Our sales growth in the first quarter 2009 was the result of strong demand from the customers in our business category, due in part to the continuation of the upgrade cycle from analog to digital, consumer demand for advanced-function offerings from subscription broadcasters, increased share with existing customers, and new customer wins.

• Our operating income for the first three months of 2009 decreased 42.7% to $1.5 million from operating income of $2.7 million in the first three months of 2008. Our operating margin percentage decreased from 4.4% in the first three months of 2008 to 2.1% in the first three months of 2009 due primarily to the decrease in our gross margin percentage offset partially by the decrease in operating expenses as a percentage of revenue. Our gross margin percentage decreased from 35.5% in the first three months of 2008 to 30.1% in the first three months of 2009. The decrease in our gross margin rate was due primarily to sales mix, as a higher percentage of our total sales was comprised of our lower-margin Business category. In addition, sales mix within our sales categories also contributed to the decrease in our gross margin rate as consumers trended towards value-oriented products. The weakening of the Euro and British pound also contributed to the decline in our gross margin percentage. Operating expenses decreased from 31.1% of revenue for the three months ended March 31, 2008 to 28.0% for the three months ended March 31, 2009, despite incurring $1.1 million of deal related costs in the first quarter of 2009 relating to the acquisition of remote control related assets from Zilog, Inc.

Our strategic business objectives for 2009 include the following:
• increase our share with existing customers;

• acquire new customers in historically strong regions;

• continue our expansion into new regions, Asia in particular;

• continue to develop industry-leading technologies and products; and

• continue to evaluate potential acquisition and joint venture opportunities that may enhance our business.

We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowance for sales returns and doubtful accounts, warranties, inventory valuation, business combination purchase price allocations, our review for impairment of long-lived assets, intangible assets and goodwill, income taxes and stock-based compensation expense. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the three months ended March 31, 2009 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for our fiscal year ended December 31, 2008.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Results of Operations
Our results of operations as a percentage of net sales for the three months ended March 31, 2009 and 2008 were as follows:

           (In thousands)                                   2009       2008
           Net sales                                         100 %      100 %
           Cost of sales                                    69.9       64.5

           Gross profit                                     30.1       35.5
           Research and development expenses                 3.0        3.6
           Selling, general and administrative expenses     25.0       27.5

           Operating expenses                               28.0       31.1
           Operating income                                  2.1        4.4
           Interest income, net                              0.2        1.5
           Other (expense) income, net                      (0.5 )      0.2

           Income before income taxes                        1.8        6.1
           Provision for income taxes                       (0.7 )     (2.1 )

           Net income                                        1.1 %      4.0 %

Three Months Ended March 31, 2009 versus Three Months Ended March 31, 2008:
Net sales by our Business and Consumer lines for the three months ended March 31, 2009 and 2008 were as follows:

                                   2009                                2008
                       $ (millions)       % of total       $ (millions)       % of total
    Net sales:
    Business          $         60.9             85.7 %   $         48.3             78.9 %
    Consumer                    10.2             14.3 %             12.9             21.1 %

    Total net sales   $         71.1            100.0 %   $         61.2            100.0 %

