2008, SEC File No. 333-153362.
10.8	Amendment to 2000 Stock Option Plan of Lumera Corporation. Filed previously with Amendment No. 1 to Lumera Corporation’s Registration Statement on Form S-1 filed on June 24, 2004.
10.9	Modulators Incorporating Polymers with Exceptionally High Electro-Optic Coefficients Development Agreement with the Defense Advanced Research Projects Agency dated June 30, 2006. Filed previously with Lumera Corporation’s Quarterly Report for the quarter ended June 30, 2006.

10.10	Form of Employment Agreement to be entered into between the Company and its executive officers. Filed previously with the Registrant’s 8-K filed on February 11, 2009.
10.11	Form of Incentive Stock Option Award Agreement. Filed previously with the Registrant’s Current Report on Form 8-K filed on March 17, 2009.
10.12	Form of Nonstatutory Stock Option Award Agreement. Filed previously with the Registrant’s Current Report on Form 8-K filed on March 17, 2009.
10.13	Third Amendment to Schnitzer North Creek Lease Agreement dated as of September 30, 2009.  Filed previously with the Registrant’s Current Report on Form 8-K filed on October 5, 2009.
10.14	Second Amendment to Lease Agreement, dated as of December 9, 2009, by and between GigOptix, Inc. and EOP-Embarcadero Place, L.L.C. Filed previously with the Registrant’s Current Report on Form 8-K filed on December 15, 2009.
10.15	Office Lease Agreement dated December 9, 2009 by and between GigOptix, Inc. and EOP-Embarcadero Place, L.L.P for headquarters located in Palo Alto, CA.  Filed previously with the Registrant’s Current Report on Form 8-K filed on December 15, 2009.
10.16	Registration Rights Agreement, dated June 30, 2010, by and between GigOptix, Inc. and James R. Zazzali, as trustee for the Chapter 11 debtors in the matter In re: DBSI, Inc., et al., Case No. 08-12687, pends in the United States Bankruptcy Court for the District of Delaware.  Filed previously with the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 3, 2011.

10.17	Amendment to Registration Rights Agreement dated January 11, 2011, by and between GigOptix, Inc. and Conrad Myers, as Liquidating Trustee for the DBSI Liquidating Trust, as successor-in-interest to the Chapter 11 Debtors the matter In re: DBSI, Inc., et al., Case No. 08-12687, filed in the United States Bankruptcy Court for the District of Delaware.  Filed previously with the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 3, 2011.
10.18	Settlement Agreement and Release, dated April 8, 2011 between Conrad Myers as Liquidating Trustee of the DBSI Liquidating Trust, James R. Zazzali as Trustee of the DBSI Estate Litigation Trust, GigOptix, Inc., GigOptix LLC and Joerg Wieland.  Filed previously with the Registrant’s Current Report on Form 8-K filed on April 8, 2011.
10.19	Lease Agreement, by and between Legacy Partners I San Jose, LLC and Endwave Corporation, dated May 24, 2006, as amended by: (i) that certain First Amendment to Lease Agreement, by and between Legacy Partners I San Jose, LLC and Endwave Corporation, dated as of September 11, 2006; (ii) that certain Second Amendment to Lease Agreement, by and between Legacy Partners I San Jose, LLC and Endwave Corporation, dated as of December 6, 2006; (iii) that certain Third Amendment to Lease Agreement dated as of April 12, 2007, by and between Legacy Partners I San Jose, LLC and Endwave Corporation; and (iv) that certain Fourth Amendment to Lease Agreement dated as of June 17, 2011, by and between Legacy Partners I San Jose, LLC and GigOptix, Inc.  Filed previously with the Registrant’s Current Report on Form 8-K filed on June 21, 2011.

97

10.20	Form of Indemnification Agreement.  Filed previously with the Registrant’s Current Report on Form 8-K filed on June 21, 2011.
10.21	Agreement between Mr. Judson and GigOptix, Inc., dated as of November 21, 2011.  Filed previously with the Registrant’s Current Report on Form 8-K filed on November 28, 2011.
10.22	Form of Amendment of Award for Directors, dated as of March 27, 2012.  Filed previously with the Registrant’s Current Report on Form 8-K filed March 28, 2012.
10.23	Form of Restricted Stock Unite Notice of Grant and Agreement.  Filed previously with the Registrant’s Current Report on Form 8-K filed March 28, 2012.
10.24	Amended and Restated Employment Agreement by and between GigOptix, Inc. and Curt P. Sacks, dated as of August 10, 2012.  Filed previously with the Registrant’s Current Report on Form 8-K filed August 15, 2012.
10.25	Amended and Restated Employment Agreement by and between GigOptix, Inc. and Andrea Betti-Berutto, dated as of August 10, 2012.  Filed previously with the Registrant’s Current Report on Form 8-K filed August 15, 2012.
10.26	Second Amended and Restated Loan and Security Agreement dated March 25, 2013, between GigOptix, Inc., ChipX, Incorporated, Endwave Corporation and Silicon Valley Bank.  Filed previously with the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013, filed May 14, 2013.
10.27	First Amendment to the Articles of Association of BrPhotonics Produtos Optoeletrônicos LTDA. Filed previously with the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2014, filed May 9, 2014.
10.28	Joint Venture and Quotaholders Agreement dated February 10, 2014, by and among GigOptix, Inc., Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (CPqD), and BrPhotonics Produtos Optoeletrônicos LTDA. Filed previously with the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2014, filed May 9, 2014.
10.29	Employment Agreement dated as of December 17, 2014, by and between GigOptix, Inc. and Darren Ma. Filed previously with the Registrant’s Current Report on Form 8-K filed December 23, 2014.
10.30	Third Amended and Restated Employment Agreement dated as of December 17, 2014, by and between GigOptix, Inc. and Dr. Avi Katz. Filed previously with the Registrant’s Current Report on Form 8-K filed December 23, 2014.
10.31*	Separation Agreement dated as of November 17, 2014, by and between GigOptix, Inc. and Curt Sacks, filed herewith.
10.32*	Second Amended and Restated Employment Agreement dated as of December 17, 2014, by and between GigOptix, Inc, and Raluca Dinu, filed herewith.
10.33*	Lease Agreement, dated April 17, 2007, by and between Keith C. Estes & Traci A. Estes, The Estes Family Trust and Tahoe RF Semiconductor, Inc. for facilities located at 12834 Earhart Avenue, Auburn, Washington, filed herewith.
10.34*	Amendment to Lease Agreement dated November 14, 2012, by and between Keith C. Estes & Traci A. Estes, The Estes Family Trust and Tahoe RF Semiconductor, Inc. for facilities located at 12834 Earhart Avenue, Auburn, Washington, filed herewith.
10.35*	Transfer of Lease Agreement, dated April 17, 2007, and Amendment to Lease Agreement, November 14, 2012 by and between Keith C. Estes & Traci A. Estes, The Estes Family Trust and Tahoe RF Semiconductor to GigOptix, Inc. for facilities located at 12834 Earhart Avenue, Auburn, Washington, filed herewith.
21*	Subsidiaries of the registrant.
23.1*	Consent of Burr Pilger Mayer, Inc. Independent Registered Public Accounting Firm.
24.1*	Powers of Attorney (included on the signature pages hereto)
31.1*	Chief Executive Officer certification pursuant to Rule 13a-14(a)/15d-14a 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-14a 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.

98

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.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

† Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

99

EX-10.31

Exhibit 10.31

November 17, 2014

VIA HAND DELIVERY

Curt Sacks

263 Old Adobe Rd.

Los Gatos, CA 95032

Curt,

Further to our recent discussion, this letter (“Agreement”) confirms that you have decided to end your employment with GigOptix, Inc., a Delaware Corporation (“GigOptix”) and GigOptix has agreed to accept your resignation, effective November 17, 2014.  This letter also will confirm that GigOptix is agreeable to offering you a special separation package in connection with the cessation of your employment.  Set forth below are the terms of the separation package which GigOptix is offering you:

1.Effective November 17, 2014 (“Separation Date”), your employment with GigOptix is terminated for all purposes.

2.Your final paycheck, including all salary and accrued but unused vacation pay (or paid time off, as the case may be), if any, through November 17, 2014, less applicable withholdings and deductions, will be paid to you on the Separation Date.

3.Subject to the conditions set forth herein, GigOptix agrees to provide you with the following separation benefits (“Enhanced Separation Package”):

a.GigOptix will provide you with the equivalent of twelve (12) months of your base salary at your prior base salary rate of $254,100 annually (for a total of $254,100), less applicable deductions and withholdings (the “Separation Payment”).  The Separation Payment will be made to you on the Separation Date, but no earlier than the Effective Date of this Agreement (as defined below). GigOptix will issue you a form W-2 reflecting the Separation Payment.

b.Immediately prior to the Separation Date, you had 78,345 unvested Restricted Stock Units that are the accumulation of four separate grants (two on February 7, 2014 (5,625 unvested shares and 17,500 unvested shares, each vesting on February 1, 2015), and two on August 1, 2013 (25,029 unvested shares and 30,189 unvested shares, vesting quarterly through May 1, 2015 and May 1, 2017, respectively) (collectively, the “RSUs”)).  As part of the Enhanced Separation Package, each of these unvested RSUs shall be fully and indefeasibly vested on the Separation Date, but no earlier than the Effective Date of this Agreement, and each such grant agreement is hereby amended to the extent necessary to permit such vesting.  Separately, you acknowledge that there are an additional 52,500 RSUs that were granted to you on February 7, 2014, which are unvested, but which are not being accelerated by GigOptix (pursuant to the terms of this Agreement or otherwise).  Finally, you acknowledge that you have 119,512 unvested stock options, for which the exercise price of said stock options are below the current price for which GigOptix stocks trades, and the vesting on those stock options are not being accelerated pursuant to the terms of this Agreement (or otherwise).

c.You may continue your participation in the GigOptix group health insurance plan in accordance with the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  If you properly and timely elect to continue such group health insurance coverage, GigOptix will, for the first twelve (12) months of such continuation coverage, directly pay to the group health plan the applicable employer portion of all premiums on your behalf; provided, however, this offer is made under and subject to COBRA rules and regulations and the terms, conditions and limitations in the applicable plans, including those regarding co-payments, employee and dependent coverage premiums and conditions for eligibility, and deductibles.  In addition to any other requirements or conditions imposed on you by GigOptix’ health care plan(s), your failure to pay the applicable employee portion of the COBRA premiums will, if such failure to pay leads to termination of COBRA coverage, immediately terminate GigOptix’ obligation to pay the applicable employer portion of the COBRA premiums as described above.

d.You understand and agree that you will receive only those payments and benefits specifically stated in this Agreement (Paragraph 3 (a)-(c)), and that you will not receive any other termination or severance payment, any compensation or any other benefits that GigOptix may provide to its employees from time to time or which GigOptix has provided to others at any time prior to the date of this Agreement (including, but not limited to, outplacement services, bonuses, rights to cash payments arising from GigOptix’ stock options and incentive stock grants), except those benefits previously provided in which you may have a vested right solely as a consequence of your employment with GigOptix prior to the Separation Date.  You hereby waive and release your right to any such termination or severance payments and any such other compensation, perquisites or benefits that you might otherwise be entitled to receive pursuant to GigOptix’ policies or practice, or employment agreement or contract or offer letter.

4.In consideration of this Agreement, you, on behalf of yourself and your representatives, agents, estate, heirs, successors and assigns, agree to and do hereby forever waive, release and discharge GigOptix, and each of its affiliated or related entities, corporations, parent corporations, subsidiaries, predecessors, successors, assigns, divisions, owners, stockholders, board members, partners, directors, officers, attorneys, insurers, benefit plans, employees and agents, whether previously or hereinafter affiliated in any manner, as well as all persons or entities acting by, through, or in concert with any of them (collectively, the “Released Parties”), from any and all claims, debts, contracts, obligations, promises, controversies, agreements, liabilities, demands, expenses, disputes, agreements, damages, attorneys' fees, or complaints of any nature whatsoever, whether or not now known, suspected, claimed, matured or unmatured, existing or contingent, from the beginning of time until the moment you have signed this Agreement, against the Released Parties (whether directly or indirectly), or any of them, by reason of any act, event or omission concerning any matter, cause or thing, including, without limiting the generality of the foregoing, any claims related to or arising out of (i) your employment or its termination, (ii) any contract or agreement (express or implied) between you and any of the Released Parties (including, but not limited to, any agreement regarding equity-based compensation), (iii) any tort or tort-type claim, (iv) any federal, state or governmental constitution, statute, regulation or ordinance, including but not limited to the U.S. Constitution, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans With Disabilities Act, the Employee Retirement Income Security Act of 1974, the Sarbanes-Oxley Act of 2002, and any state or local statute of similar effect, including, without limitation the California Fair Employment and Housing Act, the California Family Rights Act, as amended, and the California Labor Code, (v) any impairment of your ability to obtain subsequent employment, and (vi) any permanent or temporary disability or loss of future earnings.  For the purpose of implementing a full and complete release and discharge of the Released Parties, you expressly acknowledge that this Agreement is intended to include and does include in its effect, without limitation, all claims which you do not know or suspect to exist in your favor against the Released Parties, or any of them, at the moment of execution hereof, and that this Agreement expressly contemplates the extinguishment of all such claims.  The only claims that are not included in this release, as set forth in this Paragraph 4, is a claim for workers’ compensation and unemployment insurance benefits, but you represent that you have not suffered any type of injury which you believe to be work-related.

5.You acknowledge and agree that a portion of the Enhanced Separation Package is being provided to you by GigOptix for the specific purpose of obtaining the ADEA waiver specified above.  You also acknowledge that no waiver provided herein shall be deemed a waiver of a claim challenging the validity of such ADEA waiver.

6.You acknowledge and agree that, absent compulsion of court order, you will not sue or otherwise institute, cause to be instituted, or in any way voluntarily participate or assist in the prosecution of, any complaints against the GigOptix or any of the Released Parties by any non-governmental third party in any federal, state, or other court, administrative agency or other forum concerning any claims released herein.  You also affirm that you are waiving all rights to, and will not participate in, any monetary award obtained in connection with any subsequent complaint or lawsuit filed against GigOptix or any of the Released Parties by any person.  Your obligations under this Paragraph 6 are subject to your rights under Paragraph 7 of this Agreement.

7.Nothing in this Agreement prevents you from filing a charge with, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or similar state agencies.  Likewise, nothing in this Agreement shall prevent the EEOC or any other government agency from separately enforcing Title VII, the ADEA and/or any other employment discrimination law.  However, you acknowledge that you may not recover any monetary benefits in connection with any such charge, proceeding or enforcement.

8.You hereby expressly waive and relinquish any and all rights and benefits you have or may have under California Civil Code, Section 1542, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

You acknowledge that you may hereafter discover facts different from or in addition to those which now know or believe to be true with respect to the matters released in Paragraphs 4, 5, and 6, above, and agree that the release so given in Paragraphs 4, 5 and 6 shall be and remain in effect as a full and complete release of the respective claims, notwithstanding any such different or additional facts.

9.You represent that as of the date you sign this Agreement, you have returned to GigOptix all company property and materials, including but not limited to, if applicable, computers (whether a desktop or laptop), secure ID cards, personal (hand-held) digital assistants (sometimes known as “PDAs”), printers, fax machines, scanners, copiers, mobile phones, company credit cards and telephone cards, manuals, building keys and passes, courtesy parking passes, software programs and data compiled with the use of those programs, software passwords or codes, as well as anything embodying or containing confidential, proprietary or trade secret information of GigOptix, including but not limited to tangible or electronic copies of technical manuals or information, sales forecasts, names and addresses of GigOptix customers and potential customers, customer lists, customer contacts, sales and pricing information, sales forecasts, memoranda, sales brochures, business or marketing plans, reports, projections, employee lists and/or contact information and any and all other information or property previously held or used by you that was related to your employment with GigOptix (“Company Property”).  You represent that you have not and will not take by download or otherwise any Company Property.  You agree that, hereafter, in the event that you discover any Company Property in your possession, whether in electronic form or otherwise, you will immediately return such materials to the Company.

10.You hereby reaffirm any pre-existing confidentiality and non-disclosure obligations to GigOptix under its Code of Business Conduct and Ethics, company policies, and any confidentiality agreement and/or proprietary information agreement expressly executed by you, as well as any non-solicitation obligations under any non-solicitation agreement expressly executed by you, to the fullest extent permitted by law.

11.You agree that for a period of ten (10) years thereafter, you shall not, in any communication with any person or entity, including any actual or potential customer, client, investor, vendor, or business partner of GigOptix, or any third party media outlet, make any derogatory or disparaging or critical negative statements – orally, written or otherwise – against GigOptix, or any of its directors, officers, agents, employees, contractors, or affiliated persons or entities.  You also agree that unless compelled by valid legal process you will not give or offer to provide any testimony in connection with any claim, action, or demand brought against GigOptix which concerns GigOptix, your employment or the cessation of your employment with GigOptix, GigOptix’ business practices, its customers and/or prospective customers, its products, and/or any other any other aspect of GigOptix’ business, its directors, officers, agents, employees, contractors, or affiliated persons or entities.  Further, you agree that should you be called as a witness or to provide testimony in any case pending or threatened against GigOptix, you and/or your counsel will contact GigOptix’ counsel of record, Jeffrey C. Selman of Crowell & Moring, LLP (at 415.365.7442) immediately, but in no event later than 20 days before you are to be deposed or to testify as a witness so that GigOptix can take whatever precautionary measures it deems necessary to protect from disclosure any of its proprietary and/or confidential information and/or documents.

You hereby agree to provide any and all necessary assistance to and cooperation with GigOptix if called upon by GigOptix with regard to any lawsuit, claim, action, investigation, administrative review or otherwise that may be brought by any third party against GigOptix or any of the Released Parties and which may involve facts or knowledge of which you may be aware as a result of your employment or position with GigOptix.

12.Nothing contained in this Agreement or the fact that either you or GigOptix has signed this Agreement shall be considered an admission of any liability whatsoever.  This Agreement and all of its terms shall be maintained in strict confidence by you, except that you may disclose the terms of this letter to your accountant, attorney, immediate family members, or as required by law; provided, however, that such persons agree to abide by these confidentiality obligations.  In the event you are compelled to provide or disclose information described in this paragraph, you will provide written notice of such belief, via facsimile and mail, to GigOptix Chief Executive Officer, Dr. Avi S. Katz, no later than seven (7) business days prior to said production or disclosure.  This Agreement shall not be filed with any court and shall remain forever confidential except in an action to enforce or for breach of this Agreement.  If you assert an action to enforce this Agreement or for breach of this Agreement, you shall maintain such confidentiality by whatever means necessary, including, but not limited to, submitting the Agreement to a court under confidential seal.  Your obligations under this Paragraph 12 are subject to your rights under Paragraph 7 of this Agreement.

13.You acknowledge that the covenants set forth in the Paragraphs 11 and 12 above are essential to GigOptix’ willingness to enter into this Agreement and agree that any breach of any of the covenants set forth in those paragraphs shall constitute a material breach of the Agreement and GigOptix shall be entitled to recover damages for any such breach.  You and GigOptix acknowledge that it would be difficult to ascertain the damages resulting from the breach of the aforementioned paragraphs, and therefore agree that $10,000 shall be presumed to be and be affixed as the amount of damages that would be suffered as a result of each breach of these covenants.  Therefore, in the event that you breach this Agreement with respect to Paragraphs 11 and 12, you shall pay liquidated damages to GigOptix for each breach in the amount of $10,000, recoverable in an action to enforce this Agreement, in addition to any other remedies provided by law.

14.By signing this Agreement, you hereby represents that you are not aware of any affirmative conduct or the failure to act on the part of GigOptix, its officers, directors, and/or employees concerning GigOptix’ business practices, its reporting obligations, its customers and/or prospective customers, its products, and/or any other any other aspect of GigOptix’ business, which you have any reason to believe rises to the level of unfair, improper and/or unlawful conduct pursuant to any state or federal law, rule, regulation or order, including, but not limited to, the False Claims Act, any rule, regulation or decision promulgated or enforced by the Securities and Exchange Commission, or which has been promulgated or enforced by any other state or federal office or administrative body pursuant to the Sarbanes-Oxley Act of 2002.  Your obligations under this Paragraph 14 are subject to your rights under Paragraph 7 of this Agreement.

15.This Agreement contains the entire agreement between you and GigOptix regarding these issues, and no representations, commitments or promises have been made which are not expressly set forth in this Agreement.  No modification to this letter shall be valid unless set forth in writing and signed by both you and the Chief Executive Officer of GigOptix, or his designee.  Should any portion of this Agreement be declared void or unenforceable, such portion shall be considered severable from the remainder, the validity of which shall remain unaffected.  Any waiver of any provision of this Agreement shall not constitute a waiver of any other provision hereof unless expressly so indicated in writing.

16.If any dispute or disagreement arising out of or relating to this Agreement or the breach thereof (or any remaining aspect of your employment or the termination thereof) is not resolved promptly in the ordinary course of business, the dispute shall be settled solely on an individual basis (without the right for any claim to be arbitrated on a class action basis or in a purported representative capacity on behalf of others) by binding arbitration under the JAMS Employment Arbitration Rules & Procedures and the JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness in effect at the time written notice of the claim is given, and strictly in accordance with the terms of this Agreement and the substantive and procedural laws of the state in which you were last employed by GigOptix.  A copy of the JAMS rules is available on line at http://www.jamsadr.com/rules-employment-arbitration.  Unless the parties otherwise agree, the parties shall have the same rights to discovery as they ordinarily would have had had this dispute been the subject of a legal action filed in the appropriate court.  The arbitration shall be conducted before one arbitrator at JAMS’ regional office nearest the GigOptix office/facility where you last worked.  The arbitrator in any arbitration shall be experienced in the areas of law raised by the subject matter of the dispute.  Lists of prospective arbitrators shall include retired judges.  Notwithstanding the JAMS rules, (a) any party may strike from a list of prospective arbitrators any individual who is regarded by that party as not appropriate for the dispute; and (b) if the arbitrator appointment cannot be made from the initial list of prospective arbitrators circulated by JAMS, a second and, if necessary, a third list shall be circulated and exhausted before JAMS is empowered to make the appointment.  The arbitrator shall issue a written opinion and shall have full authority to award all remedies which would be available in court.  Judgment upon the arbitrator’s award may be entered and enforced in any court of competent jurisdiction.  The parties hereto knowingly waive and relinquish their respective rights to a jury or court trial of any dispute between them regarding this Agreement.  GigOptix shall bear the costs that are unique to such JAMS arbitration (including, but not limited to, the fees charged by JAMS and/or the arbitrator), except that you will be required to pay the amount of costs which equal but do not exceed the cost of initiating an action in court, and you will be responsible for all your attorneys’ fees and costs.  However, both parties may apply for temporary restraining orders or preliminary injunctions (“temporary equitable relief”) in cases in which such temporary equitable relief would otherwise be authorized by law, and where the party moving for such temporary equitable relief reasonably believes that the courts would more quickly protect its/his/her rights as opposed to filing an action in court and then moving for temporary relief within JAMS forum; provided, however, that once the temporary equitable relief is granted/denied by the court(s), the matter will be submitted to JAMS arbitration where it will remain through judgment as otherwise provided for in this Paragraph 16.  Your obligations under this Paragraph 16 are subject to your rights under Paragraph 7 of this Agreement.

17.If you request or authorize any prospective future employer to request information about you from GigOptix regarding your past employment, GigOptix’ Chief Executive Officer will respond to such request in a manner which will not reasonably be considered to malign, harm, disparage, or damage your reputation and good name, and will limit the information released to dates of employment and, upon written release, wage information.  Likewise, you will speak of GigOptix and respond to requests for information about GigOptix and your past employment in a manner which will not reasonably be considered to malign, harm, disparage, or damage GigOptix’ reputation and good name, orally or in writing.

18.In compliance with the requirements of the Age Discrimination in Employment Act (ADEA), as amended by the Older Workers’ Benefit Protection Act of 1990, you acknowledge by your signature below that, with respect to the rights and claims waived and released herein under the ADEA, you read and understand this Agreement and specifically understand the following:

(a) That you are advised to consult with an attorney before signing this Agreement;

(b) That your are releasing GigOptix and the Released Parties from, among other things, any claims which he/she might have against any of them pursuant to the ADEA, as amended;

(c) That the releases contained in this Agreement do not cover the rights or claims that may arise after the date on which you executed this Agreement;

(d) That you have been given a period of twenty-one (21) days in which to consider this Agreement, although you may choose voluntarily to execute this Agreement earlier; and

(e) That you may revoke this Agreement during the seven (7) day period following the date of your execution of this Agreement; provided, however, you acknowledge and understand that any revocation of this Agreement by you must be made in writing and hand (or personally) delivered to GigOptix marked PERSONAL AND CONFIDENTIAL, Attention: Avi S. Katz.  This Agreement will not become binding and effective until the seven (7) day revocation period has expired (“Effective Date”).

Sincerely,

Avi Katz, Chief Executive Officer

I have read and understand this Agreement and knowingly and voluntarily accept and agree to its terms for the purpose of receiving the Enhanced Separation Package.

Curt Sacks

Dated:

EX-10.32

Exhibit 10.32

EMPLOYMENT AGREEMENT

This Second Amended and Restated EMPLOYMENT AGREEMENT (the “Agreement”) made and entered into by and between GigOptix, Inc., a Delaware corporation (the “Company”) and Raluca Dinu (the “Executive” and, with the Company, the “Parties”), dated as of December 17, 2014 (the “Effective Date”), amends and restates in its entirety, Executive’s Amended and Restated Employment Agreement with the Company dated as of March 27, 2012 and supersedes and terminates the Amendment of Awards dated as of March 27, 2012.

WHEREAS, the Company wishes to retain the services of the Executive to work for the Company as its Senior Vice President of Global Sales and Marketing (herein referred to as the “Position” or “SVP of Global Sales and Marketing”) upon the terms and conditions hereinafter set forth; and

WHEREAS, in consideration for continued service in the Position, the Executive has agreed to enter into and be bound by the terms of this Agreement.

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive agree as follows:

1.Employment, Term.  Subject to the terms and conditions set forth in this Agreement, the Company hereby employs Executive on a full-time basis in the Position.  The Executive’s employment shall continue until terminated as provided herein.  The term of this Agreement is hereafter referred to as “the term of this Agreement” or “the term hereof.”

