Document

As filed with the Securities and Exchange Commission on October 17, 2016

Registration No. 333-213871
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
AMENDMENT NO. 1 TO
FORM S‑1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
_____________________________________
QUANTENNA COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
_____________________________________
Delaware
3674
33-1127317
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
3450 W. Warren Avenue
Fremont, California 94538
(510) 743-2260
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
_____________________________________
Sam Heidari
Chairman and Chief Executive Officer
Quantenna Communications, Inc.
3450 W. Warren Avenue
Fremont, California 94538
(510) 743-2260
(Name, address, including zip code, and telephone number, including area code, of agent for service)
_____________________________________
 
Copies to:
 
Arthur F. Schneiderman, Esq.
John T. Sheridan, Esq.
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
Tom MacMitchell, Esq.
General Counsel
Quantenna Communications, Inc.
3450 W. Warren Avenue
Fremont, California 94538
(510) 743-2260
Alan F. Denenberg, Esq.
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, California 94025
(650) 752-2000
_____________________________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
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
_____________________________________
CALCULATION OF REGISTRATION FEE
Title of Each Class
of Securities to be Registered
Amount to be
Registered (2)
Proposed Maximum
Offering Price
Per Share (1)
Proposed
Maximum
Aggregate
Offering Price (1)(2)
Amount of
Registration Fee (3)
Common Stock, $0.0001 par value per share
7,705,000
$16.00
$123,280,000
$12,768
(1)    Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2)    Includes the additional shares that the underwriters have the right to purchase to cover over-allotments, if any.
(3)    The Registrant previously paid $10,070 of the registration fee in connection with the initial filing of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Issued October 17, 2016
6,700,000 Shares
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COMMON STOCK
_____________________________________
Quantenna Communications, Inc. is offering 6,700,000 shares of its common stock. This is our initial public offering and no public market exists for our shares. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share.
_____________________________________
Our common stock has been approved for listing on The NASDAQ Global Select Market under the symbol “QTNA”.
_____________________________________
We are an “emerging growth company” as defined under the federal securities laws. Investing in our common stock involves risks. See “Risk Factors” beginning on page 13.

____________________________________

PRICE $ A SHARE
____________________________________
   
Price to
Public
 
Underwriting
Discounts and
Commissions (1)
 
Proceeds to
Company
Per Share
   $
 
   $
 
   $
Total
   $
 
   $
 
   $
_______________________
(1) See “Underwriters” for a description of the compensation payable to the underwriters.
The Securities and Exchange Commission and any state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters the right to purchase up to an additional 1,005,000 shares of our common stock to cover over-allotments.
The underwriters expect to deliver the shares of common stock to purchasers on        , 2016.
_____________________________________
MORGAN STANLEY
BARCLAYS
DEUTSCHE BANK SECURITIES
NEEDHAM & COMPANY
WILLIAM BLAIR
ROTH CAPITAL PARTNERS
            , 2016


Table of Contents

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Table of Contents

TABLE OF CONTENTS
 
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_____________________________________
We have not authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
Through and including                     , 2016 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
For investors outside of the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
 



Table of Contents

PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Quantenna,” “the company,” “we,” “us” and “our” in this prospectus refer to Quantenna Communications, Inc. and its consolidated subsidiaries.

Quantenna Communications, Inc.
Overview
We are a leader in the design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking. Our solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. We combine our Wi-Fi systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated solutions to our customers. Our technical expertise and focus on innovation enable us to address the increasing complexity inherent in managing Wi-Fi network access for multiple client devices with different high-bandwidth content streams, while simultaneously delivering superior network speed, broad coverage area, and high capacity and reliability. Our innovative solutions have historically addressed the telecommunications service provider market for home networking applications, including home gateways, repeaters, and set-top boxes, or STBs, but we are increasingly addressing additional end markets, with solutions for retail, outdoor, small and medium business, enterprise and consumer electronics. As a pioneer in high-performance Wi-Fi solutions with significant wireless expertise and deep industry relationships, we believe we are best positioned to serve the rapidly evolving Wi-Fi needs of customers in both our existing and future end markets. We also believe our significant engineering expertise in wireless and communications can be applied to address other markets beyond Wi-Fi.
Wi-Fi is a ubiquitous standard for wireless network connectivity, defined by the IEEE 802.11 standardization body working group, that is rapidly evolving to deliver continued performance improvements while maintaining backward compatibility. According to ABI Research, in 2015 there were approximately 2.5 billion Wi-Fi-enabled devices shipped, of which approximately 1 billion were non-mobile phone devices, and cumulatively, over 12 billion Wi-Fi-connected devices have been shipped worldwide as of the end of 2015. This rapid growth in Wi-Fi connected devices, coupled with the steadily rising volume of global Internet Protocol-based, or IP-based, traffic, such as web browsing, email, Internet audio and video, file sharing, cloud computing and online gaming, has significantly increased the performance requirements of access points that power Wi-Fi networks. Such requirements have led to the adoption of 802.11ac, the latest revision of the 802.11 standard, which offers up to a 10-fold improvement in network speeds over its predecessor. Given the limited wireless spectrum available for Wi-Fi networks and the rapidly increasing demand for Wi-Fi-enabled services, the IEEE standardization body is expected to continue to define more advanced capabilities for future revisions of the standard, such as 802.11ax. Furthermore, the 802.11 standard implementation is left to the chipset vendors, and the inherent complexity and many optional features of the standard result in trade-offs leading to wide ranging levels of Wi-Fi chipset functionality, performance, power and cost.
As the performance requirements of next generation Wi-Fi increase, a more advanced approach to the design of high-speed wireless communication products is required. We have pioneered significant enhancements to advanced features such as higher-order Multiple Input and Multiple Output, or MIMO, Multi-User MIMO, or MU-MIMO, transmit beamforming, and additional technologies to achieve superior Wi-Fi performance relative to our competition. Our competitive strengths include support of the most advanced specifications, proprietary technology architectures, and advanced software and system-level algorithms. Furthermore, we have created a cloud-based Wi-Fi analytics and monitoring platform that diagnoses and repairs network inefficiencies remotely.
Customers choose our Wi-Fi solutions to offer products with differentiated network speed, coverage area, reliability and capacity. Our solutions portfolio is currently comprised of multiple generations of our radio frequency chip and our digital baseband chip, which together support the IEEE Wi-Fi standards, including 802.11n and 802.11ac. Radio frequency chips use a combination of analog, digital and high frequency circuits to transmit and receive signals in certain frequencies, such as 2.4GHz and 5GHz for Wi-Fi. Digital baseband chips transmit and receive data to and from radio frequency chips. These chips are

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typically sold together as a chipset combined with software and system-level reference designs that constitute a highly integrated Wi-Fi solution. We maintain our product differentiation by designing and implementing a variety of innovative system architecture features, as well as advanced software system level algorithms.
According to ABI Research, the global market for Wi-Fi chipsets is expected to grow from $3.8 billion in 2016 to $5.2 billion in 2021, a CAGR of 7%. We have shipped over 80 million chips to our customers across four semiconductor process generations. Our chips consist of transistors using various advanced semiconductor fabrication technology nodes, which are measured in nanometers, or nm, to address different system requirements. We are currently in volume production in 90nm, 65nm, and 40nm, and expect to begin volume production in 28nm in early 2017. During the year ended December 27, 2015, our global original equipment manufacturer, or OEM, and original design manufacturer, or ODM, customers included Arris International plc, or Arris, ASUSTeK Computer Inc., or Asus, Sagemcom Broadband SAS, or Sagemcom, and Technicolor SA, or Technicolor. During the same period, these OEM and ODM customers supported a number of major service providers in the United States as well as internationally. For the year ended December 27, 2015, our revenue was $83.8 million and our net loss was $7.0 million, and we had an accumulated deficit of $159.7 million as of December 27, 2015. For the nine months ended September 25, 2016, our revenue was $91.6 million and our net loss was $1.9 million, and we had an accumulated deficit of $161.6 million as of September 25, 2016.
Industry Background
Global growth in data traffic and the proliferation of Wi-Fi devices are driving demand for Wi-Fi connectivity. According to the Cisco 2016 Visual Networking Index report, by 2020, Wi-Fi is expected to carry approximately 55% of mobile IP traffic for devices with both cellular and Wi-Fi capabilities, while cellular is expected to carry approximately 45% of such traffic. According to ABI Research, 2.8 billion Wi-Fi-enabled devices will be shipped worldwide in 2016, and this number is expected to increase to 4.0 billion in 2021. For a large portion of these devices, including smartphones, tablets, smart home assistants, and Internet of Things, or IoT, devices, Wi-Fi is the primary connection for IP traffic.
In addition, the types of IP traffic carried over Wi-Fi are also expanding. When Wi-Fi was first introduced into homes and enterprises, the predominant applications were email and Internet access. Today, the number of applications supported over Wi-Fi has grown to also encompass voice over IP, high-definition audio, Ultra High Definition TV, cloud computing, gaming and over-the-top video, which refers to the delivery of video over the subscriber’s broadband connection without the involvement of traditional TV service providers. Industry reports forecast that Wi-Fi will become the most prevalent method to carry these applications.
To meet these demands, service providers, retail OEMs, enterprise OEMs, and consumer electronics OEMs are increasingly focused on integrating the best Wi-Fi capabilities into their products.
Service Providers. Service providers, including AT&T Inc., or AT&T, Comcast Corporation, or Comcast, Orange S.A., or Orange, and Telefonica, S.A., or Telefonica, are seeking to deploy and manage the best Wi-Fi infrastructure inside the home to enable the connectivity of a growing number of Wi-Fi devices, and to offer a richer complement of value-added services such as high-speed Internet, Ultra High Definition TV, voice over IP, home security, energy management, cloud computing and gaming. Furthermore, service providers desire to offer their customers a seamless Wi-Fi connectivity experience outside the home. They have increased investments in the deployment of Wi-Fi hotspots. These hotspots need to support sophisticated roaming and authentication with other hotspots and with customers’ home gateways.
Retail OEMs. Retail OEMs, including Asus, Belkin International, Inc., or Belkin, and Netgear, Inc., or Netgear, are focusing on higher performance Wi-Fi as consumers are increasingly motivated to invest in higher-performance Wi-Fi for their homes. As a result, retail OEMs strive to offer routers with the latest Wi-Fi technology and performance to cover customers’ homes with the fastest and most reliable speeds.
Enterprise OEMs. OEMs for enterprise networking, including Brocade Communications Systems, Inc., or Brocade, Cisco Systems, Inc., or Cisco, and HP Inc., or HP, are seeking to meet the demands of an increasingly mobile workforce that is connecting to the network via multiple devices beyond a desktop or laptop, such as smartphones and tablets. As a result, enterprise OEMs are increasingly adopting higher performance Wi-Fi in their products to achieve higher speeds and improved wireless network capacity.

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Consumer Electronics OEMs. A more robust Wi-Fi network inside the home has led to the proliferation of connected Wi-Fi devices and has driven an increasing need for better delivery of content to those Wi-Fi-enabled devices. As a result, consumer electronics OEMs, including Apple Inc., or Apple, Samsung Electronics Co., Ltd., or Samsung, and Sony Corporation, or Sony, are seeking to incorporate high-performance Wi-Fi in their products.
Industry Challenges
Designing Wi-Fi solutions to provide the highest levels of performance is imperative to addressing consumer demands, yet remains very challenging due to the following factors.
Increasing Wi-Fi Speeds. 802.11ac-based devices are up to 10 times faster than prior generation devices, sending data at gigabits per second through the wireless channel, an unpredictable medium filled with obstacles, such as walls, doors, and furniture. As a result, more advanced digital signal processing techniques, such as MIMO, MU-MIMO, and explicit transmit beamforming, are required. A device incorporating MIMO technology transmits signals using more than one antenna and receives signals using more than one antenna, which allows the device to have increased speed and range. MU-MIMO refers to an algorithm that allows multiple client devices to be served by a Wi-Fi access point simultaneously. Explicit transmit beamforming is a technique that enables gateways and access points to direct their signals toward a client rather than covering a larger area, which increases transmission efficiency and ultimately improves Wi-Fi speed, range and reliability.
Spectrum Sharing. Wi-Fi operates in a limited, unlicensed wireless spectrum, as regulated in the United States by the Federal Communications Commission, or FCC. While the 5GHz spectrum used by 802.11ac is inherently wider relative to the 2.4GHz spectrum, it is not always entirely available due to regulatory constraints that vary from country to country. To reliably achieve maximum speeds with 802.11ac, some of this restricted spectrum needs to be utilized. Therefore, a method referred to as Dynamic Frequency Selection, or DFS, needs to be implemented to accurately detect when these channels are available for Wi-Fi use. Implementing efficient use of DFS channels requires complex algorithms.
Competing Traffic. The types of traffic carried by Wi-Fi are rapidly increasing as technology providers seek to enable more device connectivity and value-added services. Each type of traffic has unique quality metrics that must be met in order to create a satisfactory user experience. A comprehensive Quality of Service, or QoS, mechanism is needed to prioritize traffic types, guarantee on-time delivery of specific traffic types ahead of others, and scale to meet the increased number of Wi-Fi clients in a network.
Rapid Evolution of Industry Standards. The IEEE standardization body continually strives to improve Wi-Fi functionality and performance. All competitors in the Wi-Fi solutions market design their products according to the same IEEE Wi-Fi standards, which have become more complex as each subsequent standard includes an increasing number of specifications for both basic and optional features. While all Wi-Fi products need to incorporate all of the basic specifications under the applicable standard, competitors in the high-performance Wi-Fi solutions market distinguish themselves by the speed with which they introduce new products and the degree to which their products are able to support advanced specifications and optional features, such as explicit transmit beamforming, high-order MIMO, and MU-MIMO. Some competitors decide to only implement the mandatory specifications and leave more complex optional features out of their products.
Legacy Wi-Fi Processing Architecture. There are seven distinct layers of functions needed for one Wi-Fi device to transmit data to another under IEEE Wi-Fi standards. Layers one and two comprise the Wi-Fi protocol stack, and layers three and above are referred to as higher-layer network functions. Historically, Wi-Fi chipsets were architected such that the host central processing unit, or CPU, inside a gateway or access point handled the majority of the higher-layer network processing activity. However, as Wi-Fi speeds increase, the ability of the CPU to sustain maximum Wi-Fi data bandwidth while also performing other tasks is compromised. As a result, in order for the end product to meet its performance specifications, the Wi-Fi chipset must be capable of processing greater portions of both the Wi-Fi protocol stack and network functions.
Network Interference Management. As Wi-Fi usage increases, higher levels of network congestion will occur. While the industry’s transition to 5GHz networks temporarily helped to alleviate degradation by offering more channels, similar congestion and degradation of performance may occur over time. A Wi-Fi management system is needed to constantly monitor and optimize Wi-Fi network performance.

