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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 period ending March 31, 2002
|     
|OR   
|     
|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934                                    

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) |  | (IRS Employer Identification No.)

46501 Landing Parkway
Fremont, California 94538
(Address of principal executive offices)

(510) 360-8000
(Registrants telephone number, including area code)

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  ____

As of April 30, 2002 there were 20,290,236 shares of the Registrants Common
Stock outstanding.





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|                            |                                                                                       |                                                                |  |  |  |  |  | 
|--------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                       | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS               
|                            |                                                                                       | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                            |                                                                                       | UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS                  
|                            |                                                                                       | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                            | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                            | Item 3. Quantitative and Qualitative Disclosures about Market Risk                   
|PART II  OTHER INFORMATION
|                            | ITEM 1. Legal Proceedings                                                            
|                            | ITEM 2. Changes in Securities and Use of Proceeds                                    
|                            | ITEM 3. Defaults upon Senior Securities                                              
|                            | ITEM 4. Submission of Matters to a Vote of Security Holders                          
|                            | ITEM 5. Other Information                                                            
|                            | ITEM 6. Exhibits and Reports on Form 8-K                                             
|SIGNATURES                 



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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 as of March 31, 2002
and September 30, 2001                          |   | 3 
|           |                                                                                       | Unaudited Condensed Consolidated Statements of Operations for the
three and six months ended March 31, 2002 and 2001 |   | 4 
|           |                                                                                       | Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2002 and 2001           |   | 5 
|           |                                                                                       | Notes to Unaudited Condensed Consolidated Financial Statements                                                       |   | 6 
|ITEM 2    | Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                      | 9
|ITEM 3    |                                                                                       | Quantitative and Qualitative Disclosures about Market Risk                                                           |   | 27
|PART II   | Other Information                                                                     |                                                                                                                      |  
|ITEM 1    |                                                                                       | Legal Proceedings                                                                                                    |   | 28
|ITEM 2    |                                                                                       | Changes in Securities and Use of Proceeds                                                                            |   | 28
|ITEM 3    |                                                                                       | Defaults upon Senior Securities                                                                                      |   | 28
|ITEM 4    |                                                                                       | Submission of Matters to a Vote of Security Holders                                                                  |   | 28
|ITEM 5    |                                                                                       | Other Information                                                                                                    |   | 29
|ITEM 6    |                                                                                       | Exhibits and Reports on Form 8-K                                                                                     |   | 29
|Signatures |                                                                                       | 30                                                                                                                  

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VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |         |    |        | 
|---------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --------- | ------ | ------------- | ------- | -- | ------ | 
|                                               |                                                              |                                                                                                                  |                                            |         | March 31, |        | September 30,
|                                               |                                                              |                                                                                                                  |                                            |         | 2002      |        | 2001         
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |              
|                                               |                                                              |                                                                                                                  |                                            |         |           |        | (1)          
|ASSETS                                         |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|Current assets:                                |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               | Cash and cash equivalents                                    |                                                                                                                  | $                                          | 37,838  |           |        | $             | 27,868  |   
|                                               | Short-term investments                                       |                                                                                                                  |                                            | 9,885   |           |        |               | 24,800  |   
|                                               | Accounts receivable, net                                     |                                                                                                                  |                                            | 13,167  |           |        |               | 9,874   |   
|                                               | Costs in excess of related billings on uncompleted
contracts |                                                                                                                  |                                            | 573     |           |        |               | 572     |   
|                                               | Prepaid expenses and other                                   |                                                                                                                  |                                            | 1,416   |           |        |               | 1,579   |   
|                                               | Taxes receivable                                             |                                                                                                                  |                                            | 710     |           |        |               | 1,582   |   
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total current assets                       |         |           | 63,589 |               |         |    | 66,275 | 
|                                               | Property, equipment and leasehold improvements, net          |                                                                                                                  |                                            | 5,781   |           |        |               | 4,810   |   
|                                               | Intangible assets, net                                       |                                                                                                                  |                                            | 162     |           |        |               | 270     |   
|                                               | Deferred tax assets                                          |                                                                                                                  |                                            | 877     |           |        |               | 790     |   
|                                               | Long-term investments                                        |                                                                                                                  |                                            | 12,284  |           |        |               | 5,284   |   
|                                               | Other long-term assets                                       |                                                                                                                  |                                            | 428     |           |        |               | 370     |   
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total assets                               |         | $         | 83,121 |               |         | $  | 77,799 | 
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|Current liabilities:                           |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               | Accounts payable                                             |                                                                                                                  | $                                          | 534     |           |        | $             | 399     |   
|                                               | Accrued payroll and related expenses                         |                                                                                                                  |                                            | 2,152   |           |        |               | 1,595   |   
|                                               | Accrued expenses                                             |                                                                                                                  |                                            | 897     |           |        |               | 1,194   |   
|                                               | Deferred revenue                                             |                                                                                                                  |                                            | 1,896   |           |        |               | 1,046   |   
|                                               | Current portion of capital lease obligations                 |                                                                                                                  |                                            | 153     |           |        |               | 240     |   
|                                               | Income taxes payable                                         |                                                                                                                  |                                            | 5       |           |        |               | 3       |   
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total current liabilities                  |         |           | 5,637  |               |         |    | 4,477  | 
|Long-term portion of capital lease obligations |                                                              |                                                                                                                  | 2                                          |         |           |        | 5             |        
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total liabilities                          |         |           | 5,639  |               |         |    | 4,482  | 
|Stockholders equity:                          |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               | Common stock, $.001 par value:                               |                                                                                                                  |                                            |         |           |        |               |         |   
|                                               |                                                              | Authorized shares  150,000,000 at March 31, 2002
and September 30, 2001, respectively                           |                                            |         |           |        |               |         |    |       
|                                               |                                                              | Issued and outstanding shares  20,280,991 and
20,061,095 at March 31, 2002 and September 30,
2001, respectively |                                            |         | 20        |        |               |         | 20 |       
|                                               | Additional paid-in capital                                   |                                                                                                                  |                                            | 97,810  |           |        |               | 96,855  |   
|                                               | Accumulated other comprehensive income                       |                                                                                                                  |                                            | (78     | )         |        |               | 109     |   
|                                               | Notes receivable from stockholders                           |                                                                                                                  |                                            | (94     | )         |        |               | (1,044  | ) 
|                                               | Deferred stock-based compensation                            |                                                                                                                  |                                            | (1,795  | )         |        |               | (3,398  | ) 
|                                               | Accumulated deficit                                          |                                                                                                                  |                                            | (18,381 | )         |        |               | (19,225 | ) 
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total stockholders equity                 |         |           | 77,482 |               |         |    | 73,317 | 
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        
|                                               |                                                              |                                                                                                                  | Total liabilities and stockholders equity |         | $         | 83,121 |               |         | $  | 77,799 | 
|                                               |                                                              |                                                                                                                  |                                            |         |           |        |               |        

|(1) |  | Derived from audited financial statements
|--- |  | -----------------------------------------

See accompanying notes to unaudited condensed consolidated financial statements.

