10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended September 30, 2008

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

For the transition period from              to              .

Commission file number 000-31089

Virage Logic Corporation

(Exact name of registrant as specified in its charter)

Delaware	77-0416232
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

47100 Bayside Parkway, Fremont, California 94538

(Address of principal executive offices)

Registrants’ telephone number, including area code:

(510) 360-8000

Securities registered pursuant to Section 12(b) of the Act:

Common stock, $0.001 par value

(Title of class)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨ (Do not check if a smaller reporting company) Small reporting company  ¨

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

The aggregate market value of the issuer’s common stock held by non-affiliates as of March 31, 2008 was approximately $62 million based upon the closing price reported for such date on the Nasdaq Global Market. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by officers and directors of the issuer have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant’s Common Stock outstanding as of November 30, 2008 was 23,734,871.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for its 2009 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K as noted.

VIRAGE LOGIC CORPORATION

INDEX TO

ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED SEPTEMBER 30, 2008

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Consolidated Financial Data	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 8.	Financial Statements and Supplementary Data	52
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	52
Item 9A.	Controls and Procedures	53
PART III
Item 10.	Directors and Executive Officers of the Registrant	55
Item 11.	Executive Compensation	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13.	Certain Relationships and Related Transactions and Director Independence	55
Item 14.	Principal Accountant Fees and Services	55
PART IV
Item 15.	Exhibits and Financial Statement Schedules	56
SIGNATURES		88

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PART I

With the exception of statements of historical fact, all statements made in this report on Form 10-K, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements relating to strategy, products, customers, business prospects, relationships and trends. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential,” or “continue,” the negative of these terms or other comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties which might cause actual results to differ materially from those expressed or implied by such statements. These risks include an ability to forecast our business, including our revenue, income and order flow outlook, to meet financial expectations, to deliver products that meet customer specifications, to deliver our customized products in the time-frame demanded by our customers, to execute on our strategy of serving as the semiconductor industry’s trusted provider of a broad line of semiconductor IP products, to continue to develop new products and maintain and develop new relationships with pure-play foundries, integrated device manufacturers, and fabless companies, to overcome the challenges associated with establishing licensing relationships with semiconductor companies, to obtain royalty revenues from customers in addition to license fees, to receive accurate information necessary for calculation of royalty revenues and to collect royalty revenues from customers, business and economic conditions generally and in the semiconductor industry in particular, pace of adoption of new technologies by our customers, competition in the market for semiconductor IP, and other risks and uncertainties including those set forth below under “Risk Factors”. These forward-looking statements speak only as of the date hereof; we do not intend, and undertake no obligation to release publicly any updates or revisions to any forward-looking statements contained herein. The discussion of our financial condition and results of operations in this report on Form 10-K should be read together with the consolidated financial statements and the notes thereto included elsewhere in this filing.

Item 1. Business

General

Founded in 1995, Virage Logic Corporation (Virage Logic or the Company) provides semiconductor intellectual property (IP) and services to more than 350 semiconductor companies worldwide. Historically we were primarily engaged in the development and marketing of embedded memory IP products. After the acquisition of In-Chip Systems, Inc. (In-Chip Systems or In-Chip) in May 2002, we expanded our physical IP product offering to also include standard cell logic component products. In August 2007, we acquired Ingot Systems, Inc. (Ingot Systems or Ingot), a privately held provider of functional, or application specific IP (ASIP), including Double Data Rate (DDR) memory controllers, Physical Interfaces (PHYs), and Delay Locked Loops (DLLs). In June 2008, we further expanded our product portfolio when we acquired the non-volatile embedded memory (NVM) IP business of Impinj Inc. (Impinj). Impinj’s AEON^® product line complements Virage Logic’s NOVeA^® NVM products and essentially establishes Virage Logic as the multiple-time programmable NVM market leader. The continuing expansion of our product portfolio positions us to be even more attractive to our customers’ semiconductor design efforts by providing high value IP across a broad spectrum of the functional elements of the chip, made available on a broad offering of technology nodes and manufacturing processes.

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

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Our customers include leading fabless semiconductor companies such as 3Leaf Systems (3Leaf), Agilent Technologies, Inc. (Agilent), Broadcom Corporation (Broadcom), Conexant Systems, Inc. (Conexant), Ikanos Communications Inc. (Ikanos), Kawasaki Microelectronics (K-Micro), LSI Corporation (formerly LSI Logic and Agere), Marvell Technology Group, Ltd (Marvell), Movidia, Ltd (Movidia), NextIO, Inc (NextIO), PMC-Sierra, Inc. (PMC-Sierra), TranSwitch Corporation (TranSwitch), Thomson Silicon Components (Thomson), and Via Technologies, Inc. (Via Technologies) as well as leading integrated device manufacturers (IDMs) such as Analog Devices, Inc. (ADI), Atmel Corporation (Atmel), Avago Technologies (Avago), Freescale Semiconductor, Inc. (Freescale), Infineon Technologies, Inc. (Infineon), NEC Corporation (NEC), NXP (formerly Philips Semiconductor B.V.), Sharp Electronics Corporation (Sharp), Sony Corporation (Sony), STMicroelectronics (STMicro), Texas Instruments (TI), and Toshiba Corporation (Toshiba). Finally, we have strategic commercial relationships with semiconductor foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), Chartered Semiconductor Manufacturing (Chartered), Dongbu HiTek Ltd. (Dongbu HiTek), Grace Semiconductor (Grace), HeJian Technology (HeJian), IBM Corporation (IBM), MagnaChip Semiconductor (MagnaChip), SilTerra Malaysia Sdn. Dhd. (SilTerra), Silicon Manufacturing International Corporation (SMIC), Tower Semiconductor, Ltd. (Tower), and United Microelectronics Company (UMC).

We develop our embedded memory, logic, NVM, DDR PHY, and DLL products to comply with the silicon manufacturing processes used for our customers’ products. For our integrated device manufacturer customers, we develop our products to comply with the processes used by their internal manufacturing facilities. For our fabless semiconductor customers, we develop our products to comply with the processes of the pure-play semiconductor manufacturing facilities or foundries, which these companies rely on to manufacture the integrated circuits (ICs) for their products. We also pre-test certain products before their release to the market by designing and manufacturing specialty ICs containing our semiconductor IP targeted for specific processes, so that we can provide our customers with silicon data and help ensure that ICs designed with our semiconductor IP will be manufacturable, while providing desired production yields. Our products are certified for production by several of the established pure-play foundries such as Chartered, IBM, TSMC, and UMC, as well as some of the emerging pure-play foundries such as Dongbu HiTek, Grace, HeJian, MagnaChip, SilTerra, SMIC, and Tower that are used by fabless semiconductor companies. Because we ensure that certain products are silicon-proven and production ready, our customers can proceed with confidence and benefit from shorter design times for new product development and reduced design and manufacturing costs.

Corporate Information

We incorporated in California on November 27, 1995. We reincorporated in Delaware on July 25, 2000. Our principal executive offices are located at 47100 Bayside Parkway, Fremont, California 94538. Our telephone number is (510) 360-8000. Our website address is www.viragelogic.com. Information on our website is not intended to be part of this report. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or otherwise furnish it to, the Securities and Exchange Commission, or the SEC.

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.

Industry Background

The proliferation of consumer and wireless products, the growth of the Internet, and the development of higher speed computers and more robust visual communication systems as well as the increasing electronics content in automotive and defense applications, is creating demand for electronic devices that offer higher

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complexity and higher performance while consuming less power in order to meet complex functional requirements. The designers of these products are seeking semiconductor process technologies that will enable them to minimize the power, decrease the size, reduce the manufacturing costs and enhance the performance of their products. In response to this demand, semiconductor companies have developed technologies that permit entire electronic systems, including the microprocessor, communications, custom function logic, graphics and memory elements, to be contained on a single silicon chip, called System-on-Chip (SoC), rather than on a circuit board.

Successful SoC design depends upon the reliable integration of the various components of the chip. Each component must comply with the manufacturing standards, or design rules, of the manufacturing facility that will produce the chip. Since different technical expertise and IP is required for each component of a SoC, it is excessively expensive for many companies to internally develop all of the various IP needed for these components. In addition, the designers of products that use SoCs are facing increased market pressure to rapidly introduce new products, which shorten the time available for research and development involved in the design of a SoC and to reduce development costs. In order to meet the continuously increasing technical expertise requirements for the design of a SoC and the time constraints involved in such design, many semiconductor companies are focusing on their core competencies, or value-add, and are increasingly relying on external sources for the technical expertise and IP for various components of their SoC designs. The use of silicon-proven third party IP components helps enable semiconductor companies to meet market pressures while allowing them to continue to focus on the components of the SoC that constitute their core competencies.

The increasing demand for a broad range of consumer electronics, high-performance computing and communications applications and the availability of increased bandwidth for Internet applications has made memory an increasingly critical element of the overall operation of SoCs used for these applications. Historically, integrated circuit designs were dominated by the logic function, while memory storage was typically provided in external devices. However, the market demand for increased system operating speed and increasingly smaller consumer devices results in increased integration of the memory storage elements inside the SoCs, resulting in smaller, faster and more power efficient products. This trend of embedding memory also resulted in the requirement for more specialized memory elements. The need for this proximity, as well as advances in semiconductor technology and the ability to customize the size and configuration of memory functions within a SoC, is creating increased demand for embedded memory components. It is now common for SoCs to contain many memories with different functions configured in different sizes and shapes to optimize the area and functionality of the chip. The Semiconductor Industry Association (SIA) forecasts that the amount of area dedicated to memory in a typical SoC will grow to more than 80 percent by 2010.

Semiconductor companies face significant challenges in designing low power, high-performance and area efficient memories that can be easily integrated with other components for their SoC devices. Due to continuing advancements in the semiconductor manufacturing lithography processes, new circuit design elements have generally been required every few years. The internal design teams of semiconductor companies typically lack the dedicated resources necessary to keep pace with rapidly evolving memory design technology advancements. These factors have created a market need for third-party providers of highly reliable, low power, high-performance and area efficient IP components as memory and logic IP, as well as a variety of functional IP components such as high-speed interfaces, including highly complex memory controllers.

Finally, there are a number of markets–power management, secure media, wireless, sensors and precision analog–that are of significant interest to semiconductor manufacturers. These markets have two distinct characteristics in common: they are large, rapidly growing markets that drive wafer start demands at the world’s leading foundries and they demand features and functions facilitated by the addition of relatively small bit-count embedded NVM. To address this growing opportunity, in June 2008 Virage Logic acquired Impinj’s NVM IP business to complement its NOVeA^® NVM product line. Together, the combined product line establishes a broad logic NVM IP product portfolio ranging from 250- to 65-nanometer solutions, servicing markets ranging from high volume consumer and industrial to automotive and security conscious applications including military.

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The Virage Logic Strategy

Our objective is to be the premier broad line supplier of semiconductor IP solutions to the global semiconductor industry and our mission is to serve as the semiconductor industry’s trusted IP partner. With this in mind, in early fiscal 2007, the Company identified four key goals that provide the foundation for building a scalable, profitable business.

Build Virage Logic into the Company that is truly the Semiconductor Industry’s Trusted IP Partner

As the semiconductor industry continues to streamline and specialize in order to maximize differentiation and ultimately competitiveness and profitability, leading semiconductor companies are looking for reliable suppliers, or partners, that can become a virtual extension of their internal research and development (R&D) groups. As such, we have seen great opportunity for Virage Logic to serve as the semiconductor industry’s trusted IP partner. Over the last decade, we have become a highly specialized, and therefore highly efficient developer of semiconductor IP, and today more than 350 customers look to Virage Logic to provide much of the core building blocks of their SoC designs.

We intend to be a preferred IP supplier and trusted IP partner to the leading fabless semiconductor companies. Most fabless semiconductor companies, or semiconductor companies that do not internally manufacture their own silicon chips, spend substantial sums of money purchasing memory, logic and high speed interface elements for their chips because these elements may be outside of their core competencies. The leading fabless companies and integrated device manufacturers that are going “fab-lite” need access to physical IP very early in the life of a new process technology. In addition, leading foundries need reliable physical IP in order to offer manufacturing capabilities to their early adopters. Time-to-market pressure does not allow early adopters to wait for physical IP to be developed. For that reason, there is a need for strategic partnerships and concurrent development of manufacturing processes, physical IP and SoC designs. The concurrent nature of development does not allow for the traditional supplier-user relationship. It requires joint planning, collaboration and execution during the development process. For these reasons, collaborative partnerships between foundries, fabless companies, fab-lite integrated device manufacturers, and physical IP providers are a necessity for the successful introduction of advanced SoCs on advanced process nodes. In addition, early mainstream customers often need customization of standard physical IP in order to accommodate advanced product specifications. This customization requires a reliable IP partner that can respond in a timely fashion with predictable quality in order to achieve first time silicon success. As a result, Virage Logic has established itself as a trusted IP partner and has licensed its IP to many leading semiconductor companies and pure-play foundries.

We believe there are four key qualifications that enable us to serve as the semiconductor industry’s trusted IP partner:

• Technology Leadership—Engineering and R&D comprise more than 75 percent of our company’s headcount, which has enabled Virage Logic to establish a long history of being first-to-market with innovative, leading IP solutions. We have a proven track record of being first-to-market with products at the advanced manufacturing process technologies such as 65-nanometer, and 45/40-nanometer, and in the fourth quarter of fiscal 2008, we secured our first 32-nanometer customer. We were the first IP company with silicon-proven IP for TSMC’s 65-nanometer and 45/40-nanometer process and at 45/40-nanometer processes, TSMC named Virage Logic as their Early Development Partner. In addition to technology leadership, we have a proven record of technology innovation. Examples include the STAR™ Memory System, the industry’s first commercially available embedded self-test and repair memory system and NOVeA^®, the industry’s first commercially available non-volatile Flash memory on a standard CMOS logic process.

• Proven Execution—In early fiscal 2007 we made the decision to separate our R&D efforts from our Engineering activities and we established an Advanced Development group that is focused on building next generation standard products. These changes have enabled the Engineering group to accelerate the

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development of our standard, off-the-shelf products and allowed the R&D group to focus on advanced product technology development. In fiscal 2008, we have seen the benefits of this organizational structure in terms of a greater percentage of our revenues coming from standard products on advanced process nodes, which contribute higher gross margins, versus custom development projects.

• An Integral Part of the SoC Design and Manufacturing Ecosystem—as a provider of third-party semiconductor IP, we work closely with our partners–including Design Services, Electronic Design Automation (EDA) and Test, IP and Foundry companies–to help increase interoperability and provide access to complete solutions that enable mutual customers to reduce their design time and improve manufacturability of their electronics products.

We work with all of the established pure-play foundries to qualify our semiconductor IP for high-volume production in their manufacturing processes. In this manner, we are in a position to provide embedded memories, logic and DDR high-speed interface IP elements that are silicon-proven for a specific foundry’s manufacturing process, directly to that foundry’s customer base. Our close associations with these foundries also give us early access to information for advanced processes, thereby enabling us to be among the first-to-market products on smaller process geometries.

• Portfolio of Business and Engagement Models—We offer a variety of business and engagement models that offer fabless, IDM and foundry customers the flexibility to engage with us in a manner that is most beneficial for their business objectives. From a single transaction or project based engagement to a multi-year, multi-product engagement, we offer engagement models that suite the broad range of end-customer requirements.

Another example of our broad range of engagement models was developed in direct response to the emerging pure-play foundries’ desire to strengthen their competitive position by introducing an expanded distribution model. The “Foundry Sponsored” model was developed to enable emerging foundries to license Virage Logic’s IP platform–comprising embedded memories and logic libraries—and make it available free-of-charge to their end customers. Customers benefit with free access to Virage Logic’s advanced IP and have the option to tap into Virage Logic’s superior customer support services offering. When this was first introduced in 2005, Dongbu HiTek, SilTerra, SMIC, and Tower took advantage of the new Foundry Sponsored distribution model. Today, this model has been expanded and is being used in a targeted way at TSMC, UMC, and Chartered. We believe the expansion of our business model, from a customer-paid licensing and wafer-based royalty-bearing model to include an option for foundries to license and provide our IP free-of-charge, underscores the growing demand for our advanced process technology IP solutions and enables our foundry partners to better meet the needs of their global customers.

Make Virage Logic the Company that is Always First to Market

As semiconductor manufacturers develop advanced manufacturing processes that enable increasing density and speed as well as lower power consumption, we intend to lead the market for semiconductor IP components. We have assembled a global team of engineers to design and develop first to market semiconductor IP products for advanced manufacturing processes and we believe executing on this strategy should enable us to gain market share among early adopters of advanced processes. In fiscal 2008, we completed our first 32-nanometer test chip and secured our first 32-nanometer engagement with a major IDM. We believe these early achievements position us well to meet our customers’ requirements at this advanced process node. In addition, our fully productized 45/40-nanometer SiWare Memory and SiWare Logic offering saw early test chip silicon with good results and our early customers have taped out. We are also continuing to enhance our offering with our DDR product line. In fiscal 2008, we released a fully integrated DDR3 solution including a controller, PHY and I/O operating at 1.6GHz. As a result, we have a comprehensive DDR3 interface product in the market.

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Broaden Virage Logic’s Product Portfolio

We have a two pronged strategy that calls for the expansion of our product portfolio through both organic and inorganic growth. Our Advanced Development group is leading the organic or internal product development efforts while the acquisitions of Ingot Systems and its DDR IP business, and Impinj’s NVM IP business, exemplify how we have expanded, and intend to continue to expand, our product portfolio with complementary IP product offerings.

Build a Strong Demand Creation Capability

In fiscal 2008, we continued to improve overall efficiency and strengthen our global demand creation capability. We also continued to expand our existing distribution channels by both selectively hiring direct sales force members and signing on representatives to service key markets worldwide. Finally, we intend to continue developing partnerships with value-added-resellers and other distributors of IP through our Virage Logic IP (VIP) Partner Program to leverage their extensive United States and international sales organizations. As a result of these on-going initiatives, our license pipeline has grown throughout the year and we begin fiscal 2009 with a strong license opportunity pipeline.

In summary, we believe that by continuing to focus the Company on the four key goals outlined above, we will be able to more firmly establish Virage Logic as the semiconductor industry’s trusted IP partner.

The Virage Logic Overview

Founded in 1995, Virage Logic rapidly established itself as a technology and market leader in providing advanced embedded memory IP for the design of complex integrated circuits. In 2002, the Company acquired In-Chip Systems and added logic libraries to its growing product portfolio.

In 2005, to help SoC designers address the complex predictability and manufacturability challenges at advanced process nodes, Virage Logic pioneered a new class of semiconductor IP called Silicon Aware IP™. The Company’s Silicon Aware IP™ offering (embedded memories and logic libraries) incorporates silicon behavior knowledge for increased predictability and manufacturability. This intelligence includes hardware implementations for optimal yield in the design phase and extends to include test, repair, and diagnostics for manufacturability. Because Silicon Aware IP understands the behavior of silicon and is able to address post-silicon issues, it is key in helping designers maximize yield, increase test quality, increase reliability, speed time-to-volume, and improve overall manufacturability.

In 2007, through its acquisition of Ingot, Virage Logic further expanded its product offering to include Application Specific IP solutions such as DDR memory controllers and design services. This product line extended Virage Logic’s Silicon Aware IP offering into a new class of IP we call System Aware IP™. System Aware IP helps systems designers address the challenges of the environment–SoC core to interface, interface to package, package to board, and other SoCs–including the impact on the system behavior and performance. System Aware IP is designed to mitigate any impact the environment may have on the overall system to ensure performance and functionality requirements are met.

In June 2008, the Company acquired Impinj’s NVM IP business. The products from this business complement our NOVeA Non-Volatile Reprogrammable memory products and the purchase extends Virage Logic’s embedded memory leadership position into the rapidly growing NVM market for standard CMOS processes. In particular, the Impinj’s NVM IP broadens our reach into the higher density Few Times Programmable market, as well as the high voltage NVM market. Both products are critical for advanced semiconductor power management applications.

As the semiconductor industry’s trusted IP partner, foundries, IDMs and fabless customers rely on Virage Logic to achieve higher performance, lower power, higher density and optimal yield, as well as shorten time-to-market and time-to-volume. Our customers develop products for the consumer, communications and networking, hand-held and portable, computer and graphics, automotive and defense markets.

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The Company makes its products available for the manufacturing processes of both the established and emerging pure-play semiconductor foundries in order to provide customers with flexibility in manufacturing choices. Further, the Company uses its FirstPass-Silicon Characterization Lab™ for certain products to help ensure high quality, reliable IP across a wide range of foundries and process technologies. Finally, the Company prides itself on providing superior customer support and was named the 2006 Customer Service Leader of the Year in the Semiconductor IP Market by Frost & Sullivan.

Key benefits of Virage Logic’s solution include the following:

• Single Source Broad Line Supplier. The Company’s highly differentiated product portfolio includes embedded SRAMs, embedded NVMs, embedded test and repair, logic libraries, memory development software and DDR memory controller subsystems.

• Memory Design Expertise. Our memory design expertise allows us to provide our customers with leading-edge memory technologies for advanced manufacturing processes. We have assembled a global team of engineers focused exclusively on memory design. This team includes senior level engineers with significant expertise in various types of memory design, including SRAM, DRAM and NVM.

• Logic Design Expertise. Our Logic cell libraries are developed based on patented technology that addresses the key challenges of advanced manufacturing processes. We have a dedicated team of engineers focused exclusively on logic cell library research, development and design.

• Memory Controller Design Expertise. Through the acquisition of Ingot Systems in August 2007, we gained an engineering team specialized in the specification and design of highly efficient DDR memory controllers, a critical component for efficient utilization of on-board dynamic memory devices.

• Broad Product Line. We offer multiple types of memory compilers, logic libraries, DDRs, PHYs and DLLs for advanced 65-nanometer and 45/40-nanometer processes, along with the older 0.25 micron, 0.18 micron, 0.15 micron, 0.13 micron and 90-nanometer processes. Our compilers allow our customers to generate the specific configuration of embedded memory needed for their SoC designs. The increasingly smaller process geometries provide designers the opportunity for greater chip functionality as well as lower cost chips.

• Silicon Verified Solutions. Many of our physical IP products are verified and tested at a particular manufacturing process using specialized ICs (commonly referred to as silicon-proven), before being delivered to a customer. This verification substantially reduces the risk that the physical IP element will be incompatible with the host manufacturing process and thereby reduces development costs and manufacturing delays that our customers might experience when using IP that has not been silicon-proven. Our physical IP alone has been purchased by over 350 customers for manufacture at leading pure-play foundries and internal manufacturing processes.

Virage Logic’s Semiconductor IP Product Portfolio

We offer a wide range of semiconductor IP including the following:

• Embedded memories including SRAM and NVM;

• Logic libraries;

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

• Software development tools used to build memory compilers; and

• DDR memory controllers, PHYs and DLLs.

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Our Embedded Memory Semiconductor IP. We provide embedded memory semiconductor IP in predetermined shapes, sizes and types that can be incorporated by semiconductor designers into their SoC designs. We deliver our memory semiconductor IP to our customers through downloads from secure servers or on computer disks in a form that can be integrated directly into the design of the SoC.

Our Embedded Memory Compilers. A compiler is a software program that allows semiconductor designers to configure memories to the desired specifications for their SoC designs. Our compiler products include:

• SiWare™ Memory. The SiWare Memory product line of silicon aware compilers provides what we believe to be the world’s most power-optimized memories for advanced processes at 65-nanometer and 40-nanometer. These high performance memory compilers minimize both static and dynamic power consumption and provide optimal yields. SiWare Memory high-density compilers are optimized to generate memories with the absolute minimum area. SiWare Memory high-speed compilers are designed to help designers achieve the most aggressive critical path requirements.

• ASAP™ Memory. Virage Logic’s Area, Speed and Power (ASAP) Memory product line, targeted primarily for the more mature process nodes of 90-nanometer and above, provides the largest selection of embedded memories and includes high-density compilers optimized for area, high-speed compilers optimized for speed-critical applications, and ultra-low-power memory compilers optimized for battery-powered and hand-held applications.

• STAR™ Memory. The Self-Test and Repair (STAR) Memory product line, also targeted for the more mature process nodes of 90-nanometer and above, provides embedded memories designed for testability and manufacturability to optimize yield. Building on the ASAP Memory product line, STAR memories include redundancy capabilities for repair purposes. STAR Memory products are an integral component of the STAR Memory System.

• STAR™ Memory System. As the industry’s first commercially available integrated embedded memory test and repair system, the STAR Memory System provides a complete test and repair solution. The most recent release of the STAR Memory System features an open memory interface, giving SoC designers the freedom to use the system’s capabilities with their choice of Virage Logic memories, other commercially available third-party memories or internally developed embedded memories. Designers are able to optimize both time-to-market and time-to-volume requirements through a broad set of advanced capabilities which can help save millions of dollars in recovered silicon, substantially reduce test costs, and shorten time-to-volume.

• STAR™ Yield Accelerator. Virage Logic’s STAR Yield Accelerator delivers a complete solution for automated silicon verification, vector generation, silicon analysis, and yield ramping of embedded memories. Integrated with the industry leading STAR Memory System embedded test and repair solution, STAR Yield Accelerator can help dramatically reduce silicon time-to-test, time-to-product bring-up, and time-to-volume production.

