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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended September 30, 2009

OR



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

Commission file number: 000-51349





Advanced Analogic
Technologies Incorporated

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 77-0462930                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|3230 Scott Blvd., Santa Clara, California                      |  | 95054                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code:

(408) 737-4600





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

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

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

Large accelerated
filer   ̈        Accelerated filer  x        Non-accelerated filer   ̈        Smaller Reporting
Company   ̈

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

There were 46,122,631 shares of the Registrants common stock issued and 42,958,341 shares outstanding as of October 28, 2009.









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TABLE OF CONTENTS



|                              |  |                                                                                                                                           |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                           |  | PAGE
|PART I. FINANCIAL INFORMATION |  | 3                                                                                                                                        
|                              |  |                                                                                                                                          
|ITEM 1.                       |  | FINANCIAL STATEMENTS (UNAUDITED)                                                                                                          |  | 3   
|                              |  |                                                                                                                                          
|                              |  | CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2009 AND DECEMBER 31,
2008                                                         |  | 3   
|                              |  |                                                                                                                                          
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER
 30, 2008 (RESTATED) |  | 4   
|                              |  |                                                                                                                                          
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 
30, 2009 AND SEPTEMBER 30, 2008 (RESTATED)           |  | 5   
|                              |  |                                                                                                                                          
|                              |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                                      |  | 6   
|                              |  |                                                                                                                                          
|ITEM 2.                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                                                     |  | 19  
|                              |  |                                                                                                                                          
|ITEM 3.                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                |  | 28  
|                              |  |                                                                                                                                          
|ITEM 4.                       |  | CONTROLS AND PROCEDURES                                                                                                                   |  | 29  
|                              | 
|PART II. OTHER INFORMATION    |  | 30                                                                                                                                       
|                              |  |                                                                                                                                          
|ITEM 1.                       |  | LEGAL PROCEEDINGS                                                                                                                         |  | 30  
|                              |  |                                                                                                                                          
|ITEM 1A.                      |  | RISK FACTORS                                                                                                                              |  | 30  
|                              |  |                                                                                                                                          
|ITEM 2.                       |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                               |  | 41  
|                              |  |                                                                                                                                          
|ITEM 3.                       |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                           |  | 41  
|                              |  |                                                                                                                                          
|ITEM 4.                       |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                       |  | 41  
|                              |  |                                                                                                                                          
|ITEM 5.                       |  | OTHER INFORMATION                                                                                                                         |  | 41  
|                              |  |                                                                                                                                          
|ITEM 6.                       |  | EXHIBITS                                                                                                                                  |  | 41  



2



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PART I. FINANCIAL INFORMATION



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

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value)



|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | -------------------- | - | ------- | -
|                                                                                                                                                                                                                                                              |  | September 30,2009 |         |   | December 31,2008
(*) |  
|Assets                                                                                                                                                                                                                                                        |  |                   |         |   |                      |   |         |  
|Current assets                                                                                                                                                                                                                                                |  |                   |         |   |                      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                     |  | $                 | 35,120  |   |                      | $ | 52,094  |  
|Short-term investments                                                                                                                                                                                                                                        |  |                   | 68,007  |   |                      |   | 57,443  |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total cash, cash equivalents and short-term investments                                                                                                                                                                                                       |  |                   | 103,127 |   |                      |   | 109,537 |  
|Accounts receivable, net of allowances                                                                                                                                                                                                                        |  |                   | 14,030  |   |                      |   | 6,654   |  
|Inventories                                                                                                                                                                                                                                                   |  |                   | 9,366   |   |                      |   | 9,016   |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                     |  |                   | 3,454   |   |                      |   | 2,100   |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total current assets                                                                                                                                                                                                                                          |  |                   | 129,977 |   |                      |   | 127,307 |  
|Property and equipment, net                                                                                                                                                                                                                                   |  |                   | 4,522   |   |                      |   | 5,050   |  
|Other assets                                                                                                                                                                                                                                                  |  |                   | 3,100   |   |                      |   | 4,060   |  
|Deferred income taxes                                                                                                                                                                                                                                         |  |                   | 301     |   |                      |   | 327     |  
|Intangibles, net                                                                                                                                                                                                                                              |  |                   | 154     |   |                      |   | 395     |  
|Goodwill                                                                                                                                                                                                                                                      |  |                   | 16,116  |   |                      |   | 16,116  |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total assets                                                                                                                                                                                                                                                  |  | $                 | 154,170 |   |                      | $ | 153,255 |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Liabilities and stockholders equity                                                                                                                                                                                                                          |  |                   |         |   |                      |   |         |  
|Current liabilities                                                                                                                                                                                                                                           |  |                   |         |   |                      |   |         |  
|Accounts payable                                                                                                                                                                                                                                              |  | $                 | 11,033  |   |                      | $ | 4,601   |  
|Accrued liabilities                                                                                                                                                                                                                                           |  |                   | 4,117   |   |                      |   | 3,698   |  
|Income tax payable                                                                                                                                                                                                                                            |  |                   | 22      |   |                      |   | 127     |  
|Current portion of capital lease obligations                                                                                                                                                                                                                  |  |                   |        |   |                      |   | 41      |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total current liabilities                                                                                                                                                                                                                                     |  |                   | 15,172  |   |                      |   | 8,467   |  
|Long-term income tax payable                                                                                                                                                                                                                                  |  |                   | 4,601   |   |                      |   | 3,326   |  
|Other long-term liabilities                                                                                                                                                                                                                                   |  |                   | 267     |   |                      |   | 228     |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total liabilities                                                                                                                                                                                                                                             |  |                   | 20,040  |   |                      |   | 12,021  |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Stockholders equity                                                                                                                                                                                                                                          |  |                   |         |   |                      |   |         |  
|Common stock, $0.001 par value100,000,000 shares authorized; 46,122,631 and 42,958,341 shares issued and outstanding,
respectively, as of September 30, 2009; 45,926,052 and 43,851,263 shares issued and outstanding, respectively, as of December 31, 2008 |  |                   | 46      |   |                      |   | 46      |  
|Treasury stock, at cost; 3,164,290 and 2,074,789 shares as of September 30, 2009 and December 31, 2008, respectively                                                                                                                                          |  |                   | (8,561  | ) |                      |   | (5,262  | )
|Additional paid-in capital                                                                                                                                                                                                                                    |  |                   | 180,457 |   |                      |   | 175,425 |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                          |  |                   | (180    | ) |                      |   | (56     | )
|Accumulated deficit                                                                                                                                                                                                                                           |  |                   | (37,632 | ) |                      |   | (28,919 | )
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                    |  |                   | 134,130 |   |                      |   | 141,234 |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                    |  | $                 | 154,170 |   |                      | $ | 153,255 |  
|                                                                                                                                                                                                                                                              |  |                   |         |   |                      |   |         |  



|* | Amounts as of December 31, 2008 were derived from the December 31, 2008 audited consolidated financial statements included in our Form 10-K/A.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to unaudited condensed consolidated financial statements.



3



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)



|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | --------------------- | - |  | - | ------ | -
|                                                                |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                |  | 2009                            |        |   | 2008(as restated) (1)          |   |        | 2009 |  |   | 2008(as restated) (1) |  
|Net revenue                                                     |  | $                               | 26,140 |   |                                | $ | 25,436 |      |  | $ | 65,667                |   |  | $ | 71,711 |  
|Cost of revenue                                                 |  |                                 | 12,763 |   |                                |   | 12,716 |      |  |   | 33,763                |   |  |   | 35,258 |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Gross profit                                                    |  |                                 | 13,377 |   |                                |   | 12,720 |      |  |   | 31,904                |   |  |   | 36,453 |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Operating expenses:                                             |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Research and development                                        |  |                                 | 6,928  |   |                                |   | 7,506  |      |  |   | 20,319                |   |  |   | 23,228 |  
|Sales, general and administrative                               |  |                                 | 6,337  |   |                                |   | 6,191  |      |  |   | 18,047                |   |  |   | 19,257 |  
|Patent litigation                                               |  |                                 | 1,013  |   |                                |   | 243    |      |  |   | 1,699                 |   |  |   | 987    |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Total operating expenses                                        |  |                                 | 14,278 |   |                                |   | 13,940 |      |  |   | 40,065                |   |  |   | 43,472 |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Loss from operations                                            |  |                                 | (901   | ) |                                |   | (1,220 | )    |  |   | (8,161                | ) |  |   | (7,019 | )
|Interest and other income:                                      |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Interest income                                                 |  |                                 | 177    |   |                                |   | 700    |      |  |   | 793                   |   |  |   | 2,578  |  
|Interest expense and other income, net                          |  |                                 | (36    | ) |                                |   | 23     |      |  |   | 16                    |   |  |   | 55     |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Total interest and other income, net                            |  |                                 | 141    |   |                                |   | 723    |      |  |   | 809                   |   |  |   | 2,633  |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Loss before income taxes                                        |  |                                 | (760   | ) |                                |   | (497   | )    |  |   | (7,352                | ) |  |   | (4,386 | )
|Provision for income taxes                                      |  |                                 | 256    |   |                                |   | 207    |      |  |   | 1,361                 |   |  |   | 292    |  
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Net loss                                                        |  | $                               | (1,016 | ) |                                | $ | (704   | )    |  | $ | (8,713                | ) |  | $ | (4,678 | )
|                                                                |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Net loss per share:                                             |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Basic                                                           |  | $                               | (0.02  | ) |                                | $ | (0.02  | )    |  | $ | (0.20                 | ) |  | $ | (0.10  | )
|Diluted                                                         |  | $                               | (0.02  | ) |                                | $ | (0.02  | )    |  | $ | (0.20                 | ) |  | $ | (0.10  | )
|Weighted average shares used in net loss per share calculation: |  |                                 |        |   |                                |   |        |      |  |   |                       |   |  |   |        |  
|Basic                                                           |  |                                 | 42,956 |   |                                |   | 45,781 |      |  |   | 42,982                |   |  |   | 45,654 |  
|Diluted                                                         |  |                                 | 42,956 |   |                                |   | 45,781 |      |  |   | 42,982                |   |  |   | 45,654 |  



|(1) | See Note 13  Restatement to the unaudited Condensed Consolidated Financial Statements.
|--- | -----------------------------------------------------------------------------------------

See accompanying notes to unaudited condensed consolidated financial statements.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

|                                                                                                  |  |                                 |         |   |                      |   |         |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | -------------------- | - | ------- | -
|                                                                                                  |  | Nine Months Ended September 30, |        
|                                                                                                  |  | 2009                            |         |   | 2008(as restated)(1) |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                             |  |                                 |         |   |                      |   |         |  
|Net loss                                                                                          |  | $                               | (8,713  | ) |                      | $ | (4,678  | )
|Adjustments to reconcile net loss to net cash used in operating activities:                       |  |                                 |         |   |                      |   |         |  
|Depreciation and amortization                                                                     |  |                                 | 1,540   |   |                      |   | 2,232   |  
|Stock-based compensation                                                                          |  |                                 | 4,940   |   |                      |   | 6,131   |  
|In-process research and development                                                               |  |                                 |        |   |                      |   | 255     |  
|Net unrealized gain on trading securities                                                         |  |                                 | (61     | ) |                      |   |        |  
|Provision for doubtful accounts                                                                   |  |                                 | 34      |   |                      |   |        |  
|Tax benefit from stock option exercises                                                           |  |                                 |        |   |                      |   | (9      | )
|Excess tax benefit from stock-based compensation                                                  |  |                                 |        |   |                      |   | (478    | )
|(Gain) loss on sales of property and equipment                                                    |  |                                 | 69      |   |                      |   | (9      | )
|Changes in operating assets and liabilities, net of effect of acquisition:                        |  |                                 |         |   |                      |   |         |  
|Accounts receivable                                                                               |  |                                 | (7,410  | ) |                      |   | (417    | )
|Inventories                                                                                       |  |                                 | (356    | ) |                      |   | (179    | )
|Prepaid expenses and other current assets                                                         |  |                                 | (155    | ) |                      |   | 610     |  
|Other assets                                                                                      |  |                                 | (27     | ) |                      |   | 93      |  
|Deferred income taxes                                                                             |  |                                 | (47     | ) |                      |   | (460    | )
|Accounts payable                                                                                  |  |                                 | 6,345   |   |                      |   | 154     |  
|Accrued liabilities and other long-term liabilities                                               |  |                                 | 457     |   |                      |   | (4,143  | )
|Income taxes payable                                                                              |  |                                 | 1,170   |   |                      |   | 460     |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Net cash used in operating activities                                                             |  |                                 | (2,214  | ) |                      |   | (438    | )
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                             |  |                                 |         |   |                      |   |         |  
|Purchases of property and equipment                                                               |  |                                 | (736    | ) |                      |   | (2,183  | )
|Purchases of short-term investments                                                               |  |                                 | (64,584 | ) |                      |   | (30,755 | )
|Proceeds from sales and maturities of short-term investments                                      |  |                                 | 53,886  |   |                      |   | 57,949  |  
|Acquisition, net of cash acquired                                                                 |  |                                 |        |   |                      |   | (647    | )
|Purchase of long-term investment                                                                  |  |                                 | (175    | ) |                      |   | (250    | )
|Purchase of technology license                                                                    |  |                                 |        |   |                      |   | (100    | )
|Collection of note receivable                                                                     |  |                                 |        |   |                      |   | 2,000   |  
|Sale of long-term investment                                                                      |  |                                 | 50      |   |                      |   |        |  
|Proceeds from sales of property and equipment                                                     |  |                                 |        |   |                      |   | 14      |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Net cash provided by (used in) investing activities                                               |  |                                 | (11,559 | ) |                      |   | 26,028  |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                             |  |                                 |         |   |                      |   |         |  
|Proceeds from exercise of common stock options                                                    |  |                                 | 97      |   |                      |   | 1,213   |  
|Excess tax benefits from stock-based compensation                                                 |  |                                 |        |   |                      |   | 478     |  
|Principal payments on capital lease obligations                                                   |  |                                 | (41     | ) |                      |   | (112    | )
|Common stock repurchases                                                                          |  |                                 | (3,299  | ) |                      |   |        |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Net cash provided by (used in) financing activities                                               |  |                                 | (3,243  | ) |                      |   | 1,579   |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                      |  |                                 | 42      |   |                      |   | (8      | )
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              |  |                                 | (16,974 | ) |                      |   | 27,161  |  
|CASH AND CASH EQUIVALENTSBeginning of period                                                     |  |                                 | 52,094  |   |                      |   | 53,779  |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|CASH AND CASH EQUIVALENTSEnd of period                                                           |  | $                               | 35,120  |   |                      | $ | 80,940  |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                 |  |                                 |         |   |                      |   |         |  
|Vesting of restricted common stock                                                                |  | $                               |        |   |                      | $ | 12      |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Increases in accounts payable and accrued liabilities related to property and equipment purchases |  | $                               | 75      |   |                      | $ | (212    | )
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Cash paid for interest                                                                            |  | $                               | 1       |   |                      | $ | 11      |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  
|Cash paid for income taxes                                                                        |  | $                               | 141     |   |                      | $ | 289     |  
|                                                                                                  |  |                                 |         |   |                      |   |         |  



|(1) | See Note 13  Restatement to the unaudited Condensed Consolidated Financial Statements.
|--- | -----------------------------------------------------------------------------------------

See accompanying notes to unaudited condensed consolidated financial statements.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Advanced Analogic Technologies Incorporated (the
Company) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Certain information and disclosures normally included in consolidated financial
statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted in accordance with these rules and regulations. The information in this report should
be read in conjunction with the Companys audited consolidated financial statements and notes thereto included in its annual report on Form 10-K/A filed with the SEC on October 6, 2009.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) necessary to summarize fairly the Companys financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and nine months ended
September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or for any other future period. The condensed consolidated balance sheet as of December 31, 2008 is derived
from the audited consolidated financial statements.

