As filed with the Securities and Exchange Commission on July 27, 2010

Registration No. 333-166650

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

AMENDMENT NO. 3
TO
FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

WINTEGRA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		3674		74-2943320
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

6850 Austin Center Blvd., Suite 215
Austin, TX 78731
(512) 345-3808

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

 

Jacob (Kobi) Ben-Zvi
President and Chief Executive Officer
6850 Austin Center Blvd., Suite 215
Austin, TX 78731
(512) 345-3808

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

 

Copies to:

Bruce A. Mann, Esq. Andrew D. Thorpe, Esq. Morrison & Foerster LLP 425 Market Street, 32nd Floor San Francisco, CA 94105 Tel: (415) 268-7000 Fax: (415) 268-7522		Ayal Shenhav, Adv. Amir Raz, Adv. Shenhav & Co. Or Towers, Building B 4 Hanechoshet Street Tel Aviv 69710, Israel Tel: (972-3) 611-0760 Fax: (972-3) 611-0788		Colin J. Diamond, Esq. Joshua G. Kiernan, Esq. White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Tel: (212) 819-8200 Fax: (212) 354-8113		Clifford M.J. Felig, Adv. David S. Glatt, Adv. Meitar Liquornik Geva & Leshem Brandwein 16 Abba Hillel Rd. Ramat Gan, Israel 52506 Tel: (972-3) 610-3100 Fax: (972-3) 610-3111

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated July 27, 2010.

PROSPECTUS

Shares

Wintegra, Inc.

Common Stock

This is the initial public offering of the common stock of Wintegra, Inc. We are offering          shares of our common stock and the selling stockholders identified in this prospectus are offering          shares. We will not receive any proceeds from the sale of shares held by the selling stockholders. No public market currently exists for our common stock.

We have applied to list our common stock on the Nasdaq Global Market under the symbol “WNTG.”

We anticipate that the initial public offering price will be between $     and $     per share.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 10 of this prospectus.

		Per Share				Total
Price to the public		$				$
Underwriting discounts and commissions		$				$
Proceeds to us (before expenses)		$				$
Proceeds to the selling stockholders (before expenses)		$				$

We and the selling stockholders have granted the underwriters a 30-day option to purchase an additional       shares of common stock on the same terms and conditions set forth above if the underwriters sell more than      shares of common stock in this offering.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Barclays Capital, on behalf of the underwriters, expects to deliver the shares on or about     , 2010.

Barclays Capital		Deutsche Bank Securities

 

Needham & Company, LLC		Oppenheimer & Co.		Roth Capital Partners

Prospectus dated           , 2010

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WINTEGRA, INC.

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		Page
Prospectus Summary			1
Risk Factors			10
Special Note Regarding Forward-Looking Statements			28
Use of Proceeds			29
Dividend Policy			29
Capitalization			30
Dilution			31
Selected Consolidated Financial Data			33
Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Business			54
Management			69
Compensation Discussion and Analysis			76
Certain Relationships and Related Party Transactions			97
Principal and Selling Stockholders			100
Description of Capital Stock			104
Shares Eligible for Future Sale			108
Material U.S. Federal Tax Consequences to Non-U.S. Holders			110
Underwriting			113
Legal Matters			120
Experts			120
Where You Can Find Additional Information			120
Index to Consolidated Financial Statements			F-1

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Through and including         , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our Company

We are a leading provider of highly integrated network processors optimized for mobile backhaul, 3G and 4G wireless and wireline broadband networks. Our high performance, comprehensive solutions integrate our proprietary processor architecture and networking software into a single semiconductor device to provide distinct data and control path processing capabilities to communications infrastructure original equipment manufacturers, or OEMs. The separation of data path, or data transport, processing from control path, or data transport management, processing enables higher performance and more cost efficient and scalable solutions. Our solutions offer our customers compelling benefits in processing speed while reducing power consumption, footprint, system complexity and cost. Our solutions also reduce the need for costly external companion chips to provide additional functionality.

3G and 4G wireless networks are built using base stations, or wireless communications equipment that handles the transmission and reception of voice, video and data traffic to and from mobile devices, and other accompanying equipment. The mobile backhaul network connects wireless network users to the core network, which is responsible for transporting large volumes of data traffic between and within cities. The wireline broadband network, which can consist of passive optical networks, or PON, digital subscriber lines, or DSL, and cable broadband, or HFC, access networks, transports voice, video and data traffic to and from commercial and residential users and the core network.

Our customers use our network processor solutions to rapidly bring to market feature-rich products that not only meet existing network requirements, but also support the migration of existing networks to Internet Protocol, or IP, which is a communications system that divides content into smaller digital “packets” and transports these packets on a “best efforts” basis rather than across the dedicated connections used by legacy networks. By integrating processing requirements and multiple IP and legacy interfaces, our network processors deliver a complete system solution that offers enhanced functionality, flexibility and interoperability with existing communication platforms.

We are a fabless semiconductor company that was founded in 2000 and shipped our first product in 2001. As a fabless semiconductor company, we specialize in the design and sale of our network processors and outsource the fabrication, assembly and testing of our processors to third parties. Our network processors are used in communications system infrastructure, such as cell-site routers and other mobile backhaul equipment, 3G and 4G wireless base stations and accompanying equipment, such as radio network controllers, or RNCs, and wireline broadband access equipment. By supporting over 60 communications protocols, or formats and rules-based procedures governing the exchange of data, our solutions address the requirements of traditional and emerging network technologies, including IP, and can be deployed across multiple end-markets in wireless and wireline networks. Our solutions have been designed into equipment for many leading communications infrastructure OEMs, such as Alcatel-Lucent, Alvarion, Cisco, Datang, ECI, Ericsson, Huawei, Interphase, Motorola, New Postcom, Potevio, RAD, Tellabs and ZTE. Currently our solutions are utilized in networks worldwide by major communications service providers, including AT&T, Bell Canada, British Telecom, China Mobile, China Telecom, China Unicom, Chunghwa Telecom, Cox, Deutsche Telekom, France Telecom, KDDI, Korea Telecom, NTT Docomo, Orange, Sprint, Telecom Italia, Telefonica, Verizon and Vodafone. We generated $28.6 million in revenue in 2009, and for the first quarter of 2010 our revenue grew to $12.1 million from $6.3 million in the first quarter of 2009, an increase of 92%. In the second quarter of 2010, our revenue grew to $14.2 million from $6.7 million in the second quarter of 2009, an increase of 112%. We experienced a net loss of $2.0 million, $0.9 million and $0.5 million for the year ended December 31, 2009 and for the first and second quarters of 2009, respectively, and net income of $1.6 million and $2.8 million for the first and second quarters of 2010.

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Our Industry

Changes in the communications industry are creating opportunities for our network processor solutions. New wireless devices, such as smartphones, laptops, netbooks, e-readers and mobile gaming devices, as well as new content and applications, are driving consumer demand for fast, personalized, content-rich, easy-to-use communications applications. The proliferation of IP-based video, including user-generated video, Internet Protocol television, or IPTV, which is a system for delivering television content via the Internet, streaming web video, video conferencing and mobile video, enabled by 3G and the advent of 4G (including long-term evolution, or LTE, and WiMax communications technologies) wireless networks and wireline broadband networks, has further accelerated the growth in network traffic and placed significant strains on existing communications networks.

The increase in mobile data traffic has strained the existing mobile network infrastructure, which was designed to handle voice traffic. Competition among wireless service providers to provide the most comprehensive array of services at a low price point to all consumers in a geographic region has resulted in networks comprised of a variety of disparate technologies. This patchwork of technologies has created increasingly complex networks with multiple protocols and bottlenecks. As a result, service providers are seeking solutions that improve profitability by utilizing scalable, low-cost, high-bandwidth mobile network architectures as they transition infrastructures from legacy networks optimized for voice to IP networks equipped to handle the demands for mobile data transmission.

Communications infrastructure OEMs, into whose products our network processor solutions are incorporated, typically provide products that target the mobile backhaul network market, the 3G and 4G base station and RNC market, and/or the wireline broadband network market, each of which serves a specific and crucial function in managing IP/packet-based data traffic. The need for OEMs to quickly bring to market network solutions that satisfy the increasing end user demand for new data-intensive services has created an opportunity for semiconductor suppliers that can provide complete, flexible and scalable solutions. In addition, these solutions must cost effectively support multiple networking protocols and must be able to support delivery of a variety of rich content without sacrificing performance. Most importantly, these solutions must enable OEMs to help service providers leverage their existing infrastructures while offering them the flexibility to cost-effectively migrate to IP networks.

Our Competitive Strengths

Our solutions have the following key features and competitive strengths:

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Our Growth Strategies

In order to enhance our position as a leading provider of highly integrated network processors optimized for mobile backhaul, 3G and 4G wireless and wireline broadband networks, we intend to:

Risk Factors

Our business is subject to numerous risks and uncertainties, such as those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary, including:

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Company Information

We were incorporated in Delaware in January 2000. Our principal executive offices in the United States are located at 6850 Austin Center Blvd., Suite 215, Austin, TX 78731. Our largest office and research and development facilities are located in Ra’anana, Israel, and all of our sales are generated through Wintegra Ltd., our wholly-owned subsidiary in Israel. Our assets are located in Israel, the United States and the United Kingdom. Our telephone number is (512) 345-3808. Our website is www.wintegra.com. The reference to our website is an inactive textual reference only and the information contained on our website is not a part of this prospectus.

Wintegra® and WinPath® are our registered trademarks. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of the respective holders.

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THE OFFERING

The number of shares of common stock to be outstanding after this offering is based on 20,226,497 shares outstanding as of June 30, 2010 after giving effect to the exercise of warrants and the conversion of all outstanding preferred stock into common stock upon the completion of this offering as described below, and excluding:

Except as otherwise indicated, all information in this prospectus:

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SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated statement of operations data for each of the three years in the period ended December 31, 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The actual summary consolidated balance sheet data as of June 30, 2010 and the summary consolidated statement of operations data for the six months ended June 30, 2009 and 2010 have been derived from our unaudited consolidated condensed financial statements included elsewhere in this prospectus. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period.

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue		$	29,465			$	30,171			$	28,578			$	12,981			$	26,309
Cost of revenue			6,331				6,414				6,384				2,732				7,734
Gross profit			23,134				23,757				22,194				10,249				18,575
Operating expenses:
Research and development(1)			14,430				17,711				15,522				7,558				9,229
Selling and marketing(1)			5,901				7,330				6,420				3,189				3,935
General and administrative(1)			2,024				2,568				1,472				803				832
Abandonment of lease agreement(2)			—				—				643				—				—
Total operating cost and expenses			22,355				27,609				24,057				11,550				13,996
Operating income (loss)			779				(3,852	)			(1,863	)			(1,301	)			4,579
Financial income (expenses), net(3)			471				133				(144	)			(86	)			(169	)
Net income (loss)		$	1,250			$	(3,719	)		$	(2,007	)		$	(1,387	)		$	4,410
Net income attributable to preferred stockholders		$	1,250			$	—			$	—			$	—			$	1,772
Net income (loss) attributable to common stockholders		$	—			$	(3,719	)		$	(2,007	)		$	(1,387	)		$	2,638
Basic net income (loss) per share of common stock		$	—			$	(0.79	)		$	(0.41	)		$	(0.28	)		$	0.53
Diluted net income (loss) per share of common stock		$	—			$	(0.79	)		$	(0.41	)		$	(0.28	)		$	0.20
Shares used in computing basic net income (loss) per share attributable to common stockholders			4,539				4,705				4,916				4,909				4,954
Weighted average number of shares used in computing diluted net income (loss) per share attributable to common stockholders			4,539				4,705				4,916				4,909				21,603
Pro forma net income (loss) per share (unaudited)(4):
Basic										$	(0.10	)						$	0.22
Diluted										$	(0.10	)						$	0.20
Weighted average number of shares of common stock used in computing pro forma net income (loss) per share (unaudited):
Basic											20,140								20,189
Diluted											20,140								22,268

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		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands)
Other Data:
Adjusted net income (loss)(5)		$	2,705			$	(1,329	)		$	869			$	(211	)		$	5,587

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands)
Research and development		$	616			$	1,048			$	1,169			$	612			$	629
Selling and marketing			242				415				476				253				259
General and administrative			597				927				375				205				182
Total		$	1,455			$	2,390			$	2,020			$	1,070			$	1,070

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands)
Financing expenses, net		$	—			$	—			$	213			$	106			$	107

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands)
Net income (loss)		$	1,250			$	(3,719	)		$	(2,007	)		$	(1,387	)		$	4,410
Stock-based compensation			1,455				2,390				2,020				1,070				1,070
Expenses related to warrants to a lender			—				—				213				106				107
Abandonment of lease agreement			—				—				643				—				—
Adjusted net income (loss)		$	2,705			$	(1,329	)		$	869			$	(211	)		$	5,587

Adjusted net income (loss) is used by management to measure our core operating performance, and we are presenting it as a supplemental, non-GAAP financial measure. Adjusted net income (loss) represents net income (loss) excluding non-cash stock-based compensation expense and expenses related to warrants granted to a lender, and expenses related to the abandonment of a lease agreement. We believe that adjusted net income (loss) provides useful information by excluding certain items that may not be representative of our core operating results or business outlook. In addition, we believe that adjusted net income (loss) facilitates operating performance comparisons from period to period, and from company to company, by eliminating the following potential

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differences. We eliminated the effect of non-cash stock-based compensation to address the disparate impact of non-cash stock-based compensation expense across companies, which varies depending on available valuation methodologies, the volatility of the expense (which depends on market forces outside of management’s control), the subjectivity of the assumptions and the variety of award types that a company can use under the relevant accounting guidance. We eliminated the effect of non-cash expense related to warrants granted to a lender to address the different financing arrangements utilized across companies and the fact that our outstanding warrants will be exercised and converted into common stock upon the consummation of this offering. We eliminated the effect of the expense incurred in 2009 related to the abandonment of a lease agreement because it was related to a dispute with a landlord and we do not believe that such an expense is reasonably likely to recur within two years, nor was there a similar charge within the two years prior to 2009.

