##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, 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, 2006oro

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
    San Jose, California(Address of
    Registrants principal executive offices)

95110(Zip Code)   (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
 o þ 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


11Item 1B.

Unresolved Staff
    Comments


19Item 2.

Properties


19Item 3.

Legal
    Proceedings


19Item 4.

Submission of
    Matters to a Vote of Security Holders


19PART IIItem 5.

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


20Item 6.

Selected Financial
    Data


23Item 7.

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


24Item 7A.

Quantitative and
    Qualitative Disclosures about Market Risk


38Item 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


41PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


41Item 11.

Executive
    Compensation


41Item 12.

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


41Item 13.

Certain
    Relationships and Related Transactions


41Item 14.

Principal
    Accountant Fees and Services


41PART IVItem 15.

Exhibits and
    Financial Statement Schedules


42SignaturesIndex to
    ExhibitsEXHIBIT 21.01EXHIBIT 23.01EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02




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##### Table of Contents



PART I  Item 1.
    Business  Some of the statements contained or incorporated by reference
    in this Annual Report are forward-looking statements within the
    meaning of Section 27A of the Securities Act of 1933 and
    Section 21E of the Securities Exchange Act of 1934. Words
    such as 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.
    These statements are made based upon current expectations and
    projections about our business and the semiconductor industry
    and assumptions made by our management are not guarantees of
    future performance, nor do we assume any obligation to update
    such forward-looking statements after the date this report is
    filed. Our actual results could differ materially from those
    projected in the forward-looking statements for many reasons,
    including the risk factors listed in, Item 1A, Risk
    Factors. All forward-looking statements in this report are based
    on information available to us at the date of this report and we
    assume no obligation to update any such statements.
  The following information should be read in conjunction with
    the Consolidated Financial Statements and notes thereto included
    in our Annual Report. All references to fiscal year apply to our
    fiscal year which ends on December 31.
  Business
    Overview
  time-to-market, design-for-manufacturability
    Faster Time to Market. design-to-silicon
  Faster Time to Volume.
 1




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Increased Manufacturing Efficiencies.
    Extend Our Technology Leadership Position. ® ®
  Leverage Our Gain Share Business Model.
  Focus on Key IC Product Segments. system-on-a-chip,
  Expand Strategic Relationships. design-to-silicon ® i
  Industry
    Background
   2




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
    systematic yield loss, or non-functioning ICs resulting from the
    lack of compatibility between the 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
    
    Algorithms and software, such as:  
    modeling algorithms of the interaction between design layout and
    manufacturing processes, which creates layout pattern-dependent
    systematic yield models that encompass process technologies such
    as lithography, etch, interlayer dielectric chemical mechanical
    polishing (CMP), copper CMP, and shallow trench isolation CMP;
    pattern recognition algorithms, which allow us to categorize the
    yield-relevant elements of a design as a function of their
    layout, including the effects of their proximity to other
    elements;
    algorithms that compute an overall yield impact matrix for
    design as a function of layout elements and manufacturing yield
    models;
    hierarchical representation of the layout, which encompasses
    layout manufacturing process proximity effects and minimizes the
    time necessary for computation of systematic yield prediction;
    statistical process and device simulation, including simulation
    of circuit performance as a function of manufacturing process
    variations;
    algorithms for efficient storage, rapid retrieval, merging, and
    statistical analysis of very large and disparate manufacturing
    data sets;
    algorithms for detecting anomalies in a signal and monitoring a
    manufacturing system; 3




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
    algorithms for the visualization of spatial manufacturing data,
    including wafer map and defect data;
    algorithms for web-based reporting of manufacturing data
    analysis;
    algorithms for the optimization of reticle shot maps to improve
    the number of good die per wafer and or the throughput of the
    lithography cell;
    algorithms for the optimization of die placement on the wafer to
    improve the throughput of the test cell; and
    algorithms for the optimization of probe head stepping pattern
    on the wafer to improve the throughput of the test cell.
    Characterization
    Vehicle®
    test chip designs of experiments, layout designs, and layouts,
    all of which are used to characterize the manufacturing process,
    and establish fail-rate information needed to calibrate
    manufacturing yield models and build yield impact matrices;
    A highly parallel electrical functional-test system, comprised
    of hardware and software designed to provide an
    order-of-magnitude
    reduction in the time required to test our Characterization
    Vehicle®
    test chips; and
    Methodologies that our implementation teams use as guidelines to
    drive our customers adoption of our
    CV®
    test chips and technologies, quantify the yield impact of each
    module of the process and design block, simulate the impact of
    changes to the design and manufacturing process, and analyze the
    outcome of executing such changes.  ® ® ® dataPOWER® ® ® ® ® ® ® Design-to-Silicon-Yield tm tm tm tm
  Products
    And Services
    Manufacturing Process Solutions.
 4




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
    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:  Our volume manufacturing
    solutions are designed to enable our customers to extend our
    yield ramp services through the life of the process by
    continuing to collect test data and equipment signals during
    production and improving yield while reducing the overhead of
    manufacturing separate test wafers. Optional software modules
    allow customers to perform rapid yield signature detection,
    characterization and diagnosis at all levels of map analysis
    from memory bits to wafers to final packaged parts with die ID
    traceability. Our PCS offering enables our customers to monitor
    and control process signals to detect and diagnose yield loss
    related to equipment performance.  Design-for-Manufacturability
    Solutions.
  