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Our Solution and Competitive Strengths
Our four generations of Wi-Fi solutions have been designed to achieve and maintain market leadership. Historically, in each case where we have introduced a new high performance Wi-Fi solution compliant with the 802.11 IEEE standard, we have done so well before our competitors have introduced a comparable product with the same features. This first-mover advantage has enabled us to market and monetize our solutions and capture key new customers and design wins while our competitors were still in the product development phase. This advantage has been particularly evident in the service provider market for home networking applications. Due to long design and deployment cycles, service providers may only undertake major product updates every few years. As a result, the ability to secure a service provider design win for a solution with advanced features can create a market advantage that lasts for months to years, depending on various factors, including how quickly a competitor releases a comparable product, how the performance of the competing product compares to ours, and how the timing of such release relates to the service provider’s design and deployment cycle. We believe our success in pioneering previous Wi-Fi solutions has also given us a head start in the development of next generation Wi-Fi solutions.
We strive to deliver the industry’s highest speed, broadest coverage, highest capacity, and most reliable performance through advanced software and system-level algorithms, Wi-Fi protocol processing using CPUs embedded inside our chipsets, and, more recently, the introduction of a cloud-based Wi-Fi network management system. Our solutions allow us to address the industry challenges posed by increasing Wi-Fi speeds, limited spectrum, increasing traffic, legacy Wi-Fi processing architectures and network interference management. We deliver proprietary feature set extensions beyond standard requirements, offering significant performance advantages to the user. Our innovative solutions have historically addressed the service provider market for home networking applications such as home gateways, repeaters, and set-top boxes, or STBs, and we are increasingly addressing additional end markets.
Performance Benefits We Provide to Our Customers and Service Providers
We believe our Wi-Fi solutions enable the highest overall level of Wi-Fi performance in the market relative to network speed, range, capacity and reliability. The performance benefits we provide to our customers and their target service providers are set forth below.
OEM and ODM Customers
Integrated 2.4GHz and 5GHz Solutions. Our most recent solutions include both 2.4GHz and 5GHz capabilities. This integrated solution not only enables a more streamlined design process, but also maximizes interoperability and performance.
Streamlined Integration and Faster Time to Market. Our host offload technology streamlines the integration of our chipsets into customer and reference design partner platforms. In addition, our customer engineering support team engages with our OEM and ODM customers and partners early in their design cycle, which we believe accelerates their product development and optimizes product performance.
Service Providers
Improved Subscriber Experience and Retention. Our Wi-Fi solutions are high-performance solutions, which helps create a positive subscriber experience when using Wi-Fi. Our Wi-Fi solutions also provide enhanced network performance capabilities, which enable service providers to offer their subscribers a broader range of value-added products and services such as wireless phone service, wireless set-top boxes and seamless streaming of ultra-high definition video.  By offering such premium products and services, we believe service providers are able to generate more revenue per subscriber and deliver a better subscriber experience, which contributes to improved subscriber retention.
Longer Lifecycle and Reduced Capital Investment. Devices powered with our solutions can offer the leading edge of Wi-Fi technology, and therefore have a longer lifecycle and time to obsolescence. Additionally, a high-performing Wi-Fi infrastructure results in lower network expenditures for service providers by offloading cellular data, thereby reducing the burden on the cellular network.
Fewer Service Disruptions and Lower Support Costs. Because our Wi-Fi solutions support the most advanced IEEE Wi-Fi optional specifications, they provide higher speed, greater range and better reliability than our competitors’

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products, which increases the quality of data transmission and improves Wi-Fi connectivity within a given area. We believe the high quality and reliability of our Wi-Fi solutions results in fewer service disruptions, and therefore reduces customer complaints and the need for support calls and on-site service requests.
Automated Network Management. We have a cloud-based Wi-Fi analytics platform which allows us to remotely collect data from our products in the field. The dataset helps us to efficiently support our customers, improve future performance of our products and improve our customers’ ability to ramp deployments, ultimately accelerating our time to market.
Our competitive strengths include:
Market Leadership through Support of the Most Advanced Specifications. We design Wi-Fi solutions that support the most advanced IEEE Wi-Fi optional specifications, which allow us to be a leader in terms of both performance and innovation. Today, we are the first and only company to support the full 8x8 MIMO specification of 802.11ac with our Wi-Fi solution called QSR10G, which we believe allows us to offer the highest speed as well as the farthest range. While some of our competitors may offer a wider variety of products, many of those products incorporate only basic features for low-performance applications outside our target market segments. In contrast, we focus on segments of the market where advanced features are critical for the targeted application to provide higher performance, such as whole home coverage or video delivery over Wi-Fi.
Proprietary Technology Architectures. We design proprietary technology architectures that we deliver through our high-performing chipsets. We believe our proprietary architectures are a key part of what enables us to successfully compete against our larger, more established competitors.
Advanced Software and System-Level Algorithms. We enable our innovative Wi-Fi solutions with advanced proprietary software and system-level algorithms that provide superior functionality. These algorithms include explicit transmit beamforming, MIMO, MU-MIMO, and others. We believe these algorithms are crucial to the performance and stability of products integrating our solutions.
Pure Focus on High-Performance Wi-Fi Solutions and Deep Wireless Engineering Expertise. Our research and development, engineering, manufacturing, sales, and marketing are focused solely on high-performance Wi-Fi solutions, which we believe gives us an advantage over many of our competitors who do not focus only on Wi-Fi.
Deep Relationships with Our Customers and Reference Design Partners. We have built collaborative relationships with our customers and reference design partners, many of whom are industry leaders. We believe we have a strong industry reputation for responsiveness and delivering Wi-Fi solutions that meet or exceed our customers and reference design partners’ technological requirements, as well as their overall business needs.
Our Strategy
The key components of our strategy include the following:
Continue to Deliver Wi-Fi Innovation. We intend to continue our investment in research and development to drive further innovation, including new Wi-Fi standards, and maintain a market leadership position in the Wi-Fi marketplace.
Expand Share in Service Provider Market. We intend to leverage our growing number of service provider and OEM and ODM relationships to aggressively market our solutions’ competitive advantages and increase our footprint among service providers.
Leverage Industry Partnerships to Promote Adoption of Our Solutions. We will seek to broaden and strengthen our industry partnerships to drive design wins and establish incumbency.
Address Other Wi-Fi Market Segments. We intend to leverage our existing technologies and solutions, as well as broaden our Wi-Fi solutions portfolio, to expand our presence in the retail Wi-Fi market and address other markets in order to continue to expand our customer base and provide future opportunities for revenue growth.

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Broaden Solutions Beyond Wi-Fi. We believe our existing technologies and wireless engineering expertise, as well as our industry relationships, provide us an opportunity to expand beyond the Wi-Fi market through a combination of organic investments and acquisitions.
Our Products and Technology
The typical applications that use our current solutions are:
Access Point and Gateways. These applications are at the core of wireless home networking and enterprise access. Our initial solutions supported 2-stream applications with 4x4 5GHz 802.11n, and we have continuously innovated to deliver increasing speeds, culminating in our latest 12-stream (8x8 5GHz 802.11ac and 4x4 2.4GHz and 5GHz 802.11n), 10 gigabit per-second, or Gbps, dual-band dual-concurrent offering, which allows the simultaneous (dual-concurrent) transmission of data in the 2.4GHz and 5GHz (dual-band) frequencies. A 4x4 MIMO transmission uses four antennas, and an 8x8 MIMO transmission uses eight antennas. We refer to these technologies as higher-order MIMO. Four antennas are used in the 2.4GHz band, and four or eight antennas are used in the 5GHz band.
We believe that the increasing demands on wireless home networks and enterprise applications will help drive the need for high performance access points and gateways in the marketplace, which we believe will also contribute to greater demand for high-performance Wi-Fi solutions with higher ASPs given the benefits they provide to our customers. According to ABI Research, shipments of Wi-Fi-enabled consumer and enterprise access point devices are expected to be 180 million and 13 million units, respectively, in 2016 and are expected to grow to 209 million and 22 million units, respectively, by 2021.
Clients. We provide Wi-Fi solutions for non-mobile client applications such as set-top boxes. We believe the performance advantages of our solutions will better support the latest generation of Ultra High Definition, or UHD, set-top boxes, which have higher Wi-Fi speed requirements. We believe that overall Wi-Fi penetration of set-top boxes in the marketplace is relatively low, with ABI Research forecasting that 82 million Wi-Fi-enabled set top box devices will be shipped in 2016, compared to global set-top box device shipments of 285 million during the same period.
Repeaters. In certain challenging networking environments, repeaters can be used to provide extended Wi-Fi coverage. Our repeater solutions support advanced functionality, including setup, management, and client connectivity features.
We differentiate our solutions portfolio by designing and implementing a variety of innovative system architecture features that are aimed at solving the challenges of high-performance wireless networking, including:
Increasing Wi-Fi Speeds
Transmit Beamforming. Beamforming is critical to effectively compete in the high-performance Wi-Fi market as it enables gateways and access points to direct their signals toward a client to increase transmission efficiency and improve Wi-Fi speed and range. Beamforming is an integral part of our solutions, and our engineering team includes leading system algorithm experts to address the design and implementation challenges in this field.
Advanced MIMO and MU-MIMO. MIMO technology multiplies the capacity of a wireless connection by allowing access points to transmit and receive multiple streams of data at the same time. We have experienced wireless system architects and software engineers to lead the implementation of these technologies.
Spectrum Scarcity
SuperDFS Dynamic Smart Channel Selection. SuperDFS is a set of system-level algorithms that combine RFIC, baseband, and software functions to select a particular DFS channel that has the least interference and best system capacity.
More Traffic Types
IQStream Advanced Traffic Management. IQstream is a proprietary system-level algorithm that classifies and prioritizes all types of Wi-Fi traffic in order for the most critical traffic to be delivered with the least interruption.

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Legacy Wi-Fi Processing Architecture
Host Offload. Our host offload technology not only frees up the resources of the host CPU, but also requires less software integration and optimization between our Wi-Fi chips and the host CPU during system design.
Network Management
Cloud-based Wi-Fi Management Platform. Our proprietary cloud-based platform comprises a debugging agent embedded within a product, such as an access point, which sends Wi-Fi data to an analytics engine in the cloud. This system permits remote, real-time issue identification and resolution. This cloud-based platform can scale to manage millions of Wi-Fi devices and thus provide a complete network-wide Wi-Fi management system for our customers.
Risks Affecting our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:
If we fail to develop and introduce new or enhanced Wi-Fi solutions to meet the requirements of our target markets on a timely basis, our ability to retain and attract customers could be impaired and our competitive position could be harmed;
The complexity of our solutions could result in unforeseen design and development delays or expenditures;
We depend on a limited number of customers and service providers for a significant portion of our revenue;
We have an accumulated deficit and have incurred net losses in the past, and we may incur net losses in the future;
We face intense competition from a number of larger and more established companies and expect competition to increase in the future, which could have an adverse effect on our market share, revenue and results of operations;
Consolidation in our industry or in a related industry that involves our customers, service providers, partners and competitors could disrupt our business;
Our customers may cancel their orders, change production quantities or delay production, which could harm our business;
We may face claims of intellectual property infringement, which could be time-consuming and costly to defend or settle and, if adversely adjudicated, could harm our business;
Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation, which could adversely affect our results of operations and financial condition; and
A limited number of stockholders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.
Corporate Information
Our principal executive offices are located at 3450 W. Warren Avenue, Fremont, California 94538, and our telephone number is (510) 743-2260. Our website address is www.quantenna.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only. We were incorporated in the state of Delaware in November 2005 as mySource Communications, Inc., and we changed our name to Quantenna Communications, Inc. in January 2007.
“Quantenna” and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are the property of Quantenna Communications, Inc. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.  

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Emerging Growth Company
The Jumpstart Our Business Startups Act, or JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.
We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
See the section titled “Risk Factors—Risks Related to Our Business and Industry—We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors” for certain risks related to our status as an emerging growth company.


