The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q/A and our most recently filed Form 10-K/A. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q/A.

This Quarterly Report on Form 10-Q/A contains forward-looking statements. When used in this Quarterly Report on Form 10-Q/A the words "anticipate," "objective," "may," "might," "should," "could," "can," "intend," "expect," "believe," "estimate," "predict," "potential," "plan," "is designed to" or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our expectations regarding our expenses, sales and operations;

• our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;

• our ability to anticipate the future needs of our customers;

• our plans for future products and enhancements of existing products;

• our growth strategy elements;

• our intellectual property;

• our anticipated trends and challenges in the markets in which we operate; and

• our ability to attract customers.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q/A, including those under the heading "Risk Factors."

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q/A. Other than as required by applicable laws, we are under no obligation to, and do not intend to, update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

The following discussion reflects the effects of the restatement discussed in Note 13 "Restatement" to the condensed consolidated financial statements.

We are a supplier of power management semiconductors for consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, personal navigation and GPS devices, Bluetooth headphones and accessories, personal and digital multimedia TVs, set top boxes and displays. We focus our design and marketing efforts on the application-specific power management needs in these rapidly-evolving devices. We currently offer a portfolio of over 650 power management products comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip, multi-chip and chip-scale

packages. We sell directly to original equipment manufacturers, or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd., Sony Ericsson Mobile Communications AB and Flextronics International Ltd. We sell through distributors and original design manufacturers, or ODMs, and to other system designers, including USI Corporation, Longcheer Holdings Ltd., Tianyu Communication Equipment Co., Ltd., Foxconn Electronics Inc. and Gemtek Technology Co. Ltd.

Our net revenue for the three months ended June 30, 2009 increased 9% compared to the three months ended June 30, 2008 as a result of an increase in demand for our products primarily in Korea and China. Gross margin for the three months ended June 30, 2009 increased to 48.3% compared to 47.3% for the three months ended June 30, 2008 primarily due to a lower charge for excess and obsolete inventory, partially offset by an unfavorable product mix and lower average selling prices.

Cash, cash equivalents and short term investments decreased by approximately $4.8 million, from $109.5 million as of December 31, 2008 to $104.7 million as of June 30, 2009, primarily due to $3.3 million used to repurchase shares of our common stock during the six months ended June 30, 2009 and $1.2 million used in operating activities. We continue to be debt free as of June 30, 2009.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventory valuation, stock-based compensation, income taxes, goodwill, investments and long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management's expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes that there have been no significant changes during the three and six months ended June 30, 2009 to the items that we disclosed as our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K/A for the year ended December 31, 2008.

Results of Operations

The following table sets forth our unaudited historical operating results, in
dollar amounts and as a percentage of net revenue for the periods indicated:



                                                           Three Months Ended June 30,                          Six Months Ended June 30,
(in thousands, except percentages)                       2009                      2008                      2009                      2008
Net revenue                                       $ 22,978      100.0 %     $ 21,173      100.0 %     $ 39,527      100.0 %     $ 46,274      100.0 %
Cost of revenue                                     11,882       51.7         11,157       52.7         21,000       53.1         22,541       48.7

Gross profit                                        11,096       48.3         10,016       47.3         18,527       46.9         23,733       51.3
Operating expenses:
Research and development                             6,808       29.6          7,809       36.9         13,391       33.9         15,722       34.0
Sales, general and administrative                    6,281       27.3         6, 189       29.2         11,710       29.6         13,066       28.2
Patent litigation                                      385        1.7            482        2.3            686        1.7            744        1.6

Total operating expenses                            13,474       58.6         14,480       68.4         25,787       65.2         29,532       63.8

Loss from operations                                (2,378 )    (10.3 )       (4,464 )    (21.0 )       (7,260 )    (18.3 )       (5,799 )    (12.5 )
Interest and other income (expense):
Interest income                                        245        1.1            749        3.5            616        1.6          1,878        4.1
Interest expense and other income
(expense), net                                          70        0.3             17        0.1             52        0.1             32         -

Total interest and other income (expense), net         315        1.4            766        3.6            668        1.7          1,910        4.1

Loss before income taxes                            (2,063 )     (9.0 )       (3,698 )    (17.5 )       (6,592 )    (16.7 )       (3,889 )     (8.4 )
Provision for income taxes                             426        1.9            148        0.7          1,105        2.8             85        0.2

Net loss                                          $ (2,489 )    (10.8 )%    $ (3,846 )    (18.2 )%    $ (7,697 )    (19.5 )%    $ (3,974 )     (8.6 )%

Comparison of Three and Six Months ended June 30, 2009 and June 30, 2008

Revenues

The following table illustrates our net revenue by principal product families:



