You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2011. 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, 2011 and this Quarterly Report on Form 10-Q. We assume no obligation to update the forward-looking statements or such risk factors.

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

Overview

We are a leading supplier of high performance semiconductor and electro-optical component products that enable high-speed end to end data streaming over optical fiber and wireless telecommunications and data-communications networks globally. Our strategy is to apply our core technical expertise in optical, electro-optical and high speed analog technology to develop products that address high growth product and market opportunities.

The following sets forth our significant corporate and product milestones:

In April 2007 Newco LLC was formed and received funding in May 2007.

In July, 2007, GigOptix LLC was formed and acquired the assets of iTerra Communications LLC. GigOptix LLC acquired Helix Semiconductors AG in January 2008.

In March 2008, GigOptix, Inc. was formed to facilitate a combination with Lumera Corporation. The combined company began trading on the OTCBB under the symbol GGOX in December 2008, upon completion of the merger.

In November 2009 GigOptix, Inc. acquired ChipX, a leading high speed analog semiconductor manufacturer specializing in Analog and Mixed Signal custom ASICs.

In June 2011, GigOptix, Inc. acquired Endwave Corporation.

Subsequent to the end of the quarter, on April 25, 2012 the company began trading on the NYSE Amex under the symbol "GIG"

Our products convert signals between electrical and optical formats for transmitting and receiving data over fiber optic networks and between electrical and high speed radio frequencies to enable the transmit and receiving of data over wireless networks. We are creating innovation in both optical telecommunications and data-communications applications for fast growing markets in 10Gbps, 40Gbps and 100Gbps drivers, receiver ICs, electro-optic modulator components and multi-chip-modules (MCM) as well as E-Band wireless data-communications applications for high speed mobile backhaul. We believe that our expertise in high speed semiconductor design and electro-optical technologies has helped us create a broad portfolio of products that addresses customer demand for performance at higher speeds, over wider temperature ranges, in smaller sizes, and with lower power consumption compared to other products currently available in the market.

The primary target market and application for our products include optical interface modules such as line-cards, transponders and transceivers within telecommunications and data-communications switches and routers, high speed wireless point to point millimeter wave systems and defense systems. Our products are critical blocks used in both telecommunications or data-communications optical communication networks from long haul to short reach systems where the conversion of data from the electrical domain to the optical domain occurs. Our optical drivers amplify the input digital data stream that is used to modulate laser light either by direct modulation of the laser or by use of an external modulator that acts as a precise shutter to switch on and off light to create the optical data stream. At the other end of the optical fiber, our sensitive receiver trans-impedance amplifiers (TIAs) detect and amplify the small currents generated by photo-diodes converting the faint 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, modulator and photo-diode depending upon the speed, reach and required cost. Generally, the shorter the reach is, the higher the volume, the less demanding the product specifications and the greater the pressure to reduce costs. We implement our products in a number of process technologies and have been at the forefront of extracting optimal performance from each technology to be able to address each market segment's individual requirements in a cost effective manner. Our microwave and millimeter wave amplifiers amplify small signal radio signals into more powerful signals that can be transmitted over long distances to establish high throughput data connections or enable radar based applications. Our complex ASIC solutions are used in a number of applications such as defense and test and measurement systems to enable the high speed processing of complex signals.

We have a comprehensive portfolio of products for telecommunications, data-communications, defense and industrial applications designed for optical speeds from 3Gbps to over 100Gbps and for wireless frequencies from 0GHz to 86GHz. Our products support a wide range of data rates, protocols, transmission distances and industry standards. This wide product offering allows us to serve as a "one-stop shop" to our customers in offering a comprehensive product arsenal, as well as allowing us to reduce costs as we leverage existing design building-blocks into new applications. Our portfolio consists of the following product ranges:

Laser and modulator drivers for 10Gbps, 40Gbps and 100Gbps applications;

