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<SEC-DOCUMENT>0000950134-09-009901.txt : 20090507
<SEC-HEADER>0000950134-09-009901.hdr.sgml : 20090507
<ACCEPTANCE-DATETIME>20090507160533
ACCESSION NUMBER:		0000950134-09-009901
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20090331
FILED AS OF DATE:		20090507
DATE AS OF CHANGE:		20090507

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PIXELWORKS, INC
		CENTRAL INDEX KEY:			0001040161
		STANDARD INDUSTRIAL CLASSIFICATION:	SEMICONDUCTORS & RELATED DEVICES [3674]
		IRS NUMBER:				911761992
		STATE OF INCORPORATION:			OR
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-30269
		FILM NUMBER:		09805523

	BUSINESS ADDRESS:	
		STREET 1:		16760 SW UPPER BOONES FERRY RD
		STREET 2:		SUITE 101
		CITY:			PORTLAND
		STATE:			OR
		ZIP:			97224
		BUSINESS PHONE:		(503) 601-4545

	MAIL ADDRESS:	
		STREET 1:		16760 SW UPPER BOONES FERRY RD
		STREET 2:		SUITE 101
		CITY:			PORTLAND
		STATE:			OR
		ZIP:			97224

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PIXELWORKS INC
		DATE OF NAME CHANGE:	20000210
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>v52342e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B></DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B></DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(Mark One)</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the quarterly period ended March&nbsp;31, 2009.</B></B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number: 000-30269</B></DIV>
<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>PIXELWORKS, INC.</B></DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>OREGON</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">9<B>1-1761992</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of incorporation)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification No.)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>16760 SW Upper Boones Ferry Road, Suite&nbsp;101<BR>
Portland, OR 97224<BR>
(503)&nbsp;601-4545</B><BR>
(Address of principal executive offices, including zip code,<BR>
and Registrant&#146;s telephone number, including area code)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the last 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule&nbsp;405 of Regulation&nbsp;S-T (&#167;232.405 of this chapter) during the preceding 12&nbsp;months
(or for such shorter period that the registrant was required to submit and post such files). Yes
<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT></DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of &#147;large
accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule&nbsp;12b-2 of the
Exchange Act. (Check one):</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Smaller reporting company <FONT face="Wingdings">&#254;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>(Do not check if a smaller reporting company)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>

</DIV><DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act). Yes <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Number of shares of Common Stock outstanding as of April&nbsp;30, 2009: 13,388,690</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.<BR>
FORM 10-Q<BR>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009</B>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>TABLE OF CONTENTS</B></DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="97%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:45px; text-indent:-15px"><A href="#101"><B>PART I &#151; FINANCIAL INFORMATION</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102"><B>Item&nbsp;1. Financial Statements.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Condensed Consolidated Balance Sheets</A></DIV></TD>
<TD align="right"></TD>
<TD align="right">3</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Condensed Consolidated Statements of Operations</A></DIV></TD>
<TD align="right"></TD>
<TD align="right">4</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">Condensed Consolidated Statements of Cash Flows</A></DIV></TD>
<TD align="right"></TD>
<TD align="right">5</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Notes to Condensed Consolidated Financial Statements</A></DIV></TD>
<TD align="right"></TD>
<TD align="right">6</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107"><B>Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">19</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108"><B>Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">27</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109"><B>Item&nbsp;4. Controls and Procedures.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">28</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:60px; text-indent:-15px"><A href="#110"><B>PART II &#151; OTHER INFORMATION</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111"><B>Item&nbsp;1A. Risk Factors.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">29</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112"><B>Item&nbsp;2. Unregistered Sales of Equity Securities and Use of Proceeds.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">45</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
<TD align="right"></TD>
<TD align="right"></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113"><B>Item&nbsp;6. Exhibits.</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">46</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:75px; text-indent:-15px"><A href="#114"><B>SIGNATURE</B></A></DIV></TD>
<TD align="right"></TD>
<TD align="right">47</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv10w1.htm">EX-10.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv10w2.htm">EX-10.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv10w3.htm">EX-10.3</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv10w4.htm">EX-10.4</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv31w1.htm">EX-31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv31w2.htm">EX-31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv32w1.htm">EX-32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v52342exv32w2.htm">EX-32.2</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I &#151; FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. Financial Statements.</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.</B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(In thousands)</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">32,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,149</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,058</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,149</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,381</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,331</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquired intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,386</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities and current portion of long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,771</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,035</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes payable, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,581</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies (Note 11)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(183</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(323,421</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(329,318</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,711</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.</B></DIV>

<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B></DIV>

<DIV align="center" style="font-size: 10pt"><B>(In thousands, except per share data)</B></DIV>

<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenue (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,671</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,722</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general and administrative (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of acquired intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,506</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(835</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on repurchase of long-term debt, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,557</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(251</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(573</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">983</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of debt issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other-than-temporary impairment of a marketable security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,490</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest and other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,331</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,496</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Benefit for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,617</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,637</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR style="font-size: 3pt">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(1)&nbsp;Includes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px">Amortization of acquired developed technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px">Additional amortization of non-cancelable prepaid royalty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(2)&nbsp;Includes stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">449</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(3)&nbsp;Includes stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">425</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.</B></DIV>

<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B></DIV>

<DIV align="center" style="font-size: 10pt"><B>(In thousands)</B></DIV>

<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash provided by (used in)
operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on repurchase of long-term debt, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,557</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other-than-temporary impairment of a marketable security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,490</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,706</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of acquired intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">794</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">892</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of debt issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on asset disposals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization (accretion)&nbsp;on short- and long-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(194</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(446</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Prepaid expenses and other current and long-term assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(952</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,541</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued current and long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,785</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(667</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,693</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(409</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,296</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,131</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,189</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from maturities of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,174</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(473</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sales of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,939</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on asset financings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,803</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,198</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from issuances of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,463</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,905</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,610</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29,258</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,572</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">32,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">45,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.</B>
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(In thousands, except share and per share data)</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 1: BASIS OF PRESENTATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Nature of Business</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are an innovative designer, developer and marketer of video and pixel processing semiconductors
and software for high-end digital video applications. Our solutions enable manufacturers of
digital display and projection devices, such as large-screen liquid crystal displays and digital
front projectors, to differentiate their products with a consistently high level of video quality,
regardless of the content&#146;s source or format. We were founded in 1997 and are incorporated under
the laws of the state of Oregon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Condensed Consolidated Financial Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These condensed consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (&#147;SEC&#148;). Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (&#147;GAAP&#148;) have been condensed or omitted pursuant to such
regulations, although we believe that the disclosures provided are adequate to prevent the
information presented from being misleading.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The financial information included herein for the three month periods ended March&nbsp;31, 2009 and 2008
is unaudited; however, such information reflects all adjustments, consisting of normal recurring
adjustments, that are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows of the Company for these interim periods.
The financial information as of December&nbsp;31, 2008 is derived from our audited consolidated
financial statements and notes thereto for the fiscal year ended December&nbsp;31, 2008, included in
Item&nbsp;8 of our Annual Report on Form 10-K, filed with the SEC on March&nbsp;16, 2009, and should be read
in conjunction with such consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The results of operations for the three month period ended March&nbsp;31, 2009 are not necessarily
indicative of the results expected for the entire fiscal year ending December&nbsp;31, 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Accounting Pronouncements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Statement of Financial
Accounting Standard No. (&#147;SFAS&#148;) 141 (revised 2007), <I>Business Combinations </I>(&#147;SFAS 141R&#148;), which
replaces SFAS 141, <I>Business Combinations</I>. SFAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, including goodwill, the liabilities assumed and any non-controlling interest in the
acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of a business combination and is effective
for our business combinations, if any, occurring after January&nbsp;1, 2009. SFAS 141R also requires
that any future benefit, if recognized due to the reversal of our valuation allowance on $2,769 of
our acquired deferred tax assets, will be recognized as an adjustment to income tax expense, rather
than allocated to acquired intangible assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In April&nbsp;2009, the FASB issued FSP FAS 115-2 and FAS 124-2, &#147;<I>Recognition and Presentation of
Other-Than-Temporary Impairments</I>.&#148; This pronouncement amends SFAS 115, &#147;<I>Accounting for Certain</I>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Investments in Debt and Equity Securities</I>,&#148; SFAS 124, &#147;<I>Accounting for Certain Investments Held by
Not-for-Profit Organizations</I>,&#148; and EITF Issue No.&nbsp;99-20, &#147;<I>Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets</I>.&#148; This FSP requires the recognition of an
other-than-temporary impairment if we intend to sell an impaired debt security and it is more
likely than not that the security will be sold before it recovers its cost basis. This FSP also
requires increased disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent disclosures
regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.
This FSP is effective for interim periods ending after June&nbsp;15, 2009, but early adoption is
permitted for interim periods ending after March&nbsp;15, 2009. We will adopt the provisions of this
FSP for the quarter ended June&nbsp;30, 2009. The guidance is not expected to impact our consolidated
financial statements but will require additional footnote disclosures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In April&nbsp;2009, the FASB issued FSP FAS 107-1, APB 28-1, &#147;<I>Interim Disclosures about Fair Value of
Financial Instruments.</I>&#148; This pronouncement amends SFAS No.&nbsp;107, &#147;<I>Disclosures about Fair Value of
Financial Instruments</I>,&#148; (&#147;SFAS 107&#148;) to require disclosures about fair value of financial
instruments not measured on the balance sheet at fair value in interim financial statements as well
as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities
were only disclosed annually. This FSP applies to all financial instruments within the scope of
SFAS 107 and requires disclosure of the methods and significant assumptions used to estimate the
fair value of financial instruments. This FSP is effective for interim and annual periods ending
after June&nbsp;15, 2009. We will adopt the provisions of this FSP for the quarter ended June&nbsp;30, 2009.
The guidance is not expected to impact our consolidated financial statements but will require
additional footnote disclosures.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Use of Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to
make estimates and judgments that affect amounts reported in the financial statements and
accompanying notes. Our significant estimates and judgments include those related to product
returns, warranty obligations, bad debts, inventories, property and equipment, intangible assets,
impairment of long-lived assets, valuation of investments, amortization of prepaid royalties,
valuation of share-based payments, income taxes, litigation and other contingencies. The actual
results experienced could differ materially from our estimates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Reclassifications</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain reclassifications have been made to the 2008 condensed consolidated financial statements to
conform with the 2009 presentation, including the reclassification of payments on asset financing
to financing activities in the consolidated statements of cash flow. Similar amounts will be
reclassified in future filings for prior periods.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 2: BALANCE SHEET COMPONENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Marketable Securities</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009 and December&nbsp;31, 2008, all of our short- and long-term marketable securities
are classified as available-for-sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Unrealized holding gains (losses)&nbsp;on short- and long-term available-for-sale securities, net of
tax, were $77 and $(190), respectively, as of March&nbsp;31, 2009 and $125 and $0, respectively, as of
December&nbsp;31,
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2008. These unrealized holding gains and losses are recorded in accumulated other comprehensive
income (loss), a component of shareholders&#146; equity, in the condensed consolidated balance sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;31, 2008 we analyzed our long-term equity security for an other-than-temporary impairment
in accordance with FASB Staff Position 115-1/124-1, <I>The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments</I>. As of March&nbsp;31, 2008, the fair value of our investment
had decreased $6,490 from our cost basis of $10,000 to $3,510. After reviewing the investment&#146;s
rapid decline in value from December&nbsp;31, 2007 to March&nbsp;31, 2008, the extended duration of time
which the fair value of the investment had been below our cost, as well as decreased target price
estimates, analyst downgrades and macroeconomic factors, we determined that we would not recover
the cost basis of the investment. Accordingly, we recognized an other-than-temporary impairment
loss of $6,490 in our statement of operations during the three months ended March&nbsp;31, 2008. As of
March&nbsp;31, 2009 we have recorded total other-than-temporary impairments of $7,890 on our long-term
equity security.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Accounts Receivable, Net</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounts receivable are recorded at invoiced amount and do not bear interest when recorded or
accrue interest when past due. We do not have any off balance sheet exposure risk related to
customers. Accounts receivable are stated net of an allowance for doubtful accounts, which is
maintained for estimated losses that may result from the inability of our customers to make
required payments. Accounts receivable, net consists of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>&nbsp;&nbsp;&nbsp;March 31,&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts receivable, gross</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(542</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(542</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,149</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our allowance for doubtful accounts had no provisions, recoveries or other activity during the
first quarters of 2009 and 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inventories, Net</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories consist of finished goods and work-in-process, and are stated at the lower of standard
cost (which approximates actual cost on a first-in, first-out basis) or market (net realizable
value), net of a reserve for slow-moving and obsolete items.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories, net consist of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>&nbsp;&nbsp;&nbsp;March 31,&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work-in-process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,358</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: reserve for slow-moving and obsolete items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,703</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,994</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventory, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is the change in our reserve for slow-moving and obsolete items:
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>&nbsp;&nbsp;2009&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,950</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">967</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Usage:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(296</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Scrap</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,131</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(998</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,285</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,632</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based upon our forecast and backlog, we do not currently expect to be able to sell or otherwise use
the reserved inventory we have on hand at March&nbsp;31, 2009. However, it is possible that a customer
will decide in the future to purchase a portion of the reserved inventory. It is not possible for
us to predict if or when this may happen, or how much we may sell. If such sales occur, we do not
expect that they will have a material effect on gross profit margin.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Property and Equipment, Net</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Property and equipment consists of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross carrying amount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,429</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,040</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquired Intangible Assets, Net</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Acquired intangible assets consist of the following developed technology:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;March 31,&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross carrying amount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,401</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,784</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquired intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,386</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Estimated future amortization of acquired intangible assets is $1,719 for the nine months ending
December&nbsp;31, 2009 and $1,050 for the year ending December&nbsp;31, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Accrued Liabilities and Current Portion of Long-Term Liabilities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accrued liabilities and current portion of long-term liabilities consist of the following:
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;&nbsp;&nbsp;<B>March 31,</B>&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued payroll and related liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,749</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current portion of accrued liabilities for asset financings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued commissions and royalties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for warranty returns</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">593</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued interest payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued costs related to restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for sales returns and allowances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is the change in our reserves for warranty returns and sales returns and allowances:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for warranty returns:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">932</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(98</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(122</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Charge offs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for sales returns and allowances:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Charge offs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Balance at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Long-Term Liabilities, Net of Current Portion</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-term liabilities, net of current portion, consist of the following:
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;&nbsp;&nbsp;<B>March 31,</B>&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued liabilities for asset financings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">699</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued costs related to restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payroll and related liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,035</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Long-Term Debt</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2004, we issued $150,000 of 1.75% convertible subordinated debentures (the &#147;debentures&#148;) due
2024. In February&nbsp;2006, we repurchased and retired $10,000 of the debentures. In February&nbsp;2008,
we repurchased and retired $50,248 of the debentures in a modified dutch auction tender offer for
$37,939 in cash. We recognized a net gain of $11,557 on the repurchase, which included a $13,064
discount, offset by legal and professional fees of $755 and a write-off of debt issuance costs of
$752. In August&nbsp;2008, we repurchased and retired $29,118 of the debentures for $20,615 in cash.
We recognized a net gain of $8,113 on the repurchase, which included an $8,503 discount, offset by
a write-off of debt issuance costs of $390. In February&nbsp;2009, we repurchased and retired $27,090
of the debentures for $17,778 in cash. We recognized a net gain on the repurchase of $9,024, which
included a $9,346 discount, offset by a write-off of debt issuance costs of $288 and other fees of
$34. Gains on the repurchase of our long-term debt are included in other income in our statement
of operations. As of March&nbsp;31, 2009, $33,544 of the debentures are outstanding.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The remaining debentures are convertible, under certain circumstances, into our common stock at a
conversion rate of 13.6876 shares of common stock per $1 principal amount of debentures for a total
of 459,137 shares. This is equivalent to a conversion price of approximately $73.06 per share.
The debentures are convertible if (a)&nbsp;our stock trades above 130% of the conversion price for 20
out of 30 consecutive trading days during any calendar quarter, (b)&nbsp;the debentures trade at an
amount less than or equal to 98% of the if-converted value of the debentures for five consecutive
trading days, (c)&nbsp;a call for redemption occurs, or (d)&nbsp;in the event of certain other specified
corporate transactions. If our debentures are converted into common stock, they can not be settled
in cash or other assets.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may redeem some or all of the debentures for cash on or after May&nbsp;15, 2011 at a price equal to
100% of the principal amount of the debentures plus accrued and unpaid interest. The holders of
the debentures have the right to require us to purchase all or a portion of the $33,544 debentures
outstanding at each of the following dates: May&nbsp;15, 2011, May&nbsp;15, 2014, and May&nbsp;15, 2019, at a
purchase price equal to 100% of the principal amount plus accrued and unpaid interest. The debentures are unsecured obligations
and are subordinated in right of payment to all of our existing and future senior debt.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Shareholders&#146; Equity</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;25, 2007, we announced a share repurchase program under which the Board of Directors
authorized the repurchase of up to $10,000 of the Company&#146;s common stock over the next twelve
months. In August&nbsp;2008, the Board of Directors approved an extension to the program for an
additional twelve months, through September&nbsp;2009. The program does not obligate the Company to
acquire any particular amount of common stock and may be modified or suspended at any time at the
Company&#146;s discretion. Share repurchases under the program may be made through open market and privately negotiated</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">transactions at the Company&#146;s discretion, subject to market conditions and other factors. During
2008 we repurchased 1,625,737 common shares at a cost of $2,626. From January&nbsp;1, 2009 through
March&nbsp;31, 2009, we repurchased 228,600 shares for $167. As of March&nbsp;31, 2009, $2,937 remained
available for repurchase under the plan. The above numbers reflect the June&nbsp;4, 2008 one-for-three
reverse stock split of our common stock.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 3: FAIR VALUE MEASUREMENT</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2008, we adopted SFAS 157, <I>Fair Value Measurement</I>&#148; (SFAS 157) for our financial
assets and liabilities. SFAS 157 defines fair value and describes three levels of inputs that may
be used to measure fair value:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Level 1:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Valuations based on quoted prices in active markets for identical assets and liabilities.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Level 2:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Level 3:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Valuations based on unobservable inputs in which there is little or no market data available, which require the
reporting entity to develop its own assumptions.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below presents information about our financial assets measured at fair value at March&nbsp;31,
2009:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,525</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,706</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Level 1 financial assets include money market funds, certificates of deposit and a long-term equity
security. Level two financial assets include commercial paper, corporate debt securities and U.S.
government agencies debt securities. We primarily use the market approach to determine the fair
value of our financial assets. We do not have any financial liabilities required to be measured at fair
value on a recurring basis.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">FSP 157-2 <I>Partial Deferral of the Effective Date of Statement 157 </I>(FSP 157-2) deferred the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November&nbsp;15, 2008 and we adopted FSP 157-2 on January&nbsp;1, 2009. The adoption of
SFAS 157 and SFAS 157-2 did not have a material impact on our consolidated financial statements.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2008, we adopted SFAS 159, <I>The Fair Value Option for Financial Assets and Financial
Liabilities </I>(&#147;SFAS 159&#148;). SFAS 159 allows us to measure many financial instruments and certain
other items at fair value. We have currently chosen not to elect the fair value option for any
items that are not already required to be measured at fair value in accordance with GAAP.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In April&nbsp;2009, the FASB issued FSP FAS 157-4, &#147;<I>Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly.</I>&#148; This pronouncement provides additional guidance for estimating fair value in
accordance with SFAS 157, when the volume and level of activity for the asset or liability have
significantly decreased. This FSP also includes guidance on identifying circumstances that
indicate a transaction is not </DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">orderly. This FSP is effective for interim periods ending after June
15, 2009 and we will adopt the provisions of this FSP for the quarter ended June&nbsp;30, 2009. We do
not currently have any financial assets in non-active markets and the adoption of this guidance is
not expected to impact our consolidated financial statements.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 4: RESTRUCTURING PLANS</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2008, we initiated a restructuring plan to reduce our operating expenses in response to
decreases in current and forecasted revenue which resulted primarily from the global economic
crisis. This plan reduced operations, research and development and administrative headcount in our
San Jose, Taiwan and China offices and was substantially completed during the current quarter.
Although additional restructuring actions under the 2008 plan are being evaluated, uncertainty
regarding the outlook for the remainder of 2009 and beyond impedes our ability to forecast the
scope and impact of any potential actions.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2006, we initiated a restructuring plan to reduce operating expenses. This plan
included consolidation of our operations in order to reduce compensation and rent expense. As part
of this plan we closed our offices in Toronto, Beijing and Shenzhen. Additionally, we eliminated
all operations and research and development activities at our Tualatin location and transferred
them to our offices in San Jose, Shanghai and Hsin Chu. The consolidation and closure of these
offices and reduction in headcount resulted in charges for non-cancelable leases and termination
and retention benefits for effected employees. In connection with this restructuring we also
narrowed and redefined our product development strategy which resulted in the write-off of
intellectual property assets, tooling, software development tools and charges for related
non-cancelable contracts. This plan was completed in the fourth quarter of 2008.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total restructuring expenses related to these plans were as follows:</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Cumulative</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Three Months</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Incurred To</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenue &#151; restructuring:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Termination and retention benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">357</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net write-off of assets and reversal of related liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,429</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses &#151; restructuring:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Termination and retention benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,735</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidation of leased space</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net write-off of assets and reversal of related liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,224</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contract termination fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments, non-cancelable contract</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">827</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,606</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total restructuring expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,035</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accrued expenses related to the restructuring plans are included in current and non-current accrued
liabilities in the consolidated balance sheets. The following is a summary of the change in
accrued liabilities related to our restructuring plans:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Expensed</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Payments</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Termination and
retention benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(685</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">439</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 5: INCOME TAXES</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The benefit for income taxes recorded for the first quarter of 2009 was primarily due to a benefit
of $1,815 for the reversal of a previously recorded tax contingency due to the expiration of the
applicable statute of limitations, partially offset by current and deferred tax expense in
profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign
jurisdictions. The benefit for income taxes recorded for the first quarter of 2008 was primarily
due to a benefit of $1,000 for refundable research and experimentation credits, a benefit of $559
for the reversal of a previously recorded tax contingency due to the expiration of the applicable
statute of limitations, and a deferred tax benefit of $446 which resulted from an increase in the
tax rate of a single foreign jurisdiction. These benefits were partially offset by current and
deferred tax expense in profitable cost-plus foreign jurisdictions and accruals for tax
contingencies in foreign jurisdictions.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009, we continued to provide a full valuation allowance against essentially all of
our U.S. and Canadian net deferred tax assets as we do not believe that it is more likely than not
that we will</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">realize a benefit from those assets. We have not recorded a valuation allowance
against our other foreign net deferred tax assets as we believe that it is more likely than not
that we will realize a benefit from those assets.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009 and December&nbsp;31, 2008, the amount of our uncertain tax positions was a
liability of $8,868 and $10,581, respectively. A number of years may elapse before an uncertain
tax position is resolved by settlement or statute of limitations. Settlement of any particular
position could require the use of cash. If the uncertain tax positions we have accrued for are
sustained by the taxing authorities in our favor, the reduction of the liability will reduce our
effective tax rate. We reasonably expect reductions in the liability for unrecognized tax benefits
of approximately $5,283 within the next twelve months due to the expiration of statutes of
limitations in foreign jurisdictions. We recognize interest and penalties related to uncertain tax
positions in income tax expense in our consolidated statement of operations.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 6: COMPREHENSIVE INCOME</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total comprehensive income was as follows:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;<B>2009</B>&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification adjustment from accumulated other
comprehensive income for other-than-temporary loss on
marketable security included in net income, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,810</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain (loss)&nbsp;on available-for-sale investments, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(238</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,125</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 7: EARNINGS PER SHARE</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We calculate earnings per share in accordance with SFAS 128, <I>Earnings per Share</I>. Basic earnings
per share amounts are computed based on the weighted average number of common shares outstanding
and reflect our June&nbsp;4, 2008 one-for three reverse stock split in all periods presented.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Diluted weighted average shares outstanding includes the increased number of common shares that
would be outstanding assuming the exercise of certain outstanding stock options, when such exercise
would have the effect of reducing earnings per share, and the conversion of our debentures, using
the if-converted method, when such conversion is dilutive. If our convertible debentures are
dilutive, interest expense and amortization of debt issuance costs, net of tax, are added to net
income used in calculating basic net income per share to arrive at net income used in calculating
diluted net income per share.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following schedule reconciles the computation of basic net income per share and diluted net
income per share (in thousands, except per share data):</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income used in basic net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense on long-term debt, net of tax and amortization
of debt issuance costs, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income used in diluted net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,825</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common share equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dilutive effect of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dilutive effect of conversion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,705</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6px">
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="8" align="left">The following weighted average shares were excluded from the calculation of diluted weighted
average shares outstanding as their effect on net income would have been anti-dilutive (in
thousands):</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,635</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 18px">
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="8" align="left"><B>NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION</B></TD>
</TR>
<TR style="font-size: 6px">
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="8" align="left">Supplemental disclosure of cash flow information is as follows:</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid during the period for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-cash investing and financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions of property and
equipment and other assets
under extended payment terms</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">973</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 9: SEGMENT INFORMATION</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with SFAS 131, <I>Disclosures about Segments of an Enterprise and Related Information</I>,
we have identified a single operating segment: the design and development of integrated circuits
for use in electronic display devices. A majority of our assets are located in the U.S.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Geographic Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Revenue by geographic region, attributed to countries based on the domicile of the customer, was as
follows:</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taiwan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,893</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Korea</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,603</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">968</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Significant Customers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The percentage of revenue attributable to our distributors, top five end customers, and individual
distributors or end customers that represented more than 10% of revenue in at least one of the
periods presented, is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributors:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">All distributors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">48</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">52</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">28</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">28</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">End Customers: <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Top five end customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">57</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">End customer A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">27</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">End customer B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>

