10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 27, 2016

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

GIGPEAK, INC.

(Exact name of registrant as specified in its charter)

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

130 Baytech Drive

San Jose, CA  95134

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    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 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 number of shares of Common Stock outstanding as of April 29, 2016, the most recent practicable date prior to the filing of this Quarterly Report on Form 10-Q, was 53,680,127 shares.

Table of Contents

		PAGE NO
PART I FINANCIAL INFORMATION
ITEM 1	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of March 27, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Operations for the three months ended March 27, 2016 and March 29, 2015	4
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 27, 2016 and March 29, 2015	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 27, 2016 and March 29, 2015	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	29
ITEM 4	Controls and Procedures	29
PART II OTHER INFORMATION
ITEM 1	Legal Proceedings	29
ITEM 1A	Risk Factors	30
ITEM 2	Unregistered Sale of Equity Securities and Use of Proceeds	34
ITEM 6	Exhibits	35

PART I

FINANCIAL INFORMATION

GIGPEAK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	March 27,			December 31,
	2016			2015
ASSETS	(Unaudited)				(1)
Current assets:
Cash and cash equivalents	$	36,827		$	30,245
Accounts receivable, net		9,039			10,596
Inventories		6,971			6,880
Prepaid and other current assets		788			580
Total current assets		53,625			48,301
Property and equipment, net		2,919			3,133
Intangible assets, net		4,210			4,530
Goodwill		12,565			12,565
Restricted cash		244			330
Other assets		1,457			251
Total assets	$	75,020		$	69,110
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,866		$	3,659
Accrued compensation		1,576			1,782
Other current liabilities		2,296			2,219
Total current liabilities		7,738			7,660
Pension liabilities		354			349
Other long term liabilities		911			912
Total liabilities		9,003			8,921
Commitments and contingencies (Note 11)
Redeemable common stock, $0.001 par value; 1,754,385 shares issued and outstanding as of March 27, 2016		4,700			-
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of March 27, 2016 and December 31, 2015, respectively		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized; 45,533,389 and 45,221,397 shares issued and outstanding as of March 27, 2016 and December 31, 2015, respectively		46			45
Additional paid-in capital		164,203			163,036
Treasury stock, at cost; 701,754 shares as of March 27, 2016 and December 31, 2015, respectively		(2,209	)		(2,209	)
Accumulated other comprehensive income		344			332
Accumulated deficit		(101,067	)		(101,015	)
Total stockholders’ equity		61,317			60,189
Total liabilities, redeemable common stock and stockholders’ equity	$	75,020		$	69,110

See accompanying Notes to Condensed Consolidated Financial Statements

(1) The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

3

GIGPEAK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 27, 2016			March 29, 2015
Total revenue	$	11,362		$	9,060
Total cost of revenue		3,683			3,667
Gross profit		7,679			5,393
Operating expenses
Research and development expense		3,525			3,248
Selling, general and administrative expense		4,162			2,770
Total operating expenses		7,687			6,018
Loss from operations		(8	)		(625	)
Interest expense, net		-			(3	)
Other income, net		(4	)		1
Loss before provision for income taxes		(12	)		(627	)
Provision for income taxes		40			9
Net loss	$	(52	)	$	(636	)
Net loss per share—basic and diluted	$	(0.00	)	$	(0.02	)
Weighted average number of shares used in basic and diluted  net loss per share calculations		44,789			32,525

See accompanying Notes to Condensed Consolidated Financial Statements

4

GIGPEAK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended
	March 27, 2016			March 29, 2015
Net loss	$	(52	)	$	(636	)
Other comprehensive income, net of tax
Foreign currency translation adjustment		12			20
Other comprehensive income, net of tax		12			20
Comprehensive loss	$	(40	)	$	(616	)

See accompanying Notes to Condensed Consolidated Financial Statements

5

GIGPEAK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 27,			March 29,
	2016			2015
Cash flows from operating activities:
Net loss	$	(52	)	$	(636	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		963			890
Stock-based compensation		1,285			889
Change in fair value of warrants		(9	)		(1	)
Provision for doubtful accounts		(8	)		(4	)
Changes in operating assets and liabilities:
Accounts receivable		1,565			(295	)
Inventories		(91	)		(839	)
Prepaid and other current assets		(512	)		(557	)
Other assets		(5	)		(7	)
Accounts payable		533			278
Accrued compensation		(206	)		539
Other current liabilities		30			(663	)
Other long-term liabilities		-			79
Net cash provided by (used in) operating activities		3,493			(327	)
Cash flows from investing activities:
Investment in private company		(1,200	)		-
Purchases of property and equipment		(694	)		(416	)
Change in restricted cash		86			-
Net cash used in investing activities		(1,808	)		(416	)
Cash flows from financing activities:
Proceeds from offering of stock, net of issuance costs		5,000			-
Proceeds from issuance of stock		278			28
Taxes paid related to net share settlement of equity awards		(395	)		(90	)
Repayment of capital lease		(1	)		(1	)
Net cash provided by (used in) financing activities		4,882			(63	)
Effect of exchange rates on cash and cash equivalents		15			32
Net increase (decrease) in cash and cash equivalents		6,582			(774	)
Cash and cash equivalents at beginning of period		30,245			18,438
Cash and cash equivalents at end of period	$	36,827		$	17,664
Supplemental disclosure of cash flow information
Interest paid	$	7		$	4
Taxes paid	$	64		$	-
Property and equipment acquired with accounts payable	$	48		$	289
Offering costs included in accounts payable and other current liabilities	$	300		$	-

See accompanying Notes to Condensed Consolidated Financial Statements

6

GIGPEAK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

Organization

GigPeak Inc. (formerly GigOptix, Inc.) (“GigPeak” or the “Company”) is a leading innovator of semiconductor integrated circuits (“ICs”) and software solutions for high-speed connectivity and high-quality video compression over the network and the Cloud. The Company’s focus is to develop and deliver products that enable lower power consumption and faster data connectivity, more efficient use of network infrastructure and broader connectivity to the Cloud, and reduce the total cost of ownership of existing network pipes from the core to the end user. GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, and provides solutions that increase the efficiency of various cloud-connected applications, such as the Internet-of-Things (“IoT”), leveraging its strength in high-speed connectivity and, with the highest quality video compression assets that were acquired through the acquisition (the “Merger”) of Magnum Semiconductor, Inc. (“Magnum”) during the Company’s second fiscal quarter on April 5, 2016. The extended product portfolio provides more flexibility to support changing market requirements and customer’s dynamic road-maps, by way of using ICs and monolithic microwave integrated circuits (“MMICs”), and through full software programmability and cost efficient custom application specific integrated circuit (“ASICs”).

The Company develops semiconductor ICs and software solutions for high-speed connectivity and high-quality video compression over the enterprise network and the Cloud. With its product focus, the Company attempts to reduce the total cost of ownership of existing network pipes, from the core of the network to the end user appliances and terminals.

GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, which are the two major data streaming bottlenecks, while also the future enabler factors, to maintain network efficiency. As such, the Company’s products also naturally provide solutions that increase the efficiency of IoT and other Cloud-connected applications. GigPeak’s solutions leverage its industry-recognized strength in high-speed connectivity delivered through the GigOptix brand-name product line, and as of the second fiscal quarter of 2016, the highest quality video compression delivered through the industry-recognized Magnum brand.

The recently extended GigPeak product portfolio provides flexibility to better support on-going changes in the connectivity that customers and markets require by deploying a wide tool-box of solutions from various kinds of semiconductor materials, integrated circuits and Multi-Chip-Modules (“MCMs), through cost-effective ASICs and system-on-chips (“SoCs”), and into full software programmable open-platform offerings.

The Company’s products are highly customized and typically developed in partnership with key “Lighthouse” customers, occasionally generating some engineering project revenues through the development stage, and where the largest revenue is generated from future device product shipments and sales through these customers and general market availability.

Since inception in 2007, the Company has expanded its customer base by acquiring and integrating eight (8) companies with complementary and synergistic products and customers, and spun out one (1) business to establish a joint-venture. GigPeak’s worldwide direct sales force is supported by a significant number of channel representatives and distributors that sell its products throughout North America, South America, Europe, Japan and Asia.

As noted above, on April 5, 2016, the Company completed its most recent acquisition of Magnum, and simultaneously renamed itself as GigPeak, Inc. Magnum is a fabless semiconductor manufacturer and software solution developer, and brings a well-developed and comprehensive portfolio of video broadcasting and compression solutions to GigPeak, including silicon ICs, SoCs, software solutions, and a comprehensive library of intellectual property. The Magnum products currently are for the professional video broadcast and are extendable to IoT camera markets. Magnum provides top of the line products, tools and technologies for the entire video content creation and distribution chain, from contribution and production through distribution over cable, telecom, satellite and over-the-top (“OTT”) video streaming.

Through the acquisition of Magnum, the Company broadens its product offerings by adding additional flavors of silicon integrated circuits (“ICs”), and new SoCs, software, and intellectual property (“IP”) for the professional broadcast infrastructure market. Today’s video service providers, which include cable operators, telecommunications companies and satellite TV providers, are continuously seeking to perfect their linear and nonlinear workflows and improve the quality of their video content, while simultaneously optimizing the efficiency of their networks. The Company’s products, tools, and technologies are currently used in the entire video content creation and distribution chain. Specifically, GigPeak’s solutions are used to address challenges in video contribution, video production, primary and secondary distribution, and enterprise wide solutions. Over time, GigPeak will look to leverage those capabilities and seek opportunities to expand its offerings into new markets, such as potentially surveillance cameras and other video IoT applications.

7

The blending of products and technologies gives GigPeak the capability to address both the speed of data transmission and the amount of bandwidth the data consumes within a network, driven in particular by the video content which is the source of a majority of the datacenter traffic and storage on today’s networks. Through this combination, the Company provides solutions to enhance the footprint utilization and reduce total cost of ownership of existing network pipes from the core to the end user. Its wide product portfolio and exceptional customer support practices, will continue to serve the enterprise networking and broadcasting original equipment manufacturers (“OEMs”), as well as IoT and other Cloud-connected consumers.

With the acquisition of Magnum, the Company is in the process of reorganizing its operations to line up with its targeted end-markets and customers. This will eventually result later in fiscal 2016 in two business lines: the Enterprise Networking, which will be likely named the “GigOptix” product line, and the Consumer and Cloud-Connectivity, which will be likely named the “GigCloud” line. Most of the Company’s current product lines will contribute products to each one of those two business lines.

Basis of Presentation

The Company’s fiscal year ends on December 31. For quarterly reporting, the Company employs a five-week, four-week, four-week, reporting period. The first quarter of 2016 ended on Sunday, March 27, 2016. The first quarter of 2015 ended on Sunday, March 29, 2015. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements as of March 27, 2016 and for the three months ended March 27, 2016 and March 29, 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. The statements include the accounts of the Company and all of its subsidiaries and they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of March 27, 2016, and the results of operations and cash flows for the three months ended March 27, 2016 and March 29, 2015. The condensed consolidated results of operations for the three months ended March 27, 2016 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2016. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the 2015 Form 10-K.

8

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of these estimates and assumptions are included in the 2015 Form 10-K and the Company encourages you to read its 2015 Form 10-K for more information about such estimates and assumptions.

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.  In the fourth quarter of 2015 the Company concluded that it was appropriate to classify certain accruals of trade payable items as accounts payable instead of other accrued liabilities. The reclassification has no effect on previously reported consolidated statements of operations or accumulated deficit for any period and does not affect previously reported cash flows from operating, investing or financing activities in the consolidated statements of cash flows.  For comparability purposes, $446,000 of other current liabilities was reclassified to accounts payable as of March 29, 2015.

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. Reserves are made for warranties at the time revenue is recorded. See Note 11—Commitments and Contingencies for further detail related to the warranty reserve.

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. Collectability 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 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 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. Certain of 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 March 27, 2016 and December 31, 2015, the reserve for stock rotations was $125,000 and $490,000, 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.

9

NOTE 2—BALANCE SHEET COMPONENTS

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

		March 27,			December 31,
		2016			2015
Accounts receivable	$	9,094		$	10,659
Allowance for doubtful accounts		(55	)		(63	)
	$	9,039		$	10,596

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

	Life		March 27,			December 31,
	(In years)		2016			2015
Network and laboratory equipment		3 – 5	$	13,660		$	13,520
Computer software and equipment		2 – 3		4,227			4,207
Furniture and fixtures		3 – 7		165			165
Office equipment		3 – 5		143			142
Leasehold improvements		1 – 5		336			316
				18,531			18,350
Accumulated depreciation and amortization				(15,612	)		(15,217	)
Property and equipment, net			$	2,919		$	3,133

For the three months ended March 27, 2016 and March 29, 2015, depreciation expense related to property and equipment was $338,000 and $415,000, respectively.

In addition to the property and equipment above, the Company has prepaid licenses. For the three months ended March 27, 2016 and March 29, 2015, amortization related to these prepaid licenses was $305,000 and $252,000, respectively.

Inventories consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Raw materials	$	2,126	$	2,379
Work in process		3,603		2,710
Finished goods		1,242		1,791
	$	6,971	$	6,880

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

	March 27,		December 31,
	2016		2015
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		286		325
Customer deposits		353		342
Sales return reserve		125		490
Accrual legal and accounting		631		129
Other		710		742
	$	2,296	$	2,219

10

Other long term liabilities consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Long term deferred income tax	$	323	$	318
Long term income taxes payable for unrecognized tax benefits		434		434
Other		154		160
Total other long term liabilities	$	911	$	912

NOTE 3—FAIR VALUE

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 27, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 27, 2016:
Assets:
Cash equivalents:
Money market funds	$	12,371	$	12,371	$	-	$	-
	$	12,371	$	12,371	$	-	$	-
Current liabilities:
Liability warrants	$	30	$	-	$	-	$	30
December 31, 2015:
Assets:
Cash equivalents:
Money market funds	$	12,364	$	12,364	$	-	$	-
	$	12,364	$	12,364	$	-	$	-
Current liabilities:
Liability warrants	$	39	$	-	$	-	$	39

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

For the three months ended March 27, 2016, the Company did not have any significant transfers between Level 1, Level 2 and Level 3.

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

Liability Warrants

The Company issued warrants to Bridge Bank in connection with a waiver of certain events of default that arose under a November 2009 loan and security agreement with Bridge Bank. Certain provisions in the warrant agreements provided for down-round protection if the Company raised equity capital at a per share price which was less than the per share price of the warrants. Such down-round protection also requires the Company to classify the value of the warrants as a liability on the issuance date and then record changes in the fair value through the consolidated statements of operations for each reporting period until the warrants are either exercised or cancelled. The fair value of the liability is recalculated and adjusted each quarter with the differences being charged to other income (expense), net on the consolidated statements of operations. The fair value of these warrants was determined using a Black-Scholes option-pricing model, which requires the use of significant unobservable market values.  As a result, these warrants are classified as Level 3 financial instruments. On July 7, 2010, the Company raised additional equity through an offering of 2,760,000 shares at $1.75 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank. On December 24, 2013, the Company raised additional equity through an offering of 9,573,750 shares at $1.42 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank. On September 10, 2015, the Company raised additional equity through an offering of 10,643,000 shares at $1.70 per share, respectively, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank.

11

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

	As of March 27, 2016	As of December 31, 2015
Stock price	$2.75	$3.04
Exercise price	$2.31	$2.31
Expected life	1.31 years	1.55 years
Risk-free interest rate	0.71%	0.86%
Volatility	62%	62%
Fair value per share	$0.95	$1.23

The following table summarizes the warrants subject to liability accounting as of March 27, 2016 and December 31, 2015 (in thousands, except share and per share amounts) (see also Note 6):

													Three Months Ended March 27, 2016					Three Months Ended March 29, 2015
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value March 27, 2016		Fair Value December 31, 2015		Exercise of Warrants		Change in  Fair Value			Exercise of Warrants		Change in Fair Value			Related Agreement
Bridge Bank		20,000		31,573	4/7/2010	7/7/2017	$	2.31	$	30	$	39		-	$	(9	)		-	$	(1	)	Credit Agreement

The change in the fair value of the Level 3 liability warrants during the three months ended March 27, 2016 is as follows (in thousands):

Fair value as of December 31, 2015	$	39
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of March 27, 2016	$	30

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

NOTE 4—INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following (in thousands):

		As of March 27, 2016							As of December 31, 2015
	Life (years)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer relationships	6-8	$	3,277	$	(2,647	)	$	630	$	3,277	$	(2,542	)	$	735
Existing technology	6-7		6,527		(3,585	)		2,942		6,527		(3,386	)		3,141
Patents	5-16		457		(409	)		48		457		(407	)		50
Trade name	2-10		659		(452	)		207		659		(438	)		221
Total definite-lived intangible assets			10,920		(7,093	)		3,827		10,920		(6,773	)		4,147
Indefinite-lived Intangible assets:
IPR&D	indefinite		383		-			383		383		-			383
Total intangible assets		$	11,303	$	(7,093	)	$	4,210	$	11,303	$	(6,773	)	$	4,530

12

For the three months ended March 27, 2016 and March 29, 2015, amortization of intangible assets was as follows (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	103	$	103
Research and development expense		97		-
Selling, general and administrative expense		120		120
	$	320	$	223

Estimated future amortization expense related to intangible assets as of March 27, 2016 is as follows (in thousands):

Years ending December 31,
2016 (remainder of the year)	$	937
2017		875
2018		451
2019		442
2020		394
Thereafter		728
Total	$	3,827

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. The Company did not record an impairment charge on any intangibles, including goodwill, during the quarters ended March 27, 2016 and March 29, 2015. As of March 27, 2016 and December 31, 2015, the Company had $12.6 million of goodwill in connection with the acquisitions of ChipX, Endwave, Tahoe RF and Terasquare.