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THE OFFERING
Common stock offered by us
6,700,000 shares
Common stock to be outstanding after this offering
32,781,088 shares
Option to purchase additional shares of common stock from us
1,005,000 shares
Use of proceeds
We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $90.9 million (or approximately $105.0 million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full), based upon the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders. We intend to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, we do not have agreements or commitments for any acquisitions at this time. See the section titled “Use of Proceeds” for additional information.
Directed share program
At our request, the underwriters have reserved five percent of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to our directors, executive officers, certain employees, business associates, and friends and family of our directors and officers.  The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares.  Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Except for any shares acquired by our directors and executive officers, shares purchased pursuant to the directed share program will not be subject to lock-up agreements with the underwriters.
Proposed NASDAQ trading symbol
“QTNA”
The number of shares of our common stock that will be outstanding after this offering is based on 26,081,088 shares of our common stock (including shares of our convertible preferred stock on an as-converted basis) outstanding as of September 25, 2016, and excludes:
6,640,467 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 25, 2016, with a weighted-average exercise price of $3.51 per share;
60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after September 25, 2016, with a weighted-average exercise price of $15.00 per share;
438,656 shares of our common stock issuable upon the exercise of warrants outstanding as of September 25, 2016, with a weighted-average exercise price of $2.95 per share;

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38,748 shares of our common stock issuable upon the exercise of a warrant (assuming the automatic conversion of an outstanding warrant to purchase 38,748 shares of our convertible preferred stock into a warrant to purchase 38,748 shares of our common stock) outstanding as of September 25, 2016, with an exercise price of $7.74 per share;
6,495,238 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of:
4,100,000 shares of our common stock reserved for future issuance under our 2016 Omnibus Equity Incentive Plan, or our 2016 Plan, which will become effective prior to the completion of this offering;
395,238 shares of our common stock reserved for future issuance under our 2016 Equity Incentive Plan, or our 2016 EIP (after giving effect to the grant of 60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock after September 25, 2016 and the cancellation and return of 126,294 shares of our common stock to our 2016 EIP after September 25, 2016), which shares will be added to the shares of our common stock reserved for future issuance under our 2016 Plan to the extent not granted prior to the completion of this offering, at which time we will cease granting awards under our 2016 EIP; and
2,000,000 shares of our common stock reserved for future issuance under our 2016 Employee Stock Purchase Plan, or our ESPP.
Our 2016 Plan and our ESPP each provide for annual automatic increases in the number of shares reserved thereunder, and our 2016 Plan also provides for increases in the number of shares reserved thereunder based on awards under our 2016 EIP and 2006 Stock Plan, or our 2006 Plan, that expire, are forfeited or otherwise repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.
Except as otherwise indicated, all information in this prospectus assumes:
the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;
a 1-for-50 reverse stock split of our common stock and convertible preferred stock effected on October 13, 2016;
the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,790,650 shares of our common stock, which will occur immediately prior to the completion of this offering;
the automatic conversion of an outstanding warrant to purchase 38,748 shares of our convertible preferred stock into a warrant to purchase 38,748 shares of our common stock, which will occur immediately prior to the completion of this offering;
no exercise of outstanding stock options or warrants subsequent to September 25, 2016; and
no exercise by the underwriters of their option to purchase additional shares of our common stock from us.

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our consolidated financial and other data. We have derived the summary consolidated statement of operations data for the years ended December 28, 2014 and December 27, 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statement of operations data for the nine months ended September 27, 2015 and September 25, 2016 and our balance sheet data as of September 25, 2016 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for the nine months ended September 25, 2016 are not necessarily indicative of results to be expected for the full year or any other period. The following summary consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.
 
Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue
$
66,860

 
$
83,773

 
$
58,361

 
$
91,577

Cost of revenue(1)
38,211

 
42,554

 
30,129

 
46,452

Gross profit
28,649

 
41,219

 
28,232

 
45,125

Operating expenses:(1)
 
 
 
 
 
 
 
Research and development
31,283

 
35,575

 
26,030

 
32,913

Sales and marketing
5,932

 
6,644

 
5,019

 
5,571

General and administrative
4,532

 
5,212

 
3,910

 
7,802

Total operating expenses
41,747

 
47,431

 
34,959

 
46,286

Loss from operations
(13,098
)
 
(6,212
)
 
(6,727
)
 
(1,161
)
Interest expense
(481
)
 
(697
)
 
(560
)
 
(414
)
Other income (expense), net
89

 
(21
)
 
(108
)
 
(300
)
Loss before income taxes
(13,490
)
 
(6,930
)
 
(7,395
)
 
(1,875
)
Provision for income taxes
(108
)
 
(115
)
 
(77
)
 
(52
)
Net loss
$
(13,598
)
 
$
(7,045
)
 
$
(7,472
)
 
$
(1,927
)
Net loss attributable to common stockholders per share, basic and diluted(2)
$
(20.72
)
 
$
(9.16
)
 
$
(10.16
)
 
$
(1.84
)
Weighted average shares used to compute basic and diluted net loss per share(2)
656,146

 
769,524

 
735,142

 
1,047,920

Pro forma net loss per share- basic and diluted(2)
 
 
$
(0.29
)
 
 
 
$
(0.08
)
Pro forma weighted average number of shares outstanding - basic and diluted net loss per share(2)
 
 
25,066,010

 
 
 
25,838,570

________________________
(1)
Cost of revenue and operating expenses include stock-based compensation expense as follows:


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Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(In thousands)
Cost of revenue
$
7

 
$
9

 
$
6

 
$
15

Research and development
256

 
302

 
225

 
454

Sales and marketing
101

 
445

 
419

 
120

General and administrative
203

 
446

 
307

 
1,635

Total stock-based compensation expense
$
567

 
$
1,202

 
$
957

 
$
2,224

(2)
See Notes 1 and 3 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculation of our basic and diluted net loss per common share, pro forma net loss per common share, and the weighted-average number of shares used in the computation of the per share amounts.
 
 
As of September 25, 2016
 
 
 
Actual
 
Pro Forma (1)
 
Pro Forma as
Adjusted
(2) (3)
 
 
 
(In thousands)
 
Consolidated Balance Sheet Data:
 
 
Cash and cash equivalents
$
17,822

 
$
17,822

 
$
108,757

 
Working capital
$
28,631

 
$
28,426

 
$
120,757

 
Total assets
$
55,082

 
$
55,082

 
$
143,740

 
Total liabilities
$
25,450

 
$
25,291

 
$
23,895

 
Convertible preferred stock
$
184,704

 

 
$

 
Total stockholders’ equity (deficit)
$
(155,072
)
 
$
29,791

 
$
119,845

________________________
(1)
The pro forma column in the balance sheet data table above reflects (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,790,650 shares of common stock; (ii) the resulting reclassification of our convertible preferred stock warrant liability to additional paid-in capital; and (iii) the obligation to pay an aggregate of $0.2 million in fees to Silicon Valley Bank under our Amended and Restated Loan and Security Agreement, or the SVB Loan Agreement, which will become due upon the closing of the offering, as if such conversion, reclassification, and obligation had occurred on September 25, 2016. We have made an adjustment to the pro forma working capital and total stockholders’ equity (deficit) to reflect the impact of such fees.
(2)
The pro forma as adjusted column in the balance sheet data table above gives effect to the pro forma adjustments set forth in the footnote above and the sale and issuance by us of 6,700,000 shares of common stock in this offering, based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, working capital, total assets, and total stockholders’ equity (deficit) by $6.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, working capital, total assets, and total stockholders’ equity (deficit) by $14.0 million, assuming an initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS
Risks Related to Our Business and Industry
If we fail to develop and introduce new or enhanced Wi-Fi solutions to meet the requirements of our target markets on a timely basis, our ability to retain and attract customers could be impaired and our competitive position could be harmed.
We are largely dependent on sales of leading-edge, high-performance Wi-Fi solutions. The markets we target with our solutions are characterized by rapidly changing technology, changing customer and service provider needs, evolving industry standards, intense competition and frequent introductions of new products. To succeed, we must effectively anticipate customer and service provider requirements and respond to these requirements on a timely basis. If we fail to develop new Wi-Fi solutions or enhancements to our existing solutions that offer increased features and performance in a cost-effective manner, or if our customers or service providers do not believe that our solutions have compelling technological advantages, our business could be adversely affected. We must also successfully manage the transition from older solutions to new or enhanced solutions to minimize disruptions in our business. In addition, if our competitors introduce new products that outperform our solutions or provide similar performance at lower prices, we may lose market share or be required to reduce our prices. Our failure to accurately predict market needs or timely develop Wi-Fi solutions that address market needs could harm our business, results of operations and financial condition.
The complexity of our solutions could result in unforeseen design and development delays or expenditures.
Developing our Wi-Fi solutions is expensive, complex, time-consuming and involves uncertainties. We must often make significant investments in product roadmaps, design and development far in advance of established market needs and may not be able to consistently and accurately predict what those actual needs will be in the future. Each phase in the development of our solutions presents serious risks of failure, rework or delay, any one of which could impact the timing and cost-effective development of such solutions and could jeopardize customer acceptance of the solutions. Product development efforts may last two years or longer, and require significant investments of time, third-party development costs, prototypes and sample materials, as well as sales and marketing resources and expenses, which will not be recouped if the product launch is unsuccessful. We also have limited resources and may not be able to develop alternative designs or address a variety of differing market requirements in parallel. Our failure to adequately address any such delays in a cost-effective manner could harm our business, results of operations and financial condition.
In addition, as is common in our industry, our Wi-Fi solutions may 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 defects, errors and bugs. For example, in 2015, in response to a defect we identified, we were required to make a revision to one of our chips, which resulted in a four month delay in product introduction. Product defects, errors or bugs could affect the performance of our products resulting in reliability, quality or compatibility problems, and delay the development or shipments of new solutions or new versions of our solutions. As a result, our reputation may be damaged and the market adoption of our Wi-Fi solutions could be adversely affected. If any of these problems are not found until after we have commenced shipment of a new solution, we may incur significant additional development costs to redesign, recall, repair or replace the defective solution. These problems may also trigger warranty or contractual indemnity claims against us by our customers or others, and our reputation and results of operations may be adversely affected.
Our solutions must also successfully operate with products from other vendors. As a result, when problems occur in a customer product in which our solution is used, it may be difficult to identify the source of these problems. The occurrence of hardware and software errors, whether or not caused by our solutions, could result in the delay or loss of market adoption of our solutions, and therefore delay our ability to recognize revenue from sales, and any necessary repairs may cause us to incur significant expenses. The occurrence of any such problems could harm our business, results of operations and financial condition.
We depend on a limited number of customers and service providers for a significant portion of our revenue.
We derive a significant portion of our revenue from a small number of OEMs and ODMs, and we anticipate that we will continue to do so for the foreseeable future. In 2014, three customers accounted for approximately 60% of our revenue. In 2015, four customers accounted for approximately 50% of our revenue. In addition, substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. Based on sell-through information provided to us by our OEM and ODM customers, we estimate that our two largest service providers,

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which are based in the United States, represented approximately one-half of our revenue in 2014 and approximately 40% of our revenue in 2015. The loss of a key customer or service provider, or a reduction in sales to any key customer or service provider could negatively impact our revenue, cause us to have excess or obsolete inventory, and harm our business, results of operations and financial condition.
We have an accumulated deficit and have incurred net losses in the past, and we may incur net losses in the future.
We have incurred net losses in the past and may incur net losses in the future. For 2014 and 2015 and the nine months ended September 25, 2016, we incurred net losses of $13.6 million, $7.0 million and $1.9 million, respectively. As of September 25, 2016, we had an accumulated deficit of $161.6 million. Following the completion of this offering, we expect to continue to make significant investments related to the development of our Wi-Fi solutions and the expansion of our business, including investments to support our research and development, sales and marketing and general and administrative functions. As a public company, we will also incur significant additional legal, accounting and other expenses. If our revenue growth does not exceed the growth of these anticipated expenses, we may not be able to achieve or sustain profitability, and our stock price could decline.
We face intense competition from a number of larger and more established companies and expect competition to increase in the future, which could have an adverse effect on our market share, revenue and results of operations.
Many of our competitors, including Broadcom, Marvell Technology Group Ltd., or Marvell, MediaTek USA Inc., or MediaTek, and Qualcomm Incorporated, or Qualcomm, have greater financial, technical, sales, marketing and other resources than we do, as well as longer operating histories, greater name recognition, larger customer bases and more established customer relationships. In the future, we may also face competition from other new and emerging companies, including from companies in China.
Our competitors may be able to anticipate, influence or adapt more quickly to new or emerging technologies and standards and changes in customer and service provider requirements. Our competitors may also be able to devote greater resources to the promotion and sale of their products, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily and develop and expand their product offerings more quickly than we can. In addition, many of our larger competitors offer a broader range of products than we do, including non-Wi-Fi products. These competitors may be able to sell at lower margins, bundle additional products and features with their Wi-Fi products, or create closed platforms that discourage customers or service providers from purchasing our Wi-Fi solutions. This strategy may be particularly effective for customers and service providers who prefer the convenience of purchasing all of their Wi-Fi products from a single provider. If we are unable to maintain our competitive advantages through the delivery of superior solutions, our business, results of operations and financial condition may be harmed.
Consolidation in our industry or in a related industry that involves our customers, service providers, partners and competitors could disrupt our business.
There has been a significant amount of consolidation in our industry and related industries. Examples include consolidation among service providers, such as the acquisition of DirecTV by AT&T in 2015; consolidation involving our customers, such as the acquisition of the Cisco video business by Technicolor in 2015 and the acquisition of Pace plc, or Pace, by Arris, in 2016; consolidation involving our partners, such as the acquisition of Freescale Semiconductor by NXP Semiconductors in 2015; and consolidation involving our competitors, such as the acquisition of Broadcom by Avago Technologies in 2016.
Consolidation among our customers and service providers can create significant uncertainty regarding demand for our Wi-Fi solutions and could cause delays in the purchase of our Wi-Fi solutions or the loss of business. For example, in 2015 our two largest service providers consolidated, resulting in the cancellation of previously submitted purchase orders, which adversely impacted our revenue for several quarters. Consolidation among our competitors could adversely affect the competitive landscape and industry dynamics, including causing increased pricing pressure, intensifying the focus of our competitors on certain markets or customers that could cause us to lose market share or customers, and enabling our competitors to leverage complementary products or technologies of the combined company. Accordingly, any industry consolidation could have an adverse effect on our business, results of operations and financial condition.

