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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 20-F/A

(Amendment No.1)



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(Mark One)

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

OR



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report:

Commission file number: 333-130116



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Pixelplus Co., Ltd.

(Exact name of Registrant as specified in its charter)



---

Not
applicable

(Translation of Registrants name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

6thFloor, Gyeonggi R&DB Center

906-5 Iui-dong, Yeongtong-gu, Suwon-si

Gyeonggi-do 443-766, Korea

(Address
of principal executive offices)



---

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



|                                                                                                                                                      |  |                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                                                                                                   |  | Name of each exchange on which registered
|American Depositary shares, as evidenced by American depositary receipts, each representing one-half of a common share, par value (Won) 500 per share |  | The Nasdaq Global Market                 

Securities registered or to be registered pursuant to Section 12(g) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|[None]              |  | [None]                                   

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

[None]

Indicate the number of outstanding shares of
each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.

6,631,457 common
shares

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. ̈Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.

x  Yes ̈No

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One).

 ̈Large accelerated
filer    Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark which financial statement item the registrant has elected to follow.

 ̈Item
17        x  Item 18

If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 ̈Yes        x  No

[APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.

 ̈Yes        x  No



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |     
|------------------------------ |  | ----
|                               |  | Page
|Explanatory Note               |  | 2   
|Item 18. Financial Statements. |  | 3   
|Item 19. Exhibits              |  | 3   
|Signatures                     |  | 4   
|EX-12.1  Certification        |  |     
|EX-12.2  Certification        |  |     
|EX-13.1  Certification        |  |     
|EX-13.2  Certification        |  |     



1



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##### Table of Contents

EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A speaks as of the filing date of the Annual Report on
Form 20-F of Pixelplus Co., Ltd. (the Company) for the fiscal year ended December 31, 2006, filed on June 29, 2007 (the 2006 Form 20-F) with the Securities and Exchange Commission (SEC), except for the
certifications, which speak as of the filing date of the Form 20-F/A. This Form 20-F/A is being filed solely to include the audit report of our predecessor auditor Samil PricewaterhouseCoopers for the years ended December 31, 2004 and 2005,
which was originally filed by the Company in its Annual Report on Form 20-F for the fiscal year ended December 31, 2005 with the SEC on June 26, 2006. The audit report has been added below the current auditors report for the year
ended December 31, 2006 originally appearing on page F-1 of the 2006 Form 20-F.

This Amendment is not intended to revise other
information presented in the Companys Annual Report on the 2006 Form 20-F as originally filed, which remains unchanged. This Amendment does not reflect events occurring after filing of the 2006 Form 20-F and does not modify or update the
disclosure there in any way other than as required to reflect the amendment discussed above.



2



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##### Table of Contents

|Item 18. | Financial Statements.
|-------- | ---------------------

The consolidated financial
statements for our company are included at the end of this amended annual report.

Item 19. Exhibits.



|              |  |                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                            
|1.1*          |  | Articles of Incorporation of the Registrant (English translation)                                                                                                      
|              | 
|2.1*          |  | Specimen common share certificate (English translation)                                                                                                                
|              | 
|2.2*          |  | Specimen American Depositary Receipt                                                                                                                                   
|              | 
|2.3*          |  | Form of Deposit Agreement among the Registrant, JPMorgan Chase Bank, N.A., as depositary and holders of American Depositary Receipts                                   
|              | 
|4.1*          |  | Form of 2003 Stock Option Agreement (English translation)                                                                                                              
|              | 
|4.2*          |  | Form of 2004 Stock Option Agreement (English translation)                                                                                                              
|              | 
|4.3*          |  | Termination Agreement, dated November 28, 2005, by and among JATF, MIC, Korea Venture Fund, certain common shareholders and the Registrant                             
|              | 
|4.4*          |  | (Purchase) Basic Transaction Agreement, dated February 1, 2005, by and between the Registrant and Samsung Electro-Mechanics (English translation)                      
|              | 
|4.5*         |  | Wafer Foundry Service Agreement, dated November 3, 2003, by and among the Registrant, Dongbu Electronics Co., Ltd. and T2Net Technology Co., Ltd. (English translation)
|              | 
|4.6*         |  | Basic Agreement, dated September 17, 2004, by and between the Registrant and Dongbu Electronics Co., Ltd. (English translation)                                        
|              | 
|4.7*          |  | Form of Purchase Order from Ningbo Bird Co., Ltd.                                                                                                                      
|              | 
|4.8*         |  | Testing Agreement, dated May 31, 2004, by and between the Registrant and Tesna Co., Ltd. (English translation)                                                         
|              | 
|4.9*          |  | Form of Bundang Lease Agreement (English translation)                                                                                                                  
|              | 
|4.10*         |  | Loan guarantee issued by Seo Kyu Lee to Citibank (formerly known as Hanmi Bank) for the benefit of the Registrant (English translation)                                
|              | 
|4.11*         |  | Loan guarantee issued by Seo Kyu Lee to Hana Bank for the benefit of the Registrant (English translation)                                                              
|              | 
|4.12*         |  | Loan guarantee issued by Seo Kyu Lee to Industrial Bank of Korea for the benefit of the Registrant (English translation)                                               
|              | 
|4.13*         |  | Loan guarantee issued by Seo Kyu Lee to Korea Exchange Bank for the benefit of the Registrant (English translation)                                                    
|              | 
|4.14*         |  | Shareholders Agreement, dated March 7, 2003, by and among the Registrant and certain shareholders of the Registrant                                                    
|              | 
|4.15*         |  | Cooperation Agreement, dated September 20, 2004, by and between the Registrant and Pixelplus Technology Inc.                                                           
|              | 
|4.16*        |  | Foundry Agreement, dated November 22, 2005, by and between the Registrant and United Microelectronics Corporation                                                      
|              | 
|4.17^         |  | Shareholders Agreement, dated June 1, 2005, by and between the Registrant and certain other shareholders of Pixelplus Technology Inc.                                 
|              | 
|4.18         |  | Commodity Purchase Agreement, dated October 14, 2005, by and between the Registrant and Logitech Europe S.A.                                                           
|              | 
|4.19^         |  | Form of 2005 Stock Option Agreement (English Translation)                                                                                                              
|              | 
|4.20#         |  | Form of 2006 Stock Option Agreement (English Translation)                                                                                                              
|              | 
|8.1^          |  | List of Subsidiaries of the Registrant                                                                                                                                 
|              | 
|11.1^         |  | Code of Business Conduct and Ethics                                                                                                                                    
|              | 
|11.2^         |  | Code of Ethics for Chief Executive Officer and Senior Financial Officers                                                                                               
|              | 
|12.1          |  | Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)                                                                                                
|              | 
|12.2          |  | Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)                                                                                                
|              | 
|13.1          |  | Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(b)                                                                                                
|              | 
|13.2          |  | Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(b)                                                                                                

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|* | Previously filed with the relevant Registration Statement on Form F-1.
|- | ----------------------------------------------------------------------

|^ | Previously filed with the Companys 2005 Annual Report on Form 20-F.
|- | --------------------------------------------------------------------

|# | Previously filed with the Companys 2006 Annual Report on Form 20-F.
|- | --------------------------------------------------------------------

| | Certain portions of this Exhibit have been omitted based upon a request for confidential treatment. The omitted portions have been separately submitted to the Securities and
Exchange Commission.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing its annual report
on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf on this 29th day of August, 2007.



PIXELPLUS CO., LTD.By:

/s/ Hoang Taig ChoiName:

Hoang Taig ChoiTitle:

Chief Financial Officer




4



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##### Table of Contents

PixelPlus Co., Ltd. and subsidiaries

Index

December 31, 2005 and 2006

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|                                                                                                                |  |           
|--------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                |  | Page(s)   
|Reports of Independent Registered Public Accounting Firms                                                       |  | F-1       
|                                                                                                                | 
|Consolidated Financial Statements                                                                               |  |           
|                                                                                                                | 
|Consolidated Balance Sheets as of December 31, 2005 and 2006                                                    |  | F-3       
|                                                                                                                | 
|Consolidated Statements of Operations for the Years Ended December 31, 2004, 2005 and 2006                      |  | F-4       
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2004, 2005 and 2006 |  | F-5 - F-6 
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2005 and 2006                      |  | F-7 - F-8 
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | F-9 - F-35



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##### Table of Contents

|     |  |                                                                                                         |  |                                  
|---- |  | ------------------------------------------------------------------------------------------------------- |  | ---------------------------------
|LOGO |  | n  ERNST & YOUNG HANYOUNG Taeyoung Bldg., 3F~8F 10-2,
Yeoido-dong, Youngdeungpo-gu, Seoul 150-777 Korea |  | n   Phone: 3787-6600Fax:
783-5890

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Pixelplus Co., Ltd.

We have audited the accompanying consolidated balance sheet of Pixelplus Co., Ltd. (the Company) as of December 31, 2006, and the related
statements of operations, shareholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2006 financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December
31, 2006, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, the Company adopted, as of January 1, 2006, the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2,
the Company has incurred significant operating losses in the year ended December 31, 2006 and working capital decreased significantly between December 31, 2005 and 2006. These conditions raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are also described in Note 2. The 2006 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LOGO

June 8, 2007



F-1



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##### Table of Contents

LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Pixelplus Co., Ltd:

In our
opinion, the accompanying consolidated balance sheets, and the related consolidated statements of operations, of changes in shareholders equity(deficit) and of cash flows present fairly, in all material respects, the financial position of
Pixelplus Co., Ltd. and its subsidiaries (the Company) as of December 31, 2004 and 2005, and the results of their operations and their cash flows for the years ended December 31, 2003, 2004 and 2005, in conformity with
accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management.

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by a management, and evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our
opinion.

LOGO

Samil PricewaterhouseCoopers

Seoul, Korea

June 23, 2006

Samil
PricewaterhouseCoopers is the Korean member firm of the PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.



F-2



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##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2005 and 2006

---

(Korean won in millions and U.S. dollar in thousands)



|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ------------ |  | - | ------- | -
|                                                                                                                                                               |  | 2005 |        |   | 2006 |   |         | (Note 4)2006 | 
|                                                                                                                                                               |  |      |        |   |      |   |         | (Unaudited)  | 
|ASSETS                                                                                                                                                         |  |      |        |   |      |   |         |              |  |   |         |  
|Cash and cash equivalents (Note 5)                                                                                                                             |  | W    | 31,040 |   |      | W | 12,224  |              |  | $ | 13,144  |  
|Restricted cash (Notes 3 and 12)                                                                                                                               |  |      | 1,412  |   |      |   | 945     |              |  |   | 1,016   |  
|Accounts receivable, net (Note 6)                                                                                                                              |  |      | 11,695 |   |      |   | 4,989   |              |  |   | 5,365   |  
|Inventories, net (Note 7)                                                                                                                                      |  |      | 8,708  |   |      |   | 4,986   |              |  |   | 5,361   |  
|Other current assets (Note 10)                                                                                                                                 |  |      | 1,377  |   |      |   | 2,244   |              |  |   | 2,413   |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total current assets                                                                                                                                           |  |      | 54,232 |   |      |   | 25,388  |              |  |   | 27,299  |  
|                                                                                                                                                               |  |      |       
|Memberships                                                                                                                                                    |  |      |       |   |      |   | 1,686   |              |  |   | 1,813   |  
|Property and equipment, net (Note 9)                                                                                                                           |  |      | 1,209  |   |      |   | 2,149   |              |  |   | 2,311   |  
|Other non-current assets (Note 10)                                                                                                                             |  |      | 2,678  |   |      |   | 2,365   |              |  |   | 2,543   |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total assets                                                                                                                                                   |  | W    | 58,119 |   |      | W | 31,588  |              |  | $ | 33,966  |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|                                                                                                                                                               |  |      |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                           |  |      |        |   |      |   |         |              |  |   |         |  
|Trade accounts payable (Note 14)                                                                                                                               |  | W    | 10,558 |   |      | W | 3,361   |              |  | $ | 3,614   |  
|Other accounts payable (Notes 11, 14)                                                                                                                          |  |      | 1,255  |   |      |   | 1,306   |              |  |   | 1,405   |  
|Short-term borrowings (Note 12)                                                                                                                                |  |      | 10,361 |   |      |   | 7,723   |              |  |   | 8,304   |  
|Other current liabilities (Note 13)                                                                                                                            |  |      | 1,189  |   |      |   | 827     |              |  |   | 889     |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total current liabilities                                                                                                                                      |  |      | 23,363 |   |      |   | 13,217  |              |  |   | 14,212  |  
|                                                                                                                                                               |  |      |       
|Long-term borrowings (Note 12)                                                                                                                                 |  |      | 646    |   |      |   | 167     |              |  |   | 179     |  
|Other non-current liabilities                                                                                                                                  |  |      | 341    |   |      |   | 468     |              |  |   | 503     |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total liabilities                                                                                                                                              |  |      | 24,350 |   |      |   | 13,852  |              |  |   | 14,894  |  
|                                                                                                                                                               |  |      |       
|Commitments and contingencies (Note 17)                                                                                                                        |  |      |        |   |      |   |         |              |  |   |         |  
|                                                                                                                                                               |  |      |       
|Minority interest                                                                                                                                              |  |      | 819    |   |      |   |        |              |  |   |        |  
|                                                                                                                                                               |  |      |       
|Stockholders equity:                                                                                                                                          |  |      |        |   |      |   |         |              |  |   |         |  
|Common shares: W500 par value; authorized 10,000,000 shares; issued and outstanding 6,055,333 and 6,425,072 shares at
December 31, 2005 and 2006, respectively |  |      | 3,028  |   |      |   | 3,213   |              |  |   | 3,454   |  
|Additional paid-in capital                                                                                                                                     |  |      | 37,471 |   |      |   | 39,495  |              |  |   | 42,469  |  
|Accumulated other comprehensive loss                                                                                                                           |  |      | (100   | ) |      |   | (154    | )            |  |   | (165    | )
|Accumulated deficit                                                                                                                                            |  |      | (7,449 | ) |      |   | (24,818 | )            |  |   | (26,686 | )
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total stockholders equity                                                                                                                                     |  |      | 32,950 |   |      |   | 17,736  |              |  |   | 19,072  |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  
|Total liabilities and stockholders equity                                                                                                                     |  | W    | 58,119 |   |      | W | 31,588  |              |  | $ | 33,966  |  
|                                                                                                                                                               |  |      |        |   |      |   |         |              |  |   |         |  

See accompanying notes.