Overview
Net sales for the first quarter of 2009 were $71.1 million, an increase of 16% compared to $61.2 million for the first quarter of 2008. Net income for the first quarter of 2009 was $0.8 million or $0.06 per diluted share compared to $2.5 million or $0.17 per diluted share for the first quarter of 2008. Consolidated
Net sales in our Business lines (subscription broadcasting, OEM and computing companies) were approximately 86% of net sales in the first quarter of 2009 compared to approximately 79% in the first quarter of 2008. Net sales in our Business lines for the first quarter of 2009 increased by 26% to $60.9 million from $48.3 million in the first quarter of 2008. This increase in sales resulted primarily from an increase in the volume of remote control sales, which was partially offset by lower prices. The increase in remote control sales volume was attributable to the continued deployment of advanced function set-top boxes by the service operators, market share gains with a few key subscription broadcast customers and new customer wins. These advanced functions include digital video recording ("DVR"), video-on-demand ("VOD"), and high definition television ("HDTV"). We expect that the deployment of the advanced function set-top boxes by the service operators will continue into the foreseeable future as penetration for each of the functions cited continues to increase. Net sales in our Consumer lines (One For All® retail, private label, custom installers and direct import) were approximately 14% of net sales for the first quarter of 2009 compared to approximately 21% for the first quarter of 2008. Net sales in our Consumer lines decreased by 21% to $10.2 million for the first quarter of 2009, from $12.9 million in the first quarter of 2008. European retail sales decreased by $3.0 million compared to the first quarter of 2008. Europe retail sales were unfavorably impacted by the weakening of both the Euro and the British Pound compared to the U.S. Dollar, which resulted in a decrease in net sales of approximately $2.0 million. Net of this currency effect, European retail sales decreased $1.0 million, primarily due to the downturn of the economy in the United Kingdom. Private label sales in the U.S. decreased $0.5 million, to $0.1 million in the first quarter of 2009 from $0.6 million in the first quarter of 2008. This was driven by a decline in the volume of remote control sales to our private label partners. Partially offsetting these decreases were the North American retail sales, which increased by $0.4 million compared to the first quarter of 2008, as a result of a new partnership agreement with a distributor in the U.S market. CEDIA sales increased by $0.4 million compared to the first quarter of 2008, primarily due to the launch of a new product that occurred in the second quarter of 2008. Gross profit for the first quarter of 2009 was $21.4 million compared to $21.7 million for the first quarter of 2008. Gross profit as a percent of sales for the first quarter of 2009 was 30.1% compared to 35.5% for the same period in the prior year, due primarily to the following reasons:
• Sales mix, as a higher percentage of our total sales was comprised of our lower margin Business category. In addition, sales mix within our sales categories also contributed to the decrease in our gross margin rate as consumers trended towards value-oriented products. Collectively, the aforementioned resulted in a decrease of 2.7% in the gross margin rate;

• Foreign currency fluctuations caused a decrease of 1.8% in the gross margin rate;

• An increase in scrap expense caused a decrease of 0.8% in the gross margin rate.

Research and development expenses decreased 4% from $2.2 million in the first quarter of 2008 to $2.1 million in the first quarter of 2009, relatively consistent with prior year levels.

Selling, general and administrative expenses increased 6% from $16.9 million in the first quarter of 2008 to $17.8 million in the first quarter of 2009. The weakening of the Euro compared to the U.S. Dollar resulted in a decrease of $1.0 million. Net of this favorable currency effect, expenses increased by $1.9 million. Legal, accounting, and advisory professional service expense increased by $1.1 million, due to the acquisition of assets from Zilog, Inc, which was completed during the first quarter. Payroll and fringe expense increased by $0.6 million. Employee bonus expense increased $0.2 million, and long-term incentive compensation expense increased $0.2 million. These increases were partially offset by lower freight expense, which decreased by $0.2 million, and commission expense, which decreased by $0.1 million.
In the first quarter of 2009, we recorded $0.1 million of net interest income compared to $0.9 million in the first quarter of 2008. The decrease is primarily due to significantly lower interest rates.
In the first quarter of 2009, net other expense was $0.4 million as compared to net other income of $0.2 million for the first quarter of 2008 which was driven by foreign exchange losses.
We recorded income tax expense of $0.5 million in the first quarter of 2009 compared to $1.3 million in the first quarter of 2008. Our effective tax rate was 39.1% in the first quarter of 2009 compared to 34.3% in the first quarter of 2008. The increase in our effective tax rate is due to fixed interest expense on tax contingencies representing a higher percentage of pre-tax income coupled with a higher percentage of income earned in higher tax rate jurisdictions.

