----

----

| R      | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For the Quarterly Period ended September 30, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| or     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| £ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | For the transition period from                                                       to                                                       |

| Delaware                                 | 25-1701361          |
|------------------------------------------|---------------------|
| (State or Other Jurisdiction of          | (I.R.S. Employer    |
| Incorporation or Organization)           | Identification No.) |
|                                     |                |
| 333 West San Carlos Street, Suite 700    |                |
| San Jose, California                     | 95110               |
| (Address of Principal Executive Offices) | (Zip Code)          |

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

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|                                                                                                | Page   |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   |
| PART I  FINANCIAL INFORMATION                                                             |   |
| Item 1. Financial Statements                                                                        | 3      |
| Condensed Consolidated Balance Sheets (Unaudited)                                                   | 3      |
| Condensed Consolidated Statements of Operations (Unaudited)                                         | 4      |
| Condensed Consolidated Statements of Cash Flows (Unaudited)                                         | 5      |
| Notes to Condensed Consolidated Financial Statements (Unaudited)                                    | 6      |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14     |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk                                  | 24     |
| Item 4. Controls and Procedures                                                                     | 24     |
| PART II  OTHER INFORMATION                                                                |   |
| Item 1. Legal Proceedings                                                                           | 25     |
| Item 1A. Risk Factors                                                                               | 25     |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                 | 25     |
| Item 6. Exhibits                                                                                    | 26     |
| SIGNATURES                                                                                          | 27     |
| INDEX TO EXHIBITS                                                                                   | 28     |

----

|                                                                                                                                                                                                                                       |   | September 30,2010  |     |   | December 31,2009 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|----------|--------|------------------|--------|
|                                                                                                                                                                                                                                            |   | (In thousands,     |     |
|                                                                                                                                                                                                                                            |   | except par values) |     |
| ASSETS                                                                                                                                                                                                                                          |   |               |     |   |             |   |
| Current assets:                                                                                                                                                                                                                                 |   |               |     |   |             |   |
| Cash and cash equivalents                                                                                                                                                                                                                       |   | $                  | 34,565   |   |             | $      | 34,899 |   |
| Accounts receivable, net of allowance of $254 in 2010 and 2009                                                                                                                                                                                  |   |               | 22,990   |   |             |   | 19,809 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                       |   |               | 3,665    |   |             |   | 3,029 |   |
| Total current assets                                                                                                                                                                                                                            |   |               | 61,220   |   |             |   | 57,737 |   |
| Property and equipment, net                                                                                                                                                                                                                     |   |               | 949      |   |             |   | 1,573 |   |
| Non-current investments                                                                                                                                                                                                                         |   |               | 718      |   |             |   | 718 |   |
| Intangible assets, net                                                                                                                                                                                                                          |   |               | 1,633    |   |             |   | 2,954 |   |
| Other non-current assets                                                                                                                                                                                                                        |   |               | 673      |   |             |   | 495 |   |
| Total assets                                                                                                                                                                                                                                    |   | $                  | 65,193   |   |             | $      | 63,477 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                      |   |               |     |   |             |   |   |   |
| Current liabilities:                                                                                                                                                                                                                            |   |               |     |   |             |   |   |   |
| Current portion of long-term debt                                                                                                                                                                                                               |   | $                  | 109      |   |             | $      | 115 |   |
| Accounts payable                                                                                                                                                                                                                                |   |               | 511      |   |             |   | 959 |   |
| Accrued compensation and related benefits                                                                                                                                                                                                       |   |               | 3,722    |   |             |   | 4,438 |   |
| Taxes payable and other accrued liabilities                                                                                                                                                                                                     |   |               | 2,306    |   |             |   | 3,502 |   |
| Deferred revenues                                                                                                                                                                                                                               |   |               | 3,188    |   |             |   | 1,584 |   |
| Billings in excess of recognized revenues                                                                                                                                                                                                       |   |               | 826      |   |             |   | 1,953 |   |
| Total current liabilities                                                                                                                                                                                                                       |   |               | 10,662   |   |             |   | 12,551 |   |
| Long-term debt                                                                                                                                                                                                                                  |   |               | 29       |   |             |   | 117 |   |
| Long-term income taxes payable                                                                                                                                                                                                                  |   |               | 2,948    |   |             |   | 3,218 |   |
| Other non-current liabilities                                                                                                                                                                                                                   |   |               | 1,436    |   |             |   | 1,704 |   |
| Total liabilities                                                                                                                                                                                                                               |   |               | 15,075   |   |             |   | 17,590 |   |
| Stockholders’ equity:                                                                                                                                                                                                                     |   |               |     |   |             |   |   |   |
| Preferred stock, $0.00015 par value, 5,000 shares authorized: no shares issued and   outstanding                                                                                                                                      |   |               | —  |   |             |   | — |   |
| Common stock, $0.00015 par value, 70,000 shares authorized: shares issued 31,211   at September 30, 2010 and 30,194 at December 31, 2009; shares outstanding 27,550   at September 30, 2010 and 26,651 at December 31, 2009 |   |               | 4        |   |             |   | 4 |   |
| Additional paid-in-capital                                                                                                                                                                                                                      |   |               | 198,943  |   |             |   | 194,081 |   |
| Treasury stock at cost, 3,661 shares at September 30, 2010 and 3,543 shares at December 31, 2009                                                                                                                                                |   |               | (19,253  | )      |             |   | (18,715 | ) |
| Accumulated deficit                                                                                                                                                                                                                             |   |               | (130,040 | )      |             |   | (130,111 | ) |
| Accumulated other comprehensive income                                                                                                                                                                                                          |   |               | 464      |   |             |   | 628 |   |
| Total stockholders’ equity                                                                                                                                                                                                                |   |               | 50,118   |   |             |   | 45,887 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                |   | $                  | 65,193   |   |             | $      | 63,477 |   |

