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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, 2010

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | 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 July 30, 2010, there were 26,020,760 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, 2010 and September 30,
2009                                   |  | 3   
|              |  |                                                                                                                         
|              |  | Unaudited Condensed Consolidated Statements of Operations  Three and Nine Months Ended June 30, 2010 and
 June 30, 2009 |  | 4   
|              |  |                                                                                                                         
|              |  | Unaudited Condensed Consolidated Statements of Cash Flows  Nine Months Ended June 30, 2010 and June 30,
2009            |  | 5   
|              |  |                                                                                                                         
|              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                           |  | 6   
|              |  |                                                                                                                         
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                    |  | 21  
|              |  |                                                                                                                         
|Item 3.       |  | Quantitative and Qualitative Disclosures about Market Risk                                                               |  | 29  
|              |  |                                                                                                                         
|Item 4.       |  | Controls and Procedures                                                                                                  |  | 30  
|              |  |                                                                                                                         
|              |  | Part II. Other Information                                                                                               |  |     
|              |  |                                                                                                                         
|Item 1.       |  | Legal Proceedings                                                                                                        |  | 30  
|              |  |                                                                                                                         
|Item 1A.      |  | Risk Factors                                                                                                             |  | 30  
|              |  |                                                                                                                         
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                              |  | 32  
|              |  |                                                                                                                         
|Item 3.       |  | Defaults Upon Senior Securities                                                                                          |  | 32  
|              |  |                                                                                                                         
|Item 4.       |  | Reserved                                                                                                                 |  | 32  
|              |  |                                                                                                                         
|Item 5.       |  | Other Information                                                                                                        |  | 32  
|              |  |                                                                                                                         
|Item 6.       |  | Exhibits                                                                                                                 |  | 33  
|              | 
|Signatures    |  | 34                                                                                                                      
|              | 
|Exhibit Index |  | 35                                                                                                                      



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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 30,2010 |         |   | September 30,2009 |  
|ASSETS                                                                                                                                                                                                                         |  |              |         |   |                   |   |         |  
|Current assets:                                                                                                                                                                                                                |  |              |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                      |  | $            | 29,210  |   |                   | $ | 22,473  |  
|Short-term investments                                                                                                                                                                                                         |  |              | 860     |   |                   |   | 7,383   |  
|Accounts receivable, net                                                                                                                                                                                                       |  |              | 22,618  |   |                   |   | 15,930  |  
|Costs in excess of related revenue on uncompleted contracts                                                                                                                                                                    |  |              | 2,134   |   |                   |   | 1,262   |  
|Deferred tax assets  current                                                                                                                                                                                                  |  |              | 416     |   |                   |   | 416     |  
|Prepaid expenses and other                                                                                                                                                                                                     |  |              | 5,893   |   |                   |   | 6,887   |  
|Taxes receivable                                                                                                                                                                                                               |  |              | 580     |   |                   |   | 108     |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total current assets                                                                                                                                                                                                           |  |              | 61,711  |   |                   |   | 54,459  |  
|Property, plant and equipment, net                                                                                                                                                                                             |  |              | 7,150   |   |                   |   | 6,533   |  
|Goodwill                                                                                                                                                                                                                       |  |              | 16,284  |   |                   |   | 10,984  |  
|Other intangible assets, net                                                                                                                                                                                                   |  |              | 28,170  |   |                   |   | 29,645  |  
|Deferred tax assets  long-term                                                                                                                                                                                                |  |              | 13,041  |   |                   |   | 8,858   |  
|Taxes receivable  long-term                                                                                                                                                                                                   |  |              | 3,186   |   |                   |   | 2,768   |  
|Other long-term assets                                                                                                                                                                                                         |  |              | 3,966   |   |                   |   | 4,858   |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total assets                                                                                                                                                                                                                   |  | $            | 133,508 |   |                   | $ | 118,105 |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|                                                                                                                                                                                                                               |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                           |  |              |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                                                                           |  |              |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                                                                               |  | $            | 3,172   |   |                   | $ | 4,767   |  
|Accrued expenses                                                                                                                                                                                                               |  |              | 22,383  |   |                   |   | 18,713  |  
|Deferred revenues                                                                                                                                                                                                              |  |              | 22,351  |   |                   |   | 9,930   |  
|Income taxes payable                                                                                                                                                                                                           |  |              | 154     |   |                   |   |        |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                                                                      |  |              | 48,060  |   |                   |   | 33,410  |  
|Income tax liability                                                                                                                                                                                                           |  |              | 179     |   |                   |   | 935     |  
|Deferred tax liability                                                                                                                                                                                                         |  |              | 3,155   |   |                   |   | 3,156   |  
|Other long-term accruals                                                                                                                                                                                                       |  |              | 971     |   |                   |   | 1,397   |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                                                                              |  |              | 52,365  |   |                   |   | 38,898  |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|                                                                                                                                                                                                                               |  |             
|Commitments and contingencies (Note 8)                                                                                                                                                                                         |  |              |        |   |                   |   |        |  
|Stockholders equity:                                                                                                                                                                                                          |  |              |         |   |                   |   |         |  
|Common stock, $0.001 par value; Authorized shares  150,000,000 as of June 30, 2010 and September 30, 2009; issued
and outstanding shares  26,839,907 and 24,023,642 as of June 30, 2010 and September 30, 2009, respectively |  |              | 27      |   |                   |   | 24      |  
|Additional paid-in capital                                                                                                                                                                                                     |  |              | 154,754 |   |                   |   | 143,754 |  
|Accumulated other comprehensive loss                                                                                                                                                                                           |  |              | (318    | ) |                   |   | (129    | )
|Treasury stock, at cost (890,000 shares as of June 30, 2010 and September 30, 2009)                                                                                                                                            |  |              | (5,130  | ) |                   |   | (5,130  | )
|Accumulated deficit                                                                                                                                                                                                            |  |              | (68,190 | ) |                   |   | (60,309 | )
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total Virage stockholders equity                                                                                                                                                                                              |  |              | 81,143  |   |                   |   | 78,210  |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Non-controlling interests in consolidated subsidiaries                                                                                                                                                                         |  |              |        |   |                   |   | 997     |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total equity                                                                                                                                                                                                                   |  |              | 81,143  |   |                   |   | 79,207  |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  
|Total liabilities and equity                                                                                                                                                                                                   |  | $            | 133,508 |   |                   | $ | 118,105 |  
|                                                                                                                                                                                                                               |  |              |         |   |                   |   |         |  

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



3



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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, |  
|                                                             |  | 2010                       |        |   | 2009                      |   |        | 2010 |  |   | 2009    |  
|Revenues:                                                    |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|License                                                      |  | $                          | 18,288 |   |                           | $ | 9,007  |      |  | $ | 50,082  |   |  | $ | 23,046  |  
|Maintenance                                                  |  |                            | 2,709  |   |                           |   | 1,730  |      |  |   | 7,095   |   |  |   | 5,318   |  
|Royalties                                                    |  |                            | 6,143  |   |                           |   | 1,184  |      |  |   | 16,866  |   |  |   | 5,931   |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total revenues                                               |  |                            | 27,140 |   |                           |   | 11,921 |      |  |   | 74,043  |   |  |   | 34,295  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Costs and expenses:                                          |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Cost of license and maintenance revenues                     |  |                            | 5,959  |   |                           |   | 2,529  |      |  |   | 14,431  |   |  |   | 7,499   |  
|Research and development                                     |  |                            | 13,510 |   |                           |   | 6,527  |      |  |   | 39,401  |   |  |   | 22,246  |  
|Sales and marketing                                          |  |                            | 4,939  |   |                           |   | 2,574  |      |  |   | 13,660  |   |  |   | 7,995   |  
|General and administrative                                   |  |                            | 4,776  |   |                           |   | 2,090  |      |  |   | 13,702  |   |  |   | 6,856   |  
|Goodwill impairment                                          |  |                            |       |   |                           |   |       |      |  |   |        |   |  |   | 11,839  |  
|Restructuring charges                                        |  |                            | 5,575  |   |                           |   | 22     |      |  |   | 5,575   |   |  |   | 1,495   |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total costs and expenses                                     |  |                            | 34,759 |   |                           |   | 13,742 |      |  |   | 86,769  |   |  |   | 57,930  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating loss                                               |  |                            | (7,619 | ) |                           |   | (1,821 | )    |  |   | (12,726 | ) |  |   | (23,635 | )
|Interest income                                              |  |                            | 32     |   |                           |   | 167    |      |  |   | 126     |   |  |   | 814     |  
|Other income (expense), net                                  |  |                            | 253    |   |                           |   | (239   | )    |  |   | 1,004   |   |  |   | (124    | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Loss before income taxes                                     |  |                            | (7,334 | ) |                           |   | (1,893 | )    |  |   | (11,596 | ) |  |   | (22,945 | )
|Income tax provision (benefit)                               |  |                            | (2,732 | ) |                           |   | 29     |      |  |   | (3,686  | ) |  |   | 7,935   |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                                     |  |                            | (4,602 | ) |                           |   | (1,922 | )    |  |   | (7,910  | ) |  |   | (30,880 | )
|Net loss attributable to the non-controlling interests       |  |                            |       |   |                           |   |       |      |  |   | (29     | ) |  |   |        |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net loss attributable to Virage stockholders                 |  | $                          | (4,602 | ) |                           | $ | (1,922 | )    |  | $ | (7,881  | ) |  | $ | (30,880 | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net loss per share attributable to Virage stockholders:      |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                        |  | $                          | (0.18  | ) |                           | $ | (0.08  | )    |  | $ | (0.31   | ) |  | $ | (1.35   | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                      |  | $                          | (0.18  | ) |                           | $ | (0.08  | )    |  | $ | (0.31   | ) |  | $ | (1.35   | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Weighted average shares used in computing per share amounts: |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                        |  |                            | 25,887 |   |                           |   | 22,978 |      |  |   | 25,337  |   |  |   | 22,905  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                      |  |                            | 25,887 |   |                           |   | 22,978 |      |  |   | 25,337  |   |  |   | 22,905  |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |         |   |  |   |         |  

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, 2010 |        |   | Nine Months EndedJune 30, 2009 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                                |        |   |                                |   |         |  
|Net loss                                                                    |  | $                              | (7,881 | ) |                                | $ | (30,880 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |        |   |                                |   |         |  
|Provision for doubtful accounts                                             |  |                                | 232    |   |                                |   | 430     |  
|Depreciation and amortization                                               |  |                                | 1,977  |   |                                |   | 1,012   |  
|Amortization of intangible assets                                           |  |                                | 5,575  |   |                                |   | 992     |  
|Share-based compensation                                                    |  |                                | 4,471  |   |                                |   | 1,452   |  
|Excess tax benefit from share-based compensation                            |  |                                | (1,147 | ) |                                |   | (117    | )
|Goodwill impairment                                                         |  |                                |       |   |                                |   | 11,839  |  
|Deferred income taxes                                                       |  |                                | (4,179 | ) |                                |   | 8,765   |  
|Changes in operating assets and liabilities:                                |  |                                |        |   |                                |   |         |  
|Accounts receivable                                                         |  |                                | (7,089 | ) |                                |   | 5,933   |  
|Costs in excess of revenue on uncompleted contracts                         |  |                                | (796   | ) |                                |   | (80     | )
|Prepaid expenses and other                                                  |  |                                | 722    |   |                                |   | 2,044   |  
|Taxes receivable                                                            |  |                                | (427   | ) |                                |   | (203    | )
|Other long-term assets                                                      |  |                                | (481   | ) |                                |   | (1,625  | )
|Accounts payable                                                            |  |                                | (1,388 | ) |                                |   | 175     |  
|Accrued expenses and other long-term liabilities                            |  |                                | 888    |   |                                |   | (66     | )
|Deferred revenues                                                           |  |                                | 13,942 |   |                                |   | (2,379  | )
|Current and non-current income taxes liability                              |  |                                | (675   | ) |                                |   | (1,660  | )
|                                                                            |  |                                |        |   |                                |   |         |  
|Net cash provided by (used in) operating activities                         |  |                                | 3,744  |   |                                |   | (4,368  | )
|                                                                            |  |                                |        |   |                                |   |         |  
|                                                                            |  |                               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                                |        |   |                                |   |         |  
|Purchase of property, plant and equipment                                   |  |                                | (2,168 | ) |                                |   | (2,702  | )
|Purchase of investments                                                     |  |                                | (865   | ) |                                |   | (42,387 | )
|Proceeds from maturities of investments                                     |  |                                | 7,351  |   |                                |   | 53,265  |  
|Cash paid for ARC non-controlling interest at acquisition                   |  |                                | (2,815 | ) |                                |   |        |  
|Cash paid for the NXP assets acquisition                                    |  |                                | (188   | ) |                                |   |        |  
|                                                                            |  |                                |        |   |                                |   |         |  
|Net cash provided by investing activities                                   |  |                                | 1,315  |   |                                |   | 8,176   |  
|                                                                            |  |                                |        |   |                                |   |         |  
|                                                                            |  |                               
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                                |        |   |                                |   |         |  
|Proceeds from issuance of common stock                                      |  |                                | 333    |   |                                |   | 38      |  
|Proceeds from sale-leaseback transaction                                    |  |                                |       |   |                                |   | 659     |  
|Cash paid for stock repurchase                                              |  |                                |       |   |                                |   | (566    | )
|Excess tax benefit from share-based compensation                            |  |                                | 1,147  |   |                                |   | 117     |  
|                                                                            |  |                                |        |   |                                |   |         |  
|Net cash provided by financing activities                                   |  |                                | 1,480  |   |                                |   | 248     |  
|                                                                            |  |                                |        |   |                                |   |         |  
|Effect of exchange rates on cash                                            |  |                                | 198    |   |                                |   | 300     |  
|                                                                            |  |                                |        |   |                                |   |         |  
|Net increase in cash and cash equivalents                                   |  |                                | 6,737  |   |                                |   | 4,356   |  
|Cash and cash equivalents at beginning of period                            |  |                                | 22,473 |   |                                |   | 13,214  |  
|                                                                            |  |                                |        |   |                                |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                              | 29,210 |   |                                | $ | 17,570  |  
|                                                                            |  |                                |        |   |                                |   |         |  
|                                                                            |  |                               
|SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:                                 |  |                                |        |   |                                |   |         |  
|Intangible assets and goodwill acquired in exchange for common stock        |  | $                              | 9,500  |   |                                | $ |        |  

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



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##### Table of Contents

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 (Virage, Virage Logic or the Company) was incorporated in California in November 1995 and subsequently reincorporated in Delaware
in July 2000. The Company provides semiconductor IP platforms incorporating memory, logic and I/Os (input/output interface components) as well as related services. 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 consumer, communications and networking, handheld and portable, computer and graphics, and automotive applications.

