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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

OR



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

FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NUMBER: 000-31089





VIRAGE LOGIC CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 77-0416232                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)

VIRAGE LOGIC CORPORATION

47100 BAYSIDE PARKWAY

FREMONT, CALIFORNIA 94538

(510) 360-8000

(ADDRESS, INCLUDING
ZIP CODE AND TELEPHONE NUMBER,

INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICE)





Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer x      
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of August 5, 2008, there were 23,630,362 shares of the Registrants Common Stock outstanding.









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VIRAGE LOGIC CORPORATION

FORM 10-Q

INDEX



|              |  |                                                                                                                         |  |     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                                         |  | PAGE
|              |  | Part I. Financial Information                                                                                           |  |     
|Item 1.       |  | Financial Statements                                                                                                    |  |     
|              |  |                                                                                                                        
|              |  | Unaudited Condensed Consolidated Balance Sheets  June 30, 2008 and September 30, 2007                                  |  | 3   
|              |  |                                                                                                                        
|              |  | Unaudited Condensed Consolidated Statements of Operations  Three and Nine Months Ended June 30, 2008 and June 30, 2007 |  | 4   
|              |  |                                                                                                                        
|              |  | Unaudited Condensed Consolidated Statements of Cash Flows  Nine Months Ended June 30, 2008 and June 30, 2007           |  | 5   
|              |  |                                                                                                                        
|              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                          |  | 6   
|              |  |                                                                                                                        
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 17  
|              |  |                                                                                                                        
|Item 3.       |  | Quantitative and Qualitative Disclosures about Market Risks                                                             |  | 29  
|              |  |                                                                                                                        
|Item 4.       |  | Controls and Procedures                                                                                                 |  | 29  
|              |  |                                                                                                                        
|              |  | Part II. Other Information                                                                                              |  |     
|              |  |                                                                                                                        
|Item 1.       |  | Legal Proceedings                                                                                                       |  | 30  
|              |  |                                                                                                                        
|Item 1A.      |  | Risk Factors                                                                                                            |  | 30  
|              |  |                                                                                                                        
|Item 2.       |  | Unregistered sales of equity securities                                                                                 |  | 40  
|              |  |                                                                                                                        
|Item 3.       |  | Exhibits                                                                                                                |  | 40  
|              | 
|Signatures    |  | 41                                                                                                                     
|              | 
|Exhibit Index |  | 42                                                                                                                     



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PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

VIRAGE LOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                   |  | June 30,2008 |         |   | September 30,2007 |  
|ASSETS                                                                                                                                                                             |  |              |         |   |                   |   |         |  
|Current assets:                                                                                                                                                                    |  |              |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                          |  | $            | 18,670  |   |                   | $ | 14,820  |  
|Short-term investments                                                                                                                                                             |  |              | 24,990  |   |                   |   | 42,840  |  
|Accounts receivable, net                                                                                                                                                           |  |              | 15,156  |   |                   |   | 12,170  |  
|Costs in excess of related billings on uncompleted contracts                                                                                                                       |  |              | 1,302   |   |                   |   | 1,134   |  
|Current deferred tax assets                                                                                                                                                        |  |              | 1,938   |   |                   |   | 1,939   |  
|Prepaid expenses and other                                                                                                                                                         |  |              | 3,085   |   |                   |   | 4,766   |  
|Taxes receivable                                                                                                                                                                   |  |              | 2,600   |   |                   |   | 2,320   |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total current assets                                                                                                                                                               |  |              | 67,741  |   |                   |   | 79,989  |  
|Property, equipment and leasehold improvements, net                                                                                                                                |  |              | 3,629   |   |                   |   | 3,643   |  
|Goodwill                                                                                                                                                                           |  |              | 12,011  |   |                   |   | 11,355  |  
|Other intangible assets, net                                                                                                                                                       |  |              | 6,689   |   |                   |   | 2,705   |  
|Deferred tax assets                                                                                                                                                                |  |              | 14,227  |   |                   |   | 13,178  |  
|Long-term investments in marketable securities                                                                                                                                     |  |              | 29,578  |   |                   |   | 17,528  |  
|Other long-term assets                                                                                                                                                             |  |              | 328     |   |                   |   | 473     |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total assets                                                                                                                                                                       |  | $            | 134,203 |   |                   | $ | 128,871 |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                               |  |              |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                                   |  | $            | 476     |   |                   | $ | 1,027   |  
|Accrued expenses                                                                                                                                                                   |  |              | 7,500   |   |                   |   | 4,659   |  
|Deferred revenue                                                                                                                                                                   |  |              | 7,903   |   |                   |   | 8,996   |  
|Income taxes payable                                                                                                                                                               |  |              | 2,867   |   |                   |   | 2,992   |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                          |  |              | 18,746  |   |                   |   | 17,674  |  
|Deferred tax liabilities                                                                                                                                                           |  |              | 978     |   |                   |   | 978     |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                                  |  |              | 19,724  |   |                   |   | 18,652  |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Commitments and contingencies (Note 8)                                                                                                                                             |  |              |         |   |                   |   |         |  
|Stockholders equity:                                                                                                                                                              |  |              |         |   |                   |   |         |  
|Common stock, $.001 par value; Authorized shares  150,000,000; issued and outstanding shares  23,614,398 and 23,190,857 as of
June 30, 2008 and September 30, 2007, respectively |  |              | 24      |   |                   |   | 23      |  
|Additional paid-in capital                                                                                                                                                         |  |              | 139,786 |   |                   |   | 135,926 |  
|Accumulated other comprehensive income                                                                                                                                             |  |              | 807     |   |                   |   | 1,009   |  
|Accumulated deficit                                                                                                                                                                |  |              | (26,138 | ) |                   |   | (26,739 | )
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                                         |  |              | 114,479 |   |                   |   | 110,219 |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                                         |  | $            | 134,203 |   |                   | $ | 128,871 |  
|                                                                                                                                                                                   |  |              |         |   |                   |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements



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VIRAGE LOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)



|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                             |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                             |  | 2008                       |        |   | 2007                      |   |        | 2008 |  |   | 2007   |  
|Revenues:                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|License                                                      |  | $                          | 12,248 |   |                           | $ | 8,207  |      |  | $ | 35,122 |   |  | $ | 24,433  |  
|Royalties                                                    |  |                            | 2,820  |   |                           |   | 3,079  |      |  |   | 8,695  |   |  |   | 8,945   |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Total revenues                                               |  |                            | 15,068 |   |                           |   | 11,286 |      |  |   | 43,817 |   |  |   | 33,378  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Costs and expenses:                                          |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Cost of revenues                                             |  |                            | 2,614  |   |                           |   | 2,869  |      |  |   | 8,182  |   |  |   | 9,972   |  
|Research and development                                     |  |                            | 8,015  |   |                           |   | 5,301  |      |  |   | 20,048 |   |  |   | 15,201  |  
|Sales and marketing                                          |  |                            | 3,658  |   |                           |   | 4,050  |      |  |   | 11,115 |   |  |   | 11,467  |  
|General and administrative                                   |  |                            | 2,160  |   |                           |   | 1,789  |      |  |   | 6,046  |   |  |   | 6,871   |  
|Restructuring charges                                        |  |                            | 319    |   |                           |   | 580    |      |  |   | 316    |   |  |   | 580     |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Total costs and expenses                                     |  |                            | 16,766 |   |                           |   | 14,589 |      |  |   | 45,707 |   |  |   | 44,091  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Operating loss                                               |  |                            | (1,698 | ) |                           |   | (3,303 | )    |  |   | (1,890 | ) |  |   | (10,713 | )
|Interest income and other income (expenses), net             |  |                            | 706    |   |                           |   | 961    |      |  |   | 2,640  |   |  |   | 2,878   |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Income (loss) before income taxes                            |  |                            | (992   | ) |                           |   | (2,342 | )    |  |   | 750    |   |  |   | (7,835  | )
|Income tax (benefit) provision                               |  |                            | 131    |   |                           |   | (1,106 | )    |  |   | 149    |   |  |   | (3,606  | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Net income (loss)                                            |  | $                          | (1,123 | ) |                           | $ | (1,236 | )    |  | $ | 601    |   |  | $ | (4,229  | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Net income (loss) per share:                                 |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Basic                                                        |  | $                          | (0.05  | ) |                           | $ | (0.05  | )    |  | $ | 0.03   |   |  | $ | (0.18   | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Diluted                                                      |  | $                          | (0.05  | ) |                           | $ | (0.05  | )    |  | $ | 0.03   |   |  | $ | (0.18   | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Weighted average shares used in computing per share amounts: |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Basic                                                        |  |                            | 23,542 |   |                           |   | 23,076 |      |  |   | 23,491 |   |  |   | 23,096  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Diluted                                                      |  |                            | 23,542 |   |                           |   | 23,076 |      |  |   | 23,740 |   |  |   | 23,096  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements



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VIRAGE LOGIC CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                                |         |   |                                |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ------------------------------ | - | ------- | -
|                                                                                         |  | Nine Months EndedJune 30, 2008 |         |   | Nine Months EndedJune 30, 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                                |         |   |                                |   |         |  
|Net income (loss)                                                                        |  | $                              | 601     |   |                                | $ | (4,229  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                |         |   |                                |   |         |  
|Recovery of doubtful accounts                                                            |  |                                | 100     |   |                                |   |        |  
|Depreciation and amortization                                                            |  |                                | 993     |   |                                |   | 1,387   |  
|Amortization of intangible assets                                                        |  |                                | 516     |   |                                |   | 284     |  
|Write off of acquired in-process technology                                              |  |                                | 200     |   |                                |   |        |  
|Stock-based compensation                                                                 |  |                                | 2,156   |   |                                |   | 3,413   |  
|Gain on disposal of property and equipment                                               |  |                                |        |   |                                |   | (1      | )
|Non-cash restructuring charges                                                           |  |                                |        |   |                                |   | 31      |  
|Changes in operating assets and liabilities:                                             |  |                                |         |   |                                |   |         |  
|Accounts receivable                                                                      |  |                                | (3,086  | ) |                                |   | 6,504   |  
|Costs in excess of related billings on uncompleted contracts                             |  |                                | (190    | ) |                                |   | (435    | )
|Prepaid expenses and other assets                                                        |  |                                | 1,625   |   |                                |   | (325    | )
|Taxes receivable                                                                         |  |                                | (279    | ) |                                |   | (395    | )
|Deferred tax assets                                                                      |  |                                | (1,052  | ) |                                |   | (4,675  | )
|Other long-term assets                                                                   |  |                                | 146     |   |                                |   | (180    | )
|Accounts payable and accrued liabilities                                                 |  |                                | 2,021   |   |                                |   | 257     |  
|Deferred revenue                                                                         |  |                                | (1,130  | ) |                                |   | (1,095  | )
|Income taxes payable                                                                     |  |                                | (122    | ) |                                |   | 40      |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Net cash provided by operating activities                                                |  |                                | 2,499   |   |                                |   | 581     |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                                |         |   |                                |   |         |  
|Purchase of property, equipment and leasehold improvements                               |  |                                | (721    | ) |                                |   | (182    | )
|Purchase of investments                                                                  |  |                                | (87,538 | ) |                                |   | (85,853 | )
|Proceeds from maturities of investments                                                  |  |                                | 93,203  |   |                                |   | 78,453  |  
|Proceeds from disposal of property and equipment                                         |  |                                |        |   |                                |   | 1       |  
|Net cash paid for non-volatile memory business segment of Impinj, Inc.                   |  |                                | (5,200  | ) |                                |   |        |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Net cash used in investing activities                                                    |  |                                | (256    | ) |                                |   | (7,581  | )
|                                                                                         |  |                                |         |   |                                |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                                |         |   |                                |   |         |  
|Net proceeds from issuance of common stock                                               |  |                                | 1,906   |   |                                |   | 653     |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Net cash provided by financing activities                                                |  |                                | 1,906   |   |                                |   | 653     |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Effect of exchange rates on cash                                                         |  |                                | (299    | ) |                                |   | 198     |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                                | 3,850   |   |                                |   | (6,149  | )
|Cash and cash equivalents at beginning of period                                         |  |                                | 14,820  |   |                                |   | 20,815  |  
|                                                                                         |  |                                |         |   |                                |   |         |  
|Cash and cash equivalents at end of period                                               |  | $                              | 18,670  |   |                                | $ | 14,666  |  
|                                                                                         |  |                                |         |   |                                |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements



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VIRAGE LOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of Business

Virage Logic Corporation (the Company) was incorporated in California in November 1995 and subsequently reincorporated in Delaware in July 2000. The Company provides
semiconductor intellectual property (IP) platforms based on memory, logic, and I/Os (input/output interface components). These various forms of IP are utilized by the Companys customers to design and manufacture system-on-a-chip (SoC)
integrated circuits that power todays consumer, communications and networking, handheld and portable devices, computer and graphics, and automotive applications.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and in accordance with the instructions to Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements, and should be read in conjunction with the Companys audited
consolidated financial statements for the fiscal year ended September 30, 2007 contained in the Companys 2007 Annual Report on Form 10-K. In the opinion of management, the unaudited interim financial statements reflect all adjustments,
consisting only of normal, recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the periods indicated. Operating results for the nine months ended June 30, 2008 are not
necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending September 30, 2008.

The
accompanying unaudited condensed consolidated financial statements include the accounts of Virage Logic Corporation and its wholly-owned subsidiaries and operations located in the Republic of Armenia, Germany, India, Israel, Japan and the United
Kingdom. All intercompany balances and transactions have been eliminated upon consolidation.

Foreign Currency

The financial position and results of operations of the Companys foreign operations are measured using currencies other than the U.S. dollar as their
functional currencies. Accordingly, for these operations all assets and liabilities are translated into U.S. dollars at the current exchange rates as of the respective balance sheet dates. Revenue and expense items are translated using the
weighted average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these operations financial statements are reported as a separate component of stockholders equity, while foreign currency
transactions gains or losses, resulting from remeasuring local currencies to the U.S. dollar are recorded in the consolidated statements of operations in interest income and other income (expenses), net.

Use of Estimates

The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Accounting for Internal-Use Computer Software

In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies the characteristics of internal-use software. SOP 98-1 permits the
capitalization of certain costs, including internal payroll costs, incurred in the connection with the development or acquisition of software for internal use during the application development stage. In accordance with SOP 98-1, the Company
purchased and capitalized costs of approximately $0 and $36,000 during the nine months ended June 30, 2008, and 2007, respectively. Software is amortized for financial reporting purposes using the straight-line method over the estimated useful
life of three years.

Revenue Recognition

The
Companys revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognitionas amended by Statement of Position 98-4 and Statement of
Position 98-9. Additionally, revenue is recognized on some of our products, according to Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.The Company
recognizes intellectual property revenue in accordance with SOP 97-2 because the software is not incidental to the IP as the IP is embedded in the software and the intellectual property is, in essence a software product.



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Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of
an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is reasonably assured. The Company uses a completed performance model for perpetual licenses that do not include services to provide
significant production, modification or customization of software as all of the elements have been delivered. The Company determines delivery has occurred when all the license materials that are specified in the evidence of a signed arrangement
including any related documentation and the license keys are delivered electronically through the FTP server or via Electronic mail (e-mail). If any of these criteria are not met, revenue recognition is deferred until such time as all criteria are
met. Revenues from term-based licenses that do not require specific customization for the semiconductor IP and software products are recognized ratably over the term of the license, which are generally between twelve to thirty-six months in
duration, provided the criteria mentioned above are met. The Company uses a proportional performance model for term-based licenses as these licenses have a right to receive unspecified additional products that are granted over the access term of the
license. Consulting services represent an immaterial amount of our revenue thus are recorded as part of license revenue. These consulting services are not related to the functionality of the products licensed. Revenue from consulting services is
recognized on the time and materials method or as work is performed.