                                        Three Months Ended June 30,                    Six Months Ended June 30,
                                        2009                   2008                   2009                   2008
                                            Percent                Percent                Percent                Percent
                                            of net                 of net                 of net                 of net
                                  Amount    revenue      Amount    revenue      Amount    revenue      Amount    revenue
                                                              (dollar amounts in thousands)
Display and Lighting Solutions   $ 14,602        64 %   $ 12,641        59 %   $ 26,095        66 %   $ 27,477        59 %
Voltage Regulation and DC/DC
Conversion                          4,005        17 %      3,313        16 %      5,796        14 %      9,213        20 %
Interface and Power Management      3,359        15 %      4,616        22 %      6,189        16 %      8,635        19 %
Battery Management                  1,012         4 %        603         3 %      1,447         4 %        949         2 %

Total                            $ 22,978       100 %   $ 21,173       100 %   $ 39,527       100 %   $ 46,274       100 %

Our net revenue for the second quarter of 2009 as compared to the second quarter of 2008 increased by $1.8 million, or 9%. Average selling prices decreased by 13% in the second quarter of 2009 compared to the second quarter of 2008, while total unit shipments in the second quarter of 2009 increased 25% compared to the second quarter of 2008.

Our net revenue for the first six months of 2009 as compared to the first six months of 2008 decreased by $6.7 million, or 15%. Average selling prices decreased 10% during the first six months of 2009 compared to the first six months of 2008 while total unit shipments decreased 1%.

Geographically, sales to Korea and China increased during the three months ended June 30, 2009 compared to the three months ended June 30, 2008 due to higher demand.

Sales in all geographies were lower for the six months ended June 30, 2009 compared to the six months ended June 30, 2008, with the exception of China which increased by 21% year over year due to higher demand.

Gross Profit



                                         Three Months Ended June 30,                                         Six Months Ended June 30,
(in thousands, except percentages)        2009                 2008            Increase (Decrease)           2009                2008            Increase (Decrease)
Net revenue                          $       22,978       $       21,173     $         1,805       9 %   $      39,527       $      46,274     $     (6,747 )      (15 )%
Cost of revenue                              11,882               11,157                 725       6 %          21,000              22,541           (1,541 )       (7 )%

Gross profit                         $       11,096       $       10,016                                 $      18,527       $      23,733

Gross profit margin percentage                 48.3 %               47.3 %               1.0 %                    46.9 %              51.3 %           (4.4 )%

Our gross margin was 48.3% for the three months ended June 30, 2009, compared to 47.3% for the three months ended June 30, 2008. Lower excess and obsolete inventory charges due to higher demand for our products resulted in a 2 percentage point increase in gross margin, offset by a 1 percentage point decrease due to an unfavorable change in product mix and average selling prices.

Our gross margin for the six months ended June 30, 2009 was 46.9%, compared to 51.3% for the six months ended June 30, 2008 primarily due to an unfavorable change in product mix and average selling prices.

During the three months ended June 30, 2009, our gross inventory write-down was approximately $1.2 million and was partially offset by the sale of $0.7 million of previously written down inventory. During the three months ended June 30, 2008, our gross inventory write-down was approximately $1.3 million and partially offset by the sale of $0.4 million of previously written down inventory.

During the six months ended June 30, 2009, our gross inventory write-down was approximately $2.2 million, partially offset by the sale of $1.1 million of previously written down inventory. During the six months ended June 30, 2008, our gross inventory write-down was approximately $2.1 million, partially offset by the sale of $0.7 million of previously written-down inventory.

Research and Development

Research and development expenses for the second quarter of 2009 decreased by $1.0 million as compared to the second quarter of 2008 primarily due to a $0.3 million decrease in payroll and payroll related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures, a $0.3 million decrease due to a one-time in-process research and development charge associated with our acquisition of Elite during the second quarter of 2008 and a $0.2 million decrease in facilities, IT and operation support expenses.

Research and development expenses for the first six months of 2009 decreased by $2.3 million as compared to the first six months of 2008 primarily due to a $1.4 million decrease in payroll and benefit related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures, a $0.5 million decrease in facilities, IT and operation support expenses and a $0.3 million decrease due to a one-time in-process research and development charge associated with our acquisition of Elite during the second quarter of 2008.

Sales, General and Administrative

Sales, general and administrative expenses for the second quarter of 2009 increased by $0.1 million as compared to the second quarter of 2008 primarily due to a $0.3 million increase in payroll and payroll related expenses, partially offset by a $0.2 million reduction in travel expenses.

Sales, general and administrative expenses for the first six months of 2009 decreased by $1.4 million as compared to the first six months of 2008 primarily due to a $1.0 million decrease in payroll and payroll related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures and a $0.4 million decrease in travel expenses.