Adjusted net income (loss) is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP and it should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Adjusted net income (loss) has limitations as an analytical tool, including the following: (i) non-cash stock-based compensation is and will remain a key element of our overall compensation program; and (ii) other companies in our industry may calculate adjusted net income (loss) differently than we do, limiting its usefulness as a comparative measure.

		As of June 30, 2010
		Actual				Pro Forma				Pro Forma As Adjusted
		(in thousands)
		(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	12,685			$	16,690			$
Short-term deposits			1,173				1,173
Working capital			19,324				23,329
Total assets			33,985				37,990
Total liabilities			8,666				8,666
Total stockholders’ equity			25,319				29,324

The foregoing table presents a summary of our consolidated balance sheet data as of June 30, 2010:

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before making an investment in our common stock, you should carefully consider the following risk factors, in addition to the other information included in this prospectus. If any of the following risks occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Related to Our Business

The demand for our solutions depends in large part on continued capital spending by communications service providers on infrastructure to provide high-capacity wireless and wireline communications services.

Our products are used in communications service providers’ networks in order to optimize their network infrastructure. As a result, our growth is dependent on, among other things, the size of the market for high-capacity wireless and wireline communications services, the rate at which such market develops, and the level of capital spending by communications service providers. Demand for our products depends on the magnitude and timing of capital spending by service providers as they extend and migrate their existing access networks to Internet Protocol, or IP. We cannot assure you of the rate, or extent to which, capital spending in the communications equipment industry will grow, if at all. Furthermore, industry growth rates may not be as forecast, resulting in spending on product development well ahead of market requirements.

The communications equipment industry has from time to time experienced and may again experience downturns. For example, the financial crisis of late 2008 impacted the communications equipment industry in late 2008 and in 2009 and resulted in a decrease in spending and growth. To respond to a downturn, many service providers may be required to reduce their capital expenditures, cancel or delay new developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies from OEMs, which would have a negative impact on our business. In the future, a failure of the communications equipment industry to grow as anticipated, a decrease or delay in capital spending or a downturn in the communications equipment industry may cause our operating results to fluctuate from period to period, which also may tend to increase the volatility of the price of our common stock and harm our business.

Sales of solutions to the mobile backhaul market have represented a significant portion of our revenue from 2008 to date, and any deterioration in demand for mobile backhaul solutions would adversely affect our results of operations and future prospects.

We currently sell our network processor solutions for deployment in the mobile backhaul, wireless base stations and radio network controllers (RNC), and wireline broadband including digital subscriber line (DSL) and passive optical networking (PON). However, sales to the mobile backhaul market represented 21% of our revenue in 2007, 34% of our revenue in 2008, 54% of our revenue in 2009 and 64% of our revenue in the first half of 2010. We anticipate that sales to the mobile backhaul market will continue to represent a high percentage of our revenue in 2010 and will be our most significant growth opportunity. Demand for mobile backhaul services will depend on the extent to which communications service providers seek to address bottlenecks in the communications network caused by growth in demand for services such as high speed data service, video phone capability, telephone photography, streaming video, downloadable music, and video games. Communications service providers are in the process of adopting third generation, or 3G, technology and are beginning to adopt fourth generation, or 4G, technologies, including LTE and WiMax, in order to facilitate these services. If these technologies are ineffective or less effective than expected in addressing network bottlenecks created by the demand for such services, communications service providers may reduce their purchases of our solutions. Any significant deterioration in investment in mobile backhaul solutions would adversely affect demand for our products and our results of operations and future prospects.

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Our efforts to expand our sales to other communications infrastructure markets may not result in significant revenue and may cause our profit margins to decline.

Part of our business strategy is to expand into new markets for our second and third generation network processors. For example, our third generation WinPath products are being designed for our customers’ microwave mobile backhaul equipment and 4G-LTE base stations. We may expand into new markets through internal development efforts, through acquisitions of companies or technologies, or through a combination of these methods. Our efforts may not result in sales that are sufficient for us to recoup our investment, and we may experience higher costs than we anticipated. For example, we may not be able to manufacture our solutions at a competitive cost, we may need to rely on new suppliers or we may find that development efforts are more costly or time consuming than we anticipate. Our solutions may support technologies that are not widely adopted. If we choose to expand by acquiring another company, we may not be able to integrate the other company successfully into our operations, which may mean that we could have difficulty retaining employees from the acquired company or integrating its technology into our products. We may have difficulties entering markets where competitors have strong market positions. We may be unsuccessful in having our solutions designed into products for these markets or we may need to lower our prices to win new business, which could reduce our gross margins.

We rely on Taiwan Semiconductor Manufacturing Company, Ltd., or TSMC, and on Texas Instruments, Incorporated, or TI, to manufacture and Advanced Semiconductor Engineering, Inc., or ASE, to assemble and test our current solutions. If we fail to secure and maintain sufficient capacity with these subcontractors and fail to secure alternative sources, we may be unable to meet our customers’ demand on a timely basis, which would negatively impact our market share and operating results.

We are a fabless semiconductor company in that we do not own or operate a fabrication or manufacturing facility. TSMC and TI manufacture, and ASE assembles and tests, all of our network processor solutions currently in production. We do not have long-term supply agreements with TSMC, TI or ASE, and therefore we do not have any guaranteed capacity. If the semiconductor market enters a period of high demand, these subcontractors may reduce capacity allocated to us. In addition, we may experience delays due to technical and quality control problems or any damage, power outages, financial difficulties or any other disruptions at our subcontractors’ facilities or those of their suppliers. For example, in late 2009 and early 2010, capacity constraints at TI resulted in us delivering shipments of our products late to customers and we were forced to pay expediting fees in order to make deliveries. As a result, our quarterly revenue, results of operations and net income for the quarters ended December 31, 2009 and March 31, 2010 were below our expectations.

In the future, if any of these events occur, we may be unable to meet our customers’ demand on a timely basis, or at all, and may need to successfully secure an alternative facility in a timely manner to avoid a business disruption. We expect it could require several months or more to secure a new facility or process before we can begin shipping our solutions. If we cannot accomplish this qualification in a timely manner, we would experience a significant interruption in supply to our customers. If we are unable to secure sufficient capacity at our subcontractors’ existing facilities, or in the event of a closure or significant delay at any of these facilities, our relationships with our customers would be harmed and our market share and operating results could suffer as a result.

We do not have long-term pricing agreements with our subcontractors. Our pricing terms are typically determined on an annual basis. If our subcontractors’ pricing increases, or does not decrease relative to our average selling prices, and we are unable to pass along such costs to our customers, our operating results would be adversely affected.

We incurred operating losses in the past and may not sustain or increase our profitability.

We incurred net losses of approximately $2.0 million and $3.7 million for the years ended December 31, 2009 and 2008, respectively, and net income of $1.3 million, $1.6 million and $2.8 million for the year ended December 31, 2007 and for the three months ended March 31 and June 30, 2010, respectively. Despite realizing net income in 2007, in the fourth quarter of 2009 and in the first and

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second quarters of 2010, we may incur losses in the future. For example, we may experience losses in the future as we expand and increase our research and development and sales and marketing activities. The future success of our business will depend on our ability to increase sales of our existing solutions, to enhance our existing products and to continue to develop new technologies. We have a limited record of profitability and we may not continue to be profitable in the future.

Because we depend on a relatively small number of customers for a substantial portion of our revenue, a significant decline in these customers’ demand for our solutions or loss of a key customer or our failure to attract new significant customers could adversely impact our revenue and harm our business.

To date, we have derived a substantial portion of our revenue from a relatively small number of customers. Sales to customers representing more than 10% of our revenue accounted for 57% of our total revenue for the year ended December 31, 2009 and sales to our top five customers represented 67% of our revenue in 2009. In 2009, Alcatel-Lucent accounted for 24%, Tellabs accounted for 23% and Ericsson accounted for 10% of our revenue. In the six months ended June 30, 2010, Alcatel-Lucent accounted for 30%, Tellabs accounted for 15% and Cisco accounted for 12% of our revenue. A number of factors could cause our major customers to cancel or defer purchases of our solutions. These factors include interruptions in their operations due to a downturn in the communications equipment industry or delays in manufacturing their own product offerings into which our solutions are incorporated. Our customers could cease purchasing our solutions with little or no notice to us without significant penalty. The loss of any significant customer, a decline in business with any significant customer or the cancellation or deferral of purchases of our solutions by a significant customer would cause our revenue to decline materially if we are unable to increase our revenue from other customers.

Due to the cyclical nature of the semiconductor industry, our operating results may fluctuate significantly, which could adversely affect our business and the market price of our common stock.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, product obsolescence and price erosion, evolving technical standards, short product life cycles and wide fluctuations in product supply and demand. The industry has experienced significant downturns which are often characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. These factors could cause substantial fluctuations in our revenue and in our operating results. Any downturns in the semiconductor industry may be severe and prolonged, and any failure of the market to fully recover from downturns could harm our business. The semiconductor industry also periodically experiences unforeseen increases in demand, often resulting in production capacity constraints. Accordingly, our operating results may vary significantly as a result of conditions in the semiconductor industry, which could cause our stock price to decline.

Our sales are subject to a competitive selection process that can be lengthy and requires us to incur significant expense, and we ultimately may not be selected.

We compete in bid selection processes to achieve design wins, which refer to the inclusion of our network processor solutions in our customers’ products under development. These selection processes can be lengthy and can require us to invest significant effort and incur significant design and development expenditures. We may not win competitive selection processes and may not generate revenue despite incurring significant design and development expenditures. Because the life cycles for our customers’ products can last several years and changing suppliers involves significant cost, time, effort and risk, our failure to win a competitive bid can result in our foregoing revenue from a given customer’s product line for the life of that product. In addition, design opportunities may be infrequent or may be delayed based on several factors, including delays in service providers’ migration from traditional to emerging networks. Failure to achieve design wins could result in lost sales and hurt our prospects for future competitive selection processes because we may not be perceived as a technology leader.

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Even after we achieve a design win, a customer may decide to cancel or change its product plans, or may fail to commercialize its products, either of which could cause us to fail to generate sales from a particular solution and adversely affect our results of operations.

Even after we achieve a design win, our customers frequently place considerable pressure on us to meet their often compressed development schedules. Accordingly, we devote a substantial amount of our limited resources to these relationships, which could detract from or delay our completion of other important projects. Our customer may not release into full production its product incorporating our solution until it has been validated by its service provider customer. After we secure a design win, our customers and the service providers typically require twelve to eighteen months to develop and test our customers’ products and commence production. However, these processes can sometimes last up to three years. The length of these processes can vary and is affected by several factors, including customer priorities, customer budgets, economic uncertainty, regulatory issues affecting communication equipment providers and unforeseen technical issues associated with the customer’s product design.

Due to this lengthy sales cycle, we may experience significant delays from the time we increase our operating expenses and make investments in inventory until the time that we generate revenue from these solutions. A delay or cancellation of a customer’s plans could have a significant adverse affect on our financial results, as we may have incurred significant expenses and generated no revenue. From time to time, we have experienced changes and cancellations in the purchase plans of our customers. These changes and cancellations may be influenced by a number of factors, including market conditions and changes in a customer’s strategic focus due to an acquisition by or sale of the customer. Finally, if our customers fail to successfully market and sell their products, it could have a material adverse affect on our business, financial condition and results of operations as the demand for our solutions declines.

We base our orders for inventory on our forecasts of our customers’ demand. If our forecasts are inaccurate, our financial condition and results of operations will suffer.

We place orders with our suppliers based on our forecasts of our customers’ demand, which is difficult to predict. An increasing number of our customers rely on contract manufacturers, which decreases our visibility into the inventory positions of our customers and makes it more difficult to predict demand for our solutions.

Our forecasts are based on multiple assumptions, each of which may introduce errors into our estimates. Because our solutions are designed for particular markets, we must estimate customer demand for each market. If we underestimate customer demand, we may forego revenue opportunities, lose market share and damage our customer relationships. In the past, we have underestimated demand for some of our customer programs, which required us to carefully manage our production schedules. Conversely, if we overestimate customer demand, we may incur manufacturing costs for devices that we may not be able to sell when we expect to or at all. As a result, we would have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our cost of revenue. Our failure to accurately manage inventory against demand would adversely affect our financial condition and results of operations.

The average selling prices for our network processor solutions have historically declined and will likely continue to do so in the future, which could harm our revenue and gross profits.

The average selling prices of our network processor solutions have declined in the past, and, consistent with industry trends, we anticipate that they will continue to decline. We cannot predict the timing of, or the amount of, any decline in our average selling prices. Additionally, because we do not operate our own manufacturing, assembly or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities, and our costs may even increase, which could reduce our margins. If we are unable to decrease per unit manufacturing costs faster than the rate at which average selling prices continue to decline, or if we are unable to introduce new products, our business, financial condition and results of operations will be seriously harmed.

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We face intense competition in the semiconductor industry, which could negatively impact our revenue.

