Statements made in this quarterly report on Form 10-Q, other than statements of historical fact, are forward-looking statements that involve risks and uncertainties. These statements and the assumptions underlying them are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Some of these statements relate to products, customers, business prospects, technologies, trends and effects of acquisitions. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "anticipate," "intend," "plan," "believe," "estimate," "potential," or "continue," the negative of these terms or other comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties which might cause actual results to differ materially from those expressed or implied by such statements. These risks include our ability to forecast our business, including our revenue, income and order flow outlook, our ability to execute on our strategy of being a provider of highly differentiated semiconductor IP, our ability to continue to develop new products and maintain and develop new relationships with third-party foundries, integrated device manufacturers, and fabless semiconductor companies, our ability to overcome the challenges associated with establishing licensing relationships with semiconductor companies, our ability to obtain royalty revenues from customers in addition to license fees, our ability to receive accurate information necessary for calculation of royalty revenues and to collect royalty revenues from customers, business and economic conditions generally and in the semiconductor industry in particular, pace of adoption of new technologies by our customers and increases or fluctuations in the demand for their products, competition in the market for semiconductor IP, and other risks and uncertainties including those set forth below under "Risk Factors". These forward-looking statements speak only as of the date hereof, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein. The following information should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's Form 10-K for the fiscal year ended September 30, 2008 filed with the Securities and Exchange Commission.

Overview

Business Environment

Virage Logic provides semiconductor intellectual property (IP) to the global semiconductor industry. These various forms of IP are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are the foundation of today's consumer, communications and networking, hand-held and portable devices, computer and graphics, automotive, and defense applications. Our semiconductor IP offering consists of (1) compilers that allow chip designers to configure our memories, or SRAMs, into different sizes and shapes on a single silicon chip, (2) IP and development solutions for embedded test and repair of on-chip memory instances, (3) software development tools used to design memory compilers, (4) NVM instances, (5) logic cell libraries, and
(6) DDR memory controller interface IP components. We also provide design services related to our IP to the semiconductor industry.

Our customers include fabless semiconductor companies, integrated device manufacturers and foundries. As semiconductor companies face increasing pressures to bring products to market faster and semiconductors have shorter product cycles, we focus on providing our customers a broad product offering as a means to satisfy a larger portion of our customers' semiconductor IP needs, while positioning ourselves to offer advanced products as the semiconductor industry migrates to smaller geometries.

The timing of customer purchases of our products is typically related to new design starts by fabless companies and migration to new manufacturing processes by integrated device manufacturers and foundries. Because of the high costs involved in new design starts and migration to new manufacturing processes, our customers' decisions regarding these matters are heavily dependent on their long-term business outlook. As a result, our business, and specifically our license revenues, are likely to grow at times of positive outlook for the semiconductor industry and may suffer at times of negative outlook for the semiconductor industry.

In the second quarter of fiscal year 2009, we derived 76% of our license and maintenance revenue from the more advanced processes, 90-nanometer, 65-nanometer, 45-nanometer and 32-nanometer technologies and 24% of license and maintenance revenue from the older process nodes, predominantly 0.13, 0.18, 0.25 and 0.35 micron technologies. The Company expects the 90-nanometer, 65-nanometer and 45-nanometer technologies to drive revenue growth in the foreseeable future while license revenues from the older process nodes decline. Our royalty revenue to date has been from production on the older process nodes. However, we expect future growth in royalty revenues to be driven by the advanced processes, 45-nanometer, 65-nanometer and 90-nanometer technologies, in addition to continued production on the 0.13 and 0.18 micron technologies.

We sell our products early in the design process, and there are time delays of 24 to 36 months between the sale of our products and the time we expect to receive royalty revenues. These time delays are due to the length of time required for our customers to implement our semiconductor IP into their designs, and then to manufacture, market and sell a product incorporating our products. As a result, we

expect our royalty revenues to increase in periods in which manufacturing volumes of semiconductors are growing. Future growth of our royalty revenue is dependent on our ability to increase the number of designs incorporating our products and on such designs achieving substantial manufacturing volumes.

Stock Repurchase Program

On May 6, 2008, we announced that our Board of Directors authorized a stock repurchase program to purchase up to $20 million in shares of our common stock in the open market or negotiated transactions through May 2009. We intend to use available cash to effect any stock repurchases. At March 31, 2009, the Company's balance sheet reflected cash and investments totaling $60.4 million. On August 4, 2008, 700,000 shares were repurchased in the open market at a price per share of $6.49. On December 8, 2008, 190,000 shares were repurchased in the open market at a price per share of $2.95. We did not repurchase any shares under our stock repurchase program during the second quarter of fiscal 2009. As of March 31, 2009, the remaining balance available for future stock repurchase was $14.9 million under our stock repurchase program.