License of custom memory compilers and logic libraries may involve customization to
the functionality of the software; therefore revenues from such licenses are recognized in accordance with Statement of Position 81-1 over the period that services are performed. Revenue derived from library development services are recognized using
a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and service agreements accounted for using the percentage-of-completion method, the Company determines
progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or service or on the value of contract milestones completed. The Company believes that it is able to
reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience of similar project requirements. If the Company cannot reasonably and reliably estimate the costs
to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time revenues and related costs are recognized. A provision for estimated losses on projects is made in
the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognition are recorded as costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for
completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is contingent based on meeting a specified criteria, then the contingent value of the contract is
deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, the Company recognizes revenues attributable
to delivered or completed elements when such elements are completed or delivered. The amount of revenues is determined by applying the residual method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements,
which the Company determines by each such elements vendor-specific objective evidence of fair value, from the total revenues recognizable under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement
is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new
agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for all contracts entered into prior to fiscal 2007. Revenues are recognized once the Company delivers the
element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are recognized ratably over the remaining contractual term of the maintenance period from the date of delivery
of the licensed materials receiving maintenance, which is generally twelve months.

The Company assesses whether the fee associated with each transaction
is fixed or determinable and collection is reasonably assured and evaluates the payment terms. If a portion of the fee is due beyond normal payment terms, the Company recognizes the revenues on the payment due date, as long as collection is
reasonably assured. The Company assesses collectability based on a number of factors, including past transaction history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized
at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized
revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are recorded as unbilled accounts receivable. The timing and amounts invoiced to customers can vary significantly depending on specific
contract terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have to be met, prior to the recognition
of any revenue that would create an unbilled accounts receivable balance.



7



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##### Table of Contents

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production
volume report is received from the customer or foundry, and are calculated based on actual production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of
the respective license agreement. Depending on the contractual terms, prepaid royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.

Fair Value of Financial Instruments

The Companys financial
instruments, including cash, accounts receivable and accounts payable are recorded at cost, which approximates their fair value because of the short-term maturity of these instruments.

Cash and Cash Equivalents, Short-term and Long-term Investments

For purposes of the accompanying consolidated
statements of cash flows, the Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents as of June 30, 2008 and 2007 consisted of
money market funds and commercial paper. The Company determines the appropriate classification of investment securities at the time of purchase. As of June 30, 2008 and 2007, all investment securities are designated as
available-for-sale and are carried at fair value. The Company considers all investments that are available-for-sale that have a maturity date longer than three months and less than twelve months to be short-term investments. The Company
considers all investments that have a maturity of more than twelve months to be long-term investments. Long-term investments include government and federal agency bonds of $29.6 million and $17.5 million with maturity dates greater than
one year for the fiscal quarter ended June 30, 2008 and fiscal year ended September 30, 2007, respectively.

Goodwill and Intangible Assets

Goodwill

In accordance with Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), goodwill and intangible assets deemed to have indefinite lives are
no longer to be amortized, but instead are subject to annual impairment tests. As required by the provisions of SFAS 142, the Company evaluates goodwill for impairment on an annual basis on September 30 each year or more frequently if
impairment indicators arise. A significant impairment could have a material adverse effect on the Companys financial position and results of operations. No impairment charge or amortization of goodwill was recorded during fiscal year 2007 or
2008. On August 14, 2007, the Company recorded $1.6 million of goodwill related to the acquisition of Ingot Systems, Inc. In addition, the Company recorded $0.6 million of goodwill related to the acquisition of the non-volatile memory business
segment of Impinj, Inc in June 2008.

Acquired Intangible Assets

Other intangible assets, net are as follows (in thousands):



|                                          |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      
|----------------------------------------- |  | ------------- | ----- | ----------------------- | - | ------ | ----- |  | ----------- | ----- | ----------------------- | - | ----- | ----- | - | ------ | - |  | - | -----
|                                          |  | June 30, 2008 |       | September 30, 2007     
|                                          |  | GrossAmount   |       | AccumulatedAmortization |   |        | Total |  | GrossAmount |       | AccumulatedAmortization |   |       | Total
|Amortized intangible assets:              |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      
|Patents                                   |  | $             | 4,800 |                         | $ | (2,270 | )     |  | $           | 2,530 |                         | $ | 3,500 |       | $ | (2,035 | ) |  | $ | 1,465
|Customer lists, contracts and trade names |  |               | 1,000 |                         |   | (63    | )     |  |             | 937   |                         |   | 300   |       |   | (5     | ) |  |   | 295  
|Technology                                |  |               | 3,300 |                         |   | (166   | )     |  |             | 3,134 |                         |   | 800   |       |   | (17    | ) |  |   | 783  
|                                          |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      
|                                          |  |               | 9,100 |                         |   | (2,499 | )     |  |             | 6,601 |                         |   | 4,600 |       |   | (2,057 | ) |  |   | 2,543
|Unamortized intangible assets:            |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      
|Workforce                                 |  |               | 269   |                         |   | (269   | )     |  |             |      |                         |   | 269   |       |   | (202   | ) |  |   | 67   
|Customer lists                            |  |               | 27    |                         |   | (27    | )     |  |             |      |                         |   | 27    |       |   | (20    | ) |  |   | 7    
|Other                                     |  |               | 353   |                         |   | (265   | )     |  |             | 88    |                         |   | 353   |       |   | (265   | ) |  |   | 88   
|                                          |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      
|Total (*)                                 |  | $             | 9,749 |                         | $ | (3,060 | )     |  | $           | 6,689 |                         | $ | 5,249 |       | $ | (2,544 | ) |  | $ | 2,705
|                                          |  |               |       |                         |   |        |       |  |             |       |                         |   |       |       |   |        |   |  |   |      



|* | Intangible assets include approximately $88,000 related to customer lists which are no longer amortized in accordance with SFAS 142.
|- | ------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The aggregate amortization expense related to acquired intangible assets totaled approximately $515,600 and $283,500 for
the nine months ended June 30, 2008 and 2007, respectively. In June 2008, the Company recorded $4.5 million of intangible assets related to the acquisition of the non-volatile memory segment of Impinj, Inc. (excluding $0.2 million of acquired
in-process technology of Impinj, Inc. that was written off in June of 2008). See Note 2 for further details of the acquisition of Impinj Inc.s non-volatile memory business segment.

Estimated amortization expenses of intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):



|                               |  |   |      
|------------------------------ |  | - | -----
|Estimated Amortization Expense |  |   |      
|2008                           |  | $ | 376  
|2009                           |  |   | 1,322
|2010                           |  |   | 1,322
|2011                           |  |   | 1,299
|2012                           |  |   | 943  
|Thereafter                     |  |   | 1,339
|                               |  |   |      
|Total                          |  | $ | 6,601
|                               |  |   |      

Stock-Based Compensation

Stock Options and Stock Settled Appreciation Rights (SSARS)

As of October 1, 2005, we
adopted Statement of Financial Accounting Standards No. 123 (revised 2004 SFAS 123R), Share-Based Payment. We use the fair value method to apply the provisions of SFAS 123R with a modified prospective application
which provides for certain changes to the method for valuing stock-based compensation. The valuation provisions of SFAS 123R apply to new awards and to unvested awards that are outstanding on the effective date. Under the modified prospective
application, prior periods are not revised for comparative purposes. Total SFAS 123R compensation expense recognized for the three months ended June 30, 2008 and 2007 were $0.7 million and $0.8 million, respectively. As of June 30, 2008,
total unrecognized estimated compensation expense net of forfeitures related to non-vested equity awards prior to that date was $10.2 million and will be amortized over a weighted average period of 2.6 years.

The estimated stock-based compensation expense related to the Companys stock-based awards for the three and nine months period ended June 30, 2008 and 2007
was as follows (in thousands, except per share data):



|                                                        |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  
|------------------------------------------------------- |  | ----------------------------- | ---- | - | ----------------------------- | - | ---- | ---------------------------- |  | - | ---------------------------- | - |  | - | ----- | -
|                                                        |  | Three MonthsEndedJune 30,2008 |      |   | Three MonthsEndedJune 30,2007 |   |      | Nine MonthsEndedJune 30,2008 |  |   | Nine MonthsEndedJune 30,2007 |  
|Cost of revenue                                         |  | $                             | 121  |   |                               | $ | 159  |                              |  | $ | 400                          |   |  | $ | 637   |  
|Research and development                                |  |                               | 246  |   |                               |   | 246  |                              |  |   | 771                          |   |  |   | 863   |  
|Sales and marketing                                     |  |                               | (80  | ) |                               |   | 287  |                              |  |   | 38                           |   |  |   | 922   |  
|General and administrative                              |  |                               | 424  |   |                               |   | 88   |                              |  |   | 947                          |   |  |   | 991   |  
|                                                        |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  
|Stock-based compensation expense                        |  |                               | 711  |   |                               |   | 780  |                              |  |   | 2,156                        |   |  |   | 3,413 |  
|Related income tax benefits                             |  |                               | (259 | ) |                               |   | (224 | )                            |  |   | (787                         | ) |  |   | (850  | )
|                                                        |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  
|Stock-based compensation expense, net of tax benefits   |  | $                             | 452  |   |                               | $ | 556  |                              |  | $ | 1,369                        |   |  | $ | 2,563 |  
|Net stock-based compensation expense, per common share: |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  
|Basic                                                   |  | $                             | 0.02 |   |                               | $ | 0.02 |                              |  | $ | 0.06                         |   |  | $ | 0.11  |  
|                                                        |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  
|Diluted                                                 |  | $                             | 0.02 |   |                               | $ | 0.02 |                              |  | $ | 0.06                         |   |  | $ | 0.11  |  
|                                                        |  |                               |      |   |                               |   |      |                              |  |   |                              |   |  |   |       |  

As of June 30, 2008 and 2007, the Company capitalized approximately $92,000 and $34,000, respectively, of
stock-based compensation expense related to our custom contracts which have not been completed.

The Company is using the Black-Scholes option pricing
model to value the compensation expense associated with our stock-based awards under SFAS 123R. In addition, the Company estimates forfeitures when recognizing compensation expense, and the Company will adjust our estimate of forfeitures over
the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through an adjustment in the period of change and will also
impact the amount of compensation expense to be recognized in future periods.



9



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##### Table of Contents

The following weighted average assumptions were used in the estimated grant date fair value calculations for stock
options and stock settled appreciation rights awards:



|                        |  |                    |   |  |                   |   |  |              |   |  |              |  
|----------------------- |  | ------------------ | - |  | ----------------- | - |  | ------------ | - |  | ------------ | -
|                        |  | Three Months Ended |   |  | Nine Months Ended |  
|                        |  | June 30,2008       |   |  | June 30,2007      |   |  | June 30,2008 |   |  | June 30,2007 |  
|Volatility              |  | 43                 | % |  | 50                | % |  | 44           | % |  | 53           | %
|Risk-free interest rate |  | 3.4                | % |  | 5.0               | % |  | 3.3          | % |  | 4.8          | %
|Dividend yield          |  | 0.0                | % |  | 0.0               | % |  | 0.0          | % |  | 0.0          | %
|Expected life (years)   |  | 4.6 years          |   |  | 4.3 years         |   |  | 4.6 years    |   |  | 4.3 years    |  

The expected stock price volatility rates are based on historical volatilities of our common stock. The risk free
interest rates are based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the SSARS and option grants. The average expected life represents the weighted average period of time that
options and SSARS granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. The Black-Scholes weighted average fair values of awards granted during the three and nine months ended
June 30, 2008 were $2.35 and $3.34, respectively. The Black-Scholes weighted average fair values of awards granted during the three and nine months ended June 30, 2007 were $3.29 and $3.77, respectively.

Restricted Stock Units

During the first quarter of fiscal
year 2007, the Company began issuing restricted stock unit awards as an additional form of equity compensation to its employees and officers, pursuant to Companys stockholder-approved 2002 Equity Incentive Plan. Restricted stock units
generally vest over a two or four year period and unvested restricted stock units are forfeited and cancelled as of the date that employment terminates. Restricted stock units are settled in shares of the Companys common stock upon vesting.
The value of restricted stock and restricted stock unit awards is determined using the fair value of the Companys common stock on the date of the grant, and compensation expense is recognized over the vesting period. .

The following table summarizes the activity of the Companys unvested restricted stock units as of June 30, 2008 and changes during the nine months ended
June 30, 2008:



|                                   |  |                        |   |  |                                        |     
|---------------------------------- |  | ---------------------- | - |  | -------------------------------------- | ----
|                                   |  | Restricted Stock Units
|                                   |  | Number ofshares        |   |  | Weighted-average grant-date fair value
|Nonvested as of September 30, 2007 |  | 155,120                |   |  | $                                      | 8.29
|RSU granted *                      |  | 600,671                |   |  | $                                      | 7.13
|RSU vested                         |  | (69,504                | ) |  | $                                      | 3.05
|RSU canceled                       |  | (41,375                | ) |  | $                                      | 6.01
|                                   |  |                        |   |  |                                        |     
|Nonvested as of June 30, 2008      |  | 644,912                |   |  | $                                      | 7.26
|                                   |  |                        |   |  |                                        |     



|* | Includes 335,060 Restricted Stock Units issued in conjunction with the employee option and SSARs exchange. See Note 10  Exchange Program for further details.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock-based compensation cost for restricted stock units for the nine months ended June 30, 2008 was $0.6 million. As of June 30,
2008, the total unrecognized compensation cost net of forfeitures related to unvested awards not yet recognized is $3.9 million and is expected to be recognized over a period of 1.9 years.

Equity Incentive Plans

The Company has two active incentive
plans: the 2001 Incentive and Non-statutory Stock Option Plan and the 2002 Equity Incentive Plan. We continue to have awards outstanding under our expired 1997 Equity Incentive Plan. In November 2006, the Company began issuing SSARs which provide
the holder the right to receive an amount settled in stock at the time of the exercise. Under our equity incentive plans, stock options and SSARs generally have a vesting period of four years, are exercisable for a period not to exceed ten years
from the date of grant and are generally granted at prices not less than the fair value of our common stock at the time of grant.



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##### Table of Contents

Information with respect to the Equity Incentive Plans is summarized as follows:



|                                |  |                          |   |  |                                   |   |  |                               |      
|------------------------------- |  | ------------------------ | - |  | --------------------------------- | - |  | ----------------------------- | -----
|                                |  | SharesAvailablefor
Grant |   |  | Number ofOptions/SSARsOutstanding |   |  | WeightedAverageExercise Price
|Balance at September, 2007      |  | 971,061                  |   |  | 5,769,432                         |   |  | $                             | 9.46 
|SSARs granted                   |  | (562,030                 | ) |  | 562,030                           |   |  | $                             | 8.28 
|Restricted stock units granted  |  | (600,671                 | ) |  |                                  |   |  |                               |     
|Options and SSARs exercised     |  |                         |   |  | (381,660                          | ) |  | $                             | 4.99 
|Options and SSARs canceled *    |  | 2,208,423                |   |  | (2,208,423                        | ) |  | $                             | 11.06
|Restricted stock units canceled |  | 41,375                   |   |  |                                  |   |  |                               |     
|Options expired (unissued)      |  | (541,726                 | ) |  |                                  |   |  |                               |     
|                                |  |                          |   |  |                                   |   |  |                               |      
|Balance at June 30, 2008        |  | 1,516,432                |   |  | 3,741,379                         |   |  | $                             | 8.78 
|                                |  |                          |   |  |                                   |   |  |                               |      



|* | Includes 1,378,760 options/SSARs in conjunction with the employee option and SSARs exchange. See Note 10  Exchange Program for further details.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes information about stock options and SSARs outstanding and exercisable at June 30, 2008:



