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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   000-31311
    (Commission file number)
      PDF SOLUTIONS, INC.
 (Exact name of registrant as
    specified in its charter)
      Delaware

25-1701361(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)333 West San Carlos Street, Suite 700

95110San Jose, California

(Zip Code)(Address of Registrants
    principal executive
    offices)   (408) 280-7900
 (Registrants telephone number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.00015 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


10Item 1B.


Unresolved Staff Comments


18Item 2.


Properties


18Item 3.


Legal Proceedings


18Item 4.


Submission of Matters to a Vote of Security
    Holders


18PART IIItem 5.


Market for Registrants Common Equity and
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


19Item 6.


Selected Financial Data


22Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


23Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


37Item 8.


Financial Statements and Supplementary Data


38Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


38Item 9A.


Controls and Procedures


38Item 9B.


Other Information


40PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


40Item 11.


Executive Compensation


40Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


40Item 13.


Certain Relationships and Related Transactions


40Item 14.


Principal Accounting Fees and Services


40PART IVItem 15.


Exhibits and Financial Statement Schedules


41SignaturesIndex to ExhibitsEXHIBIT 10.17EXHIBIT 21.01EXHIBIT 23.01EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02




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PART I  This Annual Report on
    Form 10-K,
    particularly in Item 1 Business and Item 7
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations, includes
    forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933 (the
    Securities Act) and Section 21E of the
    Securities Exchange Act of 1934, as amended (the Exchange
    Act). These statements include, but are not limited to,
    statements concerning: expectations about the effectiveness of
    our business and technology strategies; expectations regarding
    previous and future acquisitions; current semiconductor industry
    trends; expectations of the success and market acceptance of our
    intellectual property and our solutions; expectations concerning
    recent completed acquisitions; expectations that our cash, cash
    equivalents and cash generated from operations will satisfy our
    business requirements for the next 12 months; and
    expectations of our future liquidity requirements. Our actual
    results could differ materially from those projected in the
    forward-looking statements as a result of a number of factors,
    risks and uncertainties discussed in this
    Form 10-K,
    especially those contained in Item 1A of this
    Form 10-K.
    The words may, will,
    anticipate, continue, could,
    projected, expects,
    believes, intends, and
    assumes, the negative of these terms and similar
    expressions are used to identify forward-looking statements. All
    forward-looking statements and information included herein is
    given as of the filing date of this
    Form 10-K
    with the Securities and Exchange Commission (SEC)
    and based on information available to us at the time of this
    report and future events or circumstances could differ
    significantly from these forward-looking statements. Unless
    required by law, we undertake no obligation to update publicly
    any such forward-looking statements.
  The following information should be read in conjunction with
    the Consolidated Financial Statements and notes thereto included
    in this Annual Report on
    Form 10-K.
    All references to fiscal year apply to our fiscal year which
    ends on December 31.
  Item 1.
    Business  Business
    Overview
      Faster Time to Market.
 1




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Faster Time to Volume.
  Increased Manufacturing Efficiencies.
    Extend Our Technology Leadership Position. ® ®
  Leverage Our Gainshare Performance Incentives Business
    Model.
  Focus on Key IC Product Segments. system-on-a-chip,
  Expand Strategic Relationships. ®
 2




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Industry
    Background
        
    systematic yield loss, or non-functioning ICs resulting from
    lack of compatibility between design and manufacturing
    processes; and
    performance yield loss, or functioning ICs that do not meet
    customer speed requirements.  trial-and-error
    Technology
    and Intellectual Property Protection
  i speed-up i ® ® data ® tm ® tm ® and/or
 3




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® ® ® dataPOWER® ® ® ® ® ® ® ® ® tm dP tm dP tm dP tm dP tm dP tm dP tm dP tm tm tm
  Products
    and Services
    Services
    and Solutions
  Manufacturing Process Solutions.
  
    Process R&D:  Our process R&D
    solutions are designed to help customers increase the robustness
    of their manufacturing processes by characterizing and reducing
    the variability of unit processes and device performance with
    respect to layout characteristics within anticipated process
    design rules.
    Process Integration and Yield Ramp:  Our
    process integration and yield ramp solutions are designed to
    enable our customers to more quickly ramp the yield of new
    products early in the manufacturing process by characterizing
    the process-design interactions within each key process module,
    simulating product yield loss by process module, and
    prioritizing quantitative yield improvement by design blocks in
    real products.  Volume Manufacturing Solutions.
  Design-for-Manufacturability Solutions.
  
    Logic DFM Solutions:  Logic DFM solutions
    include software, intellectual property, and services designed
    to make yield improvements by trading off density or
    performance, for example, in the logic portions of an 4




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
    Circuit Level DFM Solutions:  Circuit
    level DFM solutions include software and services designed
    to anticipate the effects of process variability during
    analog/mixed signal/RF circuit design to optimize the
    manufacturability of each block given a pre-characterized
    manufacturing process.
    Memory DFM Solutions:  Memory DFM solutions
    include software and services designed to optimize the memory
    redundancy and bit cell usage given a pre-characterized
    manufacturing process.
    pdBRIXtm
    Physical IP
    Solutions:  pdBRIXtm
    physical IP solutions include software, IP and services for
    identifying and developing a set of large, regularly patterned
    physical IP building blocks that are tailored to a given
    manufacturing process and target product application. This
    solution includes mapping software for inserting these physical
    IP building blocks into a design flow.  Products
    Characterization
    Vehicle®
    Infrastructure. infrastructure
  
    CV®
    Test Chips.  Our family of proprietary test chip
    products are run through the manufacturing process with
    intentional process modifications to explore the effects of
    potential process improvements given natural manufacturing
    variations. Our custom-designed CV test chips are optimized for
    our test hardware and analysis software and include DOEs tuned
    to each customers process. Our full-reticle short-flow CV
    test chips provide a fast learning cycle for specific process
    modules and are fully integrated with third-party failure
    analysis and inspection tools for complete diagnosis to root
    cause. Our Scribe
    CV®
    products are inserted directly on customers product wafers
    and collect data from product wafers about critical layers.
    pdCVtmAnalysis Software.Our proprietary software
    accumulates data from our CV test chips, enabling models of the
    performance effects of process variations on these design
    building blocks to be generated for use with our Yield Ramp
    Simulator software.
    pdFasTest®Electrical Wafer Test System.Our proprietary
    system enables fast defect characterization of manufacturing
    processes. This automated system provides parallel functional
    testing, thus minimizing the time required to perform millions
    of electrical measurements to test our CV test chips.  Yield Ramp
    Simulator®
    (YRS® Software.
  Circuit
    Surfer®
    Software.
  pDfx ® Environment.
 5




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pdBRIXtm Platform.
  dataPOWER ® YMS Platform. data data dP tm dP tm dP tm dP tm dP tm dP tm dP tm
  Mæstria®FDC Software.
  data data
  Customers
      Sales and
    Marketing
     6




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Research
    and Development
      Competition
    and/or
   7




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Employees
      Executive
    Officers
    Name

Age

PositionJohn K. Kibarian, Ph.D.


43


Chief Executive Officer, President and DirectorKeith A. Jones


37


Chief Financial Officer and Vice President, FinanceDavid A. Joseph


54


Chief Strategy OfficerRebecca Baybrook, Ph.D.


56


Vice President, Human ResourcesCees Hartgring, Ph.D.


54


Vice President, Client Services and SalesAndre Hawit


46


Vice President and General Manager, Yield Manufacturing SolutionsJames Jensen


55


Vice President, Business DevelopmentP. Steven Melman


53


Vice President, Investor Relations and Strategic InitiativesKimon Michaels, Ph.D.