Receiver amplifiers or trans-impedance amplifiers (TIAs) for 10Gbps, 40Gbps and 100Gbps applications;

VCSEL driver & receiver chipsets for 14 and 12 channel parallel optics applications from 3Gbps to 25Gbps;

Electro-optic modulators based on proprietary TFPS technology suitable for various 40Gbps and 100Gbps modulation schemes, such as DPSK, DQPSK, RZ-DQPSK and DP-QPSK;

Wideband MMIC amplifiers with flat gain response;

High Frequency MMIC power amplifiers with high gain and output power;

High frequency passive attenuators and filters in small form factors with excellent performance;

Standard cell, and structured ASIC and hybrid ASIC designs and manufacturing service for multiple markets offering ITAR compliance for defense applications.

We have incurred negative cash flows from operations since inception. For the three months ended April 1, 2012 and the year ended December 31, 2011 we incurred net losses of $1.7 million and $14.1 million, respectively, and cash outflows from operations of $1.3 million and $4.9 million, respectively. As of April 1, 2012 and December 31, 2011, we had an accumulated deficit of $89.2 million and $87.5 million, respectively.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012.

In June 2011, the Financial Accounting Standards Board (FASB) issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted this standard in the first quarter of 2012.

In September 2011, the FASB issued a revised accounting standard, which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012.

Results of Operations

Revenue

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

                                                   Three months ended
                                           April 1, 2012        April 3, 2011
Product                                   $         9,151      $         7,052
Government contract                                     -                  610
Total revenue                             $         9,151      $         7,662
Increase period over period               $         1,489
Percentage increase, period over period                19 %

Revenue for the three months ended April 1, 2012 was $9.1 million, an increase of $1.5 million, or 19%, compared with $7.7 million for the three months ended April 3, 2012. The increase in revenue was primarily due to increased sales of our optical components and ASIC product lines, and to a lesser extent from the revenue derived from the Endwave product line which was acquired in June 2011. This increase was partially offset by a decrease in government contract revenue of $610,000.

Gross Profit and Cost of Revenue

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

                                                                      Three months ended
                                      April 1, 2012                        April 3, 2011
                                                                      Amount                             Change
                                 Amount                                (in                                (in
                             (in thousands)      % of Revenue       thousands)      % of Revenue       thousands)       % Change

Product                                4,178                46 %          3,651                48 %            527              14 %
Government contract                        -                 0 %            180                 2 %           (180 )          -100 %
Total cost of revenue                  4,178                46 %          3,831                50 %            347               9 %
Gross profit                           4,973                54 %          3,831                50 %          1,142              30 %

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, quality assurance and manufacturing engineering; 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; impairment of long-lived assets 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 April 1, 2012 was $5.0 million, or 54% of revenue, compared to $3.8 million, or 50% of revenue for the three months ended April 3, 2011. The increase in gross margin is primarily due to a change in product mix towards higher margin products. We expect our gross margin as a percentage of revenue to be similar in the second quarter of 2012 compared to what we experienced in the first quarter of 2012.

Research and Development Expense

                                                   Three months ended
                                           April 1, 2012        April 3, 2011
Research and development expense          $         3,383      $         2,390

Percentage of revenue                                  37 %                 31 %
Increase, period over period                          993
Percentage increase, period over period                42 %

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

Research and development expenses for the months ended April 1, 2012 was $3.4 million compared to $2.4 million for the three months ended April 3, 2011, an increase of $993,000 or 42%. Research and development costs increased in absolute dollars compared to the first quarter of 2011 primarily due to a $406,000 increase in personnel related expenses, a $219,000 increase in project related expenses and a $70,000 increase in stock-based compensation. We experienced these increases due to the close of the merger with Endwave Corporation in June, 2011. We expect research and development expense to increase in absolute dollars from the first quarter of 2012 to the second quarter of 2012 due to increased project related and stock-based compensation expenses.

