- Amended Quarterly Report (10-Q/A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51349

Advanced Analogic Technologies Incorporated

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


Delaware		77-0462930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3230 Scott Blvd., Santa Clara, California		95054
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(408) 737-4600

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 46,114,506 shares of the Registrant’s common stock issued and 42,950,216 shares outstanding as of July 22, 2009.

EXPLANATORY NOTE

This Form 10-Q/A is an amendment to our Form 10-Q for the period ended June 30, 2009, filed with the Securities and Exchange Commission (“SEC”) on July 24, 2009 (“the Original Filing”). This Form 10-Q/A is being filed to restate our condensed consolidated financial statements as of June 30, 2009 and for the three and six month periods ended June 30, 2009 and 2008 to reflect the effects of adjustments to stock-based compensation expense. These changes are more fully described in Note 13 of the condensed consolidated financial statements included below.

As a result of identifying errors in stock-based compensation expense, we restated our consolidated financial statements for fiscal years 2008, 2007 and 2006 in our Form 10-K/A and restated our unaudited condensed financial statements as of March 31, 2009 and 2008 in our Form 10-Q/A, concurrently filed with the SEC.

Items 1 and 2 of Part 1 of the Original Filing have been updated to reflect the effects of the adjustments to our unaudited condensed consolidated financial statements. In connection with the restatement, management has assessed the effectiveness of our disclosure controls and procedures and has included revised disclosure in this Form 10-Q/A under Item 4 of Part 1 “Controls and Procedures.” In addition, the certifications filed as Exhibits 31.1, 31.2 and 32.1 and the Signature Page have been updated.

This Form 10-Q/A sets forth the Original Filing in its entirety and includes items that have been changed as a result of the restatement as well as items that are unchanged from the Original Filing. This Form 10-Q/A speaks as of the original filing date of the Original Filing and has not been updated to reflect other events occurring subsequent to the original filing date, including forward-looking statements and all items contained in this Form 10-Q/A that were not directly impacted by the restatement, which should be read in their historical context.

TABLE OF CONTENTS


			PAGE
PART I. FINANCIAL INFORMATION			4

	ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	4

		CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2009 (RESTATED) AND DECEMBER 31, 2008	4

		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008	5

		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008	6

		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)	7

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28

	ITEM 4.	CONTROLS AND PROCEDURES	28

PART II. OTHER INFORMATION			29

	ITEM 1.	LEGAL PROCEEDINGS	29

	ITEM 1A.	RISK FACTORS	30

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	40

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	40

	ITEM 5.	OTHER INFORMATION	40

	ITEM 6.	EXHIBITS	40

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value)


	June 30, 2009			December 31, 2008 (*)
	(as restated) (1)
Assets
Current assets
Cash and cash equivalents	$	57,795		$	52,094
Short-term investments		46,884			57,443

Total cash, cash equivalents and short-term investments		104,679			109,537
Accounts receivable, net of allowances		11,355			6,654
Inventories		9,825			9,016
Prepaid expenses and other current assets		1,416			2,100

Total current assets		127,275			127,307
Property and equipment, net		4,644			5,050
Other assets		4,267			4,060
Deferred income taxes		283			327
Intangibles, net		235			395
Goodwill		16,116			16,116

Total assets	$	152,820		$	153,255

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	10,851		$	4,601
Accrued liabilities		3,834			3,698
Income tax payable		157			127
Current portion of capital lease obligations		—			41

Total current liabilities		14, 842			8,467
Long-term income tax payable		4,277			3,326
Other long-term liabilities		256			228

Total liabilities		19,375			12,021

Stockholders’ equity
Common stock, $0.001 par value—100,000,000 shares authorized; 46,114,506 and 42,950,216 shares issued and outstanding, respectively, as of June 30, 2009; 45,926,052 and 43,851,263 shares issued and outstanding, respectively, as of December 31, 2008		46			46
Treasury stock, at cost; 3,164,290 and 2,074,789 shares as of June 30, 2009 and December 31, 2008, respectively		(8,561	)		(5,262	)
Additional paid-in capital		178,759			175,425
Accumulated other comprehensive loss		(183	)		(56	)
Accumulated deficit		(36,616	)		(28,919	)

Total stockholders’ equity		133,445			141,234

Total liabilities and stockholders’ equity	$	152,820		$	153,255

*	Amounts as of December 31, 2008 were derived from the December 31, 2008 audited consolidated financial statements included in our Form 10-K/A.

(1)	See Note 13—“Restatement” to the unaudited Condensed Consolidated Financial Statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(as restated) (1)			(as restated) (1)			(as restated) (1)			(as restated) (1)
Net revenue	$	22,978		$	21,173		$	39,527		$	46,274
Cost of revenue		11,882			11,157			21,000			22,541

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

Operating expenses:
Research and development		6,808			7,809			13,391			15,722
Sales, general and administrative		6,281			6,189			11,710			13,066
Patent litigation		385			482			686			744

Total operating expenses		13,474			14,480			25,787			29,532

Loss from operations		(2,378	)		(4,464	)		(7,260	)		(5,799	)
Interest and other income:
Interest income		245			749			616			1,878
Interest expense and other income, net		70			17			52			32

Total interest and other income, net		315			766			668			1,910

Loss before income taxes		(2,063	)		(3,698	)		(6,592	)		(3,889	)
Provision for income taxes		426			148			1,105			85

Net loss	$	(2,489	)	$	(3,846	)	$	(7,697	)	$	(3,974	)

Net loss per share:
Basic	$	(0.06	)	$	(0.08	)	$	(0.18	)	$	(0.09	)
Diluted	$	(0.06	)	$	(0.08	)	$	(0.18	)	$	(0.09	)
Weighted average shares used in net loss per share calculation:
Basic		42,938			45,687			42,995			45,589
Diluted		42,938			45,687			42,995			45,589

(1)	See Note 13—“Restatement” to the unaudited Condensed Consolidated Financial Statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended June 30,
	2009			2008
	(as restated) (1)			(as restated) (1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,697	)	$	(3,974	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,041			1,457
Stock-based compensation		3,222			4,346
In-process research and development		—			255
Net unrealized gain on trading securities		(57	)		—
Provision for doubtful accounts		34			—
Tax benefit from stock option exercises		22			(9	)
Excess tax benefit from stock options		(22	)		(478	)
(Gain) loss on sales of property and equipment		68			(14	)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		(4,735	)		3,159
Inventories		(813	)		(1,487	)
Prepaid expenses and other current assets		686			886
Other assets		(6	)		96
Deferred income taxes		(29	)		(233	)
Accounts payable		5,973			(288	)
Accrued liabilities and other long-term liabilities		166			(3,960	)
Income taxes payable		981			123

Net cash used in operating activities		(1,166	)		(121	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(266	)		(1,648	)
Purchases of short-term investments		(37,936	)		(13,135	)
Proceeds from sales and maturities of short-term investments		48,404			47,239
Acquisition, net of cash acquired		—			(647	)
Purchase of long-term investment		(175	)		(250	)
Sale of long-term investment		50			—
Proceeds from sales of property and equipment		—			14

Net cash provided by investing activities		10,077			31,573

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		94			1,170
Excess tax benefits from stock options		22			478
Principal payments on capital lease obligations		(41	)		(74	)
Common stock repurchases		(3,299	)		—

Net cash provided by (used in) financing activities		(3,224	)		1,574

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		14			29

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,701			33,055
CASH AND CASH EQUIVALENTS—Beginning of period		52,094			53,779

CASH AND CASH EQUIVALENTS—End of period	$	57,795		$	86,834

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Increases in accounts payable and accrued liabilities related to property and equipment purchases	$	266		$	222

Cash paid for interest	$	1		$	8

Cash paid for income taxes	$	61		$	183

(1)	See Note 13—“Restatement” to the unaudited Condensed Consolidated Financial Statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Advanced Analogic Technologies Incorporated (the “Company”) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its annual report on Form 10-K/A filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or for any other future period. The condensed consolidated balance sheet as of December 31, 2008 is derived from the audited consolidated financial statements as of and for the year then ended.

During the three months ended June 30, 2009, the Company adopted Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date. For the three months ended June 30, 2009, the Company evaluated subsequent events through the date its financial statements were available for issuance. The Company determined that the financial statements were available for issuance on July 22, 2009 except with respect to the information contained in Note 13, the date that the Company completed its review of the unaudited condensed consolidated financial statements for the three months ended June 30, 2009 except with respect to the information contained in Note 13 for which the date is October 5, 2009.