• NOVeA^®. Provides embedded NVM on industry standard 180- to 90-nanometer CMOS processes, with no additional masks or special process steps required, at leading foundries and IDMs. Available from 32 to 16Kbits, NOVeA is ideal for implementing security and encryption keys for Digital Rights Management (DRM) in high volume consumer applications including set top boxes, DVD players/recorders, MP3 players, and Flash memory cards. NOVeA’s low power, compact design also makes it an ideal solution for passive RFID, analog trimming, Zigbee, device personalization and silicon repair.

• emPROM™ Memory System. The emPROM (embedded multi-time Programmable Read-Only Memory) Memory System provides high density embedded NVM on a standard CMOS process with no additional mask or process steps. Designed for secure, single-chip code storage applications, emPROM provides the low cost and high density of ROM with the flexibility of Flash.

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• AEON^®. This family of embedded NVM IP, added through the acquisition of Impinj’s NVM IP business in June 2008, provides rewriteable technology for logic CMOS manufacturing processes in high-volume consumer markets with multi-time programmable (MTP), few-times programmable (FTP), and high-voltage (HV) products.

Our Logic Semiconductor IP. We provide logic libraries through our SiWare™ Logic and ASAP™ Logic product lines. These products are designed to improve logic block area utilization and SoC performance while decreasing the price and power consumption of the overall chip. We deliver our logic semiconductor IP to our customers through the same manner as our embedded memory semiconductor IP.

• SiWare Logic. The SiWare Logic product line includes yield-optimized standard cells for a wide variety of design applications at 65-nanometer and 45-nanometer with multiple threshold process variants. SiWare Logic libraries are offered using three separate architectures to optimize circuits for ultra-high-density, high-speed, or general use. SiWare ultra-low-power extension libraries provide designers with the most advanced power management capabilities.

• ASAP Logic. Virage Logic’s ASAP Logic Standard Cell Libraries deliver up to 30 percent area improvement over conventional standard cells. The ASAP Metal Programmable Cell Libraries save configuration costs by reprogramming only a few masks. The ECO Cell Libraries use Virage Logic’s proprietary metal programmable technology to provide a high level of flexibility in implementing engineering changes in standard cell designs.

Our Software Development Tools. Our memory development environment, Embed-It!^®, offers a proven software suite for automated memory compiler development and memory instance distribution enabling designers to create solutions more rapidly. The software suite includes a comprehensive automated compiler and instance-based characterization tool to quickly and accurately measure a memory’s performance.

Our Application Specific IP Product Portfolio. Our Application Specific IP (ASIP) products are designed to meet the highest quality and performance standards for functional IP. Virage Logic ASIP products contain application specific functional IP targeted to a variety of market requirements. ASIP products are commonly based on Virage Logic’s proprietary and patented logic libraries, memory, routing methodology, and cell architecture.

• Intelli™ DDR—the Intelli DDR memory interface product family offers what we believe to be the highest performance, lowest latency intelligent memory controllers for DDR1, DDR2, and DDR3; the lowest power, highest bandwidth Mobile SDR, Mobile DDR and Low Power DDR (LPDDR) memory controllers; full featured Graphics DDR (GDDR) memory controllers; high-speed, full digital DDR SDRAM PHY+DLL solutions and memory models for popular DRAM parts.

• Intelli™ PHY+DLL—the Intelli PHY+DLL companion for the Intelli DDR memory product is a full-digital DDR SDRAM PHY+DLL hard macro (GDSII) solution optimized for high frequency operation, as well as small die size.

• Intelli™ Models—the Intelli Models provide flexible, easy to use, vendor independent simulation models for popular DRAM devices that enable designers to verify the functionality of an entire memory sub-system.

During fiscal year 2008, our license and maintenance revenue for 45-nanometer technology accounted for 21 percent of our total license and maintenance revenues, license and maintenance revenue for 65-nanometer technology was 36 percent of total license and maintenance revenue, license and maintenance revenue for 90-nanometer technology was 20 percent of total license and maintenance revenue, license and maintenance revenue for 0.13 micron technology was 9 percent of total license and maintenance revenue, license and maintenance revenue for 0.18 micron technology was 4 percent of total license and maintenance revenue and license and maintenance revenue from the sale of other products was 10 percent of total license and maintenance

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revenue. Included within the 10 percent other products category are our products on the older process nodes, 0.25 and 0.35 micron technology. We expect royalty revenue from these products to be declining and license revenue to be insignificant in future periods. During fiscal year 2007, our license and maintenance revenue for 0.18 micron technology accounted for 10 percent of our total license and maintenance revenues, license and maintenance revenue for 0.13 micron technology was 28 percent of total license and maintenance revenue, license and maintenance revenue for 90-nanometer technology was 36 percent of total license and maintenance revenue, license and maintenance revenue for 65-nanometer technology was 23 percent of total license and maintenance revenue and license and maintenance revenue from the sale of other products was 3 percent of total license and maintenance revenue. Included within the 3 percent other products category are our products on the older process nodes, 0.25 and 0.35 micron technology.

ASAP Memory, ASAP Logic, SiWare Memory, SiWare Logic, Silicon Aware IP, System Aware IP, STAR Memory System, STAR Memory, STARY Yield Accelerator, emPROM Memory System, Intelli DDR, Intelli PHY and Intelli DLL are trademarks of Virage Logic Corporation. AEON, Embed-It! and NOVeA are registered trademarks of Virage Logic Corporation in the United States.

Markets and Applications

We focus on markets and companies that utilize SoC technologies with high-performance, low power architectures and high-density requirements where we believe our semiconductor IP offering provides customers with significant time-to-market, design, and manufacturing cost advantages. Examples of the markets and applications in which our IP is implemented include the following:

• Consumer Products. Digital appliances increasingly require more functionality, Internet connectivity and low power consumption. Our IP can be found in video game players, cellular phones, MP3 players, PDAs, digital cameras, high-definition televisions, cable set-top boxes and DVD players.

• Communications and Networking Products. Communications and networking SoCs are used throughout the Internet, including in routers, switches, DSL modems, gigabit ethernet equipment, and high-bandwidth set-top boxes.

• Computers and Graphics Products. Computation and graphics equipment such as personal computers, workstations and servers require more complex chip sets and embedded memory to achieve new features, such as advanced 3D graphics and digital signal processing, or DSP.

• Security, Digital Rights Management (DRM), and Radio Frequency Identification (RFID) Products. With our NOVeA product, we are able to address customers’ needs for small amounts of embedded, multiple time programmable memories to enable DRM for such applications as wired and wireless network cards, secure memory cards, video games, DVD players and recorders, set-top boxes, PDAs, cellular phones, bridges and routers, DSL and cable modems, and Bluetooth enabled devices. Radio Frequency Identification applications require ultra-low-power and a small footprint. We believe that NOVeA provides the most cost-effective way to meet these requirements because it is available on standard CMOS logic processes.

• Automotive Products. By 2010, market forecasters predict that vehicles will be expected to have data connectivity while in motion and drivers will require ever increasing interaction with information such as infotainment, navigation, and traffic monitoring as well as assistance in complex or dangerous traffic situations such as with an automated emergency braking system. As the automotive industry looks to SoCs to provide this ever increasing set of functionalities, while reducing overall costs and handling the complexity of in-car electronic systems, our semiconductor IP is well suited to help them meet these SoC design requirements.

• Defense Products. Development of next generation of military, aerospace, security devices and special communications devices sponsored by government agencies, also known as high reliability devices, are increasingly based on complex SoCs due to the increased functionality requirements. We continue to experience increased interest and business opportunities in this market segment.

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Research and Development

We believe that our future success will depend in large part on our ability to continue developing new products and expanding our existing products for advanced manufacturing processes. To this end, we have assembled a team of engineers with significant experience in the design and development of semiconductor IP. Currently, we are focusing our research and development efforts on semiconductor IP products that support the latest manufacturing processes such as 65-nanometer, 45/40-nanometer and 32-nanometer.

We have entered into agreements with Chartered, Dongbu HiTek, Grace, IBM, SilTerra, SMIC, Tower, TSMC, and UMC for the development and licensing of various semiconductor IP products that are targeted to these foundries’ design rules. Leveraging our relationship with these foundries, we are able to shape the focus of our research and development activities. Under our agreement with each foundry, Virage Logic owns its own IP and the foundry owns its own IP, however, both Virage Logic and the foundry jointly own any IP that is co-developed by the parties during the term of the agreement. Following any such development, we license the developed IP to third-parties that manufacture their silicon chips at the foundry. As consideration for our development efforts, the foundries pay us licensing fees, as well as royalties based on silicon chips manufactured at the foundries using our semiconductor IP. In addition, both parties agree to provide technical, marketing and sales support as appropriate.

As of September 30, 2008, we had 334 employees focused in the engineering-related activities within research, development and operations. We expect to identify and hire additional technical personnel in fiscal year 2009 to fulfill anticipated future needs in our research and development activities, and we expect that these personnel related costs will increase in the future in order to maintain a lead position as a third-party provider of silicon infrastructure in the form of semiconductor IP.

Sales and Marketing

We are primarily engaged in direct sales in North America, Europe and Asia. In Asia, and more recently in Europe and North America, we also derive indirect sales through distributors or representatives. In fiscal 2009, we expect to expand our global sales channel with both direct sales staff and additional distributors or representatives.

Direct Sales. We maintain a network of direct sales representatives and field application engineers serving the United States, Asia, and Europe. Substantially all of our direct sales representatives and field application engineers are located in North America, Europe and Japan and serve our customers in those regions. The sales force is distributed throughout North America with employees in the following locations: Austin, Texas; Londonderry, New Hampshire; Fremont and Irvine, California; and West Palm Beach, Florida. To serve our European customers, we have a direct sales organization based in the United Kingdom and Israel. We also have direct sales personnel in Japan. Our sales force’s primary responsibility is to secure and maintain direct account relationships with fabless semiconductor companies and integrated device manufacturers for the license of our products. Developing a customer relationship typically involves weeks or months and can extend well beyond this timeframe.

Indirect Sales. In addition to our direct sales force, we also sell our technologies through distributors in China, Korea, Malaysia, Singapore, and Taiwan, and through representatives in Europe and in North America. These indirect sales organizations have expertise in selling semiconductor IP and software design tools. None of these relationships are exclusive.

We enter into license agreements with our customers for a range of embedded memory, logic library and memory controller technologies. For our ASAP Memory, ASAP Logic, SiWare Memory, SiWare Logic, and STAR Memory products, in addition to collecting license and consulting fees from the customers, we receive royalties from pure-play foundries that manufacture chips for our fabless customers. For our STAR Memory System and NOVeA products, we receive both license and royalty fees directly from our customers, as well as royalties from the pure-play foundries that manufacture their chips.

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We have developed relationships through the Virage Logic IP (VIP) Partner Program with the following types of companies:

• Pure-Play Foundries. We have entered into marketing and technology relationships with several pure-play foundries, including Chartered, Dongbu HiTek, Grace, HeJian, IBM, MagnaChip, SilTerra, SMIC, Tower, TSMC, and UMC. These strategic, collaborative relationships provide us with early access to new process technologies and endorsements from their direct sales force to our mutual customer base.

• EDA and Test Vendors. We have entered into joint marketing relationships with a number of electronic design automation (EDA) and test vendors, including Cadence Design Systems, Inc. (Cadence), Magma Design Automation, Inc. (Magma), Mentor Graphics Corporation (Mentor Graphics) and Synopsys, Inc. (Synopsys). These relationships allow us to validate our interoperability with these EDA vendors’ software design tools.

• Design Services. We have developed technology alliances with several design service companies, including Alchip Technologies, eSilicon, Global Unichip (GUC) and OpenSilicon, who have experience with Virage Logic semiconductor IP. This allows our customers to augment their design teams or outsource their chip designs to these design service companies.

• IP Providers. We have established technology and joint marketing relationships with numerous IP providers including ARC International plc (ARC), MIPS Technologies (MIPS), QualCore Logic (QualCore) and Tensilica, Inc. (Tensilica), and in some cases offer Virage Logic Core Optimized IP Kits that complement the microprocessor IP products these vendors provide. By working in partnership with other leading IP suppliers to test silicon and provide reference designs, we help customers access the functionality of the IP prior to committing it to their design.

Customers

Our customers are semiconductor companies that use our semiconductor IP to design complex SoCs. Purchasers of our semiconductor IP products include fabless semiconductor companies, integrated device manufacturers and pure-play foundries. For fabless semiconductor and integrated device manufacturer customers, we license our semiconductor IP on either a single or multiple-project basis. The following chart provides a representative list of our major customers by customer type.

Fabless Semiconductor Companies 2Wire, 3DLABS, Accel Semiconductor, Advanced Semiconductor Technology, Ltd., Advasense, Agilent, Alfred Mann Foundation, Applied Micro Circuits, Aquantia, Atheros Communications, Bay Microsystems, Beijing Innofidei, Beijing Tongfang Microelectronics Ltd., Brightscale, Brocade Communications Systems, Inc., Cambridge Silicon Radio (CSR), Cirrus Logic, Cisco Systems, ClariPhy Communications, Coherent Logix, Comsys Communication & Signal Processing, Cortina Systems, Cray, DSP Group, Dune Networks, Entropic Communications, ESS Technology, Focus Enhancements, Gennum, Gigle Semiconductor SL, Global Unichip, HISILICON Technologies, Hyperstone Electronics GmbH, Ikanos*, Integrated System Solutions, IntellaSys, Intersil, InvenSense, InVisage, K-Micro, Let it Wave, LSI*, Magnum Semiconductor, Marvell Semiconductor, Matrox Graphics, MediaTek, Mellanox Technologies, Micronas GmbH, Microsoft, Mitsumi Electric, Mobilygen, Movidia Ltd., MStar Semiconductor, M-Systems, Mtekvision, NemeriX SA, Neology, NetEffect, Newisys, NextIO, NexusChips, Novafora, NVIDIA, OmniVision Technologies, Oticon A/S, Oxford Semiconductor, Parkervision, picoChip Designs Limited, PLX Technology, PMC-Sierra, Princeton Technology, QuickLogic,

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Ralink Technology, Realtek Semiconductor, Redpine Signals, Richtek Technology, Rockwell Collins, SanDisk, Sensor Design Automation, Sensor Platforms, Sensory, SEQUANS Communications, Shenzhen Huawei Communications, SiCortex. Sigma Designs, Sigmatel, Silicon Image, Silicon Integrated Systems, Silicon Laboratories, Silicon Motion, Silicon Optix, Silicon Optix Canada, SiRF Technology, Sitronix Technology, Skymedi, Skyworks Solutions, SolarFlare Communications, Sony, Stretch, Sunplus Technology, Telegent Systems, Teradici, Teranetics, Thomson Multimedia, TranSwitch, Ubicom, Unisys, Verigy, Via Technologies, ViXS Systems, Wilocity, Wintegra, Xelerated AB, XMOS Limited, Yamaha, Zarlink Semiconductor AB

Integrated Device Manufacturers Advanced Micro Devices*, Analog Devices, Austria Micro Systems International AG, Avago Technologies, Canon, Conexant Systems, Cypress Semiconductor, Dallas Semiconductor, Freescale Semiconductor*, Fujitsu Ltd., IHP GmbH, Infineon Technologies AG, Integrated Device Technology, LG Electronics, MagnaChip Semiconductor, Matsushita Electric Industrial Co. Ltd., NEC Electronics*, NXP Semiconductors Netherlands BV, Oki Electric Industry Co. Ltd., ON Semiconductor, Renesas Technology, Sharp, STMicroelectronics SA, Texas Instruments, Toshiba

Pure-Play Foundries Chartered*, Dongbu HiTek, Grace, HeJian, IBM*, MagnaChip, SilTerra, SMIC, Tower*, TSMC*, UMC*

* Indicates the top ten customers that generated the highest level of revenues for us in fiscal year 2008.

We expect a small number of companies to collectively represent between 20% and 40% of our revenues for the next few years. In fiscal year 2008, 2007, and 2006, TSMC represented 11%, 11%, and 17% of our revenues, respectively. As our customer base grows and the number of fabless semiconductor companies increases, we expect our dependence on any one customer for revenues to decline. We expect that our sales to fabless semiconductor companies will grow, and as a result we will become more dependent on the availability of new manufacturing process technologies and capacity from pure-play foundries to manufacture our customers’ products.

Proprietary and Intellectual Property

We rely on a combination of nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary rights. Our general policy has been to seek patent protection for those inventions and improvements likely to be incorporated in our technologies or otherwise expected to be of value. We have an active program to protect our proprietary technology through the filing of patents.

As of October 31, 2008, we had 116 U.S. patents issued and 76 U.S. patent applications on file with the U.S. Patent and Trademark Office (USPTO). Our patents expire at various dates between 2019 and 2028, and we expect that once granted, the duration of patents covered by patent applications will be 20 years from the filing of the application. These patents will allow us to prevent others from infringing on some of our core technologies in the United States. We intend to continue to file patent applications as appropriate in the future. We cannot be sure, however, that our pending patent applications will be allowed, that any issued patents will protect our IP or will not be challenged by third parties, or that the patents of others will not seriously harm our ability to do

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business. In addition, others may independently develop similar or competing technology or design around any of our patents. We also have not secured patent protection in foreign countries, and we cannot be certain that the steps we have taken to protect our IP abroad will be effective.

In addition to patent protection, as of November 30, 2008, we had seven U.S. trademarks registered and two pending U.S. trademark applications on file with the USPTO. If the applications mature to registrations, these registrations would allow us to prevent others from using other confusingly similar marks on similar goods and services in the United States. We cannot be sure, however, that the USPTO will issue trademark registrations for any of our pending applications. Further, any trademark rights we hold or may hold in the future may be challenged or may not be of sufficient scope to provide meaningful protection. In addition, we had five foreign trademarks registered: two in the European Community, two in Japan and one in China.

We protect the source code of our technologies as both trade secrets and unpublished copyrighted works. We license the object code to our customers for limited uses and maintain contractual controls over the use of our software, but we may not have the resources to enforce such controls, and further such contractual controls may be declared invalid or unenforceable. Wide dissemination of our software makes protection of our proprietary rights difficult, particularly outside the United States, and we may not be able to assert equivalent rights with respect to source code developed by our employees in the Republic of Armenia (Armenia) and India as we could if it were developed in the United States.

We protect our trade secrets and other proprietary information through NDAs with our employees and customers and other security measures, although others may still gain access to our trade secrets or discover them independently.

Although we believe that our technologies do not infringe any patent, copyright or other intellectual proprietary rights of third parties, from time to time, third parties, which may include our competitors, may assert claims of infringement of patent, copyright or other IP rights to technologies that are important to us. There is no such claim to date.

Competition

The semiconductor IP industry is very competitive and is characterized by constant technological change, rapid rates of technology obsolescence and the emergence of new suppliers. Our primary competition comes from the internal development groups of large IDMs that develop semiconductor IP for their own use. In addition, we face competition from other third-party providers of semiconductor IP, such as ARM Ltd.’s Physical IP Division (formerly Artisan Components which was acquired by ARM in December 2004), Dolphin Technologies (Dolphin), and certain DRAM IP providers, such as MoSys, Inc. (MoSys). Additionally, electronic design automation companies such as Cadence Design Systems, Mentor Graphics, Magma Design Automation and Synopsys, Inc., could play a more significant role in the IP marketplace as they elect to either acquire third-party IP providers or develop their own IP product offerings. An example of this would be Synopsys’ acquisition of MOSAID Technologies, Inc., a provider of DDR memory controller, PHY and DLL semiconductor IP products. This product offering is competitive to the DDR, PHY and DLL product line that Virage Logic acquired through Ingot Systems.

Finally, pure-play foundries may decide to expand their distribution of embedded memories and logic libraries themselves, in addition to manufacturing chips containing third-party IP. TSMC, one of our pure-play foundry customers and strategic partner, has historically produced IP components for use by third-parties in designs to be manufactured at TSMC’s foundry. These components are designed to serve the same purpose as components produced by Virage Logic. The IP components developed by TSMC compete, and are expected to continue to compete with our products. We believe that TSMC is more aggressively developing and distributing these products to encourage its customers to use TSMC to manufacture their current and future designs. TSMC has substantially greater financial, manufacturing and other resources, name recognition and market presence

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than we do, and the internal design group at TSMC has greater access to technical information about TSMC’s manufacturing processes. If TSMC is successful in supplying its own IP components to third-parties, either directly or through distribution arrangements with other companies, our revenue from TSMC, our revenue from other customers and our operating results could be negatively affected.

We believe that important competitive factors in our market include performance and functionality of products, the ability to customize products for customer requirements, length of development cycle, price, compatibility with prevailing design methodologies, interoperability with other devices or subsystems, reputation for successful designs and installed base, overall product quality and reliability, and the level of technical service and support provided.

Employees

As of September 30, 2008, we had 412 employees, including 54 in sales and marketing, 297 in engineering, 37 in operations and 24 in general and administrative functions. A total of 233 of our employees are located outside of the United States. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor union, and we believe our employee relations are good.

Executive Officers

The names and ages of our executive officers as of November 30, 2008 are set forth below:

Name	Age	Position(s)
J. Daniel McCranie	65	Executive Chairman
Alexander Shubat	47	President and Chief Executive Officer
Brian Sereda	47	Vice President of Finance and Chief Financial Officer
Branimir Buric	59	Executive Vice President, Marketing

J. Daniel McCranie has served as our Executive Chairman again since October 2008. Previously, Mr. McCranie was our President and Chief Executive Officer from January 2007 to October 2008, our Executive Chairman from March 2006 to January 2007, and our Chairman of the Board of Directors from August 2003 to March 2006. Prior to this, Mr. McCranie was Vice President of Sales and Marketing for Cypress Semiconductor from September 1993 to February 2001. Mr. McCranie was Chairman, President and Chief Executive Officer of SEEQ Technology from February 1986 to September 1993. Mr. McCranie Currently serves as Chairman of the Board of Directors of ON Semiconductor Corp. and also as a member of the Board of Directors of Actel Company and a member of the Board of Directors of Cypress Semiconductor. Mr. McCranie holds a B.S. in Electrical Engineering from Virginia Polytechnic Institute.

Alexander Shubat co-founded Virage Logic. Dr. Shubat has served as our President and Chief Executive Officer since October 2008. Previously, Dr. Shubat was our Chief Operating Officer. Prior to this, Dr. Shubat served as our Vice President of Research and Development, Chief Technical Officer, and a member of the Board of Directors since January 1996. Before co-founding Virage Logic, Dr. Shubat was a Director of Engineering at Waferscale Integration from November 1985 to December 1995, where he managed various groups including design, application-specific integrated circuit and high-speed memory. He holds more than 20 patents and has contributed to more than 25 publications. Dr. Shubat holds a B.S. and a M.S. in Electrical Engineering from the University of Toronto, Canada, a Ph.D. in Electrical Engineering from Santa Clara University, and an executive MBA from Stanford University.

Brian Sereda joined Virage Logic as our Vice President of Finance and Chief Financial Officer in September 2008. Previously, Mr. Sereda was Chief Financial Officer and Treasurer at Proxim Wireless from June 2006 to September 2008. Prior to this, Mr. Sereda was Vice President of Finance and Corporate Controller

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for Portal Software. Mr. Sereda also held senior financial management positions with Credence Systems Corp, Handspring Inc., Sygen International, and Lam Research. Mr. Sereda holds a MBA degree from St. Mary’s College of California, a BSBA from Simon Fraser University, Vancouver, British Columbia, Canada and a Diploma of Technology in Petroleum Engineering from the British Columbia Institute of Technology, Vancouver, British Columbia, Canada.

Branimir Buric has served as our Executive Vice President of Marketing since September 2008. Prior to his current role, he served as our Vice President of Product Marketing, Senior Director of Strategic Business Solutions, and Senior Director of Business Development and IP Platform Marketing . Prior to joining Virage in May 2002, Mr. Buric was Vice President of Marketing and Business Development at In-Chip Systems. Mr. Buric also held senior management positions in marketing, business development and applications engineering with Sycon Design, Avant!, Meta Software, Mentor Graphics and Silicon Compiler Systems. Mr. Buric holds a B.S. in Electrical Engineering from University of Belgrade.

Item 1A. Risk Factors

Risk Related to Our Business

Inability or delayed execution on our strategy to be a leading provider of semiconductor IP could adversely affect our revenues and profitability.

Our product portfolio includes embedded SRAMs, embedded NVMs, embedded test and repair, logic libraries, memory development software and DDR memory controller subsystems. If our strategy to be a broad line provider of semiconductor IP is not widely accepted by potential customers or acceptance is delayed for any reason, our revenues and profitability could be adversely affected. In addition, our profitability could also be adversely affected due to investment of resources directed to the development and/or acquisition of additional semiconductor IP components and due to lower than anticipated revenues from the sale of such products. Factors that could prevent us from gaining market acceptance of our semiconductor IP products include the following:

• difficulties in convincing customers of our memory products to purchase other products from us;

• difficulties and delays in expanding our logic and I/O product offerings; and

• hurdles we may encounter in building and expanding customer relationships.

We may have difficulty sustaining profitability and may experience additional losses in the future.

We recorded net income of $554,000 for fiscal 2008 and net loss of $4.6 million for fiscal 2007. In order to continue to improve our profitability, we will need to continue to generate new sales while controlling our expenses. Any failure to increase our revenues and control costs as we pursue our planned growth would harm our profitability and would likely negatively affect the market price of our stock. In addition, if we incurred losses for a sustained period we may be prevented from being able to fully utilize our deferred tax assets which would result in the need for a valuation allowance to be recorded. In addition, general economic trends at present including the worldwide economic slowdown and tightening of the credit markets may impact the businesses of our customers, which could have an adverse impact on our revenue growth expectations and our financial condition and results of operations.