The markets in which we compete are highly competitive and are characterized by rapid technological change, evolving industry standards, often lengthy product life cycles and price erosion. We face competition from many semiconductor companies in the markets we serve. We compete with application-specific standard products, or ASSPs, network processors, application-specific integrated circuits, or ASICs, field programmable gate arrays, or FPGAs, single and multi-core microprocessors and combinations of the above, which has resulted and may continue to result in declining average selling prices for our solutions. We believe we primarily compete with LSI, which offers ASICs, ASSPs and microprocessors, and Cavium, Freescale and NetLogic, each of which offer microprocessors. We face competition from EZchip, which offers network processors. We also face competition from Broadcom, Marvell, Maxim and Mindspeed, which offer ASSPs. In addition, we compete with the in-house capabilities of networking OEMs who develop ASICs and FPGAs that are often used in combination with third party microprocessors.

We expect competition to continue to increase in all of our markets, and new competitors may emerge over time as these markets mature. To remain competitive, our network processor solutions must, among other things:

Some of our competitors operate their own fabrication facilities, have longer operating histories and presence in key markets, greater name recognition, larger installed customer bases and greater financial resources than we have. They may be able to introduce new technologies, services or enhancements, respond more quickly to changing customer requirements or devote greater resources to the development, marketing and sale of their products than we can. Furthermore, in the event of a manufacturing capacity shortage, these competitors may be able to manufacture products when we are unable to do so. We cannot assure you that we will be able to compete successfully against current or new competitors, in which case we may lose market share in our existing markets and our revenue may fail to increase or may decline.

We have experienced rapid growth since the fourth quarter of 2009, and if we cannot adequately manage our growth, our results of operations will suffer.

Our business has grown rapidly since the fourth quarter of 2009. Our revenue increased from $5.9 million in the fourth quarter of 2008 to $8.5 million in the fourth quarter of 2009 and to $14.2 million in the second quarter of 2010. Our growth has put pressure on our management, operational and financial resources. In order to meet anticipated demand for our solutions, we will need to continue to add personnel, including additional sales and marketing, research and development and technical support personnel. We expect to continue to grow, which is likely to place continued pressure on our resources and will require us to incur additional expenses before experiencing an increase in revenue. Failure to effectively manage our future growth could harm our results of operations.

If we fail to secure or protect our intellectual property rights, other persons or entities may be able to use our technologies, which could weaken our competitive position, reduce our revenue or increase our costs.

Our future success depends, in part, on our ability to protect our intellectual property. Our know-how and trade secrets related to our network processor technology are an important aspect of our intellectual property rights. We have developed technical knowledge, which, although not patented, we consider to be significant to our competitive position. However, the proprietary nature of such knowledge may be

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difficult to protect. To protect our know-how and trade secrets, we customarily enter into confidentiality agreements with our employees, customers and consultants who are involved in our research and development activities or who otherwise have access to any of our proprietary information prohibiting these individuals from disclosing such proprietary information. Typically, our employment contracts also include clauses requiring our employees to assign us all inventions and intellectual property rights they develop in the course of their employment and to agree not to disclose our confidential information. These agreements may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure of this information, or in the event of a competing claim to this technology by a previous employer of any of our employees or consultants. We also seek to minimize disclosure of our source code to customers or other third parties without adequate confidentiality and non-disclosure obligations in place. We cannot be certain, however, that such measures will adequately prevent third parties from accessing our software, code or other proprietary information.

From time to time, we may discover that third parties are infringing, misappropriating or otherwise misusing our intellectual property rights. While we are not currently aware of infringement of our intellectual property rights or misappropriation of our existing technology, policing unauthorized use of our intellectual property and misappropriation of our technology is difficult. The steps we have taken may not prevent unauthorized use of our intellectual property and misappropriation of our technology, particularly in foreign countries where we have not applied for patent protections. Some foreign laws do not protect our intellectual property and proprietary rights to the same extent as U.S. or Israeli law. For example, we sell our solutions in countries such as China whose laws may provide for weaker protection of intellectual property rights than the laws of the United States or Israel. If competitors misappropriate our technology or infringe or otherwise misuse our intellectual property rights and we are not adequately protected, our competitive position could be harmed and our legal costs could increase.

We, like other companies in the semiconductor industry, may aggressively protect and pursue our intellectual property rights. To protect our intellectual property rights, we may become involved in litigation against parties whom we believe are infringing, misappropriating or otherwise misusing our intellectual property rights. These measures may not be adequate to protect our technology from third party infringement, misappropriation or misuse, and we may not prevail in such lawsuits. These lawsuits, moreover, may be costly and may divert management’s attention away from day to day operations. We may choose not to pursue patents or other protection for innovations that later prove important, or we may choose not to enforce our intellectual property rights. If any party infringes upon, misappropriates or otherwise misuses our intellectual property rights, this infringement, misappropriation or misuse could materially adversely affect our competitive position.

We have a limited patent portfolio and may be exposed to competitors who independently develop the same or similar technology or gain access to our knowledge.

As of June 30, 2010, we had two registered patents in the United States. We also have two registered trademarks for the Wintegra® and WinPath® marks. In the absence of significant patent protection, we may be exposed to competitors who independently develop the same or similar technology or gain access to our knowledge. It is possible that other persons or entities may have been issued patents or filed patent applications with respect to components of our network processor technology. While we may protect our intellectual property with, among other things, copyright, trade secret, patent and trademark protection, there can be no assurance that:

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Further, the process of seeking patent protection can be long and expensive and there can be no assurance that existing or future patent applications will result in patents being issued, or that existing patents or any patents that may be issued as a result of existing or future applications will provide meaningful protection or commercial advantage to us. Patent applications are often published as part of the patent application process, even if such applications do not issue as patents. When published, such applications will become publicly available and proprietary information disclosed in the application will become available to others. In addition, we do not know whether any patents will be upheld as valid or proven enforceable against alleged infringers or if they will prevent the development of competitive products or services. As a result, we may not be able to prevent others from offering similar products in the network processor market.

We may be subject to claims of infringement, misappropriation or misuse of third party intellectual property rights or demands that we license third party technology or claims for indemnification that, regardless of merit, could result in significant expense and loss of our intellectual property rights.

The semiconductor industry is characterized by the vigorous pursuit and protection of intellectual property rights. We have not undertaken a comprehensive review of the rights of third parties in our field. From time to time, we have received and may in the future receive notices or inquiries from third parties regarding our products or the manner in which we conduct our business suggesting that we may be infringing, misappropriating or otherwise misusing patent, copyright, trademark, trade secret and other intellectual property rights. Any claims that our network processor solutions infringe, misappropriate or otherwise misuse the rights of third parties, regardless of their merit or resolution, could be expensive to litigate or settle and could divert the efforts and attention of our management and technical personnel, cause significant delays and materially disrupt the conduct of our business. We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required to:

In this regard, on May 27, 2010, Atwater Partners of Texas LLC, named us, along with 24 other defendants, including several of our customers, in a lawsuit filed in the Eastern District of Texas, Marshall Division. Atwater has alleged that the defendants have infringed five of its patents and seeks a permanent injunction enjoining defendants from infringement, as well as unspecified damages, costs and expenses. We have not been served with process on this claim nor have we received a request for indemnification from any of the other defendants. Based on our investigation of this claim to date, we believe that we have valid defenses to Atwater’s claims of infringement. However, there can be no assurances that Atwater will not prevail in its claim against us for infringement, nor can there be any assurance that customers named as defendants in this claim will not sue us for indemnification or for breach of express or implied warranties that products sold by us do not infringe any third party’s intellectual property rights. An adverse outcome with respect to any such claim of infringement, indemnification or breach of warranty could have a material adverse impact on our business, operating results and financial condition.

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In addition, as is standard practice in our industry, many of our agreements with customers and manufacturing subcontractors require us to indemnify such customers and manufacturing subcontractors for third party intellectual property infringement claims. Pursuant to such agreements, we may be required to defend such customers and manufacturing subcontractors against certain claims that could cause us to incur additional costs. While we endeavor to include as part of such indemnification obligations a provision permitting us to assume the defense of any indemnification claim, not all of our current agreements contain such a provision and we cannot provide any assurance that our future agreements will contain such a provision, which could result in increased exposure to us in the case of an indemnification claim. An adverse determination in any litigation could trigger technical support and indemnification obligations in some of our agreements with customers and manufacturing subcontractors.

In this regard, from 2006 through 2010, we received letters from five of our customers, alleging that components of our products sold to customers and incorporated into customer products, may be implicated in certain patent litigation brought by QPSX Developments 5 PTY Ltd. (“QPSX”) in which our customers are defendants, and requesting that we indemnify the customers. At this time, we have not agreed to indemnify any customer with regard to this litigation and all but one customer, Ericsson, Inc., has settled with QPSX without continuing to seek indemnity from us. QPSX’s patent claim against Ericsson is currently stayed, pending QPSX’s appeal to the Board of Patent Appeals and Interferences of the USPTO regarding the USPTO’s rejection of the applicable claims in the subject patent. There can be no assurances that QPSX will not ultimately succeed in having its patent claims reinstated and subsequently succeed in suing Ericsson or other customers for infringement of those claims, nor can there be any assurance such customers will not sue us for indemnification or for breach of express or implied warranties that products sold by us do not infringe any third party’s intellectual property rights. In addition, there can be no assurance that QPSX will not assert claims of infringement of the subject patent or other patents against us or our other customers. An adverse outcome with respect to any such claim of infringement, indemnification or breach of warranty could have a material adverse impact on our business, operating results and financial condition.

Our products also contain technology provided to us by third parties. Because we did not develop such technology ourselves, we may have little or no ability to determine in advance whether such technology infringes, misappropriates or otherwise misuses the intellectual property rights of a third party. The third parties who have provided this technology to us may not be required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages.

Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

If we fail to keep pace with technological advances in our industry or if we pursue technologies that do not become commercially accepted, our business, financial condition and results of operations may be adversely affected.

The communications equipment industry into which our solutions are sold is characterized by intense competition, rapid technological change, frequent product introductions and improvements, evolving industry standards and changes in customer and end user requirements. Technology development is an important component of our business and growth strategy, and our success depends to a significant extent on the development, implementation and acceptance of new designs and improvements. Our ability to develop solutions and related technologies to meet evolving industry requirements and at prices acceptable to our customers will be significant factors in determining our competitiveness in our target markets.

Although we depend primarily on our own research and development efforts to develop new products and enhancements to our existing products, we have and may continue to seek licenses for new technology from third parties when we believe that we can obtain such technology more quickly and/or cost-effectively from such third parties than we could otherwise develop on our own, or when the

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desired technology has already been patented by a third party. There can, however, be no assurance that new technology or such licenses will be available on terms acceptable to us.

In order to successfully design, develop and introduce new solutions on a timely basis, we must maintain a close dialogue with our customers in order to anticipate their needs and ensure interoperability of our solutions and the products of our customers into which our solutions will be incorporated. We also must rely heavily on the judgment of our management to anticipate future market trends. Other network processor technologies not addressed by our solutions may become more widely accepted. If we fail to adequately predict our customers’ needs and technological advances, we may invest heavily in research and development of solutions that do not lead to significant revenue, or we may fail to invest in technology necessary to meet our customers’ demands.

Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business, fluctuations in currency exchange rates and other factors related to our international operations.

Our sales to customers in Europe, the Middle East and Africa, or the EMEA region, which consist of sales in Europe and in Israel, accounted for 46% and 44% of our revenue in the fiscal year ended December 31, 2009 and the six months ended June 30, 2010, respectively. Our sales in Israel accounted for approximately 8% and 9% of our revenue in the fiscal year ended December 31, 2009 and the six months ended June 30, 2010, respectively. We anticipate that a significant amount of our revenue will continue to be represented by sales to customers in the EMEA region. Our largest office and research and development facilities are located in Israel, and all of our sales are generated through our wholly-owned subsidiary in Israel, Wintegra Ltd. Operations in Israel accounted for a majority of our operating expenses in each of the last three years. Our sales to the Asia Pacific region accounted for approximately 16% and 12% of our revenue in the fiscal year ended December 31, 2009 and in the six months ended June 30, 2010, respectively. We anticipate that a significant amount of our revenue will continue to be represented by sales to customers in this region. Increased instability in the Middle East or Asia Pacific regions may adversely impact the desire of our employees and customers to travel, as well as the reliability and cost of transportation, which in turn would harm our business. Risks we face in conducting business internationally include:

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In addition, we face risks associated with political tensions between countries in the Asia Pacific region, potentially reduced protection for intellectual property rights, government-fixed foreign exchange rates, relatively uncertain legal systems and developing communications infrastructures. In addition, some countries in this region, such as China, have adopted laws, regulations and policies which impose additional restrictions on the ability of foreign companies to conduct business in that country or otherwise place them at a competitive disadvantage in relation to domestic companies.

We prepare our financial statements in U.S. dollars. Substantially all of our revenue and a majority of our cost of revenue are denominated in U.S. dollars, but we pay a substantial portion of our operating expenses in New Israeli Shekels, or NIS, and other currencies. Changes in exchange rates will result in increases or decreases in our costs and earnings and may also affect the book value of our assets and liabilities. To the extent we sell our products in foreign markets, currency fluctuations may cause our solutions to become too expensive for foreign customers. For example, some of our customers in Europe pay us in U.S. dollars but then sell their products for euros. If the euro is devalued against the U.S. dollar, our solutions will become more expensive for these customers.