2.Capacity and Performance.

(a)During the term hereof, the Executive shall serve the Company as its SVP of Global Sales and Marketing reporting to the chief executive officer of the Company (the “CEO”).

(b)During the term hereof, the Executive shall be employed by the Company on a full-time basis.  The Executive shall have the duties and responsibilities assigned to the position by the Company from time to time and such other duties and responsibilities, reasonably consistent with the position, with respect to the business operations of the Company, as may be assigned by the Company from time to time.

(c)Subject to business travel as necessary or desirable for the performance of the Executive’s duties and responsibilities hereunder, the Executive’s primary worksite during the term hereof shall be at the location of the Company’s offices in San Jose, CA, USA as of the Effective Date (the “Location”) or such other site as the Company may select from time to time, provided such site is no more than thirty-five (35) miles from the Location unless the Executive has expressly consented in writing thereto.

(d)During the term hereof, the Executive shall devote her full business time and best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and to the discharge of the duties and responsibilities hereunder.  During the term of this Agreement, the Executive may engage in passive management of her personal investments and in such community and charitable activities as do not individually or in the aggregate give rise to a conflict of interest or otherwise interfere with the performance of the duties and responsibilities hereunder.  It is agreed that the Executive shall not accept membership on a board of directors or other governing board of any Person (as defined in Section 12 hereof) or engage in any other business activity without the prior approval of the CEO.  It also is agreed that if the CEO subsequently determines, and gives notice to the Executive, that any such membership or activity, previously approved, is materially inconsistent with the Executive’s obligations under Section 6, Section 7 or Section 8 of this Agreement or gives rise to a material conflict of interest, the Executive shall cease such activity promptly following notice from the Company.

3.Compensation and Benefits.  As compensation for all services performed by the Executive under and during the term hereof and subject to performance of the Executive’s duties and of the obligations of the Executive to the Company and its Affiliates, pursuant to this Agreement or otherwise:

(a)Salary.  As of the Effective Date, the Company shall pay the Executive a base salary at the rate of two hundred and twenty nine thousand and five hundred Dollars ($229,500) per annum, paid in accordance with the normal payroll practices of the Company and, commencing January 1, 2015, at the rate of two hundred and eighty thousand Dollars ($280,000) per annum, and thereafter subject to annual review by the Board or its compensation committee and to increase, but not decrease (unless all salaries of executives are decreased proportionately), in the discretion of such committee or the Board.  The Executive’s base salary, as from time to time increased (or decreased in accordance with the foregoing sentence), is hereafter referred to as the “Base Salary.”

(b)Bonus Compensation.  For each fiscal year of the Company completed during the term hereof, subject to the condition set forth in the final sentence of this provision, the Executive shall have the opportunity to earn an annual bonus (“Annual Bonus”) under the executive incentive plan then applicable to executives of the Company generally, as in effect from time to time, with the actual amount of each Annual Bonus being determined by the Board or its designated committee based on the achievement of target objectives established by the Board or its designated committee after consultation with the CEO with the Board or such designated committee to determine whether such target objectives have been achieved.  Any Annual Bonus due to the Executive hereunder will be payable not later than two and one-half months following the close of the fiscal year for which the bonus was earned or as soon as administratively practicable thereafter, within the meaning of Section 409A of the Internal Revenue Code and the regulations promulgated thereunder, each as amended (“Section 409A”).  Except as otherwise provided in Section 4 hereof, the Executive must be employed on the date annual bonuses are paid under the Company’s executive incentive plan in order to be eligible to earn an Annual Bonus for the preceding fiscal year.

(c)Equity Participation.  The Executive has been granted stock options and restricted stock units (“RSUs”) by the Company prior to the Effective Date.  Any further equity awards granted to the Executive during her employment with the Company shall be at the discretion of the Board (or its designated committee).

(d)Employee Benefit Plans.  During the term hereof, the Executive shall be entitled to participate in all “Employee Benefit Plans,” as that term is defined in Section 3(3) of ERISA, including both health and welfare plans and retirement plans, from time to time in effect for executives of the Company generally, except to the extent any of the Employee Benefit Plans provides a benefit otherwise provided to the Executive under this Agreement (e.g., a severance pay plan).  In such case, the Executive will receive the form of the benefit provided under this Agreement and not the Employee Benefit Plan.  The Executive’s participation shall be subject to the terms of the applicable Employee Benefit Plan documents and generally applicable Company policies.

(e)Paid Time Off.  During the term hereof, the Executive will be eligible to earn paid time off at the rate of twenty (20) days per year, to be taken at such times and intervals as shall be determined by the Executive, subject to the reasonable business needs of the Company and the approval of the CEO.  Paid time off shall otherwise be governed by the policies of the Company, as in effect from time to time, including with regard to accrual.

(f)Business Expenses.  The Company will pay or reimburse the Executive for all reasonable, customary and necessary business expenses incurred or paid by the Executive in the performance of her duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board (or its designated committee), to such reasonable substantiation, documentation and submission deadlines as may be specified by the Company from time to time.  Any such reimbursement that would constitute nonqualified deferred compensation subject to Section 409A shall be subject to the following additional rules:  (i) no reimbursement of any such expense shall affect the Executive’s right to reimbursement of any other such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(g)Directors & Officers Insurance Coverage.  During the term hereof, the Company shall provide the Executive the same coverage under any directors and officers (“D&O”) liability insurance that the Company elects to maintain as it provides to its other executives and, after the termination of her employment hereunder, the same coverage under any D&O liability insurance it elects to maintain, as it provides its other former executives.  The Company shall be under no obligation hereunder, however, to maintain any D&O liability insurance.

4.Termination of Employment and Opportunity to Earn Post-Employment Compensation.  Notwithstanding the provisions of Section 2 hereof, the Executive’s employment hereunder shall terminate during the term hereof under the following circumstances:

(a)Death.  In the event of the Executive’s death during the term hereof, the Executive’s employment hereunder shall immediately and automatically terminate.  In such event, the Company shall pay as a lump sum to the Executive’s estate, no later than March 15th of the year following the year in which the Date of Termination (as defined in Section 12 hereof) occurs, the Final Compensation (as also defined in Section 12 hereof).  In addition to Final Compensation:

(A)  The Company will pay to the Executive’s estate an Annual Bonus for the fiscal year in which the Date of Termination occurs (the “Termination Year”), determined by multiplying the Annual Bonus the Executive would have received for the Termination Year (if any), had she continued employment through the date annual bonuses for the Termination Year were paid to Company executives generally, by a fraction, the numerator of which shall be the number of days the Executive was employed during the Termination Year, through the Date of Termination, and the denominator of which shall be 365 (the “Final Pro-Rated Bonus”).  The Final Pro-Rated Bonus will be paid to the Executive’s estate on the same date that annual bonuses for the Termination Year are paid to Company executives generally under its executive incentive plan, but no later than March 15th of the year following the Termination Year.

(B)  The Company will pay the full premium cost of health and dental plan coverage for each of Executive’s qualified beneficiaries until the expiration of the period of twelve (12) months immediately following the Date of Termination or, if earlier, until the date the qualified beneficiary ceases to be eligible for coverage continuation under the federal law commonly known as “COBRA”; provided, however, that in order to be eligible for the Company’s payments hereunder the qualified beneficiary must elect in a timely manner to continue coverage under the Company’s health and dental plans under COBRA and must notify the Company promptly if the qualified beneficiary ceases to be eligible for such coverage under COBRA at any time during such twelve (12) month period.

(C)  The Company will pay the Executive’s estate compensation monthly, at the rate of one-twelfth of the Base Salary in effect for the Termination Year, for that period immediately following the Date of Termination, not to exceed six (6) Months of compensation.

(b)Disability.

(i)The Company may terminate the Executive’s employment involuntarily hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during her employment through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of the duties and responsibilities hereunder, notwithstanding the provision of any reasonable accommodation.  In the event of such termination, and provided that the Executive satisfies in full all of the conditions set forth in Section 4(g) hereof, then, in addition to Final Compensation (which the Company shall pay as a lump sum no later than March 15th of the year following the Termination Year), the Company shall provide the Executive the following:

(A)  The Company will pay the Executive a Final Pro-Rated Bonus for the Termination Year, paid at the time annual bonuses are paid to Company executives generally under its executive incentive plan, but no later than March 15th of the year following the Termination Year, and only if the Executive has signed and not revoked a Release of Claims within the Claims Release Period.

(B)   If the Executive satisfies the Release of Claims requirement in Section 4(g)(i), then the Company will pay the full premium cost of health and dental plan coverage for Executive and her qualified beneficiaries until the expiration of the period of six (6) months immediately following the Date of Termination or, if earlier, until the date the Executive and her qualified beneficiaries cease to be eligible for coverage continuation under COBRA; provided, however, that in order to be eligible for the Company’s premium payments hereunder, the Executive and each qualified beneficiary must elect in a timely manner to continue coverage under the Company’s health and dental plans under COBRA and must notify the Company promptly if the Executive or any of her qualified beneficiaries ceases to be eligible for such coverage under COBRA during such twelve (12) month period.

(ii)If any question shall arise as to whether during any period the Executive is disabled through any illness, injury, accident or condition of either a physical or psychological nature so as to be unable to perform substantially all of the duties and responsibilities hereunder, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or the Executive’s duly appointed guardian, if any, has no reasonable objection to determine whether the Executive is so disabled and such determination shall for the purposes of this Agreement be conclusive of the issue.  If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s determination of the issue shall be binding on the Executive.

(c)By the Company for Cause.  The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause.  For purposes of this Agreement, “Cause” shall be limited to: (i) Executive’s indictment, charge or conviction of, or plea of nolo contendere to, (A) a felony or (B) any other crime involving fraud or material financial dishonesty or (C) any other crime involving moral turpitude that might be reasonably expected to, or does, materially adversely affect the Company or any of its Affiliates, whether that effect is to economics, to reputation or otherwise; (ii) Executive’s gross negligence or willful misconduct with regard to the Company or any of its Affiliates, which has a material adverse impact on Company or any of its Affiliates, whether economic or to reputation or otherwise; (iii) Executive’s refusal or willful failure to substantially perform the duties or to follow a material lawful written directive of the CEO or the Board within the scope of the Executive’s duties hereunder which refusal or failure remains uncured or continues thirty (30) days after written notice from the CEO or the Board which references the potential for a “for Cause” termination and specifies in reasonable detail the nature of the refusal or willful failure which must be cured; (iv) Executive’s theft, fraud or any material act of financial dishonesty related to the Company or any of its Affiliates; (v) the failure by the Executive to disclose any legal impediments to the employment by the Company or breach of any of the obligations to a former employer in connection with the employment by the Company (e.g., the disclosure or use of proprietary confidential information of a former employer on behalf of the Company without such former employer’s consent); provided that Executive has been provided with written notification of any of such failure or breach and has been given five (5) days to present any mitigating, corrective or clarifying information to the CEO or the Board; (vi) the Executive’s breach or violation of those provisions of this Agreement setting forth the Executive’s obligations with respect to confidentiality, non-competition and non-solicitation; or (vii) the Executive’s breach of any other material provision of this Agreement unless corrected by the Executive within thirty (30) days of the Company’s written notification to the Executive of such breach.  In the event of such termination, the Company shall make no payments to the Executive under this Agreement other than provision of Final Compensation, which will be paid no later than March 15th of the year following the Termination Year.  Any equity in the Company held by the Executive on the Date of Termination hereunder shall be governed by the terms of the Company’s equity incentive plans and the Executive’s agreements thereunder and shall not be governed by this Agreement.

(d)By the Company other than for Cause.  The Company may terminate the Executive’s employment hereunder other than for Cause at any time upon notice to the Executive.  In the event of such termination and provided that the Executive satisfies the conditions set forth in Section 4(g)(i) and as otherwise provided herein, then, in addition to Final Compensation, the Executive, as compensation for her satisfying those conditions, shall be entitled to earn the following (in the aggregate, “ Post-Employment Compensation”):

(i)The Company will pay the Executive a Final Pro-Rated Bonus for the Termination Year, paid at the time annual bonuses for that year are paid to Company executives generally under its executive incentive plan, but no later than March 15th of the year following the Termination Year, and only if the Executive has signed and not revoked a Release of Claims within the Claims Release Period.

(ii)The Company will pay the Executive compensation monthly, at the rate of one-twelfth of the Base Salary in effect for the Termination Year, for each consecutive month (up to six (6) months) immediately following the Date of Termination that the Executive satisfies in full all of the conditions set forth in Section 4(g) hereof.  Should the Executive cease to satisfy in full any of the conditions set forth in Section 4(g) hereof at any time during the six-month period immediately following the Date of Termination, the Company will not make any further payment to the Executive under this paragraph (ii).  Such monthly payments shall commence on the next regular Company payday that is at least five (5) business days following the later of the effective date of the Release of Claims or the date the Release of Claims, signed by the Executive, is received by the Person designated by the Company to receive notices on its behalf in accordance with Section 17 hereof (provided, however, that if the Claims Release Period, as defined in Section 4(g) below, spans two taxable years, the payments shall commence in the second taxable year).

(iii)If the Executive satisfies the Release of Claims requirement in Section 4(g)(i), then the Company will pay the full premium cost of health and dental plan coverage for Executive and her qualified beneficiaries until the earliest to occur of (A) the date the Executive elects to cease meeting the conditions set forth in Section 4(g) hereof, (B) the expiration of six (6) months following the Date of Termination, (C) the date the Executive becomes eligible for participation in health and dental plans of another employer or (D) the date the Executive ceases to be eligible for participation under the Company’s health and dental plans under COBRA; provided, however, that, in order to be eligible for the Company’s payments hereunder, the Executive and each of her qualified beneficiaries must elect in a timely manner to continue coverage under the Company’s health and dental plans under COBRA.

(iv)50% of Executive’s outstanding unvested equity awards shall vest and, if the awards require exercise, be exercisable for a period of three (3) months following termination of employment, and 50% of the remaining undelivered shares shall be delivered for such awards that are of stock units, including RSUs.  Notwithstanding the foregoing, in the event termination of Executive’s employment is within twelve (12) months following a Change of Control and awards are assumed or substituted for with equivalent awards by the successor corporation or a parent or subsidiary of such successor corporation, then, all of Executive’s outstanding unvested equity awards shall vest and, if the awards require exercise, be exercisable for a period of three (3) months following termination of employment, and all of the remaining undelivered shares shall be delivered for such awards that are of stock units, including RSUs.

(e)By the Executive for Good Reason.  The Executive may terminate the employment hereunder for Good Reason, whether preceding or following a Change of Control, by providing notice to the Company of the condition giving rise to the Good Reason no later than thirty (30) days following the occurrence of the condition, by giving the Company thirty (30) days to remedy the condition and by terminating employment for Good Reason within thirty (30) days thereafter if the Company fails to remedy the condition.  For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without the Employee’s consent:  (i) a material breach of this Agreement by the Company; (ii) a material diminution of the Executive’s title from that of SVP of Global Sales and Marketing or a material adverse change in the Executive’s significant duties, authority or responsibilities, taken as a whole, that effectively constitutes a demotion; (iii) any reduction in (except to the extent all executives receive a proportional decrease) or failure to pay the Base Salary; or (iv) any relocation of the Executive’s primary worksite to a site that is more than thirty-five (35) miles from the assigned Location without her consent in accordance with this Agreement.  In the event of termination in accordance with this Section 4(e), and provided that the Executive satisfies the conditions set forth in Section 4(g) hereof, then, in addition to Final Compensation (which the Company shall pay as a lump sum no later than March 15th of the year following the Termination Year), the Company shall provide the Executive the same opportunity (utilizing the same time and form of payment) to earn Post-Employment Compensation as she would have received had the employment been terminated by the Company other than for Cause under Section 4(d) hereof.  In addition, in the event termination of Executive’s employment is within twelve (12) months following a Change of Control, then the last sentence of Section 4(d)(iv) shall apply.

(f)By the Executive Other than for Good Reason.  The Executive may terminate her employment hereunder at any time upon sixty (60) days’ notice to the Company.  In the event of termination of the Executive pursuant to this Section 4(f), the CEO may elect to waive the period of notice, or any portion thereof, and, if the CEO so elects, the Company will pay the Executive the Base Salary for the initial sixty (60) days of the notice period (or for any remaining portion of thereof).

(g)Conditions.  The Executive’s eligibility to receive and retain any Post-Employment Compensation, as set forth in Section 4 hereof, is subject to satisfaction of all of the following as well as the covenant of confidentiality set forth in Section 6 below and the assignment of rights to Intellectual Property (as hereafter defined), but with the express understanding and agreement of the parties that the Executive is free to elect not to comply with clause (i) below and is free not to forbear from competition or solicitation as set forth in clauses (ii), (iii) and (iv) immediately below, but that her right to Post-Employment Compensation under this Agreement is expressly conditioned on compliance with said clause (i) and the forbearance required under all of said clauses (ii), (iii) and (iv), as well as full satisfaction of the obligations under the covenant of confidentiality and assignment of rights to Intellectual Property (which obligations are not optional and shall survive any termination, howsoever occurring).  The conditions to receipt of Post-Employment Compensation are as follows:

(i)The Executive’s execution and return, to the Person designated by the Company to receive notices on its behalf in accordance with Section 17 hereof, of a timely and effective release of claims in the form attached hereto and marked Exhibit A (“Release of Claims”).  Such a Release of Claims will be timely and effective if it is signed by the Executive, submitted to the Company, and becomes irrevocable within 28 days following termination of employment (such 28-day period, the “Claims Release Period”).  The Release of Claims creates legally binding obligations and the Company therefore advises the Executive to consult an attorney before signing it.

(ii)Forbearance by the Executive for six (6) months following the Date of Termination from competition with the business of the Company and its Affiliates anywhere in the world where the Company or any of those Affiliates is doing business, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise. Specifically, but without limiting the foregoing, in order to satisfy this condition, the Executive must forbear from engaging in any activity that is competitive, or is in preparation to engage in competition, with the business of the Company and its Affiliates and further the Executive must forbear from working or providing services, in any capacity, whether as an employee, independent contractor or otherwise, whether with or without compensation, for or to any Person engaged in the business of the Company and its Affiliates. The business of the Company and its Affiliates is optical network equipment.  The foregoing condition, however, shall not fail to be met solely due to the Executive’s passive ownership of less than 3% of the equity securities of any publicly traded company.

(iii)Forbearance by the Executive for six (6) months following the Date of Termination from any direct or indirect solicitation or encouragement of any of the Customers of the Company or any of its Affiliates to terminate or diminish her relationship with the Company or any of its Affiliates and from any direct or indirect solicitation or encouragement of any of the Customers or Prospective Customers of the Company or any of its Affiliates to conduct with the Executive or with any other Person any business or activity which such Customer or Prospective Customer conducts or could conduct with the Company or any of its Affiliates.  For purposes of this Section 4(g), a Customer is a Person which was such at any time during the twelve (12) months immediately preceding the Date of Termination and a Potential Customer is a Person contacted by the Company or any of its Affiliates to become a Customer at any time within twelve (12) months prior to the Date of Termination other than by general advertisement, provided in each case, however, that the Executive had contact with such Customer or Potential Customer through her employment or her other associations with the Company or any of its Affiliates or had access to Confidential Information that would assist in her solicitation of such Customer or Potential Customer in competition with the Company or any of its Affiliates.

(iv)   Forbearance by the Executive for six (6) months following the Date of Termination from directly or indirectly hiring or otherwise engaging the services of any employee, independent contractor or other agent providing services to the Company or any of its Affiliates and from soliciting any such employee, independent contractor or agent to terminate or diminish his/her/its relationship with the Company or any of its Affiliates (notwithstanding the foregoing, any longer period provided for in the Confidentiality, Nondisclosure and Nonsolicitation Agreement with the Company shall not be superseded by the preceding language).  For purposes of this Section 4(g), an employee, independent contractor or agent means any Person performing services for the Company or any of its Affiliates in such capacity at any time during the twelve (12) months immediately preceding the Date of Termination.

(h)Timing of Payments.  Notwithstanding anything to the contrary in this Agreement, if at the time of the Executive’s separation from service the Executive is a “specified employee,” as hereinafter defined, any and all amounts payable under this Agreement on account of that separation from service that constitute deferred compensation subject to Section 409A, as determined by the Company in its reasonable good faith discretion, and that would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of that six month period.  Also, for purposes of this Agreement, the phrase “termination of employment” and correlative phrases mean a “separation from service” as defined in Treas. Regs.§1.409A-1(h), and the term “specified employee” means an individual determined by the Company to be a specified employee under Treas. Regs.§1.409A-1(i).  For the avoidance of doubt, any tax liability to which the Executive is subject under Section 409A shall be solely the Executive’s responsibility.

5.Effect of Termination.  The provisions of this Section 5 shall apply to any termination of the Executive’s employment under this Agreement, whether pursuant to Section 4 or otherwise.

(a)Provision by the Company of Final Compensation, if any, to which the Executive is entitled and Post-Employment Compensation, if any, which the Executive has the opportunity to earn under Section 4(d) or 4(e) hereof and does earn in accordance with Section 4(g) shall constitute the entire obligation of the Company to the Executive hereunder following termination of her employment with the Company.  The Executive shall promptly give the Company notice of all facts necessary for the Company to determine the amount and duration of its obligations in connection with any termination pursuant to Section 4 hereof.

(b)Except for health and dental plan participation continued in accordance with COBRA, the Executive’s participation in Employee Benefit Plans shall terminate pursuant to the terms of the applicable Plan Documents based on the Date of Termination without regard to any Post-Employment Compensation earned by the Executive, or any other payment to her hereunder, following the Date of Termination.

(c)Provisions of this Agreement shall survive any termination if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the conditions to earning Post-Employment Compensation set forth in Section 4(g) and the obligations of the Executive under Sections 6 and 7 hereof.  The Executive recognizes that, except as expressly provided in accordance with Sections 4(d), 4(e) and 4(g) (with respect to Post-Employment Compensation) or Section 4(f) (with respect to Base Salary for any notice period waived), no compensation is earned after termination of employment.

6.Confidential Information.

(a)The Executive acknowledges that the Company and its Affiliates continually develop Confidential Information (as defined in Section 12 hereof); that the Executive may develop Confidential Information for the Company or its Affiliates; and that the Executive may learn of Confidential Information during the course of employment.  The Executive will comply with the policies and procedures of the Company and its Affiliates for protecting Confidential Information and shall not disclose to any Person or use, other than as required by applicable law or for the proper performance of her duties and responsibilities to the Company and its Affiliates, any Confidential Information obtained by the Executive incident to her employment or other association with the Company or any of its Affiliates.  The Executive understands that the restrictions set forth in this Section 6(a) shall continue to apply after her employment terminates, regardless of the reason for such termination.

(b)All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its Affiliates and any copies, in whole or in part, thereof (in the aggregate, the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Affiliates.  The Executive shall safeguard all Documents and shall surrender to the Company at the time her employment terminates, or at such earlier time or times as the CEO or the Board or its designee may specify, all Documents and all other property of the Company and its Affiliates then in the Executive’s possession or control.

7.Assignment of Rights to Intellectual Property.  The Executive shall promptly and fully disclose all Intellectual Property (as defined in Section 12 hereof) to the Company.  The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive’s full right, title and interest in and to all Intellectual Property.  The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property.  The Executive will not charge the Company for time spent in complying with these obligations.  The Executive acknowledges her understanding that any provision of this Agreement requiring her to assign rights to Intellectual Property does not apply to any invention that qualifies under California Labor Code §2870, which is reproduced in Exhibit B (“Written Notification to the Employee”), attached hereto, which the Executive here acknowledges that she has received.  All copyrightable works that the Executive creates during the course of her employment by the Company and which pertains to the business of the Company or is suggested by any work performed by the Executive for the Company or makes use of Confidential Information shall be considered “work made for hire” and, upon creation, shall be owned exclusively by the Company.  Further, the Executive hereby waives, expressly and irrevocably, any and all moral rights she may have as an author, whether arising under the copyright laws of the United States or any other jurisdiction or at common law or otherwise, with respect to any copyrighted works prepared by the Executive in the course of her employment, including without limitation the right to attribution of authorship, the right to restrain any distortion, mutilation or other modification of any such work and the right to prohibit any use of any such work in association with a product, service, cause or institution that might be prejudicial to the Company’s reputation.

8.Restricted Activities.  The Executive agrees that certain restrictions on activities during the employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates:

(a)While the Executive is employed by the Company, the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, compete with the Company or any of its Affiliates anywhere in the world or undertake any planning for competition with the Company or any of its Affiliates  Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive or potentially competitive with the business of the Company or any of its Affiliates as conducted or under consideration at any time during the Executive’s employment or to provide services in any capacity to a Person which is a competitor of the Company or any of its Affiliates.

(b)The Executive agrees that, while she is employed by the Company, and excluding any activities undertaken on behalf of the Company or any of its Affiliates in the course of her duties, the Executive will not hire or attempt to hire any employee of the Company or any of its Affiliates; assist in such hiring by any Person; encourage any such employee to terminate his or her relationship with the Company or any of its Affiliates; or solicit or encourage any customer of the Company or any of its Affiliates to terminate or diminish its relationship with them; or solicit or encourage any customer or potential customer of the Company or any of its Affiliates to conduct with any Person any business or activity which such customer or potential customer conducts or could conduct with the Company or any of its Affiliates.

(c)The Executive agrees that during the employment by the Company the Executive shall not publish any work that disparages the Company or any of its Affiliates, their management or their business or the Products.

9.Enforcement of Covenants.  The Executive acknowledges that she has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed upon her pursuant to Sections 6, 7 and 8 hereof.  The Executive agrees that those restraints are necessary for the reasonable and proper protection of the Company and its Affiliates and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area.  The Executive further acknowledges that, were she to breach any of the covenants contained in Sections 6, 7 or 8 hereof, the damage to the Company and its Affiliates would be irreparable.  The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond.  The parties further agree that, in the event that any provision of Section 6, 7 or 8 hereof shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.