    Logic DFM Solutions:  These 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 IC design. Our software
    helps designers optimize the yield of the logic portion by using
    process specific yield models, and technology files that include
    yield enhanced extensions to intellectual property design
    building block elements.
    Circuit Level DFM Solutions:  These
    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:  These solutions include
    software and services designed to optimize the memory redundancy
    and bit cell usage given a pre-characterized manufacturing
    process.    Characterization Vehicle
    (CV) infrastructure. i
  
    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 is
    then used to accumulate 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. 5




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
    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.
  dataPOWER tm YMS Platform. data data time-to-market
  Maestriatm
    FDC Software.
  data data Design-to-Silicon-Yield
  Customers
  Design-to-Silicon-Yield
   6




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Sales and
    Marketing
  Design-to-Silicon-Yield
        Research
    and Development
    Design-to-Silicon-Yield
  Competition
   7




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and/or
    
    demonstrated results and reputation;
    strength and breadth of existing customer relationships;
    breadth and effectiveness of sales channel;
    strength of core technology;
    ability to implement solutions for new technology and product
    generations;
    time to market; and
    strategic relationships.    Employees
     8




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Executive
    Officers
    Name

Age

PositionJohn K. Kibarian, Ph.D.


42


Chief Executive Officer, President
    and DirectorKeith A. Jones


36


Chief Financial Officer and Vice
    President, FinanceDavid A. Joseph


53


Chief Strategy OfficerRebecca Baybrook, Ph.D.


55


Vice President, Human ResourcesCees Hartgring, Ph.D.


53


Vice President and General
    Manager, Manufacturing Process SolutionsAndre Hawit


45


Vice President and General
    Manager, Yield Manufacturing SolutionsJames Jensen


54


Vice President, Engineering
    Services for Manufacturing Process SolutionsZia Malik


55


Vice President, SalesP. Steven Melman


52


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


40


Vice President, Field Operations
    for Manufacturing Process Solutions and Director   John K. Kibarian, Ph.D.
  Keith A. Jones
  David A. Joseph
  Rebecca Baybrook
  Cees Hartgring Ph.D.
 9




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




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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.



If semiconductor designers and manufacturers do not continue to
    adopt our
    Design-to-Silicon-Yield
    solutions, both as currently comprised and as we may offer them
    in the future, our revenue could decline. To be successful, we
    will need to continue to enter into agreements covering a larger
    number of IC products and processes with existing customers and
    new customers. We need to target as new customers additional
    integrated device manufacturers (IDM), fabless semiconductor
    companies, and foundries, as well as system manufacturers.
    Factors that may limit adoption of our
    Design-to-Silicon-Yield
    solutions by semiconductor companies include: 
    our customers failure to achieve satisfactory yield
    improvements using our
    Design-to-Silicon-Yield
    solutions;
    a decrease in demand for semiconductors generally or the demand
    for deep submicron semiconductors failing to grow as rapidly as
    expected;
    our inability to develop, market, or sell effective solutions
    that are outside of our traditional MPS logic focus;
    the industry may develop alternative methods to enhance the
    integration between the semiconductor design and manufacturing
    processes due to a rapidly evolving market and the likely
    emergence of new technologies;
    our existing and potential customers reluctance to
    understand and accept our innovative gain share 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.
  Design-to-Silicon-Yield
  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.
   11




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We
    must effectively manage and support our operations and recent
    and planned growth in order for our business strategy to
    succeed.
    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 solutions that address yield improvement and
    integration between IC design and manufacturing may intensify in
    the future, which could slow our ability to grow or execute our
    strategy.
   12




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We
    face operational and financial risks associated with
    international operations.
  non-U.S. operations
  
    some of our key engineers and other personnel who are foreign
    nationals 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.    
    any recurrence of an overall downturn in Asian economies 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. 13




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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.  Our
    gain share revenue is dependent on factors outside of our
    control, including the volume of integrated circuits, or ICs,
    our customers are able to sell to their customers.
    Gain
    share measurement requires data collection and is subject to
    customer agreement, which can result in uncertainty and cause
    quarterly results to fluctuate.
    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.
   14




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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.
  Design-to-Silicon-Yield
  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.
   15




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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.  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.
   16




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Key
    executives, including our chief executive officer and our chief
    strategy officer, 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.
   17




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We may
    have difficulty maintaining the effectiveness of our internal
    control over financial reporting.
  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.
  Design-to-Silicon-Yield
  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; 18




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
    preserving research and development, marketing, customer and
    other important relationships; and
    minimizing the diversion of managements attention from
    ongoing business concerns.  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   19




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PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities      2006

High


LowFirst Quarter

$
19.85


$
16.50Second Quarter

$
19.36


$
11.00Third Quarter

$
13.35


$
9.50Fourth Quarter

$
15.70


$
10.79   2005

High


LowFirst Quarter

$
16.15


$
13.25Second Quarter

$
13.90


$
11.41Third Quarter

$
17.76


$
13.15Fourth Quarter

$
17.33


$
14.48    20




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COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    
  *
    $100 invested on 12/31/01 in stock or index-including
    reinvestment of dividends.      Rule 10b-18(a)(3)
 21




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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,
    2006 through October 31, 2006)













$
4,451,236Month #2 (November 1,
    2006 through November 30, 2006)













$
4,451,236Month #3 (December 1,
    2006 through December 31, 2006)













$
4,451,236Total










     (1)
    
    On March 26, 2003, we announced that our Board of Directors
    approved a share repurchase program, pursuant to which up to
    $10.0 million of our outstanding common stock may be
    repurchased; the repurchase program has no set expiration or
    termination date. As of December 31, 2006,
    550,521 shares had been repurchased under this program at a
    weighted average per share price of $10.08 and approximately
    $4.5 million remained available for repurchases.  Dividend
    Policy
   22




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##### Table of Contents



Item 6.
    Selected
    Financial Data.  Form 10-K.
  Year Ended December 31,2006(2)


2005


2004


2003(1)