----

|                                              |   | Three Months Ended September 30,         |   |   | Nine Months Ended September 30, |   |
|---------------------------------------------------|--------|------------------------------------------|--------|--------|---------------------------------|--------|
|                                              |   | 2010                                     |   |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                                              |   | (In thousands, except per share amounts) |   |
| Revenues:                                         |   |                                     |   |   |                            |   |   |   |   |   |   |   |
| Design-to-silicon-yield solutions                 |   | $                                        | 10,498 |   |                            | $      | 8,439 |   |   | $ | 31,729 |   |   | $ | 23,525 |   |
| Gainshare performance incentives                  |   |                                     | 4,330  |   |                            |   | 5,439 |   |   |   | 13,703 |   |   |   | 10,126 |   |
| Total revenues                                    |   |                                     | 14,828 |   |                            |   | 13,878 |   |   |   | 45,432 |   |   |   | 33,651 |   |
|                                              |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Costs of design-to-silicon-yield solutions:       |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Direct costs of design-to-silicon-yield solutions |   |                                     | 5,790  |   |                            |   | 5,270 |   |   |   | 18,040 |   |   |   | 16,423 |   |
| Amortization of acquired technology               |   |                                     | 360    |   |                            |   | 360 |   |   |   | 1,079 |   |   |   | 1,079 |   |
| Total costs of design-to-silicon-yield solutions  |   |                                     | 6,150  |   |                            |   | 5,630 |   |   |   | 19,119 |   |   |   | 17,502 |   |
| Gross profit                                      |   |                                     | 8,678  |   |                            |   | 8,248 |   |   |   | 26,313 |   |   |   | 16,149 |   |
|                                              |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                               |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                          |   |                                     | 4,291  |   |                            |   | 4,689 |   |   |   | 12,588 |   |   |   | 15,547 |   |
| Selling, general and administrative               |   |                                     | 3,228  |   |                            |   | 4,321 |   |   |   | 12,299 |   |   |   | 12,842 |   |
| Amortization of other acquired intangible assets  |   |                                     | 70     |   |                            |   | 86 |   |   |   | 238 |   |   |   | 260 |   |
| Restructuring charges                             |   |                                     | 375    |   |                            |   | 1,743 |   |   |   | 343 |   |   |   | 3,578 |   |
| Total operating expenses                          |   |                                     | 7,964  |   |                            |   | 10,839 |   |   |   | 25,468 |   |   |   | 32,227 |   |
|                                              |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations                     |   |                                     | 714    |   |                            |   | (2,591 | ) |   |   | 845 |   |   |   | (16,078 | ) |
| Interest and other income (expense), net          |   |                                     | (636   | )      |                            |   | 7 |   |   |   | 30 |   |   |   | 121 |   |
| Income (loss) before income taxes                 |   |                                     | 78     |   |                            |   | (2,584 | ) |   |   | 875 |   |   |   | (15,957 | ) |
| Income tax provision                              |   |                                     | 28     |   |                            |   | 247 |   |   |   | 804 |   |   |   | 833 |   |
| Net income (loss)                                 |   | $                                        | 50     |   |                            | $      | (2,831 | ) |   | $ | 71 |   |   | $ | (16,790 | ) |
|                                              |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per share:                      |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                             |   | $                                        | 0.00   |   |                            | $      | (0.11 | ) |   | $ | 0.00 |   |   | $ | (0.64 | ) |
| Diluted                                           |   | $                                        | 0.00   |   |                            | $      | (0.11 | ) |   | $ | 0.00 |   |   | $ | (0.64 | ) |
|                                              |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares:                   |   |                                     |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                             |   |                                     | 27,413 |   |                            |   | 26,499 |   |   |   | 27,154 |   |   |   | 26,306 |   |
| Diluted                                           |   |                                     | 27,581 |   |                            |   | 26,499 |   |   |   | 27,382 |   |   |   | 26,306 |   |

----

|                                                                                 |   | Nine Months EndedSeptember 30, |    |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                      |   | 2010                           |    |   | 2009 |   |
|                                                                                      |   | (In thousands)                 |    |
| Operating activities:                                                                     |   |                           |    |   |   |   |
| Net income (loss)                                                                         |   | $                              | 71      |   |   | $ | (16,790 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities:      |   |                           |    |   |   |   |   |   |
| Depreciation and amortization                                                             |   |                           | 695     |   |   |   | 1,097 |   |
| Stock-based compensation expenses                                                         |   |                           | 4,029   |   |   |   | 3,545 |   |
| Amortization of acquired intangible assets                                                |   |                           | 1,317   |   |   |   | 1,339 |   |
| Losses on disposal of assets                                                              |   |                           | — |   |   |   | 70 |   |
| Gain on debt extinguishment                                                               |   |                           | — |   |   |   | (393 | ) |
| Purchases of treasury stock in connection with tax withholdings on restricted stock units |   |                           | (537    | ) |   |   | (133 | ) |
| Deferred taxes                                                                            |   |                           | (517    | ) |   |   | (165 | ) |
| Changes in operating assets and liabilities:                                              |   |                           |    |   |   |   |   |   |
| Accounts receivable, net of allowances                                                    |   |                           | (3,181  | ) |   |   | 6,733 |   |
| Prepaid expenses and other assets                                                         |   |                           | (146    | ) |   |   | 2,034 |   |
| Accounts payable                                                                          |   |                           | (439    | ) |   |   | 47 |   |
| Accrued compensation and related benefits                                                 |   |                           | (828    | ) |   |   | (2,113 | ) |
| Taxes payable and other accrued liabilities                                               |   |                           | (1,776  | ) |   |   | (1,205 | ) |
| Deferred revenues                                                                         |   |                           | 1,592   |   |   |   | (251 | ) |
| Billings in excess of recognized revenues                                                 |   |                           | (1,128  | ) |   |   | (660 | ) |
| Net cash used in operating activities                                                     |   |                           | (848    | ) |   |   | (6,845 | ) |
| Investing activities:                                                                     |   |                           |    |   |   |   |   |   |
| Maturities and sales of available-for-sale securities                                     |   |                           | — |   |   |   | 9,054 |   |
| Purchases of property and equipment                                                       |   |                           | (121    | ) |   |   | (294 | ) |
| Net cash provided by (used in) investing  activities                            |   |                           | (121    | ) |   |   | 8,760 |   |
| Financing activities:                                                                     |   |                           |    |   |   |   |   |   |
| Proceeds from exercise of stock options                                                   |   |                           | 50      |   |   |   | — |   |
| Proceeds from Employee Stock Purchase Plan                                                |   |                           | 783     |   |   |   | 570 |   |
| Principal payments on long-term obligations                                               |   |                           | (87     | ) |   |   | (234 | ) |
| Net cash provided by financing activities                                                 |   |                           | 746     |   |   |   | 336 |   |
| Effect of exchange rate changes on cash and cash equivalents                              |   |                           | (111    | ) |   |   | (761 | ) |
| Net increase (decrease) in cash and cash equivalents                                      |   |                           | (334    | ) |   |   | 1,490 |   |
| Cash and cash equivalents, beginning of period                                            |   |                           | 34,899  |   |   |   | 31,686 |   |
| Cash and cash equivalents, end of period                                                  |   | $                              | 34,565  |   |   | $ | 33,176 |   |
|                                                                                      |   |                           |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                                         |   |                           |    |   |   |   |   |   |
| Cash paid during the period for:                                                          |   |                           |    |   |   |   |   |   |
| Income taxes                                                                              |   | $                              | 1,657   |   |   | $ | 1,000 |   |
| Interest                                                                                  |   | $                              | 7       |   |   | $ | 15 |   |