We intend to continue to engage in acquisitions, joint ventures and other transactions that may complement or expand our business. We may not be able to complete such transactions and such transactions, if executed, pose significant risks and could have a negative effect on our operations.

In each of fiscal 2007 and 2008 we made small acquisitions and concurrently hired a number of employees who provided services relevant to the business or assets acquired and we regularly consider other acquisition opportunities. Achievement of our business goals may be dependent on opportunities to buy other businesses or

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technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions for a variety of reasons, including our inability to structure appropriate financing for larger transactions. Any transactions that we are able to identify and complete may involve a number of risks, including the following:

• the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or technology;

• possible adverse effects on our operating results during the integration process; and

• our possible inability to achieve the intended objectives of the transaction.

In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing relationships and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations and the complexity of the technologies being integrated. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions. The inability of management to successfully integrate any future acquisition could harm our business.

If we are unable to continue establishing relationships on favorable contractual terms with semiconductor companies to license our IP, our business will be harmed.

We rely on license fees from the sale of perpetual and term licenses to generate a large portion of our revenues. These licenses produce streams of revenue in the periods in which the license fees are recognized, but are not necessarily indicative of a commensurate level of revenue from the same customers in future periods. In addition, our agreements with our customers do not obligate them to license new or future generations of our IP. As a result, the growth of our business depends significantly on our ability to expand our business with existing customers and attract new customers.

We face numerous challenges in entering into license agreements with semiconductor companies on terms beneficial to our business, including the following:

• the lengthy and expensive process of building a relationship with potential customers;

• competition with the customers’ internal design teams and other providers of semiconductor IP as our customers may evaluate these alternatives for each design; and

• the need to persuade semiconductor companies to rely on us for critical technology.

These factors may make it difficult for us to maintain our current relationships or establish new relationships with additional customers. Further, there are a finite number of fabless semiconductor companies and integrated device manufacturers to which we can license our IP. If we are unable to establish and maintain these relationships, we will be unable to generate license fees, and our revenues will decrease.

If we are unable to maintain existing relationships and/or develop new relationships with pure-play semiconductor manufacturers or foundries, we will be unable to verify our technologies on their processes and license our IP to them or their customers and our business will be harmed.

Our ability to verify our technologies for new manufacturing processes depends on entering into development agreements with pure-play foundries to provide us with access to these processes. In addition, we rely on pure-play foundries to manufacture our silicon test chips, to provide referrals to their customer base and

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to help define the focus of our research and development activities. We currently have foundry agreements with Chartered, Dongbu HiTek, SilTerra, SMIC, TSMC, and UMC. If we are unable to maintain our existing relationships with these foundries or enter into new agreements with other foundries, we will be unable to verify our technologies for their manufacturing processes and our ability to develop products for emerging technologies will be hampered. As of consequence, we would be unable to license our IP to fabless semiconductor companies that use these foundries to manufacture their silicon chips, which is a significant source of our revenues.

We must appropriately manage our relationships with foundries and other strategic partners in order to effectively execute on our business strategy.

In relying on pure-play manufacturing relationships and/our other strategic alliances, we face the following risks:

• reduced control over delivery schedules and product costs;

• manufacturing costs that may be higher than anticipated;

• inability of our manufacturing partners to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;

• decline in product reliability;

• inability to maintain continuing relationships with our pure-play manufacturers due to competition or market consolidation; and

• restricted ability to meet customer demand when faced with product shortages.

If any of these risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or adversely affect our business, financial condition and results of operations.

If we are unsuccessful in increasing our royalty revenues, our revenues and profitability may not grow as desired.

We have agreements with pure-play semiconductor foundries to pay us royalties on their sales of silicon chips they manufacture for our fabless customers. Beginning with our STAR™ Memory System and more recently with the introduction of our NOVeA^® technology, in addition to collecting royalties from pure-play semiconductor foundries, we intend to increase our royalty base by collecting royalties directly from our integrated device manufacturer and fabless customers. However, we may not be successful in convincing all customers to agree to pay us royalties. For the fiscal years ended September 30, 2008 and 2007, we recorded royalty revenues of approximately $12.1 million in each year. The growth of our revenues depends in part on increasing our royalty revenues, but we may not be successful in increasing our royalty revenues as expected and we face difficulties in forecasting our royalty revenues because of many factors beyond our control, such as fluctuating sales volumes of products that incorporate our IP, short or unpredictable product life cycles for some customer products containing our IP, potential slow down for manufacturing of certain newer process technology, foundry rate adjustments, the cyclical nature of the semiconductor industry that affects the number of designs, commercial acceptance of these products, accuracy of revenue reports received from our customers and difficulties in the royalty collection process. In addition, occasionally we have completed agreements whereby significant upfront license fees are reduced or limited in exchange for higher royalty rates, which should result in future royalty revenues, but these royalty arrangements may not provide us with the anticipated benefits as sales of products incorporating our IP may not offset lower license fees.

It is difficult for us to verify royalty amounts owed to us under our licensing arrangements.

The standard terms of our license agreements require our customers to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While standard license terms give us the right to audit the books and records of our customers to verify this information, audits can be

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expensive, time consuming and potentially detrimental to our ongoing business relationship with our customers. Our inability to audit all of our customers’ books and records may result in us receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. The results of such audits could also result in an increase, as a result of a customers’ underpayment, or decrease, as a result of a customers’ overpayment, to royalty revenues. Such adjustments, as a result of the audit, are recorded in the period they are determined. Any adverse material adjustments resulting from royalty audits may cause our revenues and operating results to be below market expectations, which could cause our stock price to decline. The royalty audit may also trigger disagreements over contractual terms with our customers and such disagreements could adversely affect customer relationship, divert the efforts and attention of our management from normal operations and impact our business operations.

We may be unable to deliver our customized memory, logic and I/O products in the time-frame demanded by our customers, which could damage our reputation and future sales.

A portion of our agreements require us to provide customized products to our customers within a specified delivery timetable. While we have experienced delays in delivering products to our customers, the durations of these delays have typically been short in length so as to not materially damage our relationship with our customers. However, these delays could adversely impact our operations and our financial performance. Future failures to meet significant customer milestones could damage our reputation in our industry and harm our ability to attract new customers.

We have a long and unpredictable sales cycle, which can result in uncertainty and delays in generating additional revenues.

It can take a significant amount of time and effort to negotiate a sale. Typically, it generally takes at least three to nine months after our first contact with a prospective customer before we start licensing our IP to that customer. In addition, purchase of our products is usually made in connection with new design starts, the timing of which is out of our control. Accordingly, we may be unable to predict accurately the timing of any significant future sales of our products. We may also spend substantial time and management attention on potential license agreements that are not consummated, thereby foregoing other opportunities.

Winning business is subject to a competitive selection process that can be lengthy and requires us to incur significant expense, and we may not be selected.

Our primary focus is on winning competitive bid selection processes, known as “design wins,” to develop products for use in our customers’ equipment. These selection processes can be lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Because we typically focus on only a few customers in a product area, the loss of a design win can sometimes result in our failure to offer a generation of a product. This can result in lost sales and could hurt our position in future competitive selection processes because we may be perceived as not being a technology leader.

After winning a product design for one of our customers, we may still experience delays in generating revenue from our products as a result of the lengthy development and design cycle. In addition, a delay or cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue. Finally, if our customers fail to successfully market and sell their equipment it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.

Products that do not meet customer specifications or contain material defects could damage our reputation and cause us to lose customers and revenue.

The complexity and ongoing development of our products could lead to design or manufacturing problems. Our semiconductor IP products may fail to meet our customers’ design or technical requirements, or may contain

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defects, which may cause our customers to fail to complete the design and manufacturing of their products in a timely manner. Any of these problems may harm our customers’ businesses. If any of our products fail to meet specifications or have reliability or quality problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenue, an increase in product returns and the loss of existing customers or failure to attract new customers. These problems may adversely affect customer relationships, as well as our business, financial condition and results of operations.

As advanced process nodes become more complex we may have difficulty in delivering product specifications in similar timeframes and at comparable costs to older process nodes.

The increasing complexity of our products at advanced nodes requires different customer engagements and validation strategies. Such changes require the acceptance of different business terms and schedules by our customers. They also may require an increase of test silicon for purposes of validating performance parameters. Such changes may impact our ability to acquire new customers and could increase our operating expenses.

Our international operations may be adversely affected by instability in the countries in which we operate.

We currently have subsidiaries or branches in Armenia, India, the United Kingdom, Israel, Germany and Japan. In addition, a significant portion of our IP is being developed in development centers located in Armenia and India. Israel continues to face a significant level of civic unrest. India is experiencing rising costs and in certain industries, intense competition for highly qualified personnel. Armenia has in recent years suffered significant political and economic instability. Accordingly, conditions in areas of the world in which we operate may adversely affect our business in a number of ways, including the following:

• changes in the political or economic conditions in Armenia and changes in the economic conditions in India and the surrounding region, such as fluctuations in exchange rates, changes in laws protecting IP, the imposition of currency transfer restrictions or limitations, or the adoption of burdensome trade or tax policies, procedures, rules, regulations or tariffs, changes in the demand for technical personnel could adversely affect our ability to develop new products, to take advantage of the cost savings associated with operations in Armenia and India, and to otherwise conduct business effectively in Armenia and India;

• our ability to continue conducting business in Israel and other countries in the normal course may be adversely affected by increased risk of social and political instability; and

• our Israeli customers’ demand for our products may be adversely affected because of negative economic consequences associated with reduced levels of safety and security in Israel.

Problems associated with international business operations could affect our ability to license our IP.

Sales to customers located outside North America accounted for 50% and 54% of our revenues for fiscal years ended September 30, 2008 and 2007, respectively. We anticipate that sales to customers located outside North America will continue to represent a significant portion of our total revenues in future periods. In addition, most of our customers that do not own their own fabrication plants rely on pure-play foundries located outside of North America. Accordingly, our operations and revenues are subject to a number of risks associated with doing business in international markets, including the following:

• managing distributors and sales partners outside the U.S.;

• staffing and managing non-U.S. branch offices and subsidiaries;

• political and economic instability;

• greater difficulty in collecting accounts receivable resulting in longer collection periods;

• foreign currency exchange fluctuations;

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• changes in tax laws and tariffs or the interpretation of such laws and tariffs;

• trade protection measures that may be adopted by other countries;

• compliance with, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar;

• timing and availability of export licenses;

• inadequate protection of IP rights in some countries;

• different labor standards; and

• United States government licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products.

If these risks actually materialize, our international operations may be adversely affected and sales to international customers, as well as those domestic customers that use foreign fabrication plants, may decrease.

We rely on a small number of customers for a substantial portion of our revenues and our accounts receivable are concentrated among a small number of customers.

We have been dependent on a limited number of customers for a substantial portion of our annual revenues in each fiscal year, although the customers comprising this group have changed from time to time. We have one customer that generated more than 10% of our revenue for fiscal 2008 and 2007. The license agreements we enter into with our customers do not obligate them to license future generations of our IP and, as a result, we cannot predict if and when they will purchase additional products from us. As a result of this customer concentration, we could experience a significant reduction in our revenues if we lose one or more of our significant customers and are unable to replace them. In addition, since our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity, financial position, or issues regarding timing of payments of any one of these customers could have a material adverse impact on the collectibility of our accounts receivable, revenues recorded and our future operating results.

Our quarterly operating results may fluctuate significantly and the failure to meet financial expectations for any fiscal quarter may cause our stock price to decline.

Our quarterly operating results are likely to fluctuate in the future from quarter to quarter and on an annual basis due to a variety of factors, many of which are outside of our control. Factors that could cause our revenues and operating results to vary materially from quarter to quarter include the following:

• large orders unevenly spaced over time, or the cancellation or delay of orders;

• pace of adoption of new technologies by customers;

• timing of introduction of new products and technologies and technology enhancements by us and our competitors;

• our lengthy sales cycle and fluctuations in the demand for our products and products that incorporate our IP;

• constrained or deferred spending decisions by customers;

• delays in new process qualification or verification;

• capacity constraints at the facilities of our foundries;

• inability to collect or delay in collection of receivables;

• the timing and completion of milestones under customer agreements;

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• the impact of competition on license revenues or royalty rates;

• the cyclical nature of the semiconductor industry and the general economic environment;

• consolidation, merger and acquisition activity of our customer base may cause delays or loss of sales;

• the amount and timing of royalty payments;

• changes in development schedules; and

• R&D expenditures.

As a result, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and may not be reliable as indicators of future performance. These factors make it difficult for us to accurately predict our revenues and operating results and may cause them to be below market analysts’ expectations in some quarters, which could cause the market price of our stock to decline.

If we are unable to effectively manage our growth, our business may be harmed.

Our future success depends on our ability to successfully manage our growth. Our ability to manage our business successfully in a rapidly evolving market requires an effective planning and management process. Our customers rely heavily on our technological expertise in designing and testing our products. Relationships with new customers may require significant engineering resources. As a result, any increase in the demand for our products will increase the requirements on our personnel, particularly our engineers.

Our historical growth, international expansion, and our strategy of being the semiconductor industry’s trusted IP partner, have placed, and are expected to continue to place, a significant challenge on our managerial and financial resources as well as our financial and management controls, reporting systems and procedures. Although some new controls, systems and procedures have been implemented, our future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information and control systems on a timely basis, together with maintaining effective cost controls. Our inability to manage any future growth effectively would be harmful to our revenues and profitability.

We have received assessment orders from the Government of India, Income Tax Department, Office of the Director of Income Tax (Indian Tax Authorities) proposing a tax deficiency in certain of our tax returns, and the outcome of the assessment or any future assessment involving similar claims may have an adverse effect on our consolidated statements of operations.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2001 through 2006 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency for the five year period of approximately $1.0 million, net of deposits of $260,000 as required by the Indian Tax Authorities. Interest will continue to accrue until the matter is resolved. The assessment orders are not final notices of deficiency, and we have immediately filed appeals to the appellate tax authorities. We believe that the assessments are inconsistent with the applicable tax laws and that we have meritorious defense to the assessments. However, the ultimate outcome cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations in future periods that could have an adverse effect on our consolidated statements of operations.

We may be unable to attract and retain key personnel who are critical to the success of our business.

We believe our future success depends on our ability to attract and retain engineers and other highly skilled personnel and senior managers. In addition, in order to grow our business we must increase our sales force, both domestic and international, with qualified employees. Hiring qualified technical, sales and management personnel is difficult due to a limited number of qualified professionals and competition in our industry for these

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types of employees. We have in the past experienced delays and difficulties in recruiting and retaining qualified technical and sales personnel and believe that at times our employees are recruited aggressively by our competitors and start-up companies. Our employees are “at will” and may leave our employment at any time, and under certain circumstances, start-up companies can offer more attractive equity incentives than we offer. As a result, we may experience significant employee turnover. Failure to attract and retain personnel, particularly sales and technical personnel would make it difficult for us to develop and market our technologies.

We may need additional capital that may not be available to us and, if raised, may dilute our stockholders’ ownership interest in us.

We may need to raise additional funds to fund growth of our business and any acquisitions we may pursue, to respond to competitive pressures or to acquire complementary products or technologies. Additional equity or debt financing may not be available on terms that are acceptable to us. If we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our stockholders would be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. If adequate funds are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance our products or services, or otherwise respond to competitive pressures would be significantly limited.

Risk Related to Our Industry

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. We have experienced these conditions in our business in the past and may experience such downturns in the future. We may not be able to manage these downturns. Any future downturns of this nature could have a material adverse effect on our business, financial condition and results of operations.

If demand for products incorporating complex semiconductors and semiconductor IP does not increase, our business may be harmed.

Our business and the adoption and continued use of our IP by semiconductor companies depends on continued demand for products requiring complex semiconductors, embedded memories and logic elements, such as cellular and digital phones, pagers, PDAs, digital cameras, DVD players, switches and modems. The demand for such products is uncertain and difficult to predict, and it depends on factors beyond our control such as the competition faced by each customer, market acceptance of products that incorporate our IP and the financial and other resources of each customer. A reduction in the demand for products incorporating complex semiconductors and semiconductor IP or a decline in the general economic environment which results in the cutback of research and development budgets or capital expenditures would likely result in a reduction in demand for our products and could harm our business. In addition, with increasing complexity in each successive generation of semiconductors, we face the risk that the rate of adoption of smaller technology processes may slow down.

In addition, the semiconductor industry is highly cyclical. Significant economic downturns characterized by diminished demand, erosion of average selling prices, production overcapacity and production capacity constraints are other factors affecting the semiconductor industry. As a result, we may face a reduced number of design starts, tightening of customers’ operating budgets, extensions of the approval process for new orders and projects and consolidation among our customers, all of which may adversely affect the demand for our products and may cause us to experience substantial period-to-period fluctuations in our operating results.

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The market for semiconductor IP can be highly competitive and dynamic. We may experience loss in market share to larger competitors with greater resources and/or our customer base may choose to develop semiconductor IP using their own internal design teams.

We face competition from both existing suppliers of third-party semiconductor IP, as well as new suppliers that may enter the market. We also compete with the internal design teams of large, integrated device manufacturers. Many of these internal design teams have substantial programming and design resources and are part of larger organizations with substantial financial and marketing resources. These internal teams may develop technologies that compete directly with our technologies or may actively seek to license their own technologies to third parties, which could negatively affect our revenue and operating results. In addition, our existing customers may choose to develop their own technology solutions internally.

Many of our existing competitors have longer operating histories, greater brand recognition and larger customer bases, as well as greater financial and marketing resources, than we do. This may allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources than we can to the development and promotion of their products. In addition, the intense competition in the market for semiconductor IP could result in pricing pressures, reduced license revenues, reduced margins or lost market share, any of which could harm our operating results and cause our stock price to decline.

The technology used in the semiconductor industry is rapidly changing and if we are unable to develop new technologies and adapt our existing IP to new processes, we will be unable to attract or retain customers.

The semiconductor industry has been characterized by an increasingly rapid rate of development of new technologies and manufacturing processes, rapid changes in customer requirements, frequent product introductions and ongoing demands for greater speed and functionality. Our future success depends on our ability to develop new technologies and introduce new products to the marketplace in a timely manner, and to adapt our existing IP to satisfy the requirements of new processes and our customers. If our development efforts are not successful or are significantly delayed, or if the enhancements or new generations of our products do not achieve market acceptance, we may be unable to attract or retain customers and our operating results could be harmed.

Our ability to continue developing technical innovations involves several risks, including the following:

• our ability to anticipate and respond in a timely manner to changes in the requirements of semiconductor companies;

• the emergence of new semiconductor manufacturing processes and our ability to enter into strategic relationships with pure-play semiconductor foundries to develop and test technologies for these new processes and provide customer referrals;

• the significant research and development investment that we may be required to make before market acceptance, if any, of a particular technology;

• the possibility that the industry may not accept a new technology or may delay use of a new technology after we have invested a significant amount of resources to develop it; and

• new technologies introduced by our competitors.

If we are unable to adequately address these risks, our IP will become obsolete and we will be unable to sell our products. Further, as new technologies or manufacturing processes are announced, customers may defer licensing our IP until those new technologies become available or our IP has been adopted for that manufacturing process.

In addition, research and development requires a significant expense and resource commitment. We may not have the financial and other resources necessary to develop the technologies demanded in the future and may be unable to attract or retain customers.

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General economic conditions and future terrorist attacks may reduce our revenues and harm our business.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Continued unrest in Israel and the Middle East may negatively impact the investments that our worldwide customers make in these geographic regions. If businesses or consumers defer or cancel purchases of new products that contain complex semiconductors, purchases by fabless semiconductor companies, integrated device manufacturers and production levels by semiconductor manufacturers could decline. This could adversely affect our revenues which in turn would have an adverse effect on our results of operations and financial condition.

Risk Related to Our Intellectual Property Rights

We rely on our proprietary technologies and we cannot assure you that the precautions taken to protect our rights will be adequate or that we will continue to be able to adequately secure such proprietary technologies from third parties.

We rely on a combination of patent, trademark, copyright, mask work and trade secret laws to protect our proprietary rights in our technologies. We cannot be sure that the United States Patent and Trademark Office will issue patents or trademarks for any of our pending applications. Further, any patents or trademark rights that we hold or may hold in the future may be challenged, invalidated or circumvented or may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us Furthermore, the laws of some foreign countries may not adequately protect our IP to the same extent as applicable laws protect our IP in the United States. For instance, some portion of our IP developed outside of the United States may not receive the same copyright protection that it would receive if it was developed in the United States. As we increase our international presence, we expect that it will become more difficult to monitor the development of competing technologies that may infringe on our rights as well as unauthorized use of our technologies.

We use license agreements, confidentiality agreements and employee nondisclosure and assignment agreements to limit access to and distribution of our proprietary information and to obtain ownership of technology prepared on a work-for-hire basis. We cannot be sure that we have taken adequate steps to protect our IP rights and deter misappropriation of these rights or that we will be able to detect unauthorized uses and take effective steps to enforce our rights. Since we also rely on unpatented trade secrets to protect some of our proprietary technology, we cannot be certain that others will not independently develop and patent the same technologies or otherwise acquire the same or substantially equivalent technologies or otherwise gain access to our proprietary technology or disclose that technology. We also cannot be sure that we can ultimately protect our rights to and improperly disclose our proprietary technologies to others.

Third parties may claim we are infringing or assisting others to infringe their IP rights, and we could suffer significant litigation or licensing expenses or be prevented from licensing our technology.

There are numerous patents in the semiconductor industry and new patents are being issued at a rapid rate. It is not always practicable to determine in advance whether our technologies infringe the patent right of others. As a result, we may be compelled to respond to infringement claims by third parties to protect our rights or defend our customers’ rights. These infringement claims, regardless of merit, could be costly and time-consuming, and divert our management and key personnel from our business operations. In settling these claims, we may be required to pay significant damages and may be prevented from licensing some of our technologies unless we enter into a royalty or license agreement. In addition, if challenging a claim is not feasible, we might be required to enter into royalty or license agreements. If available, the royalty or license agreement may include terms which require us to obtain a license from the third-party to sell or use the relevant technology which may result in significant expenses to the Company or to redesign the technology which would be time consuming and costly to the Company. In the event that we are not be able to obtain such royalty or license agreements on terms acceptable to us, we may be prevented from licensing or developing our technology.

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Risk Related to Our Stock

Our stock price may be volatile and could decline substantially.

The market price of our common stock has fluctuated significantly in the past, will likely continue to fluctuate in the future and may decline. Fluctuations or a decline in our stock price may occur regardless of our performance. Among the factors that could affect our stock price, in addition to our performance, are the following:

• variations between our operating results and the published expectations of securities analysts;

• changes in financial estimates or investment recommendations by securities analysts who follow our business;

• announcements by us or our competitors of significant contracts, new products or services, acquisitions, or other significant transactions;

• the inclusion or exclusion of our stock in various indices or investment categories, especially as compared to the investment profiles of our stockholders at a given time;

• changes in economic and capital market conditions;

• changes in business regulatory conditions; and

• the trading volume of our common stock.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock. Alexander Shubat, our President and Chief Executive Officer and a member of the Board of Directors, holds a large block of our common stock. Dr. Shubat has established a sales plan, or other sales accounts, to sell shares of our common stock and diversify his holdings. Significant sales by insiders, or the perception that large sales could occur, could adversely impact the public market for our stock. Sales transactions are also subject to the restrictions and filing requirements mandated by Securities and Exchange Commission Rule 144. Our officers, directors and principal stockholders controlled as of September 30, 2008 approximately 62% of our common stock. As a result, this significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages to owning stock in companies with significant block stockholders.

Our certificate of incorporation and bylaws as well as Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

Our certificate of incorporation, our bylaws and Delaware law contain provisions that make it more difficult for another company to acquire control of our Company. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. These provisions include:

• our Board of Directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

• our Board of Directors is staggered into three classes, only one of which is elected at each annual meeting;

• stockholder action by written consent is prohibited;

• nominations for election to our Board of Directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;

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• certain provisions in our bylaws and certificate may only be amended with the approval of stockholders holding 80% of our outstanding voting stock;

• the ability of our stockholders to call special meetings of stockholders is prohibited; and

• our Board of Directors is expressly authorized to make, alter or repeal our bylaws.

We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock. In addition, in February 2007, we executed change in control agreements with our executive officers, which provide severance benefits following a termination without cause, or for good reason, following a change in control. The existence of these agreements and potential pay-outs could act as a deterrent to a potential acquirer.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Facilities

Our principal administrative, sales, marketing and research and development facility is in Fremont, California, and occupies approximately 61,500 square feet. This facility is leased through June 2011. We also lease office space in Clinton, New Jersey that is occupied mainly by research and development and engineering personnel. The Clinton office, which occupies approximately 10,900 square feet, is leased through November 2010. In addition, we have development centers in Armenia and India. In September 2003, our development center in Armenia moved into a building owned by us. The office space is approximately 40,000 square feet and the total cost of the building was approximately $2.4 million. We have a development center in India located in Noida, near Delhi, which occupies approximately 26,000 square feet in a building leased with a lease term under which the Company has the right, but not the obligation, to occupy the facility through July 2009 which we expect to renew at the end of the lease term. Our other development center in India is located in Pune and occupies approximately 2,010 square feet in a building leased with a short-term lease through February 2009. In February 2009, we will move into new office space in Pune which occupies approximately 4,900 square feet with a lease term through June 2011. In October 2008, we entered into an office lease in Seattle, Washington for space that is occupied mainly by personnel from the NVM business segment acquired from Impinj earlier in the year. The Seattle office, which occupies approximately 8,000 square feet, is leased through October 2013.