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VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |        |       |        |        | 
|---------------------------------------------------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------------------ | ----- | ------------------ | ----- | ---------------- | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | 
|                                                                                                                       |           |                                                                                                                                  |         |                          |       | Three Months Ended |       | Six Months Ended
|                                                                                                                       |           |                                                                                                                                  |         |                          |       | March 31,          |       | March 31,       
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                 
|                                                                                                                       |           |                                                                                                                                  |         |                          |       | 2002               |       | 2001             |       | 2002   |        | 2001  
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |       
|Revenue:                                                                                                               |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|                                                                                                                       | License   |                                                                                                                                  | $       | 10,239                   |       |                    | $     | 7,179            |       |        | $      | 19,533 |       |        | $      | 13,498 |      
|                                                                                                                       | Royalties |                                                                                                                                  |         | 408                      |       |                    |       | 422              |       |        |        | 761    |       |        |        | 697    |      
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Revenues                                                                                                               |           |                                                                                                                                  | 10,647  |                          |       |                    | 7,601 |                  |       |        | 20,294 |        |       |        | 14,195 |       
|Cost of revenues (exclusive of amortization of
deferred stock compensation of $172, $345,
$367 and $864, respectively) |           |                                                                                                                                  | 2,175   |                          |       |                    | 1,402 |                  |       |        | 4,099  |        |       |        | 2,890  |       
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|                                                                                                                       |           |                                                                                                                                  |         | Gross profit             |       |                    | 8,472 |                  |       |        | 6,199  |        |       |        | 16,195 |        |       |        | 11,305 | 
|Operating expenses:                                                                                                    |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|                                                                                                                       |           | Research and development (exclusive of
amortization of deferred stock compensation
of $239, $563, $526 and $1,345,
respectively) |         |                          | 3,028 |                    |       |                  | 2,287 |        |        |        | 5,868 |        |        |        | 4,529 |       
|                                                                                                                       |           | Sales and marketing (exclusive of
amortization of deferred stock compensation
of $214, $492 $468 and $1,001, respectively)       |         |                          | 2,716 |                    |       |                  | 1,996 |        |        |        | 5,225 |        |        |        | 3,455 |       
|                                                                                                                       |           | General and administrative (exclusive of
amortization of deferred stock compensation
of $87, $299, $191 and $623, respectively)  |         |                          | 1,105 |                    |       |                  | 1,212 |        |        |        | 2,130 |        |        |        | 2,141 |       
|                                                                                                                       |           | Stock-based compensation                                                                                                         |         |                          | 712   |                    |       |                  | 1,699 |        |        |        | 1,552 |        |        |        | 3,833 |       
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|                                                                                                                       |           |                                                                                                                                  |         | Total operating expenses |       |                    | 7,561 |                  |       |        | 7,194  |        |       |        | 14,775 |        |       |        | 13,958 | 
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Operating income (loss)                                                                                                |           |                                                                                                                                  | 911     |                          |       |                    | (995  | )                |       |        | 1,420  |        |       |        | (2,653 | )     
|Interest income and other expense, net                                                                                 |           |                                                                                                                                  | 260     |                          |       |                    | 802   |                  |       |        | 698    |        |       |        | 1,791  |       
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Income (loss) before taxes                                                                                             |           |                                                                                                                                  | 1,171   |                          |       |                    | (193  | )                |       |        | 2,118  |        |       |        | (862   | )     
|Income tax provision                                                                                                   |           |                                                                                                                                  | 659     |                          |       |                    | 508   |                  |       |        | 1,274  |        |       |        | 1,123  |       
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Net income (loss)                                                                                                      |           | $                                                                                                                                | 512     |                          |       | $                  | (701  | )                |       | $      | 844    |        |       | $      | (1,985 | )     
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Basic net income (loss) per share                                                                                      |           | $                                                                                                                                | 0.03    |                          |       | $                  | (0.04 | )                |       | $      | 0.04   |        |       | $      | (0.11  | )     
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Diluted net income (loss) per share                                                                                    |           | $                                                                                                                                | 0.02    |                          |       | $                  | (0.04 | )                |       | $      | 0.04   |        |       | $      | (0.11  | )     
|                                                                                                                       |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|Shares used in computing per share amounts:                                                                            |           |                                                                                                                                  |         |                          |       |                    |       |                  |       |        |        |        |       |        |        |       
|                                                                                                                       |           |                                                                                                                                  | Basic   |                          |       | 19,624             |       |                  |       | 18,774 |        |        |       | 19,475 |        |        |       | 18,801 |       
|                                                                                                                       |           |                                                                                                                                  | Diluted |                          |       | 21,194             |       |                  |       | 18,774 |        |        |       | 20,872 |        |        |       | 18,801 |       

See accompanying notes to unaudited condensed consolidated financial statements.

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VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |         |        |   |        |  
|------------------------------------------------ | --------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------ | --- | ---------------- | ------- | ------- | ------ | - | ------ | -
|                                                 |                                                     |                                                                                          |                                              |                                                              |     | Six Months Ended
|                                                 |                                                     |                                                                                          |                                              |                                                              |     | March 31,       
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                 
|                                                 |                                                     |                                                                                          |                                              |                                                              |     | 2002             |         | 2001   
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|Operating activities                             |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 |                                                     | Net income (loss)                                                                        |                                              | $                                                            | 844 |                  |         | $       | (1,985 | )
|                                                 |                                                     | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                              |                                                              |     |                  |         |         |        |  
|                                                 |                                                     |                                                                                          |                                              | Provision for doubtful accounts                              |     |                  | 139     |         |        |   |       |  
|                                                 |                                                     |                                                                                          |                                              | Depreciation and amortization                                |     |                  | 1,685   |         |        |   | 1,183  |  
|                                                 |                                                     |                                                                                          |                                              | Amortization of intangible asset                             |     |                  | 108     |         |        |   | 108    |  
|                                                 |                                                     |                                                                                          |                                              | Consulting expense related to options granted                |     |                  | 34      |         |        |   |       |  
|                                                 |                                                     |                                                                                          |                                              | Amortization of stock-based compensation                     |     |                  | 1,552   |         |        |   | 3,833  |  
|                                                 |                                                     |                                                                                          | Changes in operating assets and liabilities: |                                                              |     |                  |         |         |        |   |       
|                                                 |                                                     |                                                                                          |                                              | Accounts receivable                                          |     |                  | (3,432  | )       |        |   | (2,911 | )
|                                                 |                                                     |                                                                                          |                                              | Costs in excess of related billings on uncompleted contracts |     |                  | (1      | )       |        |   | (324   | )
|                                                 |                                                     |                                                                                          |                                              | Prepaid expenses and other                                   |     |                  | 265     |         |        |   | (333   | )
|                                                 |                                                     |                                                                                          |                                              | Taxes Receivable                                             |     |                  | 872     |         |        |   |       |  
|                                                 |                                                     |                                                                                          |                                              | Deferred tax assets                                          |     |                  | (87     | )       |        |   |       |  
|                                                 |                                                     |                                                                                          |                                              | Other assets                                                 |     |                  | (58     | )       |        |   | 102    |  
|                                                 |                                                     |                                                                                          |                                              | Accounts payable                                             |     |                  | 135     |         |        |   | 583    |  
|                                                 |                                                     |                                                                                          |                                              | Accrued payroll and related expenses                         |     |                  | 557     |         |        |   | 231    |  
|                                                 |                                                     |                                                                                          |                                              | Accrued expenses                                             |     |                  | (297    | )       |        |   | 374    |  
|                                                 |                                                     |                                                                                          |                                              | Deferred revenue                                             |     |                  | 850     |         |        |   | 1,140  |  
|                                                 |                                                     |                                                                                          |                                              | Income taxes payable                                         |     |                  | 2       |         |        |   | 285    |  
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 | Net cash provided by operating activities           |                                                                                          |                                              | 3,168                                                        |     |                  |         | 2,286   |       
|Investing activities                             |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 | Purchase of property, plant and equipment           |                                                                                          |                                              | (2,656                                                       | )   |                  |         | (2,425  | )     
|                                                 | Purchase of investments                             |                                                                                          |                                              | (17,222                                                      | )   |                  |         | (24,051 | )     
|                                                 | Proceeds from maturities of investments             |                                                                                          |                                              | 24,950                                                       |     |                  |         |        |       
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 | Net cash provided by (used) in investing activities |                                                                                          |                                              | 5,072                                                        |     |                  |         | (26,476 | )     
|Financing activities                             |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 | Net proceeds from issuance of common stock          |                                                                                          |                                              | 870                                                          |     |                  |         | 578     |       
|                                                 | Repayment from stockholders                         |                                                                                          |                                              | 950                                                          |     |                  |         | 449     |       
|                                                 | Principal payments on capital lease obligations     |                                                                                          |                                              | (90                                                          | )   |                  |         | (174    | )     
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|                                                 | Net cash provided by financing activities           |                                                                                          |                                              | 1,730                                                        |     |                  |         | 853     |       
|Net increase in cash and cash equivalents        |                                                     |                                                                                          | 9,970                                        |                                                              |     |                  | (23,337 | )      
|Cash and cash equivalents at beginning of period |                                                     |                                                                                          | 27,868                                       |                                                              |     |                  | 58,596  |        
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        
|Cash and cash equivalents at end of the period   |                                                     | $                                                                                        | 37,838                                       |                                                              |     | $                | 35,259  |        
|                                                 |                                                     |                                                                                          |                                              |                                                              |     |                  |         |        

See accompanying notes to unaudited condensed
consolidated financial statements.