On June 9, 2010, the Company entered into a definitive merger agreement under which Synopsys, Inc. (Synopsys) has agreed to acquire all
of our common stock for $12.00 per share in cash and we will become a wholly owned subsidiary of Synopsys. The transaction is subject to Virage Logic shareholder approval, as well as other customary closing conditions. The merger is subject to
review by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission under the Hart-Scott Rodino Act (HSR Act). The applicable waiting period under the HSR Act expired at 11:59 p.m. Eastern daylight
time on July 19, 2010. The merger is expected to close in the third calendar quarter of 2010.

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, 2009 contained in the Companys 2009 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 three and nine months ended June 30, 2010 are not necessarily indicative of the results that may be expected
for any subsequent interim period or for the fiscal year ending September 30, 2010.

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

Reclassification

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically, the Company has
restated its prior periods for the impact of new accounting guidance for non-controlling interests. The effects of these reclassifications are not material to the consolidated financial statements.

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 re-measuring local currencies to the U.S. dollar
are recorded in the consolidated statements of operations in other income (expense), 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.



6



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##### Table of Contents

Revenue Recognition

The Company recognizes revenue on its intellectual property in accordance with the software revenue recognition guidelines 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 collectibility 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 is 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 the Companys 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 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, generally, 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. 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 collectibility 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. If all of the criteria as applicable have been met prior to the recognition of any revenue it would create an unbilled accounts receivable balance.



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Royalty revenues are generally determined and recognized one quarter in arrears or when a production volume
report is received from the customer or foundry. Royalty revenues are calculated based on actual production volumes of wafers containing chips utilizing the Companys 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 has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other
financial instruments approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair market value based on quoted market prices.

Cash and Cash Equivalents, Short-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 equivalents as of June 30, 2010 and September 30, 2009 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, 2010 and September 30, 2009, all investment securities are designated as available-for-sale. 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.

The available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains (losses) reported as a separate
component of stockholders equity. The Company periodically reviews the realizable value of its investments in marketable securities. When assessing marketable securities for other-than-temporary declines in value, the Company considers such
factors as the length of time and extent to which fair value has been less than the cost basis, the market outlook in general and the Companys intent and ability not to sell the investment for a period of time sufficient to allow for any
anticipated recovery in market value. If an other-than-temporary impairment of the investments is deemed to exist, the carrying value of the investment would be written down to its estimated fair value.

Investments, classified as available-for-sale securities, included the following (in thousands):



|                                      |  |               |     |                    |   |           |  |               |     |                    |   |           |  |   |    |  |   |      
|------------------------------------- |  | ------------- | --- | ------------------ | - | --------- |  | ------------- | --- | ------------------ | - | --------- |  | - | -- |  | - | -----
|                                      |  | June 30, 2010 |     | September 30, 2009
|                                      |  | AmortizedCost |     | UnrealizedGain (1) |   | FairValue |  | AmortizedCost |     | UnrealizedGain (1) |   | FairValue
|Government sponsored enterprise bonds |  | $             |    |                    | $ |          |  | $             |    |                    | $ | 4,507     |  | $ | 44 |  | $ | 4,551
|Commercial paper                      |  |               |    |                    |   |          |  |               |    |                    |   | 2,500     |  |   |   |  |   | 2,500
|Certificates of deposit               |  |               | 860 |                    |   |          |  |               | 860 |                    |   | 332       |  |   |   |  |   | 332  
|                                      |  |               |     |                    |   |           |  |               |     |                    |   |           |  |   |    |  |   |      
|Short-term investments                |  |               | 860 |                    |   |          |  |               | 860 |                    |   | 7,339     |  |   | 44 |  |   | 7,383
|                                      |  |               |     |                    |   |           |  |               |     |                    |   |           |  |   |    |  |   |      
|Total investments                     |  | $             | 860 |                    | $ |          |  | $             | 860 |                    | $ | 7,339     |  | $ | 44 |  | $ | 7,383
|                                      |  |               |     |                    |   |           |  |               |     |                    |   |           |  |   |    |  |   |      



|(1) | As of June 30, 2010 and September 30, 2009, there are no unrealized losses for available-for-sale securities.
|--- | -------------------------------------------------------------------------------------------------------------

Investments, classified as available-for-sale securities, are reported as (in thousands):



|                       |  |              |     |                   |   |      
|---------------------- |  | ------------ | --- | ----------------- | - | -----
|                       |  | June 30,2010 |     | September 30,2009
|Short-term investments |  | $            | 860 |                   | $ | 7,383
|                       |  |              |     |                   |   |      
|Total                  |  | $            | 860 |                   | $ | 7,383
|                       |  |              |     |                   |   |      

The contractual maturities of investments are as follows (in
thousands):



|                    |  |               |     |                    |   |               |  |           |       |  |   |      
|------------------- |  | ------------- | --- | ------------------ | - | ------------- |  | --------- | ----- |  | - | -----
|                    |  | June 30, 2010 |     | September 30, 2009
|                    |  | AmortizedCost |     | FairValue          |   | AmortizedCost |  | FairValue
|Due within one year |  | $             | 860 |                    | $ | 860           |  | $         | 7,339 |  | $ | 7,383
|                    |  |               |     |                    |   |               |  |           |       |  |   |      
|Total               |  | $             | 860 |                    | $ | 860           |  | $         | 7,339 |  | $ | 7,383
|                    |  |               |     |                    |   |               |  |           |       |  |   |      



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##### Table of Contents

Accounting for Internal-Use Computer Software

The Company capitalized certain external and internal costs, including internal payroll costs, incurred in connection with the development or acquisition
of software for internal use. These costs are capitalized beginning when the Company has entered the application development stage and ceases when the software is substantially complete and is ready for its intended use. The Company purchased and
capitalized costs of $267,000 and $129,000 during the nine months ended June 30, 2010, and 2009, respectively. Software is amortized using the straight-line method over the estimated useful life of three years.

Software Development Costs

Software development costs, related to software that is or will be sold or licensed externally to third-parties, or for which a substantive plan exists to
sell or license such software in the future, are capitalized beginning when the softwares technological feasibility has been established by completion of a working model of the product. Amortization of the costs begins when the product is
available for general release to customers and will be amortized to cost of license and maintenance revenues over the greater of its estimated useful life of 5 years or the ratio of accumulated revenue over estimated total revenue. As the software
was available for general release during the fourth quarter of fiscal 2009, the Company began to amortize the cost to cost of revenues. The Company has capitalized $1.5 million and $1.3 million for purchased development software costs at
June 30, 2010 and September 30, 2009 for sale in our products, net of amortization. The amortization expense for software development costs during the three months ended June 30, 2010 and 2009 are $136,000 and $0, respectively. The
amortization expense for software development costs during the nine months ended June 30, 2010 and 2009 are $0.4 million and $0, respectively.

Goodwill and Intangible Assets

Goodwill

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 was recorded during the first nine months of fiscal year 2010. The Company continues to monitor its fair value and operating results, and the carrying value of goodwill will be written down to its estimated fair
value, if an impairment of goodwill is deemed to exist.

On November 16, 2009, the Company acquired from NXP B.V. (NXP), a leading
semiconductor company founded by Royal Philips Electronics Inc., certain rights to IP assets associated with selected NXP advanced CMOS libraries, IP blocks and SoC infrastructure along with other classes of semiconductor IP, including approximately
25 associated patent families and certain related equipment. In connection with the acquisition, the Company hired approximately 150 former NXP employees. In exchange for the assets, the Company issued 2,500,000 shares of its common stock and paid
$188,000 in cash to NXP. The Company also became subject to liabilities that arise after the closing relating to the former employees of NXP the Company hired and assumed certain liabilities of NXP under contracts related to the assets.

The Company recorded $5.4 million of goodwill related to the acquisition of NXP advanced CMOS IP and engineering team (the NXP Assets). The following
table summarizes the activity related to the carrying value of the Companys goodwill during the nine months ended June 30, 2010 (in thousands):



|                                                                                    |  |                              |        |      
|----------------------------------------------------------------------------------- |  | ---------------------------- | ------ | -----
|                                                                                    |  | Nine MonthsEndedJune 30,2010 |       
|Beginning balance at September 30, 2009                                             |  | $                            | 10,984 |      
|Goodwill recorded in connection with the acquisition of the NXP Assets (see Note 2) |  |                              | 5,400  |      
|Purchase price adjustment in connection with the acquisition of ARC International   |  |                              | (100   | ) (1)
|                                                                                    |  |                              |        |      
|Ending balance at June 30, 2010                                                     |  | $                            | 16,284 |      
|                                                                                    |  |                              |        |      



|(1) | The adjustment to the purchase price of ARC International (ARC) in the first three quarters of fiscal 2010 is mainly attributable to the receipt of pre-acquisition
royalty reports from ARC customers which the Company was unable to estimate at the acquisition date. This is offset by adjustments in the assumed restructuring plans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Acquired Intangible Assets

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



|                             |  |               |        |                         |   |        |       |  |             |        |                         |   |        |       |   |        |   |  |   |       
|---------------------------- |  | ------------- | ------ | ----------------------- | - | ------ | ----- |  | ----------- | ------ | ----------------------- | - | ------ | ----- | - | ------ | - |  | - | ------
|                             |  | June 30, 2010 |        | September 30, 2009     
|                             |  | GrossAmount   |        | AccumulatedAmortization |   |        | Total |  | GrossAmount |        | AccumulatedAmortization |   |        | Total
|Amortized intangible assets: |  |               |        |                         |   |        |       |  |             |        |                         |   |        |       |   |        |   |  |   |       
|Technology                   |  | $             | 21,113 |                         | $ | (3,932 | )     |  | $           | 17,181 |                         | $ | 16,920 |       | $ | (1,059 | ) |  | $ | 15,861
|Customer lists               |  |               | 9,149  |                         |   | (2,016 | )     |  |             | 7,133  |                         |   | 9,149  |       |   | (329   | ) |  |   | 8,820 
|Patents                      |  |               | 4,800  |                         |   | (3,330 | )     |  |             | 1,470  |                         |   | 4,800  |       |   | (2,934 | ) |  |   | 1,866 
|Order backlog                |  |               | 1,989  |                         |   | (540   | )     |  |             | 1,449  |                         |   | 2,082  |       |   | (29    | ) |  |   | 2,053 
|Trade name                   |  |               | 1,092  |                         |   | (155   | )     |  |             | 937    |                         |   | 1,092  |       |   | (47    | ) |  |   | 1,045 
|                             |  |               |        |                         |   |        |       |  |             |        |                         |   |        |       |   |        |   |  |   |       
|Total                        |  | $             | 38,143 |                         | $ | (9,973 | )     |  | $           | 28,170 |                         | $ | 34,043 |       | $ | (4,398 | ) |  | $ | 29,645
|                             |  |               |        |                         |   |        |       |  |             |        |                         |   |        |       |   |        |   |  |   |       

The aggregate amortization expense related to acquired intangible
assets totaled approximately $5.6 million and $1.0 million for the nine months ended June 30, 2010 and 2009, respectively. In November 2009, the Company recorded $4.1 million of intangible assets related to the acquisition of the NXP Assets
(see Note 2).

Estimated amortization expenses for intangible assets for the remainder of fiscal 2010, the next four fiscal years and all
years thereafter are as follows (in thousands):



|                               |  |   |       
|------------------------------ |  | - | ------
|Estimated Amortization Expense |  |  
|2010                           |  | $ | 1,873 
|2011                           |  |   | 7,524 
|2012                           |  |   | 7,144 
|2013                           |  |   | 6,296 
|2014                           |  |   | 4,038 
|Thereafter                     |  |   | 1,295 
|                               |  |   |       
|Total                          |  | $ | 28,170
|                               |  |   |       

Impairment of long-lived assets

The Company evaluates the recoverability of long-lived assets with finite lives whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment charge is recognized in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. There were no impairment charges recorded in the
three months ended June 30, 2010 and 2009.

Share-based Compensation

The Company values its share-based awards on the date of grant using the Black-Scholes model. The Company is required to measure compensation cost for all
share-based awards at fair value on date of grant and recognizes this compensation expense on a straight-line basis over the service period that the awards are expected to vest. Stock options, generally, vest over a four-year service period. Total
compensation expense recognized for the three months ended June 30, 2010 and 2009 was $1.8 million and $0.5 million, respectively. As of June 30, 2010, total unrecognized estimated compensation expense net of forfeitures related to
non-vested equity awards granted prior to that date was $6.3 million and will be amortized over the average period of 2.53 years.

The
Company records the expense of such services based upon the estimated fair value of the equity instrument using the Black-Scholes pricing model. Assumptions used to value the equity instruments are consistent with equity instruments issued to
employees. The Company charges the value of the equity instrument to earnings over the term of the service agreement. There were no stock options grants to non-employees, excluding non-employee directors, and no expense recorded for stock options
granted to non-employees in the three months ended June 30, 2010 and 2009.



10



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##### Table of Contents

The share-based compensation expense related to the Companys share-based awards for the three and nine
months ended June 30, 2010 and 2009 were as follows (in thousands, except per share data):



|                                                        |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  
|------------------------------------------------------- |  | ----------------------------- | ----- | - | ----------------------------- | - | ---- | --------------------------- |  | - | --------------------------- | - |  | - | ----- | -
|                                                        |  | Three MonthsEndedJune 30,2010 |       |   | Three MonthsEndedJune 30,2009 |   |      | NineMonthsEndedJune 30,2010 |  |   | NineMonthsEndedJune 30,2009 |  
|Cost of license and maintenance revenues                |  | $                             | 207   |   |                               | $ | 76   |                             |  | $ | 419                         |   |  | $ | 198   |  
|Research and development                                |  |                               | 582   |   |                               |   | 168  |                             |  |   | 1,574                       |   |  |   | 524   |  
|Sales and marketing                                     |  |                               | 254   |   |                               |   | 11   |                             |  |   | 680                         |   |  |   | (108  | )
|General and administrative                              |  |                               | 747   |   |                               |   | 270  |                             |  |   | 1,798                       |   |  |   | 838   |  
|                                                        |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  
|Share-based compensation expense                        |  |                               | 1,790 |   |                               |   | 525  |                             |  |   | 4,471                       |   |  |   | 1,452 |  
|Related benefits                                        |  |                               | (689  | ) |                               |   | (202 | )                           |  |   | (1,721                      | ) |  |   | (559  | )
|                                                        |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  
|Share-based compensation expense, net of tax benefits   |  | $                             | 1,101 |   |                               | $ | 323  |                             |  | $ | 2,750                       |   |  | $ | 893   |  
|Net share-based compensation expense, per common share: |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  
|Basic                                                   |  | $                             | 0.04  |   |                               | $ | 0.01 |                             |  | $ | 0.11                        |   |  | $ | 0.04  |  
|                                                        |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  
|Diluted                                                 |  | $                             | 0.04  |   |                               | $ | 0.01 |                             |  | $ | 0.11                        |   |  | $ | 0.04  |  
|                                                        |  |                               |       |   |                               |   |      |                             |  |   |                             |   |  |   |       |  

As of June 30, 2010 and 2009, the Company capitalized approximately $183,000 and $147,000, respectively, of stock-based
compensation expense related to its custom contracts which have not been completed.