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##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2004, 2005 and 2006

---

(Korean won in millions and U.S. dollar in thousands, except per share amounts)



|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ------------- | - |  | - | --------- | -
|                                                                                                                   |  | 2004 |           |   | 2005 |   |           | 2006 |  |   | (Note 4) 2006 |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   | (Unaudited)   |  
|Revenues (Note 20):                                                                                                |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Products                                                                                                           |  | W    | 31,356    |   |      | W | 38,678    |      |  | W | 26,825        |   |  | $ | 28,844    |  
|Services                                                                                                           |  |      | 4,440     |   |      |   | 2,906     |      |  |   | 5,171         |   |  |   | 5,560     |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|                                                                                                                   |  |      | 35,796    |   |      |   | 41,584    |      |  |   | 31,996        |   |  |   | 34,404    |  
|                                                                                                                   |  |      |           |  
|Cost of revenues:                                                                                                  |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Products                                                                                                           |  |      | 31,457    |   |      |   | 30,671    |      |  |   | 29,770        |   |  |   | 32,011    |  
|Services                                                                                                           |  |      | 831       |   |      |   | 546       |      |  |   | 1,438         |   |  |   | 1,546     |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|                                                                                                                   |  |      | 32,288    |   |      |   | 31,217    |      |  |   | 31,208        |   |  |   | 33,557    |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Gross profit                                                                                                       |  |      | 3,508     |   |      |   | 10,367    |      |  |   | 788           |   |  |   | 847       |  
|                                                                                                                   |  |      |           |  
|Operating expenses:                                                                                                |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Selling, general and administrative                                                                                |  |      | 3,966     |   |      |   | 6,407     |      |  |   | 12,220        |   |  |   | 13,139    |  
|Research and development                                                                                           |  |      | 3,211     |   |      |   | 3,503     |      |  |   | 5,834         |   |  |   | 6,273     |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|                                                                                                                   |  |      | 7,177     |   |      |   | 9,910     |      |  |   | 18,054        |   |  |   | 19,412    |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Income (loss) from operations                                                                                      |  |      | (3,669    | ) |      |   | 457       |      |  |   | (17,266       | ) |  |   | (18,565   | )
|                                                                                                                   |  |      |           |  
|Other income (expenses):                                                                                           |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Interest income (expense), net                                                                                     |  |      | (230      | ) |      |   | (539      | )    |  |   | 292           |   |  |   | 314       |  
|Foreign exchange gain (loss), net                                                                                  |  |      | 337       |   |      |   | 194       |      |  |   | (1,241        | ) |  |   | (1,334    | )
|Others, net                                                                                                        |  |      | 3         |   |      |   | 30        |      |  |   | (109          | ) |  |   | (117      | )
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|                                                                                                                   |  |      | 110       |   |      |   | (315      | )    |  |   | (1,058        | ) |  |   | (1,137    | )
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Income (loss) before income taxes, gain (loss) from equity method investments, dilution gain and minority interest |  |      | (3,559    | ) |      |   | 142       |      |  |   | (18,324       | ) |  |   | (19,702   | )
|Income tax expenses (Note 15)                                                                                      |  |      | 234       |   |      |   |          |      |  |   |              |   |  |   |          |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Income (loss) before gain (loss) from equity method investments, dilution gain and minority interest               |  |      | (3,793    | ) |      |   | 142       |      |  |   | (18,324       | ) |  |   | (19,702   | )
|                                                                                                                   |  |      |           |  
|Gain (loss) from equity method investments, net                                                                    |  |      | (272      | ) |      |   | 85        |      |  |   | 5             |   |  |   | 6         |  
|Dilution gain from equity method investment and consolidated subsidiary (Note 8)                                   |  |      |          |   |      |   | 411       |      |  |   |              |   |  |   |          |  
|Minority interest                                                                                                  |  |      |          |   |      |   | 341       |      |  |   | 818           |   |  |   | 879       |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Net income (loss) before cumulative effect of change in accounting principle                                       |  |      | (4,065    | ) |      |   | 979       |      |  |   | (17,501       | ) |  |   | (18,817   | )
|Cumulative effect of change in accounting principle                                                                |  |      |          |   |      |   |          |      |  |   | 132           |   |  |   | 141       |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Net income (loss)                                                                                                  |  | W    | (4,065    | ) |      | W | 979       |      |  | W | (17,369       | ) |  | $ | (18,676   | )
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Accretion of preferred shares (Note 16)                                                                            |  |      | (1,569    | ) |      |   | (1,927    | )    |  |   |              |   |  |   |          |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Net loss attributable to common shareholders                                                                       |  | W    | (5,634    | ) |      | W | (948      | )    |  | W | (17,369       | ) |  | $ | (18,676   | )
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Loss per sharebasic and diluted:                                                                                  |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Before cumulative effect of change in accounting principle                                                         |  |      | (2,353    | ) |      |   | (356      | )    |  |   | (2,798        | ) |  |   | (3.01     | )
|Cumulative effect of change in accounting principle                                                                |  |      |          |   |      |   |          |      |  |   | 21            |   |  |   | 0.02      |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Loss per sharebasic and diluted (Note 19)                                                                         |  | W    | (2,353    | ) |      | W | (356      | )    |  | W | (2,777        | ) |  | $ | (2.99     | )
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  
|Weighted average number of shares basic and diluted (Note 19)                                                     |  |      | 2,604,000 |   |      |   | 2,664,862 |      |  |   | 6,254,054     |   |  |   | 6,254,054 |  
|                                                                                                                   |  |      |           |   |      |   |           |      |  |   |               |   |  |   |           |  

See accompanying notes.



F-4



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##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Years ended December 31, 2004, 2005 and 2006

---

(Korean won in millions)



|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|-------------------------------------------------------- |  | ------------ |  | ----------------- | ----- | ------- | ----------------------------- | ------ | ---- | ----------- | - | ------- | ------------------------ |  | --------- | ------- | - |  | - | ------- | -
|                                                         |  | Common stock |  | AdditionalPaid-in |       |         | AccumulatedOtherComprehensive |        |      | Accumulated |   |         | TotalStockholdersEquity | 
|                                                         |  | Shares       |  | Amount            |       | Capital |                               |        | Loss |             |   | Deficit |                          |  | (Deficit) |        
|Balances at January 1, 2004                              |  | 2,604,000    |  | W                 | 1,302 |         | W                             |       |      |             | W |        |                          |  | W         | (2,388  | ) |  | W | (1,086  | )
|Stock options (Note 18)                                  |  |             |  |                   |      |         |                               | 494    |      |             |   |        |                          |  |           |        |   |  |   | 494     |  
|Accretion of preferred stock (Note 16)                   |  |             |  |                   |      |         |                               | (494   | )    |             |   |        |                          |  |           | (1,075  | ) |  |   | (1,569  | )
|Currency translation adjustment                          |  |             |  |                   |      |         |                               |       |      |             |   | (40     | )                        |  |           |        |   |  |   | (40     | )
|Net loss                                                 |  |             |  |                   |      |         |                               |       |      |             |   |        |                          |  |           | (4,065  | ) |  |   | (4,065  | )
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Total comprehensive loss                                 |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   | (5,674  | )
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Balances at December 31, 2004                            |  | 2,604,000    |  |                   | 1,302 |         |                               |       |      |             |   | (40     | )                        |  |           | (7,528  | ) |  |   | (6,266  | )
|Conversion of preferred stock to common shares (Note 16) |  | 1,201,333    |  |                   | 601   |         |                               | 7,923  |      |             |   |        |                          |  |           |        |   |  |   | 8,524   |  
|Issuance of common shares, net                           |  | 2,250,000    |  |                   | 1,125 |         |                               | 29,476 |      |             |   |        |                          |  |           |        |   |  |   | 30,601  |  
|Stock options (Note 18)                                  |  |             |  |                   |      |         |                               | 1,099  |      |             |   |        |                          |  |           |        |   |  |   | 1,099   |  
|Accretion of preferred stock (Note 16)                   |  |             |  |                   |      |         |                               | (1,027 | )    |             |   |        |                          |  |           | (900    | ) |  |   | (1,927  | )
|Currency translation adjustment                          |  |             |  |                   |      |         |                               |       |      |             |   | (60     | )                        |  |           |        |   |  |   | (60     | )
|Net income                                               |  |             |  |                   |      |         |                               |       |      |             |   |        |                          |  |           | 979     |   |  |   | 979     |  
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Total comprehensive loss                                 |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   | (1,008  | )
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Balances at December 31, 2005                            |  | 6,055,333    |  |                   | 3,028 |         |                               | 37,471 |      |             |   | (100    | )                        |  |           | (7,449  | ) |  |   | 32,950  |  
|Issuance of common shares, net (Note 18)                 |  | 369,739      |  |                   | 185   |         |                               | 15     |      |             |   |        |                          |  |           |        |   |  |   | 200     |  
|Stock options (Note 18)                                  |  |             |  |                   |      |         |                               | 2,141  |      |             |   |        |                          |  |           |        |   |  |   | 2,141   |  
|Cumulative effect of change in accounting principle      |  |             |  |                   |      |         |                               | (132   | )    |             |   |        |                          |  |           |        |   |  |   | (132    | )
|Currency translation adjustment                          |  |             |  |                   |      |         |                               |       |      |             |   | (54     | )                        |  |           |        |   |  |   | (54     | )
|Net loss                                                 |  |             |  |                   |      |         |                               |       |      |             |   |        |                          |  |           | (17,369 | ) |  |   | (17,369 | )
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Total comprehensive loss                                 |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   | (17,423 | )
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Balances at December 31, 2006                            |  | 6,425,072    |  | W                 | 3,213 |         | W                             | 39,495 |      |             | W | (154    | )                        |  | W         | (24,818 | ) |  | W | 17,736  |  
|                                                         |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  

(continued)

See
accompanying notes.



F-5



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##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Years ended December 31, 2004, 2005 and 2006

---

(U.S. dollar in thousands)

(Note 4) (Unaudited)



|                                                    |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|--------------------------------------------------- |  | ------------ |  | ----------------- | ----- | ------- | ----------------------------- | ------ | ---- | ----------- | - | ------- | ------------------------ |  | --------- | ------- | - |  | - | ------- | -
|                                                    |  | Common stock |  | AdditionalPaid-in |       |         | AccumulatedOtherComprehensive |        |      | Accumulated |   |         | TotalStockholdersEquity | 
|                                                    |  | Shares       |  | Amount            |       | Capital |                               |        | Loss |             |   | Deficit |                          |  | (Deficit) |        
|Balances at December 31, 2005                       |  | 6,055,333    |  | $                 | 3,255 |         | $                             | 40,292 |      |             | $ | (107    | )                        |  | $         | (8,010  | ) |  | $ | 35,430  |  
|Issuance of common shares, net                      |  | 369,739      |  |                   | 199   |         |                               | 17     |      |             |   |        |                          |  |           |        |   |  |   | 216     |  
|Stock options                                       |  |             |  |                   |      |         |                               | 2,301  |      |             |   |        |                          |  |           |        |   |  |   | 2,301   |  
|Cumulative effect of change in accounting principle |  |             |  |                   |      |         |                               | (141   | )    |             |   |        |                          |  |           |        |   |  |   | (141    | )
|Currency translation adjustment                     |  |             |  |                   |      |         |                               |       |      |             |   | (58     | )                        |  |           |        |   |  |   | (58     | )
|Net loss                                            |  |             |  |                   |      |         |                               |       |      |             |   |        |                          |  |           | (18,676 | ) |  |   | (18,676 | )
|                                                    |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Total comprehensive loss                            |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   | (18,734 | )
|                                                    |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  
|Balances at December 31, 2006                       |  | 6,425,072    |  | $                 | 3,454 |         | $                             | 42,469 |      |             | $ | (165    | )                        |  | $         | (26,686 | ) |  | $ | 19,072  |  
|                                                    |  |              |  |                   |       |         |                               |        |      |             |   |         |                          |  |           |         |   |  |   |         |  

See accompanying notes.