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VIRAGE LOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended March 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending September 30, 2002. For
further information refer to the Managements Discussion and Analysis of
Financial Condition and Results of Operations under Item 2 below.

The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements of
Virage Logic Corporation (the Company) for the year ended September 30, 2001,
which are included in the Companys Form 10-K filed with the Securities and
Exchange Commission, Registration No. 000-31089.

The unaudited condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, Virage Logic International.
Intercompany balances and transactions have been eliminated.

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Certain reclassifications have been made to prior period financial statements
to conform to current period presentation.

Note 2. Net Income (Loss) Per Share

Basic and diluted net income (loss) per share is presented in conformity with
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued or granted
for nominal consideration prior to the effective date of the Companys initial
public offering must be included in the calculation of basic and diluted net
income (loss) per common share as if they had been outstanding for all periods
presented.

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Basic income (loss) per share has 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.

Diluted income per share is computed using the weighted average number of
outstanding shares of common stock and, when dilutive, potential common shares
from options and warrants to purchase common stock subject to repurchase using
the treasury stock method.

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

|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |        |       |  
|------------------------------------------------------------ | --------------------------------------------------- | ------- | ------ | ------------------ | ---- | ---------------- | ------ | ------ | ----- | ---- | ------ | ------ | ---- | - | ------ | ------ | ----- | -
|                                                             |                                                     |         |        | Three Months Ended |      | Six Months Ended
|                                                             |                                                     |         |        | March 31,          |      | March 31,       
|                                                             |                                                     |         |        |                    |      |                 
|                                                             |                                                     |         |        | 2002               |      | 2001             |        | 2002   |       | 2001
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |     
|Net income (loss)                                            |                                                     | $       | 512    |                    |      | $                | (701   | )      |       | $    | 844    |        |      | $ | (1,985 | )     
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|Basic:                                                       |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|                                                             | Weighted average shares of common stock
outstanding |         |        | 20,228             |      |                  |        | 19,906 |       |      |        | 20,158 |      |   |        | 19,922 |      
|                                                             | Less weighted average shares subject to
repurchase  |         |        | (604               | )    |                  |        | (1,132 | )     |      |        | (683   | )    |   |        | (1,121 | )    
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|Shares used in computing basic net
income (loss) per share   |                                                     |         | 19,624 |                    |      |                  | 18,774 |        |       |      | 19,475 |        |      |   | 18,801 |       
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|Diluted:                                                     |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|Employee stock options and unvested
common
stock outstanding |                                                     |         | 960    |                    |      |                  |       |        |       |      | 720    |        |      |   |       |       
|Unvested exercised options                                   |                                                     |         | 560    |                    |      |                  |       |        |       |      | 625    |        |      |   |       |       
|Unexercised warrants                                         |                                                     |         | 38     |                    |      |                  |       |        |       |      | 36     |        |      |   |       |       
|Employee stock purchase plan                                 |                                                     |         | 12     |                    |      |                  |       |        |       |      | 16     |        |      |   |       |       
|Shares used in computing diluted net
income (loss) per share |                                                     |         | 21,194 |                    |      |                  | 18,774 |        |       |      | 20,872 |        |      |   | 18,801 |       
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|Net income (loss) per share:                                 |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|                                                             |                                                     | Basic   |        | $                  | 0.03 |                  |        | $      | (0.04 | )    |        | $      | 0.04 |   |        | $      | (0.11 | )
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       
|                                                             |                                                     | Diluted |        | $                  | 0.02 |                  |        | $      | (0.04 | )    |        | $      | 0.04 |   |        | $      | (0.11 | )
|                                                             |                                                     |         |        |                    |      |                  |        |        |       |      |        |        |      |   |        |       

Note 3. Comprehensive Income (Loss)

In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 established standards for the reporting and display of
comprehensive income (loss) and its components. Total comprehensive income
(loss) was not materially different from net income (loss) incurred for the
three and six month periods ended March 31, 2002 and 2001.

Note 4. Segment Information

The Company operates in one business segment, the sale of semiconductor
intellectual property for the memory elements of systems-on-a-chip, which it
sells to fabless semiconductor companies as well as integrated device
manufacturers.

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Segment selection is based upon the internal organization structure, the manner
in which these operations are managed and their performance evaluated by
management, the availability of separate financial information and overall
materiality considerations.

Long-lived assets are located primarily in North America with insignificant
amounts held at our foreign locations. The Company has only one product line,
therefore disclosure by product groupings is not available.

Revenues by geographic region were as follows (in thousands):

|          |               |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |       |        | 
|--------- | ------------- | ----- | - | ------------------ | ------ | ---------------- | - | ----- | ----- | ---- | - | ------ | ------ |  | - | ----- | ------ | 
|          |               |       |   | Three Months Ended |        | Six Months Ended
|          |               |       |   | March 31,          |        | March 31,       
|          |               |       |   |                    |        |                 
|          |               |       |   | 2002               |        | 2001             |   | 2002  |       | 2001
|          |               |       |   |                    |        |                  |   |       |       |     
|Revenues: |               |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |      
|          | North America |       | $ | 6,238              |        |                  | $ | 5,038 |       |      | $ | 12,519 |        |  | $ | 9,204 |       
|          | EMEA          |       |   | 3,221              |        |                  |   | 1,340 |       |      |   | 4,679  |        |  |   | 1,572 |       
|          | Asia Pacific  |       |   | 1,188              |        |                  |   | 1,223 |       |      |   | 3,096  |        |  |   | 3,419 |       
|          |               |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |      
|          |               | Total |   | $                  | 10,647 |                  |   | $     | 7,601 |      |   | $      | 20,294 |  |   | $     | 14,195 | 
|          |               |       |   |                    |        |                  |   |       |       |      |   |        |        |  |   |      

For the three months ended March 31, 2002, Tower Semiconductor and Toshiba
generated 10% and 17% of revenues, respectively.

Note 5. Recently Issued Accounting Pronouncements

In accordance with Financial Accounting Standards Board Statement (SFAS) No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized, but instead will be subject to annual impairment tests.
At March 31, 2002 the Company had a net intangible balance of $162,000 related
to goodwill, workforce and customer list purchased on
December 1, 1999. In connection with the adoption of SFAS
No. 142, the Company determined that there was no impairment of
goodwill.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 addresses significant issues
relating to the implementation of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and develops
a single accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or fair value less
cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are to be applied prospectively. The
Company is currently assessing the impact of SFAS No. 144 on its financial
position and results of operations.

Note 6. Subsequent Events

The Company announced its intention to acquire In-Chip Systems, Inc.
pursuant to a definitive agreement for a total purchase price of less than $20 million in stock and cash. This
acquisition, if consummated, will be accounted for as a purchase and is expected to
close by the end of May 2002.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Statements made in this Managements Discussion and Analysis of Financial
Condition and Results of Operations, other than statements of historical fact,
are forward-looking statements that involve risks and uncertainties. These
statements relate to future events or our future financial performance. 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. These statements involve a number of risks and
uncertainties including those set forth below under Risk Factors that could
cause actual events or results to differ materially from any forward-looking
statement. 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 on
pages 15-20 of the Companys Form 10-K for the fiscal year ended September 30,
2001 filed with the Securities and Exchange Commission on December 19, 2001.

Overview

Virage Logic provides embedded memory in the form of semiconductor
intellectual property for systems-on-a-chip integrated circuits. These chips
are used in communications equipment, computer and consumer products, such as
cellular and digital phones, pagers, digital cameras, DVD players, switches and
modems. Our memories are optimized for our customers manufacturing processes
and are pre-tested through actual manufacture of silicon chips at third-party
foundries.

Revenues consist of license fees for our memories, standard and custom
memory compilers, software development tools and royalties from certain
third-party semiconductor foundries on their sales of silicon chips
manufactured for our fabless customers. Licensing of our intellectual property
involves a sales cycle of three to six months. Our memories and compilers can
be customized for our customers specific manufacturing processes and
requirements. A custom contract would typically call for milestone payments
that are defined in the statement of work and program schedule that accompany a
master license agreement. Milestone deliveries generally occur over three to
six months as various phases of product development and/or services are
completed.