|                                                |  |                |  |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|----------------------------------------------- |  | -------------- |  | --------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | -------------- |  | --------------------------------------- |  | ---------------------------- |  | ----------------------- | ----- |  | - | -----
|                                                |  |                |  | Awards Outstanding                      |  | Awards Exercisable          
|Range of Exercise Prices                        |  | NumberofShares |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue |   | NumberofShares |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |  | AggregateIntrinsicValue
|                                                |  |                |  | (In years)                              |  |                              |       | (In thousands)          |   |                |  | (In years)                              |  |                              |  | (In thousands)         
|$0.13 - $5.61                                   |  | 439,825        |  | 3.71                                    |  | $                            | 3.93  |                         | $ | 1,422          |  | 427,075                                 |  | 3.52                         |  | $                       | 3.88  |  | $ | 1,422
|$5.65 - $7.47                                   |  | 672,045        |  | 9.18                                    |  | $                            | 7.19  |                         | $ | 82             |  | 334,204                                 |  | 8.93                         |  | $                       | 7.26  |  | $ | 82   
|$7.48 - $7.89                                   |  | 615,510        |  | 8.15                                    |  | $                            | 7.84  |                         | $ | 0              |  | 354,921                                 |  | 8.11                         |  | $                       | 7.84  |  | $ |     
|$8.02 - $8.74                                   |  | 457,556        |  | 7.47                                    |  |                              | 8.36  |                         | $ | 0              |  | 273,582                                 |  | 6.07                         |  | $                       | 8.67  |  | $ |     
|$8.82 - $9.05                                   |  | 403,429        |  | 8.30                                    |  | $                            | 8.90  |                         | $ | 0              |  | 201,014                                 |  | 7.93                         |  | $                       | 8.93  |  | $ |     
|$9.08 - $10.30                                  |  | 508,043        |  | 7.16                                    |  | $                            | 9.91  |                         | $ | 0              |  | 434,250                                 |  | 6.77                         |  | $                       | 10.01 |  | $ |     
|$10.31 - $14.21                                 |  | 374,355        |  | 5.63                                    |  | $                            | 11.97 |                         | $ | 0              |  | 362,019                                 |  | 5.58                         |  | $                       | 12.00 |  | $ |     
|$14.50 - $18.75                                 |  | 270,116        |  | 4.05                                    |  | $                            | 16.42 |                         | $ | 0              |  | 266,470                                 |  | 4.02                         |  | $                       | 16.41 |  | $ |     
|$22.37 - $22.37                                 |  | 250            |  | 3.91                                    |  | $                            | 22.37 |                         | $ | 0              |  | 250                                     |  | 3.91                         |  | $                       | 22.37 |  | $ |     
|$22.81 - $22.81                                 |  | 250            |  | 3.91                                    |  | $                            | 22.81 |                         | $ | 0              |  | 250                                     |  | 3.91                         |  | $                       | 22.81 |  | $ |     
|                                                |  |                |  |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|Total                                           |  | 3,741,379      |  | 7.06                                    |  | $                            | 8.78  |                         | $ | 1,504          |  | 2,654,035                               |  | 6.27                         |  | $                       | 9.08  |  | $ | 1,504
|                                                |  |                |  |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|Vested and expected to vest as of June 30, 2008 |  | 3,584,008      |  | 6.03                                    |  | $                            | 8.82  |                         | $ | 1,494          |  |                                         |  |                              |  |                         |       |  |   |      
|                                                |  |                |  |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the
Companys closing stock price of $7.16 as of June 30, 2008 which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of
June 30, 2008 and 2007 was 0.5 million and 0.8 million, respectively.

The total fair value of shares vested during the nine months ended
June 30, 2008 and 2007 was $2.0 million and $2.3 million, respectively. The total intrinsic value of options exercised during the nine month periods ended June 30, 2008 and 2007 was $1.0 million and $0.4 million, respectively. The total
cash received from employees as a result of employee stock option exercises during the nine months ended June 30, 2008 and 2007 was approximately $1.9 million and $0.6 million.

NOTE 2  ACQUISITION OF NON-VOLATILE MEMORY BUSINESS SEGMENT OF IMPINJ, INC.

On June 26, 2008, the Company
acquired the logic non-volatile memory (NVM) intellectual property (IP) business segment of Impinj, Inc., a provider of radio frequency identification (RFID) solutions. The acquisition extends the Companys embedded
memory leadership position in the rapidly growing NVM embedded memory market for standard CMOS processes. The Company believes the acquisition of Impinjs logic NVM IP business represents another element toward attainment of its core vision of
establishing the Company as a broad line supplier of highly differentiated physical and application specific IP to the semiconductor industry.



11



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##### Table of Contents

The purchase was an all-cash transaction for a price of $5.2 million for Impinjs net assets related to the NVM IP
business. In addition to the cash consideration paid to Impinj, the Company also incurred an additional $98,000 of direct acquisition costs. The $4.5 million of acquired intangible assets the Company recorded in connection with the acquisition is
expected to be amortized using an estimated life between six to ten years depending on the type of assets. In accordance with SFAS No.141, Business Combinations, the Company accounted for this acquisition as a business combination.

The allocation of the purchase price to Impinj, Inc.s tangible and identifiable intangible assets acquired and liabilities assumed was based on
their estimated fair values as of the date of acquisition. The valuation of these tangible and identifiable intangible assets and liabilities is preliminary, subject to completion of a formal valuation process and further management review, and will
be adjusted as additional information becomes available during the allocation period. Such adjustments may have a material effect on the Companys results of operations and financial position. The excess of the purchase price over the tangible
and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. The final valuation of the acquired assets and liabilities is in the process of being completed and is not available at the current period.

The pro forma financial statements related to the acquisition will be included in the Form 8-K/A that will be filed within seventy-five days of the
original acquisition date.

The following table summarizes the components of the preliminary acquisition cost and the estimated allocation (in thousands).



|                                    |  |            |      
|----------------------------------- |  | ---------- | -----
|                                    |  | Allocation
|Intangible assets                   |  | $          | 4,500
|Goodwill                            |  |            | 598  
|In-process research and development |  |            | 200  
|                                    |  |            |      
|Balance at June 30, 2008            |  | $          | 5,298
|                                    |  |            |      

The following table summarizes the details of the acquired $4.5 million in intangible assets:



|                                                     |  |           |      
|---------------------------------------------------- |  | --------- | -----
|                                                     |  | FairValue
|Existing Technology                                  |  | $         | 2,500
|Patents / Core Technology                            |  |           | 1,300
|Customer lists, contracts, trademarks and tradenames |  |           | 700  
|                                                     |  |           |      
|Balance at June 30, 2008                             |  | $         | 4,500
|                                                     |  |           |      

The Company determined the valuation of the identifiable intangible assets using future cash flow assumptions. The
amounts allocated to the identifiable intangible assets were determined through established valuation techniques accepted in the technology industry.

In
connection with this acquisition, the Company recorded an expense of $0.2 million in the three months ended June 30, 2008 for the write-off of acquired in-process technology. The purchase price allocated to acquired in-process technology was
determined through preliminary established valuation techniques. The acquired in-process technology was immediately expensed because technological feasibility had not been established, and no future alternative use existed. The write-off of acquired
in-process technology is a component of research and development expense in the Unaudited Condensed Consolidated Statements of Operations.

NOTE 3
 RESTRUCTURING CHARGES

During the quarter ended June 30, 2008, the Company initiated a plan of restructuring in an effort to reduce
operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through job eliminations.



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##### Table of Contents

During the quarter ended June 30, 2008, the Company reduced its workforce by approximately 13 employees primarily in
engineering. Costs resulting from the restructuring plan included severance payments and severance-related benefits. Total restructuring expense was $319,000 of which $299,000 was paid as of June 30, 2008.

The following table summarizes restructuring activity for the nine months ended June 30, 2008 as follows (in thousands):



|                         |  |           |      |  
|------------------------ |  | --------- | ---- | -
|                         |  | Severance |     
|Restructuring expense    |  | $         | 319  |  
|Cash payments            |  |           | (299 | )
|                         |  |           |      |  
|Balance at June 30, 2008 |  | $         | 20   |  
|                         |  |           |      |  

NOTE 4  NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share is presented in conformity with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128). Accordingly, basic and
diluted net income (loss) per share have been computed using the weighted average number of shares of common stock outstanding during the period, plus weighted average share equivalents, unless anti-dilutive.

The following table presents the computation of basic and diluted net income (loss) per share applicable to common stockholders (in thousands, except for per share
data):



|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                             |  | Three Months EndedJune 30, |        |   | Nine months EndedJune 30, |  
|                                                             |  | 2008                       |        |   | 2007                      |   |        | 2008 |  | 2007 |       
|Net income (loss)                                            |  | $                          | (1,123 | ) |                           | $ | (1,236 | )    |  | $    | 601    |  | $ | (4,229 | )
|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|Shares used in computation:                                  |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|Shares used in computing basic net income (loss) per share   |  |                            | 23,542 |   |                           |   | 23,076 |      |  |      | 23,491 |  |   | 23,096 |  
|Add:Effect of potentially diluted securities                 |  |                            |       |   |                           |   |       |      |  |      | 249    |  |   |       |  
|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|Shares used in computing diluted net income (loss) per share |  |                            | 23,542 |   |                           |   | 23,076 |      |  |      | 23,740 |  |   | 23,096 |  
|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|Basic net income (loss) per share                            |  | $                          | (0.05  | ) |                           | $ | (0.05  | )    |  | $    | 0.03   |  | $ | (0.18  | )
|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  
|Diluted net income (loss) per share                          |  | $                          | (0.05  | ) |                           | $ | (0.05  | )    |  | $    | 0.03   |  | $ | (0.18  | )
|                                                             |  |                            |        |   |                           |   |        |      |  |      |        |  |   |        |  

For the computation of diluted net income per share for the three months ended June 30, 2008 and
June 30, 2007, the Company excluded options totaling approximately 5.5 million shares and 4.7 million shares, respectively, from the calculation of the net income per share as they are anti-dilutive. Additionally, for the nine months
ended June 30, 2008 and June 30, 2007, the Company excluded options totaling approximately 5.7 million shares and 4.7 million shares, respectively, from the calculation of the net loss per share as they were anti-dilutive.

NOTE 5  COMPREHENSIVE INCOME (LOSS)

Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130) established standards for the reporting and display of comprehensive income (loss). Comprehensive income (loss) includes unrealized
gains (losses) on investments, net of related tax effects and foreign currency translation adjustments. These items have been excluded from net income (loss) and are reflected instead in Stockholders Equity.

Total comprehensive income (loss) for the three and nine month periods ended June 30, 2008 and 2007, respectively, is as follows:



|                                                             |  |                            |        |   |                           |   |        |      |  |   |      |   |  |   |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ------ | -
|                                                             |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                             |  | 2008                       |        |   | 2007                      |   |        | 2008 |  |   | 2007 |  
|Net income (loss)                                            |  | $                          | (1,123 | ) |                           | $ | (1,236 | )    |  | $ | 601  |   |  | $ | (4,229 | )
|Foreign currency translation adjustments, net of tax         |  |                            | (264   | ) |                           |   | (190   | )    |  |   | (172 | ) |  |   | (364   | )
|Changes in unrealized gain (loss) on investments, net of tax |  |                            | (200   | ) |                           |   | 21     |      |  |   | (29  | ) |  |   | 17     |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |      |   |  |   |        |  
|Comprehensive income (loss), net of tax                      |  | $                          | (1,587 | ) |                           | $ | (1,405 | )    |  | $ | 400  |   |  | $ | (4,576 | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |      |   |  |   |        |  



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NOTE 6  SEGMENT INFORMATION

The Company operates in one industry segment, the sale of semiconductor IP platforms based on memory, logic, and I/Os, and the sale of the individual platform components and has one reportable segment.

The Chief Executive Officer has been identified as the Chief Operating Decision Maker (CODM) because he has final authority over resource allocation decisions and
performance assessment.

Revenues by geographic region are based on the region in which the customers are located.

Total revenues by geography are as follows:



|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------- |  | -------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                        |  | Three Months EndedJune 30, |        | Nine Months EndedJune 30,
|                                                        |  | 2008                       |        | 2007                      |   | 2008   |  | 2007
|Total Revenue by Geography                              |  |                            |        |                           |   |        |  |      |        |  |   |       
|United States                                           |  | $                          | 7,532  |                           | $ | 4,897  |  | $    | 19,201 |  | $ | 12,555
|Canada                                                  |  |                            | 261    |                           |   | 154    |  |      | 1,372  |  |   | 1,076 
|Japan                                                   |  |                            | 922    |                           |   | 777    |  |      | 2,063  |  |   | 1,515 
|Taiwan                                                  |  |                            | 2,323  |                           |   | 1,427  |  |      | 6,902  |  |   | 7,168 
|Europe, Middle East and Africa (EMEA)                   |  |                            | 2,134  |                           |   | 2,701  |  |      | 7,199  |  |   | 7,939 
|Other Asia (China, Malaysia, South Korea and Singapore) |  |                            | 1,896  |                           |   | 1,330  |  |      | 7,080  |  |   | 3,125 
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|Total                                                   |  | $                          | 15,068 |                           | $ | 11,286 |  | $    | 43,817 |  | $ | 33,378
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       

Total license revenues by process node are as follows:



|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  
|------------------------------------- |  | -------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|                                      |  | Three Months EndedJune 30, |   |  | Nine Months EndedJune 30, |  
|                                      |  | 2008                       |   |  | 2007                      |   |  | 2008 |   |  | 2007 |  
|Total License Revenue by Process Node |  |                            |   |  |                           |   |  |      |   |  |      |  
|45 Nanometer technology               |  | 22                         | % |  |                          | % |  | 15   | % |  |     | %
|65 Nanometer technology               |  | 41                         |   |  | 27                        |   |  | 39   |   |  | 14   |  
|90 Nanometer technology               |  | 24                         |   |  | 34                        |   |  | 25   |   |  | 35   |  
|0.13 Micron technology                |  | 5                          |   |  | 25                        |   |  | 10   |   |  | 34   |  
|0.18 Micron technology                |  | 4                          |   |  | 10                        |   |  | 4    |   |  | 13   |  
|Other                                 |  | 4                          |   |  | 4                         |   |  | 7    |   |  | 4    |  
|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  
|Total                                 |  | 100                        | % |  | 100                       | % |  | 100  | % |  | 100  | %
|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  

The Company has only one product line, and as such disclosure by product groupings is not applicable.

Long-lived assets are located primarily in the United States, with the exception of a building in Armenia, which is owned by the Company. The Armenian building and
leasehold improvements are valued at cost less accumulated depreciation and amortization and amounted to approximately $2.4 million and $2.3 million as of June 30, 2008 and 2007, respectively.

NOTE 7  RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006,
the Financial Accounting Standard Board (FASB) issued FASB Statement No. 157, Fair Value Measurements, or (SFAS 157). The standard provides guidance for using fair value to measure assets and
liabilities. The standard also responds to investors requests for expanded information about the extent to which the company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair
value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be
adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are
still evaluating the impact this standard will have on our financial position or results of operations.

In February 2007, the FASB issued FASB
Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The
standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for financial statements issued beginning in the first quarter of fiscal year 2009, although
earlier adoption is permitted. We are currently evaluating what impact this standard will have on our financial position or results of operations.



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In December 2007, the FASB issued FASB Statement No. 141 (revised 2007) (SFAS 141R),
Business Combinations and FASB Statement No. 160 (SFAS 160), Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51.
SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is not permitted. We are currently evaluating the impact SFAS 141R and SFAS 160 will have on our financial position or results of operations.

NOTE 8  COMMITMENTS AND CONTINGENCIES

Indemnification.
The Company enters into standard license agreements in its ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or
other intellectual property infringement claims by any third party with respect to the Companys products. These agreements generally have perpetual terms. The maximum amount of indemnification the Company could be required to make under these
agreements is generally limited to the license fees received by the Company. The Company has no history of claims and accordingly, no liabilities have been recorded for indemnification under these agreements as of June 30, 2008.

Warranties. The Company offers its customers a warranty that its software products will substantially conform to their functional specifications. To date,
there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, the Company has no liabilities recorded for these warranties as of June 30, 2008. The Company assesses the need for a warranty
reserve on a quarterly basis and there can be no guarantee that a warranty reserve will not become necessary in the future.

NOTE 9  INCOME TAXES

Effective October 1, 2007, the Company adopted FASB Interpretation, or FIN, No. 48, Accounting for Uncertainty of Income Taxes, as
amended. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 utilizes a two-step approach for evaluating uncertain tax position accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes (SFAS No. 109). Step one, Recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon
audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. The cumulative effect of
adopting FIN No. 48 on October 1, 2007 is recognized as a change in accounting principle, recorded as an adjustment to the opening balance of retained earnings on the adoption date.

As a result of the implementation of FIN No. 48, the Company recognized no change in the liability for unrecognized tax benefits related to tax positions taken in
prior periods. All positions taken in the Companys United States tax return with respect to any book-tax adjustments were highly certain; and accordingly, no reserves have been booked. Upon adoption of FIN No. 48, the Companys
policy to include interest and penalties related to unrecognized tax benefits within the Companys provision for (benefit from) income taxes did not change. As of June 30, 2008, the Company had not accrued any reserve for payment of
interest and penalties related to unrecognized tax benefits as any adjustments would be offset by additional credits and NOLs.

