As filed with the Securities and Exchange Commission on July 22, 2011

Registration No. 333-166282

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 6

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Corsair Components, Inc.

(Exact name of registrant as specified in its charter)


Delaware	3577	27-1735357
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

46221 Landing Parkway

Fremont, California 94538

(510) 657-8747

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

Nicholas B. Hawkins

46221 Landing Parkway

Fremont, California 94538

(510) 657-8747

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

Copies to:

Thomas C. DeFilipps
Eric S. Haueter
Karen K. Dreyfus
Sidley Austin LLP
1001 Page Mill Road, Building 1

Palo Alto, California 94304

Telephone: (650) 565-7000

Telecopy: (650) 565-7100

Tad J. Freese

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

Telephone: (650) 328-4600

Telecopy: (650) 463-2600

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

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: ¨

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. ¨

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. ¨

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. ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


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

CALCULATION OF REGISTRATION FEE



Title of each class of securities to be registered	Proposed maximum aggregate offering price(1)(2)	Amount of registration fee
Common stock, par value $0.0001 per share	$86,250,000	$6,150(3)

(1)	Includes offering price of shares that the underwriters have the option to purchase.

(2)	Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(3)	Paid previously.

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, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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 state or other jurisdiction where the offer or sale is not permitted.

Subject to Completion dated July 22, 2011

PRELIMINARY PROSPECTUS

Shares

LOGO

Corsair Components, Inc.

Common Stock

This is the initial public offering of the common stock of Corsair Components, Inc. We are offering shares of our common stock and the selling stockholders identified in this prospectus are offering shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. We estimate that the initial public offering price will be between $ and $ per share.

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

Investing in our common stock involves risks. See “Risk Factors” beginning on page 15 of this prospectus.


	Per Share	Total
Initial public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds to Corsair, before expenses	$	$
Proceeds to selling stockholders, before expenses	$	$

We and all but one of the selling stockholders have granted the underwriters a 30 day option to purchase a total of up to 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 state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on , 2011.



Barclays Capital		Jefferies



Oppenheimer & Co.		RBC Capital Markets

The date of this prospectus is , 2011

LOGO

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		15
Special Note Regarding Forward-Looking Statements and Market Data		45
Use of Proceeds		46
Dividend Policy		47
Capitalization		48
Dilution		50
Selected Consolidated Financial Data		53
Management’s Discussion and Analysis of Financial Condition and Results of Operations		58
Business		96
Management		114
Executive Compensation		121
Certain Relationships and Related Party Transactions		140
Principal and Selling Stockholders		145
Description of Capital Stock		148
Shares Eligible for Future Sale		153
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders		156
Underwriting		160
Legal Matters		167
Experts		167
Where You Can Find More Information		167
Index to Consolidated Financial Statements		F-1

You should rely only on the information contained in this prospectus and in any free writing prospectus that we may provide to you in connection with this offering. Neither we nor any of the selling stockholders or underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any such free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor any of the selling stockholders or underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where or to any person to whom the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.

Until , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in our common stock, 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.

For investors outside the United States: Neither we nor any of the selling stockholders or underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus to “dollars” or “$” mean U.S. dollars.

PROSPECTUS SUMMARY

This summary highlights some of the information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise expressly stated or the context otherwise requires, the terms “Corsair,” “our company,” “we,” “us” and “our” and similar references in this prospectus refer to Corsair Components, Inc. and its predecessors (including Corsair Memory, Inc.) and their respective consolidated subsidiaries.

Corsair Components, Inc.

Company Overview

We are a leading designer and supplier of high-performance components to the personal computer, or PC, gaming hardware market. Our products are purchased primarily by PC gaming enthusiasts who build their own high-performance desktop computer systems or buy pre-assembled customized systems in order to achieve the processing speeds and graphics capabilities necessary to fully experience leading edge computer games. We believe that we have a leading brand among PC gaming enthusiasts, reflecting our superior product performance, design and reliability. Over the last five years we have introduced new, higher value added PC gaming components, both leveraging and reinforcing our brand image within our target market. Through our 17 years of operation, we have developed a global, scalable operations infrastructure with extensive marketing and distribution channel relationships with distributors and retailers in Europe, the Americas and the Asia Pacific region.

We have established a strong brand that we believe is widely recognized and respected in the PC gaming hardware market. We believe that our reputation, reinforced by favorable reviews of our products within the PC gaming community, is instrumental to building and maintaining our market leadership, particularly in light of the technical sophistication of many of our end-users. Our products have won numerous awards from computer enthusiast websites, such as hexus.net, hardocp.com, xbitlabs.com, driverheaven.net (now known as hardwareheaven.net) and legitreviews.com. Our products have also been recognized by a variety of publications, such as Maximum PC, a leading PC enthusiast magazine in the United States, which included our high-performance dynamic random access memory, or DRAM, modules in their “Dream Machine” PC in 2007, 2008 and 2009 and our high-performance DRAM modules and power supply units in their “Dream Machine” PC in 2010. The readers of Custom PC, a widely distributed computer enthusiast magazine in the United Kingdom, voted us as the Computer Power Supply Manufacturer of the Year in each of 2007, 2008, 2009 and 2010 and as Memory Manufacturer of the Year for five of the last seven years, including, most recently, 2010.

Our products are sold to end-users in more than 60 countries through our customers, which are primarily retailers and distributors. End-users purchase our products primarily from online and brick-and-mortar retailers, including major retailers such as Newegg.com, TigerDirect.com, Amazon.com, Fry’s Electronics, Micro Center and Best Buy in the United States, Amazon.de in Germany, PC World in the United Kingdom and Surcouf in France. For the year ended December 31, 2010, despite challenging market conditions in the second quarter, we generated net revenues of $379.6 million, gross profit of $51.0 million, a net loss of $10.2 million and adjusted net income of $9.6 million. For the three months ended March 31, 2011, we generated net revenues of $107.4 million, gross profit of $18.9 million, net income of $4.9 million and adjusted net income of $5.5 million. Adjusted net income (loss), which is not a financial measure under U.S. generally accepted accounting principles, or GAAP, is equal to net income (loss) plus tax-adjusted stock-based compensation (benefit) expense (which was an expense of $19.8 million in 2010 and $0.7 million for the three months ended March 31, 2011) and is included in this prospectus to provide investors with a supplemental measure of our operating performance. See

“Summary Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Measures” below for an explanation of how we compute adjusted net income (loss) and for a reconciliation to net income (loss), the most directly comparable GAAP financial measure.

Industry Overview

Consumers desire increasing realism in video games and game publishers have responded with games that incorporate enhanced live-action, movie-like graphics, sophisticated game play and multi-player interactivity. Although video games can be played on game consoles, smart phones and dedicated handheld gaming devices, the most advanced games require the processing and graphics power of a high-performance gaming PC for optimal performance. The emergence of advanced, multiplayer online video games, such as World of Warcraft, Need for Speed and Crysis, has also placed increased demands on processing speed and power by giving an inherent competitive performance advantage to players with faster systems. Moreover, gaming enthusiasts often utilize multiple large format video displays and game specific controllers, such as steering wheels and joysticks, for a more immersive experience. This increased complexity of games, along with the use of multiple displays and interface devices, requires increased memory, faster processing speeds and superior graphics for superior performance, which we believe drives the purchase of high-performance PC gaming systems and components.

Our Competitive Strengths

We are a leading provider of high-performance PC gaming hardware. We believe that we have a strong position in our target market as a result of the following competitive strengths:

•

Strong Brand Recognition and Customer Loyalty. We have been shipping high-performance DRAM modules for over 10 years and believe that we have established ourselves as a leading brand among computer gaming enthusiasts. We deliver high-performance and reliable products that have consistently met our targeted and advertised product specifications. This has helped us create a strong brand that we believe is widely recognized and respected in the PC gaming hardware market, as well as a loyal customer base among gaming enthusiasts.

•

Broad and Expanding Product Portfolio. We have demonstrated the ability to grow our business by successfully expanding our product portfolio. In late 2006, we launched our first line of non-memory components by introducing high-performance power supply units and in 2009 we launched three additional product categories: solid-state drives, cooling systems and computer cases. In 2010, we launched our audio product category. As of March 31, 2011, these five additional product categories constituted our gaming components and peripherals segment. Our gaming components and peripherals segment experienced growth in net revenues from approximately $17.3 million in 2007 to approximately $126.7 million in 2010, reflecting a compound annual growth rate of approximately 94%, and from approximately $28.5 million in the first quarter of 2010 to approximately $43.0 million in the first quarter of 2011, reflecting an increase of approximately 51%.

•

Rapid and Effective Product Development. We leverage the active online community of gaming enthusiasts to understand better the needs of our end-users, with whom we continuously communicate through forums, blogs, customer surveys, social networking websites and other media. Our website, corsair.com, which includes forums, blogs and on-line tutorials, had a monthly average of over 800,000 visits in the first quarter of 2011. We believe that our active efforts to solicit and integrate end-user feedback into our product designs enhance our ability to deliver new products within a relatively short time frame and provide us with significant competitive advantages.

•

Global Sales and Distribution Network. In over 17 years of operation, we have developed a comprehensive global marketing and distribution network with representation in major markets

worldwide. We currently ship to more than 60 countries and to major retailers including Newegg.com, TigerDirect.com, Amazon.com, Fry’s Electronics, Micro Center and Best Buy in the United States, Amazon.de in Germany, PC World in the United Kingdom and Surcouf in France.

•

Scalable and Efficient Operating Model. We maintain a scalable and efficient operating model designed to manage the global supply chain of an increasingly diverse mix of products. As we have expanded our product portfolio, we have implemented increasingly sophisticated tools for forecasting and managing our supply chain, freight costs and inventory in a variety of economic environments.

Our Growth Strategy

We intend to maintain and extend our position as a leading provider of high-performance PC gaming hardware by pursuing the following growth strategies:

•

Increase Product Sales to our Core Gaming Enthusiast Market. Our goal is to be a leading provider of high-performance components for the PC gaming enthusiast. Our strategy is to maintain and strengthen our position as a leading provider of DRAM modules to the PC gaming market, while growing the market share of our newer product categories.

•

Expand our Served Market. We seek to expand our end-user base and end markets by introducing new peripheral products intended to appeal to consumers in the significantly larger mainstream PC gaming market. We intend to leverage our brand and apply our expertise with existing technologies, our product development capabilities and our knowledge of customer requirements in order to enter product categories, including audio products (such as a USB gaming headset, our first audio product, which we introduced in the third quarter of 2010), that are designed to appeal to both mainstream and enthusiast PC gamers.

•

Leverage our Scalable Operating and Business Model. We intend to continue to leverage our flexible operating model, which has allowed us to limit our operating expenses and deploy our capital efficiently, despite sometimes challenging market conditions. We believe that our global and scalable operations infrastructure and outsourced manufacturing model can support meaningful growth with modest incremental capital investment.

•

Build on our Existing Infrastructure to Address Growing Opportunities in the Asia Pacific Region. Sales to the Asia Pacific markets generated 13.8% of our net revenues for the year ended December 31, 2010 and 13.5% of our net revenues for the three months ended March 31, 2011, with 7.4% and 7.7%, respectively, of our net revenues for those periods coming from Australia and Japan. We believe that there are significant opportunities in China, India and other Asian markets with substantial populations as consumer spending on PC gaming hardware increases with growth in disposable income.

•

Pursue Selective Complementary Acquisitions. The markets for some of our products are highly fragmented, with a number of relatively small suppliers, some of which may lack the necessary resources to market and distribute their products effectively. We plan to evaluate, and may pursue, acquisitions that diversify our product offerings and broaden our end-user base or expand our geographic presence.

Risks Affecting Us

Our business is subject to numerous risks, including those described in the section entitled “Risk Factors” immediately following this prospectus summary. These risks represent challenges to the implementation of our strategy and to the success of our business. These risks include the following:

•

integrated circuits, or ICs, account for most of the cost of producing our DRAM modules, USB flash drives and solid-state drives and fluctuations in the market price of ICs may have a material impact on our net revenues and gross profit;

•

the majority of our net revenues is generated by sales of DRAM modules and any significant decrease in the average selling prices of our DRAM modules would have a material adverse effect on our business, results of operations and financial condition;

•

our gross profit and gross margin can vary significantly depending on changes in product mix, fluctuations in the market price of DRAM ICs, and other factors, many of which are beyond our control;

•

we have experienced quarterly and annual GAAP net losses in the past due in large part to stock-based compensation expense and to valuation allowance against deferred tax assets, and these factors may contribute to net losses in the future;

•

sales in Europe account for a substantial portion of our net revenues and the ongoing financial uncertainty in Europe and fluctuations in U.S. dollar exchange rates have adversely affected our operating results;

•

our competitive position depends to a significant degree upon our ability to maintain the strength of our brand among PC gaming enthusiasts;

•

our success and growth depend on our ability to continuously develop and successfully market new products and improvements;

•

we depend upon the introduction and success of new third-party high-performance computer hardware, particularly microprocessors and graphics cards, and sophisticated new computer games to drive sales of our products;

•

we face intense competition and the markets we serve are characterized by continuous and rapid technological developments and change;

•

our results of operations are subject to substantial quarterly and annual fluctuations, which may adversely affect the market price of our common stock;

•

we do not own any manufacturing facilities, we have no guaranteed sources of supply of products or components, and we depend upon a small number of manufacturers, many of which are single-source suppliers, to supply our products, which may result in product or component shortages, delayed deliveries and quality control problems; and

•

your ability to influence matters that require approval of our stockholders will be limited because a small group of our existing stockholders will own a substantial portion of our outstanding common stock immediately after this offering.

Corporate Information

We were founded in 1994 as a California corporation and reincorporated in the State of Delaware in 2007. Our executive offices are located at 46221 Landing Parkway, Fremont, California 94538 and our telephone number is (510) 657-8747. Our website address is www.corsair.com. Information contained on, or accessible through, our website is not incorporated by reference into this prospectus and should not be considered to be part of this prospectus.

We use various trademarks and trade names in our business, including Corsair, Dominator, Dominator GT, Dominator GTX, XMS, Vengeance, Value Select, DHX (including DHX+ and DHX Pro), Flash Voyager, Flash Voyager GT, Flash Voyager GTR, Flash Voyager Mini, Flash Voyager Port, Flash Survivor, Flash Survivor GT, Flash Padlock, Corsair Professional Series, Corsair Enthusiast Series, Corsair Builder Series, Corsair Obsidian Series, Corsair Graphite Series, Corsair Carbide Series, Corsair Air Series, Corsair Hydro Series, Corsair Ice Series, Corsair Storage Solutions, Corsair Performance Series, Corsair Extreme Series, Corsair Reactor Series, Corsair Nova Series, Corsair Force Series and Corsair Gaming Audio Series, some of which appear in this prospectus, as well as the sail logo appearing on the cover page of this prospectus. All other trademarks and trade names appearing in this prospectus are the property of their respective owners.

The Offering

Total common stock offered

Common stock offered by us

Common stock offered by the selling stockholders

Total common stock to be outstanding immediately after this offering

Use of proceeds

Proposed Nasdaq Global Market symbol

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

The total number of shares of our common stock to be outstanding immediately after this offering as set forth above is based on 61,532,788 shares outstanding as of March 31, 2011 and has been adjusted to give pro forma effect to our repurchase of 5,727,875 shares of our outstanding common stock on May 6, 2011 and the issuance of 6,400,000 shares of our common stock on June 30, 2011 as a result of option exercises in connection with the transactions described below under “—Recent Developments—Keating Transaction,” as if those transactions had occurred on March 31, 2011, and excludes:

•

35,413,867 shares of our common stock issuable upon the exercise of options outstanding under our equity incentive plans as of March 31, 2011 (excluding options exercised in connection with the transactions described below under “— Recent Developments—Keating Transaction”) at a weighted average exercise price of $0.58 per share;

•

additional shares of our common stock that will be available for future awards under our 2011 Equity Incentive Plan, plus automatic annual increases in the number of shares of common stock available for future awards under that plan, as more fully described in “Executive Compensation—Equity Incentive Plans”;

•

additional shares of our common stock that will be available for future awards under our 2011 Employee Stock Purchase Plan, as more fully described in “Executive Compensation—Equity Incentive Plans”; and

•

shares of our common stock issuable upon the exercise of outstanding warrants that we issued in 2009, which we sometimes refer to as the BHC warrants, at an exercise price of $0.55 per share (subject to adjustment as provided in the BHC warrants). The number of shares of our common stock issuable upon exercise of the BHC warrants is equal to the sum of (a) 1,942,827 shares of common stock plus (b) the number of shares of common stock equal to 2% of the total number of shares of common stock of all classes issued by us (other than shares of common stock issued in this offering) during the period beginning on and including April 1, 2010 through and including the earlier of the day immediately prior to the closing date of this offering and December 31, 2011, calculated on a fully-diluted basis after giving effect to the exercise of all other warrants, options and rights to acquire any shares of our common stock issued by us, and the conversion of any convertible securities issued by us, during that period, subject to specified exceptions. As of March 31, 2011, an additional 57,011 shares of our common stock were issuable upon exercise of the BHC warrants pursuant to clause (b) of the preceding sentence. As described under “Principal and Selling Stockholders,” BHC Interim Funding III, L.P., which we sometimes refer to as BHC, the holder of the BHC warrants, will exercise BHC warrants to purchase a total of 971,414 shares of our common stock, which we sometimes refer to as the BHC Warrant Exercise, and will sell those shares in this offering.

Unless otherwise expressly stated or the context otherwise requires, the information in this prospectus gives effect to and assumes the following:

•

no exercise of outstanding options or BHC warrants;

•

the effectiveness of our amended and restated certificate of incorporation, which we sometimes refer to as our certificate of incorporation, and of our amended and restated bylaws, which we sometimes refer to as our bylaws, which will occur prior to the closing of this offering;

•

the effectiveness of a for reverse split of our common stock, which will occur prior to the closing of this offering; and

•

no exercise by the underwriters of their option to purchase a total of additional shares of common stock on the terms and conditions set forth on the cover page of this prospectus if the underwriters sell more than shares of common stock in this offering, consisting of up to shares that may be purchased from us and a total of up to shares that may be purchased from all but one of the selling stockholders.

Recent Developments

Share Repurchase. On March 31, 2011, we made an offer to purchase fully vested and fully paid shares of our common stock from our stockholders on a pro rata basis for a total purchase price of up to $10 million. The offer expired on April 28, 2011 and, on May 6, 2011, we repurchased a total of 5,727,875 shares of our common stock that had been outstanding for at least six months (“mature shares”) for a total purchase price of approximately $9.5 million. The purchase price was $1.665 per share, as determined by our board of directors. We sometimes refer to this as the Share Repurchase. We financed the Share Repurchase primarily with borrowings under our revolving credit facility and, to a lesser extent, available cash. For additional information, see “Certain Relationships and Related Party Transactions—Share Repurchase.”

Keating Transaction. On June 30, 2011, six of our current and former officers and employees, whom we sometimes refer to as the Sellers, exercised options to purchase a total of 6.4 million shares, which we sometimes refer to as the Investor shares, of our common stock and, on July 6, 2011, sold those shares to Keating Capital, Inc., Lazarus Investment Partners LLLP and Cambridge Capital II LLC, which we sometimes refer to as the Investors, at a price of $1.25 per share, for a total purchase price of $8.0 million. The Sellers also issued warrants, which we sometimes refer to as the Investor warrants, to the Investors entitling them to purchase a total

of 1.6 million additional shares (subject to decrease under specified circumstances) of our common stock, which we sometimes refer to as the Investor warrant shares, from the Sellers at an exercise price of $0.01 per share (with the number of Investor warrant shares and the exercise price per share subject to customary adjustments in the event of stock splits, reclassifications and similar transactions). All of the 1.6 million Investor warrant shares potentially issuable upon exercise of the Investor warrants are currently outstanding and are owned by the Sellers, who have placed those shares in escrow for delivery if the Investor warrants are exercised. As a result, any exercise of the Investor warrants will not require that we issue additional shares of our common stock. We sometimes refer to the exercise by the Sellers of the options to purchase the 6.4 million shares of our common stock that they sold to the Investors as the Option Exercise, and to the Option Exercise and the sale of the Investor shares and the Investor warrants to the Investors as, collectively, the Keating Transaction. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Income Taxes” and “Certain Relationships and Related Party Transactions—Keating Transaction.”

The Holding Company Formation, Repurchase Right Termination and BHC Warrant Amendment

Corsair Components, Inc., or Corsair Components, the issuer of the common stock to be sold in this offering, was incorporated in Delaware in January 2010. Our business was in the past conducted through Corsair Memory, Inc., or Corsair Memory, and its predecessors and their respective subsidiaries. On November 22, 2010, Corsair Memory effected a corporate reorganization, which we sometimes refer to as the Holding Company Formation, pursuant to which Corsair Memory became a wholly-owned subsidiary, and all of our other subsidiaries became direct or indirect subsidiaries, of Corsair Components. In connection with the Holding Company Formation, the outstanding shares of Corsair Memory’s common stock were converted into shares of Corsair Components’ common stock and outstanding options and warrants to purchase Corsair Memory’s common stock became options or warrants, as the case may be, to purchase shares of Corsair Components’ common stock. Accordingly, our consolidated financial statements and other financial information included in this prospectus as of dates and for periods prior to the date of the Holding Company Formation reflect the results of operations and financial position of Corsair Memory and its consolidated subsidiaries, and our consolidated financial statements and other financial information as of dates and for periods from and after the date of the Holding Company Formation reflect the results of operations and financial condition of Corsair Components and its consolidated subsidiaries, in each case unless otherwise expressly stated or the context otherwise requires.

The terms of our employee stock ownership plan, or ESOP, currently provide that ESOP participants have the right, for a specified period of time, to require us to repurchase shares of our common stock that are distributed to them by the ESOP. As a result, the shares of common stock held by the ESOP are reflected in our consolidated balance sheet in a line item (called “redeemable ESOP shares”) below liabilities and above stockholders’ (deficit) equity and in an offsetting line item (also called “redeemable ESOP shares”) that is a component of stockholders (deficit) equity. We will terminate this repurchase right, which we sometimes refer to as the Repurchase Right Termination, upon or shortly after the closing of this offering, whereupon this accounting treatment for the ESOP shares will be discontinued.

On June 18, 2009, we received a $5.0 million term loan from BHC and, in connection with that loan, issued the BHC warrants to BHC. The holder of the BHC warrants, which is currently BHC, has the right to require us to repurchase those warrants or the shares of common stock issued on exercise of those warrants on June 18, 2012 and under other specified circumstances. In addition, the exercise price of the BHC warrants, and the property receivable upon exercise, are subject to adjustment under certain circumstances. See “Description of Capital Stock—Warrants—BHC Warrants.” Among other things, the BHC warrants provide that, if we offer, sell or grant any option to purchase our common stock at a price per share that is less than the exercise price of the BHC warrants then in effect, the exercise price of the BHC warrants will be adjusted. As a result of this repurchase right, the BHC warrants are reflected as a liability on our consolidated balance sheet. However, both

this repurchase right and the exercise price adjustment provision described in the second preceding sentence (but not the other exercise price adjustment provisions in the BHC warrants) will terminate, which we sometimes refer to, collectively, as the BHC Warrant Amendment, upon the closing of this offering, which means that the outstanding BHC warrants will then be reflected in stockholders’ (deficit) equity on our consolidated balance sheet.

A significant number of our outstanding employee stock and stock option awards were previously subject to repurchase rights that, combined with our past practices of repurchasing shares issued under our equity incentive plans, caused such awards to be reflected as a stock compensation liability on our consolidated balance sheet. These repurchase rights were terminated on June 29, 2010. Further, we have not repurchased any shares issued under our equity incentive plans within the last three years and we do not plan to continue our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP. Accordingly, the stock compensation liability was reclassified to stockholders’ equity (deficit) in our consolidated balance sheet, effective as of June 29, 2010, and these stock and stock option awards are no longer subject to remeasurement for each reporting period.

Summary Consolidated Financial Data

We derived the following summary consolidated statement of operations data and other financial and operating data (other than units sold) for the years ended December 31, 2008, 2009 and 2010 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the following summary consolidated statement of operations data and other financial and operating data (other than units sold) for the years ended December 31, 2006 and 2007 from our audited consolidated financial statements, which financial statements are not included in this prospectus. We derived the following summary consolidated statement of operations data and other financial and operating data (other than units sold) for the three months ended March 31, 2010 and 2011 and the following summary historical consolidated balance sheet data as of March 31, 2011 from our unaudited interim consolidated financial statements included elsewhere in this prospectus which, unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial condition and results of operations for those periods. Our results of operations and financial condition presented below do not purport to be indicative of our results of operations or financial condition as of any future date or for any future period. You should read the following information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands except per share amounts)
Consolidated Statement of Operations Data:
Net revenues	$	378,050		$	379,718		$	341,072		$	325,633		$	379,626		$	103,538		$	107,429
Cost of revenue⁽¹⁾		350,830			343,337			305,505			278,976			328,641			88,777			88,537

Gross profit		27,220			36,381			35,567			46,657			50,985			14,761			18,892
Operating expenses:
Product development⁽¹⁾		8,748			1,736			87			13,514			8,047			6,009			1,459
Sales and marketing⁽¹⁾		10,969			15,751			17,534			23,780			21,942			8,535			6,592
General and administrative⁽¹⁾		12,734			11,039			4,668			20,201			14,113			8,947			3,147

Total operating expenses⁽²⁾		32,451			28,526			22,289			57,495			44,102			23,491			11,198

Income (loss) from operations		(5,231	)		7,855			13,278			(10,838	)		6,883			(8,730	)		7,694
Interest expense, net		(2,388	)		(3,267	)		(2,543	)		(1,730	)		(1,163	)		(500	)		(181	)
Gain (loss) on revaluation of common stock warrants		—			—			—			(1,722	)		(435	)		(1,014	)		(532	)
Other income (expense), net		154			70			(90	)		310			(171	)		(105	)		41

Income (loss) before income taxes		(7,465	)		4,658			10,645			(13,980	)		5,114			(10,349	)		7,022
Income tax expense (benefit)		1,296			67			(557	)		(5,290	)		15,314			1,024			2,159

Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863


Net income (loss) per share:
Basic	$	(0.15	)	$	0.08		$	0.19		$	(0.14	)	$	(0.17	)	$	(0.19	)	$	0.08

Diluted	$	(0.15	)	$	0.00		$	(0.03	)	$	(0.14	)	$	(0.17	)	$	(0.19	)	$	0.05

Weighted average shares used in computing net income (loss) per share:
Basic		57,976			58,494			59,643			61,251			61,033			61,278			60,861
Diluted		57,976			79,783			75,579			61,251			61,033			61,278			92,379

(Footnotes appear on next page)

(1)	Includes stock-based compensation (benefit) expense as follows:


	Year Ended December 31,												Three Months Ended March 31,
	2006		2007			2008			2009		2010		2010		2011
	(in thousands)
Cost of revenue	$	1,033	$	(476	)	$	(1,674)		$	448	$	909	$	511	$	34
Product development		2,895		(1,672	)		(4,353	)		8,389		2,480		4,577		94
Sales and marketing		1,477		(398	)		(1,389	)		7,878		1,631		3,424		257
General and administrative		3,604		(1,984	)		(5,407	)		11,289		3,272		5,574		279

Total	$	9,009	$	(4,530	)	$	(12,823	)	$	28,004	$	8,292	$	14,086	$	664

(2)

For years prior to 2007, we had a bonus plan under which the bonus payouts were significantly larger than under our current bonus plan. In 2006, our total bonus expense was approximately $7.3 million compared to adjusted earnings before interest and taxes, or EBIT, of approximately $3.8 million and adjusted EBIT before bonus expense of approximately $11.1 million. Adjusted EBIT is a non-GAAP financial measure that we include in this prospectus to provide investors with a supplemental measure of our operating performance. For a definition of adjusted EBIT and reconciliation to net income (loss), the most directly comparable GAAP measure, see note (1) on the following page.