41


Vice President, Design for Manufacturability   John K. Kibarian, Ph.D.
  Keith A. Jones
  David A. Joseph
  Rebecca Baybrook, Ph.D.
 8




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Cees Hartgring, Ph.D.
  Andre Hawit
  James Jensen
  P. Steven Melman
  Kimon Michaels, Ph.D.
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 9




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Item 1A.
    Risk
    Factors  If
    semiconductor designers and manufacturers do not continue to
    adopt our Design-to-Silicon-Yield solutions, we may be unable to
    increase or maintain our revenue.
    
    our customers failure to achieve satisfactory yield
    improvements using our Design-to-Silicon-Yield solutions;
    a decrease in demand for semiconductors generally or the slowing
    of demand for deep submicron semiconductors;
    our inability to develop, market, or sell effective solutions
    that are outside of our traditional MPS logic focus;
    our existing and potential customers delay in their
    adoption of the next process technology;
    the development in the industry of alternative methods to
    enhance the integration between the semiconductor design and
    manufacturing processes due to a rapidly evolving market and the
    emergence of new technologies;
    our existing and potential customers reluctance to
    understand and accept our innovative gainshare performance
    incentives fee component; and
    our customers concern about our ability to keep highly
    competitive information confidential.  We
    generate a large percentage of our total revenue from a limited
    number of customers, so the loss of any one of these customers
    could significantly reduce our revenue and results of operations
    below expectations.
    If
    integrated device manufacturers of logic integrated circuits
    reduce investment in new process technology as a result of a
    shift to a fabless manufacturing business model, the pool of
    potential logic customers for our yield ramp solutions will
    shrink and our results of operations may suffer.
   10




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If we
    do not effectively manage and support our operations and
    integrate recent and planned growth, our business strategy may
    fail.
    If we
    fail to protect our intellectual property rights, customers or
    potential competitors may be able to use our technologies to
    develop their own solutions which could weaken our competitive
    position, reduce our revenue, or increase our
    costs.
    Competition
    in the market for yield improvement solutions and increased
    integration between IC design and manufacturing may intensify in
    the future, which could impede our ability to grow or execute
    our strategy.
   11




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We
    face operational and financial risks associated with
    international operations that could negatively impact our
    revenue.
  non-U.S. operations
  
    some of our key engineers and other personnel are foreign
    nationals and they may have difficulty gaining access to the
    United States and other countries in which our customers or our
    offices may be located and it may be difficult for us to recruit
    and retain qualified technical and managerial employees in
    foreign offices;
    greater difficulty in collecting account receivables resulting
    in longer collection periods;
    language and other cultural differences may inhibit our sales
    and marketing efforts and create internal communication problems
    among our U.S. and foreign research and development teams,
    increasing the difficulty of managing multiple, remote locations
    performing various development, quality assurance, and yield
    ramp analysis projects;
    compliance with, and unexpected changes in, a wide variety of
    foreign laws and regulatory environments with which we are not
    familiar, including, among other issues, with respect to
    protection of our intellectual property, and a wide variety of
    trade and export controls under domestic, foreign, and
    international law;
    currency risk due to the fact that expenses for our
    international offices are denominated in the local currency,
    including the Euro, while virtually all of our revenue is
    denominated in U.S. dollars;
    quarantine, private travel limitation, or business disruption in
    regions affecting our operations, stemming from actual, imminent
    or perceived outbreak of human pandemic or contagious disease;
    in the event a larger portion of our revenue becomes denominated
    in foreign currencies, we would be subject to a potentially
    significant exchange rate risk; and
    economic or political instability, including but not limited to
    armed conflict, terrorism, and the resulting disruption to
    economic activity and business operations.    
    a downturn in Asian economies which could limit our ability to
    retain existing customers and attract new ones in Asia; and
    if the U.S. dollar increases in value relative to the
    Japanese Yen, the cost of our solutions will be more expensive
    to existing and potential Japanese customers and therefore less
    competitive.   12




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Our
    earnings per share and other key operating results may be
    unusually high in a given quarter, thereby raising
    investors expectations, and then unusually low in the next
    quarter, thereby disappointing investors, which could cause our
    stock price to drop.
    
    the size and timing of sales volumes achieved by our
    customers products;
    the loss of any of our large customers or an adverse change in
    any of our large customers businesses;
    the size of improvements in our customers yield and the
    timing of agreement as to those improvements;
    our long and variable sales cycle;
    changes in the mix of our revenue;
    changes in the level of our operating expenses needed to support
    our projected growth; and
    delays in completing solution implementations for our customers.  Revenue
    from our gainshare performance incentives is dependent on
    factors outside of our control, including the volume of
    integrated circuits that our customers are able to sell to their
    customers.
    Measurement
    of our gainshare performance incentives requires data collection
    and is subject to customer agreement, which can result in
    uncertainty and cause quarterly results to
    fluctuate.
   13




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Changes
    in the structure of our customer contracts, including the mix
    between fixed and variable revenue and the mix of elements, can
    adversely affect the size and timing of our total
    revenue.
    It
    typically takes us a long time to sell our unique solutions to
    new customers, which can result in uncertainty and delays in
    generating additional revenue.
    We
    have a history of losses, we may incur losses in the future and
    we may be unable to maintain profitability.
    
    funding for research and development;
    expansion of our solution implementation teams;
    expansion of our sales and marketing efforts; and
    additional non-cash charges relating to amortization of
    intangibles and stock-based compensation.    We may
    experience significant fluctuations in operating results due to
    the cyclical nature of the semiconductor industry.
   14




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We
    must continually attract and retain highly talented executives,
    engineers, and research and development personnel or we will be
    unable to expand our business as planned.
    If our
    products, technologies, services, and integrated solutions fail
    to keep pace with the rapid technological changes in the
    semiconductor industry, we could lose customers and
    revenue.
    We
    intend to pursue additional strategic relationships, which are
    necessary to maximize our growth, but could substantially divert
    management attention and resources.
    
    potential industry partners become concerned about our ability
    to protect their intellectual property;
    potential industry partners develop their own solutions to
    address the need for yield improvement;
    our potential competitors establish relationships with industry
    partners with which we seek to establish a relationship; or
    potential industry partners attempt to restrict our ability to
    enter into relationships with their competitors. 15




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Our
    solution implementations may take longer than we anticipate,
    which could cause us to lose customers and may result in
    adjustments to our operating results.
    Key
    executive officers are critical to our business and we cannot
    guarantee that they will remain with us
    indefinitely.
    Inadvertent
    disclosure of our customers confidential information could
    result in costly litigation and cause us to lose existing and
    potential customers.
    Our
    technologies could infringe the intellectual property rights of
    others causing costly litigation and the loss of significant
    rights.
    Defects
    in our proprietary technologies, hardware and software tools,
    and the cost of support to remedy any such defects could
    decrease our revenue and our competitive market
    share.
   16




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Failing
    to maintain the effectiveness of our internal control over
    financial reporting could cause the cost related to remediation
    to increase and could cause our stock price to
    decline.
  Form 10-K.
  We may
    not be able to expand our business and proprietary technologies
    if we do not consummate potential acquisitions or investments or
    successfully integrate them with our business.
    We may
    not be able to raise necessary funds to support our growth or
    execute our strategy.
    Recent
    acquisitions may adversely affect our business by diverting
    managements attention, increasing our expenses or by being
    more difficult to integrate than expected.
    
    consolidating research and development operations;
    retaining key employees;
    incorporating acquired products and business technology into our
    existing product lines;
    coordinating effective sales and marketing functions;
    preserving research and development, marketing, customer and
    other important relationships; and
    minimizing the diversion of managements attention from
    ongoing business concerns. 17




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If we
    were required to write down all or part of our goodwill, our net
    earnings and net worth could be materially adversely
    affected.
    Changes
    in effective tax rates could negatively affect our operating
    results.
    The
    uncertainty in the credit markets might impact the value of
    certain auction-rate securities we held at December 31,
    2007 and we might have to record impairment charges in the
    future.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   18




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PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities      2007

High


LowFirst Quarter

$
14.82


$
10.00Second Quarter

$
12.16


$
9.87Third Quarter

$
12.49


$
9.36Fourth Quarter

$
10.22


$
7.21   2006

High


LowFirst Quarter

$
19.85


$
16.50Second Quarter

$
19.36


$
11.00Third Quarter

$
13.35


$
9.50Fourth Quarter

$
15.70


$
10.79  19




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COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURNS*
    
       20




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Rule 10b-18(a)(3)
  ISSUER
    PURCHASES OF EQUITY SECURITIES
  MaximumDollarTotal Number of