F-6



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##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2004, 2005 and 2006

---

(Korean won in millions and U.S. dollar in thousands)



|                                                                              |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------------- | - |  | - | ------- | -
|                                                                              |  | 2004 |        |   | 2005 |   |        | 2006 |  |   | (Note 4) 2006 |  
|                                                                              |  |      |        |   |      |   |        |      |  |   | (Unaudited)   |  
|Cash flows from operating activities:                                         |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Net income (loss)                                                             |  | W    | (4,065 | ) |      | W | 979    |      |  | W | (17,369       | ) |  | $ | (18,676 | )
|Adjustments to reconcile net income to net cash used in operating activities: |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Depreciation and amortization                                                 |  |      | 308    |   |      |   | 577    |      |  |   | 797           |   |  |   | 856     |  
|Provision for allowance for doubtful accounts                                 |  |      | 1,447  |   |      |   | 11     |      |  |   | 812           |   |  |   | 873     |  
|Stock compensation expenses                                                   |  |      | 494    |   |      |   | 1,099  |      |  |   | 2,141         |   |  |   | 2,301   |  
|Loss (gain) from equity method investments, net                               |  |      | 272    |   |      |   | (85    | )    |  |   | (5            | ) |  |   | (6      | )
|Dilution gain from equity method investment and consolidated subsidiary       |  |      |       |   |      |   | (411   | )    |  |   |              |   |  |   |        |  
|Provision for inventory losses                                                |  |      | 7,349  |   |      |   | 2,673  |      |  |   | 8,148         |   |  |   | 8,761   |  
|Minority interest                                                             |  |      |       |   |      |   | (341   | )    |  |   | (818          | ) |  |   | (879    | )
|Cumulative effect of change in accounting principle                           |  |      |       |   |      |   |       |      |  |   | (132          | ) |  |   | (141    | )
|Others, net                                                                   |  |      | (654   | ) |      |   | 26     |      |  |   | 1,140         |   |  |   | 1,225   |  
|Changes in operating assets and liabilities:                                  |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Restricted cash                                                               |  |      | (604   | ) |      |   | 62     |      |  |   | 467           |   |  |   | 502     |  
|Accounts receivable                                                           |  |      | (1,363 | ) |      |   | (6,117 | )    |  |   | 5,523         |   |  |   | 5,939   |  
|Inventories                                                                   |  |      | (7,792 | ) |      |   | (4,035 | )    |  |   | (4,426        | ) |  |   | (4,759  | )
|Other current assets                                                          |  |      | 314    |   |      |   | (440   | )    |  |   | (681          | ) |  |   | (732    | )
|Other non-current assets                                                      |  |      | (90    | ) |      |   | (760   | )    |  |   | 18            |   |  |   | 19      |  
|Trade accounts payable                                                        |  |      | (1,450 | ) |      |   | 3,676  |      |  |   | (7,172        | ) |  |   | (7,712  | )
|Other accounts payable                                                        |  |      | 264    |   |      |   | 622    |      |  |   | (90           | ) |  |   | (97     | )
|Other current liabilities                                                     |  |      | 181    |   |      |   | 70     |      |  |   | (361          | ) |  |   | (388    | )
|Other non-current liabilities                                                 |  |      | 25     |   |      |   | (156   | )    |  |   | (282          | ) |  |   | (302    | )
|                                                                              |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Total adjustments                                                             |  |      | (1,299 | ) |      |   | (3,529 | )    |  |   | 5,079         |   |  |   | 5,460   |  
|                                                                              |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Net cash used in operating activities                                         |  |      | (5,364 | ) |      |   | (2,550 | )    |  |   | (12,290       | ) |  |   | (13,216 | )
|                                                                              |  |      |        |  
|Cash flows from investing activities:                                         |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Proceeds from repayment of loans by affiliates and employees                  |  |      |       |   |      |   | 6      |      |  |   | 8             |   |  |   | 9       |  
|Payments on loans to affiliates and employees                                 |  |      | (32    | ) |      |   | (90    | )    |  |   | (30           | ) |  |   | (32     | )
|Proceeds from repayment of short-term financial instruments                   |  |      |       |   |      |   |       |      |  |   | 60            |   |  |   | 64      |  
|Payment on long-term financial instruments                                    |  |      | (35    | ) |      |   | (60    | )    |  |   | (120          | ) |  |   | (129    | )
|Acquisition of property and equipment                                         |  |      | (295   | ) |      |   | (826   | )    |  |   | (1,614        | ) |  |   | (1,735  | )
|Acquisition of memberships                                                    |  |      |       |   |      |   |       |      |  |   | (1,820        | ) |  |   | (1,957  | )
|Acquisition of investments                                                    |  |      | (653   | ) |      |   |       |      |  |   | (78           | ) |  |   | (84     | )
|Acquisition of intangible assets                                              |  |      | (484   | ) |      |   | (294   | )    |  |   | (12           | ) |  |   | (13     | )
|                                                                              |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Net cash used in investing activities                                         |  |      | (1,499 | ) |      |   | (1,264 | )    |  |   | (3,606        | ) |  |   | (3,877  | )
|                                                                              |  |      |        |  
|Cash flows from financing activities:                                         |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Repayments of borrowings                                                      |  |      | (8,693 | ) |      |   | (7,610 | )    |  |   | (12,211       | ) |  |   | (13,131 | )
|Proceeds from borrowings                                                      |  |      | 16,411 |   |      |   | 9,238  |      |  |   | 9,093         |   |  |   | 9,778   |  
|Issuance of common shares, net                                                |  |      |       |   |      |   | 31,987 |      |  |   | 200           |   |  |   | 215     |  
|                                                                              |  |      |        |   |      |   |        |      |  |   |               |   |  |   |         |  
|Net cash provided by (used in) financing activities                           |  |      | 7,718  |   |      |   | 33,615 |      |  |   | (2,918        | ) |  |   | (3,138  | )

(Continued)

See
accompanying notes.



F-7



---

##### Table of Contents

PIXELPLUS CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2004, 2005 and 2006

---

(Korean won in millions and U.S. dollar in thousands)



|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ------ | ---- |  | - | ------------ | - |  | - | ------- | -
|                                                                                                    |  | 2004 |       | 2005 |   |        | 2006 |  |   | (Note 4)2006 |  
|                                                                                                    |  |      |       |      |   |        |      |  |   | (Unaudited)  |  
|Effect of exchange rate changes on cash and cash equivalents                                        |  |      | 53    |      |   | (70    | )    |  |   | (2           | ) |  |   | (2      | )
|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                |  |      | 908   |      |   | 29,731 |      |  |   | (18,816      | ) |  |   | (20,233 | )
|Cash and cash equivalents at the beginning of the year                                              |  |      | 286   |      |   | 1,194  |      |  |   | 31,040       |   |  |   | 33,377  |  
|Change in consolidated subsidiary                                                                   |  |      |      |      |   | 115    |      |  |   |             |   |  |   |        |  
|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Cash and cash equivalents at the end of the year                                                    |  | W    | 1,194 |      | W | 31,040 |      |  | W | 12,224       |   |  | $ | 13,144  |  
|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Supplemental cash flow information:                                                                 |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Cash paid for interest                                                                              |  | W    | 261   |      | W | 567    |      |  | W | 377          |   |  | $ | 405     |  
|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Cash paid for income taxes                                                                          |  | W    | 148   |      | W | 264    |      |  | W | 30           |   |  | $ | 32      |  
|                                                                                                    |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|                                                                                                    |  |      |       |     
|Non-cash financing activities:                                                                      |  |      |       |      |   |        |      |  |   |              |   |  |   |         |  
|Conversion from loans to investments on equity method investee                                      |  | W    | 457   |      | W |       |      |  | W |             |   |  | $ |        |  
|Conversion of 1,441,600 shares of series A convertible redeemable preferred shares to common shares |  |      |      |      |   | 8,524  |      |  |   |             |   |  |   |        |  

See accompanying notes.



F-8



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|1. | Corporate information
|-- | ---------------------

Pixelplus Co., Ltd.
and its subsidiaries (hereinafter referred to collectively as the Company) design, develop and market semiconductor image sensor devices. The Companys main product, an image sensor device, is used to capture an image and is used in
a number of commercial and consumer mass market applications. The Company operates in one business segment, the design, manufacture and distribution of semiconductor image sensor devices. The Company was incorporated in Suwon, the Republic of Korea
in April 2000, and commenced commercial production of its Complementary Metal Oxide Semiconductor (CMOS) image sensor product in July 2003.

On December 21, 2005, the Company sold 4,500,000 American Depository Shares (ADSs), each representing one-half of a common share of the Company, in the Companys initial public offering
(IPO). The Companys ADSs trade on The Nasdaq National Market under the symbol PXPL. The ADSs were offered and sold at $8.00 per ADSs. The net proceeds to the Company of the IPO after underwriter discounts and fees of
W2,308 million was W34,131 million. The Company incurred expenses of W3,530 million related to the IPO and deducted the expense from the net proceeds received by the Company. The Companys IPO
expense of W3,530 million consists of professional fees, registration fees, and printing expenses incurred in relation to the Companys IPO.



|2. | Going concern
|-- | -------------

The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Companys assets and the satisfaction of liabilities in the normal course of business.

The Company incurred net losses of W17,369 million and negative cash flows from operations of W12,290
million in 2006. In addition, the Companys working capital decreased from W30,869 million at December 31, 2005 to W12,171 million at December 31, 2006 and it had an accumulated deficit of
W24,818 million as of December 31, 2006. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans with regard to these matters are as follows:



| | - |  | Focus on the development of new generation products in the first half of 2007 and the development of its highly innovative image recognition System-On-A-Chip;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - |  | Continue to focus on enhancing the production yields for all its products in order to increase efficiencies and drive down costs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| | - |  | Monitor and implement cost control initiatives to conserve cash. As part of the cost cutting measures, the Company has downsized the number of its employees by 10%
as of May 31, 2007 compared to January 31, 2007 and reduced fixed costs through salary cuts by 15% for employees and 20% to 30% for directors and executive officers effective February 1, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Company is expecting a steady and consistent increase in sales, especially in China. On January 23, 2007, the Company entered into
a new short-term borrowing contract in the form of a credit facility with the Industrial Bank of Korea, whereby it obtained access to funds of W7,000 million bearing interest rate at 5.9%, and repaid the Companys existing
short-term borrowing from the Korea Exchange Bank amounting to W5,000 million as of December 31, 2006 in February 2007. The Company has repaid most of the balance drawn from the credit facility and W620 million
remained outstanding as of May 31, 2007. This credit facility is secured by a cash deposit of W3,500 million.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|2. | Going concern (contd)
|-- | ----------------------



The accompanying consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty. Management believes the Companys existing unrestricted cash and cash equivalents will be sufficient to meet the Companys planned expenditures through at least December 31, 2007, although there
can be no assurance the Company will not require additional funds.

In addition, the Company has substantial doubt about one of its
consolidated subsidiaries, Pixelplus Technology Inc. (PTI), ability to continue as a going concern because of significant decrease in revenues and increase in accumulated deficits. With regard to this matter, the Company reviewed
the reasonableness of PTIs cash flow projection and business plans for 2007 and evaluated its assets and liabilities based on net realizable value. As a result, the Company recorded impairment losses on PTIs property and equipment and
intangible assets totaling W156 million in 2006. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty except for PTIs assets
and liabilities.

Furthermore, the Company intends to sell its entire 37.5% interest in PTI in the second half of 2007 as there has been a
significant decline in revenues from PTI since the first half of 2006, and in order to manage cost efficiencies and strengthen its financial position. In March 2007, the Company opened a branch office in Taiwan to fortify its sales and marketing
operations in the Taiwanese market.



|3. | Summary of significant accounting policies
|-- | ------------------------------------------

Basis of financial statement preparation

The consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States of America (US GAAP). Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.

Principles of consolidation

The Company consolidates its majority-owned subsidiaries unless control is temporary or does not rest with the majority owner. The consolidated financial statements include the accounts of all controlled subsidiaries,
which consist of the following:



|                             |  |              
|---------------------------- |  | -------------
|Subsidiary                   |  | Ownership (%)
|Pixelplus Asia Co., Ltd.     |  | 100.00       
|Pixelplus Shanghai Ltd.      |  | 100.00       
|Pixelplus Semiconductor Inc. |  | 100.00       
|Pixelplus Technology Inc.    |  | 37.50        

All significant inter-company accounts and transactions have been eliminated. The equity and loss
from operations attributable to the minority shareholder interests, which relate to Pixelplus Technology Inc. (PTI), are shown separately in the balance sheets and statements of operations, respectively. Losses in excess of the minority
interest in the equity of PTI are recognized by the Company, as the minority interests do not have a binding obligation to fund those losses.