2002(In thousands, except per share data)Consolidated Statements of
    Operations Data:Revenue:Design-to-silicon-yield
    solutions:Integrated solutions

$
45,382


$
52,719


$
49,573


$
28,060


$
30,104Software licenses


10,774



9,319



4,971



7,569



3,581Gain share


20,028



11,890



7,802



6,897



10,039Total revenue


76,184



73,928



62,346



42,526



43,724Cost of
    design-to-silicon-yield
    solutions:Direct costs of
    design-to-silicon-yield
    solutions:Integrated solutions


27,418



24,319



21,811



14,734



15,812Software licenses


209



293



83



23



Amortization of acquired core
    technology


5,270



5,064



5,209



2,168



164Total direct costs of design-to
    silicon-yield solutions


32,897



29,676



27,103



16,925



15,976Gross margin


43,287



44,252



35,243



25,601



27,748Operating expenses:Research and development


27,613



22,204



20,999



19,540



16,588Selling, general and administrative


19,814



16,146



15,243



12,770



10,732Amortization of other acquired
    intangible assets


1,459



940



1,406



547



Write-off of in-process research
    and development


800











800



Total operating expenses


49,686



39,290



37,648



33,657



27,320Income (loss) from operations


(6,399
)


4,962



(2,405
)


(8,056
)


428Interest and other income, net


2,827



1,658



675



1,195



1,549Income (loss) before taxes


(3,572
)


6,620



(1,730
)


(6,861
)


1,977Income tax provision (benefit)


(3,133
)


96



(1,116
)


(2,345
)


1,453Net income (loss)

$
(439
)

$
6,524


$
(614
)

$
(4,516
)

$
524Net income (loss) per share:Basic

$
(0.02
)

$
0.25


$
(0.02
)

$
(0.19
)

$
0.02Diluted

$
(0.02
)

$
0.24


$
(0.02
)

$
(0.19
)

$
0.02Weighted average common shares:Basic


26,885



25,983



25,330



23,278



21,962Diluted


26,885



27,473



25,330



23,278



23,199   Accounting for Stock Issued to Employees
 23




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##### Table of Contents



Share-Based Paymen
    December 31,2006(2)


2005


2004


2003(1)


2002(In thousands)Consolidated Balance Sheets
    Data:Cash and cash equivalents

$
36,451


$
60,506


$
45,660


$
39,110


$
71,490Short-term investments


16,402















Working capital


66,586



68,534



51,312



42,613



73,569Total assets


168,857



139,892



125,407



123,967



89,047Total stockholders equity


148,219



122,681



108,798



106,552



78,742     (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 Si Automation 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.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements
  You should read the following discussion in conjunction with
    our consolidated financial statements and notes set forth under
    Item 8. Financial Statements and Supplementary
    Data and Risk Factors included in
    Item 1A. The results described below are not necessarily
    indicative of the results to be expected in any future period.
    Certain statements in this discussion and analysis, including
    statements regarding our strategy, financial performance and
    revenue sources, are forward-looking statements based on current
    expectations and entail various risks and uncertainties that
    could cause actual results to differ materially from those
    expressed in the forward-looking statements, including those
    described in Item 1A.Risk Factors and elsewhere
    in this
    Form 10-K.
  Overview
  time-to-market, design-for-manufacturability
 24




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##### Table of Contents



Design-to-Silicon-Yield
  Industry
    Trend
    Financial
    Highlights
    
    Total revenue for the year ended December 31, 2006 was
    $76.2 million, an increase of 3% compared to the year ended
    December 31, 2005. Revenue from
    Design-to-Silicon-Yield
    integrated solutions for the year ended December 31, 2006
    decreased to $45.4 million compared to $52.7 million
    for the year ended December 31, 2005. The decrease was
    primarily the result of a slower booking rate for new integrated
    solution engagements in the second half of 2005, which would
    have contributed to revenue in 2006, and the first half of 2006,
    coupled with late timing of new contracts signed in the second
    half of 2006. The decline in fixed fee integrated solutions
    revenue was partially offset by an increase in software
    maintenance revenue. Revenue from
    Design-to-Silicon-Yield
    software licenses for the year ended December 31, 2006
    increased to $10.8 million compared to $9.3 million
    for the year ended December 31, 2005. This increase was due
    to greater adoption of our software applications by new and
    existing customers and to the addition of new software offerings
    as a result of the acquisition of Si Automation in October 2006.
    Gain share revenue for the year ended December 31, 2006
    increased to $20.0 million compared to $11.9 million
    for the year ended December 31, 2005 as a result of
    increased wafer starts at our customers and a greater number of
    contracts reaching gain share thresholds. Our gain share revenue
    may continue to fluctuate from quarter to quarter as a result of
    each customers contractual performance measures for
    achieving gain share as well as each customers production
    volumes in any given period. 25