NOTE 5—CREDIT FACILITIES

On March 25, 2013, the Company and its wholly owned subsidiaries, ChipX, Incorporated and Endwave Corporation (together with the Company, the “Prior Borrowers”) previously 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.

On May 15, 2015, SVB and the Prior Borrowers entered into a Second Amendment to the Second Restated Loan Agreement, effective as of May 8, 2015 (the “Second Amendment”). Pursuant to the Second Amendment, the total aggregate amount that the Company is entitled to borrow from SVB under a Revolving Loan facility is $7 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. In addition, the Applicable Rate was decreased from Prime Rate plus 0.6% to Prime Rate plus 0.4%, and the default interest rate increase was decreased from 5% to 3%. The terms of the Second Amendment are set to expire on May 6, 2016.

The Loan Agreement with SVB, as amended, is collateralized 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.

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The Company had no outstanding balance on its line of credit as of March 27, 2016.

NOTE 6—STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Private Equity Placement

On March 21, 2016, the Company entered into a Securities Purchase Agreement (the “PDSTI Agreement”) with Pudong Science and Technology Investment (Cayman) Co., Ltd., an affiliate of Shanghai Pudong Science and Technology Investment Co., Ltd. (collectively, “PDSTI”), pursuant to which PDSTI will purchase approximately $5 million of the Company’s common stock. Under the PDSTI Agreement, on March 24, 2016, the Company issued 1,754,385 shares of the Company’s common stock (the “Shares”) to PDSTI in a private placement at a purchase price of $2.85 per Share.

Pursuant to the PDSTI Agreement, the Company has agreed to file a registration statement on Form S-3 to provide registration rights to PDSTI in respect of the Shares. To the extent that such registration statement has not been declared effective by the Securities and Exchange Commission on or before July 7, 2016, the Company will pay to PDSTI, as liquidated damages, 0.4% of the aggregate purchase price on a monthly, prorated basis, until the registration statement has been declared effective. Interest on these liquidated damages will accrue at the rate of 1.0% per month until paid in full. The Company has deemed this loss contingency to be remote and as such has not recorded a liability as of March 27, 2016.

In the event that any U.S. governmental body or agency takes any action or issues any order within six months that would prevent PDSTI from holding the Shares or invalidates the Company’s issuance of the Shares to PDSTI, the Company has agreed to return PDSTI’s full purchase price, plus 0.4% interest on the purchase price (accruing monthly until paid in full), and to reimburse PDSTI’s expenses in connection with negotiating the private placement, up to $15,000. As a result of this contingent redemption clause, the net proceeds of $4.7 million are classified outside permanent equity until the contingency is resolved.

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 March 27, 2016 and December 31, 2015, 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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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, 2015, the stockholders had approved 18,280,238 shares for future issuance. On January 1, 2016, there was an automatic increase of 2,260,527 shares. As of March 27, 2016, 12,720,084 options to purchase common stock and restricted stock units (“RSUs”) were outstanding and 2,448,789 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 three quarters 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 in options not granted under the 2007 Plan were cancelled. No shares of the Company’s common stock remain available for issuance of new grants under the 2007 Plan other than for satisfying exercises of stock options granted under this plan prior to its termination. As of March 27, 2016, options to purchase a total of 375,663 shares of common stock and 4,125 warrants to purchase common stock were outstanding.

Lumera 2000 and 2004 Stock Option Plan

In December 2008, in connection with the merger with Lumera, the Company assumed the existing Lumera 2000 Equity Incentive Plan and the Lumera 2004 Stock Option Plan (the “Lumera Plan”). All unvested options granted under the Lumera Plan were assumed by the Company as part of the merger. All contractual terms of the assumed options remain the same, except for the converted number of shares and exercise price based on merger conversion ratio of 0.125. As of March 27, 2016, no additional options can be granted under the Lumera Plan, and options to purchase a total of 57,191 shares of common stock were outstanding.

Warrants

As of March 27, 2016, the Company had a total of 160,698 warrants to purchase common stock outstanding under all warrant arrangements. During the three months ended March 27, 2016, no warrants were exercised or expired. Some of the warrants have anti-dilution provisions which adjust the number of warrants available to the holder such as, but not limited to, stock dividends, stock splits and certain reclassifications, exchanges, combinations or substitutions. These provisions are specific to each warrant agreement.

Stock-based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense for the three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	86	$	82
Research and development expense		323		247
Selling, general and administrative expense		876		560
	$	1,285	$	889

The Company did not grant any options during the three months ended March 27, 2016 and March 29, 2015.

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During the three months ended March 27, 2016, the Company granted 1,333,623 RSUs with a grant-date fair value of $4.0 million or $2.97 per share. During the three months ended March 29, 2015, the Company granted 2,815,822 RSUs with a grant-date fair value of $3.5 million or $1.25 per share.

As of March 27, 2016, the total compensation cost not yet recognized in connection with unvested stock options and RSUs under the Company’s equity compensation plans was approximately $76,000 and $8.9 million, respectively. Unrecognized compensation will be amortized on a straight-line basis over a weighted-average period of approximately 0.95 years for stock options and approximately 2.85 years for RSUs.

Stock Option and RSU Activity

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

	Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term, in Years
Outstanding, December 31, 2015		7,918,584		$	2.32		4.82
Granted		-
Exercised		(132,493	)	$	2.10
Forfeited/Expired		(3,347	)	$	2.49
Ending balance, March 27, 2016		7,782,744		$	2.32		4.54
Vested and exercisable and expected to vest, March 27, 2016		7,774,286		$	2.33		4.54
Vested and exercisable, March 27, 2016		7,657,473		$	2.35		4.50

The aggregate intrinsic value of options vested, exercisable and expected to vest, based on the fair value of the underlying stock options as of March 27, 2016 was approximately $5.1 million. The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price of $2.75 as of March 24, 2016.

The total intrinsic value of options exercised during the three months ended March 27, 2016 was $132,000. The total intrinsic value of options exercised during the three months ended March 29, 2015 was $8,000.

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:

	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Vesting Term, Years		Aggregate Intrinsic Value
								(In thousands)
Outstanding, December 31, 2015		4,361,833		$	1.64		2.86	$	13,260
Granted		1,333,623			2.97
Released		(296,720	)		2.16
Forfeited/expired		(28,542	)		1.84
Outstanding, March 27, 2016		5,370,194		$	1.94		2.85	$	14,768

The majority of the RSUs that vested in the three months ended March 27, 2016 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. For the three months ended March 27, 2016, 296,720 shares of RSUs vested with an intrinsic value of approximately $988,000. The Company withheld 117,221 shares to satisfy approximately $395,000 of employees’ minimum tax obligation on the vested RSUs.

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NOTE 7—INVESTMENT IN UNCONSOLIDATED AFFILIATES

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 its inventory related to the TFPS^TM platform and the complete production line equipment that previously resided at its Bothell, Washington, facility to CPqD, for use on 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. During the second quarter of 2015, the Company made an additional capital contribution of $3,000 pursuant to BrP’s Amended Articles of Association which resulted in a $459,000 investment in BrP.

For the years ended December 31, 2015 and 2014, the Company had losses of $3,000 and $456,000, respectively, 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, 2015.

On January 25, 2016, the Company invested $1.2 million to own a minority stake in a company called Anagog Ltd. (“Anagog”), the developer of the world’s largest crowdsourced parking network. Anagog perfects the mobility status algorithms that allow for advanced on-phone machine learning capabilities for the best user experience with ultra-low battery consumption and a high level of privacy protection. As of March 27, 2016, this cost method investment of $1.2 million is recorded in other assets on the condensed consolidated balance sheet.

NOTE 8—INCOME TAXES

The Company recorded a provision for income taxes of $40,000 for the three months ended March 27, 2016, and $9,000 for the three months ended March 29, 2015. The income tax provision for the three months ended March 27, 2016 and March 29, 2015 was due primarily to state taxes and foreign taxes due. The Company has incurred tax losses in all tax jurisdictions except Korea, Japan, and Switzerland and has a full valuation allowance against such losses.

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. In order to support a conclusion that a valuation allowance is not needed, positive evidence of sufficient quantity and quality is necessary to overcome negative evidence. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding realization of the asset including lack of profitability through March 27, 2016 and the uncertainty over future operating profitability and taxable income. The Company will continue to evaluate the potential realization of the deferred tax assets on a quarterly basis.

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, Korea, Japan, and Israel. With the acquisition of Magnum on April 5, 2016, the Company has added in the second fiscal quarter of 2016, Ontario, Canada to this list. The Company’s fiscal years through December 31, 2015 remain subject to examination by the tax authorities for U.S. federal, U.S. state and foreign tax purpose.

NOTE 9—NET LOSS PER SHARE

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

	March 27,		March 29,
	2016		2015
Stock options and RSUs		13,152,938		12,724,280
Common stock warrants		160,698		658,240
Total		13,313,636		13,382,520

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NOTE 10—SEGMENT AND GEOGRAPHIC INFORMATION

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

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

	Three Months Ended
	March 27, 2016				March 29, 2015
North America	$	4,728	42	%	$	3,031	33	%
Asia		3,841	34	%		2,819	31	%
Europe		2,793	24	%		2,953	33	%
Other		-	0	%		257	3	%
	$	11,362	100	%	$	9,060	100	%

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

For the three months ended March 27, 2016, three customers, of which two are distributors that serve large number of customers in their geographical regions, accounted for 49% of total revenue. For the three months ended March 29, 2015, three customers accounted for 51% of total revenue. No other customers accounted for more than 10% of total revenue during the periods presented.

During three months ended March 27, 2016, the United States, Europe and the Far East accounted for 41%, 22% and 32% of revenue, respectively. During three months ended March 29, 2015, the United States, Europe and the Far East accounted for 27%, 29% and 25% 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 long-lived assets by country (in thousands):

	March 27, 2016				December 31, 2015
United States	$	2,471	85	%	$	2,680	85	%
Switzerland		432	15	%		435	14	%
Asia		16	0	%		18	1	%
	$	2,919	100	%	$	3,133	100	%

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

NOTE 11—COMMITMENTS AND CONTINGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options.  The Company also leases certain software licenses under operating leases. Total facilities rent expense for the three months ended March 27, 2016 was $142,000, and for the three months ended March 29, 2015 was $111,000.

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

	Capital Leases			Operating Leases
Years ending December 31,	Minimum lease  payments			Minimum lease payments
2016 (remainder of the year)	$	2		$	498
2017		3			227
2018		-			73
2019		-			73
2020 and beyond		-			61
Total minimum lease payments		5		$	932
Less: Amount representing interest		-
Total capital lease obligations		5
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	2

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 three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three months ended
	March 27, 2016			March 29, 2015
Beginning balance	$	325		$	334
Warranties accrued		8			197
Warranties settled		(47	)		(162	)
Ending balance	$	286		$	369

NOTE 12—RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standard Board (“FASB”) issued an accounting standard superseding Topic 840, Leases, to require lessees to recognize assets and liabilities arising from operating leases on the balance sheet. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and to classify all cash payments within operating activities in the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. We are evaluating the impact the adoption will have on our condensed consolidated financial statements.

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In March 2016, the FASB issued an accounting standard eliminating the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. This standard is effective for interim and annual reporting periods beginning after December 15, 2016. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard amending the Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which is not yet effective. The effective date and transition requirements remains the same as ASU 2014-09. This amendment addresses the issues related to the guidance on principal versus agent considerations stated in the ASU 2014-09. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

NOTE 13—SUBSEQUENT EVENTS

On April 5, 2016, the Company completed an acquisition of Magnum pursuant to the terms of the Agreement and Plan of Merger, dated as of April 1 2016 (the “Merger Agreement”). The acquisition was executed via a combination of equity and cash, issuing approximately 6.9 million shares and paying an additional approximately $36.2 million in net cash, of which a significant portion was used to repay Magnum’s outstanding debt and other liabilities. The Company borrowed a combined total of $22.1 million from SVB. Upon completion of the merger, the outstanding shares of, and certain warrants to acquire, Magnum’s senior preferred stock, as well as notes held by the holders of such shares of Magnum senior preferred stock, were converted either into the right to receive shares of GigPeak common stock or cash depending upon whether the holder of such shares of preferred stock or warrants were “accredited investors” as such term is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended. All other shares of, and options and warrants to acquire, Magnum common and preferred stock were cancelled, extinguished and terminated without conversion upon the consummation of the Merger.

On April 5, 2016, SVB and the Prior Borrowers, with newly acquired Magnum, entered into the Third Amended and Restated Loan and Security Agreement (the “Third Restated Loan Agreement”) which amended and restated the Second Amendment. Pursuant to the Third Restated Loan Agreement, the total aggregate amount that the Company is entitled to borrow from SVB has increased to $29 million, which is 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 $14 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 (the “Amended Revolving Loan”) and (ii) a second facility under which the Company is entitled to borrow from SVB up to $15 million without reference to accounts receivable, and which must be repaid in sixty equal installments, unless it exercise its right to prepay the loan under the conditions of, and subject to the limitations to, the Third Restated Loan Agreement. The interest rate is Prime Rate plus 1.25%, and the default interest rate remains at 3%. Also, SVB had two outstanding existing warrants to purchase common stock of the Company: (i) warrants for 4,125 shares of common stock at an exercise price of $0.73, with an expiration date of 10/5/2017, and (ii) warrants for 125,000 shares of common stock at an exercise price of $4.00 per share, with an expiration date of 4/23/2017. In connection with the Third Restated Loan Agreement, the warrants have been amended and restated to extend the expiration date of those warrants to 10/5/2022 and 4/23/2022, respectively.

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

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter ended March 27, 2016. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2015 and this Quarterly Report on Form 10-Q. We assume no obligation to update the forward-looking statements or such risk factors.

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

Overview

GigPeak, Inc. is a leading innovator of semiconductor integrated circuits (“ICs”) and software solutions for high-speed connectivity and high-quality video compression over the network and the Cloud. Our focus is to develop and deliver products that enable lower power consumption and faster data connectivity, more efficient use of network infrastructure and broader connectivity to the Cloud, and reduce the total cost of ownership of existing network pipes from the core to the end user. GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, and provides solutions that increase the efficiency of various cloud-connected applications such as the Internet-of-Things (“IoT”), leveraging our strength in high-speed connectivity and, with the highest quality video compression assets that were acquired through the acquisition the (“Merger”) of Magnum Semiconductor, Inc. (“Magnum”) during our second fiscal quarter on April 5, 2016. The extended product portfolio provides more flexibility to support changing market requirements and customer’s dynamic road-maps, by way of using ICs and monolithic microwave integrated circuits (“MMICs”), and through full software programmability and cost efficient custom application specific integrated circuit (“ASICs”).

We develop semiconductor ICs and software solutions for high-speed connectivity and high-quality video compression over the enterprise network and the Cloud. With our product focus, we attempt to reduce the total cost of ownership of existing network pipes, from the core of the network to the end user appliances and terminals.

GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, which are the two major data streaming bottlenecks, while also the future enabler factors, to maintain network efficiency. As such, GigPeak’s products also naturally provide solutions that increase the efficiency of IoT and other Cloud-connected applications. GigPeak’s solutions leverage our industry-recognized strength in high-speed connectivity delivered through the GigOptix brand-name product line, and as of the second fiscal quarter of 2016, the highest quality video compression delivered through the industry-recognized Magnum brand.

The recently extended GigPeak product portfolio provides flexibility to better support on-going changes in the connectivity that customers and markets require by deploying a wide tool-box of solutions from various kinds of semiconductor materials, integrated circuits and Multi-Chip-Modules (“MCMs), through cost-effective ASICs and system-on-chips (“SoCs”), and into full software programmable open-platform offerings.

Our products are highly customized and typically developed in partnership with key “Lighthouse” customers, occasionally generating some engineering project revenues through the development stage, and where the largest revenue is generated from future device product shipments and sales through these customers and general market availability.

Since inception in 2007, we have expanded our customer base by acquiring and integrating eight (8) companies with complementary and synergistic products and customers, and spun out one (1) business to establish a joint-venture. 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.

As noted above, on April 5, 2016, we completed our most recent acquisition of Magnum, and simultaneously renamed ourselves as GigPeak, Inc. Magnum is a fabless semiconductor manufacturer and brings a well-developed and comprehensive portfolio of video broadcasting and compression solutions to GigPeak, including silicon ICs, SoCs, software solutions, and a comprehensive library of intellectual property. The Magnum products currently are for the professional video broadcast and are extendable to IoT camera markets. Magnum provides top of the line products, tools and technologies for the entire video content creation and distribution chain, from contribution and production through distribution over cable, telecom, satellite and over-the-top (“OTT”) video streaming.

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Through the acquisition of Magnum, we broaden our product offerings by adding additional flavors of silicon integrated circuits (“ICs”), and new SoCs, software, and intellectual property (“IP”) for the professional broadcast infrastructure market. Today’s video service providers, which include cable operators, telecommunications companies and satellite TV providers, are continuously seeking to perfect their linear and nonlinear workflows and improve the quality of their video content, while simultaneously optimizing the efficiency of their networks. Our products, tools, and technologies are currently used in the entire video content creation and distribution chain. Specifically, our solutions are used to address challenges in video contribution, video production, primary and secondary distribution, and enterprise wide solutions. Over time, we will look to leverage those capabilities and seek opportunities to expand our offerings into new markets, such as potentially surveillance cameras and other video IoT applications.

