Video applications based on digital technology are experiencing rapid growth in the consumer, security surveillance and automotive markets. For example, in the consumer market, there has been a significant increase in demand for digital video systems such as advanced TVs, multifunction LCD monitors and DVD recorders. Similarly, security surveillance systems and in-car displays are also experiencing substantial growth.

TV represents one of the largest and most established applications within the consumer market with a significant installed base worldwide. Consumer demand for higher quality video, increasing availability of higher definition content, improved form factors and declining TV prices are driving this replacement. TVs based on flat panel display technologies such as liquid crystal displays, or LCDs, and plasma display panels are the most popular types of advanced TVs. Cathode ray tube TVs that utilize digital technology are also considered advanced TVs. According to DisplaySearch, the advanced TV market is expected to grow from 13.2 million units in 2004 to 101.8 million units in 2009, representing a compound annual growth rate of 50%.

The security surveillance market is comprised of systems that receive video from multiple surveillance cameras. Systems utilizing analog technology, including VCRs, currently comprise a significant portion of the installed base of surveillance systems. According to J.P. Freeman, the worldwide video surveillance market is expected to grow from $7.8 billion in 2004 to $18.3 billion in 2009, representing a compound annual growth rate of 18%.

The Company’s video decoder products are high performance mixed signal semiconductors that decode analog TV broadcast signals, including NTSC, PAL and SECAM, and popular analog video signals, including composite, S-Video, component and SCART, into a standard digital format. The Company’s video decoder products integrate proprietary sync processing, color demodulating and digital 2D and 3D comb filtering, which are the key technologies required for high performance video decoding. The Company currently sells its video decoder products to customers across the following digital video applications: advanced TV, multifunction LCD monitor, DVD recorder, camcorder, security surveillance systems and in-car display.

The Company’s security surveillance products integrate important functions required to display, store and transport analog video signals from security surveillance cameras. For example, the Company integrates multiple video decoders into a single semiconductor. As a result, this semiconductor is able to receive and decode analog video signals from multiple cameras into a standard digital format. In addition, the Company integrates a multiplexer, a key technology required to combine multiple video signals into a single video signal. The Company also has developed a motion JPEG, or MJPEG, encoder/decoder, or CODEC, that facilitates the storage and playback of video from a hard disk drive and transport of video over the Internet.

Gross profit was $12.8 million for the nine months ended September 30, 2005 and $5.8 million for the nine months ended September 30, 2004, an increase of 122%.

Gross margin was 51% for the nine months ended September 30, 2005, increasing from 50% for the nine months ended September 30, 2004.

Research and development expenses were $6.1 million, or 24% of revenues, for the nine months ended September 30, 2005 and $4.1 million, or 36% of revenues, for the nine months ended September 30, 2004.