----

|   | • | provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | require an entity to allocate revenue in an arrangement using best estimated selling prices (“BESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------|

----

|           |   | Three Months EndedSeptember 30, 2010 |   |   | Nine Months EndedSeptember 30, 2010                                |   |
|----------------|--------|--------------------------------------|--------|--------|--------------------------------------------------------------------|--------|
|           |   |    As Reported        |   |   | Pro FormaBasis as ifthe Previous Accounting Guidance werein Effect |   |   |    As Reported |   |   | Pro FormaBasis as ifthe Previous Accounting Guidance werein Effect |   |
| Total revenues |   | $                                    | 14,828 |   |                                                               | $      | 13,719 |   |   | $ | 45,432 |   |   | $ | 42,220 |   |

----

|                                |   | AmortizedCost |   |   | UnrealizedHoldingGains |   |    | UnrealizedHoldingLosses |   |   | FairValue |   |
|-------------------------------------|--------|---------------|--------|--------|------------------------|--------|---------|-------------------------|--------|--------|-----------|--------|
| Auction-rate securities             |   | $             | 1,000  |   |                   | $      | — |                    |   | $      | (282      | )      |   | $ | 718 |   |
| Included in non-current investments |   |          |   |   |                   |   |    |                    |   |   |      |   |   | $ | 718 |   |

| Acquired Identifiable Intangible   |   | AmortizationPeriod(Years) |   |   | September 30, 2010Gross CarryingAmount |   |   | Accumulated Amortization |   |   | ForeignCurrencyTranslation |   |   | September 30, 2010Net CarryingAmount |    |
|------------------------------------|--------|---------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------|--------|--------|----------------------------|--------|--------|--------------------------------------|---------|
| Acquired technology                |   |                      | 4-5    |   |                                   | $      | 11,800 |                     |   | $      | (10,707                    | )      |   | $                                    | — |   |   | $ | 1,093 |   |
| Brand name                         |   |                      | 4      |   |                                   |   | 510    |                     |   |   | (504                       | )      |   |                                 | — |   |   |   | 6 |   |
| Customer relationships and backlog |   |                      | 1-6    |   |                                   |   | 3,420  |                     |   |   | (3,157                     | )      |   |                                 | — |   |   |   | 263 |   |
| Patents and applications           |   |                      | 7      |   |                                   |   | 1,400  |                     |   |   | (1,129                     | )      |   |                                 | — |   |   |   | 271 |   |
| Other acquired intangibles         |   |                      | 4      |   |                                   |   | 255    |                     |   |   | (277                       | )      |   |                                 | 22      |   |   |   | — |   |
| Total                              |   |                      |   |   |                                   | $      | 17,385 |                     |   | $      | (15,774                    | )      |   | $                                    | 22      |   |   | $ | 1,633 |   |

----

| Acquired Identifiable Intangible   |   | AmortizationPeriod(Years) |   |   | December 31, 2009Gross CarryingAmount |   |   | Accumulated Amortization |   |   | ForeignCurrencyTranslation |   |   | December 31, 2009Net CarryingAmount |    |
|------------------------------------|--------|---------------------------|--------|--------|--------------------------------------------|--------|--------|--------------------------|--------|--------|----------------------------|--------|--------|------------------------------------------|---------|
| Acquired technology                |   |                      | 4-5    |   |                                       | $      | 11,800 |                     |   | $      | (9,630                     | )      |   | $                                        | — |   |   | $ | 2,170 |   |
| Brand name                         |   |                      | 4      |   |                                       |   | 510    |                     |   |   | (452                       | )      |   |                                     | — |   |   |   | 58 |   |
| Customer relationships and backlog |   |                      | 1-6    |   |                                       |   | 3,420  |                     |   |   | (3,061                     | )      |   |                                     | — |   |   |   | 359 |   |
| Patents and applications           |   |                      | 7      |   |                                       |   | 1,400  |                     |   |   | (1,074                     | )      |   |                                     | — |   |   |   | 326 |   |
| Other acquired intangibles         |   |                      | 4      |   |                                       |   | 287    |                     |   |   | (258                       | )      |   |                                     | 12      |   |   |   | 41 |   |
| Total                              |   |                      |   |   |                                       | $      | 17,417 |                     |   | $      | (14,475                    | )      |   | $                                        | 12      |   |   | $ | 2,954 |   |

| Year Ending December 31,            |   | Amount |   |
|-------------------------------------|--------|--------|--------|
| 2010 (remaining three-month period) |   | $      | 264    |   |
| 2011                                |   |   | 830    |   |
| 2012                                |   |   | 435    |   |
| 2013                                |   |   | 74     |   |
| 2014                                |   |   | 30     |   |
| Total                               |   | $      | 1,633  |   |

|                                      |   | Three Months Ended September 30, |   |   | Nine Months Ended September 30, |   |
|-------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                      |   | 2010                             |   |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Cost of design-to-silicon-yield solutions |   | $                                | 413    |   |                            | $      | 278 |   |   | $ | 1,454 |   |   | $ | 1,111 |   |
| Research and development                  |   |                             | 284    |   |                            |   | 341 |   |   |   | 980 |   |   |   | 1,093 |   |
| Selling, general and administrative       |   |                             | 357    |   |                            |   | 465 |   |   |   | 1,595 |   |   |   | 1,341 |   |
| Stock-based compensation expenses         |   | $                                | 1,054  |   |                            | $      | 1,084 |   |   | $ | 4,029 |   |   | $ | 3,545 |   |

|                                                                                                     |   | Three Months Ended September 30, |    |   | Nine Months Ended September 30, |   |
|----------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------|---------------------------------|--------|
|                                                                                                     |   | 2010                                  |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Expected life (in years)                                                                                 |   |                                  | 5.24    |   |                            |   | 5.16 |   |   |   | 5.24 |   |   |   | 5.16 |   |
| Volatility                                                                                               |   |                                  | 61.6    | %      |                            |   | 63.5 | % |   |   | 62.4 | % |   |   | 63.1 | % |
| Risk-free interest rate                                                                                  |   |                                  | 1.48    | %      |                            |   | 2.54 | % |   |   | 2.09 | % |   |   | 2.44 | % |
| Expected dividend                                                                                        |   |                                  | — |   |                            |   | — |   |   |   | — |   |   |   | — |   |
| Weighted average fair value per share of options granted      during the period |   | $                                     | 2.03    |   |                            | $      | 1.24 |   |   | $ | 2.35 |   |   | $ | 1.11 |   |

|                                                                                                           |   | Three Months Ended September 30, |    |   | Nine Months Ended September 30, |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                                                                                           |   | 2010                             |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Expected life (in years)                                                                                       |   |                             | 1.25    |   |                            |   | 1.25 |   |   |   | 1.25 |   |   |   | 1.25 |   |
| Volatility                                                                                                     |   |                             | 54.9    | %      |                            |   | 79.1 | % |   |   | 65.4 | % |   |   | 79.6 | % |
| Risk-free interest rate                                                                                        |   |                             | 0.40    | %      |                            |   | 1.19 | % |   |   | 0.50 | % |   |   | 1.23 | % |
| Expected dividend                                                                                              |   |                             | — |   |                            |   | — |   |   |   | — |   |   |   | — |   |
| Weighted average fair value per share of employee stock      issued during the period |   | $                                | 1.60    |   |                            | $      | 1.12 |   |   | $ | 1.55 |   |   | $ | 0.90 |   |