Liquidity and Capital Resources
Sources and Uses of Cash:

                                                         Three months ended          (Decrease)/           Three months ended
(In thousands)                                             March 31, 2009          Increase in cash          March 31, 2008
Net cash provided by operating activities                $          3,395           $       (2,183 )       $          5,578
Net cash used for investing activities                            (59,330 )                (56,616 )                 (2,714 )
Net cash used for financing activities                             (1,388 )                  9,824                  (11,212 )
Effect of exchange rate changes on cash                              (558 )                 (5,682 )                  5,124

                                                           March 31, 2009             (Decrease)           December 31, 2008
Cash and cash equivalents                                $         17,357           $      (57,881 )       $         75,238
Working capital                                                   112,321                   (9,982 )                122,303

Net cash provided by operating activities decreased by $2.2 million from $5.6 million in the first quarter 2008 to $3.4 million in the first quarter of 2009. The decrease in cash provided by operating activities was primarily driven by the decrease in net income from approximately $2.5 million for the three months ended March 31, 2008 to approximately $0.8 million for the three months ended March 31, 2009. Total working capital requirements were relatively consistent for the three months ended March 31, 2009 and 2008.
Net cash used for investing activities for the first three months of 2009 was $59.3 million compared to $2.7 million for the first three months of 2008. The increase in cash used for investing activities was primarily due to the acquisition of intangible assets and goodwill of $9.5 million from Zilog, Inc. and our term deposit of $48.9 million, offset by a decrease in the acquisition of equipment, furniture, and fixtures. The purchase of equipment, furniture and fixtures decreased as a result of the renovation of our corporate headquarters being completed during the first quarter of 2008. Refer to Note 16 for further discussion about our purchase of assets from Zilog, Inc. We plan to make a significant investment to upgrade our information systems, which we expect to cost approximately $1.0 million. We expect implementation to be completed in 2010. In addition, in order to support our future sales growth, we expect annual purchases of tooling equipment to increase.
Net cash used for financing activities for the first three months of 2009 was $1.4 million as compared to $11.2 million in the first three months of 2008. We repurchased fewer shares of our common stock during the first quarter of 2009 compared to the first quarter of 2008. During the first quarter of 2009 we repurchased 105,311 shares of our common stock for $1.6 million compared to our repurchase of 500,000 shares of our common stock for $11.5

million during the first quarter of 2008. We hold repurchased shares as treasury stock and they are available for reissue. Presently, except for using a small number of these treasury shares to compensate our outside board members, we have no plans to distribute these shares. However, we may change these plans if necessary to fulfill our on-going business objectives.
We have a Credit Facility with Comerica which expires on August 31, 2009. Under our Credit Facility, we were authorized to acquire up to 2,000,000 shares of our common stock in the open market. Effective February 26, 2009, Comerica amended our Credit Facility by authorizing an additional 1,000,000 shares to be repurchased, capped at a maximum cost of $13.0 million. Given our closing stock price at March 31, 2009, we were authorized to repurchase 2,718,232 million shares. As of March 31, 2009, we have purchased 1,791,529 shares of our common stock, leaving 926,703 shares available for purchase under the Credit Facility. During 2009 we may continue to purchase shares of our common stock if we believe conditions are favorable and to offset the dilutive effect of our equity compensation programs.
Presently, we have no borrowings under this Credit Facility, however we cannot make any assurances that we will not need to borrow amounts under this facility or that this facility will continue to be extended to us under comparable terms or at all. If this or any other credit facility is not available to us at a time when we need to borrow, we would have to use our cash reserves which could have a material adverse effect on our earnings, cash flow and financial position. We have a six month term deposit cash account in Hong Kong with ABN Amro Bank. The term began on January 13, 2009 and ends on July 13, 2009. The term deposit earns interest at a rate of 1.05%. The interest is receivable on July 13, 2009. The deposit amount and accrued interest related to this account as of March 31, 2009 was $48.8 million and $0.1 million, respectively. If we were to withdraw the funds prior to the end of the term a penalty will be assessed only if the interest rate on the date of withdrawal is higher than the rate on January 13, 2009. The penalty amount is equal to the interest the bank will have to pay another depositor with the same principal balance over the remaining term using the rate in effect on the withdrawal date, less the interest the bank would have had to pay us.
Contractual Obligations
At March 31, 2009, our contractual obligations were $65.5 million compared to $66.0 million reported in our Annual Report on Form 10-K as of December 31, 2008. The following table summarizes our contractual obligations at March 31, 2009 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.