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Our customers may cancel their orders, change production quantities or delay production, which could harm our business.
Our customers typically do not provide us with firm, long-term purchase commitments. Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay their purchases of our solutions with little or no notice to us. As a result, our ability to accurately forecast customer demand is limited. Any such cancellation of or decrease in purchase orders subjects us to a number of risks, including unanticipated revenue shortfalls, loss of volume-based wafer rebates from our third-party foundry and excess or obsolete inventory.
We may face claims of intellectual property infringement, which could be time-consuming and costly to defend or settle and, if adversely adjudicated, could harm our business.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. We have received communications from third parties, including non-practicing entities, alleging our infringement of their patents, and we may receive additional claims of infringement in the future. For example, in October 2016, a third party filed suit in the United States District Court for the Northern District of Illinois alleging infringement by us of nine expired U.S. patents. See Note 6 of our consolidated financial statements included elsewhere in this prospectus. In addition, our customers and service providers may become subject to litigation or receive communications regarding alleged infringement of their products that implicate our Wi-Fi solutions. We have certain contractual obligations to defend and indemnify our customers and other third parties from damages and costs which may arise in connection with any such infringement claims. We or our customers may be required to obtain licenses for such patents, which could require us to pay royalties. Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and management personnel. If we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms or at all, cease sale of products or licensing of our technology, expend significant resources to redesign our solutions, develop alternative technology or discontinue the use of processes requiring the relevant technology.
Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation, which could adversely affect our results of operations and financial condition.
Our success depends, in part, on our ability to adequately protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other contractual provisions, to protect our proprietary technologies and know-how. As of September 25, 2016, we had 38 issued patents in the United States and five foreign counterpart patents issued in Taiwan. The rights granted to us may not be meaningful or provide us with any commercial advantage. For example, any patent claims we make may be deemed insufficient to cover the third party’s product or technology or the patent could be opposed, contested, circumvented, designed around or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of any of our patents to adequately protect our technology could make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is not as comprehensive as our U.S. patent protection. As a result, we may not be able to effectively protect our intellectual property in some countries where our solutions are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may be challenging or may not be available. Furthermore, changes to the patent laws in the United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our patent protection.
We cannot ensure that the steps we have taken will prevent unauthorized use of our intellectual property or the reverse engineering of our technology. In addition to the protection afforded by patents, we rely on confidential proprietary information, including trade secrets and know-how, to develop and maintain our competitive position. Any disclosure or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate our proprietary information, thus eroding our competitive position. We seek to protect our proprietary information in part by confidentiality agreements with our employees, contractors, customers, partners and other third parties. These agreements are designed to protect our proprietary information; however, any of these parties may breach the agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches. Detecting and monitoring unauthorized use of our intellectual property can be difficult and costly. It is possible that unauthorized use of our intellectual property may have occurred or may occur without our knowledge. Our failure to adequately protect our intellectual property could adversely

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impact our ability to maintain a competitive advantage in our markets, thus harming our business, results of operations and financial condition.
We may in the future need to initiate infringement claims or litigation to try to protect our intellectual property rights. Litigation, whether we are a plaintiff or a defendant, can be very expensive and time-consuming and may divert the efforts of our technical and management personnel without resulting in a favorable outcome. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.
Our use of open source software in our solutions, processes and technology may expose us to additional risks and compromise our proprietary intellectual property.
We incorporate open source software into our Wi-Fi solutions, including certain open source code governed by the GNU General Public License, Lesser GNU General Public License and Common Development and Distribution License. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, we could be required to seek licenses from third parties to continue offering our solutions, make our proprietary code generally available in source code form (for example, proprietary code that links to certain open source modules), re-engineer our solutions, discontinue the sale of our solutions if re-engineering cannot be accomplished on a cost-effective and timely basis, or become subject to other consequences, any of which could adversely affect our business, results of operations and financial condition.
We may have difficulty accurately predicting our future revenue, cost of revenue, operating expense, working capital, and capital investments.
We were incorporated in 2005 and only began shipments of our Wi-Fi solutions in 2010. As a result, we have a limited operating history from which to predict future operating results. This limited operating history, combined with the rapidly evolving nature of the markets in which we sell our Wi-Fi solutions, substantial uncertainty concerning how these markets may develop and other factors beyond our control, limit our ability to accurately forecast our future revenue, cost of revenue, operating expense, working capital, and capital investments. Additionally, if we are unable to accurately forecast customer demand or service provider deployments in a timely manner, we may not build enough supply or maintain enough inventory, which could lead to delays in product shipments and lost sales opportunities, as well as cause our customers to identify alternative sources of supply. Alternatively, we may accumulate excess or obsolete inventory. Any of these factors could harm our margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations. If our revenue does not increase as anticipated, we could incur significant losses to the extent we are unable to decrease our expenses in a timely manner to offset any shortfall in future revenue. Any failure to accurately predict our future operating results could cause us to miss our financial projections and adversely affect the price of our common stock.
If we are unable to effectively manage any future growth, we may not be able to execute our business plan and our results of operations could suffer.
We have expanded our operations significantly since our inception in 2005 and anticipate that further expansion will be required to achieve our business objectives. For example, we grew from 219 employees as of December 28, 2014 to 303 employees as of September 25, 2016, and expect our headcount to continue to grow rapidly as we scale our business. The growth and expansion of our business have placed and will continue to place a significant strain on our management, operations and financial resources. We expect that any future growth will also add complexity to, and require effective coordination throughout, our organization.
To manage any future growth effectively, we must continue to improve and expand our operating and administrative systems and controls. We may not be able to successfully implement improvements to these systems and controls in a timely or efficient manner, which could result in operating inefficiencies and could cause our costs to increase more than planned. If we are unable to effectively manage our future growth, our business, results of operations and financial condition may be harmed.

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We rely on a limited number of third-party contractors and suppliers in connection with the design and manufacture of certain parts of our solutions. The failed performance or loss of any of these third parties may adversely impact our business.
We currently depend on a single foundry, Taiwan Semiconductor Manufacturing Corporation, or TSMC, for the supply of our mask-sets and for the fabrication of our wafers. We also depend on a limited number of sources in connection with the design, development, testing and assembly of our solutions and components thereof. We currently do not have long-term supply contracts with any of our third-party contractors or suppliers, and we typically negotiate pricing separately for each purchase order. Therefore, our contractors and suppliers are not obligated to perform services or supply products to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. Sufficient capacity through our foundry or the third-party contractors we rely on for assembly and testing may not be available when we need it or at reasonable prices. In addition, we rely on intellectual property rights and software development tools from third-parties such as Cadence Design Systems, Inc., Mentor Graphics Corporation, and Synopsys, Inc., to support the design, development, simulation and verification of new solutions or enhancement to existing solutions. If licenses to such technologies are not available on commercially reasonable terms and conditions, or such products become unavailable for any other reason, and we cannot otherwise integrate such technologies, our solutions or our customers’ products could become unmarketable or obsolete, and we could lose market share. In such instances, we could also incur substantial unanticipated costs or scheduling delays to develop or acquire substitute technologies to deliver competitive products.
If we lose any of our single source or limited source contractors or suppliers, we could be required to transition to a new third party, which could increase our costs, result in delays in the manufacture and delivery of our solutions, require a redesign of our solutions to transition to alternative sources, or cause us to carry excess, obsolete or insufficient inventory. In addition, if these contractors or suppliers fail to produce and deliver our solutions according to required specifications, quantity, quality, cost and time requirements, our business, results of operations and financial condition could suffer.
Our results of operations are likely to vary significantly from period to period, which could cause the trading price of our common stock to decline.
Our results of operations have fluctuated from period to period, and we expect such results to continue to fluctuate as a result of a number of factors, many of which are outside our control and may be difficult to predict, including:
the fluctuations in demand for high-performance Wi-Fi products in general;
the inherent complexity, length and associated unpredictability of the sales cycles for our Wi-Fi solutions;
changing market conditions and competitive dynamics of our markets, including new entrants and current and potential customer or service provider consolidation;
timing of introductions of new products by our customers and service providers and our ability to secure design wins related to such products;
changes to or inaccurate demand forecasts from our customers and service providers;
the timing and amount of purchase orders, especially from significant customers;
reductions in or cancellations of purchase orders by our customers, including with little or no notice;
changes in the mix of our sales in the service provider market versus retail, enterprise or consumer electronics end markets and among different customers;
declines in average selling prices, or ASPs, and the extent to which the impact of such declines is offset by increased sales volume or decreased manufacturing and other costs;
changes in manufacturing costs, including wafer fabrication, testing and assembly costs, manufacturing yields and product quality and reliability;
our ability to develop, introduce and ship new Wi-Fi solutions in a timely manner and anticipate future market demands that meet our customers’ requirements;

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the timing and amount of tape-out costs;
timing of headcount adjustments;
volatility in our stock price, which may lead to material changes in stock compensation expense;
our ability to derive benefits from our investments in research, development, sales, marketing, and other activities; and
general economic or political conditions in our current or future domestic and international markets.
The effects of these and other factors could result in large fluctuations and unpredictability in our quarterly and annual results of operations. Therefore, comparing our results of operations on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.
If we fail to successfully address additional Wi-Fi markets, our revenue growth and financial condition could be harmed.
Currently, we sell most of our Wi-Fi solutions to OEMs and ODMs that target the service provider market for home networking. Our success will depend in part on our ability to expand beyond the service provider market to other Wi-Fi markets, including the enterprise and consumer electronics markets, as well as grow our market share in the retail market. These other markets have separate and unique requirements that may not be directly addressed by our current Wi-Fi solutions, including different specifications, performance requirements and product support needs. For example, our current Wi-Fi solutions may not be well suited for certain market opportunities and may require significant new functionality or features. Therefore, meeting the technical requirements and securing design wins with customers targeting these markets will require a substantial investment of our time and resources. We may also face challenges and delays in accurately understanding the specific needs of new markets, which in turn may impair our ability to develop the customer and partner relationships necessary to be successful in such markets. If any of these markets do not develop as we currently anticipate or if we are unable to penetrate them successfully, our growth opportunities could be harmed and our business, results of operations and financial condition could be negatively impacted.
If we fail to successfully leverage our engineering expertise to penetrate markets beyond Wi-Fi, our long-term revenue growth and financial condition could be harmed.
Our future growth will depend in part on our ability to leverage our engineering expertise in wireless and communications to address other markets beyond Wi-Fi. We have historically focused on high-performance Wi-Fi solutions, and may not be successful in identifying or implementing strategies to penetrate and sustain growth in new markets. If we are unable to develop solutions that are applicable beyond the Wi-Fi market, or to manage the expansion and growth of our business in such markets, our long-term revenue growth and financial condition could be harmed.
If we are unable to attract, train and retain qualified and key personnel, particularly our engineering personnel, we may not be able to execute our business strategy effectively.
We believe our future success will depend in large part upon our ability to attract, train and retain highly skilled management, engineering and sales and marketing personnel. Each of our employees is an at-will employee. The loss of any key employees or the inability to attract, train or retain qualified personnel, particularly our engineering personnel, could harm our business. For example, if any of these individuals were to leave unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity during the search for any such successor and while any successor is integrated into our business and operations.
Our key engineering personnel represent a significant asset and serve as the source of our technological and product innovations. We may not be successful in attracting, training and retaining sufficient numbers of technical and engineering personnel to support our anticipated growth. The competition for qualified engineering personnel in our industry is very intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for highly skilled personnel.
Changes to industry standards and government requirements relevant to our solutions and markets could adversely affect our business, results of operations and financial condition.
If our customers adopt new or competing industry standards with which our solutions are not compatible, our existing solutions would become less desirable and our revenue and results of operations would suffer. In addition, changes in government-

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imposed requirements, such as maximum power consumption regulations in Europe, can prevent our solutions from being shipped to certain countries if they do not meet such requirements.
To compete effectively in the Wi-Fi marketplace, we rely on industry partners to enable and complement our Wi-Fi solutions.
Our Wi-Fi solutions need to be integrated with other components and products, such as broadband processors, video SOCs and network processors, to serve the service provider markets. We have developed relationships with various third-party partners who enable and enhance our ability to bring our Wi-Fi solutions to various markets. These partners can provide critical support to enable us to reach certain markets and better address customer needs, including through the development of joint reference designs, the establishment of relationships with key customers, the validation of our Wi-Fi solutions, and the creation of bundled solutions to contend with competitive offerings. For example, when our Wi-Fi solution is designed into a product that also incorporates Intel Corporation, or Intel, or Broadcom network processors, we depend on the ability of these partners to deliver their products in a timely fashion in order to meet shipping schedules. These partners may also be our competitors, which can negatively impact their willingness to collaborate with us, to support the integration of our solutions with their products, and to pursue joint sales and marketing efforts. In addition, in some cases it may be necessary to share competitively sensitive information with our partners that could enable our partners to compete more effectively against us or create uncertainty regarding ownership of intellectual property rights. If we are unable to continue to successfully develop or maintain these relationships, we may not be able to compete effectively and our business and results of operations may be adversely affected.
Our historical growth rate may not be indicative of future financial results.
You should not consider the growth rate in our revenue in recent periods as indicative of our future performance. Our revenue increased from $66.9 million in 2014, to $83.8 million in 2015, representing an increase of 25%. Our revenue increased from $58.4 million in the nine months ended September 27, 2015 to $91.6 million in the nine months ended September 25, 2016, representing an increase of 57%. Our revenue may be adversely impacted by various factors, including reduced demand for our Wi-Fi solutions, increased competition, a decrease in the size of our target markets, and the failure to capitalize on growth opportunities. Moreover, even if our revenue continues to increase in absolute terms, we expect that our revenue growth rate will decline over time as we mature as a public company.
We may pursue strategic acquisitions or partnerships which could require significant management attention, increase operating risk, dilute stockholder value, fail to achieve intended results, and adversely affect our business, results of operations and financial condition.
In the future, we may acquire other businesses, products or technologies, or partner with other businesses. To date, we have not made any acquisitions, and we do not currently have any agreements or commitments for any acquisition. Our ability to make and successfully integrate acquisitions is unproven. Even if we complete one or more acquisitions, we may not be able to strengthen our competitive position or realize the intended benefits of the acquisition in a timely manner, or at all. Any acquisitions may also be viewed negatively by our customers, financial markets or investors. In addition, any acquisitions we make could lead to difficulties in integrating technologies, products and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expense and adversely impact our business. Acquisitions may also reduce our cash available for operations and other uses, and could also result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, any of which could harm our business.
Our business is subject to disruption from hazards, natural disasters, terrorism, and political unrest, which could cause significant delays in the design, development, production or shipment of our solutions.
Our operations and those of our third-party contractors are vulnerable to interruptions caused by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fires, earthquakes, power losses, telecommunications failures, terrorist attacks, wars, Internet failures and other events beyond our control. For example, our sole foundry, TSMC, is located in Taiwan, which has been subject to a number of earthquakes, which has in the past impacted, and may in the future impact, the fabrication of our solutions. In addition, a significant portion of our engineering equipment, servers, storage and networking equipment, and other office equipment is located in our offices in the seismically active San Francisco Bay Area and Taiwan. If we suffer a significant hazard or outage to these offices and equipment, our business could experience disruption, which could harm our business and negatively impact our business, results of operations and financial condition.