The Companys total
unrecognized tax benefits as of October 1, 2007 (adoption date) amounted to $2.3 million. All of this amount would affect the Companys future tax rate if recognized. The Company remains subject to tax examination in the United States from
1999 to 2007 and in our foreign jurisdictions ranging from 2001 to 2007.

NOTE 10  EXCHANGE PROGRAM

On May 29, 2008, the Company announced a tender offer to exchange any or all outstanding options to purchase its common stock (Options) and stock settled
appreciation rights (SSARs) held by certain eligible employees, whether vested or unvested, out-of-the-money or in-the-money, for restricted stock units. The exchange program commenced on May 29, 2008 and ended on June 27, 2008
at 5 p.m. local time.

The exchange program was open to all eligible employees in the U.S. and United Kingdom that were employed as of May 29, 2008
and remain employed through the end of the exchange offer. No other employees based outside of the United States were eligible to participate in the offer. In addition, the members of the Companys board of directors and its chief executive
officer, chief financial officer and chief operating officer were not eligible to participate in the offer.



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The number of restricted stock units received by eligible employees that participated in the offer depended on the
exercise price of and the number of shares subject to the options tendered for exchange or the base price of and the number of shares subject to the SSARs that were tendered for exchange, as applicable.

The exchange program resulted in 997,799 options and 380,961 SSARs to purchase approximately 1,378,760 shares of our common stock being exchanged for approximately
335,060 shares of restricted stock units. The restricted stock units granted under this program will vest annually over a two-year period, such that half of the shares subject to a restricted stock unit award will vest one year after the restricted
stock unit grant date, and the other half of the shares subject to that award will vest two years after the restricted stock unit grant date. Ninety-three employees participated in the exchange program and $1.3 million of incremental compensation
expense will be recorded over the two year vesting period.

NOTE 11  STOCK REPURCHASE PROGRAM

On May 6, 2008, the Company adopted a stock repurchase program to purchase up to $20 million in shares of the common stock in the open market or negotiated
transactions through May 2009. As of June 30, 2008, no shares were repurchased. On August 4, 2008, 700,000 shares were repurchased in the open market at a price per share of $6.49.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Statements made in this section, other than statements of historical fact, are forward-looking statements that involve risks and uncertainties. Some of these statements relate to products, customers, business
prospects, technologies, trends and effects of acquisitions. In some cases, forward-looking statements can be identified by terminology such as may, will, should, expect, anticipate,
intend, plan, believe, estimate, potential, or continue, the negative of these terms or other comparable terminology. Forward-looking statements are subject to a number of known
and unknown risks and uncertainties which might cause actual results to differ materially from those expressed or implied by such statements. These risks include our ability to forecast our business, including our revenue, income and order flow
outlook, our ability to execute on our strategy of being a provider of semiconductor IP platforms, our ability to continue to develop new products and maintain and develop new relationships with third-party foundries, integrated device
manufacturers, and fabless semiconductor companies, our ability to overcome the challenges associated with establishing licensing relationships with semiconductor companies, our ability to obtain royalty revenues from customers in addition to
license fees, our ability to receive accurate information necessary for calculation of royalty revenues and to collect royalty revenues from customers, business and economic conditions generally and in the semiconductor industry in particular, pace
of adoption of new technologies by our customers and increases or fluctuations in the demand for their products, competition in the market for semiconductor IP platforms, and other risks and uncertainties including those set forth below under
Risk Factors. These forward-looking statements speak only as of the date hereof, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein. The
following information should be read in conjunction with the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the Companys Form 10-K for the fiscal year ended September 30,
2007 filed with the Securities and Exchange Commission.

Overview

Business Environment

Virage Logic provides semiconductor intellectual property (IP) to the global
semiconductor industry. Our semiconductor IP offering consists of (1) embedded memories, (2) compilers that allow chip designers to configure our memories into different sizes and shapes on a single silicon chip, (3) IP and
development infrastructure for embedded test and repair of on-chip memory instances, (4) software development tools used to design memory compilers, (5) embedded non-volatile memory instances, (6) logic cell libraries,
(7) input/output interface components (I/Os), and (8) DDR memory controller components. These various forms of IP are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are forming the
foundation of todays consumer, communications and networking, hand-held and portable devices, computer and graphics, automotive, and defense applications. We also provide custom design services to the semiconductor industry.

Our customers include fabless semiconductor companies, integrated device manufacturers and foundries. As semiconductor companies face increasing pressures to bring
products to market faster and semiconductors have shorter product cycles, we focus on providing our customers a broad product offering as a means to satisfy a larger portion of our customers semiconductor IP needs, while positioning ourselves
to offer advanced products as the semiconductor industry migrates to smaller geometries.

The timing of customer purchases of our products is typically
related to new design starts by fabless companies and migration to new manufacturing processes by integrated device manufacturers and foundries. Because of the high costs involved in new design starts and migration to new manufacturing processes,
our customers decisions regarding these matters are heavily dependent on their long-term business outlook. As a result, our business, and specifically our license revenues, is likely to grow at times of positive outlook for the semiconductor
industry.

In the third quarter of fiscal year 2008, we derived 87% of our license revenue from the more advanced processes, 90-nanometer, 65-nanometer,
and 45-nanometer technologies and 13% from the older process nodes, predominantly 0.13, 0.18, 0.25 and 0.35 micron technologies. The Company expects the 90-nanometer, 65-nanometer and 45-nanometer technologies to drive revenue growth in the
foreseeable future while license revenues from the older process nodes decline. Our royalty revenue to date has been from production on the older process nodes, and we expect future growth in royalty revenues to be driven by the advanced processes,
45-nanometer, 65-nanometer and 90-nanometer technologies, in addition to continued production on the 0.13 and 0.18 micron technologies.

We sell our
products early in the design process, and there are time delays of 24 to 36 months between the sale of our products and the time we expect to receive royalty revenues. These time delays are due to the length of time required for our customers
to implement our semiconductor IP into their designs, and then to manufacture, market and sell a product



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incorporating our products. As a result, we expect our royalty revenues to increase in periods in which manufacturing volumes of semiconductors are growing.
Future growth of our royalty revenue is dependent on our ability to increase the number of designs incorporating our products and on such designs achieving substantial manufacturing volumes.

Acquisition of Non-Volatile Memory Business Segment of Impinj, Inc.

We completed the acquisition of the logic non-volatile memory intellectual property business segment of Impinj, Inc., a provider of radio frequency identification (RFID) solutions. The acquisition extends the Companys embedded memory
leadership position in the rapidly growing NVM embedded memory market for standard CMOS processes. The Company believes the acquisition of Impinjs logic NVM IP business represents another element toward attainment of its core vision of
establishing the Company as a broad line supplier of highly differentiated physical and application specific IP to the semiconductor industry.

Stock
Repurchase Program

On May 6, 2008, we announced that our Board of Directors authorized a stock repurchase program to purchase up to $20
million in shares of our common stock in the open market or negotiated transactions through May 2009. We intend to use available cash to effect any stock repurchases. At June 30, 2008, the Companys balance sheet reflected cash and
investments totaling $73.2 million. On August 4, 2008, 700,000 shares were repurchased in the open market at a price per share of $6.49.

Our common
stock trades on the Nasdaq Global Market. We plan to make purchases from time to time in the open market or through privately negotiated transactions. The number, price and timing of the repurchases, which may include, without limitation round lot
or block transactions, will be at our sole discretion and may be re-evaluated depending on market conditions, liquidity needs or other factors. Our board of directors may suspend, terminate, modify or cancel the program at any time without notice.

Sources of Revenues

Our
revenues are derived principally from licenses of our semiconductor IP products, which include:



| |  |  | semiconductor IP platforms;
| | - |  | ---------------------------



| |  |  | embedded memory, logic and I/O elements;
| | - |  | ----------------------------------------



| |  |  | standard and custom memory compilers;
| | - |  | -------------------------------------



| |  |  | memory test processor and fuse box components for embedded test and repair of defective memory cells; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Double Date Rate memory controllers, Physical Interfaces, and Delay Locked Loops.
| | - |  | ---------------------------------------------------------------------------------

We also derive revenues from royalties, custom design services, maintenance services and library development and consulting services related to the license of logic components. Our revenues are reported in two
separate categories: license revenues and royalty revenues. License revenues are derived from license fees, maintenance fees, fees for custom design services, library design services and consulting services. Royalty revenues are derived from fees
paid by a customer or a third-party foundry based on production volumes of wafers containing chips utilizing our semiconductor IP technologies.

The
license of our semiconductor IP typically covers a range of platform, embedded memory, logic, I/O, DDR memory controller, PHY and DLL products. Licenses of our semiconductor IP products can be either perpetual or term-based. In addition, maintenance
can be purchased for both types of licenses.

We derive our royalty revenues from pure-play
foundries that manufacture chips incorporating our Area, Speed and Power (ASAP) Memory, ASP Logic, SiWare Memory, SiWare Logic and STAR Memory products for our fabless customers, and from integrated device manufacturers and fabless customers that
utilize our STAR Memory SystemTMand NOVeA®technologies. Royalty payments are in
addition to the license fees we collect from our customers, and are calculated based on production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of
the respective license agreement. Royalty revenues are generally determined and recognized one quarter in arrears, when a production volume report is received from the customer or foundry.



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Currently, license fees represent the majority of our revenues. Royalty revenues for the three and nine months ended
June 30, 2008 were $2.8 million and $8.7 million, respectively. Royalty revenues for the three and nine months ended June 30, 2007 were $3.1 million and $8.9 million, respectively.

We have been dependent on a limited number of customers for a substantial portion of our revenues, although our dependence on certain customers over the long term
continues to decrease. Our customers comprising the top 10 customer group have changed from time to time. We have one customer that generated 10% or more of our revenue for each of the quarters ended June 30, 2008 and June 30, 2007. We
have two customers that generated 10% or more of our revenue for the nine months ended June 30, 2008 and one customer that generated 10% or more of our revenue for the nine months ended June 30, 2007.

Sales to customers located outside of North America accounted for approximately 48% and 55% for the three months ended June 30, 2008 and 2007, respectively. Sales
to customers located outside of North America accounted for approximately 53% and 59% for the nine months ended June 30, 2008 and 2007, respectively. Substantially all of our direct sales representatives and field application engineers are
located in North America and Europe and service those regions. In Japan and the rest of Asia, we use both indirect sales through distributors and direct sales through sales representatives. All revenues to date have been denominated in U.S. dollars.

Critical Accounting Policies and Estimates

The
preparation of financial statements in accordance with generally accepted accounting principles in the United States requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. We continually evaluate our estimates, including those related to percentage-of-completion, allowance for doubtful accounts, investments, intangible assets, income taxes, and contingencies
such as litigation. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following as critical accounting policies to our Company:



| |  |  | revenue recognition;
| | - |  | --------------------



| |  |  | valuation of accounts receivable;
| | - |  | ---------------------------------



| |  |  | valuation of purchased intangibles, including goodwill;
| | - |  | -------------------------------------------------------



| |  |  | valuation of long-lived assets;
| | - |  | -------------------------------



| |  |  | stock-based compensation; and
| | - |  | -----------------------------



| |  |  | accounting for income taxes.
| | - |  | ----------------------------

Revenue
Recognition

The Companys revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position
97-2, Software Revenue Recognition, as amended by Statement of Position 98-4 and Statement of Position 98-9. Additionally, revenue is recognized on some of our products, according to Statement of Position 81-1, Accounting
for Performance of Construction-Type and Certain Production-Type Contracts.The Company recognizes intellectual property revenue in accordance with SOP 97-2 because the software is not incidental to the IP as the IP is embedded in the
software and the intellectual property is, in essence a software product.

Revenues from perpetual licenses for the semiconductor IP products are generally
recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is reasonably assured. The Company uses a completed performance model for perpetual licenses
that do not include services to provide significant production, modification or customization of software as all of the elements have been delivered. The Company determines delivery has occurred when all the license materials that are specified in
the evidence of a signed arrangement including any related documentation and the license keys are delivered electronically through the FTP server or via Electronic mail (e-mail). If any of these criteria are not met, revenue recognition is deferred
until such time as all criteria are met. Revenues from term-based licenses that do not require specific customization for the semiconductor IP and software products are recognized ratably over the term of the license, which are generally between
twelve to thirty-six months in



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duration, provided the criteria mentioned above are met. The Company uses a proportional performance model for term-based licenses as these licenses have a
right to receive unspecified additional products that are granted over the access term of the license. Consulting services represent an immaterial amount of our revenue thus are recorded as part of license revenue. These consulting services are not
related to the functionality of the products licensed. Revenue from consulting services is recognized on the time and materials method or as work is performed.

License of custom memory compilers and logic libraries may involve customization to the functionality of the software; therefore revenues from such licenses are recognized in accordance with Statement of Position 81-1 over the period that
services are performed. Revenue derived from library development services are recognized using a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and
service agreements accounted for using the percentage-of-completion method, the Company determines progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or
service or on the value of contract milestones completed. The Company believes that it is able to reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience
of similar project requirements. If the Company cannot reasonably and reliably estimate the costs to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time
revenues and related costs are recognized. A provision for estimated losses on any project is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognition are recorded as
costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is
contingent based on meeting a specified criteria, then the contingent value of the contract is deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, the Company recognizes revenues attributable to delivered or completed elements when such elements are completed or delivered. The amount of such revenues is determined by applying the residual
method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements, which the Company determines by each such elements vendor-specific objective evidence of fair value, from the total revenues recognizable
under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the
contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for
all contracts entered into prior to fiscal 2007. Revenues are recognized once the Company delivers the element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are
recognized ratably over the remaining contractual term of the maintenance period from the date of delivery of the licensed materials receiving maintenance, which is generally twelve months.

We assess whether the fee associated with each transaction is fixed or determinable and collection is reasonably assured and evaluates the payment terms. If a portion of
the fee is due beyond normal payment terms, the Company recognizes the revenues on the payment due date, as long as collection is reasonably assured. The Company assesses collectability based on a number of factors, including past transaction
history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are
recorded as unbilled accounts receivable. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in
any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have been met, prior to the recognition of any revenue that would create an unbilled accounts receivable balance.

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production volume report is received from the customer or
foundry, and are calculated based on actual production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Prepaid
royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.



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Valuation of Accounts Receivable

We monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon specific customer collection risks that we have identified. While such credit losses have
historically been within our expectations and the allowance we have established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a
relatively small number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the quality of our accounts receivables and our future operating results.

Valuation of Purchased Intangibles, Including Goodwill

We periodically evaluate purchased intangibles, including goodwill, for impairment at least annually. An assessment of goodwill is subjective by nature, and significant management judgment is required to forecast future operating results,
projected cash flows and current period market capitalization levels. If our estimates or related assumptions change in the future, these changes in conditions could require material write-downs of net intangible assets, including impairment charges
for goodwill. The valuation of intangible assets was based on managements estimates. Intangible assets with finite useful lives are amortized over the estimated life of each asset. As of June 30, 2008, management believes no impairment of
intangible assets has occurred. The carrying value of purchased intangibles, including goodwill, is $18.7 million and $14.1 million as of June 30, 2008 and September 30, 2007, respectively. If the asset is deemed impaired, the
maximum amount of impairment would be the full carrying value of the asset.

Valuation of Long-Lived Assets

We review the carrying value of our long-lived assets whenever events or changes in business circumstances or our planned use of assets indicate that their carrying
amounts may not be fully recoverable or that their useful lives are no longer appropriate. This review is based upon our projections of anticipated future cash flows from such assets. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially affect our evaluations, which could result in an impairment charge. As of June 30, 2008 the Company had intangible assets of $2.1 million related to technology
and other intangibles acquired through the acquisitions of In-Chip Systems, Inc. and Ingot Systems, Inc. In addition, the Company recorded $4.5 million of intangible asset related to the acquisition of the logic non-volatile memory intellectual
property business of Impinj, Inc. (excluding $0.2 million of acquired in-process technology of Impinj Inc. that was written off in June of 2008).