License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, we have no significant remaining
obligations to perform, the fee is fixed or determinable and collectibility is
probable. License revenues for certain software development tools are recorded
ratably over the maintenance term as vendor-specific objective evidence of fair
value for the maintenance portion of the revenues does not exist. License
revenues on custom memory compilers are recognized using contract accounting
over the period that services are performed under the percentage-of-completion
method. For such licenses, we determine our progress-to-

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completion using input measures based on labor hours incurred. A provision for estimated
losses on engagements is made in the period in which the loss becomes probable
and can be reasonably estimated. To date, no such loss provision has been
necessary.

Support revenues related to standard and custom memory compilers are
recognized ratably over the term of the agreement for all agreements entered
into after October 1, 2001. For agreements recorded in periods prior to the
first quarter of fiscal 2002, support revenues were not deferred over the term
of the license agreement but rather, recorded up front with an estimated cost
of support accrued at the time license revenue was recognized. The increasing
complexity of our products, associated with the decreasing geometries and the
greater number of processes for each geometry, and the expected increase in
estimated support costs resulted in the deferral of support revenues.

Currently, license fees represent a substantial portion of our revenues.
We have agreements with certain third-party semiconductor foundries which
require them to pay royalties on their sales of silicon chips manufactured for
our fabless customers. Royalty revenues for the three months ended March 31,
2002 totaled $408,000 as compared to $422,000 in the second quarter of fiscal
2001. The time delays for receiving royalty revenues are due to the typical
length of time required for the customer to incorporate our embedded memories
into their design and manufacture and bring to market a product incorporating
our memories. We believe that product output by our foundry partners is
improving and hence, our royalties should continue to trend upward slightly as
the economy improves.

For the three months ended March 31, 2002, Tower Semiconductor, Toshiba,
and Conexant each generated between 8% and 17% of our revenues. Collectively,
these companies represented 35% of total revenues for that period. For the
three months ended March 31, 2001, Level One, Philips, TSMC, and Vitesse each
generated between 5% and 39% of our revenues. Collectively, these companies
represented 57% of total revenues for that period.

We continue to increase our direct sales force in the United States,
Europe and Japan, while also maintaining the use of distributors in Japan and
the rest of Asia. Sales to customers located outside the United States
accounted for 47% and 52% of our revenues for the three and six months ended
March 31, 2002, respectively. All revenues to date have been denominated in
U.S. dollars.

Since our inception in November 1995, cost of revenues and other expense
categories have progressively increased as we add personnel and increase the
level of our business activities. We intend to continue making significant
expenditures associated with research and development, sales and marketing and
general and administrative activities, and expect that costs of revenues and
these expenses will continue to be a significant percentage of revenues in
future periods.

We have incurred, and will continue to incur, substantial amortization of
stock-based compensation, which represents non-cash charges incurred as a
result of the issuance of stock options to employees. These charges are
recorded based on the difference between the deemed fair value of the common
stock at the date of grant and the exercise price of such options. The
aggregate deferred stock-based compensation at March 31, 2002 was

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$1.8 million. This amount is presented as a reduction of stockholders
equity and is being amortized using the graded-vesting method over the vesting
period of the applicable options, generally four years. Amortization of
deferred stock-based compensation for the three months ended March 31, 2002,
net of cancellations, was approximately $712,000. We anticipate that the
amortization of stock-based compensation for options granted through March 31,
2002 will equal approximately $1.0 million in 2002, $0.7 million in 2003 and
$0.1 million in 2004.

Critical Accounting Policies

We have identified the following as critical accounting policies to our
company: revenue recognition, accounts receivable, valuation of long-lived
assets and investments and income taxes.

Revenue recognition

Our revenues are derived from licenses of our semiconductor intellectual
property, which includes memories, standard and custom memory compilers and
software development tools. Standard memory compilers and software development
tools include a license of software and related maintenance services. Custom
memory compilers typically include a license of software, maintenance services
and customization of the software for the customers specific applications.

For each arrangement, we determine whether persuasive evidence of an
agreement exists, delivery of the product has occurred, there are no
significant remaining Company obligations on our part, the fee is fixed or
determinable, and collectibility is probable. If any of these criteria are not
met, we defer revenue recognition until such time as all criteria are met.

Standard memory compiler and software development tool arrangements
include either a perpetual license with maintenance (telephone and email
support and the rights to unspecified upgrades on a when-and-if available
basis) or a term license with maintenance. We recognize the license fees for
perpetual licenses upon the delivery of the compiler or software and the
maintenance ratably over the maintenance period. Revenue is
recognized using the residual method for valuation of the components
of the sale. Accordingly, vendor specific objective
evidence for maintenance revenue is determined based on the stated renewal rate
on each contract. For term licenses accompanied by maintenance, we recognize
the entire arrangement fee ratably over the term of the license.

Revenues from custom memory compilers involve customization to the
functionality of the software and are recognized using contract accounting over
the period that services are performed under the percentage-of-completion
method. For all license and service agreements accounted for using the
percentage-of-completion method, we determine progress-to-completion using
input measures based on labor hours incurred. A provision for estimated losses
on engagements is made in the period in which the loss becomes probable and can
be reasonably estimated. Costs incurred in advance of billings are recorded as
costs in excess of related billings on uncompleted contracts. If customer
acceptance is required for completion of specified milestones, related revenue
is deferred until acceptance is met.

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Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenues.

Royalties are calculated based on production volumes of wafers containing
silicon chips utilizing our intellectual property. Royalty revenue is generally
determined and recognized one quarter in arrears, when a production volume
report is received from the customer or foundry. The amount of royalty revenue
is computed on either a rate per-chip or rate per-wafer basis depending upon
the terms in the respective license agreements.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customers current credit worthiness,
as determined by our review of their current credit information. We
continuously monitor collections and payments from our customers and maintain a
provision for estimated credit losses based upon our historical experience and
any specific customer collection issues that we have identified. While such
credit losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same
credit loss rates that we have in the past. Since our accounts receivable are
concentrated in a relatively few number of customers, a significant change in
the liquidity or financial position of any one of these customers could have a
material adverse impact on the collectability of our accounts receivables and
our future operating results.

Valuation of Long-Lived Assets and Investments

We periodically review the carrying value of our long-lived assets and
investments for continued appropriateness. This review is based upon our
projections of anticipated future cash flows from such assets and investments.
While we believe that our estimates of future cash flows are reasonable,
different assumptions regarding such cash flows could materially affect our
evaluations. Based on our assessments, management believes no impairment of
assets has occurred in the current period.

Income taxes

Our income tax policy records the estimated future tax effects of
temporary differences between the tax bases of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets. These
differences result in deferred tax assets and liabilities. Carrying value of
the Companys net deferred tax assets assumes that we will be able to generate
sufficient future taxable income in certain tax jurisdictions, based on
estimates and assumptions. Management evaluates the recoverability of the
deferred tax assets and assesses the need for additional valuation allowances
on a quarterly basis. Management believes current valuation allowance levels
are appropriate based on our assessments.