---



##### Table of Contents




    Net loss of $439,000 was reported for the year ended
    December 31, 2006, compared to net income of
    $6.5 million for the year ended December 31, 2005. The
    decrease in net income was primarily attributable to an overall
    $7.2 million increase in stock-based compensation expense
    recognized and allocated to all functional expense categories as
    a result of our adoption of SFAS No. 123(R) and
    increased operating expenses, partially offset by increased
    other income and tax benefits. The increase in operating
    expenses was mainly due to growth in headcount, an increase in
    amortization of other acquired intangible assets and the
    write-off of acquired in-process research and development as a
    result of the acquisition of Si Automation on October 31,
    2006. The tax benefit was the result of the realization of state
    and federal tax credits associated with the current and prior
    years. We will continue to monitor and control costs, relative
    to our revenue growth, however, we expect that the integration
    of Si Automation will materially increase our overall costs.
    Net loss per basic and diluted share was $0.02 for the year
    ended December 31, 2006 compared to a net income per
    diluted share of $0.24 for the year ended December 31,
    2005, a decrease of $0.26 per share. The net loss in fiscal
    2006 included $7.4 million in stock-based compensation
    expense related to the adoption of SFAS No. 123(R).
    Cash, cash equivalents and short-term investments decreased
    $7.7 million to $52.9 million during the year ended
    December 31, 2006, primarily a result of the acquisition of
    Si Automation. Net cash provided by operating activities and
    financing activities for the year ended December 31, 2006
    totaled $2.6 million and $8.2 million, respectively.
    Net cash used in investing activities for capital equipment and
    businesses acquired (net of cash acquired) for the year ended
    December 31, 2006 totaled $2.4 million and
    $18.7 million, respectively.  Acquisitions
  18-month 36-month
  Critical
    Accounting Policies
    General
   26




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##### Table of Contents



Revenue
    Recognition
  Design-to-Silicon-Yield 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 Design-to-Silicon-Yield Design-to-Silicon-Yield
  Integrated Solutions cost-to-cost
      Software Licenses
 27




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##### Table of Contents



Gain Share and/or Design-to-Silicon-Yield
  Software
    Development Costs
  Computer Software
    to be Sold, Leased or Otherwise Marketed
  Goodwill
    and Acquired Intangible Assets
  Goodwill and Other Intangible
    Assets
    Realization
    of Deferred Tax Assets
    Stock-Based
    Compensation
  Share-Based Paymen Accounting for Stock Issued to Employees
 28




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##### Table of Contents



Accounting for Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosures
 29




---



##### Table of Contents



Results
    of Operations
    Years EndedDecember 31,2006


2005


2004Revenues:Design-to-silicon-yield
    solutions:Integrated solutions


60
%


71
%


79
%Software licenses


14



13



8Gain share


26



16



13Total revenues


100
%


100
%


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


36



33



35Software licenses










Amortization of acquired core
    technology


7



7



8Total cost of design-to
    silicon-yield solutions


43



40



43Gross margin


57



60



57Operating expenses:Research and development


37



30



34Selling, general and administrative


26



22



25Amortization of other acquired
    intangible assets


2



1



2Write-off of in-process research
    and development


1







Total operating expenses


66



53



61Income (loss) from operations


(9
)


7



(4
)Interest and other income, net


4



2



1Income (loss) before taxes


(5
)


9



(3
)Income tax provision (benefit)


(4
)






(2
)Net income (loss)


(1
)%


9
%


(1
)%   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:Integrated solutions

$
45,382


$
52,719


$
(7,337
)


(14
)%


60
%


71
%Software licenses


10,774



9,319



1,455



16



14



13Gain share


20,028



11,890



8,138



68



26



16Total

$
76,184


$
73,928


$
2,256



3
%


100
%


100
%   Design-to-Silicon-Yield
    Solutions. Design-to-Silicon-Yield
 30




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##### Table of Contents



Integrated solutions.
  Software licenses.
  Gain Share. Design-to-Silicon-Yield
  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:Integrated solutions

$
27,418


$
24,319


$
3,099



13
%


36
%


33
%Software licenses


209



293



(84
)


(29
)






Amortization of acquired core
    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. Design-to-Silicon-Yield
  Integrated solutions. Design-to-Silicon-Yield
  Software Licenses. Design-to-Silicon-Yield
 31




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##### Table of Contents



Amortization of Acquired Core
    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


2005Amortization of Other Acquired







$


%


% of


% ofIntangible 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.
  32




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##### Table of Contents



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.
  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).
  Years
    Ended December 31, 2005 and 2004
  2005


2004$


%


% of


% ofRevenue

2005


2004


Change


Change


Revenue


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

$
52,719


$
49,573


$
3,146



6
%


71
%


79
%Software licenses


9,319



4,971



4,348



87



13



8Gain share


11,890



7,802



4,088



52



16



13Total

$
73,928


$
62,346


$
11,582



19
%


100
%


100
%   Design-to-Silicon-Yield
    Solutions. Design-to-Silicon-Yield
  Integrated solutions.
 33




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##### Table of Contents



Software licenses.
  Gain Share.
  2005


2004$


%


% of


% ofCost of
    Design-to-Silicon-Yield
    Solutions

2005


2004


Change


Change


Revenue


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

$
24,319


$
21,811


$
2,508



11
%


33
%


35
%Software licenses


293



83



210



253







Amortization of acquired core
    technology


5,064



5,209



(145
)


(3
)


7



8Total

$
29,676


$
27,103


$
2,573



9
%


40
%


43
%   Direct Costs of
    Design-to-Silicon-Yield
    Solutions. Design-to-Silicon-Yield
  Integrated solutions. Design-to-Silicon-Yield sub-contractor
  Software Licenses. Design-to-Silicon-Yield
    Amortization of Acquired Core Technology.
  2005


2004$


%


% of


% ofResearch and Development

2005


2004


Change


Change


Revenue


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

$
22,204


$
20,999


$
1,205



6
%


30
%


34
%   Research and Development.
  34




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##### Table of Contents



2005


2004$


%


% of


% ofSelling, General and Administrative

2005


2004


Change


Change


Revenue


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

$
16,146


$
15,243


$
903



6
%


22
%


25
%   Selling, General and Administrative.
  2005


2004Amortization of Other Acquired







$


%


% of


% ofIntangible Assets

2005


2004


Change


Change


Revenue


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

$
940


$
1,406


$
(466
)