----

|                                            |   | Number ofOptions(in thousands) |   |   | Weighted AverageExercise Priceper Share |   |   | Weighted AverageRemainingContractualTerm (years) |   |   | AggregateIntrinsic Value(in thousands) |   |
|-------------------------------------------------|--------|--------------------------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------------------|--------|--------|----------------------------------------|--------|
| Outstanding, January 1, 2010                    |   |                           | 3,849  |   |                                    | $      | 6.41   |                                             |   |   |                                   |   |   |   |
| Granted                                         |   |                           | 299    |   |                                    |   | 4.41   |                                             |   |   |                                   |   |   |   |
| Exercised                                       |   |                           | (24    | )      |                                    |   | 2.12   |                                             |   |   |                                   |   |   |   |
| Canceled                                        |   |                           | (168   | )      |                                    |   | 4.51   |                                             |   |   |                                   |   |   |   |
| Expired                                         |   |                           | (79    | )      |                                    |   | 9.43   |                                             |   |   |                                   |   |   |   |
| Outstanding, September 30, 2010                 |   |                           | 3,877  |   |                                    |   | 6.33   |                                             |   |   | 7.40                                   |   |   | $ | 306 |   |
| Vested and expected to vest, September 30, 2010 |   |                           | 3,510  |   |                                    |   | 6.53   |                                             |   |   | 7.25                                   |   |   | $ | 277 |   |
| Exercisable, September 30, 2010                 |   |                           | 1,609  |   |                                    |   | 9.24   |                                             |   |   | 5.29                                   |   |   | $ | 131 |   |

|                          |   | Units(in thousands) |   |   | WeightedAverageGrant DateFair Value |   |
|-------------------------------|--------|---------------------|--------|--------|-------------------------------------|--------|
| Nonvested, January 1, 2010    |   |                | 979    |   |                                | $      | 6.84 |   |
| Granted                       |   |                | 28     |   |                                |   | 3.96 |   |
| Vested                        |   |                | (404   | )      |                                |   | 5.68 |   |
| Forfeited                     |   |                | (77    | )      |                                |   | 6.96 |   |
| Nonvested, September 30, 2010 |   |                | 526    |   |                                |   | 7.75 |   |

----

| Restructuring Announced on October 28, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Severance |    |   | Facility Exit |   |    | Professionaland OtherFees |   |   | Total   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|---------|--------|---------------|--------|---------|---------------------------|--------|--------|---------|--------|
| Balances, January 1, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $         | — |   |          | $      | — |                      |   | $      | — |   |   | $ | — |   |
| Restructuring charges                                                                                                   |   |      | 909     |   |          |   | 1,251   |                      |   |   | 36      |   |   |   | 2,196 |   |
| Adjustment of deferred rent                                                                                             |   |      | — |   |          |   | (266    | )                         |   |   | — |   |   |   | (266 | ) |
| Non-cash adjustment                                                                                                     |   |      | 36      |   |          |   | 266     |                      |   |   | — |   |   |   | 302 |   |
| Payments                                                                                                                |   |      | (85     | )      |          |   | (143    | )                         |   |   | (5      | )      |   |   | (233 | ) |
| Balances, December 31, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |      | 860     |   |          |   | 1,108   |                      |   |   | 31      |   |   |   | 1,999 |   |
| Restructuring charges                                                                                                   |   |      | 3,515   |   |          |   | 783     |                      |   |   | 214     |   |   |   | 4,512 |   |
| Payments                                                                                                                |   |      | (4,151  | )      |          |   | (558    | )                         |   |   | (183    | )      |   |   | (4,892 | ) |
| Balances, December 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |      | 224     |   |          |   | 1,333   |                      |   |   | 62      |   |   |   | 1,619 |   |
| Restructuring charges (credits)                                                                                         |   |      | 420     |   |          |   | 19      |                      |   |   | (96     | )      |   |   | 343 |   |
| (Payments) refunds                                                                                                      |   |      | (456    | )      |          |   | (472    | )                         |   |   | 39      |   |   |   | (889 | ) |
| Balances, September 30, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $         | 188     |   |          | $      | 880     |                      |   | $      | 5       |   |   | $ | 1,073 |   |

----

|                                                       |   | Three MonthsEnded September 30, |   |   | Nine MonthsEnded September 30, |   |
|------------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                                       |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Net income (loss)                                          |   | $                               | 50     |   |                           | $      | (2,831 | ) |   | $ | 71 |   |   | $ | (16,790 | ) |
| Weighted average common shares outstanding — basic   |   |                            | 27,413 |   |                           |   | 26,499 |   |   |   | 27,154 |   |   |   | 26,306 |   |
| Dilutive effect of employee equity plans                   |   |                            | 168    |   |                           |   | — |   |   |   | 228 |   |   |   | — |   |
| Weighted average common shares outstanding — diluted |   |                            | 27,581 |   |                           |   | 26,449 |   |   |   | 27,382 |   |   |   | 26,306 |   |
| Net income (loss) per share:                               |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   | $                               | 0.00   |   |                           | $      | (0.11 | ) |   | $ | 0.00 |   |   | $ | (0.64 | ) |
| Diluted                                                    |   | $                               | 0.00   |   |                           | $      | (0.11 | ) |   | $ | 0.00 |   |   | $ | (0.64 | ) |

|                        |   | Three MonthsEnded September 30, |   |   | Nine MonthsEnded September 30, |   |
|----------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                             |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Outstanding options              |   |                            | 3,690  |   |                           |   | 4,143 |   |   |   | 3,693 |   |   |   | 4,254 |   |
| Nonvested restricted stock units |   |                            | 270    |   |                           |   | 533 |   |   |   | 333 |   |   |   | 652 |   |
| Total                            |   |                            | 3,960  |   |                           |   | 4,676 |   |   |   | 4,026 |   |   |   | 4,906 |   |

|                                                                |   | Three MonthsEnded September 30, |    |   | Nine MonthsEnded September 30, |   |
|---------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------|--------|
|                                                                |   | 2010                            |    |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Net income (loss)                                                   |   | $                               | 50      |   |                           | $      | (2,831 | ) |   | $ | 71 |   |   | $ | (16,790 | ) |
| Unrealized loss on investments, net of income tax effects           |   |                            | — |   |                           |   | (4 | ) |   |   | — |   |   |   | (65 | ) |
| Foreign currency translation adjustments, net of income tax effects |   |                            | 612     |   |                           |   | 223 |   |   |   | (164 | ) |   |   | (818 | ) |
| Comprehensive income (loss)                                         |   | $                               | 662     |   |                           | $      | (2,612 | ) |   | $ | (93 | ) |   | $ | (17,673 | ) |