</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>:</TD>
    <TD>&nbsp;</TD>
    <TD>End customers include customers who purchase directly from us, as well as
customers who purchase our products indirectly through distributors and manufacturers&#146;
representatives.</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following accounts represented 10% or more of gross accounts receivable in at least one of the
periods presented:</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;&nbsp;&nbsp;March 31,&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Account A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Account B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">22</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Account C</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Account D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 10: RISKS AND UNCERTAINTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Concentration of Suppliers</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not own or operate a semiconductor fabrication facility and do not have the resources to
manufacture our products internally. We rely on three third-party foundries to produce all of our
wafers and three assembly and test vendors for completion of finished products. We do not have any
long-term agreements with any of these suppliers. In light of these dependencies, it is reasonably
possible that failure to perform by one of these suppliers could have a severe impact on our
results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risk of Technological Change</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The markets in which we compete, or seek to compete, are subject to rapid technological change,
frequent new product introductions, changing customer requirements for new products and features
and evolving industry standards. The introduction of new technologies and the emergence of new
industry standards could render our products less desirable or obsolete, which could harm our
business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Concentrations of Credit Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial instruments that potentially subject us to concentrations of credit risk consist of cash
equivalents, short- and long-term marketable securities and accounts receivable. We limit our
exposure to credit risk associated with cash equivalent and marketable security balances by placing
our funds in various high-quality securities and limiting concentrations of issuers and maturity
dates. We limit our exposure to credit risk associated with accounts receivable by carefully
evaluating creditworthiness before offering terms to customers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE 11: COMMITMENTS AND CONTINGENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Indemnifications</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain of our agreements include limited indemnification provisions for claims from third-parties
relating to our intellectual property. Such indemnification provisions are accounted for in
accordance with FASB Summary of Interpretation No.&nbsp;45, <I>Guarantor&#146;s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others-an
interpretation of FASB Statements No.&nbsp;5, 57, and 107 and rescission of FASB Interpretation No.34</I>.
The indemnification is limited to the amount paid by the customer. As of March&nbsp;31, 2009, we have
not incurred any material liabilities arising from these indemnification obligations. However, in
the future such obligations could immediately impact our results of operations but are not expected
to materially affect our business.</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal Proceedings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are subject to legal matters that arise from time to time in the ordinary course of our
business. Although we currently believe that resolving such matters, individually or in the
aggregate, will not have a material adverse effect on our financial position, our results of
operations, or our cash flows, these matters are subject to inherent uncertainties and our view of
these matters may change in the future.
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Forward-looking Statements</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations contains
&#147;forward-looking statements&#148; that are based on current expectations, estimates, beliefs,
assumptions and projections about our business. Words such as &#147;expects,&#148; &#147;anticipates,&#148; &#147;intends,&#148;
&#147;plans,&#148; &#147;believes,&#148; &#147;seeks,&#148; &#147;estimates&#148; and variations of such words and similar expressions are
intended to identify such forward-looking statements. Such forward-looking statements include the
disclosure contained under the caption &#147;Results of Operations&#151;Business Outlook&#148; below. These
statements are not guarantees of future performance and involve certain risks and uncertainties
that are difficult to predict and which may cause actual outcomes and results to differ materially
from what is expressed or forecasted in such forward-looking statements. A detailed discussion of
risks and uncertainties that could cause actual results and events to differ materially from such
forward-looking statements is included in Part&nbsp;II, Item&nbsp;1A of this Quarterly Report on Form 10-Q.
These forward-looking statements speak only as of the date on which they are made, and we do not
undertake any obligation to update any forward-looking statement to reflect events or circumstances
after the date of this Quarterly Report on Form 10-Q. If we do update or correct one or more
forward-looking statements, you should not conclude that we will make additional updates or
corrections with respect thereto or with respect to other forward-looking statements. Except where
the context otherwise requires, in this Quarterly Report on Form 10-Q, the &#147;Company,&#148; &#147;Pixelworks,&#148;
&#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to Pixelworks, Inc., an Oregon corporation, and, where appropriate, its
subsidiaries.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an innovative designer, developer and marketer of video and pixel processing semiconductors
and software for high-end digital video applications. Our solutions enable manufacturers of
digital display and projection devices, such as large-screen liquid crystal displays and digital
front projectors, to differentiate their products with a consistently high level of video quality, regardless of the
content&#146;s source or format. Our core technology leverages unique proprietary techniques for
intelligently processing video signals from a variety of sources to ensure that all resulting
images are optimized. Additionally, our products help our customers reduce costs and differentiate
their display and projection devices, an important factor in industries that experience rapid
innovation. Pixelworks&#146; flexible design architecture enables our technology to produce outstanding
image quality in our customers&#146; display and projection products with a range of integrated circuit
and software solutions. We were founded in 1997 and are incorporated under the laws of the state
of Oregon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Factors Affecting Results of Operations and Financial Condition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>General Market Conditions</I>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Economic conditions in the United States and in foreign markets in which we operate substantially
affect our sales and profitability. Economic activity in the United States and throughout much of
the world has undergone a sudden, sharp downturn. Global credit and capital markets have
experienced unprecedented volatility and disruption and business credit and liquidity have
tightened in much of the world. Some of</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">our suppliers and customers may face credit issues and could experience cash flow problems and
other financial hardships. Consumer confidence and spending are down significantly and we expect
weaker demand from our customers to persist throughout 2009. Although we have taken steps to
reduce our costs in response to these changes, including the restructuring efforts described
below and temporary salary reductions for all employees, these economic conditions  are expected to
adversely impact our business, results of operations and financial position and we are unable to
forecast when or if these conditions will improve.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Restructuring Plans</I></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2008, we initiated a restructuring plan to reduce our operating expenses in response to
decreases in current and forecasted revenue which resulted primarily from the global economic
crisis. This plan reduced operations, research and development and administrative headcount in our
San Jose, Taiwan and China offices. Although this plan was substantially completed during the first
quarter of 2009, we will continue to monitor and evaluate the need for additional related
restructuring actions in light of global economic uncertainty and its potential impact on our
continuing business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2006, we initiated a restructuring plan to reduce operating expenses and continued to
implement this plan throughout 2007 and 2008. As part of this plan we closed offices in Toronto,
Beijing and Shenzhen. Additionally, we eliminated all operations and research and development
activities at our Tualatin location and transferred them to our offices in San Jose, Shanghai and
Hsin Chu. The consolidation and closure of these offices and reduction in headcount resulted in
charges for non-cancelable leases and termination and retention benefits for effected employees.
In connection with this restructuring, we also narrowed and redefined our product development
strategy which resulted in the write-off of intellectual property (&#147;IP&#148;) assets, tooling, software
development tools and charges for related non-cancelable contracts. This plan was completed during
the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Revenue, net</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue, net was as follows (dollars in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2009 v 2008</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$ change</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>% change</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(13,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net revenue decreased $13.2&nbsp;million, or 55%, from the first quarter of 2008 to the first quarter of
2009. The decrease was attributable to a 58% decrease in units sold, partially offset by a 3%
increase in average selling price. The decrease in revenue resulted primarily from weakened demand
for our products which we believe to be the result of the worldwide economic recession, which our
customers responded to by significantly decreasing their inventory levels as end customer demand
dropped sharply.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The year-over-year decrease in revenue also resulted from:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lower sales of our Integrated Circuits (&#147;ICs&#148;) into the advanced television market, as we
continue to move away from the commoditized system-on-chip (&#147;SoC&#148;) segment of the market with
our new line of Motion Estimation Motion Compensation (&#147;MEMC&#148;) co-processor ICs, which improve
the performance and viewing experience of large advanced LCD panels by reducing motion blur
and judder;</TD>
</TR>
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lower sales of legacy products that we acquired in conjunction with the Equator
acquisition; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Decreased sales to one of our top-five end customers.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These decreases were partially offset by an increase in sales of our MEMC co-processor ICs and
sales of our next generation projector image processor, which together comprised 21% of total
revenue in the first quarter of 2009, up from zero percent in the first quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Current economic and market volatility impedes our ability to determine if, and to what extent, the
current trends will continue throughout 2009 and beyond.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Cost of revenue and gross profit</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cost of revenue and gross profit were as follows (dollars in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>revenue</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct product costs and related overhead <SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">56</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">45</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of acquired intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision (benefit)&nbsp;for obsolete inventory, net of usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional amortization of non-cancelable prepaid royalty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes purchased materials, assembly, test, labor, employee benefits, warranty
expense and royalties.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cost of revenue increased to 61% of total revenue in the first quarter of 2009, up from 51% of
total revenue in the first quarter of 2008. The increase resulted primarily from a change in the
mix of products sold and the impact of lower overhead cost absorption due to decreased revenue. We
expect that any future increases in sales of our MEMC products and next generation projector
processors will decrease our gross margin as a percentage of sales, however these increases may be
partially offset by production efficiencies as we improve our manufacturing processes. The net
benefit for obsolete inventory in the first quarter of 2009 is due to sales of previously reserved
inventory in excess of new provisions for obsolete inventory, and is attributable to our increased
focus on inventory management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Research and development</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expense includes compensation and related costs for personnel,
development-related expenses including non-recurring engineering and fees for outside services,
depreciation and amortization, expensed equipment, facilities and information technology expense
allocations and travel and related expenses. Research and development expense was as follows
(dollars in thousands):
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2009 v 2008</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$ change</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>% change</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development<SUP style="font-size: 85%; vertical-align: text-top"> </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(1,946</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expense decreased $1.9&nbsp;million, or 29%, from the first quarter of 2008 to
the first quarter of 2009. This decrease is directly attributable to the restructuring efforts
that we initiated in November of 2006 and continued to implement throughout 2007 and 2008. These
efforts resulted in the following reductions in research and development expenses:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation and amortization expense, software maintenance expense and expensed equipment
and software decreased $867,000. This decrease is primarily due to reduced levels of
engineering software tools due to reductions in research and development personnel and changes
in product development strategy.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compensation expense decreased $432,000. At March&nbsp;31, 2009, we had 128 research and
development employees compared to 142 at March&nbsp;31, 2008.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock-based compensation expense decreased $331,000 due to personnel reductions and reduced
valuation of our stock options.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Selling, general and administrative</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Selling, general and administrative expense includes compensation and related costs for personnel,
sales commissions, allocations for facilities and information technology expenses, travel, outside
services and other general expenses incurred in our sales, marketing, customer support, management,
legal and other professional and administrative support functions. Selling, general and
administrative expense was as follows (dollars in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2009 v 2008</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$ change</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>% change</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative<SUP style="font-size: 85%; vertical-align: text-top"> </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(813</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Selling, general and administrative expense decreased $813,000, or 17%, from the first quarter of
2008 to the first quarter of 2009. This decrease is directly attributable to the restructuring
efforts that we initiated in November of 2006 and implemented throughout 2007 and 2008. These
efforts resulted in the following reductions in selling, general and administrative expenses:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compensation expense decreased $190,000. As of March&nbsp;31, 2009, we had 64 employees in
selling, general and administrative functions, compared to 66 as of March&nbsp;31, 2008.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sales commissions decreased $174,000 primarily due to lower sales volume.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Professional fees, including accounting and legal decreased $174,000.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock-based compensation expense decreased $173,000 due to personnel reductions and reduced
valuation of our stock options.</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Restructuring</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recorded restructuring expense in cost of revenue and operating expenses. Restructuring expense
was comprised of the following amounts (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidation of leased space <SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Termination and retention benefits <SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">467</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total restructuring expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Included in cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Included in operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,008</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Expenses related to the consolidation of leased space included future non-cancelable
rent payments due for vacated space (net of estimated sublease income) and moving expenses.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Termination and retention benefits related to our restructuring plans included
severance and retention payments for terminated employees and retention payments for certain
continuing employees.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2008, we initiated a restructuring plan to reduce our operating expenses in response to
decreases in current and forecasted revenue which resulted primarily from the global economic
crisis. This plan reduced operations, research and development and administrative headcount in our
San Jose, Taiwan and China offices and was substantially completed during the current quarter.
Although additional restructuring actions under the 2008 plan are being evaluated, uncertainty
regarding the outlook for the remainder of 2009 and beyond impedes our ability to forecast the
scope and impact of any potential actions. All restructuring expenses recorded in the first
quarter of 2009 were attributable to the December&nbsp;2008 plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2006, we initiated a restructuring plan to reduce operating expenses. This plan
included consolidation of our operations in order to reduce compensation and rent expense. As part
of this plan we closed our offices in Toronto, Beijing and Shenzhen. Additionally, we eliminated
all operations and research and development activities at our Tualatin location and transferred
them to our offices in San Jose, Shanghai and Hsin Chu. The consolidation and closure of these
offices and reduction in headcount resulted in charges for non-cancelable leases and termination
and retention benefits for effected employees. In connection with this restructuring we also
narrowed and redefined our product development strategy which resulted in the write-off of IP
assets, tooling, software development tools and charges for related non-cancelable contracts. This
plan was completed in the fourth quarter of 2008. All restructuring expenses recorded in the first quarter of 2008 were attributable to the November
2006 plan.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The expected benefits from these restructuring plans are fully reflected in our business outlook
for the second quarter of 2009, which is presented below.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Interest and other income, net </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interest and other income, net consisted of the following (in thousands):</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>$ change</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on repurchase of long-term debt, net <SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,533</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense <SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(251</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(573</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income <SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(885</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of debt issuance costs <SUP style="font-size: 85%; vertical-align: text-top">4</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other-than-temporary impairment of marketable security, net <SUP style="font-size: 85%; vertical-align: text-top">5</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,490</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total interest and other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>In February&nbsp;2008, we repurchased and retired $50.2&nbsp;million of our 1.75% convertible
subordinated debentures for $37.9&nbsp;million in cash, including legal and other professional fees
of $755,000. We recognized a gain on this repurchase of $11.6&nbsp;million, net of a write-off of
debt issuance costs of $752,000. In February&nbsp;2009, we repurchased and retired $27.1&nbsp;million
of our outstanding debt for $17.8&nbsp;million in cash. We recognized a net gain on the repurchase
of $9.0&nbsp;million, which includes a $9.3&nbsp;million discount, offset by a write-off of debt
issuance costs of $288,000 and other fees of $34,000.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Interest expense primarily relates to interest payable on our long-term debt. The
decrease in the first quarter of 2009 is primarily due to the reduced outstanding principal
balance which resulted from our February&nbsp;2008, August&nbsp;2008 and February&nbsp;2009 repurchases of
long-term debt.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Interest income is earned on cash equivalents and short- and long-term marketable
securities. The decrease in the first quarter of 2009 is primarily due to lower balances of
marketable securities which resulted from our repurchases of long-term debt as well as
decreased yields.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">4</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>The fees associated with the 2004 issuance of our long-term debt have been capitalized
and are being amortized over a period of seven years. The decrease in the first quarter of
2009 is due to the write-offs of fees associated with the portions of our long-term debt
repurchased in February&nbsp;2008, August
2008 and February&nbsp;2009. The remaining amortization period is approximately two years as of
March&nbsp;31, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">5</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>In the first quarter of 2008, we recognized an other-than-temporary impairment of $6.5
million on an investment in a publicly-traded equity security, due to the duration of time
that the investment had been below cost, as well as decreased target price estimates, analyst
downgrades and macroeconomic factors.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Benefit for income taxes</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The benefit for income taxes recorded for the first quarter of 2009 was primarily due to a benefit
of $1.8&nbsp;million for the reversal of a previously recorded tax contingency due to the expiration of
the applicable statute of limitations, partially offset by current and deferred tax expense in
profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign
jurisdictions. The benefit for income taxes recorded for the first quarter of 2008 was primarily
due to a benefit of $1.0&nbsp;million for refundable research and experimentation credits, a benefit of
$559,000 for the reversal of a previously recorded tax contingency due to the expiration of the
applicable statute of limitations, and a deferred tax benefit of $446,000 which resulted from an
increase in the tax rate of a single foreign jurisdiction. These benefits were partially offset by
current and deferred tax expense in profitable cost-plus foreign jurisdictions and accruals for tax
contingencies in foreign jurisdictions.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Business Outlook</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;23, 2009, we provided an outlook for the second quarter of 2009 in our earnings release,
which was furnished on a current report on Form 8-K. The outlook provided the following
anticipated financial results prepared in accordance with U.S. generally accepted accounting
principles:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We expect to record net loss per share in the second quarter of 2009 of $(0.23) to $(0.41),
based on the following estimates:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Second quarter revenue of $13.0&nbsp;million to $15.0&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross profit margin of approximately 38% to 42%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Operating expenses of $9.0&nbsp;million to $10.0&nbsp;million.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Cash and short- and long-term marketable securities</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our cash and cash equivalents and short- and long-term marketable securities were as follows
(dollars in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>$ change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>% change</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">32,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(20,610</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,352</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total cash and marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(23,152</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>)%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total cash and marketable securities decreased 37% from December&nbsp;31, 2008 to March&nbsp;31, 2009. The
net decrease in the first quarter of 2009 resulted primarily from $17.8&nbsp;million used for the
repurchase of long-term debt, $4.3&nbsp;million used by operating activities, $523,000 in payments on
property and equipment and other asset financing, $167,000 for the repurchase of our common stock
and $154,000 for purchases of property and equipment and other long-term assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2009, cash equivalents and short-term marketable securities included $26.5&nbsp;million in
money market funds and certificates of deposit, $5.2&nbsp;million in commercial paper, $3.5&nbsp;million in
U.S. government agencies debt securities, and $1.0&nbsp;million in corporate debt securities. At March
31, 2009, we also held a $1.9&nbsp;million long-term strategic equity investment in a publicly traded
corporation. All of our investments were denominated in U.S. dollars, and our portfolio did not
contain direct exposure to subprime mortgages or structured vehicles that derive their value from
subprime collateral.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Despite the difficult credit environment, the quality of our short-term investment portfolio
remains high. Our investment policy requires that at least 25% of our portfolio matures within 90
days. Additionally, no maturities can extend beyond one year and concentrations with individual
securities are limited. Investments must be rated at least A-1 / P-1 by Standard &#038; Poor&#146;s /