(33
)%


1
%


2
%   Amortization of Other Acquired Intangible
    Assets.
  2005


2004$


%


% of


% ofInterest and Other Income, Net

2005


2004


Change


Change


Revenue


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

$
1,658


$
675


$
983



146
%


2
%


1
%   Interest and Other Income, Net.
  2005


2004$


%


% of


% ofIncome Tax Provision (Benefit)

2005


2004


Change


Change


Revenue


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

$
96


$
(1,116
)

$
1,212



(109
)%






(2
)%   Income Tax Provision (Benefit).
  Liquidity
    and Capital Resources
   35




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##### Table of Contents



Off-Balance
    Sheet Arrangements
     36




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##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodContractual Obligations

2007


2008-2009


2010-2011


Thereafter


TotalDebt principal(1)

$
185


$
594


$
475


$



$
1,254Debt interest


26



35



13







74Capital lease obligations
    (including interest)


134



128



10







272Operating lease obligations


2,736



907



306







3,949Total

$
3,081


$
1,664


$
804


$



$
5,549     (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.    Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income
    Taxes
  No. 06-2 06-2), Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43. 06-2 06-2 06-2 06-2
  Fair Value Measurement
   37




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk.
  Foreign Currency and Exchange Risk.
  Item 8.
    Financial
    Statements and Supplementary Data    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
    Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f). Internal Control 
    Integrated Framework
 38




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##### Table of Contents



Changes
    in Internal Control
  Rule 13a-15 Rule 15d-15
 39




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       Internal Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated
    Framework
  Share-Based
    Payment.
  DELOITTE &
    TOUCHE LLP
     40




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##### 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
       41




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.              Form 10-K.
 42




---



##### Table of Contents



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, 2006 and 2005


F-3Consolidated
    Statements of Operations for each of the Three Years in the
    Period Ended December 31, 2006


F-4Consolidated
    Statements of Stockholders Equity and Comprehensive Income
    (Loss) for each of the Three Years in the Period Ended
    December 31, 2006


F-5Consolidated
    Statements of Cash Flows for each of the Three Years in the
    Period Ended December 31, 2006


F-6Notes to
    Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Share-Based
    Payment.
  Internal Control 
    Integrated Framework
  DELOITTE &
    TOUCHE LLP
     F-2




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##### Table of Contents



PDF
    SOLUTIONS, INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2006


2005(In thousands,except par values)ASSETSCurrent assets:Cash and cash equivalents

$
36,451


$
60,506Short-term investments


16,402



Accounts receivable, net of
    allowances of $294 in 2006 and $254 in 2005


27,575



22,082Prepaid expenses and other current
    assets


2,796



1,992Deferred tax assets


2,581



908Total current assets


85,805



85,488Property and equipment, net


3,916



3,328Goodwill


60,034



39,886Intangible assets, net


13,605



9,787Deferred tax assets


4,994



877Other assets


503



526Total assets

$
168,857


$
139,892LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt

$
302


$
Accounts payable


3,182



1,728Accrued compensation and related
    benefits


3,325



4,922Other accrued liabilities


3,843



1,469Taxes payable


4,767



4,950Deferred revenues


3,705



2,281Billings in excess of recognized
    revenue


95



1,604Total current liabilities


19,219



16,954Long-term debt


1,198



Other liabilities


221



257Total liabilities


20,638



17,211Commitments and contingencies
    (Notes 5 and 10)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 and
    outstanding 27,948 in 2006 and 26,433 in 2005


4



4Additional paid-in capital


167,323



141,720Treasury stock at cost,
    551 shares repurchased


(5,549
)


(5,549
)Deferred stock-based compensation






(27
)Accumulated deficit


(13,890
)


(13,451
)Accumulated other comprehensive
    income (loss)


331



(16
)Total stockholders equity


148,219



122,681Total liabilities and
    stockholders equity

$
168,857


$
139,892    F-3




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##### Table of Contents



PDF
    SOLUTIONS, INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2006


2005


2004(In thousands,except per share amounts)Revenues:Design-to-silicon-yield
    solutions:Integrated solutions

$
45,382


$
52,719


$
49,573Software licenses


10,774



9,319



4,971Gain share


20,028



11,890



7,802Total revenues


76,184



73,928



62,346Cost of
    design-to-silicon-yield
    solutions:Direct costs of
    design-to-silicon-yield
    solutions:Integrated solutions


27,418
(1)


24,319



21,811Software licenses


209



293



83Amortization of acquired core
    technology


5,270



5,064



5,209Total cost of
    design-to-silicon-yield solutions


32,897



29,676



27,103Gross margin


43,287



44,252



35,243Operating expenses:Research and development


27,613
(1)


22,204



20,999Selling, general and administrative


19,814
(1)


16,146



15,243Amortization of other acquired
    intangible assets


1,459



940



1,406Write-off of in-process research
    and development


800







Total operating expenses


49,686



39,290



37,648Income (loss) from operations


(6,399
)


4,962



(2,405
)Interest and other income, net


2,827



1,658



675Income (loss) before taxes


(3,572
)


6,620



(1,730
)Income tax provision (benefit)


(3,133
)(2)


96



(1,116
)Net income (loss)

$
(439
)

$
6,524


$
(614
)Net income (loss) per share:Basic

$
(0.02
)

$
0.25


$
(0.02
)Diluted

$
(0.02
)

$
0.24


$
(0.02
)Weighted average common shares:Basic


26,885



25,983



25,330Diluted


26,885



27,473



25,330       (1)
    
    Costs and expenses for the year ended 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




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##### 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, 2004


25,432


$
4


$
129,568


$
(688
)









$
(3,025
)

$
(19,361
)

$
54


$
106,552Collection and repurchase of common
    stock in connection with notes receivable from stockholders


(4
)






(25
)














2,475











2,450Exercise of options


504







3,091



























3,091Issuance of common stock in
    connection with employee stock purchase plan