The blending of products and technologies gives GigPeak the capability to address both the speed of data transmission and the amount of bandwidth the data consumes within a network, driven in particular by the video content which is the source of a majority of the datacenter traffic and storage on today’s networks. Through this combination, we provide solutions to enhance the footprint utilization and reduce total cost of ownership of existing network pipes from the core to the end user.  Our wide product portfolio and exceptional customer support practices, will continue to serve the enterprise networking and broadcasting original equipment manufacturers (“OEMs”), as well as IoT and other Cloud-connected consumers.

With the acquisition of Magnum we are in the process of reorganizing our operations to line up with our targeted end-markets and customers. This will eventually result later in fiscal 2016 in two business lines: the Enterprise Networking, which will be likely named the “GigOptix” product line, and the Consumer and Cloud-Connectivity, which will be likely named the “GigCloud” line. Most of our current product lines will contribute products to each one of those two business lines.

GigPeak’s Solutions

With the acquisition of Magnum, in addition to those solutions that we offer as described in our Annual Report on Form 10-K, we have added the following additional solutions.

Broadcasting Solutions

With the acquisition of Magnum, we are now a provider of silicon, modules, software and IP for the professional broadcast infrastructure market. We provide top of the line products, tools and technologies for the entire video content creation and distribution chain, from contribution and production through distribution over cable, satellite and OTT video streaming.

Video Contribution: We were the first to market with a single chip to address all market needs, from legacy MPEG-2 4:2:0/4:2:2 8-bit to H.264 4:2:0/4:2:2 10-bit to AVC-I 50 and AVC-I 100 encoding and decoding applications. With over a decade of video quality leadership and technology innovation behind it, our D7Pro offers advanced encoding and decoding solution for video contribution and news gathering. In addition, the D7Pro offers a complete video-audio-ancillary data-mux integrated solution enabling high video quality, low latency at low bit rates for video encoding and decoding.

Video Production: As the market leader in professional video processing silicon and software, we offer system vendors the market’s most advanced solutions for baseband video, audio and data processing. We enable a single design solution for all products within a production domain – routers, channel branding, video filtering, chroma/luma leveling, audio leveling and down mixing, format conversion, rescaling, low latency switching and more. Our solution is a dual channel 4:2:2 10-bit native solution with embedded memory and support for various I/O interfaces from storage, networking and PCIe to 1080p baseband video.

Primary Video Distribution: Content originators are rapidly adopting advanced technologies such as H.264 and efficient statistical multiplexing systems as well as considering migration to H.265 compression for higher compression efficiency while continuing to support legacy MPEG-2 formats. Vendors of encoding, decoding and transcoding equipment for primary distribution must quickly bring to market solutions that support high video quality H.264 SD/HD, H.265 SD/HD as well as MPEG-2 SD/HD. Ideally, to minimize operator operating expense, these systems should enable both types of services to be aggregated in single bundle without compromising video quality.

Consumer and Cloud Connectivity – Video Solutions

To address both Cloud, and current and future consumer connected devices as well as IoTs, we plan to use our stand-alone proprietary RF mixed signal technology, ASICs and, with the acquisition of Magnum, video ICs, SoCs and software IP for various high volume applications such as Ultra-Wide Bandwidth TX/RX ICs, video and camera chips, etc. We already possess extensive experience with Ultra High-Speed Interfaces and now has the capability of adding Digital Signal Processing and video capabilities to address sophisticated IoT applications. Ultimately we intend to expand its reach into the consumer IoT market where its ICs, SoCs and software IP provide unique stand-alone and integrated solutions to various wearable gadgets, high speed and lower power interface ICs to end user products, ICs for motion detection cameras and other special camera and video applications.

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Table of Contents

Through the Magnum acquisition, we are a leading provider of professional video processing silicon solutions and have been a leader in video quality and technology innovation for over a decade. We offer system vendors the market’s foremost advanced enterprise and secondary distribution video broadcasting solutions. Our ASICs, SoCs and software solutions are all-complete system solutions with rich features including high video quality SD/HD H.265, H.264, MPEG-2, VBR/CBR, low latency encoding and complete video, audio and data multiplexing.

Our solutions offer complete multi-format feature rich solutions with high-quality H.265/H.264/MPEG-2 CBR/VBR encoding; advanced, high density any-format-to-any-format transcoding; the ability to manipulate video content for multi-screen applications; support for digital program insertion; and comprehensive support for audio-ancillary data-mux system level features.

Products

Enterprise Networking: Telecom, Datacom and Broadcasting

We design and market products that amplify electrical signals during both the transmission (amplifiers, laser devices and modulator drivers, and clock-data-recovery devices) and reception (TIAs) of optical signals in the transmission of data. In addition, 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. We have a comprehensive product portfolio, particularly at data rates that exceed 40 Gbps. The primary target markets and applications 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, or vice-versa 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, a shorter reach results in higher volume, less demanding product specifications and greater pressure to reduce costs.

With the acquisition of Magnum, we now also offer enterprise video system vendors the market's foremost advanced enterprise video broadcasting solutions. Our silicon and software are all-complete system solutions with rich features including high video quality SD/HD H.265, H.264, MPEG-2, VBR/CBR, video statistical multiplexing, digital ad-insertion, low latency encoding and complete video, audio and data multiplexing. 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. In some instances, we provide NRE design services for certain custom designs of our high-speed communications components in order to enhance our commercial partnerships with these customers. The NRE work is included in development fees and other revenue on the consolidated statement of operations.

Consumer and Cloud-Computing-Connectivity

Our semiconductor ICs, SoCs and software solutions are designed to address the challenges faced by network operators for high-speed connectivity and high-quality video compression over the enterprise network and the Cloud. Our focus is to deliver products that enable lower power consumption and faster data connectivity, more efficient use of network infrastructure, broader connectivity to the Cloud, all in attempt to reduce the total cost of ownership of existing network pipes, from the core of the network to the end user appliances and terminals. Our products, which are in use by various end user and corporate customers, such as top video delivery vendors, naturally provide solutions that increase the efficiency of the networks to which they are deployed, delivering data to IoT and other Cloud connected applications.

In addition to ICs and SoCs, we also with the acquisition of Magnum provides our video equipment vendor customers with system software that allows for rapid product development and support of various capabilities necessary in the professional broadcast and OTT video distribution environments. These system software capabilities include video statistical multiplexing, de-interlacing, advertisement insertion, video overlay insertion and various ancillary data insertion and multiplexing capabilities.

Furthermore, we also offer a software-only compression solution for professional broadcast market systems running on Intel CPUs and standard data center servers. We offer our customers the flexibility to choose either our proprietary ASIC-based solution running our software or an Intel-based platform running our software.

In addition, we offer complex ASIC solutions and design work that are used in a number of applications such as defense, test and measurement applications and emerging consumer electronics such as gaming and entertainment, to enable the high speed processing of complex signals.

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Table of Contents

Historically, since inception in 2007 and through 2014, we have incurred net losses. For the three months ended March 27, 2016 and the year ended December 31, 2014, we incurred net losses of $52,000 and $5.8 million, respectively. For the year ended December 31, 2015, we recorded net income of $1.2 million. For the three months ended March 27, 2016 and the years ended December 31, 2015 and 2014, we had cash inflows from operations of $3.5 million, $3.0 million and $2,000, respectively. As of March 27, 2016, we had an accumulated deficit of $101.1 million.

Results of Operations

Revenue

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

	Three Months Ended
	March 27, 2016			March 29, 2015
Product	$	10,489		$	8,561
Development fees and other		873			499
Total revenue	$	11,362		$	9,060
Increase period over period	$	2,302
Percentage increase, period over period		25	%

Total revenue for the three months ended March 27, 2016 was $11.4 million, an increase of $2.3 million or 25%, compared with $9.1 million for the three months ended March 29, 2015. For the three months ended March 27, 2016, 92% of our revenue was contributed by product revenue and 8% of our revenue was contributed by development fees and other revenue.For the three months ended March 29, 2015, 94% of our revenue was contributed by product revenue and 6% of our revenue was contributed by development fees and other revenue.

Product revenue for the three months ended March 27, 2016 was $10.5 million, an increase of $1.9 million or 23%, compared with $8.6 million for the three months ended March 29, 2015. The increase in product revenue during the three months ended March 27, 2016 was primarily due to an overall increase in demand for our products.

Development fees and other revenue for the three months ended March 27, 2016 was $873,000, an increase of $374,000 or 75%, compared with $499,000 for the three months ended March 29, 2015. We experienced an increase in development fees and other revenue due to an increase in the number and size of development projects.

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Cost of Revenue and Gross Profit

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

	Three Months Ended
	March 27, 2016			March 29, 2015
Total cost of revenue	$	3,683		$	3,667
Gross profit	$	7,679		$	5,393
Gross margin		68	%		60	%
Increase, period over period		2,286
Percentage increase, period over period		42	%

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

Gross profit for the three months ended March 27, 2016 was $7.7 million, or a gross margin of 68%, compared to a gross profit of $5.4 million, or a gross margin of 60%, for the three months ended March 29, 2015. The increase in gross margin is primarily due to a change in product mix.

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 typically dependent on our performance and 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.

Development project revenue and other non-product revenue for the three months ended March 27, 2016 was $873,000 compared with $499,000 for the three months ended March 29, 2015. Excluding the revenue and gross profit associated with development programs and other non-product revenue, gross margin was 65% and 57% for the three months ended March 27, 2016 and March 29, 2015, respectively.

Research and Development Expense

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

	Three Months Ended
	March 27, 2016			March 29, 2015
Research and development expense	$	3,525		$	3,248
Percentage of revenue		31	%		36	%
Increase, period over period	$	277
Percentage increase, period over period		9	%

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

Research and development expense for the three months ended March 27, 2016 was $3.5 million compared to $3.2 million for the three months ended March 29, 2015, an increase of $277,000 or 9%. Research and development costs increased as compared to the first quarter of 2015 primarily due to a $97,000 increase in expense related to amortization on GigOptix-Terasquare-Korea Co., Ltd.’s (“GTK”) intangible asset, a $95,000 increase for project-related materials and a $76,000 increase in stock-based compensation expense.

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Selling, General and Administrative Expense

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

	Three Months Ended
	March 27, 2016			March 29, 2015
Selling, general and administrative expense	$	4,162		$	2,770
Percentage of revenue		37	%		31	%
Increase, period over period	$	1,392
Percentage increase, period over period		50	%

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 three months ended March 27, 2016 was $4.2 million compared to $2.8 million for the three months ended March 29, 2015, an increase of $1.4 million or 50%. Selling, general and administrative expense increased as compared to the first quarter of 2015 primarily due to a $800,000 increase in merger related expenses and a $316,000 increase in stock-based compensation expense.

Interest Expense, Net and Other Income (Expense), Net

	Three Months Ended
	March 27, 2016			March 29, 2015
Interest expense, net	$	-		$	(3	)
Other income (expense), net		(4	)		1
Total	$	(4	)	$	(2	)

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

Interest expense, net for the three months ended March 29, 2015 was $3,000. We did not incur any interest expense, net for the three months ended March 27, 2016.

Other income (expense), net for the three months ended March 27, 2016 was an expense of $4,000. Other income (expense), net for the three months ended March 29, 2015 was an income of $1,000.

Provision for Income Taxes

	Three Months Ended
	March 27, 2016			March 29, 2015
Provision for income taxes	$	40		$	9
Increase, period over period	$	31
Percentage increase, period over period		344	%

Income tax expense was $40,000 and $9,000 for three months ended March 27, 2016 and March 29, 2015. The income tax provision for the three months ended March 27, 2016 and March 29, 2015 were due primarily to state taxes and foreign taxes due. We have incurred book losses in all tax jurisdictions except Korea, Japan, and Switzerland and have a full valuation allowance against such losses.

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Liquidity and Capital Resources

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

	March 27, 2016				December 31, 2015
Cash and cash equivalents		$	36,827			$	30,245
	Three Months Ended
	March 27, 2016				March 29, 2015
Net cash provided by (used in) operating activities		$	3,493			$	(327	)
Net cash used in investing activities		$	(1,808	)		$	(416	)
Net cash provided by (used in) financing activities		$	4,882			$	(63	)

Private Equity Placement

On March 21, 2016, we entered into a Securities Purchase Agreement (the “PDSTI Agreement”) with Pudong Science and Technology Investment (Cayman) Co., Ltd., an affiliate of Shanghai Pudong Science and Technology Investment Co., Ltd. (collectively, “PDSTI”), pursuant to which PDSTI will purchase approximately $5 million of our common stock. Under the PDSTI Agreement, on the settlement date for the issuance, we will issue 1,754,385 shares of our common stock (the “Shares”) to PDSTI in a private placement at a purchase price of $2.85 per Share.

Pursuant to the PDSTI Agreement, we have agreed to file a registration statement on Form S-3 to provide registration rights to PDSTI in respect of the Shares. To the extent that such registration statement has not been declared effective by the Securities and Exchange Commission on or before July 7, 2016, we will pay to PDSTI, as liquidated damages, 0.4% of the aggregate purchase price on a monthly, prorated basis, until the registration statement has been declared effective. Interest on these liquidated damages will accrue at the rate of 1.0% per month until paid in full. In the event that any U.S. governmental body or agency takes any action or issues any order that would prevent PDSTI from holding the Shares or invalidates our issuance of the Shares to PDSTI, we have agreed to return PDSTI’s full purchase price, plus 0.4% interest on the purchase price (accruing monthly until paid in full), and to reimburse PDSTI’s expenses in connection with negotiating the private placement, up to $15,000.

On March 24, 2016, we closed on its previously announced private placement of 1,754,385 shares to PDSTI. The purchase price per Share in the placement was $2.85 and the aggregate purchase price for the Shares was approximately $5 million. Upon their issuance, the Shares represent approximately 3.77% of our outstanding shares of common stock. As of March 27, 2016, we recorded $4.7 million, net, comprised of the purchase price of $5.0 million net of $300,000 related cost (which included a $250,000 commission fee to Cowen & Company for their services as placement agent), on the condensed consolidated balance sheet as redeemable common stock due to the redemption clause in Agreement.

Operating Activities

Operating activities provided cash of $3.5 million in the three months ended March 27, 2016. Our net loss, adjusted for depreciation, stock-based compensation and other non-cash items, was income of $2.2 million. The remaining $1.3 million cash inflow was primarily due to a decrease in accounts receivable, net of $1.6 million and an increase in accounts payable of $533,000 which were partially offset by an increase in prepaid and other current assets of $512,000, a decrease in accrued compensation of $206,000 and an increase in inventories of $91,000.

Operating activities used cash of $327,000 in the three months ended March 29, 2015. Our net loss from continuing operations, adjusted for depreciation, stock-based compensation and other non-cash items, was income of $1.1 million. The remaining use of $1.4 million of cash was primarily due to an increase in inventories of $839,000, a decrease in other current liabilities of $663,000, an increase in prepaid and other current assets of $557,000, and an increase in accounts receivable, net of $295,000, which was partially offset by an increase in accrued compensation of $539,000 and an increase in accounts payable of $278,000.

Investing Activities

Net cash used in investing activities for the three months ended March 27, 2016 was $1.8 million and consisted of a $1.2 million investment in Anagog Ltd. and $694,000 of purchases of property and equipment, which was partially offset by a decrease in restricted cash of $86,000.

Net cash used in investing activities for the three months ended March 29, 2015 was $416,000 from purchases of property and equipment.

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Financing Activities

Net cash provided by financing activities for the three months ended March 27, 2016 was $4.9 million and consisted primarily of $5.0 million private equity placement from PDSTI and $278,000 proceeds from exercise of stock options, which was partially offset by $395,000 taxes paid related to net share settlement of equity awards. Issuance costs of $300,000 related to the private equity placement had not been paid as of March 27, 2016.

Net cash used in financing activities for the three months ended March 29, 2015 was $63,000 and consisted primarily of $90,000 taxes paid related to net share settlement of equity awards.

Material Commitments

The following table summarizes our future net cash obligations for operating leases and capital leases, in thousands of dollars, as of March 27, 2016:

Contractual Obligations as of March 27, 2016:	Total		Less than One Year		One to Three Years		More than Three Years
Operating lease obligations		932		612		205		115
Capital lease obligations (including interest)		5		3		2		-
Total	$	937	$	615	$	207	$	115

GigPeak did not have any material commitments for capital expenditures as of March 27, 2016.

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

GigPeak 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, GigPeak is not exposed to any financing or other risks that could arise if it had such relationships.

WHERE YOU CAN FIND MORE INFORMATION

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

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

• GigPeak Twitter Account (https://twitter.com/gigpeak)

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“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 March 27, 2016 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 Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States

Changes in Internal Control over Financial Reporting

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

PART II     OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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ITEM 1A. RISK FACTORS

We have revised the risk factors that relate to our business, as set forth below. These risks include any material changes to and supersede any similar the risks previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2015 and otherwise supplement those risks. We encourage investors to review the risk factors and uncertainties relating to our business disclosed in that Form 10-K, as well as those contained in Part 1, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.

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

Historically, since inception in 2007 and through 2014, we have incurred net losses. For the three months ended March 27, 2016 and the year ended December 31, 2014, we incurred net losses of $52,000 and $5.8 million, respectively. For the year ended December 31, 2015, we recorded net income of $1.2 million. For the three months ended March 27, 2016 and the years ended December 31, 2015 and 2014, we had cash inflows from operations of $3.5 million, $3.0 million and $2,000, respectively. As of March 27, 2016, we had an accumulated deficit of $101.1 million. We expect development, sales and other operating expenses to increase in the future as we expand our business. If our revenue does not grow to offset these current expenses, we may not be profitable. In fact, in future quarters we may not have any revenue growth and our revenues could decline. Furthermore, if our operating expenses exceed expectations, financial performance will be adversely affected and we may continue to incur significant losses in the future.