                                                     Payments Due by Period
                                               Less than        1-3          4-5         After
 (In thousands)                   Total         1 year         Years        years       5 years
 Contractual obligations:
 Operating lease obligations     $  4,879     $     1,810     $  2,406     $    663     $      -
 Purchase obligations(1)           60,645           8,085       27,040       21,520        4,000

 Total contractual obligations   $ 65,524     $     9,895     $ 29,446     $ 22,183     $  4,000

(1) Purchase obligations include contractual payments to purchase minimum quantities of inventory under vendor agreements.

Liquidity
We've utilized cash provided from operations as our primary source of liquidity, since internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. We are able to supplement this near term liquidity, if necessary, with our Credit Facility, as discussed below.
Historically, our working capital needs have been greatest during the third and fourth quarters when accounts receivable and inventories increase in connection with the fourth quarter holiday selling season. At March 31, 2009, we had $112.3 million of working capital as compared to $122.3 million at December 31, 2008.

Our cash and cash equivalent balances are held in the United States, Europe and Asia. At March 31, 2009, we had approximately $5.9 million, $8.7 million, and $2.8 million of cash and cash equivalents in the United States, Europe and Asia, respectively. In addition, we had a term deposit of $48.9 million in Asia. We maintain our cash, cash equivalents, and term deposits with various financial institutions located in many different geographic regions. We attempt to mitigate our exposure to interest rate, liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.
We have a $15 million unsecured revolving credit agreement ("Credit Facility") with Comerica Bank, which expires on August 31, 2009. Under the Credit Facility, the interest payable is variable and is based on the bank's cost of funds or 12-month LIBOR plus a fixed margin of 1.25%. The interest rate in effect as of March 31, 2009 using 12-month LIBOR plus a fixed margin of 1.25% was 3.22%. We pay a commitment fee ranging from zero to a maximum rate of 1/4 of 1% per year on the unused portion of the credit line depending on the amount of cash investment retained with Comerica during each quarter. At March 31, 2009, the commitment fee rate was 0.25%. Under the terms of the Credit Facility, dividend payments are allowed for up to 100% of the prior fiscal year's net income, to be paid within 90 days of the current fiscal year end. We are subject to certain financial covenants related to our net worth, quick ratio and net income. Amounts available for borrowing under the Credit Facility are reduced by the outstanding balance of import letters of credit. As of March 31, 2009, we did not have any outstanding import letters of credit and the available balance on the line of credit was $15 million. Furthermore, as of March 31, 2009, we were in compliance with all financial covenants required by the Credit Facility. It is our policy to carefully monitor the state of our business, cash requirements and capital structure. As previously mentioned, we believe that cash generated from our operations and, so long as our Credit Facility is available, funds from our borrowing facility will be sufficient to fund our current business operations and anticipated growth at least over the next twelve months; however, there can be no assurance that such funds will be adequate for that purpose. In addition, our Credit Facility is set to expire on August 31, 2009 and we cannot make any assurances that our Credit Facility will be extended to us beyond its expiration date of August 31, 2009 under comparable terms or at all. If this or any other credit facility is not available to us at a time when we need to borrow, we would have to use our cash reserves which could have a material adverse effect on our earnings, cash flow and financial position. Off Balance Sheet Arrangements
We do not participate in any off balance sheet arrangements. Factors That May Affect Financial Condition and Future Results Forward Looking Statements
We caution that the following important factors, among others (including but not limited to factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussed in our 2008 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange Commission), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements. The factors included here are not exhaustive. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.
While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the following:

• the failure of our markets or customers to continue growing and expanding in the manner we anticipated;

• the effects of natural or other events beyond our control, including the effects a war or terrorist activities may have on us, the economy or our customers;

• the growth of, acceptance of and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, digital media/technology, CEDIA, interactive TV, automotive, and cellular industries not materializing or growing as we believed;

• our inability to obtain orders or maintain our order volume with new and existing customers;

• our inability to add profitable complementary products which are accepted by the marketplace;

• our inability to continue selling our products or licensing our technologies at higher or profitable margins;

• our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts;

• the possible dilutive effect our stock incentive programs may have on our earnings per share and stock price;

• our inability to continue to obtain adequate quantities of component parts or secure adequate factory production capacity on a timely basis;

• our inability to successfully integrate any strategic business transaction; and

• other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.

. . .