2. INVESTMENTS

The Company accounts for available-for-sale investments in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). As of June 30, 2009, the Company had investments in short-term debt instruments and auction rate securities (ARS), which were classified as available-for-sale under SFAS No. 115. Short-term investments consist primarily of investment grade debt securities with a maturity of greater than 90 days at the time of purchase. The Company classifies certain investments with maturities greater than one year as short-term investments as it considers all investments a potential source of operating cash regardless of maturity date. Interest earned on securities is included in “Interest income” in the Condensed Consolidated Statements of Operations.

The Company’s available-for-sale investments are carried at fair market value with the related unrealized gains and losses included in accumulated other comprehensive loss, which is a separate component of stockholders’ equity. The Company records other-than-temporary impairment charges for its available-for-sale investments when it intends to sell the securities, it is more likely than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost of securities sold is based on the specific identification method.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table, which excludes cash, is a summary of cash equivalents, short-term investments and long-term investments classified as available-for-sale as of June 30, 2009 and December 31, 2008:


	June 30, 2009
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Money market funds	$	44,802	$	—	$	—		$	44,802
U.S. Government agency bonds		25,455		101		(1	)		25,555
Municipal bonds		23,431		22		(4	)		23,449
Auction rate securities		1,950		—		(145	)		1,805

Total	$	95,638	$	123	$	(150	)	$	95,611

Amounts included in:
Cash and cash equivalents	$	46,922	$	—	$	—		$	46,922
Short-term investments		46,766		123		(5	)		46,884
Other assets		1,950		—		(145	)		1,805

Total	$	95,638	$	123	$	(150	)	$	95,611


	December 31, 2008
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Money market funds	$	36,489	$	—	$	—		$	36,489
U.S. Government agency bonds		23,091		188		—			23,279
Municipal bonds		26,598		72		(2	)		26,668
U.S. Corporate Debt Securities		5,492		24		—			5,516
U.S. Treasury bills		2,996		4		—			3,000
Auction rate securities		2,000		—		(167	)		1,833

Total	$	96,666	$	288	$	(169	)	$	96,785

Amounts included in:
Cash and cash equivalents	$	37,509	$	—	$	—		$	37,509
Short-term investments		57,157		288		(2	)		57,443
Other assets		2,000		—		(167	)		1,833

Total	$	96,666	$	288	$	(169	)	$	96,785

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

3. FAIR VALUE MEASUREMENTS

The Company applies the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”) in determining the fair value of its financial assets. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Further, SFAS No. 157 requires the Company to provide information according to a fair value hierarchy that ranks the quality and reliability of the information used to determine the fair values.

Fair Value Hierarchy

The Company classifies investments within Level 1 of the fair value hierarchy when the fair value is based on quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company’s Level 1 investments consist of money market funds and U.S. Treasury bills.

The Company classifies investments within Level 2 of the fair value hierarchy when the fair value is based on broker/dealer quotes which use observable market inputs instead of quoted market prices in active markets. The Company’s Level 2 investments consist of municipal bonds, U.S. government agency bonds and corporate debt securities.

Investments are classified as Level 3 of the fair value hierarchy if the fair value is determined using unobservable inputs that are not corroborated by market data. The valuation of Level 3 investments requires the use of significant management judgments or estimation. The Company’s Level 3 investments consist of auction rate securities (“ARS”), ARS put option and an investment in a privately-held company. The methodology used for determining the fair value of these Level 3 financial assets is described below.

The following table, which excludes cash, presents the fair value of the Company’s cash equivalents, short-term investments and long-term investments as of June 30, 2009, as measured using the SFAS No. 157 input categories:


					Fair Value Measurements as of June 30, 2009 Using:
	Carrying Amount		Total fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Available-for-sale securities:
Money market funds	$	44,802	$	44,802	$	44,802	$	—	$	—
Municipal bonds		23,449		23,449		—		23,449		—
U.S. government agency bonds		25,555		25,555		—		25,555		—
Corporate Debt Securities		—		—		—		—		—
U.S. Treasury bills		—		—		—		—		—
Auction rate securities		1,805		1,805		—		—		1,805

Total Available-for-sale securities	$	95,611	$	95,611	$	44,802	$	49,004	$	1,805

Other investments:
Auction rate securities classified as trading securities	$	628	$	628	$	—	$	—	$	628
ARS put option		560		560		—		—		560
Investment in privately-held company (1)		823		1,189		—		—		1,189

Total Other investments	$	2,011	$	2,377	$	—	$	—	$	2,377

Amounts included in:
Cash and cash equivalents	$	46,922
Short-term investments		46,884
Other assets		3,816

Total	$	97,622

(1)

The Company’s investment in a privately-held company is measured at fair value and is accounted for under the cost method. In accordance with SFAS No. 115, the carrying amount of this investment is adjusted to fair value when impairment charges are recorded for other-than-temporary declines in value, whereas the carrying amount is not changed for increases in fair value. As the impairment assessment is based on unobservable market data, this investment is classified within Level 3 of the SFAS No. 157 fair value hierarchy.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Valuation of Level 3 Financial Assets

Auction Rate Securities

As of June 30, 2009, the Company’s investment portfolio included $3.2 million of ARS with a fair value of $2.4 million. As of December 31, 2008, the Company’s investment portfolio included $3.2 million of ARS with a fair value of $2.6 million.

During the quarter-ended December 31, 2008, the Company made an election pursuant to SFAS No. 115 to transfer one of its ARS from available-for-sale to trading securities. The election was made upon the Company entering into a settlement agreement with UBS (“the Agreement”). Under the Agreement, the Company was granted ARS exchange rights (“ARS Put Option”) that provide the Company with the right, but not the obligation, to sell this ARS to UBS for par value during the period of June 30, 2010 to July 2, 2012. The Company estimates that it will take longer than one year to complete the sale of its ARS, either through a successful auction or issuer repurchase. Accordingly, as of June 30, 2009, the ARS are classified within other long-term assets on the condensed consolidated balance sheet.

The Company’s ARS are interest-bearing investments in debt obligations collateralized by Federal Family Education Program student loans. The Company considers the ARS market to be inactive because auctions have failed to settle on their respective settlement dates since 2008. Further, the secondary market for ARS is inactive and there have been few issuer repurchases. The Company believes that available pricing information is not determinative of the ARS fair value. As such, the Company estimated the ARS fair value as of June 30, 2009 using a discounted cash flow model.

To determine the ARS fair value using a discounted cash flow model, the Company estimated the contractual interest that will be earned during the expected time to liquidity, and discounted these cash flows to reflect liquidity and credit risk. The discount factor represents the current market conditions for instruments with similar credit quality, adjusted by 300 basis points to reflect the risk in the marketplace for the ARS. The following average assumptions were used to determine the ARS fair value as of June 30, 2009 and December 31, 2008:


	June 30, 2009	December 31, 2008
Expected time to liquidity	2 to 4 years	2 to 4 years
Expected annual rate of return	1.2% to 1.8%	1.1% to 1.9%
Discount rate	5.5% to 18.0%	6.1% to 14.3%

ARS Put Option

As of June 30, 2009, the Company’s investment portfolio included a $0.6 million ARS Put Option. The Company accounts for the ARS Put Option at fair value. On November 12, 2008, the date on which the Company entered into the Agreement, the Company elected to measure the ARS Put Option at fair value under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”). By electing SFAS No. 159, subsequent changes in the fair value of the ARS Put Option will be offset with changes in the fair value of the related ARS in the Company’s condensed consolidated statements of operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company determines the fair value of the ARS Put Option using a discounted cash flow model. To determine the fair value of the ARS Put Option, the total cash flows expected to result from exercising the ARS Put Option are discounted based on the Company’s estimates of the likelihood of default by UBS and the expected time remaining until exercise. The Company plans to exercise the ARS Put Option on June 30, 2010. The Company used an expected term of 1 year and a 2.1% discount rate which approximates the current market conditions for instruments with similar credit quality.

The Company expects to receive the proceeds from the exercise of the ARS Put Option during the quarter ended September 30, 2010 and has therefore classified the ARS Put Option within other long-term assets on the condensed consolidated balance sheet.