Results of Operations

The following table lists the percentage of revenues for certain items in
our consolidated statements of operations for the periods indicated:

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|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |    |       |   | 
|--------------------------- |  | -------------------------- | ----- | - | ------------------ | - | ---------------- | -- | ----- | - | ----- | - | ---- | - | ----- | -- | ----- | - | 
|                            |  |                            |       |   | Three Months Ended |   | Six Months Ended
|                            |  |                            |       |   | March 31,          |   | March 31,       
|                            |  |                            |       |   |                    |   |                 
|                            |  |                            |       |   | 2002               |   | 2001             |    | 2002  |   | 2001 
|                            |  |                            |       |   |                    |   |                  |    |       |   |      
|Revenue:                    |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|                            |  | License                    |       |   | 96.2               | % |                  |    | 94.4  | % |       |   | 96.3 | % |       |    | 95.1  | %
|                            |  | Royalties                  |       |   | 3.8                |   |                  |    | 5.6   |   |       |   | 3.7  |   |       |    | 4.9   |  
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|Revenues                    |  |                            | 100.0 |   |                    |   | 100.0            |    |       |   | 100.0 |   |      |   | 100.0 |   
|Cost of revenues            |  |                            | 20.4  |   |                    |   | 18.4             |    |       |   | 20.2  |   |      |   | 20.4  |   
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|Gross profit                |  |                            | 79.6  |   |                    |   | 81.6             |    |       |   | 79.8  |   |      |   | 79.6  |   
|Operating expenses:         |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|                            |  | Research and development   |       |   | 28.4               |   |                  |    | 30.1  |   |       |   | 28.9 |   |       |    | 31.9  |  
|                            |  | Sales and marketing        |       |   | 25.5               |   |                  |    | 26.3  |   |       |   | 25.7 |   |       |    | 24.3  |  
|                            |  | General and administrative |       |   | 10.4               |   |                  |    | 15.8  |   |       |   | 10.5 |   |       |    | 15.1  |  
|                            |  | Stock-based compensation   |       |   | 6.7                |   |                  |    | 22.4  |   |       |   | 7.7  |   |       |    | 27.0  |  
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|Total operating expenses    |  |                            | 71.0  |   |                    |   | 94.6             |    |       |   | 72.8  |   |      |   | 98.3  |   
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|                            |  | Operating income (loss)    |       |   | 8.6                |   |                  |    | (13.0 | ) |       |   | 7.0  |   |       |    | (18.7 | )
|Interest and other expenses |  |                            | 2.4   |   |                    |   | 10.6             |    |       |   | 3.4   |   |      |   | 12.6  |   
|Income tax provision        |  |                            | (6.2  | ) |                    |   | (6.8             | )  |       |   | (6.2  | ) |      |   | (7.9  | ) 
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   
|Net income (loss)           |  |                            | 4.8   | % |                    |   | (9.2             | )% |       |   | 4.2   | % |      |   | (14.0 | )%
|                            |  |                            |       |   |                    |   |                  |    |       |   |       |   |      |   |       |   

Three and Six Months Ended March 31, 2002 and 2001

Revenues.Revenues increased 40% to $10.6 million from $7.6 million for
the three months ended March 31, 2002 and 2001, respectively. Revenues
increased 43% to $20.3 million from $14.2 million for the six months ended
March 31, 2002 and 2001, respectively. The increase in revenues is primarily
due to continued migration to the 0.13 micron embedded memory technologies by
our customers, emerging sales related to the 0.10 micron embedded memory
technology and the introduction of the NOVeA family of non-volatile embedded
memory products. We have seen increased revenues from the North America and
EMEA regions for the three months ended March 31, 2002 over the same period
last fiscal year, associated with our increased sales forces and continuing
market penetration in these geographies. In addition, the Company received
royalty revenues from third party foundries totaling $408,000 and $422,000 for
the three months ended March 31, 2002 and 2001, respectively, and $761,000 and
$697,000 for the six months ended March 31, 2002 and 2001, respectively.

Gross Profit.Gross profit is revenues less cost of revenues. Cost of
revenues consists primarily of personnel expenses and the allocated portion of
facilities and equipment expenses. Gross profit increased 37% to $8.5 million
from $6.2 million for the three months ended March 31, 2002 and 2001,
respectively. Gross profit increased 43% to $16.2 million from $11.3 million
for the six months ended March 31, 2002 and 2001, respectively. These
increases in gross profit are primarily attributable to increased sales volume
and increased license fees from fabless semiconductor companies for standard
products that require minimal labor costs for customization. Cost of revenues
excludes $172,000 and $345,000 of amortization of stock-based compensation for
the three months ended March 31, 2002 and 2001, respectively, and $367,000 and
$864,000 for the six months ended March 31, 2002 and 2001, respectively.

Research and Development Expense.Research and development expense
includes personnel and other costs associated with the development of
successive generations of

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embedded memory technologies and of new technologies. Research and
development expense increased 32% to $3.0 million for the three months ended
March 31, 2002 from $2.3 million for the same period last fiscal year.
Research and development expense increased 30% to $5.9 million for the six
months ended March 31, 2002 from $4.5 million for the same period last fiscal
year. The increase in research and development expense was primarily due to the
increase in the number of employees involved in research and development
related to the 0.10 micron and NOVeA embedded memory technologies and all of
the product offerings related to these two product families. Also increasing
is depreciation related to capital spending for both computer hardware and
software. We anticipate that research and development expense will continue to
increase as we expand our product offerings and invest in technologies for
future delivery. Research and development expense excludes $239,000 and
$563,000 of amortization of stock-based compensation for the three months ended
March 31, 2002 and 2001, respectively, and $526,000 and
$1,345,000 for the six months ended March 31, 2002, and 2001, respectively.

Sales and Marketing Expense.Sales and marketing expense consists
primarily of personnel, commissions, advertising, promotion and other
associated costs. Sales and marketing expense increased 36% to $2.7 million
for the three months ended March 31, 2002 from $2.0 million for the same period
last fiscal year. Sales and marketing expense increased 51% to $5.2 million
for the six months ended March 31, 2002 from $3.5 million for the same period
last fiscal year. The increase in sales and marketing expense was due to
hiring additional personnel, advertising and promotional costs, seminar costs
and expanded sales and marketing activities. We anticipate that sales and
marketing expense will continue to increase as we expand our product lines and
target new customers and markets for our technologies. Sales and marketing
expense excludes $214,000 and $492,000 of amortization of stock-based
compensation for the three months ended March 31, 2002 and 2001, respectively,
and $468,000 and $1,001,000 for the six months ended March 31, 2002 and 2001,
respectively.

General and Administrative Expense.General and administrative expense
consists primarily of personnel and other costs associated with the management
of our business. General and administrative expense decreased 9% to $1.1
million for the three months ended March 31, 2002 from $1.2 million for the
same period last fiscal year. General and administrative expense stayed
consistent at $2.1 million for the six months ended March 31, 2002 and 2001.
The decrease in general and administrative expense was primarily due to
decreased professional service costs. General and administrative expense
excludes $87,000 and $299,000 of amortization of stock-based compensation for
the three months ended March 31, 2002 and 2001, respectively, and $191,000 and
$623,000 for the six months ended March 31, 2002 and 2001, respectively.

Stock-Based Compensation.With respect to the grant of stock options to
employees, the Company has aggregate deferred stock-based compensation of
approximately $1.8 million for the period ended March 31, 2002 and $3.4 million
for the period ended September 30, 2001. The amount of deferred stock-based
compensation is presented as a reduction of stockholders equity and is being
amortized using the graded-vesting method over the vesting period of the
applicable options, generally four years. The Company amortized, net of
cancellations, $712,000 and $1.7 million during the three months ended March
31,

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2002 and 2001, respectively, and amortized $1.6 million and $3.8 million during
the six months ended March 31, 2002 and 2001, respectively.

Interest Income and Other Expenses.Interest income decreased to $273,000
for the three months ended March 31, 2002 from $828,000 for the same period
last fiscal year. This decrease was due to continued lower interest rates.
Interest and other expenses decreased to $13,000 for the three months ended
March 31, 2002 from $26,000 for the same period last fiscal year. This decrease
was primarily the result of the continuing repayment of the outstanding
balances under capital lease lines.

Income Tax Provision.The provision for income taxes was $659,000 and
$508,000 for the three months ended March 31, 2002 and 2001, respectively. The
provision for income taxes was approximately $1.3 million and $1.1 million for
the six months ended March 31, 2002 and 2001, respectively. The effective tax
rates differed from the combined federal and state rates due primarily to
stock-based compensation related charges that are non-deductible for tax
purposes.

Liquidity and Capital Resources

The Company has financed its operations from inception to March 31, 2002
from license and royalty revenue, through the issuance of notes and preferred
stock, borrowing under capital leases and the $50.7 million net proceeds from
the Companys initial public offering and simultaneous private placement
completed in August 2000. Net income for the three months ended March 31, 2002
was $512,000. Net income for the six months ended March 31, 2002 was $844,000.
At March 31, 2002, the Company had $37.8 million in cash and cash equivalents,
an increase of $10.0 million from cash held at September 30, 2001. The increase
in cash balances at March 31, 2002 was primarily due to the maturity of
short-term government security investments. Operations were funded from
revenues received. We believe that our cash, cash equivalents and
short-term investments will be sufficient to meet our operating and
capital needs for at least the next 12 months.