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

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

For the three months ended March 27, 2016, three customers accounted for 49% of total revenue. For the three months ended March 29, 2015, three customers accounted for 51% of our total revenue. No other customers accounted for more than 10% of total revenue during the periods presented.

For the three months ended March 31, 2016, two customers accounted for 39% of Magnum’s total revenue. For the three months ended March 31, 2015, three customers accounted for 48% of Magnum’s total revenue. No other customers accounted for more than 10% of Magnum’s total revenue during the periods presented.

There may be a possible effect from the acquisition of Magnum on our future revenue recognition policy.

Historically, one of the primary revenue recognition models used by Magnum is to recognize license royalty revenue based upon reports received by customers during the quarter, assuming all other revenue recognition criteria are met. The customers generally report shipment information typically within 45 days following the end of their respective quarters. If there is a reliable basis upon which the Company can estimate its royalty revenue prior to obtaining the customers’ reports, the Company will recognize the royalty revenues in the quarter in which they are earned. If there is not a reliable basis for estimating royalties, the Company will recognize revenue in the following quarter when the shipment report is received. Because GigPeak has not previously sold software or had license royalty revenue, this is a different type of revenue and revenue recognition policy than previously used by GigPeak. By its nature, this revenue recognition policy can lead to volatility from quarter to quarter in the amount of revenue recognized from license royalties.

If increasing use of our software such that we don’t see growing license royalty revenues from our customers fails to grow adequately, our business may suffer. Our future growth and financial performance will depend in part on broad market acceptance and use of our software.

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. Our accounts receivable as of March 27, 2016 decreased by $1.6 million or 15% compared to the balance as of December 31, 2015. Historically, 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 uncollectable accounts would have an adverse impact on our business, liquidity and financial results.

30

Our business is subject to foreign currency risk.

Sales to customers located outside the United States comprised 59% and 73% of our revenue for the three months ended March 27, 2016 and March 29, 2015, respectively. In addition, we have two subsidiaries overseas (Switzerland and Germany) that record their operating expenses in a foreign currency.  Since sales of our products have been denominated to date primarily in U.S. dollars, increases in the value of the U.S. dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in GigPeak’s 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.

If our customers do not design our solutions into their product offerings, or if our customers’ product offerings are not commercially successful, our business would suffer.

With the acquisition of Magnum, we sell video processing SoC solutions to original equipment manufacturers, or OEMs, who include our SoCs in their products, and to original design manufacturers, or ODMs, who include our SoCs in the products that they supply to OEMs. We refer to ODMs as our customers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires. Our video processing SoCs are generally incorporated into our customers’ products at the design stage, which is referred to as a design win. As a result, we rely on OEMs to design our solutions into the products that they design and sell. Without these design wins, our business would be harmed. We often incur significant expenditures developing a new SoC solution without any assurance that an OEM will select our solution for design into its own product. Once an OEM designs a competitor’s device into its product, it becomes significantly more difficult for us to sell our SoC solutions to that OEM because changing suppliers involves significant cost, time, effort and risk for the OEM. Furthermore, even if an OEM designs one of our SoC solutions into its product, we cannot be assured that the OEM’s product will be commercially successful over time or at all or that we will receive or continue to receive any revenue from that OEM. If products or other product categories incorporating our SoC solutions are not commercially successful or experience rapid decline, our revenue and business will suffer.

Our video processing SoC product strategy, which is targeted at markets demanding superior video quality, may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all or may even deteriorate significantly, which could materially adversely affect our results of operations and limit our ability to grow.

We have adopted a product strategy for our video processing SoCs that focuses on our core competencies in video processing and delivering high levels of video quality. With this strategy, we continue to make further investments in the development of our video processor architecture. This strategy is designed to address the needs of customers in the market for video processing SoCs. Such markets may not develop, may take longer to develop than we expect, or may change direction all together. We cannot assure you that the products we are currently selling and developing will adequately address the demands of our target customers, or that we will be able to produce our new products at costs that enable us to price these products competitively.

Rapidly changing industry standards could make our video processing solutions obsolete, which would cause our operating results to suffer.

We design our video processing solutions to conform to video compression standards, including MPEG-2, H.264 and H.265, set by industry standards setting bodies such as ITU-T Video Coding Experts Group and the ISO/IEC Moving Picture Experts Group. Generally, our solutions comprise only a part of a camera or broadcast infrastructure equipment device. All components of these devices must uniformly comply with industry standards in order to operate efficiently together. We depend on companies that provide other components of the devices to support prevailing industry standards. Many of these companies are significantly larger and more influential in driving industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers or by consumers. If our customers or the suppliers that provide other device components adopt new or competing industry standards with which our solutions are not compatible, or if the industry groups fail to adopt standards with which our solutions are compatible, or open free codecs, our existing solutions would become less desirable to our customers. As a result, our sales would suffer or even completely vanish, and not only would we lose a major revenue flow, but we could be required to make significant expenditures to develop new SoC solutions. For example, if the new H.265 video compression standard is not broadly adopted by our customers or potential customers, sales of our H.265 compliant solutions would suffer and we may be required to expend substantial resources to comply with an alternative video compression standard. In addition, existing standards may be challenged as infringing upon the intellectual property rights of other companies or may be superseded by new innovations or standards.

Products for communications applications are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards, including any new video compression standards, and our ability to deliver superior products against potential open source free products that will be made available in the market. The emergence of new industry standards could render our solutions incompatible with products developed by other suppliers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our solutions to ensure compliance with relevant standards. If our solutions are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins, which could harm our business.

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The complexity of our video processing SoC solutions could result in unforeseen delays or expenses from undetected defects, errors or bugs in hardware or software which could reduce the market adoption of our new solutions, damage our reputation with current or prospective customers and adversely affect our operating costs.

Highly complex video processing SoC solutions such as ours frequently contain defects, errors and bugs when they are first introduced or as new versions are released. We have in the past and may in the future experience these defects, errors and bugs. If any of our solutions have reliability, quality or compatibility problems, we may not be able to successfully correct these problems in a timely manner or at all. In addition, if any of our proprietary features contain defects, errors or bugs when first introduced or as new versions of our solutions are released, we may be unable to timely correct these problems. Consequently, our reputation may be damaged and customers may be reluctant to buy our solutions, which could harm our ability to retain existing customers and attract new customers, and could adversely affect our financial results. In addition, these defects, errors or bugs could interrupt or delay sales to our customers. If any of these problems are not found until after we have commenced commercial production of a new product, we may incur significant additional development costs and product recall, repair or replacement costs. These problems may also result in claims against us by our customers or others.

Unknowing use of open source software in our products, processes and technology may expose us to additional risks and compromise our proprietary intellectual property.

We may unknowingly utilize and incorporate software that is subject to an open source license in our products, processes and technology in a manner that could create unintended risks. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses, such as the GNU General Public License, require a user who distributes the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on terms unfavorable to us or at no cost. This can subject previously proprietary software to open source license terms.

While we monitor the use of open source software in our products, processes and technology and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, processes or technology when we do not wish to do so, such use could inadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from such third-party for our products, processes or technology, we could, under certain circumstances, be required to disclose the source code to our products, processes or technology. This could harm our intellectual property position and our business, results of operations and financial condition.

Risk related to the Merger

Although we expects to realize certain benefits as a result of the Merger, there is the possibility that  following the Merger we may be unable to integrate successfully the business of Magnum to realize the anticipated benefits of the Merger or do so within the intended timeframe.

We will be required to devote significant management attention and resources to integrating the business practices and operations of Magnum with ours. Due to legal restrictions, we and Magnum have only been able to conduct limited planning regarding the integration of Magnum into GigPeak after completion of the Merger and we have not yet determined the exact nature of how the businesses and operations of Magnum will be run following the Merger. Potential difficulties we may encounter as part of the integration process include the following:

· the costs of integration and compliance and the possibility that the full benefits anticipated to result from the Merger will not be realized;

· any delay in the integration of management teams, strategies, operations, products and services;

· diversion of the attention of management as a result of the Merger;

· lack of engineering knowledge and ability to overcome and fix deficiencies that are reported by customers pertaining to lack of competitiveness of our products or insufficient features and functionalities of our products that are demanded by customers

· lack of commitment going-forward of Magnum customers, based on fatigue, loss of trust, or disapproval of the directions of Magnum pre-acquisition, or GigPeak post-acquisition;

· loss of customers that will consider GigPeak to be a competitor post-acquisitions, or due to the acquisition of a customer by a competitor to GigPeak;

32

· loss of projected revenues to GigPeak due to undisclosed arrangements that Magnum had done with customers pre-acquisition, leading to excessive pull-in of products prior to the acquisition closing, resulting in large inventory of products with the customer and lack of need to purchase products from GigPeak for a short or long period of time. There may also be occurrences of customer demand for return (RMA) of purportedly defective products that were shipped by Magnum prior to the acquisition closing, and are to be corrected, guaranteed and replaced by GigPeak and will lead to further financial losses;

· differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;

· the ability to create and enforce uniform standards, controls, procedures, policies and information systems;

· the challenge of integrating complex systems, technology, networks and other assets of Magnum into those of GigPeak in a manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

· potential unknown liabilities and unforeseen increased expenses or delays associated with the Merger, including costs to integrate Magnum;

· the disruption of, or the loss of momentum in, our ongoing businesses; and

· the potential unknown and undisclosed technical deficiencies and lack of required features and functionalities in the Magnum products that will prevent the deployment and sale of those products. It is only through our interactions with the customers during the months following the acquisition that we will be able to define whether our products are salable and deployable what-so-ever, or are not competitive, and hence will not be capable of generating meaningful revenue.

Any of these factors could adversely affect the ability of GigPeak following the Merger to benefit financially from the merger, maintain relationships with customers, suppliers, employees and other constituencies or its ability to achieve the anticipated benefits of the Merger or could reduce or even completely diminish the earnings or otherwise adversely affect the business and financial results of GigPeak after the Merger.

The Merger may not be accretive, or may even be dilutive, and may cause dilution to GigPeak’s earnings per share, which may harm the market price of GigPeak common stock following the Merger.

While the Merger is expected to be accretive to GigPeak’s future earnings per share, there can be no assurance with respect to the timing and scope of the accretive effect or whether it will be accretive at all. GigPeak following the Merger could encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated in the Merger or a downturn in its business. All of these factors could cause dilution to GigPeak’s earnings per share following the Merger, decrease the expected accretive effect of the Merger, or even cause meaningful losses to GigPeak, and cause a decrease in the price of shares of GigPeak common stock following the Merger.

After paying the cash consideration to the former Magnum stockholders upon the Closing of the Merger as well as the other cash expenditures related to the Merger, GigPeak will have a substantially lower balance of cash and cash equivalents, and increased borrowings under its credit agreement.

To partially finance amounts being spent in the Merger, GigPeak entered into a Third Amended and Restated Loan and Security Agreement (the “Third Restated Loan Agreement”) with Silicon Valley Bank (“SVB”). Pursuant to the Third Restated Loan Agreement, the total aggregate amount that we are entitled to borrow from SVB has increased to $29 million, which is split into two different credit facilities, comprised of (i) the existing Revolving Loan facility which was amended to provide that we are entitled to borrow from SVB up to $14 million, based on net eligible accounts receivable after an 80% advance rate and subject to limits based on our eligible accounts as determined by SVB (the “Amended Revolving Loan”) and (ii) a second facility under which we are entitled to borrow from SVB up to $15 million without reference to accounts receivable, and which must be repaid in sixty equal installments, unless we exercise our right to prepay the loan under the conditions of, and subject to the limitations to, the Third Restated Loan Agreement (the “Acquisition Term Loan”). At the Closing of the Merger, we borrowed a combined total of $22.1 million from SVB pursuant to the terms of the Third Restated Loan Agreement. Immediately prior to the Closing of the Merger, we had no outstanding obligations to SVB. In addition, we used approximately $13.6 million, net, of our cash to pay amounts being spent in the Merger. As a result of the use of cash for the Merger, we do not have this cash available for other uses. There is also an element of significant interest payments of approximately $270,000 per quarter that will further negatively impact the cash balances of GigPeak.

GigPeak following the Merger will incur significant transaction and integration related costs in connection with the Merger.

GigPeak expects to incur costs associated with integrating the operations of Magnum following the Closing of the Merger. The amount of these costs could be material to the financial position and results of operations of GigPeak following the Merger. A substantial amount of such expenses will be comprised of transaction costs related to the Merger, facilities and systems consolidation costs, and employee-related costs. GigPeak will also incur fees and costs related to formulating integration plans and performing these activities. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset incremental transaction and other integration related costs in the near term.

GigPeak may not have discovered undisclosed liabilities and product deficiencies of Magnum.

GigPeak’s due diligence review of Magnum may not have discovered undisclosed liabilities and product deficiencies of Magnum. If Magnum has undisclosed liabilities or product deficiencies, GigPeak as a successor owner may be responsible for such undisclosed liabilities. GigPeak has tried to control its exposure to undisclosed liabilities by obtaining certain protections under the Merger Agreement, including representations and warranties from Magnum regarding undisclosed liabilities, however, such representations and warranties expire by their terms on the completion of the Merger. There can be no assurance that such provisions in the Merger Agreement will protect GigPeak against any undisclosed liabilities or product deficiencies being discovered or provide an adequate remedy for any undisclosed liabilities that are discovered. Such undisclosed liabilities could have an adverse effect on the business and results of operations of GigPeak and may adversely affect the value of GigPeak common stock after the consummation of the Merger.

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Uncertainties associated with the Merger may cause a loss of employees and may otherwise materially adversely affect the future business and operations of GigPeak following the Merger.

GigPeak’s success following the Merger will depend upon the ability of GigPeak to retain senior management and key employees of GigPeak and Magnum following the Merger. In some of the fields in which GigPeak and Magnum operate, there are only a limited number of people in the job market who possess the requisite skills, and it may be increasingly difficult for GigPeak following the Merger to hire personnel over time. GigPeak following the Merger will operate in many geographic locations, including Silicon Valley and Ontario, Canada, where the labor markets, especially for engineers, are particularly competitive.

Current and prospective employees of GigPeak and Magnum may experience uncertainty about their roles with GigPeak following the Merger. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with GigPeak following the Merger. The loss of services of certain senior management or key employees of GigPeak and Magnum or the inability to hire new personnel with the requisite skills could restrict the ability of GigPeak following the Merger to develop new products or enhance existing products in a timely manner, or to sell products to customers or to manage the business of GigPeak following the Merger effectively. Also, the business, financial condition and results of operations of GigPeak following the Merger could be materially adversely affected by the loss of any of its key employees, by the failure of any key employee to perform in his or her current position, or by GigPeak’s inability to attract and retain skilled employees, particularly engineers.

If the selling stockholders immediately sell our common stock received in the Merger, they could cause our common stock price to decline.

The issuance of our common stock in connection with the Merger could have the effect of depressing the market price for our common stock. When the registration statement that we filed to register these shares becomes effective, the shares of common stock issued to the former stockholders and noteholders of Magnum in connection with the closing of the Merger will be available for resale in the public market.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

As previously reported on our Current Reports on Form 8-K filed on March 22, 2016 and March 24, 2106, on March 21, 2016, we entered into a Securities Purchase Agreement (the “PDSTI Agreement”) with Pudong Science and Technology Investment (Cayman) Co., Ltd., an affiliate of Shanghai Pudong Science and Technology Investment Co., Ltd. (collectively, “PDSTI”), pursuant to which PDSTI purchased approximately $5 million of our common stock. Under the PDSTI Agreement, on March 24, 2016, we issued 1,754,385 shares of our common stock (the “Shares”) to PDSTI in a private placement at a purchase price of $2.85 per Share.

Pursuant to the PDSTI Agreement, we have agreed to file a registration statement on Form S3 to provide registration rights to PDSTI in respect of the Shares. To the extent that such registration statement has not been declared effective by the Securities and Exchange Commission on or before July 7, 2016, we will pay to PDSTI, as liquidated damages, 0.4% of the aggregate purchase price on a monthly, prorated basis, until the registration statement has been declared effective. Interest on these liquidated damages will accrue at the rate of 1.0% per month until paid in full. In the event that any U.S. governmental body or agency takes any action or issues any order that would prevent PDSTI from holding the Shares or invalidates our issuance of the Shares to PDSTI, we have agreed to return PDSTI’s full purchase price, plus 0.4% interest on the purchase price (accruing monthly until paid in full), and to reimburse PDSTI’s expenses in connection with negotiating the private placement, up to $15,000.

Upon their issuance, the Shares represent approximately 3.77% of our outstanding shares of common stock. We recorded $4.7 million, net, comprised of the purchase price of $5.0 million net of $300,000 related cost (which included a $250,000 commission fee to Cowen & Company for their services as placement agent), on the condensed consolidated balance sheet as redeemable common stock as of March 27, 2016.

34

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit  Number	Description
31.1*	Chief Executive Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Chief Financial Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Chief Executive Officer certification pursuant to Rule 13a-14(b) or Rule 13d-14(b) and Section 1350, Chapter 63 of Title 18 United States Code (18 U.S.C. 1350) as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2*	Chief Financial Officer certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States Code (18 U.S.C. 1350) as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

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

* Filed herewith

35

SIGNATURES

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

	GIGPEAK, INC.
Date: May 06, 2016	/S/    Avi S. Katz
	Dr. Avi S. Katz Chief Executive Officer and Chairman of the Board
Date: May 06, 2016	/S/ Darren Ma
	Darren Ma Chief Financial Officer

36

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 quarterly report on Form 10-Q of GigPeak, 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 purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about 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.

/s/	Dr. Avi S. Katz
Dr. Avi S. Katz
Chief Executive Officer and Principal Executive Officer

Date: May 06, 2016

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 quarterly report on Form 10-Q of GigPeak, 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 purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about 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.