Investment in a Privately-Held Company

As of June 30, 2009, the Company’s investment portfolio included a $0.8 million investment in a privately-held company which develops analog memory products. The investment consists of preferred stock and represents less than a 20% ownership interest. The investment previously included interest-bearing bridge loans which were converted to additional shares of preferred stock during the three months ended March 31, 2009. The Company accounts for this investment using the cost method. The investment in a privately-held company is included in other long-term assets on the condensed consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances for the assets still held as of June 30, 2009 that were measured at fair value using unobservable inputs (Level 3):


	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Auction Rate Securities			ARS Put Option		Investment in privately-held company		Total
	(in thousands)
Beginning balances as of December 31, 2008	$	2,553		$	412	$	644	$	3,609
Unrealized gains (losses) included in accumulated other comprehensive loss		19			—		—		19
Unrealized gains (losses) recognized in earnings		(76	)		71		—		(5	)
Purchases, sales, issuances and settlements, net		—			—		125		125

Ending balances as of March 31, 2009		2,496			483		769		3,748

Unrealized gains (losses) included in accumulated other comprehensive loss		3			—		—		3
Unrealized gains (losses) recognized in earnings		(16	)		77		—		61
Purchases, sales, issuances and settlements, net		(50	)		—		58		8
Change in fair value measurement basis		—			—		362		362

Ending balances as of June 30, 2009	$	2,433		$	560	$	1,189	$	4,182

4. STOCKHOLDERS’ EQUITY

Common Stock Repurchases

On October 29, 2008, the Company’s board of directors authorized a program to repurchase shares of the Company’s outstanding common stock. Under the stock repurchase program, the Company was authorized to use up to $30 million to repurchase its outstanding common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depended upon market conditions and other factors, in accordance with SEC requirements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

During the six months ended June 30, 2009, the Company repurchased a total of 1.1 million shares of its common stock for a total cost of $3.3 million. As of June 30, 2009, the Company has $21.4 million of remaining funds authorized to purchase shares under the stock repurchase plan. Shares repurchased are accounted for as treasury stock and the total cost of shares repurchased is recorded as a reduction to stockholders’ equity.

Stock-Based Compensation Expense and Valuation of Awards

The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”). The following table summarizes stock-based compensation expense included in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2009 and June 30, 2008 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
Statement of operations classifications	2009		2008		2009		2008
Cost of revenue	$	84	$	103	$	147	$	196
Research and development		733		792		1,433		1,836
Sales, general and administrative		829		1,022		1,642		2,314

Total stock-based compensation expense	$	1,646	$	1,917	$	3,222	$	4,346

The related tax effect for stock-based compensation expense was zero for the three and six months ended June 30, 2009, respectively, as the Company has a full valuation allowance against its deferred tax assets. The related tax effect for stock-based compensation expense for the three and six months ended June 30, 2008 was $0.3 million and $0.7 million, respectively. The related tax effect was determined using the applicable tax rates in jurisdictions to which this expense relates.

The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of stock options. The Company used the following weighted average assumptions to calculate the fair values of stock options granted during the three and six months ended June 30, 2009 and June 30, 2008:


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Volatility	59	%	49	%	61	%	51	%
Expected option term (in years)	4.25		4.04		3.67		4.04
Expected annual dividend yield	0	%	0	%	0	%	0	%
Risk free interest rate	1.85	%	2.93	%	1.35	%	2.81	%

For purposes of estimating volatility, the Company uses a combination of historical and market-based implied volatility in accordance with SFAS No. 123(R) and Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB No. 107”). The estimated expected term of the Company’s stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company derives the expected term assumption based on the weighted average vesting period of its stock options combined with the average post-vesting holding period of an industry peer group. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the Company’s stock options. The dividend yield is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on common stock, and it does not anticipate paying cash dividends in the foreseeable future. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method.

The Company generally grants stock options with a vesting period of four years. During the three months ended March 31, 2009, the Company granted options to purchase 600,000 shares of its common stock with a one year vesting period. As a result of granting stock options with a one year vesting period, the Company’s weighted average expected term assumption for the six months ended June 30, 2009 was lower compared to the six months ended June 30, 2008.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5. NET LOSS PER SHARE

The Company calculates net loss per share in accordance with SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”). Under SFAS No. 128, basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the reporting period excluding shares subject to repurchase. To determine diluted net loss per common share, the effect of potentially dilutive securities, which consist of common stock options, warrants and common stock subject to repurchase is calculated under the treasury stock method. The effect of potentially dilutive securities is excluded from the computation of diluted net loss per share when their effect is anti-dilutive.

A reconciliation of shares used in the calculation of basic and diluted net loss per share is as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
	2009	2008		2009	2008
	(in thousands)
Weighted average common shares outstanding	42,938	45,712		42,995	45,614
Weighted average shares subject to repurchase	—	(25	)	—	(25	)

Shares used to calculate basic net loss per share	42,938	45,687		42,995	45,589

Shares used to calculate diluted net loss per share	42,938	45,687		42,995	45,589

For the three and six months ended June 30, 2009, the Company excluded 7.5 million and 8.5 million potentially dilutive securities from the computation of diluted net loss per share, respectively. For the three and six months ended June 30, 2008, the Company excluded 8.0 million and 8.2 million potentially dilutive securities from the computation of diluted net loss per share, respectively. Potentially dilutive securities were excluded from the computation of diluted net loss per share because their effect would have been antidilutive due to the net loss in each period.

6. OTHER COMPREHENSIVE LOSS

Comprehensive loss includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive loss are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(in thousands)						(in thousands)
Net loss, as reported	$	(2,489	)	$	(3,846	)	$	(7,697	)	$	(3,974	)
Changes in cumulative translation adjustment		46			27			20			195
Changes in unrealized gains /losses on investments, net of taxes		(32	)		(215	)		(147	)		(408	)

Total other comprehensive loss	$	(2,475	)	$	(4,034	)	$	(7,824	)	$	(4,187	)

7. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS


	June 30, 2009			December 31, 2008
	(in thousands)
Inventories
Work in process	$	5,341		$	5,034
Finished goods		4,484			3,982

Total inventories	$	9,825		$	9,016


Property and equipment, net
Computers and software	$	5,338		$	5,426
Office and test equipment		6,928			6,513
Leasehold improvements		1,472			1,448

Gross property and equipment		13,738			13,387
Accumulated depreciation and amortization		(9,094	)		(8,337	)

Total property and equipment, net	$	4,644		$	5,050

Accrued liabilities
Accrued payroll and benefits	$	1,974		$	1,269
Deferred revenue		97			97
Accrued legal and accounting services		611			746
Warranty reserve		116			81
Restructuring reserve		—			280
Accrued payables and other		1,036			1,225

Total accrued liabilities	$	3,834		$	3,698

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired in a business combination. As of June 30, 2009, the Company’s goodwill balance was $16.1 million, of which $15.7 million relates to the Company’s October 2006 acquisition of Analog Power Semiconductor Corporation and $0.4 million relates to the Company’s June 2008 acquisition of Elite Micro Devices, Inc.

The Company follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), under which goodwill is no longer subject to amortization. The Company evaluates goodwill for impairment, at a minimum, on an annual basis on September 30 and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. As of June 30, 2009, the Company determined that impairment indicators were not present.

Intangible Assets

The following table summarizes intangible assets as of June 30, 2009 and December 31, 2008, respectively, (in thousands):


	Intangible Assets, Gross				Accumulated Amortization						Intangible Assets, Net
	June 30, 2009		December 31, 2008		June 30, 2009			December 31, 2008			June 30, 2009		December 31, 2008
Core technology	$	2,900	$	2,900	$	(2,831	)	$	(2,724	)	$	69	$	176
Customer relationships		580		580		(564	)		(544	)		16		36
Technology license		200		200		(50	)		(17	)		150		183

Total	$	3,680	$	3,680	$	(3,445	)	$	(3,285	)	$	235	$	395

The Company amortizes intangible assets on a straight-line basis over the estimated useful life of the assets. Intangible asset amortization expense was $0.1 million and $0.2 million for the three and six months ended June 30, 2009, respectively. Intangible asset amortization expense was $0.3 million and $0.6 million for the three and six months ended June 30, 2008, respectively. Future amortization expense is expected to be $0.1 million for the remainder of 2009, $0.1 million in 2010 and less than $0.1 million in 2011.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. SEGMENT INFORMATION

As defined by the requirements of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company operates in one reportable segment: the design, development, marketing and sale of power management semiconductor products and solutions for the communications, computing and consumer portable and personal electronics marketplace. The Company’s chief operating decision maker is its chief executive officer.

The following is a summary of net revenue by geographic region based on the location to which the product is shipped:


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
	(in thousands)
South Korea	$	14,972	$	13,788	$	26,769	$	28,407
China		5,450		2,202		8,403		6,944
Taiwan		1,592		2,917		2,481		7,495
Europe		423		678		798		1,125
North America		342		436		692		925
Japan		199		1,152		384		1,378

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

The following table summarizes net revenue and accounts receivable for customers who accounted for 10% or more of accounts receivable or net revenue, respectively:


	Accounts Receivable as of				Net Revenue Three Months Ended June 30,				Net Revenue Six Months Ended June 30,
	June 30, 2009		December 31, 2008		2009		2008		2009		2008
Customer
A	36	%	30	%	30	%	19	%	31	%	15	%
B	30	%	30	%	25	%	29	%	25	%	29	%
C	*	%	*	%	10	%	*	%	*	%	*	%
D	12	%	*	%	*	%	*	%	*	%	*	%
E	*	%	*	%	*	%	10	%	*	%	10	%

*	- amount represents less than 10%.