For the three months ended September 30, 2009, the Company evaluated
subsequent events through the date its financial statements were available for issuance. The Company determined that the financial statements were available for issuance on October 28, 2009, the date that the Company completed its review of the
unaudited condensed consolidated financial statements for the three months ended September 30, 2009.

2. INVESTMENTS

As of September 30, 2009, the Company had investments in short-term debt instruments and auction rate securities (ARS), which were
classified as available-for-sale. The Company also had investments in ARS and ARS exchange rights (ARS Put Option) that were classified as trading securities. Short-term investments consist primarily of investment grade debt securities
with a maturity of greater than 90 days at the time of purchase. The Company classifies certain investments with maturities greater than one year as short-term investments as it considers all investments a potential source of operating cash
regardless of maturity date. Interest earned on securities is included in Interest income in the Condensed Consolidated Statements of Operations.

The Companys available-for-sale investments are carried at fair market value with the related unrealized gains and losses included in accumulated other comprehensive loss, which is a separate
component of stockholders equity. The Company records other-than-temporary impairment charges for its available-for-sale investments when it intends to sell the securities, it is more likely than not that it will be required to sell the
securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost of securities sold is based on the specific identification method.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The following table, which excludes cash, is a summary of cash equivalents, short-term
investments and long-term investments classified as available-for-sale as of September 30, 2009 and December 31, 2008:



|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|------------------------------ |  | ------------------ | ------ | ---------------- | - | ----------------- |  | - | -------------------- | - |  | - | ------
|                               |  | September 30, 2009
|                               |  | Amortized Cost     |        | Unrealized Gains |   | Unrealized Losses |  |   | Estimated Fair Value
|Money market funds             |  | $                  | 20,152 |                  | $ |                  |  | $ |                     |   |  | $ | 20,152
|U.S. Government agency bonds   |  |                    | 24,488 |                  |   | 40                |  |   |                     |   |  |   | 24,528
|Municipal bonds                |  |                    | 48,781 |                  |   | 8                 |  |   | (14                  | ) |  |   | 48,775
|Auction rate securities        |  |                    | 1,950  |                  |   |                  |  |   | (131                 | ) |  |   | 1,819 
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Total                          |  | $                  | 95,371 |                  | $ | 48                |  | $ | (145                 | ) |  | $ | 95,274
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Amounts included in:           |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Cash and cash equivalents      |  | $                  | 25,452 |                  | $ |                  |  | $ | (4                   | ) |  | $ | 25,448
|Short-term investments         |  |                    | 67,969 |                  |   | 48                |  |   | (10                  | ) |  |   | 68,007
|Other assets                   |  |                    | 1,950  |                  |   |                  |  |   | (131                 | ) |  |   | 1,819 
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Total                          |  | $                  | 95,371 |                  | $ | 48                |  | $ | (145                 | ) |  | $ | 95,274
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|                               | 
|                               |  | December 31, 2008 
|                               |  | Amortized Cost     |        | Unrealized Gains |   | Unrealized Losses |  |   | Estimated Fair Value
|Money market funds             |  | $                  | 36,489 |                  | $ |                  |  | $ |                     |   |  | $ | 36,489
|U.S. Government agency bonds   |  |                    | 23,091 |                  |   | 188               |  |   |                     |   |  |   | 23,279
|Municipal bonds                |  |                    | 26,598 |                  |   | 72                |  |   | (2                   | ) |  |   | 26,668
|U.S. Corporate Debt Securities |  |                    | 5,492  |                  |   | 24                |  |   |                     |   |  |   | 5,516 
|U.S. Treasury bills            |  |                    | 2,996  |                  |   | 4                 |  |   |                     |   |  |   | 3,000 
|Auction rate securities        |  |                    | 2,000  |                  |   |                  |  |   | (167                 | ) |  |   | 1,833 
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Total                          |  | $                  | 96,666 |                  | $ | 288               |  | $ | (169                 | ) |  | $ | 96,785
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Amounts included in:           |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Cash and cash equivalents      |  | $                  | 37,509 |                  | $ |                  |  | $ |                     |   |  | $ | 37,509
|Short-term investments         |  |                    | 57,157 |                  |   | 288               |  |   | (2                   | ) |  |   | 57,443
|Other assets                   |  |                    | 2,000  |                  |   |                  |  |   | (167                 | ) |  |   | 1,833 
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       
|Total                          |  | $                  | 96,666 |                  | $ | 288               |  | $ | (169                 | ) |  | $ | 96,785
|                               |  |                    |        |                  |   |                   |  |   |                      |   |  |   |       

3. FAIR VALUE MEASUREMENTS

The Companys financial assets are measured at fair value. Fair value is the price that the Company estimates would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value Hierarchy

The Company classifies investments within Level 1 of the fair value hierarchy when
the fair value is based on quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on
an ongoing basis. As of September 30, 2009, the Companys Level 1 investments consist of money market funds.

The
Company classifies investments within Level 2 of the fair value hierarchy when the fair value is based on broker/dealer quotes which use observable market inputs instead of quoted market prices in active markets. As of September 30, 2009, the
Companys Level 2 investments consist of municipal bonds and U.S. government agency bonds.

Investments are classified
within Level 3 of the fair value hierarchy if the fair value is determined using unobservable inputs that are not corroborated by market data. The valuation of Level 3 investments requires the use of significant management judgments or estimation.
The Companys Level 3 investments consist of auction rate securities (ARS), ARS Put Option, and an investment in a privately-held company. The methodology used for determining the fair value of these Level 3 financial assets is
described below.



7



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The following table, which excludes cash, presents the fair value of the Companys
cash equivalents, short-term investments and long-term investments as of September 30, 2009:



|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|-------------------------------------------------------- |  | -------------- | ------ | --------------- | - | ---------------------------------------------------------- |  | ----------------------------------------- | ------ | -------------------------------------- | - | ------ |  | - | -----
|                                                         |  |                |        |                 |   | Fair Value Measurements as of September 30, 2009 Using:   
|                                                         |  | CarryingAmount |        | Total fairvalue |   | Quoted Prices inActive
Marketsfor IdenticalAssets(Level 1) |  | SignificantOtherObservableInputs(Level 2) |        | SignificantUnobservableInputs(Level 3)
|                                                         |  | (in thousands)
|Available-for-sale securities:                           |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Money market funds                                       |  | $              | 20,152 |                 | $ | 20,152                                                     |  | $                                         | 20,152 |                                        | $ |       |  | $ |     
|Municipal bonds                                          |  |                | 48,775 |                 |   | 48,775                                                     |  |                                           |       |                                        |   | 48,775 |  |   |     
|U.S. government agency bonds                             |  |                | 24,528 |                 |   | 24,528                                                     |  |                                           |       |                                        |   | 24,528 |  |   |     
|Auction rate securities                                  |  |                | 1,819  |                 |   | 1,819                                                      |  |                                           |       |                                        |   |       |  |   | 1,819
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Total Available-for-sale securities                      |  | $              | 95,274 |                 | $ | 95,274                                                     |  | $                                         | 20,152 |                                        | $ | 73,303 |  | $ | 1,819
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Other investments:                                       |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Auction rate securities classified as trading securities |  | $              | 616    |                 | $ | 616                                                        |  | $                                         |       |                                        | $ |       |  | $ | 616  
|ARS put option                                           |  |                | 576    |                 |   | 576                                                        |  |                                           |       |                                        |   |       |  |   | 576  
|Investment in privately-held company (1)                 |  |                | 823    |                 |   | 1,070                                                      |  |                                           |       |                                        |   |       |  |   | 1,070
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Total Other investments                                  |  | $              | 2,015  |                 | $ | 2,262                                                      |  | $                                         |       |                                        | $ |       |  | $ | 2,262
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Amounts included in:                                     |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Cash and cash equivalents                                |  | $              | 25,448 |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Short-term investments                                   |  |                | 68,007 |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Prepaid expenses and other current assets                |  |                | 1,192  |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Other assets                                             |  |                | 2,642  |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|Total                                                    |  | $              | 97,289 |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      
|                                                         |  |                |        |                 |   |                                                            |  |                                           |        |                                        |   |        |  |   |      



|(1) | The Companys investment in a privately-held company is measured at fair value and is accounted for under the cost method. The carrying amount of this investment
is adjusted to fair value when impairment charges are recorded for other-than-temporary declines in value, whereas the carrying amount is not changed for increases in fair value. As the impairment assessment is based on unobservable market data,
this investment is classified as a Level 3 financial asset.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Valuation of Level 3 Financial Assets

Auction Rate Securities

As of September 30, 2009, the Companys investment portfolio included $3.2 million of ARS with a fair value of $2.4 million. As of December 31, 2008, the Companys investment portfolio
included $3.2 million of ARS with a fair value of $2.6 million.

During the quarter-ended December 31, 2008, the Company
made an election to transfer one of its ARS from available-for-sale to trading securities. The election was made upon the Company entering into a settlement agreement with UBS (the Agreement). Under the Agreement, the Company was granted
ARS exchange rights (ARS Put Option) that provide the Company with the right, but not the obligation, to sell this ARS to UBS for par value during the period of June 30, 2010 to July 2, 2012. The Company expects to exercise the
ARS Put Option on June 30, 2010 and expects that the resulting sale of this ARS to UBS will be completed during the quarter ending September 30, 2010. As such, as of September 30, 2009, the ARS Put Option and the related ARS are
classified within prepaid and other current assets on the condensed consolidated balance sheet. The Companys other ARS are classified within other long-term assets on the condensed consolidated balance sheet because the Company estimates that
it will take longer than one year for a successful auction or issuer repurchase to occur.

The Companys ARS are
interest-bearing investments in debt obligations collateralized by Federal Family Education Program student loans. The Company considers the ARS market to be inactive because auctions have failed to settle on their respective settlement dates since
2008. Further, the secondary market for ARS is inactive and there have been few issuer repurchases. The Company believes that available pricing information is not determinative of the ARS fair value. As such, the Company estimated the ARS fair value
as of September 30, 2009 using a discounted cash flow model.

To determine the ARS fair value using a discounted cash
flow model, the Company estimated the contractual interest that will be earned during the expected time to liquidity, and discounted these cash flows to reflect liquidity and credit risk. The discount factor represents the current market conditions
for instruments with similar credit quality, adjusted by 300 basis points to reflect the risk in the marketplace for the ARS. The following average assumptions were used to determine the ARS fair value as of September 30, 2009 and
December 31, 2008:



|                               |  |                   |  |                 
|------------------------------ |  | ----------------- |  | ----------------
|                               |  | September 30,2009 |  | December 31,2008
|Expected time to liquidity     |  | 2 to 4 years      |  | 2 to 4 years    
|Expected annual rate of return |  | 1.1% to 1.7%      |  | 1.1% to 1.9%    
|Discount rate                  |  | 5.1% to 18.3%     |  | 6.1% to 14.3%   

ARS Put Option

As of September 30, 2009, the Companys investment portfolio included a $0.6 million ARS Put Option. The Company accounts for the
ARS Put Option at fair value. On November 12, 2008, the date on which the Company entered into the Agreement, the Company elected to measure the ARS Put Option at fair value. By electing to measure the ARS Put Option at fair value, subsequent
changes in the fair value of the ARS Put Option will be offset with changes in the fair value of the related ARS in the Companys condensed consolidated statements of operations.

The Company determines the fair value of the ARS Put Option using a discounted cash flow model. To determine the fair value of the ARS Put
Option, the total cash flows expected to result from exercising the ARS Put Option are discounted based on the Companys estimates of the likelihood of default by UBS and the expected time remaining until exercise. The Company plans to exercise
the ARS Put Option on June 30, 2010. The Company used an expected term of nine months and a 1.7% expected annual rate of return which approximates the current market conditions for instruments with similar credit quality.



9



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company expects to receive the proceeds from the exercise of the ARS Put Option
during the quarter ended September 30, 2010 and has therefore classified the ARS Put Option within other prepaid and other current assets on the condensed consolidated balance sheet.

Investment in a Privately-Held Company

As of September 30, 2009, the Companys investment portfolio included a $0.8 million investment in a privately-held company which develops analog memory products. The investment consists of
preferred stock and represents less than a 20% ownership interest. The investment previously included interest-bearing bridge loans which were converted to additional shares of preferred stock during the three months ended March 31, 2009. The
Company accounts for this investment using the cost method. The investment in a privately-held company is included in other long-term assets on the condensed consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances for the assets still held as of September 30, 2009
that were measured at fair value using unobservable inputs (Level 3):



|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------- |  | --------------------------------------------------------------------- | ----- | - | -------------- | - | ---------------------------------- |  | - | ----- | - |  | - | ----- | -
|                                                                           |  | Fair Value Measurement Using Significant UnobservableInputs (Level 3) |      
|                                                                           |  | Auction RateSecurities                                                |       |   | ARS Put Option |   | Investment inprivately-heldcompany |  |   | Total |  
|                                                                           |  | (in thousands)                                                        |      
|Beginning balances as of December 31, 2008                                 |  | $                                                                     | 2,553 |   |                | $ | 412                                |  | $ | 644   |   |  | $ | 3,609 |  
|Unrealized gains (losses) included in accumulated other comprehensive loss |  |                                                                       | 19    |   |                |   |                                   |  |   |      |   |  |   | 19    |  
|Unrealized gains (losses) recognized in earnings                           |  |                                                                       | (76   | ) |                |   | 71                                 |  |   |      |   |  |   | (5    | )
|Purchases, sales, issuances and settlements, net                           |  |                                                                       |      |   |                |   |                                   |  |   | 125   |   |  |   | 125   |  
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|Ending balances as of March 31, 2009                                       |  |                                                                       | 2,496 |   |                |   | 483                                |  |   | 769   |   |  |   | 3,748 |  
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|Unrealized gains (losses) included in accumulated other comprehensive loss |  |                                                                       | 3     |   |                |   |                                   |  |   |      |   |  |   | 3     |  
|Unrealized gains (losses) recognized in earnings                           |  |                                                                       | (16   | ) |                |   | 77                                 |  |   |      |   |  |   | 61    |  
|Purchases, sales, issuances and settlements, net                           |  |                                                                       | (50   | ) |                |   |                                   |  |   | 58    |   |  |   | 8     |  
|Change in fair value measurement basis                                     |  |                                                                       |      |   |                |   |                                   |  |   | 362   |   |  |   | 362   |  
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|Ending balances as of June 30, 2009                                        |  |                                                                       | 2,433 |   |                |   | 560                                |  |   | 1,189 |   |  |   | 4,182 |  
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|Unrealized gains (losses) included in accumulated other comprehensive loss |  |                                                                       | 14    |   |                |   |                                   |  |   |      |   |  |   | 14    |  
|Unrealized gains (losses) recognized in earnings                           |  |                                                                       | (12   | ) |                |   | 16                                 |  |   |      |   |  |   | 4     |  
|Change in fair value                                                       |  |                                                                       |      |   |                |   |                                   |  |   | (119  | ) |  |   | (119  | )
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  
|Ending balances as of September 30, 2009                                   |  | $                                                                     | 2,435 |   |                | $ | 576                                |  | $ | 1,070 |   |  | $ | 4,081 |  
|                                                                           |  |                                                                       |       |   |                |   |                                    |  |   |       |   |  |   |       |  

4. STOCKHOLDERS EQUITY

Common Stock Repurchases

On October 29, 2008, the Companys board of directors authorized a program to repurchase shares of the Companys outstanding common stock. Under the stock repurchase program, the Company
was authorized to use up to $30 million to repurchase its outstanding common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depended upon market conditions and other factors,
in accordance with SEC requirements.