The Company is using the Black-Scholes model to value the
compensation expense associated with its share-based awards. In addition, the Company estimates forfeitures when recognizing compensation expense. The Company will adjust its 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.

The following weighted average assumptions were used in the estimated grant date fair value calculations for
equity awards:



|                        |  |                    |  |              |                   |  |              |   |  |              |  
|----------------------- |  | ------------------ |  | ------------ | ----------------- |  | ------------ | - |  | ------------ | -
|                        |  | Three Months Ended |  |              | Nine Months Ended | 
|                        |  | June 30,2010 *     |  | June 30,2009 |                   |  | June 30,2010 |   |  | June 30,2009 |  
|Volatility              |  | N/A                |  | 53           | %                 |  | 53           | % |  | 49           | %
|Risk-free interest rate |  | N/A                |  | 2.5          | %                 |  | 2.3          | % |  | 1.6          | %
|Dividend yield          |  | N/A                |  | 0.0          | %                 |  | 0.0          | % |  | 0.0          | %
|Expected life (years)   |  | N/A                |  | 4.8 years    |                   |  | 4.3 years    |   |  | 4.8 years    |  



|* | The Company did not grant any stock options or stock settled appreciation rights during the three months ended June 30, 2010.
|- | -----------------------------------------------------------------------------------------------------------------------------

The expected stock price volatility rates are based on the historical volatility of the Companys common stock. The risk free interest rates are
based on the United States Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The average expected life represents the weighted average period of time that options granted are expected
to be outstanding giving consideration to vesting schedules and the Companys historical exercise patterns. The Black-Scholes weighted average fair values of options and Stock Settled Appreciation Rights (SSARs) granted during the
nine months ended June 30, 2010 and 2009 were $2.46 and $1.43 per share, respectively.

Restricted Stock Units (RSU)

The Company issues restricted stock unit awards as an additional form of equity compensation to its employees and officers, pursuant to
the 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 cost of restricted stock unit awards is determined using the fair value of the Companys common stock on the date of grant, and compensation
expense is recognized over the vesting period.



11



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##### Table of Contents

The following table summarizes the Companys unvested restricted stock units as of June 30, 2010
and changes during the nine months ended June 30, 2010:



|                                   |  |                        |   |  |                                        |     
|---------------------------------- |  | ---------------------- | - |  | -------------------------------------- | ----
|                                   |  | Restricted Stock Units
|                                   |  | Number ofshares        |   |  | Weighted-average grant-date fair value
|Nonvested as of September 30, 2009 |  | 686,314                |   |  | $                                      | 6.11
|RSU granted                        |  | 1,309,932              |   |  | $                                      | 7.17
|RSU vested                         |  | (428,321               | ) |  | $                                      | 8.84
|RSU cancelled                      |  | (120,276               | ) |  | $                                      | 6.07
|                                   |  |                        |   |  |                                        |     
|Nonvested as of June 30, 2010      |  | 1,447,649              |   |  | $                                      | 4.42
|                                   |  |                        |   |  |                                        |     

As of June 30, 2010, the total unrecognized compensation cost net of forfeitures related to
unvested RSU awards not yet recognized is $5.2 million and is expected to be recognized over a period of 3.04 years.

Equity
Incentive Plans

The Company has two active equity incentive plans: the In-Chip Systems, Inc. 2001 Incentive and Non-statutory Stock Option
Plan and the Companys 2002 Equity Incentive Plan. The Company continues to have awards outstanding under its 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 the Companys 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 the Companys common stock at the time of grant. Information with respect to the Equity Incentive Plans is summarized as follows:



|                              |  |                          |   |  |                                   |   |  |                               |     
|----------------------------- |  | ------------------------ | - |  | --------------------------------- | - |  | ----------------------------- | ----
|                              |  | SharesAvailablefor Grant |   |  | Number ofOptions/SSARsOutstanding |   |  | WeightedAverageExercise Price
|Balance at September 30, 2009 |  | 1,610,482                |   |  | 3,608,699                         |   |  | $                             | 7.94
|Additional shares authorized  |  | 1,035,243                |   |  |                                   |   |  |                               |     
|Options and SSARs granted     |  | (60,000                  | ) |  | 60,000                            |   |  | $                             | 5.54
|RSUs granted                  |  | (1,309,932               | ) |  |                                  |   |  |                               |    
|Options and SSARs exercised   |  |                         |   |  | (184,734                          | ) |  | $                             | 5.48
|Options and SSARs cancelled   |  | 214,813                  |   |  | (214,813                          | ) |  | $                             | 7.50
|RSUs cancelled                |  | 120,276                  |   |  |                                  |   |  |                               |    
|Awards expired (unissued)     |  | (53,675                  | ) |  |                                  |   |  |                               |    
|                              |  |                          |   |  |                                   |   |  |                               |     
|Balance at June 30, 2010      |  | 1,557,207                |   |  | 3,269,152                         |   |  | $                             | 8.06
|                              |  |                          |   |  |                                   |   |  |                               |     

The following table summarizes information about stock options and SSARs outstanding and exercisable at
June 30, 2010:



|                                                                                           |  |                    |   |                    |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|------------------------------------------------------------------------------------------ |  | ------------------ | - | ------------------ | --------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | -------------- |  | --------------------------------------- |  | ---------------------------- |  | ----------------------- | ----- |  | - | -----
|                                                                                           |  | Awards Outstanding |   | Awards Exercisable
|Range of Exercise Prices                                                                   |  | NumberofShares     |   |                    | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue |   | NumberofShares |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |  | AggregateIntrinsicValue
|                                                                                           |  |                    |   |                    | (In years)                              |  |                              |       | (In thousands)          |   |                |  | (In years)                              |  |                              |  | (In thousands)         
|$2.48 - $3.75                                                                              |  | 376,306            |   |                    | 8.00                                    |  | $                            | 3.29  |                         | $ | 3,236          |  | 116,265                                 |  | 6.98                         |  | $                       | 3.30  |  | $ | 999  
|$4.36 - $5.61                                                                              |  | 418,618            |   |                    | 6.37                                    |  | $                            | 5.19  |                         | $ | 2,801          |  | 213,976                                 |  | 3.99                         |  | $                       | 5.40  |  | $ | 1,389
|$5.65 - $6.94                                                                              |  | 337,285            |   |                    | 7.83                                    |  | $                            | 6.49  |                         | $ | 1,820          |  | 192,596                                 |  | 7.73                         |  | $                       | 6.56  |  | $ | 1,027
|$6.96 - $7.47                                                                              |  | 409,867            |   |                    | 3.20                                    |  | $                            | 7.36  |                         | $ | 1,854          |  | 383,154                                 |  | 6.80                         |  | $                       | 7.39  |  | $ | 1,723
|$7.48 - $8.63                                                                              |  | 429,982            |   |                    | 5.56                                    |  | $                            | 8.18  |                         | $ | 1,596          |  | 390,388                                 |  | 5.40                         |  | $                       | 8.15  |  | $ | 1,459
|$8.65 - $8.87                                                                              |  | 385,705            |   |                    | 5.41                                    |  | $                            | 8.82  |                         | $ | 1,184          |  | 349,889                                 |  | 5.30                         |  | $                       | 8.82  |  | $ | 1,075
|$8.91 - $10.30                                                                             |  | 500,659            |   |                    | 5.10                                    |  | $                            | 9.79  |                         | $ | 1,050          |  | 478,525                                 |  | 5.00                         |  | $                       | 9.82  |  | $ | 993  
|$10.31 - $16.56                                                                            |  | 385,230            |   |                    | 2.52                                    |  | $                            | 14.16 |                         | $ | 102            |  | 385,230                                 |  | 2.52                         |  | $                       | 14.16 |  | $ | 102  
|$16.94 - $22.37                                                                            |  | 25,250             |   |                    | 4.49                                    |  | $                            | 16.99 |                         | $ |               |  | 25,250                                  |  | 4.49                         |  | $                       | 16.99 |  | $ |     
|$22.81- $22.81                                                                             |  | 250                |   |                    | 1.53                                    |  | $                            | 22.81 |                         | $ |               |  | 250                                     |  | 1.53                         |  | $                       | 22.81 |  | $ |     
|                                                                                           |  |                    |   |                    |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|Total                                                                                      |  | 3,269,152          | * |                    | 5.43                                    |  | $                            | 8.06  |                         | $ | 13,643         |  | 2,535,523                               |  | 5.21                         |  | $                       | 8.87  |  | $ | 8,767
|                                                                                           |  |                    |   |                    |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      
|*  Table of awards outstanding does not include 1,447,649 unvested restricted stock
units.
|                                                                                           |  |                    |   |                    |                                         |  |                              |      
|Vested and expected to vest as
of June 30, 2010                                            |  | 2,927,561          |   |                    | 5.11                                    |  | $                            | 8.37  |                         | $ | 11,414         |  |                                         |  |                              |  |                         |       |  |   |      
|                                                                                           |  |                    |   |                    |                                         |  |                              |       |                         |   |                |  |                                         |  |                              |  |                         |       |  |   |      



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The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the
Companys closing stock price of $11.89 as of June 30, 2010, 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, 2010 and 2009 was 2.3 million and 0.1 million, respectively.

The total intrinsic value of options exercised during
the nine month periods ended June 30, 2010 and 2009 was $0.6 million and $0.2 million, respectively. The total cash received from employees as a result of employee stock option exercises during the nine months ended June 30, 2010 and 2009
was approximately $333,000 and $38,000.

NOTE 2  BUSINESS ACQUISITIONS

Fiscal Year 2010 Acquisition

NXP Assets Acquisition

On
November 16, 2009, the Company acquired from NXP certain rights to IP assets associated with selected NXP advanced CMOS libraries, IP blocks and SoC infrastructure along with other classes of semiconductor IP, including approximately 25
associated patent families and certain related equipment. In connection with the acquisition, the Company hired approximately 150 former NXP employees. In exchange for the assets the Company issued 2,500,000 shares of its common stock and paid
$188,000 in cash to NXP. The Company also assumed liabilities that arise after the closing relating to the former employees of NXP the Company hired and assumed certain liabilities of NXP under contracts related to the assets.

The Company calculated the total fair value of common equity issued in exchange for the NXP Assets based on a price per share of $5.69, the closing price
of its common stock on Nasdaq on November 16, 2009, the day the NXP Assets Acquisition was closed. The Company then reduced the gross value of this common equity, which is $14.2 million, by (i) $3.6 million, representing a liquidity
discount reflecting trading restrictions on the shares issued for periods up to 30 months, and (ii) $1.1 million, representing the value of a call option the Company retained to repurchase some of these shares from NXP at a fixed price.
The valuation of the liquidity discount and the call option are both based on a preliminary valuation.

In connection with the NXP Assets
Acquisition, the Company entered into three related agreements with NXP. Under an intellectual property transfer and license agreement, (1) the Company is licensing back to NXP the technology, software and associated intellectual property
rights included in the assets so that NXP can continue using these rights in its operations, (2) NXP is granting us a perpetual, royalty-free license to certain patents and other intellectual property rights of NXP related to the assets and
(3) the Company will pay, for a seven-year period following the closing, a royalty to NXP based on the revenue the Company receives from licensing to third parties the assets the Company acquired from NXP. Under a master license agreement, the
Company is licensing to NXP for an initial term of three and one half years substantially all of the pre-existing intellectual property rights the Company controls, in return for which NXP will pay us $20 million over a four-year period in quarterly
payments that will decline over time. Under a technology services agreement, the Company will provide NXP with support and engineering services relating to integrated circuit design, for which NXP will pay us $40 million over a four-year period in
quarterly payments that will decline over time. The Company expects that the master license agreement and technology services agreement will result in revenue of approximately $4.3 million per quarter in fiscal year 2010. The Company expects that
payments under the master license agreement and technology services agreement will materially increase its revenue in fiscal year 2010. This revenue increase will be substantially offset by additional costs of revenues and research and development
and general and administrative costs and expenses related to the Companys employment of approximately 150 former NXP employees and amortization of the NXP Assets.

The allocation of total purchase price is as follows (in thousands):



|                                              |  |   |      
|--------------------------------------------- |  | - | -----
|Existing technology                           |  | $ | 4,100
|Goodwill                                      |  |   | 5,400
|Fair value of acquired property and equipment |  |   | 188  
|                                              |  |   |      
|Total purchase price                          |  | $ | 9,688
|                                              |  |   |      

The Company believes that the $5.4 million goodwill mainly represents
the synergies expected from combining the technologies of NXP and Virage Logic. The goodwill recognized is expected to be deductible for income tax purposes.



13



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##### Table of Contents

The amounts of revenue and earnings from licenses and services provided to NXP under the agreements
described above included in the Companys consolidated income statement for the nine months ended June 30, 2010 are as follows (in thousands):



|                                     |  |             |        |      |   |        |  
|------------------------------------ |  | ----------- | ------ | ---- | - | ------ | -
|                                     |  | Revenue     |        | Loss |  
|                                     |  | (unaudited) |       
|Actual from 11/16/2009  6/30/2010   |  | $           | 10,712 |      | $ | (1,730 | )
|Pro forma from 10/1/2009  6/30/2010 |  | $           | 12,852 |      | $ | (2,074 | )

NOTE 3  RESTRUCTURING CHARGES

Virage 2010 Restructuring Plan

During the third quarter of fiscal 2010, the Company initiated a plan of restructuring in an effort to reduce operating expenses and improve operating
margins and cash flows for the acquired NXP Assets. The restructuring plan was intended to decrease costs through job eliminations due to job redundancy and alignment with current and expected product offerings. The Company reduced its overall
headcount by 8%, primarily in engineering. The restructuring plan resulted in the reduction of 43 employees including 37 employees located in the Netherlands, three in India and one in the United Kingdom. Costs resulting from the restructuring plan
included severance payments, severance-related benefits, and other professional services. Total restructuring expense was approximately $5.6 million of which approximately $0.2 million was paid as of June 30, 2010. Total restructuring cost
accrued as of June 30, 2010 was $5.4 million, which was recorded in accrued expenses on the consolidated balance sheet. Approximately $0.8 million of the accrued restructuring balance as of June 30, 2010 will be paid in fiscal fourth
quarter of 2010. Substantially all of the remaining balance of $4.6 million accrued restructuring balance will be paid in the second quarter of fiscal 2011.