	Year Ended December 31,											Three Months Ended March 31,
	2006		2007		2008			2009		2010		2010		2011
	(dollars and units in thousands)
Other Financial and Operating Data:
Adjusted EBIT⁽¹⁾	$	3,778	$	3,325	$	455		$	17,166	$	15,175	$	5,356	$	8,358
Adjusted net income (loss)⁽¹⁾	$	248	$	61	$	(1,621	)	$	7,022	$	9,610	$	2,449	$	5,516

Net revenues:
High-performance memory components	$	376,651	$	362,419	$	295,755		$	243,124	$	252,961	$	75,056	$	64,426
Gaming components and peripherals	$	1,399	$	17,299	$	45,317		$	82,509	$	126,665	$	28,482	$	43,003

Total	$	378,050	$	379,718	$	341,072		$	325,633	$	379,626	$	103,538	$	107,429


Gross profit:⁽²⁾
High-performance memory components	$	—	$	—	$	—		$	30,167	$	25,470	$	9,088	$	10,415
Gaming components and peripherals	$	—	$	—	$	—		$	16,490	$	25,515	$	5,673	$	8,477

Total	$	27,220	$	36,381	$	35,567		$	46,657	$	50,985	$	14,761	$	18,892

Gross margin:⁽²⁾⁽³⁾
High-performance memory components		— %		— %		— %			12.4%		10.1%		12.1%		16.2%
Gaming components and peripherals		— %		— %		— %			20.0%		20.1%		19.9%		19.7%
Total		7.2%		9.6%		10.4%			14.3%		13.4%		14.3%		17.6%
Total units sold		6,560		9,314		10,700			9,083		7,914		2,111		2,683

(1)

We present adjusted EBIT and adjusted net income (loss) in this prospectus to provide investors with supplemental measures of our operating performance. Adjusted EBIT and adjusted net income (loss) are non-GAAP financial measures. We define adjusted EBIT as net income (loss) less other income (expense), net, plus interest expense, net, gain (loss) on revaluation of common stock warrants, income tax expense (benefit) and stock-based compensation (benefit) expense. We define adjusted net income (loss) as net income (loss) plus tax-adjusted stock-based compensation (benefit) expense.

We believe that adjusted EBIT and adjusted net income (loss) assist our board of directors, management and investors in comparing our operating performance from period to period on a consistent basis because, in the case of adjusted EBIT, it removes the impact of stock- based compensation (benefit) expense (which is a non-cash item and, prior to June 29, 2010, varied substantially from period to period due to our use of liability accounting), gain (loss) on revaluation of our outstanding common stock warrants (which is a non-cash item), other income (expense), net (which consists of items, such as foreign currency gain or loss and income from scrap sales, that we do not consider indicative of our operating performance) and variations in our capital structure (affecting interest expense, net) and tax position (such as the impact of changes in effective tax rates) and because, in the case of adjusted net income (loss), it removes the impact of tax-adjusted stock-based compensation (benefit) expense. We have excluded stock-based compensation (benefit) expense from adjusted EBIT and tax-adjusted stock-based compensation (benefit) expense from adjusted net income (loss) because our management believes that operating metrics that exclude stock-based compensation (benefit) expense provide a more direct view of our operating results (especially because of the variability in stock-based compensation (benefit) expense that, until June 29, 2010, was caused by our use of liability accounting) and therefore uses metrics that exclude stock-based compensation (benefit) expense in managing our business. In addition, the stock and stock option repurchase rights that required us to use liability accounting were terminated on June 29, 2010, stock compensation liability was reclassified to stockholders’ equity (deficit) in our consolidated balance sheet, effective as of June 29, 2010, and these stock and stock option awards are no longer subject to remeasurement for each reporting period. Moreover, in light of the public market for our common stock that will exist after this offering, we do not plan to continue our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP. We therefore believe that eliminating stock-based compensation (benefit) expense is appropriate to present our historical financial data in a manner that is consistent with both the way in which our management evaluates our results of operations and our intended operations as a public company following this offering. We also use adjusted EBIT as a performance measure in determining management bonuses. The use of adjusted EBIT and adjusted net income (loss) have limitations and you should not consider these performance measures in isolation from or as an alternative to GAAP measures such as net income (loss). For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Measures.”

(Footnote continued on next page)

(1)	(cont.) The following table provides a reconciliation of adjusted EBIT to net income (loss), the most directly comparable GAAP financial measure, for the following periods:


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands)
Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863
Less: other income (expense), net		154			70			(90	)		310			(171	)		(105	)		41
Plus:
Interest expense, net		2,388			3,267			2,543			1,730			1,163			500			181
Gain (loss) on revaluation of common stock warrants		—			—			—			1,722			435			1,014			532
Income tax expense (benefit)		1,296			67			(557	)		(5,290	)		15,314			1,024			2,159
Stock-based compensation (benefit) expense		9,009			(4,530	)		(12,823	)		28,004			8,292			14,086			664

Adjusted EBIT	$	3,778		$	3,325		$	455		$	17,166		$	15,175		$	5,356		$	8,358

The following table provides a reconciliation of adjusted net income (loss) to net income (loss), the most directly comparable GAAP financial measure, for the following periods. The tax adjustment in the following table reflects the increase in income tax expense or decrease in income tax benefit, as the case may be, that would have been reflected in our consolidated statement of operations for the applicable period if stock-based compensation (benefit) expense was not deducted or added, as the case may be, in computing net income (loss). We revised our valuation allowance in 2009 and again in 2010. Prior to 2009, there was no income tax impact associated with stock-based compensation (benefit) expense as the related deferred tax assets were subject to a full valuation allowance.


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands)
Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863
Plus stock-based compensation (benefit) expense		9,009			(4,530	)		(12,823	)		28,004			8,292			14,086			664
Less tax adjustment		—			—			—			12,292			(11,518	)		264			11

Adjusted net income (loss)	$	248		$	61		$	(1,621	)	$	7,022		$	9,610		$	2,449		$	5,516

(2)

Our business has two operating segments: high-performance memory components and gaming components and peripherals. Prior to 2009, we evaluated the performance of our two operating segments based on net revenues; accordingly, information relating to cost of revenue and gross profit for each operating segment is not available for periods prior to 2009. Starting in 2009, we began evaluating the performance of our two operating segments based on cost of revenue and gross profit, in addition to net revenues.

(3)	Gross margin is gross profit as a percentage of net revenues.


	As of March 31, 2011
	Actual		Pro Forma⁽¹⁾		Pro Forma As Adjusted⁽¹⁾
	(in thousands)
Consolidated Balance Sheet Data:
Cash	$	7,267	$	—	$
Total assets		101,663		94,396
Short-term debt and current portion of long-term debt and capital lease obligations		14,035		15,281		14,035
Long-term debt and capital lease obligations (less current portion)		—		—		—
Common stock warrant liability		2,862		—		—
Redeemable ESOP shares		19,432		—		—
Total stockholders’ equity		4,426		18,207

(1)

The pro forma balance sheet data in the table above gives effect to the Repurchase Right Termination, the BHC Warrant Amendment, the Share Repurchase and the Option Exercise, and the pro forma as adjusted balance sheet data in the table above gives effect to the Repurchase Right Termination, the BHC Warrant Amendment, the Share Repurchase, the Option Exercise, the BHC Warrant Exercise, the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, and our receipt of the estimated net proceeds from the sale of the shares sold by us, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if those transactions had occurred as of March 31, 2011. None of this data gives effect to our application of those net proceeds. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, would increase (decrease) our pro forma as adjusted cash, total assets and total stockholders’ equity by approximately $ million, assuming that the number of shares of common stock sold by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 100,000 share increase (decrease) in the number of shares of common stock sold by us in this offering would increase (decrease) our pro forma as adjusted cash, total assets and total stockholders’ equity by approximately $ million, assuming an initial public offering price per share equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information set forth above is provided for illustrative purposes only and our actual consolidated balance sheet data after this offering will be determined in part by the actual public offering price and number of shares sold by us and other terms of this offering.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with the risks and uncertainties described elsewhere in this prospectus, including in our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks is realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business

Integrated circuits account for most of the cost of producing our DRAM modules, USB flash drives, and solid-state drives and fluctuations in the market price of integrated circuits may have a material impact on our net revenues and gross profit.

DRAM integrated circuits, or ICs, account for most of the cost of producing our DRAM modules, and NAND flash memory ICs account for most of the cost of producing our USB flash drives and solid-state drives. The market for these ICs is highly competitive and cyclical. Prices of DRAM ICs and NAND flash memory ICs have been volatile and subject to significant fluctuations in the past over relatively short periods of time due to a number of factors, including excess supply of ICs due to manufacturing overcapacity and imbalances in supply and demand. These fluctuations are likely to continue in the future, which could materially affect our net revenues and gross profit. For example, our gross profit will be adversely affected if IC prices rise but we are unable to increase our product prices in response to the rising cost of purchasing ICs. Conversely, to the extent declines in the market price of ICs enable our competitors to lower prices, we will likely be forced to lower our product prices in order to compete effectively. Either of these circumstances could materially adversely affect our revenues and gross margins.

A majority of our net revenues is generated by sales of DRAM modules and any significant decrease in the average selling prices of our DRAM modules would have a material adverse effect on our business, results of operations and financial condition.

A majority of our net revenues is generated by sales of DRAM modules. In particular, net revenues of our high-performance memory segment, most of which are generated by sales of DRAM modules, accounted for a total of 86.7%, 74.7%, 66.6% and 60.0% of our consolidated net revenues in 2008, 2009, 2010 and the three months ended March 31, 2011, respectively. As a result, any significant decrease in average selling prices of our DRAM modules, whether as a result of declining market prices of DRAM ICs or for any other reason, would have a material adverse effect on our business, results of operations and financial condition. Selling prices for our DRAM modules tend to increase or decrease with increases or decreases, respectively, in market prices of DRAM ICs. Average selling prices of DRAM modules declined substantially in 2008 and again in the second half of 2010, which had a material adverse effect on our results of operations for those periods. Furthermore, while sales of USB flash drives and solid-state drives generate substantially smaller percentages of our total net revenues than sales of DRAM modules, declines in average selling prices of our USB flash drives and solid-state drives, whether as a result of declining prices of NAND flash memory ICs or for other reasons, may adversely affect our business, results of operations and financial condition. Similarly, declines in average selling prices of DRAM modules and, to a lesser extent, USB flash drives and solid-state drives could affect the valuation of our inventory and may lead to inventory write-downs. Declines in average selling prices of DRAM modules could also allow original equipment manufacturers to pre-install higher capacity DRAM modules into new computers at existing price points, which could reduce the demand for our DRAM modules in the retail market.

Our gross profit and gross margin can vary significantly depending on changes in product mix, fluctuations in the market price of DRAM ICs and other factors, many of which are beyond our control.

Our gross profit, which we define as net revenues minus cost of revenue, can vary substantially due to consumer demand, competition, product life cycles, new product introductions, fluctuations in average selling prices for our products (including fluctuations resulting from changes in the market price of DRAM and NAND

flash memory ICs), unit volumes and manufacturing, freight and distribution costs. In particular, if we are not able to introduce new products in a timely manner, if our product, freight or other costs exceed our expectations, if demand for our products is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react by lowering our selling prices or increasing promotional and marketing expenditures, our gross profit may be materially adversely affected. In addition, if we are unable to properly balance inventories of both DRAM ICs and DRAM modules at our Taiwan facility and at our shipping hubs against demand for those products, fluctuations in the market price of DRAM ICs can also have a negative effect on our gross margins, which we define as gross profit as a percentage of net revenues. For example, if prices of DRAM ICs and DRAM modules decrease, this has in the past tended to have a negative short-term impact on gross margins of our DRAM modules (reflecting the relatively higher cost of DRAM modules held in our inventory). As a result, our gross profit and gross margin may vary materially from quarter to quarter due to changes in prices of DRAM ICs.

In addition, our gross margins may vary significantly by product line. For example, due to price competition in the market for DRAM modules and solid-state drives and, to a lesser extent, USB flash drives, these products generally have lower gross margins than our power supply units, cooling systems, computer cases and audio products. Should the mix of products sold shift from higher margin products to lower margin products, our overall gross margins may be adversely affected.

We have experienced quarterly and annual GAAP net losses in the past due in large part to stock-based compensation expense and to valuation allowance against deferred tax assets, and these factors may contribute to net losses in the future.

We experienced net losses (computed in accordance with GAAP) of $8.8 million, $8.7 million and $10.2 million in 2006, 2009 and 2010, respectively. Those losses were due to a variety of factors, particularly significant stock-based compensation expense resulting in large part from increases in the estimated fair value of our common stock. Our stock-based compensation expense was $9.0 million, $28.0 million and $8.3 million in 2006, 2009 and 2010, respectively. In addition, we recorded a valuation allowance of $13.6 million in 2010 against deferred tax assets that we previously recorded as a result of stock-based compensation expense.

Prior to June 29, 2010, a significant number of our outstanding employee stock and stock option awards were subject to repurchase rights that, combined with our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, required us to use liability accounting for those awards under GAAP. Under the liability accounting rules, we were required to remeasure stock-based compensation expense for those awards at the end of each reporting period. As of June 29, 2010, the date these repurchase rights terminated, the stock compensation liability was reclassified to stockholders’ equity (deficit) in our consolidated balance sheet and these stock and stock option awards are no longer subject to remeasurement for each reporting period. Thus, in the future accounting for stock-based compensation should be more predictable and less subject to wide variation. We expect, however, that stock option and other equity awards will continue to comprise a significant part of our overall compensation package for employees. Accordingly, to the extent such stock-based compensation results in a significant expense or requires us to establish additional valuation allowances, this may contribute to net losses in the future.

Sales in Europe account for a substantial portion of our net revenues and the ongoing financial uncertainty in Europe and fluctuations in U.S. dollar exchange rates have adversely affected our operating results.

For 2008, 2009, 2010 and the three months ended March 31, 2011, we generated 55.2%, 52.2%, 50.9% and 51.7%, respectively, of our total net revenues from sales in Europe. As a result, our consolidated results of operations are particularly susceptible to downturns in economic conditions in Europe. In that regard, the ongoing financial uncertainty in Europe (including concerns that certain European countries may default in payments due on their national debt) and the resulting economic uncertainty and the fluctuations in the values of the Euro and British Pound compared to the U.S. dollar have from time to time adversely affected our sales in

Europe. In particular, because sales of our products are denominated primarily in U.S. dollars, a decline in the values of the Euro or British Pound relative to the U.S. dollar increases the local currency selling prices of, and therefore reduces demand for, our products in Europe. This had a significant adverse effect on our net revenues for the second quarter of 2010, and could adversely impact our operating results in future periods.

Our competitive position depends to a significant degree upon our ability to maintain the strength of our brand among PC gaming enthusiasts and any failure to maintain and build our brand could have a material adverse effect on our business and lead to a reduction in our net revenues.

We regard our brand as one of our most valuable assets and we consider it essential to both maintaining and strengthening our brand that we be perceived as a leading supplier of cutting-edge, high-performance products. This requires that we constantly innovate by introducing new and enhanced products that achieve significant levels of acceptance among our end-users. We also need to invest in, and devote substantial resources to, advertising, marketing and other efforts to create and maintain brand recognition and loyalty among our customers and end-users. Product development, marketing and other brand promotion activities may not yield increased revenues and, even if they do, any increased revenues may not offset the expenses incurred in building our brand. If we fail to maintain and build our brand, or if we incur substantial expenses in an unsuccessful attempt to maintain and build our brand, it may have a material adverse effect on our competitive position, business and revenues. Our brand may also be damaged by events such as product recalls, perceived declines in quality or reliability, product shortages and other events, some of which are beyond our control.

Our success and growth depend on our ability to continuously develop and successfully market new products and improvements; if we are unable to do so, demand for our current products may decline and new products we introduce may not be successful.

The products we sell are characterized by short product life cycles, frequent new product introductions, rapidly changing technology and evolving industry standards. In addition, average selling prices of our products tend to decline as they mature. As a result, we must continually anticipate and respond to changing customer requirements, innovate in our current and emerging product categories, introduce new product lines and products and enhance existing products in order to remain competitive and execute our growth strategy.

We believe that the success of our products depends to a significant degree on our ability to identify new features or product opportunities, anticipate technological developments and market trends and distinguish our products from those of our competitors. In order to further grow our business, we also will need to quickly develop, manufacture and ship innovative and reliable new products and enhancements to our existing products in a cost-effective and timely manner to take advantage of developments in enabling technologies and the introduction of new computer hardware (such as new generations of microprocessors and more powerful graphics cards) and computer games, all of which drive demand for our products.

If we do not execute on these factors successfully, demand for our current products may decline and any new products that we may introduce may not gain widespread acceptance, adversely affecting our business and operating results. In addition, if we do not continue to distinguish our products through distinctive, technologically advanced features and designs, as well as continue to build and strengthen our brand recognition and our access to distribution channels, our business could be harmed.

We depend upon the introduction and success of new third-party high-performance computer hardware, particularly microprocessors and graphics cards, and sophisticated new computer games to drive sales of our products. If newly introduced microprocessors, graphics cards and sophisticated computer games are not successful, or if the rate at which those products are introduced declines, it would likely have a material adverse effect on our business.

We believe that the introduction of more powerful central processing units, or CPUs, graphics cards and similar computer hardware that place increased demands on other system components, such as memory, power supply or cooling, has a significant effect on the demand for our products. The manufacturers of those products

are independent companies that we do not control and over which we have no influence. As a result, our operating results can be materially affected by the frequency with which new high-performance hardware products are introduced by these independent third parties, whether these products achieve widespread consumer acceptance and whether additional memory, enhanced power supply units or cooling systems, solid-state drives, new computer cases or other peripheral devices are necessary to support those products. Although we believe that, historically, new generations of high-performance CPUs and graphics cards have positively affected the demand for our products, we cannot assure you that this will be the case in the future. For example, the introduction of a new generation of highly efficient CPUs and graphics cards that require less power or that generate less heat than prior generations may reduce the demand for both our power supply units and cooling systems. In the past, semiconductor and computer hardware companies have typically introduced new products annually, generally in the second calendar quarter, which has tended to drive our sales in the following two quarters. If computer hardware companies do not continue to regularly introduce new and enhanced CPUs, graphics cards and other products that place increasing demands on system memory and processing speed, require larger power supply units or cooling systems or that otherwise drive demand for computer cases, USB flash drives and other peripherals, or if consumers do not accept those products, it would likely have a material adverse effect on our business, results of operations and financial condition.

We also believe that sales of our products are driven by conditions in the computer gaming industry. In particular, we believe that our business depends on the introduction and success of computer games with sophisticated graphics that place greater demands on system processing speed and capacity and therefore require more powerful CPUs or graphics cards, which in turn drives demand for our high-performance DRAM modules, power supply units, cooling systems and other components and peripheral drives. Likewise, we believe that the continuing introduction and market acceptance of new or enhanced versions of computer games helps sustain consumer interest in computer gaming generally. The demand for our products would likely decline, perhaps substantially, if computer game companies and developers do not introduce and successfully market sophisticated new and improved games that require increasingly high levels of system and graphics processing power on an ongoing basis or if demand for computer games among computer gaming enthusiasts or conditions in the computer gaming industry deteriorate for any reason. As a result, our sales and other operating results fluctuate due to conditions in the market for computer games and downturns in this market would likely materially adversely affect our business, results of operations and financial condition.

We face intense competition and, if we do not compete effectively, we could lose market share, demand for our products could decline and our business and operating results could suffer.

We face intense competition in the markets for all of our products. We operate in markets that are characterized by rapid technological change, constant price pressure, rapid product obsolescence, evolving industry standards and new demands for features and performance. We experience aggressive price competition and other promotional activities by competitors, including in response to declines in consumer demand and excess product supply or as competitors seek to gain market share.

In recent years, we have added new product categories and we intend to introduce new product categories in the future. To the extent we are successful in adding new product categories, we will confront new competitors, many of which may have more experience, better known brands and greater distribution capabilities in the new product categories and markets than we do. In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies. Many of our current and potential competitors, some of which are large, multi-national businesses, have substantially greater financial, technical, sales, marketing, personnel and other resources and greater brand recognition than we have. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively than we can. In addition, some of our competitors are small or mid-sized specialty companies, which may enable them to react to changes in industry trends or consumer preferences or to introduce new or innovative products more quickly than we can. As a result, our product development efforts may not be successful or result in market acceptance of our products.

Competitors in the DRAM module, USB flash drive and solid-state drive markets. Our primary competitors in the markets for DRAM modules and USB flash drives include Adata, GSkill, Kingston Technology, Micron Technology through its Crucial division, Patriot and SanDisk. Our primary competitors in the market for solid-state drives include Intel, Micron Technology through its Crucial division, OCZ Technology and Samsung. In that regard, we face the risk that established semiconductor companies, such as Intel, Micron Technology, Samsung and SanDisk, which each manufacture DRAM or NAND flash memory ICs and incorporate them into the DRAM modules, USB flash drives or solid-state drives they sell, or established disk drive companies, such as Seagate or Western Digital, that sell solid-state drives, will use their lower cost structures, widely recognized brands and other resources to price their products substantially below ours and capture market share from us.

Competitors in the power supply unit, cooling system and computer case markets. Our primary competitors in the markets for power supply units, cooling systems and computer cases include Antec, Coolermaster and Thermaltake.

Competitors in audio product market. We launched our first audio product in the third quarter of 2010 with the introduction of our gaming headset and our first speaker system products in January 2011, and we are developing other audio products. Our primary competitors in the market for audio products include Creative Labs, Klipsch, Logitech and Razer.

Competitors in new markets. We are considering a number of other new products and, to the extent we introduce products in new categories, we will likely experience substantial competition from additional companies, including large computer peripherals and consumer electronics companies with global brand recognition and significantly greater resources than ours.

Competition from video game consoles. PC-based games may be subject to significant competition from dedicated video game consoles, such as Microsoft’s Xbox, Nintendo’s Wii and Sony’s PlayStation, to the extent that the processing and graphics power of those consoles increase substantially. Our products are not designed for use in video game consoles. As a result, our net revenues and other operating results may suffer to the extent that consumer spending on video game consoles and related games increases, whether as a result of the introduction of new games or improved gaming consoles or for other reasons.

Competitive factors in our markets. We believe that the principal competitive factors in our markets include performance, reliability, brand and associated style and image, price, time to market with new emerging technologies, early identification of emerging opportunities, interoperability of products and responsive customer support on a worldwide basis.

Our ability to compete successfully is fundamental to our success in existing and new markets. If we do not compete effectively, demand for our products could decline, our net revenues and gross margin could decrease and we could lose market share, which could have a material adverse effect on our business, results of operations and financial condition.

If we lose or are unable to attract and retain key management, our ability to compete could be harmed and our financial performance could suffer.

Our performance depends to a significant degree upon the continued individual and collective contributions of our management team, particularly Andrew J. Paul, the Chairman of our board of directors, Chief Executive Officer and President and one of our co-founders. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business, meet competitive challenges or achieve our growth objectives. To the extent that our business grows, we will need to attract and retain additional qualified management personnel in a timely manner and we may not be able to do so.

We rely on highly-skilled personnel and if we are unable to attract, retain or motivate key personnel or hire qualified personnel, we may not be able to grow or our business may contract, which would have a material adverse effect on our results of operations and financial condition.

Our performance is largely dependent on the talents and efforts of highly-skilled individuals, particularly our electrical engineers, mechanical engineers and computer professionals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly-skilled personnel and, if we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to implement our current initiatives or grow, or our business may contract and we may lose market share. Moreover, certain of our competitors or other technology businesses may seek to hire our employees. Although we have granted stock-based incentives to employees in the past and intend to continue doing so, there is no assurance that stock-based compensation will provide adequate incentives to attract, retain and motivate employees in the future, particularly if the market price of our common stock does not increase or declines. If we do not succeed in attracting, retaining and motivating highly qualified personnel, our business will suffer.

Our results of operations are subject to substantial quarterly and annual fluctuations, which may adversely affect the market price of our common stock.

Our results of operations have in the past fluctuated, sometimes substantially, from period to period, and we expect that these fluctuations will continue. A number of factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual net revenues and other operating results. These fluctuations may make financial planning and forecasting more difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively impact our business and prospects. These fluctuations also could both increase the volatility and adversely affect the market price of our common stock. There are numerous factors that may cause or contribute to fluctuations in our operating results. As discussed below, these factors may relate directly to our business or may relate to technological developments and economic conditions generally.

Factors affecting our business and markets. Our result of operations may be materially adversely affected by factors that directly affect our business and the competitive conditions in our markets, including the following:

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changes in the frequency with which new high-performance computer hardware, particularly CPUs and graphics cards, and sophisticated new computer games that drive demand for additional DRAM modules, larger power supplies, enhanced cooling systems and other peripherals are introduced;

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fluctuations in average selling prices of and demand for our products, particularly DRAM modules;

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changes in demand for our lower margin products relative to demand for our higher margin products;

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loss of significant customers, cancellations or reductions of orders and product returns;

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a delay, reduction or cessation of deliveries from one or more of the third parties that manufacture our products;

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increased costs or shortages of our products or components used in our products;

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cost and adverse outcomes of litigation, governmental proceedings or any proceedings to protect our brand or other intellectual property;

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introduction or enhancement of products by us and our competitors, and market acceptance of these new or enhanced products;

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delays or problems in our introduction of new products or in the delivery of products;

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changes in freight costs;

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changes in purchasing patterns by the distributors and retailers to which we sell our products;

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seasonal electronics product purchasing patterns by our customers and consumers;

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discounts and price reductions offered by our competitors; and

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competitive pressures resulting in, among other things, lower selling prices or loss of market share.

General economic conditions. Our business may be materially adversely affected by factors relating to global, national and regional economies, including:

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uncertainty in economic conditions, either globally or in specific countries or regions;

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fluctuations in currency exchange rates;

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the impact of political instability, natural disasters, war and/or events of terrorism;

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changes in business cycles that affect the markets in which we sell our products; and

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the effect of fluctuations in interest rates on consumer disposable income.