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The average selling prices for our Wi-Fi solutions could decrease over time, which could harm our revenue, gross margin and results of operations.
Products sold in our industry, including our Wi-Fi solutions, have often experienced a decrease in average selling prices over time. We anticipate that the average selling prices of our solutions may decrease in the future in response to competitive pricing pressures, customer expectations for price reduction, increased sales discounts, and new product introductions by our competitors. Our future results of operations may be harmed due to the decrease of our average selling prices.
Additionally, because we use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs, we may not be able to reduce our costs as rapidly as companies that operate their own manufacturing processes, and our costs may even increase, which could also reduce our gross margins. To maintain our current gross margins or increase our gross margins in the future, we must develop and introduce on a timely basis new solutions and enhancements to existing solutions; continually reduce the costs of manufacturing our solutions; and manage transitions from one solution to another in a timely and cost-effective manner. Our failure to do so would likely cause our revenue and gross margins to decline, which could have an adverse effect on our business, results of operations and financial condition.
Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our business.
We have international operations in China, Russia, Taiwan, Australia, Japan, and parts of Europe, and we derive substantially all of our revenue from shipments delivered outside the United States, particularly in Asia. International operations are subject to inherent risks, and our future results could be adversely affected by a number of factors, including:
differing technical standards, existing or future regulatory and certification requirements and required product features and functionality;
challenges related to managing and integrating operations in new markets with different languages, cultures and political systems;
heightened risks of unfair or corrupt business practices in certain countries and of improper or fraudulent sales arrangements that may impact financial results and lead to restatements of, and irregularities in, our financial statements or violations of law, including the U.S. Foreign Corrupt Practices Act;
tariffs and trade barriers, export controls and trade and economic sanctions regulations and other regulatory or contractual limitations on our ability to sell or develop our solutions in certain foreign markets, particularly in China and Russia;
difficulties and costs associated with staffing and managing international operations;
difficulties associated with enforcing and protecting intellectual property rights in some countries;
requirements or preferences for in-country products, which could reduce demand for our products;
difficulties in enforcing contracts and collecting accounts receivable, which may result in longer payment cycles, especially in emerging markets;
potentially adverse tax consequences, including taxes impacting our ability to repatriate profits to the United States;
added legal compliance obligations and complexity;
public health emergencies and other disasters, such as earthquakes and tsunamis, that are more common in certain regions;
increased cost of terminating employees in some countries;
the effect of currency exchange rate fluctuations; and
political and economic instability, and terrorism.

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In 2012, we established our Russian subsidiary for research and development activities pursuant to a letter agreement with Joint Stock Company “RUSNANO” (formerly Open Joint Stock Company “RUSNANO”).  Pursuant to the letter agreement, as amended, we have obligations to periodically fund the subsidiary, and RUSNANO has certain rights regarding the governance and operation of the subsidiary.  While certain of these rights will terminate upon completion of this offering, RUSNANO will remain entitled to representation on the subsidiary’s board of directors and certain continuing rights regarding use of the subsidiary’s funds.  We may incur specified penalties under the letter agreement if we fail to meet our funding obligations, and may incur other unanticipated costs if we are required to restructure our operations in Russia.  See the section titled “Certain Relationships and Related Party Transactions—Agreement with RUSNANO” for additional information about this arrangement.
We expect that we will continue to rely on our international operations, and our success will depend on our ability to anticipate and effectively manage these and other associated risks. Our failure to manage any of these risks successfully could harm our international operations and adversely affect our business.
We could be subject to additional tax liabilities.
We are subject to U.S. federal, state and local income, sales and other taxes in the United States and foreign income taxes, withholding taxes and value-added and other transaction taxes in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by challenges to our intercompany arrangements, valuation methodologies and transfer pricing, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may challenge our intercompany structures or assess additional taxes, interest and penalties, including sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have an adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
We currently have a significant amount of net operating losses, or NOLs, which we expect will reduce our overall tax liability for the foreseeable future. However, our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering or any future offering, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
The requirements of being a public company may strain our resources and divert management’s attention from managing our business.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the listing requirements of the securities exchange on which our common stock is traded, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demands on our administrative systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations, and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. We may need to hire additional employees to comply with these requirements in the future, which will increase our costs and expenses.

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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment will increase our general and administrative expense and result in a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards are unsuccessful, regulatory authorities may initiate legal proceedings against us and our business, results of operations and financial condition may be harmed.
As a result of becoming a public company, we will be subject to additional regulatory compliance requirements and we may not be able to implement an effective system of internal controls and accurately report our financial results on a timely basis, which may adversely affect investor confidence in our company and negatively impact the trading price of our common stock.
We have never operated as a public company and will incur significant legal, accounting and other expenses that we did not incur as a private company. The individuals who constitute our management team have limited experience managing a publicly traded company, and limited experience complying with the increasingly complex and changing laws pertaining to public companies. Our management team and other personnel will need to devote a substantial amount of time to compliance, and we may not effectively or efficiently manage our transition to being a public company. In addition, we have limited internal resources and may not be able to hire additional, qualified resources on a timely basis.
Pursuant to the Exchange Act, we will be required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We are currently documenting and testing our internal controls in order to identify, evaluate and remediate any deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more additional material weaknesses in our internal control over financial reporting, as we did in preparing our 2015 consolidated financial statements, that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors, when required, are unable to attest to management’s report on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
As a public company, we will be required to disclose material changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company” as defined in the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.
We have identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.
During the course of the preparation of our 2015 consolidated financial statements, we identified a material weakness in our internal control over financial reporting as a result of a lack of sufficient qualified personnel within the finance and accounting function who possessed an appropriate level of expertise to effectively perform the following functions commensurate with our structure and financial reporting requirements: (i) identify, select and apply GAAP sufficiently to provide reasonable assurance that transactions were being appropriately recorded, and (ii) assess risk and design appropriate control activities over financial and reporting processes necessary to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. We have taken a number of steps to remediate this material weakness, but there is no assurance that these remediation efforts will be successful. If not properly remediated, this material weakness could result in material

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misstatements in our financial statements in future periods and impair our ability to comply with accounting and reporting requirements.
We also cannot be certain that other material weaknesses and control deficiencies will not be discovered in the future. In addition, if our remediation efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline. As a result of any such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition, or divert financial and management resources from our core business.
We are subject to the cyclical nature of the semiconductor industry, which has suffered, and may in the future suffer, from cyclical downturns.
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, consolidation and wide fluctuations in product supply and demand. The industry has historically experienced cyclical downturns, including during global recessions, which have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of ASPs. A significant portion of our operating expense is incurred in connection with developing our Wi-Fi solutions, securing design wins and assisting customers and service providers in the development of their product specifications in advance of anticipated sales. As a result, in the event that such sales do not ultimately materialize due to a cyclical downturn or otherwise, we may not be able to decrease our operating expense rapidly enough to offset any unanticipated shortfall in revenue. There is a risk that future downturns could negatively impact our revenue, which could harm our business, results of operations and financial condition.
Our results of operations and financial condition could be seriously impacted by security breaches, including cyber security incidents.
We may not be able to effectively detect, prevent and recover from security breaches, including attacks on information technology and infrastructure by hackers and viruses. Cyber-attacks could result in unauthorized parties gaining access to certain confidential business information, and could include unauthorized third parties obtaining trade secrets and proprietary information related to our solutions. For example, we offer a cloud-based Wi-Fi analytics and monitoring platform that collects certain Wi-Fi network and system data. While we utilize Amazon Web Services for this platform, which provides a number of sophisticated technical and physical controls designed to prevent unauthorized access to or disclosure of customer content, we cannot be certain that such controls will be sufficient to prevent a security breach. It can be difficult, if not impossible, to entirely prevent cyber-attacks. As these threats continue to evolve, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, if we experience a cyber security incident, such incident could adversely affect our business, results of operations and financial condition.
Failure to comply with the terms of our loan and security agreements with a financial institution may adversely affect our working capital and financial condition.
Our SVB Loan Agreement and Mezzanine Loan Agreement contain customary covenants which could restrict our ability to operate and finance our business and operations, such as nonpayment of amounts due under the revolving line of credit or the loans, violation of the restrictive covenants, violation of other contractual provisions, or a material adverse change in our business. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of any of these covenants could result in defaults under the loan agreements. In addition, borrowings under these loan agreements are collateralized by certain of our assets, including our receivables and inventory, subject to customary exceptions and limits.
The loan agreements also contain customary events of default. Defaults, if not waived, could cause all of the outstanding indebtedness under our loan agreements to become immediately due and payable and would permit Silicon Valley Bank to exercise remedies against the collateral in which we granted Silicon Valley Bank a security interest.
If we are unable to comply with the terms of these agreements, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, and our assets may become subject to Silicon Valley Bank’s security interest. This could materially and adversely affect our working capital, financial condition and our ability to operate.

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We are exposed to fluctuations in currency exchange rates that could negatively impact our business, operating results and financial condition.
Because a portion of our business is conducted outside of the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time, as international customer mix, business practices and our international footprint evolve, and they could have a material adverse impact on our business, operating results and financial condition.
To date, all of our revenue have been denominated in U.S. dollars; however, most of our expenses associated with our international operations are denominated in local currencies. As a result, a decline in the value of the U.S. dollar relative to the value of these local currencies could have a material adverse effect on our results of operations. Conversely, an increase in the value of the U.S. dollar could result in our Wi-Fi solutions being more expensive to our customers in their local currencies, and could have an adverse impact on our pricing and our business.
To date, we have not used risk management techniques to hedge the risks associated with these fluctuations. Even if we were to implement hedging strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchange exposure, they are based on forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchange rates or our failure to successfully hedge against these fluctuations could have a material adverse effect on business, operating results and financial condition.
Risks Related to this Offering and Ownership of Our Common Stock
There has been no prior trading market for our common stock, and an active trading market may not develop or be sustained following this offering.
Our common stock has been approved for listing on The NASDAQ Global Select Market under the symbol “QTNA.” However, there has been no prior trading market for our common stock. We cannot assure you that an active trading market for our common stock will develop on such exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares of our common stock.
The market price of our common stock may be volatile, which could cause the value of your investment to decline.
Technology stocks have historically experienced high levels of volatility. The trading price of our common stock following this offering may fluctuate substantially. Following the completion of this offering, the market price of our common stock may be higher or lower than the price you pay in the offering, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
announcements of new products or technologies, commercial relationships, acquisitions or other events by us or our competitors;
changes in how customers perceive the benefits of our Wi-Fi solutions;
departures of key personnel;
price and volume fluctuations in the overall stock market from time to time;
fluctuations in the trading volume of our shares or the size of our public float;
sales of large blocks of our common stock;
actual or anticipated changes or fluctuations in our results of operations;
whether our results of operations meet the expectations of securities analysts or investors;
changes in actual or future expectations of investors or securities analysts;

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litigation involving us, our industry, or both;
regulatory developments in the United States, foreign countries or both;
general economic conditions and trends;
major catastrophic events in our domestic and foreign markets; and
“flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed.
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.
If securities analysts or industry analysts downgrade our stock, publish negative research or reports or fail to publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.
The trading market for our common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our stock or publish negative research or reports, cease coverage of our company or fail to regularly publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.
Purchasers in this offering will immediately experience substantial dilution in net tangible book value.
The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate dilution of $11.34 per share, the difference between the price per share you pay for our common stock and the pro forma net tangible book value per share of our common stock as of September 25, 2016, after giving effect to the issuance of shares of our common stock in this offering. See the section titled “Dilution” below.
Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain.
Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the total number of outstanding shares of our common stock as of September 25, 2016, upon completion of this offering, we will have approximately 32,781,088 shares of common stock outstanding. All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our “affiliates” as defined in Rule 144 under the Securities Act.
Subject to certain exceptions described in the section titled “Underwriters,” we and all of our directors and executive officers and substantially all of our equity holders have agreed not to offer, pledge, sell or contract to sell, directly or indirectly, any shares of common stock or securities convertible into or exercisable for shares of common stock without the prior written consent of Morgan Stanley & Co. LLC, on behalf of the underwriters, for a period of 180 days from the date of this prospectus. When the lock-up period expires, we and our locked-up security holders will be able to sell our shares in the public market. In addition, Morgan Stanley & Co. LLC, on behalf of the underwriters, may release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. At our request, the underwriters have reserved five percent of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to our directors, executive officers, certain employees, business associates, and friends and family of our directors and officers.  Except for any shares acquired by our directors and executive officers, shares purchased pursuant to the directed share program will not be subject to lock-up

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agreements with the underwriters. See the section titled “Shares Eligible for Future Sale” for more information. Sales of a substantial number of such shares upon expiration, or the perception that such sales may occur, or early release of the lock-up, could cause our stock price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.
Based on shares outstanding as of September 25, 2016, holders of up to approximately 25,670,673 shares (including 342,004 shares of our common stock issuable upon the exercise of warrants that were outstanding as of September 25, 2016), or 78.3% of our common stock after the completion of this offering, will have rights, subject to certain conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our stock incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
A limited number of stockholders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control and other matters requiring stockholder approval.
Our directors, executive officers and each of our stockholders who owns greater than 5% of our outstanding common stock, in the aggregate, will beneficially own approximately 62.9% of the outstanding shares of our common stock after the completion of this offering, based on the number of shares outstanding as of September 25, 2016, assuming no shares are purchased by any such persons in this offering. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, and limit your ability to influence the outcome of key transactions, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
Management will have broad discretion over the use of proceeds from this offering.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our stock and thereby enable access to the public equity markets by our employees and stockholders, obtain additional capital and increase our visibility in the marketplace. As of the date of this prospectus, we have no specific plans for the use of the net proceeds we receive from this offering. However, we currently intend to use the net proceeds we receive from this offering primarily for general corporate purposes, including headcount expansion and operating infrastructure development, research and development activities, sales and marketing activities, general and administrative activities, working capital, and capital expenditures. Accordingly, our management will have broad discretion over the specific use of the net proceeds that we receive in this offering and might not be able to obtain a significant return, if any, on investment of these net proceeds. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, results of operations and financial condition could be harmed.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, our SVB Loan Agreement and Mezzanine Loan Agreement impose restrictions on our ability to pay dividends on our common stock.