The facilities that manufacture, assemble and test our products, and many of our customers and their service provider customers, are located in regions that are subject to earthquakes and other natural disasters.

Two of our three subcontractors that currently manufacture, assemble and test our products are located in Taiwan. Our third subcontractor that manufactures our products is based in Texas in the United States. Many of our customers also operate manufacturing facilities in the Asia Pacific region, and many of their service provider customers are also located in this region. The Asia Pacific region has experienced significant earthquakes in the past and could be subject to future seismic activities. Any earthquake or other natural disaster in these areas could significantly disrupt these companies’ production capabilities, impact prices and result in our experiencing a significant delay in delivery, or a substantial shortage of silicon wafers for our solutions. In addition, any disruption in the operations of our customers and their service provider customers could also decrease demand for our solutions.

We rely on third party sales representatives to assist in selling our solutions, and the failure of these representatives to perform successfully could reduce our future sales.

Third party sales representatives enhance our sales and marketing efforts by sourcing sales opportunities and assisting our internal sales and marketing teams in competing for design wins. Third party sales representatives also assist in the sales forecasting and relationship management processes. We are unable to predict the extent to which our third party sales representatives will be successful in marketing and selling our solutions. Our third party sales representatives may terminate their relationships with us at any time and could commence the marketing and sale of competing products. Our future performance will also depend, in part, on our ability to attract additional third party sales representatives that will be able to market and support our solutions effectively, especially in markets in which we have not previously distributed our solutions extensively. If we cannot retain our current third party sales representatives or recruit additional or replacement third party sales representatives, our sales and operating results could be harmed.

Because many of our current and planned solutions are highly complex, they may contain defects or errors that are detected only after deployment in commercial applications. Moreover, our customers may bundle our solutions with the products of other providers that contain defects that are wholly unrelated to our solutions. In either instance, if this occurs, it could harm our reputation and result in reduced revenue or increased expenses.

Our solutions are highly complex and may contain undetected defects, errors or failures. Our solutions can only be fully tested when deployed in commercial applications and other equipment.

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Consequently, our customers may discover errors after the solutions have been shipped. The occurrence of any defects, errors or failures could result in:

Any of these occurrences could also result in the loss of or delay in market acceptance of our solutions and loss of sales, which would harm our business and adversely affect our results of operations. While we have not experienced any product defects that have materially impacted our operations to date, we have from time to time experienced defects in our solutions and expect to experience defects in the future. We may in the future incur costs associated with warranty claims. The trend in our industry is moving toward even more complex solutions in the future, and therefore, this risk will intensify over time and may result in increased expenses.

In addition, our customers may bundle or incorporate our solutions into complex systems that contain errors or defects that are wholly unrelated to our solutions. Such occurrences may result in undue delays or cancellations of the implementation of our customers’ bundled products and services. In such cases, our reputation could be harmed and our results of operations could be adversely affected, which could result in reduced revenue or increased expenses.

We may be unable to attract, retain and motivate key senior management and technical personnel, which could harm our development of technology and ability to be competitive.

Our future success depends to a significant extent upon the continued service of our key personnel, including Jacob (Kobi) Ben-Zvi, our co-founder and Chief Executive Officer, Robert O’Dell, our co-founder and Executive Vice President of Marketing and Sales, and our other senior executives and key technical personnel. We do not have long-term employment agreements with these executives or any other key employees. The loss of the services of Mr. Ben-Zvi, Mr. O’Dell or other senior management or technical personnel could harm our business. If our business continues to grow, we will need to hire additional qualified research and development, sales and marketing and managerial personnel to succeed. The process of hiring, training and successfully integrating qualified personnel into our operations is a lengthy one. The market for the qualified personnel we require is competitive because of the limited number of people available with the necessary technical and sales skills and understanding of our solutions and technology. Our failure to hire and retain qualified employees could cause our revenue to decline and impair our ability to meet our research and development and sales objectives. Stock options generally comprise a significant portion of our compensation packages for all employees, and the expected volatility in the price of our common stock may make it more difficult for us to attract and retain key employees, which could harm our ability to increase sales of our solutions and continue to develop competitive solutions.

Unanticipated changes to our tax rates or exposure to additional income and other tax liabilities could affect our future operating results.

Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or their interpretation. We regularly assess the potential outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from such examinations will not have an effect on our operating results and financial condition.

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Under current U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of our former employees.

We have entered into non-competition agreements with all of our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under current U.S. and Israeli law, we may be unable to enforce these agreements, and it may be difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us. For example, Israeli courts have recently required employers seeking to enforce non-competition agreements of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees.

We may acquire complementary businesses or technologies or engage in joint ventures or other transactions that may expand our business. These transactions could divert our resources, cause dilution to our stockholders and adversely affect our results of operations.

We may acquire additional complementary businesses or technologies or engage in joint ventures or other transactions to expand our business. We have not made any acquisitions to date and our management has not had any experience making acquisitions or integrating acquired businesses. Negotiating potential acquisitions or integrating newly acquired businesses, products or technologies into our business could divert our management’s attention from other business concerns and could be expensive and time consuming. Acquisitions could expose our business to unforeseen liabilities or risks associated with entering new markets. In addition, we might lose key employees while integrating new businesses. Consequently, we might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated sales and cost benefits. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, or issuances of equity securities that cause dilution to our existing stockholders. Furthermore, we may incur a contingent liability or possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our results of operations.

Risks Related to Our Operations in Israel

Potential political, economic and military instability in Israel, where the majority of our senior management and our research and development facilities are located, may adversely affect our results of operations.

Our largest office and research and development facilities are located in Israel, and all of our sales are generated through our wholly-owned subsidiary in Israel, Wintegra Ltd. Operations in Israel accounted for a majority of our operating expenses in each of the last three years. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our revenue to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, regional unrest and terrorist activity in Israel have continued. During the summer of 2006 and winter of 2008, Israel was engaged in armed conflicts with Hamas and Hezbollah. These conflicts involved missile strikes against civilian targets in southern and northern Israel. Furthermore, several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel increase. These restrictions may limit materially our ability to sell our solutions to companies in these countries.

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Our operations may be disrupted by the obligations of our personnel to perform military service.

Many of our male employees in Israel are obligated to perform up to one month (in some cases more) of annual military reserve duty until they reach age 45 and, in emergency circumstances, could be called to active duty. In response to increases in terrorist activity and the armed conflicts with Hamas and Hezbollah, there have been occasional call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees or the extended absence of one or more of our key employees for military service. Such disruption could materially adversely affect our business and results of operations.

Because substantially all of our revenue and a majority of our cost of revenue are denominated in U.S. dollars, but a substantial portion of our operating expenses are incurred in NIS, our results of operations may be seriously harmed by currency fluctuations.

Substantially all of our revenue and a majority of our cost of revenue are denominated in U.S. dollars, but a substantial portion of our operating expenses are incurred in NIS. As a result, we are exposed to risk to the extent that the inflation rate in Israel exceeds the rate of devaluation of the NIS in relation to the U.S. dollar or if the timing of these devaluations lags behind inflation in Israel. In that event, the U.S. dollar cost of our operations in Israel will increase and our U.S. dollar-measured results of operations will be adversely affected. To the extent that the value of the NIS increases against the dollar, our expenses on a dollar cost basis increase. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation of the NIS against the U.S. dollar. Our operations also could be adversely affected if we are unable to guard against currency fluctuations in the future. NIS devaluation in relation to the U.S. dollar amounted to 9%, 1.1% and 0.7% for the years ended December 31, 2007, 2008 and 2009, respectively. We have entered into currency hedging transactions to attempt to decrease the risk of financial exposure from fluctuations in the exchange rate of the U.S. dollar against the NIS. There is no assurance that these measures will adequately protect us from material adverse effects of inflation in Israel or currency fluctuations impacting the NIS and U.S. dollar.

The Israeli tax benefits to which we are currently entitled require us to meet several conditions and may be terminated or reduced in the future, which would increase our taxes.

Some of our Israeli facilities have been granted “Approved Enterprise” status by the Investment Center in the Israeli Ministry of Industry Trade and Labor or have obtained “Beneficiary Enterprise” status, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959, or the Investment Law. The availability of the tax benefits is subject to certain requirements, including, among other things, making specified investments in fixed assets and equipment, financing a percentage of those investments with our capital contributions, filing certain reports with the Investment Center and complying with Israeli intellectual property laws.

Income attributed to the Approved Enterprise and Beneficiary Enterprise is tax exempt for a period of two years and is subject to a reduced corporate tax rate of 10% to 25% for an additional period of five to eight years, depending on the percentage of foreign investment in the company. We believe that we will be able to meet the relevant eligibility requirements for the tax benefits discussed above. However, if we do not, these tax benefits may be cancelled and our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies in 2007 was 29% of their taxable income. It declined to 27% in 2008, 26% in 2009, 25% in 2010 and is scheduled to decline to 24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and thereafter. In addition, we could be required to refund any tax benefits that we may receive plus interest and penalties thereon. If we do not succeed in meeting the eligibility requirements or if the Israeli government were to reduce or eliminate these tax benefits, the amount of taxes that we would pay are likely to increase as we would be subject to regular Israeli corporate tax rates, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefit programs. Finally, in the event of a distribution of a dividend from the above mentioned tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s and Beneficiary Enterprise’s income.

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You may have difficulties pursuing an action in the United States or enforcing a U.S. judgment, including actions or judgments based upon the civil liability provisions of the U.S. federal securities laws, against us, our executive officers and directors and the experts named in this prospectus, or asserting U.S. securities laws claims in Israel.

None of our directors and officers, with the exception of Robert O’Dell, our co-founder, director and Executive Vice President of Marketing and Sales, and Michael Phillip, our Senior Vice President and General Manager of Wireless Systems, are residents of the United States and some of their assets and our assets are located outside the United States. In addition, our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, is not resident in the United States. While directors and officers of Delaware corporations may be deemed to have consented to U.S. jurisdiction for breach of fiduciary claims, such consent may not apply equally to claims for the civil liability provisions of U.S. federal securities laws. Without a consent to service of process, additional procedures may be necessary to serve individuals who are not U.S. residents. Therefore, it may be difficult to serve process on those directors and officers who are not U.S. residents and on our independent registered public accounting firm, in order to commence any lawsuit against them before a U.S. court, including an action based on the civil liability provisions of U.S. federal securities laws. An investor also may find it difficult to enforce a U.S. court judgment in an Israeli court, including a judgment based on federal securities laws. In accordance with the Israeli Law on Enforcement of Foreign Judgments, 5718-1958, and subject to certain time limitations, an Israeli court may declare a foreign civil judgment enforceable only if it finds that:

Even if these conditions are satisfied, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. The term “prejudice the sovereignty or security of the State of Israel” as used in the Israeli Law on Enforcement of Foreign Judgments has not been interpreted by Israeli courts. Furthermore, other authority under Israeli law with respect to such term is very limited, and does not provide guidance as to what criteria will be considered by an Israeli court in determining whether the enforcement of a foreign judgment would prejudice the sovereignty or security of the State of Israel.

An Israeli court also will not declare a foreign judgment enforceable if:

An investor may also find it difficult to bring an original action in an Israeli court to enforce liabilities based upon the U.S. federal securities laws against us, or against our directors and officers, or our independent registered public accounting firm. Israeli courts may refuse to hear a claim based on a

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violation of U.S. securities laws and rule that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear such a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process.

Risks Related to This Offering

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

Prior to this offering, our common stock has not been traded in a public market. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price may not be indicative of prices that will prevail in the trading market. The trading price of our common stock following this offering is therefore likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:

In addition, the stock market in general, and the market for semiconductor and other technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Such fluctuations may be even more pronounced in the trading market shortly following this offering. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. These trading price fluctuations may also make it more difficult for us to use our common stock as a means to make acquisitions or to use options to purchase our common stock to attract and retain employees. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

Additional sales of our common stock in the public market after the offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Upon completion of the offering, we will have       shares of common stock outstanding. Of the outstanding shares after completion of the offering, all of the       shares sold in the offering will be freely tradable immediately without further registration under the Securities Act of 1933, as amended, or the Securities Act, except that any shares held by our “affiliates” (as that term is defined under Rule 144 of the Securities Act) may

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be sold only in compliance with the limitations under Rule 144. The remaining outstanding shares after completion of the offering will be “restricted securities” and generally will be available for sale in the public market as follows:

The underwriters may, however, release all or a portion of the shares subject to lock-up agreements at any time without notice. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our common stock could decline.

In addition, after the offering, the holders of approximately 19 million shares of common stock will be entitled to rights to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares, other than shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration.

See the information under the caption “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sales upon completion of the offering.

Because of their significant stock ownership, our officers, directors and principal stockholders will be able to exert significant influence over our future direction.

Executive officers, directors, and entities affiliated with them will, in the aggregate, beneficially own approximately       % of our outstanding common stock following the completion of this offering. In addition,      other stockholders and entities affiliated with them will, in the aggregate, own approximately       % of our outstanding common stock following the completion of this offering. Two of our executive officers and principal stockholders, Messrs. Ben-Zvi and O’Dell, also serve as members of our board of directors. These stockholders currently control the company, and if acting together, would be able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. For more detailed information, see “Principal and Selling Stockholders.”

We may apply the proceeds of this offering to uses that do not improve our operating results or increase the value of your investment.