/s/	Darren Ma
Darren Ma
Chief Financial Officer and Principal Financial and Principal Accounting Officer

Date: May 06, 2016

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 GigPeak, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge:

1) the Company's Quarterly Report on Form 10-Q for the period ended March 27, 2016 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 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: May 06, 2016

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 Acting Chief Financial Officer and Principal Accounting Officer of GigPeak, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge:

1) the Company's Quarterly Report on Form 10-Q for the period ended March 27, 2016 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 such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  Darren Ma

Darren Ma

Chief Financial Officer and Principal Financial and Principal Accounting Officer

Dated: May 06, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 27, 2016	Apr. 29, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	GigPeak, 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 Common Stock, Shares Outstanding		53,680,127
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 27, 2016

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 27, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 36,827	$ 30,245
Accounts receivable, net	9,039	10,596	[1]
Inventories	6,971	6,880	[1]
Prepaid and other current assets	788	580	[1]
Total current assets	53,625	48,301	[1]
Property and equipment, net	2,919	3,133	[1]
Intangible assets, net	4,210	4,530	[1]
Goodwill	12,565	12,565	[1]
Restricted cash	244	330	[1]
Other assets	1,457	251	[1]
Total assets	75,020	69,110	[1]
Current liabilities:
Accounts payable	3,866	3,659	[1]
Accrued compensation	1,576	1,782	[1]
Other current liabilities	2,296	2,219	[1]
Total current liabilities	7,738	7,660	[1]
Pension liabilities	354	349	[1]
Other long term liabilities	911	912	[1]
Total liabilities	$ 9,003	$ 8,921	[1]
Commitments and contingencies (Note 11)			[1]
Redeemable common stock, $0.001 par value; 1,754,385 shares issued and outstanding as of March 27, 2016	$ 4,700	$ 0	[1]
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of March 27, 2016 and December 31, 2015, respectively	0	0	[1]
Common stock, $0.001 par value; 100,000,000 shares authorized; 45,533,389 and 45,221,397 shares issued and outstanding as of March 27, 2016 and December 31, 2015, respectively	46	45	[1]
Additional paid-in capital	164,203	163,036	[1]
Treasury stock, at cost; 701,754 shares as of March 27, 2016 and December 31, 2015, respectively	(2,209)	(2,209)	[1]
Accumulated other comprehensive income	344	332	[1]
Accumulated deficit	(101,067)	(101,015)	[1]
Total stockholders' equity	61,317	60,189	[1]
Total liabilities, redeemable common stock and stockholders' equity	$ 75,020	$ 69,110	[1]

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 27, 2016	Dec. 31, 2015	[1]
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
Redeemable common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Redeemable common stock, issued (in shares)	1,754,385
Redeemable common stock, outstanding (in shares)	1,754,385
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)	45,533,389	45,221,397
Common stock, outstanding (in shares)	45,533,389	45,221,397
Treasury stock, at cost (in shares)	701,754	701,754

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]
Total revenue	$ 11,362	$ 9,060
Total cost of revenue	3,683	3,667
Gross profit	7,679	5,393
Operating expenses
Research and development expense	3,525	3,248
Selling, general and administrative expense	4,162	2,770
Total operating expenses	7,687	6,018
Loss from operations	(8)	(625)
Interest expense, net	0	(3)
Other income, net	(4)	1
Loss before provision for income taxes	(12)	(627)
Provision for income taxes	40	9
Net loss	$ (52)	$ (636)
Net loss per share - basic and diluted (in dollars per share)	$ 0	$ (0.02)
Weighted average number of shares used in basic and diluted net loss per share calculations (in shares)	44,789	32,525

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]
Net loss	$ (52)	$ (636)
Other comprehensive income, net of tax
Foreign currency translation adjustment	12	20
Other comprehensive income, net of tax	12	20
Comprehensive loss	$ (40)	$ (616)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
Cash flows from operating activities:
Net loss	$ (52)	$ (636)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	963	890
Stock-based compensation	1,285	889
Change in fair value of warrants	(9)	(1)
Provision for doubtful accounts	(8)	(4)
Changes in operating assets and liabilities:
Accounts receivable	1,565	(295)
Inventories	(91)	(839)
Prepaid and other current assets	(512)	(557)
Other assets	(5)	(7)
Accounts payable	533	278
Accrued compensation	(206)	539
Other current liabilities	30	(663)
Other long-term liabilities	0	79
Net cash provided by (used in) operating activities	3,493	(327)
Cash flows from investing activities:
Investment in private company	(1,200)	0
Purchases of property and equipment	(694)	(416)
Change in restricted cash	86	0
Net cash used in investing activities	(1,808)	(416)
Cash flows from financing activities:
Proceeds from offering of stock, net of issuance costs	5,000	0
Proceeds from issuance of stock	278	28
Taxes paid related to net share settlement of equity awards	(395)	(90)
Repayment of capital lease	(1)	(1)
Net cash provided by (used in) financing activities	4,882	(63)
Effect of exchange rates on cash and cash equivalents	15	32
Net increase (decrease) in cash and cash equivalents	6,582	(774)
Cash and cash equivalents at beginning of period	30,245	18,438
Cash and cash equivalents at end of period	36,827	17,664
Supplemental disclosure of cash flow information
Interest paid	7	4
Taxes paid	64	0
Property and equipment acquired with accounts payable	48	289
Offering costs included in accounts payable and other current liabilities	$ 300	$ 0

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ORGANIZATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 27, 2016

ORGANIZATION AND BASIS OF PRESENTATION [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

Organization

GigPeak Inc. (formerly GigOptix, Inc.) (“GigPeak” or the “Company”) is a leading innovator of semiconductor integrated circuits (“ICs”) and software solutions for high-speed connectivity and high-quality video compression over the network and the Cloud. The Company’s focus is to develop and deliver products that enable lower power consumption and faster data connectivity, more efficient use of network infrastructure and broader connectivity to the Cloud, and reduce the total cost of ownership of existing network pipes from the core to the end user. GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, and provides solutions that increase the efficiency of various cloud-connected applications, such as the Internet-of-Things (“IoT”), leveraging its strength in high-speed connectivity and, with the highest quality video compression assets that were acquired through the acquisition (the “Merger”) of Magnum Semiconductor, Inc. (“Magnum”) during the Company’s second fiscal quarter on April 5, 2016. The extended product portfolio provides more flexibility to support changing market requirements and customer’s dynamic road-maps, by way of using ICs and monolithic microwave integrated circuits (“MMICs”), and through full software programmability and cost efficient custom application specific integrated circuit (“ASICs”).

The Company develops semiconductor ICs and software solutions for high-speed connectivity and high-quality video compression over the enterprise network and the Cloud. With its product focus, the Company attempts to reduce the total cost of ownership of existing network pipes, from the core of the network to the end user appliances and terminals.

GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, which are the two major data streaming bottlenecks, while also the future enabler factors, to maintain network efficiency. As such, the Company’s products also naturally provide solutions that increase the efficiency of IoT and other Cloud-connected applications. GigPeak’s solutions leverage its industry-recognized strength in high-speed connectivity delivered through the GigOptix brand-name product line, and as of the second fiscal quarter of 2016, the highest quality video compression delivered through the industry-recognized Magnum brand.

The recently extended GigPeak product portfolio provides flexibility to better support on-going changes in the connectivity that customers and markets require by deploying a wide tool-box of solutions from various kinds of semiconductor materials, integrated circuits and Multi-Chip-Modules (“MCMs), through cost-effective ASICs and system-on-chips (“SoCs”), and into full software programmable open-platform offerings.

The Company’s products are highly customized and typically developed in partnership with key “Lighthouse” customers, occasionally generating some engineering project revenues through the development stage, and where the largest revenue is generated from future device product shipments and sales through these customers and general market availability.

Since inception in 2007, the Company has expanded its customer base by acquiring and integrating eight (8) companies with complementary and synergistic products and customers, and spun out one (1) business to establish a joint-venture. GigPeak’s worldwide direct sales force is supported by a significant number of channel representatives and distributors that sell its products throughout North America, South America, Europe, Japan and Asia.

As noted above, on April 5, 2016, the Company completed its most recent acquisition of Magnum, and simultaneously renamed itself as GigPeak, Inc. Magnum is a fabless semiconductor manufacturer and software solution developer, and brings a well-developed and comprehensive portfolio of video broadcasting and compression solutions to GigPeak, including silicon ICs, SoCs, software solutions, and a comprehensive library of intellectual property. The Magnum products currently are for the professional video broadcast and are extendable to IoT camera markets. Magnum provides top of the line products, tools and technologies for the entire video content creation and distribution chain, from contribution and production through distribution over cable, telecom, satellite and over-the-top (“OTT”) video streaming.

Through the acquisition of Magnum, the Company broadens its product offerings by adding additional flavors of silicon integrated circuits (“ICs”), and new SoCs, software, and intellectual property (“IP”) for the professional broadcast infrastructure market. Today’s video service providers, which include cable operators, telecommunications companies and satellite TV providers, are continuously seeking to perfect their linear and nonlinear workflows and improve the quality of their video content, while simultaneously optimizing the efficiency of their networks. The Company’s products, tools, and technologies are currently used in the entire video content creation and distribution chain. Specifically, GigPeak’s solutions are used to address challenges in video contribution, video production, primary and secondary distribution, and enterprise wide solutions. Over time, GigPeak will look to leverage those capabilities and seek opportunities to expand its offerings into new markets, such as potentially surveillance cameras and other video IoT applications.

The blending of products and technologies gives GigPeak the capability to address both the speed of data transmission and the amount of bandwidth the data consumes within a network, driven in particular by the video content which is the source of a majority of the datacenter traffic and storage on today’s networks. Through this combination, the Company provides solutions to enhance the footprint utilization and reduce total cost of ownership of existing network pipes from the core to the end user. Its wide product portfolio and exceptional customer support practices, will continue to serve the enterprise networking and broadcasting original equipment manufacturers (“OEMs”), as well as IoT and other Cloud-connected consumers.

With the acquisition of Magnum, the Company is in the process of reorganizing its operations to line up with its targeted end-markets and customers. This will eventually result later in fiscal 2016 in two business lines: the Enterprise Networking, which will be likely named the “GigOptix” product line, and the Consumer and Cloud-Connectivity, which will be likely named the “GigCloud” line. Most of the Company’s current product lines will contribute products to each one of those two business lines.

Basis of Presentation

The Company’s fiscal year ends on December 31. For quarterly reporting, the Company employs a five-week, four-week, four-week, reporting period. The first quarter of 2016 ended on Sunday, March 27, 2016. The first quarter of 2015 ended on Sunday, March 29, 2015. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements as of March 27, 2016 and for the three months ended March 27, 2016 and March 29, 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. The statements include the accounts of the Company and all of its subsidiaries and they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of March 27, 2016, and the results of operations and cash flows for the three months ended March 27, 2016 and March 29, 2015. The condensed consolidated results of operations for the three months ended March 27, 2016 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2016. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the 2015 Form 10-K.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of these estimates and assumptions are included in the 2015 Form 10-K and the Company encourages you to read its 2015 Form 10-K for more information about such estimates and assumptions.

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.  In the fourth quarter of 2015 the Company concluded that it was appropriate to classify certain accruals of trade payable items as accounts payable instead of other accrued liabilities. The reclassification has no effect on previously reported consolidated statements of operations or accumulated deficit for any period and does not affect previously reported cash flows from operating, investing or financing activities in the consolidated statements of cash flows.  For comparability purposes, $446,000 of other current liabilities was reclassified to accounts payable as of March 29, 2015.

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. Reserves are made for warranties at the time revenue is recorded. See Note 11—Commitments and Contingencies for further detail related to the warranty reserve.

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. Collectability 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 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 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. Certain of 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 March 27, 2016 and December 31, 2015, the reserve for stock rotations was $125,000 and $490,000, 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.

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BALANCE SHEET COMPONENTS

3 Months Ended

Mar. 27, 2016

BALANCE SHEET COMPONENTS [Abstract]

BALANCE SHEET COMPONENTS

NOTE 2—BALANCE SHEET COMPONENTS

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

		March 27,			December 31,
		2016			2015
Accounts receivable	$	9,094		$	10,659
Allowance for doubtful accounts		(55	)		(63	)
	$	9,039		$	10,596

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

	Life		March 27,			December 31,
	(In years)		2016			2015
Network and laboratory equipment		3 – 5	$	13,660		$	13,520
Computer software and equipment		2 – 3		4,227			4,207
Furniture and fixtures		3 – 7		165			165
Office equipment		3 – 5		143			142
Leasehold improvements		1 – 5		336			316
				18,531			18,350
Accumulated depreciation and amortization				(15,612	)		(15,217	)
Property and equipment, net			$	2,919		$	3,133

For the three months ended March 27, 2016 and March 29, 2015, depreciation expense related to property and equipment was $338,000 and $415,000, respectively.

In addition to the property and equipment above, the Company has prepaid licenses. For the three months ended March 27, 2016 and March 29, 2015, amortization related to these prepaid licenses was $305,000 and $252,000, respectively.

Inventories consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Raw materials	$	2,126	$	2,379
Work in process		3,603		2,710
Finished goods		1,242		1,791
	$	6,971	$	6,880

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

	March 27,		December 31,
	2016		2015
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		286		325
Customer deposits		353		342
Sales return reserve		125		490
Accrual legal and accounting		631		129
Other		710		742
	$	2,296	$	2,219

Other long term liabilities consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Long term deferred income tax	$	323	$	318
Long term income taxes payable for unrecognized tax benefits		434		434
Other		154		160
Total other long term liabilities	$	911	$	912

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FAIR VALUE

3 Months Ended

Mar. 27, 2016

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 3—FAIR VALUE

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 27, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 27, 2016:
Assets:
Cash equivalents:
Money market funds	$	12,371	$	12,371	$	-	$	-
	$	12,371	$	12,371	$	-	$	-
Current liabilities:
Liability warrants	$	30	$	-	$	-	$	30
December 31, 2015:
Assets:
Cash equivalents:
Money market funds	$	12,364	$	12,364	$	-	$	-
	$	12,364	$	12,364	$	-	$	-
Current liabilities:
Liability warrants	$	39	$	-	$	-	$	39

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

For the three months ended March 27, 2016, the Company did not have any significant transfers between Level 1, Level 2 and Level 3.

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

Liability Warrants

The Company issued warrants to Bridge Bank in connection with a waiver of certain events of default that arose under a November 2009 loan and security agreement with Bridge Bank. Certain provisions in the warrant agreements provided for down-round protection if the Company raised equity capital at a per share price which was less than the per share price of the warrants. Such down-round protection also requires the Company to classify the value of the warrants as a liability on the issuance date and then record changes in the fair value through the consolidated statements of operations for each reporting period until the warrants are either exercised or cancelled. The fair value of the liability is recalculated and adjusted each quarter with the differences being charged to other income (expense), net on the consolidated statements of operations. The fair value of these warrants was determined using a Black-Scholes option-pricing model, which requires the use of significant unobservable market values.  As a result, these warrants are classified as Level 3 financial instruments. On July 7, 2010, the Company raised additional equity through an offering of 2,760,000 shares at $1.75 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank. On December 24, 2013, the Company raised additional equity through an offering of 9,573,750 shares at $1.42 per share, thus triggering the down-round protection and adjustment of the number of warrants issued to Bridge Bank. On September 10, 2015, the Company raised additional equity through an offering of 10,643,000 shares at $1.70 per share, respectively, 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 March 27, 2016	As of December 31, 2015
Stock price	$2.75	$3.04
Exercise price	$2.31	$2.31
Expected life	1.31 years	1.55 years
Risk-free interest rate	0.71%	0.86%
Volatility	62%	62%
Fair value per share	$0.95	$1.23

The following table summarizes the warrants subject to liability accounting as of March 27, 2016 and December 31, 2015 (in thousands, except share and per share amounts) (see also Note 6):

													Three Months Ended March 27, 2016					Three Months Ended March 29, 2015
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value March 27, 2016		Fair Value December 31, 2015		Exercise of Warrants		Change in  Fair Value			Exercise of Warrants		Change in Fair Value			Related Agreement
Bridge Bank		20,000		31,573	4/7/2010	7/7/2017	$	2.31	$	30	$	39		-	$	(9	)		-	$	(1	)	Credit Agreement

The change in the fair value of the Level 3 liability warrants during the three months ended March 27, 2016 is as follows (in thousands):

Fair value as of December 31, 2015	$	39
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of March 27, 2016	$	30

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

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INTANGIBLE ASSETS AND GOODWILL

3 Months Ended

Mar. 27, 2016

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 March 27, 2016							As of December 31, 2015
	Life (years)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer relationships	6-8	$	3,277	$	(2,647	)	$	630	$	3,277	$	(2,542	)	$	735
Existing technology	6-7		6,527		(3,585	)		2,942		6,527		(3,386	)		3,141
Patents	5-16		457		(409	)		48		457		(407	)		50
Trade name	2-10		659		(452	)		207		659		(438	)		221
Total definite-lived intangible assets			10,920		(7,093	)		3,827		10,920		(6,773	)		4,147
Indefinite-lived Intangible assets:
IPR&D	indefinite		383		-			383		383		-			383
Total intangible assets		$	11,303	$	(7,093	)	$	4,210	$	11,303	$	(6,773	)	$	4,530

For the three months ended March 27, 2016 and March 29, 2015, amortization of intangible assets was as follows (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	103	$	103
Research and development expense		97		-
Selling, general and administrative expense		120		120
	$	320	$	223

Estimated future amortization expense related to intangible assets as of March 27, 2016 is as follows (in thousands):

Years ending December 31,
2016 (remainder of the year)	$	937
2017		875
2018		451
2019		442
2020		394
Thereafter		728
Total	$	3,827

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. The Company did not record an impairment charge on any intangibles, including goodwill, during the quarters ended March 27, 2016 and March 29, 2015. As of March 27, 2016 and December 31, 2015, the Company had $12.6 million of goodwill in connection with the acquisitions of ChipX, Endwave, Tahoe RF and Terasquare.