Stock-based compensation

As of October 1, 2005, we adopted SFAS 123R. We use the fair value method to apply the provisions
of SFAS 123R with a modified prospective application which provides for certain changes to the method for valuing stock-based compensation. The valuation provisions of SFAS 123R apply to new awards and to unvested awards that were
outstanding on the effective date. Under the modified prospective application, prior periods are not revised for comparative purposes. Total SFAS 123R compensation expense recognized for the three and nine months ended June 30, 2008 was $0.7
million and $2.2 million, respectively. Total SFAS 123R compensation expense recognized for the three and nine months ended June 30, 2007 was $0.8 million and $3.4 million, respectively. At June 30, 2008, total unrecognized estimated
compensation expenses net of forfeitures related to non-vested equity awards prior to that date were $10.2 million.

We value our stock-based awards on the
date of grant using the option-pricing (Black-Scholes model). Prior to the adoption of SFAS 123R, the value of each stock-based award was estimated on the date of grant using the Black-Scholes model for the pro forma information required to be
disclosed under Statement of Financial Accounting Standards No. 123 (SFAS 123). The determination of the fair value of stock-based payment awards on the date of grant using a pricing model is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee equity awards exercise behaviors,
risk-free interest rate and expected dividends.

For purposes of estimating the fair value of equity awards granted during the fiscal years ended
September 30, 2007 and 2006 and the nine months ended June 30, 2008, we have made an estimate regarding our stock price volatility using the historical volatility in our stock price for the expected volatility assumption input to the
model. This approach is consistent with the guidance in SFAS 123R and the Securities and Exchange Commissions Staff Accounting Bulletin No. 107 (SAB 107).



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The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon
issues with a remaining term equal to the expected term of the awards on the grant date.

Furthermore, as required under SFAS 123R, we estimate
forfeitures for equity awards granted which are not expected to vest. We calculate the pre-vesting forfeiture rate by using our historical equity grants cancellation information. If factors change and we employ different assumptions in the
application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware
of the high degree of subjectivity involved when using pricing models to estimate stock-based compensation under SFAS 123R. There is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear
little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments may expire worthless or otherwise result in zero intrinsic
value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements. Alternatively, value may be realized from these instruments significantly in excess of the fair values originally
estimated on the grant date and reported in our consolidated financial statements. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation
models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined in accordance with SFAS 123R and SAB 107 using a pricing model, such value may not be
indicative of the fair value observed in a willing buyer /willing seller market transaction.

Accounting for Income Taxes

We have calculated our income tax based on the year-to-date operations since a reliable estimate of our tax rate cannot be made due the fact that our forecasted income is
close to break even and as such a small adjustment to our earnings can cause a material shift in our tax rate. As allowed by FASB Interpretation No. 18,  Accounting for Income Taxes in Interim Periods (FIN 18), we have used the
actual effective tax rate for the nine months ending June 30, 2008 as our best estimate for the tax rate for the year ending September 30, 2008 as a reliable estimate for the full year cannot be made at this time.

For the nine months ended June 30, 2008 the effective tax rate is 20% with a tax provision of approximately $149,000. We record the tax effects of temporary
differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, based on the balance sheet information as of June 30, 2008. These differences resulted in deferred tax assets of
$16.2 million and deferred tax liabilities of $1.0 million as of June 30, 2008. We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we increase our provision for
taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that substantially all of the deferred tax assets recorded on our balance sheet will ultimately be recovered.
However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not more likely than not.

Effective October 1, 2007, the Company adopted FASB Interpretation, or FIN, No. 48, Accounting for Uncertainty of Income Taxes, as amended.
FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 utilizes a two-step approach for evaluating uncertain tax position accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes (SFAS No. 109). Step one, Recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained
upon audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. The cumulative effect
of adopting FIN No. 48 on October 1, 2007 is recognized as a change in accounting principle, recorded as an adjustment to the opening balance of retained earnings on the adoption date.

As a result of the implementation of FIN No. 48, the Company recognized no change in the liability for unrecognized tax benefits related to tax positions taken in
prior periods. All positions taken in the Company US return with respect to any book-tax adjustments were highly certain; and accordingly, no reserves have been booked. Upon adoption of FIN No. 48, the Companys policy to include interest
and penalties related to unrecognized tax benefits within the Companys provision for (benefit from) income taxes did not change. As of March 31, 2008, the Company had not accrued any reserve for payment of interest and penalties related
to unrecognized tax benefits as any adjustments would be offset by additional credits and NOLs.



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The Companys total unrecognized tax benefits as of October 1, 2007 (adoption date) amounted to $2.3 million.
All of this amount would affect the Companys future tax rate if recognized. The Company remains subject to tax examination in the United States from 1999 to 2007 and in our foreign jurisdictions ranging from 2001 to 2007.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008 AND 2007

Revenues

The table below sets forth the changes in revenues from the three and nine months ended June 30, 2008 to the three and
nine months ended June 30, 2007 (in thousands, except percentage data):



|               |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|-------------- |  | ------------------------------- | ------ | ------------------ | ------------------------------- | - | ------ | - | ------------------ |  | ----- | --------------------- |  | - | ------ | - |  | ---- | --
|               |  | Three Months EndedJune 30, 2008 |        |                    | Three Months EndedJune 30, 2007 |   |        |   |                   
|               |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |   | % of totalrevenues |  |       | Year-Over-Year Change | 
|Revenues:      |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|License        |  | $                               | 12,248 |                    | 81.3                            | % |        | $ | 8,207              |  | 72.7  | %                     |  | $ | 4,041  |   |  | 49.2 | % 
|Royalties      |  |                                 | 2,820  |                    | 18.7                            | % |        |   | 3,079              |  | 27.3  | %                     |  |   | (259   | ) |  | (8.4 | )%
|               |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|Total revenues |  | $                               | 15,068 |                    | 100.0                           | % |        | $ | 11,286             |  | 100.0 | %                     |  | $ | 3,782  |   |  | 33.5 | % 
|               |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|               |  |                                 |       
|               |  | Nine Months EndedJune 30, 2008  |        |                    | Nine Months EndedJune 30, 2007  |   |        |   |                   
|               |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |   | % of totalrevenues |  |       | Year-Over-Year Change | 
|Revenues:      |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|License        |  | $                               | 35,122 |                    | 80.2                            | % |        | $ | 24,433             |  | 73.2  | %                     |  | $ | 10,689 |   |  | 43.7 | % 
|Royalties      |  |                                 | 8,695  |                    | 19.8                            | % |        |   | 8,945              |  | 26.8  | %                     |  |   | (250   | ) |  | (2.8 | )%
|               |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   
|Total revenues |  | $                               | 43,817 |                    | 100.0                           | % |        | $ | 33,378             |  | 100.0 | %                     |  | $ | 10,439 |   |  | 31.3 | % 
|               |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |      |   

Revenues for the three months ended June 30, 2008 totaled $15.1 million, increasing 33.5% from $11.3 million
for the three months ended June 30, 2007. The increase resulted from a $4.0 million increase in license revenues offset by a decrease of $0.2 million in royalty revenues.

Revenue for the nine months ended June 30, 2008 totaled $43.8 million, increasing 31.3% from $33.4 million for the nine months ended June 30, 2007. The increase resulted from the increase of $10.7 million in
license revenues offset by a decrease of $0.3 million in royalty revenues.

For the three and nine months ended June 30, 2008 and 2007, total license
revenues by process node are as follows:



|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  
|------------------------------------- |  | -------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|                                      |  | Three Months EndedJune 30, |   |  | Nine Months EndedJune 30, |  
|                                      |  | 2008                       |   |  | 2007                      |   |  | 2008 |   |  | 2007 |  
|Total License Revenue by Process Node |  |                            |   |  |                           |   |  |      |   |  |      |  
|45 Nanometer technology               |  | 22                         | % |  |                          | % |  | 15   | % |  |     | %
|65 Nanometer technology               |  | 41                         |   |  | 27                        |   |  | 39   |   |  | 14   |  
|90 Nanometer technology               |  | 24                         |   |  | 34                        |   |  | 25   |   |  | 35   |  
|0.13 Micron technology                |  | 5                          |   |  | 25                        |   |  | 10   |   |  | 34   |  
|0.18 Micron technology                |  | 4                          |   |  | 10                        |   |  | 4    |   |  | 13   |  
|Other                                 |  | 4                          |   |  | 4                         |   |  | 7    |   |  | 4    |  
|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  
|Total                                 |  | 100                        | % |  | 100                       | % |  | 100  | % |  | 100  | %
|                                      |  |                            |   |  |                           |   |  |      |   |  |      |  

License revenues for the three months ended June 30, 2008 were $12.2 million, representing an increase of
$4.0 million or 49.2% as compared to $8.2 million for the three months ended June 30, 2007. License revenues increased for the three months ended June 30, 2008 mainly attributed to increases of $2.8 million on the 65-nanometer process,
$2.7 million on the 45-nanometer process and offset by decreases of $0.3 million on the 90-nanometer process, $1.1 million on the 0.13 micron process and $0.1 million on the 0.18 micron process and other technologies.



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License revenues for the nine months ended June 30, 2008 were $35.1 million, representing an increase of $10.7
million or 43.7% as compared to $24.4 million for the nine months ended June 30, 2007. The increase for the nine months was due to increases of $10.3 million on the 65-nanometer process, $5.2 million on the 45-nanometer process and $1.3 million
on other technologies. These increases were offset by decreases of $4.5 million on the 0.13 micron process and $0.9 million on the 90-nanometer process.

Royalties decreased by $0.3 million, or 8.4%, from $3.1 million in the three months ended June 30, 2007 to $2.8 million for the three months ended June 30, 2008. For the nine months ended June 30, 2008 and 2007 royalties were
$8.7 million and $8.9 million, respectively.

For the three and nine months ended June 30, 2008 and 2007, total revenues by geography were as follows:



|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------- |  | -------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                        |  | Three Months EndedJune 30, |        | Nine Months EndedJune 30,
|                                                        |  | 2008                       |        | 2007                      |   | 2008   |  | 2007
|Total Revenue by Geography                              |  |                            |        |                           |   |        |  |      |        |  |   |       
|United States                                           |  | $                          | 7,532  |                           | $ | 4,897  |  | $    | 19,201 |  | $ | 12,555
|Canada                                                  |  |                            | 261    |                           |   | 154    |  |      | 1,372  |  |   | 1,076 
|Japan                                                   |  |                            | 922    |                           |   | 777    |  |      | 2,063  |  |   | 1,515 
|Taiwan                                                  |  |                            | 2,323  |                           |   | 1,427  |  |      | 6,902  |  |   | 7,168 
|Europe, Middle East and Africa (EMEA)                   |  |                            | 2,134  |                           |   | 2,701  |  |      | 7,199  |  |   | 7,939 
|Other Asia (China, Malaysia, South Korea and Singapore) |  |                            | 1,896  |                           |   | 1,330  |  |      | 7,080  |  |   | 3,125 
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|Total                                                   |  | $                          | 15,068 |                           | $ | 11,286 |  | $    | 43,817 |  | $ | 33,378
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       

Cost and Expenses

The table below sets forth the changes in cost and expenses for the three and nine months ended June 30, 2008 and for the three and nine months ended June 30, 2007 (in thousands, except percentage data):



|                           |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|-------------------------- |  | ------------------------------- | ------ | ------------------ | ------------------------------- | - | ------ | - | ------------------ |  | ----- | --------------------- |  | - | ------ | - |  | ----- | --
|                           |  | Three Months EndedJune 30, 2008 |        |                    | Three Months EndedJune 30, 2007 |   |        |   |                   
|                           |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |   | % of totalrevenues |  |       | Year-Over-Year Change | 
|Cost and expenses:         |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|Cost of revenues           |  | $                               | 2,614  |                    | 17.4                            | % |        | $ | 2,869              |  | 25.4  | %                     |  | $ | (255   | ) |  | (8.9  | )%
|Research and development   |  |                                 | 8,015  |                    | 53.2                            | % |        |   | 5,301              |  | 47.0  | %                     |  |   | 2,714  |   |  | 51.2  | % 
|Sales and marketing        |  |                                 | 3,658  |                    | 24.3                            | % |        |   | 4,050              |  | 35.9  | %                     |  |   | (392   | ) |  | (9.7  | )%
|General and administrative |  |                                 | 2,160  |                    | 14.3                            | % |        |   | 1,789              |  | 15.9  | %                     |  |   | 371    |   |  | 20.7  | % 
|Restructuring charges      |  |                                 | 319    |                    | 2.1                             | % |        |   | 580                |  | 5.1   | %                     |  |   | (261   | ) |  | (45.0 | )%
|                           |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|Total cost and expenses    |  | $                               | 16,766 |                    | 111.3                           | % |        | $ | 14,589             |  | 129.3 | %                     |  | $ | 2,177  |   |  | 14.9  | % 
|                           |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|                           |  |                                 |       
|                           |  | Nine Months EndedJune 30, 2008  |        |                    | Nine Months EndedJune 30, 2007  |   |        |   |                   
|                           |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |   | % of totalrevenues |  |       | Year-Over-Year Change | 
|Cost and expenses:         |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|Cost of revenues           |  | $                               | 8,182  |                    | 18.7                            | % |        | $ | 9,972              |  | 29.9  | %                     |  | $ | (1,790 | ) |  | (18.0 | )%
|Research and development   |  |                                 | 20,048 |                    | 45.7                            | % |        |   | 15,201             |  | 45.5  | %                     |  |   | 4,847  |   |  | 31.9  | % 
|Sales and marketing        |  |                                 | 11,115 |                    | 25.4                            | % |        |   | 11,467             |  | 34.4  | %                     |  |   | (352   | ) |  | (3.1  | )%
|General and administrative |  |                                 | 6,046  |                    | 13.8                            | % |        |   | 6,871              |  | 20.6  | %                     |  |   | (825   | ) |  | (12.0 | )%
|Restructuring charges      |  |                                 | 316    |                    | 0.7                             | % |        |   | 580                |  | 1.7   | %                     |  |   | (264   | ) |  | (45.5 | )%
|                           |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   
|Total cost and expenses    |  | $                               | 45,707 |                    | 104.3                           | % |        | $ | 44,091             |  | 132.1 | %                     |  | $ | 1,616  |   |  | 3.7   | % 
|                           |  |                                 |        |                    |                                 |   |        |   |                    |  |       |                       |  |   |        |   |  |       |   

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of
acquired software and capital equipment. Cost of revenues for the three months ended June 30, 2008 totaled $2.6 million, representing a decrease of $0.3 million or 8.9% from $2.9 million for the three months ended June 30, 2007. The
decrease for the three months was primarily attributable to a decrease of $0.5 million in expenses due to improvement in engineering efficiency. This decrease was offset $0.3 million of contract related expenses.



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For the nine months ended June 30, 2008, cost of revenues totaled $8.2 million, representing a decrease of $1.8
million, or 18.0% from $10.0 million for the nine months ended June 30, 2007. The decrease for the nine months was primarily attributable to decreases of $1.8 million in expenses due to improvement in engineering efficiency. We believe that
cost of revenues will continue to fluctuate in the future, both in absolute dollars and as a percentage of revenues, based on the mix of products sold by us, and the level of license revenues.

Research and Development Expenses

Research and development expenses
primarily include personnel expense, software license and maintenance fees, as well as capital equipment depreciation expenses. Research and development expenses for the three months ended June 30, 2008 were $8.0 million, an increase of $2.7
million, or 51.2%, from $5.3 million for the three months ended June 30, 2007. Research and development expenses as a percentage of total revenue for the three months ended June 30, 2008 increased to 53.2% from 47.0% for the same period in
fiscal 2007. The increase was primarily due to increases of $1.9 million of acquisition related charges, $0.5 million of consulting expenses and $0.5 million of expense due to a decrease in allocation of fixed costs to cost of revenues. This
increase was offset by $0.1 million of lower personnel related charges and $0.1 million of lower depreciation expense.

For the nine months ended
June 30, 2008 research and development expenses totaled $20.0 million, representing an increase of $4.8 million, or 31.9% compared to $15.2 million for the same period in fiscal 2007. Research and development expenses as a percentage of total
revenue for the nine months ended June 30, 2008 were 45.7%, as compared to 45.5% for the nine months ended June 30, 2007. The increase was primarily due to increases of $2.1 million of acquisition related expenses, $1.3 million of
personnel related expenses, $0.4 million of consulting expenses and $1.8 million due to a decrease in allocation of fixed costs to cost of revenues. These increases were partially offset by decreases of $0.3 million of depreciation expense, $0.2
million of travel expenses, $0.2 million of facility expenses and $0.1 million of stock-based compensation expense.