Moody&#146;s, and our investment policy is reviewed at least annually by our Audit Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The valuations of our short-term marketable securities are affected by a variety of factors,
including changes in interest rates and the actual or perceived financial stability of the issuer.
However, due to the high quality of our investments and their short-term nature, there has not
been, and we do not expect there
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to be, a significant fluctuation in the valuation of these
investments. Accordingly, we do not expect a materially negative impact on our financial condition
from fluctuations in the value of our short-term investments. As of March&nbsp;31, 2009, we had a total
unrealized gain of $77,000 on these investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The valuation of our long-term equity investment has fluctuated significantly, and could continue
to fluctuate significantly, due to a variety of factors including changes in the global economy and
changes in the actual or expected performance of the issuing company. We recorded
other-than-temporary impairments related to this investment of $6.5&nbsp;million and $1.4&nbsp;million in the
first and fourth quarter of 2008, respectively. We may record additional impairment charges in the
future if we determine that further declines in value of the investment are other-than-temporary.
Such an impairment would negatively impact our results of operations, but would not materially
impact our financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">When available, we use quoted prices in active markets for identical assets or liabilities to
determine the fair value of our cash equivalents and marketable securities. If quoted prices in
active markets for identical assets or liabilities are not available, we use quoted prices for
similar assets or liabilities, or use observable inputs other than the quoted prices, to determine
fair value. We have no investments which are fair valued based on unobservable inputs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We anticipate that our existing cash and investment balances will be adequate to fund our operating
and investing needs for the next twelve months. From time to time, we may evaluate acquisitions of
businesses, products or technologies that complement our business. We may also repurchase
additional amounts of our long-term debt and common stock. Any further transactions, if
consummated, may
consume a material portion of our working capital or require the issuance of equity securities that
may result in dilution to existing shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Accounts receivable, net</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounts receivable, net decreased to $4.5&nbsp;million at March&nbsp;31, 2009 from $6.1&nbsp;million at December
31, 2008. The average number of days sales outstanding increased to 37&nbsp;days at March&nbsp;31, 2009 from
29&nbsp;days at December&nbsp;31, 2008. The increase in days sales outstanding was primarily due to the
timing of sales within the first quarter of 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Inventories, net</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories, net decreased to $4.2&nbsp;million at March&nbsp;31, 2009 from $5.0&nbsp;million at December&nbsp;31, 2008
as the result of decreased sales during the quarter. Inventory turnover on an annualized basis
decreased to 5.1 at March&nbsp;31, 2009 from 7.0 at December&nbsp;31, 2008. The decrease in inventory
turnover was due to reduced revenue during the first quarter of 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Capital resources</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2004, we issued $150.0&nbsp;million of 1.75% convertible subordinated debentures (the &#147;debentures&#148;)
due 2024. In February&nbsp;2006, we repurchased and retired $10.0&nbsp;million of the debentures. In
February&nbsp;2008, we repurchased and retired $50.2&nbsp;million principal amount of the debentures for
$37.9&nbsp;million in cash. In August&nbsp;2008, we repurchased and retired $29.1&nbsp;million of the debentures
for $20.6&nbsp;million in cash. In February&nbsp;2009, we repurchased and retired $27.1&nbsp;million of the
debentures for $17.8&nbsp;million in cash, reducing the balance of our outstanding debentures to $33.5
million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may redeem some or all of the debentures for cash on or after May&nbsp;15, 2011 at a price equal to
100% of the principal amount of the debentures plus accrued and unpaid interest. The holders of the
debentures have the right to require us to purchase all or a portion of the debentures outstanding
at each of the
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">following dates: May&nbsp;15, 2011, May&nbsp;15, 2014, and May&nbsp;15, 2019, at a purchase price
equal to 100% of the principal amount plus accrued and unpaid interest. The debentures are
unsecured obligations and are subordinated in right of payment to all of our existing and future
senior debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2007, the Board of Directors authorized the repurchase of up to $10.0&nbsp;million of our
common stock over the next twelve months. In August&nbsp;2008, the Board of Directors approved an
extension to the program for an additional twelve months, through September&nbsp;2009. The program does
not obligate us to acquire any particular amount of common stock and may be modified or suspended
at any time at our discretion. Share repurchases under the program may be made through open market
and privately negotiated transactions at our discretion, subject to market conditions and other
factors. We repurchased 228,600 shares for $167,000 between January&nbsp;1, 2009 and March&nbsp;31, 2009.
During 2008, we repurchased 1,625,737 shares for $2.6&nbsp;million. As of March&nbsp;31, 2009, $2.9&nbsp;million
remained available for repurchase under the plan. The above numbers reflect the June&nbsp;4, 2008
one-for-three reverse stock split of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contractual Payment Obligations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our contractual obligations for 2009 and beyond are included in our Annual Report on Form 10-K for
the year ended December&nbsp;31, 2008, filed with the Securities and Exchange Commission (&#147;SEC&#148;) on
March&nbsp;16, 2009. Our obligations for 2009 and beyond have not changed materially as of March&nbsp;31,
2009, except for the reduction to the principal amount of long-term debt that we expect the holders
of the outstanding debentures to require us to purchase in 2011, as presented above in &#147;Liquidity
and Capital Resources.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Off-Balance Sheet Arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on our financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3. Quantitative and Qualitative Disclosures about Market Risk.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interest rate fluctuations impact the interest income that we earn on our investment portfolio and
the value of our investments. Factors that could cause interest rates to fluctuate include
volatility in the credit and equity markets, such as the current uncertainty in global economic
conditions; changes in the monetary policies of the United States and other countries and
inflation. We mitigate risks associated with such fluctuations, as well as the risk of loss of
principal, by investing in high-credit quality securities and limiting concentrations of issuers
and maturity dates. Derivative financial instruments are not part of our investment portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Applying a hypothetical 1% decrease in interest rates to the average balances of our interest
bearing cash and investment accounts would not have a significant impact on our results of
operations for the first quarter of 2009 or on our financial position as of March&nbsp;31, 2009. As of
March&nbsp;31, 2009 a significant majority of our cash and investments are held as cash or cash
equivalents with yields approaching zero and our interest income is relatively insensitive to
future decreases in interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009, we had convertible subordinated debentures of $33.5&nbsp;million outstanding with
a fixed interest rate of 1.75%. Interest rate changes affect the fair value of the debentures, but
do not affect our earnings or cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of our sales are denominated in U.S. dollars and, as a result, we have relatively little
exposure to foreign currency exchange risk with respect to our sales. We have employees located in
offices in Japan,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Taiwan and the People&#146;s Republic of China and as such, a portion of our operating
expenses as well as foreign income taxes payable are denominated in foreign currencies.
Accordingly, our operating results are affected by changes in the exchange rate between the U.S.
dollar and those currencies. Any future strengthening of those currencies against the U.S. dollar
could negatively impact our operating results by increasing our operating expenses as measured in
U.S. dollars. We cannot reasonably estimate the effect that an immediate change in foreign
currency exchange rates would have on our operating results or cash flows. Currently, we do not
hedge against foreign currency rate fluctuations.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4. Controls and Procedures.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Evaluation of Disclosure Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based on management&#146;s evaluation (with the participation of our Chief Executive Officer (&#147;CEO&#148;) and
Chief Financial Officer (&#147;CFO&#148;)), as of the end of the period covered by this report, our CEO and
CFO have concluded that our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the &#147;Exchange Act&#148;)) are
effective to provide reasonable assurance that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms
and is accumulated and communicated to management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required
disclosure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in Internal Control over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There were no changes to our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this
report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inherent Limitations on Effectiveness of Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our management, including our CEO and CFO, does not expect that our disclosure controls and
procedures will prevent or detect all errors and all fraud. Disclosure controls and procedures, no
matter how well designed, operated and managed, can provide only reasonable assurance that the
objectives of the disclosure controls and procedures are met. Because of the inherent limitations
of disclosure controls and procedures, no evaluation of such disclosure controls and procedures can
provide absolute assurance that all control issues and instances of fraud, if any, have been
detected.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II &#151; OTHER INFORMATION</B>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1A. Risk Factors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Investing in our shares of common stock involves a high degree of risk, and investors should
carefully consider the risks described below before making an investment decision. If any of the
following risks occur, the market price of our shares of common stock could decline and investors
could lose all or part of their investment. Additional risks that we currently believe are
immaterial may also impair our business operations. In assessing these risks, investors should
also refer to the other information contained or incorporated by reference in this Quarterly Report
on </I><I>Form 10-Q</I><I> and our Annual Report on </I><I>Form 10-K</I><I> for the year ended December&nbsp;31, 2008, including our
consolidated financial statements and related notes, and our other filings made from time to time
with the Securities and Exchange Commission.</I><U> </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Macroeconomic Risks</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The current global recession and volatility in global credit and financial markets could materially
and adversely affect our business and results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial, commercial and consumer markets have experienced extreme disruption in recent months and
there can be no assurance that there will not be further deterioration of these markets. While we
do not currently require access to credit markets to finance our operations, these economic
developments have affected, and are likely to continue to affect, our business in a number of ways.
For instance, the economic crisis has decreased, and may continue to decrease, market acceptance
of, and reduce the demand for, our products and the success of our product strategy. We face an
increased risk that our customers will be unable to continue their operations and it may become
more difficult to collect payments from them on a timely basis, or at all. In addition, the
current tightening of credit in financial markets may also adversely affect the ability of our
customers to obtain financing for significant purchases and operations. This has resulted, and is
likely to continue to result, in a decrease or cancellation of orders for our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the worldwide economic slowdown, it is extremely difficult for us and our customers
to forecast future sales levels based on historical information and trends. Portions of our
expenses are fixed and other expenses are tied to expected levels of sales activities. To the
extent that we do not achieve our anticipated level of sales, our gross profit and net income,
have, and could continue to be adversely affected until such expenses are reduced to an appropriate
level. Additionally, if we are unable to reduce our costs to respond to future decreases in
revenue, we may utilize more of our cash resources than we planned. Any future actions that we
take to limit our usage of cash may also reduce our ability to execute on our plans and strategies.
We are unable to predict the likely duration and severity of the current disruption in financial
markets and adverse economic conditions in the U.S. and other countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Company Specific Risks</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our product strategy, which is targeted at markets demanding superior video and image quality, may
not lead to increased revenue or gross profit in a timely manner or at all, which could materially
adversely affect our results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have adopted a product strategy that focuses on our core competencies in pixel processing and
delivering high levels of video and image quality. With this strategy, we continue to make further
investments in development of our ImageProcessor architecture for the digital projector market,
with particular focus on adding increased performance and functionality. For the advanced
television market, we are shifting away from our previous approach of implementing our intellectual
property (&#147;IP&#148;) exclusively in system-on-chip integrated circuits (&#147;ICs&#148;), to an approach designed
to improve video
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">performance of our customers&#146; image processors through the use of our new line of Motion Estimation
Motion Compensation (&#147;MEMC&#148;) co-processor ICs. This strategy is designed to address the needs of
the large-screen, high-resolution, high-quality segment of the advanced television market.
Additionally, we are focusing certain of our research and development efforts on new areas beyond
our traditional applications, which may not result in increased revenue or gross profit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have designed our new strategy to help us take advantage of expected market trends. While we
have secured design wins with our new products, our expectations may not be accurate and these
markets may not develop or they may take longer to develop than we expect. We cannot assure you
that the products we are developing to address our new strategy will adequately address the needs
of our target customers, that we will be able to produce our new products at costs that enable us
to price these products competitively or that our customers or potential customers will accept our
products quickly enough or in sufficient volume to grow revenue and gross profit. Additionally,
the current economic crisis may alter current market trends and reduce the demand for our products
and the success of our product strategy. A lack of market acceptance or insufficient market
acceptance would materially and adversely affect our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have incurred substantial indebtedness as a result of the sale of convertible debentures and may
be unable to meet our future capital requirements.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009, $33.5&nbsp;million of our 1.75% convertible subordinated debentures due 2024 were
outstanding. Although the remaining debt obligations are due in 2024, the holders of debentures
have the right to require us to purchase all or a portion of the outstanding debentures at each of
the following dates: May&nbsp;15, 2011, May&nbsp;15, 2014 and May&nbsp;15, 2019. Since the market price of our
common stock is significantly below the conversion price of the debentures, the holders of our
outstanding debentures are unlikely to convert the debentures into common stock in accordance with
the existing terms of the debentures. Accordingly, we expect holders of the debentures to exercise
a put option, requiring us to purchase all of the outstanding debentures on May&nbsp;15, 2011, the
earliest date allowed. Our ability to meet our debt service obligations will be dependent upon our
future performance, which will be subject to financial, business and other factors affecting our
operations, some of which are beyond our control. Additionally, due to recent turmoil in the
credit markets and the continued decline in the economy, we may not be able to refinance the
debentures at terms that are as favorable as those currently contained in the debentures, or at
terms that are acceptable to us at all. These debentures could materially and adversely affect our
ability to obtain additional debt or equity financing for working capital, acquisitions or other
purposes, limit our flexibility in planning for or reacting to changes in our business, reduce
funds available for use in our operations and make us more vulnerable to industry downturns and
competitive pressures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">While we believe that our current cash and marketable securities balances will be sufficient to
meet our capital requirements for the next twelve months, we cannot assure you that we will be able
to maintain sufficient cash and marketable security balances to refinance or pay off the
convertible debentures when and if the put option is exercised. We may need, or could elect to
seek, additional funding through public or private equity or debt financing, which we may not be
able to obtain. If we issue equity securities, our shareholders may experience additional dilution
or the new equity securities may have rights, preferences or privileges senior to those of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, one of the covenants of the indenture governing the debentures could possibly be
interpreted such that if we are late with any of our required filings under the Securities Exchange
Act of 1934, as amended (&#147;1934 Act&#148;), and if we fail to affect a cure within 60&nbsp;days, the holders
of the debentures can put the debentures back to the Company, whereby the debentures become
immediately due and payable. As a result of our restructuring efforts, we have fewer employees to
perform day-to-day
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">controls, processes and activities and additionally, certain functions have been transferred to new
employees who are not as familiar with our procedures. These changes increase the risk that we
will be unable to make timely filings in accordance with the 1934 Act. Any resulting default under
our debentures would have a material adverse effect on our cash position and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The June&nbsp;4, 2008 one-for-three reverse split of outstanding shares of our common stock has not
resulted in a material increase in the bid price of our common stock and we may be unable to
maintain compliance with NASDAQ Marketplace Rules without taking additional action, which could
include effecting an additional reverse stock split. If we are delisted from the NASDAQ Global
Market, there may not be a market for our common stock, which could cause a decrease in the value
of an investment in us and adversely affect our business, financial condition and results of
operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;4, 2008, we effected a one-for-three reverse split of our common stock. We effected the
reverse split to attempt to regain compliance with NASDAQ Marketplace Rules, particularly the
minimum $1.00 per share requirement for continued inclusion on the NASDAQ Global Market. Though
the per share price of our common stock increased to over $2.00 per share immediately following the
reverse split, the price has since closed below $1.00 per share and we cannot guarantee that it
will recover to $1.00 per share. If the price does not recover to $1.00 per share, the stock could
become subject to delisting again, and we may seek shareholder approval for an additional reverse
split. Although NASDAQ has implemented a temporary suspension of the $1.00 minimum bid price
requirement, this requirement is scheduled for reinstatement on July&nbsp;19, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A second reverse split could produce negative effects. We could not guarantee that an additional
reverse split would result in a long-term or permanent increase in the price of our common stock.
The market might perceive a decision to effect an additional reverse split as a negative indicator
of our future prospects, and as a result, the price of our common stock might decline after such a
reverse split (perhaps by an even greater percentage than would have occurred in the absence of
such a reverse split). An additional reverse split could also make it more difficult for us to
meet certain other requirements for continued listing on the NASDAQ Global Market, including rules
related to the minimum number of shares that must be in the public float, the minimum market value
of the public float and the minimum number of round lot holders. Investors might consider the
increased proportion of unissued authorized shares to issued shares to have an anti-takeover effect
under certain circumstances by allowing for dilutive issuances which could prevent certain
shareholders from changing the composition of the board, or could render tender offers for a
combination with another entity more difficult to complete successfully. Additionally, customers,
suppliers or employees might consider a company with low trading volume risky and might be less
likely to transact business with us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If our common stock is delisted, trading of the stock will most likely take place on an
over-the-counter market established for unlisted securities, such as the Pink Sheets or the OTC
Bulletin Board. An investor is likely to find it less convenient to sell, or to obtain accurate
quotations in seeking to buy, our common stock on an over-the-counter market, and many investors
may not buy or sell our common stock due to difficulty in accessing over-the-counter markets, or
due to policies preventing them from trading in securities not listed on a national exchange or
other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules
regarding &#147;penny stock,&#148; which impose additional disclosure requirements on broker-dealers. The
regulations relating to penny stocks, coupled with the typically higher cost per trade to investors
in penny stocks due to factors such as broker commissions generally representing a higher
percentage of the price of a penny stock than of a higher priced stock, would further limit the
ability and willingness of investors to trade in our common stock. For these reasons and others,
delisting would adversely affect the liquidity, trading volume and price of our common stock,
causing the value of an investment in us to decrease and having an adverse effect on our
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">business, financial condition and results of operations, including our ability to attract and
retain qualified executives and employees and to raise capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we do not achieve additional design wins in the future, our ability to grow will be seriously
limited. Even if we achieve additional design wins in the future, we may not realize significant
revenue from the design wins.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our future success depends on developers of advanced display products designing our products into
their systems. To achieve design wins, we must define and deliver cost-effective, innovative and
integrated semiconductors. Once a supplier&#146;s products have been designed into a system, the
developer may be reluctant to change its source of components due to the significant costs
associated with qualifying a new supplier. Accordingly, it may be difficult for us to achieve
additional design wins. The failure on our part to obtain additional design wins with leading
branded manufacturers or integrators, and to successfully design, develop and introduce new
products and product enhancements could seriously limit our ability to grow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, achieving a design win does not necessarily mean that a developer will order large
volumes of our products. A design win is not a binding commitment by a developer to purchase our
products. Rather, it is a decision by a developer to use our products in the design process of
that developer&#146;s products. Developers can choose at any time to discontinue using our products in
their designs or product development efforts. If our products are chosen to be incorporated into a
developer&#146;s products, we may still not realize significant revenue from that developer if that
developer&#146;s products are not commercially successful or if that developer chooses to qualify, or
incorporate the products of, a second source, and any of those circumstances might cause our
revenue to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Despite our restructuring efforts, we may not achieve profitability in the future and, if we do, we
may not be able to sustain or increase profitability on a quarterly or annual basis. If we are not
profitable in the future, we may be unable to continue our operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2006, we initiated restructuring plans, which we implemented throughout 2007 and 2008, aimed at
returning the Company to profitability. In December&nbsp;2008, we initiated an additional restructuring
plan to reduce our operating expenses in response to decreases in current and forecasted revenue
which resulted primarily from the global economic recession. This plan reduced operations,
research and development and administrative headcount in our San Jose, Taiwan and China offices.
Although this plan was substantially completed during the first quarter of 2009, we will continue
to monitor and evaluate the need for additional related restructuring actions in light of global
economic uncertainty and its potential impact on our continuing business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Despite our restructuring efforts, we may not achieve profitability in the future and, if we do, we
may not be able to sustain or increase profitability on a quarterly or annual basis. The years
ended December&nbsp;31, 2004 and December&nbsp;31, 2008 are our only years of profitability since inception
and we may be unable to achieve profitability in future periods. Additionally, our profitability
in 2008 was primarily the result of gains we recognized on the repurchase of a portion of our
convertible subordinated debentures. We did not achieve operating profits in 2008. If we are not
profitable in the future, we may be unable to continue our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we engage in further restructuring efforts, we may be unable to successfully implement new
products or enhancements to our current products, which will adversely affect our future sales and
financial condition.</I></B>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect to continue to introduce new and enhanced products, and our future sales will depend on
customer acceptance of our new products and the enhancements that we may make to our current
products. However, if our recent restructuring efforts are insufficient to reduce our cost