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CREDIT FACILITIES

3 Months Ended

Mar. 27, 2016

CREDIT FACILITIES [Abstract]

CREDIT FACILITIES

NOTE 5—CREDIT FACILITIES

On March 25, 2013, the Company and its wholly owned subsidiaries, ChipX, Incorporated and Endwave Corporation (together with the Company, the “Prior Borrowers”) previously 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.

On May 15, 2015, SVB and the Prior Borrowers entered into a Second Amendment to the Second Restated Loan Agreement, effective as of May 8, 2015 (the “Second Amendment”). Pursuant to the Second Amendment, the total aggregate amount that the Company is entitled to borrow from SVB under a Revolving Loan facility is $7 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. In addition, the Applicable Rate was decreased from Prime Rate plus 0.6% to Prime Rate plus 0.4%, and the default interest rate increase was decreased from 5% to 3%. The terms of the Second Amendment are set to expire on May 6, 2016.

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

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

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

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

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

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

The Company had no outstanding balance on its line of credit as of March 27, 2016.

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

3 Months Ended

Mar. 27, 2016

STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract]

STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

NOTE 6—STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Private Equity Placement

On March 21, 2016, the Company entered into a Securities Purchase Agreement (the “PDSTI Agreement”) with Pudong Science and Technology Investment (Cayman) Co., Ltd., an affiliate of Shanghai Pudong Science and Technology Investment Co., Ltd. (collectively, “PDSTI”), pursuant to which PDSTI will purchase approximately $5 million of the Company’s common stock. Under the PDSTI Agreement, on March 24, 2016, the Company issued 1,754,385 shares of the Company’s common stock (the “Shares”) to PDSTI in a private placement at a purchase price of $2.85 per Share.

Pursuant to the PDSTI Agreement, the Company has agreed to file a registration statement on Form S-3 to provide registration rights to PDSTI in respect of the Shares. To the extent that such registration statement has not been declared effective by the Securities and Exchange Commission on or before July 7, 2016, the Company will pay to PDSTI, as liquidated damages, 0.4% of the aggregate purchase price on a monthly, prorated basis, until the registration statement has been declared effective. Interest on these liquidated damages will accrue at the rate of 1.0% per month until paid in full. The Company has deemed this loss contingency to be remote and as such has not recorded a liability as of March 27, 2016.

In the event that any U.S. governmental body or agency takes any action or issues any order within six months that would prevent PDSTI from holding the Shares or invalidates the Company’s issuance of the Shares to PDSTI, the Company has agreed to return PDSTI’s full purchase price, plus 0.4% interest on the purchase price (accruing monthly until paid in full), and to reimburse PDSTI’s expenses in connection with negotiating the private placement, up to $15,000. As a result of this contingent redemption clause, the net proceeds of $4.7 million are classified outside permanent equity until the contingency is resolved.

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 March 27, 2016 and December 31, 2015, 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.

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, 2015, the stockholders had approved 18,280,238 shares for future issuance. On January 1, 2016, there was an automatic increase of 2,260,527 shares. As of March 27, 2016, 12,720,084 options to purchase common stock and restricted stock units (“RSUs”) were outstanding and 2,448,789 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 three quarters 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 in options not granted under the 2007 Plan were cancelled. No shares of the Company’s common stock remain available for issuance of new grants under the 2007 Plan other than for satisfying exercises of stock options granted under this plan prior to its termination. As of March 27, 2016, options to purchase a total of 375,663 shares of common stock and 4,125 warrants to purchase common stock were outstanding.

Lumera 2000 and 2004 Stock Option Plan

In December 2008, in connection with the merger with Lumera, the Company assumed the existing Lumera 2000 Equity Incentive Plan and the Lumera 2004 Stock Option Plan (the “Lumera Plan”). All unvested options granted under the Lumera Plan were assumed by the Company as part of the merger. All contractual terms of the assumed options remain the same, except for the converted number of shares and exercise price based on merger conversion ratio of 0.125. As of March 27, 2016, no additional options can be granted under the Lumera Plan, and options to purchase a total of 57,191 shares of common stock were outstanding.

Warrants

As of March 27, 2016, the Company had a total of 160,698 warrants to purchase common stock outstanding under all warrant arrangements. During the three months ended March 27, 2016, no warrants were exercised or expired. Some of the warrants have anti-dilution provisions which adjust the number of warrants available to the holder such as, but not limited to, stock dividends, stock splits and certain reclassifications, exchanges, combinations or substitutions. These provisions are specific to each warrant agreement.

Stock-based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense for the three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	86	$	82
Research and development expense		323		247
Selling, general and administrative expense		876		560
	$	1,285	$	889

The Company did not grant any options during the three months ended March 27, 2016 and March 29, 2015.

During the three months ended March 27, 2016, the Company granted 1,333,623 RSUs with a grant-date fair value of $4.0 million or $2.97 per share. During the three months ended March 29, 2015, the Company granted 2,815,822 RSUs with a grant-date fair value of $3.5 million or $1.25 per share.

As of March 27, 2016, the total compensation cost not yet recognized in connection with unvested stock options and RSUs under the Company’s equity compensation plans was approximately $76,000 and $8.9 million, respectively. Unrecognized compensation will be amortized on a straight-line basis over a weighted-average period of approximately 0.95 years for stock options and approximately 2.85 years for RSUs.

Stock Option and RSU Activity

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

	Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term, in Years
Outstanding, December 31, 2015		7,918,584		$	2.32		4.82
Granted		-
Exercised		(132,493	)	$	2.10
Forfeited/Expired		(3,347	)	$	2.49
Ending balance, March 27, 2016		7,782,744		$	2.32		4.54
Vested and exercisable and expected to vest, March 27, 2016		7,774,286		$	2.33		4.54
Vested and exercisable, March 27, 2016		7,657,473		$	2.35		4.50

The aggregate intrinsic value of options vested, exercisable and expected to vest, based on the fair value of the underlying stock options as of March 27, 2016 was approximately $5.1 million. The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price of $2.75 as of March 24, 2016.

The total intrinsic value of options exercised during the three months ended March 27, 2016 was $132,000. The total intrinsic value of options exercised during the three months ended March 29, 2015 was $8,000.

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:

	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Vesting Term, Years		Aggregate Intrinsic Value
								(In thousands)
Outstanding, December 31, 2015		4,361,833		$	1.64		2.86	$	13,260
Granted		1,333,623			2.97
Released		(296,720	)		2.16
Forfeited/expired		(28,542	)		1.84
Outstanding, March 27, 2016		5,370,194		$	1.94		2.85	$	14,768

The majority of the RSUs that vested in the three months ended March 27, 2016 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. For the three months ended March 27, 2016, 296,720 shares of RSUs vested with an intrinsic value of approximately $988,000. The Company withheld 117,221 shares to satisfy approximately $395,000 of employees’ minimum tax obligation on the vested RSUs.

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INVESTMENT IN UNCONSOLIDATED AFFILIATES

3 Months Ended

Mar. 27, 2016

INVESTMENT IN UNCONSOLIDATED AFFILIATES [Abstract]

INVESTMENT IN UNCONSOLIDATED AFFILIATES

NOTE 7—INVESTMENT IN UNCONSOLIDATED AFFILIATES

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 its inventory related to the TFPS^TM platform and the complete production line equipment that previously resided at its Bothell, Washington, facility to CPqD, for use on 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. During the second quarter of 2015, the Company made an additional capital contribution of $3,000 pursuant to BrP’s Amended Articles of Association which resulted in a $459,000 investment in BrP.

For the years ended December 31, 2015 and 2014, the Company had losses of $3,000 and $456,000, respectively, 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, 2015.

On January 25, 2016, the Company invested $1.2 million to own a minority stake in a company called Anagog Ltd. (“Anagog”), the developer of the world’s largest crowdsourced parking network. Anagog perfects the mobility status algorithms that allow for advanced on-phone machine learning capabilities for the best user experience with ultra-low battery consumption and a high level of privacy protection. As of March 27, 2016, this cost method investment of $1.2 million is recorded in other assets on the condensed consolidated balance sheet.

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INCOME TAXES

3 Months Ended

Mar. 27, 2016

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 8—INCOME TAXES

The Company recorded a provision for income taxes of $40,000 for the three months ended March 27, 2016, and $9,000 for the three months ended March 29, 2015. The income tax provision for the three months ended March 27, 2016 and March 29, 2015 was due primarily to state taxes and foreign taxes due. The Company has incurred tax losses in all tax jurisdictions except Korea, Japan, and Switzerland and has a full valuation allowance against such losses.

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. In order to support a conclusion that a valuation allowance is not needed, positive evidence of sufficient quantity and quality is necessary to overcome negative evidence. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding realization of the asset including lack of profitability through March 27, 2016 and the uncertainty over future operating profitability and taxable income. The Company will continue to evaluate the potential realization of the deferred tax assets on a quarterly basis.

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, Korea, Japan, and Israel. With the acquisition of Magnum on April 5, 2016, the Company has added in the second fiscal quarter of 2016, Ontario, Canada to this list. The Company’s fiscal years through December 31, 2015 remain subject to examination by the tax authorities for U.S. federal, U.S. state and foreign tax purpose.

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NET LOSS PER SHARE

3 Months Ended

Mar. 27, 2016

NET LOSS PER SHARE [Abstract]

NET LOSS PER SHARE

NOTE 9—NET LOSS PER SHARE

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

	March 27,		March 29,
	2016		2015
Stock options and RSUs		13,152,938		12,724,280
Common stock warrants		160,698		658,240
Total		13,313,636		13,382,520

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SEGMENT AND GEOGRAPHIC INFORMATION

3 Months Ended

Mar. 27, 2016

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

SEGMENT AND GEOGRAPHIC INFORMATION

NOTE 10—SEGMENT AND GEOGRAPHIC INFORMATION

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

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

	Three Months Ended
	March 27, 2016				March 29, 2015
North America	$	4,728	42	%	$	3,031	33	%
Asia		3,841	34	%		2,819	31	%
Europe		2,793	24	%		2,953	33	%
Other		-	0	%		257	3	%
	$	11,362	100	%	$	9,060	100	%

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

For the three months ended March 27, 2016, three customers, of which two are distributors that serve large number of customers in their geographical regions, accounted for 49% of total revenue. For the three months ended March 29, 2015, three customers accounted for 51% of total revenue. No other customers accounted for more than 10% of total revenue during the periods presented.

During three months ended March 27, 2016, the United States, Europe and the Far East accounted for 41%, 22% and 32% of revenue, respectively. During three months ended March 29, 2015, the United States, Europe and the Far East accounted for 27%, 29% and 25% 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 long-lived assets by country (in thousands):

	March 27, 2016				December 31, 2015
United States	$	2,471	85	%	$	2,680	85	%
Switzerland		432	15	%		435	14	%
Asia		16	0	%		18	1	%
	$	2,919	100	%	$	3,133	100	%

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

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 27, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11—COMMITMENTS AND CONTINGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options.  The Company also leases certain software licenses under operating leases. Total facilities rent expense for the three months ended March 27, 2016 was $142,000, and for the three months ended March 29, 2015 was $111,000.

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

	Capital Leases			Operating Leases
Years ending December 31,	Minimum lease  payments			Minimum lease payments
2016 (remainder of the year)	$	2		$	498
2017		3			227
2018		-			73
2019		-			73
2020 and beyond		-			61
Total minimum lease payments		5		$	932
Less: Amount representing interest		-
Total capital lease obligations		5
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	2

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 three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three months ended
	March 27, 2016			March 29, 2015
Beginning balance	$	325		$	334
Warranties accrued		8			197
Warranties settled		(47	)		(162	)
Ending balance	$	286		$	369

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RECENT ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 27, 2016

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 12—RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standard Board (“FASB”) issued an accounting standard superseding Topic 840, Leases, to require lessees to recognize assets and liabilities arising from operating leases on the balance sheet. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and to classify all cash payments within operating activities in the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. We are evaluating the impact the adoption will have on our condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard eliminating the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. This standard is effective for interim and annual reporting periods beginning after December 15, 2016. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard amending the Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which is not yet effective. The effective date and transition requirements remains the same as ASU 2014-09. This amendment addresses the issues related to the guidance on principal versus agent considerations stated in the ASU 2014-09. We do not expect the adoption will have a material impact on our condensed consolidated financial statements.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 27, 2016

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 13—SUBSEQUENT EVENTS

On April 5, 2016, the Company completed an acquisition of Magnum pursuant to the terms of the Agreement and Plan of Merger, dated as of April 1 2016 (the “Merger Agreement”). The acquisition was executed via a combination of equity and cash, issuing approximately 6.9 million shares and paying an additional approximately $36.2 million in net cash, of which a significant portion was used to repay Magnum’s outstanding debt and other liabilities. The Company borrowed a combined total of $22.1 million from SVB. Upon completion of the merger, the outstanding shares of, and certain warrants to acquire, Magnum’s senior preferred stock, as well as notes held by the holders of such shares of Magnum senior preferred stock, were converted either into the right to receive shares of GigPeak common stock or cash depending upon whether the holder of such shares of preferred stock or warrants were “accredited investors” as such term is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended. All other shares of, and options and warrants to acquire, Magnum common and preferred stock were cancelled, extinguished and terminated without conversion upon the consummation of the Merger.

On April 5, 2016, SVB and the Prior Borrowers, with newly acquired Magnum, entered into the Third Amended and Restated Loan and Security Agreement (the “Third Restated Loan Agreement”) which amended and restated the Second Amendment. Pursuant to the Third Restated Loan Agreement, the total aggregate amount that the Company is entitled to borrow from SVB has increased to $29 million, which is 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 $14 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 (the “Amended Revolving Loan”) and (ii) a second facility under which the Company is entitled to borrow from SVB up to $15 million without reference to accounts receivable, and which must be repaid in sixty equal installments, unless it exercise its right to prepay the loan under the conditions of, and subject to the limitations to, the Third Restated Loan Agreement. The interest rate is Prime Rate plus 1.25%, and the default interest rate remains at 3%. Also, SVB had two outstanding existing warrants to purchase common stock of the Company: (i) warrants for 4,125 shares of common stock at an exercise price of $0.73, with an expiration date of 10/5/2017, and (ii) warrants for 125,000 shares of common stock at an exercise price of $4.00 per share, with an expiration date of 4/23/2017. In connection with the Third Restated Loan Agreement, the warrants have been amended and restated to extend the expiration date of those warrants to 10/5/2022 and 4/23/2022, respectively.

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 27, 2016

ORGANIZATION AND BASIS OF PRESENTATION [Abstract]

Organization

Organization

GigPeak Inc. (formerly GigOptix, Inc.) (“GigPeak” or the “Company”) is a leading innovator of semiconductor integrated circuits (“ICs”) and software solutions for high-speed connectivity and high-quality video compression over the network and the Cloud. The Company’s focus is to develop and deliver products that enable lower power consumption and faster data connectivity, more efficient use of network infrastructure and broader connectivity to the Cloud, and reduce the total cost of ownership of existing network pipes from the core to the end user. GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, and provides solutions that increase the efficiency of various cloud-connected applications, such as the Internet-of-Things (“IoT”), leveraging its strength in high-speed connectivity and, with the highest quality video compression assets that were acquired through the acquisition (the “Merger”) of Magnum Semiconductor, Inc. (“Magnum”) during the Company’s second fiscal quarter on April 5, 2016. The extended product portfolio provides more flexibility to support changing market requirements and customer’s dynamic road-maps, by way of using ICs and monolithic microwave integrated circuits (“MMICs”), and through full software programmability and cost efficient custom application specific integrated circuit (“ASICs”).

The Company develops semiconductor ICs and software solutions for high-speed connectivity and high-quality video compression over the enterprise network and the Cloud. With its product focus, the Company attempts to reduce the total cost of ownership of existing network pipes, from the core of the network to the end user appliances and terminals.

GigPeak addresses both the speed of data transmission and the amount of bandwidth the data consumes within the network, which are the two major data streaming bottlenecks, while also the future enabler factors, to maintain network efficiency. As such, the Company’s products also naturally provide solutions that increase the efficiency of IoT and other Cloud-connected applications. GigPeak’s solutions leverage its industry-recognized strength in high-speed connectivity delivered through the GigOptix brand-name product line, and as of the second fiscal quarter of 2016, the highest quality video compression delivered through the industry-recognized Magnum brand.

The recently extended GigPeak product portfolio provides flexibility to better support on-going changes in the connectivity that customers and markets require by deploying a wide tool-box of solutions from various kinds of semiconductor materials, integrated circuits and Multi-Chip-Modules (“MCMs), through cost-effective ASICs and system-on-chips (“SoCs”), and into full software programmable open-platform offerings.

The Company’s products are highly customized and typically developed in partnership with key “Lighthouse” customers, occasionally generating some engineering project revenues through the development stage, and where the largest revenue is generated from future device product shipments and sales through these customers and general market availability.

Since inception in 2007, the Company has expanded its customer base by acquiring and integrating eight (8) companies with complementary and synergistic products and customers, and spun out one (1) business to establish a joint-venture. GigPeak’s worldwide direct sales force is supported by a significant number of channel representatives and distributors that sell its products throughout North America, South America, Europe, Japan and Asia.