----

|     |   |   | Three MonthsEnded September 30, |   | Nine MonthsEnded September 30, |
|----------|--------|--------|---------------------------------|--------|--------------------------------|
| Customer |   |   | 2010                            |   | 2009                           |   | 2010 |   | 2009 |
| A        |   |   |                            | 23     | %                              |   |   | 25 | % |   |   | 19 | % |   |   | 15 | % |
| B        |   |   |                            | 14     | %                              |   |   | 17 | % |   |   | 13 | % |   |   | 22 | % |
| C        |   |   |                            | 14     | %                              |   |   | * | % |   |   | 11 | % |   |   | * | % |
| D        |   |   |                            | 13     | %                              |   |   | 11 | % |   |   | 20 | % |   |   | 10 | % |

| Customer |   |   | September 30, 2010 |   | December 31,2009 |
|----------|--------|--------|--------------------|--------|------------------|
| A        |   |   |               | 28     | %                |   |   | 16 | % |
| B        |   |   |               | 16     | %                |   |   | 16 | % |
| C        |   |   |               | *      | %                |   |   | 14 | % |
| D        |   |   |               | 20     | %                |   |   | 10 | % |
| E        |   |   |               | *      | %                |   |   | 11 | % |
| F        |   |   |               | *      | %                |   |   | 10 | % |

|          |   | Three MonthsEnded September 30, |   |   | Nine MonthsEnded September 30, |   |
|---------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|          |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Asia          |   | $                               | 9,592  |   |                           | $      | 9,680 |   |   | $ | 31,162 |   |   | $ | 20,724 |   |
| United States |   |                            | 3,592  |   |                           |   | 3,084 |   |   |   | 9,575 |   |   |   | 10,128 |   |
| Europe        |   |                            | 1,644  |   |                           |   | 1,114 |   |   |   | 4,695 |   |   |   | 2,799 |   |
| Total         |   | $                               | 14,828 |   |                           | $      | 13,878 |   |   | $ | 45,432 |   |   | $ | 33,651 |   |

| Level 1 — | Inputs are quoted prices in active markets for identical assets or liabilities.                                                                                                                                                                                                                                                               |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |                                                                                                                                                                                                                                                                                                                                          |
| Level 2 — | Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. |
|            |                                                                                                                                                                                                                                                                                                                                          |
| Level 3 — | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.                                                                                                                                                                                                                       |

----

| Assets                    |   | Total  |   |   | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |    | SignificantOtherObservable Inputs(Level 2) |   |   | SignificantUnobservable Inputs(Level 3) |   |
|---------------------------|--------|--------|--------|--------|-----------------------------------------------------------|--------|---------|--------------------------------------------|--------|--------|-----------------------------------------|--------|
| Money market mutual funds |   | $      | 25,291 |   |                                                      | $      | 25,291  |                                       |   | $      | —                                 |   |   | $ | — |   |
| Auction-rate securities   |   |   | 718    |   |                                                      |   | — |                                       |   |   | —                                 |   |   |   | 718 |   |
| Total                     |   | $      | 26,009 |   |                                                      | $      | 25,291  |                                       |   | $      | —                                 |   |   | $ | 718 |   |

| Assets                    |   | Total  |   |   | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |    | SignificantOtherObservable Inputs(Level 2) |   |   | SignificantUnobservable Inputs(Level 3) |   |
|---------------------------|--------|--------|--------|--------|-----------------------------------------------------------|--------|---------|--------------------------------------------|--------|--------|-----------------------------------------|--------|
| Money market mutual funds |   | $      | 25,250 |   |                                                      | $      | 25,250  |                                       |   | $      | —                                 |   |   | $ | — |   |
| Auction-rate securities   |   |   | 718    |   |                                                      |   | — |                                       |   |   | —                                 |   |   |   | 718 |   |
| Total                     |   | $      | 25,968 |   |                                                      | $      | 25,250  |                                       |   | $      | —                                 |   |   | $ | 718 |   |

----

|   | • | Total revenues for the three months ended September 30, 2010 were $14.8 million, an increase of $950,000, or 7%, compared to $13.9 million for the three months ended September 30, 2009. Design-to-Silicon-Yield solutions revenues for the three months ended September 30, 2010 were $10.5 million, an increase of $2.1 million, or 24%, compared to $8.4 million for the three months ended September 30, 2009. The increase in Design-to-Silicon-Yield solutions revenues was primarily the result of increased bookings. Gainshare performance incentives revenues for the three months ended September 30, 2010 were $4.3 million, a decrease of $1.1 million, or 20%, compared to $5.4 million for the three months ended September 30, 2009. The decrease was primarily due to the timing of contractual end of gainshare performance incentives revenues on older contracts being only partially offset by the start of gainshare performance incentives revenues on newer contracts. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Net income for the three months ended September 30, 2010 was $50,000, compared to a net loss of $2.8 million for the three months ended September 30, 2009. The change to net income was primarily attributable to significant increases in revenues and decreases in operating expenses as the result of our cost control efforts. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Net income per basic and diluted share was $0.00 for the three months ended September 30, 2010 compared to a net loss of $0.11 for the three months ended September 30, 2009, a change of $0.11 per basic and diluted share. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Total revenues for the nine months ended September 30, 2010 were $45.4 million, an increase of $11.8 million, or 35%, compared to $33.7 million for the nine months ended September 30, 2009. Design-to-Silicon-Yield solutions revenues for the nine months ended September 30, 2010 were $31.7 million, an increase of $8.2 million, or 35%, compared to $23.5 million for the nine months ended September 30, 2009. The increase in Design-to-Silicon-Yield solutions revenues was primarily the result of increased bookings, and to a lesser extent the early adoption of a new accounting standard. Gainshare performance incentives revenues for the nine months ended September 30, 2010 were $13.7 million, an increase of $3.6 million, or 35%, compared to $10.1 million for the nine months ended September 30, 2009.  The increase was primarily due to increased volumes at some of our customers’ manufacturing facilities. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | Net income for the nine months ended September 30, 2010 was $71,000 compared to a net loss of $16.8 million for the nine months ended September 30, 2009. The change to net income was primarily attributable to significant increases in revenues and decreases in operating expenses as the result of our cost control efforts. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Net income per basic and diluted share was $0.00 for the nine months ended September 30, 2010 compared to a net loss per basic and diluted share of ($0.64) for the nine months ended September 30, 2009, a change of $0.64 per basic and diluted share. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | require an entity to allocate revenue in an arrangement using best estimated selling prices (“BESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------|