10



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



During the nine months ended September 30, 2009, the Company repurchased a total of
1.1 million shares of its common stock for a total cost of $3.3 million. As of September 30, 2009, the Company has $21.4 million of remaining funds authorized to purchase shares under the stock repurchase plan. Shares repurchased are
accounted for as treasury stock and the total cost of shares repurchased is recorded as a reduction to stockholders equity.

Stock-Based Compensation Expense and Valuation of Awards

The following table summarizes stock-based
compensation expense included in the Companys condensed consolidated statements of operations for the three and nine months ended September 30, 2009 and September 30, 2008:



|                                        |  |                                 |       |                                |   |       |  |      |       |  |   |      
|--------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                        |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|Statement of operations classifications |  | 2009                            |       | 2008                           |   | 2009  |  | 2008
|                                        |  | (in thousands)                 
|Cost of revenue                         |  | $                               | 79    |                                | $ | 113   |  | $    | 227   |  | $ | 309  
|Research and development                |  |                                 | 767   |                                |   | 930   |  |      | 2,199 |  |   | 2,767
|Sales, general and administrative       |  |                                 | 873   |                                |   | 743   |  |      | 2,514 |  |   | 3,055
|                                        |  |                                 |       |                                |   |       |  |      |       |  |   |      
|Total stock-based compensation expense  |  | $                               | 1,719 |                                | $ | 1,786 |  | $    | 4,940 |  | $ | 6,131
|                                        |  |                                 |       |                                |   |       |  |      |       |  |   |      

The related tax effect for stock-based compensation expense was zero for the three
and nine months ended September 30, 2009, respectively, as the Company has a full valuation allowance against its U.S. deferred tax assets. The related tax effect for stock-based compensation expense for the three and nine months ended
September 30, 2008 was $0.3 million and $0.9 million, respectively. The related tax effect was determined using the applicable tax rates in jurisdictions to which this expense relates.

The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of stock options. The Company used the
following weighted average assumptions to calculate the fair values of stock options granted during the three and nine months ended September 30, 2009 and September 30, 2008:



|                                |  |                                 |   |  |                                |   |  |      |   |  |      |  
|------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|                                |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                |  | 2009                            |   |  | 2008                           |   |  | 2009 |   |  | 2008 |  
|Volatility                      |  | 53                              | % |  | 48                             | % |  | 58   | % |  | 49   | %
|Expected option term (in years) |  | 4.24                            |   |  | 4.04                           |   |  | 3.89 |   |  | 4.04 |  
|Expected annual dividend yield  |  | 0                               | % |  | 0                              | % |  | 0    | % |  | 0    | %
|Risk free interest rate         |  | 2.13                            | % |  | 3.04                           | % |  | 1.66 | % |  | 2.94 | %

For purposes of estimating volatility, the Company uses a combination of historical
and market-based implied volatility. The estimated expected term of the Companys stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company derives the expected term assumption
based on the weighted average vesting period of its stock options combined with the average post-vesting holding period of an industry peer group. The risk-free interest rate assumption is based on observed interest rates appropriate for the
expected term of the Companys stock options. The dividend yield is based on the Companys history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on common stock, and it does not anticipate
paying cash dividends in the foreseeable future. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method.

5. NET LOSS PER SHARE

The Company calculates basic net loss per common
share by dividing net loss by the weighted-average number of common shares outstanding during the period excluding shares subject to repurchase. To determine diluted net loss per common share, the effect of potentially dilutive securities, which
consist of common stock options, warrants and common stock subject to repurchase, is calculated under the treasury stock method. The effect of potentially dilutive securities is excluded from the computation of diluted net loss per share when their
effect is anti-dilutive.



11



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



A reconciliation of shares used in the calculation of basic and diluted net loss per
share is as follows:



|                                                    |  |                                 |  |        |                                |  |        |  |        |  
|--------------------------------------------------- |  | ------------------------------- |  | ------ | ------------------------------ |  | ------ |  | ------ | -
|                                                    |  | Three Months EndedSeptember 30, |  |        | Nine Months EndedSeptember 30, | 
|                                                    |  | 2009                            |  | 2008   |                                |  | 2009   |  | 2008   |  
|                                                    |  | (in thousands)                  | 
|Weighted average common shares outstanding          |  | 42,956                          |  | 45,802 |                                |  | 42,982 |  | 45,677 |  
|Weighted average shares subject to repurchase       |  |                                |  | (21    | )                              |  |       |  | (23    | )
|                                                    |  |                                 |  |        |                                |  |        |  |        |  
|Shares used to calculate basic net loss per share   |  | 42,956                          |  | 45,781 |                                |  | 42,982 |  | 45,654 |  
|                                                    |  |                                 |  |        |                                |  |        |  |        |  
|Shares used to calculate diluted net loss per share |  | 42,956                          |  | 45,781 |                                |  | 42,982 |  | 45,654 |  
|                                                    |  |                                 |  |        |                                |  |        |  |        |  

For the three and nine months ended September 30, 2009, the Company excluded
8.0 million and 7.8 million potentially dilutive securities from the computation of diluted net loss per share, respectively. The Company excluded 8.1 million potentially dilutive securities from the computation of diluted net loss
per share for the three and nine months ended September 30, 2008. Potentially dilutive securities were excluded from the computation of diluted net loss per share because their effect would have been antidilutive due to the net loss in each
period.

6. OTHER COMPREHENSIVE LOSS

Comprehensive loss includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive loss are as follows:



|                                                                 |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                 |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                 |  | 2009                            |        |   | 2008                           |   |      | 2009 |  |   | 2008   |  
|                                                                 |  | (in thousands)                  |        |   | (in thousands)                 |  
|Net loss, as reported                                            |  | $                               | (1,016 | ) |                                | $ | (704 | )    |  | $ | (8,713 | ) |  | $ | (4,678 | )
|Changes in cumulative translation adjustment                     |  |                                 | 47     |   |                                |   | (42  | )    |  |   | 66     |   |  |   | 153    |  
|Changes in unrealized gains /losses on investments, net of taxes |  |                                 | (43    | ) |                                |   | (22  | )    |  |   | (190   | ) |  |   | (431   | )
|                                                                 |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Total other comprehensive loss                                   |  | $                               | (1,012 | ) |                                | $ | (768 | )    |  | $ | (8,837 | ) |  | $ | (4,956 | )
|                                                                 |  |                                 |        |   |                                |   |      |      |  |   |        |   |  |   |        |  

7. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS



|                                          |  |                   |        |   |                  |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                          |  | September 30,2009 |        |   | December 31,2008 |  
|                                          |  | (in thousands)    |       
|Inventories                               |  |                   |        |   |                  |   |        |  
|Work in process                           |  | $                 | 4,902  |   |                  | $ | 5,034  |  
|Finished goods                            |  |                   | 4,464  |   |                  |   | 3,982  |  
|                                          |  |                   |        |   |                  |   |        |  
|Total inventories                         |  | $                 | 9,366  |   |                  | $ | 9,016  |  
|                                          |  |                   |        |   |                  |   |        |  
|Property and equipment, net               |  |                   |        |   |                  |   |        |  
|Computers and software                    |  | $                 | 5,480  |   |                  | $ | 5,426  |  
|Office and test equipment                 |  |                   | 7,097  |   |                  |   | 6,513  |  
|Leasehold improvements                    |  |                   | 1,506  |   |                  |   | 1,448  |  
|                                          |  |                   |        |   |                  |   |        |  
|Gross property and equipment              |  |                   | 14,083 |   |                  |   | 13,387 |  
|Accumulated depreciation and amortization |  |                   | (9,561 | ) |                  |   | (8,337 | )
|                                          |  |                   |        |   |                  |   |        |  
|Total property and equipment, net         |  | $                 | 4,522  |   |                  | $ | 5,050  |  
|                                          |  |                   |        |   |                  |   |        |  
|Accrued liabilities                       |  |                   |        |   |                  |   |        |  
|Accrued payroll and benefits              |  | $                 | 1,636  |   |                  | $ | 1,269  |  
|Deferred revenue                          |  |                   | 82     |   |                  |   | 97     |  
|Accrued legal and accounting services     |  |                   | 589    |   |                  |   | 746    |  
|Warranty reserve                          |  |                   | 124    |   |                  |   | 81     |  
|Restructuring reserve                     |  |                   |       |   |                  |   | 280    |  
|Accrued payables and other                |  |                   | 1,686  |   |                  |   | 1,225  |  
|                                          |  |                   |        |   |                  |   |        |  
|Total accrued liabilities                 |  | $                 | 4,117  |   |                  | $ | 3,698  |  
|                                          |  |                   |        |   |                  |   |        |  



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired in a business combination. As of September 30, 2009, the Companys goodwill balance was $16.1
million, of which $15.7 million relates to the Companys October 2006 acquisition of Analog Power Semiconductor Corporation and $0.4 million relates to the Companys June 2008 acquisition of Elite Micro Devices, Inc.

The Company evaluates goodwill for impairment, at a minimum, on an annual basis on September 30 and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable. The goodwill impairment test is a two step process. The first step (Step 1) is performed by comparing the reporting units carrying amount, including goodwill,
to the fair value of the reporting unit. The Company estimates the fair value of the reporting unit using a combination of: (1) the Transaction Approach, (2) the Income Approach, and (3) the Market Approach. If the carrying amount of
the reporting unit exceeds the reporting units fair value, the Company performs the second step (Step 2) of the goodwill impairment test to determine the amount of impairment loss. Step 2 is performed by calculating the implied
fair value of goodwill and comparing the implied fair value to the carrying amount of goodwill. If the implied fair value of goodwill is lower than its carrying amount, an impairment loss is recognized equal to the difference. The Company performed
Step 1 of the goodwill impairment analysis as of September 30, 2009 and determined that the goodwill was not impaired.

Intangible Assets

The following table summarizes intangible assets as of September 30, 2009 and
December 31, 2008, respectively, (in thousands):



|                       |  |                          |       |                          |   |                   |                        |   |                  |   |  |                   |        |                  |  |   |     |  |   |    
|---------------------- |  | ------------------------ | ----- | ------------------------ | - | ----------------- | ---------------------- | - | ---------------- | - |  | ----------------- | ------ | ---------------- |  | - | --- |  | - | ---
|                       |  | Intangible Assets, Gross |       | Accumulated Amortization |   |                   | Intangible Assets, Net
|                       |  | September 30,2009        |       | December 31,2008         |   | September 30,2009 |                        |   | December 31,2008 |   |  | September 30,2009 |        | December 31,2008
|Core technology        |  | $                        | 2,900 |                          | $ | 2,900             |                        | $ | (2,882           | ) |  | $                 | (2,724 | )                |  | $ | 18  |  | $ | 176
|Customer relationships |  |                          | 580   |                          |   | 580               |                        |   | (577             | ) |  |                   | (544   | )                |  |   | 3   |  |   | 36 
|Technology license     |  |                          | 200   |                          |   | 200               |                        |   | (66              | ) |  |                   | (17    | )                |  |   | 133 |  |   | 183
|                       |  |                          |       |                          |   |                   |                        |   |                  |   |  |                   |        |                  |  |   |     |  |   |    
|Total                  |  | $                        | 3,680 |                          | $ | 3,680             |                        | $ | (3,525           | ) |  | $                 | (3,285 | )                |  | $ | 154 |  | $ | 395
|                       |  |                          |       |                          |   |                   |                        |   |                  |   |  |                   |        |                  |  |   |     |  |   |    

The Company amortizes intangible assets on a straight-line basis over the estimated
useful life of the assets. Intangible asset amortization expense was $0.1 million and $0.2 million for the three and nine months ended September 30, 2009, respectively. Intangible asset amortization expense was $0.3 million and $0.6 million for
the three and nine months ended September 30, 2008, respectively. Future amortization expense is expected to be less than $0.1 million for the remainder of 2009, $0.1 million in 2010 and less than $0.1 million in 2011.



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##### Table of Contents

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



9. SEGMENT INFORMATION

The Company operates in one reportable segment: the design, development, marketing and sale of power management semiconductor products and
solutions for the communications, computing and consumer portable and personal electronics marketplace. The Companys chief operating decision maker is its chief executive officer.

The following is a summary of net revenue by geographic region based on the location to which the product is shipped:



|              |  |                                 |        |                                |   |        |  |      |        |  |   |       
|------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|              |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|              |  | 2009                            |        | 2008                           |   | 2009   |  | 2008
|              |  | (in thousands)                 
|South Korea   |  | $                               | 18,201 |                                | $ | 16,376 |  | $    | 44,970 |  | $ | 44,783
|China         |  |                                 | 4,723  |                                |   | 3,830  |  |      | 13,126 |  |   | 10,775
|Taiwan        |  |                                 | 2,547  |                                |   | 3,981  |  |      | 5,028  |  |   | 11,476
|Europe        |  |                                 | 266    |                                |   | 553    |  |      | 1,064  |  |   | 1,678 
|North America |  |                                 | 191    |                                |   | 315    |  |      | 883    |  |   | 1,240 
|Japan         |  |                                 | 212    |                                |   | 381    |  |      | 596    |  |   | 1,759 
|              |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total         |  | $                               | 26,140 |                                | $ | 25,436 |  | $    | 65,667 |  | $ | 71,711
|              |  |                                 |        |                                |   |        |  |      |        |  |   |       

The following table summarizes net revenue and accounts receivable for customers who
accounted for 10% or more of accounts receivable or net revenue, respectively:



|         |  |                           |   |  |                                            |   |  |                                           |   |  |      |   |  |      |   |  |      |  
|-------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ----------------------------------------- | - |  | ---- | - |  | ---- | - |  | ---- | -
|         |  | Accounts Receivable as of |   |  | Net RevenueThree Months EndedSeptember 30, |   |  | Net RevenueNine Months EndedSeptember 30, |  
|         |  | September 30,2009         |   |  | December 31,2008                           |   |  | 2009                                      |   |  | 2008 |   |  | 2009 |   |  | 2008 |  
|Customer |  |                           |   |  |                                            |   |  |                                           |   |  |      |   |  |      |   |  |      |  
|A        |  | 45                        | % |  | 30                                         | % |  | 37                                        | % |  | 26   | % |  | 33   | % |  | 19   | %
|B        |  | 31                        | % |  | 30                                         | % |  | 25                                        | % |  | 21   | % |  | 25   | % |  | 26   | %
|C        |  | *                         | % |  | *                                          | % |  | *                                         | % |  | 12   | % |  | *    | % |  | 10   | %
|D        |  | *                         | % |  | *                                          | % |  | *                                         | % |  | 11   | % |  | *    | % |  | 10   | %



|* | - Amount represents less than 10%.
|- | ----------------------------------

10.
INCOME TAXES

The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective
tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
The Companys effective tax rate reflects the impact of a significant amount of its earnings being taxed in foreign jurisdictions at rates below the United States statutory tax rate and a valuation allowance maintained on the Companys
U.S. deferred tax assets.