Patent Litigation

Patent litigation expense decreased by $0.1 million during the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Patent litigation expense for the first six months of 2009 decreased by $0.1 million compared to the first six months of 2008. We believe that we will continue to incur significant litigation expenses for the remainder of 2009 and future years. For a description of our litigation, please see Part II, Item 1 - Legal Proceedings - for further details.

Interest Income

Interest income for the second quarter of 2009 decreased by $0.5 million compared to the second quarter of 2008 due to lower average interest rates on our investments. Interest income for the first six months of 2009 decreased by $1.3 million compared to the first six months of 2008 due to lower average interest rates on our investments.

Interest and Other Income (Expense), Net

Interest and other income (expense), net for the second quarter of 2009 was $0.1 million, compared to approximately zero for the second quarter of 2008. Interest and other income (expense), net for the first six months of 2009 was $0.1 million, compared to approximately zero for the first six months of 2008.

Provision for Income Taxes

In accordance with Accounting Principles Board Opinion No. 28, "Interim Financial Reporting" (APB No. 28), we adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We also record the tax effect of unusual or infrequently occurring discrete items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. Our effective tax rate reflects the impact of a significant amount of our earnings being taxed in foreign jurisdictions at rates below the United States statutory tax rate and a valuation allowance maintained on our deferred tax assets.

We recorded a tax provision of approximately $0.4 million and $1.1 million for the three months and six months ended June 30, 2009, respectively. We recorded a tax provision of approximately $0.1 million and $0.1 million for the three and six months ended June 30, 2008, respectively. The increase in our tax provision for the three and six months ended June 30, 2009 compared to prior year is primarily due to a full valuation allowance against our United States deferred tax assets at June 30, 2009. Accordingly, no benefit is recognized for stock-based compensation as any increase in our related deferred tax asset will have a corresponding increase in our valuation allowance.

We established a full valuation allowance against our United States deferred tax assets on December 31, 2008. We have established valuation allowances for deferred tax assets based on a "more likely than not" threshold. Our ability to realize our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of our deferred tax assets:

• Future reversals of existing taxable temporary differences;

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback years; and

• Tax-planning strategies.

We conclude that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling three years of actual results as our primary measure of our cumulative losses in recent years. As of June 30, 2009, we continue to have a three year cumulative loss and, therefore, conclude that a valuation allowance is still required.

During the six months ended June 30, 2009, we increased our total amount of unrecognized tax benefits as calculated under FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN No. 48") by approximately $1.0 million, including an accrual of interest and penalties of less than $0.1 million. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.

We are currently under examination by the Internal Revenue Service for tax years 2005 to 2007. During the three months ended June 30, 2009, we received several Notices of Proposed Adjustments (NOPAs) from the IRS claiming that we understated our income for tax years 2005 and 2006. We believe that the IRS proposed adjustments are not supported by the facts and are inconsistent with applicable tax laws and existing Treasury regulations. We have filed a timely protest and are awaiting discussions with the IRS Appeals Division. No payments, if any, will be made related to the disputed proposed adjustments until the issues are resolved with either the IRS Appeals Division or the tax court. We believe that we have adequately provided in our financial statements for any additional taxes that it may be required to pay as a result of these examinations.

Recent Accounting Pronouncements

We adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141(R), "Business Combinations", as of January 1, 2009. The adoption did not have a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued Staff Position ("FSP") FAS 157-4, "Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 and is to be applied prospectively. Our adoption of FSP FAS 157-4 during the three months ended June 30, 2009 did not have a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments." FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009. Our adoption of FSP FAS 115-2 and FAS 124-2 during the three months ended June 30, 2009 did not have a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." FSP FAS 107-1 and APB 28-1 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. Our adoption of FSP 107-1 and APB 28-1 during the quarter ended June 30, 2009 did not impact our condensed consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS No. 165"). SFAS No. 165 is intended to establish general standards of the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and was adopted by us during the quarter ended June 30, 2009.

Liquidity and Capital Resources



                                                       Six Months Ended June 30,
(in thousands, except percentages)                      2009                2008            Increase (Decrease)
Net cash used in operating activities               $     (1,166 )      $       (121 )    $     (1,045 )      864 %
Net cash provided by investing activities                 10,077              31,573           (21,496 )      (68 )%
Net cash provided by (used in) financing
activities                                                (3,224 )             1,574            (4,798 )     (305 )%
Effect of exchange rate changes on cash and cash
equivalents                                                   14                  29               (15 )      (52 )%

Net increase (decrease) in cash and cash
equivalents                                         $      5,701        $     33,055      $    (27,354 )

Net Cash Used in Operating Activities

. . .