----

----

|                                              |   | Three Months EndedSeptember 30, |    |   | Nine Months EndedSeptember 30, |   |
|---------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------|--------|
|                                              |   | 2010                            |    |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Revenues:                                         |   |                            |    |   |                           |   |   |   |   |   |   |   |
| Design-to-silicon-yield solutions                 |   |                            | 71      | %      |                           |   | 61 | % |   |   | 70 | % |   |   | 70 | % |
| Gainshare performance incentives                  |   |                            | 29      |   |                           |   | 39 |   |   |   | 30 |   |   |   | 30 |   |
| Total revenues                                    |   |                            | 100     | %      |                           |   | 100 | % |   |   | 100 | % |   |   | 100 | % |
| Costs of design-to-silicon-yield solutions:       |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Direct costs of design-to-silicon-yield solutions |   |                            | 39      |   |                           |   | 38 |   |   |   | 40 |   |   |   | 49 |   |
| Amortization of acquired technology               |   |                            | 2       |   |                           |   | 3 |   |   |   | 2 |   |   |   | 3 |   |
| Total costs of design-to-silicon-yield solutions  |   |                            | 41      |   |                           |   | 41 |   |   |   | 42 |   |   |   | 52 |   |
| Gross Profit                                      |   |                            | 59      |   |                           |   | 59 |   |   |   | 58 |   |   |   | 48 |   |
| Operating expenses:                               |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                          |   |                            | 29      |   |                           |   | 34 |   |   |   | 28 |   |   |   | 46 |   |
| Selling, general and administrative               |   |                            | 22      |   |                           |   | 31 |   |   |   | 27 |   |   |   | 38 |   |
| Amortization of other acquired intangible assets  |   |                            | — |   |                           |   | — |   |   |   | — |   |   |   | 1 |   |
| Restructuring charges                             |   |                            | 3       |   |                           |   | 13 |   |   |   | 1 |   |   |   | 11 |   |
| Total operating expenses                          |   |                            | 54      |   |                           |   | 78 |   |   |   | 56 |   |   |   | 96 |   |
| Income (loss) from operations                     |   |                            | 5       |   |                           |   | (19 | ) |   |   | 2 |   |   |   | (48 | ) |
| Interest and other income (expense), net          |   |                            | (4      | )      |                           |   | — |   |   |   | — |   |   |   | 1 |   |
| Income (loss) before taxes                        |   |                            | 1       |   |                           |   | (19 | ) |   |   | 2 |   |   |   | (47 | ) |
| Income tax provision                              |   |                            | 1       |   |                           |   | 1 |   |   |   | 2 |   |   |   | 3 |   |
| Net income (loss)                                 |   |                            | — | %      |                           |   | (20 | )% |   |   | — | % |   |   | (50 | )% |

----

|                                   |   |                             |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|----------------------------------------|--------|----------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------------------------------------|--------|
|                                   |   | Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                              |   |   | 2009% of |   |
| Revenues                               |   | 2010                             |   |   | 2009    |   |   | Change |   |   | Change                                |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                             |   |
| Design-to-silicon-yield solutions      |   | $                                | 10,498 |   |    | $      | 8,439  |   |   | $      | 2,059                                 |   |   | 24 | % |   |   | 71 | % |   |   | 61 | % |
| Gainshare performance incentives       |   |                             | 4,330  |   |    |   | 5,439  |   |   |   | (1,109                                | )      |   | (20 | )% |   |   | 29 | % |   |   | 39 | % |
| Total                                  |   | $                                | 14,828 |   |    | $      | 13,878 |   |   | $      | 950                                   |   |   | 7 | % |   |   | 100 | % |   |   | 100 | % |

|                                              |   |                             |   |   |   |   |   |   |   |   | Three Months Ended September 30, |   |
|---------------------------------------------------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                                              |   | Three Months Ended September 30, |   |   | $      |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Costs of Design-to-Silicon-Yield Solutions        |   | 2010                             |   |   | 2009   |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages)            |   |                             |   |   |   |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Direct costs of design-to-silicon-yield solutions |   | $                                | 5,790  |   |   | $      | 5,270  |   |   | $      | 520                              |   |   | 10 | % |   |   | 39 | % |   |   | 38 | % |
| Amortization of acquired technology               |   |                             | 360    |   |   |   | 360    |   |   |   | —                          |   |   | — |   |   |   | 2 | % |   |   | 3 | % |
| Total                                             |   | $                                | 6,150  |   |   | $      | 5,630  |   |   | $      | 520                              |   |   | 9 | % |   |   | 41 | % |   |   | 41 | % |

----

|                                   |   |                             |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|----------------------------------------|--------|----------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                                   |   | Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Research and Development               |   | 2010                             |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                             |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Research and development               |   | $                                | 4,291  |   |    | $      | 4,689  |   |   | $      | (398                             | )      |   | (8 | )% |   |   | 29 | % |   |   | 34 | % |

|                                   |   |                                    |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|----------------------------------------|--------|-----------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                              |   |   Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Selling, General and Administrative    |   | 2010                                    |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                                    |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Selling, general and administrative    |   | $                                       | 3,228  |   |    | $      | 4,321  |   |   | $      | (1,093                           | )      |   | (25 | )% |   |   | 22 | % |   |   | 31 | % |

|                                             |   |                                  |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|--------------------------------------------------|--------|---------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
| Amortization of Other                            |   | Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Acquired Intangible Assets                       |   | 2010                                  |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages)           |   |                                  |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Amortization of other acquired intangible assets |   | $                                     | 70     |   |    | $      | 86     |   |   | $      | (16                              | )      |   | (19 | )% |   |   | — | % |   |   | — | % |

|                                   |   |                                    |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|----------------------------------------|--------|-----------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                              |   |   Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Restructuring Charges                  |   | 2010                                    |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                                    |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Restructuring charges                  |   | $                                       | 375    |   |    | $      | 1,743  |   |   | $      | (1,368                           | )      |   | (78 | )% |   |   | 3 | % |   |   | 13 | % |

|                                     |   |                             |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|------------------------------------------|--------|----------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                                     |   | Three Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Interest and Other Income (Expense), net |   | 2010                             |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages)   |   |                             |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Interest and other income (expense), net |   | $                                | (636   | )      |    | $      | 7      |   |   | $      | (643                             | )      |   | (9,186 | )% |   |   | (4 | )% |   |   | — | % |