Item 3. Legal Proceedings

We are a party to legal proceedings and claims of various types in the ordinary course of business. We believe based on information currently available to management that the resolution of such claims will not have a material adverse impact on our consolidated financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price and Dividends on Virage Logic Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol VIRL. The following table sets forth, for the periods indicated, the high and low closing sales prices for the common stock as reported on the NASDAQ Global Market.

	Fiscal Year 2008				Fiscal Year 2007
	High		Low		High		Low
First Quarter	$	8.69	$	7.80	$	9.96	$	8.65
Second Quarter		8.43		5.76		9.04		7.25
Third Quarter		7.20		5.42		7.92		6.79
Fourth Quarter		7.11		4.67		7.78		6.69

As of November 30, 2008, there were approximately 62 stockholders of record of our common stock.

The Company has never paid or declared any cash dividends on our common stock and does not anticipate paying cash dividends in the foreseeable future.

During the year ended September 30, 2008, we did not issue and sell any shares of common stock, or securities exercisable for or exchangeable into common stock, or any other securities that were not registered under the Securities Act of 1933.

On May 6, 2008, the Company adopted a stock repurchase program to purchase up to $20 million in shares of our common stock in the open market or negotiated transactions through May 2009. On August 4, 2008, 700,000 shares were repurchased in the open market at a price per share of $6.49 for an aggregate of $4.6 million.

In June 2008 the Company closed on a tender offer announced in May to exchange any or all outstanding options to purchase its common stock and Stock Settled Appreciation Rights (“SSARs”) held by eligible employees for restricted stock units. The exchange program was open to all eligible employees in the U.S. and United Kingdom that were employed as of the announcement of the exchange offer and remained employed through the closing. No other employees based outside of the United States were eligible to participate in the offer. In addition, the members of the Company’s Board of Directors and its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer were not eligible to participate in the offer.

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Performance Measurement Comparison of Shareholder Return

The graph below compares the cumulative 5-year total return of our common stock with the cumulative total returns of the NASDAQ composite index and the Philadelphia Semiconductor index. The graph tracks the performance of a $100 investment in our common stock, a peer index, and the NASDAQ index from September 30, 2003 to September 30, 2008.

	Fiscal 2003	Fiscal 2004	Fiscal 2005	Fiscal 2006	Fiscal 2007	Fiscal 2008
Virage Logic Corporation	100.00	162.24	101.97	119.87	97.63	77.63
NASDAQ Composite	100.00	107.74	123.03	131.60	158.88	119.05
Philadelphia Semiconductor	100.00	81.61	103.48	99.05	112.63	78.45

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this filing. The consolidated statements of operations data for each of the fiscal years ended September 30, 2008, 2007 and 2006 and the consolidated balance sheet data as of September 30, 2008 and 2007 have been derived from our audited consolidated financial statements included elsewhere in this filing. The consolidated statements of operations data for the fiscal years ended September 30, 2005 and 2004 and the consolidated balance sheet data as of September 30, 2006, 2005, and 2004 have been derived from our audited consolidated financial statements not included in this filing. The historical financial information may not be an accurate indicator of our future performance.

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SELECTED CONSOLIDATED CONDENSED FINANCIAL DATA

	Year Ended September 30,
	2008			2007			2006			2005			2004
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	59,330		$	46,527		$	59,303		$	53,389		$	53,003
Cost and expenses:
Cost of revenues		11,106			12,938			14,803			13,035			11,244
Research and development		27,725			20,346			21,407			19,841			18,476
Sales and marketing		14,749			15,464			16,858			15,608			14,652
General and administrative		8,382			8,891			10,319			9,083			6,618
Restructuring		316			580			—			—			—
Total cost and expenses		62,278			58,219			63,387			57,567			50,990
Operating income (loss)		(2,948	)		(11,692	)		(4,084	)		(4,178	)		2,013
Interest income		2,913			4,002			3,055			1,740			719
Other income (expenses), net		482			(157	)		270			(37	)		37
Income (loss) before taxes		447			(7,847	)		(759	)		(2,475	)		2,769
Income tax provision (benefit)		(107	)		(3,242	)		120			(2,160	)		859
Net income (loss)	$	554		$	(4,605	)	$	(879	)	$	(315	)	$	1,910
Basic and diluted net income (loss) per share	$	0.02		$	(0.20	)	$	(0.04	)	$	(0.01	)	$	0.09
Shares used in computing basic net income (loss) per share		23,423			23,111			22,812			22,187			21,391
Shares used in computing diluted net income (loss) per share		23,673			23,111			22,812			22,187			22,139
	September 30,
	2008			2007			2006			2005			2004
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	13,214		$	14,820		$	20,815		$	26,841		$	28,746
Marketable securities		52,591			60,368			56,786			40,997			34,366
Working capital		53,574			62,315			76,501			67,084			63,055
Total assets		129,204			127,893			126,275			114,494			109,188
Accumulated deficit		(26,185	)		(26,739	)		(22,134	)		(21,255	)		(20,940	)
Total stockholders’ equity		110,702			110,219			108,818			99,368			91,511

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K . This discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” and in other documents we file from time to time with the Securities and Exchange Commission. See “Forward Looking Statements” in Part I of this Annual Report on Form 10-K.

Overview

Business Environment

Virage Logic provides semiconductor IP to the global semiconductor industry. Our semiconductor IP offering consists of (1) embedded memories, (2) compilers that allow chip designers to configure our memories into different sizes and shapes on a single silicon chip, (3) IP and development infrastructure for embedded test and repair of on-chip memory instances, (4) software development tools used to design memory compilers, (5) embedded NVM instances, (6) logic cell libraries, (7) I/Os, and (8) DDR memory controller components. These various forms of IP are utilized by our customers to design and manufacture System-on-Chip (SoC) integrated circuits that are forming the foundation of today’s consumer, communications and networking, hand-held and portable devices, computer and graphics, automotive, and defense applications. We also provide custom design services to the semiconductor industry.

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

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

In fiscal year 2008, we derived 79% of our license revenue and 72% of our maintenance revenue from the more advanced processes, 90-nanometer, 65-nanometer and 45-nanometer technologies and 21% of license revenue and 28% of maintenance revenue from the older process nodes, predominantly 0.13, 0.18, 0.25 and 0.35 micron technologies. We expect the 90-nanometer, 65-nanometer and 45-nanometer technologies to drive revenue growth in the foreseeable future while license revenues from the older process nodes decline. Our royalty revenue to date has been from production on the older process nodes, however we expect future growth in royalty revenues to be driven by the advanced processes, 45-nanometer, 65-nanometer and 90-nanometer technologies, in addition to continued production on the 0.13 and 0.18 micron technologies.

Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. If any of these criteria are not met, revenue recognition is deferred until such time as all criteria are met. Revenues from term-based licenses are recognized ratably over the term of the license, which is generally between twelve to thirty-six months in duration, provided the criteria mentioned above are met.

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We sell our products early in the design process, and there are time delays of 24 to 36 months between the sale of our products and the time we expect to receive royalty revenues. These time delays are due to the length of time required for our customers to implement our semiconductor IP into their designs, and then to manufacture, market and sell a product incorporating our products. As a result, we expect our royalty revenues to increase in periods in which manufacturing volumes of semiconductors are growing. Future growth of our royalty revenue is dependent on our ability to increase the number of designs incorporating our products and on such designs achieving substantial manufacturing volumes.

Sources of Revenues

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

• semiconductor IP platforms;

• embedded memory, logic and I/O elements;

• standard and custom memory compilers;

• memory test processor and fuse box components for embedded test and repair of defective memory cells; and

• DDR memory controllers, Physical Interfaces, and Delay Locked Loops.

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

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

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

Royalty revenues for the years ended September 30, 2008, 2007, and 2006 were $12.1 million, $12.1 million, and $16.1 million, respectively.

We have been dependent on a limited number of customers for a substantial portion of our annual revenues, although that dependency continues to decrease. Customers comprising our top 10 customer group have changed from time to time. In each of fiscal year 2008, 2007 and 2006 one customer, Taiwan Semiconductor Manufacturing Company, generated 10% or more of our revenues.

Sales to customers located outside North America accounted for 50%, 54% and 60% of our revenues in fiscal years 2008, 2007, and 2006, respectively. Substantially all of our direct sales representatives and field

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application engineers are located in North America and Europe and serve those regions. In Japan and the rest of Asia, we engage in indirect sales through distributors and direct sales through sales representatives. All revenues to date have been denominated in U.S. dollars.

Significant Events in Fiscal Year 2008

We completed the acquisition of the logic NVM IP business segment of Impinj, a provider of radio frequency identification (RFID) solutions. The acquisition extended our embedded memory leadership position in the rapidly growing NVM embedded memory market for standard CMOS processes. The acquisition of Impinj’s logic NVM IP business represents another element toward attainment of our core vision of establishing our company as a broad line supplier of highly differentiated physical and application specific IP to the semiconductor industry.

Critical Accounting Policies and Estimates

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

We have identified the following as critical accounting policies to our Company:

• revenue recognition;

• valuation of accounts receivable;

• valuation of purchased intangibles, including goodwill;

• valuation of long-lived assets;

• stock-based compensation; and

• accounting for income taxes.

Revenue Recognition

Our revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position 97-2 (SOP 97-2), “Software Revenue Recognition”, as amended by Statement of Position 98-4 (SOP 98-4) and Statement of Position 98-9 (SOP 98-9). Additionally, revenue is recognized on some of our products, according to Statement of Position 81-1 (SOP 81-1), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The Company recognizes intellectual property revenue in accordance with SOP 97-2 because the software is not incidental to the IP as the IP is embedded in the software and the intellectual property is, in essence, a software product.

Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. The Company uses a completed performance model for perpetual licenses that do not include services to provide significant production, modification or customization of software as all of the elements have been delivered. The Company determines delivery has occurred when all the license materials that are specified in the evidence of a signed arrangement including any related documentation and the license keys are delivered electronically through the FTP server or via Electronic mail (e-mail). If any of these criteria is not met, revenue recognition is deferred until such time as all criteria are met. Revenues from

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term-based licenses that do not require specific customization for the semiconductor IP and software products are recognized ratably over the term of the license, which is generally between twelve to thirty-six months in duration, provided the criteria mentioned above are met. The Company uses a proportional performance model for term-based licenses as these licenses have a right to receive unspecified additional products that are granted over the access term of the license. Consulting services represent an immaterial amount of our revenue thus are recorded as part of license revenue. These consulting services are not related to the functionality of the products licensed. Revenue from consulting services is recognized on the time and materials method or as work is performed.

License of custom memory compilers and logic libraries may involve customization to the functionality of the software; therefore revenues from such licenses are recognized in accordance with SOP 81-1 over the period that services are performed. Revenue derived from library development services are recognized using a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and service agreements accounted for using the percentage-of-completion method, we determine progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or service or on the value of contract milestones completed. We believe that it is able to reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience of similar project requirements. If we cannot reasonably and reliably estimate the costs to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time revenues and related costs are recognized. A provision for estimated losses on any project is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognition are recorded as costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is contingent based on meeting a specified criteria, then the contingent value of the contract is deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, we recognize revenues attributable to delivered or completed elements when such elements are completed or delivered. The amount of such revenues is determined by applying the residual method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements, which we determine by each such element’s vendor-specific objective evidence of fair value, from the total revenues recognizable under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for all contracts entered into prior to fiscal 2007. Revenues are recognized once we deliver the element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are recognized ratably over the remaining contractual term of the maintenance period from the date of delivery of the licensed materials receiving maintenance, which is generally twelve months.

We assess whether the fee associated with each transaction is fixed or determinable and collection is reasonably assured and evaluate the payment terms. If a portion of the fee is due beyond normal payment terms, we recognize the revenues on the payment due date, as long as collection is reasonably assured. We assess collectibility based on a number of factors, including past transaction history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are recorded as unbilled accounts receivable. The timing and amounts invoiced to customers can vary significantly depending on specific contract

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terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have been met, prior to the recognition of any revenue that would create an unbilled accounts receivable balance.

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production volume report is received from the customer or foundry, and are calculated based on actual production volumes of wafers containing chips utilizing our semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Depending on the contractual terms, prepaid royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.

Valuation of Accounts Receivable

We monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon specific customer collection risks that we have identified. While such credit losses have historically been within our expectations and the allowance we have established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the quality of our accounts receivable and our future operating results. As of September 30, 2008, we have reserved for $223,000 of billed and unbilled receivables for a single customer. As of September 30, 2007, there was $194,000 reserved for a single customer.

Valuation of Purchased Intangibles, Including Goodwill

We evaluate purchased intangibles, including goodwill, for impairment at least annually. An assessment of goodwill is subjective by nature, and significant management judgment is required to forecast future operating results, projected cash flows and current period market capitalization levels. If our estimates or related assumptions change in the future, these changes in conditions could require material write-downs of net intangible assets, including impairment charges for goodwill. The valuation of intangible assets was based on management’s estimates. Intangible assets with finite useful lives are amortized over the estimated life of each asset. As of September 30, 2008, management believes no impairment of intangible assets has occurred. The carrying value of purchased intangibles, including goodwill, is $18.0 million and $14.1 million as of September 30, 2008 and 2007, respectively. If the asset is deemed impaired, the maximum amount of impairment would be the full carrying value of the asset.

Valuation of Long-Lived Assets

We review the carrying value of our long-lived assets whenever events or changes in business circumstances or our planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. This review is based upon our projections of anticipated future cash flows from such assets. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations, which could result in an impairment charge. As of September 30, 2008 we had an intangible asset of $6.3 million related to technology and other intangibles acquired through the acquisitions of In-Chip Systems, Ingot Systems, and the NVM business segment of Impinj.

Stock-based compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payments (“SFAS 123R”), which requires the measurement of all employee share-based compensation to employees, including grants of employee stock options and other equity based awards, using a fair-value based method and the recording of such expense in our consolidated statements of operations. The accounting provisions of SFAS 123R are effective for fiscal periods beginning after June 15, 2005.

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As of October 1, 2005, we adopted SFAS 123R. We use the fair value method to apply the provisions of SFAS 123R with a modified prospective application which provides for certain changes to the method for valuing stock-based compensation. The valuation provisions of SFAS 123R apply to new awards and to unvested awards that were outstanding on the effective date. Under the modified prospective application, prior periods are not revised for comparative purposes. Total SFAS 123R compensation expense recognized for fiscal years ended September 30, 2008, 2007 and 2006 was $3.6 million, $4.3 million and $6.7 million, respectively. As of September 30, 2008, total unrecognized estimated compensation expense net of forfeitures related to non-vested equity awards granted prior to that date was $10.7 million and will be amortized over the average of 2.85 years.

We value our stock-based awards on the date of grant using the Black-Scholes model. The determination of the fair value of stock-based payment awards on the date of grant using a pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee equity awards exercise behaviors, risk-free interest rate and expected dividends.

For purposes of estimating the fair value of equity awards granted during the fiscal year ended September 30, 2008, 2007 and 2006 using the Black-Scholes model, we have made an estimate regarding our stock price volatility using the historical volatility in our stock price for the expected volatility assumption input to the model. This approach is consistent with the guidance in SFAS 123R and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”).

The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a remaining term equal to the expected term of the awards on the grant date.

Furthermore, as required under SFAS 123R, we estimate forfeitures for equity awards granted which are not expected to vest. We calculate the pre-vesting forfeiture rate by using our historical equity grants forfeiture information.

If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware of the high degree of subjectivity involved when using pricing models to estimate stock-based compensation under SFAS 123R. There is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our consolidated financial statements. Currently there is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined in accordance with SFAS 123R and SAB 107 using a pricing model, such value may not be indicative of the fair value observed in a willing buyer /willing seller market transaction.

Accounting for Income Taxes

We calculate our income taxes based on an annual effective tax rate in compliance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). Under SFAS 109, income tax expense (benefit) is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns.

For financial statement purposes, we make certain estimates and judgments in determining income tax expense. These estimates and judgments occur in the calculation of tax credits, tax benefits, deductions and in the

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calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. If actual results differ from our estimates, future income tax expense could be materially affected.

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets. These differences resulted in the net deferred tax assets of $15.8 million as of September 30, 2008. We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that substantially all of the deferred tax assets recorded on our balance sheet will ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not more likely than not.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional tax payments are probable. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is less than we expect the ultimate assessment to be. Tax liabilities were $2.8 million and $3.0 million as of September 30, 2008 and 2007, respectively.

Results of Operations

Comparison of the Years Ended September 30, 2008 and 2007

Revenues

The table below sets forth the changes in revenues from fiscal year 2007 to fiscal year 2008 (in thousands, except percentage data):

	Year Ended September 30, 2008				Year Ended September 30, 2007
	Amount		% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Revenues:
License	$	38,694	65.3	%	$	24,407	52.5	%	$	14,287		58.5	%
Maintenance		8,567	14.4	%		9,972	21.4	%		(1,405	)	(14.1	)%
Royalties		12,069	20.3	%		12,148	26.1	%		(79	)	(0.7	)%
Total revenues	$	59,330	100.0	%	$	46,527	100.0	%	$	12,803		27.5	%

Revenues increased $12.8 million, or 27.5%, from fiscal year 2007 to fiscal year 2008. The increase resulted from a $14.3 million increase in license revenue, partially offset by a $1.4 million decrease in maintenance revenue and a $0.1 million decrease in royalty revenue.

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The following table lists the percentage of license revenues by process node for the years ended September 30, 2008 and 2007.

	Year Ended September 30,
	2008		2007
Total License Revenues by Process Node:
45-nanometer technology	24	%	3	%
65-nanometer technology	38		25
90-nanometer technology	17		34
0.13 micron technology	7		24
0.18 micron technology	3		10
Other	11		4
	100	%	100	%

License revenues for the year ended September 30, 2008 were $38.7 million, representing an increase of $14.3 million, or 58.5%, as compared to $24.4 million for fiscal year 2007. License revenues increased in fiscal year 2008 mainly attributable to increases of $8.5 million on our 45-nanometer technology and $8.5 million on our 65-nanometer technology, partially offset by decreases of $1.8 million on our 90-nanometer technology and $0.9 million on our 0.13 micron technologies and older technologies. From a product perspective, 65-nanometer technology contributed sales of 38% of total license revenue in fiscal year 2008 up from 25% in fiscal year 2007. Our 45-nanometer technology also grew from 3% in fiscal year 2007 to 24% in fiscal year 2008. Our 90-nanometer technology license revenue declined to 17% in fiscal year 2008 from 34% of total license revenue in fiscal year 2007. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

The following table lists the percentage of maintenance revenues by process node for the years ended September 30, 2008 and 2007.

	Year Ended September 30,
	2008		2007
Total Maintenance Revenues by Process Node:
45-nanometer technology	11	%	0	%
65-nanometer technology	30		11
90-nanometer technology	31		39
0.13 micron technology	18		38
0.18 micron technology	6		10
Other	4		2
	100	%	100	%

Maintenance revenues for the year ended September 30, 2008 were $8.6 million, representing a decrease of $1.4 million, or 14.1%, as compared to $10.0 million for fiscal year 2007. Maintenance revenues decreased in fiscal year 2008 mainly attributable to decreases of $2.3 million on our 0.13 micron technology, $0.5 million on our 0.18 micron technology, and $1.2 million on our 90-nanometer technology, partially offset by increases of $2.6 million on our 45-nanometer technology, 65-nanometer technology and other technologies. From a product perspective, 65-nanometer technology contributed sales of 30% of total maintenance revenue in fiscal year 2008 up from 11% in fiscal year 2007. Our 45-nanometer technology accounted for 11% of total maintenance revenue in fiscal year 2008. Our 90-nanometer technology maintenance revenue declined to 31% in fiscal year 2008 from 39% of total maintenance revenue in fiscal year 2007. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

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Our total license and maintenance revenues included $3.5 million from a customer that has canceled a contract with us in the fourth quarter of fiscal 2008.

Royalties stayed flat from fiscal year 2007 to fiscal year 2008 due to the increase in royalties from 65-nanometer and 55-nanometer technologies offset by the decreases in royalties from older process nodes.

For the years ended September 30, 2008 and 2007, total revenues by geographic area are as follows:

	Year Ended September 30,				Year-Over-Year Change
	2008		2007
Total Revenues by Geographic Area:
United States	$	27,611	$	19,862	$	7,749		39.0	%
Taiwan		8,854		9,446		(592	)	(6.3	%)
Europe, Middle East and Africa (EMEA)		8,175		9,200		(1,025	)	(11.1	%)
Japan		4,116		2,358		1,758		74.6	%
Canada		1,875		1,492		383		25.7	%
Other Asia		8,699		4,169		4,530		108.7	%
Total	$	59,330	$	46,527	$	12,803		27.5	%

From a geographic perspective, the increase in fiscal year 2008 revenues resulted from significant sales increases in license agreements with customers using our memory systems in North America of $8.1 million and in Singapore of $4.5 million.

Cost and Expenses

The table below sets forth the changes in cost and expenses from fiscal year 2007 to fiscal year 2008 (in thousands, except percentage data):

	Year Ended September 30, 2008				Year Ended September 30, 2007
	Amount		% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Cost and expenses:
Cost of revenues	$	11,106	18.7	%	$	12,938	27.8	%	$	(1,832	)	(14.2	)%
Research and development		27,725	46.7	%		20,346	43.7	%		7,379		36.3	%
Sales and marketing		14,749	24.9	%		15,464	33.2	%		(715	)	(4.6	)%
General and administrative		8,382	14.1	%		8,891	19.1	%		(509	)	(5.7	)%
Restructuring charges		316	0.6	%		580	1.2	%		(264	)	(45.5	)%
Total cost and expenses	$	62,278	105.0	%	$	58,219	125.0	%	$	4,059		7.0	%

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of acquired software and capital equipment. Cost of revenues in fiscal year 2008 totaled $11.1 million, representing a decrease of $1.8 million or 14.2% compared to $12.9 million in fiscal year 2007. The decreases in cost of revenue for fiscal 2008 compared to fiscal 2007 was mainly due to a decrease of $2.3 million in contract related expenses due to improvement in engineering efficiency and a decrease of $0.1 million in stock-based compensation expenses partially offset by a $0.5 million increase in deferred contract

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expenses associated with custom projects. We believe that cost of revenues will continue to fluctuate in the future, both in absolute dollars and as a percentage of revenues, based on the impact on SFAS 123R and the level of license revenues.

Research and Development

Research and development expense primarily includes personnel expense, software license and maintenance fees, as well as capital equipment depreciation expenses. Research and development expense for the year ended September 30, 2008 was $27.7 million, representing an increase of $7.4 million or 36.3%, from $20.3 million for the year ended September 30, 2007. Research and development expense as a percentage of total revenue for the year ended September 30, 2008 increased to 46.7% from 43.7% for fiscal year 2007. The increase in research and development expense from fiscal year 2007 to fiscal year 2008 was primarily due to an increase of $4.0 million in personnel related expenses largely due to acquisitions, an increase of $1.3 million in consulting fees, partially offset by a decrease of $2.3 million in cost of revenues allocation and a decrease of $0.3 million in travel and entertainment expenses. In addition, research and development expense included $1.0 million of in-process research and development and amortization of intangibles in fiscal 2008 related to our acquisition of the NVM business segment of Impinj in fiscal 2008 and acquisition of Ingot Systems in fiscal 2007.

Sales and Marketing

Sales and marketing expense consists mainly of personnel expenses, commissions, advertising and promotion-related costs. Sales and marketing expense for the year ended September 30, 2008 was $14.7 million, representing a decrease of $0.7 million, or 4.6%, from $15.5 million for the same period in fiscal year 2007. For the year ended September 30, 2008, sales and marketing expense as a percentage of revenue was 24.9%, compared to 33.2% for the same period in fiscal year 2007. The decrease in sales and marketing expense in fiscal year 2008 was primarily due to a decrease of $0.8 million expense in stock-based compensation.

General and Administrative

General and administrative expense consists primarily of personnel, corporate governance and other costs associated with the management of our business. General and administrative expense for the year ended September 30, 2008 was $8.4 million, representing a decrease of $0.5 million, or 5.7%, from $8.9 million for the year ended September 30, 2007. General and administrative expense as a percentage of total revenue was 14.1% for the year ended September 30, 2008, compared to 19.1% for fiscal 2007. The decrease in general and administrative expense from fiscal year 2007 to fiscal year 2008 was primarily due to a decrease of $0.9 million expense in personnel related expenses, partially offset by an increase of $0.4 million of professional fees.

Restructuring Charges

Restructuring charges consist primarily of severance payments, severance-related benefits, lease costs associated with a vacated facility, and charges for assets written off as a result of the restructuring plan. During fiscal 2008, we initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through job eliminations. During fiscal 2008, we reduced our workforce by approximately 13 employees primarily in engineering. Costs resulting from the restructuring plan included severance payments and severance-related benefits. Total restructuring expense was $316,000 of which $312,000 was paid as of September 30, 2008.