Sales and Marketing Expenses

Sales and marketing expenses consist mainly of personnel expenses, commissions, advertising and promotion-related costs. Sales and marketing expenses for
the three months ended June 30, 2008 were $3.7 million, representing a decrease of $0.4 million, or 9.7% over the same period in fiscal 2007. Sales and marketing expenses as a percentage of revenue were 24.3% for the three months ended
June 30, 2008, compared to 35.9% for the three months ended June 30, 2007. The decrease in sales and marketing expenses for the three months ended June 30, 2008 was primarily attributable to decreases of $0.3 million stock-based
compensation expense, $0.3 million of payroll expense and $0.1 million of travel expense. These decreases were offset by increases of $0.2 million of outside sales commission expense and $0.1 million of recruiting expense.

For the nine months ended June 30, 2008 sales and marketing expenses totaled $11.1 million, representing a decrease of $0.4 million, or 3.1% compared to $11.5
million for the same period in fiscal 2007. Sales and marketing expenses as a percentage of total revenue for the nine months ended June 30, 2008 were 25.4%, as compared to 34.4% for the nine months ended June 30, 2007. The decrease in
sales and marketing expenses for the nine months ended June 30, 2008 was primarily due to decreases of $0.9 million of stock-based compensation expense, $0.2 million of personnel-related expenses and $0.2 million of travel expense. These
decreases were offset by an increase of $0.9 million of commission expense.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel, corporate governance and other costs associated with the management of our business. General and
administrative expenses for the three months ended June 30, 2008 were $2.2 million, representing an increase of $0.4 million, or 20.7%, over the three months ended June 30, 2007. General and administrative expenses, as a percentage of
total revenue were 14.3% for the three months ended June 30, 2008, compared to 15.9% for the same period in fiscal 2007. The increase in general and administrative expenses, for the three months ended June 30, 2008 was mainly attributable
to increases of $0.4 million of legal fees, $0.3 million of stock-based compensation expense and $0.1 million of facility related costs. These increases were offset by decreases of $0.3 million in personnel -related expenses and $0.1 million of bad
debt expense.

For the nine months ended June 30, 2008 general and administrative expenses totaled $6.0 million, representing a decrease of $0.9
million, or 12.0%, compared to $6.9 million for the same period in fiscal 2007. General and administrative expenses as a percentage of total revenue for the nine months ended June 30, 2008 were 13.8%, as compared to 20.6% for the nine months
ended June 30, 2007. The decrease was primarily due to decreases of $0.9 million of personnel-related expenses and $0.2 million of consulting fees offset by increases of $0.4 million of legal and accounting fees.



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Restructuring Charges

During the quarter ended June 30, 2008, we initiated a plan of restructuring in an effort to reduce operating expenses to increase efficiency and improve operating margins and cash flows. The restructuring plan was intended to decrease
costs through job eliminations.

During the quarter ended June 30, 2008, we reduced our workforce by approximately 13 employees primarily in
engineering. Costs resulting from the restructuring plan included severance payments and severance-related benefits. Total restructuring expense was $319,000 of which $299,000 was paid as of June 30, 2008.

Interest Income and Other Income (Expenses), net

The table
below sets forth the changes in interest income and other income (expenses), net from the three and nine months ended June 30, 2007 to the three and nine months ended June 30, 2008 (in thousands, except percentage data):



|                                                       |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|------------------------------------------------------ |  | ------------------------------- | ----- | ------------------ | ------------------------------- | - | ------ | - | ----- | ------------------ |  | ---- | --------------------- |  | -- | --- | - |  | ----- | --
|                                                       |  | Three Months EndedJune 30, 2008 |       |                    | Three Months EndedJune 30, 2007 |   |        |   |      
|                                                       |  | Amount                          |       | % of totalrevenues |                                 |   | Amount |   |       | % of totalrevenues |  |      | Year-Over-Year Change | 
|Interest income and other income (expenses), net:      |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|Interest income                                        |  | $                               | 595   |                    | 4.0                             | % |        | $ | 1,014 |                    |  | 9.0  | %                     |  | ($ | 419 | ) |  | (41.3 | )%
|Other income (expenses), net                           |  |                                 | 111   |                    | 0.7                             | % |        |   | (53   | )                  |  | (0.5 | )%                    |  |    | 164 |   |  | 309.2 | % 
|                                                       |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|Total interest income and other income (expenses), net |  | $                               | 706   |                    | 4.7                             | % |        | $ | 961   |                    |  | 8.5  | %                     |  | ($ | 255 | ) |  | (26.5 | )%
|                                                       |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|                                                       |  |                                 |      
|                                                       |  | Nine months EndedJune 30, 2008  |       |                    | Nine months EndedJune 30, 2007  |   |        |   |      
|                                                       |  | Amount                          |       | % of totalrevenues |                                 |   | Amount |   |       | % of totalrevenues |  |      | Year-Over-Year Change | 
|Interest income and other income (expenses), net:      |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|Interest income                                        |  | $                               | 2,401 |                    | 5.5                             | % |        | $ | 3,004 |                    |  | 9.0  | %                     |  | ($ | 603 | ) |  | (20.1 | )%
|Other income (expenses), net                           |  |                                 | 239   |                    | 0.5                             | % |        |   | (126  | )                  |  | (0.4 | )%                    |  |    | 365 |   |  | 289.7 | % 
|                                                       |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   
|Total interest income and other income (expenses), net |  | $                               | 2,640 |                    | 6.0                             | % |        | $ | 2,878 |                    |  | 8.6  | %                     |  | ($ | 238 | ) |  | (8.3  | )%
|                                                       |  |                                 |       |                    |                                 |   |        |   |       |                    |  |      |                       |  |    |     |   |  |       |   

Interest income and other income (expenses), net, for the three months ended June 30, 2008 totaled $0.7
million compared to $1.0 million for the same period in fiscal 2007. The decrease is due to lower interest rates earned in our treasury investment portfolio of marketable securities. Interest income and other income (expenses), net, for the nine
months ended June 30, 2008 totaled $2.6 million compared to $2.9 million for the same period in fiscal 2007. The decrease is mainly due to $0.6 million of lower interest income associated with the current interest rate environment offset by a
gain of $0.4 million in foreign currency exchange. The gain from foreign currency exchange was attributable to gains of $0.2 million from the United Kingdom and $0.3 million from India, offset by a loss of $0.1 million from other foreign currencies.

Income Tax Provision (Benefit)



|                               |  |                                 |     |                    |                                 |   |        |   |        |                    |  |       |                       |  |   |       |  |       |  
|------------------------------ |  | ------------------------------- | --- | ------------------ | ------------------------------- | - | ------ | - | ------ | ------------------ |  | ----- | --------------------- |  | - | ----- |  | ----- | -
|                               |  | Three Months EndedJune 30, 2008 |     |                    | Three Months EndedJune 30, 2007 |   |        |   |       
|                               |  | Amount                          |     | % of totalrevenues |                                 |   | Amount |   |        | % of totalrevenues |  |       | Year-Over-Year Change | 
|Income tax provision (benefit) |  | $                               | 131 |                    | 0.9                             | % |        | $ | (1,106 | )                  |  | (9.8  | )%                    |  | $ | 1,237 |  | 111.8 | %
|                               |  |                                 |     |                    |                                 |   |        |   |        |                    |  |       |                       |  |   |       |  |       |  
|                               |  |                                 |    
|                               |  | Nine Months EndedJune 30, 2008  |     |                    | Nine Months EndedJune 30, 2007  |   |        |   |       
|                               |  | Amount                          |     | % of totalrevenues |                                 |   | Amount |   |        | % of totalRevenues |  |       | Year-Over-Year Change | 
|Income tax provision (benefit) |  | $                               | 149 |                    | 0.3                             | % |        | $ | (3,606 | )                  |  | (10.8 | )%                    |  | $ | 3,755 |  | 104.1 | %
|                               |  |                                 |     |                    |                                 |   |        |   |        |                    |  |       |                       |  |   |       |  |       |  

For the three months ended June 30, 2008, we recorded an income tax provision of $131,000. For the same
quarter in fiscal 2007, we recorded an income tax benefit of $1.1 million. For the nine months ended June 30, 2008 we recorded a tax provision of $149,000 and a tax benefit of $3.6 million for the same period a year ago. As allowed by FASB
Interpretation No. 18,  Accounting for Income Taxes in Interim Periods (FIN 18), we have used the actual effective tax rate for the nine months ending June 30, 2008 as our best estimate for the tax rate for the year ending
September 30, 2008 as a reliable estimate for the full year cannot be made at this time. Significant components affecting the tax rate include an increase from stock-based compensation relating to non-deductible incentive stock options and the
composite state tax rate. In addition, to the extent our expected profitability changes during the year, the effective tax rate would be revised to reflect any changes in the projected profitability.



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The Indian Tax Authorities completed their assessment of our tax returns for the tax years 2001 through 2005 and
issued assessment orders in which the Indian Tax Authorities propose to assess an aggregate tax deficiency for the five year period of approximately $1.2 million, plus interest, which interest will accrue until the matter is resolved. The
Indian Tax Authorities may also make similar claims for years subsequent to 2005 in future assessment. The assessment orders are not final notices of deficiency, and we have immediately filed appeals. We believe that the assessments are inconsistent
with applicable tax laws and that we have meritorious defense to the assessments.

In fiscal year 2005, we made a deposit in local currency equivalent to
approximately $260,000 U.S. dollars with the Indian Tax Authorities, as required. The ultimate outcome of the tax assessment cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of
the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations that could have an adverse effect on our consolidated statements of operations.

LIQUIDITY AND CAPITAL RESOURCES



|                                                            |  |              |        |                   |   |        |  |   |        |  
|----------------------------------------------------------- |  | ------------ | ------ | ----------------- | - | ------ |  | - | ------ | -
|                                                            |  | June 30,2008 |        | September 30,2007 |   | Change | 
|Cash and cash equivalents                                   |  | $            | 18,670 |                   | $ | 14,820 |  | $ | 3,850  |  
|Short-term and long-term investments                        |  |              | 54,568 |                   |   | 60,368 |  |   | (5,800 | )
|                                                            |  |              |        |                   |   |        |  |   |        |  
|Total cash, cash equivalents and marketable debt securities |  | $            | 73,238 |                   | $ | 75,188 |  | $ | (1,950 | )
|                                                            |  |              |        |                   |   |        |  |   |        |  

As of June 30, 2008, our cash and cash equivalents totaled $18.7 million, as compared to $14.8 million as of
September 30, 2007. As of June 30, 2008 and September 30, 2007, our short-term and long-term treasury investments totaled $54.6 million and $60.4 million, respectively. In aggregate, cash, cash equivalents and short- and
long-investments in marketable securities as of June 30, 2008 totaled $73.2 million, compared to $75.2 million at September 30, 2007. The primary sources of our cash in the nine months ended June 30, 2008 was cash collections from
customers for accounts receivable and $1.9 million proceeds from sale of common stock.



|                                                     |  |                   |       |   |              |   |        |        |  |   |       |  
|---------------------------------------------------- |  | ----------------- | ----- | - | ------------ | - | ------ | ------ |  | - | ----- | -
|                                                     |  | Nine months Ended |       |   |              |  
|                                                     |  | June 30,2008      |       |   | June 30,2007 |   |        | Change | 
|Cash provided by operating activities                |  | $                 | 2,499 |   |              | $ | 581    |        |  | $ | 1,918 |  
|Cash used in investing activities                    |  |                   | (256  | ) |              |   | (7,581 | )      |  |   | 7,325 |  
|Cash provided by financing activities                |  |                   | 1,906 |   |              |   | 653    |        |  |   | 1,253 |  
|Effect of exchange rates on cash                     |  |                   | (299  | ) |              |   | 198    |        |  |   | (497  | )
|                                                     |  |                   |       |   |              |   |        |        |  |   |       |  
|Net increase (decrease) in cash and cash equivalents |  | $                 | 3,850 |   |              | $ | (6,149 | )      |  | $ | 9,999 |  
|                                                     |  |                   |       |   |              |   |        |        |  |   |       |  

Net cash provided by operating activities was $2.5 million for the nine months ended June 30, 2008,
representing an increase of $1.9 million over net used in operating activities of $0.6 million for the nine months ended June 30, 2007. The increase in cash provided by operating activities was primarily attributable to changes in net income of
$4.8 million. This increase was offset by a decrease in changes of operating assets and liabilities of $1.7 million. In addition, we had decreases of $1.3 million of stock-based compensation expense and $0.4 million of depreciation expense, offset
by increases of $0.2 million of amortization expense, $0.2 million of write-off of acquired in-process technology and $0.1 million of bad debt recovery.

Net cash used in investing activities was $0.3 million for the first nine months of 2008, representing a decrease of $7.3 million over net cash used in investing activities of $7.6 million for the nine months ended June 30, 2007. The
decrease of $7.3 million in the use of cash resulted from an increase of $13.0 million in net purchase of investments and proceeds from maturities of investments, offset by $5.2 million in net cash paid for the Impinj acquisition and $0.5 million
used in the purchase of other property and equipment.

Net cash provided by financing activities totaled $1.9 million and $0.7 million for the nine months
ended June 30, 2008 and 2007, respectively, and was attributed to the proceeds from exercises of employee stock options during the respective periods.



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Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our
existing and new technologies, the amount and timing of research and development expenditures, the timing of the introduction of new technologies, expansion of sales and marketing efforts, acquisitions we may pursue, and levels of working capital,
primarily accounts receivable. There can be no assurance that additional equity or debt financing, if required, will be available on satisfactory terms. We believe that our current capital resources and cash generated from operations will be
sufficient to meet our needs for at least the next twelve months, although we may seek to raise additional capital during that period and there can be no assurance that we will not require additional financing beyond this time frame.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table
summarizes our contractual obligations and commercial commitments at June 30, 2008 (dollars in thousands):



|                                               |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |  
|---------------------------------------------- |  | ----- | ------ | --------------- | - | -------- |  | -------- | ----- | ------------ | - | ----- |  | - | -
|Contractual Obligations                        |  | Total |        | Less Than1 Year |   | 1-3Years |  | 4-5Years |       | After5 Years
|Operating lease obligations                    |  | $     | 2,635  |                 | $ | 1,044    |  | $        | 1,591 |              | $ |      |  | $ | 
|Purchase obligations                           |  |       | 12,145 |                 |   | 5,626    |  |          | 5,015 |              |   | 1,504 |  |   | 
|                                               |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |  
|Total operating lease and purchase obligations |  | $     | 14,780 |                 | $ | 6,670    |  | $        | 6,606 |              | $ | 1,504 |  | $ | 
|                                               |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |  



|(1) | Reflects amounts payable under contracts primarily for product development software licenses and maintenance. We have no off-balance-sheet financing arrangements other than
operating leases as defined in Regulation S-K Item 303 (a)(4).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our
core business, the sale of semiconductor IP for the design and manufacture of system-on-a-chip integrated circuits, has exposure to financial market risks, including changes in foreign currency exchange rates and interest rates. A significant
portion of our customers are located in Asia, Canada and Europe. However, to date, our exposure to foreign currency exchange fluctuations has been minimal because all of our license agreements provide for payment in U.S. dollars.

Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political
climate, differing tax environments, other regulations and restrictions and foreign exchange rate volatility. Our foreign subsidiaries incur most of their expenses in the local currency. To date these expenses have not been significant, therefore,
we do not anticipate our future results will be materially adversely impacted by changes in factors affecting international operations.