10.Conflicting Agreements.  The Executive hereby represents and warrants that the execution of this Agreement and the performance of obligations hereunder will not breach or be in conflict with any other agreement to which the Executive is a party or is bound and that the Executive is not now subject to any covenants against competition or similar covenants or any court order or other legal obligation that would affect the performance of their obligations hereunder.  The Executive will not disclose to or use on behalf of the Company any proprietary information of her former employer or any other Person without such Person’s consent.

11.Indemnification.  The Company shall indemnify the Executive in accordance with its articles of organization and by-laws as in effect at the time indemnification is applicable.  The Executive agrees promptly to notify the Company of any actual or threatened claim arising out of or as a result of her employment or offices with the Company or any of its Affiliates.

12.Definitions.  Words or phrases which are initially capitalized or are within quotation marks shall have the meanings provided in this Section and as provided elsewhere herein.  For purposes of this Agreement, the following definitions apply:

(a)“Affiliates” means all Persons directly or indirectly controlling, controlled by or under common control with the entity specified, where control may be by management authority, contract or equity interest.

(b)A “Change of Control” shall be deemed to take place if hereafter (A) any “Person” or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Act”), other than the Company or any of its Affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3 as promulgated under the Act), directly or indirectly, in one or a series of transactions, of securities representing fifty percent (50%) or more of the total number of votes that may be cast for the election of directors of the Company and two-thirds of the Board has not consented to such event prior to its occurrence or within sixty (60) days thereafter, provided that if the consent occurs after the event it shall only be valid for purposes of this Section 12(b) if a majority of the consenting Board is comprised of directors of the Company who were such immediately prior to the event; (B) any merger or consolidation involving the Company or any sale of all or substantially all of the assets of the Company, or any combination of the foregoing, and two-thirds of the Board has not consented to such event prior to its occurrence or within sixty (60) days thereafter, provided that if the consent occurs after the event it shall only be valid for purposes of this Section 12(b) if a majority of the consenting Board is comprised of directors of the Company who were such immediately prior to the event; (C) within twelve (12) months after a tender offer or exchange offer for voting securities of the Company (other than by the Company) the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board; or (D) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the assets of the Company other than to one or more of the Company’s Affiliates.

(c)“Confidential Information” shall mean any and all information of the Company and its Affiliates that is not generally known by those with whom the Company or any of its Affiliates competes or does business, or with whom the Company or any of its Affiliates plans to compete or do business, including without limitation (i) information related to the Products, technical data, methods, processes, know-how and inventions of the Company and its Affiliates, (ii) the development, research, testing, marketing and financial activities and strategic plans of the Company and its Affiliates, (iii) the manner in which they operate, (iv) their costs and sources of supply, (v) the identity and special needs of the customers and prospective customers of the Company and its Affiliates and (vi) the Persons with whom the Company and its Affiliates have business relationships and the nature and substance of those relationships. Confidential Information also includes any information that the Company or any of its Affiliates may receive or has received from customers, subcontractors, suppliers or others, with any understanding, express or implied, that the information would not be disclosed. Confidential Information does not include information that enters the public domain, other than through a breach by the Executive or another Person of an obligation of confidentiality to the Company or one of its Affiliates.

(d)“Date of Termination” means the date the Executive’s employment with the Company terminates, regardless of the reason for such termination.

(e)“Final Compensation” means (i) Base Salary earned but not paid through the Date of Termination, (ii) pay at the final rate of the Base Salary for any paid time off earned but not used through the Date of Termination and (iii) any business expenses incurred by the Executive but un-reimbursed on the Date of Termination, provided that such expenses and required substantiation and documentation are submitted prior to, or within sixty (60) days following, the Date of Termination and that such expenses are reimbursable under Section 3(g) hereof and Company policies.

(f)“Intellectual Property” means any invention, formula, process, discovery, development, design, innovation or improvement (whether or not patentable or registrable under copyright statutes) made, conceived, or first actually reduced to practice by the Executive solely or jointly with others, during her employment by the Company; provided, however, that, as used in this Agreement, the term “Intellectual Property” shall not apply to any invention that the Executive develops on her own time, without using the equipment, supplies, facilities or trade secret information of the Company or any of its Affiliates to which the Executive has access as a result of her employment, unless such invention (i) relates at the time of conception or reduction to practice of the invention (A) to the business of the Company or (B) to the actual or demonstrably anticipated research or development of the Company or (iii) results from any work performed by the Executive for the Company.

(g)Other than for purposes of Section 12(b), above, “Person” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its Affiliates.

(h)“Products” means all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Affiliates, together with all services provided or planned by the Company or any of its Affiliates, during the Executive’s employment.

13.Withholding.  All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

14.Assignment.  Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive in the event the Company shall hereafter effect a corporate reorganization, consolidate with, or merge into, any Person or transfer all or substantially all of its properties or assets to any Person.  This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns.

15.Severability and Construction.  If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.  This Agreement shall be interpreted and applied in all circumstances in a manner that is consistent with the intent of the parties that, to the extent applicable, amounts earned and payable pursuant to this Agreement shall constitute short-term deferrals exempt from the application of Section 409A and, if not exempt, that amounts earned and payable pursuant to this Agreement shall not be subject to the premature income recognition or adverse tax provisions of Section 409A.

16.Waiver.  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

17.Notices.  Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier for next day or next business day delivery or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at her last known address on the books of the Company or, in the case of the Company, to it at 130 Baytech Drive, San Jose, CA  95134, or to such other address as either party may specify by notice to the other actually received.

18.Entire Agreement.  This Agreement contains the entire agreement of the parties, and supersedes all prior agreements, including the Amendment of Awards dated March 27, 2012 which it hereby terminates, whether written or oral, with respect to the Executive’s employment and all related matters, except for the agreements set forth on Exhibit C hereto, which shall remain in effect.

19.Amendment.  This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Board.

20.Headings.  The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.

21.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

22.Governing Law.  This is a California contract and shall be construed and enforced under and be governed in all respects by the laws of the State of California, without regard to the conflict of laws principles thereof, and, for the avoidance of doubt, shall include both the statutory and common law of California, except to the extent preempted by federal law.

[Remainder of page intentionally left blank.  Signature page follows immediately.]

IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its duly authorized representative, and by the Executive, as of the date first above written.

THE EXECUTIVE:	THE COMPANY:
	GIGOPTIX, INC.

By: 

Name:

Title:

EXHIBIT A

RELEASE OF CLAIMS

FOR AND IN CONSIDERATION OF the Post-Employment Compensation that I am eligible to earn following the termination of my employment, as that term is defined in the employment agreement between me and GigOptix, Inc. (the “Company”) dated as of December 17, 2014 (the “Agreement”), which is conditioned, inter alia, on my signing this Release of Claims and to which I am not otherwise entitled, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, I, on my own behalf and on behalf of my heirs, executors, administrators, beneficiaries, representatives and assigns, and all others connected with or claiming through me, hereby release and forever discharge the Company and its Affiliates (as that term is defined in the Agreement) and all of their respective past, present and future officers, directors, trustees, shareholders, employees, agents, general and limited partners, members, managers, joint venturers, representatives, successors and assigns, and all others connected with any of them (all of the foregoing, collectively, the “Released”), both individually and in their official capacities, from any and all causes of action, rights and claims of any type or description, known or unknown, which I have had in the past, now have, or might now have, through the date of my signing of this Release of Claims, including without limitation any causes of action, rights or claims in any way resulting from, arising out of or connected with my employment by the Company or any of its Affiliates or the termination of that employment or pursuant to any federal, state or local law, regulation or other requirement, including without limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the fair employment practices laws of the state or states in which I have been employed by the Company or any of its Affiliates, each as amended from time to time, (all of the foregoing, in the aggregate, “Claims”).

In signing this Release of Claims, I expressly waive and relinquish all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and do so understanding and acknowledging the significance of such specific waiver of Section 1542, which Section states as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Thus, notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of the Released, I expressly acknowledge that this Release of Claims is intended to include in its effect, without limitation, all Claims which I do not know or suspect to exist in my favor at the time of execution hereof, and that this Release of Claims contemplates the extinguishment of all such Claims.

Excluded from the scope of this Release of Claims is (i) any claim arising under the terms of the Agreement after the effective date of this Release of Claim and (ii) any right of indemnification or contribution that I have pursuant to the articles of incorporation, by-laws or other governing documents of the Company or any of its Affiliates (as that term is defined in the Agreement).

In signing this Release of Claims, I acknowledge my understanding that I may not sign it prior to the termination of my employment, but that I may consider the terms of this Release of Claims for up to twenty-one (21) days from the date my employment with the Company terminates.  I also acknowledge that I am advised by the Company and its Affiliates to seek the advice of an attorney prior to signing this Release of Claims; that I have had and full and sufficient time to consider this Release of Claims and to consult with an attorney, if I wished to do so, or to consult with any other person of my choosing before signing; and that I am signing this Release of Claims voluntarily and with a full understanding of its terms.

I further acknowledge that, in signing this Release of Claims, I have not relied on any promises or representations express or implied, that are not set forth expressly in the Agreement.

I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the Company c/o Human Resources or to such other designated person and/or address as the Company may specify and that this Release of Claims shall take effect on the eighth calendar day following the date of my signing it and only if I have not timely revoked it.

Intending to be legally bound, I have signed this Release of Claims as of the date written below.

Signature:

Date Signed:

EXHIBIT B

WRITTEN NOTIFICATION TO THE EMPLOYEE

In accordance with California Labor Code §§ 2870 and 2872, GigOptix, Inc. (the “Company”) hereby notifies you that your acceptance, by your signing, of the Employment Agreement to which this notice is attached as Exhibit B does not require you to assign to the Company any Intellectual Property (as defined in Section 12 of the Employment Agreement) or any other invention for which no equipment, supplies, facility or trade secret information of the Company was used and that was developed entirely on your own time, and does not relate to the business of the Company or to the Company actual or demonstrably anticipated research or development, or does not result from any work performed by you for the Company.

The following is the text of California Labor Code § 2870:

§ 2870  (a)  Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

1.  Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

2.  Result from any work performed by the employee for the employer.

(b)  To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

EXHIBIT C

(List of Other Employment Agreements Still in Effect)

EX-10.33

Exhibit 10.33

STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET

AIR COMMERCIAL REAL ESTATE ASSOCIATION

1.             Basic Provisions ("Basic Provisions").

1.1               Parties: This Lease ("Lease"), dated for reference purposes only April 17, 2007                                                     , is made by and between Keith C. Estes & Traci A. Estes, The Estes Family Trust                                                                (“Lessor”) and Tahoe RF Semiconductor, Inc.                                                                                                     (“Lessee”), (collectively the “Parties”, or individually a “Party”).

1.2(a)          Premises: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 12834 Earhart Avenue                                                                    , located in the City of Auburn                                                      , County of Placer                                                 , State of California                                        , with zip code 95602                           , as outlined on Exhibit A                 attached hereto ("Premises") and generally described as (describe briefly the nature of the Premises): approximately 6,100 square feet of office space                                                                                                           .

In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the any utility raceways of the building containing the Premises ("Building") and to the common Areas (as defined in Paragraph 2.7 below), but shall not have any rights to the roof or exterior walls of the Building or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Project". (See also Paragraph 2)

1.2(b)          Parking: 5-7 reserved and 15-20                                unreserved vehicle parking spaces. (See also Paragraph 2.6)

1.3              Term: Five (5)                                         years and Six (6)                                     months ("Original Term") commencing June 1, 2007                                         (or sooner, by agreement) ("Commencement Date") and ending December 31 , 2012 ("Expiration Date"). (See also Paragraph 3)

1.4               Early Possession: Upon completion of TI's                                                         (however no sooner than thirty (30) days prior to June 1, 2007) (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

1.5              Base Rent: $3,050.00           per month ("Base Rent"), payable on the first                                             day of each month commencing June 1, 2007                                    (or sooner by agreement) . (See also Paragraph 4)

☑ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6               Lessee's Share of Common Area Operating Expenses: $   0.00               percent (0_   %) (“Lessee’s Share”). Lessee’s Share has been calculated by dividing the approximate square footage of the Premises by the approximate square footage of the Project. In the event that the size of the Premises and/or the Project are modified during the term of this Lease, Lessor shall recalculate Lessee's Share to reflect such modification.

1.7               Base Rent and Other Monies Paid Upon Execution:

(a) Base Rent:$5,490.00                        for the period December 1-31, 2007                                                                .

(b) Common Area Operating Expenses: $ Inc in base rentfor the period N/A                                                              .

(c) Security Deposit: $ 6,148.00                                         ("Security Deposit"). (See also Paragraph 5)

(d) Other:$915.00                   for NNN's for the period December 1 - 31, 2007                                                           .

(e) Total Due Upon Execution of this Lease: $12,553.00                                                                                   .

1.8               Agreed Use: Office                                                                                                                                                                                                                 . (See also Paragraph 6)

1.9               Insuring Party. Lessor is the "Insuring Party". (See also Paragraph 8)

1.10            Real Estate Brokers: (See also Paragraph 15)

(a)              Representation: The following real estate brokers (the "Brokers") and brokerage relationships exist in this transaction (check applicable boxes):

☐ represents Lessor exclusively ("Lessor's Broker");

☐ represents lessee exclusively ("Lessee's Broker"); or

☑ The Cline Company                                                             represents both Lessor and Lessee ("Dual Agency").

(b)              Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of per sep agmt            or N/A       % of the total Base Rent for the brokerage services rendered by the Brokers).

1.11             Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by________________________________ ("Guarantor"). (See also Paragraph 37)

1.12              Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

☑ an Addendum consisting of Paragraphs 50                     through 57                                    ;

☑ a site plan depicting the Premises; Exhibit A

☐ a site plan depicting the Project;

☐ a current set of the Rules and Regulations for the Project;

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☐ a current set of the Rules and Regulations adopted by the owners' association;

☐ a WorX Letter;

☑ other (specify); The Cline Company Lease Disclosures                                                                                                                                                                           .

_______________________________________________________________________________________________________________________

2.             Premises.

2.1               Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. NOTE: Lessee is advised to verify the actual size prior to executing this Lease.

2.2               Condition. Lessor shall deliver that portion of the Premises contained within the Building ('Unit") to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("Start Date"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, sump pumps, if any. and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance,malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems term of the lease, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7).

2.3               Compliance. Lessor warrants that to the best of its knowledge the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee's use (see Paragraph 49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements and especially the zoning are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows:

(a)              Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided,however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however. in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b)             If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications),then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share,or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c)              Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

2.4               Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act),and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5               Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

2.6               Vehicle Parking. Lessee shall be entitled to use the number of parking spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than

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Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. In addition:

(a)              Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

(b)              Lessee shall not service or store any vehicles in the Common Areas.

(c)              If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.7               Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

2.8               Common Areas - Lessee's Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.9               Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

2.10            Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time:

(a)              To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b)              To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

(c)              To designate other land outside the boundaries of the Project to be a part of the Common Areas;

(d)              To add additional buildings and improvements to the Common Areas;

(e)              To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

(f)               To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment. deem to be appropriate.

3.             Term.

3.1              Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2              Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3              Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of the delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date. Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease. in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof. but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4               Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date,the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.             Rent.

4.1               Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent").

4.2               Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

(a)              "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

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(i)             The operation, repair and maintenance, in neat, clean, good order and condition , and if necessary the replacement, of the following:

(aa)           The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems.

(bb)           Exterior signs and any tenant directories.

(cc)           Any fire sprinkler systems.

(ii)            The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.

(iii)           Trash disposal, pest control services, property management, security services, owners' association dues and fees, the cost to repaint the exterior of any structures and the cost of any environmental inspections.

(iv)           Reserves set aside for maintenance, repair and/or replacement of Common Area improvements and equipment.

(v)            Real Property Taxes (as defined in Paragraph 10).

(vi)           The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8.

(vii)          Any deductible portion of an insured loss concerning the Building or the Common Areas.

(viii)         Auditors', accountants' and attorneys' fees and costs related to the operation, maintenance, repair and replacement of the Project.

(ix)            The cost of any capital improvement to the Building or the Project not covered under the provision of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of anysuch capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144^th of the cost of such capital improvement in any given month.

(x)             Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

(b)               Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(c)               The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

(d)               Lessee's Share of Common Area Operating Expenses is payable monthly on the same day as the Base Rent is due hereunder. The amount of such payments shall be based on Lessor's estimate of the annual Common Area Operating Expenses. Within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments during such year exceed Lessee's Share, Lessor shall credit the amount of such over-payment against Lessee's futurepayments. If Lessee's payments during such year were less than Lessee's Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement.

(e)               Common Area Operating Expenses shall not include any expenses paid by any tenant directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

4.3               Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier's check. Payments will be applied first to accrued late charges and attorney's fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

5.             Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6.             Use.

6.1              Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the Building or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall within 7 days

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after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.

6.2              Hazardous Substances.

(a)               Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b)               Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c)                Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at lessee's expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties. that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d)               Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties,and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e)                Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which are suffered as a direct result of Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f)                Investigations and Remediation. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Lessee taking possession, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor,including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.

(g)               Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1 (e) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect. but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense. in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.

6.3               Lessee's Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of lessor's engineers and/or consultants which relate in any manner to such Requirements, without regard to whether said Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odorsthat might indicate the presence of mold in the Premises.

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6.4               Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants shall have the right to enter Into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance condition (see Paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee's Obligations.

(a)               In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

(b)              Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises; (i) HVAC equipment, (ii) boiler and pressure vessles, (iii) clarifies See Addendum item 55, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c)               Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and lessee shall promptly pay to lessor a sum equal to 115% of the cost thereof.

(d)                Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7. (b) cannot be repaired other than at cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance but may prepay its obligation at any time.

7.2               Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. Lessor at Lessor's expense shall keep in good working order and/or replace HVAC.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a)                Definitions. The term "UtIlity Installations" refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b)               Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable govemmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.

(c)                Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialman's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall. at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that

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may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall fumish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys'' fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration.

(a)                Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b)                Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c)                Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8.             Insurance; Indemnity.

8.1               Payment of Premiums. The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date.

8.2 liability Insurance.

(a)               Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization's "Additional Insured-Managers or Lessors of Premises" Endorsement and coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile lire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "Insured contract' for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b)               Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value.

(a)               Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor. with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

(b)               Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c)               Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

(d)               Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4 Lessee's Property; Business Interruption Insurance.

(a)                Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b)              Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of eamings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

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(c)                No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

8.5               Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least A-, VI, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6               Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7               Indemnity. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8              Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee's business or for any loss of income or profit therefrom. Instead, it is intended that Lessee's sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9              Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9.             Damage or Destruction.

9.1 Definitions.

(a)              "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b)               "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c)               "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d)               "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e)               "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2               Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days

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following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3              Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4              Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

9.5              Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished .

9.6 Abatement of Rent; Lessee's Remedies.

(a)               Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b)               Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7              Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8              Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10.           Real Property Taxes.

10.1             Definition. As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term "Real Property Taxes· shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

10.2             Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Common Area Operating Expenses In accordance with the provisions of Paragraph 4.2.

10.3            Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4           Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's

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reasonable determination thereof, in good faith, shall be conclusive.

10.5     Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.

11.           Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the trash receptacle and/or an increase in the number of times per month that it is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs. There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions. See Addendum Item 55

12. Assignment and Subletting.  See Addendum Item 57

12.1     Lessor's Consent Required.

(a)       Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "assign or assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

(b)       Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change for this purpose.

(b)       The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition. financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(c)       An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(d)        Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(e)        Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(f)       Notwithstanding the foregoing, allowing a diminimus portion of the Premises, ie. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a)        Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b)       Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

(c)        Lessor's consent to any assignment or subletting shall not constitute consent to any subsequent assignment or subletting.

(d)       In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e)       Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f)        Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g)       Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3      Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a)        Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee's then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's

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obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b)        In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c)        Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d)       No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

(e)        Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

13.1                 Default; Breach. A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a)        The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b)       The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c)        The commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d)       The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 , (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e)        A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1 (a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f)        The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors: (ii) becoming a "debtor" as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g)       The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h)       If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2                Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a)       Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination: (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies

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provided for in this Lease and/or by said statute.

(b)       Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

(c)       Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

13.3     Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions", shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4     Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.

13.5     Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("Interest') charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for In Paragraph 13.4.

13.6 Breach by Lessor.

(a)       Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b)      Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month's Base Rent or the Security Deposit, reserving Lessee's right to reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.          Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees.

15.1     Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project. (c) if Lessee remains in possession of the Premises, with the consent of Lessor. after the expiration of this Lease. or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2    Assumption of Obligations. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10,15,22 and 31 . If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed.

15.3    Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm. broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.

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16. Estoppel Certificates.

(a)       Each Party (as "Responding Party") shall within 10 days after written notice from the other Party (the "Requesting Party" ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel CertIfIcate" form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b)       If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c)       If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.          Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit as aforesaid, the prior Lessor shall be relieved of an liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18.          Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.          Days. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

20           Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor's partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21 .         Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.          No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the: Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default of breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23. Notices.

23.1     Notice Requirements. All notices required or permitted by this lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission. and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to tile other specify a different address for notice, except that upon Lessee's taking possession of the Premises. the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrenlly transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2     Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail of overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24.          Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default of Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to. of approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a)                   When entering into a discussion with a real estate agent regarding a real estate transaction. a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i)         Lessor's Agent. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any

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confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii)        Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii)       Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b)                  Brokers have no responsibility with respect to any Default or Breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys' fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c)                  Buyer and Seller agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential.

26.          No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.          Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.          Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.          Binding Effect; Choice of Law. This Lease shan be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Oisturbance.

30.1                Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust. or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender"') shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shaH be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2                Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations, except that such new owner shall not (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership. (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3                Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shan be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days alter the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4                Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.          Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity. or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursed to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the oIher party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse an attorneys' fees reasonably incurred In addition. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting

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Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.           Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee's use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33.          Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.          Signs. Lessor may place on the Premises ordinary "For Sale" signs at any time and ordinary "For Lease" signs during the last 6 months of the term hereof. Except for ordinary "For Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements.

35.           Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36.          Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor.

37.1     Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association.

37.2     Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38.          Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options. See Addendum item 50 & 51 If lessee is granted an option, as defined below, than following provisions shall apply

39.1Definition. “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property or Lessor.

39.2Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a)Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee as been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b)The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c)An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40.           Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41.           Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

42.           Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid "under protest" within 6 months shall be deemed to have waived its right to protest such payment.

43. Authority; Multiple Parties; Execution.

(a)      If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its

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behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b)       If this Lease is executed by more than one person or entity as "Lessee", each such person or entity shall be jointly and severally liable hereunder. It is agreed that anyone of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c)       This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

44.           Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45.           Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46.           Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47.           Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48.           Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ☐ is ☑ is not attached to this Lease.

49.          Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises, lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In theevent that Lessee's use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee's expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH ITRELATES. THE PARTIES ARE URGED TO:

1.           SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.          RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES. THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TOBE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:	Auburn, CA	Executed at:	Auburn
On:	04/18/07	On:	04/18/07

By LESSOR:	By LESSEE:
Keith C. Estes & Traci A. Estes,	Tahoe RF Semiconductor, Inc.
The Estes Family Trust

By:	/s/ Keith C. Estes	By:	/s/ Irshad Rasheed
Name Printed:	Keith C. Estes	Name Printed:	Irshad Rasheed
Title:		Title:	President

By:	/s/ Traci A. Estes	By:	/s/ Christopher Saint
Name Printed:	Traci A. Estes	Name Printed:	Christopher Saint
Title:		Title:	CFO
Address:		Address:
Telephone: (__)		Telephone:	(530) 823-9786
Facsimile:(__)		Facsimile:	(530) 823-9787
Federal lD No.		Federal lD No.

BROKER:		BROKER:
The Cline Company		The Cline Company
Attn:	/s/ Greg Cline	Attn:	/s/ Greg Cline
Title:	Broker	Title:	Broker
Address:	11990 Kemper Road, Suite 100	Address:
Auburn, CA 95603
Telephone:	(530) 888 - 1000	Telephone: (__)
Facsimile:	(530) 888 - 1919	Facsimile:(__)
Email:	greg@clinecompany.com	Email:
Federal lD No.		Federal lD No.

These forms are often modified to meet changing requirements of law and needs of the Industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 South Flower Street, Suite 600, los Angeles, CA 90017. (213) 687-8777.

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©Copyright 1999 By AIR Commercial Real Estate Association.

All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

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Addendum to Lease Agreement dated April 17, 2007

hereinafter, Keith C. Estes & Traci A. Estes, The Estes Family Trust, referred to as

"Owner/Lessor" and Tahoe RF Semiconductor, Inc. are referred to as "Tenant/Lessee".

50. OPTION FOR ADDITIONAL SPACE: Lessee must notify Lessor if it wants the additional 1,700 square feet at 12838 Earhart A venue ( contiguous space) prior toFebruary 1, 2010. Lessee may not have occupancy of the contiguous space prior to June 1, 2010. Lessee shall pay Lessor Twenty-Five Thousand Dollars ($25,000.00) to cancel existing lease with tenant, Energetic Nutrition. Lessee additionally will agree to extend the lease term an additional three (3) years. The lease rate would be at Lessee's current rate when they take over the additional space. The lease rate for year 6, 7 & 8 willincrease by three percent (3%) annually and will start with a three percent increase over year 5's rent. Any tenant improvements will be at Lessee's expense. This clause does not apply if previous Tenant has already vacated the premises.

51. OPTION TO RENEW: Lessee with one hundred-twenty (120) days written notice may extend this Lease Agreement for three (3) additional two (2) year terms with an annualincreases according to the Consumer Price Index - Western Region with a minimw11 increase of three percent (3%) and a maximum increase of four percent (4%).

52. RENT SCHEDULE:

Months	Rent Per Month					Total Per Month
June 1, 2007 - November 30, 2007	$	3,050.00	$	+ 915	(NNN)	$	3,965.00
December 1, 2007 - December 31, 2007	$	5,490.00	$	+ 915	(NNN)	PAID
January 1, 2008 - November 30, 2009	$	5,490.00	$	+ 915	(NNN)	$	6,405.00
December 1, 2009 - November 30, 2010	$	5,795.00	$	+ 915	(NNN)	$	6,710.00
December 1, 2010 - November 30, 2011	$	5,969.00	$	+ 915	(NNN)	$	6,884.00
December 1, 2011 - November 30, 2012	$	6,148.00	$	+ 915	(NNN)	$	7,063.00

53 . SIGNAGE: Shall be building standard at Lessee's expense and upon approval of Lessor and City.