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Interest Income and Other Income (Expenses), net

The table below sets forth the changes in interest income and other income (expenses), net from fiscal year 2007 to fiscal year 2008 (in thousands, except percentage data):

	Year Ended September 30, 2008				Year Ended September 30, 2007
	Amount		% of Total Revenues		Amount			% of Total Revenues		Year-Over-Year Change
Interest income and other income (expenses), net:
Interest income	$	2,913	4.9	%	$	4,002		8.6	%	$	(1,089	)	(27.2	)%
Other income (expenses), net		482	0.8	%		(157	)	(0.3	)%		639		NM
Total interest income and other income (expenses), net	$	3,395	5.7	%	$	3,845		8.3	%	$	(450	)	(11.7	)%

Interest Income

Interest income was $2.9 million and $4.0 million for the years ended September 30, 2008 and 2007, respectively. Interest income decreased from fiscal year 2007 to fiscal year 2008 largely due to lower interest rates earned in our marketable securities.

Other Income (Expenses), net

Other income (expenses), net resulted in a net other income of $0.5 million in the year ended September 30, 2008 and net other expense of $0.2 million for the year ended September 30, 2007. The net other income in fiscal year 2008 and net other expense in fiscal year 2007 were primarily due to foreign exchange gains (losses) on transactions denominated in foreign currencies.

Income Tax Provision (Benefit)

The table below sets forth the changes in income tax provision (benefit) from fiscal year 2007 to fiscal year 2008 (in thousands, except percentage data):

	Year Ended September 30, 2008					Year Ended September 30, 2007
	Amount			% of Total Revenues		Amount			% of Total Revenues		Year-Over-Year Change
Income tax provision (benefit)	$	(107	)	(0.2	)%	$	(3,242	)	(7.0	)%	$	3,135	96.7	%

For fiscal year 2008, we recorded a tax benefit of $0.1 million on a pre-tax income of $0.4 million, yielding an effective tax rate of (24%). The tax benefit of $0.1 million in fiscal year 2008 was a result of recognizing assets for R&D credits. For fiscal year 2007, we recorded a tax benefit of $3.2 million on a pre-tax loss of $7.8 million, yielding an effective tax rate of 41%. The change in the effective tax rate from fiscal year 2007 to fiscal year 2008 was primarily due to the change in our pre-tax book income.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2001 through 2006 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency for the five year period of approximately $1.0 million, net of deposits of $260,000 as required by the Indian Tax Authorities. Interest will continue to accrue until the matter is resolved. The Indian Tax Authorities may also make similar claims for years subsequent to 2006 in future assessment. The assessment orders are not final notices of deficiency, and we have immediately filed appeals. We believe that the assessments are inconsistent with applicable tax laws and that we have meritorious defense to the assessments.

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The ultimate outcome of the tax assessment cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations that could have an adverse effect on our consolidated statements of operations.

Comparison of the Years Ended September 30, 2007 and 2006

Revenues

The table below sets forth the changes in revenues from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007				Year Ended September 30, 2006
	Amount		% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Revenues:
License	$	24,407	52.5	%	$	34,579	58.3	%	$	(10,172	)	(29.4	)%
Maintenance		9,972	21.4	%		8,635	14.6	%		1,337		15.5	%
Royalties		12,148	26.1	%		16,089	27.1	%		(3,941	)	(24.5	)%
Total revenues	$	46,527	100.0	%	$	59,303	100.0	%	$	(12,776	)	(21.5	)%

Revenues decreased $12.8 million or 21.5% from fiscal year 2006 to fiscal year 2007. The decrease resulted from a $10.2 million decrease in license revenue and a $3.9 million decrease in royalty revenue, partially offset by a $1.3 million increase in maintenance revenue.

The following table lists the percentage of license revenues by process node for the years ended September 30, 2007 and 2006.

	Year Ended September 30,
	2007		2006
Total License Revenues by Process Node:
45-nanometer technology	3	%	0	%
65-nanometer technology	25		12
90-nanometer technology	34		41
0.13 micron technology	24		27
0.18 micron technology	10		13
Other	4		7
	100	%	100	%

License revenues for the year ended September 30, 2007 were $24.4 million, representing a decrease of $10.2 million, or 29.4%, as compared to $34.6 million for fiscal year 2006. License revenue decreased in fiscal year 2007 mainly attributable to decreases of $5.6 million on our 90-nanometer technology, $5.8 million on our 0.13 micron and 0.18 micron technologies, partially offset by increases of $1.3 million on our 45-nanometer, 65-nanometer and other technologies. From a product perspective, 90-nanometer technology contributed sales of 34% of total license revenue in fiscal year 2007 down from 41% in fiscal year 2006, while 65-nanometer technology license revenue grew from 12% in fiscal year 2006 to 25% of total license revenue in fiscal year 2007. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

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The following table lists the percentage of maintenance revenues by process node for the years ended September 30, 2007 and 2006.

	Year Ended September 30,
	2007		2006
Total Maintenance Revenues by Process Node:
65-nanometer technology	11	%	3	%
90-nanometer technology	39		64
0.13 micron technology	38		24
0.18 micron technology	10		8
Other	2		1
	100	%	100	%

Maintenance revenues for the year ended September 30, 2007 were $10.0 million, representing an increase of $1.4 million, or 15.5%, as compared to $8.6 million for fiscal year 2006. Maintenance revenue increased in fiscal year 2007 mainly attributable to increases of $1.7 million on our 0.13 micron, $0.3 million on our 0.18 micron technology and $0.9 million 65-nanometer technology, partially offset by decreases of $1.5 million on our 90-nanometer and other technologies. From a product perspective, 90-nanometer technology contributed sales of 39% of total maintenance revenue in fiscal year 2007 down from 64% in fiscal year 2006, while 65-nanometer technology maintenance revenue grew from 3% in fiscal year 2006 to 11% of total maintenance revenue in fiscal year 2007 and 0.13 micron technology grew from 24% in fiscal year 2006 to 38% in fiscal year 2007. These sales were derived from all categories of our customers: integrated device manufacturers, fabless and foundry semiconductor customers.

Royalties decreased $3.9 million from fiscal year 2006 to fiscal year 2007. The fiscal year 2007 decrease was primarily attributed to a decline in royalties associated with our 90-nanometer technology processes. In fiscal 2007, we received our first royalties from our 65-nanometer technology.

For the years ended September 30, 2007 and 2006, total revenues by geographic area are as follows:

	Year Ended September 30,				Year-Over-Year Change
	2007		2006
Total Revenues by Geographic Area:
United States	$	19,862	$	20,387	$	(525	)	(2.6	)%
Taiwan		9,446		15,734		(6,288	)	(40.0	)%
Europe, Middle East and Africa (EMEA)		9,200		9,105		95		1.0	%
Japan		2,358		3,244		(886	)	(27.3	)%
Canada		1,492		3,091		(1,599	)	(51.7	)%
Other Asia		4,169		7,742		(3,573	)	(46.2	)%
Total	$	46,527	$	59,303	$	(12,776	)	(21.5	)%

From a geographic perspective, the fiscal year 2007 decrease was a result from significant sales decreases due to a decline in license agreements with customers using our memory systems primarily in Taiwan of $6.3 million and in North America and Other Asia of $5.7 million.

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Cost and Expenses

The table below sets forth the changes in cost and expenses from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007				Year Ended September 30, 2006
	Amount		% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Cost and expenses:
Cost of revenues	$	12,938	27.8	%	$	14,803	25.0	%	$	(1,865	)	(12.6	)%
Research and development		20,346	43.7	%		21,407	36.1	%		(1,061	)	(5.0	)%
Sales and marketing		15,464	33.2	%		16,858	28.4	%		(1,394	)	(8.3	)%
General and administrative		8,891	19.1	%		10,319	17.4	%		(1,428	)	(13.8	)%
Restructuring charges		580	1.2	%		—	—			580		—
Total cost and expenses	$	58,219	125.0	%	$	63,387	106.9	%	$	(5,168	)	(8.2	)%

Cost of Revenues

Cost of revenues is determined principally based on allocation of costs associated with custom contracts and maintenance contracts, which consist primarily of personnel expenses, allocation of facilities costs, and depreciation expenses of acquired software and capital equipment. Cost of revenues in fiscal year 2007 totaled $12.9 million, representing a decrease of $1.9 million or 12.6% compared to $14.8 million in fiscal year 2006. The decreases from fiscal year 2006 to fiscal year 2007 was primarily attributable to a decrease of $0.9 million of cost allocation driven by lower engineering consulting fees and software maintenance contracts expenses, a decrease of $0.7 million in deferred contract expenses associated with custom projects, and a decrease of $0.3 million in stock-based compensation expense related to SFAS 123R. We believe that cost of revenues will continue to fluctuate in the future, both in absolute dollars and as a percentage of revenues, based on the impact on SFAS 123R and the level of license revenues.

Research and Development

Research and development expense primarily includes personnel expense, software license and maintenance fees, as well as capital equipment depreciation expenses. Research and development expense for the year ended September 30, 2007 was $20.3 million, representing a decrease of $1.1 million or 5.0%, from $21.4 million for the year ended September 30, 2006. Research and development expense as a percentage of total revenue for the year ended September 30, 2007 increased to 43.7% from 36.1% for fiscal year 2006. The decrease in research and development expense from fiscal year 2006 to fiscal year 2007 was primarily due to a decrease of $0.9 million in facilities and other support costs, a decrease of $0.7 million in consulting fees, and a decrease of $0.5 million in stock-based compensation related to SFAS 123R, partially offset by an increase of $1.0 million in personnel related expenses. In addition, research and development expense included $123,000 of in-process research and development and amortization of intangibles in fiscal year 2007 related to our acquisition of Ingot Systems.

Sales and Marketing

Sales and marketing expense consists mainly of personnel expenses, commissions, advertising and promotion-related costs. Sales and marketing expense for the year ended September 30, 2007 was $15.5 million, representing a decrease of $1.4 million or 8.3% over $16.9 million for the same period in fiscal year 2006. For the year ended September 30, 2007, sales and marketing expense as a percentage of revenue was 33.2%, compared to 28.4% for the same period in fiscal year 2006. The decrease in sales and marketing expense in fiscal year 2007 was primarily due to a decrease of $0.5 million expense in stock-based compensation related to SFAS 123R and a decrease of $0.9 million in personnel related expenses.

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General and Administrative

General and administrative expense consists primarily of personnel, corporate governance and other costs associated with the management of our business. General and administrative expense for the year ended September 30, 2007 was $8.9 million, representing a decrease of $1.4 million or 13.8% over $10.3 million for the year ended September 30, 2006. General and administrative expense as a percentage of total revenue was 19.1% for the year ended September 30, 2007, compared to 17.4% for the same period in fiscal year 2006. The decrease in general and administrative expense from fiscal year 2006 to fiscal year 2007 was primarily due to a decrease of $1.0 million expense in stock-based compensation related to SFAS 123R, a decrease of $0.3 million in consulting fees, and a decrease of $1.2 million of professional fees related to accounting and auditing expenses, partially offset by decreases of $0.7 million related to recoveries of previously written-off bad debt and $0.4 million of personnel related expenses.

Restructuring Charges

Restructuring charges consist primarily of severance payments, severance-related benefits, lease costs associated with a vacated facility, and charges for assets written off as a result of the restructuring plan. During 2007, we initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through workforce reductions and facility and resource consolidation, in order to improve our cost structure. For the fiscal year ended 2007, restructuring expense totaled $0.6 million of which $0.4 million were personnel related costs due to severance payments and severance related benefits and $0.2 million were related to facility closure costs including asset write-off costs.

Interest Income and Other Income (Expenses), net

The table below sets forth the changes in interest income and other income (expenses), net from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007					Year Ended September 30, 2006
	Amount			% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Interest income and other income (expenses), net:
Interest income	$	4,002		8.6	%	$	3,055	5.1	%	$	947		31.0	%
Other income (expenses), net		(157	)	(0.3	)%		270	0.5	%		(427	)	(158.1	)%
Total interest income and other income (expenses), net	$	3,845		8.3	%	$	3,325	5.6	%	$	520		15.6	%

Interest Income

Interest income was $4.0 million and $3.1 million for the years ended September 30, 2007 and 2006, respectively. Interest income increased from fiscal year 2006 to fiscal year 2007 due to increased average balances of our investment holdings and higher interest rates received on our portfolio of marketable securities.

Other Income (Expenses), net

Other income (expenses), net resulted in a net other expense of $157,000 in the year ended September 30, 2007 and net other income of $270,000 for the year ended September 30, 2006. The net other expense in fiscal year 2007 and net other income in fiscal year 2006 were primarily due to foreign exchange gains and losses on transactions denominated in foreign currencies.

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Income Tax Provision (Benefit)

The table below sets forth the changes in income tax provision (benefit) from fiscal year 2006 to fiscal year 2007 (in thousands, except percentage data):

	Year Ended September 30, 2007					Year Ended September 30, 2006
	Amount			% of Total Revenues		Amount		% of Total Revenues		Year-Over-Year Change
Income tax provision (benefit)	$	(3,242	)	(7.0	)%	$	120	0.2	%	$	(3,362	)	(2,802	)%

For fiscal year 2007, we recorded a tax benefit of $3.2 million on a pre-tax loss of $7.8 million, yielding an effective tax rate of 41%. For fiscal year 2006, we recorded a tax provision of $0.1 million on a pre-tax loss of $0.8 million, yielding an effective tax rate of (16%). The change in the effective tax rate from fiscal year 2006 to fiscal year 2007 was primarily due to the change in our pre-tax position, research credits, stock-based compensation related to the non-deductibility of incentive stock options and recovery of tax deductions for stock-based compensation.

The Indian Tax Authorities completed its assessment of our tax returns for the tax years 2001 through 2006 and issued assessment orders in which the Indian Tax Authorities proposes to assess an aggregate tax deficiency for the five year period of approximately $1.0 million, net of deposits of $260,000 as required by the Indian Tax Authorities. Interest will continue to accrue until the matter is resolved. The Indian Tax Authorities may also make similar claims for years subsequent to 2006 in future assessment. The assessment orders are not final notices of deficiency, and we have immediately filed appeals. We believe that the assessments are inconsistent with applicable tax laws and that we have meritorious defense to the assessments.

The ultimate outcome of the tax assessment cannot be predicted with certainty, including the amount payable or the timing of any such payments upon resolution of the matter. Should the Indian Tax Authorities assess additional taxes as a result of a current or a future assessment, we may be required to record charges to operations that could have an adverse effect on our consolidated statements of operations.

Liquidity and Capital Resources

	September 30, 2008			Change from 2007			September 30, 2007			Change from 2006			September 30, 2006
	(In thousands, except percentage data)
Cash and cash equivalents	$	13,214		$	(1,606	)	$	14,820		$	(5,995	)	$	20,815
Short-term and long-term investments		52,591			(7,777	)		60,368			3,582			56,786
Total cash, cash equivalents and investments	$	65,805		$	(9,383	)	$	75,188		$	(2,413	)	$	77,601
Percentage of total assets		50.9	%					58.8	%					61.5	%
Cash provided by (used in) operating activities	$	775		$	1,373		$	(598	)	$	(9,085	)	$	8,487
Cash provided by (used in) investing activities		464			7,005			(6,541	)		10,454			(16,995	)
Cash provided by (used in) financing activities		(2,264	)		(3,170	)		906			(1,856	)		2,762
Effect of exchange rates on cash		(581	)		(819	)		238			518			(280	)
Net decrease in cash and cash equivalents	$	(1,606	)	$	4,389		$	(5,995	)	$	31		$	(6,026	)

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As of September 30, 2008, cash, cash equivalents and investments were $65.8 million compared to $75.2 million as of September 30, 2007, and $77.6 million as of September 30, 2006. We had a decrease of $9.4 million in cash, cash equivalents and investments from fiscal year 2007 to fiscal year 2008 and a decrease of $2.4 million from fiscal year 2006 to fiscal year 2007. In fiscal years 2008, 2007 and 2006, operations were funded primarily from cash collections from customers for accounts receivable.

Net cash provided by (used in) operating activities was $0.8 million, $(0.6) million and $8.5 million for fiscal years 2008, 2007 and 2006, respectively. Net cash provided by operating activities was $0.8 million for the year ended September 30, 2008 representing an increase of $1.4 million over net cash used in operating activities of $0.6 million for the year ended September 30, 2007. The increase in cash provided by operating activities was primarily attributable to changes in net income of $5.2 million and favorable changes in deferred tax of $3.1 million. This increase was offset by a decrease in changes of operating assets and liabilities of $6.0 million. In addition, we had decreases of $0.8 million of stock-based compensation expense, $0.6 million of depreciation expense and $0.3 million in excess tax benefit, offset by increases of $0.5 million of amortization expense, $0.1 million of write-off of acquired in-process technology and $0.2 million of bad debt recovery.

Net cash used in operating activities was $0.6 million for the year ended September 30, 2007 representing a decrease of $9.1 million over net cash provided by operating activities of $8.5 million for the year ended September 30, 2006. The decreases in cash provided by operating activities was attributable to unfavorable changes in deferred taxes of $3.1 million. In addition, the decrease in cash provided by operating activities was due to an increase in net loss of $3.7 million and a decrease in stock based compensation of $2.4 million.

Net cash provided by (used in) investing activities was $0.5 million, $(6.5) million and $(17.0) million for fiscal years 2008, 2007 and 2006, respectively. Net cash provided by investing activities was $0.5 million for the year ended September 30, 2008 representing an increase of $7.0 million over net cash used in investing activities of $6.5 million for the year ended September 30, 2007. The increase of $7.0 million in cash resulted from an increase of $10.7 million in net proceeds from maturities of investments and purchase of investments, offset by $2.7 million increase in net cash paid for business acquisition and $1.0 million used in the purchase of other property and equipment.

The decrease of $10.5 million in net cash used in investing activities in fiscal year 2007 from fiscal year 2006 was due to higher proceeds from the maturity of investments, partially offset by higher purchases of investments related to short-term treasury investing activities.

Net cash provided by (used in) financing activities was $(2.3) million, $0.9 million and $2.8 million for fiscal years 2008, 2007 and 2006, respectively. Net cash used in financing activities in fiscal 2008 reflects $4.6 million used in the repurchase of common stock, partially offset by $2.0 million of proceeds from issuance of common stock and a $0.3 million excess tax benefit from stock-based compensation. Fiscal 2007 and fiscal 2006 net cash provided by financing activities reflect proceeds from the issuance of common stock of $0.9 million and $2.8 million, respectively. The issuance of common stock was associated with our employee stock option and employee stock purchase plans during the respective periods.

We have no off-balance-sheet financing arrangements other than operating leases and purchase obligations.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our existing and new technologies, the amount and timing of research and development expenditures, the timing of the introduction of new technologies, expansion of sales and marketing efforts, potential acquisitions, and level of working capital, primarily accounts receivable. There can be no assurance that additional equity or debt financing, if required, will be available on satisfactory terms. We believe that our

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current capital resources and cash generated from operations will be sufficient to meet our needs for at least the next twelve months, although we may seek to raise additional capital during that period and there can be no assurance that we will not require additional financing beyond this time frame.

The following table summarizes our contractual obligations as of September 30, 2008 (in thousands):

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating lease obligations	$	3,720	$	1,280	$	1,932	$	508	$	—
Purchase obligations(1)		13,638		6,432		5,651		1,555		—
Total operating lease and purchase obligations	$	17,358	$	7,712	$	7,583	$	2,063	$	—

(1) Reflects amounts payable under contracts for product development software licenses and maintenance.

Recent Accounting Pronouncements

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (“SFAS 157”). The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which we measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are still evaluating the impact this standard will have on our financial position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for financial statements issued beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted. We are currently evaluating what impact this standard will have on our financial position or results of operations.

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business Combinations (“SFAS 141R”) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. We are currently evaluating the impact SFAS 141R and SFAS 160 will have on our financial position or results of operations.

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Quarterly Results of Operations

The following tables contain unaudited consolidated statement of operations data for our eight most recent fiscal quarters. The first table contains revenue and expense data expressed in dollars, while the second table contains the same data expressed as a percentage of our revenues for the periods indicated. This data has been derived from unaudited consolidated financial statements that, in our opinion, include all adjustments necessary, consisting of only normal recurring adjustments, for a fair statement of the information. Our quarterly results have been in the past, and in the future may be, subject to fluctuations. As a result, we believe that results of operations for the interim periods may not be an accurate indicator of results for any future period.

	Quarter Ended
	Sept. 30, 2008			June 30, 2008			March 31, 2008			Dec. 31, 2007			Sept. 30, 2007			June 30, 2007			March 31, 2007			Dec. 31, 2006
										(Unaudited)
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	15,513		$	15,068		$	14,689		$	14,060		$	13,149		$	11,286		$	10,567		$	11,525
Cost and expenses:
Cost of revenues		2,924			2,614			3,121			2,447			2,966			2,869			3,376			3,727
Research and development		7,677			8,015			6,175			5,858			5,146			5,301			4,823			5,076
Sales and marketing		3,634			3,658			3,864			3,593			3,997			4,050			3,763			3,654
General and administrative		2,336			2,160			2,111			1,775			2,020			1,789			2,418			2,664
Restructuring charges		—			319			—			(3	)		—			580			—			—
Total cost and expenses		16,571			16,766			15,271			13,670			14,129			14,589			14,380			15,121
Operating income (loss)		(1,058	)		(1,698	)		(582	)		390			(980	)		(3,303	)		(3,813	)		(3,596	)
Interest income		512			595			840			966			998			1,014			1,003			987
Other income (expenses), net		243			111			(73	)		201			(31	)		(53	)		(29	)		(44	)
Income (loss) before taxes		(303	)		(992	)		185			1,557			(13	)		(2,342	)		(2,839	)		(2,653	)
Income tax provision (benefit)		(256	)		131			(447	)		465			363			(1,106	)		(1,062	)		(1,437	)
Net income (loss)	$	(47	)	$	(1,123	)	$	632		$	1,092		$	(376	)	$	(1,236	)	$	(1,777	)	$	(1,216	)
Basic net income (loss) per share	$	(0.00	)	$	(0.05	)	$	0.03		$	0.05		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)
Diluted net income (loss) per share	$	(0.00	)	$	(0.05	)	$	0.03		$	0.05		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)
As a Percentage of Revenues:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost and expenses:
Cost of revenues		18.8			17.4			21.2			17.4			22.5			25.4			32.0			32.4
Research and development		49.5			53.2			42.0			41.7			39.1			47.0			45.6			44.0
Sales and marketing		23.4			24.3			26.3			25.6			30.4			35.9			35.6			31.7
General and administrative		15.1			14.3			14.4			12.6			15.4			15.9			22.9			23.1
Restructuring charges		—			2.1			—			—			—			5.1			—			—
Total cost and expenses		106.8			111.3			103.9			97.3			107.4			129.3			136.1			131.2
Operating income (loss)		(6.8	)		(11.3	)		(3.9	)		2.7			(7.4	)		(29.3	)		(36.1	)		(31.2	)
Interest income		3.3			3.9			5.7			6.9			7.4			8.5			9.2			8.2
Other income (expenses), net		1.6			0.7			(0.5	)		1.4			(0.0	)		(0.0	)		(0.0	)		(0.0	)
Income (loss) before taxes		(1.9	)		(6.7	)		1.3			11.0			(0.0	)		(20.8	)		(26.9	)		(23.0	)
Income tax provision (benefit)		(1.7	)		0.9			(3.0	)		3.3			2.9			(9.8	)		(10.1	)		(12.4	)
Net income (loss)		(0.2	)%		(7.6	)%		4.3	%		7.7	%		(2.9	)%		(11.0	)%		(16.8	)%		(10.6	)%

51

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our core business, the sale of semiconductor IP for the design and manufacture of system-on-a-chip integrated circuits, has exposure to financial market risks, including changes in foreign currency exchange rates and interest rates. A significant portion of our customers are located in Asia, Canada and Europe. However, to date, our exposure to foreign currency exchange fluctuations has been minimal because all of our license agreements provide for payment in U.S. dollars.

Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax environments, other regulations and restrictions and foreign exchange rate volatility. Our foreign subsidiaries incur most of their expenses in the local currency. To date these expenses have not been significant, therefore, we do not anticipate our future results to be materially adversely impacted by changes in factors affecting international operations.

We are exposed to the impact of interest rate changes and changes in the market values of our investments. We maintain an investment portfolio of various issuers, types and maturities. These securities are classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. Our investments primarily consist of short-term money market mutual funds, government sponsored enterprise bonds, corporate bonds, and commercial paper. We hold no auction-rate securities. Our short term investments balance of $31.1 million at September 30, 2008 consists of instruments with original maturities of less than one year. We also hold approximately $21.4 million of government sponsored enterprise bonds and corporate bonds with maturities greater than one year. The estimated fair value of our investment portfolio as of September 30, 2008, assuming a 100 basis point increase in market interest rates, would decrease by approximately $0.4 million, which would not materially affect our operations. We have the ability to generally hold our fixed income investments until maturity and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio. If necessary, we may sell short-term investments prior to maturity to meet our liquidity needs.

The table below presents the carrying values and related weighted average interest rates for our cash, cash equivalents and investments. The carrying values approximate fair values as of September 30, 2008 and 2007.

Cash, Cash Equivalents and Investments:	Carrying Value at September 30, 2008		Annualized Rate of Return at September 30, 2008		Carrying Value at September 30, 2007		Annualized Rate of Return at September 30, 2007
	(In thousands)		(Annualized)		(In thousands)		(Annualized)
Cash and cash equivalents—fixed rate	$	13,214	1.1	%	$	14,820	4.3	%
Investments—fixed rate		52,591	3.1	%		60,368	5.3	%
Total cash, cash equivalents and investments	$	65,805			$	75,188

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements required by this Item are set forth on the pages indicated at Item 15(a). The unaudited quarterly results of our operations for our two most recent fiscal years are incorporated herein by reference under Item 7 “Selected Consolidated Financial Data.”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

52

Item 9A. Controls and Procedures

We conducted an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act), under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2008.