The Company recorded a tax provision of approximately $0.3 million and $1.4 million for the three
months and nine months ended September 30, 2009, respectively. The Company recorded a tax provision of approximately $0.2 million and $0.3 million for the three and nine months ended September 30, 2008, respectively. The increase in the
Companys tax provision for the nine months ended September 30, 2009 compared to prior year is primarily due to a full valuation allowance against its United States deferred tax assets at September 30, 2009. Accordingly, no benefit is
recognized for stock-based compensation as any increase in the Companys related deferred tax asset will have a corresponding increase in the Companys valuation allowance.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company established a full valuation allowance against its United States deferred
tax assets on December 31, 2008. The Company has established valuation allowances for deferred tax assets based on a more likely than not threshold. The Companys ability to realize its deferred tax assets depends on its
ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the
realization of its deferred tax assets:



| |  |  | Future reversals of existing taxable temporary differences;
| | - |  | -----------------------------------------------------------



| |  |  | Future taxable income exclusive of reversing temporary differences and carryforwards;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Taxable income in prior carryback years; and
| | - |  | --------------------------------------------



| |  |  | Tax-planning strategies.
| | - |  | ------------------------

The Company concludes that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. The Company utilizes
a rolling three years of actual results as its primary measure of its cumulative losses in recent years. As of September 30, 2009, the Company continues to have a three year cumulative loss and, therefore, concludes that a valuation allowance
is still required.

During the nine months ended September 30, 2009, the Company increased its total amount of
unrecognized tax benefits by approximately $4.0 million, including an accrual of interest and penalties of $0.1 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

The Company is currently under examination by the Internal Revenue Service for tax years 2005 to 2007. In May 2009, we received an IRS
examination report showing proposed changes to our income tax for the years 2005 and 2006. The Company believes that the proposed adjustments are not supported by the facts and are inconsistent with applicable tax laws and existing Treasury
regulations. The Company filed a timely protest in June 2009 and is awaiting discussions with the IRS Appeals Division. No payments, if any, will be made related to the disputed proposed adjustments until the issues are resolved with either the IRS
Appeals Division or the tax court. The Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of these examinations.

11. LEGAL PROCEEDINGS

In
May 2003, the Company received a letter from Linear Technology Corporation (Linear Technology) alleging that certain of its charge pump products infringed United States Patent No. 6,411,531 (531 Patent) owned by Linear
Technology. In August 2004, the Company received a letter from Linear Technology alleging that certain of its switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (258 Patent). In response to
these letters, the Company contacted Linear Technology to convey its good faith belief that it does not infringe the patents in question. Subsequently, the Company became aware of a marketing campaign conducted by Linear Technology in which it
sought to disrupt the Companys business relationships and sales by suggesting to the Companys customers that its products infringe the same United States patents mentioned in its two letters to the Company. As a result, in February 2006,
the Company initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently
stayed pending the outcome of the United States International Trade Commission (USITC) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of the Companys products
infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in the Companys lawsuit with Linear Technology. A Final Determination was issued
September 24, 2007 which was followed by separate appeals for the charge pump and switching regulator products. The last of these appeals, including the parties respective requests for rehearing, ended in August of this year. The overall
result of these processes clears the path for importation of the Companys charge pump products. A limited exclusion order was also issued preventing



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



the Company from importing certain of its switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent the
Companys customers from importing downstream products (i.e., products that incorporate AATI switching regulators) into the United States. To date, the Companys sales of the excluded products in the United States have been minimal.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion
order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that the Company has violated the limited exclusion order by importing certain switching
regulator products. Since the inception of the enforcement action, the list of allegedly infringing products has been modified by a mutual consent order between the parties. The Company believes that it will prevail in this action. However, whether
or not the Company prevails, the Company expects to incur significant legal expenses which will be expensed when incurred.

In
March 2009, the Company initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging patent infringement of certain of its patented product designs. This case is pending in the United States District Court for the
Northern District of California. The Company does not believe that this lawsuit will have a material impact on its business or financial condition.

12. RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted the new Financial Accounting Standards Board
(FASB) authoritative guidance for business combinations on January 1, 2009. The adoption did not have a material impact on the Companys condensed consolidated financial statements.

During the three months ended June 30, 2009, the Company adopted the new FASB authoritative guidance for determining fair value when
the volume or level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This new guidance provides additional guidance for estimating fair value when the volume and level of activity
for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. The Companys adoption of this new guidance during
the three months ended June 30, 2009 did not have a material impact on its condensed consolidated financial statements.

During the three months ended June 30, 2009, the Company adopted the new FASB authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the prior other-than-temporary
impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The Companys adoption of this new guidance during the three months ended
June 30, 2009 did not have a material impact on its condensed consolidated financial statements.

During the three months
ended June 30, 2009, the Company adopted the new FASB authoritative guidance for interim disclosures about the fair value of financial instruments. This new guidance requires disclosures about the fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial statements. The Companys adoption of this new guidance during the three months ended June 30, 2009 did not impact its condensed consolidated financial
statements.

During the three months ended June 30, 2009, the Company adopted the new FASB authoritative guidance for
subsequent events. This new guidance is intended to establish general standards for the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It
requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued.
This new guidance is effective for interim or annual financial periods ending after June 15, 2009 and was adopted by the Company during the quarter ended June 30, 2009.

In June 2009, the FASB issued the FASB Accounting Standards Codification(the Codification), the authoritative guidance
for GAAP. The Codification, which changes the referencing of financial



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



standards, became effective for interim and annual periods ending on or after September 15, 2009. The Codification is now the single official source of authoritative GAAP (other than
guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, and related literature. The Codification does not change GAAP. The Company adopted the Codification during the quarter ended
September 30, 2009. The adoption of the Codification did not have any substantive impact on the Companys condensed consolidated financial statements or related footnotes.

13. RESTATEMENT

During the three months ended September 30, 2009, the
Company identified errors in the recording of its stock-based compensation expense. The Company restated its consolidated financial statements for fiscal years 2008, 2007 and 2006 and filed a Form 10-K/A with the SEC on October 6, 2009.

The errors were identified after the Companys third-party software provider notified its clients, including the
Company, that it made a change to how its software program calculates stock-based compensation expense. Specifically, the prior version of this software calculated stock-based compensation expense by incorrectly continuing to apply a weighted
average forfeiture rate to the vested portion of stock option awards until the grants final vest date, resulting in an understatement of stock-based compensation expense in certain periods prior to the grants final vest date. Thus, this
accounting error relates to the timing of estimated stock-based compensation expense recognition.

As a result, the Company
has restated the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2008 to reflect the restatement of stock-based compensation expense. The Company has recorded a $0.1 million and a $0.8
million increase in pre-tax non-cash stock-based compensation expense for the three and nine months ended September 30, 2008, respectively, from amounts previously reported.

The following tables present the effect of the restatement adjustments by financial statement line item for the Condensed Consolidated
Statements of Operations for the three and nine months ended September 30, 2008 and the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2008.

Condensed Consolidated Statement of Operations (in thousands, except per share amounts):



|                                  |  |                                      |        |   |                                     |   |        |                       |  |   |             |   |  |   |        |  
|--------------------------------- |  | ------------------------------------ | ------ | - | ----------------------------------- | - | ------ | --------------------- |  | - | ----------- | - |  | - | ------ | -
|                                  |  | Three months endedSeptember 30, 2008 |        |   | Nine months endedSeptember 30, 2008 |  
|                                  |  | As previouslyreported                |        |   | As restated                         |   |        | As previouslyreported |  |   | As restated |  
|Cost of Revenue                   |  | $                                    | 12,713 |   |                                     | $ | 12,716 |                       |  | $ | 35,231      |   |  | $ | 35,258 |  
|Gross Profit                      |  | $                                    | 12,723 |   |                                     | $ | 12,720 |                       |  | $ | 36,480      |   |  | $ | 36,453 |  
|Operating expenses:               |  |                                      |        |   |                                     |   |        |                       |  |   |             |   |  |   |        |  
|Research and development          |  | $                                    | 7,462  |   |                                     | $ | 7,506  |                       |  | $ | 22,910      |   |  | $ | 23,228 |  
|Sales, general and administrative |  | $                                    | 6,112  |   |                                     | $ | 6,191  |                       |  | $ | 18,760      |   |  | $ | 19,257 |  
|Total operating expenses          |  | $                                    | 13,817 |   |                                     | $ | 13,940 |                       |  | $ | 42,657      |   |  | $ | 43,472 |  
|Loss from operations              |  | $                                    | (1,094 | ) |                                     | $ | (1,220 | )                     |  | $ | (6,177      | ) |  | $ | (7,019 | )
|Loss before income taxes          |  | $                                    | (371   | ) |                                     | $ | (497   | )                     |  | $ | (3,544      | ) |  | $ | (4,387 | )
|Provision for income taxes        |  | $                                    | 266    |   |                                     | $ | 207    |                       |  | $ | 477         |   |  | $ | 292    |  
|Net loss                          |  | $                                    | (637   | ) |                                     | $ | (704   | )                     |  | $ | (4,021      | ) |  | $ | (4,678 | )
|Basic net loss per share          |  | $                                    | (0.01  | ) |                                     | $ | (0.02  | )                     |  | $ | (0.09       | ) |  | $ | (0.10  | )
|Diluted net loss per share        |  | $                                    | (0.01  | ) |                                     | $ | (0.02  | )                     |  | $ | (0.09       | ) |  | $ | (0.10  | )



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Condensed Consolidated Statement of Cash Flows (in thousands):



|                                                                            |  |                                     |        |   |               |   |        |  
|--------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ------------- | - | ------ | -
|                                                                            |  | Nine months endedSeptember 30,
2008 |       
|                                                                            |  | (as previouslyreported)             |        |   | (as restated) |  
|Cash flows from operatings activities:                                      |  |                                     |        |   |               |   |        |  
|Net loss                                                                    |  | $                                   | (4,021 | ) |               | $ | (4,678 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                     |        |   |               |   |        |  
|Stock-based compensation                                                    |  |                                     | 5,289  |   |               |   | 6,131  |  
|Tax benefit from stock option exercises                                     |  |                                     |       |   |               |   | (9     | )
|Excess tax benefit from stock options                                       |  |                                     | (487   | ) |               |   | (478   | )
|Changes in operating assets and liabilities:                                |  |                                     |        |   |               |   |        |  
|Deferred income taxes                                                       |  |                                     | (254   | ) |               |   | (460   | )
|Income taxes payable                                                        |  |                                     | 431    |   |               |   | 460    |  
|Net cash used in operating activities                                       |  |                                     | (447   | ) |               |   | (438   | )
|                                                                            |  |                                    
|Cash flows from financing activities:                                       |  |                                     |        |   |               |   |        |  
|Excess tax benefit from stock options                                       |  |                                     | 487    |   |               |   | 478    |  
|Net cash provided by (used in) provided by financing activities             |  |                                     | 1,588  |   |               |   | 1,579  |  



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##### Table of Contents

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our most recently filed Form 10-K/A. In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set
forth under Risk Factors and elsewhere in this Quarterly Report on Form 10-Q.

SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this
Quarterly Report on Form 10-Q the words anticipate, objective, may, might, should, could, can, intend, expect, believe,
estimate, predict, potential, plan, is designed to or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:



| |  |  | our expectations regarding our expenses, sales and operations;
| | - |  | --------------------------------------------------------------



| |  |  | our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to anticipate the future needs of our customers;
| | - |  | ------------------------------------------------------------



| |  |  | our plans for future products and enhancements of existing products;
| | - |  | --------------------------------------------------------------------



| |  |  | our growth strategy elements;
| | - |  | -----------------------------



| |  |  | our intellectual property;
| | - |  | --------------------------



| |  |  | our anticipated trends and challenges in the markets in which we operate; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to attract customers.
| | - |  | ---------------------------------

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance
on these forward-looking statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual
results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q, including those under the heading Risk Factors.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Other than as required by applicable laws, we are under no obligation to, and do not intend to, update any forward-looking statement, whether as a result of new
information, future events or otherwise.

Overview

The following discussion reflects the effects of the restatement discussed in Note 13 Restatement to the condensed consolidated financial statements.



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##### Table of Contents

We are a supplier of power management semiconductors for consumer, communications and
computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, personal navigation and GPS devices, Bluetooth headphones and accessories, personal and
digital multimedia TVs, set top boxes and displays. We focus our design and marketing efforts on the application-specific power management needs in these rapidly-evolving devices. We currently offer a portfolio of over 650 power management products
comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip, multi-chip and chip-scale packages. We sell directly to original equipment manufacturers,
or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd., Sony Ericsson Mobile Communications AB and Flextronics International Ltd. We sell through distributors and original design manufacturers, or ODMs, and to other system designers,
including USI Corporation, Longcheer Holdings Ltd., Tianyu Communication Equipment Co., Ltd., Foxconn Electronics Inc. and Gemtek Technology Co. Ltd.

Our net revenue for the three months ended September 30, 2009 increased 2.8% compared to the three months ended September 30, 2008 as a result of an increase in demand for our products primarily
in Korea and China. Gross margin for the three months ended September 30, 2009 increased to 51.2% compared to 50.0% for the three months ended September 30, 2008 primarily due to lower intangible asset amortization and a lower excess and
obsolete inventory charge.

Cash, cash equivalents and short term investments decreased by approximately $6.4 million, from
$109.5 million as of December 31, 2008 to $103.1 million as of September 30, 2009, primarily due to $3.3 million used to repurchase shares of our common stock during the nine months ended September 30, 2009 and $2.2 million used in
operating activities. We continue to be debt free as of September 30, 2009.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts
in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventory valuation, stock-based compensation, income taxes, goodwill, investments and long-lived assets. We
base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Although actual results have historically been reasonably consistent with managements expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes that there have been no significant changes during the three and nine months ended September 30, 2009 to the items
that we disclosed as our critical accounting policies and estimates in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K/A for the year ended December 31,
2008, except for an expanded discussion related to the accounting for goodwill.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a
business combination. Goodwill is not subject to amortization. We evaluate goodwill for impairment, at a minimum, on an annual basis as of September 30th and whenever events and changes in circumstances suggest that the carrying amount may not
be recoverable.

The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value
of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based in-part on an updated long-term financial outlook of
our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For



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example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. In addition, the other assumptions made by us may change in future periods as
they are based on overall market conditions and/or comparable company data. A change in the assumptions used to determine if goodwill is impaired may result in a charge to earnings in our financial statements during a period in which an impairment
of our goodwill is determined to exist, which may negatively impact our results of operations.

The goodwill impairment
testing is a two-step process and is performed at the reporting unit level. Because we have one reporting unit, we assess goodwill for impairment at the entity level. The first step (Step 1) is performed by comparing the reporting
units carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of: (1) the Transaction Approach, (2) the Income Approach, and (3) the
Market Approach. Using the Transaction Approach, we estimate the fair value of the reporting unit by adding to our market capitalization a control premium. The estimated control premium is based on observable transactions involving control premiums
paid in recent acquisitions of comparable companies. Using the Income Approach, we use the long-term financial outlook of our operations and make certain assumptions, including a discount rate and a long-term growth rate, to determine the fair value
of the reporting unit based on future cash flows that we expect to generate. Under the Market Approach, we identify comparable companies data and make certain assumptions including revenue multiples, to determine the fair value based on how
the market values comparable companies. We place the highest weighting on the fair value derived by the Transaction Approach, as we consider quoted prices in active markets as the best evidence of fair value. If the carrying amount of the reporting
unit exceeds its fair value, goodwill is considered impaired and a second step (Step 2) is performed to measure the amount of impairment loss, if any. Step 2 is performed by calculating the implied fair value of goodwill and comparing
the implied fair value to the carrying amount of goodwill. If the implied fair value of goodwill is lower than its carrying amount, an impairment loss is recognized equal to the difference.