Technological factors. In addition to technological developments directly relating to our products, more generalized changes in technology may have a significant effect on our operating results. For example, our business could be materially adversely impacted by rapid, wholesale changes in technology in or affecting the markets in which we compete or widespread adoption of cloud computing.

One or more of the foregoing or other factors may cause our expenses to be disproportionately higher or lower or may cause our net revenues and other operating results to fluctuate significantly in any particular quarterly or annual period. Our results of operations in one or more future quarters or years may fail to meet the expectations of investment research analysts or investors, which could cause an immediate and significant decline in the market price of our common stock.

Conditions in the retail and consumer electronics markets may significantly affect our business, and the global economic downturn has harmed and could continue to harm our operating results and financial condition. In addition, the ongoing financial uncertainty in Europe has had an adverse effect on our net revenues.

We derive most of our revenue from higher-priced products sold through online and brick-and-mortar retailers to end-users, and we are vulnerable to declines in consumer spending due to, among other things, depressed economic conditions, reductions in disposable income and other factors that affect the retail and consumer electronics markets generally. In addition, our revenues are attributable to sales of high-performance DRAM modules, USB flash drives, power supply units, solid-state drives, cooling systems, computer cases and audio products, all of which are products that are geared to the computer gaming market which, like other consumer electronic markets, is susceptible to the adverse effects of poor economic conditions.

The downturn in worldwide economic conditions, particularly in retail markets, has had a negative effect on our business. In addition, ongoing financial uncertainty in Europe (including concerns that certain European countries may default in payments due on their national debt) and the resulting economic instability and decline in the value of the Euro and British Pound compared to the U.S. dollar had a significant adverse effect on our net revenues for the second quarter of 2010 and the beginning of the third quarter of 2010. Although the negative effects of U.S. dollar exchange rate increase against the Euro and British Pound that existed in the first half of 2010 have subsequently moderated, the underlying financial instability, particularly in the Euro zone, remains and any recurrence of the conditions that existed earlier in 2010 would likely further adversely impact our business, operating results and financial condition. We believe the most significant of these negative effects could include downward pressure on our product prices and limited growth or reductions in our net revenues or unit sales, reflecting both lower consumer demand for our products as well as a shift in consumer buying patterns toward lower-priced products and away from the relatively higher-priced products that we sell. Other significant negative effects could include limited growth or reductions in worldwide sales of products that incorporate DRAM modules, such as PCs, resulting in excess supply in the worldwide DRAM market and reduced demand for our products from our customers as they limit or lower their spending and inventory levels. Adverse

economic conditions may also reduce our cash flow due to delays in customer payments, increase the risk of customer bankruptcy or business failures and result in increases in bad debt write-offs and receivables reserves.

Other negative effects on our business resulting from adverse economic conditions worldwide may include:

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higher costs for promotions, customer incentive programs and other initiatives used to stimulate demand;

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increased risk of excess and obsolete inventories, which may require write-downs or impairment charges;

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financial distress or bankruptcy of key suppliers or third-party manufacturers, resulting in insufficient product quantities to meet demand or increases in the cost of producing our products; and

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financial distress or bankruptcy of key distributors, resellers or retailers.

A continuation or worsening of depressed economic conditions, whether in our key regional markets or globally, or the occurrence of similar conditions in the future, could result in a decline in both product prices and the demand for our products, which would have a material adverse effect on our results of operations and financial condition.

We may be adversely affected by the financial condition of retailers and distributors to whom we sell our products and may also be adversely affected by the financial condition of our competitors.

Retailers and distributors of consumer electronics products have, from time to time, experienced significant fluctuations in their businesses and some of them have become insolvent. A retailer or distributor experiencing such difficulties will generally not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables. Moreover, if one of our distributor or retailer customers experiences financial distress or bankruptcy, they may be required to liquidate their inventory of our products, or similar products that compete with our products, at reduced prices, which can result in substantial over-supply and reduced demand for our products over the short term. If any of these circumstances were to occur, it could have a short-term adverse effect on our results of operations and financial condition.

Likewise, our competitors may from time to time experience similar financial difficulties or may elect to terminate their sales of certain products. If one of our competitors experiences financial distress or bankruptcy and is forced to liquidate inventory or exits a product line and disposes of inventory at reduced prices, this may also result in over-supply of and reduced demand for our products and could have a short-term adverse effect on our results of operations and financial condition.

We do not own any manufacturing facilities, we have no guaranteed sources of supply of products or components, and we depend upon a small number of manufacturers, many of which are single-source suppliers, to supply our products, which may result in product or component shortages, delayed deliveries and quality control problems.

We do not have any manufacturing facilities and we depend entirely upon third parties to manufacture and supply the products we sell and the components used in our products. Our products are generally produced by only one or a limited number of manufacturers. For example, each model of our computer cases, power supply units, cooling systems, audio products and solid-state drives is produced by a single manufacturer and our USB flash drives are produced by two manufacturers. Likewise, there are a limited number of companies capable of producing the high speed DRAM ICs required for our high-performance DRAM modules and NAND flash memory ICs required for our USB flash drives and solid-state drives. We do not have any long-term supply agreements with any of our manufacturers or suppliers. In addition, we carry very limited inventories of our products and the loss of one or more of these manufacturers or suppliers, or a significant decline in production or deliveries by any of them, could significantly limit our shipments of the product in question or prevent us from shipping that product entirely.

Our reliance upon a limited number of manufacturers and suppliers exposes us to numerous risks, including those described below.

Risks relating to production and manufacturing. Our business and operating results could be materially adversely affected if our manufacturers or suppliers ceased or reduced production or deliveries, raised prices, lengthened production or delivery times or changed other terms of sale. In particular, price increases by our manufacturers or suppliers could have a material adverse effect upon our financial condition and operating results if we are unable to pass those price increases along to our customers. Furthermore, the supply of products from manufacturers and suppliers to us could be interrupted or delayed and we may be unable to obtain sufficient quantities of our products because of factors outside of our control. For example, our manufacturers and suppliers may experience financial difficulties, be affected by natural disasters, have limited production facilities or manufacturing capacity, may experience labor shortages or may be adversely affected by regional unrest or military actions. In addition, we may be slower than our competitors in introducing new products or reacting to changes in our markets due to production or delivery delays by our third-party manufacturers or suppliers. Likewise, lead times for the delivery of products being manufactured for us can vary significantly and depend on many factors outside of our control, such as demand for manufacturing capacity and availability of components. In addition, if one of our single source manufacturers were to stop production, we may be unable to locate a suitable replacement on terms we consider acceptable and, in any event, there would likely be significant delays before we were able to transition production to a new manufacturer and potentially significant costs associated with that transition.

Risks relating to product quality. We are exposed to a risk that our manufacturers or suppliers may provide us with products or components that do not perform reliably, do not meet our quality standards or performance specifications, are susceptible to early failure or contain other defects. This may harm our reputation, increase our warranty and other costs or lead to product returns or recalls, any of which could materially adversely affect our results of operations.

Risks relating to product and component shortages. From time to time we have experienced product shortages due to both disruptions in supply from the third parties that manufacture or supply our products and our inability or the inability of these third-party manufacturers to obtain necessary components, and we may experience similar shortages in the future. For example, from time to time our industry experiences shortages in DRAM ICs and NAND flash memory ICs which have resulted in placing companies, including us, on component allocation. Because sales of DRAM modules account for a majority of our net revenues, a shortage of DRAM ICs, particularly high-speed DRAM ICs, could have a material adverse effect on our net revenues and cash flow. Moreover, procurement of the other components used in our products is generally the responsibility of the third parties that manufacture our products and we therefore have limited or no ability to control or influence the procurement process or to monitor the quality of components.

Any disruption in or termination of our relationships with any of our manufacturers or suppliers or our inability to develop relationships with new manufacturers or suppliers as and when required would cause delays, disruptions or reductions in product shipment and may require product redesigns, all of which could damage relationships with our customers, harm our brand, increase our costs and otherwise materially adversely affect our business. Likewise, shortages or interruptions in the supply of products or components, or any inability to procure these products or components from alternate sources at acceptable prices in a timely manner, could delay shipments to our customers and increase our costs, any of which could materially adversely affect our business and operating results.

We rely upon manufacturers in Taiwan to supply a significant portion of our DRAM modules, most of our USB flash drives and some of our solid-state drives, we rely upon manufacturers in China to produce all of our power supply units, cooling systems, computer cases and our audio products, and the facility where we perform testing and packaging of most of our DRAM modules is located in Taiwan, which exposes us to risks that could harm our business.

We purchase a significant portion of our DRAM modules, most of our USB flash drives and some of our solid-state drives from manufacturers and suppliers in Taiwan. All of our other products are produced at factories located in Southeast China and we perform testing and packaging of most of our DRAM modules at our facility in Taiwan. The fact that all of these manufacturers, suppliers and factories and our facility are concentrated in Taiwan and China exposes us to numerous risks.

We believe one of the most significant risks associated with this concentration in Taiwan and China is that production may be interrupted or limited because of labor shortages in southern China and by strains on the local infrastructure. In addition, production at facilities located in China or Taiwan, including our own testing and packaging facility in Taiwan, and deliveries from those facilities, may be adversely affected by tensions, hostilities or trade disputes involving China, Taiwan, the United States or other countries. There is considerable potential political instability in Taiwan related to its disputes with China. Although we do not do business in North Korea, any future increase in tensions between South Korea and North Korea, such as an outbreak or escalation of military hostilities, or between Taiwan and China could materially adversely affect our operations in Asia or the global economy, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Other risks resulting from this concentration of manufacturers, suppliers, factories and our testing and packaging facility in Taiwan and China include the following:

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the interpretation and enforcement of China’s laws continues to evolve, which may make it more difficult for us to obtain a reliable supply of our products at predictable costs;

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these facilities are located in regions that may be affected by earthquakes, typhoons, other natural disasters, political instability, military actions, power outages or other conditions that may cause a disruption in supply;

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our costs may be increased and deliveries of our products may be decreased or delayed by trade restrictions, such as increased tariffs or quotas; and

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our reliance on foreign manufacturers and suppliers exposes us to other risks of doing business internationally, some of which are described below under “We conduct our operations and sell our products internationally and the effect of business, legal and political risks associated with international operations could significantly harm us.”

The occurrence of any one or more of these risks could materially adversely affect the supply of our products and our business, results of operations and financial condition.

If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales.

Our business requires that we coordinate the manufacture and distribution of our products over a significant portion of the world. We rely upon third parties to manufacture our products and to transport and distribute our products to our customers. If we do not successfully coordinate the timely and efficient manufacturing and distribution of our products, our costs may increase, we may experience a build-up in inventory, we may not be able to deliver sufficient quantities of products to meet customer demand, and we could lose sales.

Our operating results are particularly sensitive to freight costs, and our costs may increase significantly if we are unable to ship and transport finished products efficiently and economically across long distances and international borders, which could materially adversely affect our business and financial condition.

All of our products are manufactured in Asia and we transport significant volumes of finished products across long distances and international borders. As a result, our operating results can be significantly affected by changes in transportation costs. In that regard, although we ship our DRAM modules, USB flash drives and solid-state drives (all of which have selling prices that are relatively high compared to their size and weight) by air, we use ocean freight to ship our other products because of their relatively low selling prices compared to their size and weight. If we underestimate the demand for any of the products we ship by ocean freight, or if deliveries of those products to us by our manufacturers are delayed or interrupted, we may be required to ship those products by air in order to fill orders on a timely basis. Shipping items like power supply units, cooling systems, computer cases and audio products by air is significantly more expensive than using ocean freight. As a result, any requirement that we ship these products by air, whether because we underestimate demand or because of an interruption in supply from the manufacturers who produce these products or for any other reason, could materially increase our costs. In addition, freight rates can vary significantly due to large number of factors beyond our control, including changes in fuel prices or general economic conditions or the threat of terrorist activities or acts of piracy. If demand for air or ocean freight should increase substantially, it could make it difficult for us to procure sufficient cargo transportation space at prices we consider acceptable, or at all. Increases in our freight expenses, or any inability to ship our products as and when required, could harm our business substantially.

Because our products must cross international borders, we are subject to risk of delay due to customs inspections, if our documentation does not comply with customs rules and regulations or for similar reasons. In addition, any increases in customs duties or tariffs, as a result of changes to existing trade agreements between countries or otherwise, could increase our costs or the final cost of our products to our customers or end-users or decrease our margins. The laws governing customs and tariffs in many countries are complex, subject to many interpretations and often include substantial penalties for non-compliance.

Our effective tax rates may increase in the future and we are subject to ongoing tax audits in various jurisdictions, which could adversely affect our results of operations.

We operate in multiple jurisdictions and we are taxed pursuant to the tax laws of each of these jurisdictions. Our effective tax rate may be affected by changes in or interpretations of tax laws in any given jurisdiction, utilization of, or limitations on our ability to utilize any tax credit carry-forwards, changes in geographical allocation of revenue and expense, and changes in management’s assessment of matters such as our ability to realize the value of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our effective income tax rate in a given year reflects a variety of factors that may not be present in any prior or succeeding year. There is no assurance that our effective income tax rate will not change in future periods. We are currently subject to tax audits in various jurisdictions and expect that we will be subject to similar tax audits on an ongoing basis. Because we have operations in a number of locations worldwide, tax authorities in various jurisdictions may raise questions concerning matters such as transfer pricing, whether revenues or expenses should be attributed to particular countries, the presence or absence of permanent establishments in particular countries and similar matters. A material assessment by a tax authority in any jurisdiction could require that we make significant cash payments. Accordingly, if this were to occur, or if our effective tax rate were to increase, our results of operations could be adversely affected, perhaps materially.

Our markets are characterized by constant and rapid change and are subject to significant downturns from time to time, which could materially adversely affect our business, results of operations and financial condition.

The markets in which we compete are characterized by constant and rapid technological developments and change, rapid product obsolescence, evolving industry standards, short product life cycles, constant pricing pressure, new demands for features and performance and wide fluctuations in product supply and demand. In

particular, the markets for our DRAM modules are, and the markets for USB flash drives and solid-state drives may be, subject to significant variations in average selling prices. The markets in which we compete have in the past experienced significant downturns from time to time and will likely do so again in the future. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of selling prices. The timing of new product development and introduction by us and our competitors, the level of acceptance of new products and the life-cycle of existing products can also affect demand for our products. Downturns in the markets we serve can have a material adverse effect on our results of operations and financial condition.

Our customers do not enter into long-term purchase agreements with us and may stop purchasing our products at any time, which makes it difficult for us to accurately forecast product demand and may result in unexpected declines in revenue.

We sell our products primarily to distributors as well as brick-and-mortar and online retailers. These customers generally order our products on an as-needed basis and typically do not enter into long-term purchase commitments or agreements with us or provide us with any significant advance notice of their orders. As a result, we have minimal backlog, which means that our forecasts of product demand are highly subjective and depend to a large degree on our ability to predict the amount and timing of new orders. Because customers who have purchased our products in the past may in the future reduce the quantities of products that they purchase from us or stop purchasing from us altogether with little or no advance notice, and generally may also cancel, reduce or postpone orders with little or no penalty, our ability to forecast our future orders, and therefore our future revenue, is extremely limited and we may experience unexpected revenue declines, which could be substantial, due to loss of one or more customers or cancellations or reductions of orders, any of which could have a material adverse effect on our results of operations. Likewise, our revenues in any quarter depend on orders booked and shipped in that quarter. We have experienced cancellations of orders and substantial fluctuations in order levels from period to period, and we expect this to continue in the future.

We order our products from third-party manufacturers based on our forecasts of future demand and targeted inventory levels, which exposes us to the risk of both product shortages, which may result in lost sales and higher expenses, and excess inventory, which may require us to sell products at substantial discounts and lead to write-offs.

We depend upon our forecasts of product demand to make decisions regarding investments of our resources and production levels of our products. Because of the lead time necessary to manufacture our products and the fact that we usually have little or no advance notice of customer orders, we must order our products from third-party manufacturers and therefore commit to substantial purchases prior to obtaining orders for those products from our customers. This makes it difficult for us to adjust our costs if orders fall below our expectations. Our failure to predict low demand for product can result in excess inventory, as well as lower cash flows and lower margins if we are unable to sell a product or if we are required to lower product prices in order to reduce inventories, and may also result in inventory write-downs. In addition, the cancellation or reduction of orders by our customers may also result in an oversupply of our products and excess inventory. On the other hand, if actual orders exceed our expectations, we may need to incur additional costs, such as higher shipping costs for air freight or other expedited delivery or higher product costs for expedited manufacturing, in order to deliver sufficient quantities of products to meet customer orders on a timely basis or we may be unable to fill some orders altogether. In addition, many of our products have short product life cycles, so a failure to accurately predict and meet demand for product can result in lost sales that we may be unable to recover in subsequent periods. These short life cycles also make it more likely that slow moving or excess inventory may become obsolete, requiring us to sell products at significant discounts or write off entirely excess or obsolete inventory. Any failure to deliver products in quantities sufficient to satisfy demand can also harm our reputation with both our customers and end-users.

Over the past few years, we have expanded the number and types of products we sell, and the geographic markets in which we sell them, and we will endeavor to further expand our product portfolio and sales reach. The

growth of our product portfolio and the markets in which we sell our products has increased the difficulty of accurately forecasting product demand. We have in the past experienced significant differences between our forecasts and actual demand for our products and expect similar differences in the future. If we do not accurately predict product demand, our business and operating results could be materially adversely affected.

Order cancellations, product returns, price erosion, product obsolescence and customer and end-user incentive programs may result in substantial inventory and/or receivables write-downs.

The products we sell are characterized by rapid technological change and short product life cycles. As a result, products that we hold in inventory may be subject to significant price erosion or may become obsolete, requiring inventory write-downs. We may experience excess or unsold inventory for a number of reasons, including demand for our products being lower than our forecasts, order cancellations by our customers and product returns.

In that regard, rights to return products vary by customer and range from the right to return defective products to stock rotation rights allowing the exchange of a limited percentage of the customer’s previous quarter purchases. If the estimated market values of products held in our finished goods and work in process inventories at the end of any fiscal quarter are below our cost of these products, we will recognize charges to write down the carrying value of our inventories to market value. For example, in 2008, 2009, 2010 and the three months ended March 31, 2011, our inventory write-downs were approximately $0.4 million, $0.3 million, $0.4 million and $0.4 million, respectively.

In addition, we provide a variety of rebates to both customers and end-users of our products, including instant rebates, volume incentive rebates and mail-in rebates. We also have contractual agreements and cooperative marketing, promotional and other arrangements that provide rebates and other financial incentives to our customers. To a limited extent, we also offer financial incentives related to customer inventory of specific products. The aggregate amount of charges incurred as a result of all of these rebates and other incentives was $27.6 million, $18.1 million, $15.3 million and $4.9 million in 2008, 2009, 2010 and the three months ended March 31, 2011, respectively. These charges are offsets to our gross revenues and may result in a write-down in accounts receivable. In the future, we also may be required to write down inventory or receivables due to product obsolescence or because of declines in market prices of our products. Any write-downs could have a material adverse effect on our results of operations.

The need to continuously develop new products and product improvements increases the risk that our products will contain defects or fail to meet specifications, which may increase our warranty costs, lead to recalls of products, damage our reputation and harm our business.

Products that do not meet specifications or that contain, or are perceived by our customers or end-users to contain, defects could impose significant costs on us or otherwise materially adversely affect our business, results of operations or financial condition. Our products may suffer from design flaws, quality control problems in the manufacturing process or components that are defective or do not meet our quality standards. Moreover, the markets we serve are characterized by rapidly changing technology and intense competition and the pressure to continuously develop new products and improvements and bring those products and improvements to market quickly heightens the risks that our products will be subject to both quality control and design problems. Because we rely on third parties to manufacture our products and the components that are used in our products, our ability to control the quality of the manufacturing process and the components that are used to manufacture our products is limited. Product quality issues, whether as a result of design or manufacturing flaws or the use of components that are not of the requisite quality or do not meet our specifications, could result in product recalls, product redesign efforts, lost revenue, loss of reputation, and significant warranty and other expenses. In that regard, we have from time to time elected to recall products and, consistent with this practice, we elected to recall a solid-state drive product in the second quarter of 2011. Recalls of products and warranty-related issues can be costly, cause damage to our reputation and result in increased expenses, lost revenue and production delays. We may

also be required to compensate customers for costs incurred or damages caused by defective products. If we incur warranty or product redesign costs, institute recalls of products or suffer damage to our reputation as a result of defective products, our business, results of operations and financial condition could be substantially harmed.

Our indemnification obligations to our customers and suppliers for intellectual property infringement and our repair and replacement obligations for product warranty claims could require us to pay substantial amounts and significantly harm our business.

We indemnify a limited number of customers for damages and costs which may arise if our products infringe third-party patents or other proprietary rights. We may periodically have to respond to claims and litigate these types of indemnification obligations. Any such indemnification claims could require us to make substantial settlement, damages or royalty payments or result in our incurring substantial legal costs. Our insurance does not cover intellectual property infringement. The potential amount of future payments to defend lawsuits or settle or otherwise satisfy indemnified claims under any of these indemnification provisions may be unlimited. We also have repair and replacement obligations for product warranty claims relating to our products. Our insurance does not cover such claims. Claims for intellectual property infringement and product warranty claims could substantially harm our business, financial condition and results of operations.

If we are unable to integrate our products with third-party hardware, operating system software and other products, the functionality of our products would be adversely affected, which would likely have a material adverse affect on our net revenues.

The functionality of our products depends on our ability to integrate our products with the hardware, operating system software and related products of providers such as Intel, AMD, NVIDIA and Asus, among others. We rely to a great extent on the relationships we have with those companies in developing our products and resolving issues. We cannot assure you that those relationships will be maintained or that those companies will continue to provide the necessary information and support to allow us to develop products that integrate with their products. If integration with the products of those or other companies becomes more difficult, our products would likely be more difficult to use or may not be compatible with key hardware, operating systems or other products, which would harm our reputation and the utility and desirability of our products, and, as a result, would likely have a material adverse effect on our net revenues.

One of our strategies is to grow through acquisitions, which could result in operating difficulties, dilution to our stockholders and other harmful consequences.

One of our strategies is to grow through acquisitions and we may also seek to grow through other strategic transactions such as alliances and joint ventures. In particular, we believe that our future growth depends in part on our ability to enhance our existing product lines and introduce new products and product categories through acquisitions and other strategic transactions. There is substantial competition for attractive acquisitions and other strategic transactions and we may not be successful in completing any such acquisitions or other strategic transactions in the future. If we are successful in making any acquisition or strategic transaction, it could nonetheless have a material adverse effect on our financial condition or results of operations. Among other things, acquisitions and strategic transactions can involve a wide variety of risks depending upon, among other things, the specific business or assets being acquired or the specific terms of any transaction. These risks may include the following:

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difficulties in integrating the operations, products, technologies, employees, management information systems, human resources and other administrative systems of acquired or newly formed entities or of strategic partners with our existing business and systems, particularly as we have not previously made any acquisitions or entered into any joint ventures or other strategic transactions;

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unanticipated capital expenditures or investments in order to maintain, improve or sustain the operations of any business we acquire or strategic partnership or alliance we enter into;

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difficulties in managing larger or more complex operations and facilities and employees in separate geographic areas;

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diversion of management time and focus from operating our business due to challenges of integrating acquired businesses;

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cultural challenges associated with integrating employees from acquired businesses into our organization;

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difficulties in retaining employees from businesses we acquire;

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the need to implement or improve internal controls, procedures and policies appropriate for a public company at businesses that prior to the acquisition lacked these controls, procedures and policies;

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possible write-offs, impairment charges or amortization charges resulting from acquisitions; and

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unanticipated or unknown liabilities relating to acquired businesses.

In addition, we may finance acquisitions or investments, strategic partnerships or joint ventures by issuing common stock, which may be dilutive to our stockholders, or by incurring indebtedness, which could increase our interest expense, perhaps substantially. Acquisitions and other investments may also result in charges for the impairment of goodwill or other acquired assets. Acquisitions of, or alliances with, technology companies are inherently risky, and any acquisitions or investments we make, or alliances we enter into, may not perform in accordance with our expectations. Accordingly, any of these transactions, if completed, may not be successful and may materially adversely affect our business, results of operations or financial condition.

In addition, foreign acquisitions or strategic transactions with foreign partners involve additional risks, including those related to integration of operations across different geographies, cultures and languages, as well as risks related to fluctuation in currency exchange rates and risks associated with the particular economic, political and regulatory environment in specific countries.

We need substantial working capital to operate our business and we rely to a significant degree upon credit extended by our manufacturers and suppliers and borrowings under our revolving credit facility to meet our working capital needs. If we are unable to meet our working capital needs, we may be required to reduce expenses or delay the development, commercialization and marketing of our products, which would adversely affect our prospects for growth.

We need substantial working capital to operate our business. We rely to a significant degree upon credit extended by many of our manufacturers and suppliers in order to meet our working capital needs. Credit terms vary from vendor to vendor but typically allow us from 10 to 40 days to pay for DRAM modules and USB flash drives and from 30 to 90 days to pay for other products they manufacture for us. We also utilize borrowings under our revolving credit facility to provide working capital, and access to external debt financing has historically been and will likely continue to be very important to us. As a result of the downturn in general economic conditions, the adverse conditions in the credit markets or other factors, manufacturers and suppliers may be reluctant to provide us with the same credit that they have in the past, which would require that we increase the level of borrowing under our revolving credit facility or obtain other external financing to provide for our substantial working capital needs. Additional financing may not be available on terms acceptable to us or at all. To the extent we are required to use additional borrowings under our revolving credit facility or from other sources (if available) to provide working capital, it could increase our interest expense and expose us to other risks of leverage. Any inability to meet our working capital or other cash needs as and when required would likely have a material adverse effect on our business, results of operations and financial condition and adversely affect our growth prospects and stock price and could require, among other things, that we reduce expenses, which might require us to reduce shipments of our products or our inventory levels substantially or to delay or curtail the development, commercialization and marketing of our products.

Indebtedness and the terms of our revolving credit facility may impair our ability to respond to changing business and economic conditions and harm our operating results.

We had $14.0 million of outstanding debt as of March 31, 2011. We regularly make borrowings under our revolving credit facility to fund working capital and other cash needs and we may incur additional indebtedness in the future, particularly if we use borrowings or other debt financing to finance all or a portion of any future acquisitions. In addition, the terms of our existing revolving credit facility require, we expect that the terms of our proposed new credit facility described below will require, and any debt instruments we enter into in the future may require, that we comply with a number of significant restrictions and covenants. These covenants and restrictions, as well as any significant increase in our indebtedness, could adversely impact us for a number of reasons, including the following:

Cash flow required to pay debt service. We may be required to dedicate a substantial portion of our available cash flow to debt service. This risk is increased by the fact that borrowings under our existing credit facility bear interest at a variable rate, and we expect that the borrowings under the proposed new revolving credit facility described below will also bear interest at a variable rate. This exposes us to the risk that the amount of cash required to pay interest under our credit facility will increase to the extent that market interest rates increase. Our indebtedness and debt service obligations may also increase our vulnerability to economic downturns and adverse competitive and industry conditions.