Based on our evaluation as of September 30, 2008, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2008 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of September 30, 2008, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

The effectiveness of our internal control over financial reporting as of September 30, 2008, was audited by our independent registered public accounting firm, Burr, Pilger & Mayer LLP, as stated in its report, which is included below.

53

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders

of Virage Logic Corporation

We have audited the internal control over financial reporting of Virage Logic Corporation and its subsidiaries (the “Company”) as of September 30, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk than a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Virage Logic Corporation and its subsidiaries as of September 30, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2008, and the related financial statement schedule and our report dated December 15, 2008 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 15, 2008

54

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item concerning our directors and nominees is incorporated by reference to our definitive Proxy Statement for our 2009 Annual Meeting of Stockholders (the “2009 Proxy Statement”) under the caption “Election of Directors.” Information on our nominating committee process, and on our audit committee members including our audit committee financial experts is incorporated by reference to the headings “Governance Committee” and “Audit Committee” in our 2009 Proxy statement. Information regarding Section 16(a) beneficial ownership reporting compliance is incorporated by reference to the material under the heading “Security Ownership of Certain Beneficial Owners and Management” in our 2009 Proxy Statement. Information relating to our executive officers is contained in Part I of this annual report under the caption “Executive Officers”.

Our Board of Directors has adopted a Code of Ethics applicable to our directors and all of our officers and employees. The Code of Ethics is available, free of charge, through the investor relations section of our website at http://investors.viragelogic.com/governance.cfm. We intend to disclose any amendment to, or waiver from, the Code of Ethics by posting such amendment or waiver, as applicable, on our website.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the 2009 Proxy Statement under the captions “Executive Compensation” and “Director Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the 2009 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated by reference to the 2009 Proxy Statement under the captions “Management and Certain Security Holders of Virage Logic—Certain Transactions” and “Director Independence.”

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the 2009 Proxy Statement under the caption “Information Regarding Our Independent Registered Public Accounting Firm.”

55

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are being filed as part of this report on Form 10-K:

(a) Index to Consolidated Financial Statements:

	Page
(1)    Report of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm	58
(2)    Consolidated Balance Sheets	59
(3)    Consolidated Statements of Operations	60
(4)    Consolidated Statement of Stockholders’ Equity	61
(5)    Consolidated Statements of Cash Flows	62
(6)    Notes to Consolidated Financial Statements	63
(b)    Index to Financial Statement Schedules:
(1)    Schedule II Valuation and Qualifying Accounts	89

Schedules, other than those listed above, have been omitted since they are not required, or the information is included elsewhere herein.

(c) Exhibits:

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation(1)
3.2	Amended and Restated Bylaws(2)
4.1	Specimen Common Stock Certificate(3)
10.1	1997 Equity Incentive Plan, as amended(4)*
10.2	Form of Option Agreement under 1997 Equity Incentive Plan(5)*
10.3	2000 Employee Stock Purchase Plan, as amended(6)*
10.4	2001 Foreign Subsidiary Employee Stock Purchase Plan(6)*
10.6	Development and Licensing Agreement between Taiwan Semiconductor Manufacturing Co. Ltd. and Virage Logic dated as of March 3, 1999(3)#
10.7	Memory Compiler Licensing Agreement between United Microelectronics Corporation and Virage Logic dated as of March 21, 2000(3)#
10.8	Office Lease between Roshan Polymers Limited and Virage Logic International dated August 1, 2001(7)
10.9	Virage Logic Corporation 2002 Equity Incentive Plan, as amended(8)*
10.10	Form of Notice of Grant of Stock Options under the Virage Logic Corporation 2002 Equity Incentive Plan(9)*
10.11	Form of Notice of Grant of Stock-Settled Appreciation Rights under the Virage Logic Corporation 2002 Equity Incentive Plan(8)*
10.12	Form of Notice of Grant of Restricted Stock Units under the Virage Logic Corporation 2002 Equity Incentive Plan(8)*
10.13	Amended and Restated In-Chip Systems, Inc. 2001 Incentive And Non-Statutory Stock Option Plan(10)*

56

Exhibit Number	Description of Document
10.14	Master License Agreement, dated June 8, 2001 and Exhibit No. 2 dated April 1, 2002 between Virage Logic Corporation and STMicroelectronics S.A.(10)#
10.15	Real Estate Purchase-Sale Agreement between Nikolay Khachaturov and Virage Logic Corporation dated October 2, 2002 (English translation)(11)
10.21	Virage Logic Corporation 2009 Executive MBO Plan*
21.1	Subsidiaries of Registrant
23.1	Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm
31.1	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2007.

(2) Incorporated by reference to Virage Logic’s Current Report on Form 10-K filed March 13, 2008.

(3) Incorporated by reference to Virage Logic’s Registration Statement on Form S-1, as amended (File No. 333-36108).

(4) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(5) Incorporated by reference Appendix B of Virage Logic’s Proxy Statement filed on January 13, 2005.

(6) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(7) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2001.

(8) Incorporated by reference to Virage Logic’s Registration Statement on Form S-8 filed May 29, 2008.

(9) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001.

(10) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(11) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2002.

(12) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006.

(13) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

 # Confidential treatment has been granted with respect to portions of the exhibit. A complete copy of the agreement, including the redacted terms, has been separately filed with the Securities and Exchange Commission.

 * Management contract or compensatory plan or arrangement.

57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Virage Logic Corporation

We have audited the accompanying consolidated balance sheets of Virage Logic Corporation and its subsidiaries (the “Company”) as of September 30, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2008. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(b)(1). These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Virage Logic Corporation and its subsidiaries as of September 30, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2008 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 15, 2008 expressed an unqualified opinion thereon.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 15, 2008

58

VIRAGE LOGIC CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30,
	2008			2007
	(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	13,214		$	14,820
Short-term investments		31,148			42,840
Accounts receivable, net		16,526			12,170
Costs in excess of related revenue on uncompleted contracts		972			1,134
Deferred tax assets—current		1,255			1,939
Prepaid expenses and other		4,995			4,766
Taxes receivable		2,733			2,320
Total current assets		70,843			79,989
Property, plant and equipment, net		3,966			3,643
Goodwill		11,751			11,355
Other intangible assets, net		6,270			2,705
Deferred tax assets—long-term		14,548			12,200
Long-term investments		21,443			17,528
Other long-term assets		383			473
Total assets	$	129,204		$	127,893
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,023		$	1,027
Accrued expenses		5,678			4,659
Deferred revenues		8,866			8,996
Income tax payable		1,702			2,992
Total current liabilities		17,269			17,674
Income tax liability		1,083			—
Other long-term accruals		150			—
Total liabilities		18,502			17,674
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value:
Authorized shares—150,000,000 as of September 30, 2008 and 2007; Issued and outstanding shares—23,649,295 and 23,190,857 as of September 30, 2008 and 2007, respectively		24			23
Additional paid-in capital		141,220			135,926
Accumulated other comprehensive income		207			1,009
Treasury stock, at cost (700,000 shares in 2008)		(4,564	)		—
Accumulated deficit		(26,185	)		(26,739	)
Total stockholders’ equity		110,702			110,219
Total liabilities and stockholders’ equity	$	129,204		$	127,893

See Notes to Consolidated Financial Statements.

59

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended September 30,
	2008			2007			2006
	(In thousands, except per share data)
Revenues:
License	$	38,694		$	24,407		$	34,579
Maintenance		8,567			9,972			8,635
Royalties		12,069			12,148			16,089
Revenues		59,330			46,527			59,303
Cost and expenses:
Cost of revenues		11,106			12,938			14,803
Research and development		27,725			20,346			21,407
Sales and marketing		14,749			15,464			16,858
General and administrative		8,382			8,891			10,319
Restructuring		316			580			—
Total cost and expenses		62,278			58,219			63,387
Operating loss		(2,948	)		(11,692	)		(4,084	)
Interest income		2,913			4,002			3,055
Other income (expenses), net		482			(157	)		270
Income (loss) before income taxes		447			(7,847	)		(759	)
Income tax provision (benefit)		(107	)		(3,242	)		120
Net income (loss)	$	554		$	(4,605	)	$	(879	)
Basic and diluted net income (loss) per share	$	0.02		$	(0.20	)	$	(0.04	)
Shares used in computing basic net income (loss) per share		23,423			23,111			22,812
Shares used in computing diluted net income (loss) per share		23,673			23,111			22,812

See Notes to Consolidated Financial Statements.

60

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income, net			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount
	(In thousands, except share data)
Balance as of September 30, 2005	22,547,504	$	23	$	120,548		$	52		$	—		$	(21,255	)	$	99,368
Common stock issued under stock option plan and stock purchase plan	480,158		—		2,762			—			—			—			2,762
Stock-based compensation	—		—		6,770			—			—			—			6,770
Tax benefit from employee stock option plan	—		—		540			—			—			—			540
Cumulative foreign exchange translation adjustment	—		—		—			87			—			—			87
Change in unrealized gain on investments, net of tax	—		—		—			170			—			—			170
Net loss	—		—		—			—			—			(879	)		(879	)
Balance as of September 30, 2006	23,027,662		23		130,620			309			—			(22,134	)		108,818
Common stock issued under stock option plan and stock purchase plan	163,195		—		906			—			—			—			906
Stock-based compensation	—		—		4,400			—			—			—			4,400
Cumulative foreign exchange translation adjustment	—		—		—			702			—			—			702
Change in unrealized loss on investments, net of tax	—		—		—			(2	)		—			—			(2	)
Net loss	—		—		—			—			—			(4,605	)		(4,605	)
Balance as of September 30, 2007	23,190,857		23		135,926			1,009			—			(26,739	)		110,219
Common stock issued under stock option plan	458,438		1		1,969			—			—			—			1,970
Stock-based compensation	—		—		3,532			—			—			—			3,532
Settlement of payroll taxes upon restricted stock unit exercises	—		—		(207	)		—			—			—			(207	)
Cumulative foreign exchange translation adjustment	—		—		—			(682	)		—			—			(682	)
Change in unrealized loss on investments, net of tax	—		—		—			(120	)		—			—			(120	)
Repurchase of common stock	—		—		—			—			(4,564	)		—			(4,564	)
Net income	—		—		—			—			—			554			554
Balance as of September 30, 2008	23,649,295	$	24	$	141,220		$	207		$	(4,564	)	$	(26,185	)	$	110,702

See Notes to Consolidated Financial Statements.

61

VIRAGE LOGIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended September 30,
	2008			2007			2006
	(In thousands)
Operating activities
Net income (loss)	$	554		$	(4,605	)	$	(879	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts		123			(101	)		(724	)
Depreciation and amortization		1,275			1,832			1,958
Amortization of intangible assets		847			385			386
Tax benefit on employee stock plans		—			—			540
Write off of acquired in-process technology		200			100			—
Stock-based compensation		3,584			4,341			6,715
Excess tax benefit from stock-based compensation		(330	)		—			—
Loss on disposal of fixed assets		—			4			7
Non-cash restructuring charges		—			31			—
Deferred income tax		(1,674	)		(4,739	)		(1,644	)
Changes in operating assets and liabilities:
Accounts receivable		(4,037	)		3,866			(1,011	)
Costs in excess of revenue on uncompleted contracts		110			(418	)		295
Prepaid expenses and other		(305	)		(1,298	)		1,179
Taxes receivable		(412	)		(609	)		(1,218	)
Other long term assets		90			(171	)		398
Accounts payable		2			575			(323	)
Accrued expenses and other long-term liabilities		1,068			(239	)		1,173
Deferred revenues		(130	)		100			456
Current and non-current income tax liability		(190	)		348			1,179
Net cash provided by (used in) operating activities		775			(598	)		8,487
Investing activities
Purchase of property, plant and equipment		(1,320	)		(285	)		(1,376	)
Purchase of investments		(102,140	)		(111,535	)		(52,880	)
Proceeds from maturity of investments		109,408			108,050			37,258
Proceeds from sale of property, plant and equipment		—			1			3
Net cash paid for business combination		(5,484	)		(2,772	)		—
Net cash provided by (used in) investing activities		464			(6,541	)		(16,995	)
Financing activities
Proceeds from issuance of common stock		1,970			906			2,762
Cash paid for stock repurchase		(4,564	)		—			—
Excess tax benefit from stock-based compensation		330			—			—
Net cash provided by (used in) financing activities		(2,264	)		906			2,762
Effect of exchange rates on cash		(581	)		238			(280	)
Net decrease in cash and cash equivalents		(1,606	)		(5,995	)		(6,026	)
Cash and cash equivalents at beginning of year		14,820			20,815			26,841
Cash and cash equivalents at end of year	$	13,214		$	14,820		$	20,815
Supplemental disclosures of cash flow information
Cash paid for income taxes	$	(336	)	$	(226	)	$	(510	)

See Notes to Consolidated Financial Statements.

62

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Summary of Significant Accounting Policies

Description of Business

Virage Logic Corporation (Virage Logic or the Company) was incorporated in California in November 1995 and subsequently reincorporated in Delaware in July 2000. The Company provides semiconductor IP platforms incorporating memory, logic and I/Os (input/output interface components) as well as related services. These various forms of IP are utilized by the Company’s customers to design and manufacture system-on-a-chip (SoC) integrated circuits that power consumer, communications and networking, handheld and portable, computer and graphics, and automotive applications.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Virage Logic and its wholly-owned subsidiaries conducting business in the Republic of Armenia (Armenia), Germany, India, Israel, Japan and the United Kingdom. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically, the Company has reclassified certain prior year amounts relating to the classification of revenues to show maintenance revenues separately and the classification of deferred taxes. The effects of these reclassifications are not material to the consolidated financial statements.

Foreign Currency

The financial position and results of operations of the Company’s foreign operations are measured using currencies other than the U.S. dollar as their functional currencies. Accordingly, for these operations all assets and liabilities are translated into U.S. dollars at the current exchange rates as of the respective balance sheet dates. Revenue and expense items are translated using the weighted average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these operations’ financial statements are reported as a separate component of stockholders’ equity, while foreign currency transactions gains or losses, resulting from remeasuring local currency to the U.S. dollar are recorded in the consolidated statements of operations. The net transaction gains and losses are recorded in the consolidated statements of operations in other income (expense), net. The Company recorded foreign currency transactions gains of $0.5 million and $0.3 million for the years ended September 30, 2008 and 2006 and a foreign currency transactions loss of $0.2 million for the year ended September 30, 2007.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue recognition policy is based on the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, “Software Revenue Recognition” as amended by SOP 98-4 and SOP 98-9. Additionally, revenue is recognized on some of the Company’s products, according to SOP 81-1,

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VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

“Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The Company recognizes intellectual property revenue in accordance with SOP 97-2 because the software is not incidental to the IP as the IP is embedded in the software and the intellectual property is, in essence, a software product.

Revenues from perpetual licenses for the semiconductor IP products are generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. The Company uses a completed performance model for perpetual licenses that do not include services to provide significant production, modification or customization of software as all of the elements have been delivered. The Company determines delivery has occurred when all the license materials that are specified in the evidence of a signed arrangement including any related documentation and the license keys are delivered electronically through the FTP server or via Electronic mail (e-mail). If any of these criteria are not met, revenue recognition is deferred until such time as all criteria are met. Revenues from term-based licenses that do not require specific customization for the semiconductor IP and software products are recognized ratably over the term of the license, which is generally between twelve to thirty-six months in duration, provided the criteria mentioned above are met. The Company uses a proportional performance model for term-based licenses as these licenses have a right to receive unspecified additional products that are granted over the access term of the license. Consulting services represent an immaterial amount of the Company’s revenue thus are recorded as part of license revenue. These consulting services are not related to the functionality of the products licensed. Revenue from consulting services is recognized on the time and materials method or as work is performed.

License of custom memory compilers and logic libraries may involve customization to the functionality of the software; therefore revenues from such licenses are recognized in accordance with SOP 81-1 over the period that services are performed. Revenue derived from library development services are recognized using a percentage-of-completion method, and revenues from technical consulting services are recognized as the services are performed. For all license and service agreements accounted for using the percentage-of-completion method, the Company determines progress-to-completion based on labor hours incurred in comparison to the estimated total service hours required to complete the development or service or on the value of contract milestones completed. The Company believes that it is able to reasonably and reliably estimate the costs to complete projects accounted for using the percentage-of-completion method based on historical experience of similar project requirements. If the Company cannot reasonably and reliably estimate the costs to complete a project, the completed contract method of accounting is used, such that costs are deferred until the project is completed, at which time revenues and related costs are recognized. A provision for estimated losses on any project is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognition are recorded as costs in excess of related revenue on uncompleted contracts. If customer acceptance is required for completion of specified milestones, the related revenue is deferred until the acceptance criteria are met. If a portion of the value of a contract is contingent based on meeting a specified criteria, then the contingent value of the contract is deferred until the contingency has been satisfied or removed.

For agreements that include multiple elements, the Company recognizes revenues attributable to delivered or completed elements when such elements are completed or delivered. The amount of such revenues is determined by applying the residual method of accounting by deducting the aggregate fair value of the undelivered or uncompleted elements, which the Company determines by each such element’s vendor-specific objective evidence of fair value, from the total revenues recognizable under such agreement. Vendor-specific objective evidence of fair value of each element of an arrangement is based upon the higher of the normal pricing for such licensed product and service when sold separately or the actual price stated in the contract, and for maintenance, it is determined based on 20% of the net selling price of the license for new agreements starting in fiscal 2007 or the higher of the actual price stated in the contract or the stated renewal rate in each contract for all

64

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

contracts entered into prior to fiscal 2007. Revenues are recognized once the Company delivers the element identified as having vendor-specific objective evidence or once the provision of the services is completed. Maintenance revenues are recognized ratably over the remaining contractual term of the maintenance period from the date of delivery of the licensed materials receiving maintenance, which is generally twelve months.

The Company assesses whether the fee associated with each transaction is fixed or determinable and collection is reasonably assured and evaluates the payment terms. If a portion of the fee is due beyond normal payment terms, the Company recognizes the revenues on the payment due date, as long as collection is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history and the overall credit-worthiness of the customer. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of the payment.

Amounts invoiced to customers in excess of recognized revenues are recorded as deferred revenues. Amounts recognized as revenue in advance of invoicing the customer are recorded as unbilled accounts receivable. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues and unbilled accounts receivable in any given period. All of the criteria under SOP 97-2 or SOP 81-1, as applicable, have been met, prior to the recognition of any revenue that would create an unbilled accounts receivable balance.

Royalty revenues are generally determined and recognized one quarter in arrears based on SOP 97-2, when a production volume report is received from the customer or foundry, and are calculated based on actual production volumes of wafers containing chips utilizing the Company’s semiconductor IP technologies based on a rate per-chip or rate per-wafer depending on the terms of the respective license agreement. Depending on the contractual terms, prepaid royalties are recognized as revenue upon either the receipt of a corresponding royalty report or after all related license deliverables have been made.

Fair Value of Financial Instruments

The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short maturities and/or variable interest rates. Available-for-sale investments are reported at their fair market value based on quoted market prices.

Cash and Cash Equivalents, Short-term and Long-term Investments

For purposes of the accompanying consolidated statements of cash flows, the Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents as of September 30, 2008 and 2007 consisted of money market funds and commercial paper. The Company determines the appropriate classification of investment securities at the time of purchase. As of September 30, 2008 and 2007, all investment securities are designated as “available-for-sale.” The Company considers all investments that are available-for-sale that have a maturity date longer than three months and less than twelve months to be short-term investments. The Company considers all investments that have a maturity of more than twelve months to be long-term investments. Long-term investments include government sponsored enterprise bonds of $21.4 million and $17.5 million with maturity dates greater than one year for the fiscal years ended September 30, 2008 and 2007, respectively.

The available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains (losses) reported as a separate component of stockholders’ equity. The Company periodically reviews the

65

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

realizable value of its investments in marketable securities. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as the length of time and extent to which fair value has been less than the cost basis, the market outlook in general and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If an other-than-temporary impairment of the investments is deemed to exist, the carrying value of the investment would be written down to its estimated fair value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets, generally three years, or, for leasehold improvements, the shorter of the lease term or the estimated useful lives of the assets, if applicable. The office building owned by the Company’s subsidiary in Armenia is being depreciated over a life of twenty years.

Accounting for Internal-Use Computer Software

SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (SOP 98-1) provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies the characteristics of internal-use software. SOP 98-1 permits the capitalization of certain external and internal costs, including internal payroll costs, incurred in the connection with the development or acquisition of software for internal use. These costs are capitalized beginning when the Company has entered the application development stage and ceases when the software is substantially complete and is ready for its intended use. In accordance with SOP 98-1, the Company purchased and capitalized costs of $0 and $42,000 during the years ended September 30, 2008 and 2007, respectively. Software is amortized using the straight-line method over the estimated useful life of three years.

Goodwill and Intangible Assets

In accordance with the FASB’s Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (“SFAS 141”) and SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill and intangible assets deemed to have indefinite lives are no longer to be amortized, but instead are subject to annual impairment tests. As of September 30, 2008, the Company had $88,000 of goodwill related to the acquisition of Mentor Graphics Corporation’s Physical Libraries Business on December 1, 1999, $9.8 million of goodwill related to the acquisition of In-Chip Systems in 2002, $1.6 million of goodwill related to the acquisition of Ingot Systems on August 14, 2007, and $0.2 million of goodwill related to the acquisition of the logic NVM business of Impinj on June 26, 2008. In accordance with SFAS 142, the Company does not amortize goodwill.

The Company evaluates goodwill and intangible assets deemed to have indefinite lives in accordance with SFAS 142. The Company assesses these assets for impairment on an annual basis. On adoption of SFAS 142, the Company determined its operations represent a single reporting unit. To assess goodwill for impairment, the Company performs the following procedures:

Step 1: The Company will compare the fair value of its reporting unit(s) to the carrying value, including goodwill, of each of those unit(s). The fair value will consider the Company’s market capitalization during the reporting period. If a unit’s fair value exceeds the carrying value, no impairment charge is necessary. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, the Company will move on to step two as described below.

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VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Step 2: The Company performs an allocation of the fair value of its identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied fair value for its goodwill. The Company then compares the implied fair value of goodwill with the carrying amount of its goodwill. If the carrying amount of the goodwill is greater than the implied fair value of its goodwill, an impairment loss is recognized for the excess of such amount.

As required by the provisions of SFAS 142, the Company evaluates goodwill for impairment on an annual basis on September 30 or more frequently if impairment indicators arise. A significant impairment could have a material adverse effect on the Company’s financial position and results of operations. No impairment charge for goodwill was recorded during the years ended September 30, 2008, 2007 or 2006.

Impairment of long-lived assets

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets (“SFAS 144”). Finite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives of four to ten years. SFAS 144 requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment charge is recognized in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. As of September 30, 2008, the Company had an intangible asset of $1.2 million related to technology acquired through the acquisition of In-Chip Systems, an intangible asset of $0.8 million related to technology and other intangibles acquired through the acquisition of Ingot Systems and an intangible asset of $4.3 million related to technology and other intangibles acquired through the acquisition of the NVM business segment of Impinj.

Stock-Based Compensation

SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) addresses the accounting for share-based compensation transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic method and generally requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statements of operations. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment” (“SAB 107”) regarding the Staff’s interpretation of SFAS 123R. This interpretation provides the Staff’s views regarding interactions between SFAS 123R and certain Securities and Exchange Commission rules and regulations and provides interpretations of the valuation of stock-based payments for public companies. The interpretive guidance is intended to assist companies in applying the provisions of SFAS 123R and investors and users of the financial statements in analyzing the information provided.

Following the guidance prescribed in SAB 107, on October 1, 2005, the Company adopted SFAS 123R using the modified prospective method, and accordingly, the Company has not restated the consolidated statements of operations from prior fiscal years. Under SFAS 123R, the Company is required to measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation expense on a straight-line basis over the service period that the awards are expected to vest. Stock options generally vest over a four-year service period. Total SFAS 123R compensation expense recognized for the years ended September 30, 2008, 2007, and 2006 was $3.6, $4.3, and $6.7 million, respectively. As of September 30, 2008, total unrecognized estimated compensation expense net of forfeitures related to non-vested equity awards granted prior to that date was $10.7 million and will be amortized over the average period of 2.85 years.

67

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

No. 96-18, “Accounting for Equity Instruments with Variable Terms that are Issued for Consideration Other Than Employee Services under SFAS 123” (EITF 96-18). The Company records the expense of such services based upon the estimated fair value of the equity instrument using the Black-Scholes pricing model. Assumptions used to value the equity instruments are consistent with equity instruments issued to employees. The Company charges the value of the equity instrument to earnings over the term of the service agreement. There were no stock options grants to non-employees, excluding non-employee directors, and no expense recorded for stock options granted to non-employees in the years ended September 30, 2008, 2007, and 2006.

The stock-based compensation expense related to the Company’s stock-based awards for the fiscal years ended September 30, 2008, 2007 and 2006 were as follows (in thousands, except per share data):

	Year Ended September 30, 2008			Year Ended September 30, 2007			Year Ended September 30, 2006
Cost of revenues	$	597		$	715		$	1,041
Research and development		1,255			1,155			1,633
Sales and marketing		292			1,130			1,673
General and administrative		1,440			1,341			2,368
Stock-based compensation expense		3,584			4,341			6,715
Related income tax benefits		(1,308	)		(1,152	)		(1,443	)
Stock-based compensation expense, net of tax benefits	$	2,276		$	3,189		$	5,272
Net stock-based compensation expense, per common share:
Basic	$	0.10		$	0.14		$	0.23
Diluted	$	0.10		$	0.14		$	0.23

As of September 30, 2008 and 2007, the Company capitalized approximately $62,000 and $114,000, respectively, of stock-based compensation expense related to its custom contracts which have not been completed.