10. INCOME TAXES

In accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” (APB No. 28), the Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records 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. The Company’s effective tax rate reflects the impact of a significant amount of its earnings being taxed in foreign jurisdictions at rates below the United States statutory tax rate and a valuation allowance maintained on the Company’s deferred tax assets.

The Company 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. The Company 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 the Company’s 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 its United States deferred tax assets at June 30, 2009. Accordingly, no benefit is recognized for stock-based compensation as any increase in the Company’s related deferred tax asset will have a corresponding increase in the Company’s valuation allowance.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company established a full valuation allowance against its United States deferred tax assets on December 31, 2008. The Company has established valuation allowances for deferred tax assets based on a “more likely than not” threshold. The Company’s ability to realize its deferred tax assets depends on its ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of its 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.

The Company concludes that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. The Company utilizes a rolling three years of actual results as its primary measure of its cumulative losses in recent years. As of June 30, 2009, the Company continues to have a three year cumulative loss and, therefore, concludes that a valuation allowance is still required.

During the six months ended June 30, 2009, the Company increased its 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. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

The Company is currently under examination by the Internal Revenue Service for tax years 2005 to 2007. During the three months ended June 30, 2009, the Company received several Notices of Proposed Adjustments (NOPAs) from the IRS claiming that the Company understated its income for tax years 2005 and 2006. The Company believes that the IRS proposed adjustments are not supported by the facts and are inconsistent with applicable tax laws and existing Treasury regulations. The Company has filed a timely protest and is 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. The Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of these examinations.

11. LEGAL PROCEEDINGS

In May 2003, the Company received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of its charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, the Company received a letter from Linear Technology alleging that certain of its switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, the Company contacted Linear Technology to convey its good faith belief that it does not infringe the patents in question. Subsequently, the Company became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt the Company’s business relationships and sales by suggesting to the Company’s customers that its products infringe the same United States patents mentioned in its two letters to the Company. As a result, in February 2006, the Company initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of the Company’s products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in the Company’s lawsuit with Linear Technology. A Final Determination issued September 24, 2007 which was followed by separate appeals for the charge

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

pump and switching regulator products. The last of these appeals ended in May of this year. The overall result of these processes clears the path for importation of the Company’s charge pump products. A limited exclusion order was also issued preventing the Company from importing certain of its switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent the Company’s customers from importing downstream products (i.e., products that incorporate AATI switching regulators) into the United States. The Company has asked the United States Courts of Appeals for the Federal Circuit to reconsider certain aspects of its decision. To date, the Company’s sales of the excluded products in the United States have been minimal.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that the Company has violated the limited exclusion order by importing certain switching regulator products. The Company believes that it will prevail in this action. However, whether or not the Company prevails, the Company expects to incur significant legal expenses which will be expensed when incurred.

In March 2009, the Company initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging patent infringement of certain of its patented product designs. This case is pending in the United States District Court for the Northern District of California. The Company does not believe that this lawsuit will have a material impact on its business or financial condition.

12. RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of SFAS No. 141(R), “Business Combinations”, as of January 1, 2009. The adoption did not have a material impact on the 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. The Company’s adoption of FSP FAS 157-4 during the three months ended June 30, 2009 did not have a material impact on its 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. The Company’s 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 its 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. The Company’s adoption of FSP FAS 107-1 and APB 28-1 during the quarter ended June 30, 2009 did not impact its 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 the Company during the quarter ended June 30, 2009.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

13. RESTATEMENT

During the three months ended September 30, 2009, the Company identified errors in stock-based compensation expense. The Company restated its consolidated financial statements for fiscal years 2008, 2007 and 2006 and filed Form 10-K/A with the SEC.

The errors were identified after the Company’s third-party software provider notified its clients, including the Company, that it made a change to how its software program calculates stock-based compensation expense. Specifically, the prior version of this software calculated stock-based compensation expense by incorrectly continuing to apply a weighted average forfeiture rate to the vested portion of stock option awards until the grant’s final vest date, resulting in an understatement of stock-based compensation expense in certain periods prior to the grant’s final vest date. Thus, this accounting error relates to the timing of estimated stock-based compensation expense recognition.

As a result, the Company has restated the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2009 and 2008 to reflect the restatement of stock-based compensation expense. The Company has recorded a $0.2 million decrease in pre-tax non-cash stock-based compensation expense for the three and six months ended June 30, 2009 and a $0.1 million and $0.7 million increase for the three and six months ended June 30, 2008, respectively, from amounts previously reported. The Condensed Consolidated Balance Sheet also reflects the cumulative restatement adjustments made as of June 30, 2009.

The following tables present the effect of the restatement adjustments by financial statement line item for the Condensed Consolidated Balance Sheet as of June 30, 2009 and the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 and the Condensed Consolidated Statements of Cash Flow for the six months ended June 30, 2009 and 2008.

Condensed Consolidated Balance Sheets (in thousands):


	June 30, 2009
	As previously reported			As restated
ASSETS:
Deferred income taxes - long-term	$	282		$	283
Total assets	$	152,819		$	152,820
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Income tax payable	$	73		$	157
Total current liabilities	$	14,758		$	14,842
Total liabilities	$	19,291		$	19,375
Additional paid-in capital	$	176,847		$	178,759
Accumulated deficit	$	(34,621	)	$	(36,616	)
Total stockholders’ equity	$	133,528		$	133,445
Total liabilities and stockholders’ equity	$	152,819		$	152,820

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Condensed Consolidated Statements of Operations (in thousands, except per share amounts):


	Three months ended June 30, 2009						Six months ended June 30, 2009
	As previously reported			As restated			As previously reported			As restated
Cost of Revenue	$	11,879		$	11,882		$	20,997		$	21,000
Gross Profit	$	11,099		$	11,096		$	18,530		$	18,527
Operating expenses:
Research and development	$	6,862		$	6,808		$	13,445		$	13,391
Sales, general and administrative	$	6,403		$	6,281		$	11,832		$	11,710
Total operating expenses	$	13,650		$	13,474		$	25,963		$	25,787
Loss from operations	$	(2,551	)	$	(2,378	)	$	(7,433	)	$	(7,260	)
Loss before income taxes	$	(2,236	)	$	(2,063	)	$	(6,765	)	$	(6,592	)
Provision for income taxes	$	439		$	426		$	1,118		$	1,105
Net loss	$	(2,675	)	$	(2,489	)	$	(7,883	)	$	(7,697	)
Basic net loss per share	$	(0.06	)	$	(0.06	)	$	(0.18	)	$	(0.18	)
Diluted net loss per share	$	(0.06	)	$	(0.06	)	$	(0.18	)	$	(0.18	)

	Three months ended June 30, 2008						Six months ended June 30, 2008
	As previously reported			As restated			As previously reported			As restated
Cost of Revenue	$	11,149		$	11,157		$	22,517		$	22,541
Gross Profit	$	10,024		$	10,016		$	23,757		$	23,733
Operating expenses:
Research and development	$	7,790		$	7,809		$	15,449		$	15,722
Sales, general and administrative	$	6,201		$	6,189		$	12,646		$	13,066
Total operating expenses	$	14,473		$	14,480		$	28,839		$	29,532
Loss from operations	$	(4,449	)	$	(4,464	)	$	(5,082	)	$	(5,799	)
Loss before income taxes	$	(3,683	)	$	(3,698	)	$	(3,172	)	$	(3,889	)
Provision for income taxes	$	147		$	148		$	211		$	85
Net loss	$	(3,830	)	$	(3,846	)	$	(3,383	)	$	(3,974	)
Basic net loss per share	$	(0.08	)	$	(0.08	)	$	(0.07	)	$	(0.09	)
Diluted net loss per share	$	(0.08	)	$	(0.08	)	$	(0.07	)	$	(0.09	)

Condensed Consolidated Statements of Cash Flows (in thousands):