Adverse effect of financial and other covenants. The covenants and other restrictions in our revolving credit facility and any debt instruments we enter into in the future may limit our ability to raise funds for working capital, capital expenditures, acquisitions, product development and other general corporate requirements, which may adversely affect our ability to finance our operations, any acquisitions or investments or other capital needs or engage in other business activities that would be in our interests. Restrictive covenants may also limit our ability to plan for or react to market conditions or otherwise limit our activities or business plans and place us at a disadvantage compared to our competitors.

Risks of default. If we breach or are unable to comply with a covenant or other agreement contained in a debt instrument, the lenders generally have the right to declare all borrowings outstanding under that debt instrument, together with accrued interest, to be immediately due and payable and may have the right to raise the interest rate. As a result, any breach or failure to comply with covenants contained in our debt instruments could have a material adverse effect on us. Moreover, our existing credit facility is secured, and we anticipate that our proposed new credit facility will be secured, by substantially all of our assets, except assets of our foreign subsidiaries and some of the shares of our foreign subsidiaries and, if we are unable to pay indebtedness secured by collateral when due, whether at maturity or if declared due and payable by the lender following a default, the lender generally has the right to seize and sell the collateral securing that indebtedness. In the first quarter of 2009 and other times, in the past, we have been required to obtain amendments and waivers under our revolving credit facility because of our failure to comply with covenants, and we may in the future need to obtain waivers or amendments under our revolving credit facility or other debt instruments in order to avoid a breach or default, particularly if our business deteriorates or does not perform in accordance with our expectations. There can be no assurance that we will not breach the covenants or other terms of our revolving credit facility or any other debt instruments in the future and, if a breach occurs, there can be no assurance that we will be able to obtain necessary waivers or amendments from the lenders or to refinance the related indebtedness on terms we find acceptable, or at all. As a result, any breach or default of this nature could have a material effect on our results of operations, financial condition and business.

Restrictions under proposed new credit facility. In connection with this offering, we expect to amend and restate our existing revolving credit facility; we sometimes refer to this amended and restated revolving credit facility as the new credit facility. We anticipate that the new credit facility will be secured by a lien on substantially all of our assets, except assets of our foreign subsidiaries and shares of our foreign subsidiaries in excess of 65% owned by us and our domestic subsidiaries. We also anticipate that the new credit facility will include financial and other covenants that will limit or restrict our ability to, among other things, incur liens on

our properties, make acquisitions and other investments, sell assets and incur indebtedness, subject to specified exceptions. We expect that the new credit facility will also restrict or prohibit the payment of dividends on our common stock and repurchases or redemptions of our common stock. We also expect that the new credit facility will require us to maintain the ratio of:

(1)

(a) the sum of our net income (adjusted as provided in the new credit facility) plus depreciation, amortization, taxes and interest expense, minus (b) unfinanced capital expenditures, to

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current maturities of our long term debt plus interest expense,

at 1.10 to 1 or better. We expect that the new credit facility will contain customary events of default, including an event of default triggered by specified changes in control of our company, and to provide that, upon the occurrence of any event of default, the lender may require us to repay all outstanding borrowings and accrued interest and seize and sell the collateral securing the new credit facility, which would likely have a material adverse effect on our business, results of operations and financial condition. In addition, during the continuance of events of default under the new credit facility (subject to a cure period for some events of default), we expect that interest will accrue at a rate that is 200 basis points above the otherwise applicable rate.

We do not have patents or other intellectual property that would prevent third parties from selling products similar to ours, which may allow competitors to capture market share from us.

As of June 30, 2011, our patent portfolio consisted of two utility patents issued in the United States and ten utility patent applications pending (nine in the United States and one in a foreign country). Neither of our issued patents prevents and none of the patents we have applied for, if granted, would prevent third parties from selling products similar to ours. In addition, we do not have any confidential or proprietary processes or procedures that would make it difficult for a competitor to produce products like ours. This lack of intellectual property protection permits competitors to design and sell products that compete directly with ours, which may allow them to capture market share from us and therefore adversely affect our results of operations.

Our future success depends to a large degree on our ability to defend the Corsair brand from infringement and, if we are unable to protect our brand and other intellectual property, our business could be materially adversely affected.

We consider the Corsair brand to be one of our most valuable assets. Our future success depends to a large degree upon our ability to defend the Corsair brand from infringement and, to a limited extent, to protect our other intellectual property. We rely on a combination of copyright, trademark, patent and other intellectual property laws and confidentiality procedures and contractual provisions such as nondisclosure terms to protect our intellectual property. Although we hold a trademark on the Corsair name in the United States and a number of other countries, the Corsair name does not have trademark protection in other parts of the world, including some major markets, and we may be unable to register the Corsair name as a trademark in some countries. If third parties misappropriate or infringe on our brand or we are unable to protect our brand, or if third parties use the Corsair name to sell their products in countries where we do not have trademark protection, it could have a material adverse affect on our reputation and results of operations.

We hold a limited number of patents and pending patent applications. It is possible that any patent owned by us will be invalidated, deemed unenforceable, circumvented or challenged or that any of our pending or any future patent applications will not be granted. In addition, other intellectual property laws or our confidentiality procedures and contractual provisions may not adequately protect our intellectual property. Also, others may independently develop similar technology, duplicate our products, or design around any intellectual property rights we may have. Any of these events could harm our business, financial condition and operating results.

Certain of our licenses can be terminated at any time by us or the other party. If we are unable to negotiate and maintain licenses on acceptable terms, we will be required to develop alternative technology internally or license it from other third parties, which may be difficult and costly or impossible.

The expansion of our business will require us to protect our trademarks, domain names, copyrights, patents and other intellectual property rights in an increasing number of jurisdictions, a process that is expensive and sometimes requires litigation. If we are unable to protect our trademarks, domain names, copyrights, patents and other intellectual property rights, or prevent third parties from infringing upon them, our business may be materially adversely affected.

We have taken steps in the past to enforce our intellectual property rights and expect to continue to do so in the future. However, it may not be practicable or cost-effective for us to enforce our rights with respect to certain items of intellectual property fully, or at all, particularly in developing countries where the enforcement of intellectual property rights may be more difficult than in the United States. It is also possible that, given the costs of obtaining patent protection, we may choose not to seek patent protection for certain items of intellectual property that may later turn out to be important.

We have in the past been, and may in the future be, subject to intellectual property infringement claims, which are costly to defend, could require us to pay damages or royalties and could limit our ability to use certain technologies in the future.

Companies in the technology industry are frequently subject to litigation or disputes based on allegations of infringement or other violations of intellectual property rights. We have faced claims that we have infringed, or that our use of components or products supplied to us by third parties have infringed, intellectual property rights of others in the past and we expect to face similar claims in the future.

Any intellectual property claims, with or without merit, can be time-consuming, expensive to litigate or settle and can divert management resources and attention. For example, in the past we have settled claims relating to infringement allegations and agreed to make royalty or license payments in connection with such settlements. An adverse determination could require that we pay damages, which could be substantial, or stop using technologies found to be in violation of a third-party’s rights and could prevent us from selling some of our products. In order to avoid these restrictions, we may have to seek a license for the technology. Any such license may not be available on reasonable terms or at all, could require us to pay significant royalties and may significantly increase our operating expenses. As a result, we may be required to develop alternative non-infringing technologies, which could require significant effort and expense and might not be successful or, if alternative non-infringing technologies already exist, we may be required to license those technologies from third parties, which may be expensive or impossible. If we cannot license or develop technologies for any infringing aspects of our business, we may be forced to halt sales of products incorporating the infringing technologies and may be unable to compete effectively. Any of these results could materially harm our brand, our operating results and our financial condition.

Our products are designed to appeal to the high-performance computer gaming market, which represents a relatively small portion of the overall personal computing market, and we will need to develop and successfully market additional products and new categories of products to this market, as well as develop and successfully market products that appeal to broader markets, in order to grow. If we are unsuccessful in marketing additional products and new categories of products to these markets, we may suffer a decline in our competitive position, which could materially adversely affect our business, results of operations and financial condition.

Most of our DRAM modules are higher priced, high-performance products intended to appeal primarily to computer gaming enthusiasts focused on building and customizing their own PCs to enhance their processing power and speed. Our power supplies, solid-state drives, cooling systems and computer cases are marketed primarily to these same end-users for use in building or customizing high-performance PCs. Our gaming headsets are marketed to these end-users for PC gaming applications. Our USB flash drives feature high capacity, high levels of performance or enhanced shock-proofing or water resistance and are therefore sold at prices that are unlikely to appeal to mainstream consumers.

Our products are currently targeted primarily to the high-performance computer gaming market. Moreover, some of our current products are suitable for use only with desktop PCs and not with laptops, netbooks or other portable computing devices and none of our current products is suitable for use with video game consoles or with smart phones or other mobile communications devices, which limits the potential markets for our current products. The relatively small size of the market for our current products will limit our ability to grow, which could adversely affect our ability to grow net revenues.

Accordingly, our growth depends in large part on our ability to develop and successfully produce and market, or to acquire other companies or businesses that sell, additional products and product categories targeted to the high-performance computer gaming market as well as new categories of products that appeal to broader computer gaming markets. We introduced our first audio product in the third quarter of 2010 and in the future intend to introduce other computer peripherals and other products designed to appeal to broader markets. To the extent we do so, we will likely encounter competition from large, well-known consumer electronics and peripherals companies. These companies have significantly greater financial, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. We cannot predict whether we will be successful in developing or marketing new products and product categories and, if we fail to do so, it may have a material adverse effect on our business, results of operations and financial condition.

Many end-users purchase our products using the internet, which exposes us to the risk of disruptions in internet communications that could harm our sales.

We generate substantial revenue from sales to online retailers such as Newegg.com, Amazon.com and TigerDirect.com. Because end-users use the internet to purchase our products from online retailers, a disruption or outage in internet communication, even if confined to a relatively small geographic area, could have a negative effect on our sales. In addition, efforts by various states to collect sales taxes on internet sales may reduce the demand for our products through this channel and have an adverse impact on our sales. Likewise, a reduction in the speed of internet communications, whether as a result of inadequate bandwidth or otherwise, could make it less convenient for end-users to buy our products over the internet and therefore harm our sales.

Sales to a limited number of customers represent a significant portion of our revenue, and the loss of one or more of our key customers could adversely affect our operating results.

In 2008, 2009, 2010 and the three months ended March 31, 2011, sales to Newegg.com accounted for approximately 10.8%, 11.1%, 11.4% and 11.1%, respectively, of our net revenues and sales to our ten largest customers accounted for approximately 45.3%, 42.7%, 43.2% and 41.2%, respectively, of our net revenues. Our customers typically do not enter into long-term agreements to purchase our products but instead enter into purchase orders with us from time to time. These purchase orders may generally be cancelled and orders can be reduced or postponed by the customer. In addition, our customers are under no obligation to continue purchasing from us and may purchase similar products from our competitors. Our financial condition and operating results could be materially adversely affected if the business, financial condition or operating results of a key customer weakens, if a key customer stops purchasing our products, or if uncertainty regarding demand for our products causes a key customer to reduce their orders and marketing of our products. A decision by one or more of our key customers to reduce, delay or cancel their orders from us, either as a result of industry conditions or specific events relating to a particular customer, or their failure or inability to pay amounts owed to us in a timely manner, or at all, could have a material adverse effect on our operating results. In addition, because of our reliance on key customers, the loss of one or more key customers as a result of bankruptcy or liquidation or otherwise, and the resulting loss of sales, could have a material adverse effect on our operating results.

Currency exchange rate fluctuations could result in our products becoming relatively more expensive to our overseas customers or increase our manufacturing costs, each of which could adversely affect our operating results.

Our international sales and our operations in foreign countries subject us to risks associated with fluctuating currency exchange rates. Because sales of our products are denominated primarily in U.S. dollars, an increase in the value of the U.S. dollar relative to the currency used in the countries where our products are sold may result in an increase in the price of our products in those countries, which may lead to a reduction in sales. For example, continuing uncertainty of financial conditions in Europe (including concerns that certain European countries may default in payments due on their national debt) and the resulting economic instability and fluctuations in the values of the Euro and British Pound compared to the U.S. dollar have led to variations in the local currency selling prices of, and therefore affected demand for, our products in Europe. This had a significant adverse effect on our net revenues for the second quarter of 2010 and may adversely impact our operating results if economic conditions in Europe, including the potential of national debt defaults, continue or worsen or the Euro or British Pound weaken against the U.S. dollar. Likewise, because we pay our suppliers and third-party manufacturers, most of which are located outside of the United States, primarily in U.S. dollars, any decline in the value of the U.S. dollar relative to the applicable local currency may cause our suppliers and manufacturers to raise the prices they charge us. In addition, we generally pay our employees located outside the United States in the local currency and, as a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies and changes in the value of the U.S. dollar could result in significant increases in our expenses that could have a material adverse effect on our business and results of operations. In that regard, during the first quarter of 2011 the value of the U.S. dollar declined against the Euro, British Pound, Chinese Yuan and the Taiwan dollar, which resulted in an increase in our expenses as stated in U.S. dollars.

Unit sales of our products tend to be higher during the third and fourth quarters of the year. As a result, our sales are subject to seasonal fluctuations, which could adversely affect our results of operations and the market price of our common stock.

We have experienced and expect to continue to experience seasonal fluctuations in sales due to the spending patterns of our customers. Our unit sales volumes have generally been lowest in the first and second calendar quarters due to lower sales following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, graphics cards and other computer hardware products, which usually takes place in the second calendar quarter and which tends to drive sales in the following two quarters. As a consequence of seasonality, our total unit shipments for the second calendar quarter are generally the lowest of the year, followed by unit shipments for the first calendar quarter, although the effect of these lower quarterly unit volumes on our consolidated net revenues may be masked by changes in average selling prices of our products. We expect these seasonality trends to continue. As a result, our unit sales are subject to seasonal fluctuations, which could adversely affect our results of operations and the market price of our common stock.

We conduct our operations and sell our products internationally and the effect of business, legal and political risks associated with international operations could significantly harm us.

Sales to customers outside the United States accounted for approximately 68.1% of our consolidated net revenues for the three months ended March 31, 2011, approximately 67.0% of our consolidated net revenues for 2010, approximately 67.5% of our consolidated net revenues for 2009 and approximately 68.1% of our consolidated net revenues for 2008. In addition, substantially all of the products that we sell are manufactured at facilities in Asia. Our international sales and operations are subject to a wide range of risks, which may vary from country to country or region to region. These risks include the following:

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export and import duties, changes to import and export regulations, and restrictions on the transfer of funds;

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political and economic instability;

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problems with the transportation or delivery of our products;

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issues arising from cultural or language differences and labor unrest;

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longer payment cycles and greater difficulty in collecting accounts receivable;

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compliance with trade and technical standards in a variety of jurisdictions;

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difficulties in staffing and managing international operations, including the risks associated with fraud, theft and other illegal conduct;

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compliance with laws and regulations, including environmental, employment and tax laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance;

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difficulties enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States and European countries;

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the risk that trade to or from some foreign countries, or companies in foreign countries that manufacture our products or supply components that are used in our products, may be affected by political tensions, trade disputes and similar matters, particularly between China and Taiwan or between China and the United States;

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U.S. and foreign trade restrictions, including those that may limit the importation of technology or components to or from various countries or impose tariffs or quotas;

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difficulties or increased costs in establishing sales and distribution channels in unfamiliar markets, with their own market characteristics and competition; and

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imposition of currency exchange controls or taxes that make it impracticable or costly to repatriate funds from foreign countries.

To the extent we successfully execute our strategy of expanding into new geographic areas, these and similar risks will increase. We cannot assure you that risks relating to our international operations will not have a material adverse effect on our business or operating results.

The Chairman of our board of directors and Chief Executive Officer and two of our other co-founders have significant influence over, and acting collectively may be able to control, our management and affairs and may therefore take actions with which you do not agree or that could cause the market price of our common stock to decline.

Immediately after completion of this offering, Andrew J. Paul, the Chairman of our board of directors and our Chief Executive Officer and President and one of our co-founders, and two of our other co-founders will own a total of approximately % of our outstanding common stock. Specifically, Mr. Paul will own approximately % of our outstanding common stock and these two other co-founders will own a total of approximately % of our outstanding common stock. In addition, immediately after completion of this offering, the Investors will own a total of approximately % of our outstanding common stock and, if the Investors exercise the Investor warrants in full, they will receive up to 1.6 million shares of our common stock upon exercise, representing up to approximately % of our outstanding common stock immediately after completion of this offering. In that regard, as described above under “Prospectus Summary—Recent Developments,” the Investor warrants were issued by the Sellers, which include Mr. Paul and the two other co-founders referred to above, and the Sellers are required to deliver the Investor warrant shares in the event that the Investor warrants are exercised. Accordingly, if any Investor warrants are exercised and the Sellers are required to deliver Investor warrant shares to the Investors, the number of the outstanding shares of our common stock owned by Mr. Paul and these two co-founders will be reduced.

Nonetheless, Mr. Paul and these two other co-founders will have significant influence over our management and affairs after this offering and, acting together and based upon the shares of our common stock that they will

own immediately after completion of this offering, may be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers, consolidations, sales of assets, recapitalizations and amendments to our certificate of incorporation. In addition, the Investors, if they act together, will have influence over our management and affairs and their influence could increase in the event they receive additional shares of our common stock through the exercise of the Investor warrants. In addition, our ESOP will own approximately % of our outstanding common stock, immediately after this offering. The shares held by the ESOP are voted by Andrew J. Paul, the Chairman of our board of directors and Chief Executive Officer and President, Nicholas B. Hawkins, our Chief Financial Officer and Treasurer, and Frederick M. Gonzalez, our Vice President, General Counsel and Corporate Secretary in their capacity as ESOP trustees and in accordance with instructions from our board of directors or a committee of our board of directors.

These holders of our common stock may use their voting power to take actions with which you do not agree, including actions that could delay, defer or prevent a change in control of our company, make the approval of certain transactions difficult or impossible without the support of these stockholders or that could cause the market price of our common stock to decline.

Cloud computing may harm our business.

Cloud computing refers to a computing environment in which software is run on third-party servers and accessed by end-users over the internet. In a cloud computing environment a user’s computer may be a so-called “dumb terminal” with minimal processing power and limited need for high-performance components. As a result, widespread adoption of cloud computing, either generally or by the computer gaming community, may harm our business, perhaps substantially.

We may recognize restructuring and impairment charges in future periods, which will adversely affect our operating results and could harm our reputation with securities analysts, investors and others.

Depending on market and economic conditions in future periods, we may implement restructuring initiatives. As a result of these initiatives, we could incur restructuring charges, lose key personnel and experience disruptions in our operations and difficulties in delivering products.

We are required to test long-lived assets and goodwill for recoverability and may be required to record charges if there are indicators of impairment and we have in the past recognized impairment charges. As of March 31, 2011, we had approximately $3.5 million of long-lived assets and no goodwill. One of our strategies is to grow through acquisitions of other businesses or technologies and, if we are successful in doing so, these acquisitions may result in goodwill and other long-lived assets. The risk that we will be required to recognize impairment charges is also heightened by the fact that the life cycles of many of our products are relatively short, which increases the possibility that we may be required to recognize impairment charges for obsolete inventory. Impairment charges will adversely affect our operating results and could harm our reputation with securities analysts, investors and others.

We will incur significant expenses as a result of being a public company, which will negatively impact our financial performance.

We will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Securities and Exchange Commission, or SEC, and Nasdaq Global Market, have required changes in corporate governance practices of public companies. We expect that compliance with these and other similar laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed below, will substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. We also expect these laws, rules and regulations to make it 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, which may make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. As a result of the foregoing, we expect a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact our results of operations and financial condition.

As a public reporting company, we will be subject to additional rules and regulations established from time to time by the Securities and Exchange Commission and the Nasdaq Global Market. We may not complete needed improvements to our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock and your investment.

Upon completion of this offering, we will become a public reporting company subject to the rules and regulations established from time to time by the SEC and the Nasdaq Global Market. These rules and regulations will require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, as a public company we will be required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can certify as to the effectiveness of our internal controls and our independent registered public accounting firm can render an opinion on the effectiveness of our internal controls over financial reporting by the time our annual report for the year ending December 31, 2012 is due and thereafter, which will require us to document and make significant changes to our internal controls over financial reporting. As a result, we will be required to improve our financial and managerial controls, reporting systems and procedures, to incur substantial expenses to test our systems and to make such improvements and to hire additional personnel. If our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal control over financial reporting, or if we identify or fail to remediate material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could harm our reputation and the market price of our common stock. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.

We have previously identified material weaknesses in our internal control over financial reporting. Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting, damage our reputation and harm our ability to manage our business.

Our independent registered public accounting firm did not identify any material weaknesses or significant deficiencies in connection with the audit of our consolidated financial statements for the year ended December 31, 2010. However, in connection with the audit of our consolidated financial statements for the year ended December 31, 2009, our independent registered public accounting firm identified two material weaknesses, as well as one significant deficiency. Under rules of the SEC, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. SEC rules define a significant deficiency as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a company’s financial reporting.

The first material weakness related to our lack of effective controls over the use of outside consultants that we engaged to assist with accounting for stock-based compensation and income taxes. Among other things, our auditors noted that we did not identify several errors and the misapplication of accounting rules in the worksheets

prepared by these consultants, resulting in adjustments to related items in our financial statements. The second material weakness related to our lack of effective controls over the administration of option and stock transactions with employees and our lack of expertise regarding the appropriate accounting for these transactions. Among other things, our auditors noted that documentation for stock-based transactions was either missing or incorrect and that we did not have controls to ensure the proper accounting for these transactions, resulting in adjustments to our financial statements for outstanding shares of common stock, stock-based compensation expense and notes receivable from stockholders. The significant deficiency related to our lack of effective controls for the timely preparation of GAAP financial statements and related footnote disclosures. Our auditors noted, among other things, that our financial reporting process did not include procedures to verify all numbers and disclosures in the financial statements and that procedures intended to ensure that our financial statements complied with GAAP did not identify missing and inappropriate disclosures, resulting in changes to our financial statements. In connection with its audit of our consolidated financial statements for the years ended December 31, 2007 and 2008, our independent registered public accounting firm identified five material weaknesses and three material weaknesses, respectively.

We have remediated these material weaknesses and significant deficiencies, primarily (in the case of the material weaknesses and deficiencies identified in connection with the audit of our 2009 financial statements) through the hiring of several additional accounting personnel in the United States and Asia, as well as a General Counsel. We plan to continue to assess our internal controls and procedures with respect to financial and accounting matters and intend to take further action as we deem appropriate to address any significant issues that we may identify in the future.

We cannot assure you that further material weaknesses or significant deficiencies will not be identified in the future. If other material weaknesses and significant deficiencies occur in the future or if we otherwise fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could have a material adverse effect on our business and results of operations.

We and our contract manufacturers may be adversely affected by seismic activity or other natural disasters, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters are located in the San Francisco Bay Area and the testing and packaging of most of our DRAM modules take place in our facility in Taiwan. Both locations are known to experience earthquakes from time to time, some of which have been severe. In addition, typhoons and other severe weather systems frequently affect Taiwan. Most of the third-party facilities where our products and some of the components used in our products are manufactured are located in China, Japan, Taiwan and other areas that are known for seismic activity and other natural disasters. Earthquakes in any of the foregoing areas may also result in tsunamis. We do not carry earthquake insurance. As a result, earthquakes or other natural disasters could severely disrupt our operations, either directly or as a result of their effect on third-party manufacturers and suppliers upon whom we rely and their respective supply chains, and may negatively impact the ordering patterns of our customers and have a material adverse effect on our business.

All of our enterprise data processing systems are located in our Fremont, California headquarters, and, as noted above, we have a DRAM module testing and packaging facility in Taiwan. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of either of these facilities, that damaged critical infrastructure, such as enterprise resources planning systems, or that otherwise disrupted operations at either location, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business, operating results and financial condition.

Our operations, properties and products are subject to a variety of U.S. and foreign environmental laws and regulations governing, among other things, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste, and remediation of releases of hazardous materials. Our failure to comply with present and future requirements under these laws and regulations, or environmental contamination or releases of hazardous materials on our leased premises, as well as through disposal of our products, could cause us to incur substantial costs, including clean up costs, personal injury and property damage claims, fines and penalties, costs to redesign our products or upgrade our facilities and legal costs, or require us to curtail our operations. Environmental contamination or releases of hazardous materials may also subject us to claims of property damage or personal injury, which could result in litigation and require us to make substantial payments to satisfy adverse judgments or pay settlements. Liability under environmental laws can be joint and several and without regard to comparative fault. We also expect that our operations will be affected by new environmental laws and regulations on an ongoing basis, which will likely result in additional costs. Environmental laws and regulations could also require that we redesign our products or change how our products are made, any of which could have a material adverse effect on our business. The costs of complying with environmental laws and regulations or the effect of any claims or liability concerning or resulting from noncompliance or environmental contamination could have a material adverse effect on our financial condition and results of operations.

Failure to comply with other laws and governmental regulations could harm our business.

Our business is subject to regulation by various federal and state governmental agencies. Such regulation includes the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of the Department of Commerce, the product safety regulatory activities of the Consumer Products Safety Commission, the regulatory activities of the Occupational Safety and Health Administration, the environmental regulatory activities of the Environmental Protection Agency, the labor regulatory activities of the Equal Employment Opportunity Commission and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business. We are also subject to regulation in other countries where we conduct business. In certain jurisdictions, such regulatory requirements may be more stringent than in the United States. We are also subject to a variety of federal, state and foreign employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labors Standards Act and other laws and regulations related to working conditions, wage-hour pay, over-time pay, employee benefits, anti-discrimination and termination of employment.

Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, fines, damages, civil and criminal penalties, or injunctions. In addition from time to time we have received, and expect to continue to receive, correspondence from former employees terminated by us who threaten to bring claims against us alleging that we have violated one or more labor and employment laws or regulations. In certain of these instances the former employee has brought claims against us and we expect that we will encounter similar actions against us in the future. An adverse outcome in any such litigation could require us to pay damages, which may include punitive damages, attorneys’ fees and costs.

As a result, noncompliance or any related enforcement or civil actions could result in governmental sanctions and possible civil or criminal litigation, which could have a material adverse effect on our business, financial condition, results of operations and cash flow and result in a significant diversion of management’s attention and resources.

We may not be able to manage successfully the challenges associated with our expansion in the Asia Pacific region, and our failure to grow our operations in this region would adversely affect our prospects for the future.