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



Consolidation of Pixelplus Technology Inc.

Pixelplus Technology Inc. was incorporated in Taiwan on March 17, 2004. PTIs primary business is to manufacture modules purchased from the
Company into CMOS image sensor or distribute the Companys products in forms of wafers, chips or modules. The Company held 43%, 37.5% and 37.5% ownership interest in PTI as of December 31, 2004, 2005 and 2006, respectively. The chief
executive officer of PTI, together with his relatives held 33.5%, 33.1% and 33.1% ownership interest in PTI as of December 31, 2004, 2005 and 2006, respectively. Accordingly, for the year ended December 31, 2004 and the period from
January 1, 2005 through May 31, 2005, the Company accounted for its investment in PTI under the equity method of accounting as it exercised significant influence over the operations of PTI.

On June 1, 2005, the Company entered into a new shareholders agreement with other shareholders
of PTI which granted the Company the right to elect two out of the total three board of directors of PTI without owning a majority of the voting shares. This shareholders agreement effectively granted the Company with the ability to control
and direct management and polices of PTI. In addition, any change to this board composition requires approval by more than 2/3of the shareholders of PTI. Since the Company holds more than 1/3of the outstanding shares of
PTI, any change to the board composition arrangement would require its approval. Accordingly, PTI is deemed a consolidated subsidiary of the Company, effective as of June 1, 2005.

Use of estimates

The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. The most significant
estimates and assumptions relate to the allowance for uncollectible accounts receivables, the allowance for inventory obsolescence and valuation allowance on deferred taxes, specific contingencies such as product warranties, litigation and patent
infringement. Although these estimates are based on managements best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the estimates.

Foreign currency translation and transactions

The Company uses its local currencies as its functional currencies. The Company uses the end of period exchange rates to translate assets and liabilities and the average exchange rates for revenues, expenses and cash
flows. Capital accounts of a permanent nature, including sales of common and preferred stock, are translated using historical exchange rates. The resulting translation adjustments are recorded as other comprehensive income or expenses, included in
shareholders equity.

Net gains and losses resulting from foreign exchange transactions are included in foreign currency gains
(losses) in the statement of operations.

Revenue recognition

The Company recognizes revenues only when: the persuasive evidence of a sales arrangement exists; the price is fixed or determinable; title and risk of
loss are transferred to the customer; collection of resulting receivables is considered reasonably assured; product returns are reasonably estimable; there are no additional customer acceptance requirements; and there are no other remaining
significant obligations. The Company provides for future returns based on historical experience at the time revenue is recognized.



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



For products sold in the Korean market to its customers without agreements that allow for returns or
credits, revenues are recognized upon shipment of products to the customer. For products sold in the Korean market to customers with agreements that allow for returns or credits, revenues are recognized upon product acceptance.

For products sold outside of Korea, title and risk of loss transfers to customers upon shipment, and at that point, there are no further customer
acceptance requirements or rights of return. Accordingly, revenue is recognized upon product shipment.

The Company recognizes service
revenues from the provision of engineering and technology services, such as CMOS image sensor design services, engineering know-how, and testing services to DongbuAnam Semiconductor (Dongbu). The Company recognizes the associated service
revenues only upon the completion of and acceptance by the customer of the engineering assistance performed. The revenue is based on a fixed fee, which is agreed upon prior to initiation of the engineering assistance. The Companys agreement to
provide these services to Dongbu, which was entered into on September 17, 2004, has a one-year term to be automatically renewed annually unless either party delivers a 30-day prior notice electing not to renew the agreement.

The Company provides a basic limited warranty for defective products that is normally valid for 12 months from the date of purchase. Since products are
sold to customers after extensive product testing and the revenue from the Companys major customers in Korea is recognized after customer acceptance, which would identify any defective products, the Company has not experienced any significant
costs to service its products sold under warranty in Korea. For products sold outside of Korea, revenue is recognized at the point of shipment, and at that date, the Company accrues a liability for the estimated costs that may be incurred under the
limited warranty provided to its customers. Warranty costs accrued include the costs to replace the defective product. Total warranty costs incurred to date have not been significant.

Research and development

Research and development costs are expensed as incurred.

Stock-based compensation

The Companys employees participate in a stock-based compensation plan, which is more fully described in Note 18. Prior to January 1, 2006, the
Company measured compensation cost for employee stock-options at fair value under the recognition and measurement provisions of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation
(SFAS 123). As permitted by SFAS 123, the Company elected to (1) expense the fair value of its employee stock options and (2) to recognize forfeitures in the period when such forfeitures occur.

Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS 123R). The Company
has elected the modified prospective transition method for adopting SFAS 123R.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



Compensation cost recognized in the year ended December 31, 2006 includes (1) compensation
for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (2) compensation cost for all share-based
payments granted subsequently to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123R. Results for prior periods have not been restated.

Stock-based compensation expense is recognized ratably over the vesting period.

As stock-based compensation expense recognized in the 2006 statement of operations is based on awards that are ultimately expected to vest, it has been
reduced for estimated forfeitures. FAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The adoption of SFAS 123(R) resulted in a cumulative effect of a change in accounting principle consisting of a benefit of
W31 million in the year ended December 31, 2006, which reflects the cumulative impact of estimating future forfeitures related to non-vested stock-options previously expensed in the statement of income under
FAS 123, rather than recording forfeitures when they occur as previously permitted.

The Company uses the Black-Scholes option valuation
model to determine the fair value of stock options at the date of grant. Refer to Note 18 for details of the Companys assumptions used in calculating the fair value of its stock options.

Income taxes

The Company
accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, income taxes are accounted for under the asset and liability method. Deferred taxes are determined
based upon differences between the financial reporting and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. A valuation allowance is provided on deferred tax
assets to the extent that it is more likely than not that such deferred tax assets will not be realized. The total income tax provision includes current tax expenses under applicable tax regulations and the changes in the balance of deferred tax
assets and liabilities. Benefits from tax credits are reflected in earnings.

Equity method investments

Investments in entities in which the Company can exercise significant influence, but owns less than a majority equity interest are accounted for using the
equity method of accounting. The Companys unrealized profit arising from sales by the Company to equity method investee are eliminated to the extent of the Companys ownership.

In the event of equity financing by any of these entities equity method investee or consolidated subsidiary, in which the Company does not participate or
does not maintain its ownership percentage, a dilution gain or loss results. The Companys policy is to recognize these gains or losses in its consolidated statement of operations.



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



Basic and diluted net income (loss) per share

The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share under the provisions of which basic
income (loss) per share is computed by dividing the net income (loss) available to holders of common shares for the period by the weighted average number of common shares outstanding during the period. The calculation of diluted
income (loss) per share excludes potential common share if the effect of such share is anti-dilutive.

Cash equivalents

The Company considers all highly liquid investments purchased with a maturity at the date of purchase of three months or less to be
cash equivalents.

Restricted cash

Restricted cash, which has been set aside as collateral for borrowings, was approximately W1,412 million and W945 million as of December 31, 2005 and 2006,
respectively, and is included within current assets in the accompanying consolidated balance sheets.

Allowance for doubtful
accounts

An allowance for doubtful accounts is provided based on managements judgment which considers historical experience
and specific knowledge of accounts that may not be collectible. Accounts receivable are charged off against allowance for doubtful accounts if all collection efforts have been exhausted and the likelihood of recovery is considered remote.

Inventories

Inventories are stated at the lower of cost or market, using the weighted average method. If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is
recognized as a loss on valuation of inventories. Inventory reserves are established when conditions indicate that the net realizable value is less than cost due to physical deterioration, obsolescence, changes in price levels, or other causes.
Reserves are also established when the number of units on hand exceeds the number of units that the Company forecasts to sell over a certain period of time.

Property and equipment

Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are calculated using the double declining method over the estimated useful lives of 5 years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful
lives of the assets, generally 5 years. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Companys accounts and any net gain or loss is included in the Companys results of
operations.

Government grants

As part of the Korean governments initiative to promote and encourage the development of start-up companies in certain high technology industries, high technology start-up companies with industry leading
technology or products are eligible for government grants. Government grants received by the Company from the Korean government to assist with specific research and development activities are deducted from those research and development costs
incurred, in the period in which the related expenses are incurred, to the extent that they are non-refundable. Grants used for the acquisition of fixed assets and intangible assets were deducted from the acquisition costs of the acquired assets,
and amortized over the useful lives of the related assets.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



Certain grants are refundable, depending on the successful development and commercialization of the
technology or products, and a company receiving such government grant is required to refund up to 30% of the grant received for such development. The Company recognizes such refundable government grants received as liabilities. The Company received
such refundable grant totaling W1,133 million through 2002 and as the it has been successful in developing and marketing the technology, the Company was required to refund 30% of the grant to the government in the amount of
W340 million, payable in equal annual installments over three years. The Company has made two such installment payments during 2005 and 2006. As of December 31, 2006, the Company has provided one promissory note amounting to
W114 million for the remaining refundable grants payable in 2007 which is recorded in other accounts payable.

Impairment of long-lived assets

The Company reviews the carrying value of its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset might not be fully recoverable. When such an event occurs, the Company estimates the future cash flows expected to result from the use of the asset (or group
of assets, including the asset in question, that represents the lowest level of separately-identifiable cash flows) and its eventual disposition. If the undiscounted expected future cash flows are less than the carrying amount of the asset or group
of assets, an impairment loss is recognized in order to write-down the carrying value of the asset or group of assets to its estimated fair value. Fair value is determined by discounting the cash flows expected to be generated by the asset, when the
quoted market prices are not available for the long-lived assets. Estimated future cash flows are based on assumptions and are subject to risk and uncertainty.

The Company recognized W189 million and W41 million of impairment loss on goodwill related to PTI as operating expenses for the years ended December 31, 2004 and 2005,
respectively, as such goodwill was not expected to be recoverable. The Company recognized W156 million of impairment loss on the entire book value of PTIs fixed assets and intangible assets as operating expenses for the year
ended December 31, 2006 as the future cash flows expected to result from the use of PTIs fixed assets and intangible assets were expected to be negative for their remaining useful lives. The Company also recognized W133
million of impairment loss on its club membership as other expenses for the year ended December 31, 2006 due to a decline in fair value below its carrying value as of December 31, 2006, which the Company believed is other than temporary.

Severance benefits

In accordance with the Korean Law on Guarantee of Employeess Severance and Retirement Benefits, employees terminating their employment with at least one year of service are entitled to severance and benefits. Employees are entitled to
receive severance benefits annually or upon termination of employment based on their length of service and rate of pay during the year or at the time of termination. Accrued severance benefits are estimated assuming eligible employees were to
terminate their employment at the balance sheet date. Annual accrued benefits are expensed. The Company pays accrued severance benefits to certain employees annually, except amounts payable to certain executives that are accrued as a liability,
payable upon departure or termination.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



The Company expects to pay the following severance benefits, which are currently accrued for the
Companys obligation through December 31, 2006, to its executives including directors other than the chief executive officer if they terminate their retirement upon their normal retirement age (Korean won in millions):



|            |  |        |    
|----------- |  | ------ | ---
|Years       |  | Amount
|2007        |  | W      |   
|2008        |  |        |   
|2009        |  |        |   
|2010        |  |        |   
|2011        |  |        | 180
|2012 ~ 2016 |  |        | 489
|            |  |        |    
|Total       |  | W      | 669
|            |  |        |    

The above amounts were determined based on the employees current salary rates and the number
of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normal retirement age.

The Company is required to pay 4.5% of each employees annual wages to the National Pension Corporation. The total amount of contributions made to
the National Pension Corporation in 2005 and 2006 was W73 million and W109 million, respectively.

Fair value of financial instruments

The Companys financial instruments, including cash
and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term maturity of these instruments. The Companys long term borrowings
approximate their fair values as they contain interest rates that vary according to market interest rates.