54. TENANT IMPROVEMENTS: Lessor at Lessor's expense shall provide tenant improvements per provided drawing, Exhibit A, which in made a part of this lease.Lessor will provide a Fifteen Dollar ($15.00) per square yard tenant improvement allowance for the carpet, including tear out and installation. Lessee will reimburseLessor costs of additional 50 amp plug prior to occupancy.

55. UTILITIES: Lessee's expense. HVAC maintenance and PG&E: 75% of each invoice. Water is prorated on a square footage basis for the entire project. Garbage on a prorata basis of usage.

56. LESSEE CANCELLATION OF LEASE: In the event of "Change of Control", Tahoe RF would have the right to exercise "Cancellation of Lease" with 120 days prior written notice to Lessor and Lessee at Lessee's expense will reimburse Lessor all unamortized tenant improvement and commission costs to Lessor not to exceed Sixty Thousand Dollars ($60,000.00)

57. CHANGE OF CONTROL: "Change of Control" means the occurrence of any of the following events:

A. Any consolidation or merger of Tahoe RF with or into any other entity in which the holders of such party's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger,retain stock representing a majority of the voting power of the surviving entity or

Lessor Initials	Lessee Initials
KE	IR
	CS
INITIALS	INITIALS

Page 1 of 2

stock representing a majority of the voting power of an entity that wholly owns, directly or indirectly, the surviving entity;

B. The sale, transfer or assignment of securities of Tahoe RF representing a majority of the voting power of all of such party's outstanding voting securities to an acquiring party or group; or

C. The sale of all or substantially all of Tahoe RF's assets. Notwithstanding the foregoing, any financing of Tahoe RF by one or more venture capital firms orsimilar institutions will be considered a "Change of Control" of Tahoe RF.

Lessor: Keith C. Estes & Traci A. Estes, The Estes Family Trust	Lessee: Tahoe RF Semiconductor, Inc.
/s/ Keith C. Estes	/s/ Irshad Rasheed
Keith C. Estes	Irshad Rasheed, President
4/18/07	4/18/07
Date	Date
	/s/ Christopher Saint
Traci A. Estes	Christopher Saint, CFO
	April 18, 2007
Date	Date

Page 2 of 2

THE CLINE COMPANY LEASE DISCLOSURES

Property: 12834 Earhart Avenue, Auburn, CA

DISCLOSURE REGARDING AGENCY RELATIONSHIPS

The Cline Company is a brokerage firm representing a variety of local and national clients. Depending on the circumstances, The Cline Company may represent both the Lessor and the Lessee in any given transaction, or you may be interested in a property that may be of interest to other Cline Company clients. If The Cline Company represents more than one party with respect to a property, The Cline Company will not disclose the confidential information of one party to the other.

REGARDING THIS TRANSACTION:

☒ If The Cline Company represents both the Lessor and the Lessee, both parties consent thereto as evidenced by their initialing here ___ (Lessor) ___ (Lessee).

AN AREA OF POTENTIAL FLOODING/FLOOD ZONE

The property is ☐ may or may not be ☒ located in the above referenced hazard zone, however, many lenders require flood insurance for properties located in flood zones, and government authorities may regulate development and construction in flood zones. Regardless whether or not the property is located in a flood zone, it is possible for properties to be subject to flooding and moistureproblems. Properties located on a slope or in other low lying areas may be subject to problems associated with flooding and or moisture.

The Cline Company recommends that Lessors and Lessees have the experts of their choice confirm whether or not the property is in a flood zone and or investigate these issues themselves.

EARTHQUAKE FAULT ZONE / SEISMIC HAZARD ZONE

The property is ☐ may or may not be ☒ located in the above referenced hazard zone, however, earthquakes do occur in California. Construction and or property development in such zones generally are subject to the findings of a geological report prepared by a state-registered geologist. Whether or not the property is located in such a zone, all properties in California are subjectto earthquake risks, and may also be subject to a variety of state and local earthquake related requirements, including retrofitrequirements. In addition, all new and existing water heaters must be braced, anchored or strapped to resist falling or horizontal displacement, and in sales transaction, sellers must execute a written certification that the water heaters are so brace, anchored orstrapped (California Health and Safety Code Section 19211). The Cline Company recommends that Lessors and Lessees have theirexperts to confirm whether or not the property is located in any earthquake zone and or investigate these issues themselves.

AMERICANS WITH DISABILITIES ACT (ADA)

The Americans With Disabilities Act (42 United States Code Sections 12101 et seq) and other federal, state and local requirements may require changes to the property. The Cline Company recommends that Lessors and Lessees consult with their experts.

HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS

Due to prior or current uses of the Property or in the area or the construction materials used, the Property may have hazardous or undesirable metals (including lead-based paint), minerals (including asbestos), chemicals, hydrocarbons petroleum-relatedcompounds, or biological or radioactive/emissive items (including electrical and magnetic fields) in soils, water, building components,above or below-ground tanks/containers or elsewhere in areas that mayor may to be accessible or noticeable. Such items may leak or otherwise be released. Asbestos has been used in items such as fireproofing, heating/cooling systems, insulation, spray-on and tileacoustical materials, floor tiles and coverings, roofing, drywall and plaster. If the Property was built before 1978 and has a residential unit, sellers/landlords must disclose all reports, surveys and other information known to them regarding lead-based paint to buyers and tenants and allow for inspections (42 Unite States Code Sections 4851 et seq.). Sellers/ landlords are required to advise buyers/tenants if they have any reasonable cause to believe that any hazardous substance has come to be located on or beneath the Property(California Health and Safety Code Section 25359.7), and sellers/landlords must disclose reports and surveys regarding asbestos to certain persons, including their employees, contractors, buyers and tenants (California Health and Safety Code Sections 25915 etseq.); buyer/tenants have similar obligations. Have your experts investigate and evaluate these matters.

A VERY HIGH FIRE HAZARD SEVERITY ZONE

The property is ☐, may or may not be ☒ locatedin a Very High Fire Hazard Severity Zone pursuant to Section 51179 of the Government Code. The owner of this property is subject to the maintenance requirements of Section 51 182 of the Government Code. California Public Resources Codes Sections 4125 et seq . require sellers of real property located within state responsibility areas toadvise buyers that the property is located within such a wildland zone, that the state does not have the responsibility to provide fireprotect ion services to any structure within such a zone and that such zones may contain substantial forest/wildland fire risks.Government Code Sections 51 178 et seq. require sellers of real property located within certain fire hazard zones to disclose that the property is located in such a zone. Sellers must disclose th at a property located in a wildland or fire hazard zone is subject to the fire prevention requirements of Public Resources Code Section 4291 and Government Code Section 51182, respectively. Sellers mustmake such disclosures if either the sellers have actual knowledge that a property is in such a zone or a map showing the property to bein such a zone has been provided to the county assessor. Properties, whether or not located in such a zone, are subject to fire/ life safety risks and may be subject to the state and local fire/ life safety-related requirements, including retrofit requirements.The Cline Company recommends that Lessors and Lessees consult with the experts of their choice to evaluate these issues.

LESSOR DISCLOSURE, DELIVERY OF REPORTS, AND COMPLIANCE WITH LAWS

Lessors are hereby requested to disclose directly to Lessees all information known to Lessors regarding the Property, including but not limited to hazardous materials, zoning, construction, design, engineering, soils, title, survey, fire/life safety, and other materials, and toprovide Lessees with copies of all reports in the possession of or accessible to Lessors regarding the Property. Lessors and Lessees must comply with all applicable federal , state and local laws, regulations, codes, ordinances, and administrative orders, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, theComprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act. Lessee haschecked with the appropriate agencies with regards to their business licenses, zoning and any other business related issues prior tosigning this lease agreement.

TENANT IMPROVEMENTS

Lessor and Lessee are hereby advised that prior to the commencement of any tenant improvements (changes to the space from their current condition), the local government jurisdiction may require permits and or inspections prior to the commencement of the work.Lessor and Lessee are hereby advised to consult with the local jurisdiction prior to the commencement of any tenant improvements. In addition, Lessor and Lessee are advised to have the local jurisdiction approve any signage that Lessor and Lessee may intend to have installed on the subject space. The Americans With Disabilities Act (42 United States Code Sections 12101 et seq) and other federal, state and local requirements may require changes to the property in conjunction with the commencement of any tenantimprovements.

The Cline Company requires that Lessors and Lessees consult with the experts of their choice to evaluate these issues. This requirement shall extend beyond the life of the lease.

Lessor	KE
INITIALS
Lessee	CS
INITIALS
	IR

1

THE CLINE COMPANY LEASE DISCLOSURES

Continued ...

LEASE RATE

Lessor and Lessee acknowledge and agree that Brokers do not decide what lease rate the Lessee should payor the Lessor should accept.

LlMITAION OF LIABILITY

Except for Broker's gross negligence, actual fraud, or willful misconduct, Broker's liability for any breach or negligence in its performance of this Agreement, including claims for breach of fiduciary duty and constructive fraud, shall be limited to $10,000 or theamount of compensation actually received by Broker for that transaction, whichever is less.

DISCLOSURE REGARDING MOLD

Lessee is hereby advised that there has been a great deal of publicity regarding the existence of toxic and non-toxic molds in commercial buildings, industrial buildings, apartments, and homes. Due to the fact that not all molds are detectable by visual inspection, it is possible that the property has a mold problem that the Lessor is not aware of. Current data indicates that some moldsmay cause severe health problems for some individuals and therefore Broker advises that the Lessee should consider having a specificmold test performed by an environmental professional which may be conducted prior to Lessee signing a Lease for the subjectproperty. Having an inspection performed is the only reasonable way to determine whether or not the property may have a mold problem. All inspections should be completed by a qualified expert of the Lessee's choice. Broker and Lessor have not and cannot verify whether or not there is a mold related or other health hazard at the subject property.

PROPERTY INSPECTIONS AND EVALUATIONS

Lessees should have the Property thoroughly inspected and all parties should have the transaction thoroughly evaluated by the experts of their choice. Ask your experts what investigations and evaluations may be appropriate as well and the risks of not performing any such investigations or evaluations. Information regarding the Property supplied by the real estate brokers has been received from third party sources and has not been independently verified by the brokers. Have your experts verify all information regarding the Property, including any linear, area measurements, square footage and the availability of all utilities. All work should be inspected andevaluated by your experts, as they deem appropriate. Any projections or estimates for example, are based on assumptions that may not occur and do not represent the current or future performance of the property. Real estate brokers are not experts concerning nor can they determine if any expert is qualified to provide advice on legal, tax, design, The Americans With Disabilities Act, engineering,construction, soils, title, survey, fire/life safety, insurance, hazardous materials, asbestos, molds, or other such matters. Such areas require special education and generally special licenses not possessed by real estate brokers.

The Cline Company recommends that Lessors and Lessees consult with the experts of your choice to evaluate these issues.

TAXES

Sales, leases, and other real estate transactions can have federal , state and local tax consequences. In sales transactions, Internal Revenue Code Section 1446 requires buyers to withhold and pay to the IRS 10% of the gross sales price within 10 days of the date of the sale unless the buyers can establish that the sellers are not foreigners, generally by having the sellers sign a Non-Foreign Seller Affidavit. Depending on the structure of the transaction, the tax withholding liability can exceed the net cash proceeds to be paid to the sellers at closing. California imposes an additional withholding requirement equal to 3 ^1/2% of the gross sales price not only on foreign sellers but also out-of-state sellers and sellers leaving the state if the sales price exceeds $100,000. Withholding generally is required if the last known address of a seller is outside California, if the proceeds are disbursed outside of California or if a financial intermediary is used.

The Cline Company recommends that Lessors and Lessees consult with the experts of their choice to evaluate these issues.

REFERENCE CONSENT

As a real estate company, The Cline Company is active in marketing the company name throughout the Country. By signing this document, the undersigned Lessor and Lessee hereby grant consent to The Cline Company and or it's successor to use the individualname(s), and or company name(s) and or corporation name(s), in connection with this transaction , in any and all advertising in whichThe Cline Company participates. In addition, the undersigned acknowledges they have the authority to sign such consent.

DOCUMENT PREPARATION

This Disclosure Document and all other documents pertaining to this transaction have been prepared merely as a service to the Lessor and Lessee by The Cline Company. The Cline Company makes no representations as to the legal sufficiency, legal effect, economic effect or interpretation, or tax consequences of this Document or the transactions relating hereto, and the Lessor/Lessee are hereby advised to consult their personal tax representatives, attorneys, experts and other advisors regarding this Document and all other documents, questions, and any concernsrelating to this transaction.

Lessor and Lessee have carefully read and reviewed the contents of this Disclosure Document. The Cline Company recommends that the parties consult their personal tax representatives, attorneys, other advisors and experts to review and investigate the premises andthe Disclosures made herein. The parties investigation should include, but not be limited to: the structural integrity of the property,the condition of the roof, electrical and HV AC systems, the zoning of the property and how it relates to the suitability of the premises for Lessor or Lessee's intended use, the availability of parking, the possible presence of hazardous substances, and compliance with The Americans With Disabilities Act.

AGENCY APPROVALS

THE CLINE COMPANY REQUIRES, PRlOR TO LEASE SIGNATURE, THAT LESSEE CHECK WITH THE APPROPRIATE AGENCIES WITH REGARDS TO THEIR BUSINESS LICENSES, ZONING AND ANY OTHER BUSINESS RELATED ISSUES.

By signing this Document, Lessor and Lessee acknowledge that they have read, reviewed, agree to and accept each item contained herein.

Lessor: Keith C. Estes and Traci A. Estes, The Estes Family Trust

By:	/s/ Keith C. Estes	Date:	4/18/07	By:	/s/ Traci A. Estes	Date:
	Keith C. Estes				Traci A. Estes

Lessee: Tahoe RF Semiconductor, Inc.

By:	/s/ Irshad Rasheed	Date:	4/18/07	By:	Date:
	Irshad Rasheed, President

April 18 2007	Lessor	KE
	INITIALS
	Lessee	CS
	INITIALS
		IR

2

EX-10.34

Cornish & Carey Commercial Newmark Knight Frank

Exhibit 10.34

Lease Amendment

AMENDMENT TO LEASE

DATED FOR REFERENCE PURPOSES APRIL 17, 2007

BY AND BETWEEN

THE ESTES FAMILY TRUST, AS LANDLORD

AND TAHOE RF SEMICONDUCTOR, INC. AS TENANT,

FOR THE PROPERTY LOCATED AT

12834 EARHEART AVNEUE, AUBURN, CA 95602

I. PARTIES TO DATE.

THIS FIRST AMENDMENT TO LEASE (this "Amendment") dated as of November 14,2012 (the "Effective Date"), is entered into by and between THE ESTES FAMILY TRUST., a California limited partnership ("Landlord"), and TAHOE RF SEMICONDUCTOR, INC., ("Tenant").

II. RECITALS

1. Premises: Landlord and Tenant entered into that certain lease dated April 17, 2007.

2. Landlord and Tenant desire to extend and modify the Lease as set forth in this Amendment, which modifications shall be deemed effective as of the date hereof.

III. MODIFICATIONS

Landlord and Tenant hereby agree to modify the terms of the Lease upon the terms and conditions hereinafter set forth.

1. Tenant: The Tenant entity shall be Tahoe RF Semiconductor, Inc.

2. Premises:The Premises remain as described in the original lease as approximately 6,100 square feet of space.

3. Commencement Date: The Commencement Date for the Lease Extension shall be December 1,2012.

4. Term: The Lease Term shall be extended through November 30, 2017.

5. Rent Schedule: Notwithstanding any provision of the Lease to the contrary, during the Term Tenant shall pay to Landlord, at such place as Landlord may designate from time to time, without deduction, offset, prior notice or demand, monthly Base Rent for the Expansion Space in lawful money of the United States in the following amounts:

Year	Term Months	Period	Monthly Base rent		NNN		Monthly Total
1	3	12/1/12-2/28/13	No Charge		No Charge
1	9	3/1/13-11/30/13	$	4,450.00	$	915.00	$	5,365.00
2	12	12/1/13-11/30/14	$	4,633.00	$	915.00	$	5,548.00
3	12	12/1/14-11/30/15	$	4,861.00	$	915.00	$	5,776.00
4	12	12/1/15-11/30/16	$	4,999.00	$	915.00	$	5,914.00
5	12	12/1/16-11/30/17	$	5,182.00	$	915.00	$	6,097,00

7. Tenant shall be responsible for 100% of their separately metered PG&E bill. Tenant shall pay their prorated portion of internet, water and trash .

8. Tenant Improvements: Tenant Improvements at Landlord's sole cost and expense shall be the following:

Estes·Tahoe-aaa12834EarhartLS AMD11-14-12KCLkf

1420 Rocky Ridge Drive, Suite 150, Roseville, CA 95661 M 916.367.7000 F 916.367.6362

www.ccareynkf.com

Page 1 of 2

Lease Amendment

A. Take existing conference room wall and bring it out into the section where the cubicles are currently standing . Leave enough room for a hallway and circulation purposes. (VR: Include approximate dimension).

B. New carpet shall be installed, color and quality will be mutually agreed upon by Landlord and Tenant. New carpet installed in enlarged conference room - approximate overall dimension .

C. Tenant shall provide equipment for an AV Mounted Projection Unit. Landlord, at Landlord's sole cost and expense shall provide electrical and installation of the AV Mounted Projection Unit. (VR Ceiling mounted electrical outlet and AV cable at ceiling location tenant selects)

9. Broker Disclosure: It is acknowledged by all parties that Tahoe RF Semiconductor, Inc. is represented by Cornish & Carey Commercial Newmark Knight Frank on this transaction. A commission rate of two percent (2%) of the total base rental shall be paid to Cornish & Carey Commercial Newmark Knight Frank by Landlord for services rendered in consummating this transaction upon mutual lease execution. Tenant shall have no responsibility for real estate commissions.

CONSULT YOUR ADVISORS: This document (including its exhibits and addendum's, if any) has been prepared by Broker for approval by the undersigned respective parties' legal counsel. Broker makes no representation or recommendation as to the legal sufficiency or tax consequences of this document or the transaction to which it relates. These are questions for an attorney or accountant.

Accepted and Approved:

Landlord: THE ESTES FAMILY TRUST

By:	/s/ Keith C. Estes	Date:	11/28/12
	Keith C. Estes
By:	/s/ Traci A. Estes	Date:	11/28/12
	Traci A. Estes
Tenant:	TAHOE RF SEMICONDUCTOR, INC.
By:	/s/ Irshad Rasheed	Date:	11/28/12
	Irshad Rasheed, President
By:	/s/ Christopher Saint	Date:	Nov 28 2012
	Christopher Saint, CFO

Estes·Tahoe-aaa12834EarhartLS AMD11-14-12KCLkf

1420 Rocky Ridge Drive, Suite 150, Roseville, CA 95661 M 916.367.7000 F 916.367.6362

www.ccareynkf.com

Page 2 of 2

EX-10.35

Exhibit 10.35

K&T Management

Chris Saint

Tahoe RF

12834 Earhart Ave

Auburn, CA 95602

Re: Tahoe RF lease 12834 Earhart Ave

Chris:

As per the terms of the lease with Tahoe RF, Dated April 17, 2007 and Amended November 14, 2012, I will allow Tahoe RF to transfer the lease to GigOptix in accordance with Paragraph 12.1 effective June 30th 2014. All existing terms and conditions of the lease and amendment shall remain.

Sincerely,

Keith Estes

12820 Earhart Ave

Auburn, CA 95602

EX-21

Exhibit 21

Subsidiaries of the Registrant

GigOptix LLC, an Idaho limited liability company

GigOptix-Helix AG, a Swiss corporation

GigOptix GmbH, a German corporation

Lumera Corporation, a Delaware corporation

ChipX, Incorporated, a Delaware corporation

GigOptix (Israel) Ltd., an Israel corporation

Endwave Corporation, a Delaware corporation

BrPhotonics Produtos Optoeletrônicos LTDA., a business limited liability company organized in Brazil

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-182070) and Form S-8 (Nos. 333-153362, 333-157291, 333-164742, 333-171947, 333-179070, 333-187506, and 333-194658) of GigOptix, Inc. of our report dated March 17, 2015 relating to the consolidated financial statements, which appears in this Form 10-K.

/s/ Burr Pilger Mayer, Inc.

San Jose, California

March 17, 2015

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS AMENDED

I, Dr. Avi S. Katz, certify that:

1. I have reviewed this annual report on Form 10-K of GigOptix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposed in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2015

/s/    Dr. Avi S. Katz

Dr. Avi S. Katz

Chief Executive Officer and Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS AMENDED

I, Darren Ma, certify that:

1. I have reviewed this annual report on Form 10-K of GigOptix, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposed in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2015

/s/    Darren Ma

Darren Ma

Vice President and Chief Financial Officer and Principal Financial Officer and Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of GigOptix, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    Dr. Avi S. Katz

Dr. Avi S. Katz

Chief Executive Officer and Principal Executive Officer

Dated: March 17, 2015

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer and Principal Accounting Officer of GigOptix, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Form 10-K for the year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Company’s Form 10-K for the year ended December 31, 2014 fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    Darren Ma

Darren Ma

Vice President and Chief Financial Officer and Principal Financial Officer and Principal Accounting Officer

Dated: March 17, 2015

XML

INTANGIBLE ASSETS AND GOODWILL, Schedule of Acquired Finite-Lived Intangible Asset by Major Class (Details) (USD $)	12 Months Ended		3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 28, 2014
Future amortization expense [Abstract]
2015	$ 893,000
2016	869,000
2017	487,000
2018	63,000
2019	82,000
Total	2,394,000
Acquired Finite-Lived Intangible Assets [Line Items]
Impairment of goodwill	0	0
Goodwill related to acquisition	10,306,000	9,860,000
Other current liabilities	2,902,000	2,746,000
Tahoe RF [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill acquired due to acquisition			446,000
Liabilities incurred	446,000
Number of employees added as part of acquisition	10
Liabilities incurred maximum, next fiscal year	254,000
Other current liabilities	20,000
Retention bonus payable, during the period July 2016 through July 2020	$ 100,000

XML

INVESTMENT IN UNCONSOLIDATED AFFILIATE (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Schedule of Investments [Line Items]
Inventory	$ 5,139,000	$ 4,617,000
Property and equipment	1,916,000	2,999,000
Investment in affiliate	0
Loss attributable to affiliate	456,000	0
CPqD [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage (in hundredths)	51.00%
BrP [Member]
Schedule of Investments [Line Items]
Inventory	245,000
Property and equipment	211,000
Investment in affiliate	456,000
Loss attributable to affiliate	$ 456,000
GigOptix, Inc. [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage (in hundredths)	49.00%

XML

BENEFIT PLANS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Change in projected benefit obligation [Roll Forward]
Beginning benefit obligation	$ 648,000	$ 692,000
Service cost	29,000	35,000
Interest cost	15,000	16,000
Plan participants contributions	24,000	21,000
Foreign exchange adjustments	(84,000)	16,000
Actuarial loss (gain)	190,000	(132,000)
Transfer in/(out)	0	0
Ending benefit obligation	822,000	648,000
Change in plan assets [Roll Forward]
Beginning fair value of plan assets	508,000	440,000
Employer contributions	24,000	21,000
Plan participants contributions	24,000	21,000
Foreign exchange adjustments	(54,000)	14,000
Expected return on plan assets	(6,000)	12,000
Transfer in/(out)	0	0
Ending fair value of plan assets	496,000	508,000
Benefits paid	0	0
Funded status of plan [Abstract]
Projected benefit obligation	(822,000)	(648,000)
Fair value of plan assets	496,000	508,000
Funded status of the plan at the end of the year, recorded as a long-term liability	(326,000)	(140,000)
Defined benefit plan expected net periodic pension cost in next fiscal year	66,000
Expected net periodic benefit cost [Abstract]
Service cost (net)	61,000
Interest cost	13,000
Expected return on plan assets	(8,000)
Net periodic benefit cost	66,000
Benefit obligation discount rate (in hundredths)	1.50%
Benefit obligation rate of compensation increase (in hundredths)	2.00%
Benefit obligation expected return on assets (in hundredths)	1.50%
Minimum interest rate on old age savings accounts as per Swiss pension law (in hundredths)	1.50%
Benefit cost discount rate (in hundredths)		2.25%
Benefit cost rate of compensation increase (in hundredths)		2.00%
Benefit cost expected return on assets (in hundredths)		2.25%
Net periodic benefit cost [Abstract]
Service cost (net)	29,000	35,000
Interest cost	15,000	16,000
Net periodic benefit cost	44,000	51,000
Defined Benefit Plan Disclosure [Line Items]
Employer anticipated contributions to the plan in next fiscal year	27,000
Accrued severance liability	0	30,000	168,000
Matching contribution by company	65,000	59,000
Israel Restructuring Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash surrender value of life insurance	9,000
Employee severance costs	0
Accrued severance liability	12,000
Severance assets	$ 9,000

XML

SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

12 Months Ended

Dec. 31, 2014

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

Revenue by geographic region

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

	Years ended December 31,
	2014		2013
North America	$	9,637	$	7,943
Asia		10,363		7,700
Europe		12,511		12,306
Other		436		977
	$	32,947	$	28,926

Revenue by product line

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

	Years ended December 31,
	2014		2013
HSC	$	22,280	$	19,886
Industrial		10,667		9,040
Total revenue	$	32,947	$	28,926

Long lived assets by country

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

	December 31,
	2014		2013
United States	$	1,687	$	2,004
Switzerland		229		995
	$	1,916	$	2,999

XML

BALANCE SHEET COMPONENTS (Tables)

12 Months Ended

Dec. 31, 2014

BALANCE SHEET COMPONENTS [Abstract]

Accounts receivable, net

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

	December 31,
	2014			2013
Accounts receivable	$	8,003		$	5,241
Allowance for doubtful accounts		(48	)		(220	)
	$	7,955		$	5,021

Property and equipment, net

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

	Life		December 31,
	(In years)		2014			2013
Network and laboratory equipment		3 – 5	$	11,252		$	11,250
Computer software and equipment		2 – 3		3,877			3,928
Furniture and fixtures		3 – 7		165			176
Office equipment		3 – 5		131			137
Leasehold improvements		1 – 5		276			378
				15,701			15,869
Accumulated depreciation and amortization				(13,785	)		(12,870	)
Property and equipment, net			$	1,916		$	2,999