The following table summarizes restructuring activity for the three months ended June 30, 2010 as follows (in thousands):



|                               |  |           |       |   |       |   |       |  |   |       |  
|------------------------------ |  | --------- | ----- | - | ----- | - | ----- |  | - | ----- | -
|                               |  | Severance |       |   | Other |   | Total | 
|Virage 2010 Restructuring Plan |  | $         | 5,575 |   |       | $ |      |  | $ | 5,575 |  
|Cash payments                  |  |           | (164  | ) |       |   |      |  |   | (164  | )
|                               |  |           |       |   |       |   |       |  |   |       |  
|Balance at June 30, 2010       |  | $         | 5,411 |   |       | $ |      |  | $ | 5,411 |  
|                               |  |           |       |   |       |   |       |  |   |       |  

Virage 2009 Restructuring Plan

During the second quarter of fiscal 2009, 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. The Company reduced its headcount by 13%, primarily in engineering. The restructuring plan resulted in the reduction of 60 employees and closing
of its R&D centers in New Jersey and Minnesota. Costs resulting from the restructuring plan included severance payments, severance-related benefits, lease termination charges, and other professional services. Total restructuring expense was
approximately $1.5 million of which approximately $1.2 million was paid as of September 30, 2009. Total restructuring costs accrued as of June 30, 2010 and September 30, 2009 were $0.1 million and $0.3 million, respectively, which
were recorded in accrued expenses on the consolidated balance sheets. Approximately $48,000 of the accrued restructuring balance of approximately $0.1 million as of June 30, 2010 will be paid in fiscal 2010 and approximately $32,000 will be
paid in the first quarter of fiscal 2011.

The following table summarizes restructuring activity for the nine months ended June 30, 2010
as follows (in thousands):



|                              |  |           |     |   |       |   |    |          |  |   |       |   |  |   |      |  
|----------------------------- |  | --------- | --- | - | ----- | - | -- | -------- |  | - | ----- | - |  | - | ---- | -
|                              |  | Severance |     |   | Other |   |    | Facility |  |   | Total |  
|Balance at September 30, 2009 |  | $         | 30  |   |       | $ | 7  |          |  | $ | 229   |   |  | $ | 266  |  
|Other adjustments             |  |           |    |   |       |   |   |          |  |   | (3    | ) |  |   | (3   | )
|Cash payments                 |  |           | (30 | ) |       |   | (7 | )        |  |   | (146  | ) |  |   | (183 | )
|                              |  |           |     |   |       |   |    |          |  |   |       |   |  |   |      |  
|Balance at June 30, 2010      |  | $         |    |   |       | $ |   |          |  | $ | 80    |   |  | $ | 80   |  
|                              |  |           |     |   |       |   |    |          |  |   |       |   |  |   |      |  

Estimated Acquisition-Related Restructuring Costs Accounted for as Purchase Price

During the fourth quarter of fiscal 2009, the Company recorded approximately $2.8 million of restructuring costs in connection with its acquisition of ARC
International (ARC), which included $2.2 million for employee severance and $0.6 million for facility consolidation costs. These costs were recognized as a liability assumed in the ARC purchase price allocation and, accordingly, resulted in an
increase to the purchase price. A portion of the restructuring liabilities related to facility lease commitments is classified as a long-term liability in the accompanying balance sheets. Approximately $0.1 million of the accrued restructuring
balance of $0.7 million as of June 30, 2010 will be paid in fiscal 2010. The remaining $0.6 million of facility-related expenses will be paid through fiscal 2012.



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##### Table of Contents

Estimated restructuring expenses may change as management executes the approved plan. Decreases to the
estimates of executing the current approved plan, associated with acquisition activities of ARC, are recorded as an adjustment to goodwill indefinitely, whereas increases to the estimates are recorded as an adjustment to goodwill during the purchase
price allocation period (generally within one year of the acquisition date) and as operating expenses thereafter.

The following table
summarizes the acquisition-related restructuring activity for the nine months ended June 30, 2010 as follows (in thousands):



|                              |  |           |        |   |       |   |      |          |  |   |       |   |  |   |        |  
|----------------------------- |  | --------- | ------ | - | ----- | - | ---- | -------- |  | - | ----- | - |  | - | ------ | -
|                              |  | Severance |        |   | Other |   |      | Facility |  |   | Total |  
|Balance at September 30, 2009 |  | $         | 2,240  |   |       | $ |     |          |  | $ | 564   |   |  | $ | 2,804  |  
|Other adjustments (1)         |  |           | 65     |   |       |   | 116  |          |  |   | 639   |   |  |   | 820    |  
|Cash payments                 |  |           | (2,305 | ) |       |   | (116 | )        |  |   | (487  | ) |  |   | (2,908 | )
|                              |  |           |        |   |       |   |      |          |  |   |       |   |  |   |        |  
|Balance at June 30, 2010      |  | $         |       |   |       | $ |     |          |  | $ | 716   |   |  | $ | 716    |  
|                              |  |           |        |   |       |   |      |          |  |   |       |   |  |   |        |  



|(1) | The adjustment to the assumed restructuring plans is mainly attributable to penalties and other charges due to early termination of a restructured lease and other
contracts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assumed Restructuring Plans from ARC International

In addition, the Company acquired $2.2 million of accrued restructuring liability as part of the liabilities assumed in the acquisition of ARC
International in the fourth quarter of fiscal 2009. ARC initiated restructuring plans in both December 2008 and July 2009 prior to the acquisition. The restructuring charges included personnel and leased facilities. The remaining balance is
primarily composed of the remaining lease payments. Approximately $0.1 million of the accrued restructuring balance of $1.0 million as of June 30, 2010 will be paid in fiscal 2010. The remaining $0.9 million of facility-related expenses will be
paid through fiscal 2012.

The following table summarizes the acquired restructuring activity for the nine months ended June 30, 2010 as
follows (in thousands):



|                              |  |           |      |   |          |   |       |       |  |   |       |  
|----------------------------- |  | --------- | ---- | - | -------- | - | ----- | ----- |  | - | ----- | -
|                              |  | Severance |      |   | Facility |   |       | Total | 
|Balance at September 30, 2009 |  | $         | 168  |   |          | $ | 2,008 |       |  | $ | 2,176 |  
|Other adjustments             |  |           | (31  | ) |          |   | (238  | ) (1) |  |   | (269  | )
|Cash payments                 |  |           | (137 | ) |          |   | (765  | )     |  |   | (902  | )
|                              |  |           |      |   |          |   |       |       |  |   |       |  
|Balance at June 30, 2010      |  | $         |     |   |          | $ | 1,005 |       |  | $ | 1,005 |  
|                              |  |           |      |   |          |   |       |       |  |   |       |  



|(1) | The adjustment to the assumed restructuring plans from ARC International is mainly attributable to the savings from early termination of a restructured lease.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 4  NET LOSS PER SHARE ATTRIBUTABLE TO VIRAGE STOCKHOLDERS

Basic and diluted net loss per share attributable to Virage stockholders have been computed using the weighted average number of shares of common stock
outstanding during the period, less weighted average shares outstanding that are subject to repurchase by the Company plus weighted average share equivalents, unless anti-dilutive.

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



|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|--------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                    |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                    |  | 2010                       |        |   | 2009                      |   |        | 2010 |  |   | 2009   |  
|Net loss-attributable to Virage stockholders        |  | $                          | (4,602 | ) |                           | $ | (1,922 | )    |  | $ | (7,881 | ) |  | $ | (30,880 | )
|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Shares used in computation:                         |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Shares used in computing basic net loss per share   |  |                            | 25,887 |   |                           |   | 22,978 |      |  |   | 25,337 |   |  |   | 22,905  |  
|Add:Effect of potentially dilutive securities       |  |                            |       |   |                           |   |       |      |  |   |       |   |  |   |        |  
|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Shares used in computing diluted net loss per share |  |                            | 25,887 |   |                           |   | 22,978 |      |  |   | 25,337 |   |  |   | 22,905  |  
|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Basic net loss per share                            |  | $                          | (0.18  | ) |                           | $ | (0.08  | )    |  | $ | (0.31  | ) |  | $ | (1.35   | )
|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Diluted net loss per share                          |  | $                          | (0.18  | ) |                           | $ | (0.08  | )    |  | $ | (0.31  | ) |  | $ | (1.35   | )
|                                                    |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  



15



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##### Table of Contents

For the computation of diluted net loss per share attributable to Virage stockholders for the three and nine
months ended June 30, 2010 and June 30, 2009, the Company excluded awards totaling approximately 4.7 million shares, from the calculation of the net loss per share attributable to Virage stockholders as they are anti-dilutive.

NOTE 5  EQUITY AND COMPREHENSIVE LOSS

Effective October 1, 2009, the Company adopted the new guidance regarding the accounting for non-controlling interests. The new rules require the
recognition of a non-controlling interest as equity in the consolidated financial statements and separate from the parents equity. The amount of net loss attributable to the non-controlling interest is shown on the face of the condensed
consolidated income statement.

In September 2009, the Company acquired an ownership of 94.62% of ARC International, a leading provider
of microprocessor IP and solutions to OEM and semiconductor companies globally. In November 2009, the Company acquired the remaining non-controlling interest in ARC of 5.38% consistent with the terms of the cash offer of 16.25 pence per share for a
total purchase price of $41.6 million and completed the acquisition. The acquisition resulted in ARC being a wholly-owned subsidiary of the Company.

Changes in equity including comprehensive loss for the nine month periods ended June 30, 2010 are as follows (in thousands):



|                                                                 |  |                     |        |   |                         |   |      |              |  |   |        |  
|---------------------------------------------------------------- |  | ------------------- | ------ | - | ----------------------- | - | ---- | ------------ |  | - | ------ | -
|                                                                 |  | StockholdersEquity |        |   | Non-controllingInterest |   |      | Total Equity | 
|Balance at September 30, 2009                                    |  | $                   | 78,210 |   |                         | $ | 997  |              |  | $ | 79,207 |  
|Net loss                                                         |  |                     | (7,881 | ) |                         |   | (29  | )            |  |   | (7,910 | )
|Unrealized losses on investments                                 |  |                     | (44    | ) |                         |   |     |              |  |   | (44    | )
|Cumulative translation adjustments                               |  |                     | (145   | ) |                         |   |     |              |  |   | (145   | )
|Stock issued for business acquisition                            |  |                     | 9,500  |   |                         |   |     |              |  |   | 9,500  |  
|Share-based compensation                                         |  |                     | 3,963  |   |                         |   |     |              |  |   | 3,963  |  
|Settlement of payroll taxes upon restricted stock unit exercises |  |                     | (1,439 | ) |                         |   |     |              |  |   | (1,439 | )
|Common stock issued under stock option plan                      |  |                     | 333    |   |                         |   |     |              |  |   | 333    |  
|Cash paid for non-controlling interest                           |  |                     | (1,354 | ) |                         |   | (968 | )            |  |   | (2,322 | )
|                                                                 |  |                     |        |   |                         |   |      |              |  |   |        |  
|Balance at June 30, 2010                                         |  | $                   | 81,143 |   |                         | $ |     |              |  | $ | 81,143 |  
|                                                                 |  |                     |        |   |                         |   |      |              |  |   |        |  

Comprehensive loss includes unrealized gains on investments and foreign currency translation adjustments. These items have
been excluded from net loss and are reflected instead in stockholders equity.

Total comprehensive loss for the three and nine month
periods ended June 30, 2010 and 2009, respectively, are as follows (in thousands):



|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                             |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                             |  | 2010                       |        |   | 2009                      |   |        | 2010 |  |   | 2009   |  
|Net loss attributable to Virage stockholders                 |  | $                          | (4,602 | ) |                           | $ | (1,922 | )    |  | $ | (7,881 | ) |  | $ | (30,880 | )
|Foreign currency translation adjustments, net of tax         |  |                            |       |   |                           |   | 296    |      |  |   | (89    | ) |  |   | (250    | )
|Changes in unrealized gain (loss) on investments, net of tax |  |                            | (5     | ) |                           |   | 13     |      |  |   | (27    | ) |  |   | 200     |  
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Comprehensive loss, net of tax                               |  | $                          | (4,607 | ) |                           | $ | (1,613 | )    |  | $ | (7,997 | ) |  | $ | (30,930 | )
|                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  

NOTE 6  SEGMENT INFORMATION

The Company operates in one industry segment, the sale of semiconductor IP including embedded SRAM and NVM, logic libraries, IP and development
infrastructure for embedded test and repair of on-chip memory instances, software development tools used to build memory compilers, and DDR memory controllers, PHYs and DLLs.

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.



16



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##### Table of Contents

Total revenues by geographic area are as follows (in thousands):



|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------- |  | -------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                        |  | Three Months EndedJune 30, |        | Nine Months EndedJune 30,
|                                                        |  | 2010                       |        | 2009                      |   | 2010   |  | 2009
|Total Revenue by Geography                              |  |                            |        |                           |   |        |  |      |        |  |   |       
|United States                                           |  | $                          | 9,805  |                           | $ | 7,057  |  | $    | 27,151 |  | $ | 16,953
|Europe, Middle East and Africa (EMEA)                   |  |                            | 7,809  |                           |   | 1,011  |  |      | 20,563 |  |   | 4,062 
|Taiwan                                                  |  |                            | 2,437  |                           |   | 1,366  |  |      | 9,566  |  |   | 5,405 
|Other Asia (China, Malaysia, South Korea and Singapore) |  |                            | 4,693  |                           |   | 1,197  |  |      | 9,323  |  |   | 3,931 
|Japan                                                   |  |                            | 1,244  |                           |   | 1,043  |  |      | 4,263  |  |   | 2,394 
|Canada                                                  |  |                            | 1,152  |                           |   | 247    |  |      | 3,177  |  |   | 1,550 
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|Total                                                   |  | $                          | 27,140 |                           | $ | 11,921 |  | $    | 74,043 |  | $ | 34,295
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       

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 building in Armenia and its leasehold improvements are valued at cost less accumulated depreciation and amortization and amounted to approximately $1.6 million and $1.9 million
as of June 30, 2010 and 2009, respectively.