Net cash provided by operating activities was $3.0 million for the first
six months of fiscal 2002. Net cash provided by operating activities resulted
from net income of $844,000 adjusted for non-cash charges associated with the
amortization of stock-based compensation and depreciation and amortization, a
decrease in taxes receivable, an increase in deferred revenue, offset by an
increase in accounts receivable. The increase in accounts receivable at March
31, 2002 resulted from increased quarterly revenues. Although accounts
receivable increased, our days sales outstanding for the quarter ended March
31, 2002 was at 111 days, showing an improvement over 120 days from the prior
quarter. We plan to continue working to improve our days sales
outstanding over the next couple of quarters.

Net cash provided by investing activities was $5.1 million for the first
six months of fiscal 2002. Net cash provided by investing activities was due
to the maturity of short-term government security investments, offset by the
purchase of short-term and long-term government investments and acquisitions of
property and equipment. We intend to purchase approximately $2.5 million of
additional capital assets, primarily computer equipment and software, during
the remainder of fiscal 2002.

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Net cash provided by
financing activities was $1.7 million for the first
six months of fiscal 2002. Net cash provided by financing activities is
primarily due to the repayment of borrowings by stockholders and proceeds from
the issuance of common stock.

Our future capital requirements will depend on many factors, including the
rate of sales growth, market acceptance of our existing and new technologies,
amount and timing of research and development expenditures, timing of the
introduction of new technologies, expansion of sales and marketing efforts,
potential acquisitions and changes to our working capital structure primarily
related to accounts receivable.

The Company has outstanding obligations under capital lease lines, with
payments due through June 2003. At March 31, 2002, $155,000 was outstanding
under these lines. There is no remaining availability under these capital lease
lines.

Aggregate future minimum lease payments under capital leases and operating
leases as of March 31, 2002 are as follows:

|                                                   |            |   |                |     |           |   |       |     | 
|-------------------------------------------------- | ---------- | - | -------------- | --- | --------- | - | ----- | --- | 
|                                                   |            |   | Capital        |     | Operating
|                                                   |            |   | Leases         |     | Leases   
|                                                   |            |   |                |     |          
|                                                   |            |   | (in thousands)
|                                                   | 2002       |   | $              | 177 |           |   | $     | 480 | 
|                                                   | 2003       |   |                | 2   |           |   |       | 595 | 
|                                                   | 2004       |   |                |    |           |   |       | 213 | 
|                                                   | 2005       |   |                |    |           |   |       | 117 | 
|                                                   | 2006       |   |                |    |           |   |       | 126 | 
|                                                   | Thereafter |   |                |    |           |   |       | 402 | 
|                                                   |            |   |                |     |           |   |       |    
|Total minimum lease and principal payments         |            |   | 179            |     |           | $ | 1,933 |    
|                                                   |            |   |                |     |           |   |       |    
|Less: Amount representing interest                 |            |   | (24            | )   |           |   |       |    
|                                                   |            |   |                |     |           |   |       |    
|Present value of future lease payments             |            |   | 155            |     |           |   |       |    
|Less: Current portion of capital lease obligations |            |   | (153           | )   |           |   |       |    
|                                                   |            |   |                |     |           |   |       |    
|Long-term portion of capital lease obligations     |            | $ | 2              |     |           |   |       |    
|                                                   |            |   |                |     |           |   |       |    

In conjunction with
the potential acquisition of In-Chip Systems, Inc., as stated in
Note 6 of the notes to the unaudited condensed consolidated
financial statements, further commitment of cash of $5.5 to
$8.5 million may be required to be paid over time.

Risk Factors

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

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

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



| |  |  | our ability to anticipate and respond in a timely manner to changes
in the requirements of semiconductor companies;                                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the emergence of new semiconductor manufacturing processes and our
ability to enter into strategic relationships with third-party
semiconductor foundries to develop and test technologies for these new
processes and provide customer referrals;
|
| |  |  | the significant research and development investment that we may be
required to make before market acceptance, if any, of a particular
technology;                                                                                                 
|
| |  |  | the possibility that the industry may not accept a new technology
after we have invested a significant amount of resources to develop it;
and                                                                                                     
|
| |  |  | new technologies introduced by our competitors.                                                                                                                                                                                                   

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

In addition, research and development requires a significant expense and
resource commitment. Since we have a limited operating history, we are unable
to predict our future resources. As a result, we may not have the financial and
other resources necessary to develop the technologies demanded in the future
and may be unable to attract or retain customers.

Our quarterly operating results may fluctuate significantly and any 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 due
to a variety of factors, many of which are outside of our control. Because our
expenses are largely independent of our revenues in any particular period, we
are unable to accurately forecast our operating results. As a result, if our
revenues are below expectations in any quarter, our inability to adjust
spending in a timely manner to compensate for the revenue shortfall may magnify
the negative effect of the revenue shortfall.

Factors that could cause our revenues and operating results to vary from
quarter to quarter include:



| |  |  | large orders unevenly spaced over time;                                                   
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | establishment or loss of strategic relationships with third-party
semiconductor foundries;
|
| |  |  | timing of new technologies and technology enhancements by us and our
competitors;         

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| |  |  | shifts in demand for products that incorporate our intellectual property;                                                                                                                                                                                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                                                                                                                                                                                
|
| |  |  | changes in development schedules, research and development
expenditure levels and product support by us and our customers; and                                                                                                                                                                         
|
| |  |  | historically, we have experienced a trend toward closing more product
orders, and therefore, a higher percentage of revenue shipments, in the
last month of a quarter. Some customers believe they can enhance their
bargaining power by waiting until the end of the quarter to finalize
negotiations.

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

If we are unable to maintain existing relationships and develop new
relationships with third-party semiconductor manufacturers, or foundries, we
will be unable to verify our technologies on their processes and license our
intellectual property to their customers.

Our ability to verify our technologies for new manufacturing processes
depends on entering into development agreements with third-party foundries to
provide us with access to these processes. In addition, we rely on third-party
foundries to manufacture our silicon test chips and to provide referrals to
their customer base. We currently have agreements with Taiwan Semiconductor
Manufacturing Company, or TSMC, United Microelectronics Corporation, or UMC,
and Chartered Semiconductor Manufacturing or Chartered. If we are unable to
maintain our existing relationships with these foundries or enter into new
agreements with other foundries, we will be unable to verify our technologies
for their manufacturing processes. We would then be unable to license our
intellectual property to fabless semiconductor companies that use these
foundries to manufacture their silicon chips, which is a significant source of
our revenues.

If demand for products incorporating complex semiconductors and embedded
memories does not rise, our business may be harmed.

Our business and the adoption and continued use of our intellectual
property by semiconductor companies depends on the demand for products
requiring complex semiconductors and embedded memories, such as cellular and
digital phones, pagers, digital cameras, DVD players, switches and modems. The
demand for such products is uncertain and difficult to predict. A reduction in the demand for products
incorporating

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complex semiconductors and embedded memories or in the general
economic environment which results in the cutback of research and development
budgets or capital expenditures would likely result in a reduction in demand
for our products and could harm our business.

In addition, the semiconductor industry is highly cyclical and has
fluctuated between significant economic downturns characterized by diminished
demand, accelerated erosion of average selling prices and production
overcapacity, as well as periods of increased demand and production capacity
constraints. The semiconductor industry is currently experiencing a downturn
and the U.S. economy has yet to rise out of an economic slowdown that involves
lower levels of expenditures by businesses and individuals. As a result of such
fluctuations in the semiconductor industry and the general economic slowdown,
we may face a reduced number of design starts, tightening of customers
operating budgets, extensions of the approval process for new orders and
projects and consolidation among our customers, all of which may harm the
demand for our embedded memories and may cause us to experience substantial
period-to-period fluctuations in our operating results. Further, the markets
for third-party semiconductor intellectual property and embedded memories have
emerged only in recent years. Because of the recent emergence of these markets,
it is difficult to forecast whether these markets will continue to develop or
grow at a rate sufficient to support our business.