Inventories

Inventories consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Raw materials	$	1,676	$	2,103
Work in process		1,421		780
Finished goods		2,042		1,734
	$	5,139	$	4,617

Other current liabilities

Other current liabilities consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		334		330
Customer deposits		599		313
Capital lease obligations, current portion		3		284
Sales return reserve		412		151
Other		1,363		1,477
	$	2,902	$	2,746

XML

NET LOSS PER SHARE (Details)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	11,375,258	13,088,711
Stock Options and RSUs [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	10,717,018	11,620,472
Common Stock Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	658,240	1,468,239

XML

STOCKHOLDERS' EQUITY, Warrants (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 16, 2014
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 5.25		$ 8.50
Warrants outstanding (in shares)	658,240	1,468,239
Number of warrants expired (in shares)	809,999	348,800
Alliance Advisors LLC [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 1.75
Expiration Date	Jul. 20, 2014
Warrants outstanding (in shares)	0	25,000
Number of warrants expired (in shares)	25,000	0
Bridge Bank [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 2.51
Expiration Date	Jul. 07, 2017
Warrants outstanding (in shares)	29,115	29,115
Number of warrants expired (in shares)	0	0
Warrants issued to PIPE investors [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 2.50
Expiration Date	Dec. 28, 2013
Warrants outstanding (in shares)	0	0
Number of warrants expired (in shares)	0	242,500
Sandgrain Securities Inc. [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 2.50
Expiration Date	Dec. 28, 2013
Warrants outstanding (in shares)	0	0
Number of warrants expired (in shares)	0	4,000
Warrants issued to investors in connection with the Lumera Merger I [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 24.00
Expiration Date	Feb. 21, 2013
Warrants outstanding (in shares)	0	0
Number of warrants expired (in shares)	0	22,500
Warrants issued to investors in connection with the Lumera Merger II [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 6.08
Expiration Date	Jan. 16, 2014
Warrants outstanding (in shares)	0	284,999
Number of warrants expired (in shares)	284,999	0
Silicon Valley Bank I [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 0.73
Expiration Date	Oct. 05, 2017
Warrants outstanding (in shares)	4,125	4,125
Number of warrants expired (in shares)	0	0
Silicon Valley Bank II [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 4.00
Expiration Date	Apr. 23, 2017
Warrants outstanding (in shares)	125,000	125,000
Number of warrants expired (in shares)	0	0
Warrants issued to GigOptix LLC executives in connections with the Lumera Merger [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 6.08
Expiration Date	Jul. 16, 2013
Warrants outstanding (in shares)	0	0
Number of warrants expired (in shares)	0	79,800
DBSI Settlement Trust I [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 2.60
Expiration Date	Apr. 08, 2014
Warrants outstanding (in shares)	0	500,000
Number of warrants expired (in shares)	500,000	0
DBSI Settlement Trust II [Member]
Class of Warrant or Right [Line Items]
Exercise price per share (in dollars per share)	$ 3.00
Expiration Date	Apr. 08, 2015
Warrants outstanding (in shares)	500,000	500,000
Number of warrants expired (in shares)	0	0

XML

FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended		12 Months Ended
	Dec. 24, 2013	Jul. 07, 2010	Dec. 31, 2014	Dec. 31, 2013	Dec. 16, 2014	Dec. 24, 2013	Jul. 07, 2010
Class of Warrant or Right [Line Items]
Additional equity shares issued (in shares)	9,573,750	2,760,000
Share price of additional equity offering (in dollars per share)	$ 1.42	$ 1.75	$ 1.20	$ 1.53		$ 1.42	$ 1.75
Fair value assumptions [Abstract]
Stock price (in dollars per share)	$ 1.42	$ 1.75	$ 1.20	$ 1.53		$ 1.42	$ 1.75
Exercise price (in dollars per share)			$ 2.51	$ 2.51
Expected life			2 years 6 months 18 days	3 years 6 months 18 days
Risk-free interest rate (in hundredths)			1.10%	1.30%
Volatility (in hundredths)			69.00%	65.00%
Fair value per share (in dollars per share)			$ 0.27	$ 0.52
Warrants subject to liability accounting [Abstract]
Adjusted warrants (in shares)			658,240	1,468,239
Price per share (in dollars per share)			$ 5.25		$ 8.50
Liability Warrants [Member]
Warrants subject to liability accounting [Abstract]
Fair value			$ 8	$ 15
Exercise of warrants			0	0
Change in fair value			(7)	(9)
Change in fair value of Level 3 liability warrants [Roll Forward]
Fair value, beginning of period			15	24
Exercise of warrants			0	0
Change in fair value			(7)	(9)
Fair value, end of period			8	15
Bridge Bank Warrant [Member]
Warrants subject to liability accounting [Abstract]
Holder			Bridge Bank
Original warrants (in shares)			20,000
Adjusted warrants (in shares)			29,115	29,115
Grant date			Apr. 07, 2010
Expiration date			Jul. 07, 2017
Price per share (in dollars per share)			$ 2.51
Fair value			8	15
Exercise of warrants			0	0
Change in fair value			(7)	(9)
Related agreement			Credit Agreement
Change in fair value of Level 3 liability warrants [Roll Forward]
Fair value, beginning of period			15
Exercise of warrants			0	0
Change in fair value			(7)	(9)
Fair value, end of period			8	15
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Cash equivalents [Abstract]
Cash equivalents			12,360	1,356
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents			12,360	1,356
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Liability Warrants [Member]
Current liabilities [Abstract]
Liability warrants			0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Cash equivalents [Abstract]
Cash equivalents			0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents			0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Liability Warrants [Member]
Current liabilities [Abstract]
Liability warrants			0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Cash equivalents [Abstract]
Cash equivalents			0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents			0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Liability Warrants [Member]
Current liabilities [Abstract]
Liability warrants			8	15
Carrying Value [Member] | Recurring [Member]
Cash equivalents [Abstract]
Cash equivalents			12,360	1,356
Carrying Value [Member] | Recurring [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents			12,360	1,356
Carrying Value [Member] | Recurring [Member] | Liability Warrants [Member]
Current liabilities [Abstract]
Liability warrants			$ 8	$ 15

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 sqft	Dec. 31, 2013
COMMITMENTS AND CONTINGENCIES [Abstract]
Facilities rent expense	$ 458,000	$ 560,000
Bothell facility, sq ft.	11,666
Lease term	1 year
Bellevue facility sq ft	2,100
Aggregate non-cancelable future minimum rental payments under capital leases [Abstract]
Capital leases, 2015	4,000
Capital leases, 2016	3,000
Capital leases, 2017 and beyond	3,000
Capital leases, total minimum lease payments	10,000
Less: Amount representing interest	(1,000)
Total capital lease obligations	9,000
Less: current portion	(3,000)	(284,000)
Long-term portion of capital lease obligations	6,000
Aggregate non-cancelable future minimum rental payments under operating leases [Abstract]
Operating leases, 2015	531,000
Operating leases, 2016	439,000
Operating leases, 2017 and beyond	124,000
Operating leases, total minimum lease payments	1,094,000
Gross and net book value of capital lease assets [Abstract]
Acquired cost	1,666,000	1,666,000
Accumulated amortization	(1,656,000)	(1,378,000)
Net book value	10,000	288,000
Approximate period of product warranty	1 year
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance at January 1	330,000	612,000
Warranties accrued	492,000	510,000
Warranties settled or reversed	(488,000)	(792,000)
Balance at December 31	$ 334,000	$ 330,000

XML

RESTRUCTURING (Details) (USD $)	3 Months Ended		12 Months Ended
	Sep. 28, 2014	Jun. 29, 2014	Dec. 31, 2014	Dec. 31, 2013
RESTRUCTURING [Abstract]
Restructuring reserve settled without cash				$ 662,000
Restructuring reserve settled with cash				288,000
Restructuring Cost and Reserve [Line Items]
Restructuring charges	36,000	307,000	343,000	950,000
Summary of restructuring activity [Roll forward]
Beginning balance			30,000	168,000
Charges			343,000	950,000
Uses and adjustments			(373,000)	(1,088,000)
Ending balance			0	30,000
Other Restructuring [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges		43,000
Facility Closing [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges		210,000
Employee Severance [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges		45,000
RSUs [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges		$ 9,000

XML

BALANCE SHEET COMPONENTS

12 Months Ended

Dec. 31, 2014

BALANCE SHEET COMPONENTS [Abstract]

BALANCE SHEET COMPONENTS

NOTE 2—BALANCE SHEET COMPONENTS

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

	December 31,
	2014			2013
Accounts receivable	$	8,003		$	5,241
Allowance for doubtful accounts		(48	)		(220	)
	$	7,955		$	5,021

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

	Life		December 31,
	(In years)		2014			2013
Network and laboratory equipment		3 – 5	$	11,252		$	11,250
Computer software and equipment		2 – 3		3,877			3,928
Furniture and fixtures		3 – 7		165			176
Office equipment		3 – 5		131			137
Leasehold improvements		1 – 5		276			378
				15,701			15,869
Accumulated depreciation and amortization				(13,785	)		(12,870	)
Property and equipment, net			$	1,916		$	2,999

Depreciation and amortization expense related to property and equipment was $2.1 million and $2.2 million for the years ended December 31, 2014 and 2013, respectively.

In addition to the property and equipment above, the Company has prepaid licenses. For the years ended December 31, 2014 and 2013, amortization related to these prepaid licenses was $707,000 and $660,000, respectively.

Inventories consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Raw materials	$	1,676	$	2,103
Work in process		1,421		780
Finished goods		2,042		1,734
	$	5,139	$	4,617

Other current liabilities consisted of the following, as of (in thousands):

	December 31,
	2014		2013
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		334		330
Customer deposits		599		313
Capital lease obligations, current portion		3		284
Sales return reserve		412		151
Other		1,363		1,477
	$	2,902	$	2,746

XML

STOCKHOLDERS' EQUITY, Allocation of Recognized Period Costs (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	$ 4,234	$ 4,216
Cost of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	336	263
Research And Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	1,100	1,034
Selling, General and Administrative Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	2,789	2,257
Restructuring Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	$ 9	$ 662

XML

BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2014

BENEFIT PLANS [Abstract]

Schedule of changes in the benefit obligations and fair value of assets

The following tables summarize changes in the benefit obligation, the plan assets and the funded status of the pension benefit plan as well as the components of net periodic benefit costs, including key assumptions (in thousands).

	Years ended December 31,			Years ended December 31,
	2014			2013
Change in projected benefit obligation:
Beginning benefit obligation	$	648		$	692
Service cost		29			35
Interest cost		15			16
Plan participants contributions		24			21
Foreign exchange adjustments		(84	)		16
Actuarial loss (gain)		190			(132	)
Transfer in/(out)		-			-
Ending benefit obligation	$	822		$	648
Change in plan assets:
Beginning fair value of plan assets	$	508		$	440
Employer contributions		24			21
Plan participants' contributions		24			21
Foreign exchange adjustments		(54	)		14
Expected return on plan assets		(6	)		12
Transfer in/(out)		-			-
Ending fair value of plan assets	$	496		$	508
Benefits paid	$	-		$	-

Schedule of funding status

The following table summarizes the funding status as of December 31, 2014 and 2013 (in thousands):

	Years ended December 31,
	2014			2013
Projected benefit obligation	$	(822	)	$	(648	)
Fair value of plan assets		496			508
Funded status of the plan at the end of the year, recorded as a long-term liability	$	(326	)	$	(140	)

Schedule of net periodic benefit cost

The total net periodic pension cost for the year ending December 31, 2015 is expected to be approximately $66,000. The following are the components of estimated net periodic pension cost in 2015 (in thousands):

	Year ending December 31, 2015
Service cost (net)	$	61
Interest cost		13
Expected return on plan assets		(8	)
Net periodic benefit cost	$	66

The net periodic benefit cost for the plan included the following components (in thousands):

	Years ended December 31,
	2014		2013
Service cost (net)	$	29	$	35
Interest cost		15		16
Net periodic benefit cost	$	44	$	51

XML

STOCKHOLDERS' EQUITY (Tables)

12 Months Ended

Dec. 31, 2014

STOCKHOLDERS' EQUITY [Abstract]

Schedule of Stockholders' equity note, warrants

These provisions are specific to each warrant agreement.

				Warrants Outstanding as of December 31,				Warrants Expired During the Year Ended December 31,		Warrants Expired During the Year Ended December 31,
Holder	Exercise Price per Share		Expiration Date	2014		2013		2014		2013
Alliance Advisors LLC	$	1.75	7/20/2014		-		25,000		25,000		-
Bridge Bank	$	2.51	7/7/2017		29,115		29,115		-		-
Warrants issued to PIPE investors	$	2.50	12/28/2013		-		-		-		242,500
Sandgrain Securities Inc.	$	2.50	12/28/2013		-		-		-		4,000
Warrants issued to investors in connection with the Lumera Merger	$	24.00	2/21/2013		-		-		-		22,500
Warrants issued to investors in connection with the Lumera Merger	$	6.08	1/16/2014		-		284,999		284,999		-
Silicon Valley Bank	$	0.73	10/5/2017		4,125		4,125		-		-
Silicon Valley Bank	$	4.00	4/23/2017		125,000		125,000		-		-
Warrants issued to GigOptix LLC executives in connection with the Lumera Merger	$	6.08	7/16/2013		-		-		-		79,800
DBSI Liquidating Trust	$	2.60	4/8/2014		-		500,000		500,000		-
DBSI Liquidating Trust	$	3.00	4/8/2015		500,000		500,000		-		-
					658,240		1,468,239		809,999		348,800

Schedule of stock-based compensation expense

The following table summarizes the Company’s stock-based compensation expense for fiscal years 2014 and 2013 (in thousands):

	Years ended December 31,
	2014		2013
Cost of revenue	$	336	$	263
Research and development expense		1,100		1,034
Selling, general and administrative expense		2,789		2,257
Restructuring expense		9		662
	$	4,234	$	4,216

Summary of option 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:

	Years Ended December 31,
	2014									2013
	Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, beginning of year		10,306,671		$	2.34						10,100,429		$	2.42
Granted		25,000		$	1.59						689,010		$	0.92
Exercised		(225,678	)	$	1.02			$	84		(12,221	)	$	1.09			$	3
Forfeited/Expired		(1,304,833	)	$	2.47						(470,547	)	$	2.12
Balance, end of year		8,801,160		$	2.35		5.91	$	483		10,306,671		$	2.34		6.96	$	1,405
Vested and exercisable and expected to vest, end of year		8,636,840		$	2.35		5.88	$	471		10,101,382		$	2.34		6.93	$	1,379
Vested and exercisable, end of year		7,738,685		$	2.38		5.70	$	393		7,297,096		$	2.39		6.47	$	1,017

Summarizes information about options granted and outstanding under our equity incentive plans

The following table summarizes information about options outstanding and exercisable under the Company’s equity incentive plans as of December 31, 2014:

		Options Outstanding						Options Exercisable
		Number of Shares Outstanding		Weighted-average Remaining Contractual Life, in Years		Weighted- average Exercise Price		Exercisable		Weighted- average Exercise Price
$	0.73 - $1.48		2,225,242		6.08	$	1.07		1,922,948	$	1.07
$	1.57 - $2.40		1,882,434		6.04	$	2.00		1,835,185	$	2.00
$	2.50 - $3.25		4,415,423		6.69	$	2.78		3,702,491	$	2.78
$	3.50 - $28.32		231,682		3.03	$	17.36		231,682	$	17.36
$	28.80 - $57.44		46,379		1.61	$	40.01		46,379	$	40.01
			8,801,160		5.91	$	2.35		7,738,685	$	2.38

Summary of restricted stock unit activity

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

	Years Ended December 31,
	2014									2013
	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, January 1		1,313,801		$	1.19		1.85	$	2,010		199,005		$	2.78		0.16	$	382
Granted		1,954,085			1.67						1,578,373			1.16
Released		(1,176,993	)		1.35						(426,141	)		1.83
Forfeited/expired		(175,035	)		1.49						(37,436	)		1.19
Outstanding, December 31		1,915,858		$	1.55		3.11	$	1,990		1,313,801		$	1.19		1.85	$	2,010

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STOCKHOLDERS' EQUITY, Share-based Compensation Arrangements by Share-based Payment Award (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2008	Dec. 24, 2013	Jul. 07, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants outstanding (in shares)	1,468,239	658,240
Stock price (in dollars per share)	$ 1.53	$ 1.20		$ 1.42	$ 1.75
Restricted stock activity, Weighted-average Remaining Contractual Term, Years [Abstract]
Weighted-average remaining contractual term	0 years
Restricted stock activity, Aggregate Intrinsic Value [Roll Forward]
Aggregate intrinsic value outstanding ending balance	$ 382,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
Number of options outstanding (in shares)	10,306,671	8,801,160
Total grant-date fair value	436,000	28,000
Unrecognized compensation expense		1,400,000
Weighted average period of recognition for unrecognized compensation cost		1 year 5 months 8 days
Weighted average grant date fair value (in dollars per share)	$ 0.63	$ 1.10
Stock options activity, number of shares [Roll Forward]
Outstanding, beginning of year (in shares)	10,100,429	10,306,671
Granted (in shares)	689,010	25,000
Exercised (in shares)	(12,221)	(225,678)
Forfeited/Expired (in shares)	(470,547)	(1,304,833)
Outstanding, ending balance (in shares)	10,306,671	8,801,160
Vested and exercisable and expected to vest (in shares)	10,101,382	8,636,840
Vested and exercisable (in shares)	7,297,096	7,738,685
Stock option activity, weighted-average exercise price [Roll Forward]
Weighted average exercise price, beginning balance (in dollars per shares)	$ 2.42	$ 2.34
Weighted average exercise price, granted (in dollars per shares)	$ 0.92	$ 1.59
Weighted average exercise price, exercised (in dollars per shares)	$ 1.09	$ 1.02
Weighted average exercise price, forfeited/expired (in dollars per shares)	$ 2.12	$ 2.47
Weighted average exercise price, ending balance (in dollars per shares)	$ 2.34	$ 2.35
Weighted average exercise price, vested and expected to vest (in dollars per share)	$ 2.34	$ 2.35
Weighted average exercise price, exercisable (in dollars per share)	$ 2.39	$ 2.38
Weighted average remaining contractual term [Abstract]
Weighted average remaining contractual term, ending balance	6 years 11 months 16 days	5 years 10 months 28 days
Weighted average remaining contractual term, expected to vest	6 years 11 months 5 days	5 years 10 months 17 days
Weighted average remaining contractual term, exercisable	6 years 5 months 19 days	5 years 8 months 12 days
Aggregate Intrinsic Value [Abstract]
Aggregate intrinsic value, exercised	3,000	84,000
Aggregate intrinsic value, outstanding	1,405,000	483,000
Aggregate intrinsic value, vested and expected to vest	1,379,000	471,000
Aggregate intrinsic value, exercisable	1,017,000	393,000
Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		1 year
Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units total grant date fair value	1,800,000	3,300,000
Unrecognized compensation expense		2,300,000
Weighted average period of recognition for unrecognized compensation cost		3 years 1 month 10 days
Restricted stock activity, number of shares [Roll Forward]
Outstanding, beginning of period (in shares)	199,005	1,313,801
Granted (in shares)	1,578,373	1,954,085
Released (in shares)	(426,141)	(1,176,993)
Forfeited/expired (in shares)	(37,436)	(175,035)
Outstanding, end of period (in shares)	1,313,801	1,915,858
Restricted stock activity, Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 2.78	$ 1.19
Granted (in dollars per share)	$ 1.16	$ 1.67
Released (in dollars per share)	$ 1.83	$ 1.35
Forfeited/expired (in dollars per share)	$ 1.19	$ 1.49
Outstanding, end of period (in dollars per share)	$ 1.19	$ 1.55
Restricted stock activity, Weighted-average Remaining Contractual Term, Years [Abstract]
Weighted-average remaining contractual term	1 year 10 months 6 days	3 years 1 month 10 days
Restricted stock activity, Aggregate Intrinsic Value [Roll Forward]
Aggregate intrinsic value outstanding beginning balance		2,010,000
Aggregate intrinsic value outstanding ending balance	2,010,000	1,990,000
Aggregate intrinsic value of vested and expected to vest awards		1,412,392
Shares withheld to satisfy minimum tax obligation (in shares)		358,201
Amount withheld to satisfy minimum tax obligation		$ 514,000
Stock Options with Vesting over Specified Period of Time [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
2007 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		632,500
2007 Equity Incentive Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
Life from date of grant		10 years
Stock options cancelled (in shares)		864
Number of options outstanding (in shares)		376,436
Stock options activity, number of shares [Roll Forward]
Outstanding, ending balance (in shares)		376,436
2007 Equity Incentive Plan [Member] | Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants outstanding (in shares)		4,125
2008 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		16,624,634	2,500,000
Automatic annual increase in shares authorized			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
Percentage of outstanding common stock (in hundredths)			5.00%
2008 Equity Incentive Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		21,000,000
2008 Equity Incentive Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		10,274,154
Automatic increase in number of shares reserved for future issuance (in shares)	1,603,381
Vesting period		4 years
Cliff vesting per year (in hundredths)		25.00%
Life from date of grant		10 years
2008 Equity Incentive Plan [Member] | Stock Options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of stock options as percentage of fair market value on date of grant (in hundredths)		100.00%
2008 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		3,540,247
2008 Equity Incentive Plan [Member] | Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		1 year
2008 Equity Incentive Plan [Member] | Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		4 years
2008 Equity Incentive Plan [Member] | 10% Stockholder [Member] | Stock Options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of stock options as percentage of fair market value on date of grant (in hundredths)		110.00%
Lumera 2000 and 2004 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding (in shares)		66,428
Merger conversion ratio (in hundredths)		12.50%
Stock options activity, number of shares [Roll Forward]
Outstanding, ending balance (in shares)		66,428

XML

RESTRUCTURING (Tables)

12 Months Ended

Dec. 31, 2014

RESTRUCTURING [Abstract]

Summary of restructuring activity

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

	Year ending December 31,
	2014			2013
Beginning balance	$	30		$	168
Charges		343			950
Uses and adjustments		(373	)		(1,088	)
Ending balance	$	-		$	30

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2014

INCOME TAXES [Abstract]

Schedule of components of net loss before income taxes

The components of loss before provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014			2013
United States	$	(5,266	)	$	1,480
International		(45	)		(3,376	)
Loss before provision for income taxes	$	(5,311	)	$	(1,896	)

Schedule of components of provision for (benefit) from income taxes

Components of provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014		2013
Current
United States	$	41	$	37
International		-		-
State		13		13
Total		54		50
Deferred
United States		-		-
International		-		-
Total		-		-
Provision for income taxes	$	54	$	50

Schedule of effective income tax rate reconciliation

Provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate to loss before taxes as follows:

	Years ended December 31,
	2014			2013
Income tax at the federal statutory rate		(34.00	)%		(34.00	)%
State tax, net of federal benefit		0.23	%		0.71	%
Foreign tax rate differential		0.27	%		60.55	%
Permanent items and other		0.69	%		1.93	%
Losses not benefited		33.75	%		(26.55	)%
Effective tax rate		0.94	%		2.64	%

Components of net deferred tax assets and liabilities

The components of the net deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2014			2013
Deferred tax asset (liability), net
Net operating losses	$	20,134		$	20,398
Tax credits		2,915			3,022
Accrued and reserves		2,063			1,872
Foreign Deferreds		3			-
Fixed assets		890			966
Other		2,224			2,176
Total deferred tax asset		28,229			28,434
Valuation allowance		(27,707	)		(27,587	)
Net deferred tax asset		522			847
Pension other comprehensive income		-			(40	)
Intangible assets		(522	)		(847	)
Deferred tax liability		(522	)		(887	)
Net deferred tax asset (liability)	$	-		$	(40	)

Schedule of unrecognized tax benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Total
Balance as of December 31, 2012	$	2,523
Increases related to current year tax positions		205
Increases related to prior year tax positions		37
Decreases related to prior year tax positions		-
Balance as of December 31, 2013		2,765
Increases related to current year tax positions		223
Increases related to prior year tax positions		16
Decreases related to prior year tax positions		-
Balance as of December 31, 2014	$	3,004

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ORGANIZATION AND BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2014

ORGANIZATION AND BASIS OF PRESENTATION [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

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. Its products address the needs of emerging high-growth markets, such as long haul and metro telecommunications (“telecom”) applications, as well as Cloud data communications (“datacom”) and datacenter connectivity, point-to-point wireless backhaul, and interactive high speed applications for the consumer electronics, 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.  Its products are highly customized and typically developed in partnership with key ”Lighthouse” customers, generating engineering project revenues through the development stage and larger future product revenue through these customers and general market availability.

The HSC product line offers a broad portfolio of high performance optical and wireless components to telecom and datacom customers, including (i) mixed signal radio frequency integrated circuits (“RFIC”); (ii) 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; (iii) power amplifiers and transceivers for microwave and millimeter monolithic microwave integrated circuit (“MMIC”) wireless applications including power amplifiers and transceiver chips at frequencies higher than 50 GHz; (iv) integrated systems in a package (“SIP”) solutions for both fiber-optic and wireless applications; and (v) radio frequency (“RF’) chips for various consumer applications such as global navigation satellite systems (“GNSS”).

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.

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; however it is in the process of being dissolved.

In February 2014, together with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (“CPqD”), the Company formed 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.  During the second quarter of 2014, the Company transferred its inventory related to the Thin Film Polymer on Silicon (“TFPS^TM”) platform and the production line equipment for use by BrP (see also Note 9).

In June 2014, the Company signed a definitive agreement to acquire, for cash only by way of assuming specified liabilities, substantially all of the assets of Tahoe RF Semiconductor, Inc. (“Tahoe RF”), a provider of RF/analog RFICs, intellectual property, and fully integrated systems and subsystems on a chip. That acquisition closed on June 30, 2014, which was the first day of the Company’s third quarter of fiscal 2014.