NOTE 7  RECENT ACCOUNTING PRONOUNCEMENTS

Accounting pronouncements adopted during fiscal 2010

Earnings per Share: In June 2008, new standards were issued which concluded that unvested awards of share-based payments with non forfeitable
rights to receive dividends or dividend equivalents, such as its restricted stock units (RSUs), are considered to be participating securities and the two-class method should be used for purposes of calculating earnings per share (EPS). Under
the two- class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock. The Company has adopted the standards in its first quarter of fiscal 2010.
The effect of the adoption of this standard was not material to the consolidated financial statements.

Intangibles : In April 2008,
new standards were issued for the determination of useful life of intangibles and amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and
require enhanced related disclosures. The Company has adopted the pronouncement in its first quarter of fiscal 2010. The effect of the adoption of this standard was not material to the consolidated financial statements.

Business Combinations: These revised standards for business combinations generally require an entity to recognize the assets acquired, liabilities
assumed, contingencies, and contingent consideration at their fair value on the acquisition date. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and it is concluded that it
is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired
income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The Company has adopted
the pronouncement in its first quarter of fiscal 2010. The effect of the adoption of this standard was not material to the consolidated financial statements.

Non-controlling Interests: In December 2007, new standards were issued which required the recognition of a non-controlling interest (formerly
minority interest) as equity in the consolidated financial statements separate from the parents equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income
statement. These new standards clarified that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, these
standards required that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. It also
included expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. The Company has adopted the pronouncement in its first quarter of fiscal 2010. The effect of the adoption of this standard was not
material to the consolidated financial statements.



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Fair value measurements: In January 2010, the FASB issued revised guidance intended to improve
disclosures related to fair value measurements. This guidance requires new disclosures as well as clarifies certain existing disclosure requirements. New disclosures under this guidance require separate information about significant transfers in and
out of Level 1 and Level 2 and the reason for such transfers, and also require purchases, sales, issuances, and settlements information for Level 3 measurement to be included in the rollforward of activity on a gross basis. The guidance also
clarifies the requirement to determine the level of disaggregation for fair value measurement disclosures and the requirement to disclose valuation techniques and inputs used for both recurring and nonrecurring fair value measurements in either
Level 2 or Level 3. This accounting guidance was adopted by the Company beginning in the second quarter of fiscal 2010, except for the rollforward of activity on a gross basis for Level 3 fair value measurement, which will be effective for the
Company in the first quarter of fiscal 2012. The effect of the adoption of this standard was not material to the consolidated financial statements.

Recent new accounting pronouncements

Revenue Arrangements with Multiple Deliverables: In October of 2009, new standards were issued to update the accounting and reporting requirements
for revenue arrangements with multiple deliverables. These standards established a selling price hierarchy, which allows the use of an estimated selling price to determine the selling price of a deliverable in cases where neither vendor-specific
objective evidence nor third-party evidence is available. These standards are to be applied prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and the Company is
required to adopt these standards in its first quarter of 2011. Early adoption is permitted, and if this update is adopted early in other than the first quarter of an entitys fiscal year, then it must be applied retrospectively to the
beginning of that fiscal year. The Company is currently assessing the impact of the adoption on its consolidated financial statements.

Certain Revenue Arrangements that Include Software Elements: In October of 2009, new standards were issued that amend which revenue allocation and
measurement standard should be used for arrangements that contain both tangible products and software. More specifically, if the software sold with or embedded within the tangible product is essential to the functionality of the tangible product,
this software as well as undelivered software elements that relate to this software is excluded from the scope of existing software revenue guidance. These standards are to be applied prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010 and the Company is required to adopt these standards in its first quarter of 2011. Early adoption is permitted, and if this update is adopted early in other than the first quarter of
an entitys fiscal year, then it must be applied retrospectively to the beginning of that fiscal year. The Company is currently assessing the impact of the adoption on its consolidated financial statements.

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 minimal history of claims, and
accordingly, no liabilities have been recorded for indemnification under these agreements as of June 30, 2010.

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, 2010. 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.

The Company is a party to legal proceedings and claims of various types in the ordinary course of business. The
Company believes based on information currently available to management that the resolution of such claims will not have a material adverse impact on its consolidated financial position or results of operations.

NOTE 9  INCOME TAXES

Income taxes
are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for expected future tax events that have been recognized differently in the Companys consolidated financial
statements and tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law and the effects of future changes in tax laws or rates. A valuation allowance is established when necessary
to reduce deferred tax assets to amounts expected to be realized.



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The Company recorded a tax benefit of $3.7 million and a tax provision of $7.9 million for the
nine months ended June 30, 2010 and 2009, respectively. The Company evaluates its deferred tax assets each reporting period and assesses the likelihood that it will be able to recover its deferred tax assets. If recovery is not more likely than
not, the Company increases its income tax provision by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable over a reasonable period. As of June 30, 2010, the Company has current
and long-term deferred tax assets, net of valuation allowance, totaling $13.5 million which primarily related to temporary timing differences and net operating loss carry-forwards. The Company believes it is more-likely-than not that these deferred
tax assets will be realized in the future.

The Indian Tax Authorities completed its assessment of the Companys tax returns for the tax
years 2001 through 2007 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency for the six year period of approximately $140,000, net of deposits of $260,000 as required by the Indian Tax
Authorities. Interest will continue to accrue until the matter is resolved. The Indian Tax Authorities may also make similar claims for years subsequent to 2007 in future assessments. The assessment orders are not final notices of deficiency, and we
immediately filed appeals. We believe that the assessments are inconsistent with applicable tax laws and that we have meritorious defense to the assessments. We obtained a decision allowing the claims of the tax holiday for the tax years 2002
through 2007. However, there is still the possibility of further tax exposure due to the ongoing process. As of June 30, 2010, there are no accrued amounts due to these claims.

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.

NOTE 10  FAIR VALUE DISCLOSURE

The Company determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The
Companys short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income. The Company evaluates declines in market value for potential impairment
if the decline results in a value below cost and is determined to be other than temporary. Realized gains and losses and declines in the value judged to be other than temporary are included in other income and expense. The cost of securities sold is
based on the specific identification method.

The Company has invested its excess cash in money market accounts, corporate debt, commercial
paper, government agency securities and government-sponsored enterprise securities and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original
maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments.

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which
the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the
categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1  Quoted prices in active markets for identical assets or liabilities.

Level 2  Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for
identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3  Inputs that are generally unobservable and typically reflect managements estimates of assumptions that market
participants would use in pricing the asset or liability.

The Companys valuation techniques used to measure the fair value of money
market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of all other financial instruments, all of which
have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data.



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The following table represents the Companys fair value hierarchy for its financial assets (cash
equivalents and short-term available-for-sale investments) as of June 30, 2010 (in thousands):



|                                             |  |               |       |         |   |         |  |   |    
|-------------------------------------------- |  | ------------- | ----- | ------- | - | ------- |  | - | ---
|                                             |  | June 30, 2010
|                                             |  | Fair Value    |       | Level 1 |   | Level 2
|Assets:                                      |  |               |       |         |   |         |  |   |    
|Money market funds                           |  | $             | 3,440 |         | $ | 3,440   |  | $ |   
|Commercial paper and certificates of deposit |  |               | 860   |         |   |        |  |   | 860
|                                             |  |               |       |         |   |         |  |   |    
|Total financial assets                       |  | $             | 4,300 |         | $ | 3,440   |  | $ | 860
|                                             |  |               |       |         |   |         |  |   |    

NOTE 11  STOCK REPURCHASE PROGRAM

On May 14, 2009, the Company announced that its Board of Directors authorized the extension of the expiration date of the stock repurchase program to
repurchase up to $20 million in shares of the Companys common stock in the open market or negotiated transactions through December 2010. Since the inception of the program in May 2008, the Company has repurchased 890,000 shares for a total of
$5.1 million. The Company has not repurchased additional shares since the extension of the program was authorized on May 14, 2009. As of June 30, 2010, the remaining balance available for future stock repurchase was $14.9 million under the
Companys stock repurchase program.

NOTE 12  LOAN AND SECURITY AGREEMENT

On December 1, 2009 the Company entered into a loan and security agreement (the Loan Agreement) with Silicon Valley Bank. The proceeds
under the Loan Agreement may be used for general corporate purposes. The Loan Agreement provides for a two year revolving credit facility of $15 million, including the issuances of letters of credit. Availability of the loan amount is subject to a
borrowing base restriction. The Companys active domestic subsidiaries guaranty the obligations described in the Loan Agreement. The Company and the subsidiary guarantors grant the Silicon Valley Bank a security interest in substantially all of
their assets, including accounts receivable, inventory, intellectual property and equipment. Interest under the Loan Agreement for the revolving credit facility will accrue, at the election of the Company, at LIBOR plus 4.00%, or the Prime Rate plus
1.50%. The interest rate under the Loan Agreement for the term loan will accrue, at the election of the Company, at LIBOR plus 4.50%, or the prime rate plus 2.00%. LIBOR is subject to a floor of 1.25% and the Prime Rate is subject to a floor of
three month LIBOR plus 1.50%.

Effective June 30, 2010 the Company entered into an amendment to its Loan Agreement with Silicon Valley Bank.
The Company amended the Loan Agreement to (a) extend the delivery dates of certain loan reporting requirements and post-closing items and (b) extend the measurement dates for certain financial covenants until such time as the Company
borrows under the Loan Agreement or September 30, 2010, whichever is earlier.

As of June 30, 2010, there have been no draws on the
revolving credit facility.

NOTE 13  RELATED PARTY TRANSACTIONS

During fiscal 2010, the Company received payments from NXP B.V. (NXP) for services rendered under the master license agreement and technology
services agreement between the Company and NXP. NXP is currently the holder of 2.5 million restricted shares of the Companys stock. For the three and nine months ended June 30, 2010, the Company recognized $4.3 million and $10.7
million of revenue, respectively, and received $6.9 million and $20.6 million, respectively, for services performed under the master license agreement and technology services agreement. NXP has also provided transitional administrative services for
the Company which were outlined in a transitional services agreement as part of the NXP Asset acquisition for which the Company has paid NXP $1.5 million and $2.5 million for the three and nine months ended June 30, 2010, respectively.

NOTE 14  SUBSEQUENT EVENT

The Company evaluated subsequent events during the preparation of and through the completion of these unaudited condensed consolidated financial
statements and has determined that there were no material subsequent events or transactions which would require recognition or disclosure.



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

Statements made in this quarterly report on Form 10-Q, other than statements of historical fact, are forward-looking statements that involve risks and
uncertainties. These statements and the assumptions underlying them are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. 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 broad line provider of highly differentiated semiconductor IP, our ability to continue to develop new products and maintain and develop new relationships with third-party foundries,
integrated device manufacturers (IDMs), 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, 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, 2009 filed with the Securities and Exchange Commission.

Overview

Business

Virage Logic provides semiconductor intellectual property (IP) and services to more than 400 semiconductor companies worldwide.
Historically we were primarily engaged in the development and marketing of embedded memory IP products. After the acquisition of In-Chip Systems, Inc. (In-Chip Systems or In-Chip) in May 2002, we expanded our physical IP product offering to also
include standard cell logic component products. In August 2007, we acquired Ingot Systems, Inc. (Ingot Systems or Ingot), a privately held provider of functional, or application specific IP (ASIP), including Double Data Rate (DDR) memory
controllers, Physical Interfaces (PHYs), and Delay Locked Loops (DLLs). In June 2008, we further expanded our product portfolio when we acquired the non-volatile embedded memory (NVM) IP business of Impinj Inc. (Impinj). Impinjs
AEON® product line complements Virage Logics
NOVeA® NVM products and we believe it essentially establishes Virage Logic as the multiple-time programmable NVM
market leader.

In 2009, we accelerated the expansion of our product line. In January 2009, we announced a licensing
agreement with AMD that grants Virage Logic the rights to license, modify and sell standards-based advanced interface IP that AMD designed for use in its extensive graphics processor product line. This agreement enabled Virage Logic to expand its
product line to include complete standards-based solutions for the Mobile Industry Processor Interface (MIPI®).

On September 15, 2009, we closed the acquisition of approximately 85% of the outstanding shares of ARC International plc and began a
statutory squeeze-out for the remaining ARC shares. In November 2009, we completed the acquisition of the remaining ARC shares and ARC became a wholly-owned subsidiary. The cost to acquire all of the ARC shares was approximately
£25.2 million or approximately $41.6 million. The ARC configurable 32-bit processor cores and vertical application solutions complement Virage Logics broad portfolio of semiconductor IP and offer System-on-Chip (SoC) designers a
single trusted source for highly differentiated IP. As the second most widely used processor architecture, ARC cores ship in more than 425 million units annually in products such as digital and mobile TVs, portable media players, PCs, laptops,
flash storage, digital cameras and smart phones, as well as in medical and government systems. The acquisition of ARC expanded Virage Logics ability to serve the global semiconductor market by complementing its extensive portfolio of physical
IP and standards-based advanced interface IP solutions with ARCs widely used processor IP, a necessary component for complex SoC integrated circuits.

On November 16, 2009, we acquired from NXP B.V., a leading semiconductor company founded by Royal Philips Electronics Inc., certain rights to IP
assets associated with selected NXP advanced CMOS libraries, IP blocks and SoC infrastructure along with other classes of semiconductor IP, including approximately 25 associated patent families and certain related equipment. In connection with the
acquisition, we hired approximately 150 former NXP employees. In exchange for the NXP assets, we issued 2,500,000 shares of our common stock and paid $188,000 in cash to NXP. We also assumed liabilities that may arise after the closing relating to
the former employees of NXP we hired and assumed certain liabilities of NXP under contracts related to the assets we assumed.



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In connection with the NXP assets acquisition, we entered into three related agreements with NXP. Under an
intellectual property transfer and license agreement, (1) we are licensing back to NXP the technology, software and associated intellectual property rights included in the assets so that NXP can continue using these rights in its operations,
(2) NXP is granting us a perpetual, royalty-free license to certain patents and other intellectual property rights of NXP related to the assets, and (3) we will pay, for a seven-year period following the closing, a royalty to NXP based on
the revenue we receive from licensing to third-parties the assets we acquired from NXP. Under a master license agreement, we are licensing to NXP for an initial term of three and one half years substantially all of the pre-existing intellectual
property rights we control, in return for which NXP will pay us $20 million over a four-year period in quarterly payments that will decline over time. Under a technology services agreement, we will provide NXP with support and engineering services
relating to integrated circuit design, for which NXP will pay us $40 million over a four-year period in quarterly payments that will decline over time. We expect that payments under the master license agreement and technology services agreement will
materially increase our revenue in fiscal year 2010. This revenue increase will be substantially offset by additional costs of revenues and research and development and general and administrative costs and expenses related to our employment of
approximately 150 former NXP employees and amortization of the NXP Assets.