219







1,354



























1,354Employee stock-based compensation
    expense










158



540























698Non-employee stock-based
    compensation










45



























45Acquisition of treasury stock


(506
)














506



(4,806
)














(4,806
)Net loss






























(614
)Cumulative translation adjustment


































28Comprehensive loss






































(586
)Balances, December 31, 2004


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



























1,592Employee stock-based compensation
    expense














114























114Reversal of employee 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 income






































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 the SIA acquisition


699







9,362



























9,362Reversal of deferred stock-based
    compensation expense










(27
)


27























Employee stock-based compensation
    expense










7,351



























7,351Tax benefit related to employee
    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


$
148,219    F-5




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##### Table of Contents



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    SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004(In thousands)Operating activities:Net income (loss)

$
(439
)

$
6,524


$
(614
)Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Depreciation and amortization


2,103



2,235



2,503Stock-based compensation expense


7,351



106



742Loss on disposal of property,
    plant and equipment


61







Amortization of acquired
    intangible assets


6,729



6,004



6,615Tax benefit related to stock-based
    compensation expense


1,144







Excess tax benefit from
    stock-based compensation expense


(463
)






Write-off of in-process research
    and development


800







Deferred taxes


(6,864
)


(1,900
)


(2,417
)Changes in operating assets and
    liabilities, net of effect of acquisition:Accounts receivable, net of
    allowances


(3,648
)


(6,104
)


(4,109
)Prepaid expenses and other assets


(67
)


475



431Accounts payable


391



783



145Accrued compensation and related
    benefits


(2,402
)


1,713



1,257Other accrued liabilities


(1,582
)


(1,124
)


(235
)Taxes payable


(184
)


1,664



1,119Deferred revenues


1,206



(624
)


(395
)Billings in excess of recognized
    revenue


(1,509
)


23



1,116Net cash provided by operating
    activities


2,627



9,775



6,158Investing activities:Purchases of
    available-for-sale
    securities


(45,823
)






Maturities and sales of
    available-for-sale
    securities


31,700







Purchases of property and equipment


(2,433
)


(2,320
)


(1,670
)Business acquired in purchase
    transactions, net of cash acquired


(18,658
)






Net cash used in investing
    activities


(35,214
)


(2,320
)


(1,670
)Financing activities:Exercise of stock options


6,021



5,952



3,091Proceeds from employee stock
    purchase plan


1,752



1,592



1,354Collection of notes receivable
    from stockholders










2,450Purchases of treasury stock










(4,806
)Principal payments on long-term
    obligations


(23
)


(55
)


(55
)Excess tax benefit from
    stock-based compensation expense


463







Net cash provided by financing
    activities


8,213



7,489



2,034Effect of exchange rate changes on
    cash


319



(98
)


28Net increase (decrease) in cash
    and cash equivalents


(24,055
)


14,846



6,550Cash and cash equivalents,
    beginning of period


60,506



45,660



39,110Cash and cash equivalents, end of
    period

$
36,451


$
60,506


$
45,660Non-cash investing and financing
    activities:Repurchase of common stock through
    cancellation of notes receivable





$
743


$
25Purchase price adjustments

$
923






$
662Reversal of deferred stock
    compensation

$
27







Purchase of property and equipment
    on account

$
28


$
22


$
100Supplemental disclosure of cash
    flow information:Cash paid during the year for:Taxes

$
2,808


$
241


$
488Interest

$
5


$
4


$
4    F-6




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Years
    Ended December 31, 2006, 2005 and 2004
  1.
    Business
    and Significant Accounting Policies    Basis of Presentation
  Significant Estimates
  Certain Significant Risks and Uncertainties
  Concentration of Credit Risk
    Cash Equivalents
  Accounts Receivable
  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  F-7




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##### Table of Contents



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    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill and Intangible Assets Goodwill and Other Intangible Assets
    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 core 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   December 31,





December 31,2004





2005Amortization


Net Carrying





Net CarryingPeriod (Years)


Amount


Amortization


AmountGoodwill


N/A


$
39,886


$



$
39,886Acquired identifiable intangibles:Acquired core technology


4


$
13,285


$
(5,064
)

$
8,221Brand name


4



1,333



(500
)


833Other acquired intangibles


4



1,173



(440
)


733Total





$
15,791


$
(6,004
)

$
9,787      F-8




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##### Table of Contents



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

Amount2007

$
7,7672008


1,8062009


1,8062010


1,5412011


375Thereafter


310Total

$
13,605   Long-lived Assets Accounting for the
    Impairment or Disposal of Long-Lived Assets.
    Revenue Recognition Design-to-Silicon-Yield 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 Design-to-Silicon-Yield Design-to-Silicon-Yield
  Integrated Solutions cost-to-cost
     F-9




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Software Licenses
  Gain Share and/or
  Software Development Costs Computer Software to
    be Sold, Leased or Otherwise Marketed.
  Research and Development
  Stock-Based Compensation Share-Based
    Payments Accounting for Stock
    Issued to Employees
 F-10




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock-Based
    Compensation Accounting for Stock-Based
    Compensation  Transition and
    Disclosures.
    Income Taxes Accounting
    for Income Taxes
  Foreign Currency Translation
  Comprehensive Income (Loss) Reporting Comprehensive Income,
  Balance at December 31,2006


2005Foreign currency translation
    adjustments

$
331,000


$
(16,000
)   Fair Value of Financial Instruments
  Recently Issued Accounting Standards Accounting for Uncertainty in Income
    Taxes
 F-11