Recent accounting
pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments (SFAS 155), which amends SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS 133), and SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments
to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interest that itself is a derivative instrument. The adoption of SFAS 155 is not expected to have a significant impact on the Companys statements of financial position, results of operations and disclosures.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|3. | Summary of significant accounting policies (contd)
|-- | ---------------------------------------------------



In July 2006, the FASB issued Financial Interpretation No. 48, Accounting
for Uncertainty in Income Taxesan interpretation of SFAS 109 (FIN 48), which clarifies the accounting for income taxes. Among other provisions, FIN 48 specifies how tax benefits for uncertain tax positions are to be
recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and
interim-period guidance. FIN 48 is effective for fiscal years beginning after December 15, 2006 and as a result, is effective for the Company from January 1, 2007. The adoption of FIN 48 is not expected to have a material impact on the
Companys financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided a company has not yet issued financial
statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of SFAS 157, but do not expect the adoption of SFAS 157 to have a material impact on its financial position, results of operations or
cash flows.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement PlansAn Amendment of FASB No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires that the funded status of defined benefit postretirement plans be recognized on the companys balance sheet, and
changes in the funded status be reflected in comprehensive income, effective fiscal years ending after December 15, 2006. The standard also requires companies to measure the funded status of the plan as of the date of its fiscal year-end,
effective for fiscal years ending after December 15, 2008. The adoption of SFAS 158 is not expected to have a material impact on the Companys financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not believe the adoption of SFAS 159 will have a material impact on its financial
position, results of operations or cash flows.



|4. | Convenience translation into United States dollar amounts
|-- | ---------------------------------------------------------

The Company reports its consolidated financial statements in the Korean won. The United States dollar (US dollar) amounts disclosed in the accompanying financial statements are presented solely for the
convenience of the reader, and have been translated at the rate of 930 Korean won to one U.S. dollar, which is the noon buying rate of the US Federal Reserve Bank of New York in effect on December 31, 2006. Such translations should not be
construed as representations that the Korean won amounts represent, have been, or could be, converted into, United States dollars at that or any other rate. The U.S. dollar amounts are unaudited and are not presented in accordance with generally
accepted accounting principles either in Korea or the United States of America.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|5. | Cash and cash equivalents
|-- | -------------------------

Cash and cash
equivalents as of December 31, 2005 and 2006 comprise the following (Korean won in millions)



|                  |  |      |        |      |   |       
|----------------- |  | ---- | ------ | ---- | - | ------
|                  |  | 2005 |        | 2006
|Petty cash        |  | W    | 4      |      | W | 8     
|Cash held at bank |  |      | 31,036 |      |   | 2,536 
|Time deposits     |  |      |       |      |   | 9,680 
|                  |  |      |        |      |   |       
|                  |  | W    | 31,040 |      | W | 12,224
|                  |  |      |        |      |   |       

As of December 31, 2005 and 2006, W31,018 million and
W1,980 million, respectively, of cash and cash equivalents were denominated in various foreign currencies, mostly in United States dollar.



|6. | Accounts receivable, net
|-- | ------------------------

Accounts
receivable as of December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                                      |  |      |        |   |      |   |        |  
|------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                      |  | 2005 |        |   | 2006 |  
|Trade accounts receivables            |  | W    | 12,542 |   |      | W | 7,036  |  
|Trade notes receivable                |  |      | 460    |   |      |   | 61     |  
|                                      |  |      |        |   |      |   |        |  
|                                      |  |      | 13,002 |   |      |   | 7,097  |  
|Less: allowance for doubtful accounts |  |      | (1,307 | ) |      |   | (2,108 | )
|                                      |  |      |        |   |      |   |        |  
|                                      |  | W    | 11,695 |   |      | W | 4,989  |  
|                                      |  |      |        |   |      |   |        |  

Accounts receivable pledged as collateral for short-term borrowings at December 31, 2005 and
2006 amounted to W471 million and nil, respectively.

Changes in the allowance for doubtful accounts receivable for the
years ended December 31, 2004, 2005 and 2006, are as follows (Korean won in millions):



|                                              |  |      |       |   |      |   |       |  |   |       |  
|--------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- |  | - | ----- | -
|                                              |  | 2004 |       |   | 2005 |   | 2006  | 
|Balance at the beginning of the year          |  | W    | 40    |   |      | W | 1,296 |  | W | 1,307 |  
|Provision for allowance for doubtful accounts |  |      | 1,447 |   |      |   | 11    |  |   | 812   |  
|Write-offs and deductions                     |  |      | (191  | ) |      |   |      |  |   | (11   | )
|                                              |  |      |       |   |      |   |       |  |   |       |  
|Balance at the end of the year                |  | W    | 1,296 |   |      | W | 1,307 |  | W | 2,108 |  
|                                              |  |      |       |   |      |   |       |  |   |       |  



|7. | Inventories
|-- | -----------

Inventories as of
December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                                     |  |      |        |   |      |   |         |  
|------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | -
|                                     |  | 2005 |        |   | 2006 |  
|Finished goods                       |  | W    | 2,108  |   |      | W | 5,074   |  
|Work in process                      |  |      | 7,374  |   |      |   | 7,120   |  
|Raw materials                        |  |      | 6,311  |   |      |   | 5,931   |  
|                                     |  |      |        |   |      |   |         |  
|                                     |  |      | 15,793 |   |      |   | 18,125  |  
|Less: provision for inventory losses |  |      | (7,085 | ) |      |   | (13,139 | )
|                                     |  |      |        |   |      |   |         |  
|                                     |  | W    | 8,708  |   |      | W | 4,986   |  
|                                     |  |      |        |   |      |   |         |  



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|7. | Inventories (contd)
|-- | --------------------



In 2006, the Companys business model changed from primarily selling camera modules to CMOS
image sensors. Effectively, the Company reclassified CMOS image sensors that were previously classified as work in process into finished goods in 2006.

Changes in the allowance for inventory losses for the years ended December 31, 2004, 2005 and 2006, are as follows (Korean won in millions):



|                                     |  |      |       |   |      |   |        |      |  |   |        |  
|------------------------------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                     |  | 2004 |       |   | 2005 |   |        | 2006 | 
|Balance at the beginning of the year |  | W    | 2,009 |   |      | W | 8,886  |      |  | W | 7,085  |  
|Provision for inventory losses       |  |      | 7,349 |   |      |   | 2,673  |      |  |   | 8,148  |  
|Write-offs and deductions            |  |      | (472  | ) |      |   | (4,602 | )    |  |   | (2,094 | )
|Other                                |  |      |      |   |      |   | 128    |      |  |   |       |  
|                                     |  |      |       |   |      |   |        |      |  |   |        |  
|Balance at the end of the year       |  | W    | 8,886 |   |      | W | 7,085  |      |  | W | 13,139 |  
|                                     |  |      |       |   |      |   |        |      |  |   |        |  



|8. | Dilution
|-- | --------

In February and May 2005, PTI and
Tesna Inc. (Tesna), respectively, issued additional common shares but the Company did not participate in the issuances. After the issuances of shares by PTI and Tesna, the Companys ownership interests in PTI and Tesna decreased
from 42.9% to 31.9% and 20.0% to 13.9%, respectively. As a result, the Company recorded dilution gains of W74 million and W337 million relating to additional shares issued by PTI and Tesna, respectively.

In addition, PTI issued additional common shares in June 2005. The Company participated in the issuance, resulting in an increase in the Companys
ownership interest in PTI from 31.9% to 37.5%.



|9. | Property and equipment
|-- | ----------------------

Property and
equipment as of December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                               |  |      |        |   |      |   |        |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                               |  | 2005 |        |   | 2006 |  
|Machinery                      |  | W    | 293    |   |      | W | 705    |  
|Vehicles                       |  |      | 221    |   |      |   | 149    |  
|Tools and equipment            |  |      | 324    |   |      |   | 255    |  
|Furniture                      |  |      | 672    |   |      |   | 1,054  |  
|Construction-in-progress       |  |      |       |   |      |   | 585    |  
|Software                       |  |      | 944    |   |      |   | 1,139  |  
|Leasehold improvement          |  |      | 404    |   |      |   | 398    |  
|                               |  |      |        |   |      |   |        |  
|                               |  |      | 2,858  |   |      |   | 4,285  |  
|Less: accumulated depreciation |  |      | (1,609 | ) |      |   | (2,121 | )
|government grants, net         |  |      | (40    | ) |      |   | (15    | )
|                               |  |      |        |   |      |   |        |  
|                               |  | W    | 1,209  |   |      | W | 2,149  |  
|                               |  |      |        |   |      |   |        |  

For the years ended December 31, 2004, 2005 and 2006, the Company recognized
W301 million, W474 million and W618 million in depreciation and amortization expense, respectively.



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|9. | Property and equipment (contd)
|-- | -------------------------------



The Company is a member of Pankyo Silicon Park Development Consortium (the Association).
The Association, composed of 34 member corporations including the Company, entered into a contract on September 20, 2006 with Gyeonggi Innovation Corporation to construct a building within Pankyos land development district. The Company
paid W20 million and W565 million in 2004 and 2006, respectively, as an investment in the Association. The Company is to make additional payments of W2,333 million each in 2007 and 2008, as
installment payments for the purchase of office space in the building. As of December 31, 2006, the amount of W585 million that the Company has paid for the land purchase has been accounted for as construction-in-progress.



|10. | Other current and non-current assets
|--- | ------------------------------------

Other
current assets as of December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                          |  |      |       |      |   |      
|------------------------- |  | ---- | ----- | ---- | - | -----
|                          |  | 2005 |       | 2006
|Other accounts receivable |  | W    | 766   |      | W | 967  
|Prepaid expenses          |  |      | 481   |      |   | 532  
|Advance payments          |  |      | 52    |      |   | 432  
|Others                    |  |      | 78    |      |   | 313  
|                          |  |      |       |      |   |      
|                          |  | W    | 1,377 |      | W | 2,244
|                          |  |      |       |      |   |      

Other accounts receivable as of December 31, 2005 and 2006 include value-add tax receivable
of W687 million and W531 million, respectively.

Other non-current assets as of December 31, 2005 and
2006 comprise the following (Korean won in millions):



|                          |  |      |       |      |   |      
|------------------------- |  | ---- | ----- | ---- | - | -----
|                          |  | 2005 |       | 2006
|Guarantee deposits        |  | W    | 1,067 |      | W | 1,050
|Equity method investments |  |      | 1,065 |      |   | 1,071
|Intangible assets         |  |      | 277   |      |   | 28   
|Others                    |  |      | 269   |      |   | 216  
|                          |  |      |       |      |   |      
|                          |  | W    | 2,678 |      | W | 2,365
|                          |  |      |       |      |   |      

As of December 31, 2006, the Company has a 13.92% ownership interest in Tesna. Despite only
holding a 13.92% ownership interest, the Company accounts for its investment in Tesna under the equity method of accounting because it has the ability to exercise significant influence through a direct participation in Tesnas board of
directors.



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|11. | Other accounts payable
|--- | ----------------------

Other accounts
payable as of December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                             |  |      |       |      |   |      
|---------------------------- |  | ---- | ----- | ---- | - | -----
|                             |  | 2005 |       | 2006
|R&D related expenses payable |  | W    | 221   |      | W | 530  
|Accounts payable - Tesna     |  |      |      |      |   | 220  
|Refundable government grants |  |      | 113   |      |   | 114  
|Others                       |  |      | 921   |      |   | 442  
|                             |  |      |       |      |   |      
|                             |  | W    | 1,255 |      | W | 1,306
|                             |  |      |       |      |   |      



|12. | Borrowings
|--- | ----------

The details of short-term
borrowings as at December 31, 2005 and 2006 are as follows (Korean won in millions):



|                                                                                                                   |  |      |        |      |   |      
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- | - | -----
|                                                                                                                   |  | 2005 |        | 2006
|Loans, principally from banks:                                                                                     |  |      |        |      |   |      
|Won denominated loans with weighed-average interest rates of 5.9% and 5.4% in 2005 and 2006, respectively          |  | W    | 7,000  |      | W | 6,000
|US$ and NT$ denominated loans with weighted-average interest rates of 5.9% and 5.5% in 2005 and 2006, respectively |  |      | 1,474  |      |   | 632  
|Loans against receivables with weighted-average interest rate of 6.2% in 2005                                      |  |      | 471    |      |   |     
|Cash overdraft with weighted-average interest rate of 6.1% and 7.0% in 2005 and 2006, respectively                 |  |      | 803    |      |   | 800  
|Current portion of long-term borrowings                                                                            |  |      | 613    |      |   | 291  
|                                                                                                                   |  |      |        |      |   |      
|                                                                                                                   |  | W    | 10,361 |      | W | 7,723
|                                                                                                                   |  |      |        |      |   |      

The Companys restricted cash are pledged as collateral for the repayment of the Korean won
denominated loans from the Korea Exchange Bank and the Industrial Bank of Korea amounting to W3,300 million as of December 31, 2005 and the Korea Exchange Bank amounting to W5,000 million as of
December 31, 2006.

The details of long-term borrowings are as follows (Korean won in millions):



|                                                                           |  |      |       |   |      |   |      |  
|-------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ---- | -
|                                                                           |  | 2005 |       |   | 2006 |  
|Unsecured loans, representing obligations principally to banks:            |  |      |       |   |      |   |      |  
|Due 2007 to 2008 with interest rates ranging from 3.50% to 4.33% per annum |  | W    | 1,259 |   |      | W | 458  |  
|Less: current portion                                                      |  |      | (613  | ) |      |   | (291 | )
|                                                                           |  |      |       |   |      |   |      |  
|                                                                           |  | W    | 646   |   |      | W | 167  |  
|                                                                           |  |      |       |   |      |   |      |  



F-21



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|12. | Borrowings (contd)
|--- | -------------------



The Company has entered into various Korean won denominated borrowing arrangements with certain
Korean domestic banks, with an aggregate maximum facility of W7,800 million and a collateralized borrowing facility of W1,400 million, of which W7,258 million and nil, respectively, were outstanding
at December 31, 2006. In addition, the Company has entered into various foreign currency denominated debt facilities of US$500 thousand (W465 million) and NT$70,000 thousand (W1,998 million) at
December 31, 2006, of which NT$22,113 thousand (W632 million) were outstanding as at December 31, 2006.