We intend to use the net proceeds from the shares of common stock sold by us in this offering for general corporate purposes, including working capital, sales and marketing activities, research and development activities, general and administrative matters and on capital expenditures. We may also use a portion of our net proceeds to acquire or invest in complementary businesses or products or to obtain rights to complementary technologies. However, we do not have more specific plans for the net proceeds from this offering and will have broad discretion in how we use the net proceeds of this offering. These proceeds could be applied in ways that do not improve our operating results or increase the value of your investment.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $   in net tangible book value per share from the price you paid, based on the initial offering price of $   per share. The exercise of outstanding options and warrants will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

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Because we have no plans to pay dividends on our common stock, investors must look solely to stock appreciation for a return on their investment in us.

We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the Securities and Exchange Commission and the Nasdaq Global Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’ views of us.

Maintaining adequate internal financial and accounting controls and procedures to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We need to commence the process of documenting, reviewing and improving our internal controls and procedures in connection with Section 404 of the Sarbanes-Oxley Act. Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting, starting with the second annual report that we file with the SEC, and will require a report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements may seriously affect our stock price.

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Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us. In addition, upon the completion of this offering and the filing of our amended and restated certificate of incorporation, our authorized common stock will increase from 28 million shares to 80 million shares, and we will have 10 million shares of authorized preferred stock. This increase in authorized but unissued capital stock may enable us to issue stock that could have a dilutive effect on existing stockholders, and it may enable us to issue stock in a transaction designed to prevent a change in control. For a description of our capital stock, see “Description of Capital Stock.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. The statements we make regarding the following subject matters are forward-looking by their nature:

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks provided under “Risk Factors” in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of $    million from our sale of the     shares of common stock offered by us in this offering, based on an assumed initial public offering price of $   per share, the mid-point of the range on the cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares is exercised in full, we estimate that our net proceeds will be approximately $    million. We will not receive any of the net proceeds from the sale of shares by the selling stockholders.

We intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary technologies or businesses. We have no commitments with respect to any such acquisitions or investments, and we are not involved in any negotiations with respect to any such transactions. The amounts that we actually spend for the purposes described above may vary significantly and will depend, in part, on the timing and amount of our future revenue.

Pending the uses described above, we intend to invest the net proceeds from the shares of common stock sold by us in this offering in short-term, interest bearing, investment grade securities. We have implemented and maintain a prescribed investment policy in regards to our cash investments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2010:

We have presented pro forma adjustments to our capitalization giving effect to the conversion of all outstanding shares of preferred stock, after giving effect to the issuance of preferred shares upon the exercise of all outstanding warrants, pursuant to provisions of our certificate of incorporation, which provide for the automatic conversion of all shares of preferred stock immediately upon the sale of our common stock in a Qualified IPO, as such term is defined therein. This offering constitutes a Qualified IPO under our certificate of incorporation.

You should read this table together with “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

		As of June 30, 2010
		Actual				Pro Forma				Pro Forma As Adjusted
		(in thousands, except share data)
Stockholders’ equity:
Preferred stock, $0.001 par value; 12,685,615 shares authorized, 11,421,479 shares issued and outstanding, actual; 10,000,000 shares authorized, none issued and outstanding, pro forma and pro forma as adjusted; aggregate liquidation preference $58,709		$	11			$	—			$
Common stock, $0.001 par value; 28,000,000 shares authorized, 4,990,989 shares issued and outstanding, actual; 80,000,000 shares authorized, 20,226,497 shares issued and outstanding, pro forma; 80,000,000 shares authorized,        shares issued and outstanding, pro forma as adjusted			5				20
Additional paid-in capital			56,677				60,678
Unrealized gain on hedging derivative instruments			(11	)			(11	)
Accumulated deficit			(31,363	)			(31,363	)
Total stockholders’ equity			25,319				29,324
Total capitalization		$	25,319			$	29,324			$

The number of issued and outstanding shares as of June 30, 2010 in the table excludes:

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. As of June 30, 2010, our pro forma net tangible book value was $25.8 million, or $1.28 per share of common stock. Our pro forma net tangible book value per share represents the amount of our total pro forma tangible assets reduced by the amount of our total pro forma liabilities and divided by the total number of shares of our common stock outstanding as of June 30, 2010, after giving effect to (1) 1,092,462 shares of Series C preferred stock and 66,667 shares of Series E preferred stock issuable at the completion of this offering upon the exercise of warrants and the receipt of $4.0 million by us from such exercise, convertible upon the completion of this offering into 1,159,129 shares of our common stock, and (2) the conversion upon the completion of this offering of all of our outstanding shares of preferred stock into 14,076,379 shares of our common stock, including 2,654,900 shares resulting from an anti-dilution adjustment for price protection granted to holders of our Series B preferred stock in connection with subsequent financings. After giving effect to our sale in this offering of        shares of our common stock at an assumed initial public offering price of $   per share, the mid-point of the range on the cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2010 would have been $    million, or $   per share of our common stock. This represents an immediate increase of net tangible book value of $    million to our existing stockholders and an immediate dilution of $   per share to investors purchasing shares in this offering. The following table illustrates this per share dilution:

Initial public offering price per share						$
Pro forma net tangible book value per share as of June 30, 2010, before giving effect to this offering		$
Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering		$
Pro forma net tangible book value per share after giving effect to this offering						$
Dilution in pro forma net tangible book value per share to investors purchasing shares in this offering						$

If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per share after giving effect to this offering would be $   per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $   per share.

The following table presents the differences between the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us:

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Existing stockholders								%		$						%		$
New investors																		$
Total							100.0	%		$					100.0	%

The above information assumes no exercise by the underwriters of their option to purchase additional shares of common stock.

If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own   % and our new investors would own   % of the total number of shares of our common stock outstanding after this offering.

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The above information assumes no exercise of stock options outstanding as of June 30, 2010. As of June 30, 2010, there were:

To the extent these options are exercised, there will be further dilution to new investors. After this offering and assuming the exercise in full of all of the foregoing outstanding options, our pro forma net tangible book value per share as of June 30, 2010 would have been $   per share, representing an immediate increase in net tangible book value of $   per share to existing stockholders and an immediate dilution to net tangible book value of $   per share to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data for each of the three years in the period ended December 31, 2007, 2008, and 2009, and the selected consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2005 and 2006 and the selected consolidated balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements that are not included in this prospectus. The selected consolidated statement of operations data for the six months ended June 30, 2009 and 2010 and the selected consolidated balance sheet data as of June 30, 2010 are derived from the unaudited consolidated condensed financial statements included elsewhere in this prospectus, all of which, in the opinion of management, have been prepared on the same basis as the audited consolidated financial statements, and reflect all adjustments, necessary for the fair presentation of results for the interim periods. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period.

		Year Ended December 31,																				Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2010
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue		$	19,594			$	31,895			$	29,465			$	30,171			$	28,578			$	12,981			$	26,309
Cost of revenue			4,298				6,937				6,331				6,414				6,384				2,732				7,734
Gross profit			15,296				24,958				23,134				23,757				22,194				10,249				18,575
Operating expenses:
Research and development(1)			8,659				11,442				14,430				17,711				15,522				7,558				9,229
Selling and marketing(1)			4,294				5,491				5,901				7,330				6,420				3,189				3,935
General and administrative(1)			807				1,531				2,024				2,568				1,472				803				832
Aborted IPO expenses			—				1,330				—				—				—				—				—
Abandonment of lease agreement(2)			—				—				—				—				643				—				—
Total operating cost and expenses			13,760				19,794				22,355				27,609				24,057				11,550				13,996
Operating income (loss)			1,536				5,164				779				(3,852 )				(1,863 )				(1,301	)			4,579
Financial income (expenses), net(3)			(171 )				164				471				133				(144 )				(86	)			(169	)
Change in fair value of puttable warrants(4)			1,171				745				—				—				—				—				—
Net income (loss)		$	194			$	4,583			$	1,250			$	(3,719 )			$	(2,007 )			$	(1,387	)		$	4,410
Net income attributable to preferred stockholders		$	194			$	4,272			$	1,250			$	—			$	—			$	—			$	1,772
Net income (loss) attributable to common stockholders		$	—			$	311			$	—			$	(3,719	)		$	(2,007	)		$	(1,387	)		$	2,638
Basic net income (loss) per share of common stock		$	—			$	0.07			$	—			$	(0.79 )			$	(0.41 )			$	(0.28	)		$	0.53
Diluted net income (loss) per share of common stock		$	—			$	0.05			$	—			$	(0.79 )			$	(0.41 )			$	(0.28	)		$	0.20
Weighted average number of common shares used in computing basic net income (loss) per share			—				4,402				4,539				4,705				4,916				4,909				4,954
Weighted average number of common shares used in computing diluted net income (loss) per share			—				6,673				4,539				4,705				4,916				4,909				21,603
Pro forma net income (loss) per share (unaudited)(5):
Basic																		$	(0.10	)						$	0.22
Diluted																		$	(0.10	)						$	0.20
Weighted average number of shares of common stock used in computing pro forma net income per share (unaudited):
Basic																			20,140								20,189
Diluted																			20,140								22,268

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		Year Ended December 31,																				Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2010
		(in thousands)
Other Data:
Adjusted net income (loss)(6)		$	1,372			$	7,269			$	2,705			$	(1,329 )			$	869			$	(211	)		$	5,587

		Year Ended December 31,																				Six Months Ended June 30,
		2005*				2006				2007				2008				2009				2009				2010
		(in thousands)
Research and development		$	—			$	246			$	616			$	1,048			$	1,169			$	612			$	629
Selling and marketing			—				89				242				415				476				253				259
General and administrative			7				276				597				927				375				205				182
Total		$	7			$	611			$	1,455			$	2,390			$	2,020			$	1,070			$	1,070

		Year Ended December 31,																				Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2010
		(in thousands)
Financing expenses		$	—			$	—			$	—			$	—			$	213			$	106			$	107

		Year Ended December 31,																				Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2010
		(in thousands)
Net income (loss)		$	194			$	4,583			$	1,250			$	(3,719 )			$	(2,007 )			$	(1,387	)		$	4,410
Stock-based compensation			7				611				1,455				2,390				2,020				1,070				1,070
Expenses related to warrants to a lender			—				—				—				—				213				106				107
Abandonment of lease agreement			—				—				—				—				643				—				—
Change in fair value of puttable warrants			1,171				745				—				—				—				—				—
Aborted IPO expenses			—				1,330				—				—				—				—				—
Adjusted net income (loss)		$	1,372			$	7,269			$	2,705			$	(1,329 )			$	869			$	(211	)		$	5,587

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Adjusted net income (loss) is used by management to measure our core operating performance, and we are presenting it as a supplemental, non-GAAP financial measure. Adjusted net income (loss) represents net income (loss) excluding non-cash stock-based compensation expense and expenses related to puttable warrants, warrants granted to a lender, expenses related to the abandonment of a lease agreement and aborted IPO expenses. We believe that adjusted net income (loss) provides useful information by excluding certain items that may not be representative of our core operating results or business outlook. In addition, we believe that adjusted net income (loss) facilitates operating performance comparisons from period to period, and from company to company, by eliminating the following potential differences. We eliminated the effect of non-cash stock-based compensation to address the disparate impact of non-cash stock-based compensation expense across companies, which varies depending on available valuation methodologies, the volatility of the expense (which depends on market forces outside of management’s control), the subjectivity of the assumptions and the variety of award types that a company can use under the relevant accounting guidance. We eliminated the effect of non-cash expense related to puttable warrants and warrants granted to a lender to address the different financing arrangements utilized across companies and the fact that our outstanding warrants will be exercised and converted into common stock upon the consummation of this offering. We eliminated the effect of the expense incurred in 2009 related to the abandonment of a lease agreement because it was related to a dispute with a landlord and we eliminated the effect of the aborted IPO expenses incurred in 2006 because we do not believe that such expenses are reasonably likely to recur within two years, nor were there similar charges within the two years prior to 2009.

Adjusted net income (loss) is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP and it should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Adjusted net income (loss) has limitations as an analytical tool, including the following: (i) non-cash stock-based compensation is and will remain a key element of our overall compensation program; and (ii) other companies in our industry may calculate adjusted net income (loss) differently than we do, limiting its usefulness as a comparative measure.

		As of December 31,																				As of June 30, 2010
		2005				2006				2007				2008				2009
		(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	7,796			$	3,750			$	8,373			$	7,701			$	9,597			$	12,685
Short-term deposits			3,000				7,223				2,435				3,777				1,670				1,173
Working capital			5,204				11,425				13,549				13,566				13,362				19,324
Total assets			16,521				21,949				24,082				22,947				25,036				33,985
Total liabilities			10,631				7,967				7,233				4,787				6,655				8,666
Total stockholders’ equity			5,890				13,982				16,849				18,160				18,381				25,319

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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 financial statements and related notes that are included elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Our actual results may differ materially from those contained in any forward-looking statements.

Overview

We are a leading provider of highly integrated network processors optimized for mobile backhaul, 3G and 4G wireless and wireline broadband networks. Our high performance, comprehensive solutions integrate our proprietary processor architecture and networking software into a single semiconductor device to provide system-level intelligence to communications infrastructure original equipment manufacturers, or OEMs. Our solutions provide control and data path processing, which offers our customers compelling benefits in processing speed while reducing power consumption, footprint, system complexity and cost. Our solutions also reduce the need for costly external companion chips to provide additional functionality.

Our customers use our network processor solutions to rapidly bring to market feature-rich products that not only meet existing network requirements, but also support the migration of existing networks to Internet Protocol, or IP. By integrating processing requirements and multiple IP and legacy interfaces, our network processors deliver a complete system solution that offers enhanced functionality, flexibility and interoperability with existing communication platforms.

