Personal media players have recently emerged as one of the most popular new consumer electronics products, with dedicated audio MP3 players currently being the most popular product in this category. MP3 players offer significant advantages over traditional compact disc, or CD, and cassette players. These advantages include reduced size, the ability to hold a significantly greater number of songs, the ability to better manage music content and longer battery life.

According to Internationa Data Corporation, ot IDC, the worldwide market for flash and HDD portable MP3 players is expected to grow from 38.9 million units in 2004 to 157.0 million units in 2009, representing a compound annual growth rate, or CAGR, of 32%. However, growth in emerging markets, including the primary market in China, is expected to outpace growth of the overall market for MP3 players. According to CCID Consulting, the MP3 player market in China is expected to grow at a CAGR of 37% from 2004 to 2009. According to IDC, the worldwide market for portable flash-based MP3 players is expected to grow from 26.4 million units in 2004 to 123.9 million units in 2009, a CAGR of 36% while the market for HDD based portable MP3 players is expected to grow from 12.5 million units in 2004 to 33.1 million units in 2009, a CAGR of 22%.

The MP3 player industry, like many other segments of the consumer electronics industry, is increasingly centered in China. China-based manufacturers of MP3 players accounted for approximately 44% of global production volume in 2004 according to Gartner. The MP3 player market is highly fragmented and is characterized by a large number of manufacturers who offer a wide range of models. MP3 players manufactured by China-based manufacturers are often rebranded and sold across the world by importers, retailers, and consumer electronics companies. China’s low cost design and manufacturing capabilities are an increasingly important competitive advantage, as consumers increasingly demand more functionality at lower price in each successive generation of MP3 players.

The Company’s system-on-a-chip, or SoCs, are integrated circuits that incorporate a digital signal processor, a micro controller unit, embedded memory, codec, a power management unit and other components. The Company’s SoCs are designed to be utilized for both flash memories based and HDD based personal media players with upgradeable firmware.

The Company solution development kits, or SDKs, include the embedded firmware code, software tools and documentation necessary to develop and mass produce MP3 players. The Company’s firmware utilizes an embedded structure design with standard interface that allows its customers to pick and choose functionalities and add new device drivers, which in turn lowers their development complexity for new products and accelerates product time-to-market.

The Company provides total solutions directly to contract manufacturers or brand owners, or indirectly to them through value added distributors. The Company’s total solution includes its SoCs, SDKs and customization documents that include detailed specifications of other required components and providers of those components, which, together, allow those customers to assemble a complete MP3 player based on a standard reference design.

The Company’s energy measurement integrated circuits leverage its technology with fixed-function digital signal processors to perform the essential measurements in electrical energy meters. Energy meters based on digital signal processors, such as the products it produce, are capable of more accurate measurements and will likely replace the traditional energy meters that rely on stepper motors or microprocessors.

Cost of revenues increased by $30.3 million, or 233%, from $13.0 million in the nine months ended September 30, 2004 to $43.3 million in the nine months ended September 30, 2005.

Gross profit increased by $54.3 million, or 449%, from $12.1 million in the nine months ended September 30, 2004 to $66.4 million in the nine months ended September 30, 2005.

Total operating expenses increased by $11.5 million, or 479%, from $2.4 million in the nine months ended September 30, 2004 to $13.9 million in the nine months ended September 30, 2005.

Interest income increased from $20.0 thousand for the nine months ended September 30, 2004 to $580.0 thousand for the nine months ended September 30, 2005.