We performed our annual goodwill impairment analysis as of September 30, 2009. As part of Step 1, we performed a sensitivity analysis
by preparing our Income Approach using a range of discount rates and long-term growth rates. We analyzed the results of the Income Approach and noted that changing the significant assumptions used would not have changed our Step 1 conclusion in that
the fair value of the reporting unit exceeded the carrying amount in all cases. Under the Market Approach, we performed a sensitivity analysis using a range of revenue multiples, from which we selected an amount from the lower end of the range. Had
we used a less conservative revenue multiple in our Market Approach, a higher fair value would have resulted. As such, a change in the Market Approach assumptions would not have changed managements Step 1 conclusion. For the Transaction
Approach, we used a control premium from the low end of the range of recent control premiums identified. As such, if we had used a higher control premium, a higher fair value would have resulted and would not have changed managements Step 1
conclusion. As a result of the analysis, we determined that goodwill was not impaired as of September 30, 2009.



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Results of Operations

The following table sets forth our unaudited historical operating results, in dollar amounts and as a percentage of net revenue for the periods indicated:



|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|------------------------------------------------ |  | ---------------------------------- | ------ | - | ------------------------------- | ----- | -- | ---- | - | ------ | ---- |  | ----- | -- |  | - | ------ | - |  | ----- | -- |  | - | ------ | - |  | ----- | --
|                                                 |  | Three Months Ended September 30,   |        |   | Nine Months Ended September 30, |      
|                                                 |  | 2009                               |        |   | 2008                            |       |    | 2009 |   |        | 2008 | 
|                                                 |  | (in thousands, except percentages) |       
|Net revenue                                      |  | $                                  | 26,140 |   |                                 | 100.0 | %  |      | $ | 25,436 |      |  | 100.0 | %  |  | $ | 65,667 |   |  | 100.0 | %  |  | $ | 71,711 |   |  | 100.0 | % 
|Cost of revenue                                  |  |                                    | 12,763 |   |                                 | 48.8  |    |      |   | 12,716 |      |  | 50.0  |    |  |   | 33,763 |   |  | 51.4  |    |  |   | 35,258 |   |  | 49.2  |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Gross profit                                     |  |                                    | 13,377 |   |                                 | 51.2  |    |      |   | 12,720 |      |  | 50.0  |    |  |   | 31,904 |   |  | 48.6  |    |  |   | 36,453 |   |  | 50.8  |   
|Operating expenses:                              |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Research and development                         |  |                                    | 6,928  |   |                                 | 26.5  |    |      |   | 7,506  |      |  | 29.5  |    |  |   | 20,319 |   |  | 30.9  |    |  |   | 23,228 |   |  | 32.4  |   
|Sales, general and administrative                |  |                                    | 6,337  |   |                                 | 24.2  |    |      |   | 6,191  |      |  | 24.3  |    |  |   | 18,047 |   |  | 27.5  |    |  |   | 19,257 |   |  | 26.9  |   
|Patent litigation                                |  |                                    | 1,013  |   |                                 | 3.9   |    |      |   | 243    |      |  | 1.0   |    |  |   | 1,699  |   |  | 2.6   |    |  |   | 987    |   |  | 1.4   |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Total operating expenses                         |  |                                    | 14,278 |   |                                 | 54.6  |    |      |   | 13,940 |      |  | 54.8  |    |  |   | 40,065 |   |  | 61.0  |    |  |   | 43,472 |   |  | 60.6  |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Loss from operations                             |  |                                    | (901   | ) |                                 | (3.4  | )  |      |   | (1,220 | )    |  | (4.8  | )  |  |   | (8,161 | ) |  | (12.4 | )  |  |   | (7,019 | ) |  | (9.8  | ) 
|Interest and other income (expense):             |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Interest income                                  |  |                                    | 177    |   |                                 | 0.7   |    |      |   | 700    |      |  | 2.8   |    |  |   | 793    |   |  | 1.2   |    |  |   | 2,578  |   |  | 3.6   |   
|Interest expense and other income (expense), net |  |                                    | (36    | ) |                                 | (0.1  | )  |      |   | 23     |      |  | 0.1   |    |  |   | 16     |   |  | 0.0   |    |  |   | 55     |   |  | 0.1   |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Total interest and other income (expense), net   |  |                                    | 141    |   |                                 | 0.5   |    |      |   | 723    |      |  | 2.8   |    |  |   | 809    |   |  | 1.2   |    |  |   | 2,633  |   |  | 3.7   |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Loss before income taxes                         |  |                                    | (760   | ) |                                 | (2.9  | )  |      |   | (497   | )    |  | (2.0  | )  |  |   | (7,352 | ) |  | (11.2 | )  |  |   | (4,386 | ) |  | (6.1  | ) 
|Provision for income taxes                       |  |                                    | 256    |   |                                 | 1.0   |    |      |   | 207    |      |  | 0.8   |    |  |   | 1,361  |   |  | 2.1   |    |  |   | 292    |   |  | 0.4   |   
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Net loss                                         |  | $                                  | (1,016 | ) |                                 | (3.9  | )% |      | $ | (704   | )    |  | (2.8  | )% |  | $ | (8,713 | ) |  | (13.3 | )% |  | $ | (4,678 | ) |  | (6.5  | )%
|                                                 |  |                                    |        |   |                                 |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   

Comparison of Three and Nine Months ended September 30, 2009 and
September 30, 2008

Revenues

The following table illustrates our net revenue by principal product families:



|                                        |  |                                  |        |                      |                                 |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|--------------------------------------- |  | -------------------------------- | ------ | -------------------- | ------------------------------- | - | ------ | ---- | -------------------- |  | ---- | ------ |  | -------------------- | ------ |  | ------ | - | -------------------- | - | ------ |  | --- | -
|                                        |  | Three Months Ended September 30, |        |                      | Nine Months Ended September 30, |  
|                                        |  | 2009                             |        |                      | 2008                            |   |        | 2009 |                      |  | 2008 |       
|                                        |  | Amount                           |        | Percentof netrevenue |                                 |   | Amount |      | Percentof netrevenue |  |      | Amount |  | Percentof netrevenue |        |  | Amount |   | Percentof netrevenue |  
|                                        |  | (dollar amounts in thousands)    |       
|Display and Lighting Solutions          |  | $                                | 17,674 |                      | 68                              | % |        | $    | 15,498               |  | 61   | %      |  | $                    | 43,770 |  | 67     | % |                      | $ | 42,975 |  | 60  | %
|Voltage Regulation and DC/DC Conversion |  |                                  | 3,680  |                      | 14                              | % |        |      | 4,386                |  | 17   | %      |  |                      | 9,476  |  | 14     | % |                      |   | 13,600 |  | 19  | %
|Interface and Power Management          |  |                                  | 3,105  |                      | 12                              | % |        |      | 4,492                |  | 18   | %      |  |                      | 9,293  |  | 14     | % |                      |   | 13,127 |  | 18  | %
|Battery Management                      |  |                                  | 1,681  |                      | 6                               | % |        |      | 1,060                |  | 4    | %      |  |                      | 3,128  |  | 5      | % |                      |   | 2,009  |  | 3   | %
|                                        |  |                                  |        |                      |                                 |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|Total                                   |  | $                                | 26,140 |                      | 100                             | % |        | $    | 25,436               |  | 100  | %      |  | $                    | 65,667 |  | 100    | % |                      | $ | 71,711 |  | 100 | %
|                                        |  |                                  |        |                      |                                 |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  

Our net revenue for the third quarter of 2009 as compared to the third quarter of
2008 increased by $0.7 million, or 2.8%. Average selling prices decreased by 11% in the third quarter of 2009 compared to the third quarter of 2008, while total unit shipments in the third quarter of 2009 increased 15% compared to the third quarter
of 2008.



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Our net revenue for the first nine months of 2009 as compared to the first nine months of
2008 decreased by $6.0 million, or 8.5%. Average selling prices decreased 10% during the first nine months of 2009 compared to the first nine months of 2008 while total unit shipments increased 2%.

Geographically, sales to Korea and China increased during the three months ended September 30, 2009 compared to the three months ended
September 30, 2008 due to higher demand.

For the nine months ended September 30, 2009, sales to Taiwan decreased by
$6.4 million, compared to the three months ended September 30, 2008 due to lower sales to three customers. For the nine months ended September 30, 2009, sales to China increased by $2.4 million, compared to the nine months ended
September 30, 2008 due to higher demand.

Gross Profit



|                               |  |                                    |        |   |      |   |        |                                |  |   |      |   |  |      |   |  |                     |        |   |  |   |        |   |  |   |        |    |  |    |   
|------------------------------ |  | ---------------------------------- | ------ | - | ---- | - | ------ | ------------------------------ |  | - | ---- | - |  | ---- | - |  | ------------------- | ------ | - |  | - | ------ | - |  | - | ------ | -- |  | -- | --
|                               |  | Three Months EndedSeptember 30,    |        |   |      |   |        | Nine Months EndedSeptember 30, |  |   |      |  
|                               |  | 2009                               |        |   | 2008 |   |        | Increase (Decrease)            |  |   | 2009 |   |  | 2008 |   |  | Increase (Decrease) |       
|                               |  | (in thousands, except percentages) |       
|Net revenue                    |  | $                                  | 26,140 |   |      | $ | 25,436 |                                |  | $ | 704  |   |  | 3    | % |  | $                   | 65,667 |   |  | $ | 71,711 |   |  | $ | (6,044 | )  |  | (8 | )%
|Cost of revenue                |  |                                    | 12,763 |   |      |   | 12,716 |                                |  |   | 47   |   |  | 0    | % |  |                     | 33,763 |   |  |   | 35,258 |   |  |   | (1,495 | )  |  | (4 | )%
|                               |  |                                    |        |   |      |   |        |                                |  |   |      |   |  |      |   |  |                     |        |   |  |   |        |   |  |   |        |    |  |    |   
|Gross profit                   |  | $                                  | 13,377 |   |      | $ | 12,720 |                                |  | $ | 657  |   |  |      |   |  | $                   | 31,904 |   |  | $ | 36,453 |   |  | $ | (4,549 | )  |  |    |   
|                               |  |                                    |        |   |      |   |        |                                |  |   |      |   |  |      |   |  |                     |        |   |  |   |        |   |  |   |        |    |  |    |   
|Gross profit margin percentage |  |                                    | 51.2   | % |      |   | 50.0   | %                              |  |   | 1.2  | % |  |      |   |  |                     | 48.6   | % |  |   | 50.8   | % |  |   | (2.2   | )% |  |    |   

Our gross margin was 51.2% for the three months ended September 30, 2009,
compared to 50.0% for the three months ended September 30, 2008. This increase in gross margin was primarily due to lower intangible asset amortization and a lower excess and obsolete inventory charge.

Our gross margin for the nine months ended September 30, 2009 was 48.6%, compared to 50.8% for the nine months ended September 30,
2008. This decrease in gross margin was primarily due to 3 percentage point decrease due to an unfavorable change in product mix and average selling prices, partially offset by a one percentage point increase due to lower intangible asset
amortization.

During the three months ended September 30, 2009, our gross inventory write-down was approximately $0.9
million and was offset by the sale of $0.6 million of previously written down inventory. During the three months ended September 30, 2008, our gross inventory write-down was approximately $1.0 million and partially offset by the sale of $0.5
million of previously written down inventory.

During the nine months ended September 30, 2009, our gross inventory
write-down was approximately $3.2 million, partially offset by the sale of $1.7 million of previously written down inventory. During the nine months ended September 30, 2008, our gross inventory write-down was approximately $3.0 million,
partially offset by the sale of $1.2 million of previously written-down inventory.



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Research and Development



|                          |  |                                    |       |   |      |   |       |                     |  |   |                                |    |  |      |    |  |                     |        |   |  |   |        |   |  |   |        |    |  |     |   
|------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ----- | ------------------- |  | - | ------------------------------ | -- |  | ---- | -- |  | ------------------- | ------ | - |  | - | ------ | - |  | - | ------ | -- |  | --- | --
|                          |  | Three Months EndedSeptember 30,    |       |   |      |   |       |                     |  |   | Nine Months EndedSeptember 30, |    |  |      |    |  |                     |       
|                          |  | 2009                               |       |   | 2008 |   |       | Increase (Decrease) |  |   | 2009                           |    |  | 2008 |    |  | Increase (Decrease) |       
|                          |  | (in thousands, except percentages) |      
|Research and development  |  | $                                  | 6,928 |   |      | $ | 7,506 |                     |  | $ | (578                           | )  |  | (8   | )% |  | $                   | 20,319 |   |  | $ | 23,228 |   |  | $ | (2,909 | )  |  | (13 | )%
|Percentage of net revenue |  |                                    | 26.5  | % |      |   | 29.5  | %                   |  |   | (3.0                           | )% |  |      |    |  |                     | 30.9   | % |  |   | 32.4   | % |  |   | (1.5   | )% |  |     |   

Research and development expenses for the third quarter of 2009 decreased by $0.6
million as compared to the third quarter of 2008 primarily due to decreases in stock-based compensation expense, payroll and personnel related expenses, non-recurring engineering expenses and IT related expenses.

Research and development expenses for the first nine months of 2009 decreased by $2.9 million as compared to the first nine months of 2009
primarily due to a $1.3 million decrease in payroll and benefit related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures, a $0.6 million decrease in facilities, IT and
operation support expenses, a $0.6 million decrease in stock-based compensation expense, and a $0.3 million decrease due to a one-time in-process research and development charge associated with our acquisition of Elite during the second quarter of
2008.

Sales, General and Administrative



|                                  |  |                                    |       |   |      |   |       |                     |  |   |                                |    |  |      |   |  |                     |        |   |  |   |        |   |  |   |        |   |  |    |   
|--------------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ----- | ------------------- |  | - | ------------------------------ | -- |  | ---- | - |  | ------------------- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | -- | --
|                                  |  | Three Months EndedSeptember 30,    |       |   |      |   |       |                     |  |   | Nine Months EndedSeptember 30, |    |  |      |   |  |                     |       
|                                  |  | 2009                               |       |   | 2008 |   |       | Increase (Decrease) |  |   | 2009                           |    |  | 2008 |   |  | Increase (Decrease) |       
|                                  |  | (in thousands, except percentages) |      
|Sales, general and administrative |  | $                                  | 6,337 |   |      | $ | 6,191 |                     |  | $ | 146                            |    |  | 2    | % |  | $                   | 18,047 |   |  | $ | 19,257 |   |  | $ | (1,210 | ) |  | (6 | )%
|Percentage of net revenue         |  |                                    | 24.2  | % |      |   | 24.3  | %                   |  |   | (0.1                           | )% |  |      |   |  |                     | 27.5   | % |  |   | 26.9   | % |  |   | 0.6    | % |  |    |   

Sales, general and administrative expenses for the third quarter of 2009 increased by
$0.1 million as compared to the third quarter of 2008 due to an increase in stock-based compensation expense.

Sales, general
and administrative expenses for the first nine months of 2009 decreased by $1.2 million as compared to the first nine months of 2008 primarily due to a $0.6 million decrease in payroll and payroll related expenses as a result of lower headcount due
to our December 2008 reduction in workforce and other cost reduction measures and a $0.6 million decrease in audit expenses, a $0.5 million decrease in travel expenses, and a $0.5 million decrease in stock-based compensation expense, partially
offset by a $0.8 million increase in legal and consulting expenses.