Value of SharesShares


thatTotal





Purchased as Part


May YetNumber of


Average


of Publicly


Be PurchasedShares


Price Paid


Announced Plans or


Under the Plans orPeriod

Purchased


per Share


Programs(1)


Programs(1)Month #1 (October 1, 2007 through October 31, 2007)













$
10,000,000Month #2 (November 1, 2007 through November 30, 2007)


201,300


$
7.57



201,300


$
8,477,152Month #3 (December 1, 2007 through December 31, 2007)













$
8,477,152Total


201,300


$
7.57



201,300     (1)
    
    On March 26. 2003, our Board of Directors approved a share
    repurchase program to purchase up to $10.0 million of our
    outstanding common stock. The program was completed in August
    2007 with 987,808 shares repurchased at the average price
    of $10.12. On October 29, 2007, the Board of Directors
    approved a new program to repurchase up to an additional
    $10.0 million of the Companys common stock on the
    open market. The right of repurchase stock under this program
    will expire on October 29, 2010. As of December 31,
    2007, 201,300 shares had been repurchased under this
    program and $8.5 million remained available for repurchases.  Dividend
    Policy
   21




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Item 6.
    Selected
    Financial Data.  Form 10-K.
  Year Ended December 31,2007(3)


2006(2)


2005


2004


2003(1)(In thousands, except per share data)Consolidated Statements of Operations Data:Revenue:Design-to-silicon-yield solutions:Services

$
63,731


$
45,382


$
52,719


$
49,573


$
28,060Software licenses


6,645



10,774



9,319



4,971



7,569Gainshare performance incentives


24,087



20,028



11,890



7,802



6,897Total revenue


94,463



76,184



73,928



62,346



42,526Cost of design-to-silicon-yield solutions:Direct costs of design-to-silicon-yield solutions:Services


32,279



27,418



24,319



21,811



14,734Software licenses


191



209



293



83



23Amortization of acquired technology


5,148



5,270



5,064



5,209



2,168Total direct costs of design-to silicon-yield solutions


37,618



32,897



29,676



27,103



16,925Gross margin


56,845



43,287



44,252



35,243



25,601Operating expenses:Research and development


36,074



27,613



22,204



20,999



19,540Selling, general and administrative


24,891



19,814



16,146



15,243



12,770Amortization of other acquired intangible assets


3,422



1,459



940



1,406



547Write-off of in-process research and development






800











800Total operating expenses


64,387



49,686



39,290



37,648



33,657Income (loss) from operations


(7,542
)


(6,399
)


4,962



(2,405
)


(8,056
)Interest and other income, net


1,891



2,827



1,658



675



1,195Income (loss) before taxes


(5,651
)


(3,572
)


6,620



(1,730
)


(6,861
)Income tax provision (benefit)


(2,724
)


(3,133
)


96



(1,116
)


(2,345
)Net income (loss)

$
(2,927
)

$
(439
)

$
6,524


$
(614
)

$
(4,516
)Net income (loss) per share:Basic

$
(0.10
)

$
(0.02
)

$
0.25


$
(0.02
)

$
(0.19
)Diluted

$
(0.10
)

$
(0.02
)

$
0.24


$
(0.02
)

$
(0.19
)Weighted average common shares:Basic


28,066



26,885



25,983



25,330



23,278Diluted


28,066



26,885



27,473



25,330



23,278  22




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Accounting for Stock Issued to Employees Share-Based Paymen
    December 31,2007(3)


2006(2)


2005


2004


2003(1)(In thousands)Consolidated Balance Sheets Data:Cash and cash equivalents

$
35,315


$
36,451


$
60,506


$
45,660


$
39,110Short-term investments


9,949



16,402











Working capital


72,456



66,586



68,534



51,312



42,613Total assets


179,351



168,857



139,892



125,407



123,967Total stockholders equity


156,470



148,219



122,681



108,798



106,552     (1)
    
    In May 2003, we completed our acquisition of certain assets and
    liabilities of WaferYield, Inc., which related to wafer shot map
    optimization technology. The aggregate purchase price was
    $4.1 million, which included cash payments of
    $2.6 million and the recognition of $1.5 million in
    other liabilities associated with future payments that were
    contingent upon the attainment of certain revenue performance
    objectives.In September 2003, we completed our acquisition of all the
    outstanding stock of IDS which developed and sold yield
    management software applications and services. The aggregate
    purchase price was $51.0 million which included the payment
    in cash of $23.0 million, the issuance of 2.0 million
    shares of PDF common stock valued at $25.0 million, the
    assumption of stock options valued at $1.7 million and
    acquisition costs of $1.3 million.(2)
    
    In October 2006, we completed our acquisition of all the
    outstanding stock of SiA which developed and licensed fault
    detection and classification software applications and services.
    The aggregate purchase price of $36.6 million included the
    payment in cash of $25.5 million, the issuance of
    699,298 shares of PDF common stock valued at
    $9.4 million and acquisition costs of $1.7 million.(3)
    
    In May 2007, we completed our acquisition of all the outstanding
    stock of Fabbrix which developed DFM software applications. The
    aggregate purchase price of $6.2 million included the
    payment in cash of $2.7 million, the issuance of
    271,531 shares of PDF common stock valued at
    $2.9 million and acquisition costs of $674,000.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
     23




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##### Table of Contents



Industry
    Trend
    Financial
    Highlights
    
    Total revenue for the year ended December 31, 2007 was
    $94.5 million, an increase of 24% compared to the year
    ended December 31, 2006. Revenue from
    Design-to-Silicon-Yield solutions for the year ended
    December 31, 2007 increased to $70.4 million compared
    to $56.2 million for the year ended December 31, 2006.
    The increase, compared to the year ended December 31, 2006,
    was primarily the result of increases in services revenue of
    $18.3 million, partially offset by a decrease in revenue
    from software licenses of $4.1 million. The revenue derived
    from the gainshare performance incentives component for the year
    ended December 31, 2007 increased 20%, to
    $24.1 million from $20.0 million for the year ended
    December 31, 2006. Our gainshare performance incentives
    revenue may continue to fluctuate from quarter-to-quarter as a
    result of each customers individual contractual
    performance measures for achieving gainshare performance
    incentives as well as each customers production volumes in
    any given period.
    Net loss of $2.9 million was reported for the year ended
    December 31, 2007, compared to net loss of $439,000 for the
    year ended December 31, 2006. The increase in net loss was
    primarily attributable to increases in operating expenses and
    amortization of acquired intangible assets, both primarily the
    result of the acquisitions of SiA in October 2006 and Fabbrix in
    May 2007. Net loss for the year ended December 31, 2007
    included $16.9 million in stock-based compensation,
    amortization of acquired intangible assets and the 24




---



##### Table of Contents




    Net loss per basic and diluted share was $0.10 for the year
    ended December 31, 2007 compared to net loss per basic and
    diluted share of $0.02 for the year ended December 31, 2006.
    Cash, cash equivalents and short-term investments decreased
    $7.6 million to $45.3 million during the year ended
    December 31, 2007. Net cash provided by operating
    activities for the year ended December 31, 2007 totaled
    $1.4 million. Net cash used in investing activities for the
    year ended December 31, 2007 included $1.9 million as
    final payments for our acquisition of SiA, a $2.7 million
    payment for our acquisition of Fabbrix, and $2.2 million to
    purchase property and equipment. Net cash used in financing
    activities for the year ended December 31, 2007 totaled
    $3.7 million which primarily related to $6.0 million
    in purchase of treasury stock, partially offset by the exercise
    of employee stock options and purchases under the employee stock
    purchase plan of $2.9 million.  Acquisitions
  18-month 36-month
    Critical
    Accounting Policies
   25




---



##### Table of Contents



General
    Revenue
    Recognition
  No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts SOP No. 97-2, Software Revenue Recognition
  Design-to-Silicon-Yield Solutions
  Services
     26




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##### Table of Contents



Software Licenses
  Gainshare Performance Incentives
  Software
    Development Costs
  Computer Software to be Sold, Leased or Otherwise
    Marketed
  Goodwill
    and Acquired Intangible Assets
  Goodwill and Other Intangible
    Assets
   27




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##### Table of Contents



Income
    Taxes
    Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109
  Stock-Based
    Compensation
  Accounting for Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosures
 28