We are a fabless semiconductor company that was founded in 2000 and shipped our first product in 2001. Our network processors are used in communications system infrastructure, such as cell-site routers and other mobile backhaul equipment, 3G and 4G wireless base stations and radio network controllers, or RNCs, and wireline broadband access equipment. By supporting over 60 communications protocols, our solutions address the requirements of traditional and emerging network technologies, including IP, and can be deployed across multiple end-markets in wireless and wireline networks. Our solutions have been designed into equipment for many leading communications infrastructure OEMs, such as Alcatel-Lucent, Alvarion, Cisco, Datang, ECI, Ericsson, Huawei, Interphase, Motorola, New Postcom, Potevio, RAD, Tellabs and ZTE. Currently our solutions are utilized in networks worldwide by major communications service providers, including AT&T, Bell Canada, British Telecom, China Mobile, China Telecom, China Unicom, Chunghwa Telecom, Cox, Deutsche Telekom, France Telecom, KDDI, Korea Telecom, NTT Docomo, Orange, Sprint, Telecom Italia, Telefonica, Verizon and Vodafone.

We experienced rapid growth in our revenue from inception through the third quarter of 2006. Our revenue increased from $4.5 million in 2003, to $9.3 million in 2004, to $19.6 million in 2005 and to $31.9 million in 2006. Revenue in full fiscal years 2007, 2008 and 2009 did not fluctuate significantly from revenue in 2006. We experienced a decline in revenue in the fourth quarter of 2008, and beginning in the first quarter of 2009, our revenue growth resumed. Revenue in the second quarter of 2010 increased to $14.2 million from $5.9 million in the fourth quarter of 2008.

In order to continue to increase our revenue, we must continue to achieve design wins. We consider a design win to occur when a customer notifies us that it has selected our solution to be incorporated into a product under development. After we secure a design win, a customer typically requires twelve to eighteen months to develop and test its products and commence production. Because the life cycles for our customers’ products can last for several years, if a product is successfully commercialized, we expect to continue to receive revenue over an extended period of time. The failure to achieve a design win can result in us foregoing associated revenue for the life of that product.

The benefits of our solutions have resulted in favorable gross margins for our products. However, as is common in our industry, we anticipate that average selling prices for our solutions will continue to decline over time.

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For the year ended December 31, 2009, our operating expenses represented approximately 84% of our revenue. We recorded net loss of approximately $2.0 million for the year 2009. For the six months ended June 30, 2010, our operating expenses represented approximately 53% of our revenue. We recorded net income of approximately $4.4 million for the first half of 2010. As of June 30, 2010, we had an accumulated deficit of $31.4 million. The carrying amount of our assets located outside of the United States is equal to approximately $27 million.

Revenue.  We generate most of our revenue from sales of our network processor solutions and recognize revenue upon shipment to our customers. We also generate revenue from non-silicon sources, such as software licensing, engineering services, maintenance, support and training, which are typically sold separately to our customers during their development processes. As revenue from sales of network processor solutions has increased, revenue from non-silicon sources has decreased as a percentage of revenue. We expect that revenue from non-silicon sources, which represented 14%, 13% and 8% of our revenue in 2007, 2008 and 2009, respectively, will continue to decline as a percentage of revenue.

Sales of our network processor solutions to our three main markets were as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
		(in thousands)
Mobile backhaul		$	6,135			$	10,146			$	15,294			$	5,511			$	16,796
3G and 4G base stations and RNCs			7,328				9,600				9,320				5,676				6,300
Wireline broadband			16,002				10,425				3,964				1,794				3,213
Total		$	29,465			$	30,171			$	28,578			$	12,981			$	26,309

The percentages of our revenue by main markets for the periods indicated were as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
Mobile backhaul			21	%			34	%			54	%			42	%			64	%
3G and 4G base stations and RNCs			25				32				32				44				24
Wireline broadband			54				34				14				14				12
Total			100	%			100	%			100	%			100	%			100	%

Sales to the mobile backhaul market increased from 21% of our revenue in 2007 to 64% of our revenue in the first half of 2010. We expect sales to the mobile backhaul market to continue to account for a majority of our revenue in 2010.

To date, we have derived a substantial portion of our revenue from a relatively small number of customers. The following is a summary of revenue from our major customers expressed as a percent of total revenue:

		Year Ended December 31,												Six Months Ended June 30, 2010
		2007				2008				2009
Alcatel-Lucent			11	%			19	%			24	%			30	%
Tellabs			20	%			17	%			23	%			15	%
Ericsson			10	%			8	%			10	%			9	%
Cisco			4	%			3	%			6	%			12	%

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We expect sales to customers representing more than 10% of our revenue to continue to account for a significant portion of our revenue in the near term. The percentages of revenue from the customers listed above for the six months ended June 30, 2010 may not be indicative of their relative revenue contributions for the full 2010 fiscal year.

The loss of one or more of our principal customers or the cancellation or deferral of purchases of our products by one of these customers could cause our revenue to decline materially if we are unable to increase our revenue from other customers.

We market and sell our network processor solutions worldwide. The percentages of our revenue by geographic area for the periods indicated were as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
North America			42	%			34	%			38	%			30	%			44	%
EMEA			43				50				46				55				44	%
Asia Pacific			15				16				16				15				12	%
			100	%			100	%			100	%			100	%			100	%

We attribute revenue to the geographic area where the customer, or its business unit that makes the purchase, is based.

As we expand our operations, part of our strategy is to increase the percentage of revenue contributed by sales to Asia Pacific.

Our payment terms with customers generally range from net 30 to net 90 days. As of December 31, 2008 and 2009 days sales outstanding were 72 and 53, respectively, computed annually. Historically, we have not had any material write-offs for bad debts and we have a provision for doubtful accounts in the amount of $45 thousand, $57 thousand and $5 thousand as of December 31, 2008 and 2009 and June 30, 2010, respectively. As of June 30, 2010, days sales outstanding were 58, calculated on a quarterly basis.

Cost of Revenue and Gross Margin.  Cost of revenue consists primarily of the cost of silicon wafers purchased from our foundry supplier, Taiwan Semiconductor Manufacturing Company, Ltd., or TSMC, or the cost of good dies from our second silicon supplier, Texas Instruments Incorporated, or TI, as well as costs associated with the assembly and test of our solutions by Advanced Semiconductor Engineering, Inc., or ASE, royalties due to third party intellectual property providers, and related costs of personnel associated with production management and quality assurance. We currently purchase our wafers, good dies and assembly and test services from TSMC, TI and ASE on a fixed price basis, typically pursuant to an annual contract. Because we do not have long-term pricing agreements with TSMC, TI and ASE, our devices cost and services are subject to price fluctuations based on the cyclical demand for semiconductors. Cost of revenue also includes amortized costs related to certain acquired technologies. In addition, we incur costs for the fabrication of masks used by one of our contract manufacturers to manufacture wafers that incorporate our products. During the year ended December 31, 2009, we purchased fabrication masks in the amount of $0.7 million. We generally depreciate fabrication masks over their estimated expected useful life and include them in cost of revenue. The balance of these fabrication masks at December 31, 2009 and June 30, 2010 was $0.7 million and $0.5 million, respectively.

We purchase our inventory pursuant to standard purchase orders. Because lead times at our manufacturing subcontractors are about three to five months, we may build inventory based on our estimate of future forecasts rather than customers’ orders. In addition, as customers are increasingly looking for opportunities to reduce their lead times, we may be required to increase our inventory to meet customer demand.

We expect our cost of revenue to increase in absolute dollars. The increase in absolute dollars is expected to result from an increase in sales volumes of our network processor solutions. Since we began

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shipping our solutions through December 31, 2009, our gross margin did not fluctuate significantly. Our gross margin declined in the first half of 2010 primarily as a result of a decrease in average selling prices due to higher sales volumes and growth in sales of our WinPath2 products, which have relatively lower gross margins, and an increase in amortization costs due to our determination that we will use one of the sets of fabrication masks for a shorter period. We expect the impact of these factors on our gross margin to continue in future periods. Gross margin in the first half of 2010 was also adversely impacted by increased personnel costs due to an overlap between transitioning employees and payment of expediting fees to ensure timely delivery of products.

Research and Development.  Our research and development expenses consist primarily of compensation and associated costs of employees engaged in research and development and to a lesser extent, computer-aided design software tools, contractors’ costs, reference design development costs, test development and qualification costs, occupancy costs and depreciation and amortization expense. Beginning in 2006, research and developments expenses also include stock-based compensation under FASB’s Accounting Standards Codification Topic 718, “Compensation — Stock Compensation”, or ASC Topic 718.

As of June 30, 2010, we had 105 employees and 12 subcontractors engaged in research and development. All research and development expenses are expensed as incurred. We expect these costs to increase in absolute dollars as a result of an increase in personnel to support our product development activities.

Selling and Marketing.  Selling and marketing expenses consist primarily of compensation and associated costs for personnel engaged in sales and marketing and customer service and technical support, payments to third party sales representatives and marketing consultants, and expenses for promotions, trade shows and travel. Beginning in 2006, selling and marketing expenses also include stock-based compensation under ASC Topic 718. We expect that these expenses will increase in absolute dollars in future periods as we increase the number of sales and marketing professionals and expand our marketing activities. As a percentage of revenue, our selling and marketing expense may vary as our revenue changes over time.

General and Administrative.  General and administrative expenses consist primarily of compensation and associated costs for personnel engaged in finance, human resources and administrative activities, legal and accounting fees. Beginning in 2006, general and administrative expenses also include stock-based compensation under ASC Topic 718. We expect these expenses to increase significantly in absolute dollars as we hire additional personnel and incur additional costs related to the growth of our business as well as the costs associated with being a public company, including compliance under the Sarbanes-Oxley Act of 2002 and rules implemented by the SEC and the Nasdaq, as well as director and officer liability insurance.

Abandonment of Lease Agreement.  Abandonment of lease agreement expenses consist of net loss resulting from realization of guarantees, the write-off of all unamortized leasehold improvements related to the abandoned lease, legal expenses incurred and an accrual, based on management’s assessment for settlement of the claim and the counterclaim. For more information about our abandonment of the lease agreement, refer to “Legal Proceedings” below.

Financial Income (Expenses), Net.  Financial income (expenses), net consist of bank fees related to a line of credit facility and stock-based expenses related to warrants issued to a lender, offset by interest earned on cash and cash equivalents and short-term deposits balances. Fluctuations in exchange rates may also increase or decrease financial income (expenses). We terminated the line of credit in April 2010.

Taxes on Income.  We indirectly own all of our subsidiaries through our wholly-owned subsidiary, Wintegra Ltd., an Israeli company. The standard corporate tax rate for Israeli companies in 2007 was 29% of their taxable income. It declined to 27% in 2008, 26% in 2009, 25% in 2010 and is scheduled to gradually decline to 18% in 2016 and thereafter. However, the effective tax rate payable by a company that derives income from an “Approved Enterprise” or a “Beneficiary Enterprise” designated as set forth under the Investment Law may be considerably less. The facilities of our subsidiary in Israel qualify for

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“Approved Enterprise” or “Beneficiary Enterprise” status under the Investment Law. Accordingly, income attributed to the “Approved Enterprise” or “Beneficiary Enterprise” is tax exempt for a period of two years commencing as of the first year in which Wintegra Ltd. has taxable income and is subject to a reduced corporate tax rate of 10% to 25% for an additional period of five to eight years, depending on the percentage of foreign investment in the company. To date, our Israeli subsidiary has not paid any taxes. The benefit period will commence when Wintegra Ltd. realizes taxable income after full utilization of its accumulated carryforward losses of approximately $8.8 million as of December 31, 2009. Taxes on income related to our activities in the U.S. and in Wintegra Ltd.’s subsidiaries in Canada and the UK, which relate primarily to marketing and technical support, were insignificant to date. Income recognized in connection with these activities is subject to the regular tax rates applicable in each jurisdiction.

Application of Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and the results of operations are based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, long-lived assets and accounting for stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are set forth below.

The following accounting policies require our most difficult, subjective and complex judgment, resulting from the need to make estimates about the effect of matters that are inherently uncertain:

Revenue Recognition

We recognize revenue from sales of our network processor solutions in accordance with FASB’s Accounting Standards Codification Topic 605, “Revenue Recognition”, or ASC Topic 605, and SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”, or SAB 104, which requires that four basic criteria be met before revenue can be recognized:

We consider that a customer has taken title and assumed the risks and rewards of ownership of our network processor solutions when they are shipped to the customer. We have no further obligations to the customer after delivery is made. We currently do not have any special pricing arrangements with our customers, including price protection, rebates or other pricing incentives. We determine whether collectibility is probable on a case-by-case basis. When assessing probability of collection, we consider the number of years the customer has been in business, its financial condition and the history of collection.

Revenue from sales of software tools and maintenance, which are sold separately from the other products, are recognized in accordance with FASB’s Accounting Standards Codification Topic 985-605, “Software Revenue Recognition”, or ASC Topic 985-605. We use the “residual method” when vendor

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specific objective evidence (“VSOE”) of fair value only exists for the maintenance. We recognize revenue from service revenue when services are performed. VSOE is based on the price charged when an element is sold separately or renewed. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.