The
aggregate annual maturities of long-term borrowings as of December 31, 2006 are as follows (Korean won in millions):



|     |  |        |    
|---- |  | ------ | ---
|     |  | Amount
|2007 |  | W      | 291
|2008 |  |        | 167
|     |  |        |    
|     |  | W      | 458
|     |  |        |    



|13. | Other current liabilities
|--- | -------------------------

Other current
liabilities as of December 31, 2005 and 2006 comprise the following (Korean won in millions):



|                                |  |      |       |      |   |    
|------------------------------- |  | ---- | ----- | ---- | - | ---
|                                |  | 2005 |       | 2006
|Accrued expenses                |  | W    | 921   |      | W | 452
|Advance payments from customers |  |      | 168   |      |   | 270
|Others                          |  |      | 100   |      |   | 105
|                                |  |      |       |      |   |    
|                                |  | W    | 1,189 |      | W | 827
|                                |  |      |       |      |   |    



|14. | Related party transactions
|--- | --------------------------

The Company has
a 13.92% ownership interest in Tesna as of December 31, 2005 and 2006. All of the Companys wafer and Chip Scale Package testing are conducted by Tesna and transactions between the Company and Tesna for the years ended December 31,
2005 and 2006 are as follows (Korean won in millions):



|                                   |  |      |       |      |   |      
|---------------------------------- |  | ---- | ----- | ---- | - | -----
|                                   |  | 2005 |       | 2006
|Purchases (testing fee) - Tesna    |  | W    | 2,142 |      | W | 3,289
|Purchases (tangible asset) - Tesna |  |      |      |      |   | 281  
|                                   |  |      |       |      |   |      
|                                   |  | W    | 2,142 |      | W | 3,570
|                                   |  |      |       |      |   |      



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|14. | Related party transactions (contd)
|--- | -----------------------------------



Related account balances as of December 31, 2005 and 2006 between the Company and Tesna are as
follows (Korean won in millions):



|                               |  |      |     |      |   |    
|------------------------------ |  | ---- | --- | ---- | - | ---
|                               |  | 2005 |     | 2006
|Trade accounts payable - Tesna |  | W    | 551 |      | W | 569
|Other accounts payable - Tesna |  |      |    |      |   | 220
|                               |  |      |     |      |   |    
|                               |  | W    | 551 |      | W | 789
|                               |  |      |     |      |   |    

The Companys chief executive officer had provided guarantees totaling
W10,408 million relating to the Companys borrowing agreements with various foreign and domestic banks. Effective May 31, 2006, the chief executive officer no longer provides guarantees under any loan agreement of the
Company.

The Company had loans outstanding from employees of W156 million and W178 million as of
December 31, 2005 and 2006, respectively.

On January 20, 2006 and July 25, 2006, upon approval of the Compensation
Committee, the Company paid W940 million and W620 million, respectively, as a special bonus to its senior management for their increased responsibilities related to serving in the management of a publicly-traded
company.



|15. | Income tax expenses
|--- | -------------------

The components of
current income tax expenses are as follows (Korean won in millions):



|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|---------------------------------- |  | ---- | ------ | - | ---- | - | ---- | ---- |  | - | ------- | -
|                                   |  | 2004 |        |   | 2005 |   |      | 2006 | 
|Income (loss) before income taxes: |  |      |        |   |      |   |      |      |  |   |         |  
|Domestic                           |  | W    | (3,469 | ) |      | W | 889  |      |  | W | (13,868 | )
|Foreign                            |  |      | (90    | ) |      |   | (747 | )    |  |   | (4,456  | )
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|                                   |  | W    | (3,559 | ) |      | W | 142  |      |  | W | (18,324 | )
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|                                   |  |      |       
|Current income taxes:              |  |      |        |   |      |   |      |      |  |   |         |  
|Domestic                           |  | W    | 234    |   |      | W |     |      |  | W |        |  
|Foreign                            |  |      |       |   |      |   |     |      |  |   |        |  
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|                                   |  | W    | 234    |   |      | W |     |      |  | W |        |  
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|                                   |  |      |       
|Deferred income taxes:             |  |      |        |   |      |   |      |      |  |   |         |  
|Domestic                           |  | W    |       |   |      | W |     |      |  | W |        |  
|Foreign                            |  |      |       |   |      |   |     |      |  |   |        |  
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|                                   |  | W    |       |   |      | W |     |      |  | W |        |  
|                                   |  |      |        |   |      |   |      |      |  |   |         |  
|Total income tax expense           |  | W    | 234    |   |      | W |     |      |  | W |        |  
|                                   |  |      |        |   |      |   |      |      |  |   |         |  



F-23



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|15. | Income tax expenses (contd)
|--- | ----------------------------



The tax effects of temporary differences that give rise to significant portions of the deferred
income tax assets and deferred income tax liabilities at December 31, 2005 and 2006 are as follows (Korean won in millions):



|                                                     |  |      |        |   |      |   |        |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                     |  | 2005 |        |   | 2006 |  
|Current deferred income tax asset (liabilities):     |  |      |        |   |      |   |        |  
|Accounts receivable                                  |  | W    | 198    |   |      | W | 544    |  
|Inventory                                            |  |      | 997    |   |      |   | 2,104  |  
|Others                                               |  |      | 141    |   |      |   | (226   | )
|                                                     |  |      |        |   |      |   |        |  
|                                                     |  |      | 1,336  |   |      |   | 2,422  |  
|Less: Valuation allowance                            |  |      | (1,336 | ) |      |   | (2,422 | )
|                                                     |  |      |        |   |      |   |        |  
|Current deferred income tax assets (liabilities)     |  | W    |       |   |      | W |       |  
|                                                     |  |      |        |   |      |   |        |  
|                                                     |  |     
|Non-current deferred income tax asset (liabilities): |  |      |        |   |      |   |        |  
|Intangible assets                                    |  | W    | 252    |   |      | W | 157    |  
|Tax credit carryforwards                             |  |      | 352    |   |      |   | 1,238  |  
|Tax loss carryforwards                               |  |      | 237    |   |      |   | 1,561  |  
|Equity method investments                            |  |      | (67    | ) |      |   | (67    | )
|Other                                                |  |      | 37     |   |      |   | 92     |  
|                                                     |  |      |        |   |      |   |        |  
|                                                     |  |      | 811    |   |      |   | 2,981  |  
|Less: Valuation allowance                            |  |      | (811   | ) |      |   | (2,981 | )
|                                                     |  |      |        |   |      |   |        |  
|Non-current deferred income tax assets (liabilities) |  | W    |       |   |      | W |       |  
|                                                     |  |      |        |   |      |   |        |  

As of December 31, 2006, the Company has net operating loss and research tax credit
carryforwards of W10,607 million and W1,238 million, respectively. If not utilized, net operating loss and research tax credit carryforwards will expire through 2011.

A valuation allowance on deferred income tax assets is recognized when it is more likely than not that the deferred tax assets will not be realized.
Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Companys ability to generate taxable income within the period during which the temporary differences reverse, the outlook for
the economic environment in which the Company operates, and the overall future industry outlook. Based upon analysis of these factors, the Company has determined that it is more likely than not that it will not be able to realize its net deferred
tax assets in all jurisdictions in which it operates. Accordingly, the Company has recorded a full valuation allowance of W2,147 million and W5,403 million, on its consolidated net deferred tax
assets at December 31, 2005 and 2006, respectively.

The general statutory income tax rate in Korea, including tax surcharges, was
approximately 29.7% in 2004 and 27.5% in 2005 and 2006. The Company is entitled to a reduced tax rate at 50% of the general statutory tax rate pursuant to the Special Tax Treatment Control Law of Korea, which is applied to certain designated venture
companies. The Company must reapply for its designation as a venture company every year. However, it is uncertain as to whether the Company will obtain this designation in the future. For presentation purposes, in the accompanying financial
statements footnotes, deferred income taxes as of December 31, 2006 were calculated based on the rate of 13.75%.



F-24



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|15. | Income tax expenses (contd)
|--- | ----------------------------



A reconciliation of income tax expense at the Korean statutory income tax rate to actual income tax
expense is as follow (Korean won in millions):



|                                                                         |  |      |        |   |      |   |      |      |  |   |         |  
|------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ---- | ---- |  | - | ------- | -
|                                                                         |  | 2004 |        |   | 2005 |   |      | 2006 | 
|Income (loss) from continuing operations for the years ended December 31 |  | W    | (3,559 | ) |      | W | 142  |      |  | W | (18,324 | )
|Statutory tax rates                                                      |  |      | 29.7   | % |      |   | 27.5 | %    |  |   | 27.5    | %
|                                                                         |  |      |        |   |      |   |      |      |  |   |         |  
|Tax expense (benefit) at Korean statutory tax rate                       |  |      | (1,057 | ) |      |   | 39   |      |  |   | (5,039  | )
|Tax exemption(1)                                                         |  |      | 528    |   |      |   | (20  | )    |  |   | 2,520   |  
|Differences in statutory tax rate in subsidiaries                        |  |      | (1     | ) |      |   | (52  | )    |  |   | (421    | )
|Permanent difference                                                     |  |      | (127   | ) |      |   | 64   |      |  |   | 591     |  
|Tax credit                                                               |  |      | (321   | ) |      |   | (340 | )    |  |   | (885    | )
|Change in statutory tax rate                                             |  |      | 130    |   |      |   |     |      |  |   |        |  
|Increase in valuation allowance                                          |  |      | 1,087  |   |      |   | 309  |      |  |   | 3,234   |  
|Others                                                                   |  |      | (5     | ) |      |   |     |      |  |   |        |  
|                                                                         |  |      |        |   |      |   |      |      |  |   |         |  
|Total income tax expense                                                 |  | W    | 234    |   |      | W |     |      |  | W |        |  
|                                                                         |  |      |        |   |      |   |      |      |  |   |         |  

| | 
| | 

| | (1) | Tax exemption represents the effect of a reduced tax rate at 50% from the general statutory tax rates the Company is entitled to in 2004, 2005 and 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

There was no income tax expense charged to or credited from other comprehensive income, gain (loss) from equity method investments and dilution gain from
equity method investments and the consolidated subsidiary for the years ended December 31, 2005 and 2006.



|16. | Convertible redeemable preferred shares
|--- | ---------------------------------------

On
March 17, 2003, the Company issued 1,441,600 shares of the Series A convertible redeemable preferred shares (Series A preferred) at W3,421 per share for total cash proceeds of W4,919 million, net of
issuance costs. On December 20, 2005, the Company issued additional 1,201,333 common shares due to exercise of the conversion rights on Series A preferred shares.

On December 20, 2005, 1,441,600 Series A convertible redeemable preferred shares were converted into 1,201,333 common shares. In addition, on January 25, 2006, pursuant to the Underwriting
Agreement dated December 20, 2005, certain existing shareholders sold 675,000 ADSs as a result of underwriters exercise of their over-allotment option.

The Series A preferred shares outstanding for the two years ended December 31, 2005 was as follows (Korean won in millions):



|                                                  |  |                    |   |  |        |        |  
|------------------------------------------------- |  | ------------------ | - |  | ------ | ------ | -
|                                                  |  | Series A Preferred |  
|                                                  |  | Shares             |   |  | Amount |       
|January 1, 2004                                   |  | 1,441,600          |   |  | W      | 5,975  |  
|Accretion of redemption                           |  |                   |   |  |        | 1,569  |  
|Translation adjustment                            |  |                   |   |  |        | (768   | )
|                                                  |  |                    |   |  |        |        |  
|December 31, 2004                                 |  | 1,441,600          |   |  |        | 6,776  |  
|Accretion of redemption                           |  |                   |   |  |        | 1,927  |  
|Translation adjustment                            |  |                   |   |  |        | (179   | )
|Conversion of Series A Preferred to Common shares |  | (1,441,600         | ) |  |        | (8,524 | )
|                                                  |  |                    |   |  |        |        |  
|December 31, 2005                                 |  |                   |   |  | W      |       |  
|                                                  |  |                    |   |  |        |        |  



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##### Table of Contents

PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|16. | Convertible redeemable preferred shares (contd)
|--- | ------------------------------------------------



Characteristics of the Series A preferred shares are described below:

Voting rights

The holders of the
Series A preferred have voting rights, equivalent to that of holders of the Companys common shares and vote together as one class with the common shareholders.