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##### Table of Contents



Recent
    Accounting Pronouncements and Accounting Changes
  Form 10-K
  Results
    of Operations
    December 31,Years Ended2007


2006


2005Revenues:Design-to-silicon-yield solutions:Services


67
%


60
%


71
%Software licenses


7



14



13Gainshare performance incentives


26



26



16Total revenues


100
%


100
%


100
%Cost of design-to-silicon-yield solutions:Direct costs of design-to-silicon-yield solutions:Services


34



36



33Software licenses










Amortization of acquired technology


6



7



7Total cost of design-to silicon-yield solutions


40



43



40Gross margin


60



57



60Operating expenses:Research and development


38



37



30Selling, general and administrative


26



26



22Amortization of other acquired intangible assets


4



2



1Write-off of in-process research and development






1



Total operating expenses


68



66



53Income (loss) from operations


(8
)


(9
)


7Interest and other income, net


2



4



2Income (loss) before taxes


(6
)


(5
)


9Income tax provision (benefit)


(3
)


(4
)


Net income (loss)


(3
)%


(1
)%


9
%  29




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##### Table of Contents



Years
    Ended December 31, 2007 and 2006
  2007


2006$


%


% of


% ofRevenue

2007


2006


Change


Change


Revenue


Revenue(In thousands, except for %s)Design-to-silicon-yield solutions:Services

$
63,731


$
45,382


$
18,349



40
%


67
%


60
%Software licenses


6,645



10,774



(4,129
)


(38
)


7



14Gainshare performance incentives


24,087



20,028



4,059



20



26



26Total

$
94,463


$
76,184


$
18,279



24
%


100
%


100
%   Design-to-Silicon-Yield
    Solutions.
  Services.
  Software licenses.
  Gainshare Performance Incentives.
  2007


2006$


%


% of


% ofCost of Design-to-Silicon-Yield Solutions

2007


2006


Change


Change


Revenue


Revenue(In thousands, except for %s)Direct costs of design-to-silicon-yield solutions:Services

$
32,279


$
27,418


$
4,861



18
%


34
%


36
%Software licenses


191



209



(18
)


(9
)






Amortization of acquired technology


5,148



5,270



(122
)


(2
)


6



7Total

$
37,618


$
32,897


$
4,721



14
%


40
%


43
%  30




---



##### Table of Contents



Direct Costs of Design-to-Silicon-Yield
    Solutions.
  Services.
  Software Licenses.
  Amortization of Acquired
    Technology.
  2007

2006$

%

% of

% ofResearch and Development

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Research and development

$
36,074


$
27,613


$
8,461



31
%


38
%


37
%   Research and Development.
  2007

2006$

%

% of

% ofSelling, General and Administrative

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Selling, general and administrative

$
24,891


$
19,814


$
5,077



26
%


26
%


26
%   Selling, General and Administrative.
 31




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##### Table of Contents



2007

2006$

%

% of

% ofAmortization of Other Acquired Intangible Assets

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Amortization of other acquired intangible assets

$
3,422


$
1,459


$
1,963



135
%


4
%


2
%   Amortization of Other Acquired Intangible
    Assets.
  2007

2006$

%

% of

% ofWrite-off of In-Process Research and Development

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Write-off of in-process research and development

$



$
800


$
(800
)


(100
)%



%


1
%   Write-off of In-process Research and
    Development.
  2007

2006$

%

% of

% ofInterest and Other Income, Net

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Interest and other income, net

$
1,891


$
2,827


$
(936
)


(33
)%


2
%


4
%   Interest and Other Income, Net.
  2007

2006$

%

% of

% ofIncome Tax Provision (Benefit)

2007

2006

Change

Change

Revenue

Revenue(In thousands, except for %s)Income tax provision (benefit)

$
(2,724
)

$
(3,133
)

$
409



(13
)%


(3
)%


(4
)%   Income Tax Provision (Benefit).
 32




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##### Table of Contents



Years
    Ended December 31, 2006 and 2005
  2006


2005$


%


% of


% ofRevenue

2006


2005


Change


Change


Revenue


Revenue(In thousands, except for %s)Design-to-silicon-yield solutions:Services

$
45,382


$
52,719


$
(7,337
)


(14
)%


60
%


71
%Software licenses


10,774



9,319



1,455



16



14



13Gainshare performance incentives


20,028



11,890



8,138



68



26



16Total

$
76,184


$
73,928


$
2,256



3
%


100
%


100
%   Design-to-Silicon-Yield
    Solutions.
  Services.
  Software licenses.
  Gainshare Performance Incentives.
  2006


2005$


%


% of


% ofCost of Design-to-Silicon-Yield Solutions

2006


2005


Change


Change


Revenue


Revenue(In thousands, except for %s)Direct costs of design-to-silicon-yield solutions:Services

$
27,418


$
24,319


$
3,099



13
%


36
%


33
%Software licenses


209



293



(84
)


(29
)






Amortization of acquired technology


5,270



5,064



206



4



7



7Total

$
32,897


$
29,676


$
3,221



11
%


43
%


40
%   Direct Costs of Design-to-Silicon-Yield
    Solutions.
  Services.
 33




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##### Table of Contents



Software Licenses.
  Amortization of Acquired Technology.
  2006

2005$

%

% of

% ofResearch and Development

2006

2005

Change

Change

Revenue

Revenue(In thousands, except for %s)Research and development

$
27,613


$
22,204


$
5,409



24
%


37
%


30
%   Research and Development.
  2006

2005$

%

% of

% ofSelling, General and Administrative

2006

2005

Change

Change

Revenue

Revenue(In thousands, except for %s)Selling, general and administrative

$
19,814


$
16,146


$
3,668



23
%


26
%


22
%   Selling, General and Administrative.
  2006

2005$

%

% of

% ofAmortization of Other Acquired Intangible Assets

2006

2005

Change

Change

Revenue

Revenue(In thousands, except for %s)Amortization of other acquired intangible assets

$
1,459


$
940


$
519



55
%


2
%


1
%   Amortization of Other Acquired Intangible
    Assets.
  2006


2005$


%


% of


% ofWrite-off of In-Process Research and Development

2006


2005


Change


Change


Revenue


Revenue(In thousands, except for %s)Write-off of in-process research and development

$
800


$



$
800



N/A



1
%


   Write-off of In-process Research and
    Development.
 34




---



##### Table of Contents



2006

2005$

%

% of

% ofInterest and Other Income, Net

2006

2005

Change

Change

Revenue

Revenue(In thousands, except for %s)Interest and other income, net

$
2,827


$
1,658


$
1,169



71
%


4
%


2
%   Interest and Other Income, Net.
  2006

2005$

%

% of

% ofIncome Tax Provision (Benefit)

2006

2005

Change

Change

Revenue

Revenue(In thousands, except for %s)Income tax provision (benefit)

$
(3,133
)

$
96


$
(3,229
)


(3,364
)%


(4
)%


   Income Tax Provision (Benefit).
  Liquidity
    and Capital Resources
  Operating
    Activities
      Investing
    Activities
    Financing
    Activities
   35




---



##### Table of Contents



Liquidity
      Form 10-K
  Off-Balance
    Sheet Arrangements
     36




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodContractual Obligations

2008


2009-2010


2011-2012


Thereafter


Other


TotalDebt principal(1)

$
307


$
759


$
117


$



$



$
1,183Debt interest


27



32



5











64Capital lease obligations (including interest)


107



50



2











159Operating lease obligations


1,719



4,607



4,240



1,523







12,089Unrecognized tax benefits(2)


















5,581



5,581Total

$
2,160


$
5,448


$
4,364


$
1,523


$
5,581


$
19,076     (1)
    
    Amount represents the repayment of an interest free loan of
    550,000 and a 400,000 euros loan with a variable
    interest rate based on the EURIBOR plus 160 basis points.(2)
    
    Due to the inherent uncertainty of the tax positions, it is not
    practicable to assign this liability to any particular years in
    the table.    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk.
   37




---



##### Table of Contents



other-than-temporarily
  Foreign Currency and Exchange Risk.
  Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e) Form 10-K,
  Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f) Internal
    Control  Integrated Framework
    Changes
    in Internal Control
  Rule 13a-15 Rule 15d-15
 38