On December 1, 2009 we entered into a loan and security
agreement (the Loan Agreement) with Silicon Valley Bank. The proceeds under the Loan Agreement may be used for general corporate purposes. The Loan Agreement provides for a two year revolving credit facility of $15 million, including the
issuances of letters of credit. Availability of the loan amount is subject to a borrowing base restriction. The Companys active domestic subsidiaries guarantee the obligations described in the Loan Agreement. The Company and the subsidiary
guarantors grant the Silicon Valley Bank a security interest in substantially all of their assets, including accounts receivable, inventory, intellectual property and equipment. Interest under the Loan Agreement for the revolving credit facility
will accrue, at the election of the Company, at LIBOR plus 4.00%, or the Prime Rate plus 1.50%. The interest rate under the Loan Agreement for the term loan will accrue, at the election of the Company, at LIBOR plus 4.50%, or the prime rate plus
2.00%. LIBOR is subject to a floor of 1.25% and the Prime Rate is subject to a floor of three month LIBOR plus 1.50%.

On June 9, 2010,
we entered into a definitive merger agreement under which Synopsys, Inc. (Synopsys) has agreed to acquire all of our common stock for $12.00 per share in cash and we will become a wholly owned subsidiary of Synopsys. The transaction is
subject to Virage Logic shareholder approval, as well as other customary closing conditions. The merger is subject to review by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission under the Hart-Scott
Rodino Act (HSR Act). The applicable waiting period under the HSR Act expired at 11:59 p.m. Eastern daylight time on July 19, 2010. The merger is expected to close in the third calendar quarter of 2010.

On June 30, 2010 we entered into an amendment to its Loan Agreement with Silicon Valley Bank. The Company amended the Loan Agreement to
(a) extend the delivery dates of certain loan reporting requirements and post-closing items and (b) extend the measurement dates for certain financial covenants until such time as the Company borrows under the Loan Agreement or
June 30, 2010, whichever is earlier, all as set forth in sections 6.2 and 6.7 of the Loan Agreement.

The various
forms of IP we offer are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are the foundation of todays consumer, communications and networking, hand-held and portable devices, computer and
graphics, automotive, and defense applications. Our semiconductor IP offering consists of (1) compilers that allow chip designers to configure our memories, or SRAMs, into different sizes and shapes on a single silicon chip, (2) IP and
development solutions for embedded test and repair of on-chip memory instances, (3) software development tools used to design memory compilers, (4) NVM instances, (5) logic cell libraries, (6) DDR memory controller and
MIPI® interface IP components, and (7) configurable 32-bit processor cores and vertical application
solutions. We also provide design services related to our IP to the semiconductor industry.

Our customers include:



| |  |  | leading fabless semiconductor companies such as 3Leaf Systems (3Leaf), Agilent Technologies, Inc. (Agilent), Broadcom Corporation (Broadcom), Cambridge
Silicon Radio (CSR), Conexant Systems, Inc. (Conexant), Ikanos Communications, Inc. (Ikanos), Kawasaki Microelectronics (K-Micro), LSI Corporation (formerly LSI Logic and Agere), Marvell Technology Group, Ltd (Marvell), Movidia, Ltd (Movidia),
NextIO, Inc. (NextIO), PMC-Sierra, Inc. (PMC-Sierra), TranSwitch Corporation (TranSwitch), Thomson Silicon Components (Thomson), and Via Technologies, Inc. (Via Technologies) ), and ViXS Systems (ViXS);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | leading integrated device manufacturers (IDMs) such as Analog Devices, Inc. (ADI), Atmel Corporation (Atmel), Avago Technologies (Avago), Freescale
Semiconductor, Inc. (Freescale), Fujitsu Limited (Fujitsu), Hewlett-Packard Company (HP), Infineon Technologies, Inc. (Infineon), Intel Corporation (Intel), Lenovo Group (Lenovo), NEC Corporation (NEC), NXP Semiconductors (formerly Philips
Semiconductor B.V.), Sharp Electronics Corporation (Sharp), Sony Corporation (Sony), STMicroelectronics (STMicro), Texas Instruments (TI), and Toshiba Corporation (Toshiba);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | semiconductor foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), Dongbu HiTek Ltd. (Dongbu HiTek), Global Foundries, Grace
Semiconductor (Grace), HeJian Technology (HeJian), IBM Corporation (IBM), MagnaChip Semiconductor (MagnaChip), SilTerra Malaysia Sdn. Dhd. (SilTerra), Silicon Manufacturing International Corporation (SMIC), Tower Semiconductor, Ltd. (Tower), and
United Microelectronics Company (UMC);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | additionally, as a result of our acquisition of ARC and its vertical applications solutions, we are expanding our customer base into the original
equipment manufacturer (OEM) arena. For example, ASUSTeK Computer Incorporated (ASUS) of Taipei, Taiwan, the leader in providing the highest quality motherboard and notebook PCs worldwide, has licensed Virage Logics Sonic
Focus® audio enrichment IP to provide an enhanced entertainment listening experience on their next generation
ASUS NX90 multimedia notebook.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We develop our embedded memory, logic, NVM, DDR PHY, and DLL, and PCIe, HDMI/DVI/DisplayPort
and MIPI products to comply with certain silicon manufacturing processes used for our customers products. For our integrated device manufacturer customers, we develop our products to comply with the processes used by their internal
manufacturing facilities. For our fabless semiconductor customers, we develop our products to comply with the processes of the pure-play semiconductor manufacturing facilities or foundries, which these companies rely on to manufacture the integrated
circuits (ICs) for their products. We also pre-test certain products before their release to the market by designing and manufacturing specialty test ICs containing our semiconductor IP targeted for specific processes, so that we can provide our
customers with silicon data and help ensure that ICs designed with our semiconductor IP will be manufacturable, while providing desired production yields. Our products are certified for production by several of the established pure-play foundries
such as Chartered (now part of Global Foundries), IBM, TSMC, and UMC, as well as some of the emerging pure-play foundries such as Dongbu HiTek, Grace, HeJian, MagnaChip, SilTerra, SMIC, and Tower that are used by fabless semiconductor companies.
Because we ensure that certain products are silicon-proven and production ready, our customers can proceed with confidence and benefit from shorter design times for new product development and reduced design and manufacturing costs.

We sell many of our products early in our customers design process, and there are typically 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
incorporating our products. As a result, we expect our royalty revenues to increase during periods in which manufacturing volumes of semiconductors containing our IP 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.

Sources of
Revenues

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



| |  |  | configurable 32-bit processor cores and vertical application solutions;
| | - |  | -----------------------------------------------------------------------



| |  |  | 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
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | DDR memory controllers, physical interfaces, delay locked loops, PCIe, MIPI and HDMI/DVI/DisplayPort interface IP.
| | - |  | ------------------------------------------------------------------------------------------------------------------

We also derive revenues from royalties, custom design services, and maintenance and support services. Our revenues are reported in three separate
categories: license revenues, maintenance revenues, and royalty revenues. Maintenance and support revenues are derived from maintenance and support fees. 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 or production volumes of IC parts.

Licenses of our
semiconductor IP typically cover a range of processor cores and vertical application solutions, embedded memory, logic and I/O elements, and interface IP products. Licenses of our semiconductor IP products can be either perpetual or term-based. In
addition, maintenance and support can be purchased for both types of licenses.

We derive our royalty revenues from pure-play foundries that
manufacture chips incorporating our ASAP Memory, ASAP Logic, SiWare Memory, SiWare Logic and STAR Memory System products for our fabless customers, and from integrated device manufacturers and fabless customers that
utilize our ASAP Memory, ASP Logic, SiWare Memory, SiWare Logic and STAR Memory, STAR Memory System, AEON and NOVeA technologies. We also derive royalty revenues from fabless and integrated device manufacturers for our ARC configurable
processor cores, vertical application solutions, and our AEON and NOVeA products. 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.

Royalty revenues for the three months ended June 30, 2010 and 2009 were $6.1 million and
$1.2 million, respectively. Royalty revenues for the nine months ended June 30, 2010 and 2009 were $16.9 million and $5.9 million, respectively.



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As part of the transactions with NXP described above, NXP agreed to pay us $20 million under the master
license agreement over a four-year period and $40 million under the technology services agreement over a four-year period. We have been dependent on a limited number of customers for a substantial portion of our annual revenues, although, excluding
the NXP relationship, that dependency continues to decrease. Customers comprising our top 10 customer group have changed from time to time. We have two customers that generated 10% or more of our revenue for the three months ended June 30,
2010. We have one customer that generated 10% or more of our revenue for the nine months ended June 30, 2010. We had one customer that generated 10% or more of our revenue for the three months ended June 30, 2009 and two customers that
generated 10% or more of our revenue for the nine months ended June 30, 2009.

Sales to customers located outside North America accounted
for 64% and 45% of our revenues for the three months ended June 30, 2010 and 2009. Sales to customers located outside North America accounted for 59% and 50% of our revenues for the nine months ended June 30, 2010 and 2009. We have direct
sales representatives and field application engineers located in North America, Europe, Japan and Asia to serve those regions. We also engage with distributors in all of these regions to further expand our sales channel. 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.

An accounting policy is deemed to be critical if it
requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably
likely to occur could materially impact the financial statements. We believe that there have been no significant changes during the three and nine months ended June 30, 2010 to the items that we disclosed as our critical accounting policies and
estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Revenues

The table below sets
forth the changes in revenues from the three and nine months ended June 30, 2010 to the three and nine months ended June 30, 2009 (in thousands, except percentage data):



|               |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|-------------- |  | ------------------------------- | ------ | ------------------ | ------------------------------- | - | ------ | --------------------- | ------------------ |  | ----- | - |  | - | ------ |  | ----- | -
|               |  | Three Months EndedJune 30, 2010 |        |                    | Three Months EndedJune 30, 2009 |   |        | Year-Over-Year Change |                   
|               |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |                       | % of totalrevenues |  |      
|Revenues:      |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|License        |  | $                               | 18,288 |                    | 67.4                            | % |        | $                     | 9,007              |  | 75.6  | % |  | $ | 9,281  |  | 103.0 | %
|Maintenance    |  |                                 | 2,709  |                    | 10.0                            | % |        |                       | 1,730              |  | 14.5  | % |  |   | 979    |  | 56.6  | %
|Royalties      |  |                                 | 6,143  |                    | 22.6                            | % |        |                       | 1,184              |  | 9.9   | % |  |   | 4,959  |  | 418.8 | %
|               |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|Total revenues |  | $                               | 27,140 |                    | 100.0                           | % |        | $                     | 11,921             |  | 100.0 | % |  | $ | 15,219 |  | 127.7 | %
|               |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|               |  |                                 |       
|               |  | Nine Months EndedJune 30, 2010  |        |                    | Nine Months EndedJune 30, 2009  |   |        | Year-Over-Year Change |                   
|               |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |                       | % of totalrevenues |  |      
|Revenues:      |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|License        |  | $                               | 50,082 |                    | 67.6                            | % |        | $                     | 23,046             |  | 67.2  | % |  | $ | 27,036 |  | 117.3 | %
|Maintenance    |  |                                 | 7,095  |                    | 9.6                             | % |        |                       | 5,318              |  | 15.5  | % |  |   | 1,777  |  | 33.4  | %
|Royalties      |  |                                 | 16,866 |                    | 22.8                            | % |        |                       | 5,931              |  | 17.3  | % |  |   | 10,935 |  | 184.4 | %
|               |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  
|Total revenues |  | $                               | 74,043 |                    | 100.0                           | % |        | $                     | 34,295             |  | 100.0 | % |  | $ | 39,748 |  | 115.9 | %
|               |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |       |  



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Revenues for the three months ended June 30, 2010 totaled $27.1 million, increasing 127.7% from $11.9
million for the three months ended June 30, 2009. The increase resulted from a $9.3 million increase in license revenues, $1.0 million increase in maintenance revenues, and an increase of $5.0 million in royalty revenues.

Revenues for the nine months ended June 30, 2010 totaled $74.0 million, increasing 115.9% from $34.3 million for the nine months ended June 30,
2009. The increase resulted from a $27.0 million increase in license revenues, $1.8 million increase in maintenance revenues, and an increase of $10.9 million in royalty revenues.

License revenues for the three months ended June 30, 2010 were $18.3 million, representing an increase of $9.3 million, or 103.0%, as compared to
$9.0 million for the three months ended June 30, 2009. License revenues for the nine months ended June 30, 2010 were $50.1 million, representing an increase of $27.0 million, or 117.3%, as compared to $23.0 million for the nine months
ended June 30, 2009. The license revenue increases for the three and nine months ended June 30, 2010 are mainly attributed to the revenues generated from the acquisition of ARC and the transaction we entered into with NXP along with a
progressive change occurring in the semiconductor industry towards the use of third-party wafer foundries by an increasing number of SoC integrated circuit manufacturers, including most major IDMs.

Maintenance revenues for the three months ended June 30, 2010 were $2.7 million, representing an increase of $1.0 million, or 56.6%, as compared to
$1.7 million for the three months ended June 30, 2009. Maintenance revenues for the nine months ended June 30, 2010 were $7.1 million, representing an increase of $1.8 million, or 33.4%, as compared to $5.3 million for the nine months
ended June 30, 2009. The maintenance revenue increases for the three and nine months ended June 30, 2010 are mainly attributed to the revenues generated from the acquisition of ARC.

Royalty revenues for the three months ended June 30, 2010 were $6.1 million, representing a increase of $5.0 million, or 418.8%,
as compared to $1.2 million for the three months ended June 30, 2009. Royalty revenues for the nine months ended June 30, 2010 were $16.9 million, representing an increase of $10.9 million, or 184.4%, as compared to $5.9 million for the
nine months ended June 30, 2009. The increases in royalty revenues for the three and nine months ended June 30, 2010 are mainly attributed to increased sales of advanced technology semiconductor wafers from our foundry partners, and
royalty income from semiconductor manufacturers for our ARC® processor product portfolio.