A component of our growth strategy involves expanding our presence in the Asia Pacific region. We may not be able to successfully manage the challenges associated with our current and planned operations in the Asia Pacific region due to risks such as:

•

disposable income and consumer spending on PC gaming hardware in the Asia Pacific region may grow more slowly than we anticipate or may decline;

•

we may not be able to achieve the same brand recognition in the Asia Pacific region as we have in some other parts of the world;

•

consumer expectations and purchasing behaviors that we may not adequately understand;

•

a dynamic competitive environment;

•

restrictions imposed by local labor practices and laws on our business and operations;

•

difficulties and costs of staffing and managing foreign operations;

•

exposure to foreign business practices and legal standards;

•

unexpected changes in regulatory requirements;

•

the imposition of governmental controls and restrictions;

•

political, social and economic instability and the risk of war, terrorist activities or other international incidents including, without limitation, the considerable political instability in Taiwan related to its disputes with China and in South Korea related to its disputes with North Korea;

•

natural disasters and public health emergencies;

•

potentially adverse tax consequences; and

•

the failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property.

We may not be able to grow our operations in the Asia Pacific region at the rate or with the level of success we anticipate, or at all, which would adversely impact our future results and prospects.

Risks Related to This Offering

The market price of our common stock may be volatile and may decline.

Prior to this offering, our common stock has not been sold in a public market. We cannot predict the extent to which a trading market will develop or how liquid that market might become. An active trading market for our common stock may never develop or may not be sustained, which could adversely affect your ability to sell your common stock and the market price for the common stock. The initial public offering price for our common stock was determined by negotiations between us and the underwriters and does not purport to be indicative of prices at which our common stock will trade upon completion of this offering.

The stock market in general, and the market for stocks of technology companies in particular, has been highly volatile. In our case, this volatility may be increased by the volatility in market prices for, and the fact that we derive a majority of our net revenues from sales of, DRAM modules. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their common stock or the loss of their entire investment for a number of reasons, including reasons unrelated to our operating performance or prospects. The market price of our

common stock could be subject to wide fluctuations in response to a broad and diverse range of factors, including those described elsewhere in this “Risk Factors” section and this prospectus, and the following:

•

variations in our operating performance and the performance of our competitors;

•

actual or anticipated fluctuations in our quarterly or annual operating results;

•

changes in estimates or recommendations by securities analysts concerning us or our competitors;

•

publication of research reports by securities analysts about us or our competitors or our industry;

•

our failure or the failure of our competitors to meet analysts’ estimates or guidance that we or our competitors may give to the market;

•

additions and departures of key personnel;

•

strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

•

developments of new technologies or other innovations;

•

the passage of legislation or other regulatory developments affecting us or our industry;

•

speculation in the press or investment community;

•

changes in accounting principles;

•

natural disasters, terrorist acts, acts of war or periods of widespread civil unrest; and

•

changes in general market and economic conditions.

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

We may invest or spend the proceeds of this offering in ways you may not agree with or in ways which may not yield a return.

We will have broad discretion over how we use the net proceeds from this offering received by us. We intend to use the net proceeds we receive from our sale of stock in this offering for general corporate purposes and we have not reserved specific amounts for any particular purposes and cannot specify with certainty how we will use these funds. Accordingly, our management will have considerable discretion in the application of these funds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. These funds may be used for purposes that do not improve our operating results or the market value of our common stock. Until these funds are used, they may be placed in investments that produce only limited income or do not produce income at all or that lose value.

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

Sales of our common stock in the public market after this offering, or the perception that such sales might occur, could cause the market price of our common stock to decline. Immediately after completion of this offering, we will have a total of shares of common stock outstanding, including shares of common stock owned by Andrew J. Paul, our Chief Executive Officer, President and one of the our co-founders, shares of common stock owned by our ESOP, a total of shares of common stock owned by two of our other co-founders and a total of 6.4 million Investor shares owned by the Investors, plus up to 1.6 million additional shares of common stock that the Investors would acquire if the Investor warrants were exercised in full. In general, the shares of common stock sold in this offering will be freely transferable

without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. In addition, the remaining shares of our common stock that will be outstanding immediately after completion of this offering will be available for sale in the public markets, pursuant to Rule 144 or Rule 701 under the Securities Act, subject, in some cases, to the lock-up agreements described under “Underwriting” or to compliance with the holding period required by Rule 144. Any or all of the shares subject to the lock-up agreements may be released for sale in the public market prior to expiration of the lock-up period at the discretion of Barclays Capital Inc. and Jefferies & Company, Inc. Sales of our common stock in the public market, or the perception that those sales may occur, could cause the market price of our common stock to decline. For additional information, see “Shares Eligible for Future Sale” and “Underwriting.”

Purchasers in this offering will immediately experience substantial dilution in the net tangible book value of their shares.

Assuming that the initial public offering price of our common stock is $ per share (which is the midpoint of the estimated price range appearing on the cover page of this preliminary prospectus), the initial public offering price of our common stock will be substantially higher than the adjusted net tangible book value per share of our common stock, calculated as described below under “Dilution” immediately after this offering. Therefore, if you purchase our common stock in this offering, you will suffer an immediate dilution of $ in as adjusted net tangible book value per share from the assumed initial public offering price. For more information, see “Dilution” below.

We have outstanding options and warrants, and we have granted registration rights, that have the potential to dilute stockholder value and cause the market price of our common stock to decline.

In the past, we have issued, and we expect to continue to issue, stock options or other forms of stock-based compensation to our directors, officers and employees. In addition, we have outstanding BHC warrants that we issued to a former lender. Stock options issued in the past have per share exercise prices below the assumed initial public offering price of $ per share of common stock (which is the midpoint of the estimated price range appearing on the cover page of this preliminary prospectus). As of March 31, 2011, we had options outstanding under our equity incentive plans (excluding options exercised in connection with the Keating Transaction) to purchase 35,413,867 shares of our common stock with a weighted average exercise price of $0.58 per share. The BHC warrants entitle the holders to purchase a number of shares of our common stock equal to the sum of (a) 1,942,827 shares of common stock plus (b) the number of shares of common stock equal to 2% of the total number of shares of common stock of all classes issued by us (other than shares of common stock issued in this offering) during the period beginning on and including April 1, 2010 through and including the earlier of the day immediately prior to the closing date of this offering and December 31, 2011, calculated on a fully-diluted basis after giving effect to the exercise of all other warrants, options and rights to acquire any shares of our common stock issued by us, and the conversion of any convertible securities issued by us, during that period, subject to specified exceptions. As of March 31, 2011, an additional 57,011 shares of our common stock were issuable upon exercise of the BHC warrants pursuant to clause (b) of the preceding sentence. The exercise price of the BHC warrants is $0.55 per share, which is also below the assumed initial public offering price per share in this offering. As described under “Principal and Selling Stockholders,” BHC will exercise BHC warrants to purchase a total of 971,414 shares of our common stock and will sell those shares in this offering.

We intend to file a registration statement under the Securities Act covering all of the shares of our common stock issuable on exercise of our outstanding options or reserved for issuance under our equity incentive plans as soon as practicable after the closing of this offering, which would permit those shares to be sold in the public markets. In addition, the holders of the shares of common stock issuable upon exercise of the BHC warrants and the holders of the 6.4 million Investor shares and the up to 1.6 million Investor warrant shares that may be delivered upon exercise of the Investor warrants are entitled, subject to specified conditions and exceptions, to include those shares in any future registration statement we file under the Securities Act and, if applicable, to sell those shares in any underwritten offering under that registration statement, and will also be entitled to sell those shares pursuant to

Rule 144 under the Securities Act (upon satisfaction of the conditions of that rule and subject to the lock-up agreement entered into in connection with this offering), both of which would permit those shares to be sold in the public markets. Likewise, once we are eligible to use Form S-3 under the Securities Act, the holders of the Investor shares and any Investor warrant shares that may be delivered upon exercise of the Investor warrants have the right, subject to specified conditions and exceptions, to require that we file an unlimited number of registration statements on Form S-3 to enable them to sell those shares in the public market, including by underwritten public offerings. If some or all of these options or warrants are exercised and the shares delivered on exercise are sold into the public market, or if some or all of the Investor shares are sold in the public market, the market price of our common stock may decline.

Our certificate of incorporation and bylaws contain antitakeover provisions that could delay, deter or prevent takeover attempts that stockholders may consider favorable or attempts to replace or remove our management that would be beneficial to our stockholders.

Certain provisions of our certificate of incorporation and bylaws could delay, deter or prevent a change in control or other takeover of our company that our stockholders might consider to be in their best interests, including transactions that might result in a premium being paid over the market price of our common stock and also may limit the price that investors are willing to pay in the future for our common stock. These provisions may also have the effect of preventing changes in our management. For example, our certificate of incorporation and bylaws include anti-takeover provisions that:

•

authorize our board of directors, without further action by the stockholders, to issue preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting that series and to establish the rights and other terms of that series, which may include dividend and liquidation rights and preferences, conversion rights and voting rights;

•

require that actions to be taken by our stockholders may only be taken at an annual or special meeting of our stockholders and not by written consent;

•

specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of our board of directors, our Chief Executive Officer or our President and not by our stockholders or any other persons;

•

establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of directors and other proposals to be brought before a stockholders meeting;

•

provide that directors may be removed only for cause;

•

provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of our directors may be filled only by a majority of directors then in office, even though less than a quorum;

•

divide our board of directors into three classes, serving staggered terms of three years each;

•

do not give the holders of our common stock cumulative voting rights with respect to the election of directors, which means that the holders of a majority of our outstanding shares of common stock can elect all directors standing for election; and

•

require the affirmative vote by the holders of at least two-thirds of the combined voting power of all shares of our outstanding capital stock entitled to vote generally in the election of our directors (voting as a single class) in order to amend the provisions of our certificate of incorporation or by-laws described in the bullet points above or remove any directors.

In addition, although we are not subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, our certificate of incorporation contains provisions that prohibit, unless specified conditions are met and subject to exceptions, specified business combinations between us and any “interested stockholder” (as defined and which will exclude, in general, and and, subject to exceptions, their

direct and indirect transferees and their respective affiliates and successors, as well as any “group” (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act) that includes any of the foregoing persons or entities) in a manner similar to that of Section 203 of the Delaware General Corporation Law. These provisions may have the effect of delaying, deterring or preventing a third party from acquiring us. See “Description of Capital Stock.”

We do not expect to pay cash dividends on our common stock for the foreseeable future.

We currently intend to retain all available funds for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, we expect that financial and other covenants in our new credit facility will restrict or prohibit, and other instruments and agreements that we may enter into in the future may restrict or prohibit, the payment of dividends on our common stock. Investors seeking or expecting cash dividends should not purchase our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about our business, if they adversely change their recommendations regarding our shares or if our operating results do not meet their expectations, the market price of our common stock could decline.

The market price of our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume of our common stock to decline. Moreover, if one or more of the analysts who cover our company downgrade our common stock or if our operating results or prospects do not meet their expectations, the market price of our common stock could decline.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements that are based on our management’s current beliefs, projections and assumptions and on information currently available to our management. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future or expected results of operations and financial condition, business strategies, plans, competitive position, industry and market environment and potential growth opportunities, are forward-looking statements. Forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those described in “Risk Factors” and elsewhere in this prospectus, that may cause actual results, performance, conditions or achievements to be materially different from results, performance, conditions or achievements expressed or implied by the forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. Except as may be required by law, we do not intend to update these forward-looking statements.

This prospectus also contains estimates, projections and other information concerning our industry, markets and products, including estimated historical and projected market size and growth rates, that are based on data and projections by market research firms and information we obtained from websites and magazines targeted to computer enthusiasts, as well as estimates and forecasts prepared by our management. This information involves a number of assumptions, estimates, uncertainties and limitations. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause actual industry, market or other conditions to differ materially from those reflected in these estimates, projections and other information. In particular, data regarding the size of the PC gaming hardware market are subject to a high degree of uncertainty and these estimates, beliefs and projections may prove to have been incorrect. The inaccuracy of any of this data or these beliefs may have a material adverse effect on our business, financial condition and results of operations and the market price of our common stock.

USE OF PROCEEDS

We estimate that the net proceeds we receive from the sale of common stock in this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares of common stock in full), in each case assuming an initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) the estimated net proceeds to us by approximately $ million (or by approximately $ million if the underwriters exercise their option to purchase additional shares of common stock in full), assuming that the number of shares of common stock sold by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 100,000 share increase (decrease) in the number of shares of common stock sold by us in this offering would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming an initial public offering price per share equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

The principal purposes of this offering are to create a public market for our common stock, obtain additional capital, facilitate our future access to the public equity markets, position us to issue common stock to make acquisitions and generally increase awareness of our company.

We intend to use the net proceeds that we receive from the sale of shares of our common stock in this offering for general corporate purposes, which may include working capital, capital expenditures and possible acquisitions of other businesses, products, assets or technologies. Although one of our strategies is to grow through acquisitions, we have no present commitments or agreements to make any acquisitions. The manner in which we apply the net proceeds we receive from this offering and the timing of those expenditures will vary depending on a number of factors, including competitive and technological developments, our results of operations and whether or not we are able to consummate any acquisitions. Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of the proceeds.

Pending the application of the net proceeds we receive from this offering for the purposes described above, we may invest the net proceeds in short-term interest-bearing and similar investments, which may include interest-bearing bank accounts, money market funds, certificates of deposit and government securities, and we may also use the net proceeds to repay temporarily borrowings outstanding under our revolving credit facility. Borrowings we repay under our revolving credit facility may be re-borrowed, subject to compliance with conditions in the credit facility. We plan to amend and restate our existing credit facility in connection with this offering and we expect that this amended and restated credit facility, which we sometimes refer to as our new credit facility, will mature in . As of March 31, 2011, borrowings under our existing revolving credit facility bore interest at a weighted average rate of 4.4% per annum. We use borrowings under our revolving credit facility primarily for working capital. For more information about our revolving credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

DIVIDEND POLICY

We currently intend to retain all available funds for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements and other cash needs, general business conditions, relevant legal requirements and other factors that our board of directors may deem relevant. In addition, we expect that covenants in the new revolving credit facility that we expect will become effective in connection with this offering will restrict or prohibit, and other instruments and agreements that we may enter into in the future may restrict or prohibit, the payment of cash dividends on our common stock.

CAPITALIZATION

The following table sets forth our consolidated cash and capitalization as of March 31, 2011 on:

•

an actual basis;

•

a pro forma basis, assuming that the Repurchase Right Termination and the BHC Warrant Amendment described above under “Prospectus Summary—The Holding Company Formation, Repurchase Right Termination and BHC Warrant Amendment” and the Share Repurchase and Option Exercise described above under “Prospectus Summary—Recent Developments” had occurred as of March 31, 2011; and

•

a pro forma as adjusted basis to give effect to the transactions described in the immediately preceding bullet point, the BHC Warrant Exercise, the amendment of our certificate of incorporation to, among other things, authorize the issuance of preferred stock and our sale of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, and our receipt of the net proceeds from that sale, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if those transactions had occurred as of March 31, 2011. The pro forma as adjusted information does not give effect to our application of any of the net proceeds we receive from this offering as described under “Use of Proceeds.”

You should read this table together with “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 March 31, 2011
	Actual			Pro Forma			Pro Forma As Adjusted⁽¹⁾
	(in thousands except share and per share amounts)
Cash	$	7,267		$	—		$

Common stock warrant liability	$	2,862		$	—		$	—
Long-term debt and capital leases, excluding current portion⁽²⁾		—			—			—
Redeemable ESOP shares		19,432			—			—
Stockholders’ (deficit) equity:
Preferred stock, $0.0001 par value: no shares authorized, issued, or outstanding, actual and pro forma; shares authorized, no shares issued and outstanding, pro forma as adjusted		—			—			—
Common stock, $0.0001 par value: 110,000,000 shares authorized, 60,860,663 shares issued and outstanding, actual; 110,000,000 shares authorized, 61,532,788 shares issued and outstanding, pro forma; and shares authorized, shares issued and outstanding, pro forma as adjusted		6			6
Additional paid-in capital		43,610			37,959
Notes receivable from stockholders		(726	)		(726	)		(726	)
Redeemable ESOP shares		(19,432	)		—			—
Accumulated deficit⁽³⁾		(19,219	)		(19,219	)		(19,219	)
Accumulated other comprehensive income		187			187			187

Total stockholders’ (deficit) equity		4,426			18,207

Total capitalization	$	26,720		$	18,207		$

(1)

Information in this column assumes an initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, and is calculated after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price per share would

increase (decrease) our pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the number of shares of common stock sold by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 100,000 share increase (decrease) in the number of shares of common stock sold by us in this offering would increase (decrease) our pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming an initial public offering price equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information appearing above is provided for illustrative purposes only and our actual consolidated cash and consolidated capitalization following this offering will be determined in part by the actual initial public offering price and number of shares sold by us and other terms of this offering.

(2)	Excludes borrowings under our revolving credit facility, which were classified as short-term indebtedness. We had $17.6 million aggregate principal amount of borrowings under our credit facility outstanding as of May 31, 2011, including borrowings incurred to finance the Share Repurchase.

(3)

Accumulated deficit includes $36.6 million of stock-based compensation expense incurred in prior periods due to liability accounting. The stock compensation liability was reclassified to additional paid-in capital effective as of June 29, 2010, as a result of the termination of certain repurchase rights relating to stock and stock option awards issued under our equity incentive plans.

Information in the foregoing table as to the number of shares issued and outstanding excludes:

•

35,413,867 shares of our common stock issuable upon the exercise of options outstanding under our equity incentive plans as of March 31, 2011 (excluding options exercised in connection with the Keating Transaction) at a weighted average exercise price of $0.58 per share;

•

shares of our common stock issuable upon the exercise of the BHC warrants at an exercise price of $0.55 per share (subject to adjustment as provided in the BHC warrants). The number of shares of our common stock issuable upon exercise of the BHC warrants is equal to the sum of (a) 1,942,827 shares of common stock plus (b) the number of shares of common stock equal to 2% of the total number of shares of common stock of all classes issued by us (other than shares of common stock issued in this offering) during the period beginning on and including April 1, 2010 through and including the earlier of the day immediately prior to the closing date of this offering and December 31, 2011, calculated on a fully-diluted basis after giving effect to the exercise of all other warrants, options and rights to acquire any shares of our common stock issued by us, and the conversion of any convertible securities issued by us, during that period, subject to specified exceptions. As of March 31, 2011, an additional 57,011 shares of our common stock were issuable upon exercise of the BHC warrants pursuant to clause (b) of the preceding sentence. As described under “Principal and Selling Stockholders,” BHC will exercise BHC warrants to purchase a total of 971,414 shares of our common stock, and will sell those shares in this offering.

DILUTION

Dilution represents the difference between the initial public offering price per share set forth on the cover page of this prospectus and the net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share represents the amount of our tangible assets less our liabilities, divided by the shares of our common stock outstanding. As of March 31, 2011, our net tangible book value was approximately $4.4 million, or approximately $0.07 per share of our outstanding common stock.

After giving effect to Repurchase Right Termination, the BHC Warrant Amendment, the Share Repurchase, the Option Exercise, the BHC Warrant Exercise, the sale of the shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, and our receipt of the estimated net proceeds from the shares of common stock sold by us in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if those transactions had occurred as of March 31, 2011, our pro forma as adjusted net tangible book value as of that date would have been approximately $ million, or approximately $ per share of our outstanding common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this dilution:


Assumed initial public offering price per share of common stock		$
Net tangible book value per share of common stock as of March 31, 2011	$
Net Increase in net tangible book value per share of common stock attributable to Repurchase Right Termination, the BHC Warrant Amendment, the Share Repurchase, the Option Exercise, the BHC Warrant Exercise and this offering

Pro forma as adjusted net tangible book value per share of common stock after Repurchase Right Termination, the BHC Warrant Amendment, the Share Repurchase, the Option Exercise, the BHC Warrant Exercise and this offering

Pro forma as adjusted dilution per share of common stock to new investors in this offering		$

If the underwriters exercise their option to purchase additional shares of common stock in full, the pro forma as adjusted net tangible book value per share of our common stock after this offering would be approximately $ per share of common stock and the pro forma as adjusted dilution per share to new investors in this offering would be approximately $ per share of common stock, in each case calculated as described above.

The information in the preceding table has been calculated using an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus. A $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) the pro forma as adjusted net tangible book value per share of common stock after this offering by approximately $ per share and the pro forma as adjusted dilution per share of common stock to new investors in this offering by approximately $ per share, in each case calculated as described above and assuming that the number of shares sold by us and the selling stockholders, as set forth on the cover page of this preliminary prospectus, remains the same. Likewise, the information in the preceding table has been calculated assuming that we and the selling stockholders sell the respective numbers of shares of common stock in this offering equal to the numbers of shares appearing on the cover page of this preliminary prospectus. A 100,000 share increase (decrease) in the number of shares of common stock that we sell in this offering would increase (decrease) the pro forma as adjusted net tangible book value per share of common stock after this

offering by approximately $ per share and increase (decrease) the pro forma as adjusted dilution per share of common stock to new investors in this offering by approximately $ per share, in each case calculated as described above and assuming an initial public offering price per share equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus.

The following table summarizes, as of March 31, 2011, the total number of shares of common stock purchased from us, the total consideration paid to us (less the amount we paid to make the Share Repurchase) and the average price per share paid to us by existing stockholders and by new investors purchasing shares of common stock in this offering, after giving effect to the Share Repurchase, the Option Exercise, the BHC Warrant Exercise and sale of the common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus, as if those transactions had occurred as of March 31, 2011.


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

Total			100	%	$		100	%

If the underwriters exercise their option to purchase additional shares of common stock in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding immediately after this offering, and our existing stockholders would have paid % of the total consideration and new investors would have paid % of the total consideration, in each case calculated as described above.

The information in the preceding table has been calculated using an assumed public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus. A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, respectively, the consideration paid by new investors and in total by approximately $ million and the percentage of total consideration paid by new investors by approximately basis points, and would decrease or increase, respectively, the percentage of total consideration paid by existing stockholders by approximately basis points, in each case calculated as described above and assuming that the number of shares sold by us and the selling stockholders, as set forth on the cover page of this preliminary prospectus, remains the same. Likewise, the information in the preceding table has been calculated assuming that we and the selling stockholders sell the respective numbers of shares of common stock in this offering equal to the numbers of shares appearing on the cover page of this preliminary prospectus. A 100,000 share increase or decrease in the number of shares of common stock that we sell in this offering would increase or decrease, respectively, the percentage of shares purchased by new investors by approximately basis points, the amount of consideration paid by new investors and in total by approximately $ million and the percentage of total consideration paid by new investors by approximately basis points and would decrease or increase, respectively, the percentage of shares purchased by existing stockholders by approximately basis points and the percentage of total consideration paid by existing stockholders by approximately basis points, in each case calculated as described above and assuming an initial public offering price per share equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus. A 100,000 share increase or decrease in the number of shares of common stock that the selling stockholders sell in this offering would increase or decrease, respectively, the percentage of shares purchased by new investors by approximately basis points, the amount of consideration paid by new investors and in total by approximately $ million and the percentage of total consideration paid by new investors by approximately basis points, and would decrease or increase, respectively, the percentage of shares purchased by existing stockholders by approximately basis points and the percentage of total consideration paid by existing

stockholders by approximately basis points, in each case calculated as described above and assuming an initial public offering price per share equal to the midpoint of the estimated price range set forth on the cover page of this preliminary prospectus.

The tables above exclude the following shares:

•

35,413,867 shares of our common stock issuable upon the exercise of options outstanding under our equity incentive plans as of March 31, 2011 (excluding options exercised in connection with the Keating Transaction) at a weighted average exercise price of $0.58 per share;

•

To the extent that any of these options or BHC warrants are exercised, new options are issued under our equity incentive plans or we issue additional shares of common stock or warrants or convertible securities in the future, there will be (in the case of options and BHC warrants outstanding as of the date of this prospectus with an exercise price per share less than the initial public offering price per share set forth on the cover page of this prospectus) or may be further dilution to investors participating in this offering.

SELECTED CONSOLIDATED FINANCIAL DATA

We derived the following selected consolidated statement of operations data and other financial and operating data (other than units sold) for the years ended December 31, 2008, 2009 and 2010 and the following selected consolidated balance sheet data as of December 31, 2009 and 2010 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the following selected consolidated statement of operations data and other financial and operating data (other than units sold) for the years ended December 31, 2006 and 2007 and the following selected consolidated balance sheet data as of December 31, 2006, 2007 and 2008 from our audited consolidated financial statements, which financial statements are not included in this prospectus. We derived the following selected consolidated statement of operations data and other financial and operating data (other than units sold) for the three months ended March 31, 2010 and 2011 and the following selected consolidated balance sheet data as of March 31, 2011 from our unaudited interim consolidated financial statements included elsewhere in this prospectus, which unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial condition and results of operations for those periods. Our results of operations and financial condition presented below do not purport to be indicative of our results of operations or financial condition as of any future date or for any future period. You should read the following information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands except per share amounts)
Consolidated Statement of Operations Data:
Net revenues	$	378,050		$	379,718		$	341,072		$	325,633		$	379,626		$	103,538		$	107,429
Cost of revenue⁽¹⁾		350,830			343,337			305,505			278,976			328,641			88,777			88,537

Gross profit		27,220			36,381			35,567			46,657			50,985			14,761			18,892
Operating expenses:
Product development⁽¹⁾		8,748			1,736			87			13,514			8,047			6,009			1,459
Sales and marketing⁽¹⁾		10,969			15,751			17,534			23,780			21,942			8,535			6,592
General and administrative⁽¹⁾		12,734			11,039			4,668			20,201			14,113			8,947			3,147

Total operating expenses⁽²⁾		32,451			28,526			22,289			57,495			44,102			23,491			11,198

Income (loss) from operations		(5,231	)		7,855			13,278			(10,838	)		6,883			(8,730	)		7,694
Interest expense, net		(2,388	)		(3,267	)		(2,543	)		(1,730	)		(1,163	)		(500	)		(181	)
Gain (loss) on revaluation of common stock warrants		—			—			—			(1,722	)		(435	)		(1,014	)		(532	)
Other income (expense), net		154			70			(90	)		310			(171	)		(105	)		41

Income (loss) before income taxes		(7,465	)		4,658			10,645			(13,980	)		5,114			(10,349	)		7,022
Income tax expense (benefit)		1,296			67			(557	)		(5,290	)		15,314			1,024			2,159

Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863

Net income (loss) per share:
Basic	$	(0.15	)	$	0.08		$	0.19		$	(0.14	)	$	(0.17	)	$	(0.19	)	$	0.08

Diluted	$	(0.15	)	$	0.00		$	(0.03	)	$	(0.14	)	$	(0.17	)	$	(0.19	)	$	0.05

Weighted average shares used in computing net income (loss) per share:
Basic		57,976			58,494			59,643			61,251			61,033			61,278			60,861
Diluted		57,976			79,783			75,579			61,251			61,033			61,278			92,379

(Footnotes appear on next page)

(1)	Includes stock-based compensation (benefit) expense as follows:


	Year Ended December 31,												Three Months Ended March 31,
	2006		2007			2008			2009		2010		2010		2011
	(in thousands)
Cost of revenue	$	1,033	$	(476	)	$	(1,674	)	$	448	$	909	$	511	$	34
Product development		2,895		(1,672	)		(4,353	)		8,389		2,480		4,577		94
Sales and marketing		1,477		(398	)		(1,389	)		7,878		1,631		3,424		257
General and administrative		3,604		(1,984	)		(5,407	)		11,289		3,272		5,574		279

Total	$	9,009	$	(4,530	)	$	(12,823	)	$	28,004	$	8,292	$	14,086	$	664

(2)

For years prior to 2007, we had a bonus plan under which the bonus payouts were significantly larger than under our current bonus plan. In 2006, our total bonus expense was approximately $7.3 million compared to adjusted EBIT of approximately $3.8 million and adjusted EBIT before bonus expense of approximately $11.1 million. Adjusted EBIT is a non-GAAP financial measure that we include in this prospectus to provide investors with a supplemental measure of our operating performance. For a definition of adjusted EBIT and reconciliation to net income (loss), the most directly comparable GAAP measure, see note (1) on the following page.