We are exposed to
the impact of interest rate changes and changes in the market values of our investments. We maintain an investment portfolio of various issuers, types and maturities. These securities are classified as available-for-sale and, consequently, are
recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders equity. Our investments primarily consist of short-term money market mutual funds, United States government
obligations and commercial paper. Our short term investments balance of $25.0 million at June 30, 2008 consists of instruments with original maturities of less than one year. We also hold approximately $29.6 million in U.S. government
obligation and corporate bonds with maturities greater than one year. The estimated fair value of our investment portfolio as of June 30, 2008, assuming a 100 basis point increase in market interest rates, would decrease by approximately $0.5
million, which would not materially affect our operations. We have the ability to hold our fixed income investments until maturity and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our securities portfolio. If necessary, we may sell short-term investments prior to maturity to meet our liquidity needs.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the
Exchange Act of 1934, as of the end of the period covered by this quarterly report. Our Chief Executive Officer and Chief Financial Officer supervised and participated in the evaluation. Based on the evaluation, our Chief Executive Officer and Chief
Financial Officer each concluded that, as of the date of the evaluation, our disclosure controls and procedures were effective in providing reasonable assurance that material information relating to us and our consolidated subsidiaries is recorded,
processed and made known to management on a timely basis, including during the period when we prepare our periodic SEC reports. The design and operation of any system of controls is based in part upon certain assumptions about the likelihood of
future events and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 that occurred during the quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

None.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risk Related to Our Business

Inability or delayed execution on our strategy to be a leading provider of semiconductor IP could adversely affect our revenues and profitability.

From inception to May 2002, most of our revenues derived from the license of our embedded memory products. In May 2002, we expanded our product
offering to also include logic products. In 2003, we added I/Os to our product offering to enable us to offer semiconductor IP platforms. During fiscal 2007, we acquired Ingot Systems, Inc., a provider of memory controller products and design
services and in June 2008, we acquired the non-volatile memory business segment of Impinj, Inc. If our strategy to be a provider of semiconductor IP platforms is not broadly accepted by potential customers or acceptance is delayed for any reason,
our revenues and profitability could be adversely affected. In addition, our profitability could also be adversely affected due to investment of resources directed to the development and/or acquisition of logic and I/O products and due to lower than
anticipated revenues from the sale of such products. Factors that could prevent us from gaining market acceptance of our semiconductor IP products include the following:



| |  |  | difficulties in convincing customers of our memory products to purchase other products from us;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | difficulties and delays in expanding our logic and I/O product offerings; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | hurdles we may encounter in building and expanding customer relationships.
| | - |  | --------------------------------------------------------------------------

We may have difficulty sustaining profitability and may experience additional losses in the future.

We
recorded a net income of $601,000 for the first nine months of fiscal 2008 and a net loss of $4.2 million for fiscal 2007. In order to improve our profitability, we will need to continue to generate new sales while controlling our expenses. As we
plan on continuing the growth of our business while implementing cost control measures, we may not be able to successfully generate enough revenues to return to profitability with this growth. Any failure to increase our revenues and control costs
as we pursue our planned growth would harm our profitability and would likely negatively affect the market price of our stock. In addition, if we incurred losses for a sustained period we may be prevented from being able to fully utilize our
deferred tax assets which would result in the need for a valuation allowance to be recorded.

We have recently acquired a small business unit, and we
intend to continue to engage in acquisitions, joint ventures and other transactions that may complement or expand our business. We may not be able to complete such transactions and such transactions, if executed, pose significant risks and could
have a negative effect on our operations.

In June 2008 we acquired the logic non-volatile memory (NVM) intellectual property (IP) business of
Impinj, Inc. Impinj is a provider of RFID solutions. In addition to the acquisition of assets from Impinj and assumption of customer agreements, we have hired approximately 30 former Impinj employees. Achievement of our business goals may be
dependent on opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions for
a variety of reasons, including our inability to structure appropriate financing for larger transactions. Any transactions that we are able to identify and complete may involve a number of risks, including the following:



| |  |  | the diversion of our managements attention from our existing business to integrate the operations and personnel of the acquired or combined business or
technology;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | possible adverse effects on our operating results during the integration process; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our possible inability to achieve the intended objectives of the transaction.
| | - |  | -----------------------------------------------------------------------------

In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures
and policies, and this may lead to operational inefficiencies. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things,
integration of product offerings,



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manufacturing relationships and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be
increased by the need to coordinate geographically separated organizations and the complexity of the technologies being integrated. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not
achieve the anticipated or desired benefits of such transactions. The inability of management to successfully integrate any future acquisition could harm our business.

If we are unable to continue establishing relationships on favorable contractual terms with semiconductor companies to license our IP, our business will be harmed.

We rely on license fees from the sale of perpetual and term licenses to generate a large portion of our revenues. These licenses produce streams of revenue in the periods
in which the license fees are recognized, but are not necessarily indicative of a commensurate level of revenue from the same customers in future periods. In addition, our agreements with our customers do not obligate them to license new or future
generations of our IP. As a result, the growth of our business depends significantly on our ability to expand our business with existing customers and attract new customers.

We face numerous challenges in entering into license agreements with semiconductor companies on terms beneficial to our business, including the following:



| |  |  | the lengthy and expensive process of building a relationship with potential customers;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | competition with the customers internal design teams and other providers of semiconductor IP as our customers may evaluate these alternatives for each design;
and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the need to persuade semiconductor companies to rely on us for critical technology.
| | - |  | -----------------------------------------------------------------------------------

These factors may make it difficult for us to maintain our current relationships or establish new relationships with additional customers. Further, there are a finite number of fabless semiconductor companies and
integrated device manufacturers to which we can license our IP. If we are unable to establish and maintain these relationships, we will be unable to generate license fees, and our revenues will decrease.

If we are unable to maintain existing relationships and/or develop new relationships with pure-play semiconductor manufacturers or foundries, we will be unable to
verify our technologies on their processes and license our IP to them or their customers and our business will be harmed.

Our ability to verify our
technologies for new manufacturing processes depends on entering into development agreements with pure-play foundries to provide us with access to these processes. In addition, we rely on pure-play foundries to manufacture our silicon test chips, to
provide referrals to their customer base and to help define the focus of our research and development activities. We currently have foundry agreements with Chartered Semiconductor Manufacturing (Chartered), Dongbu Hitek Ltd. (Dongbu HiTek), SilTerra
Malaysia Sdn. Dhd. (SilTerra), Silicon Manufacturing International Corporation (SMIC), Tower Semiconductor, Ltd. (Tower), Taiwan Semiconductor Manufacturing Company (TSMC), and United Microelectronics Company (UMC). If we are unable to maintain our
existing relationships with these foundries or enter into new agreements with other foundries, we will be unable to verify our technologies for their manufacturing processes and our ability to develop products for emerging technologies will be
hampered. As of consequence, we would be unable to license our IP to fabless semiconductor companies that use these foundries to manufacture their silicon chips, which is a significant source of our revenues.

We must appropriately manage our relationships with foundries and other strategic partners in order to effectively execute on our business strategy.

In relying on pure-play manufacturing relationships and/our other strategic alliances, we face the following risks:



| |  |  | reduced control over delivery schedules and product costs;
| | - |  | ----------------------------------------------------------



| |  |  | manufacturing costs that may be higher than anticipated;
| | - |  | --------------------------------------------------------



| |  |  | inability of our manufacturing partners to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce
our products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decline in product reliability;
| | - |  | -------------------------------



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| |  |  | inability to maintain continuing relationships with our pure-play manufacturers due to competition or market consolidation; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | restricted ability to meet customer demand when faced with product shortages.
| | - |  | -----------------------------------------------------------------------------

If any of these risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or adversely affect our business, financial condition and
results of operations.

If we are unsuccessful in increasing our royalty revenues, our revenues and profitability may not grow as desired.

We have agreements with pure-play semiconductor foundries to pay us royalties on their sales of
silicon chips they manufacture for our fabless customers. Beginning with our STARMemory System and more recently with the introduction of our NOVeA® technology, in addition to collecting royalties from pure-play semiconductor foundries, we intend to increase our royalty base by collecting royalties directly from our integrated device manufacturer and fabless
customers. However, we may not be successful in convincing all customers to agree to pay us royalties. For the first nine months of fiscal 2008 and 2007, we recorded royalty revenues of approximately $8.7 million and $8.9 million, respectively. The
growth of our revenues depends in part on increasing our royalty revenues, but we may not be successful in increasing our royalty revenues as expected and we face difficulties in forecasting our royalty revenues because of many factors beyond our
control, such as fluctuating sales volumes of products that incorporate our IP, short or unpredictable product life cycles for some customer products containing our IP, potential slow down for manufacturing of certain newer process technology,
foundry rate adjustments, the cyclical nature of the semiconductor industry that affects the number of designs, commercial acceptance of these products, accuracy of revenue reports received from our customers and difficulties in the royalty
collection process. In addition, occasionally we have completed agreements whereby significant upfront license fees are reduced or limited in exchange for higher royalty rates, which should result in future royalty revenues, but these royalty
arrangements may not provide us with the anticipated benefits as sales of products incorporating our IP may not offset lower license fees.

It is
difficult for us to verify royalty amounts owed to us under our licensing arrangements.

The standard terms of our license agreements require our
customers to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While standard license terms give us the right to audit the books and records of our customers to verify this
information, audits can be expensive, time consuming and potentially detrimental to our ongoing business relationship with our customers. Our inability to audit all of our customers books and records may result in us receiving more or less
royalty revenue than we are entitled to under the terms of our license agreements. The results of such audits could also result in an increase, as a result of a customers underpayment, or decrease, as a result of a customers overpayment,
to royalty revenues. Such adjustments, as a result of the audit, are recorded in the period they are determined. Any adverse material adjustments resulting from royalty audits may cause our revenues and operating results to be below market
expectations, which could cause our stock price to decline. The royalty audit may also trigger disagreements over contractual terms with our customers and such disagreements could adversely affect customer relationship, divert the efforts and
attention of our management from normal operations and impact our business operations.

We may be unable to deliver our customized memory, logic and
I/O products in the time-frame demanded by our customers, which could damage our reputation and future sales.

A portion of our agreements require
us to provide customized products to our customers within a specified delivery timetable. While we have experienced delays in delivering products to our customers, the durations of these delays have typically been short in length so as to not
materially damage our relationship with our customers. However, these delays could adversely impact our operations and our financial performance. Future failures to meet significant customer milestones could damage our reputation in our industry and
harm our ability to attract new customers.

We have a long and unpredictable sales cycle, which can result in uncertainty and delays in generating
additional revenues.

It can take a significant amount of time and effort to negotiate a sale. Typically, it generally takes at least three to nine
months after our first contact with a prospective customer before we start licensing our IP to that customer. In addition, purchase of our products is usually made in connection with new design starts, the timing of which is out of our control.
Accordingly, we may be unable to predict accurately the timing of any significant future sales of our products. We may also spend substantial time and management attention on potential license agreements that are not consummated, thereby foregoing
other opportunities.



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Winning business is subject to a competitive selection process that can be lengthy and requires us to incur
significant expense, and we may not be selected.

Our primary focus is on winning competitive bid selection processes, known as design
wins, to develop products for use in our customers equipment. These selection processes can be lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may
never generate any revenue despite incurring significant design and development expenditures. Because we typically focus on only a few customers in a product area, the loss of a design win can sometimes result in our failure to offer a generation of
a product. This can result in lost sales and could hurt our position in future competitive selection processes because we may be perceived as not being a technology leader.

After winning a product design for one of our customers, we may still experience delays in generating revenue from our products as a result of the lengthy development and design cycle. In addition, a delay or
cancellation of a customers plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue. Finally, if our customers fail to successfully market and sell their equipment
it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.

Products that
do not meet customer specifications or contain material defects could damage our reputation and cause us to lose customers and revenue.

The
complexity and ongoing development of our products could lead to design or manufacturing problems. Our semiconductor IP products may fail to meet our customers design or technical requirements, or may contain defects, which may cause our
customers to fail to complete the design and manufacturing of their products in a timely manner. Any of these problems may harm our customers businesses. If any of our products fail to meet specifications or have reliability or quality
problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenue, an increase in product returns and the loss of existing customers or failure to attract new
customers. These problems may adversely affect customer relationships, as well as our business, financial condition and results of operations.

As
advanced process nodes become more complex we may have difficulty in delivering product specifications in similar timeframes and at comparable costs to older process nodes.

The increasing complexity of our products at advanced nodes requires different customer engagements and validation strategies. Such changes require the acceptance of different business terms and schedules by our
customers. They also may require an increase of test silicon for purposes of validating performance parameters. Such changes may impact our ability to acquire new customers and could increase our operating expenses.

Our international operations may be adversely affected by instability in the countries in which we operate.

We currently have subsidiaries or branches in the Republic of Armenia, India, the United Kingdom, Israel, Germany and Japan. In addition, a significant portion of our IP
is being developed in development centers located in the Republic of Armenia and India. Israel continues to face a significant level of civic unrest. India is experiencing rising costs and in certain industries, intense competition for highly
qualified personnel. Armenia has in recent years suffered significant political and economic instability. Accordingly, conditions in areas of the world in which we operate may adversely affect our business in a number of ways, including the
following:



| |  |  | changes in the political or economic conditions in Armenia and changes in the economic conditions in India and the surrounding region, such as fluctuations in
exchange rates, changes in laws protecting IP, the imposition of currency transfer restrictions or limitations, or the adoption of burdensome trade or tax policies, procedures, rules, regulations or tariffs, changes in the demand for technical
personnel could adversely affect our ability to develop new products, to take advantage of the cost savings associated with operations in Armenia and India, and to otherwise conduct business effectively in Armenia and India;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue conducting business in Israel and other countries in the normal course may be adversely affected by increased risk of social and political
instability; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our Israeli customers demand for our products may be adversely affected because of negative economic consequences associated with reduced levels of safety and
security in Israel.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Problems associated with international business operations could affect our ability to license our IP.

Sales to customers located outside North America accounted for 54% and 60% of our revenues for fiscal years ended September 30, 2007 and 2006,
respectively. For the nine months ended June 30, 2008 and 2007, sales to customers located outside North America accounted for 53% and 59% of our revenues, respectively. We anticipate that sales to customers located outside North America will
continue to increase and will represent a significant portion of our total revenues in future periods. In addition, most of our customers that do not own their own fabrication plants rely on pure-play foundries located outside of North America.
Accordingly, our operations and revenues are subject to a number of risks associated with doing business in international markets, including the following:



| |  |  | managing distributors and sales partners outside the U.S.;
| | - |  | ----------------------------------------------------------



| |  |  | staffing and managing non-U.S. branch offices and subsidiaries;
| | - |  | ---------------------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | greater difficulty in collecting account receivables resulting in longer collection periods;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | foreign currency exchange fluctuations;
| | - |  | ---------------------------------------



| |  |  | changes in tax laws and tariffs or the interpretation of such laws and tariffs;
| | - |  | -------------------------------------------------------------------------------



| |  |  | trade protection measures that may be adopted by other countries;
| | - |  | -----------------------------------------------------------------



| |  |  | compliance with, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | timing and availability of export licenses;
| | - |  | -------------------------------------------



| |  |  | inadequate protection of IP rights in some countries;
| | - |  | -----------------------------------------------------



| |  |  | different labor standards; and
| | - |  | ------------------------------



| |  |  | United States government licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

If these risks actually materialize, our international operations may be adversely affected and sales to international customers, as
well as those domestic customers that use foreign fabrication plants, may decrease.

We rely on a small number of customers for a substantial portion
of our revenues and our accounts receivables are concentrated among a small number of customers.

We have been dependent on a limited number of
customers for a substantial portion of our annual revenues in each fiscal year, although the customers comprising this group have changed from time to time. We have one customer that generated more than 10% of our revenue for the three months ended
June 30, 2008 and 2007. We have two customers that generated 10% or more of our revenue for the nine months ended June 30, 2008 and one customer that generated 10% or more of our revenue for the nine months ended June 30, 2007. The
license agreements we enter into with our customers do not obligate them to license future generations of our IP and, as a result, we cannot predict if and when they will purchase additional products from us. As a result of this customer
concentration, we could experience a significant reduction in our revenues if we lose one or more of our significant customers and are unable to replace them. In addition, since our accounts receivable are concentrated in a relatively small number
of customers, a significant change in the liquidity, financial position, or issues regarding timing of payments of any one of these customers could have a material adverse impact on the collectibility of our accounts receivable, revenues recorded
and our future operating results.

Our quarterly operating results may fluctuate significantly and the failure to meet financial expectations for any
fiscal quarter may cause our stock price to decline.