For the three and nine months ended June 30, 2010 and 2009, total revenues by geography were as follows (in thousands):



|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------- |  | -------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                        |  | Three Months EndedJune 30, |        | Nine Months EndedJune 30,
|                                                        |  | 2010                       |        | 2009                      |   | 2010   |  | 2009
|Total Revenue by Geography                              |  |                            |        |                           |   |        |  |      |        |  |   |       
|United States                                           |  | $                          | 9,805  |                           | $ | 7,057  |  | $    | 27,151 |  | $ | 16,953
|Europe, Middle East and Africa (EMEA)                   |  |                            | 7,809  |                           |   | 1,011  |  |      | 20,563 |  |   | 4,062 
|Taiwan                                                  |  |                            | 2,437  |                           |   | 1,366  |  |      | 9,566  |  |   | 5,405 
|Other Asia (China, Malaysia, South Korea and Singapore) |  |                            | 4,693  |                           |   | 1,197  |  |      | 9,323  |  |   | 3,931 
|Japan                                                   |  |                            | 1,244  |                           |   | 1,043  |  |      | 4,263  |  |   | 2,394 
|Canada                                                  |  |                            | 1,152  |                           |   | 247    |  |      | 3,177  |  |   | 1,550 
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       
|Total                                                   |  | $                          | 27,140 |                           | $ | 11,921 |  | $    | 74,043 |  | $ | 34,295
|                                                        |  |                            |        |                           |   |        |  |      |        |  |   |       

Cost and Expenses

The table below sets forth the changes in cost and expenses for the three and nine months ended June 30, 2010 and for the three and nine months ended
June 30, 2009 (in thousands, except percentage data):



|                           |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |          |  
|-------------------------- |  | ------------------------------- | ------ | ------------------ | ------------------------------- | - | ------ | --------------------- | ------------------ |  | ----- | - |  | - | ------ |  | -------- | -
|                           |  | Three Months EndedJune 30, 2010 |        |                    | Three Months EndedJune 30, 2009 |   |        | Year-Over-Year Change |                   
|                           |  | Amount                          |        | % of totalrevenues |                                 |   | Amount |                       | % of totalrevenues |  |      
|Cost and expenses:         |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |          |  
|Cost of revenues           |  | $                               | 5,959  |                    | 22.0                            | % |        | $                     | 2,529              |  | 21.2  | % |  | $ | 3,430  |  | 135.6    | %
|Research and development   |  |                                 | 13,510 |                    | 49.8                            | % |        |                       | 6,527              |  | 54.8  | % |  |   | 6,983  |  | 107.0    | %
|Sales and marketing        |  |                                 | 4,939  |                    | 18.2                            | % |        |                       | 2,574              |  | 21.6  | % |  |   | 2,365  |  | 91.9     | %
|General and administrative |  |                                 | 4,776  |                    | 17.6                            | % |        |                       | 2,090              |  | 17.5  | % |  |   | 2,686  |  | 128.5    | %
|Goodwill impairment        |  |                                 |       |                    |                                |   |        |                       |                   |  |      |   |  |   |       |  | 0        | %
|Restructuring              |  |                                 | 5,575  |                    | 20.5                            | % |        |                       | 22                 |  | 0.2   | % |  |   | 5,553  |  | 25,240.9 | %
|                           |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |          |  
|Total cost and expenses    |  | $                               | 34,759 |                    | 128.1                           | % |        | $                     | 13,742             |  | 115.3 | % |  | $ | 21,017 |  | 152.9    | %
|                           |  |                                 |        |                    |                                 |   |        |                       |                    |  |       |   |  |   |        |  |          |  



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|                           |  |                                |        |                    |                                |   |        |                       |                    |  |       |   |  |   |         |   |  |        |   
|-------------------------- |  | ------------------------------ | ------ | ------------------ | ------------------------------ | - | ------ | --------------------- | ------------------ |  | ----- | - |  | - | ------- | - |  | ------ | --
|                           |  | Nine Months EndedJune 30, 2010 |        |                    | Nine Months EndedJune 30, 2009 |   |        | Year-Over-Year Change |                   
|                           |  | Amount                         |        | % of totalrevenues |                                |   | Amount |                       | % of totalrevenues |  |      
|Cost and expenses:         |  |                                |        |                    |                                |   |        |                       |                    |  |       |   |  |   |         |   |  |        |   
|Cost of revenues           |  | $                              | 14,431 |                    | 19.5                           | % |        | $                     | 7,499              |  | 21.9  | % |  | $ | 6,932   |   |  | 92.4   | % 
|Research and development   |  |                                | 39,401 |                    | 53.2                           | % |        |                       | 22,246             |  | 64.8  | % |  |   | 17,155  |   |  | 77.1   | % 
|Sales and marketing        |  |                                | 13,660 |                    | 18.4                           | % |        |                       | 7,995              |  | 23.3  | % |  |   | 5,665   |   |  | 70.9   | % 
|General and administrative |  |                                | 13,702 |                    | 18.5                           | % |        |                       | 6,856              |  | 20.0  | % |  |   | 6,846   |   |  | 99.9   | % 
|Goodwill impairment        |  |                                |       |                    |                               |   |        |                       | 11,839             |  | 34.5  | % |  |   | (11,839 | ) |  | (100.0 | )%
|Restructuring              |  |                                | 5,575  |                    | 7.5                            | % |        |                       | 1,495              |  | 4.4   | % |  |   | 4,080   |   |  | 272.9  | % 
|                           |  |                                |        |                    |                                |   |        |                       |                    |  |       |   |  |   |         |   |  |        |   
|Total cost and expenses    |  | $                              | 86,769 |                    | 117.1                          | % |        | $                     | 57,930             |  | 168.9 | % |  | $ | 28,839  |   |  | 49.8   | % 
|                           |  |                                |        |                    |                                |   |        |                       |                    |  |       |   |  |   |         |   |  |        |   

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 amortization of acquired software and depreciation of capital equipment. Cost of revenues for the three months ended June 30, 2010 totaled $6.0 million, representing an
increase of $3.4 million, or 135.6%, from $2.5 million for the three months ended June 30, 2009. The increase for the three months was primarily attributable to additional cost of revenue from services provided to NXP. Cost of revenues for the
nine months ended June 30, 2010 totaled $14.4 million, representing an increase of $6.9 million, or 92.4%, from $7.5 million for the nine months ended June 30, 2009. The increase for the nine months was primarily attributable to additional
cost of revenue from services provided to NXP.

Research and Development Expenses

Research and development expenses primarily include personnel expense, software license and maintenance fees, amortization of intangible assets and
capital equipment depreciation expenses. Research and development expenses for the three months ended June 30, 2010 totaled $13.5 million, an increase of $7.0 million, or 107.0%, from $6.5 million for the three months ended June 30, 2009.
Research and development expenses as a percentage of total revenue for the three months ended June 30, 2010 decreased to 49.8% from 54.8% for the same period in fiscal 2009. The increase was primarily attributable to $3.9 million of additional
personnel expenses, $0.8 million of professional and consulting fees, $0.8 million of software license fees and $1.0 million of amortization of intangible assets due to the acquisitions of ARC International and the NXP assets. For the nine months
ended June 30, 2010, research and development expenses increased $17.2 million, or 77.1%, from $22.2 million in fiscal 2009 to $39.4 million in fiscal 2010. Research and development expenses as a percentage of total revenue for the nine months
ended June 30, 2010 decreased to 53.2% from 64.8% for the same period in fiscal 2009. The increase in research and development expenses for the nine ended June 30, 2010 were primarily due to the additional research and development expenses
as a result of hiring additional employees in connection with the recent acquisition of ARC and the transactions we entered into with NXP. The increase was primarily attributable to $8.1 million of additional personnel expenses, $2.3 million of
professional and consulting fees, $2.1 million of software license fees and $3.4 million of amortization of intangible and assets due to the acquisitions of ARC International and the NXP assets.

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, 2010 totaled $4.9 million, representing an increase of $2.4 million,
or 91.9%, over the same period in fiscal 2009. The increase in sales and marketing expenses for the three months ended June 30, 2010 was primarily attributable to increases of $0.8 million in sales commissions due to increased bookings and new
sales, $1.0 million of payroll related expenses, $0.1 million of travel expenses and $0.2 of million marketing expenses. Sales and marketing expenses as a percentage of revenue were 18.2% for the three months ended June 30, 2010, compared to
21.6% for the three months ended June 30, 2009. For the nine months ended June 30, 2010, total sales and marketing expense increased by $5.7 million, or 70.9%, from $8.0 million in fiscal 2009 to $13.7 million in fiscal 2010. The increase
was primarily attributed to increases of $2.1 million in sales commissions due to increased bookings and new sales, $2.7 million of payroll related expenses, $0.2 million in travel expenses and $0.2 million in marketing expenses.

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, 2010 totaled $4.8 million, representing an increase of $2.7 million, or 128.5%, over the three months ended June 30, 2009. The increase in general and administrative
expenses for the three months ended June 30, 2010 was mainly attributable to increases of $1.5 million in



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##### Table of Contents

professional fees related to acquisition integration, $0.7million of payroll related expenses and $0.2 million of facilities and other recurring expenses due to the acquisition of ARC and the
transaction entered into with NXP. General and administrative expenses, as a percentage of total revenue were 17.6% for the three months ended June 30, 2010, compared to 17.5% for the same period in fiscal 2009. For the nine months ended
June 30, 2010, total general and administrative expense increased by $6.8 million from $6.9 million in fiscal 2009 to $13.7 million in fiscal 2010. The increase in general and administrative expenses for the nine months ended June 30, 2010
was mainly attributable to increases of $4.1 million in professional fees related to acquisition integration, $2.1 million of payroll related expenses and $0.7 million of facilities and other recurring expenses due to the acquisitions of ARC and NXP
assets, offset by a decrease of $0.2 million of bad debt expenses. The increase in general and administrative expenses for the three and nine months ended June 30, 2010 was mainly attributable to the acquisitions of ARC and NXP assets.

Goodwill Impairment

There
was no goodwill impairment for the three and nine months ended June 30, 2010. Goodwill impairment for the three and nine months ended June 30, 2009 was $11.8 million, representing a write-off of all goodwill as a result of a triggering
event in the second quarter of fiscal 2009. The Company determined that the restructuring plan it undertook in the first quarter of fiscal 2009 represented a triggering event to assess its goodwill. As a result of the significant negative industry
and economic trends affecting the Companys operations and expected future growth as well as the general decline of industry valuations impacting the Companys valuation in fiscal, the Company determined that goodwill was impaired in the
three and nine months ended June 30, 2009. There is no impairment loss for the same periods ended June 30, 2010.

Restructuring

Restructuring expense for the three and nine months ended June 30, 2010 was $5.6 million, compared to $22,000 and $1.5 million for
the same respective periods of fiscal 2009. The increase in the current period is due to the June 2010 restructuring of the acquired NXP Assets 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 due to job redundancy and alignment with current and expected product offerings. The restructuring reduced the Companys overall headcount by 8%, primarily in engineering.

Interest Income and Other Income (Expense), net

The table below sets forth the changes in interest income and other income (expense), net from the three and nine months ended June 30, 2010 to the
three and nine months ended June 30, 2009 (in thousands, except percentage data):



|                                                      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|----------------------------------------------------- |  | ------------------------------- | ----- | ------------------ | ------------------------------- | - | ------ | --------------------- | ---- | ------------------ |  | ---- | -- |  | - | ----- | - |  | ----- | --
|                                                      |  | Three Months EndedJune 30, 2010 |       |                    | Three Months EndedJune 30, 2009 |   |        | Year-Over-Year Change |     
|                                                      |  | Amount                          |       | % of totalrevenues |                                 |   | Amount |                       |      | % of totalrevenues |  |     
|Interest income and other income (expense), net:      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|Interest income                                       |  | $                               | 32    |                    | 0.1                             | % |        | $                     | 167  |                    |  | 1.4  | %  |  | $ | (135  | ) |  | (80.8 | )%
|Other income (expense), net                           |  |                                 | 253   |                    | 0.9                             | % |        |                       | (239 | )                  |  | (2.0 | )% |  |   | 492   |   |  | NM    |   
|                                                      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|Total interest income and other income (expense), net |  | $                               | 285   |                    | 1.0                             | % |        | $                     | (72  | )                  |  | (0.6 | )% |  | $ | 357   |   |  | NM    |   
|                                                      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|                                                      |  |                                 |      
|                                                      |  | Nine Months EndedJune 30, 2010  |       |                    | Nine Months EndedJune 30, 2009  |   |        | Year-Over-Year Change |     
|                                                      |  | Amount                          |       | % of totalrevenues |                                 |   | Amount |                       |      | % of totalrevenues |  |     
|Interest income and other income (expense), net:      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|Interest income                                       |  | $                               | 126   |                    | 0.2                             | % |        | $                     | 814  |                    |  | 2.4  | %  |  | $ | (688  | ) |  | (84.5 | )%
|Other income (expense), net                           |  |                                 | 1,004 |                    | 1.3                             | % |        |                       | (124 | )                  |  | (0.4 | )% |  |   | 1,128 |   |  | NM    |   
|                                                      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   
|Total interest income and other income (expense), net |  | $                               | 1,130 |                    | 1.5                             | % |        | $                     | 690  |                    |  | 2.0  | %  |  | $ | 440   |   |  | 63.8  | % 
|                                                      |  |                                 |       |                    |                                 |   |        |                       |      |                    |  |      |    |  |   |       |   |  |       |   

Interest income and other income (expense), net, for the three months ended June 30, 2010 totaled $0.3
million of income compared to $0.1 million of expense for the same period in fiscal 2009. The increase of $0.4 million is largely due to $0.5 million increase in foreign exchange gain offset by $0.1 million decrease in interest income due to lower
investment balances and lower interest rates earned in our investment portfolio of marketable securities. Interest income and other income (expense), net, for the nine months ended June 30, 2010 totaled $1.1 million of income compared to $0.7
million of income for the same period in fiscal 2009. The increase of $1.2 million in foreign exchange gain was offset by $0.7 million decrease in interest income due to lower investment balances and lower interest rates earned in our investment
portfolio of marketable securities.