Selling, General and Administrative Expense

                                                       Three months ended
                                               April 1, 2012        April 3, 2011
Selling, general and administrative expense   $         2,807      $         2,623
Percentage of revenue                                      31 %                 34 %
Increase period over period                               184
Percentage increase, period over period                     7 %

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

Selling, general and administrative expenses for the three months ended April 1, 2012 was $2.8 million compared to $2.6 million for the three months ended April 3, 2011, an increase of $184,000 or 7%. Selling, general and administrative costs increased in absolute dollars compared to the first quarter of 2011 primarily due to a $102,000 increase in personnel related expenses and a $45,000 increase in legal related expenses. We expect selling, general and administrative expenses in the second quarter of 2012 to be consistent in absolute dollars with the first quarter of 2012 as decreased audit and marketing related expenses will be offset by higher stock-based compensation expenses.

Restructuring Expense

During the three months ended April 1, 2012, we undertook restructuring activities to reduce our expenses. The components of the restructuring charge included severance, benefits, payroll taxes, expenses associated with the acceleration of stock options and other costs associated with employee terminations. The net charge for these restructuring activities was $207,000.

During the three months ended April 3, 2011, we did not incur any restructuring expense.

Merger-related Expense

During the three months ended April 3, 2011, we incurred $1.1 million of expenses in connection with our June 2011 acquisition of Endwave Corporation. During the three months ended April 1, 2012, we did not incur any merger-related expense.

Special Litigation-Related Expense

During the three months ended April 1, 2012, we recorded special litigation-related expense of $141,000 which was related to costs associated with the Optomai, National Instruments and Telekenex matters. We did not have any special litigation-related expense for the three months ended April 3, 2011.

Shareholder Settlement Expense

On April 8, 2011, GigOptix and the trustees for the DBSI Estate Litigation Trust and the DBSI Liquidating Trust (together "DBSI") reached agreement to settle a claim by DBSI against GigOptix. As part of the settlement, GigOptix issued warrants to DBSI for 1 million shares of common stock. During the three months ended April 3, 2011, we recognized $1.1 million of expense in connection with the issuance of these warrants. During the three months ended April 1, 2012, we did not have shareholder settlement expense.

Interest Expense, Net and Other Expense, Net

                                                       Three months ended
                                                                                         2012 expense higher
                                               April 1, 2012         April 3, 2011            than 2011
Interest expense, net                         $          (152 )     $           (96 )   $                  56
Other income (expense), net                               (15 )                  12                        27
Total                                         $          (167 )     $           (84 )   $                  83

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

Interest expense, net for the three months ended April 1, 2012 was $152,000 compared to $96,000 for the months ended April 3, 2011, an increase of $56,000. Interest expense, net increased in absolute dollars compared to the first quarter of 2011 primarily due to $36,000 of capital lease interest expense and $50,000 of amortization of the loan discount, offset by a $40,000 decrease in loan fees.

Other expense, net for the three months ended April 1, 2012 was $15,000, compared to other income, net of $12,000 for the three months ended April 3, 2011. Other income (expense), net decreased in absolute dollars compared to the first quarter of 2011 primarily due to $16,000 of liability warrants expense.

Provision for Income Taxes

We recorded a provision for income taxes of $16,000 and $5,000 for the three months ended April 1, 2012 and April 3, 2011, respectively. Our effective tax rate was 1% and 0% for the three months ended April 1, 2012 and April 3, 2011, respectively. The income tax provision for the three months ended April 1, 2012 and April 3, 2011 were due primarily to state and foreign income taxes due and to losses in all tax jurisdictions, except Switzerland. We have a full valuation allowance against such losses. There are net operating losses carried forward to offset the taxable income generated in Switzerland.