The Company is using the Black-Scholes model to value the compensation expense associated with its stock-based awards under SFAS 123R. In addition, the Company estimates forfeitures when recognizing compensation expense, and the Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through an adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

The following weighted average assumptions were used in the estimated grant date fair value calculations for equity awards:

	Year Ended September 30,
	2008		2007		2006
Volatility	44	%	51	%	69	%
Risk-free interest rate	3.11	%	4.54	%	4.63	%
Dividend yield	0	%	0	%	0	%
Expected life (years)	4.6		4.3		4.3

The expected stock price volatility rates are based on the historical volatility of the Company’s common stock. The risk free interest rates are based on the United States Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The average expected life represents the weighted

68

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The Black-Scholes weighted average fair values of options and Stock Settled Appreciation Rights (“SSARs”) granted during the fiscal years ended September 30, 2008, 2007 and 2006 were $2.95, $3.53 and $5.22 per share, respectively.

Business Risks and Concentration of Credit Risk

The Company operates in the highly competitive semiconductor industry, which has been characterized by rapid technological change, short product life cycles and cyclical market patterns. Significant technological changes in the industry or industry downturns relating to declines in general economic conditions could adversely affect operating results.

The Company markets and sells its technology to a broad base of customers, which are primarily located in the United States, Asia, Canada and Europe. The Company performs ongoing credit evaluations of its customers’ financial condition, and generally, no collateral is required.

Customer Concentrations

In fiscal years 2008, 2007, and 2006 only one customer accounted for 10% or more of total revenues. The percentages were 11%, 11%, and 17% for the years ended September 20, 2008, 2007, and 2006, respectively.

Advertising Expense

The Company expenses costs of producing advertisements at the time production occurs and expenses promotional advertising in the period during which the promotion is distributed or aired. Advertising costs totaled approximately $650,000, $640,000, and $566,000 for the years ended September 30, 2008, 2007, and 2006, respectively.

Research and Development

In accordance with SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed, costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. Generally, the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility which is evidenced by a working model; accordingly, costs incurred after the establishment of technological feasibility have not been significant and, therefore, have been expensed. Research and development costs are charged to operations as incurred.

Net Income (Loss) Per Share

Basic and diluted net income (loss) per share is presented in conformity with SFAS No. 128, Earnings Per Share. Accordingly, basic and diluted net income (loss) per share have been computed using the weighted average number of shares of common stock outstanding during the period, less weighted average shares outstanding that are subject to repurchase by the Company plus weighted average share equivalents, unless anti-dilutive.

69

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Year Ended September 30,
	2008		2007			2006
Net income (loss)	$	554	$	(4,605	)	$	(879	)
Share used in computation:
Shares used in computing basic net income (loss) per share		23,423		23,111			22,812
Add: Effect of potentially diluted securities		250		—			—
Shares used in computing diluted net income (loss) per share		23,673		23,111			22,812
Basic income (loss) per share	$	0.02	($	0.20	)	($	0.04	)
Diluted income (loss) per share	$	0.02	($	0.20	)	($	0.04	)

The Company excluded equity awards totaling approximately 4.7 million shares from the computation of diluted net income per share for the fiscal year ended September 30, 2008. For the years ended September 30, 2007 and 2006, the Company excluded equity awards totaling approximately 4.8 million shares and 5.6 million shares from the calculation of the net loss per share as they are anti-dilutive.

Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income, established standards for the reporting and display of comprehensive income (loss). Comprehensive income (loss) includes unrealized gains and losses on investments and foreign currency translation adjustments.

Total comprehensive loss is as follows (in thousands):

	Year Ended September 30,
	2008			2007			2006
Net income (loss)	$	554		$	(4,605	)	$	(879	)
Foreign currency translation adjustment		(682	)		702			87
Change in net unrealized gain (loss) on investments, net of tax		(120	)		(2	)		170
Total comprehensive loss, net of tax	$	(248	)	$	(3,905	)	$	(622	)

Income Taxes

Income taxes are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for expected future tax events that have been recognized differently in the Company’s consolidated financial statements and tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law and the effects of future changes in tax laws or rates. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

Segment Information

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for reporting information about operating segments in annual financial statements. The Company operates only in one segment, the sale of technology-optimized semiconductor IP platforms based on memory, logic and I/Os.

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VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Pronouncements

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (“SFAS 157”). The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which the Company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is still evaluating the impact this standard will have on its financial position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for financial statements issued beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted. The Company is currently evaluating what impact this standard will have on its financial position or results of operations.

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business Combinations (“SFAS 141R”) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the impact SFAS 141R and SFAS 160 will have on its financial position or results of operations.

Note 2. Business Segment Information

The Company operates in one industry segment, the sale of semiconductor IP platforms, logic, I/Os and related services, and the sale of the individual platform components and has one reportable segment.

The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (CODM) because he has final authority over resource allocation decisions and performance assessment.

Revenues by geographic area are based on the region the customers are located. They are as follows:

	Year Ended September 30,
	2008		2007		2006
	(In thousands)
Total Revenues by Geographic Area:
United States	$	27,611	$	19,862	$	20,387
Taiwan		8,854		9,446		15,734
Europe, Middle East, and Africa (EMEA)		8,175		9,200		9,105
Japan		4,116		2,358		3,244
Canada		1,875		1,492		3,091
Other Asia		8,699		4,169		7,742
Total	$	59,330	$	46,527	$	59,303

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VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Percentage of license revenues by process node are as follows:

	Year Ended September 30,
	2008		2007		2006
Total License Revenues by Process Node:
45-nanometer technology	24	%	3	%	0	%
65-nanometer technology	38		25		12
90-nanometer technology	17		34		41
0.13 micron technology	7		24		27
0.18 micron technology	3		10		13
Other	11		4		7
	100	%	100	%	100	%
Percentage of maintenance revenues by process node are as follows:
	Year Ended September 30,
	2008		2007		2006
Total Maintenance revenues by Process Node:
45-nanometer technology	11	%	0	%	0	%
65-nanometer technology	30		11		3
90-nanometer technology	31		39		64
0.13 micron technology	18		38		24
0.18 micron technology	6		10		8
Other	4		2		1
	100	%	100	%	100	%

Long-lived assets are located primarily in the United States, with the exception of a building in Armenia, which is owned by the Company’s Armenian subsidiary. The building in Armenia and its leasehold improvements are valued at cost less accumulated depreciation and amortization and amounted to approximately $2.4 million and $2.3 million as of September 30, 2008 and 2007, respectively.

The Company has only one product line, and as such disclosure by product groupings is not applicable.

72

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3. Balance Sheet Components

Investments, classified as available-for-sale securities, included the following (in thousands):

	September 30, 2008							September 30, 2007
	Amortized Cost		Unrealized Gain (Loss)			Fair Value		Amortized Cost		Unrealized Gain (Loss)			Fair Value
Investments:
Government sponsored enterprise bonds	$	13,001	$	(36	)	$	12,965	$	6,012	$	4		$	6,016
Commercial paper		13,893		(45	)		13,848		30,674		(69	)		30,605
Corporate bonds		2,014		(7	)		2,007		4,968		(6	)		4,962
Certificates of deposits		2,328		—			2,328		1,257		—			1,257
Short-term investments		31,236		(88	)		31,148		42,911		(71	)		42,840
Long-term government sponsored enterprise bonds and corporate bonds		21,585		(142	)		21,443		17,501		27			17,528
Long-term investments		21,585		(142	)		21,443		17,501		27			17,528
Total investments	$	52,821	$	(230	)	$	52,591	$	60,412	$	(44	)	$	60,368

Investments, classified as available-for-sale securities, are reported as:

	September 30,
	2008		2007
	(In thousands)
Short-term investments	$	31,148	$	42,840
Long-term investments		21,443		17,528
Total	$	52,591	$	60,368

The contractual maturities of investments are as follows (in thousands):

	September 30, 2008				September 30, 2007
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	31,236	$	31,148	$	42,911	$	42,840
Due after one year through five years		21,585		21,443		17,501		17,528
Total	$	52,821	$	52,591	$	60,412	$	60,368

The following table shows the gross unrealized losses and market value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2008 (in thousands):

	In Loss Position for Less Than 12 Months				In Loss Position for 12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Government sponsored enterprise bonds	$	23,388	$	116	$	—	$	—	$	23,388	$	116
Commercial paper		13,849		45		—		—		13,849		45
Corporate bonds		4,023		75		—		—		4,023		75
Total	$	41,260	$	236	$	—	$	—	$	41,260	$	236

73

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the par value is realizable. Based on its review of these securities, including the assessment of the duration and severity of the related unrealized losses, the Company has not recorded any other-than-temporary impairments on these securities.

Accounts receivable are as follows (in thousands):

	September 30,
	2008			2007
	(In thousands)
Accounts receivable, net:
Accounts receivable	$	16,749		$	12,364
Allowance for doubtful accounts		(223	)		(194	)
Total	$	16,526		$	12,170

Write-offs totaling $94,000 and $136,000 were recorded for the year ended September 30, 2008 and 2006. No write-offs were recorded against the allowance for doubtful accounts in the year ended September 30, 2007.

Property, plant and equipment are as follows (in thousands):

	September 30,
	2008			2007
	(In thousands)
Property, plant and equipment, net:
Building in Armenia	$	3,430		$	3,077
Furniture and fixtures		982			976
Computers and equipment		10,965			9,797
Software		10,556			10,638
Leasehold improvements		1,103			1,090
		27,036			25,578
Less accumulated depreciation and amortization		(23,070	)		(21,935	)
Total	$	3,966		$	3,643

Depreciation and amortization expense related to property, plant and equipment totaled $1.3 million, $1.8 million and $2.0 million for the years ended September 30, 2008, 2007 and 2006, respectively.

74

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intangible assets are as follows (in thousands):

	September 30, 2008							September 30, 2007
Intangible Assets	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Amortized intangible assets:
Patents	$	4,800	$	(2,403	)	$	2,397	$	3,500	$	(2,035	)	$	1,465
Customer Lists		700		(98	)		602		300		(5	)		295
Technology		3,300		(321	)		2,979		800		(17	)		783
Trade Name		300		(8	)		292		—		—			—
		9,100		(2,830	)		6,270		4,600		(2,057	)		2,543
Unamortized intangible assets:
Workforce		—		—			—		269		(202	)		67
Customer Lists		—		—			—		27		(20	)		7
Other		—		—			—		353		(265	)		88
Total	$	9,100	$	(2,830	)	$	6,270	$	5,249	$	(2,544	)	$	2,705

The aggregate amortization expense related to acquired intangible assets totaled $0.8 million for fiscal 2008 and $0.4 million for each of fiscal 2007 and 2006. In fiscal 2008, the Company wrote off unamortized intangible assets of $74,000 related to workforce and customer lists acquired in 1999 from Mentor Graphics Corporation’s Physical Libraries Business because these assets had been fully utilized.

Estimated amortization expense of intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Estimated Amortization Expense
2009	$	1,322
2010		1,322
2011		1,300
2012		943
2013		733
Thereafter		650
Total	$	6,270

Accrued expenses are as follows (in thousands):

	September 30,
	2008		2007
	(In thousands)
Accrued expenses:
Accrued payroll and related expenses	$	3,582	$	3,034
Other accruals		2,096		1,625
Total	$	5,678	$	4,659

75

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The balance of accumulated other comprehensive income is as follows (in thousands):

	September 30,
	2008			2007
	(In thousands)
Accumulated other comprehensive income:
Unrealized loss on investments, net of taxes	$	(155	)	$	(35	)
Cumulative translation adjustment		362			1,044
Total	$	207		$	1,009

Note 4. Business Combinations

Fiscal Year 2008 Acquisition

Non-Volatile Memory Business Segment of Impinj

On June 26, 2008, the Company acquired the logic NVM IP business segment of Impinj, a provider of radio frequency identification (RFID) solutions. The acquisition extends the Company’s embedded memory leadership position in the rapidly growing NVM embedded memory market for standard CMOS processes. The Company believes the acquisition of Impinj’s logic NVM IP business represents another element toward attainment of its core vision of establishing the Company as a broad line supplier of highly differentiated physical and application specific IP to the semiconductor industry.

The purchase was an all-cash transaction for a price of $5.2 million for Impinj’s net assets related to the NVM IP business. In addition to the cash consideration paid to Impinj, the Company also incurred an additional $258,000 of direct acquisition costs. The $0.2 million of goodwill the Company recorded in connection with the acquisition is expected to be deductible for income tax purposes. The $4.5 million of acquired intangible assets the Company recorded in connection with the acquisition is expected to be amortized using an estimated life between six to ten years depending on the type of assets. The weighted average amortization period for the intangible assets is 6.2 years. In accordance with SFAS 141 the Company accounted for this acquisition as a business combination. The results of operations and the estimated fair values of the assets acquired and liabilities assumed has been included in the Company’s consolidated financial statements from the date of acquisition. The financial results of the logic NVM IP business segment of Impinj prior to the acquisition are immaterial for purposes of pro forma financial disclosures.

The allocation of the purchase price to Impinj’s tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values as of the date of acquisition. The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. The amount allocated to goodwill was $0.2 million as of September 30, 2008.

The following tables summarize the components of the total purchase price and the estimated allocation (in thousands):

	Allocation
Intangible assets	$	4,500
Goodwill		249
In-process research and development		200
Accounts receivable		476
Property, plant and equipment		33
Total consideration	$	5,458

76

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The purchase price allocation is subject to change based on the Company’s final analysis. The final purchase price allocation will be determined upon finalization of estimates for direct acquisition costs and a comprehensive final evaluation of the fair value of all assets and liabilities.

The following table summarizes the net book value of the acquired $4.5 million in intangible assets as of September 30, 2008:

	Fair Value
Existing Technology	$	2,396
Patents / Core Technology		1,246
Customer lists, contracts, trademarks and trade names		675
Balance at September 30, 2008	$	4,317

The Company determined the valuation of the identifiable intangible assets using future cash flow assumptions. The amounts allocated to the identifiable intangible assets were determined through established valuation techniques accepted in the technology industry.

In connection with this acquisition, the Company recorded an expense of $0.2 million in fiscal 2008 for the write-off of acquired in-process research and development. The purchase price allocated to acquired in-process research and development was determined through established valuation techniques. The acquired in-process research and development was immediately expensed because technological feasibility had not been established, and no future alternative use existed. The write-off of acquired in-process research and development is a component of research and development expense in the consolidated statements of operations.

Fiscal Year 2007 Acquisition

Ingot Systems, Inc

On August 14, 2007, the Company acquired Ingot Systems, a Santa Clara based provider of critical functional IP and design services to the semiconductor industry with global design centers located in the United States and India. The acquisition expands the Company’s ability to serve chosen markets by adding new products and services required in the rapid development of System-on-Chip (SoC) integrated circuits to the Company’s current family of physical IP products including memory compilers, logic libraries and related development tools.

The aggregate up front purchase price was $2.8 million, which included the payment of cash for common stock and the cancellation of options, and acquisition related costs. In addition, the former Ingot shareholders and employees have a potential for a series of earn-out and performance bonus payments totaling up to $8 million through the end of the Company’s fiscal 2009, provided that certain technology and product order milestones are achieved. The Company paid $1.7 million of earn-out bonus payments based on targets achieved in fiscal 2008. Earn-out payments were treated as additional compensation when met as the milestones were linked to continued employment. The $1.6 million of goodwill the Company recorded in connection with the acquisition is not expected to be deductible for income tax purposes. The $1.1 million of acquired intangible assets the Company recorded in connection with the acquisition is expected to be amortized using an estimated life of four years. In accordance with SFAS 141, the Company accounted for this acquisition as a business combination. The results of operations and the estimated fair values of the assets acquired and liabilities assumed has been included in the Company’s consolidated financial statements from the date of acquisition. The financial results of Ingot Systems prior to the acquisition are immaterial for purposes of pro forma financial disclosures.

77

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize the components of the total purchase price and the estimated allocation (in thousands):

	Allocation
Cash paid for common stock	$	1,754
Cash paid for vested options		178
Other estimated acquisition related costs		840
Total Purchase Price	$	2,772

The purchase price allocation is as follows (in thousands):

	Allocation
Intangible assets	$	1,100
Net liabilities assumed		(1	)
Goodwill		1,573
In-process research and development		100
Total consideration	$	2,772

The net tangible assets acquired and liabilities assumed in the acquisition were recorded at fair value, which approximates the carrying amount as of the acquisition date. The Company determined the valuation of the identifiable intangible assets using future revenue assumptions. The amounts allocated to the identifiable intangible assets were determined through established valuation techniques accepted in the technology industry.

In connection with this acquisition, the Company recorded an expense of $0.1 million in fiscal year 2007 for the write-off of acquired in-process technology. The purchase price allocated to acquired in-process technology was determined through established valuation techniques. The acquired in-process technology was immediately expensed because technological feasibility had not been established, and no future alternative use existed. The write-off of acquired in-process technology is a component of research and development expense in the consolidated statements of operations.

Note 5. Restructuring Charges

The Company accounted for costs associated with a leased facility in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. In addition, the Company accounted for the asset-related portions of the restructuring in accordance with SFAS 144.

During fiscal 2007, the Company initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through workforce reductions and facility and resource consolidation in order to improve the Company’s cost structure. The Company reduced its workforce by approximately 23 employees throughout the Company. Costs resulting from the restructuring plan included severance payments, severance-related benefits, lease costs associated with a vacated facility, and charges for assets written off as a result of the restructuring plan. Facility closure costs included in the restructuring were comprised of payments required under the lease less any applicable estimated sublease income after the property was abandoned.

During fiscal 2008, the Company initiated a plan of restructuring in an effort to reduce operating expenses and improve operating margins and cash flows. The restructuring plan was intended to decrease costs through job eliminations. The Company reduced its workforce by approximately 13 employees primarily in engineering.

78

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Costs resulting from the restructuring plan included severance payments and severance-related benefits. Total restructuring expense was $316,000 of which $312,000 was paid as of September 30, 2008. The remaining balance will be paid off in the first quarter of fiscal 2009 and is included in accrued expenses on the consolidated balance sheets.

Total restructuring costs accrued as of September 30, 2008 and 2007 were $4,000 and $74,000 which were recorded in accrued expenses on the consolidated balance sheet. The restructuring liability as of September 30, 2007 was fully paid in fiscal 2008.

The following table summarizes restructuring activity for fiscal 2008 and fiscal 2007 as follows (in thousands):

	Severance			Asset Related			Facility			Total
Restructuring expense	$	438		$	31		$	111		$	580
Non-cash charges		—			(31	)		—			(31	)
Cash payments		(356	)		—			(119	)		(475	)
Balance at September 30, 2007		82			—			(8	)		74
Restructuring expense		308			—			8			316
Cash payments		(386	)		—			—			(386	)
Balance at September 30, 2008	$	4		$	—		$	—		$	4

Note 6. Commitments and Contingencies

Except for the building in Armenia, the Company leases its facilities under operating leases. Rent expense under operating leases was approximately $1.5 million, $1.5 million, and $2.1 million for the years ended September 30, 2008, 2007, and 2006, respectively.

The following table summarizes the Company’s contractual obligations (dollars in thousands):

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating lease obligations	$	3,720	$	1,280	$	1,932	$	508	$	—
Purchase obligations(1)		13,638		6,432		5,651		1,555		—
Total operating lease and purchase obligations	$	17,358	$	7,712	$	7,583	$	2,063	$	—

(1) Reflects amounts payable under contracts for product development software licenses and maintenance.

Aggregate future minimum lease payments under operating leases as of September 30, 2008 are as follows (in thousands):

	Operating Leases
2009	$	1,280
2010		1,150
2011		782
2012		250
2013		258
Thereafter		—
Total minimum lease payments	$	3,720

79

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company had no future capital lease obligations as of September 30, 2008.

Indemnifications. The Company enters into standard license agreements in its ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or other IP infringement claim by any third party with respect to the Company’s products. These agreements generally have perpetual terms. The maximum amount of indemnification the Company could be required to make under these agreements is generally limited to the license fees received by the Company. The Company estimates the fair value of its indemnification obligation as insignificant, based upon its history of litigation concerning product and patent infringement claims. Accordingly, the Company has no liabilities recorded for indemnification under these agreements as of September 30, 2008, and 2007.

The Company has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers insurance policy that reduces its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Currently, the Company has no liabilities recorded for these agreements as of September 30, 2008 and 2007.

Warranties. The Company offers its customers a warranty that its software products will substantially conform to their functional specifications. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, the Company has no liabilities recorded for these warranties as of September 30, 2008 and 2007. The Company assesses the need for a warranty reserve on a quarterly basis and there can be no guarantee that a warranty reserve will not become necessary in the future.

Note 7. Stockholders’ Equity

Common Stock

As of September 30, 2008, common stock was reserved for issuance as follows:

Equity Incentive Plans	5,774,173
Total	5,774,173

Restricted Stock Units (“RSU”)

During the first quarter of fiscal year 2007, the Company began issuing restricted stock unit awards as an additional form of equity compensation to its employees and officers. Restricted stock units generally vest over a two or four year period and unvested restricted stock units are forfeited and cancelled as of the date that employment terminates. Restricted stock units are settled in shares of the Company’s common stock upon vesting. The cost of restricted stock unit awards is determined using the fair value of the Company’s common stock on the date of the grant, and compensation expense is recognized over the vesting period.

During the years ended September 30, 2008 and 2007, the Company issued 49,561 and 0 shares, respectively, as a result of RSU exercises.

80

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the activity of the Company’s unvested restricted stock units and changes through September 30, 2008:

	Restricted Stock Units
	Number of shares		Weighted- average grant- date fair value
Nonvested as of September 30, 2006	—			—
RSU granted	195,615		$	8.37
RSU vested	—			—
RSU canceled	(40,495	)	$	8.70
Nonvested as of September 30, 2007	155,120		$	8.29
RSU granted	988,671		$	6.77
RSU vested	(76,254	)	$	8.14
RSU canceled	(51,275	)	$	7.95
Nonvested as of September 30, 2008	1,016,262		$	6.84

Stock-based compensation cost for restricted stock units for the year ended September 30, 2008 was $1.3 million. As of September 30, 2008, the total unrecognized compensation cost net of forfeitures relate to unvested awards not yet recognized is $5.2 million and is expected to be amortized over a weighted average period of 2.29 years.

Equity Incentive Plans

In March 2001, the stockholders approved an amendment to the Company’s 1997 Equity Incentive Plan (1997 Plan) and in February 2002, the stockholders approved the adoption of the 2002 Equity Incentive Plan (2002 Plan). In May 2002, in connection with Virage Logic’s acquisition of In-Chip Systems, Virage Logic assumed In-Chip’s 2001 Incentive and Non-statutory Stock Option Plan (2001 Plan), and all options outstanding under the plan. Under the 2001 Plan, the maximum number of options that can be exercised for common stock shares is 585,520. The plans provide for the granting of incentive stock options, nonstatutory stock options and stock awards as determined by the administrators of such plans. The 1997 Plan has expired. However, it remains operative as to awards that remain outstanding under the plan. The 2001 Plan allows for the grant of options only to former In-Chip employees. Under the terms of the 2002 Plan, the exercise price of options will not be less than 100% of the fair market value of the shares on the date of grant. In addition, under the plans, the grant of incentive stock options granted to an employee, who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the stock of the Company, shall be no less than 110% of the fair market value of the common stock on the date of grant and may have a term of no longer than five years. All option grants may be exercisable within the times or upon the events determined by the Board of Directors. The term of each option grant (other than with respect to ten percent stockholders) will be no more than ten years.

Rights to immediately purchase stock may also be granted under these plans with terms, conditions, and restrictions determined by the administrators of the 2001 Plan and the 2002 Plan. During the year ended September 30, 2008, a total of 636,309 shares expired unissued under the 1997 Plan.

In November 2006, the Company began issuing SSARs under the 2002 Plan which provide the holder the right to receive an amount settled in shares of its common stock at the time of the exercise. Under the Company’s equity incentive plans, stock options and SSARs generally have a vesting period of four years, are exercisable for a period not to exceed ten years from the date of grant and are granted at prices not less than the fair value of the Company’s common stock at the time of grant.

81

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Information with respect to the Equity Incentive Plans is summarized as follows:

	Shares Available For Grant		Number of Options/SSARs Outstanding		Weighted Average Exercise Price
Balance as of September 30, 2005	1,988,532		5,704,670		$	10.12
Options granted	(1,344,659	)	1,344,659		$	9.09
Options exercised	—		(455,870	)	$	5.57
Options canceled	962,550		(961,759	)	$	10.70
Balance as of September 30, 2006	1,606,423		5,631,700		$	10.14
Options and SSARs granted	(1,571,150	)	1,571,150		$	7.71
RSUs granted	(195,615	)	—			—
Options and SSARs exercised	—		(152,241	)	$	5.37
Options and SSARs canceled	1,281,177		(1,281,177	)	$	10.90
RSUs cancelled	40,495		—			—
Awards expired (unissued)	(190,269	)	—			—
Balance as of September 30, 2007	971,061		5,769,432		$	9.46
Options and SSARs granted	(1,007,094	)	1,007,094		$	7.25
RSUs granted	(988,671	)	—			—
Options and SSARs exercised	—		(408,877	)	$	4.81
Options and SSARs canceled	2,389,923	*	(2,389,923	)	$	11.03
RSUs cancelled	51,275		—			—
Awards expired (unissued)	(636,309	)	—			—
Balance as of September 30, 2008	780,185		3,977,726		$	8.43

 * Includes 1,378,760 options/SSARs in conjunction with the employee option and SSARs exchange. See Note 11—Exchange Program for further details.