Our common stock trades on the Nasdaq Global Market. We may plan to make purchases from time to time in the open market or through privately negotiated transactions. The number, price and timing of the repurchases, which may include, without limitation round lot or block transactions, will be at our sole discretion and may be re-evaluated depending on market conditions, liquidity needs or other factors. Our board of directors may suspend, terminate, modify or cancel the program at any time without notice.

Sources of Revenues

Our revenues are derived principally from licenses of our semiconductor IP products, which include:

• embedded memories including SRAM and NVM, logic libraries;

• IP and development infrastructure for embedded test and repair of on-chip memory instances;

• software development tools used to build memory compilers; and

• DDR memory controllers, PHYs, and DLLs.

We also derive revenues from royalties, custom design services, maintenance services and library development and consulting services related to the license of logic components. Our revenues are reported in two separate categories:
license revenues and royalty revenues. License revenues are derived from license fees, maintenance fees, fees for custom design services, library design services and consulting services. Royalty revenues are derived from fees paid by a customer or a third-party foundry based on production volumes of wafers containing chips utilizing our semiconductor IP technologies.

The license of our semiconductor IP typically covers a range of embedded memory, logic, DDR memory controller, PHY and DLL products. Licenses of our semiconductor IP products can be either perpetual or term-based. In addition, maintenance can be purchased for both types of licenses.

We derive our royalty revenues from pure-play foundries that manufacture chips incorporating our Area, Speed and Power (ASAP TM) Memory, ASAP TM Logic, SiWare TM Memory, SiWare TM Logic and STAR Memory products for our fabless customers, and from integrated device manufacturers and fabless customers that utilize our STAR TM Memory System, NOVeA® and AEON® technologies. Royalty payments are in addition to the license fees we collect from our customers, and are calculated based on production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Royalty revenues are generally determined and recognized one quarter in arrears, when a production volume report is received from the customer or foundry.

Currently, license fees represent the majority of our revenues. License revenues for the three months ended March 31, 2009 and 2008 were $7.5 million and $10.3 million, respectively. Maintenance revenues for the three months ended March 31, 2009 and 2008 were $1.6 million and $1.8 million, respectively. Royalty revenues for the three months ended March 31, 2009 and 2008 were $1.9 million and $2.6 million, respectively. License revenues for the six months ended March 31, 2009 and 2008 were $14.0 million and $18.7 million, respectively. Maintenance revenues for the six months ended March 31, 2009 and 2008 were $3.6 million and $4.1 million, respectively. Royalty revenues for the six months ended March 31, 2009 and 2008 were $4.7 million and $5.9 million, respectively.

We have been dependent on a limited number of customers for a substantial portion of our revenues, although our dependence on certain customers over the long term continues to decrease. Our customers comprising the top 10 customer group have changed from time to time. We have one customer that generated 10% or more of our revenue for the three months ended March 31, 2009 and two customers that generated 10% or more of our revenue for the six months ended March 31, 2009. We have two customers that generated 10% or more of our revenue for the three and six months ended March 31, 2008.

Sales to customers located outside of North America accounted for approximately 45% and 62% of total sales for the three months ended March 31, 2009 and 2008, respectively. Sales to customers located outside of North America accounted for approximately 50% and 56% for the six months ended March 31, 2009 and 2008, respectively. Our global sales force, comprised of direct sales representatives and field application engineers as well as third-party sales representatives, are located in North America, Europe, Israel, Japan and the rest of Asia. All revenues to date have been denominated in U.S. dollars.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continually evaluate our estimates, including those related to percentage-of-completion, allowance for doubtful accounts, investments, intangible assets, income taxes, and contingencies such as litigation. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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 could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that there have been no significant changes during the three months ended March 31, 2009 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008

Revenues

The table below sets forth the changes in revenues from the three and six months
ended March 31, 2009 to the three months and six months ended March 31, 2008 (in
thousands, except percentage data):



                                      Three Months Ended        Three Months Ended
                                        March 31, 2009            March 31, 2008
                                                % of total                % of total
                                      Amount     revenues       Amount     revenues         Year-Over-Year Change
Revenues:
License                              $  7,478         67.8 %   $ 10,293         70.1 %   $     (2,815 )        (27.3 )%
Maintenance                             1,648         15.0 %      1,820         12.4 %           (172 )         (9.5 )%
Royalties                               1,899         17.2 %      2,576         17.5 %           (677 )        (26.3 )%

Total revenues                       $ 11,025        100.0 %   $ 14,689        100.0 %   $     (3,664 )        (24.9 )%