	Year Ended December 31,											Three Months Ended March 31,
	2006		2007		2008			2009		2010		2010		2011
	(dollars and units in thousands)
Other Financial and Operating Data:
Adjusted EBIT⁽¹⁾	$	3,778	$	3,325	$	455		$	17,166	$	15,175	$	5,356	$	8,358
Adjusted net income (loss)⁽¹⁾	$	248	$	61	$	(1,621	)	$	7,022	$	9,610	$	2,449	$	5,516
Net revenues:
High-performance memory components	$	376,651	$	362,419	$	295,755		$	243,124	$	252,961	$	75,056	$	64,426
Gaming components and peripherals	$	1,399	$	17,299	$	45,317		$	82,509	$	126,665	$	28,482	$	43,003

Total	$	378,050	$	379,718	$	341,072		$	325,633	$	379,626	$	103,538	$	107,429

Gross profit:⁽²⁾
High-performance memory components	$	—	$	—	$	—		$	30,167	$	25,470	$	9,088	$	10,415
Gaming components and peripherals	$	—	$	—	$	—		$	16,490	$	25,515	$	5,673	$	8,477

Total	$	27,220	$	36,381	$	35,567		$	46,657	$	50,985	$	14,761	$	18,892

Gross margin^:(2)⁽³⁾
High-performance memory components		— %		— %		— %			12.4%		10.1%		12.1%		16.2%
Gaming components and peripherals		— %		— %		— %			20.0%		20.1%		19.9%		19.7%
Total		7.2%		9.6%		10.4%			14.3%		13.4%		14.3%		17.6%
Total units sold		6,560		9,314		10,700			9,083		7,914		2,111		2,683

(1)

We believe that adjusted EBIT and adjusted net income (loss) assist our board of directors, management and investors in comparing our operating performance from period to period on a consistent basis because, in the case of adjusted EBIT, it removes the impact of stock-based compensation (benefit) expense (which is a non-cash item and, prior to June 29, 2010, varied substantially from period to period due to our use of liability accounting), gain (loss) on revaluation of our outstanding common stock warrants (which is a non-cash item), other income (expense), net (which consists of items, such as foreign currency gain or loss and income from scrap sales, that we do not consider indicative of our operating performance) and variations in our capital structure (affecting interest expense, net) and tax position (such as the impact of changes in effective tax rates) and because, in the case of adjusted net income (loss), it removes the impact of tax-adjusted stock-based compensation (benefit) expense. We have excluded stock-based compensation (benefit) expense from adjusted EBIT and tax-adjusted stock-based compensation (benefit) expense from adjusted net income (loss) because our management believes that operating metrics that exclude stock-based compensation (benefit) expense provide a more direct view of our operating results (especially because of the variability in stock-based compensation (benefit) expense that, until June 29, 2010, was caused by our use of liability accounting) and therefore uses metrics that exclude stock-based compensation (benefit) expense in managing our business. In addition, the stock and stock option repurchase rights that required us to use liability accounting were terminated on June 29, 2010, stock compensation liability was reclassified to stockholders’ equity (deficit) in our consolidated balance sheet, effective as of June 29, 2010, and these stock and stock option awards are no longer subject to remeasurement for each reporting period. Moreover, in light of the public market for our common stock that will exist after this offering, we do not plan to continue our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP. We therefore believe that eliminating stock-based compensation (benefit) expense is appropriate to present our historical financial data in a manner that is consistent with both the way in which our management evaluates our results of operations and our intended operations as a public company following this offering. We also use adjusted EBIT as a performance measure in determining management bonuses. The use of adjusted EBIT and adjusted net income (loss) have limitations and you should not consider these performance measures in isolation from or as an alternative to GAAP measures such as net income (loss). For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Measures.”

(Footnote continued on next page)

(1)	(cont.) The following table provides a reconciliation of adjusted EBIT to net income (loss), the most directly comparable GAAP financial measure, for the following periods:


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands)
Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863
Less: other income (expense), net		154			70			(90	)		310			(171	)		(105	)		41
Plus:
Interest expense, net		2,388			3,267			2,543			1,730			1,163			500			181
Gain (loss) on revaluation of common stock warrants		—			—			—			1,722			435			1,014			532
Income tax expense (benefit)		1,296			67			(557	)		(5,290	)		15,314			1,024			2,159
Stock-based compensation (benefit) expense		9,009			(4,530	)		(12,823	)		28,004			8,292			14,086			664

Adjusted EBIT	$	3,778		$	3,325		$	455		$	17,166		$	15,175		$	5,356		$	8,358


	Year Ended December 31,															Three Months Ended March 31,
	2006			2007			2008			2009			2010			2010			2011
	(in thousands)
Net income (loss)	$	(8,761	)	$	4,591		$	11,202		$	(8,690	)	$	(10,200	)	$	(11,373	)	$	4,863
Plus stock-based compensation (benefit) expense		9,009			(4,530	)		(12,823	)		28,004			8,292			14,086			664
Less tax adjustment		—			—			—			12,292			(11,518	)		264			11

Adjusted net income (loss)	$	248		$	61		$	(1,621	)	$	7,022		$	9,610		$	2,449		$	5,516

(2)

(3)	Gross margin is gross profit as a percentage of net revenues.


	As of December 31,															As of March 31,
	2006			2007			2008			2009			2010			2011
	(in thousands)
Consolidated Balance Sheet Data:
Cash	$	872		$	1,095		$	648		$	1,367		$	1,056			$ 7,267
Total assets		86,097			85,192			61,924			100,637			91,499			101,663
Short-term debt and current portion of long-term debt and capital lease obligations		34,471			34,038			23,421			25,986			12,048			14,035
Long-term debt and capital lease obligations (less current portion)		922			1,417			400			—			—			—
Redeemable ESOP shares		8,848			7,129			3,049			14,298			16,806			19,432
Total stockholders’ (deficit) equity		(28,582	)		(21,562	)		(5,616	)		(25,106	)		(1,473	)		4,426

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by those forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this prospectus.

We are a leading designer and supplier of high-performance components to the PC gaming hardware market. Our products are purchased primarily by PC gaming enthusiasts who build their own high-performance desktop computer systems or buy pre-assembled customized systems in order to achieve the processing speeds and graphics capabilities necessary to fully experience leading edge computer games. We believe that we have a leading brand among PC gaming enthusiasts, reflecting our superior product performance, design and reliability. Over the last five years we have introduced new, higher value added PC gaming components, both leveraging and reinforcing our brand image within our target market. Through our 17 years of operation, we have developed a global, scalable operations infrastructure with extensive marketing and distribution channel relationships with distributors and retailers in Europe, the Americas and the Asia Pacific region.

We have achieved five straight years of positive adjusted EBIT, which we define as net income (loss) less other income (expense), net, plus interest expense, net, gain (loss) on revaluation of common stock warrants, income tax expense (benefit) and stock-based compensation (benefit) expense. However, we had positive net income in only two of those five years. Our gross profit for the years ended December 31, 2008, 2009 and 2010 was $35.6 million, $46.7 million and $51.0 million, respectively and our net income (loss) for those years was net income of $11.2 million, net loss of $8.7 million and net loss of $10.2 million, respectively. For the three months ended March 31, 2010 and 2011, our gross profit was $14.8 million and $18.9 million, respectively, and our net income (loss) was a net loss of $11.4 million and net income of $4.9 million, respectively. In 2010, despite challenging market conditions in the second quarter, we generated net revenues of $379.6 million, gross profit of $51.0 million and adjusted EBIT of $15.2 million. For the three months ended March 31, 2011, we generated net revenues of $107.4 million, gross profit of $18.9 million and adjusted EBIT of $8.4 million. Adjusted EBIT is a non-GAAP financial measure that we include in this prospectus to provide investors with a supplemental measure of our operating performance. See “Selected Consolidated Financial Data” above and “—Key Performance Measures” below for an explanation of how we compute adjusted EBIT and for a reconciliation to net income (loss), the most directly comparable GAAP financial measure.

Our business has two operating segments:

•

high-performance memory components, which includes DRAM modules and high capacity USB flash drives; and

•

gaming components and peripherals, which includes power supply units, solid-state drives, cooling systems, computer cases and audio products.

Over the last few years, we have expanded our product portfolio beyond DRAM modules and leveraged our recognized brand in the markets for high-performance PC gaming components to help grow our business. We introduced power supply units in 2006, and launched solid-state drives, computer cases and a new line of cooling system products in the second quarter of 2009 and our first audio product in the third quarter of 2010. As a result, net revenues of our gaming components and peripherals segment grew from $17.3 million, or 4.6% of consolidated net revenues, in 2007 to $126.7 million, or 33.4% of consolidated net revenues, in 2010 and from $28.5 million, or 27.5% of consolidated net revenues, for the three months ended March 31, 2010 to $43.0 million, or 40.0% of consolidated net revenues, for the three months ended March 31, 2011.

Our net revenues by segment for the following periods, expressed both in dollars and as a percentage of total net revenues, are shown below:


	Year Ended December 31,												Three Months Ended March 31,
	2008				2009				2010				2010				2011
	(dollars in thousands)
High-performance memory components	$	295,755	86.7	%	$	243,124	74.7	%	$	252,961	66.6	%	$	75,056	72.5	%	$	64,426	60.0	%
Gaming components and peripherals	$	45,317	13.3	%	$	82,509	25.3	%	$	126,665	33.4	%	$	28,482	27.5	%	$	43,003	40.0	%

Total	$	341,072	100.0	%	$	325,633	100.0	%	$	379,626	100.0	%	$	103,538	100.0	%	$	107,429	100.0	%

Our gaming components and peripherals segment generally has a higher gross margin than our high-performance memory components segment. The continued growth in net revenues of our gaming components and peripherals segment was the primary driver for an increase in our gross profit from $35.6 million, or 10.4% of consolidated net revenues, in 2008 to $51.0 million, or 13.4% of consolidated net revenues, in 2010, and from $14.8 million, or 14.3% of consolidated net revenues, for the three months ended March 31, 2010 to $18.9 million, or 17.6% of consolidated net revenues, for the three months ended March 31, 2011. Our gross profit increase from the three months ended March 31, 2010 to the three months ended March 31, 2011 was also favorably impacted by a significant improvement in our gross margin from sales of high-performance memory components in the 2011 period, which offset the impact of reduced net revenues from these products in that period.

Our gross profit and gross margin, which we define as gross profit as a percentage of net revenues, by segment are shown below:


	Year Ended December 31,															Three Months Ended March 31,
	2008⁽¹⁾					2009					2010					2010					2011
	Gross Profit		Gross Margin			Gross Profit		Gross Margin			Gross Profit		Gross Margin			Gross Profit		Gross Margin			Gross Profit		Gross Margin
	(dollars in thousands)
High-performance memory components	$	—		—	%	$	30,167		12.4	%	$	25,470		10.1	%	$	9,088		12.1	%	$	10,415		16.2	%
Gaming components and peripherals	$	—		—	%	$	16,490		20.0	%	$	25,515		20.1	%	$	5,673		19.9	%	$	8,477		19.7	%

Total	$	35,567		10.4	%	$	46,657		14.3	%	$	50,985		13.4	%	$	14,761		14.3	%	$	18,892		17.6	%

(1)

Prior to 2009, we evaluated the performance of our two operating segments based on net revenues; accordingly, information relating to cost of revenue and gross profit for each operating segment is not available for periods prior to 2009. Starting in 2009, we began evaluating the performance of our two operating segments based on cost of revenue and gross profit, in addition to net revenues.

We are a global company with operations in Hong Kong, the Netherlands, Taiwan and the United States and sales offices or sales personnel or representatives in the United States, Canada, China, France, Germany, India, Italy, the Netherlands, Poland, Russia, Switzerland, Taiwan and the United Kingdom. Our products are sold in more than 60 countries around the world, through online as well as brick-and-mortar retailers. Our net revenues by geographic area for the following periods, expressed both in dollars and as a percentage of total net revenues, are shown below:


	Year Ended December 31,												Three Months Ended March 31,
	2008				2009				2010				2010				2011
	(dollars in thousands)
Europe	$	188,434	55.2	%	$	169,928	52.2	%	$	193,032	50.9	%	$	53,506	51.7	%	$	55,570	51.7	%
Americas		117,181	34.4			114,265	35.1			134,045	35.3			36,825	35.6			37,389	34.8
Asia Pacific		35,457	10.4			41,440	12.7			52,549	13.8			13,207	12.7			14,470	13.5

Total	$	341,072	100.0	%	$	325,633	100.0	%	$	379,626	100.0	%	$	103,538	100.0	%	$	107,429	100.0	%

Factors Affecting Our Business

Our results of operations and financial condition are affected by numerous factors, including those described above under “Risk Factors” and elsewhere in this prospectus and those described below.

DRAM IC Pricing. DRAM ICs account for most of the cost of producing our DRAM modules and prices of DRAM ICs are volatile and subject to substantial fluctuations. Fluctuations in the market prices of DRAM ICs can have a material effect on both the selling prices of our DRAM modules and, because a majority of our net revenues are generated by sales of DRAM modules, our total net revenues. However, in the past fluctuations in market prices of DRAM ICs have generally had a less pronounced impact on our gross margins than on our net revenues, because selling prices of our DRAM modules have tended to rise or fall with the prices of DRAM ICs. Nonetheless, because we carry inventories of both DRAM ICs and DRAM modules at our facility in Taiwan, as well as inventories of DRAM modules at our shipping hubs, fluctuations in the market price of DRAM ICs can have an effect on our gross margins. For example, if prices of DRAM ICs and DRAM modules increase, this has in the past tended to have a positive short-term impact on gross margins of our DRAM modules (reflecting the relatively lower cost of DRAM modules held in our inventory), while declines in prices of DRAM ICs and DRAM modules have tended to have a negative short-term impact on gross margins of our DRAM modules (reflecting the relatively higher cost of DRAM modules held in our inventory). Likewise, selling prices of our DRAM modules and market prices of DRAM ICs may rise or fall at different rates, which may also affect our gross margins. As a result, our net revenues, gross profit and gross margins may vary materially from quarter to quarter due to changes in prices of DRAM ICs.

Impact of Product Mix. Our gaming components and peripherals segment generally has a higher gross margin than our high-performance memory components segment. As a result, our consolidated gross margin is affected by changes in product mix. One of our strategies is to increase the percentage of our net revenues generated by higher margin, higher value added gaming components and peripherals.

Introduction of New High-Performance Computing Hardware and Sophisticated PC games. We believe that the introduction of more powerful CPUs, graphics cards and similar computer hardware that place increased demands on other system components, such as memory, power supply or cooling, has a significant effect on the demand for our products. In addition, we believe that our business depends on the introduction and success of computer games with sophisticated graphics that place increasing demands on system processing speed and capacity and therefore require more powerful CPUs or graphics cards, which in turn drives demand for our high-performance DRAM modules, power supply units, cooling systems and other components and peripherals. As a result, our operating results may be materially affected by the rate at which computer hardware companies introduce new and enhanced CPUs, graphics cards and other products, the rate at which computer game companies and developers introduce sophisticated new and improved games that require increasingly high levels of system and graphics processing power and whether these new products and games are accepted by consumers. In addition, we must continually introduce new products that are compatible with these new technologies and time those introductions to coincide with the release of new PC hardware and computer gaming software.

Seasonal Sales Trends. We have experienced and expect to continue to experience seasonal fluctuations in sales due to the spending patterns of our customers. Our unit sales volumes have generally been lowest in the first and second calendar quarters due to lower sales following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, graphics cards and other computer hardware products, which usually takes place in the second calendar quarter and which tends to drive sales in the following two quarters. As a consequence of seasonality, our total unit shipments for the second calendar quarter are generally the lowest of the year, followed by unit shipments for the first calendar quarter, although the effect of these lower quarterly unit volumes on our consolidated net revenues may be masked by changes in average selling prices of our products. We expect these seasonality trends to continue.

Growth Opportunities in the Asia Pacific Region. We believe our operating results may be favorably impacted as consumer spending in the Asia Pacific region on PC gaming hardware increases with growth in disposable income.

Fluctuations in currency exchange rates. We are subject to inherent risks attributed to operating in a global economy. Our international sales and our operations in foreign countries subject us to risks associated with fluctuating currency exchange rates. Because sales of our products are denominated primarily in U.S. dollars, an increase in the value of the U.S. dollar relative to the currency used in the countries where our products are sold may result in an increase in the price of our products in those countries, which may lead to a reduction in sales. Likewise, because we pay our suppliers and third-party manufacturers, most of which are located outside of the United States, primarily in U.S. dollars, any decline in the value of the U.S. dollar relative to the applicable local currency may cause our suppliers and manufacturers to raise the prices they charge us. In addition, we generally pay our employees located outside the United States in the local currency (with a significant portion of those payments in 2009 and 2010 and the three months ended March 31, 2011 having been made in Taiwan dollars), and, as a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies.

Stock-Based Compensation. Stock-based compensation (benefit) expense can have a material impact on our operating results. For example, we experienced net losses (computed in accordance with GAAP) of $8.8 million, $8.7 million, $10.2 million and $11.4 million in 2006, 2009, 2010 and for the three months ended March 31, 2010, respectively. Those losses were due to a variety of factors, particularly significant stock-based compensation expense resulting in large part from increases in the estimated fair value of our common stock. Our stock-based compensation expense was $9.0 million, $28.0 million, $8.3 million and $14.1 million in 2006, 2009, 2010 and for the three months ended March 31, 2010, respectively. On the other hand, we had net income (computed in accordance with GAAP) of $4.6 million, $11.2 million and $4.9 million in 2007, 2008 and the three months ended March 31, 2011, respectively. The difference in these net income results was due to a variety of factors, in particular the significant stock-based compensation benefit in 2007 and 2008 resulting in large part from decreases in the estimated fair value of our common stock and, following our termination of liability accounting on June 29, 2010 as described below, a limited amount of stock-based compensation expense for the three months ended March 31, 2011. Our stock-based compensation benefit was $4.5 million and $12.8 million in 2007 and 2008, respectively, and stock-based compensation expense was $0.7 million for the three months ended March 31, 2011. Prior to June 29, 2010, a significant number of our outstanding employee stock and stock option awards were subject to repurchase rights that, combined with our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, required us to use liability accounting for those awards and, as a result, an increase in the estimated fair value of our common stock (as determined for accounting purposes) resulted in stock-based compensation expense attributable to those awards while a decrease in the estimated fair value of our common stock (as determined for accounting purposes) resulted in stock-based compensation benefit attributable to those awards. However, these stock and stock option repurchase rights were terminated on June 29, 2010, and, as a result, from June 29, 2010, stock and stock option awards are no longer subject to remeasurement for each reporting period, which should result in our future stock-based compensation expense being more predictable and less subject to wide variation.

Effect of European Financial Uncertainty. For 2008, 2009, 2010 and the three months ended March 31, 2011, we generated 55.2%, 52.2%, 50.9% and 51.7%, respectively, of our total net revenues from sales in Europe. As a result, our consolidated results of operations are particularly susceptible to downturns in economic conditions in Europe. In that regard, the ongoing financial uncertainty in Europe (including concerns that certain European countries may default in payments due on their national debt) and the resulting economic uncertainty and changes in the value of the Euro and British Pound compared to the U.S. dollar have affected our sales in Europe. In particular, because sales of our products are denominated primarily in U.S. dollars, the changes in the values of the Euro and British Pound have in the past resulted and may in the future result in changes to the local currency selling prices of, and therefore demand for, our products in Europe.

Financial Operations Overview

Net Revenues

We generate substantially all of our revenues from sales of DRAM modules, USB flash drives, power supply units, solid-state drives, cooling systems, computer cases and audio products to distributors and retailers. Average selling prices of our products, particularly our DRAM modules, can fluctuate significantly independently of unit sales volumes, which can lead to significant variations in our net revenues and gross profit. We present our net revenues as revenues less returns, rebates, discounts and other financial incentives to customers. Although we sell our products to a broad range of distributors and retailers, we have one customer, Newegg.com, that accounted for approximately 10.8%, 11.1%, 11.3%, 11.2% and 11.1% of our consolidated net revenues in 2008, 2009 and 2010 and for the three months ended March 31, 2010 and 2011, respectively, and our top ten customers accounted for approximately 45.3%, 42.7%, 43.1%, 43.2% and 41.2% of our consolidated net revenues during the same periods, respectively.

We provide a variety of rebates to both our customers and end-users of our products, including instant rebates, volume incentive rebates and mail-in rebates. We treat these rebates, which can vary greatly depending on market and competitive conditions, as pricing mechanisms and larger rebates during some periods are not necessarily an indication of weaker markets and do not necessarily lead to lower gross margins. For example, the greater use of mail-in rebates as a pricing mechanism in 2009 compared with 2010 did not adversely impact our gross margin in 2009 compared to 2010. In addition, we also have contractual agreements and cooperative marketing, promotional and other arrangements that provide rebates and other financial incentives to our customers. To a limited extent, we also offer financial incentives related to customer inventory of specific products. The aggregate amount of charges incurred as a result of all of these rebates and other incentives was $27.6 million, $18.1 million, $15.3 million, $3.7 million and $4.9 million in 2008, 2009, 2010 and the three months ended March 31, 2010 and 2011, respectively. These charges were offsets to our gross revenues.

Cost of Revenue

The most significant components of cost of revenue are materials (primarily amounts paid to third parties who manufacture and supply our DRAM modules and other products), inbound and internal freight, manufacturing, supply chain and warehousing personnel costs, including stock-based compensation (benefit) expense, and assembly and warehousing facility costs.

Gross Profit

In general, products in our high-performance memory components segment have lower gross margins than products in our gaming components and peripherals segment. In addition, rapidly changing IC prices can affect the average selling prices of our DRAM modules, USB flash drives and solid-state drives, which in turn affect our net revenues, gross profit and gross margin, primarily in our high-performance memory components segment. A significant element of our strategy is to increase the percentage of our total net revenues generated by our higher margin gaming components and peripherals segment.

Operating Expenses

We classify our operating expenses into three categories: product development, sales and marketing, and general and administrative. Our operating expenses consist primarily of personnel costs and, to a lesser extent, professional fees and rent. Personnel costs for each category of operating expenses generally include salaries, profit sharing, bonuses, commissions, stock-based compensation (benefit) expense and employee benefit costs.

Product Development. Product development expenses consist primarily of the costs associated with the design and testing of new products and improvements to existing products. These costs relate primarily to compensation of personnel involved with product design, definition, compatibility testing and qualification. We believe that continued innovation is critical to attaining our strategic objectives and, as a result, we expect product development expenses to increase in future periods.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, including commissions and benefits, costs related to advertising and marketing, outgoing freight, travel, other support costs, including utilities, insurance, allocations for facilities and information technology services, and professional fees. We expect sales and marketing expenses to increase as we hire additional sales and marketing personnel to support our growth strategy.

General and Administrative. General and administrative expenses consist primarily of personnel costs of our executive, finance and administrative personnel, accounting, legal and professional services fees, allowances for bad debts, travel, allocations for facilities and information technology services and other corporate expenses. We expect general and administrative expenses to increase as we continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs, insurance premiums and compliance costs associated with the Sarbanes-Oxley Act of 2002.

Interest Expense, Net

Interest expense, net consists of our payments on borrowings under our revolving credit facility, other indebtedness and capital leases, less interest received on our cash.

Other Income (Expense), Net

Other income (expense), net consists of foreign currency gain or loss and scrap sales.

Critical Accounting Policies

In presenting our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the amounts of assets and liabilities reported, disclosure about contingent assets and liabilities, and reported amounts of sales and expenses.

Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Actual results may differ significantly from these estimates.

We believe that the critical accounting policies listed below involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements contained in this prospectus.

For further information on our critical and other significant accounting policies, see note 2 to our consolidated financial statements, which are included elsewhere in this prospectus.

Revenue Recognition

Our products are sold through a network of distributors and retailers. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, title has transferred, the price becomes fixed and determinable and collectability is reasonably assured. Evidence of an arrangement exists when there is a customer contract or a standard customer purchase order. We consider delivery complete when title and risk of loss transfer to the customer (defined as a retailer or distributor), which is generally upon shipment, but no later than physical receipt by the customer. Our revenue recognition policies are consistent worldwide.

We offer limited return rights and customer incentive programs. These include special pricing arrangements, promotions, rebates and volume-based incentives. Rights of return vary by customer, and range from the right to return defective products to limited stock rotation rights allowing the exchange of a percentage of the customer’s quarterly purchases. We reduce revenue recorded upon shipment by actual returns, rebates and incentives occurring during each period. We also reduce revenue by estimated future returns, rebates and incentives, which reductions increase our reserve for rebates and other incentives and our reserve for sales returns allowances. These reserves are reduced upon issuance of credit memos for actual returns, rebates and incentives as they are issued to customers in subsequent periods. Therefore, in computing the net revenues that are reported in our statement of operations, gross revenue is reduced by actual returns, rebates and other incentives during each period; estimated future returns, rebates and other incentives; and adjustments to the opening balances in the reserve accounts for differences between estimates and actual experience.

Our estimates of future returns, rebates and incentives are based on negotiated terms and consideration of historical experience. We believe that our new product categories do not differ materially in terms of product returns from our older product categories. Rebates, incentives and other pricing programs are generally product and customer specific and last for a short duration.

Estimates made by us may differ from actual returns and sales allowances. These differences may materially impact reported net revenues and amounts ultimately collected on accounts receivable. Historically, these differences have not been material. At January 1, 2008, 2009 and 2010, we had accruals of $6.4 million, $7.3 million and $5.4 million, respectively, for returns, rebates and allowances. These amounts were offset by $5.3 million, $6.9 million and $5.3 million for actual returns, rebates and allowances related to these accruals and recorded during 2008, 2009 and 2010, respectively.

Accounts Receivable Allowances

We record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments. The allowance is recorded as a general and administrative expense in our consolidated financial statements. We base our allowance on periodic assessments of our customers’ liquidity and financial condition through analysis of information obtained from credit rating agencies, financial statement review and historical collection trends. Additional allowances may be required if the liquidity or financial condition of our customers were to deteriorate.