Patent Litigation



|                          |  |                                    |       |   |      |   |     |                     |  |                                |      |  |     |      |  |   |                     |   |  |   |     |   |  |   |     |   |  |    |  
|------------------------- |  | ---------------------------------- | ----- | - | ---- | - | --- | ------------------- |  | ------------------------------ | ---- |  | --- | ---- |  | - | ------------------- | - |  | - | --- | - |  | - | --- | - |  | -- | -
|                          |  | Three Months EndedSeptember 30,    |       |   |      |   |     |                     |  | Nine Months EndedSeptember 30, |      |  |     |      |  |   |                    
|                          |  | 2009                               |       |   | 2008 |   |     | Increase (Decrease) |  |                                | 2009 |  |     | 2008 |  |   | Increase (Decrease) |  
|                          |  | (in thousands, except percentages) |      
|Patent litigation         |  | $                                  | 1,013 |   |      | $ | 243 |                     |  | $                              | 770  |  | 317 | %    |  | $ | 1,699               |   |  | $ | 987 |   |  | $ | 712 |   |  | 72 | %
|Percentage of net revenue |  |                                    | 3.9   | % |      |   | 1.0 | %                   |  |                                | 2.9  |  |     |      |  |   | 2.6                 | % |  |   | 1.4 | % |  |   | 1.2 | % |  |    |  

Patent litigation expense increased by $0.8 million during the three months ended
September 30, 2009 compared to the three months ended September 30, 2008. Patent litigation expense for the first nine months of 2009 increased by $0.7 million compared to the first nine months of 2008. Patent litigation



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expenses increased in these periods due to a higher level of activity in our patent infringement cases. We believe that we will continue to incur significant litigation expenses for the remainder
of 2009 and future years. For a description of our litigation, please see Part II, Item 1 - Legal Proceedings - for further details.

Interest Income

Interest income for the third quarter of 2009
decreased by $0.5 million compared to the third quarter of 2008 due to lower average interest rates on our investments. Interest income for the first nine months of 2009 decreased by $1.8 million compared to the first nine months of 2008 due to
lower average interest rates on our investments.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was approximately zero for the three months ended September 30, 2009 and 2008.

Interest and other income (expense) was approximately zero for the nine months ended September 30, 2009 and $0.1 million of the three
months ended September 30, 2008.

Provision for Income Taxes

We adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We also record the tax effect of
unusual or infrequently occurring discrete items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. Our effective tax rate reflects the impact of a
significant amount of our earnings being taxed in foreign jurisdictions at rates below the United States statutory tax rate and a valuation allowance maintained on our U.S. deferred tax assets.

We recorded a tax provision of approximately $0.3 million and $1.4 million for the three months and nine months ended September 30,
2009, respectively. We recorded a tax provision of approximately $0.2 million and $0.3 million for the three and nine months ended September 30, 2008, respectively. The increase in our tax provision for the nine months ended September 30,
2009 compared to prior year is primarily due to a full valuation allowance against our United States deferred tax assets at September 30, 2009. Accordingly, no benefit is recognized for stock-based compensation as any increase in our related
deferred tax asset will have a corresponding increase in our valuation allowance.

We established a full valuation allowance
against our United States deferred tax assets on December 31, 2008. We have established valuation allowances for deferred tax assets based on a more likely than not threshold. Our ability to realize our deferred tax assets depends
on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the
realization of our deferred tax assets:



| |  |  | Future reversals of existing taxable temporary differences;
| | - |  | -----------------------------------------------------------



| |  |  | Future taxable income exclusive of reversing temporary differences and carryforwards;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Taxable income in prior carryback years; and
| | - |  | --------------------------------------------



| |  |  | Tax-planning strategies.
| | - |  | ------------------------

We conclude that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling three
years of actual results as our primary measure of its cumulative losses in recent years. As of September 30, 2009, we continue to have a three year cumulative loss and, therefore, conclude that a valuation allowance is still required.

During the nine months ended September 30, 2009, we increased our total amount of unrecognized tax benefits by
approximately $4.0 million, including an accrual of interest and penalties of $0.1 million. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.



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We are currently under examination by the Internal Revenue Service for tax years 2005 to
2007. In May 2009, we received an IRS examination report showing proposed changes to our income tax for the years 2005 and 2006. We believe that the proposed adjustments are not supported by the facts and are inconsistent with applicable tax laws
and existing Treasury regulations. We filed a timely protest in June 2009 and are awaiting discussions with the IRS Appeals Division. No payments, if any, will be made related to the disputed proposed adjustments until the issues are resolved with
either the IRS Appeals Division or the tax court. We believe that we have adequately provided in our financial statements for any additional taxes that we may be required to pay as a result of these examinations.

Recent Accounting Pronouncements

We adopted the new FASB authoritative guidance for business combinations on January 1, 2009. The adoption did not have a material impact on our condensed consolidated financial statements.

During the three months ended June 30, 2009, we adopted the new FASB authoritative guidance for determining fair value when the volume
or level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This new guidance provides additional guidance for estimating fair value when the volume and level of activity for the
asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. Our adoption of this new guidance during the three months ended
June 30, 2009 did not have a material impact on our condensed consolidated financial statements.

During the three months
ended June 30, 2009, we adopted the new FASB authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the prior other-than-temporary impairment guidance to improve the
presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. Our adoption of this new guidance during the three months ended June 30, 2009 did not have a material impact on our
condensed consolidated financial statements.

During the three months ended June 30, 2009, we adopted the new FASB
authoritative guidance for interim disclosures about the fair value of financial instruments. This new guidance requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as
in annual financial statements. Our adoption of this new guidance during the three months ended June 30, 2009 did not impact our condensed consolidated financial statements.

During the three months ended June 30, 2009, we adopted the new FASB authoritative guidance for subsequent events. This new guidance is
intended to establish general standards of the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This new guidance is effective for interim or
annual financial periods ending after June 15, 2009 and was adopted by us during the quarter ended June 30, 2009.

In June 2009, the FASB issued the FASB Accounting Standards Codification(the Codification), the authoritative guidance for GAAP. The Codification, which changes the referencing of financial standards, became effective
for interim and annual periods ending on or after September 15, 2009. The Codification is now the single official source of authoritative GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified
Public Accountants, and related literature. The Codification does not change GAAP. We adopted the Codification during the quarter ended September 30, 2009. The adoption of the Codification did not have any substantive impact on our condensed
consolidated financial statements or related footnotes.



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Liquidity and Capital Resources



|                                                             |  |                                |         |   |      |   |        |                     |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------ | ------------------- |  | - | ------- | -
|                                                             |  | Nine Months EndedSeptember 30, |         |   |      |  
|                                                             |  | 2009                           |         |   | 2008 |   |        | Increase (Decrease) | 
|                                                             |  | (in thousands)                 |        
|Net cash used in operating activities                        |  | $                              | (2,214  | ) |      | $ | (438   | )                   |  | $ | (1,776  | )
|Net cash provided by (used in) investing activities          |  |                                | (11,559 | ) |      |   | 26,028 |                     |  |   | (37,587 | )
|Net cash provided by (used in) financing activities          |  |                                | (3,243  | ) |      |   | 1,579  |                     |  |   | (4,822  | )
|Effect of exchange rate changes on cash and cash equivalents |  |                                | 42      |   |      |   | (8     | )                   |  |   | 50      |  
|                                                             |  |                                |         |   |      |   |        |                     |  |   |         |  
|Net increase (decrease) in cash and cash equivalents         |  | $                              | (16,974 | ) |      | $ | 27,161 |                     |  | $ | (44,135 | )
|                                                             |  |                                |         |   |      |   |        |                     |  |   |         |  

Net Cash Used in Operating Activities

Cash used in operating activities was $2.2 million for the nine months ended September 30, 2009. Cash used in operating activities was
comprised of the net loss of $8.7 million, less non-cash adjustments including $4.9 million of stock-based compensation expense and $1.5 million of depreciation and amortization. Cash used in operating activities was also comprised of a $7.4 million
increase in accounts receivable as a result of higher sales. These uses were offset by a $6.3 million increase in accounts payable due to a production demand ramp and a $1.2 million increase in income taxes payable due to the current year income
taxes.

Cash used in operating activities was $0.4 million for the nine months ended September 30, 2008 primarily due to
a net loss of $4.7 million, adjusted for non-cash items including $6.1 million of stock-based compensation expense and $2.2 million of depreciation and amortization, and a $4.1 million decrease in accrued and other liabilities. Accrued and other
liabilities decreased by $4.1 million as we paid out 2007 bonuses during the first quarter of 2008.

Net Cash Provided
by (Used in) Investing Activities

Net cash used in investing activities was $11.6 million for the nine months ended
September 30, 2009 and was primarily comprised of a net cash outflow of $10.7 million from sales, maturities and purchases of our short-term investments and a $0.7 million cash outflow from purchases of property and equipment.

Net cash provided by investing activities was $26.0 million in the nine months ended September 30, 2008, primarily as a result of a net
cash inflow of $27.1 million from sales, maturities and purchases of our short-term investments. In the first quarter of 2008, we modified our investment policy to place greater emphasis on more liquid securities. The net cash increase provided by
investing activities reflects that policy change. The net cash inflow from investing activities also included a $2.0 million cash inflow from the receipt of a note receivable, partially offset by $2.2 million used to purchase testing and other
equipment and to invest in office leasehold improvements as well as $0.6 million, net of cash acquired, used to acquire Elite during the first nine months of 2008.

In June 2008, we acquired Elite, a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. Elites high performance Class D audio amplifier and CODEC products are
designed for audio amplification and audio processing in handsets, personal media players, Bluetooth hands-free car kits and high definition televisions. We recorded goodwill of $0.4 million associated with this acquisition. We did not record any
intangible assets as a result of the Elite acquisition.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities was $3.2 million for the nine months ended September 30, 2009, primarily due to
repurchases of our common stock during the period.

Net cash provided by financing activities was $1.6 million in the nine
months ended September 30, 2008, primarily from net proceeds of $1.2 million from exercises of common stock options and $0.5 million of excess tax benefit from employee stock-based compensation, offset by $0.1 million used to pay our capital
lease obligations.



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Liquidity

Our cash, cash equivalents and short term investments were $103.1 million as of September 30, 2009 and $109.5 million as of
December 31, 2008. We believe our existing cash, cash equivalents and short-term investment balances, as well as any cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the
next 12 months.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the
timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, our level of
acquisition activity or other strategic transactions, the continuing market acceptance of our products and the amount and intensity of our litigation activity. We could be required, or could elect, to seek additional funding through public or
private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off
Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

Contractual
Obligations

The following table describes our principal contractual cash obligations as of September 30, 2009:



|                              |  |                |       |               |   |       |  |      |       |      |   |      |  |                |     |  |   |     |  |   |      
|----------------------------- |  | -------------- | ----- | ------------- | - | ----- |  | ---- | ----- | ---- | - | ---- |  | -------------- | --- |  | - | --- |  | - | -----
|                              |  | Total          |       | Remaining2009 |   | 2010  |  | 2011 |       | 2012 |   | 2013 |  | 2014and beyond
|                              |  | (in thousands)
|Operating leases              |  | $              | 5,104 |               | $ | 609   |  | $    | 1,633 |      | $ | 552  |  | $              | 568 |  | $ | 516 |  | $ | 1,226
|Purchase commitments(1)       |  |                | 4,383 |               |   | 4,383 |  |      |      |      |   |     |  |                |    |  |   |    |  |   |     
|                              |  |                |       |               |   |       |  |      |       |      |   |      |  |                |     |  |   |     |  |   |      
|Total contractual obligations |  | $              | 9,487 |               | $ | 4,992 |  | $    | 1,633 |      | $ | 552  |  | $              | 568 |  | $ | 516 |  | $ | 1,226
|                              |  |                |       |               |   |       |  |      |       |      |   |      |  |                |     |  |   |     |  |   |      



|(1) | Purchase commitments consist primarily of our commitment to purchase wafers and assembly services.
|--- | --------------------------------------------------------------------------------------------------

Common Stock Repurchases

On October 29, 2008, our board of directors authorized a program to repurchase shares of our outstanding common stock. Under the stock repurchase program, we are authorized to use up to $30 million
to repurchase our outstanding common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depended upon market conditions and other factors, in accordance with Securities and
Exchange Commissions requirements.

During the nine months ended September 30, 2009, we repurchased a total of
1.1 million shares of our common stock for a total cost of $3.3 million. As of September 30, 2009, we had $21.4 million of remaining funds authorized to purchase shares under the stock repurchase plan. Shares repurchased are accounted for
as treasury stock and the total cost of shares repurchased is recorded as a reduction to stockholders equity.



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

At September 30, 2009, we had cash and cash equivalents totaling $35.1 million, compared to $52.1 million at December 31, 2008. At September 30, 2009, we had $68.0 million in short-term
investments as compared to $57.4 million at December 31, 2008. Cash equivalents have an original or remaining maturity when purchased of 90 days or less; short-term investments generally have an original or remaining maturity when purchased of
greater than 90 days. Our investment policy places emphasis on instruments with more liquidity.



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The taxable equivalent interest rates for the three and nine months ended September 30,
2009, on those cash equivalents and short-term investments average approximately 0.7% and 1.0%, respectively. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk.
While none of the securities in which we invested are secured by real estate, these securities may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To
minimize this risk, we may maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, debt securities and treasury notes.

A hypothetical increase in market interest rates of 100 basis points from the market rates in effect at September 30, 2009 would cause
the fair value of these investments to decrease by approximately $0.2 million, which would not significantly impact our financial position or results of operations. A hypothetical decrease in market interest rates of 100 basis points from the market
rates in effect at September 30, 2009 would cause the fair value of these investments to increase by $0.1 million. Declines in interest rates over time will result in lower interest income. Based upon our analysis the fair values did not change
materially as our investments are of short duration.

As of September 30, 2009, our investment portfolio included $3.2
million of interest bearing auction rate securities (ARS) with a fair value of $2.4 million, of which $1.8 million was classified as available-for-sale and $0.6 million was classified as trading securities. In addition, our
investment portfolio included $0.6 million of ARS exchange rights (ARS Put Option) that provide us with the right, but not the obligation, to sell one of our ARS to UBS for par value during the period of June 30, 2010 to
July 2, 2012. Upon initial recognition of the ARS Put Option, we made an election to account for this financial instrument at fair value.

We used a discounted cash flow model to determine the estimated fair value of our ARS and the ARS Put Option as of September 30, 2009. The assumptions used in preparing the discounted cash flow model
included estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity and other risk factors, and estimates for the amount of cash flows and expected holding periods of the ARS and
the ARS Put Option. These inputs reflect our own assumptions about the assumptions market participants would use in pricing the ARS and the ARS Put Option, including assumptions about risk, developed based on the best information available in the
circumstances.



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

(a)
Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive
Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.

As described in Note 13 to our unaudited condensed consolidated financial statements, during the three months ended September 30, 2009,
we identified errors in the recording of our stock-based compensation expense and restated our consolidated financial statements for fiscal years 2008, 2007 and 2006. The errors were identified after our third-party software provider notified its
clients, including us, that it made a change to how its software program calculates stock-based compensation expense. In connection with the restatement, our Chief Executive Officer and Chief Financial Officer determined that there was a material
weakness in our internal control over financial reporting relating to the design of the controls over the calculation of stock-based compensation expense related to the application of the forfeiture rate. Based on this evaluation and because of the
material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2009.

(b) Changes in Internal Control Over Financial Reporting

There was no
change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2009 covered by this Quarterly Report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting, except for the remedial efforts to address the material weakness.