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

Sales to customers located outside the United States accounted for 52% of
our revenues for the six month period ended March 31, 2002, 55% of our revenues
in fiscal 2001 and between 44% to 50% of our revenues in the fiscal years 1998
to 2000. We anticipate that sales to customers located outside the United
States will increase and will continue to represent a significant portion of
our total revenues in future periods. In addition, most of our customers that
do not own their own fabrication plants rely on third-party foundries that may
be outside of the United States. Accordingly, our operations and revenues are
subject to a number of risks associated with doing business in international
markets, including the following:



| |  |  | managing foreign distributors and sales partners and sharing revenues
with such third parties;                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | staffing and managing foreign branch offices;                                                                                         
|
| |  |  | political and economic instability;                                                                                                   
|
| |  |  | greater difficulty in collecting account receivables resulting in
longer collection periods;                                          
|
| |  |  | foreign currency exchange fluctuations;                                                                                               
|
| |  |  | changes in tax laws and tariffs;                                                                                                      
|
| |  |  | compliance with, and unexpected changes in, a wide variety of foreign
laws and regulatory environments with which we are not familiar;

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| |  |  | timing and availability of export licenses;                                 
| | - |  | ----------------------------------------------------------------------------
|
| |  |  | inadequate protection of intellectual property rights in some countries; and
|
| |  |  | obtaining governmental approvals for certain technologies.                  

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

If we are unable to continue establishing relationships with semiconductor
companies to license our intellectual property, our business will be harmed.

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

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



| |  |  | the lengthy and expensive process of building a relationship with a
potential licensee;
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | competition with the internal design teams of semiconductor
companies; and             
|
| |  |  | the need to persuade semiconductor companies to rely on us for
critical technology.    

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

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

We recently established a subsidiary in Israel, and we expect to continue
expanding our direct sales force in Europe. In addition, a growing portion of
our intellectual property is being developed in development centers located in
the Republic of Armenia and India. Israel has recently faced an increased level
of violence and terror and Armenia, only independent since 1991, has suffered
significant political and economic instability. Accordingly, continued and
heightened unrest in areas of the world in which we operate may adversely
affect our business in a number of ways, including the following:

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| |  |  | changes in the political or economic conditions in Armenia and the
surrounding region, such as fluctuations in exchange rates, changes in
laws protecting intellectual property, the imposition of currency
transfer restrictions or limitations, or the adoption of burdensome
trade or tax policies, procedures, rules, regulations or tariffs, could
adversely affect our ability to develop new products, to take advantage
of the cost savings associated with operations in Armenia, and to
otherwise conduct business effectively in Armenia;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to continue conducting business in Israel and other
countries in the normal course may be adversely affected by increased
risk of violence and terror and our employees working and visiting in
Israel may be affected by terrorist attacks;                                                                                                                                                                                                                                                                                            
|
| |  |  | our Israeli customers demand for our products may be adversely
affected because of negative economic consequences associated with
reduced levels of safety and security in Israel.                                                                                                                                                                                                                                                                                                                                                                 

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

As our business has grown, we have become increasingly subject to the
risks arising from adverse changes in domestic and global economic conditions.
Because of the recent economic slowdown in the United States and in other parts
of the world, many industries are delaying or reducing technology purchases and
investments and similarly, our customers may delay payment for Virage Logic
products causing our accounts receivable to increase. The September 11, 2001
terrorist attacks in New York City, Washington, D.C. and Pennsylvania and the
anthrax-related terrorist attacks also contributed to the slowdown in the U.S.
economy. In addition, the unrest in Israel and the Middle East may negatively
impact the investments our worldwide customers make in this geographic region.
The impact of this slowdown on us is difficult to predict, but if businesses or
consumers defer or cancel purchases of new products that contain embedded
memories, purchases by fabless semiconductor companies and integrated device
manufacturers and production levels by semiconductor manufacturers could
decline causing our revenues to be adversely affected, which would have an
adverse effect on our results of operations and could have an adverse effect on
our financial condition.

If we are unsuccessful in increasing our royalty-based revenues, our revenues
and profitability may not be as large as we anticipate.

We have historically generated revenues almost entirely from license fees.
We have agreements with certain third-party semiconductor foundries to pay us
royalties on their sales of silicon chips they manufacture for our fabless
customers. For the six months ended March 31, 2002 and 2001, we recorded
approximately $761,000 and $697,000, respectively, of royalty revenues.
Beginning with our Custom-Touch STAR Memory System, CAM technologies and more
recently with the introduction of our NOVeA technology, in addition to
collecting royalties from third-party semiconductor foundries, we intend to
increase our royalty base by collecting royalties directly from our integrated
device manufacturer and fabless customers. The continued growth of our revenues
depends in part on increasing our royalty revenues, but we may not be
successful in convincing all customers to agree to pay us royalties. Additionally, these royalty
arrangements may not

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provide us with the anticipated benefits as sales of products incorporating our intellectual property may not offset lower license
fees. Although we have the right to audit the records of semiconductor
manufacturers and fabless semiconductor companies, we face risks relating to
the accuracy and completeness of the royalty collection process, due to our
limited experience and systems in place to conduct reviews of the accuracy of
royalty reports we receive from our customers. In addition, many factors beyond
our control, such as fluctuating sales volumes of products that incorporate our
intellectual property, commercial acceptance of these products, accuracy of
revenue reports and difficulties in the royalty collection process, limit our
ability to forecast our royalty revenues.

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

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

We rely on a small number of customers for a substantial portion of our
revenues.

We have been dependent on a relatively small number of customers for a
substantial portion of our annual revenues in each fiscal year, although the
customers comprising this group have changed from time to time. For the six
months ended March 31, 2002, no single customer generated more than 10% of our
revenues. In fiscal 2001, Philips Electronics and Intel Corporation generated
12% and 14% of our revenues, respectively. In fiscal 2000, no single customer
generated more than 10% of our revenues. In fiscal 1999, ATI Technologies, MMC
Networks, National Semiconductor and Toshiba each generated between 10% and 18%
of our revenues for a total of 56% of our revenues. We expect a small number of
companies in the aggregate to represent between 20% to 40% of our revenues for
the foreseeable future. The license agreements we enter into with our customers
do not obligate them to license future generations of our intellectual property
and, as a result, we cannot predict the length of our relationship with any of
our significant customers. As a result of this customer concentration, we could
experience a dramatic reduction in our revenues if we lose one or more of our
significant customers and are unable to replace them.

The market for embedded memory is highly competitive, and we may lose market
share to larger competitors with greater resources and to companies that
develop their own memory technologies using internal design teams.

We face competition from both existing suppliers of embedded memories as
well as new suppliers that may enter the market. We also compete with the
internal design teams of large, integrated device manufacturers. Many of these
internal design teams have substantial programming and design resources and are part of larger
organizations with

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substantial financial and marketing resources. These internal teams may develop technologies that compete directly with our
technologies or may actively seek to license their own technologies to third
parties.

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

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

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

In addition, our business and operations are substantially dependent on
the performance of our key personnel, including Adam A. Kablanian, our
President and Chief Executive Officer, and Alexander Shubat, our Vice President
of Engineering and Chief Technical Officer. We do not have formal employment
agreements with Mr. Kablanian or Mr. Shubat and do not maintain key man life
insurance policies on their lives. If Mr. Kablanian or Mr. Shubat were to leave
or become unable to perform services for our company, our business would be
severely harmed.

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

A significant portion of our contracts require us to provide customized
products within a set delivery timetable. We have experienced delays in the
progress of certain projects in the past, and we may experience such delays in
the future. Any failure to meet significant customer milestones could damage
our reputation in our industry and harm our ability to attract new customers.

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

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

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

During the quarter ended March 31, 2002, we recorded net income of
$512,000. This was our third profitable quarter on a reported (GAAP) basis. In
order to sustain profitability, we will need to continue to generate new sales
while controlling our costs. As we plan on continuing the growth of our
business and expect to increase the size of our company in the next twelve
months, we may not be able to successfully generate enough revenues to remain
profitable with this growth. Any failure to increase our revenues and control
costs as we pursue our planned growth would harm our profitability and would
likely negatively affect the market price of our stock.