As noted above, on April 5, 2016, the Company completed its most recent acquisition of Magnum, and simultaneously renamed itself as GigPeak, Inc. Magnum is a fabless semiconductor manufacturer and software solution developer, and brings a well-developed and comprehensive portfolio of video broadcasting and compression solutions to GigPeak, including silicon ICs, SoCs, software solutions, and a comprehensive library of intellectual property. The Magnum products currently are for the professional video broadcast and are extendable to IoT camera markets. Magnum provides top of the line products, tools and technologies for the entire video content creation and distribution chain, from contribution and production through distribution over cable, telecom, satellite and over-the-top (“OTT”) video streaming.

Through the acquisition of Magnum, the Company broadens its product offerings by adding additional flavors of silicon integrated circuits (“ICs”), and new SoCs, software, and intellectual property (“IP”) for the professional broadcast infrastructure market. Today’s video service providers, which include cable operators, telecommunications companies and satellite TV providers, are continuously seeking to perfect their linear and nonlinear workflows and improve the quality of their video content, while simultaneously optimizing the efficiency of their networks. The Company’s products, tools, and technologies are currently used in the entire video content creation and distribution chain. Specifically, GigPeak’s solutions are used to address challenges in video contribution, video production, primary and secondary distribution, and enterprise wide solutions. Over time, GigPeak will look to leverage those capabilities and seek opportunities to expand its offerings into new markets, such as potentially surveillance cameras and other video IoT applications.

The blending of products and technologies gives GigPeak the capability to address both the speed of data transmission and the amount of bandwidth the data consumes within a network, driven in particular by the video content which is the source of a majority of the datacenter traffic and storage on today’s networks. Through this combination, the Company provides solutions to enhance the footprint utilization and reduce total cost of ownership of existing network pipes from the core to the end user. Its wide product portfolio and exceptional customer support practices, will continue to serve the enterprise networking and broadcasting original equipment manufacturers (“OEMs”), as well as IoT and other Cloud-connected consumers.

With the acquisition of Magnum, the Company is in the process of reorganizing its operations to line up with its targeted end-markets and customers. This will eventually result later in fiscal 2016 in two business lines: the Enterprise Networking, which will be likely named the “GigOptix” product line, and the Consumer and Cloud-Connectivity, which will be likely named the “GigCloud” line. Most of the Company’s current product lines will contribute products to each one of those two business lines.

Basis of Presentation

Basis of Presentation

The Company’s fiscal year ends on December 31. For quarterly reporting, the Company employs a five-week, four-week, four-week, reporting period. The first quarter of 2016 ended on Sunday, March 27, 2016. The first quarter of 2015 ended on Sunday, March 29, 2015. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements as of March 27, 2016 and for the three months ended March 27, 2016 and March 29, 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. The statements include the accounts of the Company and all of its subsidiaries and they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of March 27, 2016, and the results of operations and cash flows for the three months ended March 27, 2016 and March 29, 2015. The condensed consolidated results of operations for the three months ended March 27, 2016 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2016. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the 2015 Form 10-K.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of these estimates and assumptions are included in the 2015 Form 10-K and the Company encourages you to read its 2015 Form 10-K for more information about such estimates and assumptions.

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.  In the fourth quarter of 2015 the Company concluded that it was appropriate to classify certain accruals of trade payable items as accounts payable instead of other accrued liabilities. The reclassification has no effect on previously reported consolidated statements of operations or accumulated deficit for any period and does not affect previously reported cash flows from operating, investing or financing activities in the consolidated statements of cash flows.  For comparability purposes, $446,000 of other current liabilities was reclassified to accounts payable as of March 29, 2015.

Reclassifications

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.  In the fourth quarter of 2015 the Company concluded that it was appropriate to classify certain accruals of trade payable items as accounts payable instead of other accrued liabilities. The reclassification has no effect on previously reported consolidated statements of operations or accumulated deficit for any period and does not affect previously reported cash flows from operating, investing or financing activities in the consolidated statements of cash flows.  For comparability purposes, $446,000 of other current liabilities was reclassified to accounts payable as of March 29, 2015.

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. Reserves are made for warranties at the time revenue is recorded. See Note 11—Commitments and Contingencies for further detail related to the warranty reserve.

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. Collectability 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 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 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. Certain of 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 March 27, 2016 and December 31, 2015, the reserve for stock rotations was $125,000 and $490,000, 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.

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BALANCE SHEET COMPONENTS (Tables)

3 Months Ended

Mar. 27, 2016

BALANCE SHEET COMPONENTS [Abstract]

Accounts receivable, net

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

		March 27,			December 31,
		2016			2015
Accounts receivable	$	9,094		$	10,659
Allowance for doubtful accounts		(55	)		(63	)
	$	9,039		$	10,596

Property and equipment, net

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

	Life		March 27,			December 31,
	(In years)		2016			2015
Network and laboratory equipment		3 – 5	$	13,660		$	13,520
Computer software and equipment		2 – 3		4,227			4,207
Furniture and fixtures		3 – 7		165			165
Office equipment		3 – 5		143			142
Leasehold improvements		1 – 5		336			316
				18,531			18,350
Accumulated depreciation and amortization				(15,612	)		(15,217	)
Property and equipment, net			$	2,919		$	3,133

Inventories

Inventories consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Raw materials	$	2,126	$	2,379
Work in process		3,603		2,710
Finished goods		1,242		1,791
	$	6,971	$	6,880

Other current liabilities

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

	March 27,		December 31,
	2016		2015
Amounts billed to the U.S. government in excess of approved rates	$	191	$	191
Warranty liability		286		325
Customer deposits		353		342
Sales return reserve		125		490
Accrual legal and accounting		631		129
Other		710		742
	$	2,296	$	2,219

Other long-term liabilities

Other long term liabilities consisted of the following (in thousands):

	March 27,		December 31,
	2016		2015
Long term deferred income tax	$	323	$	318
Long term income taxes payable for unrecognized tax benefits		434		434
Other		154		160
Total other long term liabilities	$	911	$	912

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FAIR VALUE (Tables)

3 Months Ended

Mar. 27, 2016

FAIR VALUE [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 March 27, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 27, 2016:
Assets:
Cash equivalents:
Money market funds	$	12,371	$	12,371	$	-	$	-
	$	12,371	$	12,371	$	-	$	-
Current liabilities:
Liability warrants	$	30	$	-	$	-	$	30
December 31, 2015:
Assets:
Cash equivalents:
Money market funds	$	12,364	$	12,364	$	-	$	-
	$	12,364	$	12,364	$	-	$	-
Current liabilities:
Liability warrants	$	39	$	-	$	-	$	39

Estimate of fair value for warrants assumptions

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

	As of March 27, 2016	As of December 31, 2015
Stock price	$2.75	$3.04
Exercise price	$2.31	$2.31
Expected life	1.31 years	1.55 years
Risk-free interest rate	0.71%	0.86%
Volatility	62%	62%
Fair value per share	$0.95	$1.23

Warrants subject to liability accounting

The following table summarizes the warrants subject to liability accounting as of March 27, 2016 and December 31, 2015 (in thousands, except share and per share amounts) (see also Note 6):

													Three Months Ended March 27, 2016					Three Months Ended March 29, 2015
Holder	Original Warrants		Adjusted Warrants		Grant Date	Expiration Date	Price per Share		Fair Value March 27, 2016		Fair Value December 31, 2015		Exercise of Warrants		Change in  Fair Value			Exercise of Warrants		Change in Fair Value			Related Agreement
Bridge Bank		20,000		31,573	4/7/2010	7/7/2017	$	2.31	$	30	$	39		-	$	(9	)		-	$	(1	)	Credit Agreement

Change in the fair value of level 3 liabilities

The change in the fair value of the Level 3 liability warrants during the three months ended March 27, 2016 is as follows (in thousands):

Fair value as of December 31, 2015	$	39
Exercise of warrants		-
Change in fair value		(9	)
Fair value as of March 27, 2016	$	30

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INTANGIBLE ASSETS AND GOODWILL (Tables)

3 Months Ended

Mar. 27, 2016

INTANGIBLE ASSETS AND GOODWILL [Abstract]

Intangible assets

Intangible assets consist of the following (in thousands):

		As of March 27, 2016							As of December 31, 2015
	Life (years)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer relationships	6-8	$	3,277	$	(2,647	)	$	630	$	3,277	$	(2,542	)	$	735
Existing technology	6-7		6,527		(3,585	)		2,942		6,527		(3,386	)		3,141
Patents	5-16		457		(409	)		48		457		(407	)		50
Trade name	2-10		659		(452	)		207		659		(438	)		221
Total definite-lived intangible assets			10,920		(7,093	)		3,827		10,920		(6,773	)		4,147
Indefinite-lived Intangible assets:
IPR&D	indefinite		383		-			383		383		-			383
Total intangible assets		$	11,303	$	(7,093	)	$	4,210	$	11,303	$	(6,773	)	$	4,530

Amortization of intangible assets

For the three months ended March 27, 2016 and March 29, 2015, amortization of intangible assets was as follows (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	103	$	103
Research and development expense		97		-
Selling, general and administrative expense		120		120
	$	320	$	223

Estimated future amortization expense

Estimated future amortization expense related to intangible assets as of March 27, 2016 is as follows (in thousands):

Years ending December 31,
2016 (remainder of the year)	$	937
2017		875
2018		451
2019		442
2020		394
Thereafter		728
Total	$	3,827

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 27, 2016

STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract]

Schedule of stock-based compensation expense

The following table summarizes the Company’s stock-based compensation expense for the three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three Months Ended
	March 27, 2016		March 29, 2015
Cost of revenue	$	86	$	82
Research and development expense		323		247
Selling, general and administrative expense		876		560
	$	1,285	$	889

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:

	Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term, in Years
Outstanding, December 31, 2015		7,918,584		$	2.32		4.82
Granted		-
Exercised		(132,493	)	$	2.10
Forfeited/Expired		(3,347	)	$	2.49
Ending balance, March 27, 2016		7,782,744		$	2.32		4.54
Vested and exercisable and expected to vest, March 27, 2016		7,774,286		$	2.33		4.54
Vested and exercisable, March 27, 2016		7,657,473		$	2.35		4.50

Summary of RSU activity

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

	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Vesting Term, Years		Aggregate Intrinsic Value
								(In thousands)
Outstanding, December 31, 2015		4,361,833		$	1.64		2.86	$	13,260
Granted		1,333,623			2.97
Released		(296,720	)		2.16
Forfeited/expired		(28,542	)		1.84
Outstanding, March 27, 2016		5,370,194		$	1.94		2.85	$	14,768

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NET LOSS PER SHARE (Tables)

3 Months Ended

Mar. 27, 2016

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:

	March 27,		March 29,
	2016		2015
Stock options and RSUs		13,152,938		12,724,280
Common stock warrants		160,698		658,240
Total		13,313,636		13,382,520

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SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

3 Months Ended

Mar. 27, 2016

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

Revenue by geographic region

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

	Three Months Ended
	March 27, 2016				March 29, 2015
North America	$	4,728	42	%	$	3,031	33	%
Asia		3,841	34	%		2,819	31	%
Europe		2,793	24	%		2,953	33	%
Other		-	0	%		257	3	%
	$	11,362	100	%	$	9,060	100	%

Long lived assets by country

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

	March 27, 2016				December 31, 2015
United States	$	2,471	85	%	$	2,680	85	%
Switzerland		432	15	%		435	14	%
Asia		16	0	%		18	1	%
	$	2,919	100	%	$	3,133	100	%

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COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 27, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

Aggregate non-cancelable future minimum rental payments

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

	Capital Leases			Operating Leases
Years ending December 31,	Minimum lease  payments			Minimum lease payments
2016 (remainder of the year)	$	2		$	498
2017		3			227
2018		-			73
2019		-			73
2020 and beyond		-			61
Total minimum lease payments		5		$	932
Less: Amount representing interest		-
Total capital lease obligations		5
Less: current portion		(3	)
Long-term portion of capital lease obligations	$	2

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 three months ended March 27, 2016 and March 29, 2015 (in thousands):

	Three months ended
	March 27, 2016			March 29, 2015
Beginning balance	$	325		$	334
Warranties accrued		8			197
Warranties settled		(47	)		(162	)
Ending balance	$	286		$	369

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ORGANIZATION AND BASIS OF PRESENTATION (Details)	3 Months Ended
	Mar. 27, 2016 USD ($) BusinessLine	Dec. 31, 2015 USD ($)	Mar. 29, 2015 USD ($)
Organization [Abstract]
Number of business lines | BusinessLine	2
Revenue Recognition [Line Items]
Percentage of gross margin at which revenue from development projects are recorded	100.00%
Period of stock rotation	6 months
Reserve for stock rotations	$ 125,000	$ 490,000
Rclasification [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Current liabilities reclassified to accounts payable			$ 446,000
Minimum [Member]
Revenue Recognition [Line Items]
Stock rotation privileges specified as percentage of net sales	5.00%
Maximum [Member]
Revenue Recognition [Line Items]
Stock rotation privileges specified as percentage of net sales	10.00%

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BALANCE SHEET COMPONENTS (Details) - USD ($)	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015	Dec. 31, 2015
BALANCE SHEET COMPONENTS [Abstract]
Accounts receivable	$ 9,094,000		$ 10,659,000
Allowance for doubtful accounts	(55,000)		(63,000)
Accounts receivable, net	9,039,000		10,596,000	[1]
Property and equipment [Line Items]
Property and equipment, gross	18,531,000		18,350,000
Accumulated depreciation and amortization	(15,612,000)		(15,217,000)
Property and equipment, net	2,919,000		3,133,000	[1]
Depreciation expense related to property and equipment	338,000	$ 415,000
Amortization of prepaid licenses	305,000	$ 252,000
Inventory, net [Abstract]
Raw materials	2,126,000		2,379,000
Work in process	3,603,000		2,710,000
Finished goods	1,242,000		1,791,000
Inventories	6,971,000		6,880,000	[1]
Accrued and other current liabilities [Abstract]
Amounts billed to the U.S. government in excess of approved rates	191,000		191,000
Warranty liability	286,000		325,000
Customer deposits	353,000		342,000
Sales return reserve	125,000		490,000
Accrual legal and accounting	631,000		129,000
Other	710,000		742,000
Other current liabilities	2,296,000		2,219,000	[1]
Other long term liabilities [Abstract]
Long term deferred income tax	323,000		318,000
Long term income taxes payable for unrecognized tax benefits	434,000		434,000
Other	154,000		160,000
Total other long term liabilities	911,000		912,000	[1]
Network and Laboratory Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 13,660,000		13,520,000
Network and Laboratory Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	3 years
Network and Laboratory Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	5 years
Computer Software and Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 4,227,000		4,207,000
Computer Software and Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	2 years
Computer Software and Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	3 years
Furniture And Fixtures [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 165,000		165,000
Furniture And Fixtures [Member] | Minimum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	3 years
Furniture And Fixtures [Member] | Maximum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	7 years
Office Equipment [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 143,000		142,000
Office Equipment [Member] | Minimum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	3 years
Office Equipment [Member] | Maximum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	5 years
Leasehold Improvements [Member]
Property and equipment [Line Items]
Property and equipment, gross	$ 336,000		$ 316,000
Leasehold Improvements [Member] | Minimum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	1 year
Leasehold Improvements [Member] | Maximum [Member]
Property and equipment [Line Items]
Property and equipment, useful life	5 years

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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FAIR VALUE (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		12 Months Ended
	Sep. 10, 2015	Dec. 24, 2013	Jul. 07, 2010	Mar. 27, 2016	Mar. 29, 2015	Dec. 31, 2015	Mar. 27, 2016	Dec. 31, 2015	Dec. 16, 2014
Class of Warrant or Right [Line Items]
Additional equity shares issued (in shares)	10,643,000	9,573,750	2,760,000
Share price of additional equity offering (in dollars per share)	$ 1.70	$ 1.42	$ 1.75
Warrants subject to liability accounting [Abstract]
Adjusted warrants (in shares)							160,698
Price per share (in dollars per share)							$ 5.25		$ 8.50
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Cash equivalents [Abstract]
Total assets, fair value							$ 12,371	$ 12,364
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents							12,371	12,364
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]
Total assets, fair value							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]
Total assets, fair value							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							30	39
Carrying Value [Member] | Recurring [Member]
Cash equivalents [Abstract]
Total assets, fair value							12,371	12,364
Carrying Value [Member] | Recurring [Member] | Money Market Funds [Member]
Cash equivalents [Abstract]
Cash equivalents							12,371	12,364
Carrying Value [Member] | Recurring [Member] | Liability Warrants [Member]
Current liabilities [Abstract]
Liability warrants							30	39
Liability Warrants [Member]
Warrants subject to liability accounting [Abstract]
Fair value				$ 39		$ 39	$ 30	$ 39
Exercise of warrants				0
Change in fair value				(9)
Change in fair value of Level 3 liability warrants [Roll Forward]
Fair value, beginning of period				39
Exercise of warrants				0
Change in fair value				(9)
Fair value, end of period				$ 30		$ 39
Bridge Bank Warrant [Member]
Fair value assumptions [Abstract]
Stock price (in dollars per share)							$ 2.75	$ 3.04
Exercise price (in dollars per share)							2.31	2.31
Expected life				1 year 3 months 22 days		1 year 6 months 18 days
Risk-free interest rate				0.71%		0.86%
Volatility				62.00%		62.00%
Fair value per share (in dollars per share)							$ 0.95	$ 1.23
Warrants subject to liability accounting [Abstract]
Holder				Bridge Bank
Original warrants (in shares)							20,000
Adjusted warrants (in shares)							31,573
Grant date				Apr. 07, 2010
Expiration date				Jul. 07, 2017
Price per share (in dollars per share)							$ 2.31
Fair value				$ 30		$ 39	$ 30	$ 39
Exercise of warrants				0	$ 0
Change in fair value				$ (9)	(1)
Related agreement				Credit Agreement
Change in fair value of Level 3 liability warrants [Roll Forward]
Fair value, beginning of period				$ 39
Exercise of warrants				0	0
Change in fair value				(9)	$ (1)
Fair value, end of period				$ 30		$ 39