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As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
Delaware law and our corporate charter and bylaws will contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon completion of this offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president (in the absence of a chief executive officer), which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business (including our classified board structure) or certain provisions of our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a specified period of time.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders and our failure to raise capital when needed could prevent us from executing our growth strategy.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new and enhance our existing Wi-Fi solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. Furthermore, if we engage in debt

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financing, the holders of debt would have priority over the holders of common stock, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
develop new or enhance our existing Wi-Fi solutions;
expand our research and development and sales and marketing organizations;
respond to competitive pressures or unanticipated working capital requirements;
hire, train and retain employees;
expand our operations, in the United States or internationally; or
acquire complementary technologies, products or businesses.
Our failure to do any of these things could harm our business, financial condition and results of operations.
We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors.
For so long as we remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.
In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
our ability to design and develop Wi-Fi solutions;
our ability to attract and retain customers;
our ability to attract and maintain relationships with service providers;
our ability to maintain an adequate rate of revenue growth;
our ability to expand into new Wi-Fi market segments and additional markets;
our ability to achieve design wins;
our future financial and results of operations;
our business plan and our ability to effectively manage our growth and associated investments;
our expectations regarding our industry and potential market;
beliefs and objectives for future operations;
beliefs associated with the use of our solutions;
our ability to further penetrate our existing customer base;
our ability to further develop strategic relationships;
our expectations concerning additional purchase orders by existing customers;
our ability to maintain our competitive technological advantages against new entrants in our industry;
our ability to timely and effectively scale and adapt our existing technology;
our ability to innovate new solutions and bring them to market in a timely manner;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to expand internationally;
our ability to increase our revenue and our revenue growth rate;
the effects of increased competition in our market and our ability to compete effectively;
cost of revenue, including changes in costs associated with production, manufacturing and customer support;
operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;
anticipated income tax rates;
costs associated with defending intellectual property infringement and other claims;

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our expectations concerning relationships with third parties, including manufacturing partners;
the release of new products;
economic and industry trends or trend analysis;
the attraction and retention of qualified employees and key personnel; and
future acquisitions of or investments in complementary companies, products or technologies.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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MARKET AND INDUSTRY DATA
This prospectus contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.
Certain information in the text of this prospectus is contained in independent industry publications. The source of these independent industry publications is provided below:
(1) Ampere Analysis, Markets, Publication Date: October 2016.
(2) ABI Research, Wi-Fi Forecast, Publication Date: June 30, 2016.
(3) Cisco 2016 Visual Networking Index, Publication Date: June 6, 2016.
(4) ABI Research, Set-Top Boxes, Publication Date: April 29, 2016.



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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares of our common stock offered by us in this offering at the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $90.9 million, or approximately $105.0 million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full.
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $6.2 million, assuming the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each 1.0 million increase or decrease in the number of shares of our common stock offered by us would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $14.0 million, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders.
We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, we do not have agreements or commitments for any acquisitions at this time. We cannot specify with certainty the particular uses of the net proceeds to us from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds to us from this offering as described above, we intend to invest the net proceeds to us from this offering in short-term and long-term interest-bearing obligations, including government and investment-grade debt securities and money market funds.
 

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DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not expect to pay any dividends on our capital stock in the foreseeable future. In addition, our ability to pay dividends on our capital stock is subject to restrictions under the terms of our SVB Loan Agreement and Mezzanine Loan Agreement. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.

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CAPITALIZATION
The following table sets forth cash and cash equivalents, as well as our capitalization, as of September 25, 2016, as follows:
on an actual basis;
on a pro forma basis, giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,790,650 shares of our common stock, (ii) the resulting reclassification of our convertible preferred stock warrant liability to additional paid-in capital, (iii) the obligation to pay an aggregate of $0.2 million in fees to Silicon Valley Bank under our SVB Loan Agreement, which will become due upon the closing of the offering; and (iv) the filing and effectiveness of our amended and restated certificate of incorporation in Delaware, as if such conversion, reclassification, obligation, filing and effectiveness had occurred on September 25, 2016; and
on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and the sale and issuance of 6,700,000 shares of our common stock in this offering, based upon the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.
 
As of September 25, 2016
 
Actual
 
Pro Forma
 
Pro Forma As Adjusted (1)
 
(In thousands, except share and per share data)
Cash and cash equivalents
$
17,822

 
$
17,822

 
$
108,757

Long-term debt, current and non-current
$
6,560

 
$
6,560

 
$
6,560

Convertible preferred stock warrant liability
364

 

 

Convertible preferred stock, $0.0001 par value: 23,049,634 shares authorized, 22,471,537 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted
184,704

 

 

Stockholders’ equity (deficit):
 
 
 
 
 
Preferred stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 100,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

 

 

Common stock, $0.0001 par value: 40,000,000 shares authorized, 1,290,438 shares issued and outstanding, actual; 1,000,000,000 shares authorized, 26,081,088 shares issued and outstanding, pro forma; and 1,000,000,000 shares authorized, 32,781,088 shares issued and outstanding, pro forma as adjusted

 
3

 
3

Additional paid-in capital
6,534

 
191,599

 
281,653

Accumulated deficit
(161,606
)
 
(161,811
)
 
(161,811
)
Total stockholders’ equity (deficit)
(155,072
)
 
29,791

 
119,845

Total capitalization
$
36,556

 
$
36,351

 
$
126,405

________________________
(1)
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $6.2 million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1.0 million increase or decrease in the number of shares of common stock offered by us would increase or decrease, as applicable, the amount of our pro forma as adjusted

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cash and cash equivalents, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $14.0 million, assuming the assumed initial public offering price per share of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters’ option to purchase additional shares of our common stock from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit), total capitalization and shares outstanding as of September 25, 2016 would be $122.8 million, $295.7 million, $133.9 million, $140.4 million, and 33,786,088, respectively.
The pro forma and pro forma as adjusted columns in the table above are based on 26,081,088 shares of our common stock (including shares of our convertible preferred stock on an as-converted basis) outstanding as of September 25, 2016, and exclude the following:
6,640,467 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 25, 2016, with a weighted-average exercise price of $3.51 per share;
60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after September 25, 2016, with a weighted-average exercise price of $15.00 per share;
438,656 shares of our common stock issuable upon the exercise of warrants outstanding as of September 25, 2016, with a weighted-average exercise price of $2.95 per share;
38,748 shares of our common stock issuable upon the exercise of a warrant (assuming the automatic conversion of an outstanding warrant to purchase 38,748 shares of our convertible preferred stock into a warrant to purchase 38,748 shares of our common stock) outstanding as of September 25, 2016, with an exercise price of $7.74 per share;
6,495,238 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of:
4,100,000 shares of our common stock reserved for future issuance under our 2016 Plan, which will become effective prior to the completion of this offering;
395,238 shares of our common stock reserved for future issuance under our 2016 EIP (after giving effect to the grant of 60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock after September 25, 2016 and the cancellation and return of 126,294 shares of our common stock to our 2016 EIP after September 25, 2016), which shares will be added to the shares of our common stock reserved for future issuance under our 2016 Plan to the extent not granted prior to the completion of this offering, at which time we will cease granting awards under our 2016 EIP; and
2,000,000 shares of our common stock reserved for future issuance under our ESPP.
Our 2016 Plan and our ESPP each provide for annual automatic increases in the number of shares reserved thereunder, and our 2016 Plan also provides for increases in the number of shares reserved thereunder based on awards under our 2016 EIP and 2006 Plan that expire, are forfeited or otherwise repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.


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DILUTION
If you purchase shares of our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Dilution in pro forma net tangible book value per share to investors purchasing shares of our common stock in this offering represents the difference between the amount per share paid by such investors and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.
Our pro forma net tangible book value as of September 25, 2016 was $27.5 million, or $1.05 per share. Pro forma net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the total number of shares of our common stock outstanding as of September 25, 2016, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,790,650 shares of our common stock, (ii) the resulting reclassification of our convertible preferred stock warrant liability to additional paid-in capital, and (iii) the obligation to pay an aggregate of $0.2 million in fees to Silicon Valley Bank under our SVB Loan Agreement, which will become due upon the closing of the offering, as if such conversion, reclassification and obligation had occurred on September 25, 2016.
After giving effect to the sale by us of 6,700,000 shares of our common stock in this offering at the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 25, 2016 would have been $119.8 million, or $3.66 per share. This represents an immediate increase in pro forma net tangible book value of $2.61 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $11.34 per share to investors purchasing shares of our common stock in this offering. The following table illustrates this dilution:
Assumed initial public offering price per share
 
$
15.00

Pro forma net tangible book value per share as of September 25, 2016
$
1.05

 
Increase in net tangible book value per share attributable to new investors purchasing shares in this offering
$
2.61

 
Pro forma as adjusted net tangible book value per share after giving effect to this offering
 
$
3.66

Dilution in pro forma net tangible book value per share to new investors purchasing shares in this offering
 
$
11.34

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by approximately $0.19, and would increase or decrease, as applicable, dilution per share to investors purchasing shares of our common stock in this offering by approximately $0.81, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1.0 million increase or decrease in the number of shares of common stock offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $0.30 per share and increase or decrease, as applicable, the dilution to investors purchasing shares of our common stock in this offering by approximately $0.30 per share, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of this offering would be approximately $3.96 per share, and the dilution in pro forma net tangible book value per share to investors purchasing shares of our common stock in this offering would be approximately $11.04 per share.
The following table presents, as of September 25, 2016, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,790,650 shares of our common stock, which conversion will

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occur immediately prior to the completion of this offering, and (ii) the sale by us of 6,700,000 shares of our common stock in this offering at the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the difference between the existing stockholders and the investors purchasing shares of our common stock in this offering with respect to the number of shares of our common stock purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
 
Shares Purchased
 
Total Consideration
 
Average Price Per Share
 
Number
 
Percent
 
Amount
(In thousands)
 
Percent
 
Existing stockholders
26,081,088

 
80
%
 
$
188,350

 
65
%
 
$
7.22

Investors purchasing shares in this offering
6,700,000

 
20
%
 
100,500

 
35
%
 
15.00

Total
32,781,088

 
100
%
 
$
288,850

 
100
%
 
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by investors purchasing shares in this offering and total consideration paid by all stockholders by approximately $6.7 million, assuming the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our common stock from us. If the underwriters’ option to purchase additional shares of our common stock were exercised in full, our existing stockholders would own approximately 77% and the investors purchasing shares of our common stock in this offering would own approximately 23% of the total number of shares of our common stock outstanding immediately following the completion of this offering.
The number of shares of our common stock that will be outstanding after this offering is based on 26,081,088 shares of our common stock (including shares of our convertible preferred stock on an as-converted basis) outstanding as of September 25, 2016, and excludes:
6,640,467 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 25, 2016, with a weighted-average exercise price of $3.51 per share;
60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after September 25, 2016, with a weighted-average exercise price of $15.00 per share;
438,656 shares of our common stock issuable upon the exercise of warrants outstanding as of September 25, 2016, with a weighted-average exercise price of $2.95 per share;
38,748 shares of our common stock issuable upon the exercise of a warrant (assuming the automatic conversion of an outstanding warrant to purchase 38,748 shares of our convertible preferred stock into a warrant to purchase 38,748 shares of our common stock) outstanding as of September 25, 2016, with an exercise price of $7.74 per share;
6,495,238 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of:
4,100,000 shares of our common stock reserved for future issuance under our 2016 Plan, which will become effective prior to the completion of this offering;
395,238 shares of our common stock reserved for future issuance under our our 2016 EIP (after giving effect to the grant of 60,800 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock after September 25, 2016 and the cancellation and return of 126,294 shares of our common stock to our 2016 EIP after September 25, 2016), which shares will be added to the shares of our common stock reserved

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for future issuance under our 2016 Plan to the extent not granted prior to the completion of this offering, at which time we will cease granting awards under our 2016 EIP; and
2,000,000 shares of our common stock reserved for future issuance under our ESPP.
Our 2016 Plan and our ESPP each provide for annual automatic increases in the number of shares reserved thereunder, and our 2016 Plan also provides for increases in the number of shares reserved thereunder based on awards under our 2016 EIP and 2006 Plan that expire, are forfeited or otherwise repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.
  

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected statement of operations data for the years ended December 28, 2014 and December 27, 2015 and the balance sheet data as of December 28, 2014 and December 27, 2015 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected statement of operations data for the nine months ended September 27, 2015 and September 25, 2016 and the balance sheet data as of September 25, 2016 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair statement of the unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the nine months ended September 25, 2016 are not necessarily indicative of results to be expected for the full year or any other period. The following selected consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.
   
Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue
$
66,860

 
$
83,773

 
$
58,361

 
$
91,577

Cost of revenue(1)
38,211

 
42,554

 
30,129

 
46,452

Gross profit
28,649

 
41,219

 
28,232

 
45,125

Operating expenses(1):
 
 
 
 
 
 
 
Research and development
31,283

 
35,575

 
26,030

 
32,913

Sales and marketing
5,932

 
6,644

 
5,019

 
5,571

General and administrative
4,532

 
5,212

 
3,910

 
7,802

Total operating expenses
41,747

 
47,431

 
34,959

 
46,286

Loss from operations
(13,098
)
 
(6,212
)
 
(6,727
)
 
(1,161
)
Interest expense
(481
)
 
(697
)
 
(560
)
 
(414
)
Other income (expense), net
89

 
(21
)
 
(108
)
 
(300
)
Loss before income taxes
(13,490
)
 
(6,930
)
 
(7,395
)
 
(1,875
)
Provision for income taxes
(108
)
 
(115
)
 
(77
)
 
(52
)
Net loss
$
(13,598
)
 
$
(7,045
)
 
$
(7,472
)
 
$
(1,927
)
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders per share, basic and diluted(2)
$
(20.72
)
 
$
(9.16
)
 
$
(10.16
)
 
$
(1.84
)
 
 
 
 
 
 
 
 
Weighted average shares used to compute basic and diluted net loss per share(2)
656,146

 
769,524

 
735,142

 
1,047,920

 
 
 
 
 
 
 
 
Pro forma net loss per share- basic and diluted(2)
 
 
$
(0.29
)
 
 
 
$
(0.08
)
 
 
 
 
 
 
 
 
Pro forma weighted average number of shares outstanding - basic and diluted net loss per share(2)
 
 
25,066,010

 
 
 
25,838,570

________________________
(1)
Cost of revenue and operating expenses include stock-based compensation expense as follows:

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Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(In thousands)
Cost of revenue
$
7

 
$
9

 
$
6

 
$
15

Research and development
256

 
302

 
225

 
454

Sales and marketing
101

 
445

 
419

 
120

General and administrative
203

 
446

 
307

 
1,635

Total stock-based compensation expense
$
567

 
$
1,202

 
$
957

 
$
2,224

(2)
See Notes 1 and 3 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculation of our basic and diluted net loss per common share, pro forma net loss per common share, and the weighted-average number of shares used in the computation of the per share amounts.
   