Allowance for Doubtful Accounts

We estimate the allowance for doubtful accounts based on an assessment of the collectability of each specific customer account. If we determine that a specific customer is unable to meet its financial obligations, we provide a specific allowance for credit losses to reduce the net recognized receivable to the amount we reasonably believe will be collected. Probability of collection is assessed on a customer-by-customer basis and our historical experience with each customer. Customers are subject to an ongoing credit review process that evaluates the customers’ financial positions. We review and update our estimates for allowance for doubtful accounts on a quarterly basis. Our allowance for doubtful accounts totaled approximately $45 thousand and $57 thousand at December 31, 2008 and 2009, respectively. Our bad debt expense (income) totaled approximately $0, $45 thousand, $12 thousand, $(6) thousand and $(52) thousand for the years ended December 31, 2007, 2008 and 2009 and for the six-month periods ended June 30, 2009 and 2010, respectively.

Deferred Taxes

We account for income taxes in accordance with ASC Topic 740, “Income Taxes”, which prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the need for a valuation allowance, we consider historical levels of income, projections of future income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practical tax planning strategies. To the extent that we believe it is more likely than not that some portion of our deferred tax assets will not be realized, we would increase the valuation allowance against the deferred tax assets. Realization of our deferred tax assets is dependent primarily upon future U.S. and Israeli taxable income. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible material adjustments to these deferred tax assets in the period when such determinations are made. As of December 31, 2008 and 2009 and June 30, 2010, we recorded a full valuation allowance against our net deferred tax assets. Based on the available evidence, we believed at that time it was more likely than not that we would not be able to utilize all of these deferred tax assets in the foreseeable future.

Long-lived Assets

We are required to assess the impairment of tangible and intangible long-lived assets subject to depreciation or amortization under FASB’s Accounting Standards Codification Topic 360, “Property, Plant and Equipment,” or ASC Topic 360, on a periodic basis when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business and significant negative industry or economic trends.

Upon determination that the carrying value of an asset to be held and used may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash flows. We base our fair value estimates on assumptions we believe to be reasonable and inherently uncertain. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our tangible and intangible long-lived assets subject to depreciation or amortization. No impairment charges were recognized during 2007, 2008, 2009 and the first half of 2010.

Depreciation and amortization expenses related to purchase of tangible and intangible long-lived assets are based on the estimates of economic useful lives as determined at the purchase date and are

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revisited at each reporting period. The accuracy of these estimates directly affects the amount of depreciation and amortization expense. If future events indicate that the estimated lives are no longer appropriate, depreciation and amortization expense will be recalculated prospectively from the date of such determination based on the new estimates of useful lives.

Inventory Valuations

We value our inventories at the lower of cost or estimated market value. We estimate market value based on our current pricing, market conditions and specific customer information. We write down inventory for slow-moving items or technological obsolescence. We also assess our inventories for obsolescence based upon assumptions about future demand and market conditions. Once inventory is written down, a new cost basis for these assets is established for future periods. To date, no significant inventory reserves were recorded.

Accounting for Stock-Based Compensation

Through December 31, 2005, we elected to account for share-based compensation in accordance with the intrinsic value method described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, or APB 25, and related interpretations rather than adopting the fair value method provided under ASC Topic 718. Under this method, we generally did not recognize any compensation expense for share options we granted to our employees where the exercise price equals the fair market value of the shares on the date of grant and the exercise price, number of shares eligible for issuance under the options and vesting period are fixed.

Effective January 1, 2006, we adopted ASC Topic 718, which requires that we measure compensation expense for all share-based payment awards made to employees and directors, including employee share options, based on estimated fair values and recognize that expense over the required service period.

We adopted ASC Topic 718 using the modified prospective transition method. Under this method, ASC Topic 718 is applied to new awards and to awards modified, repurchased or cancelled after January 1, 2006. Compensation cost previously recorded under APB 25 for unvested options will continue to be recognized as the required services are rendered. Accordingly, for the years ended December 31, 2007, 2008 and 2009 and for the six-month period ended June 30, 2009 and 2010, share-based compensation expense includes compensation costs related to estimated fair values of awards granted after the date of adoption of ASC Topic 718 and compensation costs related to unvested awards at the date of adoption of ASC Topic 718 based on the intrinsic values as previously recorded under APB 25.

We use the straight-line method for expense attribution, which results in equal amortization over the vesting period of the options.

Upon adoption of ASC Topic 718, we were required to estimate the number of outstanding options that are not expected to vest. In subsequent periods, if actual forfeitures differ from these estimates, we will revise our estimates. No compensation cost is recognized for options that do not vest.

We estimated the fair value of options granted after January 1, 2006 using the Binomial option valuation model. This valuation model requires us to make assumptions and judgments about the variables used in the calculation. These variables and assumptions include the weighted average period of time that the options granted are expected to be outstanding, the volatility of our shares of common stock, the risk-free interest rate and the estimated rate of forfeitures of unvested share options. If actual results differ from our forfeitures estimates, we will record the difference as a cumulative adjustment in the period we revise our estimates. Since our shares of common stock have not been actively traded in the past, we estimated our shares of common stock’s volatility based on an average of the historical volatilities of a peer group in the industry in which the company does business. We intend to continue to use this same peer group until a sufficient amount of historical information regarding our share price becomes available. The computation of the suboptimal exercise multiple and the forfeiture rate is based on the employees expected exercise and on prior to and post vesting termination behavior. The risk-free rate is based on U.S. Treasury securities with maturities similar to the expected terms of the respective options. We estimated expected forfeitures based on our historical experience.

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At each option grant date, our board of directors and management determined the deemed fair value of our common stock. In connection with the preparation of our financial statements for the years ended December 31, 2007 and 2009 and option grants made at that time, we engaged Empire Valuation Consultants, LLC, an independent valuation consulting firm, to provide a contemporaneous valuation of our common stock.

Management did not engage an independent valuation consultant to conduct additional valuations for grants made between our December 26, 2007 valuation and our December 29, 2009 valuation, because the transaction with Tenaya Capital discussed below served as a valuation from an objective third party. In addition to relying on this third party transaction, management noted that our financial performance did not fluctuate significantly on a quarterly basis within a particular year and, accordingly, determined that additional third party valuation reports were not necessary.

In connection with the preparation of our financial statements for the year ended December 31, 2008, we assessed the valuation of our common stock as of the option grant date based on the price of our common stock in a transaction between certain officers and employees and Tenaya Captial, which is an unaffiliated third party. The board’s valuation in 2008 was based on this third party transaction pursuant to which Tenaya Capital acquired 621,325 shares of common stock at a price of $5.00 per share directly from certain of our officers and employees. We issued to Tenaya Capital an aggregate of 416,666 shares of Series E preferred stock at a price of $6.00 per share, for an aggregate investment of $2.5 million.

We have reviewed the methodologies used in making these determinations in light of the AICPA’s Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation, which we refer to as the practice aid. Management and the board of directors took into consideration the “market and income” approaches to valuation as set forth in the practice aid. We believe that the valuation methodologies that we have used are consistent with the practice aid.

During the period from March 31, 2009 through the date of this offering, we granted share options with the following exercise prices:

Date of Grant		Number of Options Granted				Exercise Price Per Share				Fair Value Per Share
December 29, 2009			600,350			$	4.00			$	4.28
April 8, 2010			62,500				7.34				7.34

Based on an estimated IPO price of $    , the midpoint of the range set forth on the cover of this prospectus, the intrinsic value of the options outstanding at June 30, 2010, was $     million, of which $     million related to vested options and $     million related to unvested options.

We engaged Empire to perform a valuation of our common stock as of December 29, 2009. In estimating our firm value, Empire relied primarily on the discounted cash flow model. Cash flows for a five-year period, adjusted to reflect their assumptions about changes in the operating environment for our business over the applicable period, were provided by us. The assumptions underlying the forecasts were consistent with our business plan. In these calculations, Empire estimated our terminal growth rate to be 3% per annum. In employing the discounted cash flow model, Empire discounted our projected revenue, costs, capital expenditures and other cash flows to a current present value using a weighted average cost of capital of 19%. Based on these assumptions, using the discounted cashflow model, Empire estimated our firm value at $150 million as of December 29, 2009. In determining the value of a share of common stock, given our stage of development, Empire used the weighted probability method approach based on two possible future scenarios: an initial public offering or a merger. Based on our assessment of our business and prospects, Empire assigned a probability range of 40% to 60% to each of an IPO and a merger. The ongoing weakness in the global economy and capital markets meant either transaction had a probability of occurring. Based on the opinion provided in Empire’s valuation report, we used $4.28 as the fair value of our common stock for the option grants made on December 29, 2009.

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In April 2010, we again engaged Empire to perform a valuation of our common stock as of March 15, 2010. Empire used the same method, and the same weighted average cost of capital and terminal growth rate, as was used for the December 2009 valuation. Based on these assumptions and projections of our financial results, using the discounted cashflow model, Empire estimated our firm value in a range of between $188 million and $215 million as of March 15, 2010. The range reflected a baseline case and an optimistic case. Empire then valued a share of common stock using the weighted probability method approach based on two possible future scenarios: an initial public offering or a merger. Based on our assessment of our business and prospects, Empire assigned a probability of 70% to an initial public offering and 30% to a merger. The probability of an IPO at this time had grown due to management’s increased focus on completing an IPO and improved financial performance that validated and exceeded our internal projections. Based on the opinion provided in Empire’s valuation report, we used $7.34 as the fair value of our common stock for the option grants made on April 8, 2010. The increase in valuation as of April 2010 as compared to the December 2009 valuation was principally due to the increased likelihood and proximity of an IPO and the substantial increase in revenue for the first quarter of 2010 largely due to increased sales in the mobile backhaul market, as well as an increase in backlog and our booking rate.

The midpoint of the estimated price range for the initial public offering price is $   per share. As noted above, the fair value of our common stock in April 2010 was $7.34 per share. The following factors contributed to the increase in valuation between April 2010 and the midpoint of the range set forth on the cover of this prospectus: (1) the April 2010 valuation included the probability of a merger, which resulted in a lower valuation to our common stock attributable to liquidation preferences of our preferred shares that would not be implicated in an initial public offering, (2) the April 2010 valuation reflected a liquidity discount, (3) we have stronger expectations for future results than we had in April 2010, as reflected in our backlog and the increase in the number of active design wins, (4) the improvement in global economic conditions and our industry’s performance, and (5) an initial public offering will increase our global visibility and branding efforts and the receipt of the net proceeds from this offering will improve our ability to execute our business plan, and recruit and retain staff.

We believe that Empire used reasonable methodologies, approaches and assumptions consistent with the practice aid to determine the fair value of our common stock. Nevertheless, determining the fair value of our common stock requires making complex and subjective judgments. The approach to valuation based on a discounted future cash flow approach uses estimates of revenue, earnings, assumed market growth rates, estimated costs and net income. These estimates are consistent with the plans and estimates that we use to manage our business. There is inherent uncertainty in making these estimates. Although it is reasonable to expect that the completion of our initial public offering will add value to our ordinary shares because they will have increased liquidity and marketability, the amount of additional value cannot be measured with absolute precision or certainty.

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Results of Operations

The following table sets forth our statements of operations as a percentage of revenue for the periods indicated:

		Year Ended December 31,																								Six Months Ended June 30,
		2007								2008								2009								2009								2010
		Amount				% of Revenue				Amount				% of Revenue				Amount				% of Revenue				Amount				% of Revenue				Amount				% of Revenue
Revenue		$	29,465				100	%		$	30,171				100	%		$	28,578				100	%		$	12,981				100	%		$	26,309				100	%
Cost of revenue			6,331				21				6,414				21				6,384				22				2,732				21				7,734				29
Gross profit			23,134				79				23,757				79				22,194				78				10,249				79				18,575				71
Operating costs:
Research and development			14,430				49				17,711				59				15,522				55				7,558				58				9,229				35
Selling and marketing			5,901				20				7,330				24				6,420				22				3,189				25				3,935				15
General and administrative			2,024				7				2,568				9				1,472				5				803				6				832				3
Abandonment of lease agreement			—				—				—				—				643				2				—				—				—				—
Total operating cost and expenses			22,355				76				27,609				92				24,057				84				11,550				89				13,996				53
Operating income (loss)			779				3				(3,852	)			(13	)			(1,863	)			(6	)			(1,301	)			(10	)			4,579				17
Financial income (expenses), net			471				1				133				1				(144	)			(1	)			(86	)			(1	)			(169	)			(1	)
Net income (loss)		$	1,250				4	%		$	(3,719	)			(12	)%		$	(2,007	)			(7	)%		$	(1,387	)			(11	)			4,410				17

Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009

Revenue.   Revenue was $26.3 million for the six months ended June 30, 2010, compared to $13.0 million for the six months ended June 30, 2009, representing an increase of $13.3 million, or 103%. This substantial increase in revenue resulted primarily from an increase of $11.3 million in sales to the mobile backhaul market as operators increased their purchases of equipment for IP-based mobile backhaul in order to transition their infrastructures to IP networks. The number of units sold in the first half of 2010 increased by approximately 166% from the number of units sold in the first half of 2009. Average selling prices decreased by approximately 24% in the first half of 2010 as compared with the first half of 2009 due to higher sales volumes and growth in sales of our WinPath2 products, which have relatively lower gross margins, and an increase in amortization costs due to our determination that we will use one of the sets of fabrication masks for a shorter period.

Cost of Revenue and Gross Margin.   Gross profit was $18.6 million for the six months ended June 30, 2010, compared to $10.2 million for the six months ended June 30, 2009, representing an increase of 82%. The increase in gross profit was the result of a substantial increase in revenue. Gross margin decreased from 79% in the first half of 2009 to 71% in the first half of 2010. Our gross margin declined in the first half of 2010 primarily as a result of a decrease in average selling prices due to higher sales volumes and growth in sales of our WinPath2 products, which have relatively lower gross margins, and an increase in amortization costs due to our determination that we will use one of the sets of fabrication masks for a shorter period. Gross margin was also adversely impacted in this particular period by increased personnel costs due to an overlap between transitioning employees and payment of expediting fees to ensure timely delivery of products in the first quarter of 2010.