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INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015	Dec. 31, 2015
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Gross	$ 10,920		$ 10,920
Definite-lived intangible assets, Accumulated Amortization	(7,093)		(6,773)
Definite-lived intangible assets, Net	3,827		4,147
Amortization of intangible assets	320	$ 223
Intangible Assets, Net [Abstract]
Total intangible assets, Gross	11,303		11,303
Definite-lived intangible assets, Accumulated Amortization	(7,093)		(6,773)
Total intangible assets, Net	4,210		4,530	[1]
Cost of Revenue [Member]
Definite-lived intangible assets [Abstract]
Amortization of intangible assets	103	103
Research and Development Expense [Member]
Definite-lived intangible assets [Abstract]
Amortization of intangible assets	97	0
Selling, General and Administrative Expenses [Member]
Definite-lived intangible assets [Abstract]
Amortization of intangible assets	120	$ 120
Customer Relationships [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Gross	3,277		3,277
Definite-lived intangible assets, Accumulated Amortization	(2,647)		(2,542)
Definite-lived intangible assets, Net	630		735
Intangible Assets, Net [Abstract]
Definite-lived intangible assets, Accumulated Amortization	(2,647)		(2,542)
Existing Technology [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Gross	6,527		6,527
Definite-lived intangible assets, Accumulated Amortization	(3,585)		(3,386)
Definite-lived intangible assets, Net	2,942		3,141
Intangible Assets, Net [Abstract]
Definite-lived intangible assets, Accumulated Amortization	(3,585)		(3,386)
Patents [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Gross	457		457
Definite-lived intangible assets, Accumulated Amortization	(409)		(407)
Definite-lived intangible assets, Net	48		50
Intangible Assets, Net [Abstract]
Definite-lived intangible assets, Accumulated Amortization	(409)		(407)
Trade Name [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Gross	659		659
Definite-lived intangible assets, Accumulated Amortization	(452)		(438)
Definite-lived intangible assets, Net	207		221
Intangible Assets, Net [Abstract]
Definite-lived intangible assets, Accumulated Amortization	$ (452)		(438)
Minimum [Member] | Customer Relationships [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	6 years
Minimum [Member] | Existing Technology [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	6 years
Minimum [Member] | Patents [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	5 years
Minimum [Member] | Trade Name [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	2 years
Maximum [Member] | Customer Relationships [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	8 years
Maximum [Member] | Existing Technology [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	7 years
Maximum [Member] | Patents [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	16 years
Maximum [Member] | Trade Name [Member]
Definite-lived intangible assets [Abstract]
Definite-lived intangible assets, Life	10 years
IPR&D [Member]
Indefinite-lived Intangible assets [Abstract]
Indefinite-lived Intangible assets	$ 383		$ 383

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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INTANGIBLE ASSETS AND GOODWILL, Estimated Future Amortization Expense Related to Intangible Assets and Acquisition Related Goodwill (Details) - USD ($) $ in Thousands	Mar. 27, 2016	Dec. 31, 2015
Future amortization expense [Abstract]
2016	$ 937
2017	875
2018	451
2019	442
2020	394
Thereafter	728
Total	3,827	$ 4,147
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill related to acquisition	$ 12,565	$ 12,565	[1]

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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CREDIT FACILITIES (Details) - Silicon Valley Bank [Member] - Line of Credit [Member] - USD ($) $ in Millions	3 Months Ended	4 Months Ended
	Mar. 27, 2016	May. 15, 2015
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 7
Borrowing base percentage used for maximum borrowing capacity	80.00%
Debt instrument, increase in default interest rate	3.00%	5.00%
Loan agreement expiration date	May 06, 2016
Amount outstanding	$ 0
Prime Rate [Member]
Line of Credit Facility [Line Items]
Debt instrument, applicable interest rate	0.40%	0.60%

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands						3 Months Ended
	Mar. 24, 2016	Mar. 21, 2016	Sep. 10, 2015	Dec. 24, 2013	Jul. 07, 2010	Mar. 27, 2016	Mar. 29, 2015	Dec. 31, 2015	[1]	Dec. 16, 2014	Nov. 30, 2014	Jan. 06, 2012	Dec. 31, 2008
Private Equity Placement [Abstract]
Equity shares issued (in shares)			10,643,000	9,573,750	2,760,000
Common stock purchase price per share (in dollars per share)			$ 1.70	$ 1.42	$ 1.75
Net proceeds classified outside permanent equity						$ 5,000	$ 0
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, authorized (in shares)						1,000,000		1,000,000
Fractional share of preferred stock each preferred share purchase right is entitled to (in shares)						1
Common and preferred stock [Abstract]
Common stock, authorized (in shares)						100,000,000		100,000,000			100,000,000		50,000,000
Common stock, par value (in dollars per share)						$ 0.001		$ 0.001			$ 0.001		$ 0.001
Preferred stock, par value (in dollars per share)						$ 0.001		$ 0.001
Preferred stock, issued (in shares)						0		0
Preferred stock, outstanding (in shares)						0		0
Stockholders rights plan number of years to extend expiration date						3 years
Stockholders rights plan expiration date						Dec. 16, 2017
Exercise price per share (in dollars per share)						$ 5.25				$ 8.50
Common stock dividends, number of preferred stock purchase rights per share (in shares)						1						1
Minimum ownership percentage of beneficial owner for exercisability of rights to purchase preferred stock to be triggered						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						1.00%
Preferred stock, voting rights						Each share of preferred stock has voting rights equal to one thousand shares of common stock
Private Equity Placement [Member] | PSTI Agreement [Member]
Private Equity Placement [Abstract]
Common stock, purchase price		$ 5,000
Equity shares issued (in shares)	1,754,385
Common stock purchase price per share (in dollars per share)	$ 2.85
Percentage of aggregate purchase price on monthly, prorated basis						0.40%
Percentage of interest on liquidated damages accrued						1.00%
Percentage of interest on return of full purchase price						0.40%
Amount of reimbursed expenses in connection with negotiation						$ 15,000
Net proceeds classified outside permanent equity						$ 4,700
Series A Junior Preferred Stock [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, authorized (in shares)						750,000
Fractional share of preferred stock each preferred share purchase right is entitled to (in shares)						1

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Share-based Compensation Arrangements by Share-based Payment Award (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 27, 2016	Mar. 29, 2015	Dec. 31, 2015	Dec. 31, 2014	Sep. 25, 2015	Dec. 31, 2008
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants outstanding (in shares)	160,698
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 76,000
Weighted average period of recognition for unrecognized compensation cost	11 months 12 days
Stock price (in dollars per share)					$ 2.75
Total grant date fair value options	$ 0	$ 0
Aggregate Intrinsic Value [Abstract]
Aggregate intrinsic value, exercised	132,000	$ 8,000
Aggregate intrinsic value, vested and expected to vest	5,100,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 8,900,000
Weighted average period of recognition for unrecognized compensation cost	2 years 10 months 6 days
Stock option activity, weighted-average exercise price [Roll Forward]
Weighted average exercise price, granted (in dollars per shares)	$ 2.97
Restricted stock activity, number of shares [Roll Forward]
Outstanding, beginning of period (in shares)	4,361,833
Granted (in shares)	1,333,623	2,815,822
Released (in shares)	(296,720)
Forfeited/expired (in shares)	(28,542)
Outstanding, end of period (in shares)	5,370,194		4,361,833
Total grant date fair value	$ 4,000,000	$ 3,500,000
Restricted stock activity, Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 1.64
Granted (in dollars per share)	2.97	$ 1.25
Released (in dollars per share)	2.16
Forfeited/expired (in dollars per share)	1.84
Outstanding, end of period (in dollars per share)	$ 1.94		$ 1.64
Restricted stock activity, Weighted-average Remaining Vesting Term, Years [Abstract]
Weighted-average remaining vesting term, outstanding	2 years 10 months 6 days			2 years 10 months 10 days
Restricted stock activity, Aggregate Intrinsic Value [Roll Forward]
Aggregate intrinsic value outstanding beginning balance	$ 13,260,000
Aggregate intrinsic value outstanding ending balance	14,768,000		$ 13,260,000
Aggregate intrinsic value of vested	$ 988,000
Shares withheld to satisfy minimum tax obligation (in shares)	117,221
Amount withheld to satisfy minimum tax obligation	$ 395,000
Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 month
Restricted Stock Units (RSUs) [Member] | Maximum [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]
Number of options and restricted stock units outstanding (in shares)	375,663
Vesting period	4 years
Life from date of grant	10 years
Stock options cancelled (in shares)	864
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)	21,000,000		18,280,238
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	5.00%
Automatic increase in number of shares reserved for future issuance (in shares)			2,260,527
Number of options and restricted stock units outstanding (in shares)	12,720,084
Number of shares authorized for future issuance (in shares)	2,448,789
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)						2,500,000
Vesting period	4 years
Cliff vesting per year	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	100.00%
2008 Equity Incentive Plan [Member] | Stock Options [Member] | Maximum [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	110.00%
2008 Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year
Vesting period	3 quarters
2008 Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Lumera 2000 and 2004 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Merger conversion ratio	12.50%
Lumera 2000 and 2004 Stock Option Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options and restricted stock units outstanding (in shares)	57,191
Equity Incentive Plans 2000 through 2008 [Member] | Stock Options [Member]
Stock options activity, number of shares [Roll Forward]
Outstanding, beginning of year (in shares)	7,918,584
Granted (in shares)	0
Exercised (in shares)	(132,493)
Forfeited/Expired (in shares)	(3,347)
Outstanding, ending balance (in shares)	7,782,744		7,918,584
Vested and exercisable and expected to vest (in shares)	7,774,286
Vested and exercisable (in shares)	7,657,473
Stock option activity, weighted-average exercise price [Roll Forward]
Weighted average exercise price, beginning balance (in dollars per shares)	$ 2.32
Weighted average exercise price, exercised (in dollars per shares)	2.10
Weighted average exercise price, forfeited/expired (in dollars per shares)	2.49
Outstanding, ending balance (in dollars per shares)	2.32		$ 2.32
Weighted average exercise price, vested and exercisable and expected to vest (in dollars per share)	2.33
Weighted average exercise price, vested and exercisable (in dollars per share)	$ 2.35
Weighted average remaining contractual term [Abstract]
Weighted average remaining contractual term, outstanding	4 years 6 months 14 days			4 years 9 months 25 days
Weighted average remaining contractual term, vested and exercisable and expected to vest	4 years 6 months 14 days
Weighted average remaining contractual term, vested and exercisable	4 years 6 months

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Warrants (Details)	3 Months Ended
	Mar. 27, 2016 shares
STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract]
Warrants outstanding (in shares)	160,698
Number of warrants exercised (in shares)	0
Number of warrants expired (in shares)	0

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STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Allocation of Recognized Period Costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	$ 1,285	$ 889
Cost of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	86	82
Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	323	247
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	$ 876	$ 560

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INVESTMENT IN UNCONSOLIDATED AFFILIATES (Details) - USD ($)	3 Months Ended	12 Months Ended
	Jun. 28, 2015	Dec. 31, 2015		Dec. 31, 2014	Mar. 27, 2016	Jan. 25, 2016	Feb. 28, 2014
Schedule of Investments [Line Items]
Inventory		$ 6,880,000	[1]		$ 6,971,000
Property and equipment		3,133,000	[1]		$ 2,919,000
CPqD [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage					51.00%
BrP [Member]
Schedule of Investments [Line Items]
Inventory							$ 245,000
Property and equipment							$ 211,000
Additional capital contribution	$ 3,000
Investment in affiliate	$ 459,000
Loss attributable to affiliate		(3,000)		$ (456,000)
Written down value in investment in unconsolidated affiliate		$ 0
Anagog Ltd [Member]
Schedule of Investments [Line Items]
Investment in affiliate						$ 1,200,000
Anagog Ltd [Member] | Other Assets [Member]
Schedule of Investments [Line Items]
Cost method investments					$ 1,200,000
GigPeak, Inc. [Member]
Schedule of Investments [Line Items]
Joint venture ownership percentage					49.00%

[1] The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements as of that date.

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
INCOME TAXES [Abstract]
Provision for income taxes	$ 40	$ 9

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NET LOSS PER SHARE (Details) - shares	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	13,313,636	13,382,520
Stock options and RSUs [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	13,152,938	12,724,280
Common Stock Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Outstanding anti-dilutive securities (in shares)	160,698	658,240

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SEGMENT AND GEOGRAPHIC INFORMATION (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 27, 2016 USD ($) Customer Distributor	Mar. 29, 2015 USD ($) Customer	Dec. 31, 2015 USD ($)
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 11,362	$ 9,060
Number of customers | Customer	3	3
Number of distributors | Distributor	2
Long-lived assets	$ 2,919		$ 3,133
Customer One, Two, Three and Distributor One and Two [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	49.00%
Customer One, Two and Three [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage		51.00%
Revenue [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	100.00%	100.00%
Long-Lived Assets [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	100.00%		100.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	22.00%	29.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	41.00%	27.00%
Far East [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	32.00%	25.00%
Reportable Geographical Components [Member] | North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 4,728	$ 3,031
Reportable Geographical Components [Member] | North America [Member] | Revenue [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	42.00%	33.00%
Reportable Geographical Components [Member] | Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 3,841	$ 2,819
Long-lived assets	$ 16		$ 18
Reportable Geographical Components [Member] | Asia [Member] | Revenue [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	34.00%	31.00%
Reportable Geographical Components [Member] | Asia [Member] | Long-Lived Assets [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	0.00%		1.00%
Reportable Geographical Components [Member] | Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 2,793	$ 2,953
Reportable Geographical Components [Member] | Europe [Member] | Revenue [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	24.00%	33.00%
Reportable Geographical Components [Member] | Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 0	$ 257
Reportable Geographical Components [Member] | Other [Member] | Revenue [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	0.00%	3.00%
Reportable Geographical Components [Member] | United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 2,471		$ 2,680
Reportable Geographical Components [Member] | United States [Member] | Long-Lived Assets [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	85.00%		85.00%
Reportable Geographical Components [Member] | Switzerland [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 432		$ 435
Reportable Geographical Components [Member] | Switzerland [Member] | Long-Lived Assets [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration risk percentage	15.00%		14.00%

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($)	3 Months Ended
	Mar. 27, 2016	Mar. 29, 2015
COMMITMENTS AND CONTINGENCIES [Abstract]
Facilities rent expense	$ 142,000	$ 111,000
Aggregate non-cancelable future minimum rental payments under capital leases [Abstract]
Capital leases, 2016 (remainder of the year)	2,000
Capital leases, 2017	3,000
Capital leases, 2018	0
Capital leases, 2019	0
2020 and beyond	0
Capital leases, total minimum lease payments	5,000
Less: Amount representing interest	0
Total capital lease obligations	5,000
Less: current portion	(3,000)
Long-term portion of capital lease obligations	2,000
Aggregate non-cancelable future minimum rental payments under operating leases [Abstract]
Operating leases, 2016 (remainder of the year)	498,000
Operating leases, 2017	227,000
Operating leases, 2018	73,000
Operating Leases, 2019	73,000
2020 and beyond	61,000
Operating leases, total minimum lease payments	$ 932,000
Approximate period of product warranty	1 year
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 325,000	334,000
Warranties accrued	8,000	197,000
Warranties settled	(47,000)	(162,000)
Ending balance	$ 286,000	$ 369,000

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SUBSEQUENT EVENTS (Details) $ / shares in Units, $ in Millions	Apr. 05, 2016 USD ($) Installment $ / shares shares	Mar. 27, 2016 $ / shares	Dec. 16, 2014 $ / shares
Subsequent Event [Line Items]
Exercise price of warrants (in dollars per share) | $ / shares		$ 5.25	$ 8.50
Subsequent Events [Member] | Magnum [Member]
Subsequent Event [Line Items]
Number of shares issued to acquire business (in shares) | shares	6,900,000
Cash paid on acquisition	$ 36.2
Subsequent Events [Member] | Line of Credit - Silicon Valley Bank [Member]
Subsequent Event [Line Items]
Line of credit amount borrowed	22.1
Maximum borrowing capacity	29.0
Subsequent Events [Member] | Line Of Credit One - Silicon Valley Bank [Member]
Subsequent Event [Line Items]
Maximum borrowing capacity	$ 14.0
Borrowing base percentage used for maximum borrowing capacity	80.00%
Number of installments to be repaid | Installment	60
Debt instrument, default interest rate	3.00%
Subsequent Events [Member] | Line Of Credit One - Silicon Valley Bank [Member] | Warrant One [Member]
Subsequent Event [Line Items]
Warrants outstanding (in shares) | shares	4,125
Exercise price of warrants (in dollars per share) | $ / shares	$ 0.73
Subsequent Events [Member] | Line Of Credit One - Silicon Valley Bank [Member] | Warrant Two [Member]
Subsequent Event [Line Items]
Warrants outstanding (in shares) | shares	125,000
Exercise price of warrants (in dollars per share) | $ / shares	$ 4.00
Subsequent Events [Member] | Line Of Credit One - Silicon Valley Bank [Member] | Prime Rate [Member]
Subsequent Event [Line Items]
Debt instrument, applicable interest rate	1.25%
Subsequent Events [Member] | Line Of Credit Two - Silicon Valley Bank [Member]
Subsequent Event [Line Items]
Maximum borrowing capacity	$ 15.0