Liquidity and Capital Resources

On December 9, 2011, we entered into an amended and restated loan and security agreement with Silicon Valley Bank. Pursuant to the amended and restated loan and security agreement, we are entitled to borrow from Silicon Valley Bank up to $6.0 million, based on 80% of eligible accounts receivable subject to limits based on the Company's eligible accounts as determined by Silicon Valley Bank. Interest on extensions of credit is equal to the prime rate of Wall Street Journal ("WSJ") Prime, plus 0.75%, with a minimum interest rate of 4.00%. The amended and restated loan and security agreement will expire on December 9, 2013.

The amended and restated loan and security agreement with Silicon Valley Bank is secured by all of our assets, including all accounts, equipment, inventory, receivables, and general intangibles. The amended and restated loan and security agreement contains certain restrictive covenants that will impose significant operating and financial restrictions on our operations, including, but not limited to restrictions that limit our ability to:

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

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

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

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 amount outstanding on the line of credit as of April 1, 2012 was $4,710,
000. On April 2, 2012, the Company repaid the entire $4,710, 000 to Silicon Valley Bank.

The December 9, 2011 loan and security agreement amended and restated a prior loan and security agreement with Silicon Valley Bank from April 23, 2010. In connection with that April 23, 2010 loan and security agreement, Silicon Valley Bank had also made available a term loan in an amount up to $400,000. The term loan was repayable in eighteen equal monthly installments and interest is fixed at a rate per annum of 9.0%. This term loan was repaid on October 3, 2011.

On June 17, 2011 we completed our merger with Endwave Corporation, which resulted in Endwave becoming our wholly owned subsidiary. Under the terms of the Merger Agreement, all outstanding shares of Endwave common stock, including those issuable upon settlement of outstanding restricted stock units, and outstanding in-the-money Endwave stock options, were converted into shares of our common stock such that immediately after the merger, such shares represented approximately 42.45% of all outstanding shares of our common stock. On the effective date of the acquisition, GigOptix issued 9,128,502 shares of GigOptix common stock to holders of Endwave common stock, restricted stock units and in-the-money stock options. Our acquisition-related expenses incurred in connection with the Endwave transaction, which aggregated was approximately $2.0 million, were comprised of legal, accounting, investment banking and printing fees, and employee-related expenses. As a result of this transaction we received approximately $18.8 million of cash, cash equivalents and short-term investments.

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

                            April 1,       December 31,
                              2012             2011
Cash and cash equivalents   $  15,797     $       15,788



                                                          Three months ended
                                                       April 1,         April 3,
                                                         2012             2011
Net cash (used in) provided by operating activities        (1,294 )           158
Net cash (used in) provided by investing activities          (257 )            45
Net cash provided by (used in) financing activities         1,601            (482 )

Operating Activities

Cash used in operating activities for the three months ended April 1, 2012 consisted of net income adjusted for certain non-cash items, including amortization, depreciation, non-cash restructuring expense, and stock-based compensation expense, as well as the effect of changes in working capital. Operating activities used cash of $1.3 million during the three months ended April 1, 2012. This resulted from a net loss of $1.7 million and we experienced cash usage for working capital for a decrease in accrued and other liabilities of $472,000, a decrease in accrued restructuring of $55,000 and a decrease in other non-current liabilities of $38,000. These decreases were offset by a decrease in accounts receivable of $1.4 million due to timing of collections, an increase in accounts payable of $395,000 and an increase of $674,000 in accrued compensation. In addition, these uses were partially offset by the following non-cash expenses: depreciation and amortization of $994,000, stock based compensation of $738,000 and non-cash restructuring expense of $132,000.

Cash provided by operating activities for the three months ended April 3, 2011 consisted of net income adjusted for certain non-cash items, including amortization, depreciation, non-cash litigation settlement, and stock-based compensation expense, as well as the effect of changes in working capital. Operating activities provided cash of $158,000 during the three months ended April 3, 2011. This resulted primarily from a net loss of $3.4 million, offset by depreciation and amortization of $544,000, stock-based compensation of $676,000, non-cash litigation expense of $1.1 million and an increase in accrued . . .