As of
 
December 28, 2014
 
December 27, 2015
 
September 25,
2016
    
(In thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
Cash and cash equivalents
$
18,320

 
$
18,850

 
$
17,822

Working capital
$
21,091

 
$
28,287

 
$
28,631

Total assets
$
43,533

 
$
46,667

 
$
55,082

Total liabilities
$
23,078

 
$
17,635

 
$
25,450

Convertible preferred stock
$
170,448

 
$
184,704

 
$
184,704

Total stockholders’ deficit
$
(149,993
)
 
$
(155,672
)
 
$
(155,072
)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.
Overview
We are a leader in the design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking. Our solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. We combine our wireless systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated solutions to our customers.
Our solutions portfolio is currently comprised of multiple generations of our radio frequency chip and our digital baseband chip, which together support the IEEE Wi-Fi standards, including 802.11n and 802.11ac. These chips are typically sold together as a chipset combined with software and system-level reference designs that constitute a highly integrated Wi-Fi solution.
We sell our Wi-Fi solutions directly to global OEMs and ODMs that serve the end markets we address. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. OEMs incorporate our solutions into their products, which are then sold to their own customers, such as service providers, retailers, enterprises, small and medium businesses, and retail consumers. To date, we have primarily addressed the service provider market for home networking applications, including home gateways, repeaters, and set-top boxes. We are increasingly addressing additional end markets, with solutions for (i) retail OEMs for home networking as well as small and medium business applications (e.g., routers and repeaters), (ii) enterprise OEMs for enterprise networking applications (e.g., access points), and (iii) consumer electronics OEMs for consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers. We believe the life cycles of our customers’ products can range from approximately one year to five years or more depending on the end market.
Some OEMs purchase our Wi-Fi solutions directly from us and use them in the design and manufacture (directly or through their third-party contract manufacturers) of their own products. Other OEMs utilize ODMs to design and build subsystem products incorporating our Wi-Fi solutions, which the OEMs then purchase from the ODM and incorporate into the OEM products. Accordingly, we ship our Wi-Fi solutions either directly to the OEM, its contract manufacturer, or its ODM, based on the requirements of each OEM. However, we maintain close relationships with the target OEM to monitor OEM end-market demand as the initial Wi-Fi solution design win is generally awarded by the OEM.
We derive the substantial majority of our revenue from the sale of our Wi-Fi solutions. In addition, historically we also derived a portion of our revenue from a limited number of licensing and non-recurring arrangements. These arrangements are no longer active. In the future, we may enter into new licensing arrangements on an opportunistic basis.
The following table shows percentage of our revenue by category:
 
Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(Percentage of revenue)
Wi-Fi Solutions
90.6%
 
89.4%
 
89.0%
 
99.4%
Licensing
9.4%
 
6.8%
 
8.0%
 
0.5%
Non-recurring Arrangements
—%
 
3.8%
 
3.0%
 
0.1%

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The following table shows OEM, ODM and third-party distributor customers from which we derived 10% or more of our revenue:
 
Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(Percentage of revenue)
Customer:
 
 
 
 
 
 
 
Technicolor SA
11%
 
15%
 
16%
 
12%
Pace plc**
*
 
14%
 
13%
 
17%
Prohubs International Corp.
*
 
11%
 
11%
 
*
Gemtek Electronics Co. Ltd.
28%
 
10%
 
11%
 
*
CyberTAN Technology, Inc.
21%
 
*
 
*
 
*
Sagemcom Broadband SAS
*
 
*
 
 *
 
12%
________________________
*
Customer percentage of revenue was less than 10%.
**
Pace plc was acquired by Arris International plc in January 2016.
The substantial majority of our revenue has been derived from sales to customers serving the service provider home networking market. Based on sell-through information provided to us by the majority of our OEM customers, we estimate that 35 service providers in various stages of product deployment are currently incorporating our Wi-Fi solutions into their products. We estimate that subscribers to services offered by these service providers represent approximately 26% of global broadband subscribers. Additionally, we estimate that service providers which are actively shipping products that incorporate our chipsets represent approximately 19% of global broadband subscribers. We estimate that our two largest service providers, which are based in the United States, represented approximately one-half of our revenue in 2014 and approximately 40% of our revenue in 2015. The decrease in the percentage of revenue attributable to our two largest service providers in 2015 compared with 2014 reflects the diversification of our customer base and growth of our business.
Sales to Asia, based on ship-to destinations, accounted for 84%, 82% and 87% of our revenue in 2014, 2015 and the nine months ended September 25, 2016, respectively, and we anticipate that the substantial majority of our shipments will continue to be delivered to this region. Although a large percentage of our shipments are delivered to Asia, we believe that a significant number of the products we enable with our Wi-Fi solutions, such as access points, gateways, set-top boxes and repeaters, are ultimately sold by our OEM customers to service providers in North America and Western Europe. To date, all of our revenue has been denominated in U.S. dollars.
We use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs. We purchase silicon wafers from TSMC, our foundry partner, which are then shipped to third-party contractors who assemble and test our chipsets. Our inventory is distributed from the third-party contractors and a contracted warehouse in Taiwan. We believe this outsourced manufacturing approach gives us access to the best available process technology, reduces our capital requirements, and allows us to focus our resources on the design, development, marketing, sales, and customer integration of our Wi-Fi solutions. We typically receive purchase orders 12 to 14 weeks ahead of our customers’ desired delivery date, and we build our inventory primarily on the basis of purchase orders from our customers.
Our revenue increased from $66.9 million in 2014 to $83.8 million in 2015, representing an increase of 25%. Our revenue increased from $58.4 million in the nine months ended September 27, 2015 to $91.6 million in the nine months ended September 25, 2016, representing an increase of 57%. Our net loss was $13.6 million and $7.0 million in 2014 and 2015, respectively. For the nine months ended September 27, 2015 and September 25, 2016, our net loss was $7.5 million and $1.9 million, respectively.
Our employee headcount has increased from 241 employees as of December 27, 2015 to 303 as of September 25, 2016, of which 81% are engaged in research and development activities.

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We intend to continue scaling our business to meet the needs of our growing customer base. Key elements of our growth strategy include continuing to deliver innovation and drive new standards, expanding our share of the service provider market for home networking, and addressing new markets, such as retail, small and medium business, and enterprise. In addition, we are focused on broadening our solutions portfolio to address additional market segments such as consumer electronics. We anticipate that our operating expense will increase in absolute dollars in the future as we further invest in research and development to support and enhance our solutions and a growing number of customer products, in sales and marketing to acquire new customers in both new and existing markets, and in general and administrative to support our growth. We believe these investments will contribute to our long-term growth.
Factors Affecting Our Performance
Design Wins with Existing and Prospective Service Providers
Existing and prospective service providers that we serve through our OEM and ODM customers tend to be global enterprises that are continuously working with their partners to deploy new products. We believe our Wi-Fi solutions enable service providers to differentiate their products and services and drive the next upgrade cycles in their end market to ultimately gain market share. We work closely with service providers to assist in the development of their product specifications and designs. We compete to secure service provider design wins through an extended sales cycle, which can often last six to 18 months. After a design win is achieved, we continue to work closely with the service providers to assist them and their OEMs and ODMs throughout their product development and early deployment, which can often last six to 18 months. We believe our design win performance is dependent on the investments we make in research and development and sales and marketing to bring innovative Wi-Fi solutions to our existing and new markets and develop close relationships with our customers and service providers. As a result, we expect our research and development and sales and marketing expenses to increase in absolute dollars as we continue to grow our business.
Because of this extended sales cycle, our revenue is highly dependent upon the ongoing achievement of service provider design wins. We expect future revenue to depend upon sales to service providers with whom we have existing relationships as well as our ability to garner design wins with new service providers with whom we currently do not have relationships or sales. Further, because we expect revenue relating to our earlier generation solutions to decline in the future, we consider these design wins critical to our future success.
Product Life Cycle of our Customers and Service Providers; Expanding into New End Markets
In the service provider home networking market, once service providers select our Wi-Fi solutions for integration into their products, we work with our OEM and ODM customers to monitor all phases of the product life cycle, including the initial design phase, prototype production and volume production. Our service providers’ product life cycles typically range from three to five years or more, based on product features, size of subscriber base, and roll-out plans. In contrast, wireless products sold in the retail or consumer electronics end markets have shorter life cycles than those sold into the service provider home networking market. In the retail or consumer electronics markets, a wireless product typically has a product life cycle of one to two years.
Currently, the majority of our revenue is derived from sales to OEMs and ODMs serving the service provider home networking market, with relatively longer sales cycles, longer customer product development cycles and longer time to shipment, but also with longer product life cycles. However, as we expand into additional end markets, such as retail, small and medium business, enterprise or consumer electronics, we expect revenue from such markets to increase as a proportion of our revenue over time. The shorter product life cycles associated with such additional end markets typically require greater frequency of design wins, and they may also result in faster time to shipment of our Wi-Fi solutions.

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Sales Volume and Customer Concentration
A typical design win can generate a wide range of sales volumes for our Wi-Fi solutions, depending on the end market demand for our customers’ products. Such demand depends on several factors, including end market size, size of the service providers, product price and features, and the ability of customers and service providers to sell their products into their end markets. As such, some design wins result in orders and significant revenue shortly after the design win is awarded and other design wins do not result in significant orders and revenue for several months or longer after the initial design win, if at all. As a result, an increase or decrease in the number of design wins we achieve on a quarterly or annual basis does not necessarily correlate to a likely increase or decrease in revenue in the same or immediately succeeding quarter or year. Nonetheless, design wins are critical to our continued sales, and we believe that the collective impact of design wins correlates to our overall revenue growth over time.
Our customers and service providers often share their product development schedules with us, including the projected launch dates of their wireless product offerings. Once customers and service providers are in production, they generally will provide nine to 12-month forecasts of expected demand. However, they may change their purchase orders and demand forecasts at any time with limited or no prior notice.
We derive a significant portion of our revenue from a small number of OEMs and ODMs, and substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. While we strive to expand and diversify our customer base and we expect our customer concentration to decline over time, we anticipate that sales to a limited number of customers will continue to account for a significant percentage of our revenue in the foreseeable future. In light of this customer and service provider concentration, our revenue is likely to continue to be materially impacted by the purchasing decisions of our largest customers and the service providers they serve.
Wi-Fi Solutions Pricing, Cost and Gross Margin
Our average selling price, or ASP, can vary by product mix, customer mix and end market, due to end market-specific characteristics such as supply and demand, competitive landscape, the maturation of Wi-Fi solutions launched in prior years and the launch of new Wi-Fi solutions. Our gross margin depends on a variety of factors, including the sales volume, features, price, and manufacturing costs of our Wi-Fi solutions. We make continuous investments in our solutions to enhance existing and add new features, maintain our competitiveness, minimize ASP erosion, and reduce the cost of our solutions.
As we rely on third-party contractors for the fabrication, assembly and testing of our chipsets, we work closely with these third-parties to improve the manufacturability of our chipsets, lower wafer cost, enhance yields, lower assembly and test costs, and improve quality.
In general, our latest generation solutions have higher prices compared to our prior generation solutions. As is typical in the semiconductor industry and consistent with our historical trends, we expect the ASPs of our solutions to decline as those solutions mature and unit volumes increase. These ASP declines often coincide with improvements in manufacturing yields and lower wafer, assembly and testing costs, which may offset some or all of the margin reduction that results from lower ASPs.
Components of Results of Operations
Revenue
Our revenue is generated primarily from sales of our Wi-Fi solutions to our OEM and ODM customers. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. Our Wi-Fi solutions are integrated into OEM products, such as gateways, set-top boxes, repeaters or routers, which are then sold primarily to service providers. Our sales have historically been made on the basis of purchase orders against our standard terms and conditions, rather than long-term agreements. Sales of our Wi-Fi solutions fluctuate primarily based on competition, sales volume, customer inventory and price. We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, such as customer product development and deployment cycles and the purchasing patterns of our customers and third-party distributors.
During 2014 and 2015 and the nine months ended September 25, 2016, we also derived revenue from a limited number of licensing and non-recurring arrangements. These arrangements are no longer active. In the future, we may enter into new licensing arrangements on an opportunistic basis.