----

|                                   |   |                                    |   |   |    |   |   |   |   |   | Three Months Ended September 30, |   |
|----------------------------------------|--------|-----------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|----------------------------------|--------|
|                              |   |   Three Months Ended September 30, |   |   | $  |   |   | %      |   |   | 2010% of                         |   |   | 2009% of |   |
| Income Tax Provision                   |   | 2010                                    |   |   | 2009    |   |   | Change |   |   | Change                           |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                                    |   |   |    |   |   |   |   |   |                             |   |   |   |   |   |   |   |
| Income tax provision                   |   | $                                       | 28     |   |    | $      | 247    |   |   | $      | (219                             | )      |   | (89 | )% |   |   | 1 | % |   |   | 1 | % |

|                                   |   |                            |   |   |    |   |   |   |   |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                   |   | Nine Months Ended September 30, |   |   |  $ |   |   | %      |   |   | 2010% of                        |   |   | 2009% of |   |
| Revenues                               |   | 2010                            |   |   | 2009    |   |   | Change |   |   | Change                          |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                            |   |   |    |   |   |   |   |   |                            |   |   |   |   |   |   |   |
| Design-to-silicon-yield solutions      |   | $                               | 31,729 |   |    | $      | 23,525 |   |   | $      | 8,204                           |   |   | 35 | % |   |   | 70 | % |   |   | 70 | % |
| Gainshare performance incentives       |   |                            | 13,703 |   |    |   | 10,126 |   |   |   | 3,577                           |   |   | 35 | % |   |   | 30 | % |   |   | 30 | % |
| Total                                  |   | $                               | 45,432 |   |    | $      | 33,651 |   |   | $      | 11,781                          |   |   | 35 | % |   |   | 100 | % |   |   | 100 | % |

|                                              |   |                            |   |   |    |   |   |   |   |   | Nine Months Ended September 30, |   |
|---------------------------------------------------|--------|---------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                              |   |                            |   |   |    |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                              |   | Nine Months Ended September 30, |   |   |  $ |   |   | %      |   |   | % of                            |   |   | % of |   |
| Costs of Design-to-Silicon-Yield Solutions        |   | 2010                            |   |   | 2009    |   |   | Change |   |   | Change                          |   |   | Revenues |   |   | Revenues |   |
| (In thousands, except for percentages)            |   |                            |   |   |    |   |   |   |   |   |                            |   |   |   |   |   |   |   |
| Direct costs of design-to-silicon-yield solutions |   | $                               | 18,040 |   |    | $      | 16,423 |   |   | $      | 1,617                           |   |   | 10 | % |   |   | 40 | % |   |   | 49 | % |
| Amortization of acquired technology               |   |                            | 1,079  |   |    |   | 1,079  |   |   |   | —                         |   |   | — | % |   |   | 2 |   |   |   | 3 |   |
| Total                                             |   | $                               | 19,119 |   |    | $      | 17,502 |   |   | $      | 1,617                           |   |   | 9 | % |   |   | 42 | % |   |   | 52 | % |

|                                   |   |                            |   |   |       |   |   |   |   |   |   |   |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                   |   |                            |   |   |       |   |   |   |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                   |   | Nine Months Ended September 30, |   |   | $          |   |   | %      |   |   | % of   |   |   | % of                            |   |
| Research and Development          |   | 2010                       |   |   | 2009  |   |   | Change |   |   | Change |   |   | Revenues                        |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                            |   |   |       |   |   |   |   |   |   |   |   |                            |   |   |   |   |
| Research and development               |   | $                               | 12,588 |   |       | $      | 15,547 |   |   | $      | (2,959 | )      |   |                            | (19    | )% |   |   | 28 | % |   |   | 46 | % |

----

|                                   |   |                            |   |   |   |   |   |   |   |   |   |   |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                   |   |                            |   |   |   |   |   |   |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                   |   | Nine Months Ended September 30, |   |   | $      |   |   | %      |   |   | % of   |   |   | % of                            |   |
| Selling, General and Administrative    |   | 2010                            |   |   | 2009   |   |   | Change |   |   | Change |   |   | Revenues                        |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                            |   |   |   |   |   |   |   |   |   |   |   |                            |   |   |   |   |
| Selling, general and administrative    |   | $                               | 12,299 |   |   | $      | 12,842 |   |   | $      | (543   | )      |   |                            | (4     | )% |   |   | 27 | % |   |   | 38 | % |

|                                             |   |                            |   |   |   |   |   |   |   |   |   |   |   |   Nine Months Ended September 30, |   |
|--------------------------------------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------------------------------------|--------|
|                                             |   |                            |   |   |   |   |   |   |   |   |   |   |   | 2010                                   |   |   | 2009 |   |
| Amortization of Other                       |   | Nine Months Ended September 30, |   |   | $      |   |   | %      |   |   | % of   |   |   | % of                                   |   |
| Acquired Intangible Assets                       |   | 2010                            |   |   | 2009   |   |   | Change |   |   | Change |   |   | Revenues                               |   |   | Revenues |   |
| (In thousands, except for percentages)           |   |                            |   |   |   |   |   |   |   |   |   |   |   |                                   |   |   |   |   |
| Amortization of other acquired intangible assets |   | $                               | 238    |   |   | $      | 260    |   |   | $      | (22    | )      |   |                                   | (8     | )% |   |   | — | % |   |   | 1 | % |

|                                   |   |                                  |   |   |   |   |   |   |   |   |   |   |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                   |   |                                  |   |   |   |   |   |   |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                   |   | Nine Months Ended September 30,  |   |   | $      |   |   | %      |   |   | % of   |   |   | % of                            |   |
| Restructuring Charges                  |   | 2010                                  |   |   | 2009   |   |   | Change |   |   | Change |   |   | Revenues                        |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                                  |   |   |   |   |   |   |   |   |   |   |   |                            |   |   |   |   |
| Restructuring charges                  |   | $                                     | 343    |   |   | $      | 3,578  |   |   | $      | (3,235 | )      |   |                            | (90    | )% |   |   | 1 | % |   |   | 11 | % |