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 06-2 06-2), Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43 06-2 06-2 06-2 06-2
  Fair Value Measurement
  Considering the Effects of Prior
    Year Misstatements When Quantifying Misstatements in Current
    Year Financial Statements
  2.
    Acquisitions  Si
    Automation S.A.
  18-month 36-month 5-day Business Combinations
 F-12




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     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-13




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2006


2005Revenue

$
81,462


$
81,794Net income (loss)

$
(3,891
)

$
1,992Pro forma net income (loss) per
    share  basic

$
(0.14
)

$
0.07Pro forma net income (loss) per
    share  diluted

$
(0.14
)

$
0.07     3.
    Investments    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
)


1,983Money market funds


23,744











23,744$
44,085


$
1


$
(1
)

$
44,085Included in cash and cash
    equivalents













$
27,683Included in short-term investments














16,402Total
    available-for-sale
    securities













$
44,085     December 31, 2005Unrealized


UnrealizedAmortized Cost


Holding Gains


Holding Losses


Market ValueMoney market funds

$
57,652


$



$



$
57,652Included in cash and cash
    equivalents













$
57,652Included in short-term investments














Total
    available-for-sale
    securities













$
57,652  F-14




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Property
    and Equipment    December 31,2006


2005Computer equipment

$
10,714


$
9,197Software


3,133



2,800Furniture, fixtures, and equipment


1,254



999Vehicles


60



Leasehold improvements


523



33715,684



13,333Accumulated depreciation


(11,768
)


(10,005
)$
3,916


$
3,328   SFAS No. 13, Accounting for Leases.
  December 31,2006Computer and office equipment

$
424Vehicles


60Software


47531Accumulated depreciation


(287
)$
244   5.
    Other
    Accrued Liabilities    December 31,2006


2005Amounts due to SIA shareholders

$
1,879


$
Other accrued expenses


1,964



1,469Total other accrued expenses

$
3,843


$
1,469   6.
    Commitments
    and Contingencies  Leases
 F-15




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##### Table of Contents



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

$
2,7362008


6612009


2462010


1602011


146Total future minimum lease payments

$
3,949     Year Ended December 31,2007

$
1342008


942009


342010


82011


2Net minimum lease payments


272Less: amount representing interest


(26
)Present value of future minimum
    lease payments

$
246   Debt
    Year Ended December 31,

Principal


Interest2007

$
185


$
262008


277



202009


317



152010


369



92011


106



4Total future minimum debt payments

$
1,254


$
74   Indemnifications
 F-16




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##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Indemnification of Officers and Directors
    7.
    Stockholders
    Equity   F-17




---



##### Table of Contents



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    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006(1)


2005(2)


2004(2)Cost of
    design-to-silicon
    yield solutions

$
2,115


$



$
39Research and development


2,229



98



667Selling, general and administrative


3,007



8



36Stock based compensation expense
    before income taxes


7,351



106



742Income tax benefit associated with
    stock options


(657
)






Stock-based compensation expense,
    net of taxes

$
6,694


$
106


$
742Reduction in net income (loss) per
    share:Basic

$
0.25


$
0.00


$
0.03Diluted

$
0.25


$
0.00


$
0.03Weighted average common shares:Basic


26,885



25,983



25,330Diluted


26,885



27,473



25,330     (1)
    
    Stock-based compensation expense computed under
    SFAS No. 123(R)(2)
    
    Stock-based compensation expense computed under APB No. 25 F-18




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##### Table of Contents



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    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2005


2004Net income (loss) as reported:

$
6,524


$
(614
)Add: stock-based employee
    compensation expense included in reported net income (loss)
    under APB No. 25


106



540Deduct: total stock based employee
    compensation determined under fair value based method for all
    awards, net of related tax effects


(7,153
)


(7,755
)Pro forma net loss

$
(523
)

$
(7,829
)Basic net income (loss) per share:As reported

$
0.25


$
(0.02
)Pro forma

$
(0.02
)

$
(0.31
)Diluted net income (loss) per
    share:As reported

$
0.24


$
(0.02
)Pro forma

$
(0.02
)

$
(0.31
)    F-19




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##### Table of Contents



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


Purchase Plan2006


2005


2004


2006


2005


2004Expected life (in years)


5.7



5.5



5.5



0.95



0.79



1.5Volatility


60.4
%


55.3
%


66.2
%


50.3
%


39
%


51.2
%Risk-free interest rate


4.60
%


4.15
%


3.71
%


4.08
%


2.66
%


1.64
%Expected dividend






















     Stock Plans
     F-20




---



##### 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, 2004
    (1,771,296 shares vested and exercisable at a weighted
    average exercise price of $9.79 per share)


5,603,891


$
9.57Granted (weighted average fair
    value of $5.82 per share)


1,047,400



9.63Exercised


(503,814
)


6.14Canceled


(841,008
)


10.98Expired


(354,187
)


12.00Outstanding, December 31,
    2004 (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


6,664,094



12.11



7.62



16,770Vested and expected to vest


6,153,510



11.95



7.48



16,444Exercisable, December 31, 2006


3,419,259


$
10.64



6.25


$
13,481      F-21




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     WeightedAverageNumber of


Grant DateOptions


Fair ValueNonvested, January 1, 2006


2,796,371


$
6.94Granted


1,947,400



8.35Vested


(1,198,902
)


6.62Forfeited


(300,034
)