structure to a level that is commensurate with our revenue, we may be forced to make additional
headcount reductions or implement additional cost saving initiatives. These actions could impact
our research and development and engineering activities, which may slow our development of new or
enhanced products. If we are unable to successfully introduce new or enhanced products, our sales
and financial condition will be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>A significant amount of our revenue comes from a limited number of customers and distributors. Any
decrease in revenue from, or loss, of any of the customers or distributors could significantly
reduce our revenue.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The display manufacturing market is highly concentrated and we are, and will continue to be,
dependent on a limited number of customers and distributors for a substantial portion of our
revenue. Sales to distributors represented 48%, 53% and 57% of revenue for the three month period
ended March&nbsp;31, 2009 and years ended December&nbsp;31, 2008 and 2007, respectively. Sales to Tokyo
Electron Device, or TED, our Japanese distributor, represented 28%, 32% and 33% of revenue for the
three month period ended March&nbsp;31, 2009 and years ended December&nbsp;31, 2008 and 2007 respectively.
Revenue attributable to our top five end customers represented 49%, 55% and 47% of revenue for the
three month period ended March&nbsp;31, 2009 and years ended December&nbsp;31, 2008 and 2007, respectively.
Sales to Seiko Epson Corporation, our top end customer, represented 14%, 24% and 21% of revenue for
the three month period ended March&nbsp;31, 2009 and years ended December&nbsp;31, 2008 and 2007
respectively. A reduction, delay or cancellation of orders from one or more of our significant
customers, or a decision by one or more of our significant customers to select products
manufactured by a competitor or to use its own internally-developed semiconductors, would
significantly impact our revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The concentration of our accounts receivable with a limited number of customers exposes us to
increased credit risk and could harm our operating results and cash flows.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2009 and December&nbsp;31, 2008 we had four and three customers, respectively, that each
represented 10% or more of accounts receivable. The concentration of our accounts receivable with
a limited number of customers increases our credit risk. The failure of these customers to pay
their balances, or any other customer to pay future outstanding balances, would result in an
operating expense and reduce our cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Dependence on a limited number of sole-source, third-party manufacturers for our products exposes
us to shortages based on capacity allocation or low manufacturing yield, errors in manufacturing,
price increases with little notice, volatile inventory levels and delays in product delivery, which
could result in delays in satisfying customer demand, increased costs and loss of revenue.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We contract with third-party foundries for wafer fabrication and other manufacturers for packaging,
assembly and testing of our products. We do not own or operate a semiconductor fabrication
facility and do not have the resources to manufacture our products internally. Our wafers are
fabricated by Semiconductor Manufacturing International Corporation, Taiwan Semiconductor
Manufacturing Corporation and Toshiba Corporation. The wafers used in each of our products are
fabricated by only one of these manufacturers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sole sourcing each product increases our dependence on our suppliers. We have limited control over
delivery schedules, quality assurance, manufacturing yields, potential errors in manufacturing and
production costs. We do not have long-term supply contracts with our third-party manufacturers or
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">packaging, assembly and testing contractors, so they are not obligated to supply us with products
for any specific period of time, quantity or price, except as may be provided in a particular
purchase order. From time to time, our suppliers increase prices charged to produce our products
with little notice. If the prices charged by our contract manufacturers increase we may increase
our prices, which could harm our competitiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our requirements represent only a small portion of the total production capacity of our contract
manufacturers, who have in the past re-allocated capacity to other customers even during periods of
high demand for our products. We expect this may occur again in the future. In addition, the
current tightening of credit in financial markets may affect the ability of our suppliers to
maintain their production capacity and result in a reduction in the supply of wafers to us. If we
are unable to obtain our products from our contract manufacturers on schedule, or at all, our
ability to satisfy customer demand will be harmed and revenue from the sale of products may be lost
or delayed. If orders for our products are cancelled, expected revenue would not be realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our dependence on selling to distributors and integrators increases the complexity of managing our
supply chain and may result in excess inventory or inventory shortages.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Selling to distributors and integrators reduces our ability to forecast sales accurately and
increases the complexity of our business. Since our distributors act as intermediaries between us
and the companies using our products, we must rely on our distributors to accurately report
inventory levels and production forecasts. We must similarly rely on our integrators. Our
integrators are original equipment manufacturers (&#147;OEMs&#148;) that build display devices based on
specifications provided by branded suppliers. Selling to distributors and OEMs adds another layer
between us and the ultimate source of demand for our products, the consumer. These arrangements
require us to manage a complex supply chain and to monitor the financial condition and
creditworthiness of our distributors, integrators and customers. They also make it more difficult
for us to predict demand for our products. Our failure to manage one or more of these challenges
could result in excess inventory or inventory shortages that could materially impact our operating
results or limit the ability of companies using our semiconductors to deliver their products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Because we do not have long-term commitments from our customers and plan inventory purchases based
on estimates of customer demand which may be inaccurate, we contract for the manufacture of our
products based on potentially inaccurate estimates.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our sales are made on the basis of customer purchase orders rather than long-term purchase
commitments. Our customers may cancel or defer purchase orders at any time but we must order wafer
inventory from our subcontract manufacturers three to four months in advance. This process
requires us to make numerous assumptions concerning demand, each of which may introduce error into
our estimates of inventory requirements and the current financial crisis and economic downturn has
made it more difficult for us and our customers to accurately forecast demand. If our customers or
we overestimate demand, we may purchase components or have products manufactured that we may not be
able to use or sell. As a result, we would have excess inventory, which would negatively affect
our operating results. For example, we overestimated demand for certain of our products which led
to significant charges for obsolete inventory in 2008, 2007 and 2006. Conversely, if our customers
or we underestimate demand, or if sufficient manufacturing capacity is not available, we would
forego revenue opportunities, lose market share and damage our customer relationships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>International sales account for almost all of our revenue, and if we do not successfully address
the risks associated with international sales, our revenue could decrease.</I></B>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales outside the U.S. accounted for approximately 94% of revenue for the first quarter of 2009,
and 95% and 96% of revenue for the years ended December&nbsp;31, 2008 and 2007, respectively. We
anticipate that sales outside the U.S. will continue to account for a substantial portion of our
revenue in future periods. In addition, customers who incorporate our products into their products
sell a substantial portion of their products outside of the U.S., and all of our products are
manufactured outside of the U.S. We are, therefore, subject to many international risks,
including, but not limited to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased difficulties in managing international distributors and manufacturers due to
varying time zones, languages and business customs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>foreign currency exchange fluctuations in the currencies of Japan, the People&#146;s Republic
of China (&#147;PRC&#148;), Taiwan or Korea;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potentially adverse tax consequences;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties regarding timing and availability of export and import licenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>political and economic instability, particularly in the PRC, Japan, Taiwan, or Korea;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduced or limited protection of our IP, particularly in software, which is more prone
to design piracy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased transaction costs related to sales transactions conducted outside of the U.S.,
such as charges to secure letters of credit;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in maintaining sales representatives outside of the U.S. that are
knowledgeable about our industry and products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in the regulatory environment in the PRC, Japan, Taiwan and Korea that may
significantly impact purchases of our products by our customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>outbreaks of SARS, bird flu or other pandemics in the PRC or other parts of Asia; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in collecting outstanding accounts receivable balances.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our presence and investment within the People&#146;s Republic of China subjects us to risks of economic
and political instability in the area, which could adversely impact our results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A substantial portion of our products are manufactured by foundries located in the PRC. In
addition, a significant percentage of our employees are located in this area. Disruptions from
natural disasters, health epidemics (including new outbreaks of SARS or bird flu) and political,
social and economic instability may affect the region and would have a negative impact on our
results of operations. In addition, the economy of the PRC differs from the economies of many
countries in respects such as structure, government involvement, level of development, growth rate,
capital reinvestment, allocation of resources, self-sufficiency, rate of inflation and balance of
payments position, among others. In the past, the economy of the PRC has been primarily a planned
economy subject to state plans. Since the entry of the PRC into the World Trade Organization in
2002, the PRC government has been reforming its economic and political systems. These reforms have
resulted in significant economic growth and social change. We cannot be assured that the PRC&#146;s
policies for economic reforms will be consistent or effective. Our results of operations and
financial position may be harmed by changes in the PRC&#146;s political, economic or social conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The concentration of our manufacturers and customers in the same geographic region increases our
risk that a natural disaster, labor strike or political unrest could disrupt our operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Most of our current manufacturers and customers are located in the PRC, Japan, Korea or Taiwan.
The risk of earthquakes in the Pacific Rim region is significant due to the proximity of major
earthquake fault lines in the area. Common consequences of earthquakes include power outages and
disruption or impairment of production capacity. Earthquakes, fire, flooding, power outages and
other natural disasters in the Pacific Rim region, or political unrest, labor strikes or work
stoppages in countries where our manufacturers and
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">customers are located, would likely result in the disruption of our manufacturers&#146; and customers&#146;
operations. Any disruption resulting from extraordinary events could cause significant delays in
shipments of our products until we are able to shift our manufacturing from the affected contractor
to another third-party vendor. There can be no assurance that alternative capacity could be
obtained on favorable terms, or in a timely manner, if at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our future success depends upon the continued services of key personnel, many of whom would be
difficult to replace, and the loss of one or more of these employees could seriously harm our
business by delaying product development.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe our success depends, in large part, upon our ability to identify, attract and retain
qualified hardware and software engineers, sales, marketing, finance and managerial personnel.
Competition for talented personnel is intense and we may not be able to retain our key personnel or
identify, attract or retain other highly qualified personnel in the future. Because of the highly
technical nature of our business, the loss of key engineering personnel could delay product
introductions and significantly impair our ability to successfully create future products. If we
do not succeed in hiring and retaining employees with appropriate qualifications, our product
development efforts, revenue and business could be seriously harmed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have experienced, and may continue to experience, difficulty in hiring and retaining employees
with appropriate qualifications. In the last two years a significant portion of our executive
management team has turned over, including the Chief Executive Officer, Chief Financial Officer,
Vice President of Sales, Vice President of Marketing, Vice President of Business Operations and
Vice President, Strategy and Market Development. During 2006 and 2007, we also experienced
difficulties hiring and retaining qualified engineers in our Shanghai design center.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Decreased effectiveness of share-based payment awards could adversely affect our ability to attract
and retain employees, officers and directors.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have historically used stock options and other forms of share-based payment awards as key
components of our total compensation program in order to retain employees, officers and directors
and to provide competitive compensation and benefit packages. In accordance with Statement of
Financial Accounting Standards No.&nbsp;123 (revised 2004), <I>Share-Based Payment</I>, (&#147;SFAS 123R&#148;), we began
recording stock-based compensation expense for share-based awards in the first quarter of 2006. As
a result, we have incurred and will continue to incur significant compensation costs associated
with our share-based programs, making it more expensive for us to grant share-based payment awards
to employees, officers and directors. To the extent that SFAS 123R makes it more expensive to
grant stock options or to continue to have an employee stock purchase plan, we may decide to incur
cash compensation costs in the future. Actions that we take to reduce stock-based compensation
expense that might be more aggressive than actions implemented by our competitors could make it
difficult to attract, retain and motivate employees, officers, or directors, which could adversely
affect our competitive position as well as our business and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Failure to manage any future expansion efforts effectively could adversely affect our business and
results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To manage any future expansion efforts effectively in a rapidly evolving market, we must be able to
maintain and improve our operational and financial systems, train and manage our employee base and
attract and retain qualified personnel with relevant experience. We must also manage multiple
relationships with customers, business partners, contract manufacturers, suppliers and other third
parties. We could spend substantial amounts of time and money in connection with expansion efforts
for which we may not realize any profit. Our systems, procedures or controls may not be adequate
to support our operations and we may
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">not be able to expand quickly enough to exploit potential market opportunities. If we do not
manage any future expansion efforts effectively, our operating expenses could increase more rapidly
than our revenue, adversely affecting our financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may be unable to successfully integrate any future acquisition or equity investment we make,
which could disrupt our business and severely harm our financial condition.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may not be able to successfully integrate businesses, products, technologies or personnel of any
entity that we might acquire in the future, and any failure to do so could disrupt our business and
seriously harm our financial condition. In addition, if we acquire any company with weak internal
controls, it will take time to get the acquired company up to a level of operating effectiveness
acceptable to us and to implement adequate internal control, management, financial and operating
reporting systems. Our inability to address these risks could negatively affect our operating
results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To date, we have acquired Panstera, Inc. (&#147;Panstera&#148;) in January&nbsp;2001, nDSP Corporation (&#147;nDSP&#148;) in
January&nbsp;2002, Jaldi Semiconductor Corporation (&#147;Jaldi&#148;) in September&nbsp;2002 and Equator Technologies,
Inc. (&#147;Equator&#148;) in June&nbsp;2005. In March&nbsp;2003, we announced the execution of a definitive merger
agreement with Genesis Microchip, Inc.; however, the merger was terminated in August&nbsp;2003, and we
incurred $8.9&nbsp;million of expenses related to the transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The acquisitions of Panstera, nDSP, Jaldi and Equator contained a very high level of risk primarily
because the decisions to acquire these companies were made based on unproven technological
developments and, at the time of the acquisitions, we did not know if we would complete the
unproven technologies or, if we did complete the technologies, if they would be commercially
viable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These and any future acquisitions and investments could result in any of the following negative
events, among others:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>issuance of stock that dilutes current shareholders&#146; percentage ownership;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incurrence of debt;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>assumption of liabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>amortization expenses related to acquired intangible assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>impairment of goodwill;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>large and immediate write-offs; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>decreases in cash and marketable securities that could otherwise serve as working
capital.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operation of any acquired business would also involve numerous risks, including, but not
limited to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>problems combining the acquired operations, technologies or products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unanticipated costs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of management&#146;s attention from our core business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse effects on existing business relationships with customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>risks associated with entering markets in which we have no or limited prior experience;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential loss of key employees, particularly those of the acquired organizations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Continued compliance with regulatory and accounting requirements will be challenging and will
require significant resources.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We spend a significant amount of management time and external resources to comply with changing
laws, regulations and standards relating to corporate governance and public disclosure, including
new
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities and Exchange Commission rules and regulations, NASDAQ Global Market rules and the
Sarbanes-Oxley Act of 2002 which requires management&#146;s annual review and evaluation of internal
control over financial reporting. While we invest significant time and money in our effort to
evaluate and test our internal control over financial reporting, there are inherent limitations to
the effectiveness of any system of internal controls and procedures, including cost limitations,
the possibility of human error, judgments and assumptions regarding the likelihood of future
events, and the circumvention or overriding of the controls and procedures. Accordingly, even
effective controls and procedures can provide only reasonable assurance of achieving their control
objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Company Risks Related to the Semiconductor Industry and Our Markets</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Intense competition in our markets may reduce sales of our products, reduce our market share,
decrease our gross profit and result in large losses.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Rapid technological change, evolving industry standards and customer requirements, compressed
product life cycles and declining average selling prices are characteristics of our market and
could have a material adverse effect on our business, financial condition and results of
operations. As the overall price of digital projectors and advanced flat panel displays continues
to fall, we may be required to offer our products to manufacturers at discounted prices due to
increased price competition. At the same time, new alternative technologies and industry standards
may emerge that directly compete with technologies we offer. We may be required to increase our
investment in research and development at the same time that product prices are falling. In
addition, even after making this investment, we cannot assure you that our technologies will be
superior to those of our competitors or that our products will achieve market acceptance, whether
for performance or price reasons. Failure to effectively respond to these trends could reduce the
demand for our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We compete with specialized and diversified electronics and semiconductor companies that offer
display processors or scaling components. Some of these include Broadcom Corporation, i-Chips
Technologies Inc., Integrated Device Technology, Inc., Jepico Corp., MediaTek Inc., Micronas
Semiconductor Holding AG, MStar Semiconductor, Inc., Realtek Semiconductor Corp., Renesas
Technology Corp., Sigma Designs, Inc., Silicon Image, Inc., STMicroelectronics N.V., Sunplus
Technology Co., Ltd., Techwell, Inc., Topro Technology Inc., Trident Microsystems, Inc., Weltrend
Semiconductor, Inc., Zoran Corporation and other companies. Potential and current competitors may
include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of
some of our customers, including Intel Corporation, LG Electronics, Inc., Matsushita Electric
Industrial Co., Ltd., Mitsubishi Digital Electronics America, Inc., National Semiconductor
Corporation, NEC Corporation, NVIDIA Corporation, NXP Semiconductors, Samsung Electronics Co.,
Ltd., SANYO Electric Co., Ltd., Seiko Epson Corporation, Sharp Electronics Corporation, Sony
Corporation, Texas Instruments Incorporated and Toshiba America, Inc. In addition, start-up
companies may seek to compete in our markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Many of our competitors have longer operating histories and greater resources to support
development and marketing efforts than we do. Some of our competitors operate their own
fabrication facilities. These competitors may be able to react more quickly and devote more
resources to efforts that compete directly with our own. Our current or potential customers have
developed, and may continue to develop, their own proprietary technologies and become our
competitors. Increased competition from both competitors and our customers&#146; internal development
efforts could harm our business, financial condition and results of operations by, for example,
increasing pressure on our profit margin or causing us to lose sales opportunities. We cannot
assure you that we can compete successfully against current or potential competitors.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may not be able to respond to the rapid technological changes in the markets in which we
compete, or seek to compete, or we may not be able to comply with industry standards in the future,
making our products less desirable or obsolete.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The markets in which we compete or seek to compete are subject to rapid technological change,
frequent new product introductions, changing customer requirements for new products and features
and evolving industry standards. The introduction of new technologies and emergence of new
industry standards could render our products less desirable or obsolete, which could harm our
business. Examples of changing industry standards include the growing use of broadband to deliver
video content, the transition from 720 High Definition to 1080p Full High Definition resolution
video, faster screen refresh rates, the proliferation of new display devices and the drive to
network display devices together. Our failure to adequately respond to such technological changes
could render our products obsolete and significantly decrease our revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Because of the complex nature of our semiconductor designs and associated manufacturing processes
and the rapid evolution of our customers&#146; product designs, we may not be able to develop new
products or product enhancements in a timely manner, which could decrease customer demand for our
products and reduce our revenue.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The development of our semiconductors is highly complex. These complexities require us to employ
advanced designs and manufacturing processes that are unproven. The result can be longer and less
predictable development cycles. Timely introduction of new or enhanced products depends on a
number of other factors, including, but not limited to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>accurate prediction of customer requirements and evolving industry standards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>development of advanced display technologies and capabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>use of advanced foundry processes and achievement of high manufacturing yields; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>market acceptance of new products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we are unable to successfully develop and introduce products in a timely manner, our business
and results of operations will be adversely affected. We have experienced increased development
time and delays in introducing new products that have resulted in significantly less revenue than
originally expected for those products. Our international structure has significantly added to the
complexity of our product development efforts as we must now coordinate very complex product
development programs between multiple geographically dispersed locations. Our restructuring plans
have also significantly affected our product development efforts by reducing the number of
personnel dedicated to product development efforts. We may not be successful in timely delivery of