	Six months ended June 30, 2009						Six months ended June 30, 2008
	(as previously reported)			(as restated)			(as previously reported)			(as restated)
Net loss	$	(7,883	)	$	(7,697	)	$	(3,383	)	$	(3,974	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,395			3,222			3,629			4,346
Tax benefit from stock option exercises		20			22			—			(9	)
Excess tax benefit from stock options		(20	)		(22	)		(487	)		(478	)
Changes in operating assets and liabilities:
Deferred income taxes		(29	)		(29	)		(70	)		(233	)
Income taxes payable		996			981			77			123
Net cash used in operating activities		(1,164	)		(1,166	)		(130	)		(121	)

Excess tax benefit from stock options		20			22			487			478
Net cash provided by (used in) provided by financing activities		(3,226	)		(3,224	)		1,583			1,574

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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
	Amount		Percent of net revenue		Amount		Percent of net revenue		Amount		Percent of net revenue		Amount		Percent of net 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


	Three Months Ended June 30,											Six Months Ended June 30,
(in thousands, except percentages)	2009			2008			Increase (Decrease)					2009			2008			Increase (Decrease)
Research and development	$	6,808		$	7,809		$	(1,001	)	(13	)%	$	13,391		$	15,722		$	(2,331	)	(15	)%
Percentage of net revenue		29.6	%		36.9	%		(7.3	)%				33.9	%		34.0	%		(0.1	)%

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


	Three Months Ended June 30,											Six Months Ended June 30,
(in thousands, except percentages)	2009			2008			Increase (Decrease)					2009			2008			Increase (Decrease)
Sales, general and administrative	$	6,281		$	6,189		$	92		1	%	$	11,710		$	13,066		$	(1,356	)	(10	)%
Percentage of net revenue		27.3	%		29.2	%		(1.9	)%				29.6	%		28.2	%		1.4	%

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


	Three Months Ended June 30,											Six Months Ended June 30,
(in thousands, except percentages)	2009			2008			Increase (Decrease)					2009			2008			Increase (Decrease)
Patent litigation	$	385		$	482		$	(97	)	(20	)%	$	686		$	744		$	(58	)	(8	)%
Percentage of net revenue		1.7	%		2.3	%		(0.6	)%				1.7	%		1.6	%		(0.1	)%

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.

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

Cash used in operating activities was $1.2 million for the six months ended June 30, 2009. Cash used in operating activities was comprised of the net loss of $7.7 million, less non-cash adjustments including $3.2 million of stock-based compensation expense and $1.0 million of depreciation and amortization. Cash used in operating activities was also comprised of a $4.7 million increase in accounts receivable as a result of higher sales. These uses were offset by a $6.0 million increase in accounts payable due to the timing of our purchases and a $1.0 million increase in income taxes payable due to the current year income taxes.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $10.1 million for the six months ended June 30, 2009 and was comprised of $48.4 million of proceeds from sales and maturities of short-term investments, partially offset by $37.9 million used to purchase short-term investments.

In June 2008, we acquired Elite, a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. Elite’s high performance Class D audio amplifier and CODEC products are designed for audio amplification and audio processing in handsets, personal media players, Bluetooth hands-free car kits and high definition televisions. We recorded goodwill of $0.4 million associated with this acquisition. We did not record any intangible assets as a result of the Elite acquisition.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities was $3.2 million for the six months ended June 30, 2009, primarily due to repurchases of our common stock during the period.

Liquidity

Our cash, cash equivalents and short term investments were $104.7 million as of June 30, 2009 and $109.5 million as of December 31, 2008. We believe our existing cash, cash equivalents and short-term investment balances, as well as any cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, our level of acquisition activity or other strategic transactions, the continuing market acceptance of our products and the amount and intensity of our litigation activity. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

Contractual Obligations

The following table describes our principal contractual cash obligations as of June 30, 2009:


	Total		Remaining 2009		2010		2011		2012		2013		2014 and beyond
	(in thousands)
Operating leases	$	4,764	$	775	$	1,123	$	554	$	568	$	516	$	1,228
Purchase commitments ⁽¹⁾		5,890		5,890		—		—		—		—		—

Total contractual obligations	$	10,654	$	6,665	$	1,123	$	554	$	568	$	516	$	1,228

⁽¹⁾	Purchase commitments consist primarily of our commitment to purchase wafers and assembly services.

Common Stock Repurchases

On October 29, 2008, our board of directors authorized a program to repurchase shares of our outstanding common stock. Under the stock repurchase program, we are authorized to use up to $30 million to repurchase our outstanding common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depended upon market conditions and other factors, in accordance with Securities and Exchange Commissions requirements.

During the six months ended June 30, 2009, we repurchased a total of 1.1 million shares of our common stock for a total cost of $3.3 million. As of June 30, 2009, we had $21.4 million of remaining funds authorized to purchase shares under the stock repurchase plan. Shares repurchased are accounted for as treasury stock and the total cost of shares repurchased is recorded as a reduction to stockholders’ equity.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2009, we had cash and cash equivalents totaling $57.8 million, compared to $52.1 million at December 31, 2008. At June 30, 2009, we had $46.9 million in short-term investments as compared to $57.4 million at December 31, 2008. Cash equivalents have an original or remaining maturity when purchased of 90 days or less; short-term investments generally have an original or remaining maturity when purchased of greater than 90 days. Our investment policy places emphasis on instruments with more liquidity.

The taxable equivalent interest rates for the three and six months ended June 30, 2009, on those cash equivalents and short-term investments average approximately 1.0% and 1.2%, respectively. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. While none of the securities in which we invested are secured by real estate, these securities may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we may maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, debt securities and treasury notes.

A hypothetical increase in market interest rates of 100 basis points from the market rates in effect at June 30, 2009 would cause the fair value of these investments to decrease by approximately $0.2 million, which would not significantly impact our financial position or results of operations. A hypothetical decrease in market interest rates of 100 basis points from the market rates in effect at June 30, 2009 would cause the fair value of these investments to increase by $0.1 million. Declines in interest rates over time will result in lower interest income. Based upon our analysis the fair values did not change materially as our investments are of short duration.

As of June 30, 2009, our investment portfolio included $3.2 million of interest bearing auction rate securities (“ARS”) with a fair value of $2.4 million, of which $1.8 million was classified as available-for-sale and $0.6 million was classified as trading securities. In addition, our investment portfolio included $0.6 million of ARS exchange rights (“ARS Put Option”) that provide us with the right, but not the obligation, to sell one of our ARS to UBS for par value during the period of June 30, 2010 to July 2, 2012. Upon initial recognition of the ARS Put Option, we made an election to account for this financial instrument at fair value pursuant to SFAS No. 159.

We used a discounted cash flow model to determine the estimated fair value of our ARS and the ARS Put Option as of June 30, 2009. The assumptions used in preparing the discounted cash flow model included estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity and other risk factors, and estimates for the amount of cash flows and expected holding periods of the ARS and the ARS Put Option. These inputs reflect our own assumptions about the assumptions market participants would use in pricing the ARS and the ARS Put Option, including assumptions about risk, developed based on the best information available in the circumstances.

ITEM 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q/A.

In connection with the restatement described in Note 13 to our unaudited condensed consolidated financial statements, our Chief Executive Officer and Chief Financial Officer determined that there was a material weakness in our internal control over financial reporting as of June 30, 2009 relating to the design of the controls over the calculation of stock-based compensation expense related to the application of the forfeiture rate. Based on this evaluation and because of the material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2009.

(b) Changes in Internal Control Over Financial Reporting

There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2009 covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(c) Remedial Efforts to Address the Material Weakness

Subsequent to the identification of the material weakness in our internal control over financial reporting during the three months ended September 30, 2009, we have initiated remediation measures to address the material weakness over the calculation of stock-based compensation expense related to the application of the forfeiture rate which includes adding a control procedure to test the calculation of the third-party stock-based compensation system reports on a quarterly basis and upon our upgrades to new versions of the software.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In May 2003, we received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of our charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, we received a letter from Linear Technology alleging that certain of our switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, we contacted Linear Technology to convey our good faith belief that we do not infringe the patents in question. Subsequently, we became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt our business relationships and sales by suggesting to our customers that our products infringe the same United States patents mentioned in its two letters to us. As a result, in February 2006, we initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of our products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in our lawsuit with Linear Technology. A Final Determination issued September 24, 2007 which was followed by separate appeals for the charge pump and switching regulator products. The last of these appeals ended in May of this year. The overall result of these processes clears the path for importation of our charge pump products. A limited exclusion order was also issued preventing us from importing certain of our switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent our customers from importing downstream products (i.e., products that incorporate AATI switching regulators) into the United States. We have asked the United States Courts of Appeals for the Federal Circuit to reconsider certain aspects of its decision. To date, our sales of the excluded products in the United States have been minimal.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that we have violated the limited exclusion order by importing certain switching regulator products. We believe that we will prevail in this action. However, whether or not we prevail, we expect to incur significant legal expenses which will be expensed when incurred.