Basis of Presentation

The Company’s fiscal year ends on December 31.  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, reserves for stock rotation rights, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identified intangible assets and goodwill, valuation of deferred taxes and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and to estimate the carrying value of its warrant liability. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, its business can be affected by a variety of factors. For example, changes in any of the following areas could have a negative effect in terms of its future financial position, results of operations or cash flows: a downturn in the overall semiconductor industry or communications semiconductor market; regulatory changes; fundamental changes in the technology underlying telecom products or incorporated in customers’ products; market acceptance of its products under development; litigation or other claims against the Company; litigation or other claims made by the Company; the hiring, training and retention of key employees; integration of businesses acquired; successful and timely completion of product development efforts; and new product introductions by competitors.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities. The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that the Company will be required to sell the security prior to any anticipated recovery in fair value. When there is no readily available market data, fair value estimates may be made by the Company, which may not necessarily represent the amounts that could be realized in a current or future sale of these assets.

Revenue Recognition

Revenue from sales of optical drivers and receivers, multi-chip modulators, and other products is recognized when persuasive evidence of a sales arrangement exists, transfer of title occurs, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. Provisions are made for warranties at the time revenue is recorded. See Note 13—Commitments and Contingencies for further detail related to the warranty provision.

Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations, outside of standard product warranty. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction. Collectibility is assessed based primarily on the credit worthiness of the customer as determined through ongoing credit evaluations of the customer’s financial condition, as well as consideration of the customer’s payment history.

The Company records revenue from non-recurring engineering projects associated with product development that the Company enters into with certain customers.  In general, these projects are associated with complex technology development, and as such the Company does not have certainty about its ability to achieve the program milestones. Achievement of the milestone is dependent on the Company’s performance and is typically accepted by the customer.  The payment associated with achieving the milestone is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable.  Therefore, the Company records the expenses related to these projects in the periods incurred and recognizes revenue only when the Company has earned the revenue and achieved the development milestones. Revenue from these projects are 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 the Company’s overall product development programs beyond the specific project requested by our customer.

The Company sells some products to distributors at the price listed in its price book for that distributor. The Company's distributor agreements provide for semi-annual stock rotation privileges of 5% to 10% of net sales for the previous six-month period. At the time of sale, the Company records a sales reserve for stock rotations approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors. When the distributors pay the Company's invoices, they may claim stock rotations when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.  As of December 31, 2014 and 2013, the reserve for stock rotations was $412,000 and $151,000, respectively, and is recorded in other current liabilities on the consolidated balance sheets.

The Company records transaction-based taxes including, but not limited to, sales, use, value added, and excise taxes, on a net basis in its consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectibility of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of December 31, 2014, the Company’s accounts receivable balance was $8.0 million, which was net of an allowance for doubtful accounts of $48,000. As of December 31, 2013, the Company’s accounts receivable balance was $5.0 million, which was net of an allowance for doubtful accounts of $220,000.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained at various financial institutions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. At any time, amounts held at any single financial institution may exceed federally insured limits. The Company believes that the concentration of credit risk in its accounts receivable is substantially mitigated by its credit evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral.

As of December 31, 2014, two customers accounted for 20% and 16% of total accounts receivable.  As of December 31, 2013, two customers accounted for 29% and 17% of total accounts receivable.

For the year ended December 31, 2014, one customer accounted for 25% of total revenue. For the year ended December 31, 2013, one customer accounted for 33% of total revenue.

Concentration of Supply Risk

The Company relies on third parties to manufacture its products, and depends on them for the supply and quality of its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products, or cause it to carry excess or obsolete inventory or redesign its products. The Company relies on a third party for the fulfillment of its customer orders, and the failure of this third party to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products, which could adversely affect the Company’s business.

Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market (net realizable value). Cost includes labor, material and overhead costs. Determining fair market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. As a result of this analysis, when fair market values are below costs, the Company records a charge to cost of revenue in advance of when the inventory is scrapped or sold.

  The Company evaluates its ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes analysis of historical and forecasted sales levels by product against inventories on-hand. Inventories on-hand in excess of estimated future demand are reviewed by management to determine if a write-down is required. In addition, the Company writes-off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles when determining obsolescence. Excess and obsolete inventories are charged to cost of revenue and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

The Company’s inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than forecasted amounts, the Company may be required to take additional inventory write-downs.

Property and Equipment

Property and equipment, including leasehold improvements, are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from one to seven years. Leasehold improvements and assets acquired under capital leases are depreciated over the shorter of their estimated useful lives or the remaining lease term of the respective assets. Repairs and maintenance costs are charged to expenses as incurred.

Long-lived Assets and Intangible Assets

Long-lived assets include equipment, furniture and fixtures, licenses, leasehold improvements, semiconductor masks used in production and intangible assets. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the Company tests for recoverability by comparing the estimate of undiscounted cash flows to be generated by the assets against the assets’ carrying amount. If the carrying value exceeds the estimated future cash flows, the assets are considered to be impaired. The amount of impairment equals the difference between the carrying amount of the assets and their fair value. Factors the Company considers important that could trigger an impairment review include continued operating losses, significant negative industry trends, significant underutilization of the assets and significant changes in how it plans to use the assets.

Intangible assets are amortized on a straight-line basis over their estimated economic lives of six to seven years for existing technology, acquired in business combinations;  sixteen years for patents acquired in business combinations, based on the term of the patent or the estimated useful life, whichever is shorter;  one year for order backlog, acquired in business combinations;  ten years for trade name, acquired in business combinations; and six to eight years for customer relationships, acquired in business combinations.

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net purchased tangible and intangible assets acquired and is carried at cost. Goodwill is not amortized, but is reviewed annually for impairment. The Company performs its annual goodwill impairment analysis in the fourth quarter of each year or more frequently if it believes indicators of impairment exist. Factors that it considers important which could trigger an impairment review include the following:

· significant underperformance relative to historical or projected future operating results;

· significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

· significant negative industry or economic trends; and

· significant decline in the Company’s market capitalization.

When evaluating goodwill for impairment, the Company may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, the Company continues to the first step of a two step impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates andassumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. The Company bases these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that the Company determines that the value of goodwill has become impaired, it will record a charge for the amount of impairment during the fiscal quarter in which the determination is made.  The Company operates in one reporting unit.  The Company conducted its 2014 annual goodwill impairment analysis in the fourth quarter of 2014 and no goodwill impairment was indicated.

Restricted Cash

Restricted cash as of December 31, 2014 was $53,000 which is a security deposit held in an escrow account related to the Company’s facility lease in Zurich, Switzerland.  Restricted cash as of December 31, 2013 was $284,000 which consisted of $58,000 for the Company’s facility lease in Zurich, Switzerland and $151,000 to satisfy the letter of credit provisions of the Company’s Bothell and Washington facility lease.

Pension Liabilities

The Company maintains a defined benefit pension plan covering minimum requirements according to Swiss law for its Zurich, Switzerland employees. The Company recognizes the funded status of its defined benefit pension plan on its consolidated balance sheets and changes in the funded status are reflected in accumulated other comprehensive income, net of tax, a component of stockholders’ equity.

Net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of its pension plans.

Foreign Currency

The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as their functional currency. Accordingly, all assets and liabilities for these subsidiaries are translated into U.S. dollars at the current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these subsidiaries’ financial statements are reported as a separate component of accumulated other comprehensive income, net of tax, a component of stockholders’ equity. The Company records foreign currency transaction gains and losses, realized and unrealized, in other income (expense), net in the consolidated statements of operations. The Company recorded approximately $47,000 of net transaction gain in 2014 and $11,000 of net transaction loss in 2013.

Product Warranty

The Company’s products typically carry a standard warranty period of approximately one year which provides for the repair, rework or replacement of products (at its option) that fail to perform within stated specification. The Company provides for the estimated cost to repair or replace the product at the time of sale. The warranty accrual is estimated based on historical claims and assumes that it will replace products subject to claims.

Shipping Costs

The Company charges shipping costs to cost of revenue as incurred.

Research and Development Expense

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.

Advertising Expense

Advertising costs are expensed as incurred. Advertising expenses, which are recorded in selling, general and administrative expenses, were approximately $29,000 and $46,000 for the years ended December 31, 2014 and 2013, respectively.

Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the fair value of the award. For options, the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. For restricted stock units (“RSU”), the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the RSU grant, which is generally the vesting term of one to four years. The benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. All of the stock compensation is accounted for as an equity instrument.

For RSUs, stock-based compensation is based on the fair value of the Company’s common stock at the grant date.

Stock-based compensation expense is measured at grant date, based on the estimated fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. The Company uses the Black-Scholes option-pricing model to measure the fair value of its stock-based awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Management estimates expected forfeitures and records the stock compensation expense only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of actual option forfeitures. Forfeitures are required to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on its operating results. The assumptions the Company uses in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes option-pricing model changes significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously.

The fair value of RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock. 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.

Warrants

Warrants issued as equity awards are recorded based on the estimated fair value of the awards at the grant date.  The Company uses the Black-Scholes option-pricing model to measure the fair value of its equity warrant awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Warrants with certain features, including down-round protection, are recorded as liability awards.  These warrants are valued using a Black-Scholes option-pricing model which requires various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.  The warrants are remeasured each reporting period, and the change in the fair value of the liability is recorded as other income (expense), net until the warrant is exercised or cancelled.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding. The number of shares used in the computation of diluted net loss per share is the same as those used for the computation of basic net loss per share as the inclusion of dilutive securities would be anti-dilutive because the Company is in a loss position for the periods presented. Potentially dilutive securities are composed of the incremental common shares issuable upon the exercise of stock options and the vesting of RSUs awards. For purposes of the diluted net loss per share calculation, RSUs, stock options to purchase common stock and warrants to purchase common stock are considered to be dilutive securities.

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of December 31, 2014, and 2013. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be materially impacted.

The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. Accumulated other comprehensive income in the accompanying consolidated balance sheets includes foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries and its pension liabilities. Comprehensive income (loss) is presented net of income tax and the tax impact is immaterial.

The components of accumulated other comprehensive income (loss) were as follows (in thousands):

	December 31,
	2014			2013
Accumulated comprehensive income:
Foreign currency translation adjustment, net of tax	$	298		$	353
Change in pension liability in connection with actuarial gain, net of tax		(13	)		137
Total	$	285		$	490

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NET LOSS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2014

NET LOSS PER SHARE [Abstract]

Antidilutive securities excluded from computation of earnings 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:

	December 31,
	2014		2013
Stock options and RSUs		10,717,018		11,620,472
Common stock warrants		658,240		1,468,239
Total		11,375,258		13,088,711

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CREDIT FACILITIES (Details) (Line of Credit - Silicon Valley Bank [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Line of Credit - Silicon Valley Bank [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 7.0
Borrowing capacity with reference to accounts receivable	3.5
Borrowing base percentage used for maximum borrowing capacity (in hundredths)	80.00%
Borrowing capacity without reference to accounts receivable	3.5
Number of business days to repay interest on borrowings unrelated to accounts receivable balances	3 days
Amount outstanding	$ 0	$ 0

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LEGAL SETTLEMENTS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 29, 2013 Employee
LEGAL SETTLEMENT [Abstract]
Number of former employees in legal settlement	3
Special litigation-related income, net of legal fees	$ 7.25

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 18,438	$ 20,377
Accounts receivable, net	7,955	5,021
Inventories	5,139	4,617
Prepaid and other current assets	433	434
Total current assets	31,965	30,449
Property and equipment, net	1,916	2,999
Intangible assets, net	2,394	3,287
Goodwill	10,306	9,860
Restricted cash	53	284
Other assets	116	183
Total assets	46,750	47,062
Current liabilities:
Accounts payable	2,731	831
Accrued compensation	730	1,170
Other current liabilities	2,902	2,746
Total current liabilities	6,363	4,747
Pension liabilities	326	140
Other long term liabilities	556	595
Total liabilities	7,245	5,482
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of December 31, 2014 and 2013	0	0
Common stock, $0.001 par value; 100,000,000 shares authorized; 33,112,086 and 32,067,616 shares issued and outstanding as of December 31, 2014 and 2013, respectively	32	32
Additional paid-in capital	143,661	139,710
Treasury stock, at cost; 701,754 shares as of December 31, 2014 and 2013, respectively	(2,209)	(2,209)
Accumulated other comprehensive income	285	490
Accumulated deficit	(102,264)	(96,443)
Total stockholders' equity	39,505	41,580
Total liabilities and stockholders' equity	$ 46,750	$ 47,062

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STOCKHOLDERS' EQUITY, Shares Authorized under Stock Option Plans, by Exercise Price Range (Details) (Stock Options [Member], USD $)	12 Months Ended
	Dec. 31, 2014
Range $0.73 - $1.83 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Range of Exercise Prices, Lower Range Limit (in dollars per share)	$ 0.73
Range of Exercise Prices, Upper Range Limit (in dollars per share)	$ 1.48
Options Outstanding, Number of Shares Outstanding (in shares)	2,225,242
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	6 years 0 months 29 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 1.07
Options Exercisable, Number of Shares Exercisable (in shares)	1,922,948
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 1.07
Range $1.86 - $2.40 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Range of Exercise Prices, Lower Range Limit (in dollars per share)	$ 1.57
Range of Exercise Prices, Upper Range Limit (in dollars per share)	$ 2.40
Options Outstanding, Number of Shares Outstanding (in shares)	1,882,434
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	6 years 0 months 14 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 2.00
Options Exercisable, Number of Shares Exercisable (in shares)	1,835,185
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 2.00
Range $2.50 - $2.70 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Range of Exercise Prices, Lower Range Limit (in dollars per share)	$ 2.50
Range of Exercise Prices, Upper Range Limit (in dollars per share)	$ 3.25
Options Outstanding, Number of Shares Outstanding (in shares)	4,415,423
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	6 years 8 months 8 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 2.78
Options Exercisable, Number of Shares Exercisable (in shares)	3,702,491
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 2.78
Range $3.03 - $18.16 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Range of Exercise Prices, Lower Range Limit (in dollars per share)	$ 3.50
Range of Exercise Prices, Upper Range Limit (in dollars per share)	$ 28.32
Options Outstanding, Number of Shares Outstanding (in shares)	231,682
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	3 years 0 months 11 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 17.36
Options Exercisable, Number of Shares Exercisable (in shares)	231,682
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 17.36
Range $18.18 - $57.44 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Range of Exercise Prices, Lower Range Limit (in dollars per share)	$ 28.80
Range of Exercise Prices, Upper Range Limit (in dollars per share)	$ 57.44
Options Outstanding, Number of Shares Outstanding (in shares)	46,379
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	1 year 7 months 10 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 40.01
Options Exercisable, Number of Shares Exercisable (in shares)	46,379
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 40.01
Range $0.73 - $57.44 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Options Outstanding, Number of Shares Outstanding (in shares)	8,801,160
Options Outstanding ,Weighted Average Remaining Contractual Life (in years)	5 years 10 months 28 days
Options Outstanding ,Weighted Average Exercise Price (in dollars per share)	$ 2.35
Options Exercisable, Number of Shares Exercisable (in shares)	7,738,685
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 2.38

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income [Member]	Total
Balance at Dec. 31, 2012	$ 22	$ (2,209)	$ 123,386	$ (94,497)	$ 298	$ 27,000
Balance (in shares) at Dec. 31, 2012	22,205,746	701,754
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	0	0	4,216	0	0	4,216
Issuance of common stock in connection with exercise of options	0	0	13	0	0	13
Issuance of common stock in connection with exercise of options (in shares)	12,221	0
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards	0	0	(194)	0	0	(194)
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards (in shares)	275,899	0
Issuance of common stock in connection with the public offering, net of direct issuance costs	10	0	12,289	0	0	12,299
Issuance of common stock in connection with the public offering, net of direct issuance costs (in shares)	9,573,750	0
Foreign currency translation adjustment, net of tax	0	0	0	0	91	91
Change in pension liability in connection with actuarial loss, net of tax	0	0	0	0	101	101
Net loss	0	0	0	(1,946)	0	(1,946)
Balance at Dec. 31, 2013	32	(2,209)	139,710	(96,443)	490	41,580
Balance (in shares) at Dec. 31, 2013	32,067,616	701,754
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	0	0	4,234	0	0	4,234
Issuance of common stock in connection with exercise of options	0	0	231	0	0	231
Issuance of common stock in connection with exercise of options (in shares)	225,678	0
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards	0	0	(514)	0	0	(514)
Issuance of restricted stock to employees, net of taxes paid related to net share settlement of equity awards (in shares)	818,792	0
Foreign currency translation adjustment, net of tax	0	0	0	0	(55)	(55)
Change in pension liability in connection with actuarial loss, net of tax	0	0	0	0	(150)	(150)
Net loss	0	0	0	(5,821)	0	(5,821)
Balance at Dec. 31, 2014	$ 32	$ (2,209)	$ 143,661	$ (102,264)	$ 285	$ 39,505
Balance (in shares) at Dec. 31, 2014	33,112,086	701,754

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ORGANIZATION AND BASIS OF PRESENTATION (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 OperatingUnit ProductLine	Dec. 31, 2013
Organization [Abstract]
Number of product lines	2
Revenue Recognition [Line Items]
Percentage of gross margin at which revenue from development projects are recorded (in hundredths)	100.00%
Period of stock rotation	6 months
Reserve for stock rotations	$ 412,000	$ 151,000
Accounts Receivable and Allowance for Doubtful Accounts [Abstract]
Accounts receivable, net	7,955,000	5,021,000
Allowance for doubtful accounts	48,000	220,000
Acquired Finite-Lived Intangible Assets [Line Items]
Number of operating units	1
Impairment of goodwill	0	0
Restricted cash	53,000	284,000
Restricted cash in satisfaction of the letter of credit provisions		151,000
Restricted cash held in escrow account		58,000
Foreign currency transaction gain (loss)	47,000	(11,000)
Product Warranty [Abstract]
Warranty term	1 year
Advertising expense	29,000	46,000
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income	285,000	490,000
Foreign currency translation adjustment, net of tax [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income	298,000	353,000
Change in pension liability in connection with actuarial gain, net of tax [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income	$ (13,000)	$ 137,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term	4 years
Patents [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	16 years
Order Backlog [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	1 year
Trade Names [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	10 years
Accounts Receivable [Member]
Concentration Risk [Line Items]
Number of customers	2	2
Accounts Receivable [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration risk percentage (in hundredths)	20.00%	29.00%
Accounts Receivable [Member] | Customer Two [Member]
Concentration Risk [Line Items]
Concentration risk percentage (in hundredths)	16.00%	17.00%
Total Revenue [Member]
Concentration Risk [Line Items]
Number of customers	1	1
Total Revenue [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration risk percentage (in hundredths)	25.00%	33.00%
Minimum [Member]
Revenue Recognition [Line Items]
Stock rotation privileges specified as percentage of net sales	5.00%
Property, Plant and Equipment [Line Items]
Estimated useful life	1 year
Minimum [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term	1 year
Minimum [Member] | Existing Technology [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	6 years
Minimum [Member] | Customer Relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	6 years
Minimum [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	1 year
Maximum [Member]
Revenue Recognition [Line Items]
Stock rotation privileges specified as percentage of net sales	10.00%
Property, Plant and Equipment [Line Items]
Estimated useful life	7 years
Maximum [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term	4 years
Maximum [Member] | Existing Technology [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	7 years
Maximum [Member] | Customer Relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired intangible asset useful life	8 years
Maximum [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	5 years
CPqD [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage (in hundredths)	51.00%
GigOptix [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage (in hundredths)	49.00%

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RECENT ACCOUNTING PRONOUNCEMENTS

12 Months Ended

Dec. 31, 2014

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 15—RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standard Board (“FASB”) issued an accounting standard update clarifying the accounting guidance on how to account for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. This standard is effective for periods beginning after December 15, 2015 and early adoption is permitted. The Company does not expect the adoption will have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued an accounting standard clarifying the principles for recognizing revenue by amending the FASB Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers.The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact of the adoption on the Company’s condensed consolidated financial statements.

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BALANCE SHEET COMPONENTS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
BALANCE SHEET COMPONENTS [Abstract]
Accounts receivable	$ 8,003,000	$ 5,241,000
Allowance for doubtful accounts	(48,000)	(220,000)
Accounts receivable, net	7,955,000	5,021,000
Property and equipment [Line Items]
Property and equipment, gross	15,701,000	15,869,000
Accumulated depreciation and amortization	(13,785,000)	(12,870,000)
Property and equipment, net	1,916,000	2,999,000
Depreciation and amortization expense related to property and equipment	2,100,000	2,200,000
Amortization of prepaid licenses	707,000	660,000
Inventory, net [Abstract]
Raw materials	1,676,000	2,103,000
Work in process	1,421,000	780,000
Finished goods	2,042,000	1,734,000
Inventories	5,139,000	4,617,000
Other current liabilities [Abstract]
Amounts billed to the U.S. government in excess of approved rates	191,000	191,000
Warrants liability	334,000	330,000
Customer deposits	599,000	313,000
Capital lease obligations, current portion	3,000	284,000
Sales return reserve	412,000	151,000
Other	1,363,000	1,477,000
Other current liabilities	2,902,000	2,746,000
Minimum [Member]
Property and equipment [Line Items]
Life	1 year
Maximum [Member]
Property and equipment [Line Items]
Life	7 years
Network and Laboratory Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	11,252,000	11,250,000
Network and Laboratory Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Life	3 years
Network and Laboratory Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Life	5 years
Computer Software and Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	3,877,000	3,928,000
Computer Software and Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Life	2 years
Computer Software and Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Life	3 years
Furniture and Fixtures [Member]
Property and equipment [Line Items]
Property and equipment, gross	165,000	176,000
Furniture and Fixtures [Member] | Minimum [Member]
Property and equipment [Line Items]
Life	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Property and equipment [Line Items]
Life	7 years
Office Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	131,000	137,000
Office Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Life	3 years
Office Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Life	5 years
Leasehold Improvements [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 276,000	$ 378,000
Leasehold Improvements [Member] | Minimum [Member]
Property and equipment [Line Items]
Life	1 year
Leasehold Improvements [Member] | Maximum [Member]
Property and equipment [Line Items]
Life	5 years

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ORGANIZATION AND BASIS OF PRESENTATION (Tables)

12 Months Ended

Dec. 31, 2014

ORGANIZATION AND BASIS OF PRESENTATION [Abstract]

Schedule of accumulated other comprehensive income (loss)

The components of accumulated other comprehensive income (loss) were as follows (in thousands):

	December 31,
	2014			2013
Accumulated comprehensive income:
Foreign currency translation adjustment, net of tax	$	298		$	353
Change in pension liability in connection with actuarial gain, net of tax		(13	)		137
Total	$	285		$	490

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities:
Net loss	$ (5,821)	$ (1,946)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	3,656	3,882
Stock-based compensation	4,234	4,216
Change in fair value of warrants	(7)	(9)
Write down of property and equipment	8	0
Non-cash restructuring expense	210	(118)
Loss on equity investment	456	0
Accounts receivable	(2,934)	35
Inventories	(767)	(506)
Prepaid and other current assets	(707)	(797)
Other assets	22	45
Accounts payable	1,843	(1,462)
Accrued restructuring	(29)	(140)
Accrued compensation	(440)	324
Other current liabilities	252	(83)
Other long-term liabilities	26	(120)
Net cash provided by operating activities	2	3,321
Cash flows from investing activities:
Purchases of property and equipment	(1,194)	(1,536)
Proceeds from sale of property and equipment	0	160
Change in restricted cash	75	0
Net cash used in investing activities	(1,119)	(1,376)
Cash flows from financing activities:
Proceeds from public offering of stock, net of costs	0	12,299
Proceeds from issuance of stock	231	13
Taxes paid related to net share settlement of equity awards	(514)	(194)
Net borrowings on line of credit	0	(3,600)
Payment of debt assumed in acquisition	(176)	0
Repayment of capital lease	(284)	(405)
Net cash provided by (used in) financing activities	(743)	8,113
Effect of exchange rates on cash and cash equivalents	(79)	172
Net increase (decrease) in cash and cash equivalents	(1,939)	10,230
Cash and cash equivalents at beginning of year	20,377	10,147
Cash and cash equivalents at end of year	18,438	20,377
Supplemental disclosure of cash flow information
Interest paid	41	127
Property, plant and equipment acquired under capital lease	0	13
Property, plant and equipment acquired with accounts payable	83	23
Investment in unconsolidated affiliate acquired with property and equipment and inventories	456	0
Liabilities assumed in acquisition	446	0
Taxes paid	$ 300	$ 42

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	100,000,000	100,000,000
Common stock, issued (in shares)	33,112,086	32,067,616
Common stock, outstanding (in shares)	33,112,086	32,067,616
Treasury Stock, at cost (in shares)	701,754	701,754

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INCOME TAXES

12 Months Ended

Dec. 31, 2014

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 10—INCOME TAXES

The components of loss before provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014			2013
United States	$	(5,266	)	$	1,480
International		(45	)		(3,376	)
Loss before provision for income taxes	$	(5,311	)	$	(1,896	)

Components of provision for income taxes are as follows (in thousands):

	Years ended December 31,
	2014		2013
Current
United States	$	41	$	37
International		-		-
State		13		13
Total		54		50
Deferred
United States		-		-
International		-		-
Total		-		-
Provision for income taxes	$	54	$	50

Provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate to loss before taxes as follows:

	Years ended December 31,
	2014			2013
Income tax at the federal statutory rate		(34.00	)%		(34.00	)%
State tax, net of federal benefit		0.23	%		0.71	%
Foreign tax rate differential		0.27	%		60.55	%
Permanent items and other		0.69	%		1.93	%
Losses not benefited		33.75	%		(26.55	)%
Effective tax rate		0.94	%		2.64	%

The components of the net deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2014			2013
Deferred tax asset (liability), net
Net operating losses	$	20,134		$	20,398
Tax credits		2,915			3,022
Accrued and reserves		2,063			1,872
Foreign Deferreds		3			-
Fixed assets		890			966
Other		2,224			2,176
Total deferred tax asset		28,229			28,434
Valuation allowance		(27,707	)		(27,587	)
Net deferred tax asset		522			847
Pension other comprehensive income		-			(40	)
Intangible assets		(522	)		(847	)
Deferred tax liability		(522	)		(887	)
Net deferred tax asset (liability)	$	-		$	(40	)

As of December 31, 2013, the deferred tax liability is included in other long term liabilities on the consolidated balance sheet.