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Income Tax Provision (Benefit)

The table below sets forth the changes in income tax provision (benefit) from the three months ended June 30, 2010 to the three months ended
June 30, 2009 (in thousands, except percentage data):



|                               |  |                                 |        |   |                                 |       |    |        |   |                    |  |      |  
|------------------------------ |  | ------------------------------- | ------ | - | ------------------------------- | ----- | -- | ------ | - | ------------------ |  | ---- | -
|                               |  | Three Months EndedJune 30, 2010 |        |   | Three Months EndedJune 30, 2009 |      
|                               |  | Amount                          |        |   | % of totalrevenues              |       |    | Amount |   | % of totalrevenues | 
|Income tax provision (benefit) |  | $                               | (2,732 | ) |                                 | (10.1 | )% |        | $ | 29                 |  | 0.2  | %
|                               |  |                                 |        |   |                                 |       |    |        |   |                    |  |      |  
|                               |  |                                
|                               |  | Nine Months EndedJune 30, 2010  |        |   | Nine Months EndedJune 30, 2009  |      
|                               |  | Amount                          |        |   | % of totalrevenues              |       |    | Amount |   | % of totalrevenues | 
|Income tax provision (benefit) |  | $                               | (3,686 | ) |                                 | (5.0  | )% |        | $ | 7,935              |  | 23.1 | %
|                               |  |                                 |        |   |                                 |       |    |        |   |                    |  |      |  

For the three and nine months ended June 30, 2010, we recorded an income tax benefit of $2.7 million and $3.7 million,
respectively. For the three months and nine months ended June 30, 2009, we recorded an income tax provision of $29,000 and $7.9 million, respectively. The provision for income taxes for the nine months ended June 30, 2010 is based on our
annual effective tax rate. The income tax provision for the three and nine month ended June 30, 2009 included a provision of $11.0 million related to the valuation allowance placed against deferred tax assets. The fiscal 2010 effective tax rate
is lower than the fiscal 2009 rate as a result of the provision for the valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and short-term investments at June 30, 2010 and September 30, 2009 were as follows (in thousands):



|                                                        |  |              |        |                   |   |        |  |   |        |  
|------------------------------------------------------- |  | ------------ | ------ | ----------------- | - | ------ |  | - | ------ | -
|                                                        |  | June 30,2010 |        | September 30,2009 |   | Change | 
|Cash and cash equivalents                               |  | $            | 29,210 |                   | $ | 22,473 |  | $ | 6,737  |  
|Short-term investments                                  |  |              | 860    |                   |   | 7,383  |  |   | (6,523 | )
|                                                        |  |              |        |                   |   |        |  |   |        |  
|Total cash, cash equivalents and short-term investments |  | $            | 30,070 |                   | $ | 29,856 |  | $ | 214    |  
|                                                        |  |              |        |                   |   |        |  |   |        |  

Our cash and cash equivalents totaled $29.2 million as of June 30, 2010 and $22.5 million as of September 30,
2009. As of June 30, 2010 and September 30, 2009, our short-term investments totaled $0.9 million and $7.4 million, respectively. In aggregate, cash, cash equivalents and short-term investments in marketable securities as of June 30,
2010 totaled $30.1 million, compared to $29.9 million at September 30, 2009. The primary sources of our cash for the nine months ended June 30, 2010 were from collections of accounts receivable and proceeds from maturity of investments.

The net increase in cash and cash equivalents for the nine months ended June 30, 2010 and June 30, 2009 were as follows (in
thousands):



|                                                |  |                   |       |              |        |        |   |  |   |        |  
|----------------------------------------------- |  | ----------------- | ----- | ------------ | ------ | ------ | - |  | - | ------ | -
|                                                |  | Nine Months Ended |       |              | Change |       
|                                                |  | June 30,2010      |       | June 30,2009 |        |       
|Cash provided by (used in) operating activities |  | $                 | 3,744 |              | $      | (4,368 | ) |  | $ | 8,112  |  
|Cash provided by investing activities           |  |                   | 1,315 |              |        | 8,176  |   |  |   | (6,861 | )
|Cash provided by financing activities           |  |                   | 1,480 |              |        | 248    |   |  |   | 1,232  |  
|Effect of exchange rates on cash                |  |                   | 198   |              |        | 300    |   |  |   | (102   | )
|                                                |  |                   |       |              |        |        |   |  |   |        |  
|Net increase in cash and cash equivalents       |  | $                 | 6,737 |              | $      | 4,356  |   |  | $ | 2,381  |  
|                                                |  |                   |       |              |        |        |   |  |   |        |  

Net cash provided in operating activities was $3.7 million for the nine months ended June 30, 2010, representing an
increase of $8.1 million over net cash used in operating activities of $4.4 million for the nine months ended June 30, 2009. The change in cash flows from operating activities was primarily attributable to a reduction in net loss of $23.0
million. The reduction in net loss of $23.0 million and an increase of $2.6 million in changes in operating assets and liabilities were offset by decreases of $17.4 million in non-cash charges primarily due to goodwill impairment of $11.8 million
and deferred tax assets of $12.9 million during the nine months ended June 30, 2009 offset by increases in intangible asset amortization of $4.6 million, share-based compensation of $3.0 million, and depreciation of $1.0 million during the
nine months ended June 30, 2010.



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Net cash provided by investing activities was $1.3 million for the nine months ended June 30, 2010,
representing a decrease of $6.9 million over net cash provided by investing activities of $8.2 million for the nine months ended June 30, 2009. The decrease of $6.9 million from the investing activities resulted from a decrease in proceeds from
maturities of investments of $45.9 million and an increase in cash used for acquisitions of $3.0 million offset by a decrease in purchase of investments of $41.5 million and a decrease in property and equipment purchases of $0.5 million.

Net cash provided by financing activities totaled $1.5 million for the nine months ended June 30, 2010, representing an increase of $1.2 million
over net cash used in financing activities of $0.2 million for the nine months ended June 30, 2009. The increase of $1.2 million was attributed to $0.6 million used in the purchase of treasury stock in the first half of fiscal 2009 and an
increase of $0.3 million in proceeds from issuance of common stock and excess tax benefits related to share-based compensation during the first three quarters of fiscal 2010.

Our future capital requirements will depend on many factors, including the rate of our sales growth, market acceptance of our existing and new
technologies, the amount and timing of R&D 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. We
believe that our current capital resources 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. There can be no assurance that additional equity or debt financing, if required, will be available on satisfactory terms.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our contractual obligations and commercial commitments at June 30, 2010 (in thousands):



|                              |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |    
|----------------------------- |  | ----- | ------ | --------------- | - | -------- |  | -------- | ----- | ------------ | - | ----- |  | - | ---
|Contractual Obligations       |  | Total |        | Less Than1 Year |   | 1-3Years |  | 4-5Years |       | After5 Years
|Operating lease obligations   |  | $     | 6,596  |                 | $ | 2,543    |  | $        | 2,165 |              | $ | 1,245 |  | $ | 643
|Capital lease obligations     |  |       | 87     |                 |   | 87       |  |          |      |              |   |      |  |   |   
|Purchase obligations (1)      |  |       | 15,865 |                 |   | 8,966    |  |          | 6,251 |              |   | 648   |  |   |   
|                              |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |    
|Total contractual obligations |  | $     | 22,548 |                 | $ | 11,596   |  | $        | 8,416 |              | $ | 1,893 |  | $ | 643
|                              |  |       |        |                 |   |          |  |          |       |              |   |       |  |   |    



|(1) | Reflects amounts payable under contracts primarily for product development software licenses, maintenance and payments due under other technology licensing agreements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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 commercial paper, U.S. government sponsored enterprise bonds and U.S. treasury bills. Our cash equivalents and short-term investments balance of $4.3 million at June 30,
2010 consists of instruments with original maturities of less than one year. The estimated fair value of our investment portfolio as of June 30, 2010, assuming a 100 basis point increase in market interest rates, would decrease by approximately
$700, 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.



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##### Table of Contents

|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 Securities 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. 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, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION



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

We are a party to
legal proceedings and claims of various types in the ordinary course of business. We believe based on information currently available to management that the resolution of such claims will not have a material adverse impact on our condensed
consolidated financial position or results of operations.



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

We face many significant
risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. We have disclosed a number of
material risks under Item 1A of our annual report on Form 10-K for the year ended September 30, 2009, which we filed with the Securities and Exchange Commission on December 11, 2009. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. We have updated these risk factors to reflect changes during the first half of fiscal 2010.
The following discussion is of material changes to the risk factors disclosed in that report; you should also read the risk factors set forth in that report as we continue to be subject to them.

The pending Merger of the Company with Synopsys, Inc. pursuant to the Agreement and Plan of Merger dated June 9, 2010 (the Merger
Agreement) is subject to a number of conditions that must be satisfied prior to closing. If we are unable to satisfy these conditions, the Merger may not occur. Should the Merger fail to close for any reason, our business, financial condition,
results of operations and cash flows may be materially adversely affected.

The Merger Agreement contains a number of conditions that
must be satisfied before the closing of the Merger can occur, including, without limitation, (1) adoption of the Merger Agreement by holders of a majority of our outstanding shares, (2) the absence of a legal or regulatory restraint or
prohibition or other governmental action that would prevent the closing of the merger, and no statute, rule, regulation or order will have been enacted, entered enforced or deemed applicable to the merger, which prohibits, makes illegal, or enjoins
the closing of the merger, (3) subject to certain materiality exceptions, the accuracy of the representations and warranties made by Synopsys and the Company, respectively, on and as of June 9, 2010 and the closing date, and compliance by
Synopsys and the Company with their respective obligations under the Merger Agreement, (4) the compliance in all material respects with all covenants and obligations required to be performed and complied with by Synopsys or the Company under
the Merger Agreement at or before the closing, (5) the absence of a suit, action or proceeding initiated by a governmental entity pending before any governmental entity or arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (a) prevent the consummation of the transactions contemplated by the Merger Agreement, (b) cause such transactions to be rescinded, (c) prohibit, limit or adversely affect the ownership, control or operation by
Synopsys, the Company or any of their respective affiliates of the business or assets of the Company or Synopsys, or require any such person to effect a divestiture, or (d) have a material adverse effect on the Company or Synopsys, and no such
injunctions, judgments, orders, decrees, rulings or charges shall be in effect, nor shall any applicable law have been enacted having any such effect, and (6) the absence of a material adverse effect on the Company since June 9, 2010. If
we are unable to satisfy one or more of these conditions, and as a result, not complete the Merger, we may lose suppliers, customers, and key employees, which would materially adversely affect our business, financial condition, results of operations
and cash flows.

In addition, the Merger Agreement contains certain termination rights for both the Company and Synopsys. The Merger Agreement
provides that, upon termination of the Merger Agreement under certain circumstances, the Company would be required to pay Synopsys a termination fee of $11 million. If we are required to reimburse Synopsys for its fees and expenses or pay Synopsys a
termination fee, our business, financial condition, results of operations and cash flows would be materially adversely affected.



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

We recorded a net loss of $7.9 million for the first nine months of fiscal 2010 and a net loss of $30.8 million for the same period of
fiscal 2009. The loss for the nine months of fiscal 2009 was mainly due to goodwill impairment of $11.8 million and tax provision of $11.0 million related to valuation allowance placed against deferred tax assets. Though 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. 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 an additional valuation allowance to be recorded.

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;
| | - |  | -------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------



| |  |  | non-cash charges such as tax provisions, write-downs of goodwill and other intangible assets;
| | - |  | ---------------------------------------------------------------------------------------------



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



| |  |  | R&D 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.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

The following table provides the specified information about the repurchase of shares by the Company under the Companys stock repurchase program.



|                 |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           
|---------------- |  | ------------------------------ |  | ------------------- | ---- | ------------------------------------------------------------------------- | ------- | ----------------------------------------------------------------------------------------- | - | ----------
|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
|December 8, 2008 |  | 190,000                        |  | $                   | 2.95 |                                                                           | 890,000 |                                                                                           | $ | 14,896,500
|                 |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           
|Total            |  | 890,000                        |  |                     |      |                                                                           |         |                                                                                           |   |           
|                 |  |                                |  |                     |      |                                                                           |         |                                                                                           |   |           

On May 14, 2009, the Company announced that its Board of Directors authorized the extension of the expiration
date of the stock repurchase program to repurchase up to $20 million in shares of the Companys common stock in the open market or negotiated transactions through December 2010. See Note 11. Stock Repurchase Program.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | RESERVED
|------- | --------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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|ITEM 6. | EXHIBITS
|------- | --------



|           |  |                                                                                                                                                       
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Exhibits                                                                                                                                              
|10.1       |  | Amended and Restated Change in Control Severance Agreement, by and between Brian Sereda and Virage Logic Corporation, dated as of June 6, 2010        
|           | 
|10.2       |  | Amended and Restated Change in Control Severance Agreement, by and between Alex Shubat and Virage Logic Corporation, dated as of June 6, 2010         
|           | 
|10.3       |  | Offer Letter, by and between Virage Logic Corporation and J. Daniel McCranie, dated as of January 5, 2007                                             
|           | 
|10.4       |  | Offer Letter, by and between Virage Logic Corporation and Brian Sereda, dated as of August 18, 2008                                                   
|           | 
|10.5       |  | Form of Change in Control Severance Agreement(1)                                                                                                      
|           | 
|10.6       |  | Agreement and Plan of Merger, by and among Synopsys, Inc., Vortex Acquisition Corp. and Virage Logic Corporation, dated as of June 9, 2010(2)         
|           | 
|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                                



|(1) | Incorporated by reference to Virage Logics Current Report on Form 8-K filed on March 8, 2007.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Virage Logics Current Report on Form 8-K filed on June 10, 2010.
|--- | ----------------------------------------------------------------------------------------------



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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 9, 2010 |  |  |  | VIRAGE LOGIC CORPORATION                    
|                     |  | 
|                     |  |  |  | /s/    Alexander Shubat                     
|                     |  |  |  | Dr. Alexander Shubat                        
|                     |  |  |  | President and Chief Executive Officer       
|                     |  | 
|                     |  |  |  | /s/    Brian Sereda                         
|                     |  |  |  | Brian Sereda                                
|                     |  |  |  | Chief Financial Officer                     
|                     |  |  |  | (Principal Financial and Accounting Officer)



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EXHIBIT INDEX



|           |  |                                                                                                                                                       
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Exhibits                                                                                                                                              
|10.1       |  | Amended and Restated Change in Control Severance Agreement, by and between Brian Sereda and Virage Logic Corporation, dated as of June 6, 2010        
|           | 
|10.2       |  | Amended and Restated Change in Control Severance Agreement, by and between Alex Shubat and Virage Logic Corporation, dated as of June 6, 2010         
|           | 
|10.3       |  | Offer Letter, by and between Virage Logic Corporation and J. Daniel McCranie, dated as of January 5, 2007                                             
|           | 
|10.4       |  | Offer Letter, by and between Virage Logic Corporation and Brian Sereda, dated as of August 18, 2008                                                   
|           | 
|10.5       |  | Form of Change in Control Severance Agreement(1)                                                                                                      
|           | 
|10.6       |  | Agreement and Plan of Merger, by and among Synopsys, Inc., Vortex Acquisition Corp. and Virage Logic Corporation, dated as of June 9, 2010(2)         
|           | 
|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                                



|(1) | Incorporated by reference to Virage Logics Current Report on Form 8-K filed on March 8, 2007.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Virage Logics Current Report on Form 8-K filed on June 10, 2010.
|--- | ----------------------------------------------------------------------------------------------



35