In March 2009, we initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging patent infringement of certain of its patented product designs. This case is pending in the United States District Court for the Northern District of California. We do not believe that this lawsuit will have a material impact on our business or financial condition.

ITEM 1A.

RISK FACTORS

If we fail to forecast demand for our products accurately, we may incur product shortages, delays in product shipments or excess or insufficient product inventory.

We generally do not obtain firm, long-term purchase commitments from our customers. Because production lead times often exceed the amount of time required to fulfill orders, we often must build in advance of orders, relying on an imperfect demand forecast to project volumes and product mix. Our demand forecast accuracy can be adversely affected by a number of factors, including inaccurate forecasting by our customers, changes in market conditions, new part introductions by our competitors that lead to our loss of previous design wins, adverse changes in our product order mix and demand for our customers’ products or models. Even after an order is received, our customers may cancel these orders or request a decrease in production quantities. Any such cancellation or decrease subjects us to a number of risks, most notably that our projected sales will not materialize on schedule or at all, leading to unanticipated revenue shortfalls and excess or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are unable to project customer requirements accurately, we may not build enough products, which could lead to delays in product shipments and lost sales opportunities in the near term, as well as force our customers to identify alternative sources, which could affect our ongoing relationships with these customers. We have in the past had customers dramatically increase their requested production quantities with little or no advance notice and after they had submitted their original order. We have on occasion been unable to fulfill these revised orders within the time period requested. Either overestimating or underestimating demand would lead to excess, obsolete or insufficient inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers.

We receive a substantial portion of our revenues from a small number of OEM customers and distributors, and the loss of, or a significant reduction in, orders from those customers or our other largest customers would adversely affect our operations and financial condition.

We received an aggregate of approximately 91% and 77% of our net revenues from our ten largest customers for the three months ended June 30, 2009 and June 30, 2008, respectively. Any action by one of our largest customers that affects our orders, product pricing or vendor status could significantly reduce our revenues and harm our financial results.

We receive a substantial portion of our revenues from two of our OEM customers, Samsung of South Korea and LG Electronics Inc. of South Korea, as well as from a few of our distributors, such as ChiefTech Electronics Ltd. of China. LG Electronics, our largest direct customer in 2008 and 2007, represented 25% and 29% of net revenues for the three months ended June 30, 2009 and June 30, 2008, respectively. Sales to Samsung accounted for 30% of our net revenue for the three months ended June 30, 2009 and 19% of net revenues for the three months ended June 30, 2008. Additionally, we sell to a number of contract manufacturers of Samsung. Total sales to Samsung and its contract manufacturers represented 38% and 37% of our net revenue for three months ended June 30, 2009 and June 30, 2008, respectively. In addition, one of our distributors accounted for 10% and 7% of our net revenue for the three months ended June 30, 2009 and June 30, 2008, respectively.

We anticipate that we will continue to be dependent on these customers for a significant portion of our revenue in the immediate future; however, we do not have long-term contractual purchase commitments from them, and we cannot assure you that they will continue to be our customers. Because our largest customers account for such a significant part of our business, the loss of, or a decline in sales to, any of our major customers would negatively impact our business.

Our operating results have fluctuated in the past and we expect our operating results to continue to fluctuate.

Our revenues are difficult to predict and have varied significantly in the past from period to period. We expect our revenues and expense levels to continue to vary in the future, making it difficult to predict our future operating results. In particular, we experience seasonality and variability in demand for our products as our customers manage their inventories. Our customers tend to increase inventory of our products in anticipation of the peak fourth quarter buying season for the mobile consumer electronic devices in which our products are used, which often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth calendar quarter.

Additional factors that could cause our results to fluctuate include:

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the forecasting, scheduling, rescheduling or cancellation of orders by our customers, particularly in China and other emerging markets;

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costs associated with litigation, especially related to intellectual property;

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liquidity and cash flow of our distributors, suppliers and end-market customers;

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changes in manufacturing costs, including wafer, test and assembly costs, and manufacturing yields, product quality and reliability;

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the timing and availability of adequate manufacturing capacity from our manufacturing suppliers;

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our ability to successfully define, design and release new products in a timely manner that meet our customers’ needs;

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the timing, performance and pricing of new product introductions by us and by our competitors;

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general economic conditions in the countries where we operate or our products are used;

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changes in exchange rates, interest rates, tax rates and tax withholding;

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geopolitical stability, especially affecting China, Taiwan and Asia in general; and

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changes in domestic and international tax laws.

Unfavorable changes in any of the above factors, most of which are beyond our control, could significantly harm our business and results of operations.

We may be required to record additional significant charges to earnings if our goodwill becomes impaired.

Under accounting principles generally accepted in the United States, we review our goodwill for impairment each year as of September 30 ^th and when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. We may be required to record a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

As of June 30, 2009, our investment portfolio included interest bearing auction rate securities (ARS) with a fair value of $2.4 million. Our ARS represent investments in debt obligations collateralized by Federal Family Education Program student loans. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The monthly auctions historically provided a liquid market for these securities. However, beginning in 2008, uncertainties in the credit markets have affected all of our holdings in ARS and auctions for our investments in these securities have failed to settle on their respective settlement dates. Auctions for our investments in these securities continued to fail through June 30, 2009.

If the current market conditions deteriorate further, the anticipated recovery in market values does not occur, or if we determine that we intend to sell the ARS, it is more likely than not that we will be required to sell the ARS before a recovery of the auction process, or that we will not recover the entire amortized cost basis of the ARS, we may be required to record impairment charges in future quarters which may negatively impact our results of operations.

We may be unsuccessful in developing and selling new products or in penetrating new markets.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our competitiveness and future success depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues and a loss of design wins to our competitors. For example, we introduced approximately 70 new products in 2008, however many of them have not yet been adopted by our customers. The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:

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effective marketing, sales and service;

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timely and efficient completion of process design and device structure improvements and implementation of manufacturing, assembly and test processes; and

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the quality, performance and reliability of the product.

If we fail to introduce new products or penetrate new markets, our revenues will likely decrease over time and our financial condition could suffer.

We may not have the expertise we need to successfully define or develop products for new market opportunities, and we may lack the sales connections and applications expertise to secure orders for such products. Identifying and hiring such resources may be difficult and we may not be successful in identifying and hiring necessary personnel. Attempts to balance product development and sales efforts between new and existing applications may delay our entrance into new markets and make it more difficult to penetrate new customers and application opportunities in the future.

Due to defects and failures that may occur, our products may not meet specifications, which may cause customers to return or stop buying our products and may expose us to product liability claims.

Our customers generally establish demanding specifications for quality, performance and reliability that our products must meet. Integrated circuits as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require product replacement or recall. In addition, our customers may not use our products in a way that is consistent with our published specifications. If defects and failures occur in our products during the design phase or after, or our customers use our products in ways that are not consistent with their intended use, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, or product returns or discounts, any of which would harm our operating results. We cannot assure you that we will have sufficient resources, including any available insurance, to satisfy any asserted claims.

The nature of the design process requires us to incur expenses prior to earning revenues associated with those expenses, and we will have difficulty selling our products if system designers do not design our products into their electronic systems.

We devote significant time and resources to working with our customers’ system designers to understand their future needs and to provide products that we believe will meet those needs. If a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system because changing suppliers can involve significant cost, time, effort and risk for our customers.

We often incur significant expenditures in the development of a new product without any assurance that our customers’ system designers will select our product for use in their electronic systems. We often are required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need for that particular design. In some cases, there is minimal or no demand for our products in our anticipated target applications. Even if our products are selected by our customers’ system designers, a substantial period of time will elapse before we generate revenues related to the significant expenses we have incurred. The reasons for this delay generally include the following elements of our product sales and development cycle timeline and related influences:

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our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems;

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it can take up to 12 months from the time our products are selected to complete the design process;

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it can take an additional nine to 12 months or longer to complete commercial introduction of the electronic systems that use our products, if they are introduced at all;

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original equipment manufacturers typically limit the initial release of their electronic systems to evaluate performance and consumer demand; and

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the development and commercial introduction of products incorporating new technology are frequently delayed.

We estimate that the overall sales and development cycle timeline of an average product is approximately 16 months.

Additionally, even if system designers use our products in their electronic systems, we cannot assure you that these systems will be commercially successful. As a result, we are unable to accurately forecast the volume and timing of our orders and revenues associated with any new product introductions.

Any increase in the manufacturing cost of our products could reduce our gross margins and operating profit.