                                       Six Months Ended          Six Months Ended
                                        March 31, 2009            March 31, 2008
                                                % of total                % of total
                                      Amount     revenues       Amount     revenues         Year-Over-Year Change
Revenues:
License                              $ 14,039         62.8 %   $ 18,735         65.2 %   $     (4,696 )        (25.1 )%
Maintenance                             3,588         16.0 %      4,139         14.4 %           (551 )        (13.3 )%
Royalties                               4,747         21.2 %      5,875         20.4 %         (1,128 )        (19.2 )%

Total revenues                       $ 22,374        100.0 %   $ 28,749        100.0 %   $     (6,375 )        (22.2 )%

Revenues for the three months ended March 31, 2009 totaled $11.0 million, decreasing 24.9% from $14.7 million for the three months ended March 31, 2008. The decrease resulted from a $2.8 million decrease in license revenues, $0.2 million decrease in maintenance revenues, and a decrease of $0.7 million in royalty revenues.

Revenues for the six months ended March 31, 2009 totaled $22.4 million, decreasing 22.2% from $28.7 million for the six months ended March 31, 2008. The decrease resulted from a $4.7 million decrease in license revenues, $0.5 million decrease in maintenance revenues, and a decrease of $1.1 million in royalty revenues.

Overall economic conditions during the first half of fiscal 2009, which may continue throughout 2009, have negatively impacted sales. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices.

For the three and six months ended March 31, 2009 and 2008, total license revenues by process node are as follows:

                                          Three Months Ended          Six Months Ended
                                               March 31,                  March 31,
                                          2009           2008        2009          2008
Total License Revenue by Process Node
32 Nanometer technology                        4 %           -  %         4 %          -  %
45 Nanometer technology                       38             14          36            13
65 Nanometer technology                       26             39          28            38
90 Nanometer technology                        8             19          11            18
0.13 Micron technology                        10             13          10            14
0.18 Micron technology                        12              4           7             5
Other                                          2             11           4            12

Total                                        100 %          100 %       100 %         100 %

License revenues for the three months ended March 31, 2009 were $7.5 million, representing a decrease of $2.8 million, or 27.3%, as compared to $10.3 million for the three months ended March 31, 2008. The license revenue decrease for the three months ended March 31, 2009 is mainly attributed to decreases of $2.0 million on the 65-nanometer process, $1.3 million on the 90-nanometer process, $1.5 million on 0.13 micron process and other technologies, partially offset by increases of $1.3 million on the 45-nanometer process, $0.4 million on 0.18 micron process, and $0.3 on the 32-nanometer process. License revenue from 0.18 micron process for the three month ended March 31, 2009 increased by 8% from the three months ended March 31, 2008 as a result of the Impinj acquisition.

License revenues for the six months ended March 31, 2009 were $14.0 million, representing a decrease of $4.7 million, or 25.1%, as compared to $18.7 million for the six months ended March 31, 2008. The license revenue decrease for the six months ended March 31, 2009 is mainly attributed to decreases of $3.3 million on the 65-nanometer process, $1.9 million on the 90-nanometer process, $2.8 million on 0.13 micron process and other technologies, partially offset by increases of $2.5 million on the 45-nanometer process, $0.6 million on the 32-nanometer process, and $0.1 million on 0.18 micron process.

For the three and six months ended March 31, 2009 and 2008, total maintenance revenues by process node are as follows:

                                                   Three Months Ended             Six Months Ended
                                                       March 31,                     March 31,
                                                  2009            2008          2009           2008
Total Maintenance Revenue by Process Node
32 Nanometer technology                                1 %            -  %           1 %           -  %
45 Nanometer technology                               21              -             18             -
65 Nanometer technology                               25              23            23             33
90 Nanometer technology                               29              44            36             36
0.13 Micron technology                                16              27            15             25
0.18 Micron technology                                 7               6             6              6
Other                                                  1              -              1             -

Total                                                100 %           100 %         100 %          100 %

Maintenance revenues for the three months ended March 31, 2009 were $1.6 million, representing a decrease of $0.2 million, or 9.5%, as compared to $1.8 million for the three months ended March 31, 2008. Maintenance revenues decreased for the three months ended March 31, 2009 mainly attributed to decreases of $0.3 million on the 90-nanometer process, $0.2 million on the 0.2 micron process, partially offset by an increase of $0.3 million on the 45-nanometer process.

Maintenance revenues for the six months ended March 31, 2009 were $3.6 million, representing a decrease of $0.5 million, or 13.3%, as compared to $4.1 million for the six months ended March 31, 2008. Maintenance revenues decreased for the six months ended March 31, 2009 mainly attributed to decreases of $0.5 million on the 65-nanometer process, $0.5 million on 0.13 micron process, and $0.2 million on the 90-nanometer process, partially offset by increases of $0.6 million on the 45-nanometer process and $0.1 million on 0.18 micron process and other technologies.