new products with reduced numbers of employees. Any such failure could cause us to lose customers
or potential customers, which would decrease our revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The cyclical nature of the semiconductor industry may lead to significant variances in the demand
for our products and could harm our operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the past, the semiconductor industry has been characterized by significant downturns and wide
fluctuations in supply and demand. Also, the industry has experienced significant fluctuations in
anticipation of changes in general economic conditions, including economic conditions in Asia and
North America. The current global economic crisis has caused a slowdown in the demand for our
products and other semiconductor products in general, and such slowdown may continue for an
extended period of time. The cyclical nature of the semiconductor industry has also led to
significant variances in product demand and production capacity. We have experienced, and may
continue to experience, periodic fluctuations in our future financial results because of changes in
industry-wide conditions.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Because of our long product development process and sales cycles, we may incur substantial costs
before we earn associated revenue and ultimately may not sell as many units of our products as we
originally anticipated.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We develop products based on anticipated market and customer requirements and incur substantial
product development expenditures, which can include the payment of large up-front, third-party
license fees and royalties, prior to generating associated revenue. Our work under these projects
is technically challenging and places considerable demands on our limited resources, particularly
on our most senior engineering talent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because the development of our products incorporates not only our complex and evolving technology
but also our customers&#146; specific requirements, a lengthy sales process is often required before
potential customers begin the technical evaluation of our products. Our customers typically
perform numerous tests and extensively evaluate our products before incorporating them into their
systems. The time required for testing, evaluation and design of our products into a customer&#146;s
system can take up to nine months or more. It can take an additional nine months or longer before
a customer commences volume shipments of systems that incorporate our products. We cannot assure
you that the time required for the testing, evaluation and design of our products by our customers
would not be significantly longer than nine months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because of the lengthy development and sales cycles, we will experience delays between the time we
incur expenditures for research and development, sales and marketing and inventory and the time we
generate revenue, if any, from these expenditures. Additionally, if actual sales volumes for a
particular product are substantially less than originally anticipated, we may experience large
write-offs of capitalized license fees, software development tools, product masks, inventories or
other capitalized or deferred product-related costs, or increased amortization of non-cancelable
prepaid royalties, any of which would negatively affect our operating results. For example, our
provisions for obsolete inventory were $1.5&nbsp;million, $4.4&nbsp;million and $6.2&nbsp;million for the years
ended December&nbsp;31, 2008, 2007 and 2006, respectively. Additionally, in 2007, we wrote-off assets
with a net book value of $6.9&nbsp;million due to reductions in research and development personnel and
changes in product development strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our products are characterized by average selling prices that decline over relatively short periods
of time, which will negatively affect our financial results unless we are able to reduce our
product costs or introduce new products with higher average selling prices.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Average selling prices for our products decline over relatively short periods of time, while many
of our product costs are fixed. When our average selling prices decline, our gross profit declines
unless we are able to sell more units or reduce the cost to manufacture our products. Our
operating results are negatively affected when revenue or gross profit declines. We have
experienced declines in our average selling prices and expect that we will continue to experience
them in the future, although we cannot predict when they may occur or how severe they will be. The
current crisis in global credit and financial markets may result in more rapid declines in average
selling prices as our competitors reduce their prices in attempts to gain market share or as our
potential customers have less cash available for purchases and operations and, in some instances,
exit the market. Our financial results will suffer if we are unable to offset any reductions in
our average selling prices by increasing our sales volumes, reducing our costs, adding new features
to our existing products or developing new or enhanced products in a timely basis with higher
selling prices or gross profits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The competitiveness and viability of our products could be harmed if necessary licenses of
third-party technology are not available to us or are only available on terms that are not
commercially viable.</I></B>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We license technology from independent third parties that is incorporated into our products or
product enhancements. Future products or product enhancements may require additional third-party
licenses that may not be available to us or may not be available on terms that are commercially
reasonable. In addition, in the event of a change in control of one of our licensors, it may
become difficult to maintain access to its licensed technology. If we are unable to obtain or
maintain any third-party license required to develop new products and product enhancements, we may
have to obtain substitute technology with lower quality or performance standards, or at greater
cost, either of which could seriously harm the competitiveness of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our limited ability to protect our IP and proprietary rights could harm our competitive position by
allowing our competitors to access our proprietary technology and to introduce similar products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ability to compete effectively with other companies will depend, in part, on our ability to
maintain the proprietary nature of our technology, including our semiconductor designs and
software. We provide the computer programming code for our software to customers in connection
with their product development efforts, thereby increasing the risk that customers will
misappropriate our proprietary software. We rely on a combination of patent, copyright, trademark
and trade secret laws, as well as nondisclosure agreements and other methods, to help protect our
proprietary technologies. As of December&nbsp;31, 2008 we held 90 patents and had 64 patent
applications pending for protection of our significant technologies. Competitors in both the U.S.
and foreign countries, many of whom have substantially greater resources than we do, may apply for
and obtain patents that will prevent, limit or interfere with our ability to make and sell our
products, or they may develop similar technology independently or design around our patents.
Effective copyright, trademark and trade secret protection may be unavailable or limited in foreign
countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We cannot assure you that the degree of protection offered by patent or trade secret laws will be
sufficient. Furthermore, we cannot assure you that any patents will be issued as a result of any
pending applications or that any claims allowed under issued patents will be sufficiently broad to
protect our technology. In addition, it is possible that existing or future patents may be
challenged, invalidated or circumvented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Others may bring infringement actions against us that could be time consuming and expensive to
defend.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may become subject to claims involving patents or other IP rights. IP claims could subject us
to significant liability for damages and invalidate our proprietary rights. In addition, IP claims
may be brought against customers that incorporate our products in the design of their own products.
These claims, regardless of their success or merit and regardless of whether we are named as
defendants in a lawsuit, would likely be time consuming and expensive to resolve and would divert
the time and attention of management and technical personnel. Any IP litigation or claims also
could force us to do one or more of the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>stop selling products using technology that contains the allegedly infringing IP;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>attempt to obtain a license to the relevant IP, which may not be available on reasonable
terms or at all;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>attempt to redesign those products that contain the allegedly infringing IP; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pay damages for past infringement claims that are determined to be valid or which are
arrived at in settlement of such litigation or threatened litigation.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we are forced to take any of the foregoing actions, we may incur significant additional costs or
be unable to manufacture and sell our products, which could seriously harm our business. In
addition, we may not be able to develop, license or acquire non-infringing technology under
reasonable terms. These developments could result in an inability to compete for customers or
otherwise adversely affect our results of operations.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we have to qualify a new foundry or packaging, assembly and testing supplier for any of our
products, we may experience delays that result in lost revenue and damaged customer relationships.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products require manufacturing with state-of-the-art fabrication equipment and techniques. The
lead-time needed to establish a relationship with a new contract manufacturer is at least nine
months, and the estimated time for us to adapt a product&#146;s design to a particular contract
manufacturer&#146;s process is at least four months. If we have to qualify a new foundry or packaging,
assembly and testing supplier for any of our products, we could incur significant delays in
shipping products, which may result in lost revenue and damaged customer relationships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Manufacturers of our semiconductor products periodically discontinue older manufacturing processes,
which could make our products unavailable from our current suppliers.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Semiconductor manufacturing technologies change rapidly and manufacturers typically discontinue
older manufacturing processes in favor of newer ones. For instance, a portion of our products use
embedded dynamic random access memory, (&#147;DRAM&#148;) technology, which requires manufacturing processes
that are being phased out. We also utilize 0.18um, 0.15um and 0.13um standard logic processes,
which may only be available for the next five to seven years. Once a manufacturer makes the
decision to retire a manufacturing process, notice is generally given to its customers. Customers
will then either retire the affected part or develop a new version of the part that can be
manufactured with a newer process. In the event that a manufacturing process is discontinued, our
current suppliers may be unwilling or unable to manufacture our current products. Additionally,
migrating to a new, more advanced process requires significant expenditures for research and
development and takes significant time. We cannot assure you that we will be able to place last
time buy orders in the future or that we will find alternate manufacturers of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We are dependent on our foundries to implement complex semiconductor technologies and our
operations could be adversely affected if those technologies are unavailable, delayed or
inefficiently implemented.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to increase performance and functionality and reduce the size of our products, we are
continuously developing new products using advanced technologies that further miniaturize
semiconductors. However, we are dependent on our foundries to develop and provide access to the
advanced processes that enable such miniaturization. We cannot be certain that future advanced
manufacturing processes will be implemented without difficulties, delays or increased expenses.
Our business, financial condition and results of operations could be materially adversely affected
if advanced manufacturing processes are unavailable to us, substantially delayed or inefficiently
implemented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our highly integrated products and high-speed mixed signal products are difficult to manufacture
without defects and the existence of defects could result in increased costs, delays in the
availability of our products, reduced sales of products or claims against us.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The manufacture of semiconductors is a complex process and it is often difficult for semiconductor
foundries to produce semiconductors free of defects. Because many of our products are more highly
integrated than other semiconductors and incorporate mixed analog and digital signal processing and
embedded memory technology, they are even more difficult to produce without defects. Defective
products can be caused by design or manufacturing difficulties. Therefore, identifying quality
problems can occur only by analyzing and testing our semiconductors in a system after they have
been manufactured. The difficulty in identifying defects is compounded because the process
technology is unique to each of the multiple semiconductor foundries we contract with to
manufacture our products.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Despite testing by both our customers and us, errors or performance problems may be found in
existing or new semiconductors. Failure to achieve defect-free products may result in increased
costs and delays in the availability of our products. Additionally, customers could seek damages
from us for their losses and shipments of defective products may harm our reputation with our
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have experienced field failures of our semiconductors in certain customer system applications
that required us to institute additional testing. As a result of these field failures, we incurred
warranty costs due to customers returning potentially affected products. Our customers have also
experienced delays in receiving product shipments from us that resulted in the loss of revenue and
profits. Shipments of defective products could cause us to lose customers or to incur significant
replacement costs, either of which would harm our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We use a customer owned tooling process for manufacturing most of our products which exposes us to
the possibility of poor yields and unacceptably high product costs.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are building most of our products on a customer owned tooling basis, also known in the
semiconductor industry as COT, where we directly contract the manufacture of wafers and assume the
responsibility for the assembly and testing of our products. As a result, we are subject to
increased risks arising from wafer manufacturing yields and risks associated with coordination of
the manufacturing, assembly and testing process. Poor product yields result in higher product
costs, which could make our products less competitive if we increase our prices to compensate for
our higher costs, or could result in lower gross profit margins if we do not increase our prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Shortages of materials used in the manufacturing of our products may increase our costs or limit
our revenue and impair our ability to ship our products on time.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From time to time, shortages of materials that are used in our products may occur. In particular,
we may experience shortages of semiconductor wafers and packages. If material shortages occur, we
may incur additional costs or be unable to ship our products to our customers in a timely fashion,
both of which could harm our business and adversely affect our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Shortages of other key components for our customers&#146; products could delay our ability to sell our
products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Shortages of components and other materials that are critical to the design and manufacture of our
customers&#146; products could limit our sales. These components include display components,
analog-to-digital converters, digital receivers and video decoders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Integration of software with our products adds complexity and cost that may affect our ability to
achieve design wins and may affect our profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The integration of software with our products adds complexity, may extend our internal development
programs and could impact our customers&#146; development schedules. This complexity requires increased
coordination between hardware and software development schedules and may increase our operating
expenses without a corresponding increase in product revenue. This additional level of complexity
lengthens the sales cycle and may result in customers selecting competitive products requiring less
software integration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our software development tools may be incompatible with industry standards and challenging to
implement, which could slow product development or cause us to lose customers and design wins.</I></B>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We provide software development tools to help customers evaluate our products and bring them into
production. Software development is a complex process and we are dependent on software development
languages and operating systems from vendors that may compromise our ability to design software in
a timely manner. Also, as software tools and interfaces change rapidly, new software languages
introduced to the market may be incompatible with our existing systems and tools. New software
development languages may not be compatible with our own, requiring significant engineering efforts
to migrate our existing systems in order to be compatible with those new languages. Existing or
new software development tools could make our current products obsolete or hard to use. Software
development disruptions could slow our product development or cause us to lose customers and design
wins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If products incorporating our semiconductors are not compatible with computer display protocols,
video standards and other devices, the market for our products will be reduced and our business
prospects could be significantly limited.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are incorporated into our customers&#146; products, which have different parts and
specifications and utilize multiple protocols that allow them to be compatible with specific
computers, video standards and other devices. If our customers&#146; products are not compatible with
these protocols and standards, consumers will return, or not purchase, these products and the
markets for our customers&#146; products could be significantly reduced. As a result, a portion of our
market would be eliminated, and our business would be harmed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Environmental laws and regulations have caused us to incur, and may cause us to continue to incur,
significant expenditures to comply with applicable laws and regulations, and may cause us to incur
significant penalties for noncompliance.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are subject to numerous environmental laws and regulations. Compliance with current or future
environmental laws and regulations could require us to incur substantial expenses which could harm
our business, financial condition and results of operations. We have worked, and will continue to
work, with our suppliers and customers to ensure that our products are compliant with enacted laws
and regulations. Failure by us or our contract manufacturers to comply with such legislation could
result in customers refusing to purchase our products and could subject us to significant monetary
penalties in connection with a violation, either of which would have a material adverse effect on
our business, financial condition and results of operations. Current environmental laws and
regulations could become more stringent over time, imposing even greater compliance costs and
increasing risks and penalties associated with violations, which could seriously harm our business,
financial condition and results of operations. There can be no assurance that violations of
environmental laws or regulations will not occur in the future as a result of our inability to
obtain permits, human error, equipment failure or other causes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Other Risks</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The price of our common stock has and may continue to fluctuate substantially.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our stock price and the stock prices of technology companies similar to Pixelworks have been highly
volatile. Market fluctuations, particularly over the past several months, as well as general
economic and political conditions, including recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our common stock. Therefore, the
price of our common stock may decline, and the value of your investment may be reduced regardless
of our performance. Any inability or perceived inability of investors to realize a gain on an
investment in our common stock could have an adverse effect on our business, financial condition
and results of operations, by potentially limiting our ability to retain our customers, to attract
and retain qualified employees and to raise capital. Additional factors that could negatively
impact our stock price include:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actual or anticipated fluctuations in our operating results;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in expectations as to our future financial performance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in financial estimates of securities analysts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements by us or our competitors of technological innovations, design wins,
contracts, standards or acquisitions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the operating and stock price performance of other comparable companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements of future expectations by our customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in market valuations of other technology companies; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inconsistent trading volume levels of our common stock.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The anti-takeover provisions of Oregon law and in our articles of incorporation could adversely
affect the rights of the holders of our common stock by preventing a sale or takeover of us at a
price or prices favorable to the holders of our common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Provisions of our articles of incorporation and bylaws and provisions of Oregon law may have the
effect of delaying or preventing a merger or acquisition of us, making a merger or acquisition of
us less desirable to a potential acquirer or preventing a change in our management, even if our
shareholders consider the merger, acquisition or change in management favorable or if doing so
would benefit our shareholders. In addition, these provisions could limit the price that investors
would be willing to pay in the future for shares of our common stock. The following are examples
of such provisions in our articles of incorporation or bylaws:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our board of directors is authorized, without prior shareholder approval, to change the
size of the board. Our articles of incorporation provide that if the board is increased to
eight or more members, the board will be divided into three classes serving staggered
terms, which would make it more difficult for a group of shareholders to quickly change the
composition of our board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our board of directors is authorized, without prior shareholder approval, to create and
issue preferred stock with voting or other rights or preferences that could impede the
success of any attempt to acquire us or to effect a change of control, commonly referred to
as &#147;blank check&#148; preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>members of our board of directors can only be removed for cause and at a meeting of
shareholders called expressly for that purpose, by the vote of 75&nbsp;percent of the votes then
entitled to be cast for the election of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the board of directors may alter our bylaws without obtaining shareholder approval; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shareholders are required to provide advance notice for nominations for election to the
board of directors or for proposing matters to be acted upon at a shareholder meeting.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. Unregistered Sales of Equity Securities and Use of Proceeds.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth information about shares repurchased during the first quarter of
2009 under the share repurchase program initiated in September&nbsp;2007 and reflects the one-for-three
reverse split of our common stock effected on June&nbsp;4, 2008 (in thousands except share and per share
data).
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Approximate</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>dollar value of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>shares that</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>purchased as</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>may yet be</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>part of publicly</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>purchased</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>announced</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>under the</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>plans or</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>plans or</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>purchased</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>paid per share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>programs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>programs</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;1, 2009 &#150; January&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;1, 2009 &#150; February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,937</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;1, 2009 &#150; March&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,937</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>All purchases made on the open market pursuant to the share repurchase program
announced in September&nbsp;2007, under which the board of directors authorized the repurchase of up to
$10.0&nbsp;million of our common stock over the next twelve months. In August&nbsp;2008, the Board of
Directors approved an extension to the program for an additional twelve months, through
September&nbsp;2009. The program does not obligate us to acquire any particular amount of common stock
and may be modified or suspended at any time at our discretion. Share repurchases under the
program may be made through open market or privately negotiated transactions at our discretion,
subject to market conditions and other factors.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. Exhibits.</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Separation Agreement dated and effective February&nbsp;11, 2009, by and between Anthony Simon and
Pixelworks, Inc. &#043;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Summary of Pixelworks Non-Employee Director Compensation. &#043;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pixelworks, Inc. 2006 Stock Incentive Plan, Terms and  Conditions of Restricted Stock Awards. &#043;</TD>
</TR>