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
  Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109 Share-Based Payment, No. 06-02, Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43.
  DELOITTE &
    TOUCHE LLP
    39




---



##### Table of Contents



Item 9B.
    Other
    Information.   PART III  Form 10-K, Form 10-K
  Item 10.
    Directors
    and Executive Officers of the Registrant.  Form 10-K.
    Form 8-K.
  Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accounting Fees and Services.    Non-Audit
    Services Provided by Independent Registered Public Accounting
    Firm
    
    International tax planning and tax compliance services. 40




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.              Form 10-K.
 41




---



##### 



PDF
    SOLUTIONS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PagePDF SOLUTIONS, INCReport of Independent Registered Public
    Accounting Firm

F-2Consolidated Balance Sheets as of
    December 31, 2007 and 2006

F-3Consolidated Statements of Operations for each of
    the Three Years in the Period Ended December 31, 2007

F-4Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for each of the Three
    Years in the Period Ended December 31, 2007

F-5Consolidated Statements of Cash Flows for each of
    the Three Years in the Period Ended December 31, 2007

F-6Notes to Consolidated Financial Statements

F-7   F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Share-Based
    Payments, No. 06-02, Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43, Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109
  Internal Control  Integrated Framework
   DELOITTE &
    TOUCHE LLP
    F-2




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands,except par values)ASSETSCurrent assets:Cash and cash equivalents

$
35,315


$
36,451Short-term investments


9,949



16,402Accounts receivable, net of allowances of $254 in 2007 and $294
    in 2006


38,526



27,575Prepaid expenses and other current assets


3,354



2,796Deferred tax assets


1,676



2,581Total current assets


88,820



85,805Property and equipment, net


3,621



3,916Goodwill


65,170



60,034Intangible assets, net


12,818



13,605Deferred tax assets and other assets


8,922



5,497Total assets

$
179,351


$
168,857LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt

$
421


$
302Accounts payable


3,469



3,182Accrued compensation and related benefits


5,950



3,325Other accrued liabilities


2,604



3,843Taxes payable


208



4,767Deferred revenues


3,159



3,705Billings in excess of recognized revenue


553



95Total current liabilities


16,364



19,219Long-term debt


907



1,198Long-term taxes payable


5,581



Other liabilities


29



221Total liabilities


22,881



20,638Commitments and contingencies (Notes 6 and 11)Stockholders equity:Preferred stock, $0.00015 par value, 5,000 shares
    authorized, no shares issued and outstanding






Common stock, $0.00015 par value, 70,000 shares
    authorized: shares issued 29,122 in 2007 and 28,498 in 2006;
    shares outstanding 27,933 in 2007 and 27,948 in 2006


4



4Additional paid-in capital


181,566



167,323Treasury stock at cost, 1,190 shares in 2007 and
    551 shares in 2006


(11,524
)


(5,549
)Accumulated deficit


(16,892
)


(13,890
)Accumulated other comprehensive income


3,316



331Total stockholders equity


156,470



148,219Total liabilities and stockholders equity

$
179,351


$
168,857    F-3




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(In thousands,except per share amounts)Revenues:Design-to-silicon-yield
    solutions:Services

$
63,731


$
45,382


$
52,719Software licenses


6,645



10,774



9,319Gainshare performance incentives


24,087



20,028



11,890Total revenues


94,463



76,184



73,928Cost of
    design-to-silicon-yield
    solutions:Direct costs of
    design-to-silicon-yield
    solutions:Services


32,279
(1)


27,418
(1)


24,319Software licenses


191



209



293Amortization of acquired technology


5,148



5,270



5,064Total cost of
    design-to-silicon-yield
    solutions


37,618



32,897



29,676Gross margin


56,845



43,287



44,252Operating expenses:Research and development


36,074
(1)


27,613
(1)


22,204Selling, general and administrative


24,891
(1)


19,814
(1)


16,146Amortization of other acquired intangible assets


3,422



1,459



940Write-off of in-process research and development






800



Total operating expenses


64,387



49,686



39,290Income (loss) from operations


(7,542
)


(6,399
)


4,962Interest and other income, net


1,891



2,827



1,658Income (loss) before taxes


(5,651
)


(3,572
)


6,620Income tax provision (benefit)


(2,724
)(2)


(3,133
)(2)


96Net income (loss)

$
(2,927
)

$
(439
)

$
6,524Net income (loss) per share:Basic

$
(0.10
)

$
(0.02
)

$
0.25Diluted

$
(0.10
)

$
(0.02
)

$
0.24Weighted average common shares:Basic


28,066



26,885



25,983Diluted


28,066



26,885



27,473       (1)
    
    Costs and expenses for the year ended December 31, 2007 and
    December 31, 2006 include SFAS No. 123(R)
    stock-based compensation expense. See Notes 1 and 7 to the
    consolidated financial statements for additional information.(2)
    
    Tax benefit includes income tax benefit from stock-based
    compensation. F-4




---



##### Table of Contents





PDF
    SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 AND
    COMPREHENSIVE INCOME (LOSS)
  Notes





AccumulatedAdditional


Deferred








Receivable





OtherCommon Stock


Paid-In


Stock-Based


Treasury Stock


from


Accumulated


ComprehensiveShares


Amount


Capital


Compensation


Shares


Amount


Stockholders


Deficit


Income (Loss)


Total(In thousands)Balances, January 1, 2005


25,645


$
4


$
134,191


$
(148
)


506


$
(4,806
)

$
(550
)

$
(19,975
)

$
82


$
108,798Exercise of options


669







5,952



























5,952Issuance of common stock in connection with employee stock
    purchase plan


164







1,592



























1,592Stock-based compensation expense














114























114Reversal of stock-based compensation for terminated employees










(23
)


7























(16
)Acceleration of employee stock options










8



























8Acquisition of treasury stock in exchange for stockholder note
    receivable


(45
)














45



(743
)


550











(193
)Net income






























6,524Cumulative translation adjustment


































(98
)Comprehensive loss






































6,426Balances, December 31, 2005


26,433



4



141,720



(27
)


551



(5,549
)






(13,451
)


(16
)


122,681Exercise of options


639







6,021



























6,021Issuance of common stock in connection with employee stock
    purchase plan


177







1,752



























1,752Issuance of common stock in connection with acquisition


699







9,362



























9,362Reversal of deferred stock-based compensation expense










(27
)


27























Stock-based compensation expense










7,351



























7,351Tax benefit related to stock-based compensation expense










1,144



























1,144Net loss






























(439
)Cumulative translation adjustment


































347Comprehensive loss






































(92
)Balances, December 31, 2006


27,948



4



167,323







551



(5,549
)






(13,890
)


331



148,219Exercise of options


182







1,442



























1,442Issuance of common stock in connection with employee stock
    purchase plan


170







1,490



























1,490Issuance of common stock in connection with acquisition


272







2,874



























2,874Purchases of treasury stock


(639
)














639



(5,975
)














(5,975
)Stock-based compensation expense










8,229



























8,229Tax benefit related to stock-based compensation expense










208



























208Net loss






























(2,927
)Cumulative translation adjustment, net of tax effect


































2,982Unrealized gain on investments


































3Comprehensive loss






































58Cumulative effect from adoption of FIN No. 48






























771







771Cumulative effect from adoption of EITF
    No. 06-2,
    net of tax effect






























(846
)






(846
)Balances, December 31, 2007


27,933


$
4


$
181,566


$




1,190


$
(11,524
)

$



$
(16,892
)

$
3,316


$
156,470    F-5




---



##### Table of Contents





PDF
    SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Operating activities:Net income (loss)

$
(2,927
)

$
(439
)

$
6,524Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


2,070



2,103



2,235Stock-based compensation expense


8,229



7,351



106Loss on disposal of property, plant and equipment






61



Amortization of acquired intangible assets


8,637



6,729



6,004Tax benefit related to stock-based compensation expense


208



1,144



Excess tax benefit from stock-based compensation expense


(44
)


(463
)


Write-off of in-process research and development






800



Deferred taxes


(5,494
)


(6,864
)


(1,900
)Changes in operating assets and liabilities, net of effect of
    acquisition:Accounts receivable, net of allowances