Liquidation preference

In the event of any liquidation, or similar winding up of the Company, the
holders of the Series A preferred shall receive the Korean Won equivalent of US$2.77 per share; plus interest on the original issuance, calculated at 30% per annum compounded annually, accrued from the issuance date of the Series A preferred to
the date of liquidation; plus all declared, but unpaid dividends on such Series A preferred shares, accrued to the date of liquidation.

At
liquidation, if the assets available to be distributed among the holders of the Series A preferred are insufficient to permit payment to such holders of the full liquidation amount described above, then the entire remaining assets of the Company
legally available for distribution to such holders shall be distributed ratably among the holders of the Series A preferred.

Conversion

Prior to the completion of a qualified initial public offering (IPO), each Series A preferred is
convertible, at the option of the holder, into a number of fully paid common shares as is determined by dividing US$2.77, by the applicable conversion price, in effect at the time of conversion, which, with effect from March 31, 2004 was
revised to US$3.33. If any Series A preferred have not been converted into common shares as of the date one business day prior to the pricing of the qualified IPO, such Series A preferred shall be automatically converted to common shares without any
further action by, consent of or notice from, the respective holders of such Series A preferred. On December 20, 2005, all Series A preferred were converted into common shares by the exercise of this conversion right.

Dividends

Holders of the Series A
preferred are entitled to an annual per share dividend equal to 68% of the par value of the Series A preferred, payable when and if declared at a general meeting of the shareholders. The dividends are cumulative and are payable prior to any payment
of any dividend with respect to the common shares. The Company has not declared any dividends on its preferred or common shares through December 31, 2005.

Redemption

Subject to any legal restrictions on the Companys redemption of shares, the holders
of the outstanding Series A preferred may require the Company to redeem all or part of the outstanding Series A preferred at any time from January 1, 2007 to December 31, 2008. Under certain circumstances, prior to December 31, 2006,
the holders of the outstanding Series A preferred may require the Company to redeem the Series A preferred which include the Companys violation or breech of the Series A Subscription Agreement, or the Commercial Code of the Securities Exchange
Act of Korea, or if the Company becomes insolvent or bankrupt.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|16. | Convertible redeemable preferred shares (contd)
|--- | ------------------------------------------------



To the extent permitted under applicable law, the redemption price for each share of Series A
preferred shall be: 100% of the original issue price for each Series A preferred; plus interest on the original issue price, calculated at 30% per annum compounded annually, accrued from the issuance date of the Series A preferred shares to the
date of redemption; plus all declared but unpaid dividends on each Series A preferred share held by such holder, accrued to the date of redemption.

Accretion of Redemption

The Series A preferred are redeemable for an amount in excess of their issuance price. As a result,
the difference between the redemption value and the issuance price of the Series A preferred increases the carrying value of the Series A preferred and is being charged to paid in capital and accumulated deficit. The Company recorded full redemption
accretion for Series A preferred until the date of conversion.



|17. | Commitments and contingencies
|--- | -----------------------------

Purchase
agreement

In 2004, the Company entered into a purchase commitment with DongbuAnam Semiconductor (Dongbu), its primary wafer
manufacturer, such that it will be required to make penalty payments, based on a percentage of the order, and the timing of the notification of the shortfall, if it does not meet certain purchase quantities previously forecasted. The Company has not
been required to make any penalty payments under this agreement from 2004 to 2006, and determined that no purchase commitment liability is required at December 31, 2005 and 2006, based on historical experience and anticipated purchases in the
first six months of 2007. Meanwhile, the Company purchased approximately 93% and 95% of its raw materials from Dongbu in 2005 and 2006.

Operating leases

The Company is obligated under several non-cancelable operating leases for its office premises, dormitory
rent and vehicle rents. Rental expense incurred under these operating leases was approximately W82 million, W302 million and W495 million for the years ended December 31, 2004, 2005 and 2006,
respectively.

Future minimum operating lease payments with initial terms of one or more years of December 31, 2006 are as follows
(Korean won in millions):



|                    |  |                        |    
|------------------- |  | ---------------------- | ---
|                    |  | Minimum lease payments
|2007                |  | W                      | 434
|2008                |  |                        | 234
|2009                |  |                        | 55 
|2010 and thereafter |  |                        |   
|                    |  |                        |    
|Total               |  | W                      | 723
|                    |  |                        |    



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|17. | Commitments and contingencies (contd)
|--- | --------------------------------------



Pankyo office

As described in Note 9 to the consolidated financial statements, the Company is a member of Pankyo Silicon Park Development Consortium (the Association). The Association, composed of 34 member corporations
including the Company, entered into a contract on September 20, 2006 with Gyeonggi Innovation Corporation to construct building with in Pankyos land development district. The Company paid W20 million and
W565 million in 2004 and 2006, respectively, as an investment in the Association. The Company is to make payments of W2,333 million each in 2007 and 2008, as installment payments for the purchase of office space in
the building.

Patent infringement lawsuits

In April 2006, MagnaChip Semiconductor, Ltd. (MagnaChip) filed a lawsuit against the Company in Seoul Central District Court (Seoul Court), alleging that the Company infringed four of its
patents and seeking damages of approximately W12,000 million. As a result of the lawsuit, in February 2007, the Company obtained a positive and affirmative ruling from the Seoul Court. In March 2007, MagnaChip filed an appeal with
respect to the Seoul Courts decision with the Seoul Court of Appeals.

In addition to the above lawsuit, in November 2006, MagnaChip
filed three additional patent infringement claims in Seoul Court seeking damages of approximately W150 million. On May 11, 2007, the Company has initiated cancellation and invalidation proceedings on the three
additional patent infringement claims with the Intellectual Property Tribunal of KIPO. The Company has not recognized any losses in these financial statements because the Company cannot determine the final outcome of the court proceedings in the
Seoul Court, including any damages which need to be paid or any amounts which may be paid in settlement at this time.

Class action
lawsuit

On April 11, 2006, the Company issued a press release titled Pixelplus Issues Corporate Announcements, after
which certain plaintiffs announced that they filed lawsuits against the Company based on claims arising out of U.S. securities and exchange laws. The lawsuit alleges violations of the Securities Exchange Act of 1934 during a period from
December 21, 2005 through April 11, 2006. The plaintiffs allegations concern the Companys correction of revenue numbers for the fourth quarter of 2005 and fiscal year 2005 and the decision to consolidate the financial results
of PTI. The plaintiff alleges that the Company made false and misleading statements about these issues in its IPO documents and in other public statements and seeks unspecified damages. In March 2007, the Southern District Court of New York
(New York Court) appointed West End Capital Management as the lead plaintiff in the consolidated class action. As of April 17, 2007, the Companys counsel is in the process of discussing a schedule with the plaintiffs
lead counsel wherein lead counsel will file a consolidated amended complaint by June 23, 2007, and the Companys counsel will then have up to 60 days from the date the amended complaint is filed to file the Companys motion to
dismiss. If such schedule is adopted, the motion to dismiss should be heard by the New York Court in or around late fall of 2007.

At this
time, the Company cannot predict the final conclusion of outcome of the shareholder litigation, including any damages which need to be paid or any amounts which may be paid in settlement.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|17. | Commitments and contingencies (contd)
|--- | --------------------------------------



Received guarantees

As of December 31, 2006, the Company has received guarantees for its short-term and long-term borrowings from various third parties:
W442 million from Korea Technology Credit Guarantee Fund and W10 million from Seoul Guarantee Insurance Co., Ltd. In return for these guarantees, the Company paid a service fee of approximately 0.9%, 1.0% and 1.3%
in 2004, 2005 and 2006 of its guaranteed amounts, respectively.

Others

In addition to the normal statutory severance allowances (see Note 3), executives may be entitled to special severance allowances upon their voluntary or
involuntary termination of employment. The Compensation Committee will decide whether such a severance should be paid and if so, how much will be paid. The special severance allowance, however, cannot exceed (i) annual salary for chief
executive officer, (ii) nine-month salary for executive and senior vice presidents, and (iii) six-month salary for vice presidents and technical directors. Based on such rules, the maximum special severance allowance that can be paid, if
granted by the Compensation Committee, is W806 million; however, it has not been recognized in the financial statements as of and for the year ended December 31, 2006, since such special severance allowance has not been granted
by the Compensation Committee as of year end. The Company, in the past, has not granted such special severance and does not have any plan to grant such special severance to executives.



|18. | Stock option grants
|--- | -------------------

As of December 31,
2006, the Company has one share-based compensation plan (the 2003 plan), which is described below.

For the years ended December 31,
2004, 2005 and 2006, the Company recognized stock-based compensation expense in the amount of W494 million, W1,099 million and, W2,141 million respectively.

Stock options may be granted to the Companys directors and employees and certain third parties who have contributed to the Companys
establishment, management or innovation in technology, or who are capable of making such contribution. Stock options may only be granted if approved by a special resolution of the Companys shareholders meeting. Additionally, the total number
of shares into which the options are exercisable may not exceed 50% of the total number of the Companys then issued and outstanding shares. The minimum option exercise price is determined by the greater of (a) the valuation price of
shares calculated pursuant to the method under Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act in Korea at the date of grant of such stock options or (b) the par value of the shares.

Stock options may be exercised within three years commencing from two years after the date of the resolution of the shareholders meeting adopting
the stock option grant. In order to exercise his or her stock options, the grantee must have served us for more than two years from the date of the shareholders special resolution approving his or her stock option grant.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|18. | Stock option grants (contd)
|--- | ----------------------------



The following table summarizes the stock option activity for the years ended December 31, 2004,
2005 and 2006:



|                                                  |  |                        |   |  |                                          |        |                                                    |   |       
|------------------------------------------------- |  | ---------------------- | - |  | ---------------------------------------- | ------ | -------------------------------------------------- | - | ------
|                                                  |  | Number ofstock options |   |  | Weighted-averageexercise price per share |        | Weighted-average fair valueat grant date per share
|Stock options outstanding as of January 1, 2004   |  | 773,191                |   |  | W                                        | 500    |                                                    | W | 1,202 
|Granted                                           |  | 183,000                |   |  |                                          | 1,961  |                                                    |   | 3,003 
|                                                  |  |                        |   |  |                                          |        |                                                    |   |       
|Stock options outstanding as of December 31, 2004 |  | 956,191                |   |  |                                          | 780    |                                                    |   | 1,547 
|Granted                                           |  | 240,400                |   |  |                                          | 6,500  |                                                    |   | 17,605
|Forfeited                                         |  | (3,000                 | ) |  |                                          | 2,000  |                                                    |   | 3,200 
|                                                  |  |                        |   |  |                                          |        |                                                    |   |       
|Stock options outstanding as of December 31, 2005 |  | 1,193,591              |   |  |                                          | 1,929  |                                                    |   | 4,777 
|Granted                                           |  | 105,000                |   |  |                                          | 11,643 |                                                    |   | 5,263 
|Forfeited                                         |  | (28,500                | ) |  |                                          | 6,026  |                                                    |   | 18,679
|Exercised                                         |  | (369,739               | ) |  |                                          | 542    |                                                    |   | 1,207 
|                                                  |  |                        |   |  |                                          |        |                                                    |   |       
|Stock options outstanding as of December 31, 2006 |  | 900,352                |   |  | W                                        | 3,501  |                                                    | W | 5,859 
|                                                  |  |                        |   |  |                                          |        |                                                    |   |       

A summary of option activity under the plan as of December 31, 2006, and changes during the
year then ended is as follows (Korean won in millions, except for weighted average exercise price):



|                                            |  |           |   |  |                              |        |   |                                         |     |                         |   |      
|------------------------------------------- |  | --------- | - |  | ---------------------------- | ------ | - | --------------------------------------- | --- | ----------------------- | - | -----
|Options                                     |  | Shares    |   |  | Weightedaverageexerciseprice |        |   | Weightedaverageremainingcontractualterm |     | Aggregateintrinsicvalue
|Outstanding at January 1, 2006              |  | 1,193,591 |   |  | W                            | 1,929  |   |                                         |     |                         |   |      
|Granted                                     |  | 105,000   |   |  |                              | 11,643 |   |                                         |     |                         |   |      
|Exercised                                   |  | (369,739  | ) |  |                              | (542   | ) |                                         |     |                         |   |      
|Forfeited or expired                        |  | (28,500   | ) |  |                              | 6,026  |   |                                         |     |                         |   |      
|                                            |  |           |   |  |                              |        |   |                                         |     |                         |   |      
|Outstanding at December 31, 2006            |  | 900,352   |   |  | W                            | 3,501  |   |                                         | 2.5 |                         | W | 2,123
|                                            |  |           |   |  |                              |        |   |                                         |     |                         |   |      
|Vested and exercisable at December 31, 2006 |  | 580,452   |   |  | W                            | 918    |   |                                         | 1.7 |                         | W | 481  
|                                            |  |           |   |  |                              |        |   |                                         |     |                         |   |      

The total intrinsic value of options exercised during the year ended December 31, 2006 was
W246 million and cash received from option exercise for the year ended December 31, 2006 was W200 million.