<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pixelworks, Inc. 2006 Stock Incentive Plan, Terms and Conditions of Option Grants. &#043;</TD>
</TR>





<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Financial Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32.1*</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> Certification of Chief Executive Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32.2*</TD>
    <TD width="1%">&nbsp;</TD>

    <TD> Certification of Chief Financial Officer.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&#043;</TD>
    <TD>&nbsp;</TD>
    <TD>Indicates a management contract or compensation arrangement.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be &#147;filed&#148; for purposes
of Section&nbsp;18 of the Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;), or
otherwise subject to the liability of that section, nor shall such exhibits be deemed to be
incorporated by reference in any registration statement or other document filed under the
Securities Act of 1933, as amended, or the Exchange Act, except as otherwise stated in such
filing.</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURE</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="center">PIXELWORKS, INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Dated: May 7, 2009&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="center">/s/ Steven L. Moore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="center">Steven L. Moore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><I>Vice President, Chief Financial<BR>
Officer, Secretary and Treasurer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>v52342exv10w1.htm
<DESCRIPTION>EX-10.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SEPARATION AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Separation Agreement (&#147;Agreement&#148;) is made by and between Pixelworks, Inc. and Anthony
Simon (&#147;Executive&#148;) (collectively, &#147;Parties&#148;), effective as of the 11<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of February,
2009 (&#147;Effective Date&#148;). As used in this Agreement, &#147;Pixelworks&#148; refers to Pixelworks, Inc. and
all of its subsidiaries.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RECITALS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;</B>Executive has accepted a position of employment with a competitor of Pixelworks. Executive
desires to leave his employment with Pixelworks after the date on which the Pixelworks Board of
Directors approves the 2008 Senior Management Bonus payout, currently thought to be February&nbsp;11,
2009 (the &#147;Bonus Payout&#148;). The 2008 Senior Management Bonus plan includes the following requirement
for eligibility: &#147;&#091;The employee must be&#093; actively employed by the Company on the day the bonus is
approved by the &#091;Board of Directors&#093;, anticipated to be on a date in the first quarter of 2009. If
employment is terminated for any reason other than death, retirement or extended disability before
the &#091;Board of Directors&#093; approves the bonus, the award shall be forfeited.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;</B>Pixelworks desires to end Executive&#146;s employment immediately, so as to limit Executive&#146;s
exposure to business plans, strategies, technologies and other Pixelworks confidential and
proprietary information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>C.&nbsp;</B>The Executive does not believe that the forfeiture clause in the 2008 Senior Management
Bonus is valid or applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>D</B>.&nbsp;The Parties have come to an amicable agreement to terminate the Executive&#146;s employment
relationship with Pixelworks.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NOW THEREFORE for good and valuable consideration the adequacy of which is hereby acknowledged, the
Parties agree as follows:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AGREEMENT</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Employment Termination</B></U>. Executive&#146;s last day of employment shall be February&nbsp;6, 2009
(&#147;Termination Date&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Payments; End of Employment Matters</B></U>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As consideration for section 3 of this Agreement, Pixelworks will pay Executive a gross Bonus
Payout of $97,500.00, payable in equal quarterly installments according to the following
schedule and provided that Executive has not breached this Agreement: February&nbsp;26, June&nbsp;30,
September&nbsp;30 and December&nbsp;31. Pixelworks will instruct its legal counsel to hold the Bonus
Payout and to disperse the payments to Executive according to the terms of this Agreement.
Pixelworks will also instruct its legal counsel in advance to release all remaining funds to
Executive on the date of either of the following events: (a)&nbsp;a court of competent
jurisdiction issues a final order to either (i)&nbsp;wind up or otherwise dissolve Pixelworks as an
entity, or (ii)&nbsp;subject Pixelworks to voluntary or involuntary bankruptcy; (b)&nbsp;the closing of
a Change in Control transaction. &#147;Change in Control&#148; means that an entity acquires either the
majority of Pixelworks&#146; voting stock or&nbsp;all or substantially all of Pixelworks&#146; assets in a
single transaction or series of related transactions; or that Pixelworks has merged with, or
into, another entity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On the Termination Date, Pixelworks paid Executive all of his accrued and unpaid wages and
vacation pay through the Termination Date. The amount of accrued vacation pay was $5,664.38.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">SEPARATION AGREEMENT
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pixelworks has and will withhold all applicable taxes due in connection with any amounts paid
to Executive under this Agreement. Executive understands and agrees that he is liable for
such taxes. Executive agrees to indemnify Pixelworks against any claim or demand made against
it for such tax liabilities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pixelworks provided Executive with a Closing Statement of Stock Options. Executive agrees
that the Closing Statement sets forth the deadline by which Executive must exercise any vested
stock options. Pixelworks returned to Executive in a lump sum on the Termination Date all
dollars, if any, voluntarily deducted under Pixelworks&#146; Employee Stock Purchase Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Executive understands that all benefits acquired through Pixelworks for Executive and his
family members, including health insurance, ceased on the Termination Date, subject to
Executive exercising his rights under COBRA or other applicable law to extend such benefits.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Executive agrees that, other than the amounts contemplated by this Agreement, Pixelworks owes
Executive no further compensation that arises from or relates to Executive&#146;s employment.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Non-Solicitation</B></U>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>3.1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For one year after the Termination Date, Executive will not do any of the following:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Directly or indirectly solicit for hire or hire any &#147;Pixelworks Employee&#148; to
work for any organization that Executive directly or indirectly controls or any
organization that employs Executive as either an employee or a contractor. A
&#147;Pixelworks Employee&#148; is a person who is an employee of Pixelworks as of the
Termination Date or who was such an employee within the previous six (6)&nbsp;months.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Use in any way or for any purpose, or disclose to any person or entity, any
Pixelworks &#147;Confidential Information&#148; (other than as expressly authorized in writing by
Pixelworks&#146; CEO). &#147;Confidential Information&#148; means all information that qualifies as a
trade secret under California or federal law, as well as all information covered by
Executive&#146;s Confidentiality and Proprietary Rights Agreement, dated August&nbsp;23, 2005.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>3.2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Should Executive breach section 3.1, he forfeits all of the Bonus Payout, and must return to
Pixelworks any portion of the Bonus Payout already paid. Furthermore, Executive agrees that
the damages to Pixelworks for any breach of section 3.1(a) will be difficult to calculate, and
therefore agrees that in the event of such breach, Pixelworks will also be entitled to
liquidated damages in an amount equal to the total compensation paid by Pixelworks to the
employee in question for the twelve (12)&nbsp;months prior to the breach. The time period for
non-solicitation shall extend for an additional year from the date of breach.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Return of Pixelworks Property</B></U>. Executive agrees that on the Termination Date, he has
returned to Pixelworks all property and confidential materials belonging to Pixelworks,
including but not limited to keys, credit cards, telephone calling card, files, records,
mobile phones, computer, electronic equipments, computer access codes, computer hardware,
computer programs and software, instruction manuals, business plans, and all other property
and documents (whether originals, copies, or extracts), which Executive prepared or received
in connection with his employment at Pixelworks.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>No Admission of Liability</B></U>. Executive agrees that nothing in this Agreement or any
payments made under it will be construed as an admission of liability by Pixelworks.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Governing Law and Forum</B></U>. The laws of the state of California, U.S.A., govern this
Agreement, including the Uniform Commercial Code as adopted in that state but excluding the
laws regarding choice of law. The parties shall resolve any dispute that arises from or
relates to this Agreement exclusively in the federal courts located within Santa Clara County,
except that either party may seek injunctive relief to protect its intellectual property and
confidentiality in any court of competent jurisdiction.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">SEPARATION AGREEMENT
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Successors and Assigns</B></U>. This Agreement shall be binding upon Executive&#146;s heirs,
executors, administrators and other legal representatives and may be assigned and enforced by
Pixelworks and its respective successors and assigns.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Severability</B></U>. The provisions of this Agreement are severable. If any provision of
this Agreement or its application is held invalid, the invalidity shall not affect other
obligations, provisions, or applications of this Agreement which can be given effect without
the invalid obligations, provisions, or applications.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Waiver</B></U>. The failure of any party to demand strict performance of any provision of
this Agreement shall not constitute a waiver of any provision, term, covenant, or condition of
this agreement or of the right to demand strict performance in the future.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Section&nbsp;Headings</B></U>. The section headings contained herein are for reference purposes
only and will not in any way affect the meaning or interpretation of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>11.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Entire Agreement</B></U>. This Agreement constitutes the entire agreement between the
Parties and supersedes all prior or contemporaneous oral or written understandings,
statements, representations or promises with respect to its subject matter.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U><B>Voluntariness</B></U>. Executive acknowledges that (i)&nbsp;he has been given sufficient time
to consider this Agreement, (ii)&nbsp;he has carefully read and understands this Agreement, (iii)
he has been advised to consult with an attorney prior to executing this Agreement, and (iv)&nbsp;he
has signed it voluntarily.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">IN WITNESS WHEREOF the Parties have signed this Agreement as the 11<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> of February, 2009.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Anthony Simon</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>PIXELWORKS, INC.</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sign:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Anthony Simon</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Bruce Walicek</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;11, 2009</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;11, 2009</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
</TABLE>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">SEPARATION AGREEMENT</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>v52342exv10w2.htm
<DESCRIPTION>EX-10.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Summary of Pixelworks Non-Employee Director Compensation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following annual cash compensation, which was effective from the third quarter of 2008, has
been indefinitely reduced 10% by the board, effective from the second quarter of 2009. Cash
compensation is paid in quarterly increments:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cash compensation:</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Board Member Retainer</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$27,000 per year</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Audit Committee Retainer</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$8,000 per year, regular member<br>
$16,000 per year, Chair</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Compensation Committee Retainer</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$5,000 per year, regular member<br>
$10,000 per year, Chair</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Nominating and Governance
Committee Retainer</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$3,000 per year, regular member<br>
$6,000 per year, Chair</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Stock Compensation Plan:</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">6,000 shares per year (measured from annual meeting to annual meeting), policy to begin with term
in office beginning with the 2009 annual meeting. New non-employee Board members will receive an
initial recruitment grant of 10,000 shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Other:</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Alley&#146;s director compensation is determined by the CEO Transition Agreement dated and effective
December&nbsp;12, 2006, by and between Allen Alley and Pixelworks, Inc. (Exhibit&nbsp;10.10 to the Company&#146;s
Annual Report on Form 10-K filed on March&nbsp;12, 2007). Mr.&nbsp;Alley&#146;s director cash compensation is
also subject to the indefinite 10% reduction described above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>v52342exv10w3.htm
<DESCRIPTION>EX-10.3
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w3</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.3</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.<BR>
AMENDED AND RESTATED 2006 STOCK INCENTIVE PLAN<BR>
TERMS AND CONDITIONS OF RESTRICTED STOCK AWARD</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.&nbsp;</B><U><B>General</B></U>. These Terms and Conditions of Restricted Stock Award (these &#147;<B>Terms</B>&#148;)
apply to a particular award (&#147;<B>Award</B>&#148;) of restricted shares of Common Stock of the Company
(&#147;<B>Restricted Stock</B>&#148;) if referenced in the Notice of Grant of Restricted Stock (&#147;<B>Grant Notice</B>&#148;)
corresponding to that particular Award. The recipient of the Award identified in the Grant Notice
is referred to as the &#147;<B>Grantee</B>.&#148; The effective date of grant of the Award as set forth in the
Grant Notice is referred to as the &#147;<B>Award Date</B>.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Award was granted under and subject to the Company&#146;s Amended and Restated 2006 Stock
Incentive Plan (the &#147;<B>Plan</B>&#148;). Capitalized terms are defined in the Plan if not defined herein. The
Award has been granted to the Grantee in addition to, and not in lieu of, any other form of
compensation otherwise payable or to be paid to the Grantee. The Grant Notice and these Terms are
collectively referred to as the &#147;<B>Award Agreement</B>&#148; applicable to the Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.&nbsp;</B><U><B>Vesting</B></U>. Subject to Section&nbsp;7 below, the Award shall vest, and restrictions (other
than those set forth in Section&nbsp;16.1 of the Plan) shall lapse, in percentage installments of the
aggregate number of shares of Restricted Stock subject to the Award as set forth on the Grant
Notice. The Administrator reserves the right to accelerate the vesting of the Restricted Stock in
such circumstances as it, in its sole discretion, deems appropriate and any such acceleration shall
be effective only when set forth in a written instrument executed by an officer of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.&nbsp;</B><U><B>Continuance of Employment</B></U>. The vesting schedule requires Continuous Status as an
Employee or Consultant through each applicable vesting date as a condition to the vesting of the
applicable installment of the Award and the rights and benefits under this Award Agreement.
Employment or service for only a portion of the vesting period, even if a substantial portion, will
not entitle the Grantee to any proportionate vesting or avoid or mitigate a termination of rights
and benefits upon or following a termination of employment or services as provided in Section&nbsp;7
below or under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing contained in this Award Agreement or the Plan constitutes an employment or service
commitment by the Company or any of its Subsidiaries, affects the Grantee&#146;s status, if he or she is
an employee, as an employee at will who is subject to termination without cause, confers upon the
Grantee any right to remain employed by or in service to the Company or any of its Subsidiaries,
interferes in any way with the right of the Company or any of its Subsidiaries at any time to
terminate such employment or services, or affects the right of the Company or any of its
Subsidiaries to increase or decrease the Grantee&#146;s other compensation or benefits. Nothing in this
paragraph, however, is intended to adversely affect any independent contractual right of the
Grantee without his or her consent thereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.&nbsp;</B><U><B>Dividend and Voting Rights</B></U>. After the Award Date, the Grantee shall be entitled to
voting rights with respect to the shares of Restricted Stock subject to the Award even though such
shares are not vested, provided that such rights shall terminate immediately as to
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">any shares of Restricted Stock that are forfeited pursuant to Section&nbsp;7 below. Any dividends
payable on the Restricted Stock shall be treated as Restricted Property pursuant to and as
contemplated by Section&nbsp;8.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.&nbsp;</B><U><B>Restrictions on Transfer</B></U>. Prior to the time that they have become vested pursuant
to Section&nbsp;2 hereof or Section&nbsp;11 of the Plan, neither the Restricted Stock, nor any interest
therein, amount payable in respect thereof, or Restricted Property (as defined in Section&nbsp;8 hereof)
may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered,
either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not
apply to (a)&nbsp;transfers to the Company, or (b)&nbsp;transfers by will or the laws of descent and
distribution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.&nbsp;</B><U><B>Stock Certificates</B></U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Book Entry Form</U>. The Company shall issue the shares of Restricted Stock subject
to the Award either: (a)&nbsp;in certificate form as provided in Section 6(b) below; or (b)&nbsp;in book
entry form, registered in the name of the Grantee with notations regarding the applicable
restrictions on transfer imposed under this Award Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Certificates to be Held by Company; Legend</U>. Any certificates representing shares
of Restricted Stock that may be delivered to the Grantee by the Company prior to vesting shall be
redelivered to the Company to be held by the Company until the restrictions on such shares shall
have lapsed and the shares shall thereby have become vested or the shares represented thereby have
been forfeited hereunder. Such certificates shall bear the following legend and any other legends
the Company may determine to be necessary or advisable to comply with all applicable laws, rules,
and regulations:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><I>&#147;The ownership of this certificate and the shares of stock evidenced hereby and any
interest therein are subject to substantial restrictions on transfer under an
Agreement entered into between the registered owner and Pixelworks, Inc. A copy of
such Agreement is on file in the office of the Secretary of Pixelworks, Inc.&#148;</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Delivery of Certificates Upon Vesting</U>. Promptly after the vesting of any shares
of Restricted Stock pursuant to Section&nbsp;2 hereof or Section&nbsp;11 of the Plan and the satisfaction of
any and all related tax withholding obligations pursuant to Section&nbsp;9, the Company shall, as
applicable, either remove the notations on any shares of Restricted Stock issued in book entry form
which have vested or deliver to the Grantee a certificate or certificates evidencing the number of
shares of Restricted Stock which have vested (or, in either case, such lesser number of shares as
may result after giving effect to Section&nbsp;9). The Grantee (or the beneficiary or personal
representative of the Grantee in the event of the Grantee&#146;s death or Disability, as the case may
be) shall deliver to the Company any representations or other documents or assurances as the
Company or its counsel may determine to be necessary or advisable in order to ensure compliance
with all applicable laws, rules, and regulations with respect to the grant of the Award and the
delivery of shares of Common Stock in respect thereof. The shares so delivered shall no longer be
restricted shares hereunder.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Stock Power; Power of Attorney</U>. Concurrently with the execution and delivery of
this Award Agreement, the Grantee shall deliver to the Company an executed stock power in the form
attached hereto as <U>Exhibit&nbsp;A</U>, in blank, with respect to such shares. The Company shall not
deliver any share certificates in accordance with this Award Agreement unless and until the Company
shall have received such stock power executed by the Grantee. The Grantee, by acceptance of the
Award, shall be deemed to appoint, and does so appoint by execution of this Award Agreement, the
Company and each of its authorized representatives as the Grantee&#146;s attorney(s)-in-fact to effect
any transfer of unvested forfeited shares (or shares otherwise reacquired by the Company hereunder)
to the Company as may be required pursuant to the Plan or this Award Agreement and to execute such
documents as the Company or such representatives deem necessary or advisable in connection with any
such transfer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.&nbsp;</B><U><B>Effect of Termination of Employment or Services</B></U><B>. </B>If the Grantee&#146;s Continuous
Status as an Employee or Consultant terminates (the last day of the Grantee&#146;s Continuous Status as
an Employee or Consultant is referred to as the Grantee&#146;s &#147;<B>Severance Date</B>&#148;), the Grantee&#146;s shares
of Restricted Stock (and related Restricted Property as defined in Section&nbsp;8 hereof) shall be
forfeited to the Company to the extent such shares have not become vested pursuant to Section&nbsp;2
hereof or Section&nbsp;11 of the Plan upon the Severance Date (regardless of the reason for such
termination of Continuous Status as an Employee or Consultant, whether with or without cause,
voluntarily or involuntarily, or due to death or Disability). Upon the occurrence of any
forfeiture of shares of Restricted Stock hereunder, such unvested, forfeited shares and related
Restricted Property shall be automatically transferred to the Company as of the Severance Date,
without any other action by the Grantee (or the Grantee&#146;s beneficiary or personal representative in
the event of the Grantee&#146;s death or Disability, as applicable). No consideration shall be paid by
the Company with respect to such transfer. The Company may exercise its powers under Section 6(d)
hereof and take any other action necessary or advisable to evidence such transfer. The Grantee (or
the Grantee&#146;s beneficiary or personal representative in the event of the Grantee&#146;s death or
Disability, as applicable) shall deliver any additional documents of transfer that the Company may
request to confirm the transfer of such unvested, forfeited shares and related Restricted Property
to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.&nbsp;</B><U><B>Adjustments Upon Specified Events</B></U>. Upon the occurrence of certain events relating
to the Company&#146;s stock contemplated by Section&nbsp;11.1 of the Plan, the Administrator shall make
adjustments in accordance with such section in the number and kind of securities that may become
vested under the Award. If any adjustment shall be made under Section&nbsp;11.1 of the Plan, or an
event described in Sections&nbsp;11.2 or 11.3 of the Plan shall occur, or other dividend shall be paid
on the Restricted Stock, and the shares of Restricted Stock are not fully vested upon such event or
prior thereto, the restrictions applicable to such shares of Restricted Stock shall continue in
effect with respect to any cash, consideration, property or other securities (the &#147;<B>Restricted
Property</B>&#148; and, for the purposes of this Award Agreement, &#147;Restricted Stock&#148; shall include
&#147;Restricted Property&#148;, unless the context otherwise requires) received in respect of such
Restricted Stock. Such Restricted Property shall vest at such times and in such proportion as the
shares of Restricted Stock to which the Restricted Property is attributable vest, or would have
vested pursuant to the terms hereof if such shares of Restricted Stock had remained outstanding.
To the extent that the Restricted Property includes any cash (other than cash received as a result
of a cash dividend), such cash shall be invested, pursuant to policies established by the
Administrator, in interest bearing, FDIC-insured (subject to applicable insurance limits) deposits
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of a depository institution selected by the Administrator, the earnings on which shall be
added to and become a part of the Restricted Property. To the extent that the Restricted Property
includes cash as a result of a cash dividend, such cash shall be held or retained by the Company
and shall be paid (without interest or other earnings) upon or promptly (and in no event more than
thirty (30)&nbsp;days after) the shares of Restricted Stock to which such dividends relate become
vested. The Grantee shall have no right to receive any Restricted Property (including, without
limitation, any such cash as a result of a cash dividend) to the extent the related Restricted
Stock is forfeited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.&nbsp;</B><U><B>Tax Withholding</B></U>. The Company shall reasonably determine the amount of any federal,
state, local or other income, employment, or other taxes which the Company or any of its
Subsidiaries may reasonably be obligated to withhold with respect to the grant, vesting, making of
an election under Section 83(b) of the Code or other event with respect to the Restricted Stock.
The Company (or any of its Subsidiaries last employing the Grantee) shall be entitled to require a
cash payment by or on behalf of the Grantee and/or to deduct from other compensation payable to the
Grantee any sums required to be withheld in connection with such event. Alternatively, the Grantee
or other person in whom the Restricted Stock vests may elect, in such manner and at such time or
times prior to any applicable tax date as may be permitted or required under rules established by
the Administrator, to have the Company (subject to Section&nbsp;16.1 of the Plan) withhold and reacquire
the appropriate number of shares, valued in a consistent manner at their fair market value or at
the sales price in accordance with authorized procedures for cashless exercises, necessary to
satisfy the minimum applicable withholding obligation with respect to the vesting of the Restricted
Stock. In no event shall the shares withheld exceed the minimum whole number of shares required
for tax withholding under applicable law. Any election to have shares so held back and reacquired
shall not be available if the Grantee makes or has made an election pursuant to Section 83(b) of
the Code with respect to the Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.&nbsp;</B><U><B>Notices</B></U>. Any notice to be given under the terms of this Award Agreement shall be
in writing and addressed to the Company at its principal office to the attention of the Secretary,
and to the Grantee at the Grantee&#146;s last address reflected on the Company&#146;s payroll records. Any
notice shall be delivered in person or shall be enclosed in a properly sealed envelope, addressed
as aforesaid, registered or certified, and deposited (postage and registry or certification fee
prepaid) in a post office or branch post office regularly maintained by the United States
Government. Any such notice shall be given only when received, but if the Grantee is no longer
employed by or provides services to the Company or a Subsidiary, shall be deemed to have been duly
given five business days after the date mailed in accordance with the foregoing provisions of this
Section&nbsp;10.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.&nbsp;</B><U><B>Plan</B></U>. The Award and all rights of the Grantee under this Award Agreement are
subject to the terms and conditions of the provisions of the Plan, incorporated herein by
reference. The Grantee agrees to be bound by the terms of the Plan and this Award Agreement. The
Grantee acknowledges having read and understanding the Plan, the Prospectus for the Plan, and this
Award Agreement. Unless otherwise expressly provided in other sections of this Award Agreement,
provisions of the Plan that confer discretionary authority on the Board or the Administrator do not
(and shall not be deemed to) create any rights in the Grantee unless such rights are expressly set
forth herein or are otherwise in the sole discretion of the Board or the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Administrator so conferred by appropriate action of the Board or the Administrator under the
Plan <U>after</U> the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>12.&nbsp;</B><U><B>Entire Agreement</B></U>. This Award Agreement and the Plan together constitute the
entire agreement and supersede all prior understandings and agreements, written or oral, of the
parties hereto with respect to the subject matter hereof. The Plan may be amended pursuant to
Section&nbsp;13 of the Plan. This Award Agreement may be amended by the Board from time to time. Any
such amendment must be in writing and signed by the Company. Any such amendment that materially
and adversely affects the Grantee&#146;s rights under this Award Agreement requires the consent of the
Grantee in order to be effective with respect to the Award. The Company may, however, unilaterally
waive any provision hereof in writing to the extent such waiver does not adversely affect the
interests of the Grantee hereunder, but no such waiver shall operate as or be construed to be a
subsequent waiver of the same provision or a waiver of any other provision hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>13.&nbsp;</B><U><B>Counterparts</B></U>. This Award Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>14.&nbsp;</B><U><B>Section&nbsp;Headings</B></U>. The section headings of this Award Agreement are for
convenience of reference only and shall not be deemed to alter or affect any provision hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.&nbsp;</B><U><B>Governing Law</B></U>. This Award Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Oregon without regard to conflict of law
principles thereunder.
</DIV>