The semiconductor business exhibits ongoing competitive pricing pressure from customers and competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase price variances or adverse manufacturing cost variances, will reduce our gross margins and operating profit. We do not have many long-term supply agreements with our manufacturing suppliers and, consequently, we may not be able to obtain price reductions or anticipate or prevent future price increases from our suppliers.

The average selling price of our products may decline, or a change in the mix of product orders may occur, either of which could reduce our gross margins.

During a power management product’s life, its selling price tends to decrease for a particular application. As a result, to maintain gross margins on our products, we must continue to identify new applications for our products, reduce manufacturing costs for our existing products and introduce new products. If we are unable to identify new, high gross margin applications for our existing products, reduce our production costs or sell new, high gross margin products, our gross margins will suffer. A sustained reduction in our gross margins could harm our future operating results, cash flow and financial condition, which could lead to a significant drop in the price of our common stock.

Because we receive a substantial portion of our revenues through distributors, their financial viability and ability to access the capital markets could impact our ability to continue to do business with them and could result in lower revenues, which could adversely affect our operating results and our customer relationships.

We obtain a portion of our revenues through sales to distributors located in Asia who act as our fulfillment representatives. Sales to distributors accounted for 25% and 26% of our revenues for the three months ended June 30, 2009 and June 30, 2008, respectively. In the normal course of their operation as fulfillment representatives, these distributors typically perform functions such as order scheduling, shipment coordination, inventory stocking, payment and collections and, when applicable, currency exchange between purchasers of our products and these distributors. Our distributors’ compensation for these functions is reflected in the price of the products we sell to these distributors. Many of our current distributors also serve as our sales representatives procuring orders for us to fill directly. If these distributors are unable to pay us in a timely manner or if we anticipate that they will not pay us, we may elect to withhold future shipments, which could adversely affect our operating results. If one of our distributors experiences severe financial difficulties, becomes insolvent or declares bankruptcy, we could lose product inventory held by that distributor and we could be required to write off the value of any receivables owed to us by that distributor. We could also be required to record bad debt expense in excess of our reserves. We may not be successful in recognizing these indications or in finding replacement distributors in a timely manner, or at all, any of which could harm our operating results, cash flow and financial condition.

Our distributor arrangements often require us to accept product returns and to provide price protection and if we fail to properly estimate our product returns and price protection reserves, this may adversely impact our reported financial information.

A substantial portion of our sales are made through third-party distribution arrangements, which include stock rotation rights that generally permit the return of up to 5% of the previous six months’ purchases. We generally accept these returns in the second and fourth quarter of each annual period. Our arrangements with our distributors typically also include price protection provisions if we reduce our list prices. We record estimated returns at the time of shipment, and we record reserves for price protection at the time we decide to reduce our list prices. In the future, we could receive returns or claims that are in excess of our estimates and reserves, which could harm our operating results.

If our relationship with any of our distributors deteriorates or terminates, it could lead to a temporary or permanent loss of revenues until a replacement sales channel can be established to service the affected end-user customers, as well as inventory write-offs or accounts receivable write-offs. In addition, we also may be obligated to repurchase unsold products from a distributor if we decide to terminate our relationship with that distributor.

Our current backlog may not be indicative of future sales.

Due to the nature of our business, in which order lead times may vary, and the fact that customers are generally allowed to reschedule or cancel orders on short notice, we believe that our backlog is not necessarily a good indicator of our future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because our lead times for the manufacturing of our products generally take six to ten weeks, we often must build in advance of orders. This exposes us to certain risks, most notably the possibility that expected sales will not occur, which may lead to excess inventory, and we may not be able to sell this inventory to other customers. In addition, we supply LG Electronics, one of our largest customers, through its central hub and we do not record backlog with respect to the products we ship to the hub. Therefore, our backlog may not be a reliable indicator of future sales.

If consumer demand for mobile consumer electronic devices declines, our revenues will decrease.

Our products are used primarily in the mobile consumer electronic devices market. For the foreseeable future, we expect to see the significant majority of our revenues continue to come from this market, especially in wireless handsets. If consumer demand for these products declines and fewer mobile customer electronic devices are sold, our revenues will decrease significantly. For example, in the second half of 2008, and particularly later in the fourth quarter, we experienced a significant decrease in worldwide billings to our customers, suggesting that our customers have been reacting to decreased consumer demand for their end products. In an adverse economic climate such as the current worldwide financial crisis, consumers are less likely to prioritize purchasing new mobile consumer electronic devices or upgrading existing devices. In addition, if we are unsuccessful in identifying alternative markets for our products in a timely manner, our operating results will suffer dramatically.

Substantially all of our manufacturing suppliers, customers and operations are located in Asia, which subjects us to additional risks, including regional economic influences, logistical complexity, political instability and natural disasters including earthquakes.

We conduct, and expect to continue to conduct, almost all of our business with companies that are located outside the United States. Based on ship-to locations, approximately 95% of our revenues for both the three and six months ended June 30, 2009 and June 30, 2008 came from customers in Asia, particularly South Korea, Taiwan, China and Japan. A vast majority of our contract manufacturing operations are located in South Korea, Taiwan, Malaysia and China. In addition, we have a design center in Shanghai, China. As a result of our international focus, we face several challenges, including:

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increased complexity and costs of managing international operations;

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longer and more difficult collection of receivables;

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political and economic instability;

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limited protection of our intellectual property;

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unanticipated changes in local regulations, including tax regulations;

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timing and availability of import and export licenses; and

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foreign currency exchange fluctuations relating to our international operating activities.

Our corporate headquarters in Santa Clara, California, our operations office in Chupei, Taiwan, and the production facilities of one of our wafer fabrication suppliers and several of our assembly and test suppliers in Hsinchu and across Taiwan are located near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and our business could be damaged in the event of a major earthquake or other natural disaster.

In addition to risks in our operations from natural disasters, our customers are also subject to these risks. Any disaster impacting our customers could result in loss of orders, delay of business and temporary regional economic recessions.

We are also more susceptible to the regional economic impact of health crises. Because we anticipate that we will continue to rely heavily on foreign companies or United States companies operating in Asia for our future growth, the above risks and issues that we do not currently anticipate could adversely affect our ability to conduct business and our results of operations.

We outsource our wafer fabrication, testing, packaging, warehousing and shipping operations to third parties, and rely on these parties to produce and deliver our products according to requested demands in specification, quantity, cost and time.

We rely on third parties for substantially all of our manufacturing operations, including wafer fabrication, wafer probe, wafer thinning, assembly, final test, warehousing and shipping. We depend on these parties to supply us with material of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in the quantity required, which in turn could cause an unanticipated decline in our sales and possibly damage our customer relationships. An economic slowdown such as the current economic recession could adversely affect the financial strength of our vendors and adversely impact their ability to manufacture product, resulting in a shortage or delay in product shipments to our customers.

Our products are manufactured at a limited number of locations. If we experience manufacturing problems at a particular location or with a particular supplier, we would be required to transfer manufacturing to a backup supplier. Converting or transferring manufacturing from a primary supplier to a backup fabrication facility could be expensive and could take as long as six to 12 months. During such a transition, we would be required to meet customer demand from our then-existing inventory, as well as any partially finished goods that can be modified to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be able to meet customer needs during such a transition, which could delay shipments, cause a production delay or stoppage for our customers, result in a decline in our sales and damage our customer relationships. Should we be required to manufacture safety stock and finished goods to insure against any supply interruptions to our customers, there is no guarantee that our customers would necessarily purchase the extra material and excess inventory may result. There is no guarantee we would be able to sell that excess inventory to other customers and we may have to write-off this material as an expense adversely affecting our financial performance.

In addition, a significant portion of our sales are to customers that practice just-in-time order management from their suppliers, which gives us a very limited amount of time in which to process and complete these orders. As a result, delays in our production or shipping by the parties to whom we outsource these functions could reduce our sales, damage our customer relationships and damage our reputation in the marketplace, any of which could harm our business, results of operations and financial condition.

The loss of any of our key personnel could seriously harm our business, and our failure to attract or retain specialized technical and management talent could impair our ability to grow our business.

The loss of services of one or more of our key personnel could seriously harm our business. In particular, our ability to define and design new products, gain new customers and grow our business depends on the continued contributions of Richard K. Williams, our President, Chief Executive Officer and Chief Technical Officer, as well as our senior level sales, finance, operations, technology and engineering personnel. Our future growth will also depend significantly on our ability to recruit and retain qualified and talented managers and engineers, along with key manufacturing, quality, sales and marketing staff members. There remains intense competition for these individuals in our industry, especially those with power and analog semiconductor design and applications expertise. We cannot assure you we will be successful in finding, hiring and retaining these individuals. If we are unable to recruit and retain such talent, our product and technology development, manufacturing, marketing and sales efforts could be impaired.