(10,951
)


(3,648
)


(6,104
)Prepaid expenses and other assets


(510
)


(67
)


475Accounts payable


59



391



783Accrued compensation and related benefits


1,182



(2,402
)


1,713Other accrued liabilities


(794
)


(1,582
)


(1,124
)Taxes payable


1,793



(184
)


1,664Deferred revenues


(546
)


1,206



(624
)Billings in excess of recognized revenue


458



(1,509
)


23Net cash provided by operating activities


1,370



2,627



9,775Investing activities:Purchases of
    available-for-sale
    securities


(26,803
)


(45,823
)


Maturities and sales of
    available-for-sale
    securities


33,818



31,700



Purchases of property and equipment


(2,226
)


(2,433
)


(2,320
)Business acquired in purchase transactions, net of cash acquired


(4,586
)


(18,658
)


Net cash provided by (used in) investing activities


203



(35,214
)


(2,320
)Financing activities:Exercise of stock options


1,442



6,021



5,952Proceeds from employee stock purchase plan


1,490



1,752



1,592Purchases of treasury stock


(5,975
)






Principal payments on long-term obligations


(324
)


(23
)


(55
)Principal payments on notes to stockholders


(416
)






Excess tax benefit from stock-based compensation expense


44



463



Net cash provided by (used in) financing activities


(3,739
)


8,213



7,489Effect of exchange rate changes on cash and cash equivalents


1,030



319



(98
)Net increase (decrease) in cash and cash equivalents


(1,136
)


(24,055
)


14,846Cash and cash equivalents, beginning of period


36,451



60,506



45,660Cash and cash equivalents, end of period

$
35,315


$
36,451


$
60,506Non-cash investing and financing activities:Repurchase of common stock through cancellation of notes
    receivable

$



$



$
743Purchase price adjustments

$
9


$
923


$
Reversal of deferred stock compensation

$



$
27


$
Purchase of property and equipment on account

$
38


$
28


$
22Stock issued for acquisitions

$
2,874


$
9,362


$
Supplemental disclosure of cash flow information:Cash paid during the year for:Taxes

$
634


$
2,808


$
241Interest

$
48


$
5


$
4    F-6




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Years
    Ended December 31, 2007, 2006, and 2005
  1.
    Business
    and Significant Accounting Policies    Basis of Presentation
    Significant Estimates
  Certain Significant Risks and Uncertainties
  Concentration of Credit Risk
    Cash Equivalents
  Accounts Receivable
 F-7




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property and Equipment
  Computer and equipment


3 yearsSoftware


3 yearsFurniture, fixtures, and equipment


5-7 yearsLeasehold improvements


Shorter of estimated useful life or term of leaseAssets acquired under capital lease


Shorter of estimated useful life or term of lease   Goodwill and Intangible Assets Goodwill and Other
    Intangible Assets
    December 31,














December 31,2006





Purchase





Foreign


2007Amortization


Net Carrying





Price





Currency


Net CarryingPeriod (Years)


Amount


Acquisitions


Adjustments


Amortization


Translation


AmountGoodwill


N/A


$
60,034


$
2,155


$
6


$



$
2,975


$
65,170Acquired identifiable intangibles:Acquired technology


4-5


$
7,901


$
6,430


$



$
(5,147
)





$
9,184Brand name


4



822











(461
)






361Customer relationships and backlog


1-6



4,362











(2,550
)






1,812Patent and applications


7







1,400







(117
)






1,283Other acquired intangibles


4



520











(362
)


20



178Total





$
13,605


$
7,830


$



$
(8,637
)

$
20


$
12,818   December 31,














December 31,2005





Purchase





Foreign


2006Amortization


Net Carrying





Price





Currency


Net CarryingPeriod (Years)


Amount


Acquisitions


Adjustments


Amortization


Translation


AmountGoodwill


N/A


$
39,886


$
21,071


$
(923
)

$



$



$
60,034Acquired identifiable intangibles:Acquired technology


4


$
8,221


$
4,950


$



$
(5,270
)





$
7,901Brand name


4



833



510







(521
)






822Customer relationships and backlog


1-6







4,860







(498
)






4,362Other acquired intangibles


4



733



255







(477
)


9



520Total





$
9,787


$
10,575


$



$
(6,766
)

$
9


$
13,605    F-8




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year Ending December 31,

Amount2008


3,2992009


3,2992010


3,0302011


1,8612012


1,048Thereafter


281Total

$
12,818   Long-lived Assets Accounting for the
    Impairment or Disposal of Long-Lived Assets.
    Revenue Recognition No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts SOP No. 97-2, Software Revenue Recognition,
  Design-to-Silicon-Yield Solutions
  Services
 F-9




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Software Licenses
  Gainshare Performance Incentives
 F-10




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Software Development Costs Computer Software to
    be Sold, Leased or Otherwise Marketed.
  Research and Development
  Stock-Based Compensation Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation  Transition and Disclosures.
    Income Taxes Accounting
    for Income Taxes
 F-11




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for Uncertainty
    in Income Taxes  An Interpretation of FASB Statement
    No. 109
  Foreign Currency Translation
  Comprehensive Income (Loss) Reporting Comprehensive Income,
  Balance at December 31,2007


2006Unrealized gain on short-term investments

$
3


$
Foreign currency translation adjustments


3,313



331Accumulated other comprehensive income

$
3,316


$
331   Fair Value of Financial Instruments
  Recent Accounting Pronouncements Fair Value
    Measurement, 157-1, Application of FASB Statement No. 157 to FASB Statement
    No. 13 and Other Accounting Pronouncements That Address
    Fair Value Measurements for Purposes of Lease Classification or
    Measurement under Statement 13 (FSP 157-1) FSP 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP 157-1 FSP 157-2
 F-12




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
  Business Combinations
  Other Accounting Changes No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43 No. 06-2). No. 06-2 No. 06-2
    2.
    Acquisitions  Fabbrix,
    Inc.
   F-13




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5-day Business Combinations
      AmortizationPeriodAllocation of Purchase Price

(Years)


AmountFair value of tangible assets (including cash of $62,000)





$
406Fair value of intangible assets:Developed technology


5



6,430Patent and applications


7



1,400Goodwill


N/A



2,155Total assets acquired






10,391Deferred tax liability






(3,210
)Notes to stockholders






(416
)Accrued liabilities






(364
)Accounts payable






(219
)Total liabilities assumed






(4,209
)Total consideration, net





$
6,182        F-14




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Si
    Automation S.A.
  18-month 36-month 5-day
    AmortizationPeriodAllocation of Purchase Price

(Years)


AmountFair value of tangible assets





$
11,496Fair value of intangible assets:Brand name


4



510Contract backlog


1



2,610Customer relationships


6



2,250Core technology


4



4,950Other


4



255In-process research and development


N/A



800Goodwill


N/A



21,071Total assets acquired






43,942Deferred tax liability






(3,440
)Bank debt and capital leases






(1,486
)Accrued liabilities






(1,104
)Accounts payable






(1,058
)Deferred revenue under maintenance obligations






(218
)Total liabilities assumed






(7,306
)Total consideration, net





$
36,636    F-15




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Year Ended December 31,2007


2006Revenue

$
94,463


$
81,462Net loss

$
(4,077
)

$
(5,422
)Pro forma net loss per share  basic and diluted

$
(0.14
)

$
(0.20
)Number of shares used to compute pro forma net loss per
    share  basic and diluted


28,179



27,740    F-16




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Investments    December 31, 2007Unrealized


UnrealizedAmortized Cost


Holding Gains


Holding Losses


Market ValueCommercial paper

$
12,500


$
3


$



$
12,503Auction rate securities


4,450











4,450Agency discount notes


1,543











1,543$
18,493


$
3


$



$
18,496Included in cash and cash equivalents













$
8,547Included in short-term investments














9,949Total













$
18,496   December 31, 2006Unrealized


UnrealizedAmortized Cost


Holding Gains


Holding Losses


Market ValueCommercial paper

$
13,307


$
1


$



$
13,308Auction rate securities


5,050











5,050Corporate bonds and notes


1,984







(1
)


1,983$
20,341


$
1


$
(1
)