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Cost of Revenue, Gross Margin
We utilize third-party contractors for the production of the chipsets included in our Wi-Fi solutions. Cost of revenue primarily relates to the purchase of silicon wafers from our third-party foundry, and costs associated with assembly, testing and inbound and outbound shipping of our wafers and chipsets. After we purchase wafers from our third-party foundry, we bear the manufacturing yield risk related to assembling and testing these wafers into chipsets, which can result in benefit or expense recorded in cost of revenue. Cost of revenue also includes lower of cost or market adjustments to the carrying value of inventory, scrap and inventory obsolescence, and any accruals for warranty obligations, which we record when revenue is recognized. Additionally, cost of revenue includes manufacturing overhead expense, such as personnel cost, depreciation expense, and allocated administrative costs associated with supply chain management and quality assurance activities, as well as property insurance premiums and royalty costs.
We often negotiate price rebates from our third-party foundry on the purchase of silicon wafers upon achieving certain volume targets. Such rebates are recorded as a reduction of inventory cost and are recognized in cost of revenue as the chipsets made from such silicon wafers are sold. Because we do not have long-term, fixed supply agreements, our wafer costs are subject to changes based on the cyclical demand for semiconductors.
We calculate gross margin as revenue less cost of revenue divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including ASPs, sales volume, and wafer, assembly and testing costs. We believe the primary driver of our gross margin is the ASPs negotiated between us and our customers, relative to the wafer, assembly and testing costs for our Wi-Fi solutions. As each of our Wi-Fi solutions matures and sales volumes increase, we expect ASPs to decline. Historically, such ASP declines have often coincided with lower wafer, assembly and testing costs, which have offset some or all of the gross margin reduction resulting from lower ASPs. In the future, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs, introductions of new Wi-Fi solutions, changes in our product and customer mix, and changes in wafer, assembly and testing costs.
Operating Expenses
Our operating expenses consist of research and development, or R&D, sales and marketing, or S&M, and general and administrative, or G&A, expense. Personnel costs are the largest component of operating expenses and primarily consist of compensation costs related to employees, consultants and contractors, including salaries, sales commissions, bonuses, stock-based compensation and other employee benefits. As we continue to grow our business, we expect operating expenses to increase in absolute dollars.
Research and Development. Our R&D expense consists primarily of personnel costs to support our R&D activities, including silicon design, software development and testing, and customers’ product development support and qualification. R&D expense also includes tape-out costs, which include layout services, mask sets, prototype wafers, mask set revisions, intellectual property license fees, and system qualification and testing incurred before releasing new chip designs into production. In addition, R&D expense includes design software and simulation tools licenses, depreciation expense, and allocated administrative costs. All R&D costs are expensed as incurred. We expect R&D expense to fluctuate from period to period based on the timing and amount of tape-out costs and hiring.
Sales and Marketing. Our S&M expense consists primarily of personnel costs for our S&M activities, including pre-sales support. S&M expense also includes sales-based commissions we pay to independent sales representatives, public relations costs, trade show expenses, product marketing and communication, promotional activities, travel and entertainment costs and allocated administrative costs. Our S&M expense in a given period can be particularly affected by the timing of marketing programs and hiring.
General and Administrative. Our G&A expense consists primarily of personnel costs for our administrative personnel in support of our infrastructure functions such as general management, finance, human resources, legal, facilities and information technology. G&A expense also includes professional services fees, insurance premiums, depreciation expense, and allocated administrative costs, as well as any allowance for doubtful accounts. We expect our G&A expense to increase in absolute dollars as we grow our business, support our operations as a public company, and increase our headcount.

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Interest Expense
Interest expense consists primarily of interest related to outstanding debt and amortization of debt discount.
Other Income (Expense), Net
Other income (expense), net currently consists primarily of interest income from our cash equivalent portfolio, the effect of exchange rates on our foreign currency-denominated asset and liability balances as well as changes in the fair value of our convertible preferred stock warrants.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in the foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for deferred tax assets, including net operating loss carry-forward and R&D credits.
Consolidated Results of Operations
The following tables set forth our results of operations for the periods presented, in dollars and as a percentage of our revenue:
 
Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Revenue
$
66,860

 
100
 %
 
$
83,773

 
100
 %
 
$
58,361

 
100
 %
 
$
91,577

 
100
 %
Cost of revenue (1)
38,211

 
57

 
42,554

 
51

 
30,129

 
52

 
46,452

 
51

Gross profit
28,649

 
43

 
41,219

 
49

 
28,232

 
48

 
45,125

 
49

Operating expenses (1)
 
 
 
 
 
 
 
 
 
 

 
 
 

Research and development
31,283

 
47

 
35,575

 
42

 
26,030

 
45

 
32,913

 
36

Sales and marketing
5,932

 
9

 
6,644

 
8

 
5,019

 
9

 
5,571

 
6

General and administrative
4,532

 
7

 
5,212

 
6

 
3,910

 
7

 
7,802

 
9

Total operating expenses
41,747

 
62

 
47,431

 
57

 
34,959

 
60

 
46,286

 
51

Loss from operations
(13,098
)
 
(20
)
 
(6,212
)
 
(7
)
 
(6,727
)
 
(12
)
 
(1,161
)
 
(1
)
Interest expense
(481
)
 
(1
)
 
(697
)
 
(1
)
 
(560
)
 
(1
)
 
(414
)
 

Other income (expense), net
89

 

 
(21
)
 

 
(108
)
 

 
(300
)
 

Loss before income taxes
(13,490
)
 
(20
)
 
(6,930
)
 
(8
)
 
(7,395
)
 
(13
)
 
(1,875
)
 
(2
)
Provision for income taxes
(108
)
 

 
(115
)
 

 
(77
)
 

 
(52
)
 

Net loss
$
(13,598
)
 
(20
)%
 
$
(7,045
)
 
(8
)%
 
$
(7,472
)
 
(13
)%
 
$
(1,927
)
 
(2
)%
________________________
(1)
Cost of revenue and operating expenses include stock-based compensation expense as follows:

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Years Ended
 
Nine Months Ended
 
December 28,
2014
 
December 27,
2015
 
September 27,
2015
 
September 25,
2016
 
(In thousands)
Cost of revenue
$
7

 
$
9

 
$
6

 
$
15

Research and development
256

 
302

 
225

 
454

Sales and marketing
101

 
445

 
419

 
120

General and administrative
203

 
446

 
307

 
1,635

Total stock-based compensation expense
$
567

 
$
1,202

 
$
957

 
$
2,224

Comparison of the Nine Months Ended September 27, 2015 and September 25, 2016
Revenue, Cost of Revenue, Gross Profit and Gross Margin
 
Nine Months Ended
 
 
 
 
 
September 27,
2015
 
September 25,
2016
 
Change
 
% Change
 
(Dollars in thousands)
 
 
Revenue
$
58,361

 
$
91,577

 
$
33,216

 
57
%
Cost of revenue
30,129

 
46,452

 
16,323

 
54
%
Gross profit
$
28,232

 
$
45,125

 
$
16,893

 
60
%
Gross margin
48.4
%
 
49.3
%
 
0.9
%
 
 
Revenue. Revenue increased $33.2 million, or 57%, to $91.6 million in the nine months ended September 25, 2016 compared to the same period of the prior year. This increase was primarily due to a $39.0 million increase in sales of our Wi-Fi solutions driven by higher sales volumes on substantially flat ASPs period to period, partially offset by a $5.8 million decrease in revenue from licensing and non-recurring arrangements that ended in January 2016. In the nine months ended September 27, 2015 and September 25, 2016, licensing revenue was $4.6 million and $0.5 million, respectively.
Cost of Revenue, Gross Profit and Gross Margin. Cost of revenue increased $16.3 million, or 54%, to $46.5 million in the nine months ended September 25, 2016 compared to the same period of the prior year, as a result of higher sales volume partially offset by lower unit cost for our Wi-Fi solutions. Gross profit increased $16.9 million, or 60%, to $45.1 million in the nine months ended September 25, 2016 compared to the same period of the prior year due to the higher sales volume and lower unit cost. Gross margin increased by 90 basis points, to 49.3% in the nine months ended September 25, 2016, compared to the same period of the prior year, primarily consisting of an approximately 360 basis points gross margin increase from higher gross margin from sales of our Wi-Fi solutions, partially offset by an approximately 270 basis points of lost gross margin from the expiration of certain licensing and non-recurring arrangements. The 360 basis points from higher gross margin from Wi-Fi solutions resulted from a mix shift towards higher margin 802.11ac Wi-Fi solutions, and unit cost reductions due to more favorable pricing from our third-party contractors as a result of higher manufacturing volume.

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Operating Expenses
 
Nine Months Ended
 
 
 
 
 
September 27,
2015
 
September 25,
2016
 
 
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
Change
 
% Change
 
(Dollars in thousands)
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
26,030

 
45
%
 
$
32,913

 
36
%
 
$
6,883

 
26
%
Sales and marketing
5,019

 
9

 
5,571

 
6

 
552

 
11

General and administrative
3,910

 
7

 
7,802

 
9

 
3,892

 
100

Total operating expenses
$
34,959

 
61
%
 
$
46,286

 
51
%
 
$
11,327

 
32
%
Research and Development Expense.  R&D expense increased $6.9 million, or 26%, to $32.9 million in the nine months ended September 25, 2016 compared to the same period of the prior year, primarily due to a $3.6 million increase in personnel costs resulting from additional headcount to further develop and expand our solutions portfolio, and to support increased customer product development activities. R&D expense also increased due to tape-out related expenses of $1.3 million, equipment related expenses of $0.8 million to support and qualify new product platforms and $0.8 million from allocated administrative costs.
Sales and Marketing Expense. S&M expense increased $0.6 million, or 11%, to $5.6 million in the nine months ended September 25, 2016 compared to the same period of the prior year due to an increase of $0.8 million in personnel costs to support our expanding business, partially offset by a $0.3 million decrease in stock based compensation expense.
General and Administrative Expense.  G&A expense increased $3.9 million, or 100%, to $7.8 million in the nine months ended September 25, 2016 compared to the same period of the prior year, primarily due to $1.7 million in legal and consulting costs as we prepared to become a public company, $1.3 million in stock based compensation expense due to a $1.1 million expense from accelerated vesting of stock options and shares of common stock issued upon early exercise of a warrant, and $0.9 million in personnel and occupancy costs.
Comparison of the Years Ended December 28, 2014 and December 27, 2015
Revenue, Cost of Revenue, Gross Profit and Gross Margin
 
Years Ended
 
 
 
 
 
December 28,
2014
 
December 27,
2015
 
Change
 
% Change
 
(Dollars in thousands)
 
 
Revenue
$
66,860

 
$
83,773

 
$
16,913

 
25
%
Cost of revenue
38,211

 
42,554

 
4,343

 
11
%
Gross profit
$
28,649

 
$
41,219

 
$
12,570

 
44
%
Gross margin
42.8
%
 
49.2
%
 
6.4
%
 
 
Revenue. Revenue increased $16.9 million, or 25%, to $83.8 million in 2015 compared to $66.9 million in 2014. This increase was primarily due to a $14.3 million increase in sales of our Wi-Fi solutions driven by higher sales volumes and higher ASPs resulting from the start of shipment of our latest generation 802.11ac solution in late 2014 and related mix-shift from 802.11n to 802.11ac. The increase was also due to $3.2 million of revenue from a non-recurring arrangement, which ended in 2015, offset by a $0.5 million decrease in licensing revenue. Revenue in each of 2014 and 2015 included $6.2 million and $5.7 million, respectively, from a licensing arrangement that ended in January 2016.
Cost of Revenue, Gross Profit and Gross Margin.  Cost of revenue increased $4.3 million, or 11%, to $42.6 million in 2015 compared to 2014, as a result of higher sales volume, partially offset by lower unit cost. Gross profit increased $12.6 million,

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or 44%, to $41.2 million in 2015 compared to 2014 due to the higher sales volume and lower unit cost. Of the $12.6 million increase, $9.8 million resulted from the growth of our Wi-Fi solutions sales volume, and $2.7 million resulted from revenue from licensing and non-recurring arrangements. Gross margin improved 640 basis points to 49.2% in 2015, from 42.8% in 2014, driven by a 480 basis point increase from sales of our Wi-Fi solutions, and a 160 basis points increase from licensing and non-recurring arrangements. The 480 basis points from higher Wi-Fi solutions gross margin resulted from a more favorable customer mix, the sales of higher margin 802.11ac Wi-Fi solutions and cost reductions due to more favorable pricing from our third-party contractors as a result of higher manufacturing volume.
Operating Expenses
 
 
Years Ended
 
 
 
 
 
 
December 28,
2014
 
December 27,
2015
 
 
 
 
 
 
Amount
 
% of Revenue
 
Amount
 
% of Revenue
 
Change
 
% Change
 
 
 
(Dollars in thousands)
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
31,283

 
47
%
 
$
35,575

 
42
%
 
$
4,292

 
14
%
 
Sales and marketing
5,932

 
9

 
6,644

 
8

 
712

 
12
%
 
General and administrative
4,532

 
7

 
5,212

 
6

 
680

 
15
%
 
Total operating expenses
$
41,747

 
62
%
 
$
47,431

 
57
%
 
$
5,684

 
14
%
Research and Development Expense.  R&D expense increased $4.3 million, or 14%, to $35.6 million in 2015, compared to 2014, primarily due to an increase of $2.7 million in tape-out costs related to our next generation solutions, and an increase of $1.5 million in personnel costs from additional headcount to further develop and expand our solutions portfolio, and to support increased customer product development activities.
Sales and Marketing Expense.  S&M expense increased $0.7 million, or 12%, to $6.6 million in 2015, compared to 2014, as we increased sales headcount to drive growth, and recorded additional stock-based compensation expense. In 2015, stock-based compensation expense was $0.4 million as compared to $0.1 million in 2014.
General and Administrative Expense.  G&A expense increased $0.7 million, or 15%, to $5.2 million in 2015, compared to 2014, primarily due to an increase in personnel costs as we increased our administrative headcount to support the growth of our business.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the seven quarters in the period ended September 25, 2016. The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of this information. These quarterly operating results are not necessarily indicative of the results that may be expected for a full year or any other period. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus.

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Three Months Ended
 
March 29,
2015
 
June 28,
2015
 
September 27,
2015
 
December 27,
2015
 
March 27,
2016
 
June 26,
2016
 
September 25,
2016
 
(In thousands)
Revenue
$
18,384

 
$
18,171

 
$
21,806

 
$
25,412

 
$
24,437

 
$
33,035

 
$
34,105

Cost of revenue(1)
9,831

 
8,903

 
11,395

 
12,425

 
12,534

 
16,671

 
17,247

Gross profit
8,553

 
9,268

 
10,411

 
12,987

 
11,903

 
16,364

 
16,858

Operating expenses(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
9,762

 
8,681

 
7,587

 
9,545

 
10,227

 
11,524

 
11,162

Sales and marketing
1,848

 
1,681

 
1,490

 
1,625

 
1,630

 
1,769

 
2,172

General and administrative
1,427

 
1,305

 
1,178

 
1,302

 
1,562

 
2,993

 
3,248

Total operating expenses
13,037

 
11,667

 
10,255

 
12,472

 
13,419

 
16,286

 
16,582

Income (loss) from operations
(4,484
)
 
(2,399
)
 
156

 
515

 
(1,516
)
 
78

 
276

Interest expense
(221
)
 
(179
)
 
(160
)
 
(137
)
 
(114
)
 
(111
)