In economic downturns where consumer demand for our customer’s products is reduced or delayed, we expect lower revenue and reduced profitability. In response to these downturns, we may implement certain cost reduction actions including spending controls, forced holidays and company shutdowns, employee layoffs, shortened work-weeks, and involuntary salary reductions. It is uncertain what affect such measures may have on our ability to retain key talent and staff members, or our ability to rehire employees should business improve. For example, in December 2008, we reduced our headcount by 12% globally and announced employee salary reductions. It is unclear what long term affect these actions may have on our ability to recruit and retain engineering, sales and managerial talent.

Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our future effective tax rates could be adversely affected by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. Further, as a result of certain ongoing employment and capital investment commitments made by us, our income in certain countries is subject

to reduced tax rates, and in some cases is wholly exempt from tax. Our failure to meet such commitments could adversely impact our effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. If we are unable to comply with domestic and international tax laws, our tax rate and our financial condition may be adversely impacted. Further, the domestic and international tax laws governing our structure are subject to change, which could adversely affect our operations and financial results. We are currently undergoing an audit by the Internal Revenue Service for our 2005, 2006 and 2007 tax years. In connection with this audit, the IRS could challenge certain tax positions regarding our international structure. If such a challenge is successful, our financial results and financial condition could be materially and adversely affected.

We compete against companies with substantially greater financial and other resources, and our market share or gross margins may be reduced if we are unable to respond to competitive challenges effectively.

The analog, mixed-signal, or analog with digital, and power management semiconductor industry in which we operate is highly competitive and dynamic, and we expect it to remain so. Our ability to compete effectively depends on defining, designing and regularly introducing new products that meet or anticipate the power management needs of our customers’ next-generation products and applications. We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other resources with which to pursue marketing, technology development, product design, manufacturing, quality, sales and distribution of their products.

We consider our primary competitors to be Maxim Integrated Products, Inc., Linear Technology Corporation, Intersil Corporation, Texas Instruments Incorporated, Semtech Corporation and National Semiconductor Corporation. We expect continued competition from existing competitors as well as from new entrants into the power management semiconductor market. Our ability to compete depends on a number of factors, including:

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our success in identifying new and emerging markets, applications and technologies, and developing power management solutions for these markets;

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our products’ performance and cost effectiveness relative to that of our competitors’ products;

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our ability to deliver products in large volume on a timely basis at a competitive price;

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our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;

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our ability to recruit application engineers and designers; and

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our ability to protect our intellectual property.

We cannot assure you that our products will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by our existing competitors or new companies entering this market.

Intellectual property litigation could result in significant costs, reduce sales of our products and cause our operating results to suffer.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We have in the past received, and expect that in the future we may receive, communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following:

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stop selling products or using technology that contain the allegedly infringing intellectual property;

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incur significant legal expenses;

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pay damages to the party claiming infringement;

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redesign those products that contain the allegedly infringing intellectual property; and

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attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

We initiated a lawsuit against Linear Technology Corporation in February 2006 for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement.

Uncertainty over the outcome of our litigation with Linear Technology may cause our customers or potential customers to elect not to include our products that are the subject of this litigation into the design of their systems. Once a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system, because changing suppliers can involve significant cost, time, effort and risk for our customers. As a result, our litigation with Linear Technology or any similar future litigation may result in significantly increased expenses on a quarterly basis. If we are unsuccessful in any such litigation, our business and our ability to compete in foreign markets could be harmed, and we could be enjoined from selling the accused products, either directly or indirectly, which could have a material adverse impact on our revenues, financial condition, results of operations and cash flows.

Our failure to protect our intellectual property rights adequately could impair our ability to compete effectively or to defend ourselves from litigation, which could harm our business, financial condition and results of operations.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements to protect our proprietary technologies and know-how. While we have more than 110 patents issued or allowed in the United States or foreign countries and a larger number of pending applications, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents could be challenged or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is generally not as comprehensive as our United States patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. Many United States-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products.

Monitoring unauthorized use of our intellectual property is difficult and costly. It is possible that unauthorized use of our intellectual property may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could harm our business, results of operations and financial condition. We may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.

Any acquisitions we make could disrupt our business, result in integration difficulties or fail to realize anticipated benefits, which could adversely affect our financial condition and operating results.

We may choose to acquire companies, technologies, assets and personnel that are complementary to our business, including for the purpose of expanding our new product design capacity, introducing new design, market or application skills or enhancing and expanding our existing product lines. In October 2006, we acquired Analog Power Semiconductor Corporation and related assets and personnel, primarily located in Shanghai, China. In June 2008, we acquired Elite Micro Devices, located in Shanghai, China. Acquisitions involve numerous risks, including the following:

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difficulties in integrating the operations, systems, technologies, products and personnel of the acquired companies;

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diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;

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difficulties in entering markets in which we may have no or limited direct prior experience and where competitors may have stronger market positions;

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the potential loss of key employees, customers, distributors, suppliers and other business partners of the companies we acquire following and continuing after announcement of acquisition plans;

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improving and expanding our management information systems to accommodate expanded operations;

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insufficient revenue to offset increased expenses associated with acquisitions; and

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addressing unforeseen liabilities of acquired businesses.

Acquisitions may also cause us to:

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issue capital stock that would dilute our current stockholders’ percentage ownership;

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use a substantial portion of our cash resources or incur debt;

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assume liabilities;

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record goodwill or incur amortization expenses related to certain intangible assets; and

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incur large and immediate write-offs and other related expenses.

Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, and our failure to realize these benefits could adversely affect our business. In addition, we may not be successful in identifying future acquisition opportunities or in consummating any acquisitions that we may pursue on favorable terms, if at all. Any transactions that we complete may impair stockholder value or otherwise adversely affect our business and the market price of our stock. Failure to manage and successfully integrate acquisitions could materially harm our financial condition and operating results.

Our operating results, financial condition and cash flows may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry.

The semiconductor industry has historically exhibited cyclical behavior which at various times has included significant downturns in customer demand. These conditions have caused significant variations in product orders and production capacity utilization, as well as price erosion. Because a significant portion of our expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses rapidly enough to offset any unanticipated shortfall in revenues. If this situation were to occur, it could adversely affect our operating results, cash flow and financial condition.

Additionally, general worldwide economic conditions have recently experienced a downturn due to slower economic activity, concerns about inflation and deflation, fears of recession, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the wired and wireless communications markets, recent international conflicts and terrorist and military activity and the impact of natural disasters and public health emergencies. Our operations and performance depend significantly on worldwide economic conditions and their impact on consumer spending, which has recently deteriorated significantly in many countries and regions, including the United States and Asia, and may remain depressed for the foreseeable future. For example, some of the factors that could influence consumer spending include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. In addition, these conditions make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause United States and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. We cannot

predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the economy or markets in which we operate do not continue at their present levels, our business, financial condition and results of operations will likely be materially and adversely affected.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our 2009 annual meeting of stockholders was held on May 27, 2009 to consider and vote upon three matters. The first matter related to the election of two Class I director nominees, Richard K. Williams and Jaff Lin, to serve for a term of three years until the date of our 2012 Annual Meeting of Stockholders or in the event that the nominees become unavailable or decline to serve as a director duly elected and qualified. The votes cast and withheld for such nominees were as follows:


Name	For	Withheld
Richard K. Williams	22,135,695	17,283,028
Jaff Lin	18,513,499	20,905,224

In addition to the recently elected directors, Samuel Anderson, Thomas Weatherford, Thomas Redfern and Chandramohan Subramaniam continued as directors after the 2009 Annual Meeting of Stockholders.

The second matter related to the ratification of the appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, 2009. 38,822,879 votes were cast for ratification, 594,555 votes were cast against, and there were 1,289 abstentions and no broker non-votes.

The third matter related to the approval of the amendment and restatement of the 2005 Equity Incentive Plan for purposes of Section 162(m) of the Internal Revenue Code. 13,707,131 votes were cast for the approval, 18,386,018 votes were cast against, and there were 53,750 abstentions and no broker non-votes.

Based on these voting results, each of the directors nominated was elected, the second matter to approve Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, 2009 passed, and the amendment and restatement of the 2005 Equity Incentive Plan did not pass.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS


31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

SIGNATURE

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.


	ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

Dated: October 5, 2009	By:	/s/ B RIAN R. M C D ONALD
		Brian R. McDonald
		Chief Financial Officer, Vice President of Worldwide Finance and Secretary

EXHIBIT INDEX


31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.