Royalties decreased by $0.7 million, or 26.3%, from $2.6 million in the three months ended March 31, 2008 to $1.9 million for the three months ended March 31, 2009. Royalties decreased by $1.1 million, or 19.2%, from $5.9 million in the six months ended March 31, 2008 to $4.7 million for the six months ended March 31, 2009.

For the three and six months ended March 31, 2009 and 2008, total revenues by geography were as follows:

                                                            Three Months Ended       Six Months Ended
                                                                March 31,               March 31,
                                                             2009         2008       2009        2008
Total Revenue by Geography
United States                                             $     4,983   $  5,460   $   9,896   $ 11,669
Taiwan                                                          1,689      2,349       4,039      4,579
Other Asia (China, Malaysia, South Korea and Singapore)         1,475      3,327       2,734      5,184
Europe, Middle East and Africa (EMEA)                           1,410      2,465       3,051      5,065
Canada                                                          1,036        145       1,303      1,111
Japan                                                             432        943       1,351      1,141

Total                                                     $    11,025   $ 14,689   $  22,374   $ 28,749

Cost and Expenses

The table below sets forth the changes in cost and expenses for the three and
six months ended March 31, 2009 and for the three and six months ended March 31,
2008 (in thousands, except percentage data):



                                        Three Months Ended         Three Months Ended
                                          March 31, 2009             March 31, 2008
                                                  % of total                  % of total
                                        Amount     revenues       Amount       revenues         Year-Over-Year Change
Cost and expenses:
Cost of revenues                       $  2,401         21.8 %   $  3,121           21.2 %   $       (720 )        (23.1 )%
Research and development                  6,700         60.8 %      6,175           42.0 %            525            8.5 %
Sales and marketing                       2,754         25.0 %      3,864           26.3 %         (1,110 )        (28.7 )%
General and administrative                2,645         24.0 %      2,111           14.4 %            534           25.3 %
Goodwill impairment                      11,839        107.4 %         -              -            11,839             NM
Restructuring                             1,473         13.3 %         -              -             1,473             NM

Total cost and expenses                $ 27,812        252.3 %   $ 15,271          103.9 %   $     12,541           82.1 %


                                         Six Months Ended           Six Months Ended
                                          March 31, 2009             March 31, 2008
                                                  % of total                  % of total
                                        Amount     revenues       Amount       revenues         Year-Over-Year Change
Cost and expenses:
Cost of revenues                       $  4,970         22.2 %   $  5,568           19.4 %   $       (598 )        (10.7 )%
Research and development                 15,719         70.3 %     12,033           41.9 %          3,686           30.6 %
Sales and marketing                       5,421         24.2 %      7,457           25.9 %         (2,036 )        (27.3 )%
General and administrative                4,766         21.3 %      3,886           13.5 %            880           22.6 %
Goodwill impairment                      11,839         52.9 %         -              -            11,839             NM
Restructuring                             1,473          6.6 %         (3 )          0.0 %          1,476             NM

Total cost and expenses                $ 44,188        197.5 %   $ 28,941          100.7 %   $     15,247           52.7 %

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of acquired software and capital equipment. Cost of revenues for the three months ended March 31, 2009 totaled $2.4 million, representing a decrease of $0.7 million, or 23.1%, from $3.1 million for the three months ended March 31, 2008. The decrease for the three months was primarily attributable to a decrease of $0.6 million in expenses due to the reduction in contract related expenses as a result of lower revenue. Cost of revenues for the six months ended March 31, 2009 totaled $5.0 million, representing a decrease of $0.6 million, or 10.7%, from $5.6 million for the six months ended March 31, 2008. The decrease for the six months was primarily attributable to a decrease in expenses due to the reduction in contract related expenses as a result of lower revenue.

Research and Development Expenses

Research and development expenses primarily include personnel expense, software license and maintenance fees and capital equipment depreciation expenses. Research and development expenses for the three months ended March 31, 2009 totaled $6.7 million, an increase of $0.5 million, or 8.5%, from $6.2 million for the three months ended March 31, 2008. Research and development expenses as a percentage of total revenue for the three months ended March 31, 2009 increased to 60.8% from 42.0% for the same period in fiscal 2008. The increase was primarily due to increases of $1.0 million of additional recurring expenses incurred due to the acquisition of NVM IP business segment of Impinj, offset by $0.5 million of lower payroll related expenses. For the six months ended March 31, 2009, research and development expenses increased $3.7 million, or 30.6%, from $12.0 million in fiscal 2008 to $15.7 million in fiscal 2009. The increase was primarily attributable to $2.3 million of additional recurring expenses incurred due to the acquisition of NVM IP business segment of Impinj and $1.8 million of retention bonus earned by the former Ingot employees offset by $0.3 million of lower personnel expenses due to the reduction of workforce.

Sales and Marketing Expenses

. . .