Stock-Based Compensation

Stock-based awards granted under our Non-Qualified Stock Option Plan, or NQSO Plan, and our 2006 Stock Purchase Plan and certain awards granted under our 2008 Stock Incentive Plan historically were accounted for as liability-classified awards because shares of common stock and options issued pursuant to those plans were subject to repurchase rights, as described in “Stock Repurchase Features” in note 15 to our consolidated financial statements, which are included elsewhere in this prospectus, and because of our past practices of repurchasing common stock related to those awards. Until June 29, 2010, when these repurchase rights were terminated, we elected the intrinsic value method to measure our liability-classified awards and amortized stock-based compensation expense for those awards expected to vest on a straight-line basis over the requisite service period. Until June 29, 2010, we re-measured the intrinsic value of the awards at the end of each reporting period until either the repurchase rights were exercised or the holders were exposed to the market value of the shares for a reasonable period of time (at least six months), or the awards were settled, cancelled or expired unexercised. These repurchase rights terminated on June 29, 2010. In light of the public market for our common stock that will exist following this offering, we do not plan to continue our past practice of repurchasing shares that were issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP. Accordingly, these awards were reclassified to stockholders’ equity (deficit) and are no longer subject to remeasurement after June 29, 2010.

Upon termination on June 29, 2010 of the repurchase rights described above, we remeasured the liability-classified stock and stock option awards based upon their intrinsic value at that date, and included any increase or decrease attributable to vested awards in stock-based compensation expense for the year ended December 31, 2010. The total compensation cost for the modified awards was re-measured at $40.3 million on June 29, 2010. The awards that were fully vested through that date totaled $36.6 million. These stock and stock option awards were reclassified to stockholders’ equity (deficit) by debiting the related liability and crediting additional paid-in capital. The unamortized compensation cost for unvested stock and stock option awards as of June 29, 2010 was $3.7 million, which will be amortized over the remaining weighted average service period of 2.6 years. There were 61 employees affected by the modification.

On November 23, 2010, we offered all employees who had previously received options to purchase our common stock at a price of $2.06 per share an opportunity to exchange their stock options (“Eligible Options”) for newly granted options (“New Options”) at an exercise price of $1.60 per share. The offer expired on December 24, 2010. The exchange offer covered options to purchase a total of approximately 3.7 million shares of common stock held by 134 employees. In consideration for the exchange of Eligible Options for New Options, the agreements for the New Option grants provide that the applicable vesting dates are six months later in time than the vesting dates applicable to the Eligible Options. All other terms and conditions set forth in the New Option agreements were identical to those set forth in the Eligible Option agreements. Ninety two employees, holding options to purchase approximately 3.3 million shares of our common stock, accepted the offer.

We accounted for the incremental value of the New Options over the Eligible Options by comparing their respective fair values immediately before and after the exchange, which was treated as a modification of option terms for accounting purposes. The value of the Eligible Options was estimated at $0.3 million based upon assumptions at the time of the exchange, without regard to the assumptions made on the original grant date. The incremental value calculated for vested options of $1,000 was charged as an expense as of December 24, 2010, while the incremental value associated with unvested options was added to unrecognized stock-based compensation expense and will be recorded in our consolidated statements of operations over the remaining vesting period of the options.

Other stock and stock option awards granted under our 2008 Stock Incentive Plan which were not subject to the repurchase rights described above were equity-classified. We adopted the Black-Scholes model to estimate the fair value of these equity-classified awards. We recognize the value of the portion of the award that we ultimately expect to vest as expense over the requisite service periods in our consolidated statements of operations.

We computed the fair value of the equity-classified awards on the dates of grant using the Black-Scholes pricing model, with the following weighted average assumptions:


	Year Ended December 31,				Three Months Ended March 31,
	2009		2010		2010		2011
Fair value of underlying common stock per share	$	0.54	$	1.62	$	1.87	$	1.82
Expected term in years		6.25		6.19		6.25		6.25
Expected volatility		52%		59%		52%		60%
Expected dividend yield		— %		— %		— %		— %
Risk free interest rate		2.6%		2.5%		2.8%		2.4%

We determine expected volatility using average volatility of a peer group of publicly-traded companies. We selected this peer group based on criteria including similar industry, life cycle, revenue and market capitalization. We determine the expected term of options granted utilizing the “simplified” method as prescribed by Staff Accounting Bulletin No. 107, Share-Based Payment, of the SEC. We determine the risk free interest rate by using published zero coupon rates for U.S. treasury notes for each grant date given the expected term. The expected dividend yield is zero based on the fact that we have never paid, and do not intend to pay, cash dividends on our common stock.

We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that we expect to vest.

Over the last several years, we performed valuations of our common stock at least annually, until September 30, 2009 when we began to perform them at least quarterly. In all cases, our board of directors relied upon the most recent valuation in assessing the fair value of the underlying shares of our common stock for purposes of determining the exercise prices of any stock option awards.

The following table sets forth options granted from January 1, 2009 through March 31, 2011 that were classified as equity awards:


Date of Issuance	Number of Options Granted			Exercise Price Per Share		Estimated Fair Value Per Share		Intrinsic Value Per Share
March 12, 2009		1,792,501		$	0.63	$	0.29	$	—
April 28, 2009		1,525,000			0.63		0.29		—
June 10, 2009		380,000			0.63		0.29		—
July 13, 2009		5,000			0.63		0.70		0.07
September 9, 2009		360,000			0.63		0.70		0.07
December 8, 2009		1,080,000			0.72		1.36		0.64
March 3, 2010		885,416			1.50		1.87		0.37
April 27, 2010		376,875			2.06		1.87		—
May 21, 2010		1,755,920			2.06		1.57		—
June 9, 2010		263,125			2.06		1.57		—
August 2, 2010		804,000			2.06		1.48		—
November 9, 2010		44,000			1.60		1.47		—
December 8, 2010		135,000			1.60		1.47		—
December 24, 2010		2,455,099	*		1.60		1.60		—
January 31, 2011		655,000			1.70		1.81		0.11
March 25, 2011		151,000			2.00		1.85		—

*	Represents options granted in connection with the December 24, 2010 option exchange described above.

The following table sets forth options granted from January 1, 2009 through June 29, 2010 that were classified as liability awards:


Date of Issuance	Number of Options Granted		Exercise Price Per Share		Estimated Fair Value Per Share		Intrinsic Value Per Share
March 12, 2009		5,023,437	$	0.63	$	0.29	$	—
April 28, 2009		525,834		0.63		0.29		—
April 27, 2010		5,416		2.06		1.87		—
May 21, 2010		1,086,500		2.06		1.57		—
June 9, 2010		3,500		2.06		1.57		—

We believe that the determinations of the fair value of our common stock were fair and reasonable at the times they were made. We utilized methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the AICPA Practice Guide.

The methodology we utilized to arrive at the per share value uses estimates of the enterprise value using market, income or cost approaches, an analysis of possible future events, a lack of marketability discount and a risk-adjusted discount rate. The future events considered are initial public offering, strategic sale or merger, dissolution/no value to common stockholders or remaining a private company. We base the timing and probability of these events on discussions between our board of directors and management. The market- comparable approach estimates the fair value of a company by applying market multiples of publicly-traded

companies in the same or similar lines of business to the results and projected results of the company being valued. When choosing the market-comparable companies to be used for the market-comparable approach, we focused on companies operating within our industry. The income approach involves applying an appropriate risk-adjusted discount rate to projected debt free cash flows, based on forecasted revenue and costs. The cost or asset-based approach could not be independently relied upon since certain intangible assets could not be valued without reference to the market-comparable or income approach and was thus not used in determining the final valuation.

We also prepared financial forecasts for each valuation report date used in the computation of our enterprise value for both the market-comparable approach and the income approach. We based the financial forecasts on assumed revenue growth rates that took into account our past experience and contemporaneous future expectations.


Valuation Methodology Weighting Date	Income Approach			Market Approach-Public Company Analysis			Market Approach- Merger and Acquisition Analysis			Estimated Fair Value Per Share of Common Stock
December 31, 2008		40.0	%		10.0	%		50.0	%	$	0.29
September 30, 2009		70.0			20.0			10.0			0.70
December 31, 2009		60.0			35.0			5.0			1.36
March 31, 2010		60.0			35.0			5.0			1.87
June 30, 2010		60.0			35.0			5.0			1.57
August 31, 2010		60.0			35.0			5.0			1.48
November 30, 2010		60.0			35.0			5.0			1.46
December 31, 2010		60.0			35.0			5.0			1.60
January 31, 2011		60.0			35.0			5.0			1.81
March 31, 2011		60.0			35.0			5.0			1.85

We performed detailed estimated valuations of our common stock at September 30, 2009, December 31, 2009, March 31, 2010, June 30, 2010, August 31, 2010, November 30, 2010, December 31, 2010, January 31, 2011 and March 31, 2011. These valuation dates were selected on the basis that significant factors in our business had changed, such as changes in our operating results. Where it was judged that no significant change had occurred since the previous valuation date, we continued to use the previous valuation. During the full years 2009 and 2010 and for the three months ended March 31, 2011, the fair value of our common stock increased from $0.29 per share to $1.36 per share, from $1.36 per share to $1.60 per share and from $1.60 per share to $1.85 per share, respectively.

These valuations utilized the approach described above and considered the anticipated timing of an initial public offering and other qualitative factors, including the following:

•

operating results for the years ended December 31, 2008, 2009 and 2010 and for the three months ended March 31, 2011;

•

macroeconomic uncertainty in 2008 through the first half of 2010;

•

the absence of a significant initial public offering market throughout 2008 and 2009; and

•

other market developments that influence forecasted revenue.

For options granted on March 12, 2009, April 28, 2009 and June 10, 2009, we used the December 31, 2008 detailed estimated valuation of our common stock of $0.29 per share, based on the factors described above. Our weighting to income approach was 40%, market approach (public company analysis) was 10% and market approach (merger and acquisition analysis) was 50%. In addition, our operating results had not improved in the first half of 2009 from 2008 and there were no other significant factors in the business that had changed from December 31, 2008.

For options granted on July 13, 2009 and September 9, 2009, we used the September 30, 2009 detailed estimated valuation of our common stock of $0.70 per share, based on the factors described above. Our weighting to income approach was 70%, market approach (public company analysis) was 20% and market approach (merger and acquisition analysis) was 10%. The principal reasons behind the higher valuation compared to the December 31, 2008 valuation were the increases in the median valuation multiples of our peer group and improvement in forecast operating results due to improved market conditions. The valuation used a risk-adjusted discount of 21% and a non-marketability discount of 43.7%.

For options granted on December 8, 2009, we used the December 31, 2009 detailed estimated valuation of our common stock of $1.36 per share, calculated based on the factors described above due to the proximity of the grant date to the valuation date. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition analysis) was 5%. The change in weighting was mainly due to initiation of the initial public offering process. The valuation used a risk-adjusted discount of 18.5%, a non-marketability discount of 18.0% and an estimated time to an initial public offering of 6 months. The reduction in non-marketability discount from the prior valuation reflected the recommendation by our management to the board of directors to file a registration statement with the SEC for an initial public offering of our common stock. The significant factors which contributed to an increase in common stock valuation were the reduction of the non-marketability discount from 43.7% to 18.0%, reflecting a higher likelihood of a potential initial public offering, an improvement in our expected results of operations and greater weighting of the market approach (public company analysis) due to proximity to a potential initial public offering.

For options granted on March 3, 2010, we used the March 31, 2010 fair value of our common stock of $1.87 per share, calculated based on the factors described above, due to the proximity of the grant date to the valuation date. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 18.3%, a non-marketability discount of 15.8% and an estimated time to an initial public offering of 5 months. The increase in the fair value of common stock was mainly attributable to our improved performance in the preceding twelve months, our improved operating results forecast for subsequent periods and changes to peer group companies’ valuation ratios used in the market approach.

For options granted on April 27, 2010, we also used the March 31, 2010 fair value of our common stock of $1.87 per share and the other factors described due to the proximity of the grant date to the valuation date and the other factors described in the immediately preceding paragraph.

For options granted on May 21, 2010, we used the June 30, 2010 fair value of our common stock of $1.57 per share, calculated based on the factors described above due to the proximity of the grant date to the valuation date. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 19.3%, a non-marketability discount of 13.1% and an estimated time to an initial public offering of 4 months. The decrease in fair value of common stock was solely attributable to the changes to peer group companies’ valuation ratios used in the market approach.

For options granted on June 9, 2010, we also used the June 30, 2010 fair value of our common stock of $1.57 per share due to the proximity of the grant date to the valuation date and the other factors described above in the immediately preceding paragraph.

For options granted on August 2, 2010, we used the August 31, 2010 fair value of our common stock of $1.48 per share due to the proximity of the grant date to the valuation date and the other factors described above. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 18.9%, a non-marketability discount of 19.0% and an estimated time to an initial public offering of 6 months. The decrease in fair value of common stock was mainly attributable to changes to peer group companies’ valuation ratios and was also affected by the increase in the non-marketability discount from 13.1% to 19.0%.

For options granted on November 9, 2010, we used the November 30, 2010 fair value of our common stock of $1.47 per share due to the proximity of the grant date to the valuation date and the other factors described above. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 16.9%, a non-marketability discount of 13.0% and an estimated time to an initial public offering of 6 months. The decrease in fair value of common stock was mainly attributable to changes to peer group companies’ valuation ratios.

For options granted on December 8, 2010, we used the November 30, 2010 fair value of our common stock of $1.47 per share due to the proximity of the grant date to the valuation date and the other factors described in the immediately preceding paragraph.

For options granted on December 24, 2010, we used the December 31, 2010 fair value of our common stock of $1.60 per share due to the proximity of the grant date to the valuation date and the other factors described above. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 17.2%, a non-marketability discount of 14.0% and an estimated time to an initial public offering of 7 months. The increase in the fair value of common stock was mainly attributable to our improved performance in the preceding twelve months and changes to peer group companies’ valuation ratios used in the market approach.

For options granted on January 31, 2011, we used the January 31, 2011 fair value of our common stock of $1.81 per share due to the proximity of the grant date to the valuation date and the other factors described above. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 17.7%, a non-marketability discount of 12.0% and an estimated time to an initial public offering of 6 months. The increase in the fair value of common stock was mainly attributable to our improved performance in the preceding twelve months, our improved forecast of operating results for subsequent periods and changes to peer group companies’ valuation ratios used in the market approach.

For options granted on March 25, 2011, we used the March 31, 2011 fair value of our common stock of $1.85 per share due to the proximity of the grant date to the valuation date and the other factors described in the immediately preceding paragraph. Our weighting to income approach was 60%, market approach (public company analysis) was 35% and market approach (merger and acquisition) was 5%. The valuation used a risk-adjusted discount of 17.3%, a non-marketability discount of 14.0% and an estimated time to an initial public offering of 8 months. The increase in the fair value of common stock was mainly attributable to our improved performance in the preceding twelve months and changes to peer group companies’ valuation ratios used in the market approach.

Beginning in the quarter ended September 30, 2009, we began performing valuation studies of our common stock at least quarterly. With respect to the grants from and after July 13, 2009, we believed it was appropriate to use the fair value of our common stock determined by these quarter end valuation studies to estimate stock-based compensation costs for grants within the respective quarters then ended in light of the significant improvement in our results of operations and the proximity of the grant dates to the valuation dates.

Valuations that we have performed require significant use of estimates and assumptions. If different estimates and assumptions had been used, our common stock valuations could be significantly different and related stock-based compensation (benefit) expense may be materially impacted. The actual market price of our common stock following this offering may be materially different from these valuations and investors should not rely on these valuations in deciding whether to purchase our common stock.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of enactment. We are subject to foreign income taxes on our foreign operations. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely than not to be realized.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. We consider the scheduled reversal of deferred tax liabilities (including the impact of available carry-back and carry-forward periods), projected taxable income, and tax planning strategies in making this assessment. The ultimate realization of deferred tax assets depends on the generation of future taxable income. We reversed our valuation allowance during the fourth quarter of 2009 as, based on our projections and other available information, it was determined that it was more likely than not that our deferred tax assets as of December 31, 2009 would be realized. Prior to that, a portion of our deferred tax assets related to stock-based compensation was subject to a valuation allowance based on the level of historical income and projections over the periods for which the deferred tax assets were deductible.

During 2010, we recorded a valuation allowance to the deferred tax assets for federal income tax purposes as it appeared more likely than not that we would not be able to realize these assets. As of December 31, 2010 this valuation allowance was $13.6 million. The deferred tax assets against which a valuation allowance was recorded related to the expected future realization arising from stock-based compensation expense timing differences between projected operating results for U.S. federal taxable income purposes and projected operating results for our U.S. entity calculated on a GAAP basis. In assessing the realizability of deferred tax assets, we considered our three year cumulative results of operations for our U.S. entity, which showed a loss as of the end of the third quarter of 2010. Although the percentage of revenues by geography remained relatively consistent with the prior year, the pre-tax results of operations for the U.S. entity were adversely affected by other factors, including stock-based compensation expense. We also considered that while our forecast of consolidated operating results changed only modestly over time, the forecast of operating results by legal entity (and therefore by tax jurisdiction) had changed significantly due to continued refinement of our global supply chain and related changes in terms of our intercompany arrangements. Another factor considered was that in light of our reassessment of our IPO timeline during the third quarter of 2010, we projected a delay in the timing of stock option exercises which could cause us to lose our ability to carry back a portion of the related deductions to recover any previously paid income tax. On December 31, 2010, we had net operating loss carry-forwards for state tax purposes of $0.9 million. The state net operating losses will expire starting in 2013.

On June 30, 2011, the Sellers exercised options to purchase a total of 6.4 million shares of our common stock and, on July 6, 2011, sold those shares to the Investors at a price of $1.25 per share, for a total purchase price of $8.0 million. We received cash proceeds of approximately $1.0 million from the exercise of those options by the Sellers. As a result of the exercise of the stock options, we will record a tax deduction for U.S. federal income tax purposes of approximately $9.0 million in the second quarter of 2011. To the extent that this causes us to realize a taxable loss for U.S. federal income tax purposes for the year ending December 31, 2011, we may be able to carry back a portion of those losses to tax year 2009 and recover certain U.S. federal income taxes previously paid and, in addition, we may be able to carry forward any unused U.S. taxable loss to future years. In addition, as a result of the Option Exercise, we expect to reverse a portion of the valuation allowance described in the immediately preceding paragraph and that this reversal will be recorded in our financial statements for the three months ended June 30, 2011. We are unable to estimate the amount of this adjustment to the valuation allowance at this time. For additional information on these transactions, see “Certain Relationships and Related Party Transactions—Keating Transaction.”

The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We are required to recognize in our financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The accounting for uncertainty in income taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. Our policy is to record interest and penalties related to unrecognized tax benefits as income tax expense.

Inventories

We periodically evaluate our ending inventories for excess quantities and obsolescence and write down our inventories to the lower of cost or market. We may be required to write down inventory below our costs for reasons such as obsolescence, excess quantities, product returns and declines in market value. This evaluation includes analysis of sales levels by products. Among other factors, we consider historical demand and forecasted demand in relation to the inventory on hand, product life cycles, product development plans and technology trends.

Common Stock Warrant Liability

In connection with a $5.0 million loan made to us in June 2009, we issued the BHC warrants to the lender to purchase a number of shares of our common stock equal to an agreed percentage of fully diluted shares outstanding as of the date of exercise. The fair value of the BHC warrants was allocated to common stock warrant liability and the residual amount of the loan proceeds was allocated to debt. We classify the BHC warrants as liabilities on our balance sheet due to the holder’s right to require us to repurchase the BHC warrants or the shares of common stock issued on exercise of the BHC warrants for cash under specified circumstances. As a result, the common stock warrant liability is subject to re-measurement at each balance sheet date and we recognize the change in fair value, if any, including changes in the number of shares into which the warrants are convertible, as gain (loss) on revaluation of the BHC warrants. The common stock warrant liability as of December 31, 2009, December 31, 2010 and March 31, 2011 (unaudited) is based on the estimated valuation of our common stock as of those dates. Our estimate of the common stock valuation is further described under “—Critical Accounting Policies—Stock-Based Compensation.” The terms of the BHC warrants also provide for an adjustment to the exercise price if, among other things, we offer, sell or grant any option to purchase our common stock at a price per share that is less than the exercise price of the BHC warrants then in effect. The repurchase right described above and the exercise price adjustment provision described in the immediately preceding sentence will both be terminated upon the closing of this offering, at which time the outstanding BHC warrants will be reflected in stockholders’ (deficit) equity on our consolidated balance sheet. We will continue to adjust the common stock warrant liability for changes in fair value until the earlier of (i) the expiration of the BHC warrants or (ii) the termination of this repurchase right and exercise price adjustment provision.

Consolidated Results of Operations

The following table shows the line items that appear on our consolidated statements of operations, expressed in dollars and as a percentage of consolidated net revenues, for the periods presented.


	Year Ended December 31,															Three Months Ended March 31,
	2008					2009					2010					2010					2011
	(dollars in thousands)
Net revenues	$	341,072		100.0	%	$	325,633		100.0	%	$	379,626		100.0	%	$	103,538		100.0	%	$	107,429		100.0	%
Cost of revenue⁽¹⁾		305,505		89.6			278,976		85.7			328,641		86.6			88,777		85.7			88,537		82.4

Gross profit		35,567		10.4			46,657		14.3			50,985		13.4			14,761		14.3			18,892		17.6
Operating expenses:
Product development⁽¹⁾		87		0.0			13,514		4.2			8,047		2.1			6,009		5.8			1,459		1.4
Sales and marketing⁽¹⁾		17,534		5.1			23,780		7.3			21,942		5.8			8,535		8.2			6,592		6.1
General and administrative⁽¹⁾		4,668		1.4			20,201		6.2			14,113		3.7			8,947		8.6			3,147		2.9

Total operating expenses		22,289		6.5			57,495		17.7			44,102		11.6			23,491		22.7			11,198		10.4

Income (loss) from operations		13,278		3.9			(10,838	)	(3.3	)		6,883		1.8			(8,730	)	(8.4	)		7,694		7.2
Interest expense, net		(2,543	)	(0.7	)		(1,730	)	(0.5	)		(1,163	)	(0.3	)		(500	)	(0.5	)		(181	)	(0.2	)
Gain (loss) on revaluation of common stock warrants		—		—			(1,722	)	(0.5	)		(435	)	(0.1	)		(1,014	)	(1.0	)		(532	)	(0.5	)
Other income (expense), net		(90	)	0.0			310		0.1			(171	)	(0.0	)		(105	)	(0.1	)		41		0.0

Income (loss) before income taxes		10,645		3.1			(13,980	)	(4.3	)		5,114		1.3			(10,349	)	(10.0	)		7,022		6.5
Income tax expense (benefit)		(557	)	(0.2	)		(5,290	)	(1.6	)		15,314		4.0			1,024		1.0			2,159		2.0

Net income (loss)	$	11,202		3.3	%	$	(8,690	)	(2.7	)%	$	(10,200	)	(2.7	)%	$	(11,373)		(11.0	)%	$	4,863		4.5	%

Other Financial Data:
Adjusted EBIT⁽²⁾	$	455		0.1	%	$	17,166		5.3	%	$	15,175		4.0	%	$	5,356		5.2	%	$	8,358		7.8	%
Adjusted net income (loss)⁽²⁾	$	(1,621	)	(0.5	)%	$	7,022		2.2	%	$	9,610		2.5	%	$	2,449		2.4	%	$	5,516		5.1	%
(1) Includes stock-based compensation (benefit) expense, expressed in dollars and as a percentage of consolidated net revenues, as follows:

	Year Ended December 31,															Three Months Ended March 31,
	2008					2009					2010					2010					2011
	(dollars in thousands)
Cost of revenue	$	(1,674	)	(0.5	)%	$	448		0.1	%	$	909		0.2	%	$	511		0.5	%	$	34		0.0	%
Product development		(4,353	)	(1.3	)		8,389		2.6			2,480		0.7			4,577		4.4			94		0.1
Sales and marketing		(1,389	)	(0.4	)		7,878		2.4			1,631		0.4			3,424		3.3			257		0.2
General and administrative		(5,407	)	(1.6	)		11,289		3.5			3,272		0.9			5,574		5.4			279		0.3

Total	$	(12,823	)	(3.8	)%	$	28,004		8.6	%	$	8,292		2.2	%	$	14,086		13.6	%	$	664		0.6	%

(2)

We present adjusted EBIT and adjusted net income (loss) in this prospectus to provide investors with supplemental measures of our operating performance. Adjusted EBIT and adjusted net income (loss) are non-GAAP financial measures. See “—Key Performance Measures” below for an explanation of how we compute adjusted EBIT and adjusted net income (loss) and for a reconciliation to net income (loss), the most directly comparable GAAP financial measure.

Three Months Ended March 31, 2010 and 2011

Net Revenues

Net revenues increased $3.9 million, or 3.8%, from $103.5 million for the three months ended March 31, 2010 to $107.4 million for the three months ended March 31, 2011, reflecting a 51.0% increase in net revenues generated by our gaming components and peripherals segment, offset in part by a 14.2% decrease in net revenues generated by our high-performance memory components segment. Net revenues of our gaming components and peripherals segment increased by $14.5 million, from $28.5 million for the three months ended March 31, 2010 to $43.0 million for the three months ended March 31, 2011, due to a 50.8% increase in unit sales within that segment, which we attribute to the introduction of new products subsequent to March 31, 2010, as well as to our marketing efforts and increased product distribution. Of the $43.0 million in net revenues from our gaming components and peripherals segment for the three months ended March 31, 2011, $31.0 million was derived from the sales of new products introduced after March 31, 2010. Net revenues of our high-performance memory components segment decreased by $10.6 million, from $75.1 million for the three months ended March 31, 2010 to $64.4 million for the three months ended March 31, 2011, due to a significant decrease in the average selling price of our DRAM modules for the three months ended March 31, 2011 compared to the same period in 2010, offset in part by a 23.5% increase in unit shipments of our DRAM modules. Net revenues are generally lower in the second quarter of the calendar year, as this is traditionally a slower selling period in our markets. We expect to experience seasonal reductions in revenue during the second quarter of 2011 as compared with the first quarter of 2011.

Cost of Revenue

Cost of revenue decreased $0.2 million, or 0.3%, from $88.8 million for the three months ended March 31, 2010 to $88.5 million for the three months ended March 31, 2011. Cost of revenue for our high-performance memory components segment decreased $12.0 million, or 18.1%, from $66.0 million for the three months ended March 31, 2010 to $54.0 million for the three months ended March 31, 2011, due to decreased market prices of DRAM ICs. Cost of revenue for our gaming components and peripherals segment increased $11.7 million, or 51.4%, from $22.8 million for the three months ended March 31, 2010 to $34.5 million for the three months ended March 31, 2011, reflecting higher unit sales in that segment.