7.95Nonvested at December 31, 2006


3,244,835



7.84     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



1.5


$
0.15



3,332


$
0.15$0.53 - $0.53


333



3.0



0.53



333



0.53$1.13 - $1.50


28,836



5.0



1.16



28,836



1.16$1.88 - $1.88


16,666



3.4



1.88



16,666



1.88$3.00 - $3.78


33,786



5.2



3.51



32,897



3.51$4.95 - $7.00


742,172



6.0



6.15



687,331



6.13$7.59 - $11.20


1,551,360



6.2



9.86



1,233,820



9.98$11.41 - $16.88


4,197,609



8.3



14.07



1,396,044



13.82$17.35 - $19.00


90,000



8.2



17.84



20,000



19.00$0.15 - $19.00


6,664,094



7.6



12.11



3,419,259



10.64   Employee Stock Purchase Plan
  Common Stock Options
 F-22




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Stock Repurchase Program
 F-23




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Net
    Income (Loss) Per Share    Year Ended December 31,2006


2005


2004Net income (loss)

$
(439
)

$
6,524


$
(614
)Denominator:Weighted average common shares
    outstanding


26,885



25,986



25,397Weighted average common shares
    outstanding subject to repurchase






(3
)


(67
)Denominator for basic calculation,
    weighted average shares


26,885



25,983



25,330Dilutive common equivalent shares:Weighted average common shares
    outstanding subject to repurchase






3



Stock options outstanding






1,487



Denominator for diluted
    calculation, weighted average shares


26,885



27,473



25,330Net income (loss) per
    share  basic

$
(0.02
)

$
0.25


$
(0.02
)Net income (loss) per
    share  diluted

$
(0.02
)

$
0.24


$
(0.02
)       Year EndedDecember 31,2006


2005


2004Shares of common stock subject to
    repurchase










67Outstanding options


6,664



451



1,052  F-24




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Tax
    Provision (Benefit)  Year Ended December 31,2006


2005


2004(In thousands)U.SCurrent

$
631


$
1,678


$
835Deferred


(4,050
)


(1,882
)


(2,412
)ForeignCurrent


204



168



155Withholding


335



150



311Deferred


(253
)


(18
)


(5
)Total provision (benefit)

$
(3,133
)

$
96


$
(1,116
)         Year Ended December 31,2006


2005Net operating loss carryforward

$
1,162


$
Research and development and other
    credit carryforward


7,559



3,372Accruals deductible in different
    periods


1,917



856Stock-based compensation


717



328Deferred tax assets


11,355



4,556Deferred tax
    liabilities  intangible assets


(3,780
)


(2,771
)Total

$
7,575


$
1,785  F-25




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2006


2005


2004Federal statutory tax provision
    (benefit)

$
(1,250
)

$
2,317


$
(606
)State tax expense


(632
)


(151
)


(1
)Stock compensation expense


1,697



(1,322
)


(591
)Write-off of in-process research
    and development


280







Meals and entertainment


18



22



6Tax credits


(3,633
)


(701
)


(152
)Foreign tax, net


477



101



226Other


(90
)


(170
)


2Total

$
(3,133
)

$
96


$
(1,116
)       10.
    Customer
    and Geographic Information  Disclosures about Segments of an
    Enterprise and Related Information,
      Year Ended December 31,Customer

2006


2005


2004A


12
%


10
%


17
%B


5
%


9
%


13
%C


4
%


11
%


12
%E


1
%


15
%


10
%F


25
%


13
%


4
%  F-26




---



##### Table of Contents



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

2006


2005A


12
%


5
%E



%


18
%G


10
%


2
%H


12
%



%F


18
%


25
%     Year Ended December 31,2006


2005


2004Percentage of





Percentage of





Percentage ofRevenues


Revenues


Revenues


Revenues


Revenues


RevenuesAsia

$
38,129



50
%

$
40,982



55
%

$
39,969



64
%United States


29,850



39



25,610



35



15,751



25Europe


8,205



11



7,336



10



6,626



11Total

$
76,184



100
%

$
73,928



100
%

$
62,346



100
%       11.
    Litigation    12.
    Employee
    Benefit Plan   F-27




---



##### Table of Contents



PDF
    SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Selected
    Quarterly Financial Data (Unaudited)  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
)   Year Ended December 31, 2005Q1


Q2


Q3


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

$
18,093


$
18,356


$
18,457


$
19,022Gross profit

$
10,920


$
11,223


$
10,794


$
11,315Total operating expenses

$
9,527


$
10,211


$
9,699


$
9,853Net income (loss)

$
1,394


$
1,342


$
1,536


$
2,252Net income (loss) per share:Basic

$
0.05


$
0.05


$
0.06


$
0.09Diluted

$
0.05


$
0.05


$
0.06


$
0.08  F-28




---



##### Table of Contents



SIGNATURES      By:
    /s/  John
    K. Kibarian      By:
    /s/  Keith
    A. Jones       Date:
    March 16, 2007
  POWER OF
    ATTORNEY
  attorneys-in-fact, Form 10-K, attorneys-in-fact,
    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/  SUSAN
    BILLATSusan
    Billat

Director/s/  KIMON
    MICHAELSKimon
    Michaels

Director/s/  LUCIO
    L. LANZALucio
    L. Lanza

Chairman of the Board of Directors/s/  ALBERT
    Y. C. YUAlbert
    Y. C. Yu

Director/s/  R.
    STEPHEN
    HEINRICHSR.
    Stephen Heinrichs

Director/s/  TOM
    CAULFIELDTom
    Caulfield

Director




---



##### Table of Contents



SCHEDULE II
  PDF
    SOLUTIONS, INC.
  VALUATION
    AND QUALIFYING ACCOUNT
    Years Ended December 31, 2006, 2005 and 2004
  Balance at


Charged





Deductions/


BalanceBeginning


to Costs


Balance Assumed


Write-offs


at Endof Period


and Expenses


in Acquisition


of Accounts


of PeriodAllowance for doubtful accounts2006

$
254


$



$
40


$



$
2942005

$
254


$



$



$



$
2542004

$
504


$



$



$
250


$
254




---



##### 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)*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.