The Company has a full valuation allowance on deferred tax assets in excess of deferred tax liabilities. Because of its limited operating history and cumulative losses, management believes it is more likely than not that the remaining deferred tax assets will not be realized.

The Company’s valuation allowance increased by approximately $120,000 during the year ended December 31, 2014 and decreased by approximately $311,000 during the year ended December 31, 2013.

The Company has approximately $44.6 million of federal net operating losses carryforwards and $21.0 million of state net operating loss carryforwards as of December 31, 2014. The federal and state net operating losses expire starting in 2014 through year 2033. The Company has approximately $3.5 million of federal research and development tax credit (“R&D credit”) carryforwards and $3.5 million of California R&D credit carryforwards as of December 31, 2014. The federal R&D credit carryforwards begin to expire in 2029 while the California R&D credits are not subject to a carryforward limitation.  Utilization of a portion of the net operating losses and credit carryforwards are subject to an annual limitation due to the ownership change provision of the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company also has approximately $13.5 million of net operating loss carryforwards in Israel related to its acquisition of ChipX which can be carried forward indefinitely.

Any interest and penalties incurred on the settlement of outstanding tax positions would be recorded as a component of income tax expense.  The Company recorded $12,000 and $11,000 of interest and penalty expenses during the years ended December 31, 2014 and 2013, respectively.

The Company’s unrecognized tax benefits as of December 31, 2014 relate to various domestic and foreign jurisdictions.  As of December 31, 2014, the Company had total gross unrecognized tax benefits of $3.0 million, which if recognized would affect the effective tax rate.  As of December 31, 2014 and 2013, the amount of long-term income taxes payable for unrecognized tax benefits, including accrued interest, was $415,000 and $368,000, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Total
Balance as of December 31, 2012	$	2,523
Increases related to current year tax positions		205
Increases related to prior year tax positions		37
Decreases related to prior year tax positions		-
Balance as of December 31, 2013		2,765
Increases related to current year tax positions		223
Increases related to prior year tax positions		16
Decreases related to prior year tax positions		-
Balance as of December 31, 2014	$	3,004

The Company files tax returns in the U.S. federal, U.S. state and foreign tax jurisdictions.  The Company’s major tax jurisdictions are the U.S., California, Switzerland, Germany and Israel. The Company’s fiscal years through 2014 remain subject to examination by the tax authorities for U.S. federal, U.S. state and foreign tax purpose.

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Document and Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Feb. 27, 2015	Jun. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	GigOptix, Inc.
Entity Central Index Key	0001432150
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 42.7
Entity Common Stock, Shares Outstanding		32,588,685
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2014

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NET LOSS PER SHARE

12 Months Ended

Dec. 31, 2014

NET LOSS PER SHARE [Abstract]

NET LOSS PER SHARE

NOTE 11—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:

	December 31,
	2014		2013
Stock options and RSUs		10,717,018		11,620,472
Common stock warrants		658,240		1,468,239
Total		11,375,258		13,088,711

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Revenue
Product	$ 29,787	$ 24,841
Development fees and other	3,160	4,085
Total revenue	32,947	28,926
Total cost of revenue	13,711	11,522
Gross profit	19,236	17,404
Operating expenses
Research and development expense	13,732	13,878
Selling, general and administrative expense	10,503	9,388
Restructuring expense, net	343	950
Special litigation benefit	0	(4,786)
Total operating expenses	24,578	19,430
Loss from operations	(5,342)	(2,026)
Interest expense, net	(39)	(127)
Other income, net	70	257
Loss before provision for income taxes	(5,311)	(1,896)
Provision for income taxes	54	50
Loss from consolidated companies	(5,365)	(1,946)
Loss on equity investment	456	0
Net loss	$ (5,821)	$ (1,946)
Net loss per share-basic and diluted (in dollars per share)	$ (0.18)	$ (0.09)
Weighted average number of shares used in basic and diluted net loss per share calculations (in shares)	31,851	21,826

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CREDIT FACILITIES

12 Months Ended

Dec. 31, 2014

CREDIT FACILITIES [Abstract]

CREDIT FACILITIES

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 $7.0 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 December 31, 2014 and 2013.

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INTANGIBLE ASSETS AND GOODWILL

12 Months Ended

Dec. 31, 2014

INTANGIBLE ASSETS AND GOODWILL [Abstract]

INTANGIBLE ASSETS AND GOODWILL

NOTE 4—INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following (in thousands):

	As of December 31, 2014							As of December 31, 2013
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	3,277	$	(2,119	)	$	1,158	$	3,277	$	(1,697	)	$	1,580
Existing technology		3,783		(2,881	)		902		3,783		(2,473	)		1,310
Order backlog		732		(732	)		-		732		(732	)		-
Patents		457		(402	)		55		457		(397	)		60
Trade name		659		(380	)		279		659		(322	)		337
Total	$	8,908	$	(6,514	)	$	2,394	$	8,908	$	(5,621	)	$	3,287

During the year ended December 31, 2014 and 2013, amortization of intangible assets was as follows (in thousands):

	December 31, 2014		December 31, 2013
Cost of revenue	$	413	$	484
Selling, general and administrative expense		480		499
	$	893	$	983

Estimated future amortization expense related to intangible assets as of December 31, 2014 is as follows (in thousands):

Years ending December 31,
2015	$	893
2016		869
2017		487
2018		63
2019		82
Total	$	2,394

The Company performs a review of the carrying value of its intangible assets, if circumstances warrant. In its review, it compares the gross, undiscounted cash flows expected to be generated by the underlying assets against the carrying value of those assets. To the extent such cash flows do not exceed the carrying value of the underlying asset; it will record an impairment charge.  During the fourth quarter of 2014, the Company performed an impairment analysis and did not find any indicators of impairment for its intangibles.  The Company did not record an impairment charge on any intangibles, including goodwill, during the years ended December 31, 2014 and 2013.

As of December 31, 2014, the Company had $10.3 million of goodwill in connection with the acquisitions of ChipX, Endwave and Tahoe RF. During the third quarter of 2014, the Company completed its acquisition of Tahoe RF which resulted in $446,000 of goodwill. During 2014, the Company assumed approximately $446,000 of liabilities of Tahoe RF and added RF/analog RFIC technology to the Company's product portfolio and approximately 10 employees, primarily High-Speed and High-Frequency SiGe RF engineers focused on high growth areas such as E-Band and V-Band technologies. The Company agreed to pay up to an additional $254,000 in Tahoe RF related expenses of which $20,000 has been accrued in other current liabilities on the Company's consolidated balance sheet as of December 31, 2014. Such additional liabilities of Tahoe RF which the Company may assume in 2015 (up to a total of $254,000), will be recorded as part of the purchase price and increase goodwill.  If the final additional assumed grossed-up liabilities are less than $254,000, the Company will pay bonus payments in 2015 to these employees provided certain milestones are met and they remain employed by the Company. In addition, beginning in July 2016 and continuing annually through July 2020, these employees will be entitled to a retention bonus of approximately $100,000 in the aggregate if they remain employed with the Company. These payments will be recorded as compensation expense when incurred.

The consolidated financial statements include the operating results of Tahoe RF from the date of acquisition. Pro forma results of operations for the Tahoe RF acquisition have not been presented because the effect of the acquisition was not material to the Company's financial results.

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

12 Months Ended

Dec. 31, 2014

ORGANIZATION AND BASIS OF PRESENTATION [Abstract]

Organization

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. Its products address the needs of emerging high-growth markets, such as long haul and metro telecommunications (“telecom”) applications, as well as Cloud data communications (“datacom”) and datacenter connectivity, point-to-point wireless backhaul, and interactive high speed applications for the consumer electronics, 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.  Its products are highly customized and typically developed in partnership with key ”Lighthouse” customers, generating engineering project revenues through the development stage and larger future product revenue through these customers and general market availability.

The HSC product line offers a broad portfolio of high performance optical and wireless components to telecom and datacom customers, including (i) mixed signal radio frequency integrated circuits (“RFIC”); (ii) 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; (iii) power amplifiers and transceivers for microwave and millimeter monolithic microwave integrated circuit (“MMIC”) wireless applications including power amplifiers and transceiver chips at frequencies higher than 50 GHz; (iv) integrated systems in a package (“SIP”) solutions for both fiber-optic and wireless applications; and (v) radio frequency (“RF’) chips for various consumer applications such as global navigation satellite systems (“GNSS”).

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.

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; however it is in the process of being dissolved.

In February 2014, together with Fundação CPqD – Centro De Pesquisa e Desenvolvimento em Telecomunicações (“CPqD”), the Company formed 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.  During the second quarter of 2014, the Company transferred its inventory related to the Thin Film Polymer on Silicon (“TFPS^TM”) platform and the production line equipment for use by BrP (see also Note 9).

In June 2014, the Company signed a definitive agreement to acquire, for cash only by way of assuming specified liabilities, substantially all of the assets of Tahoe RF Semiconductor, Inc. (“Tahoe RF”), a provider of RF/analog RFICs, intellectual property, and fully integrated systems and subsystems on a chip. That acquisition closed on June 30, 2014, which was the first day of the Company’s third quarter of fiscal 2014.

Basis of Presentation

Basis of Presentation

The Company’s fiscal year ends on December 31.  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, reserves for stock rotation rights, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identified intangible assets and goodwill, valuation of deferred taxes and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and to estimate the carrying value of its warrant liability. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Certain Significant Risks and Uncertainties

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, its business can be affected by a variety of factors. For example, changes in any of the following areas could have a negative effect in terms of its future financial position, results of operations or cash flows: a downturn in the overall semiconductor industry or communications semiconductor market; regulatory changes; fundamental changes in the technology underlying telecom products or incorporated in customers’ products; market acceptance of its products under development; litigation or other claims against the Company; litigation or other claims made by the Company; the hiring, training and retention of key employees; integration of businesses acquired; successful and timely completion of product development efforts; and new product introductions by competitors.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities. The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition, credit quality and near-term prospects of the investee; and whether it is more likely than not that the Company will be required to sell the security prior to any anticipated recovery in fair value. When there is no readily available market data, fair value estimates may be made by the Company, which may not necessarily represent the amounts that could be realized in a current or future sale of these assets.

Revenue Recognition

Revenue Recognition

Revenue from sales of optical drivers and receivers, multi-chip modulators, and other products is recognized when persuasive evidence of a sales arrangement exists, transfer of title occurs, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. Provisions are made for warranties at the time revenue is recorded. See Note 13—Commitments and Contingencies for further detail related to the warranty provision.

Customer purchase orders are generally used to determine the existence of an arrangement. Transfer of title and risk of ownership occur based on defined terms in customer purchase orders, and generally pass to the customer upon shipment, at which point goods are delivered to a carrier. There are no formal customer acceptance terms or further obligations, outside of standard product warranty. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction. Collectibility is assessed based primarily on the credit worthiness of the customer as determined through ongoing credit evaluations of the customer’s financial condition, as well as consideration of the customer’s payment history.

The Company records revenue from non-recurring engineering projects associated with product development that the Company enters into with certain customers.  In general, these projects are associated with complex technology development, and as such the Company does not have certainty about its ability to achieve the program milestones. Achievement of the milestone is dependent on the Company’s performance and is typically accepted by the customer.  The payment associated with achieving the milestone is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable.  Therefore, the Company records the expenses related to these projects in the periods incurred and recognizes revenue only when the Company has earned the revenue and achieved the development milestones. Revenue from these projects are 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 the Company’s overall product development programs beyond the specific project requested by our customer.

The Company sells some products to distributors at the price listed in its price book for that distributor. The Company's distributor agreements provide for semi-annual stock rotation privileges of 5% to 10% of net sales for the previous six-month period. At the time of sale, the Company records a sales reserve for stock rotations approved by management. The Company offsets the sales reserve against revenues, producing the net revenue amount reported in the consolidated statements of operations. Each month the Company adjusts the sales reserve for the estimated stock rotation privilege anticipated to be utilized by the distributors. When the distributors pay the Company's invoices, they may claim stock rotations when appropriate. Once claimed, the Company processes the requests against the prior authorizations and reduces the reserve previously established for that customer.  As of December 31, 2014 and 2013, the reserve for stock rotations was $412,000 and $151,000, respectively, and is recorded in other current liabilities on the consolidated balance sheets.

The Company records transaction-based taxes including, but not limited to, sales, use, value added, and excise taxes, on a net basis in its consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectibility of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of December 31, 2014, the Company’s accounts receivable balance was $8.0 million, which was net of an allowance for doubtful accounts of $48,000. As of December 31, 2013, the Company’s accounts receivable balance was $5.0 million, which was net of an allowance for doubtful accounts of $220,000.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained at various financial institutions.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. At any time, amounts held at any single financial institution may exceed federally insured limits. The Company believes that the concentration of credit risk in its accounts receivable is substantially mitigated by its credit evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral.

As of December 31, 2014, two customers accounted for 20% and 16% of total accounts receivable.  As of December 31, 2013, two customers accounted for 29% and 17% of total accounts receivable.

For the year ended December 31, 2014, one customer accounted for 25% of total revenue. For the year ended December 31, 2013, one customer accounted for 33% of total revenue.

Concentration of Supply Risk

Concentration of Supply Risk

The Company relies on third parties to manufacture its products, and depends on them for the supply and quality of its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products, or cause it to carry excess or obsolete inventory or redesign its products. The Company relies on a third party for the fulfillment of its customer orders, and the failure of this third party to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products, which could adversely affect the Company’s business.

Inventories

Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market (net realizable value). Cost includes labor, material and overhead costs. Determining fair market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. As a result of this analysis, when fair market values are below costs, the Company records a charge to cost of revenue in advance of when the inventory is scrapped or sold.

  The Company evaluates its ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes analysis of historical and forecasted sales levels by product against inventories on-hand. Inventories on-hand in excess of estimated future demand are reviewed by management to determine if a write-down is required. In addition, the Company writes-off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles when determining obsolescence. Excess and obsolete inventories are charged to cost of revenue and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

The Company’s inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than forecasted amounts, the Company may be required to take additional inventory write-downs.

Property and Equipment

Property and Equipment

Property and equipment, including leasehold improvements, are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from one to seven years. Leasehold improvements and assets acquired under capital leases are depreciated over the shorter of their estimated useful lives or the remaining lease term of the respective assets. Repairs and maintenance costs are charged to expenses as incurred.

Long-lived Assets and Intangible Assets

Long-lived Assets and Intangible Assets

Long-lived assets include equipment, furniture and fixtures, licenses, leasehold improvements, semiconductor masks used in production and intangible assets. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the Company tests for recoverability by comparing the estimate of undiscounted cash flows to be generated by the assets against the assets’ carrying amount. If the carrying value exceeds the estimated future cash flows, the assets are considered to be impaired. The amount of impairment equals the difference between the carrying amount of the assets and their fair value. Factors the Company considers important that could trigger an impairment review include continued operating losses, significant negative industry trends, significant underutilization of the assets and significant changes in how it plans to use the assets.

Intangible assets are amortized on a straight-line basis over their estimated economic lives of six to seven years for existing technology, acquired in business combinations;  sixteen years for patents acquired in business combinations, based on the term of the patent or the estimated useful life, whichever is shorter;  one year for order backlog, acquired in business combinations;  ten years for trade name, acquired in business combinations; and six to eight years for customer relationships, acquired in business combinations.

Goodwill

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net purchased tangible and intangible assets acquired and is carried at cost. Goodwill is not amortized, but is reviewed annually for impairment. The Company performs its annual goodwill impairment analysis in the fourth quarter of each year or more frequently if it believes indicators of impairment exist. Factors that it considers important which could trigger an impairment review include the following:

· significant underperformance relative to historical or projected future operating results;

· significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

· significant negative industry or economic trends; and

· significant decline in the Company’s market capitalization.

When evaluating goodwill for impairment, the Company may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, the Company continues to the first step of a two step impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates andassumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. The Company bases these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that the Company determines that the value of goodwill has become impaired, it will record a charge for the amount of impairment during the fiscal quarter in which the determination is made.  The Company operates in one reporting unit.  The Company conducted its 2014 annual goodwill impairment analysis in the fourth quarter of 2014 and no goodwill impairment was indicated.

Restricted Cash

Restricted Cash

Restricted cash as of December 31, 2014 was $53,000 which is a security deposit held in an escrow account related to the Company’s facility lease in Zurich, Switzerland.  Restricted cash as of December 31, 2013 was $284,000 which consisted of $58,000 for the Company’s facility lease in Zurich, Switzerland and $151,000 to satisfy the letter of credit provisions of the Company’s Bothell and Washington facility lease.

Pension Liabilities

Pension Liabilities

The Company maintains a defined benefit pension plan covering minimum requirements according to Swiss law for its Zurich, Switzerland employees. The Company recognizes the funded status of its defined benefit pension plan on its consolidated balance sheets and changes in the funded status are reflected in accumulated other comprehensive income, net of tax, a component of stockholders’ equity.

Net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of its pension plans.

Foreign Currency

Foreign Currency

The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as their functional currency. Accordingly, all assets and liabilities for these subsidiaries are translated into U.S. dollars at the current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these subsidiaries’ financial statements are reported as a separate component of accumulated other comprehensive income, net of tax, a component of stockholders’ equity. The Company records foreign currency transaction gains and losses, realized and unrealized, in other income (expense), net in the consolidated statements of operations. The Company recorded approximately $47,000 of net transaction gain in 2014 and $11,000 of net transaction loss in 2013.

Product Warranty

Product Warranty

The Company’s products typically carry a standard warranty period of approximately one year which provides for the repair, rework or replacement of products (at its option) that fail to perform within stated specification. The Company provides for the estimated cost to repair or replace the product at the time of sale. The warranty accrual is estimated based on historical claims and assumes that it will replace products subject to claims.

Shipping Costs

Shipping Costs

The Company charges shipping costs to cost of revenue as incurred.

Research and Development Expense

Research and Development Expense

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.

Advertising Expense

Advertising Expense

Advertising costs are expensed as incurred. Advertising expenses, which are recorded in selling, general and administrative expenses, were approximately $29,000 and $46,000 for the years ended December 31, 2014 and 2013, respectively.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the fair value of the award. For options, the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the option, which is generally the option vesting term of four years. For restricted stock units (“RSU”), the Company amortizes the compensation costs on a straight-line basis over the requisite service period of the RSU grant, which is generally the vesting term of one to four years. The benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. All of the stock compensation is accounted for as an equity instrument.

For RSUs, stock-based compensation is based on the fair value of the Company’s common stock at the grant date.

Stock-based compensation expense is measured at grant date, based on the estimated fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. The Company uses the Black-Scholes option-pricing model to measure the fair value of its stock-based awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Management estimates expected forfeitures and records the stock compensation expense only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of actual option forfeitures. Forfeitures are required to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on its operating results. The assumptions the Company uses in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes option-pricing model changes significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously.

The fair value of RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock. 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.

Warrants

Warrants

Warrants issued as equity awards are recorded based on the estimated fair value of the awards at the grant date.  The Company uses the Black-Scholes option-pricing model to measure the fair value of its equity warrant awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.

Warrants with certain features, including down-round protection, are recorded as liability awards.  These warrants are valued using a Black-Scholes option-pricing model which requires various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.  The warrants are remeasured each reporting period, and the change in the fair value of the liability is recorded as other income (expense), net until the warrant is exercised or cancelled.

Net Loss per Share

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding. The number of shares used in the computation of diluted net loss per share is the same as those used for the computation of basic net loss per share as the inclusion of dilutive securities would be anti-dilutive because the Company is in a loss position for the periods presented. Potentially dilutive securities are composed of the incremental common shares issuable upon the exercise of stock options and the vesting of RSUs awards. For purposes of the diluted net loss per share calculation, RSUs, stock options to purchase common stock and warrants to purchase common stock are considered to be dilutive securities.

Income Taxes

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of December 31, 2014, and 2013. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be materially impacted.

The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. Accumulated other comprehensive income in the accompanying consolidated balance sheets includes foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries and its pension liabilities. Comprehensive income (loss) is presented net of income tax and the tax impact is immaterial.

The components of accumulated other comprehensive income (loss) were as follows (in thousands):

	December 31,
	2014			2013
Accumulated comprehensive income:
Foreign currency translation adjustment, net of tax	$	298		$	353
Change in pension liability in connection with actuarial gain, net of tax		(13	)		137
Total	$	285		$	490

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SEGMENT AND GEOGRAPHIC INFORMATION

12 Months Ended

Dec. 31, 2014

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

SEGMENT AND GEOGRAPHIC INFORMATION

NOTE 12—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):

	Years ended December 31,
	2014		2013
North America	$	9,637	$	7,943
Asia		10,363		7,700
Europe		12,511		12,306
Other		436		977
	$	32,947	$	28,926

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

During fiscal year 2014, Italy and the United States accounted for 33% and 26% of revenue, respectively. During fiscal year 2013, Italy, the United States and Japan accounted for 39%, 24% 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):

	Years ended December 31,
	2014		2013
HSC	$	22,280	$	19,886
Industrial		10,667		9,040
Total revenue	$	32,947	$	28,926

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

	December 31,
	2014		2013
United States	$	1,687	$	2,004
Switzerland		229		995
	$	1,916	$	2,999

Long-lived assets, comprising property and equipment, are reported based on the location of the assets.

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RESTRUCTURING

12 Months Ended

Dec. 31, 2014

RESTRUCTURING [Abstract]

RESTRUCTURING

NOTE 8—RESTRUCTURING

During the first 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.

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 components of the restructuring charge included $43,000 of cash expenses for cleanup services, $210,000 of restricted cash and rent deposit forfeiture to move out of the Bothell facility, $45,000 of cash expenses for severance, benefits and payroll taxes and other costs associated with employee terminations, and $9,000 of non-cash expenses associated with the acceleration of RSUs. The total charge for these restructuring activities was $307,000.

During the third quarter of 2014, the Company undertook restructuring activities to reduce its expenses. The component of the restructuring charge included $36,000 of cash expenses for severance associated with employee terminations.

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

	Year ending December 31,
	2014			2013
Beginning balance	$	30		$	168
Charges		343			950
Uses and adjustments		(373	)		(1,088	)
Ending balance	$	-		$	30

As of December 31, 2014, the Company had no balance in accrued restructuring.

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STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2014

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

NOTE 6—STOCKHOLDERS’ EQUITY

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.

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 November 2014, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 shares to 100,000,000 shares 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 750,000 shares have been designated Series A Junior Preferred Stock with powers, preferences and rights as set forth in the amended and restated certificate of designation dated December 15, 2014; 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 December 31, 2014 and 2013, there were no shares of preferred stock issued or outstanding.

On December 16, 2014, the Company entered into an Amended and Restated Rights Agreement to extend the expiration date of its stockholder rights plan that may have the effect of deterring, delaying, or preventing a change in control.  The Amended and Restated Rights Agreement amends the Rights Agreement previously adopted by (i) extending the expiration date by three years to December 16, 2017, (ii) decreasing the exercise price per right issued to stockholders pursuant to the stockholder rights plan from $8.50 to $5.25, and (iii) making certain other technical and conforming changes. The Amended and Restated Rights Agreement was not adopted in response to any acquisition proposal.   Under the rights plan, the Company issued a dividend of one preferred share purchase right for each share of common stock held by stockholders of record as of January 6, 2012, and the Company will issue one preferred stock purchase right to each share of common stock issued between January 6, 2012 and the earlier of either the rights’ exercisability or the expiration of the Rights Agreement. Each right entitles stockholders to purchase one one-thousandth of the Company’s Series A Junior Preferred Stock.

In general, the exercisability of the rights to purchase preferred stock will be triggered if any person or group, including persons knowingly acting in concert to affect the control of the Company, is or becomes a beneficial owner of 10% or more of the outstanding shares of the Company’s common stock after the Adoption Date.  Stockholders or beneficial ownership groups who owned 10% or more of the outstanding shares of common stock of the Company on or before the Adoption Date will not trigger the preferred share purchase rights unless they acquire an additional 1% or more of the outstanding shares of the Company’s common stock. Each right entitles a holder with the right upon exercise to purchase one one-thousandth of a share of preferred stock at an exercise price that is currently set at $5.25 per right, subject to purchase price adjustments as set forth in the rights agreement. Each share of preferred stock has voting rights equal to one thousand shares of common stock. In the event that exercisability of the rights is triggered, each right held by an acquiring person or group would become void. As a result, upon triggering of exercisability of the rights, there would be significant dilution in the ownership interest of the acquiring person or group, making it difficult or unattractive for the acquiring person or group to pursue an acquisition of the Company.  These rights expire in December of 2017, unless earlier redeemed or exchanged by the Company.

Warrants

As of December 31, 2014, the Company had a total of 658,240 warrants to purchase common stock outstanding under all warrant arrangements.  There were no warrants exercised during the years ended December 31, 2014 and 2013.  During the years ended December 31, 2014 and 2013, 809,999 and 348,800 warrants expired, respectively. Many 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.

				Warrants Outstanding as of December 31,				Warrants Expired During the Year Ended December 31,		Warrants Expired During the Year Ended December 31,
Holder	Exercise Price per Share		Expiration Date	2014		2013		2014		2013
Alliance Advisors LLC	$	1.75	7/20/2014		-		25,000		25,000		-
Bridge Bank	$	2.51	7/7/2017		29,115		29,115		-		-
Warrants issued to PIPE investors	$	2.50	12/28/2013		-		-		-		242,500
Sandgrain Securities Inc.	$	2.50	12/28/2013		-		-		-		4,000
Warrants issued to investors in connection with the Lumera Merger	$	24.00	2/21/2013		-		-		-		22,500
Warrants issued to investors in connection with the Lumera Merger	$	6.08	1/16/2014		-		284,999		284,999		-
Silicon Valley Bank	$	0.73	10/5/2017		4,125		4,125		-		-
Silicon Valley Bank	$	4.00	4/23/2017		125,000		125,000		-		-
Warrants issued to GigOptix LLC executives in connection with the Lumera Merger	$	6.08	7/16/2013		-		-		-		79,800
DBSI Liquidating Trust	$	2.60	4/8/2014		-		500,000		500,000		-
DBSI Liquidating Trust	$	3.00	4/8/2015		500,000		500,000		-		-
					658,240		1,468,239		809,999		348,800

Equity Incentive Plan

As of December 31, 2014 and 2013, there were 8,801,160 options and 10,306,671 options outstanding under all stock option plans.  As of December 31, 2014 and 2013, there were 1,915,858 and 1,313,801 RSUs outstanding under the 2008 Equity Incentive Plan. 