Our quarterly operating results are likely to fluctuate in the future from quarter to quarter
and on an annual basis due to a variety of factors, many of which are outside of our control. Factors that could cause our revenues and operating results to vary materially from quarter to quarter include the following:



| |  |  | large orders unevenly spaced over time, or the cancellation or delay of orders;
| | - |  | -------------------------------------------------------------------------------



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| |  |  | pace of adoption of new technologies by customers;
| | - |  | --------------------------------------------------



| |  |  | timing of introduction of new products and technologies and technology enhancements by us and our competitors;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | our lengthy sales cycle and fluctuations in the demand for our products and products that incorporate our IP;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | constrained or deferred spending decisions by customers;
| | - |  | --------------------------------------------------------



| |  |  | delays in new process qualification or verification;
| | - |  | ----------------------------------------------------



| |  |  | capacity constraints at the facilities of our foundries;
| | - |  | --------------------------------------------------------



| |  |  | inability to collect or delay in collection of receivables;
| | - |  | -----------------------------------------------------------



| |  |  | the timing and completion of milestones under customer agreements;
| | - |  | ------------------------------------------------------------------



| |  |  | the impact of competition on license revenues or royalty rates;
| | - |  | ---------------------------------------------------------------



| |  |  | the cyclical nature of the semiconductor industry and the general economic environment;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | consolidation, merger and acquisition activity of our customer base may cause delays or loss of sales;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the amount and timing of royalty payments;
| | - |  | ------------------------------------------



| |  |  | changes in development schedules; and
| | - |  | -------------------------------------



| |  |  | research and development expenditures.
| | - |  | --------------------------------------

As a result,
we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and may not be reliable as indicators of future performance. These factors make it difficult for us to accurately predict our revenues and
operating results and may cause them to be below market analysts expectations in some quarters, which could cause the market price of our stock to decline.

If we are unable to effectively manage our growth, our business may be harmed.

Our future success depends on our ability to
successfully manage our growth. Our ability to manage our business successfully in a rapidly evolving market requires an effective planning and management process. Our customers rely heavily on our technological expertise in designing and testing
our products. Relationships with new customers may require significant engineering resources. As a result, any increase in the demand for our products will increase the requirements on our personnel, particularly our engineers.

Our historical growth, international expansion, and our strategy of being the semiconductor industrys trusted IP partner, have placed, and are expected to continue
to place, a significant challenge on our managerial and financial resources as well as our financial and management controls, reporting systems and procedures. Although some new controls, systems and procedures have been implemented, our future
growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information and control systems on a timely basis, together with maintaining effective cost controls. Our inability to manage any
future growth effectively would be harmful to our revenues and profitability.

We have received assessment orders from the Government of India,
Income Tax Department, Office of the Director of Income Tax (Indian Tax Authorities) proposing a tax deficiency in certain of our tax returns, and the outcome of the assessment or any future assessment involving similar claims may have an adverse
effect on our consolidated statements of operations.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2001
through 2006 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency for the five year period of approximately $1.2 million, plus interest, which interest will accrue until the matter is
resolved. The assessment orders are not final notices of deficiency, and we have immediately filed appeals to the appellate tax authorities. We believe that the assessments are inconsistent with the applicable tax laws and that we have meritorious
defense to the assessments. However,



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the ultimate outcome cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter.
Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations in future periods that could have an adverse effect on our consolidated statements of
operations.

We may be unable to attract and retain key personnel who are critical to the success of our business.

We believe our future success depends on our ability to attract and retain engineers and other highly skilled personnel and senior managers. In addition, in order to grow
our business we must increase our sales force, both domestic and international, with qualified employees. Hiring qualified technical, sales and management personnel is difficult due to a limited number of qualified professionals and competition in
our industry for these types of employees. We have in the past experienced delays and difficulties in recruiting and retaining qualified technical and sales personnel and believe that at times our employees are recruited aggressively by our
competitors and start-up companies. Our employees are at will and may leave our employment at any time, and under certain circumstances, start-up companies can offer more attractive equity incentives than we offer. As a result, we may
experience significant employee turnover. Failure to attract and retain personnel, particularly sales and technical personnel would make it difficult for us to develop and market our technologies.

We may need additional capital that may not be available to us and, if raised, may dilute our stockholders ownership interest in us.

We may need to raise additional funds to fund growth of our business and any acquisitions we may pursue, to respond to competitive pressures or to acquire complementary
products or technologies. Additional equity or debt financing may not be available on terms that are acceptable to us. If we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our stockholders
would be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. If adequate funds are not available on acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities, develop or enhance our products or services, or otherwise respond to competitive pressures would be significantly limited.

Risk Related to Our Industry

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both
semiconductor companies and their customers products and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated
erosion of average selling prices. We have experienced these conditions in our business in the past and may experience such downturns in the future. We may not be able to manage these downturns. Any future downturns of this nature could have a
material adverse effect on our business, financial condition and results of operations.

If demand for products incorporating complex semiconductors
and semiconductor IP does not increase, our business may be harmed.

Our business and the adoption and continued use of our IP by semiconductor
companies depends on continued demand for products requiring complex semiconductors, embedded memories and logic elements, such as cellular and digital phones, pagers, PDAs, digital cameras, DVD players, switches and modems. The demand for such
products is uncertain and difficult to predict, and it depends on factors beyond our control such as the competition faced by each customer, market acceptance of products that incorporate our IP and the financial and other resources of each
customer. A reduction in the demand for products incorporating complex semiconductors and semiconductor IP or a decline in the general economic environment which results in the cutback of research and development budgets or capital expenditures
would likely result in a reduction in demand for our products and could harm our business. In addition, with increasing complexity in each successive generation of semiconductors, we face the risk that the rate of adoption of smaller technology
processes may slow down.

In addition, the semiconductor industry is highly cyclical. Significant economic downturns characterized by diminished demand,
erosion of average selling prices, production overcapacity and production capacity constraints are other factors affecting the semiconductor industry. As a result, we may face a reduced number of design starts, tightening of customers
operating budgets, extensions of the approval process for new orders and projects and consolidation among our customers, all of which may adversely affect the demand for our products and may cause us to experience substantial period-to-period
fluctuations in our operating results.



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The market for semiconductor IP can be highly competitive and dynamic. We may experience loss in market share to
larger competitors with greater resources and/or our customer base may choose to develop semiconductor IP using their own internal design teams.

We
face competition from both existing suppliers of third-party semiconductor IP, as well as new suppliers that may enter the market. We also compete with the internal design teams of large, integrated device manufacturers. Many of these internal
design teams have substantial programming and design resources and are part of larger organizations with substantial financial and marketing resources. These internal teams may develop technologies that compete directly with our technologies or may
actively seek to license their own technologies to third parties, which could negatively affect our revenue and operating results. In addition, our existing customers may choose to develop their own technology solutions internally.

Many of our existing competitors have longer operating histories, greater brand recognition and larger customer bases, as well as greater financial and marketing
resources, than we do. This may allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources than we can to the development and promotion of
their products. In addition, the intense competition in the market for semiconductor IP could result in pricing pressures, reduced license revenues, reduced margins or lost market share, any of which could harm our operating results and cause our
stock price to decline.

The technology used in the semiconductor industry is rapidly changing and if we are unable to develop new technologies and
adapt our existing IP to new processes, we will be unable to attract or retain customers.

The semiconductor industry has been characterized by an
increasingly rapid rate of development of new technologies and manufacturing processes, rapid changes in customer requirements, frequent product introductions and ongoing demands for greater speed and functionality. Our future success depends on our
ability to develop new technologies and introduce new products to the marketplace in a timely manner, and to adapt our existing IP to satisfy the requirements of new processes and our customers. If our development efforts are not successful or are
significantly delayed, or if the enhancements or new generations of our products do not achieve market acceptance, we may be unable to attract or retain customers and our operating results could be harmed.

Our ability to continue developing technical innovations involves several risks, including the following:



| |  |  | our ability to anticipate and respond in a timely manner to changes in the requirements of semiconductor companies;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the emergence of new semiconductor manufacturing processes and our ability to enter into strategic relationships with pure-play semiconductor foundries to develop
and test technologies for these new processes and provide customer referrals;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the significant research and development investment that we may be required to make before market acceptance, if any, of a particular technology;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the possibility that the industry may not accept a new technology or may delay use of a new technology after we have invested a significant amount of resources to
develop it; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | new technologies introduced by our competitors.
| | - |  | -----------------------------------------------

If
we are unable to adequately address these risks, our IP will become obsolete and we will be unable to sell our products. Further, as new technologies or manufacturing processes are announced, customers may defer licensing our IP until those new
technologies become available or our IP has been adopted for that manufacturing process.

In addition, research and development requires a significant
expense and resource commitment. We may not have the financial and other resources necessary to develop the technologies demanded in the future and may be unable to attract or retain customers.

General economic conditions and future terrorist attacks may reduce our revenues and harm our business.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Continued unrest in
Israel and the Middle East may negatively impact the investments that our worldwide customers make in these geographic regions. If businesses or consumers defer or cancel purchases of new products that contain complex semiconductors, purchases by
fabless semiconductor companies, integrated device manufacturers and production levels by semiconductor manufacturers could decline. This could adversely affect our revenues which in turn would have an adverse effect on our results of operations and
financial condition.



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Risk Related to Our Intellectual Property Rights

We rely on our proprietary technologies and we cannot assure you that the precautions taken to protect our rights will be adequate or that we will continue to be able to adequately secure such proprietary
technologies from third parties.

We rely on a combination of patent, trademark, copyright, mask work and trade secret laws to protect our
proprietary rights in our technologies. We cannot be sure that the United States Patent and Trademark Office will issue patents or trademarks for any of our pending applications. Further, any patents or trademark rights that we hold or may hold in
the future may be challenged, invalidated or circumvented or may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us Furthermore, the laws of some foreign countries may not adequately protect our
IP to the same extent as applicable laws protect our IP in the United States. For instance, some portion of our IP developed outside of the United States may not receive the same copyright protection that it would receive if it was developed in the
United States. As we increase our international presence, we expect that it will become more difficult to monitor the development of competing technologies that may infringe on our rights as well as unauthorized use of our technologies.

We use license agreements, confidentiality agreements and employee nondisclosure and assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire basis. We cannot be sure that we have taken adequate steps to protect our IP rights and deter misappropriation of these rights or that we will be able to detect
unauthorized uses and take effective steps to enforce our rights. Since we also rely on unpatented trade secrets to protect some of our proprietary technology, we cannot be certain that others will not independently develop and patent the same
technologies or otherwise acquire the same or substantially equivalent technologies or otherwise gain access to our proprietary technology or disclose that technology. We also cannot be sure that we can ultimately protect our rights to and
improperly disclose our proprietary technologies to others.

Third parties may claim we are infringing or assisting others to infringe their IP
rights, and we could suffer significant litigation or licensing expenses or be prevented from licensing our technology.

There are numerous patents
in the semiconductor industry and new patents are being issued at a rapid rate. It is not always practicable to determine in advance whether our technologies infringe the patent right of others. As a result, we may be compelled to respond to
infringement claims by third parties to protect our rights or defend our customers rights. These infringement claims, regardless of merit, could be costly and time-consuming, and divert our management and key personnel from our business
operations. In settling these claims, we may be required to pay significant damages and may be prevented from licensing some of our technologies unless we enter into a royalty or license agreement. In addition, if challenging a claim is not
feasible, we might be required to enter into royalty or license agreements. If available, the royalty or license agreement may include terms which require us to obtain a license from the third-party to sell or use the relevant technology which may
result in significant expenses to the Company or to redesign the technology which would be time consuming and costly to the Company. In the event that we are not be able to obtain such royalty or license agreements on terms acceptable to us, we may
be prevented from licensing or developing our technology.

Risk Related to Our Stock

Our stock price may be volatile and could decline substantially.

The market price of our common stock has
fluctuated significantly in the past, will likely continue to fluctuate in the future and may decline. Fluctuations or a decline in our stock price may occur regardless of our performance. Among the factors that could affect our stock price, in
addition to our performance, are the following:



| |  |  | variations between our operating results and the published expectations of securities analysts;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in financial estimates or investment recommendations by securities analysts who follow our business;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of significant contracts, new products or services, acquisitions, or other significant transactions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inclusion or exclusion of our stock in various indices or investment categories, especially as compared to the investment profiles of our stockholders at a
given time;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in economic and capital market conditions;
| | - |  | --------------------------------------------------



| |  |  | changes in business regulatory conditions; and
| | - |  | ----------------------------------------------



| |  |  | the trading volume of our common stock.
| | - |  | ---------------------------------------

A
sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of a substantial number of
shares of our common stock in the public market could adversely affect the market price of our common stock. Alexander Shubat, our Chief Operating Officer and a member of the Board of Directors, holds a large block of our common stock.
Mr. Shubat has established a sales plan, or other sales accounts, to sell shares of our common stock and diversify his holdings. Significant sales by insiders, or the perception that large sales could occur, could adversely impact the public
market for our stock. Sales transactions are also subject to the restrictions and filing requirements mandated by Securities and Exchange Commission Rule 144. Our officers, directors and principal stockholders controlled as of June 30, 2008
approximately 57% of our common stock. As a result, this significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages to owning stock in companies with
significant block stockholders.

Our certificate of incorporation and bylaws as well as Delaware law contain provisions that could discourage
transactions resulting in a change in control, which may negatively affect the market price of our common stock.

Our certificate of incorporation,
our bylaws and Delaware law contain provisions that make it more difficult for another company to acquire control of our Company. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of
our common stock. These provisions include:



| |  |  | our Board of Directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as blank check
preferred stock, with rights senior to those of common stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our Board of Directors is staggered into three classes, only one of which is elected at each annual meeting;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | stockholder action by written consent is prohibited;
| | - |  | ----------------------------------------------------



| |  |  | nominations for election to our Board of Directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice
requirements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | certain provisions in our bylaws and certificate may only be amended with the approval of stockholders holding 80% of our outstanding voting stock;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our stockholders to call special meetings of stockholders is prohibited; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | our Board of Directors is expressly authorized to make, alter or repeal our bylaws.
| | - |  | -----------------------------------------------------------------------------------

We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is
an interested stockholder and may not engage in any business combination with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock. In addition, in February 2007, we
executed change in control agreements with our executive officers, which provide severance benefits following a termination without cause, or for good reason, following a change in control. The existence of these agreements and potential pay-outs
could act as a deterrent to a potential acquirer.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES
|------- | ---------------------------------------

The following table
provides the specified information about the repurchase of shares by the Company subsequent to June 30, 2008.



|               |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           
|-------------- |  | ------------------------------ |  | ------------------- | ---- | ------------------------------------------------------------------------- | ------- | ----------------------------------------------------------------------------------------- | - | ----------
|Period         |  | Total numberof sharespurchased |  | Price paid pershare |      | Total numberof sharespurchased aspart ofpubliclyannouncedplans orprograms |         | Maximumapproximatedollar value ofshares that mayyet bepurchasedunder the plansor
programs
|August 4, 2008 |  | 700,000                        |  | $                   | 6.49 |                                                                           | 700,000 |                                                                                           | $ | 15,457,000
|               |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           
|Total          |  | 700,000                        |  | $                   | 6.49 |                                                                           | 700,000 |                                                                                           |   |           
|               |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           

On May 6, 2008, the Company adopted a stock repurchase program to purchase up to $20 million in shares of the
common stock in the open market or negotiated transactions through May 2009. See Note 11. Stock Repurchase Program.



|ITEM 3. | EXHIBITS
|------- | --------



|           |  |                                                                                                                                                       
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Exhibits                                                                                                                                              
|           | 
|31.1       |  | Certification Pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|           | 
|31.2       |  | Certification Pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|           | 
|32.1       |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                
|           | 
|32.2       |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                



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SIGNATURES

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



|                     |  |  |  |                                             
|-------------------- |  |  |  | --------------------------------------------
|Date: August 8, 2008 |  |  |  | VIRAGE LOGIC CORPORATION                    
|                     |  | 
|                     |  |  |  | /s/ J. Daniel McCranie                      
|                     |  |  |  | J. Daniel McCranie                          
|                     |  |  |  | President and Chief Executive Officer       
|                     |  | 
|                     |  |  |  | /s/ Christine Russell                       
|                     |  |  |  | Christine Russell                           
|                     |  |  |  | Chief Financial Officer                     
|                     |  |  |  | (Principal Financial and Accounting Officer)



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##### Table of Contents

EXHIBIT INDEX



|     |  |                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification Pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification Pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                
|     | 
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                



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