|                                     |   |                            |   |   |       |   |   |   |   |   |   |   |   | Nine Months Ended September 30, |   |
|------------------------------------------|--------|---------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                     |   |                            |   |   |       |   |   |   |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                     |   | Nine Months Ended September 30, |   |   | $          |   |   | %      |   |   | % of   |   |   | % of                            |   |
| Interest and Other Income (Expense), net |   | 2010                       |   |   | 2009  |   |   | Change |   |   | Change |   |   | Revenues                        |   |   | Revenues |   |
| (In thousands, except for percentages)   |   |                            |   |   |       |   |   |   |   |   |   |   |   |                            |   |   |   |   |
| Interest and other income (expense), net |   | $                               | 30     |   |       | $      | 121    |   |   | $      | (91    | )      |   |                            | (75    | )% |   |   | — | % |   |   | 1 | % |

|                                   |   |                            |   |   |       |   |   |         |   |   |   |   |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------|--------|--------|---------------------------------|--------|
|                                   |   |                            |   |   |       |   |   |         |   |   |   |   |   | 2010                            |   |   | 2009 |   |
|                                   |   | Nine Months Ended September 30, |   |   |  $    |   |   | %            |   |   | % of   |   |   | % of                            |   |
| Income Tax Provision                   |   |  2010                      |   |   |  2009 |   |   |  Change |   |   | Change |   |   | Revenues                        |   |   | Revenues |   |
| (In thousands, except for percentages) |   |                            |   |   |       |   |   |         |   |   |   |   |   |                            |   |   |   |   |
| Income tax provision                   |   | $                               | 804    |   |       | $      | 833    |         |   | $      | (29    | )      |   |                            | (3     | )% |   |   | 2 | % |   |   | 3 | % |

----

----

| Contractual obligations     |   | 2010(three monthsRemaining) |   |   |   | 2011-2012 |   |   |   | 2013-2014 |    |   | Total  |   |
|-----------------------------|--------|-----------------------------|--------|--------|--------|-----------|--------|--------|--------|-----------|---------|--------|--------|--------|
| Debt principal (1)          |   | $                           | 28     |   |   | $         | 110    |   |   | $         | — |   |   | $      | 138 |   |
| Debt interest               |   |                        | 2      |   |   |      | 4      |   |   |      | — |   |   |   | 6 |   |
| Operating lease obligations |   |                        | 797    |   |   |      | 5,306  |   |   |      | 1,780   |   |   |   | 7,883 |   |
| Total (2)                   |   | $                           | 827    |   |   | $         | 5,420  |   |   | $         | 1,780   |   |   | $      | 8,027 |   |

| (1) | Amount represents the repayment of a 400,000 Euros loan with a variable interest rate based on the EURIBOR plus 160 basis points. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

| (2) | The contractual obligation table above excludes liabilities for uncertain tax positions of $2.9 million, which are not practicable to assign to any particular years, due to the inherent uncertainty of the tax positions.  See Note 8 of “Notes to Condensed Consolidated Financial Statements (Unaudited)” for further discussion.   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | Establishing a periodic review of our accounting policies regarding contract costs relating to certain revenue contracts to ensure such policies are in accordance with generally accepted accounting principles in the United States. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Incorporating consideration of the accounting for contract costs into our existing control procedures to ensure adequate review of revenue contracts. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Hiring personnel with requisite experience and providing ongoing training and supervision in the area of contract cost recognition. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------|

|      Period                    |   |    TotalNumberof Shares(or Units)Purchased |    |   |    AveragePrice PaidPer Share(or Unit) |   |    | TotalNumberof Shares(or Units)Purchased asPart ofPubliclyAnnouncedPlans orPrograms (1) |   |   | Maximum Number (orApproximate Dollar Value)of Shares (orUnits) thatMay Yet BePurchasedUnder thePlans or Programs(1) |   |
|---------------------------------------------------------|--------|------------------------------------------------------|---------|--------|--------------------------------------------------|--------|---------|----------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------|--------|
| Month #7 (July 1, 2010 through July 31, 2010)           |   |                                                 | — |   |                                             | $      | — |                                                                                   |   |   | —                                                                                                             |   |   | $ | 930 |   |
| Month #8 (August 1, 2010 through August 31, 2010)       |   |                                                 | — |   |                                             |   | — |                                                                                   |   |   | —                                                                                                             |   |   | $ | 930 |   |
| Month #9 (September 1, 2010 through September 30, 2010) |   |                                                 | 45,578  |   |                                             |   | 3.97    |                                                                                   |   |   | 45,578                                                                                                              |   |   | $ | 749 |   |
| Total                                                   |   |                                                 | 45,578  |   |                                             |   | 3.97    |                                                                                   |   |   | 45,578                                                                                                              |   |   |   |   |   |

| (1) | On October 29, 2007, the Board of Directors approved a program to repurchase up to $10.0 million of the Company’s common stock on the open market. As of September 30, 2010, 2.7 million shares had been repurchased at the average price of $3.46 per share under this program and $749,000 remained available for future repurchases. The right to repurchase stock under this program would have expired on October 29, 2010, but on October 19, 2010, the Board of Directors approved an extension and increase to the repurchase program.  Pursuant to such action taken by the Board of Directors, the stock repurchase program has been extended for two more years until October 29, 2012, and the aggregate amount available to repurchase under the stock repurchase plan, as amended, has been increased to $10.0 million of the Company's common stock. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ExhibitNumber |   |  Description                                                                                                                                                          |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.01         |   | Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          |   |                                                                                                                                                                       |
| 31.02         |   | Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          |   |                                                                                                                                                                       |
| 32.01         |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                   |
|          |   |                                                                                                                                                                       |
| 32.02         |   | Certification the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                      |

|  * | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of PDF Solutions, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                   | PDF SOLUTIONS, INC. |                                  |
|------------------------|---------------------|---------------------------------------|
|                   |                |                                  |   |
| Date: November 5, 2010 | By:                 | /s/ JOHN K. KIBARIAN                  |   |
|                   |                | John K. Kibarian                      |   |
|                   |                | President and Chief Executive Officer |   |
|                   |                | (Principal Executive Officer)         |   |

|                   |   |                                                                |   |
|------------------------|--------|---------------------------------------------------------------------|--------|
| Date: November 5, 2010 | By:    | /s/ JOY E. LEO                                                      |   |
|                   |   | Joy E. Leo                                                          |   |
|                   |   | EVP, Chief Administration Officer andActing Chief Financial Officer |   |
|                   |   | (Principal Financial Officer)                                       |   |

----

| ExhibitNumber |   |  Description                                                                                                                                                          |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                       |
| 31.01         |   | Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          |   |                                                                                                                                                                       |
| 31.02         |   | Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          |   |                                                                                                                                                                       |
| 32.01         |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                   |
|          |   |                                                                                                                                                                       |
| 32.02         |   | Certification the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                      |

|  * | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of PDF Solutions, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|