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, 2014, the stockholders had approved 16,624,634 shares for future issuance. On January 1, 2014, there was an automatic increase of 1,603,381 shares. As of December 31, 2014, 10,274,154 options to purchase common stock and RSUs were outstanding and 3,540,247 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 incentive stock option ("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 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 December 31, 2014, options to purchase a total of 376,436 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 December 31, 2014, no additional options can be granted under the Lumera Plan, and options to purchase a total of 66,428 shares of common stock were outstanding.

Stock-based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense for fiscal years 2014 and 2013 (in thousands):

	Years ended December 31,
	2014		2013
Cost of revenue	$	336	$	263
Research and development expense		1,100		1,034
Selling, general and administrative expense		2,789		2,257
Restructuring expense		9		662
	$	4,234	$	4,216

For the year ended December 31, 2014, the $4.2 million of stock-based compensation expense included $9,000 in restructuring expense to accelerate the vesting of stock options (see Note 8 - Restructuring).

For the year ended December 31, 2013, the $4.2 million of stock-based compensation expense included $662,000 in restructuring expense to accelerate the vesting of stock options (see Note 8 - Restructuring).

During the years ended December 31, 2014 and 2013, the Company granted options to purchase 25,000 and 689,010 shares of common stock, respectively, with an estimated total grant-date fair value of $28,000 and $436,000, respectively, or $1.10 and $0.63 per share, respectively.

During the year ended December 31, 2014, the Company granted 1,954,085 RSUs with a grant-date fair value of $3.3 million, or $1.67 per share.  During the year ended December 31, 2013, the Company granted 1,578,373 RSUs with a grant-date fair value of $1.8 million, or $1.16 per share.

As of December 31, 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 $1.4 million and $2.3 million, respectively. Unrecognized compensation will be amortized on a straight-line basis over a weighted-average period of approximately 1.44 years for stock options and approximately 3.11 years for RSUs.

The Company generally estimates the fair value of stock options granted using a Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, including the options expected life and the price volatility of the Company’s underlying stock. Actual volatility, expected lives, interest rates and forfeitures may be different from the Company’s assumptions, which would result in an actual value of the options being different from estimated. This fair value of stock option grants is amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The majority of the stock options that the Company grants to its employees provide for vesting over a specified period of time, normally a four-year period, with no other conditions to vesting.   However, the Company may also grant stock options for which vesting occurs not only on the basis of elapsed time, but also on the basis of specified company performance criteria being satisfied.  In this case, the Company makes a determination regarding the probability of the performance criteria being achieved and uses a Black-Scholes option-pricing model to value the options incorporating management’s assumptions for the expected holding period, risk-free interest rate, stock price volatility and dividend yield. Compensation expense is recognized ratably over the vesting period, if it is expected that the performance criteria will be met.

The fair value of the Company’s stock options granted to employees was estimated using the following weighted-average assumptions:

Expected Term—Expected term used in the Black-Scholes option-pricing model represents the period that the Company’s stock options are expected to be outstanding and is measured using the technique described in Staff Accounting Bulletin No. 107.

Expected Volatility—Expected volatility used in the Black-Scholes option-pricing model is derived from a combination of historical and implied volatility of guideline companies selected based on similar industry and product focus.

Expected Dividend—The Company has never paid dividends and currently does not intend to do so, and accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected term of the option.

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:

	Years Ended December 31,
	2014									2013
	Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Options			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, beginning of year		10,306,671		$	2.34						10,100,429		$	2.42
Granted		25,000		$	1.59						689,010		$	0.92
Exercised		(225,678	)	$	1.02			$	84		(12,221	)	$	1.09			$	3
Forfeited/Expired		(1,304,833	)	$	2.47						(470,547	)	$	2.12
Balance, end of year		8,801,160		$	2.35		5.91	$	483		10,306,671		$	2.34		6.96	$	1,405
Vested and exercisable and expected to vest, end of year		8,636,840		$	2.35		5.88	$	471		10,101,382		$	2.34		6.93	$	1,379
Vested and exercisable, end of year		7,738,685		$	2.38		5.70	$	393		7,297,096		$	2.39		6.47	$	1,017

The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price of $1.20 as of December 31, 2014.

The following table summarizes information about options outstanding and exercisable under the Company’s equity incentive plans as of December 31, 2014:

		Options Outstanding						Options Exercisable
		Number of Shares Outstanding		Weighted-average Remaining Contractual Life, in Years		Weighted- average Exercise Price		Exercisable		Weighted- average Exercise Price
$	0.73 - $1.48		2,225,242		6.08	$	1.07		1,922,948	$	1.07
$	1.57 - $2.40		1,882,434		6.04	$	2.00		1,835,185	$	2.00
$	2.50 - $3.25		4,415,423		6.69	$	2.78		3,702,491	$	2.78
$	3.50 - $28.32		231,682		3.03	$	17.36		231,682	$	17.36
$	28.80 - $57.44		46,379		1.61	$	40.01		46,379	$	40.01
			8,801,160		5.91	$	2.35		7,738,685	$	2.38

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.

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

	Years Ended December 31,
	2014									2013
	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands		Number of Shares			Weighted- Average Grant Date Fair Value		Weighted-average Remaining Contractual Term, in Years		Aggregate Intrinsic Value, in Thousands
Outstanding, January 1		1,313,801		$	1.19		1.85	$	2,010		199,005		$	2.78		0.16	$	382
Granted		1,954,085			1.67						1,578,373			1.16
Released		(1,176,993	)		1.35						(426,141	)		1.83
Forfeited/expired		(175,035	)		1.49						(37,436	)		1.19
Outstanding, December 31		1,915,858		$	1.55		3.11	$	1,990		1,313,801		$	1.19		1.85	$	2,010

The majority of the RSUs that vested in the year ended December 31, 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 year ended December 31, 2014, 1,176,993 shares of RSUs vested with an intrinsic value of approximately $1,412,392. The Company withheld 358,201 shares to satisfy approximately $514,000 of employees’ minimum tax obligation on the vested RSUs.

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BENEFIT PLANS

12 Months Ended

Dec. 31, 2014

BENEFIT PLANS [Abstract]

BENEFIT PLANS

NOTE 7—BENEFIT PLANS

In connection with the Company’s Swiss subsidiary, the Company maintains a pension plan covering minimum requirements according to Swiss law. It has set up the occupational benefits by means of an affiliation to a collective foundation, the Swisscanto Collective Foundation.

Funding Policy

The Company’s practice is to fund the pension plan in an amount at least sufficient to meet the minimum requirements of Swiss law.

Benefit Obligations and Plan Assets

The following tables summarize changes in the benefit obligation, the plan assets and the funded status of the pension benefit plan as well as the components of net periodic benefit costs, including key assumptions (in thousands).

	Years ended December 31,			Years ended December 31,
	2014			2013
Change in projected benefit obligation:
Beginning benefit obligation	$	648		$	692
Service cost		29			35
Interest cost		15			16
Plan participants contributions		24			21
Foreign exchange adjustments		(84	)		16
Actuarial loss (gain)		190			(132	)
Transfer in/(out)		-			-
Ending benefit obligation	$	822		$	648
Change in plan assets:
Beginning fair value of plan assets	$	508		$	440
Employer contributions		24			21
Plan participants' contributions		24			21
Foreign exchange adjustments		(54	)		14
Expected return on plan assets		(6	)		12
Transfer in/(out)		-			-
Ending fair value of plan assets	$	496		$	508
Benefits paid	$	-		$	-

The following table summarizes the funding status as of December 31, 2014 and 2013 (in thousands):

	Years ended December 31,
	2014			2013
Projected benefit obligation	$	(822	)	$	(648	)
Fair value of plan assets		496			508
Funded status of the plan at the end of the year, recorded as a long-term liability	$	(326	)	$	(140	)

The total net periodic pension cost for the year ending December 31, 2015 is expected to be approximately $66,000. The following are the components of estimated net periodic pension cost in 2015 (in thousands):

	Year ending December 31, 2015
Service cost (net)	$	61
Interest cost		13
Expected return on plan assets		(8	)
Net periodic benefit cost	$	66

Assumptions

Weighted average assumptions used to determine benefit obligations as of December 31, 2014 for the plan were a discount rate of 1.50%, a rate of compensation increase of 2.00%, and an expected return on assets of 1.50%.  The GigOptix-Helix Plan is reinsured with the Helvetia Swiss Life Insurance Company via the Swisscanto Collective Foundation.  The expected return on assets is derived as follows: Swiss pension law requires that the insurance company pay an interest rate of at least 1.5% per annum on old-age savings accounts.

Weighted average assumptions used to determine costs for the plan as of December 31, 2013 were a discount rate of 2.25%, rate of compensation increase of 2.00%, and expected return on assets of 2.25%.

Net Periodic Benefit Cost

The net periodic benefit cost for the plan included the following components (in thousands):

	Years ended December 31,
	2014		2013
Service cost (net)	$	29	$	35
Interest cost		15		16
Net periodic benefit cost	$	44	$	51

Plan Assets

The benefits are fully insured. There are no retirees and the plan assets are equal to the sum of the old-age savings and of various other accounts within the affiliation contract.

The allocation of the assets of the plan at the measurement dates were in cash, bonds, stocks, mutual funds, hedge funds, and commodities. The Company is required by Swiss law to contribute to retirement funds for the employees of its Swiss subsidiary. Funds are managed by third parties according to statutory guidelines. Cash equivalents may be valued using quoted prices in markets that are not active, resulting in a Level 2 fair value measurement within the hierarchy set forth in the accounting guidance for fair value measurements.

Contributions

The Company anticipates contributions to the plan of approximately $27,000 in the year ending December 31, 2015. Actual contributions may differ from expected contributions due to various factors, including performance of plan assets, interest rates and potential legislative changes. The Company is not able to estimate expected contributions beyond fiscal year 2015.

Estimated Future Benefit Payments

The Company does not expect benefit payments through 2024.

Israel Severance Plan liability

Under Israeli law, the Company is required to make severance payments to its retired or dismissed Israeli employees and Israeli employees leaving its employment in certain other circumstances. The Company’s severance pay liability to its Israeli employees is calculated based on the salary of each employee multiplied by the number of years of such employee’s employment and is presented in its balance sheet in long-term liabilities, as if it was payable at each balance sheet date on an undiscounted basis. This liability is partially funded by the purchase of insurance policies in the name of the employees. The surrender value of the insurance policies of $9,000 is presented in long-term assets. Severance pay expense for the year ended December 31, 2014 was $0. As of December 31, 2014, accrued severance liability and severance assets were $12,000 and $9,000, respectively.

GigOptix 401(k) Plan

The Company has a 401(k) retirement plan which was adopted by GigOptix, LLC as of January 4, 2008.  In December 2011, the GigOptix 401k plan merged into the Endwave 401k plan.  This plan is intended to be a qualified retirement plan under the Internal Revenue Code.  It is a defined contribution as opposed to a defined benefit plan.  The Company made $65,000 and $59,000 matching contributions during fiscal 2014 and 2013, respectively.

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INVESTMENT IN UNCONSOLIDATED AFFILIATE

12 Months Ended

Dec. 31, 2014

INVESTMENT IN UNCONSOLIDATED AFFILIATE [Abstract]

INVESTMENT IN UNCONSOLIDATED AFFILIATE

NOTE 9—INVESTMENT IN UNCONSOLIDATED AFFILIATE

In February 2014, together with CPqD, the Company incepted a new joint venture, named BrP, of which the Company owns 49% and CPqD owns 51% of BrP. It is based in Campinas, Brazil. BrP will be a provider of advanced high-speed devices for optical communications and integrated transceiver components for information networks. It is engaged in research and development of SiPh advanced electro-optical products.

The Company transferred into BrP its knowledge-base and intellectual property of TFPS^TM technology. The Company transferred to CPqD, its inventory related to the TFPS^TM platform and the complete production line equipment that previously resided at its Bothell, Washington, facility for CPqD to use for the BrP joint venture. As of the transfer date, the Company’s net book value of the inventory and property and equipment was $245,000 and $211,000, respectively, which resulted in a $456,000 investment in BrP.

For the year ended December 31, 2014, the Company had a $456,000 loss on equity investment for the Company’s allocated portion of BrP’s results.  Since the Company’s share of the loss exceeded the Company’s carrying cost of its investment in BrP, the Company’s investment in an unconsolidated affiliate was written down to zero as of December 31, 2014.

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENCIES [Abstract]

Aggregate non-cancelable future minimum rental payments

Aggregate non-cancelable future minimum lease 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
2015	$	4		$	531
2016		3			439
2017 and beyond		3			124
Total minimum lease payments		10		$	1,094
Less: Amount representing interest		(1	)
Total capital lease obligations		9
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	6

Gross and net book value of capital lease assets

The gross and net book value of the fixed assets purchased under capital lease was as follows (in thousands):

	As of the years December 31,
	2014			2013
Acquired cost	$	1,666		$	1,666
Accumulated amortization		(1,656	)		(1,378	)
Net book value	$	10		$	288

Summary of changes in warranty accrual

The table below summarizes the movement in the warranty accrual, which is included as a component of other current liabilities, for the years ended December 31, 2014 and 2013 (in thousands):

	December 31,
	2014			2013
Balance at January 1	$	330		$	612
Warranties accrued		492			510
Warranties settled or reversed		(488	)		(792	)
Balance at December 31	$	334		$	330

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SEGMENT AND GEOGRAPHIC INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 32,947	$ 28,926
Long-lived assets	1,916	2,999
HSC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	22,280	19,886
Industrial (ASIC) [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	10,667	9,040
North America [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	9,637	7,943
Asia [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	10,363	7,700
Europe [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	12,511	12,306
Other [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	436	977
Italy [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue by geographic region (in hundredths)	33.00%	39.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue by geographic region (in hundredths)	26.00%	24.00%
United States [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	1,687	2,004
Switzerland [Member] | Reportable Geographical Components [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 229	$ 995
Japan [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue by geographic region (in hundredths)		13.00%

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LEGAL SETTLEMENT

12 Months Ended

Dec. 31, 2014

LEGAL SETTLEMENT [Abstract]

LEGAL SETTLEMENT

NOTE 14—LEGAL SETTLEMENT

On September 24, 2013, pursuant to the terms of a settlement agreement with M/A-COM Technology Solutions, Inc. (“MACOM”), Optomai, Inc., and three former employees of GigOptix, the Company received a payment of $7.25 million.  The $7.25 million has been recorded as special litigation-related income, net of related legal fees in the operating section of the consolidated statements of operations.

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Dec. 31, 2014

FAIR VALUE MEASUREMENTS [Abstract]

Financial assets and liabilities measured at fair value, recurring basis

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 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)
December 31, 2014:
Assets:
Cash equivalents:
Money market funds	$	12,360	$	12,360	$	-	$	-
	$	12,360	$	12,360	$	-	$	-
Current liabilities:
Liability warrants	$	8	$	-	$	-	$	8
December 31, 2013:
Assets:
Cash equivalents:
Money market funds	$	1,356	$	1,356	$	-	$	-
	$	1,356	$	1,356	$	-	$	-
Current liabilities:
Liability warrants	$	15	$	-	$	-	$	15

Estimate of fair value for warrants assumptions

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

	As of December 31, 2014			As of December 31, 2013
Stock price	$	1.20		$	1.53
Exercise price	$	2.51		$	2.51
Expected life	2.55 years			3.55 years
Risk-free interest rate		1.10	%		1.30	%
Volatility		69	%		65	%
Fair value per share	$	0.27		$	0.52

Warrants subject to liability accounting

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

	As of December 31, 2014			As of December 31, 2013
Stock price	$	1.20		$	1.53
Exercise price	$	2.51		$	2.51
Expected life	2.55 years			3.55 years
Risk-free interest rate		1.10	%		1.30	%
Volatility		69	%		65	%
Fair value per share	$	0.27		$	0.52

Change in the fair value of level 3 liabilities

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

													Year Ended December 31, 2014					Year Ended December 31, 2013
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value December 31, 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	$	8	$	15		-	$	(7	)		-	$	(9	)	Credit Agreement

The change in the fair value of Level 3 liabilities is as follows (in thousands):

Fair value as of December 31, 2012	$	24
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of December 31, 2013		15
Exercise of warrants		-
Change in fair value		(7	)
Fair value as of December 31, 2014	$	8

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INCOME TAXES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Components of net loss before income taxes [Abstract]
United States	$ (5,266,000)	$ 1,480,000
International	(45,000)	(3,376,000)
Loss before provision for income taxes	(5,311,000)	(1,896,000)
Current [Abstract]
United States	41,000	37,000
International	0	0
State	13,000	13,000
Total	54,000	50,000
Deferred [Abstract]
United States	0	0
International	0	0
Total	0	0
Provision for income taxes	54,000	50,000
Effective income tax rate reconciliation [Abstract]
Income tax at the federal statutory rate (in hundredths)	(34.00%)	(34.00%)
State tax, net of federal benefit (in hundredths)	0.23%	0.71%
Foreign tax rate differential (in hundredths)	0.27%	60.55%
Permanent items and other (in hundredths)	0.69%	1.93%
Losses not benefited (in hundredths)	33.75%	(26.55%)
Effective tax rate (in hundredths)	0.94%	2.64%
Deferred tax asset (liability), net [Abstract]
Net operating losses	20,134,000	20,398,000
Tax credits	2,915,000	3,022,000
Accrued and reserves	2,063,000	1,872,000
Foreign Deferreds	3,000	0
Fixed assets	890,000	966,000
Other	2,224,000	2,176,000
Total deferred tax asset	28,229,000	28,434,000
Valuation allowance	(27,707,000)	(27,587,000)
Net deferred tax asset	522,000	847,000
Pension other comprehensive income	0	(40,000)
Intangible assets	(522,000)	(847,000)
Deferred tax liability	(522,000)	(887,000)
Net deferred tax asset (liability)	0	(40,000)
Valuation allowance change in amount	120,000	311,000
Tax Credit Carryforward [Line Items]
Accrued interest or penalties	12,000	11,000
Unrecognized tax benefits that would impact effective tax rate	3,000,000
Income taxes payable	415,000	368,000
Reconciliation amount of unrecognized tax benefits [Roll Forward]
Balance at the Beginning	2,765,000	2,523,000
Increases related to current year tax positions	223,000	205,000
Increases related to prior year tax positions	16,000	37,000
Decreases related to prior year tax positions	0	0
Balance at the Ending	3,004,000	2,765,000
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards expiration dates	Dec. 31, 2014
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards expiration dates	Dec. 31, 2033
Federal [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	44,600,000
Tax Credit Carryforward [Line Items]
Tax credit carryforward	3,500,000
State [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	21,000,000
Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	13,500,000
Tax Credit Carryforward [Line Items]
Tax credit carryforward	$ 3,500,000

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STOCKHOLDERS' EQUITY (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 16, 2014	Dec. 31, 2013	Dec. 31, 2008
Subsidiary, Sale of Stock [Line Items]
Date of transaction	Dec. 24, 2013
Number of shares issued in transaction (in shares)	9,573,750
Par value on common stock in public offering (in dollars per share)	$ 0.001		$ 0.001	$ 0.001
Public offering price per share (in dollars per share)	$ 1.42
Proceeds from the sale of stock	$ 12,500,000
Costs related to public offering	250,000
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, authorized (in shares)	1,000,000		1,000,000	1,000,000
Common and preferred stock [Abstract]
Common stock, authorized (in shares)	100,000,000		100,000,000	50,000,000
Common stock, par value (in dollars per share)	$ 0.001		$ 0.001	$ 0.001
Preferred stock, par value (in dollars per share)	$ 0.001		$ 0.001	$ 0.001
Preferred stock, issued (in shares)	0		0
Preferred stock, outstanding (in shares)	0		0
Preferred stock, voting rights	Each share of preferred stock has voting rights equal to one thousand shares of common stock.
Class of Warrant or Right [Line Items]
Common stock dividends, number of preferred stock purchase rights per share (in shares)	1
Fractional share of preferred stock each preferred share purchase right is entitled to (in shares)	1
Minimum ownership percentage of beneficial owner for exercisability of rights to purchase preferred stock to be triggered (in hundredths)	10.00%
Minimum percentage of additional purchase of outstanding shares by existing owner of 10 percent or more for exercisability of rights to purchase preferred stock to be triggered (in hundredths)	1.00%
Exercise price per share (in dollars per share)	$ 5.25	$ 8.50
Series A Junior Preferred Stock [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, authorized (in shares)				750,000
Public offering [Member]
Subsidiary, Sale of Stock [Line Items]
Date of transaction	Dec. 19, 2013
Number of shares issued in transaction (in shares)	8,325,000
Par value on common stock in public offering (in dollars per share)	$ 0.001
Public offering price per share (in dollars per share)	$ 1.42
Proceeds from the sale of stock	$ 12,300,000
Common and preferred stock [Abstract]
Common stock, par value (in dollars per share)	$ 0.001
Over allotment [Member]
Subsidiary, Sale of Stock [Line Items]
Number of shares issued in transaction (in shares)	1,248,750

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]
Net loss	$ (5,821)	$ (1,946)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	(55)	91
Change in pension liability in connection with actuarial gain (loss)	(150)	101
Other comprehensive income (loss), net of tax	(205)	192
Comprehensive loss	$ (6,026)	$ (1,754)

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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 3—FAIR VALUE MEASUREMENTS

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 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)
December 31, 2014:
Assets:
Cash equivalents:
Money market funds	$	12,360	$	12,360	$	-	$	-
	$	12,360	$	12,360	$	-	$	-
Current liabilities:
Liability warrants	$	8	$	-	$	-	$	8
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.

As of December 31, 2014 and 2013, the Company did not have any significant transfers of investments 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 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.

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

	As of December 31, 2014			As of December 31, 2013
Stock price	$	1.20		$	1.53
Exercise price	$	2.51		$	2.51
Expected life	2.55 years			3.55 years
Risk-free interest rate		1.10	%		1.30	%
Volatility		69	%		65	%
Fair value per share	$	0.27		$	0.52

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

													Year Ended December 31, 2014					Year Ended December 31, 2013
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value December 31, 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	$	8	$	15		-	$	(7	)		-	$	(9	)	Credit Agreement

The change in the fair value of Level 3 liabilities is as follows (in thousands):

Fair value as of December 31, 2012	$	24
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of December 31, 2013		15
Exercise of warrants		-
Change in fair value		(7	)
Fair value as of December 31, 2014	$	8

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

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INTANGIBLE ASSETS AND GOODWILL (Tables)

12 Months Ended

Dec. 31, 2014

INTANGIBLE ASSETS AND GOODWILL [Abstract]

Intangible assets

Intangible assets consist of the following (in thousands):

	As of December 31, 2014							As of December 31, 2013
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	3,277	$	(2,119	)	$	1,158	$	3,277	$	(1,697	)	$	1,580
Existing technology		3,783		(2,881	)		902		3,783		(2,473	)		1,310
Order backlog		732		(732	)		-		732		(732	)		-
Patents		457		(402	)		55		457		(397	)		60
Trade name		659		(380	)		279		659		(322	)		337
Total	$	8,908	$	(6,514	)	$	2,394	$	8,908	$	(5,621	)	$	3,287

Amortization of intangible assets

During the year ended December 31, 2014 and 2013, amortization of intangible assets was as follows (in thousands):

	December 31, 2014		December 31, 2013
Cost of revenue	$	413	$	484
Selling, general and administrative expense		480		499
	$	893	$	983

Estimated future amortization expense

Estimated future amortization expense related to intangible assets as of December 31, 2014 is as follows (in thousands):

Years ending December 31,
2015	$	893
2016		869
2017		487
2018		63
2019		82
Total	$	2,394

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INTANGIBLE ASSETS AND GOODWILL (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	$ 8,908	$ 8,908
Accumulated amortization	(6,514)	(5,621)
Net intangible asset	2,394	3,287
Amortization of intangible assets	893	983
Cost of Revenue [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	413	484
Selling, General and Administrative Expenses [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	480	499
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	3,277	3,277
Accumulated amortization	(2,119)	(1,697)
Net intangible asset	1,158	1,580
Existing Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	3,783	3,783
Accumulated amortization	(2,881)	(2,473)
Net intangible asset	902	1,310
Order Backlog [Member]
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	732	732
Accumulated amortization	(732)	(732)
Net intangible asset	0	0
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	457	457
Accumulated amortization	(402)	(397)
Net intangible asset	55	60
Trade Name [Member]
Finite-Lived Intangible Assets [Line Items]
Gross intangible asset	659	659
Accumulated amortization	(380)	(322)
Net intangible asset	$ 279	$ 337

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 13—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 rental expense for 2014 and 2013 was $458,000 and $560,000, respectively.

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 lease 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
2015	$	4		$	531
2016		3			439
2017 and beyond		3			124
Total minimum lease payments		10		$	1,094
Less: Amount representing interest		(1	)
Total capital lease obligations		9
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	6

The gross and net book value of the fixed assets purchased under capital lease was as follows (in thousands):

	As of the years December 31,
	2014			2013
Acquired cost	$	1,666		$	1,666
Accumulated amortization		(1,656	)		(1,378	)
Net book value	$	10		$	288

The amortization of fixed assets acquired under capital lease is included in depreciation expense.

Contingencies

Tax Contingencies

The Company’s income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. Its tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due.

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 it believes a loss is probable and can be reasonably estimated, it accrues the estimated loss in its consolidated financial statements. Where the outcome of these matters is not determinable, it does not make a provision in its financial statements until the loss, if any, is probable and can be reasonable estimated or the outcome becomes known.

Product Warranties

The Company’s products typically carry a standard warranty period of approximately one year. 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.

The table below summarizes the movement in the warranty accrual, which is included as a component of other current liabilities, for the years ended December 31, 2014 and 2013 (in thousands):

	December 31,
	2014			2013
Balance at January 1	$	330		$	612
Warranties accrued		492			510
Warranties settled or reversed		(488	)		(792	)
Balance at December 31	$	334		$	330