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<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>v52342exv10w4.htm
<DESCRIPTION>EX-10.4
<TEXT>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.4</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIXELWORKS, INC.<BR>
AMENDED AND RESTATED 2006 STOCK INCENTIVE PLAN<BR>
TERMS AND CONDITIONS OF OPTION GRANT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. </B><U><B>General</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These Terms and Conditions of Option Grant (these &#147;<B>Terms</B>&#148;) apply to a particular stock option
(the &#147;<B>Option</B>&#148;) if referenced in the Notice of Grant of Stock Options (the &#147;<B>Grant Notice</B>&#148;)
corresponding to that particular grant. The recipient of the Option identified in the Grant Notice
is referred to as the &#147;<B>Grantee</B>.&#148; The per share exercise price of the Option as set forth in the
Grant Notice is referred to as the &#147;<B>Exercise Price</B>.&#148; The effective date of grant of the Option as
set forth in the Grant Notice is referred to as the &#147;<B>Award Date</B>.&#148; The exercise price and the
number of shares covered by the Option are subject to adjustment under Section&nbsp;11 of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Option was granted under and subject to the Pixelworks, Inc. Amended and Restated 2006
Stock Incentive Plan (the &#147;<B>Plan</B>&#148;). Capitalized terms are defined in the Plan if not defined
herein. The Option has been granted to the Grantee in addition to, and not in lieu of, any other
form of compensation otherwise payable or to be paid to the Grantee. The Grant Notice and these
Terms are collectively referred to as the &#147;<B>Option Agreement</B>&#148; applicable to the Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. </B><U><B>Vesting; Limits on Exercise; Incentive Stock Option Status</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Option shall vest and become exercisable in percentage installments of the aggregate
number of shares subject to the Option as set forth on the Grant Notice. The Option may be
exercised only to the extent the Option is vested and exercisable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cumulative Exercisability</U>. To the extent that the Option is vested and
exercisable, the Grantee has the right to exercise the Option (to the extent not
previously exercised), and such right shall continue, until the expiration or earlier
termination of the Option.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>No Fractional Shares</U>. Fractional share interests shall be disregarded, but
may be cumulated.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Minimum Exercise</U>. No fewer than 100 shares of Common Stock (subject to
adjustment under Section&nbsp;11 of the Plan) may be purchased at any one time, unless the
number purchased is the total number at the time exercisable under the Option.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Incentive Stock Option Status; $100,000 Value Limit</U>. The Grant Notice
indicates whether the Option is intended as an Incentive Stock Option (within the
meaning of Section&nbsp;422 of the U.S. Internal Revenue Code) or a Nonqualified Stock
Option. If the Option is intended to qualify as an Incentive Stock Option and the
aggregate fair market value of the shares with respect to which Incentive Stock Options
(whether granted under the Option or otherwise) first become exercisable by the Grantee
in any</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>calendar year exceeds $100,000, as measured on the applicable Award Dates, the
limitations of Section&nbsp;5.2 of the Plan shall apply and to such extent the Option will be
rendered a Nonqualified Stock Option.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. </B><U><B>Continuance of Employment/Service Required; No Employment/Service Commitment</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The vesting schedule applicable to the Option requires Continuous Status as an Employee or
Consultant through each applicable vesting date as a condition to the vesting of the applicable
installment of the Option and the rights and benefits under this Option Agreement. Employment or
service for only a portion of the vesting period, even if a substantial portion, will not entitle
the Grantee to any proportionate vesting or avoid or mitigate a termination of rights and benefits
upon or following a termination of employment or services as provided in Section&nbsp;5 below or under
the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing contained in this Option Agreement or the Plan constitutes a continued employment or
service commitment by the Company or any of its Subsidiaries, affects the Grantee&#146;s status, if he
or she is an employee, as an employee at will who is subject to termination without cause, confers
upon the Grantee any right to remain employed by or in service to the Company or any Subsidiary,
interferes in any way with the right of the Company or any Subsidiary at any time to terminate such
employment or service, or affects the right of the Company or any Subsidiary to increase or
decrease the Grantee&#146;s other compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. </B><U><B>Method of Exercise of Option</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Option shall be exercisable by the delivery to the Secretary of the Company (or such other
person as the Administrator may require pursuant to such administrative exercise procedures as the
Administrator may implement from time to time) of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a written notice stating the number of shares of Common Stock to be purchased
pursuant to the Option or by the completion of such other administrative exercise
procedures as the Administrator may require from time to time,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>payment in full for the Exercise Price of the shares to be purchased in cash, check
or by electronic funds transfer to the Company, or (subject to compliance with all
applicable laws, rules, regulations and listing requirements and further subject to
such rules as the Administrator may adopt as to any non-cash payment) in shares of
Common Stock already owned by the Grantee, valued at their fair market value (as
determined under the Plan) on the exercise date;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any written statements or agreements required pursuant to Section&nbsp;16.1 of the Plan;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>satisfaction of the tax withholding provisions of Section&nbsp;10 of these Terms.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Administrator also may, but is not required to, authorize a non-cash payment alternative by
notice and third party payment in such manner as may be authorized by the Administrator, or,
subject to such procedures as the Administrator may adopt, authorize a &#147;cashless exercise&#148; with
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a
third party who provides simultaneous financing for the purposes of (or who otherwise facilitates)
the exercise of the Option.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Option is designated as an Incentive Stock Option, the Option will qualify as an
Incentive Stock Option only if it meets all of the applicable requirements of the Code. The Option
may be rendered a Nonqualified Stock Option if the Administrator permits the use of one or more of
the non-cash payment alternatives referenced above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. </B><U><B>Early Termination of Option</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.1 Expiration Date</B>. Subject to earlier termination as provided below in this Section&nbsp;5, the
Option will terminate on the &#147;Expiration&#148; date set forth in the Grant Notice (the &#147;<B>Expiration
Date</B>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.2 Possible Termination of Option upon Certain Corporate Events. </B>The Option is subject to
termination in connection with certain corporate events as provided in Section&nbsp;11.3 of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.3 Termination of Option upon a Termination of Grantee&#146;s Employment or Services. </B>Subject to
earlier termination on the Expiration Date of the Option or pursuant to Section&nbsp;5.2 above, if the
Grantee&#146;s Continuous Status as an Employee or Consultant terminates, the following rules shall
apply (the last day of the Grantee&#146;s Continuous Status as an Employee or Consultant is referred to
as the Grantee&#146;s &#147;<B>Severance Date</B>&#148;):
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other than as expressly provided below in this Section&nbsp;5.3, (a)&nbsp;the Grantee will
have until the date that is 3&nbsp;months after his or her Severance Date to exercise the
Option (or portion thereof) to the extent that it was vested on the Severance Date, (b)
the Option, to the extent not vested on the Severance Date, shall terminate on the
Severance Date, and (c)&nbsp;the Option, to the extent exercisable for the 3-month period
following the Severance Date and not exercised during such period, shall terminate at
the close of business on the last day of the 3-month period;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if the termination of the Grantee&#146;s Continuous Status as an Employee or Consultant
is the result of the Grantee&#146;s death or Disability, (a)&nbsp;the Grantee (or his or her
beneficiary or personal representative, as the case may be) will have until the date
that is 12&nbsp;months after the Grantee&#146;s Severance Date to exercise the Option (or portion
thereof) to the extent that it was vested on the Severance Date, (b)&nbsp;the Option, to the
extent not vested on the Severance Date, shall terminate on the Severance Date, and (c)
the Option, to the extent exercisable for the 12-month period following the Severance
Date and not exercised during such period, shall terminate at the close of business on
the last day of the 12-month period;</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In all events the Option is subject to earlier termination on the Expiration Date of the
Option or as contemplated by Section&nbsp;5.2. The Administrator shall be the sole judge of whether the
Grantee&#146;s Continuous Status as an Employee or Consultant has terminated for purposes of this Option
Agreement.
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding any post-termination exercise period provided for herein or in the Plan, if
the Option is designated as an Incentive Stock Option, the Option will qualify as an Incentive
Stock Option only if it is exercised within the applicable exercise periods for Incentive Stock
Options under, and meets all of the other requirements of, the Code. If the Option is not
exercised within the applicable exercise periods for Incentive Stock Options or does not meet such
other requirements, the Option will be rendered a Nonqualified Stock Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. </B><U><B>Non-Transferability</B></U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Option and any other rights of the Grantee under this Option Agreement or the Plan are
nontransferable and exercisable only by the Grantee, except as set forth in Section&nbsp;10 of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. </B><U><B>Notices</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any notice to be given under the terms of this Option Agreement shall be in writing and
addressed to the Company at its principal office to the attention of the Secretary, and to the
Grantee at the address last reflected on the Company&#146;s payroll records, or at such other address as
either party may hereafter designate in writing to the other. Any such notice shall be delivered
in person or shall be enclosed in a properly sealed envelope addressed as aforesaid, registered or
certified, and deposited (postage and registry or certification fee prepaid) in a post office or
branch post office regularly maintained by the United States Government. Any such notice shall be
given only when received, but if the Grantee is no longer employed by or provides services to the
Company or a Subsidiary, shall be deemed to have been duly given five business days after the date
mailed in accordance with the foregoing provisions of this Section&nbsp;7.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. </B><U><B>Plan</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Option and all rights of the Grantee under this Option Agreement are subject to the terms
and conditions of the Plan, incorporated herein by this reference. The Grantee agrees to be bound
by the terms of the Plan and this Option Agreement. The Grantee acknowledges having read and
understanding the Plan, the Prospectus for the Plan, and this Option Agreement. Unless otherwise
expressly provided in other sections of this Option Agreement, provisions of the Plan that confer
discretionary authority on the Board or the Administrator do not and shall not be deemed to create
any rights in the Grantee unless such rights are expressly set forth herein or are otherwise in the
sole discretion of the Board or the Administrator so conferred by appropriate action of the Board
or the Administrator under the Plan <U>after</U> the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. </B><U><B>Entire Agreement</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Option Agreement and the Plan together constitute the entire agreement and supersede all
prior understandings and agreements, written or oral, of the parties hereto with respect to the
subject matter hereof. The Plan and this Option Agreement may be amended pursuant to Section&nbsp;13 of
the Plan. Such amendment must be in writing and signed by the Company. The Company may, however,
unilaterally waive any provision hereof in writing to the extent such waiver does not adversely
affect the interests of the Grantee hereunder, but no such waiver shall operate as or be construed
to be a subsequent waiver of the same provision or a waiver of any other provision hereof.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. </B><U><B>Tax Withholding</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon any exercise or payment of the Option or, in the case of an Option designated as an
Incentive Stock Option, upon the disposition of shares of Common Stock acquired pursuant to the
exercise of the Option prior to satisfaction of the holding period requirements of Section&nbsp;422 of
the Code, the Company or one of its Subsidiaries shall have the right at its option to (a)&nbsp;require
the Grantee (or the Grantee&#146;s personal representative or beneficiary, as the case may be) to pay or
provide for payment of at least the minimum amount of any taxes which the Company or one of its
Subsidiaries may be required to withhold with respect to such Option exercise or payment; or (b)
deduct from any amount otherwise payable in cash to the Grantee (or the Grantee&#146;s personal
representative or beneficiary, as the case may be) the minimum amount of any taxes which the
Company or one of its Subsidiaries may be required to withhold with respect to such cash payment.
In any case where a tax is required to be withheld in connection with the delivery of shares of
Common Stock pursuant to the Option, the Administrator may in its sole discretion (subject to
Section&nbsp;16.1 of the Plan) require or grant to the Grantee the right to elect, pursuant to such
rules and subject to such conditions as the Administrator may establish, that the Company reduce
the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares,
valued in a consistent manner at their fair market value or at the sales price in accordance with
authorized procedures for cashless exercises, necessary to satisfy the minimum applicable
withholding obligation on the Option exercise or payment event. In no event shall the shares
withheld exceed the minimum whole number of shares required for tax withholding under applicable
law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. </B><U><B>Governing Law.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Option Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Oregon without regard to conflict of law principles thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. </B><U><B>Effect of this Agreement</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the Company&#146;s right to terminate the Option pursuant to Section&nbsp;11.3 of the Plan,
this Option Agreement shall be assumed by, be binding upon and inure to the benefit of any
successor or successors to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. </B><U><B>Counterparts</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Option Agreement may be executed simultaneously in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
instrument.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. </B><U><B>Section&nbsp;Headings</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The section headings of this Option Agreement are for convenience of reference only and shall
not be deemed to alter or affect any provision hereof.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>