Research and Development.   Research and development expenses were $9.2 million for the six months ended June 30, 2010, compared to $7.6 million for the six months ended June 30, 2009, representing an increase of 22%. The increase of $1.6 million is attributable primarily to an increase in compensation expenses and in usage of development tools. Compensation expenses increased by $1.3 million, of which $0.3 million relates to exchange rate changes between the U.S. dollar and the NIS, and $1.0 million relates to an increase in personnel and salaries. Salaries were higher in the first half of 2010 as compared to salaries in the first half of 2009, because during the first half of 2009 salaries were temporarily reduced as part of across-the-board cost-cutting measures. Salaries were adjusted back to

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their pre-reduction level effective January 1, 2010, and further increased effective June 1, 2010. An increase of $0.4 million relates to an increased usage of development tools.

Selling and Marketing.   Selling and marketing expenses were $3.9 million for the six months ended June 30, 2010, compared to $3.2 million for the six months ended June 30, 2009, representing an increase of 23%. The increase primarily was attributable to an increase of approximately $0.4 million in compensation expenses relating to salaries and benefits, as a result of the salary recovery effective January 1, 2010 and the June 1, 2010 salary increases. In addition, an increase of approximately $0.2 million is attributable to increase in commissions to sales representatives in connection with the increase in revenue.

General and Administrative.   General and administrative expenses remained stable at $0.8 million for each of the six months ended June 30, 2010 and 2009.

Financial Expenses, net.   Financial expenses, net, were $169 thousand for the six months ended June 30, 2010 compared to $86 thousand for the six months ended June 30, 2009, representing an insignificant change.

Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008

Revenue.  Revenue was $28.6 million for the year ended December 31, 2009, compared to $30.2 million for the year ended December 31, 2008, representing a decrease of 5.3%. This decrease in revenue resulted from a decrease of $6.5 million attributable to sales for wireline broadband due to our customers reducing or discontinuing older ADSL-based DSLAM products (products used to aggregate traffic from multiple customer premise equipment), a decrease of $0.3 million attributable to sales for 3G and 4G base stations and RNCs, partially offset by an increase of $5.1 million in sales for mobile backhaul as operators continued initial deployments of IP-based mobile backhaul equipment. The number of units sold in 2009 decreased by approximately 20% from the number of units sold in 2008. Average selling prices increased by approximately 25% in 2009 as compared with 2008.

Cost of Revenue and Gross Margin.  Gross profit was $22.2 million for the year ended December 31, 2009, compared to $23.8 million for the year ended December 31, 2008, representing a decrease of 6.6%. The decrease in gross profit was the result of a decrease in revenue. Gross margin decreased from 79% to 78% for these periods as a result of a decline in average selling prices, partially offset by a decline in per unit manufacturing costs coming from wafer, assembly and test cost reductions and efficiency improvements.

Research and Development.  Research and development expenses were $15.5 million for the year ended December 31, 2009, including $1.2 million of stock-based compensation, compared to $17.7 million for the year ended December 31, 2008, including $1.0 million of stock-based compensation, representing a decrease of 12.4%. A decrease of approximately $1.5 million relates to a reduction in work force which took effect in November 2008 and salary reductions which took effect beginning January 2009. A decrease of approximately $1.1 million relates to an increase in the U.S. dollar exchange rate against the NIS.

Selling and Marketing.  Selling and marketing expenses were $6.4 million for the year ended December 31, 2009, including $0.5 million of stock-based compensation, compared to $7.3 million for the year ended December 31, 2008, including $0.4 million of stock-based compensation, representing a decrease of 12.4%. The decrease was primarily attributable to a decrease of approximately $0.4 million in compensation expenses relating to salary reductions and reductions in work force, and a decrease of approximately $0.3 million in commissions to sales representatives.

General and Administrative.  General and administrative expenses were $1.5 million for the year ended December 31, 2009, including $0.4 million of stock-based compensation, compared to $2.6 million for the year ended December 31, 2008, including $0.9 million of stock-based compensation, representing a decrease of 43%. The decrease of $0.5 million in stock-based compensation relates mainly to a repricing of options in 2008, which resulted in additional stock-based compensation in that

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year in the amount of $0.4 million. A decrease of $0.3 million primarily was attributable to a decrease in compensation expenses associated with salary reductions, reductions in work force and lower consultants cost in 2009.

Abandonment of Lease Agreement.  Abandonment of lease agreement expenses were $0.6 million for the year ended December 31, 2009 compared to $0 for the year ended December 31, 2008. These expenses consist of a net loss resulting from realization of guarantees in the amount of $0.3 million, write-off of all unamortized leasehold improvements related to the lease in the amount of $0.2 million, legal expenses incurred and an accrual in the amount of $0.1 million, based on management’s assessment for settlement of the claim and the counterclaim. For more information about our abandonment of the lease agreement, refer to “Legal Proceedings” below.

Financial Income (Expense), net.  Financial expenses, net were $0.1 million for the year ended December 31, 2009 and financial income, net was $0.1 million for the year ended December 31, 2008. The financial expenses in 2009 were primarily a result of the bank fees and expenses related to warrants granted to a lender as part of a line of credit agreement we entered into in February 2009, partially offset by interest earned on our cash, cash equivalents and short-term deposits.

Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007

Revenue.  Revenue were $30.2 million for the year ended December 31, 2008, compared to $29.5 million for the year ended December 31, 2007, representing an increase of 2.4%. This increase in revenue resulted from an increase of $4.0 million in sales for mobile backhaul as operators began to deploy IP-based mobile backhaul equipment, an increase of $2.3 million attributable to sales for 3G and 4G base stations and RNC attributed to initial product ramp-ups in 3G equipment, partially offset by a decrease of $5.6 million attributable to sales for wireline broadband as the market growth for ADSL infrastructure port shipments slowed. The number of units sold in 2008 increased by approximately 2% from the number of units sold in 2007. Average selling prices remained substantially the same in 2008 and 2007.

Cost of Revenue and Gross Margin.  Gross profit was $23.8 million for the year ended December 31, 2008, compared to $23.1 million for the year ended December 31, 2007, representing an increase of 3%. The increase in gross profit was the result of an increase in revenue. Gross margin remained relatively constant in both years at a level of 79%.

Research and Development.  Research and development expenses were $17.7 million for the year ended December 31, 2008, including $1.0 million of stock-based compensation, compared to $14.4 million for the year ended December 31, 2007, including $0.6 million of stock-based compensation, representing an increase of 22.7%. The increase primarily was attributable to an increase of approximately $1.0 million in compensation expenses associated with an increase in research and development personnel and $1.4 million attributable to changes in the U.S. dollar exchange rate versus the NIS. The increase in stock-based compensation of $0.4 million is mainly attributable to the repricing of options during 2008, which resulted in additional stock-based compensation in that year.

Selling and Marketing.  Selling and marketing expenses were $7.3 million for the year ended December 31, 2008, including $0.4 million of stock-based compensation compared to $5.9 million for the year ended December 31, 2007, including $0.2 million of stock-based compensation, representing an increase of 24.2%. An increase of $0.8 million was attributable to compensation expenses associated with an increase in sales and marketing personnel.

General and Administrative.  General and administrative expenses increased to $2.6 million for the year ended December 31, 2008, including $0.9 million of stock-based compensation, compared to $2.0 million for the year ended December 31, 2007, including $0.6 million of stock-based compensation, representing an increase of 26.9%. The increase was attributable primarily to an increase in stock-based compensation in the amount of $0.4 million related to the repricing of options in 2008.

Financial Income, net.  Financial income, net was $0.1 million for the year ended December 31, 2008 and $0.5 million for the year ended December 31, 2007. The financial income, net decreased primarily due to the decrease in interest earned on our cash, cash equivalents and short-term deposits during 2008.

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Quarterly Results of Operations

The following tables present our unaudited quarterly consolidated results of operations for the ten quarters in the period ended June 30, 2010. You should read the following tables in conjunction with the consolidated financial statements and the related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. This table includes normal recurring adjustments that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.

		Three Months Ended
		March 31, 2008				June 30, 2008				Sept. 30, 2008				Dec. 31, 2008				March 31, 2009				June 30, 2009				Sept. 30, 2009				Dec. 31, 2009				March 31, 2010				June 30, 2010
(in thousands)
Revenue		$	8,118			$	8,155			$	7,956			$	5,942			$	6,324			$	6,657			$	7,088			$	8,509			$	12,098			$	14,211
Cost of revenue			1,663				1,693				1,726				1,332				1,342				1,390				1,623				2,029				3,592				4,142
Gross profit			6,455				6,462				6,230				4,610				4,982				5,267				5,465				6,480				8,506				10,069
Operating costs and expenses:
Research and development			4,273				4,894				4,824				3,720				3,814				3,744				3,656				4,308				4,535				4,694
Selling and marketing			1,928				1,925				1,755				1,722				1,611				1,578				1,539				1,692				1,914				2,021
General and administrative			590				595				581				802				409				394				347				322				387				445
Abandonment of lease agreement			—				—				—				—				—				—				525				118				—				—
Total operating expenses			6,791				7,414				7,160				6,244				5,834				5,716				6,067				6,440				6,836				7,160
Operating income (loss)			(336	)			(952	)			(930	)			(1,634	)			(852	)			(449	)			(602	)			40				1,670				2,909
Financial income (expense), net			(67	)			(46	)			44				202				(90	)			4				(40	)			(18	)			(49	)			(120	)
Net income (loss)		$	(403	)		$	(998	)		$	(886	)		$	(1,432	)		$	(942	)		$	(445	)		$	(642	)		$	22			$	1,621			$	2,789
Other Data:
Adjusted net income (loss)(1):		$	83			$	(505	)		$	(390	)		$	(517	)		$	(371	)		$	160			$	446			$	634			$	2,162			$	3,425

Net income (loss)		$	(403	)		$	(998	)		$	(886	)		$	(1,432	)		$	(942	)		$	(445	)		$	(642	)		$	22			$	1,621			$	2,789
Stock-based compensation			486				493				496				915				545				525				483				467				514				556
Expenses related to warrants to a lender			—				—				—				—				26				80				80				27				27				80
Abandonment of lease agreement			—				—				—				—				—				—				525				118				—				—
Adjusted net income (loss)		$	83			$	(505	)		$	(390	)		$	(517	)		$	(371	)		$	160			$	446			$	634			$	2,162			$	3,425

Adjusted net income (loss) is used by management to measure our core operating performance, and we are presenting it as a supplemental, non-GAAP financial measure. Adjusted net income (loss) represents net income (loss) excluding non-cash stock-based compensation expense and expenses related to warrants, and expenses related to the abandonment of a lease agreement. We believe that adjusted net income (loss) provides useful information by excluding certain items that may not be representative of our core operating results or business outlook. In addition, we believe that adjusted net income (loss) facilitates operating performance comparisons from period to period, and from company to company, by eliminating the following potential differences. We eliminated the effect of non-cash stock-based compensation to address the disparate impact of non-cash stock-based compensation expense across companies, which varies depending on available valuation methodologies, the volatility of the expense (which depends on market forces outside of management’s control), and the subjectivity of the assumptions and the variety of award types that a company can use under the relevant accounting guidance. We eliminated the effect of non-cash expense related to warrants to address the different financing arrangements utilized across companies and the fact that our outstanding warrants will be exercised and converted into common stock upon the consummation of this offering. We eliminated the effect of the expense incurred in 2009 related to the abandonment of a lease agreement because it was related to a dispute with a landlord and we do not believe that such an expense is reasonably likely to recur within two years, nor was there a similar charge within the two years prior to 2009.

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Adjusted net income (loss) is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP and it should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Adjusted net income (loss) has limitations as an analytical tool, including the following: (i) non-cash stock-based compensation is and will remain a key element of our overall compensation program; and (ii) other companies in our industry may calculate adjusted net income (loss) differently than we do, limiting its usefulness as a comparative measure.

The following table sets forth our historical results, for the periods indicated, as a percentage of revenue.

Three Months Ended
		March 31, 2008				June 30, 2008				Sept. 30, 2008				Dec. 31, 2008				March 31, 2009				June 30, 2009				Sept. 30, 2009				Dec. 31, 2009				March 31, 2010				June 30, 2010
Revenue			100	%			100	%			100	%			100	%			100	%			100	%			100	%			100	%			100	%			100	%
Cost of revenue			20				21				22				22				21				21				23				24				30				29
Gross profit			80				79				78				78				79				79				77				76				70				71
Operating costs and expenses:
Research and development			53				60				61				63				61				56				52				51				38				33
Selling and marketing			24				24				22				29				25				24				22				20				16				14
General and administrative			7				7				7				13				6				6				5				4				3				3
Abandonment of lease agreement			—				—				—				—				—				—				7				1				—				—
Total operating expenses			84				91				90				105				92				86				86				76				57				50
Operating income (loss)			(4	)			(12	)			(12	)			(27	)			(13	)			(7	)			(9	)			—				13				21
Financial income (expense), net			(1	)			(1	)			1				3				(1	)			—				(1	)			—				—				(1	)
Net income (loss)			(5	)%			(12	)%			(11	)%			(24	)%			(15	)%			(7	)%			(10	)%			—	%			13	%			20	%