$
20,341Included in cash and cash equivalents













$
3,939Included in short-term investments














16,402Total













$
20,341        F-17




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Property
    and Equipment    December 31,2007


2006Computer equipment

$
11,890


$
10,714Software


3,299



3,133Furniture, fixtures, and equipment


1,437



1,254Vehicles


36



60Leasehold improvements


558



52317,220



15,684Accumulated depreciation and amortization


(13,599
)


(11,768
)$
3,621


$
3,916   SFAS No. 13, Accounting for Leases.
  December 31,


December 31,2007


2006Computer and office equipment

$
205


$
424Vehicles


36



60Software


44



47285



531Accumulated depreciation and amortization


(172
)


(287
)$
113


$
244   5.
    Other
    Accrued Liabilities    December 31,2007


2006Amounts due to SiA shareholders

$



$
1,879Other accrued expenses


2,604



1,964Total other accrued expenses

$
2,604


$
3,843   6.
    Commitments
    and Contingencies  Leases
 F-18




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2008

$
1,7192009


2,4302010


2,1772011


2,1962012


2,045Thereafter


1,522Total future minimum lease payments

$
12,089     Year Ended December 31,2008

$
1072009


402010


102011


22012


Net minimum lease payments


159Less: amount representing interest


(14
)Present value of future minimum lease payments

$
145   Debt
    Year Ended December 31,

Principal


Interest2008

$
307


$
272009


350



202010


409



122011


117



5Total future minimum debt payments

$
1,183


$
64   Indemnifications
 F-19




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Indemnification of Officers and Directors
    7.
    Stockholders
    Equity    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007(1)


2006(1)


2005(2)Cost of design-to-silicon yield solutions

$
2,170


$
2,115


$
Research and development


2,619



2,229



98Selling, general and administrative


3,440



3,007



8Stock based compensation expense before income taxes

$
8,229


$
7,351


$
106     (1)
    
    Stock-based compensation expense computed under
    SFAS No. 123(R)(2)
    
    Stock-based compensation expense computed under APB No. 25   F-20




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31, 2005Net income as reported:

$
6,524Add: stock-based employee compensation expense included in
    reported net income under APB No. 25


106Deduct: total stock based employee compensation determined under
    fair value based method for all awards, net of related tax
    effects


(7,153
)Pro forma net loss

$
(523
)Basic net income (loss) per share:As reported

$
0.25Pro forma

$
(0.02
)Diluted net income (loss) per share:As reported

$
0.24Pro forma

$
(0.02
)      F-21




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Employee StockStock Plans


Purchase Plan2007


2006


2005


2007


2006


2005Expected life (in years)


5.9



5.7



5.5



0.74



0.95



0.79Volatility


57.9
%


60.4
%


55.3
%


55.5
%


50.3
%


39
%Risk-free interest rate


4.21
%


4.60
%


4.15
%


5.11
%


4.08
%


2.66
%Expected dividend






















     Stock Plans
     F-22




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Outstanding Options


WeightedWeighted


AverageAverage


Remaining


AggregateNumber of


Exercise Price


Contractual


Intrinsic ValueOptions


per Share


Term (years)


(in 000s)Outstanding, January 1, 2005 (2,368,598 shares vested
    and exercisable at a weighted average exercise price of $10.00
    per share)


4,952,282


$
9.72Granted (weighted average fair value of $7.75 per share)


1,625,205



14.39Exercised


(669,175
)


8.89Canceled


(215,888
)


9.83Expired


(18,379
)


14.33Outstanding, December 31, 2005 (2,877,674 shares
    vested and exercisable at a weighted average exercise price of
    $10.15 per share)


5,674,045



11.13Granted (weighted average fair value of $8.35 per share)


1,947,400



14.25Exercised


(638,610
)


9.43Canceled


(300,034
)


13.33Expired


(18,707
)


11.44Outstanding, December 31, 2006 (3,419,259 shares
    vested and exercisable at a weighted average exercise price of
    $10.64 per share)


6,664,094



12.11Granted (weighted average fair value of $5.47 per share)


2,077,878



9.50Exercised


(182,090
)


7.92Canceled


(256,234
)


14.15Expired


(288,728
)


13.23Outstanding, December 31, 2007


8,014,920



11.42



7.41



2,661Vested and expected to vest


7,414,409



11.45



7.26



2,628Exercisable, December 31, 2007


4,240,561


$
11.28



5.96


$
2,487      F-23




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding


Options ExercisableWeighted


Weighted





WeightedAverage


Average





AverageRemaining


Exercise


Number


ExerciseNumber


Contractual


Price per


Vested and


Price perRange of Exercise Prices

Outstanding


Life (Years)


Share


Exercisable


Share$0.15 - $0.15


3,332



0.5


$
0.15



3,332


$
0.15$0.53 - $0.53


333



2.0



0.53



333



0.53$1.13 - $1.13


26,836



4.2



1.13



26,836



1.13$1.88 - $1.88


16,666



2.4



1.88



16,666



1.88$3.78 - $5.40


197,895



4.6



5.16



197,895



5.16$6.00 - $9.00


2,073,402



8.3



8.27



678,037



7.00$9.01 - $13.35


2,707,202



6.4



11.05



1,885,873



11.11$13.60 - $19.00


2,989,254



7.8



14.52



1,431,589



14.70$0.15 - $19.00


8,014,920



7.4



11.42



4,240,561



11.28     Weighted AverageMeasurementShares


Date Fair ValueNonvested, January 1, 2007





$
Granted


133,000



9.01Vested






Forfeited






Nonvested, December 31, 2007


133,000


$
9.01     Employee Stock Purchase Plan
 F-24




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Common Stock Options
    Stock Repurchase Program
  8.
    Net
    Income (Loss) Per Share    Year Ended December 31,2007


2006


2005Net income (loss)

$
(2,927
)

$
(439
)

$
6,524Denominator:Weighted average common shares outstanding


28,066



26,885



25,986Weighted average common shares outstanding subject to repurchase










(3
)Denominator for basic calculation, weighted average shares


28,066



26,885



25,983Dilutive common equivalent shares:Weighted average common shares outstanding subject to repurchase










3Effect of dilutive securities










1,487Denominator for diluted calculation, weighted average shares


28,066



26,885



27,473Net income (loss) per share  basic

$
(0.10
)

$
(0.02
)

$
0.25Net income (loss) per share  diluted

$
(0.10
)

$
(0.02
)

$
0.24  F-25




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31,2007


2006


2005Outstanding options


8,015



6,664



451   9.
    Income
    Taxes  Year Ended December 31,2007


2006


2005(In thousands)U.S.Current

$
(1,470
)

$
631


$
1,678Deferred


(1,744
)


(4,050
)


(1,882
)ForeignCurrent


260



204



168Withholding


758



335



150Deferred


(528
)


(253
)


(18
)Total provision (benefit)

$
(2,724
)

$
(3,133
)

$
96       Year Ended December 31,2007


2006


2005Federal statutory tax provision (benefit)

$
(1,978
)

$
(1,250
)

$
2,317State tax expense


(615
)


(632
)


(151
)Stock compensation expense


1,537



1,697



(1,322
)Write-off of in-process research and development






280



Meals and entertainment


57



18



22Tax credits


(1,512
)


(3,633
)


(701
)Foreign tax, net


22



477



101Other


(235
)


(90
)


(170
)Total

$
(2,724
)

$
(3,133
)

$
96    F-26




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year Ended December 31,2007


2006Net operating loss carry forward

$
251


$
1,162Research and development and other credit carry forward


8,824



7,559Accruals deductible in different periods


3,223



1,917Stock-based compensation


2,186



717Deferred tax assets


14,484



11,355Deferred tax liabilities  intangible assets


(4,350
)


(3,780
)Total

$
10,134


$
7,575            F-27




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31, 2007Gross unrecognized tax benefits at January 1, 2007

$
6,259Increases in tax positions for prior years


58Increases in tax positions for current year


1,613Lapse in statute of limitations


(70
)Gross unrecognized tax benefits at December 31, 2007


7,860   10.
    Customer
    and Geographic Information  Disclosures about Segments of an
    Enterprise and Related Information,
      Year Ended December 31,Customer