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During the three months ended September 30, 2009, management implemented a new control
procedure in response to the material weakness described above. This additional control is to test the calculation of the stock-based compensation system reports on a quarterly basis, or whenever we upgrade the software used to calculate stock-based
compensation expense. As of September 30, 2009, the new control procedure has been implemented and will be performed on a quarterly basis, or whenever we upgrade the software used to calculation stock-based compensation expense.

PART II. OTHER INFORMATION



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

In May
2003, we received a letter from Linear Technology Corporation (Linear Technology) alleging that certain of our charge pump products infringed United States Patent No. 6,411,531 (531 Patent) owned by Linear Technology. In
August 2004, we received a letter from Linear Technology alleging that certain of our switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (258 Patent). In response to these letters, we contacted
Linear Technology to convey our good faith belief that we do not infringe the patents in question. Subsequently, we became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt our business relationships and
sales by suggesting to our customers that our products infringe the same United States patents mentioned in its two letters to us. As a result, in February 2006, we initiated a lawsuit against Linear Technology for unfair business practices,
interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission
(USITC) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by
Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of our products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators
and are similar to the products involved in our lawsuit with Linear Technology. A Final Determination was issued September 24, 2007 which was followed by separate appeals for the charge pump and switching regulator products. The last of these
appeals, including the parties respective requests for rehearing, ended in August of this year. The overall result of these processes clears the path for importation of our charge pump products. A limited exclusion order was also issued
preventing us from importing certain of our switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent our customers from importing downstream products (i.e., products
that incorporate AATI switching regulators) into the United States. To date, our sales of the excluded products in the United States have been minimal.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding
has been undertaken at the request of Linear Technology which has alleged that we have violated the limited exclusion order by importing certain switching regulator products. Since the inception of the enforcement action, the list of allegedly
infringing products has been modified by a mutual consent order between the parties. We believe that we will prevail in this action. However, whether or not we prevail, we expect to incur significant legal expenses which will be expensed when
incurred.

In March 2009, we initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging
patent infringement of certain of its patented product designs. This case is pending in the United States District Court for the Northern District of California. We do not believe that this lawsuit will have a material impact on our business or
financial condition.



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

If we
fail to forecast demand for our products accurately, we may incur product shortages, delays in product shipments or excess or insufficient product inventory.

We generally do not obtain firm, long-term purchase commitments from our customers. Because production lead times often exceed the amount of time required to fulfill orders, we often must build in



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advance of orders, relying on an imperfect demand forecast to project volumes and product mix. Our demand forecast accuracy can be adversely affected by a number of factors, including inaccurate
forecasting by our customers, changes in market conditions, new part introductions by our competitors that lead to our loss of previous design wins, adverse changes in our product order mix and demand for our customers products or models. Even
after an order is received, our customers may cancel these orders or request a decrease in production quantities. Any such cancellation or decrease subjects us to a number of risks, most notably that our projected sales will not materialize on
schedule or at all, leading to unanticipated revenue shortfalls and excess or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are unable to project customer requirements accurately, we may not build enough
products, which could lead to delays in product shipments and lost sales opportunities in the near term, as well as force our customers to identify alternative sources, which could affect our ongoing relationships with these customers. We have in
the past had customers dramatically increase their requested production quantities with little or no advance notice and after they had submitted their original order. We have on occasion been unable to fulfill these revised orders within the time
period requested. Either overestimating or underestimating demand would lead to excess, obsolete or insufficient inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers.

We receive a substantial portion of our revenues from a small number of OEM customers and distributors, and the loss
of, or a significant reduction in, orders from those customers or our other largest customers would adversely affect our operations and financial condition.

We received an aggregate of approximately 93% and 84% of our net revenues from our ten largest customers for the three months ended September 30, 2009 and September 30, 2008, respectively. Any
action by one of our largest customers that affects our orders, product pricing or vendor status could significantly reduce our revenues and harm our financial results.

We receive a substantial portion of our revenues from two of our OEM customers, Samsung of South Korea and LG Electronics Inc. of South Korea. LG Electronics, our largest direct customer in 2008 and 2007,
represented 25% and 21% of net revenues for the three months ended September 30, 2009 and September 30, 2008, respectively. Sales to Samsung accounted for 37% of our net revenue for the three months ended September 30, 2009 and 26% of
net revenues for the three months ended September 30, 2008. Additionally, we sell to a number of contract manufacturers of Samsung. Total sales to Samsung and its contract manufacturers represented 43% and 41% of our net revenue for three
months ended September 30, 2009 and September 30, 2008, respectively. We anticipate that we will continue to be dependent on these customers for a significant portion of our revenue in the immediate future; however, we do not have
long-term contractual purchase commitments from them, and we cannot assure you that they will continue to be our customers. Because our largest customers account for such a significant part of our business, the loss of, or a decline in sales to, any
of our major customers would negatively impact our business.

Our operating results have fluctuated in the past and we
expect our operating results to continue to fluctuate.

Our revenues are difficult to predict and have varied
significantly in the past from period to period. We expect our revenues and expense levels to continue to vary in the future, making it difficult to predict our future operating results. In particular, we experience seasonality and variability in
demand for our products as our customers manage their inventories. Our customers tend to increase inventory of our products in anticipation of the peak fourth quarter buying season for the mobile consumer electronic devices in which our products are
used, which often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth calendar quarter.

Additional factors that could cause our results to fluctuate include:



| |  |  | the forecasting, scheduling, rescheduling or cancellation of orders by our customers, particularly in China and other emerging markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs associated with litigation, especially related to intellectual property;
| | - |  | ------------------------------------------------------------------------------



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| |  |  | liquidity and cash flow of our distributors, suppliers and end-market customers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | changes in manufacturing costs, including wafer, test and assembly costs, and manufacturing yields, product quality and reliability;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and availability of adequate manufacturing capacity from our manufacturing suppliers;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully define, design and release new products in a timely manner that meet our customers needs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, performance and pricing of new product introductions by us and by our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | general economic conditions in the countries where we operate or our products are used;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | changes in exchange rates, interest rates, tax rates and tax withholding;
| | - |  | -------------------------------------------------------------------------



| |  |  | geopolitical stability, especially affecting China, Taiwan and Asia in general; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in domestic and international tax laws.
| | - |  | -----------------------------------------------

Unfavorable changes in any of the above factors, most of which are beyond our control, could significantly harm our business and results of operations.

We may be required to record additional significant charges to earnings if our goodwill becomes impaired.

Under accounting principles generally accepted in the United States, we review our goodwill for impairment each year as
of September 30thand when events or changes in
circumstances indicate the carrying value may not be recoverable. The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization,
reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be
materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. We may be required to record a charge to earnings
in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

As of September 30, 2009, our investment portfolio included interest bearing auction rate securities (ARS) with a fair value of $2.4
million. Our ARS represent investments in debt obligations collateralized by Federal Family Education Program student loans. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the
applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The monthly auctions historically provided a liquid market for these
securities. However, beginning in 2008, uncertainties in the credit markets have affected all of our holdings in ARS and auctions for our investments in these securities have failed to settle on their respective settlement dates. Auctions for our
investments in these securities continued to fail through September 30, 2009.

If the current market conditions
deteriorate further, the anticipated recovery in market values does not occur, or if we determine that we intend to sell the ARS, it is more likely than not that we will be required to sell the ARS before a recovery of the auction process, or that
we will not recover the entire amortized cost basis of the ARS, we may be required to record impairment charges in future quarters which may negatively impact our results of operations.

We may be unsuccessful in developing and selling new products or in penetrating new markets.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our
competitiveness and future success depends on our ability to



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design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product
markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could
result in product obsolescence, decreased revenues and a loss of design wins to our competitors. For example, we introduced approximately 70 new products in 2008, of which approximately 25 products utilize our new ModularBCD process, however many of
them have not yet been adopted by our customers. Our understanding is that our overall product acceptance rate is typical for the semiconductor analog sector due to ongoing competition, long design-in and qualification cycles, late introduction
and/or product not meeting exact customer requirements. In some instances, our products were designed into a customers product or system but our customers product failed to gain market acceptance so no substantial business resulted. In
other cases, we may introduce a product before the market is ready to accept or require the features offered in our product, in which revenue may result at a later and somewhat unpredictable date in the future.

The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a
variety of specific implementation factors, including:



| |  |  | effective marketing, sales and service;
| | - |  | ---------------------------------------



| |  |  | timely and efficient completion of process design and device structure improvements and implementation of manufacturing, assembly and test processes;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the quality, performance and reliability of the product.
| | - |  | --------------------------------------------------------

If we fail to introduce new products or penetrate new markets, our revenues will likely decrease over time and our financial condition could
suffer.

We may not have the expertise we need to successfully define or develop products for new market opportunities, and we
may lack the sales connections and applications expertise to secure orders for such products. Identifying and hiring such resources may be difficult and we may not be successful in identifying and hiring necessary personnel. Attempts to balance
product development and sales efforts between new and existing applications may delay our entrance into new markets and make it more difficult to penetrate new customers and application opportunities in the future.

Due to defects and failures that may occur, our products may not meet specifications, which may cause customers to return or stop
buying our products and may expose us to product liability claims.

Our customers generally establish demanding
specifications for quality, performance and reliability that our products must meet. Integrated circuits as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement
of commercial shipments, which might require product replacement or recall. In addition, our customers may not use our products in a way that is consistent with our published specifications. If defects and failures occur in our products during the
design phase or after, or our customers use our products in ways that are not consistent with their intended use, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or
cancellations or rescheduling of orders or shipments, or product returns or discounts, any of which would harm our operating results. We cannot assure you that we will have sufficient resources, including any available insurance, to satisfy any
asserted claims.

The nature of the design process requires us to incur expenses prior to earning revenues associated
with those expenses, and we will have difficulty selling our products if system designers do not design our products into their electronic systems.

We devote significant time and resources to working with our customers system designers to understand their future needs and to provide products that we believe will meet those needs. If a
customers system designer initially chooses a competitors product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system because changing suppliers can
involve significant cost, time, effort and risk for our customers.



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We often incur significant expenditures in the development of a new product without any
assurance that our customers system designers will select our product for use in their electronic systems. We often are required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need
for that particular design. In some cases, there is minimal or no demand for our products in our anticipated target applications. Even if our products are selected by our customers system designers, a substantial period of time will elapse
before we generate revenues related to the significant expenses we have incurred. The reasons for this delay generally include the following elements of our product sales and development cycle timeline and related influences:



| |  |  | our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | it can take up to 12 months from the time our products are selected to complete the design process;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | it can take an additional nine to 12 months or longer to complete commercial introduction of the electronic systems that use our products, if they are
introduced at all;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | original equipment manufacturers typically limit the initial release of their electronic systems to evaluate performance and consumer demand; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the development and commercial introduction of products incorporating new technology are frequently delayed.
| | - |  | ------------------------------------------------------------------------------------------------------------

We estimate that the overall sales and development cycle timeline of an average product is approximately 16 months.

Additionally, even if system designers use our products in their electronic systems, we cannot assure you that these systems will be
commercially successful. As a result, we are unable to accurately forecast the volume and timing of our orders and revenues associated with any new product introductions.

Any increase in the manufacturing cost of our products could reduce our gross margins and operating profit.

The semiconductor business exhibits ongoing competitive pricing pressure from customers and competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase price variances
or adverse manufacturing cost variances, will reduce our gross margins and operating profit. We do not have many long-term supply agreements with our manufacturing suppliers and, consequently, we may not be able to obtain price reductions or
anticipate or prevent future price increases from our suppliers.

The average selling price of our products may decline,
or a change in the mix of product orders may occur, either of which could reduce our gross margins.

During a power
management products life, its selling price tends to decrease for a particular application. As a result, to maintain gross margins on our products, we must continue to identify new applications for our products, reduce manufacturing costs for
our existing products and introduce new products. If we are unable to identify new, high gross margin applications for our existing products, reduce our production costs or sell new, high gross margin products, our gross margins will suffer. A
sustained reduction in our gross margins could harm our future operating results, cash flow and financial condition, which could lead to a significant drop in the price of our common stock.

Because we receive a substantial portion of our revenues through distributors, their financial viability and ability to access the
capital markets could impact our ability to continue to do business with them and could result in lower revenues, which could adversely affect our operating results and our customer relationships.

We obtain a portion of our revenues through sales to distributors located in Asia who act as our fulfillment representatives. Sales to
distributors accounted for 21% and 29% of our revenues for the nine months ended September 30, 2009 and September 30, 2008, respectively. In the normal course of their operation as fulfillment representatives, these distributors typically
perform functions such as order scheduling, shipment coordination, inventory stocking, payment and collections and, when applicable, currency exchange between purchasers of our products and these distributors. Our distributors



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compensation for these functions is reflected in the price of the products we sell to these distributors. Many of our current distributors also serve as our sales representatives procuring orders
for us to fill directly. If these distributors are unable to pay us in a timely manner or if we anticipate that they will not pay us, we may elect to withhold future shipments, which could adversely affect our operating results. If one of our
distributors experiences severe financial difficulties, becomes insolvent or declares bankruptcy, we could lose product inventory held by that distributor and we could be required to write off the value of any receivables owed to us by that
distributor. We could also be required to record bad debt expense in excess of our reserves. We may not be successful in recognizing these indications or in finding replacement distributors in a timely manner, or at all, any of which could harm our
operating results, cash flow and financial condition.

Our distributor arrangements often require us to accept product
returns and to provide price protection and if we fail to properly estimate our product returns and price protection reserves, this may adversely impact our reported financial information.

A substantial portion of our sales are made through third-party distribution arrangements, which include stock rotation rights that generally
permit the return of up to 5% of the previous six months purchases. We generally accept these returns in the second and fourth quarter of each annual period. Our arrangements with our distributors typically also include price protection
provisions if we reduce our list prices. We record estimated returns at the time of shipment, and we record reserves for price protection at the time we decide to reduce our list prices. In the future, we could receive returns or claims that are in
excess of our estimates and reserves, which could harm our operating results.

If our relationship with any of our
distributors deteriorates or terminates, it could lead to a temporary or permanent loss of revenues until a replacement sales channel can be established to service the affected end-user customers, as well as inventory write-offs or accounts
receivable write-offs. In addition, we also may be obligated to repurchase unsold products from a distributor if we decide to terminate our relationship with that distributor.

Our current backlog may not be indicative of future sales.

Due to the nature of our business, in which order lead times may vary, and the fact that customers are generally allowed to reschedule or
cancel orders on short notice, we believe that our backlog is not necessarily a good indicator of our future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because our lead times for the manufacturing of our
products generally take six to ten weeks, we often must build in advance of orders. This exposes us to certain risks, most notably the possibility that expected sales will not occur, which may lead to excess inventory, and we may not be able to sell
this inventory to other customers. In addition, we supply LG Electronics, one of our largest customers, through its central hub and we do not record backlog with respect to the products we ship to the hub. Therefore, our backlog may not be a
reliable indicator of future sales.

We face risks in connection with our internal control over financial reporting and
any related remedial measures that we undertake to correct any material weaknesses in our internal control over financial reporting.

In accordance with Section 404 of the Sarbanes-Oxley Act, we are required to report annually on the effectiveness of our internal control over financial reporting as such term is defined in Rule
13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. This report must include disclosure of any material weakness in our internal control over financial reporting. In preparation for issuing this management report, we document,
evaluate, and test our internal control over financial reporting.