A summary of the status of the Entitys non-vested shares as of December 31, 2006 and changes during the year ended December 31, 2006 is as follows (Korean won in units):



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|18. | Stock option grants (contd)
|--- | ----------------------------



|                                |  |         |  |                                       |       
|------------------------------- |  | ------- |  | ------------------------------------- | ------
|Non-vested shares               |  | Shares  |  | Weighted averageGrant-date fair value
|Non-vested at January 1, 2006   |  | 420,400 |  | W                                     | 11,352
|Granted                         |  | 105,000 |  |                                       | 5,263 
|Vested                          |  | 177,000 |  |                                       | 2,997 
|Forfeited                       |  | 28,500  |  |                                       | 18,679
|                                |  |         |  |                                       |       
|Non-vested at December 31, 2006 |  | 319,900 |  |                                       | 13,323
|                                |  |         |  |                                       |       

The total fair value of shares vested during the years ended December 31, 2005 and 2006 was
W929 million and W530 million, respectively.

On August 17, 2004, December 10,
2004, March 25, 2005, August 26, 2005, November 25, 2005, March 31, 2006 and December 27, 2006 the Company granted individuals options to purchase 36,000, 147,000, 40,000, 184,400, 16,000, 45,000 and
60,000 common shares of the Company at exercise prices of W1,800, W2,000, W6,500, W6,500, W6,500, W18,500 and W6,500,
respectively. The option holders may exercise their stock options within three years commencing from two years after the date of stock option grant, provided they have worked for the Company for two years or more after the date of grant.

The stock options outstanding as of December 31, 2006 were in the following exercise prices (Korean won in units):



|               |        |                         |         |                                             |    
|-------------- | ------ | ----------------------- | ------- | ------------------------------------------- | ---
|Exercise price |        | Number of stock options |         | Weighted-average
remaining contractual life
|W              | 500    |                         | 415,452 |                                             | 1.2
|               | 1,800  |                         | 24,000  |                                             | 2.6
|               | 2,000  |                         | 141,000 |                                             | 3.0
|               | 6,500  |                         | 274,900 |                                             | 3.9
|               | 18,500 |                         | 45,000  |                                             | 4.3
|               |        |                         |         |                                             |    
|               | Total  |                         | 900,352 |                                             | 2.5
|               |        |                         |         |                                             |    

Based on the vesting schedule of options, the number of exercisable stock option is 580,452 with a
weighted average exercise price of W918 as of December 31, 2006.

The Company uses the Black-Scholes
model to determine the fair value of equity-based awards at the date of grant. The risk free interest rate is based on the U.S. federal government zero-coupon bonds for three years which are expected life of the options. Expected volatilities are
based on comparable publicly-traded companies volatilities for options granted prior to the completion of IPO and the Companys stock price for options granted after the completion of IPO which was comparable with volatilities of the
comparable publicly-traded companies over the expected life of the options granted. The expected life of options granted is estimated based on historical exercise patterns, which the Company believes are representative of future behavior. The
Company estimates the forfeiture rate based on historical experience of its stock option awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from the Companys estimate, the stock-based
compensation expense could be significantly different from what the Company has recorded in the current period. The weighted average assumptions used to determine the fair value of the stock-options granted in the years ended December 31, 2004,
2005 and 2006 are as follows:



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|18. | Stock option grants (contd)
|--- | ----------------------------



|                                            |  |         |   |  |         |   |  |         |  
|------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                                            |  | 2004    |   |  | 2005    |   |  | 2006    |  
|Expected dividend yield                     |  |        |   |  |        |   |  |        |  
|Risk free interest rate                     |  | 3       | % |  | 3.6     | % |  | 4.8     | %
|Expected volatility                         |  | 75      | % |  | 65      | % |  | 83      | %
|Expected life (in years)                    |  | 3 years |   |  | 3 years |   |  | 3 years |  
|Weighted average fair value of common stock |  | 4,344   |   |  | 22,622  |   |  | 11,204  |  

As of December 31, 2006, total unrecognized compensation cost related to non-vested
stock-options granted by the Company amounted to W1,530 million. That cost is expected to be recognized as follows (Korean won in millions):



|     |  |        |      
|---- |  | ------ | -----
|Year |  | Amount
|2007 |  | W      | 1,424
|2008 |  |        | 106  
|     |  |        |      
|     |  | W      | 1,530
|     |  |        |      

In addition, on March 30, 2007, the Company granted additional stock options to purchase
253,508 common shares at an exercise price of W3,400.



|19. | Loss per share
|--- | --------------

The following table sets
forth the computation of basic and diluted loss per share attributable to common stockholders for the years ended December 31, 2004, 2005 and 2006 (Korean won in millions except for per share amounts):



|                                                                                                          |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                          |  | 2004 |           |   | 2005 |   |           | 2006 | 
|Numerator :                                                                                               |  |      |           |   |      |   |           |      |  |   |           |  
|Net loss attributable to common shareholders                                                              |  | W    | (5,634    | ) |      | W | (948      | )    |  | W | (17,369   | )
|Cumulative dividends on preferred sharesnot declared                                                     |  |      | (493      | ) |      |   |          |      |  |   |          |  
|                                                                                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Net loss attributable to common shareholders after allocation of cumulative dividends on preferred shares |  | W    | (6,127    | ) |      | W | (948      | )    |  | W | (17,369   | )
|                                                                                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Denominator :                                                                                             |  |      |           |   |      |   |           |      |  |   |           |  
|Weighted average outstanding shares                                                                       |  |      | 2,604,000 |   |      |   | 2,664,862 |      |  |   | 6,254,054 |  
|                                                                                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Loss per sharebasic and diluted                                                                          |  | W    | (2,353    | ) |      | W | (356      | )    |  | W | (2,777    | )
|                                                                                                          |  |      |           |   |      |   |           |      |  |   |           |  

As the Company incurred a loss in all periods, the Series A redeemable convertible preferred
shares and stock options were excluded from the computation of diluted loss per share as they had an anti-dilutive effect.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|19. | Loss per share (contd)
|--- | -----------------------



Weighted average outstanding shares for the years ended December 31, 2004, 2005
and 2006 are calculated as follows:



|     |  |                                     |  |                      |  |                |  |                
|---- |  | ----------------------------------- |  | -------------------- |  | -------------- |  | ---------------
|Year |  | Period                              |  | Issued common shares |  | Number of days |  | Weighted number
|2004 |  | 1.1 ~ 12.31                         |  | 2,604,000            |  | 366            |  | 953,064,000    
|     |  |                                     |  |                      |  |                |  | ÷366           
|     |  |                                     |  |                      |  |                |  |                
|     |  | Weighted average outstanding shares |  |                      |  | 2,604,000     
|     |  |                                     |  |                      |  |                |  |                
|2005 |  |                                     |  |                      |  |                |  |                
|     |  | 1.1 ~ 12.31                         |  | 2,604,000            |  | 365            |  | 950,460,000    
|     |  | 12.21 ~ 12.31                       |  | 1,201,333(*1)        |  | 11             |  | 13,214,663     
|     |  | 12.28 ~ 12.31                       |  | 2,250,000(*2)        |  | 4              |  | 9,000,000      
|     |  |                                     |  |                      |  |                |  |                
|     |  |                                     |  |                      |  |                |  | 972,674,663    
|     |  |                                     |  |                      |  |                |  | ÷365           
|     |  |                                     |  |                      |  |                |  |                
|     |  | Weighted average outstanding shares |  |                      |  | 2,664,862     
|     |  |                                     |  |                      |  |                |  |                
|2006 |  | 1.1 ~ 12.31                         |  | 6,055,333            |  | 365            |  | 2,210,196,545  
|     |  | 1.17 ~ 12.31                        |  | 108,139(*2)          |  | 349            |  | 37,740,511     
|     |  | 8.21 ~ 12.31                        |  | 261,600(*2)          |  | 133            |  | 34,792,800     
|     |  |                                     |  |                      |  |                |  |                
|     |  |                                     |  |                      |  |                |  | 2,282,729,856  
|     |  |                                     |  |                      |  |                |  | ÷365           
|     |  |                                     |  |                      |  |                |  |                
|     |  | Weighted average outstanding shares |  |                      |  | 6,254,054     
|     |  |                                     |  |                      |  |                |  |                

---

|(*1) | Conversion of preferred shares
|---- | ------------------------------

|(*2) | Issuance of common shares
|---- | -------------------------

Below are the numbers of
potential securities available for conversion into common shares as of December 31, 2004, 2005 and 2006 if the Company had net income attributable to common shareholders.



|                                        |  |           |  |           |  |        
|--------------------------------------- |  | --------- |  | --------- |  | -------
|                                        |  | 2004      |  | 2005      |  | 2006   
|Redeemable convertible preferred shares |  | 1,441,600 |  |          |  |       
|Stock options                           |  | 956,191   |  | 1,193,591 |  | 900,352



|20. | Segment and geographic information
|--- | ----------------------------------

The
Company has only one reportable segment. The financial information presented below by geographic area is in accordance with the Companys accounting policies as described in Note 3 to the consolidated financial statements.



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

---



|20. | Segment and geographic information (contd)
|--- | -------------------------------------------



The following is a summary of revenues by geographic region based on the location of the customer for
the years ended December 31, 2004, 2005 and 2006 (Korean won in millions):



|                           |  |      |        |      |   |        |  |   |       
|-------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                           |  | 2004 |        | 2005 |   | 2006  
|Republic of Korea          |  | W    | 24,895 |      | W | 10,762 |  | W | 7,199 
|Peoples Republic of China |  |      | 7,659  |      |   | 25,655 |  |   | 12,157
|Other Asian countries      |  |      | 3,220  |      |   | 4,863  |  |   | 5,123 
|United States of America   |  |      | 1      |      |   | 184    |  |   | 7,517 
|Others                     |  |      | 21     |      |   | 120    |  |   |      
|                           |  |      |        |      |   |        |  |   |       
|                           |  | W    | 35,796 |      | W | 41,584 |  | W | 31,996
|                           |  |      |        |      |   |        |  |   |       

The Companys long-lived assets by geographic region for the years ended December 31,
2005 and 2006 are as follows (Korean won in millions):



|                           |  |      |       |      |   |      
|-------------------------- |  | ---- | ----- | ---- | - | -----
|                           |  | 2005 |       | 2006
|Republic of Korea          |  | W    | 1,201 |      | W | 2,082
|Peoples Republic of China |  |      | 101   |      |   | 67   
|Taiwan, Republic of China  |  |      | 165   |      |   |     
|United States of America   |  |      | 19    |      |   | 28   
|                           |  |      |       |      |   |      
|                           |  | W    | 1,486 |      | W | 2,177
|                           |  |      |       |      |   |      

The Companys revenues from significant customers for the years ended December 31, 2004,
2005 and 2006 as a percentage of revenue were as follows:



|                                                       |  |      |   |  |      |   |  |      |  
|------------------------------------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|                                                       |  | 2004 |   |  | 2005 |   |  | 2006 |  
|Logitech                                               |  |     |   |  |     |   |  | 23   | %
|Dongbu Electronics (formerly DongbuAnam Semiconductor) |  | 12   | % |  | 7    | % |  | 16   | %
|Cresyn                                                 |  |     |   |  | 9    | % |  | 15   | %
|Seiko Precision Inc.                                   |  |     |   |  | 2    | % |  | 11   | %
|YEL Electronics                                        |  | 1    | % |  | 16   | % |  | 9    | %
|Shenzhen Shenghe Technology                            |  |     |   |  | 12   | % |  | 5    | %
|Ningbo Bird Sagem Co., Ltd.                            |  | 21   | % |  | 20   | % |  |     |  
|Samsung Electro-Mechanics                              |  | 25   | % |  | 1    | % |  |     |  
|Maxon Telecom Co., Ltd.                                |  | 12   | % |  |     |   |  |     |  

The following is a summary of revenues by product for the years ended December 31, 2004, 2005
and 2006 (Korean won in millions):



|               |  |      |        |      |   |        |  |   |       
|-------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|               |  | 2004 |        | 2005 |   | 2006  
|Module         |  | W    | 24,663 |      | W | 20,548 |  | W | 2,792 
|Wafer and chip |  |      | 6,296  |      |   | 17,540 |  |   | 23,723
|Services       |  |      | 4,440  |      |   | 2,906  |  |   | 5,171 
|Others         |  |      | 397    |      |   | 590    |  |   | 310   
|               |  |      |        |      |   |        |  |   |       
|               |  | W    | 35,796 |      | W | 41,584 |  | W | 31,996
|               |  |      |        |      |   |        |  |   |       



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PIXELPLUS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2005 and 2006

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|21. | Subsequent events
|--- | -----------------

In March 2007, the
Company opened a branch office in Taiwan to fortify its sales and marketing operations in the Taiwanese market. The Company intends to sell its entire 37.5% interest in PTI in the second half of 2007 as there has been a significant decline in
revenues from PTI since the first half of 2006, and in order to manage cost efficiencies and strengthen its financial position.

In June
2007, the Company moved its headquarters office from Bundang to Suwon, Korea.



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