</BODY>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>6
<FILENAME>v52342exv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Bruce A. Walicek, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of Pixelworks, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter
(the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected or is reasonably likely to materially affect, the registrant&#146;s
internal control over financial reporting; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrant&#146;s ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May 7, 2009&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Bruce A. Walicek
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Bruce A. Walicek&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left"><I>President and Chief Executive Officer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>7
<FILENAME>v52342exv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Steven L. Moore, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of Pixelworks, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter
(the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected or is reasonably likely to materially affect, the registrant&#146;s
internal control over financial reporting; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrant&#146;s ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May 7, 2009&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Steven L. Moore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Steven L. Moore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left"><I>Vice President, Chief Financial<br>
Officer, Secretary and Treasurer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>8
<FILENAME>v52342exv32w1.htm
<DESCRIPTION>EX-32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Quarterly Report of Pixelworks, Inc. (the &#147;Company&#148;) on Form 10-Q for the
quarterly period ended March&nbsp;31, 2009 as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Bruce A. Walicek, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. &#167;1350, as adopted pursuant to &#167;906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">      /s/ Bruce A. Walicek
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Bruce A. Walicek&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left"><I>President and Chief Executive Officer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 46%">Date: May&nbsp;7, 2009

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>9
<FILENAME>v52342exv32w2.htm
<DESCRIPTION>EX-32.2
<TEXT>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Quarterly Report of Pixelworks, Inc. (the &#147;Company&#148;) on Form 10-Q for the
quarterly period ended March&nbsp;31, 2009 as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Steven L. Moore, Vice President, Chief Financial Officer, Secretary
and Treasurer of the Company, certify, pursuant to 18 U.S.C. &#167;1350, as adopted pursuant to &#167;906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">                    /s/ Steven L. Moore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Steven L. Moore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left"><I>Vice President, Chief Financial<br>
Officer, Secretary and Treasurer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 46%">Date: May&nbsp;7, 2009

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>



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