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As a result of an error in our stock-based compensation expense for the years ended
December 31, 2008, 2007 and 2006, we restated our consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 and for each of the quarters in fiscal 2008 and 2007. We also restated the unaudited condensed
consolidated financial statements for the periods ended March 31, 2009 and June 30, 2009. In conjunction with these restatements and our assessment of the effectiveness of our internal control over financial reporting, we identified a
material weakness, as follows:

A material weakness exists in the operating effectiveness of the controls over the calculation
of stock-based compensation expense related to the application of the forfeiture rate. This control deficiency led to a misstatement of stock-based compensation expense, which was not prevented or detected on a timely basis, and resulted in the
restatement of our consolidated financial statements for the years ended December 31, 2008, 2007 and 2006, each of the quarters in fiscal 2008 and 2007, and our unaudited condensed consolidated financial statements for the periods ended
March 31, 2009 and June 30, 2009.

No material weakness will be considered remediated until our remedial efforts
have operated for an appropriate period, have been tested, and management has concluded that they are operating effectively. We cannot be certain that any measures we take will ensure that we implement and maintain adequate internal control over
financial reporting and that we will remediate the material weakness. In addition, we cannot assure you that we will not in the future identify further material weaknesses in our internal control over financial reporting that we have not discovered
to date, which may impact the reliability of our financial reporting and financial statements.

If consumer demand for
mobile consumer electronic devices declines, our revenues will decrease.

Our products are used primarily in the mobile
consumer electronic devices market. For the foreseeable future, we expect to see the significant majority of our revenues continue to come from this market, especially in wireless handsets. If consumer demand for these products declines and fewer
mobile customer electronic devices are sold, our revenues will decrease significantly. For example, in the second half of 2008, and particularly later in the fourth quarter, we experienced a significant decrease in worldwide billings to our
customers, suggesting that our customers have been reacting to decreased consumer demand for their end products. In an adverse economic climate such as the current worldwide financial crisis, consumers are less likely to prioritize purchasing new
mobile consumer electronic devices or upgrading existing devices. In addition, if we are unsuccessful in identifying alternative markets for our products in a timely manner, our operating results will suffer dramatically.

Substantially all of our manufacturing suppliers, customers and operations are located in Asia, which subjects us to additional risks,
including regional economic influences, logistical complexity, political instability and natural disasters including earthquakes.

We conduct, and expect to continue to conduct, almost all of our business with companies that are located outside the United States. Based on ship-to locations, approximately 95% of our revenues for both
the three and nine months ended September 30, 2009 and September 30, 2008 came from customers in Asia, particularly South Korea, Taiwan, China and Japan. A vast majority of our contract manufacturing operations are located in South Korea,
Taiwan, Malaysia and China. In addition, we have a design center in Shanghai, China. As a result of our international focus, we face several challenges, including:



| |  |  | increased complexity and costs of managing international operations;
| | - |  | --------------------------------------------------------------------



| |  |  | longer and more difficult collection of receivables;
| | - |  | ----------------------------------------------------



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



| |  |  | limited protection of our intellectual property;
| | - |  | ------------------------------------------------



| |  |  | unanticipated changes in local regulations, including tax regulations;
| | - |  | ----------------------------------------------------------------------



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



| |  |  | foreign currency exchange fluctuations relating to our international operating activities.
| | - |  | ------------------------------------------------------------------------------------------

Our corporate headquarters in Santa Clara, California, our operations office in Chupei, Taiwan, and the production facilities of one of our
wafer fabrication suppliers and several of our assembly and test suppliers in Hsinchu and across Taiwan are located near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and our business
could be damaged in the event of a major earthquake or other natural disaster.



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In addition to risks in our operations from natural disasters, our customers are also
subject to these risks. Any disaster impacting our customers could result in loss of orders, delay of business and temporary regional economic recessions.

We are also more susceptible to the regional economic impact of health crises. Because we anticipate that we will continue to rely heavily on foreign companies or United States companies operating in Asia
for our future growth, the above risks and issues that we do not currently anticipate could adversely affect our ability to conduct business and our results of operations.

We outsource our wafer fabrication, testing, packaging, warehousing and shipping operations to third parties, and rely on these
parties to produce and deliver our products according to requested demands in specification, quantity, cost and time.

We rely on third parties for substantially all of our manufacturing operations, including wafer fabrication, wafer probe, wafer thinning, assembly, final test, warehousing and shipping. We depend on these parties to supply us with material
of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in
the quantity required, which in turn could cause an unanticipated decline in our sales and possibly damage our customer relationships. An economic slowdown such as the current economic recession could adversely affect the financial strength of our
vendors and adversely impact their ability to manufacture product, resulting in a shortage or delay in product shipments to our customers.

Our products are manufactured at a limited number of locations. If we experience manufacturing problems at a particular location or with a particular supplier, we would be required to transfer
manufacturing to a backup supplier. Converting or transferring manufacturing from a primary supplier to a backup fabrication facility could be expensive and could take as long as six to 12 months. During such a transition, we would be required to
meet customer demand from our then-existing inventory, as well as any partially finished goods that can be modified to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period
because we believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be able to meet customer needs during such a transition, which could delay shipments, cause a production delay or stoppage for our customers,
result in a decline in our sales and damage our customer relationships. Should we be required to manufacture safety stock and finished goods to insure against any supply interruptions to our customers, there is no guarantee that our customers would
necessarily purchase the extra material and excess inventory may result. There is no guarantee we would be able to sell that excess inventory to other customers and we may have to write-off this material as an expense adversely affecting our
financial performance.

In addition, a significant portion of our sales are to customers that practice just-in-time order
management from their suppliers, which gives us a very limited amount of time in which to process and complete these orders. As a result, delays in our production or shipping by the parties to whom we outsource these functions could reduce our
sales, damage our customer relationships and damage our reputation in the marketplace, any of which could harm our business, results of operations and financial condition.

The loss of any of our key personnel could seriously harm our business, and our failure to attract or retain specialized technical and
management talent could impair our ability to grow our business.

The loss of services of one or more of our key
personnel could seriously harm our business. In particular, our ability to define and design new products, gain new customers and grow our business depends on the continued contributions of Richard K. Williams, our President, Chief Executive Officer
and Chief Technical Officer, as well as our senior level sales, finance, operations, technology and engineering personnel. Our future growth will also depend significantly on our ability to recruit and retain qualified and talented managers and
engineers, along with key manufacturing, quality, sales and marketing staff members. There remains intense competition for these individuals in our industry, especially those with power and analog semiconductor design and applications expertise. We
cannot assure you we will be successful in finding, hiring and retaining these individuals. If we are unable to recruit and retain such talent, our product and technology development, manufacturing, marketing and sales efforts could be impaired.



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In economic downturns where consumer demand for our customers products is reduced or
delayed, we expect lower revenue and reduced profitability. In response to these downturns, we may implement certain cost reduction actions including spending controls, forced holidays and company shutdowns, employee layoffs, shortened work-weeks
and involuntary salary reductions. It is uncertain what affect such measures may have on our ability to retain key talent and staff members, or our ability to rehire employees should business improve. For example, in December 2008, we reduced our
headcount by 12% globally and announced employee salary reductions. It is unclear what long term affect these actions may have on our ability to recruit and retain engineering, sales and managerial talent.

Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our
results.

Our future effective tax rates could be adversely affected by lower than anticipated earnings in countries
where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting
principles or interpretations thereof. Further, as a result of certain ongoing employment and capital investment commitments made by us, our income in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from tax.
Our failure to meet such commitments could adversely impact our effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess
the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our
operating results and financial condition.

We compete against companies with substantially greater financial and other
resources, and our market share or gross margins may be reduced if we are unable to respond to competitive challenges effectively.

The analog, mixed-signal, or analog with digital, and power management semiconductor industry in which we operate is highly competitive and dynamic, and we expect it to remain so. Our ability to compete
effectively depends on defining, designing and regularly introducing new products that meet or anticipate the power management needs of our customers next-generation products and applications. We compete with numerous domestic and
international semiconductor companies, many of which have greater financial and other resources with which to pursue marketing, technology development, product design, manufacturing, quality, sales and distribution of their products.

We consider our primary competitors to be Maxim Integrated Products, Inc., Linear Technology Corporation, Intersil Corporation, Texas
Instruments Incorporated, Semtech Corporation and National Semiconductor Corporation. We expect continued competition from existing competitors as well as from new entrants into the power management semiconductor market. Our ability to compete
depends on a number of factors, including:



| |  |  | our success in identifying new and emerging markets, applications and technologies, and developing power management solutions for these markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our products performance and cost effectiveness relative to that of our competitors products;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | our ability to deliver products in large volume on a timely basis at a competitive price;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to recruit application engineers and designers; and
| | - |  | ---------------------------------------------------------------



| |  |  | our ability to protect our intellectual property.
| | - |  | -------------------------------------------------



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We cannot assure you that our products will compete favorably or that we will be successful
in the face of increasing competition from new products and enhancements introduced by our existing competitors or new companies entering this market.

Intellectual property litigation could result in significant costs, reduce sales of our products and cause our operating results to suffer.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has
resulted in protracted and expensive litigation for many companies. We have in the past received, and expect that in the future we may receive, communications from various industry participants alleging our infringement of their patents, trade
secrets or other intellectual property rights. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force
us to do one or more of the following:



| |  |  | stop selling products or using technology that contain the allegedly infringing intellectual property;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | incur significant legal expenses;
| | - |  | ---------------------------------



| |  |  | pay damages to the party claiming infringement;
| | - |  | -----------------------------------------------



| |  |  | redesign those products that contain the allegedly infringing intellectual property; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

We initiated a lawsuit against Linear Technology Corporation in February 2006 for unfair business
practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. In a related case, the International Trade Commission has initiated an investigation and subsequent
enforcement action against AATI at the request of Linear Technology.

Uncertainty over the outcome of our litigation with
Linear Technology may cause our customers or potential customers to elect not to include our products that are the subject of this litigation into the design of their systems. Once a customers system designer initially chooses a
competitors product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system, because changing suppliers can involve significant cost, time, effort and risk for
our customers. As a result, our litigation with Linear Technology or any similar future litigation may result in significantly increased expenses on a quarterly basis. If we are unsuccessful in any such litigation, our business and our ability to
compete in foreign markets could be harmed, and we could be enjoined from selling the accused products, either directly or indirectly, which could have a material adverse impact on our revenues, financial condition, results of operations and cash
flows.

Our failure to protect our intellectual property rights adequately could impair our ability to compete
effectively or to defend ourselves from litigation, which could harm our business, financial condition and results of operations.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements to protect our proprietary technologies and know-how. While we have more
than 110 patents issued or allowed in the United States or foreign countries and a larger number of pending applications, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents
could be challenged or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to
offer similar products or technologies. Our foreign patent protection is generally not as comprehensive as our United States patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold
in the future. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. Many United States-based companies have encountered substantial intellectual property infringement in foreign countries, including
countries where we sell products.



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Monitoring unauthorized use of our intellectual property is difficult and costly. It is
possible that unauthorized use of our intellectual property may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our
intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could harm our business, results of operations and financial condition. We may in the future need to initiate
infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such
litigation results in a determination favorable to us.

Any acquisitions we make could disrupt our business, result in
integration difficulties or fail to realize anticipated benefits, which could adversely affect our financial condition and operating results.

We may choose to acquire companies, technologies, assets and personnel that are complementary to our business, including for the purpose of expanding our new product design capacity, introducing new
design, market or application skills or enhancing and expanding our existing product lines. In October 2006, we acquired Analog Power Semiconductor Corporation and related assets and personnel, primarily located in Shanghai, China. In June
2008, we acquired Elite Micro Devices, located in Shanghai, China. Acquisitions involve numerous risks, including the following:



| |  |  | difficulties in integrating the operations, systems, technologies, products and personnel of the acquired companies;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of the business and the challenges of managing larger and more widespread
operations resulting from acquisitions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in entering markets in which we may have no or limited direct prior experience and where competitors may have stronger market positions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential loss of key employees, customers, distributors, suppliers and other business partners of the companies we acquire following and
continuing after announcement of acquisition plans;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | improving and expanding our management information systems to accommodate expanded operations;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | insufficient revenue to offset increased expenses associated with acquisitions; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | addressing unforeseen liabilities of acquired businesses.
| | - |  | ---------------------------------------------------------

Acquisitions may also cause us to:



| |  |  | issue capital stock that would dilute our current stockholders percentage ownership;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | use a substantial portion of our cash resources or incur debt;
| | - |  | --------------------------------------------------------------



| |  |  | assume liabilities;
| | - |  | -------------------



| |  |  | record goodwill or incur amortization expenses related to certain intangible assets; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | incur large and immediate write-offs and other related expenses.
| | - |  | ----------------------------------------------------------------

Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, and our failure to realize these benefits
could adversely affect our business. In addition, we may not be successful in identifying future acquisition opportunities or in consummating any acquisitions that we may pursue on favorable terms, if at all. Any transactions that we complete may
impair stockholder value or otherwise adversely affect our business and the market price of our stock. Failure to manage and successfully integrate acquisitions could materially harm our financial condition and operating results.

Our operating results, financial condition and cash flows may be adversely impacted by worldwide political and economic uncertainties
and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry.

The semiconductor industry has historically exhibited cyclical behavior which at various times has included significant downturns in customer demand. These conditions have caused significant variations in
product orders and production capacity utilization, as well as price erosion. Because a significant portion of our expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses rapidly
enough to offset any unanticipated shortfall in revenues. If this situation were to occur, it could adversely affect our operating results, cash flow and financial condition.



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Additionally, general worldwide economic conditions have recently experienced a downturn due
to slower economic activity, concerns about inflation and deflation, fears of recession, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the
wired and wireless communications markets, recent international conflicts and terrorist and military activity and the impact of natural disasters and public health emergencies. Our operations and performance depend significantly on worldwide
economic conditions and their impact on consumer spending, which has recently deteriorated significantly in many countries and regions, including the United States and Asia, and may remain depressed for the foreseeable future. For example, some of
the factors that could influence consumer spending include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other factors affecting consumer spending behavior.
These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. In addition, these conditions make it extremely difficult for our customers, our vendors and us to
accurately forecast and plan future business activities, and they could cause United States and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. We cannot predict the timing, strength or
duration of any economic slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the economy or markets in which we operate do not continue at their present levels, our business, financial condition and results of
operations will likely be materially and adversely affected.

We could be adversely affected by violations of the United
States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The United States Foreign
Corrupt Practices Act (FCPA) and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining
business. Our policies mandate compliance with these anti-bribery laws. There can be no assurance that our internal controls and procedures always will protect us from reckless or criminal acts committed by our employees or agents. If we are found
to be liable for FCPA violations, we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.



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

Not applicable.



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

Not applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Not applicable.



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

Not
applicable.



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



|      |  |                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1  |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.   



|* | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that Section, nor shall it be deemed incorporated by reference in any filings 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.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

SIGNATURE

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



|                        |  |  |  |     |  |                                             |  |                                                                           
|----------------------- |  |  |  | --- |  | ------------------------------------------- |  | --------------------------------------------------------------------------
|                        |  |  |  |     |  | ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED
|                        |  |  | 
|Dated: October 30, 2009 |  |  |  | By: |  | /S/    BRIAN R.
MCDONALD                   
|                        |  |  |  |     |  |                                             |  | Brian R. McDonald                                                         
|                        |  |  |  |     |  |                                             |  | Chief Financial Officer, Vice President of Worldwide Finance and Secretary

EXHIBIT INDEX



|      |  |                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.1  |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.   



|* | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that Section, nor shall it be deemed incorporated by reference in any filings 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.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42