The following table summarizes information about stock options and SSARs outstanding and exercisable as of September 30, 2008:

			Awards Outstanding					Awards Exercisable
Range of Exercise Prices	Number of Shares		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value
			(In years)			(In thousands)			(In years)			(In thousands)
$  0.13 – $  5.61	514,108		5.00	$	4.19	$	877	399,858	3.45	$	3.99	$	764
$  5.65 – $  6.94	466,636		9.94	$	6.42	$	—	82,945	8.76	$	6.63	$	—
$  6.95 – $  7.47	516,286		9.07	$	7.31	$	—	382,782	8.99	$	7.40	$	—
$  7.48 – $  7.89	597,603		8.03	$	7.84	$	—	400,554	7.97	$	7.84	$	—
$  8.02 – $  8.74	439,117		7.36	$	8.59	$	—	260,123	5.91	$	8.68	$	—
$  8.82 – $  9.05	403,054		8.17	$	8.90	$	—	226,162	7.84	$	8.92	$	—
$  9.08 – $10.30	499,801		7.04	$	9.92	$	—	430,456	6.66	$	10.01	$	—
$10.31 – $16.11	405,371		5.39	$	13.13	$	—	404,324	5.39	$	13.13	$	—
$16.55 – $22.37	135,500		3.97	$	16.80	$	—	133,417	3.93	$	16.80	$	—
$22.81 – $22.81	250		3.78	$	22.81	$	—	250	3.78	$	22.81	$	—
Total	3,977,726	*	7.41	$	8.43	$	877	2,720,871	6.48	$	8.92	$	764
* Table of awards outstanding does not include 1,016,262 unvested restricted stock units.
Vested and expected to vest as of September 30, 2008	3,789,976		7.27	$	8.48	$	859

82

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $5.90 as of September 30, 2008, which would have been received by the option and SSAR holders had all option holders exercised their options and SSARs as of that date. The total number of in-the-money options and SSARs exercisable as of September 30, 2008 was 0.4 million.

The total fair value of shares vested using the Black-Scholes method during the fiscal year ended September 30, 2008 was $3.3 million. The total intrinsic value of employee stock options and SSARs (with respect to fiscal years 2007 and 2008) exercised during the fiscal years ended September 30, 2008, 2007, and 2006 were $1.1 million, $0.4 million, and $2.1 million, respectively. The total cash received from employees as a result of employee stock option and SSAR exercises during the fiscal years ended September 30, 2008, 2007, and 2006 were $2.0 million, $0.9 million, and $2.5 million, respectively.

Employee Stock Purchase Plans

In April 2000, the Board of Directors approved the adoption of the 2000 Employee Stock Purchase Plan (2000 Purchase Plan). In July 2001, the Board of Directors approved the adoption of the 2001 Foreign Subsidiary Employee Stock Purchase Plan (2001 Foreign Plan) as a sub-plan of the 2000. During fiscal years 2007 and 2006, there were no transfers from the 2000 Purchase Plan share reserve to the 2001 Foreign Plan reserve.

Under the Company’s 2000 Purchase Plan and 2001 Foreign Plan, the employees purchased 10,954 and 24,559 shares during the fiscal years ended September 30, 2007 and 2006, respectively. The employee stock purchase plan was terminated on February 16, 2007.

Note 8. Related Party Transactions

Cathal Phelan was a member of the Board of Directors and Chief Executive Officer at Ubicom, Inc., until September 21, 2008. Revenue from Ubicom was approximately $102,000, $137,000, and $93,000 for the years ended September 30, 2008, 2007 and 2006, respectively. In September 2008, Mr. Phelan re-joined Cypress Semiconductor as Executive Vice President and Chief Technical Officer. Daniel McCranie who is the Company’s Executive Chairman, serves as a member of the Board of Directors at Cypress Semiconductor. Revenue from Cypress Semiconductor was approximately $460,000, $141,000 and $0 for the years ended September 30, 2008, 2007 and 2006, respectively. Mr. McCranie also serves as Chairman of the Board for ON Semiconductor. Revenue from On Semiconductor was approximately $264,000, $100,000 and $0 for the years ended September 30, 2008, 2007 and 2006, respectively.

Note 9. Agreements with Foundries

The Company has entered into agreements with third-party semiconductor foundries in Asia, under which the Company has agreed to develop memory, logic and I/O elements for certain of the foundries’ manufacturing processes and in return the foundries are obligated to pay the Company royalties on sales of silicon chips manufactured by the foundries for the Company’s fabless customers. For the years ended September 30, 2008, 2007, and 2006, total royalty revenues were $12.1 million, $12.1 million, and $16.1 million, respectively.

83

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 10. Income Taxes

The domestic and foreign components of income (loss) before taxes are as follows:

	Year Ended September 30,
	2008			2007			2006
	(In thousands)
Domestic	$	(499	)	$	(8,587	)	$	(883	)
Foreign		946			740			124
Total	$	447		$	(7,847	)	$	(759	)

The income tax provision (benefit) for the years ended September 30, 2008, 2007 and 2006 consists of the following:

	Year Ended September 30,
	2008			2007			2006
	(In thousands)
Current:
Federal	$	1,122		$	—		$	468
State		186			80			358
Foreign		171			1,314			752
Deferred:
Federal		(1,222	)		(4,060	)		(949	)
State		(364	)		(576	)		(509	)
Foreign		—			—			—
	$	(107	)	$	(3,242	)	$	120

The income tax provision (benefit) differed from the amounts computed at the US statutory federal income tax rate of 34% in 2008, 2007, and 2006 as a result of the following:

	Year Ended September 30,
	2008			2007			2006
	(In thousands)
Federal tax at statutory rate	$	143		$	(2,668	)	$	(258	)
State taxes		(400	)		(523	)		(273	)
Stock-based compensation		48			649			984
Tax exempt interest		—			—			(20	)
Research and development credit		(187	)		(738	)		(184	)
Foreign taxes, net of credit		(3	)		25			57
Other		292			13			(186	)
Total	$	(107	)	$	(3,242	)	$	120

84

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant components of the Company’s deferred tax assets (liabilities) are as follows:

	Year Ended September 30,
	2008			2007
	(In thousands)
Deferred tax assets current:
Deferred revenue	$	127		$	145
Compensation accrual		261			593
Other accruals/reserves not currently deductible		867			1,201
		1,255			1,939
Deferred tax assets non-current:
Net operating loss carryforwards		687			1,204
Stock compensation		2,623			2,197
Research and development credits		6,390			5,517
Foreign Tax Credit		4,906			3,426
Depreciation and amortization		(58	)		(144	)
Total deferred tax assets	$	15,803		$	14,139

SFAS 109, Accounting for Income Taxes (“SFAS 109”) provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company recorded a deferred tax asset as of September 30, 2008 and 2007 based on the expectation of future taxable income. Management believes that it is more likely than not that the deferred tax assets will be realized and has determined that no valuation allowance is considered necessary.

For the year ended September 30, 2008, the Company also has research and development tax credit carryforwards of approximately $5.6 million and $4.7 million for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2022. The state tax credits can be carried forward indefinitely.

For the year ended September 30, 2008, the Company has federal net operating loss carryforwards of approximately $2.0 million which expire beginning in 2026.

For the year ended September 30, 2008, the Company has foreign tax credit carryforwards of approximately $4.9 million which expire beginning in 2014.

Effective October 1, 2007, the Company adopted FASB Interpretation, or FIN No. 48, “Accounting for Uncertainty of Income Taxes-an interpretation of FASB statement No. 109,” as amended. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109. Step one, Recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. The cumulative effect of adopting FIN No. 48 on October 1, 2007 is recognized as a change in accounting principle and recorded as an adjustment to the opening balance of retained earnings on the adoption date.

85

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As a result of the implementation of FIN No. 48, the Company recognized no change in the liability for unrecognized tax benefits related to tax positions taken in prior periods. The Company reclassed $1.1 million to income tax liability in fiscal 2008 due to the implementation of FIN No. 48 due to uncertain tax positions that may not be upheld in the case of a tax audit. The Company’s total gross unrecognized tax benefits as of October 1, 2007 (adoption date) and September 30, 2008 amounted to $3.8 million and $4.2 million. Total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $3.4 million as of October 1, 2007 and $3.7 million as of September 30, 2008. The Company remains subject to tax examination in the United States from 1999 to 2007 and in its foreign jurisdictions ranging from 2001 to 2007.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

	Unrecognized Tax Benefit
	(In thousands)
Balance as of October 1, 2007	$	(3,788	)
Gross increases—tax positions in prior period		(63	)
Gross increases—current-period tax positions		(321	)
Balance as of September 30, 2008	$	(4,172	)

Upon adoption of FIN No. 48, the Company’s policy to include interest and penalties related to unrecognized tax benefits within the Company’s provision for (benefit from) income taxes did not change. As of September 30, 2008, the Company had not accrued any reserve for payment of interest and penalties related to unrecognized tax benefits as any adjustments would be offset by additional credits and net operating losses.

Note 11. Exchange Program

On May 29, 2008, the Company announced a tender offer to exchange any or all outstanding options to purchase its common stock and SSARs held by certain eligible employees, whether vested or unvested, out-of-the-money or in-the-money, for restricted stock units. The exchange program commenced on May 29, 2008 and ended on June 27, 2008 at 5 p.m. local time.

The exchange program was open to all eligible employees in the U.S. and United Kingdom that were employed as of May 29, 2008 and remain employed through the end of the exchange offer. No other employees based outside of the United States were eligible to participate in the offer. In addition, the members of the Company’s Board of Directors and its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer were not eligible to participate in the offer.

The number of restricted stock units received by eligible employees that participated in the offer depended on the exercise price of and the number of shares subject to the options tendered for exchange or the base price of and the number of shares subject to the SSARs that were tendered for exchange, as applicable.

The exchange program resulted in 997,799 options and 380,961 SSARs to purchase approximately 1,378,760 shares of the Company’s common stock being exchanged for approximately 335,060 shares of restricted stock units. The restricted stock units granted under this program will vest annually over a two-year period, such that half of the shares subject to a restricted stock unit award will vest one year after the restricted stock unit grant date, and the other half of the shares subject to that award will vest two years after the restricted stock unit grant date. Ninety-three employees participated in the exchange program and $1.3 million of incremental compensation expense will be recorded over the two year vesting period.

86

VIRAGE LOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 12. Stock Repurchase Program

On May 6, 2008, the Company adopted a stock repurchase program to purchase up to $20 million in shares of its common stock in the open market or negotiated transactions through May 2009. On August 4, 2008, 700,000 shares were repurchased in the open market at a price per share of $6.49 for an aggregate of $4.6 million.

Note 13. Subsequent Event

On December 2, 2008, the Company announced that the Company sent a non-binding proposal to the Board of Directors of LogicVision Inc. (LogicVision) to acquire LogicVision for $1.05 per share in cash. The proposal provides a premium of 114% to LogicVision’s closing price of $0.49 on December 1, 2008, and values LogicVision at approximately $10.0 million.

Note 14. Quarterly Results—Unaudited

	Quarter Ended
	Sept. 30, 2008			June 30, 2008			March 31, 2008			Dec. 31, 2007			Sept. 30, 2007			June 30, 2007			March 31, 2007			Dec. 31, 2006
	(Unaudited)
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	15,513		$	15,068		$	14,689		$	14,060		$	13,149		$	11,286		$	10,567		$	11,525
Cost and expenses:
Cost of revenues		2,924			2,614			3,121			2,447			2,966			2,869			3,376			3,727
Research and development		7,677			8,015			6,175			5,858			5,146			5,301			4,823			5,076
Sales and marketing		3,634			3,658			3,864			3,593			3,997			4,050			3,763			3,654
General and administrative		2,336			2,160			2,111			1,775			2,020			1,789			2,418			2,664
Restructuring charges		—			319			—			(3	)		—			580			—			—
Total cost and expenses		16,571			16,766			15,271			13,670			14,129			14,589			14,380			15,121
Operating income (loss)		(1,058	)		(1,698	)		(582	)		390			(980	)		(3,303	)		(3,813	)		(3,596	)
Interest income		512			595			840			966			998			1,014			1,003			987
Other income (expenses), net		243			111			(73	)		201			(31	)		(53	)		(29	)		(44	)
Income (loss) before taxes		(303	)		(992	)		185			1,557			(13	)		(2,342	)		(2,839	)		(2,653	)
Income tax provision (benefit)		(256	)		131			(447	)		465			363			(1,106	)		(1,062	)		(1,437	)
Net income (loss)	$	(47	)	$	(1,123	)	$	632		$	1,092		$	(376	)	$	(1,236	)	$	(1,777	)	$	(1,216	)
Basic net income (loss) per share	$	(0.00	)	$	(0.05	)	$	0.03		$	0.05		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)
Diluted net income (loss) per share	$	(0.00	)	$	(0.05	)	$	0.03		$	0.05		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.05	)

87

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on this 15th day of December 2008.

VIRAGE LOGIC CORPORATION
By:	/S/    ALEXANDER SHUBAT
	Dr. Alexander Shubat
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alexander Shubat and Brian Sereda, jointly and severally, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    ALEXANDER SHUBAT         Dr. Alexander Shubat	President and Chief Executive Officer	December 15, 2008
/S/    BRIAN SEREDA         Brian Sereda	Vice President of Finance and Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)	December 15, 2008
/S/    J. DANIEL MCCRANIE         J. Daniel McCranie	Executive Chairman	December 15, 2008
/S/    MICHAEL HACKWORTH         Michael Hackworth	Director	December 15, 2008
/S/    ROBERT SMITH         Robert Smith	Director	December 15, 2008
/S/    MICHAEL STARK         Michael Stark	Director	December 15, 2008
/S/    CATHAL PHELAN         Cathal Phelan	Director	December 15, 2008

88

VIRAGE LOGIC CORPORATION

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Deductions Write-Offs			Deductions Recoveries			Balance at End of Period
	(In thousands)
Allowance for Doubtful Accounts
Year ended September 30, 2006	$	1,155	$	295	$	(136	)	$	(1,019	)	$	295
Year ended September 30, 2007	$	295	$	—	$	—		$	(101	)	$	194
Year ended September 30, 2008	$	194	$	223	$	(94	)	$	(100	)	$	223

89

EXHIBIT INDEX

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation(1)
3.2	Amended and Restated Bylaws(2)
4.1	Specimen Common Stock Certificate(3)
10.1	1997 Equity Incentive Plan, as amended(4)*
10.2	Form of Option Agreement under 1997 Equity Incentive Plan(5)*
10.3	2000 Employee Stock Purchase Plan, as amended(6)*
10.4	2001 Foreign Subsidiary Employee Stock Purchase Plan(6)*
10.6	Development and Licensing Agreement between Taiwan Semiconductor Manufacturing Co. Ltd. and Virage Logic dated as of March 3, 1999(3)#
10.7	Memory Compiler Licensing Agreement between United Microelectronics Corporation and Virage Logic dated as of March 21, 2000(3)#
10.8	Office Lease between Roshan Polymers Limited and Virage Logic International dated August 1, 2001(7)
10.9	Virage Logic Corporation 2002 Equity Incentive Plan, as amended(8)*
10.10	Form of Notice of Grant of Stock Options under the Virage Logic Corporation 2002 Equity Incentive Plan(9)*
10.11	Form of Notice of Grant of Stock-Settled Appreciation Rights under the Virage Logic Corporation 2002 Equity Incentive Plan(8)*
10.12	Form of Notice of Grant of Restricted Stock Units under the Virage Logic Corporation 2002 Equity Incentive Plan(8)*
10.13	Amended and Restated In-Chip Systems, Inc. 2001 Incentive And Non-Statutory Stock Option Plan(10)*
10.14	Master License Agreement, dated June 8, 2001 and Exhibit No. 2 dated April 1, 2002 between Virage Logic Corporation and STMicroelectronics S.A.(10)#
10.15	Real Estate Purchase-Sale Agreement between Nikolay Khachaturov and Virage Logic Corporation dated October 2, 2002 (English translation)(11)
10.21	Virage Logic Corporation 2009 Executive MBO Plan*
21.1	Subsidiaries of Registrant
23.1	Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm
31.1	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, as pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

90

(1) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2007.

(2) Incorporated by reference to Virage Logic’s Current Report on Form 10-K filed March 13, 2008.

(3) Incorporated by reference to Virage Logic’s Registration Statement on Form S-1, as amended (File No. 333-36108).

(4) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(5) Incorporated by reference Appendix B of Virage Logic’s Proxy Statement filed on January 13, 2005.

(6) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(7) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2001.

(8) Incorporated by reference to Virage Logic’s Registration Statement on Form S-8 filed May 29, 2008.

(9) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001.

(10) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(11) Incorporated by reference to Virage Logic’s Annual Report on Form 10-K for the year ended September 30, 2002.

(12) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006.

(13) Incorporated by reference to Virage Logic’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

 # Confidential treatment has been granted with respect to portions of the exhibit. A complete copy of the agreement, including the redacted terms, has been separately filed with the Securities and Exchange Commission.

 * Management contract or compensatory plan or arrangement.

91

EX-10.21

Exhibit 10.21

Virage Logic Corporation

FY2009 Executive MBO Plan

1. Purpose

The Virage Logic Corporation FY2009 Executive MBO Plan (the “Plan”) is intended to: (i) enhance shareholder value by promoting direct linkages between key executive contributions and company performance; (ii) support achievement of the business objectives of Virage Logic Corporation and its subsidiaries (the “Company”); and (iii) promote retention of key executives.

2. Effective Date

This Plan is effective for the Company’s 2009 fiscal year beginning October 1, 2008, through September 30, 2009 (the “Fiscal Year”). This Plan is limited in time and will expire automatically on September 30, 2009 (“Expiration Date”). This Plan also supersedes all prior bonus or incentive plans, whether with the Company or any subsidiary or affiliate thereof, or any written or verbal representations regarding the subject matter of this Plan.

3. Administration

a) The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Administrator”). The Administrator shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (a) determine which executives are eligible to participate in the plan, (b) prescribe the terms and conditions of Payouts (as further defined in Section 5 below, the “Payouts”), (c) interpret the Plan and the Payouts, (d) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (e) interpret, amend or revoke any such rules. The Chief Financial Officer, Director of Human Resources and the Worldwide Corporate Controller will be responsible for implementing the Plan.

b) All determinations and decisions made by the Administrator, the Board, and any delegate of the Administrator pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law.

c) The Company shall provide a summary description of the Plan to each Participant (as defined in Section 4). Such officers as the Administrator may designate shall provide the Administrator with such interim reports on progress toward achievement of MBOs by Participants as the Administrator may request from time to time.

4. Eligibility

All executives directly reporting to the CEO and certain other executives may be eligible to participate in this Plan, provided he or she is designated by the Administrator as a participant and as to whom the Administrator has not, in its sole discretion, withdrawn such designation (a “Participant”) and he or she meets all the following conditions:

a) is employed by the Company as a full-time regular employee at the time of payout

b) is not concurrently participating in a sales incentive or commission plan, or in any other profit sharing or bonus plan provided by the Company without the express approval of the Administrator;

c) an executive who begins employment or otherwise becomes eligible for participation will do so on a pro-rated basis, based on complete weeks.

d) has not transferred to a position with the Company that is not eligible for participation in the Plan (as determined in the Administrator’s sole discretion)

e) is not subject to a performance improvement plan or other disciplinary actions (as evidenced by the Company’s personnel records relating to such person)

5. Plan Metrics

a) Payout under this Plan for each Participant will be calculated based upon the following formula: (S (goal weighting * goal achievement)) * On Target Bonus); provided, however, that no amounts shall be paid out under this Plan unless the conditions set forth in section 5 (f) are satisfied

b) The Goal Weighting is the percentage weight assigned to each individual goal with the sum of the goal weightings equal to 100%.

c) Goal Achievement is a percentage of goal achievement as graded by the CEO for all Participants except the CEO, whose grading will be done by the Administrator.

d) Goals may not exceed 100% achievement for linear goals. Some goals are binary, meaning that their achievement is either 100% or 0%. These binary goals may not exceed 100%.

e) On Target Bonus is the number of restricted stock units (“RSUs”) assigned to each executive calculated as the monetary value of the RSUs as a percentage of the executive’s annual base salary. There is a target bonus for each participant for the year; each quarter’s target bonus is 25% of the individual’s target bonus for the year (or such other weighting as the Administrator may determine).

f) Payouts of bonuses earned upon achievement of MBOs are contingent upon the Company achieving at least 80% of the annual revenue level set forth in the Company’s annual operating plan as approved by the Company’s Board of Directors (AOP) and at least 80% of the annual non-GAAP earnings per share set forth in the AOP (together referred to as the “Financial Hurdles”). Only 75% of the MBO bonus earned by Participants for the first and second quarters shall be paid at the time earned. The remaining 25% of each such bonus shall be held back by the Company pending determination of whether the Financial Hurdles are achieved at the conclusion of the fourth quarter. In addition, with respect to the third fiscal quarter, the Administrator shall have the authority to withhold all or any portion of any MBO bonus earned for such quarter if, in the Administrator’s judgment, it appears that the Company may fail to achieve one or both of the Financial Hurdles. If the Company fails to achieve either of the Financial Hurdles, then all amounts held back from prior quarter amounts shall be forfeited and not earned or paid. Any amounts actually paid (and not held back) for such prior quarters shall not be recoverable from the Participant if the Company fails to achieve the Financial Hurdles

6. Timing and Form of Payment of Payouts

Subject to the terms and conditions of this Plan, Payouts shall be made on a quarterly basis within 30 days after the public announcement of the Company’s quarterly financial results. Payouts shall be paid in the form of RSUs with immediate vesting.

7. Plan Changes; No Entitlement

The Compensation Committee of the Board may at any time amend, suspend, or terminate this Plan, including it may amend the Plan so as to ensure that no amount paid or to be paid hereunder shall be subject to the provision of Internal Revenue Code Section 409A(a)(1)(B). Nothing in this Plan is intended to create an entitlement to any employee for any incentive payment hereunder.

8. General Provisions

a) Tax Withholding. The Company shall withhold all applicable taxes from any Payout, including any federal, state and local taxes. RSUs shall be net settled, meaning that the Company shall pay any federal, state and local taxes incurred by the vesting of the RSUs and withhold RSU shares from the executive in settlement of the taxes.

b) No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment or service at any time, with or without cause. Employment with the Company is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time, to terminate any individual’s employment with or without cause without regard to the effect it might have upon him or her as a Participant under this Plan.

c) Non-transferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.

d) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

e) Governing Law. The Plan and all awards shall be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.

f) Entire Agreement. This Plan, and any resolutions of the Compensation Committee or the Board amending the Plan, is the entire understanding between the Company and the executive regarding the subject matter of this Plan and supersedes all prior bonus or commission incentive plans, or employment contracts whether with any subsidiary, or affiliate thereof (including Virage Logic Corporation) or any written or oral representations regarding the subject matter of this Plan. Participation in this Plan during the Fiscal Year will not convey any entitlement to participate in this or future plans or to the same or similar bonus benefits. Payments under this Plan are an extraordinary item of compensation that is outside the normal or expected compensation for the purpose of calculating any extra benefits, termination, severance, redundancy, end-of-service premiums, bonuses, long-service awards, overtime premiums, pension or retirement benefits or other similar payment.

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF VIRAGE LOGIC CORPORATION

Ingot Systems Pvt. Ltd.

Virage Logic International, a California corporation

Virage Logic International owns the following subsidiaries:

Virage Logic International GmbH, a German corporation

Virage Logic International KK, a Japanese corporation

Virage Logic International Ltd., an Israeli corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-46422, 333-60268, 333-75496, 333-82702, 333-90770, 333-103151, 333-105542, 333-105545, 333-112709, 333-116907, 333-127207, 333-122715 and 333-151236) of Virage Logic Corporation of our reports dated December 15, 2008 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appear in this Annual Report on Form 10-K.

/s/ Burr, Pilger & Mayer LLP

San Jose, California

December 15, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13(a)-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alexander Shubat, certify that:

1. I have reviewed this annual report of Virage Logic Corporation on Form 10-K for the year ended September 30, 2008;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 15, 2008

/s/    ALEXANDER SHUBAT        

Dr. Alexander Shubat

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13(a)-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian Sereda, certify that:

1. I have reviewed this annual report of Virage Logic Corporation on Form 10-K for the year ended September 30, 2008;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 15, 2008

/s/    BRIAN SEREDA        

Brian Sereda

Vice President of Finance and Chief Financial Officer

(Principal Accounting Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Virage Logic Corporation (the “Company”) on Form 10-K for the fiscal year ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alexander Shubat, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in this Report.

/s/    ALEXANDER SHUBAT        

Dr. Alexander Shubat

President and Chief Executive Officer

December 15, 2008

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Virage Logic Corporation (the “Company”) on Form 10-K for the fiscal year ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Sereda, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the period expressed in this Report.

/s/    BRIAN SEREDA        

Brian Sereda

Vice President of Finance and Chief Financial Officer

(Principal Accounting Officer and Principal Financial Officer)

December 15, 2008