2007


2006


2005A


19
%


12
%


10
%B


16
%


25
%


13
%C


4
%


4
%


11
%D



%


1
%


15
%     December 31,Customer

2007


2006A


27
%


12
%B


15
%


18
%E


11
%


10
%F


6
%


12
%  F-28




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Percentage of





Percentage of





Percentage ofRevenues


Revenues


Revenues


Revenues


Revenues


RevenuesAsia

$
51,466



55
%

$
38,129



50
%

$
40,982



55
%United States


29,682



31



29,850



39



25,610



35Europe


13,315



14



8,205



11



7,336



10Total

$
94,463



100
%

$
76,184



100
%

$
73,928



100
%     11.
    Litigation    12.
    Employee
    Benefit Plan    13.
    Related
    Party Transactions     F-29




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    14.
    Selected
    Quarterly Financial Data (Unaudited)  Year Ended December 31, 2007Q1


Q2


Q3


Q4(In thousands, except for per share amounts)Total revenue

$
22,142


$
23,698


$
24,068


$
24,555Gross profit

$
12,800


$
14,979


$
14,637


$
14,429Total operating expenses

$
15,227


$
16,473


$
15,782


$
16,905Net income (loss)

$
(2,355
)

$
(701
)

$
(939
)

$
1,068Net income (loss) per share:Basic

$
(0.08
)

$
(0.02
)

$
(0.03
)

$
0.04Diluted

$
(0.08
)

$
(0.02
)

$
(0.03
)

$
0.04   Year Ended December 31, 2006Q1


Q2


Q3


Q4(In thousands, except for per share amounts)Total revenue

$
19,857


$
18,010


$
19,364


$
18,953Gross profit

$
12,151


$
10,070


$
11,306


$
9,760Total operating expenses

$
11,447


$
11,972


$
11,679


$
14,588Net income

$
268


$
(847
)

$
570


$
(430
)Net income (loss) per share:Basic

$
0.01


$
(0.03
)

$
0.02


$
(0.02
)Diluted

$
0.01


$
(0.03
)

$
0.02


$
(0.02
)  F-30




---



##### Table of Contents



SIGNATURES      By:
    /s/  John
    K. Kibarian     By:
    /s/  Keith
    A. Jones   
    POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title/s/  JOHN
    K. KIBARIANJohn
    K. Kibarian

Director, President and Chief Executive Officer 
    (Principal Executive Officer)/s/  KEITH
    A. JONESKeith
    A. Jones

Chief Financial Officer and Vice President, Finance
    (Principal Financial and Accounting Officer)/s/  KIMON
    MICHAELSKimon
    Michaels

Director, Vice President, Design for Manufacturability/s/  LUCIO
    L. LANZALucio
    L. Lanza

Chairman of the Board of Directors/s/  R.
    STEPHEN HEINRICHSR.
    Stephen Heinrichs

Director, Lead Independent Director/s/  SUSAN
    BILLATSusan
    Billat

Director/s/  TOM
    CAULFIELDTom
    Caulfield

Director/s/  ALBERT
    Y. C. YUAlbert
    Y. C. Yu

Director




---



##### Table of Contents



SCHEDULE II
  PDF
    SOLUTIONS, INC.
  VALUATION
    AND QUALIFYING ACCOUNT
 Years
    Ended December 31, 2007, 2006, and 2005
  Balance at


Charged





Deductions/


BalanceBeginning


to Costs


Balance Assumed


Write-offs


at Endof Period


and Expenses


in Acquisition


of Accounts


of PeriodAllowance for doubtful accounts2007

$
294


$



$



$
40


$
2542006

$
254


$



$
40


$



$
2942005

$
254


$



$



$



$
254




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##### Table of Contents



INDEX TO
    EXHIBITS  ExhibitNumber

Description2
.01

Amended and Restated Agreement and Plan of Reorganization, dated
    September 2, 2003, by and among PDF Solutions, Inc., IDS
    Software Acquisition Corp., PDF Solutions, LLC and IDS Software
    Systems Inc.(5)3
.01

Third Amended and Restated Certificate of Incorporation of PDF
    Solutions, Inc.(1)3
.02

Amended and Restated Bylaws of PDF Solutions, Inc.(9)4
.01

Specimen Stock Certificate.(2)4
.02

Second Amended and Restated Rights Agreement dated July 6,
    2001.(1)10
.01

Form of Indemnification Agreement between PDF Solutions, Inc.
    and each of its Officers and Directors.(1)(H)10
.02

1996 Stock Option Plan and related agreements.(1)*10
.03

1997 Stock Plan and related agreements.(1)*10
.04

2001 Stock Plan and related agreements.(8)*10
.05

2001 Employee Stock Purchase Plan.(1)*10
.06

2001 Stock Option/Stock Issuance Plan.(7)*10
.07

Lease Agreement between PDF Solutions, Inc. and Metropolitan
    Life Insurance Company dated April 1, 1996.(1)10
.08

Offer letter to P. Steven Melman dated July 9, 1998.(1)*10
.09

Offer letter to Cornelius D. Hartgring dated August 29,
    2002.(3)*10
.10

Amendment to Lease Agreement between PDF Solutions, Inc. and
    Metropolitan Life Insurance Company dated as of March 19,
    2003.(4)10
.11

Office Lease between PDF Solutions, Inc. and 15015 Avenue of
    Science Associates LLC dated as of April 1, 2003.(4)10
.12

Andre Hawit Employment Offer letter agreement dated
    September 24, 2003 by and between PDF Solutions Inc. and
    Andre Hawit.(6)*10
.13

Indemnity Agreement with Kevin MacLean, incorporated by
    reference to the Registrants standard form of
    Indemnification Agreement.(9)10
.14

Indemnity Agreement with Albert Y. C. Yu, incorporated by
    reference to the Registrants standard form of
    Indemnification Agreement.(9)10
.15

Indemnity Agreement with R. Stephen Heinrichs, incorporated by
    reference to the Registrants standard form of
    Indemnification Agreement.(9)10
.16

Offer letter to Keith A. Jones dated October 10, 2005.(10)*10
.17

Lease Agreement between PDF Solutions, Inc. and Legacy Partners
    I Riverpark I, LLC, dated June 29, 2007.21
.01

Subsidiaries of Registrant.23
.01

Consent of Independent Registered Public Accounting Firm.24
.01

Power of Attorney (see Signature Page).31
.01

Certifications of Chief Executive Officer and Chief Financial
    Officer Pursuant to Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.02

Certifications of Chief Executive Officer and Chief Financial
    Officer Pursuant to Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.01

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.32
.02

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.




---



##### Table of Contents



(1)
    
    Incorporated by reference to PDFs Registration Statement
    on
    Form S-1,
    as amended (File
    No. 333-43192).(2)
    
    Incorporated by reference to PDFs Report on
    Form 10-Q
    filed September 6, 2001 (File
    No. 000-31311).(3)
    
    Incorporated by reference to PDFs Report on
    Form 10-K
    filed March 26, 2003 (File
    No. 000-31311).(4)
    
    Incorporated by reference to PDFs Report
    Form 10-Q
    filed May 14, 2003 (File
    No. 000-31311).(5)
    
    Incorporated by reference to Exhibit 2.1 to PDFs
    Current Report on
    Form 8-K
    filed on September 25, 2003.(6)
    
    Incorporated by reference to PDFs report on
    Form 10-Q
    filed November 14, 2003 (File
    No. 000-31311).(7)
    
    Incorporated by reference to PDFs Registration Statement
    on
    Form S-8
    (File
    No. 333-109809).(8)
    
    Incorporated by reference to PDFs Definitive Proxy
    Statement filed April 15, 2004 (File
    No. 000-31311).(9)
    
    Incorporated by reference to PDFs Report on
    Form 10-Q
    filed August 9, 2005 (File
    No. 000-31311).(10)
    
    Incorporated by reference to Exhibit 10.1 to PDFs
    Current Report on
    Form 8-K
    filed on December 19, 2005.(H)
    
    Portions of this Exhibit have been omitted pursuant to a request
    for confidential treatment.*
    
    Indicates management contract or compensatory plan or
    arrangement.