Gross Profit

Gross profit increased $4.1 million, or 28.0%, from $14.8 million for the three months ended March 31, 2010, to $18.9 million for the three months ended March 31, 2011, reflecting a change in product mix, with our higher margin gaming components and peripherals segment accounting for 40.0% of our total net revenues for the three months ended March 31, 2011 compared to 27.5% for the three months ended March 31, 2010 and, to a limited extent, a 3.8% increase in net revenue. Gross margin increased from 14.3% for the three months ended March 31, 2010 to 17.6% for the three months ended March 31, 2011. Gross margin for high-performance memory components increased from 12.1% for the three months ended March 31, 2010 to 16.2% for the three months ended March 31, 2011, due to a shift of product mix within that segment that resulted in a higher percentage of our DRAM module sales being generated by our higher-end DRAM products, which generally command higher prices relative to product costs than our other DRAM products. Gross margin for gaming components and peripherals was approximately level at 19.9% for the three months ended March 31, 2010 compared to 19.7% for the three months ended March 31, 2011. Gross margin and the resulting gross profit are typically lower in the second quarter of the calendar year, as this is traditionally a slower selling period, which often results in more price discounting.

Operating Expenses

results due to our use of liability accounting, is a component of each of these three categories of expenses. In the following sections, we include a discussion of each of these three categories of expenses before giving effect to the impact of stock-based compensation (benefit) expense in order to focus on other components included in these expenses. In that regard, our management believes that operating metrics that exclude stock-based compensation (benefit) expense provide a more direct view of our operating results (especially because of the variability in stock-based compensation (benefit) expense that, until June 29, 2010, was caused by our use of liability accounting) and therefore uses metrics that exclude stock-based compensation (benefit) expense in managing our business. In addition, the stock and stock option repurchase rights that, combined with our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, required us to use liability accounting, were terminated on June 29, 2010. Stock and stock option awards are no longer subject to re-measurement for each reporting period as we do not plan to continue our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP. We therefore believe that discussing these three categories of expenses before giving effect to the impact of stock-based compensation (benefit) expense is appropriate to present our historical financial data in a manner that is consistent with both the way in which our management evaluates our results of operations and our intended operations as a public company following this offering.

As noted above, prior to June 29, 2010, our stock-based compensation (benefit) expense was accounted for predominantly under the liability method and therefore changed primarily due to changes in the fair value of our common stock. Prior to June 29, 2010, the intrinsic value of awards to most of our employees was re-measured at the end of each reporting period until the award was exercised and the holder was exposed to the market value of the shares for a reasonable period of time (at least six months) or the award was settled, cancelled or expired unexercised. We incurred stock-based compensation expense of $0.7 million in the three months ended March 31, 2011 compared to $14.1 million for the three months ended March 31, 2010. The first quarter 2010 stock-based compensation expense was primarily due to an increase in the fair value of our common stock. We included these amounts in cost of revenue, product development expense, sales and marketing expense and general and administrative expense.

Product Development Expense


	Three Months Ended March 31,				Change From Three Months Ended March 31, 2010 to 2011
	2010		2011
	(dollars in thousands)
Product development expense	$	6,009	$	1,459	$	(4,550	)	(75.7	)%
Less stock-based compensation (benefit) expense included in product development expense	$	4,577	$	94	$	(4,483	)	(97.9	)%

Product development expense before stock-based compensation (benefit) expense	$	1,432	$	1,365	$	(67	)	(4.7	)%

Product development expense decreased $4.6 million, from $6.0 million for the three months ended March 31, 2010 to $1.5 million for the three months ended March 31, 2011. Excluding stock-based compensation expense of $4.6 million and $0.1 million for the three months ended March 31, 2010 and 2011, respectively, product development expense before stock-based compensation expense was largely unchanged.

Sales and Marketing Expense


	Three Months Ended March 31,				Change From Three Months Ended March 31, 2010 to 2011
	2010		2011
	(dollars in thousands)
Sales and marketing expense	$	8,535	$	6,592	$	(1,943	)	(22.8	)%
Less stock-based compensation (benefit) expense included in sales and marketing expense		3,424		257		(3,167	)	(92.5	)%

Sales and marketing expense before stock-based compensation (benefit) expense	$	5,111	$	6,335	$	1,224		23.9	%

Sales and marketing expense decreased $1.9 million, or 22.8%, from $8.5 million for the three months ended March 31, 2010 to $6.6 million for the three months ended March 31, 2011. Excluding stock-based compensation expense of $3.4 million and $0.3 million for the three months ended March 31, 2010 and 2011, respectively, sales and marketing expense before stock-based compensation (benefit) expense increased $1.2 million, or 23.9%, from $5.1 million for the three months ended March 31, 2010 to $6.3 million for the three months ended March 31, 2011, primarily due to a $0.2 million increase in personnel costs due to an increase in headcount, a $0.5 million increase in advertising, tradeshow and marketing expenses to support sales activity, and a $0.4 million increase in outgoing freight costs due to the fact that sales of gaming components and peripherals (which, on average, have higher freight costs as a percentage of their selling prices than our high-performance memory components) generated a higher percentage of our net revenues in the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

General and Administrative Expense


	Three Months Ended March 31,				Change From Three Months Ended March 31, 2010 to 2011
	2010		2011
	(dollars in thousands)
General and administrative expense	$	8,947	$	3,147	$	(5,800	)	(64.8	)%
Less stock-based compensation (benefit) expense included in general and administrative expense		5,574		279		(5,295	)	(95.0	)%

General and administrative expense before stock-based compensation (benefit) expense	$	3,373	$	2,868	$	(505	)	(15.0	)%

General and administrative expense decreased $5.8 million, or 64.8%, from $8.9 million for the three months ended March 31, 2010 to $3.1 million for the three months ended March 31, 2011. Excluding stock-based compensation expense of approximately $5.6 million and $0.3 million for the three months ended March 31, 2010 and 2011, respectively, general and administrative expense before stock-based compensation (benefit) expense decreased $0.5 million, or 15.0%, from $3.4 million for the three months ended March 31, 2010 to $2.9 million for the three months ended March 31, 2011, primarily due to a $0.5 million loss on extinguishment of debt in connection with the early repayment of an interim funding facility incurred in the three months ended March 31, 2010 and a $0.2 million decrease in legal and professional fees incurred in the three months ended March 31, 2011, offset in part by an increase of $0.1 million in personnel costs and bad debt expenses of $0.1 million in the three months ended March 31, 2011.

Interest Expense, Net

Interest expense, net declined $0.3 million for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, reflecting a decrease in average borrowings under our revolving credit facility for the three months ended March 31, 2011, as well as the repayment of our interim funding facility in February 2010.

Gain (loss) on Revaluation of Common Stock Warrants

Gain (loss) on revaluation of common stock warrants decreased $0.5 million, from $1.0 million for the three months ended March 31, 2010 to $0.5 million for the three months ended March 31, 2011, primarily reflecting the adjustments for fair value remeasurement of the BHC warrants.

Other Income (Expense), Net

Other income (expense), net decreased by $0.1 million from the three months ended March 31, 2010 to the three months ended March 31, 2011 due to foreign exchange losses.

Income Tax Benefit (Expense)

We recognized income tax expense of $2.2 million for the three months ended March 31, 2011 compared to income tax expense of $1.0 million for the three months ended March 31, 2010. The $1.1 million increase in income tax expense was due primarily to an increase in taxable income excluding stock-based compensation expense resulting from higher profitability in the 2011 period.

Years Ended December 31, 2008, 2009 and 2010

Net Revenues

Net revenues increased $54.0 million, or 16.6%, from $325.6 million in 2009 to $379.6 million in 2010, reflecting a 4.0% increase in net revenues generated by our high-performance memory components segment and a 53.5% increase in net revenues generated by our gaming components and peripherals segment. Net revenues of our high-performance memory components segment increased by $9.8 million, or 4.0%, from $243.1 million in 2009 to $253.0 million in 2010, due to a 28.7% increase in the average selling price of our DRAM modules in 2010 compared to 2009, offset in part by a 19.2% decrease in unit shipments of our DRAM modules. The higher average selling price reflects the higher cost of DRAM IC content, which correspondingly led to a decrease in unit sales. While average market prices of DRAM ICs and the corresponding DRAM modules that we sold were higher in 2010 compared to 2009, prices declined during the second half of 2010, whereas they increased during the second half of 2009. The declines in the second half of 2010 had a negative impact on our net revenues during the fourth quarter of 2010 as compared to the fourth quarter of 2009. Net revenues of our gaming components and peripherals segment increased by $44.2 million, or 53.5%, from $82.5 million in 2009 to $126.7 million in 2010, due to a 48.2% increase in unit shipments which we attribute to our marketing efforts and increased distribution of those products and a 3.6% increase in average selling price in 2010 compared to 2009, as well as the introduction of new products. Of the $126.7 million in net revenues from our gaming components and peripherals segment for 2010, $47.0 million was derived from sales of new products introduced in 2010.

Net revenues decreased $15.4 million, or 4.5%, from $341.1 million in 2008 to $325.6 million in 2009, reflecting a 17.8% decrease in net revenues generated by our high-performance memory components segment, offset in part by a 53.5% increase in net revenues generated by our gaming components and peripherals segment. Net revenues of our high-performance memory components segment decreased by $52.6 million, or 17.8%, from $295.8 million in 2008 to $243.1 million in 2009, due to an 18.9% decrease in unit shipments of our DRAM modules in 2009 compared to 2008, offset in part by a 1.3% increase in average selling price of our DRAM modules. Net revenues of our gaming components and peripherals segment increased by $37.2 million, or 82.1%,

from $45.3 million in 2008 to $82.5 million in 2009, due to a 55.0% increase in unit shipments which we attribute to our marketing efforts and increased distribution of those products and a 17.5% increase in average selling price in 2009 compared to 2008. Of the $82.5 million in net revenues from our gaming components and peripherals segment for 2009, $26.6 million was derived from sales of new products introduced in 2009.

Cost of Revenue

Cost of revenue increased $49.7 million, or 17.8%, from $279.0 million for 2009 to $328.6 million for 2010, reflecting a 16.6% increase in net revenues during the same period. Cost of revenue for our high-performance memory components segment increased $14.5 million, or 6.8%, from $213.0 million for 2009 to $227.5 million for 2010, due to increased market prices of DRAM ICs. Cost of revenue for our gaming components and peripherals segment increased $35.1 million, or 53.2%, from $66.0 million for 2009 to $101.2 million for 2010, reflecting higher unit sales in that segment.

Cost of revenue decreased $26.5 million, or 8.7%, from $305.5 million for 2008 to $279.0 million for 2009, reflecting a 4.5% decrease in net revenues during the same period.

Gross Profit

Gross profit increased $4.3 million, or 9.3%, from $46.7 million for 2009 to $51.0 million for 2010, reflecting a 16.6% increase in net revenues and a change in product mix, with our higher margin gaming components and peripherals segment accounting for 33.4% of our total net revenues for 2010 compared to 25.3% for 2009. Gross margin declined from 14.3% for 2009 to 13.4% for 2010.

Revenue from our DRAM business is driven by four primary factors: units sold, average DRAM module capacity, average market prices of DRAM ICs and the product mix between our higher-priced, high performance and value-priced DRAM modules. However, gross margin is driven by the trend in prices of DRAM ICs and the product mix between our higher-priced, high-performance DRAM modules and our value-priced DRAM modules. As market DRAM IC prices fall, this negatively impacts average selling prices of our modules and can have a negative impact on gross margins.

Average market prices of DRAM ICs declined during 2010, while those prices increased during 2009. These declines resulted in lower gross margin on sales of our high-performance memory components in 2010, which offset the favorable gross margin impact from increased net revenues from our gaming components and peripherals segment during 2010. However, average selling prices of our DRAM modules increased in 2010, despite declining DRAM IC prices, due to the shift to higher-priced, high-performance DRAM modules.

Gross profit increased $11.1 million, or 31.2%, from $35.6 million for 2008 to $46.7 million for 2009, reflecting a change in product mix, with our higher margin gaming components and peripherals segment accounting for 25.3% of our total net revenues for 2009 compared to 13.3% for 2008, offset in part by a 4.5% decrease in net revenues. Gross margin increased from 10.4% for 2008 to 14.3% for 2009.

Operating Expenses

We have three categories of operating expenses: product development expense, sales and marketing expense and general and administrative expense. Stock-based compensation (benefit) expense, which is a non-cash item and, prior to June 29, 2010, varied significantly from period to period for reasons unrelated to our operating results due to our use of liability accounting, is a component of each of these three categories of expenses. In the following sections, we include a discussion of each of these three categories of expenses before giving effect to the impact of stock-based compensation (benefit) expense in order to focus on other components included in these expenses. In that regard, our management believes that operating metrics that exclude stock-based compensation (benefit) expense provide a more direct view of our operating results (especially because of the

variability in stock-based compensation (benefit) expense that, until June 29, 2010, was caused by our use of liability accounting) and therefore uses metrics that exclude stock-based compensation (benefit) expense in managing our business. In addition, the stock and stock option repurchase rights that, combined with our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, required us to use liability accounting, were terminated on June 29, 2010. Stock and stock option awards are no longer subject to re-measurement for each reporting period as we do not plan to continue our past practice of repurchasing shares issued under our equity incentive plans within six months of option exercise, except as may be required under our ESOP.

We therefore believe that discussing these three categories of expenses before giving effect to the impact of stock-based compensation (benefit) expense is appropriate to present our historical financial data in a manner that is consistent with both the way in which our management evaluates our results of operations and our intended operations as a public company following this offering.

As noted above, prior to June 29, 2010, our stock-based compensation (benefit) expense was accounted for predominantly under the liability method and therefore changed primarily due to changes in the fair value of our common stock. Prior to June 29, 2010, the intrinsic value of awards to most of our employees was re-measured at the end of each reporting period until the award was exercised and the holder was exposed to the market value of the shares for a reasonable period of time (at least six months) or the award was settled, cancelled or expired unexercised. We incurred stock-based compensation expense of $28.0 million and $8.3 million in 2009 and 2010, respectively, due to an increase in the fair value of our common stock, which accounted for $27.8 million and $5.7 million, respectively, of that expense. We recorded a stock-based compensation benefit of $12.8 million in 2008 due to a decline in the fair value of our common stock. We included these amounts in cost of revenue, product development expense, sales and marketing expense and general and administrative expense.

As noted above, the fair value of our common stock declined for the year ended December 31, 2008. The decline in fair value of our common stock for the year ended December 31, 2008 was due to a significant decline in average selling price of our DRAM modules, which adversely affected our operating performance, financial condition and expected results of operations. These factors contributed to the stock-based compensation benefit that we recognized in 2008.

Product Development Expense


	Year Ended December 31,							Change From
	2008			2009		2010		2008 to 2009				2009 to 2010
	(dollars in thousands)
Product development expense	$	87		$	13,514	$	8,047	$	13,427	N/M		$	(5,467	)	(40.5	)%
Less stock-based compensation (benefit) expense included in product development expense	$	(4,353	)	$	8,389	$	2,480	$	12,742	N/M		$	(5,909	)	(70.4	)%

Product development expense before stock-based compensation (benefit) expense	$	4,440		$	5,125	$	5,567	$	685	15.4	%	$	442		8.6	%

N/M means not meaningful.

In 2010, product development expense decreased $5.5 million, or 40.5%, from $13.5 million in 2009 to $8.0 million in 2010. Excluding stock-based compensation expense of $8.4 million in 2009 and $2.5 million in 2010, product development expense before stock-based compensation (benefit) expense increased $0.4 million, or 8.6%, from $5.1 million in 2009 to $5.6 million in 2010, primarily due to a $0.2 million increase in personnel costs due to increased headcount and a $0.2 million increase in costs for design and testing of new audio products launched in 2010.

In 2009, product development expense increased $13.4 million, from $0.1 million in 2008 to $13.5 million in 2009. Excluding stock-based compensation benefit of $4.4 million in 2008 and stock-based compensation

expense of $8.4 million in 2009, product development expense before stock-based compensation (benefit) expense increased $0.7 million, or 15.4%, from $4.4 million in 2008 to $5.1 million in 2009, primarily due to a $0.6 million increase in personnel costs due to increased headcount and a $0.1 million increase in costs for design and testing of new products launched in 2009.

Sales and Marketing Expense


	Year Ended December 31,							Change From
	2008			2009		2010		2008 to 2009					2009 to 2010
	(dollars in thousands)
Sales and marketing expense	$	17,534		$	23,780	$	21,942	$	6,246		35.6	%	$	(1,838	)	(7.7	)%
Less stock-based compensation (benefit) expense included in sales and marketing expense	$	(1,389	)	$	7,878	$	1,631	$	9,267		N/M		$	(6,247	)	(79.3	)%

Sales and marketing expense before stock-based compensation (benefit) expense	$	18,923		$	15,902	$	20,311	$	(3,021	)	(16.0	)%	$	4,409		27.7	%

N/M means not meaningful.

In 2010, sales and marketing expense decreased $1.8 million, or 7.7%, from $23.8 million in 2009 to $21.9 million in 2010. Excluding stock-based compensation expense of $7.9 million in 2009 and $1.6 million in 2010, sales and marketing expense before stock-based compensation (benefit) expense increased $4.4 million, or 27.7%, from $15.9 million in 2009 to $20.3 million in 2010. The increase, excluding stock-based compensation (benefit) expense, was primarily due to a $1.7 million increase in outgoing freight expense arising from an increase in net revenues in 2010 as compared to 2009 and, additionally, the fact that sales of gaming components and peripherals (which, on average, have higher freight costs as a percentage of their selling prices than our high-performance memory components) generated a higher percentage of our net revenues in 2010 compared to 2009. Sales and marketing expenses, excluding stock-based compensation (benefit) expense, were also higher in 2010 due to a $1.5 million increase in advertising, tradeshow and marketing expenses to support sales activities, a $0.8 million increase in personnel costs due to increased headcount and a $0.5 million increase in consulting and external services expenses.

In 2009, sales and marketing expense increased $6.2 million, or 35.6%, from $17.5 million in 2008 to $23.8 million in 2009. Excluding stock-based compensation benefit of $1.4 million in 2008 and stock-based compensation expense of $7.9 million in 2009, sales and marketing expense before stock-based compensation (benefit) expense decreased $3.0 million, or 16.0%, from $18.9 million in 2008 to $15.9 million in 2009, primarily due to a $2.1 million decrease in freight expense primarily due to reduced shipments as a result of decreased sales, a $1.3 million decrease in advertising, tradeshow and marketing expenses as a result of cost cutting measures and a $0.5 million decrease in consulting and external services expenses, offset in part by a $0.9 million increase in personnel costs.

General and Administrative Expense


	Year Ended December 31,							Change From
	2008			2009		2010		2008 to 2009					2009 to 2010
	(dollars in thousands)
General and administrative expense	$	4,668		$	20,201	$	14,113	$	15,533		332.8	%	$	(6,088	)	(30.1	)%
Less stock-based compensation (benefit) expense included in general and administrative expense	$	(5,407	)	$	11,289	$	3,272	$	16,696		N/M		$	(8,017	)	(71.0	)%

General and administrative expense before stock-based compensation (benefit) expense	$	10,075		$	8,912	$	10,841	$	(1,163	)	(11.5	)%	$	1,929		21.6	%

N/M means not meaningful.

In 2010, general and administrative expense decreased $6.1 million, or 30.1%, from $20.2 million in 2009 to $14.1 million in 2010. Excluding stock-based compensation expense of $11.3 million in 2009 and $3.3 million in 2010, general and administrative expense before stock-based compensation (benefit) expense increased $1.9 million, or 21.6%, from $8.9 million in 2009 to $10.8 million in 2010, primarily due to a $0.9 million increase in legal and professional fees, a $0.7 million increase in personnel expense due to increased headcount and a $0.5 million loss on extinguishment of debt in connection with the early repayment of an interim funding facility, offset in part by a $0.2 million decrease in consulting fees.

In 2009, general and administrative expense increased $15.5 million, from $4.7 million in 2008 to $20.2 million in 2009. Excluding stock-based compensation benefit of $5.4 million in 2008 and stock-based compensation expense of $11.3 million in 2009, general and administrative expense before stock-based compensation (benefit) expense decreased $1.2 million, or 11.5%, from $10.1 million in 2008 to $8.9 million in 2009, primarily due to a $1.0 million decrease in legal and professional fees, a $0.7 million decrease in consulting fees and a $0.4 million decrease in other administrative expense, including travel and depreciation, due to cost cutting measures, offset in part by a $0.9 million increase in personnel expense.

Interest Expense, Net

Interest expense, net declined $0.6 million from 2009 to 2010, reflecting a decrease in average borrowings under our revolving credit facility in 2010, and repayment of our interim funding facility in February 2010. Interest expense, net declined $0.8 million from 2008 to 2009, reflecting a decrease in average borrowings under our revolving credit facility in 2009, offset in part by interest on our interim funding facility. We entered into the interim funding facility on June 18, 2009 and received a $5.0 million term loan under that facility.

Gain (Loss) on Revaluation of Common Stock Warrants

Gain (loss) on revaluation of common stock warrants was a loss of $0.4 million in 2010, due to an increase in the fair value of our common stock issuable upon exercise of the BHC warrants that we issued in 2009 to a lender in connection with a loan made to us by that lender. Gain (loss) on revaluation of common stock warrants was a loss of $1.7 million in 2009, due to an increase in the fair value of our common stock issuable upon exercise of the BHC warrants. There was no similar gain or loss in 2008 as no warrants were outstanding during that year.

Other Income (Expense), Net

Other income (expense), net was a loss of $0.2 million for 2010 compared to income of $0.3 million for 2009, due to a foreign exchange loss of $0.2 million in 2010 and $0.2 million of other income in 2009 due to a litigation settlement. Other income (expense), net was a loss of $0.1 million for 2008 compared to income of $0.3 million for 2009, due to a foreign exchange loss of $0.2 million in 2008 and $0.2 million of other income in 2009 due to a litigation settlement.

Income Tax Expense (Benefit)

We recorded income tax expense of $15.3 million for 2010, compared to income tax benefit of $5.3 million for 2009. During the third quarter of 2010 we recorded a valuation allowance on deferred tax assets for federal income tax purposes as it appeared more likely than not that we would not be able to realize these assets. As of December 31, 2010 this valuation allowance totaled $13.6 million. The deferred tax assets against which a valuation allowance was recorded related to the expected future realization arising from stock-based compensation expense timing differences between projected operating results for U.S. federal income tax purposes and projected operating results of our U.S. entity calculated on a GAAP basis. In assessing the realizability of deferred tax assets, we considered our three year cumulative results of operations for our U.S. entity, which showed a loss as of the end of the third quarter of 2010. Although the percentage of revenues by geography remained relatively consistent with the prior year, the pre-tax results of operations for the U.S. entity were adversely affected by other factors, including stock-based compensation expenses. We also considered that while our consolidated forecast of future operating results changed only modestly over time, the forecast of operating results by legal entity (and therefore by tax jurisdiction) had changed significantly due to continued refinement of our global supply chain and related changes in terms of our intercompany arrangements. Another factor considered was that in light of our reassessment of our IPO timeline during the third quarter of 2010, we projected a delay in the timing of stock option exercises which could cause us to lose our ability to carry back a portion of the related deductions to recover any previously paid income tax. The benefit recorded in 2009 was due to losses in that year, as well as the reversal at the beginning of the year of a valuation allowance of $1.8 million.

We recognized income tax benefit of $5.3 million for 2009, compared to $0.6 million for 2008. The $4.7 million increase in income tax benefit was due to higher losses in 2009. Our effective tax rate for 2009 was significantly affected due to the reversal of the beginning of the year valuation allowance of $ 1.8 million.

Quarterly Results of Operations

The following tables set forth our unaudited quarterly consolidated statements of operations data and other financial data and our net revenues by segment for the following periods, expressed in dollars and as a percentage of consolidated net revenues, and our unaudited quarterly consolidated gross profit and gross margin by segment. We have prepared the consolidated statements of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, each consolidated statement of operations includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of our consolidated results of operations for these periods. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The quarterly statements of operations data and other financial data are not indicative of operating results for any future period.


	Three Months Ended
	Mar. 31, 2009			June 30, 2009			Sept. 30, 2009			Dec. 31, 2009			Mar. 31, 2010				June 30, 2010			Sept. 30, 2010			Dec. 31, 2010			Mar. 31, 2011
	(dollars in thousands)
Consolidated Statement of Operations Data:
Net revenues	$	64,409		$	61,374		$	86,711		$	113,139		$	103,538			$	72,717		$	96,108		$	107,263		$	107,429
Cost of revenue⁽¹⁾		56,489			55,645			72,691			94,151			88,777				63,453			85,521			90,890			88,537

Gross profit		7,920			5,729			14,020			18,988			14,761				9,264			10,587			16,373			18,892
Operating expenses:
Product development⁽¹⁾		968			897			4,309			7,340			6,009				(1,082	)		1,571			1,549			1,459
Sales and marketing⁽¹⁾		3,898			3,263			6,604			10,015			8,535				1,864			4,968			6,575			6,592
General and administrative⁽¹⁾		1,933			1,590			6,824			9,854			8,947				(450	)		2,937			2,679			3,147

Total operating expenses		6,799			5,750			17,737			27,209			23,491				332			9,476			10,803			11,198

Income (loss) from operations		1,121			(21	)		(3,717	)		(8,221	)		(8,730	)			8,932			1,111			5,570			7,694
Interest expense, net		(496	)		(223	)		(448	)		(563	)		(500	)			(256	)		(205	)		(202	)		(181	)
Gain (loss) on revaluation of common stock warrants		—			—			(625	)		(1,097	)		(1,014	)			580			190			(191	)		(532	)
Other income (expense), net		13			63			69			165			(105	)			(74	)		116			(108	)		41

Income (loss) before income taxes		638			(181	)		(4,721	)		(9,716	)		(10,349	)			9,182			1,212			5,069			7,022
Income tax expense (benefit)⁽²⁾		385			(2	)		(1,294	)		(4,379	)		1,024				1,082			11,199			2,009			2,159

Net income (loss)	$	253		$	(179	)	$	(3,427	)	$	(5,337	)	$	(11,373	)		$	8,100		$	(9,987	)	$	3,060		$	4,863

Other Financial Data:
Adjusted EBIT⁽³⁾	$	1,102		$	55		$	6,135		$	9,874		$	5,356			$	1,485		$	1,919		$	6,415		$	8,358
Adjusted net income (loss)⁽³⁾	$	234		$	(103	)	$	6,425		$	466		$	2,449			$	798		$	2,472		$	3,891		$	5,516

	Three Months Ended

	Mar. 31, 2009			June 30, 2009			Sept. 30, 2009			Dec. 31, 2009			Mar. 31, 2010				June 30, 2010			Sept. 30, 2010			Dec. 31, 2010			Mar. 31, 2011
Consolidated Statement of Operations Data:
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%			100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue⁽¹⁾		87.7			90.7			83.8			83.2			85.7				87.3			89.0			84.7			82.4

Gross profit		12.3			9.3			16.2			16.8			14.3		&nbs

Corsair Components, Inc. S-1/A