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

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

We have continued to grow our headcount from 138 full-time employees at
September 30, 2000 to 202 full-time employees at September 30, 2001 to 240
full-time employees at March 31, 2002. We have continued to increase our
international presence and have increased substantially the number of our
customers. This growth has placed, and is expected to continue to place,
significant strain on our managerial and financial resources as well as our
limited financial and management controls, reporting systems and procedures.
Although some new controls, systems and procedures have been implemented, our
future growth, if any, will depend on our ability to continue to implement and
improve operational, financial and management information and control systems
on a timely basis, together with maintaining effective cost controls. Since our
growth has occurred over such a limited time period, we do not have sufficient
experience managing the current size of our business to be able to fully assess
our ability to continue to manage its growth in the

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future. Our inability to manage any future growth effectively would be
harmful to our revenues and profitability.

Any acquisitions we make could disrupt our business and harm our financial
condition.

We may attempt to acquire businesses or technologies that we believe are a
strategic fit with our business. We believe that future acquisitions may result
in unforeseen operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Since we will not be able to accurately predict
these difficulties and expenditures, it is possible that these costs may
outweigh the value we realize from a future acquisition. Future acquisitions
could result in issuances of equity securities that would reduce our
stockholders ownership interest, the incurrence of debt, contingent
liabilities or expenses related to the valuation of goodwill or other
intangible assets and the incurrence of large, immediate write-offs.

If we are not able to protect our intellectual property adequately, we will
have less proprietary technology to license, which will reduce our revenues and
profits.

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

We use licensing agreements, confidentiality agreements and employee
nondisclosure and assignment agreements to limit access to and distribution of
our proprietary information and to obtain ownership of technology prepared on a
work-for-hire basis. Even though we have taken all customary industry
precautions, we cannot be sure that we have taken adequate steps to protect our
intellectual property rights and deter misappropriation of these rights or that
we will be able to detect unauthorized uses and take immediate or effective
steps to enforce our rights. Since we also rely on unpatented trade secrets to
protect some of our proprietary technology, we cannot be certain that others
will not independently develop or otherwise acquire the same or substantially
equivalent technologies or otherwise gain access to our proprietary technology
or disclose that technology. We also cannot be sure that we can ultimately
protect our rights to our unpatented proprietary technology. In addition, third
parties might obtain patent rights to such unpatented trade secrets, which they
could use to assert infringement claims against us.

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

While we do not believe that any of our technology infringes the valid
intellectual property rights of third parties, we may be unaware of
intellectual property rights of others that may cover some of our technology.
As a result, third parties may claim we or our customers are infringing their
intellectual property rights. Our license agreements typically require us to
indemnify our customers for infringement actions related to our technology.

Any litigation regarding patents or other intellectual property could be
costly and time-consuming, and divert our management and key personnel from our
business operations. The complexity of the technology involved makes any
outcome uncertain. If we do not prevail in any infringement action, we may be
required to pay significant damages and may be prevented from developing some
of our technology or from licensing some of our intellectual property for
certain manufacturing processes unless we enter into a royalty or license
agreement. In addition, if challenging a claim is not feasible, we might be
required to enter into royalty or license agreements in order to settle a claim
and continue to license or develop our intellectual property, which may result
in significant expenditures. We may not be able to obtain such agreements on
terms acceptable to us or at all, and thus, may be prevented from licensing or
developing our technology.

Changes to accounting standards and rules could either delay our recognition of
revenues or reduce the amount of revenues that we may recognize at a specific
time, and thus defer or reduce our profitability. These effects on our reported
results could cause our stock price to be lower than it otherwise might have
been.

We adopted the American Institute of Certified Public Accountants
Statement of Position, or SOP, 97-2, Software Revenue Recognition, as of
October 1, 1998. In December 1998, the American Institute of Certified Public
Accountants issued SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. We implemented these
provisions as of October 1, 1999. In December 1999, the Securities and Exchange
Commission issued SEC Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements which summarizes certain of the SECs views in
applying generally accepted accounting principles to revenue recognition in
financial statements. Additional accounting guidance or pronouncements in the
future could affect the timing of our revenue recognition in the future, which
could cause our operating results to fail to meet the expectations of investors
and securities analysts. In addition, changes to accounting policies that
affect other aspects of our business, such as employee stock option grants may
adversely affect our reported financial results.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our core business, the sale of semiconductor intellectual property for the
memory elements of systems-on-a-chip, has limited 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 our license agreements provide for payment in U.S.
dollars.

Our foreign subsidiaries incur most of their expenses in the local
currency. 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 structures, other
regulations and restrictions and foreign exchange rate volatility.
International operations have not been material, therefore, we do not
anticipate our future results to be materially adversely impacted by changes in
these factors.

We maintain an investment portfolio of various issuers, types and
maturities. These securities are generally classified as available for sale
and, consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of stockholders
equity. Our investments primarily consist of short-term money market mutual
funds, United States government obligations and mortgage-backed securities and
commercial paper. Our investments balance of $XX million at March 31, 2002
consists of instruments with original maturities of 90 days to fifteen months.
Due to the short-term nature of our investment portfolio and our intent to hold
these investments to maturity, we do not believe our investment balance is
materially exposed to interest rate risk.

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PART II  OTHER INFORMATION




ITEM 1. Legal Proceedings

None




ITEM 2. Changes in Securities and Use of Proceeds

Use of Proceeds From Registered Securities

Our registration statement (No. 333-36108) under the Securities Act for
our initial public offering of common stock became effective on July 31, 2000.
We sold a total of 4,312,500 shares of common stock to an underwriting
syndicate for an aggregate offering price to the public of $51,750,000. The
managing underwriters were Lehman Brothers Inc., FleetBoston Robertson Stephens
Inc. and SG Cowen Securities Corporation. 3,750,000 of these shares were sold
in an offering that commenced on July 31, 2000 and was completed on August 4,
2000. An additional 562,500 shares of common stock were sold upon the
underwriters exercise of their over-allotment option on August 28, 2000. In
connection with this offering, we incurred total expenses of approximately $5.4
million, consisting of $3,622,500 for underwriting discounts and commissions
and approximately $1,785,000 million of other expenses. None of these expenses
were paid directly or indirectly to any of our directors, officers, or their
associates, persons owning 10% or more of any class of the our securities, or
affiliates of Virage Logic. Offering proceeds, net of aggregate expenses were
approximately $46.3 million. We have applied all of the proceeds to temporary
investments in a commercial money market investment account.

None of the net offering proceeds were paid directly or indirectly to any
of our directors, officers, or their associates, persons owning 10% or more of
any class of the our securities, or affiliates of Virage Logic.




ITEM 3. Defaults upon Senior Securities

None




ITEM 4. Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Stockholders on February 8, 2002. Out of
20,140,823 shares of Common Stock (as of the record date of January 4, 2002)
entitled to vote at the meeting, a total of 17,350,887 shares were represented
at the Annual Meeting. The stockholders approved the following proposals:

(a)  Election of Alexander Shubat and Michael Stark as Class II directors
until the 2005 Annual Meeting of Stockholders and until their successors are
elected. The vote for nominated directors was as follows:

|                 |  |          |            |          |  |  |           | 
|---------------- |  | -------- | ---------- | -------- |  |  | --------- | 
|Nominee          |  | In Favor |            | Withheld
|                 |  |          |            |         
|Alexander Shubat |  |          | 15,796,556 |          |  |  | 1,554,331 | 
|Michael Stark    |  |          | 17,322,987 |          |  |  | 27,900    | 

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(b)  Approve the adoption of the Virage Logic Corporation 2002 Equity
Incentive Plan. There were 11,514,390 votes in favor, 4,374,703 votes against,
350 abstentions and 1,460,094 broker non-votes.

(c)  Ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending September 30, 2002. There
were 15,658,136 votes in favor, 150 votes against and 150 abstentions.




ITEM 5. Other Information

None




ITEM 6. Exhibits and Reports on Form 8-K

None

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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: May 15, 2002 |  | VIRAGE LOGIC CORPORATION                                                                                                                 
|                  
|                  
|                   |  | /s/ Adam A. Kablanian
ADAM A. KABLANIAN
President, Chief Executive Officer
and Chairman of the Board                                     
|                  
|                   |  | /s/ James R. Pekarsky

JAMES R. PEKARSKY
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)

30