Gennum Reports 2009 Third Quarter Results

BURLINGTON, ON, Sept. 23 /CNW/ - Gennum Corporation (TSX: GND) today reported unaudited financial results for the third quarter of fiscal 2009.

    
    (in millions of U.S. dollars except per share amounts)
                                                               2009     2008
                                                               ----     ----
    Third quarter
    Revenue                                                    21.4     33.5
    Gross margin                                               14.7     25.6
    Gross margin as a percentage of revenue                    68.9%    76.3%
    Restructuring charge                                        5.5        -
    Operating income (loss), including restructuring charge    (5.2)     7.5
    EBITDA*, before restructuring charge                      2.9     10.5

    Net earnings (loss) - continuing                           (4.3)     6.4
    Net earnings (loss) per share - continuing                (0.12)    0.18
    

"In the third quarter we saw customer demand strengthen resulting in Gennum achieving 10% revenue growth compared to last quarter," said Dr. Franz Fink, President and CEO of Gennum. "Customer lead times are increasing and we are encouraged by the improving market demand for our products. We continue to be focused on controlling our expenses to improve profitability and cash flow. We remain confident in our strategy and are executing to our plan in delivering more new products to our customers."

Gennum revenue in fiscal 2009 has been significantly impacted by the economic downturn and related actions taken by customers to reduce inventory. In the third quarter of 2009, customers began to restock inventory, resulting in our consolidated revenue growing over 10% sequentially compared to the second quarter of 2009. This increased revenue allowed Gennum to deliver positive operating income of $0.3 million in the quarter, before restructuring costs. We continue to see improvements in bookings and end-market demand entering the fourth quarter of 2009.

On a year-over-year basis, consolidated revenue in the third quarter of 2009 was $21.4 million, lower by $12.1 million or 36% compared to the third quarter of 2008; on a year-to-date basis, consolidated revenue was $60.1 million, down by $36.4 million compared to the same period last year.

Gross margin as a percentage of revenue in the third quarter of 2009 was 69%, down from 76% in the same quarter of 2008. This decrease was primarily caused by lower production in Gennum operations as we continue to adjust inventories for lower levels of demand. Gross margin is expected to return to average corporate levels as demand increases and costs in our operations are reduced as a result of the significant restructuring activity which we began to implement in August.

Total operating expenses of $14.4 million in the third quarter of 2009, before the restructuring charge, decreased 20% from $18.1 million in the same period last year. The restructuring action resulted in a charge of $5.5 million in the quarter. This charge includes severance costs associated with a reduction in the workforce, the impairment of deferred development costs and the impairment of inventory. Operating expenses are expected to continue to decline as a result of the actions taken.

Operating income in the third quarter of 2008 was $7.5 million. The 2009 third quarter operating loss of $5.2 million included the restructuring charge and deferred development impairment of $5.5 million and bad debt expense of $0.5 million.

As the restructuring action demonstrates, we continue to proactively take steps to ensure the company returns to profitability by aggressively managing discretionary spending, minimizing capital expenditures, and aligning sales, marketing and administrative investment with short-term and mid-term customer revenue generation activities. We have maintained investment in key R&D programs enabling us to deliver a significant number of new products in 2009 and capitalize on new customer opportunities.

Net loss from continuing operations for the third quarter and for the first nine months of 2009 was $4.3 million or $0.12 loss per share and $6.2 million or $0.18 loss per share respectively, compared to net earnings for the same periods in 2008 of $6.4 million or earnings per share of $0.18 and net earnings of $16.9 million or earnings per share of $0.48.

New product introductions and business developments

In the third quarter of 2009, Gennum participated in key technology demonstrations and launched new products and IP further expanding its PCI Express offerings.

    
    -   Gennum Debuts PCI Express 3.0 IP, Showcases Bridging Solutions for
        HD Video - at the PCI-SIG Developers Conference, Gennum showcased
        the industry's first public demonstration of a PCIe 3.0 PHY, as well
        as demonstrations of PCIe 2.0 and SATA IP in a PCIe SATA bridge.
        Gennum also demonstrated 3 gigabits live video capture using Gennum's
        PCIe 2.0 solutions, underscoring the potential for PCIe in SDI video
        applications.

    -   Gennum's Snowbush IP Group Delivers the Industry's First PCI Express
        3.0 PHY IP on TSMC 40nm Process - Gennum introduced its Snowbush IP
        PCIe 3.0 PHY and Controller. The new PCIe(R) 3.0 cores can be
        licensed immediately by system-on-a-chip (SoC) and system companies,
        enabling early deployment of PCIe 3.0 (Gen 3) in systems.
    

Dividend

Gennum's Board of Directors has declared a regular cash dividend of 3.5 cents per share Canadian to be paid on October 21, 2009 to shareholders of record on October 7, 2009.

    
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    Management will hold a conference call to discuss third quarter results
    on Wednesday, September 23, 2009 at 5:30 p.m. (ET). To access the call,
    participants should dial 1-800-814-4859. The conference call will also be
    Webcast live at www.gennum.com or www.newswire.ca/en/webcast and
    subsequently archived on the Gennum site. A rebroadcast of the call will
    be available until midnight on October 23, 2009. To access the
    rebroadcast, dial 1-877-289-8525 and enter the passcode 4152632 followed
    by the number sign.
    -------------------------------------------------------------------------
    

About Gennum Corporation

Gennum Corporation (TSX: GND) designs innovative semiconductor solutions and intellectual property (IP) cores for the world's most advanced consumer connectivity, enterprise, video broadcast and data communications products. Leveraging the company's proven optical, analog and mixed-signal products and IP, Gennum enables multimedia and data communications products to send and receive information without compromising the signal integrity. Recognized as an award winner for advances in high definition (HD) broadcasting, Gennum is headquartered in Burlington, Canada, and has global design, research and development and sales offices in Canada, Mexico, Japan, Korea, Germany, United States, Taiwan, India and the United Kingdom. www.gennum.com

    
    * "EBITDA" is a non-GAAP financial measure which does not have any
        standardized meaning under Canadian generally accepted accounting
        principles ("GAAP") and is therefore unlikely to be comparable to
        similar measures presented by other issuers. We define EBITDA as
        earnings before interest, taxes, depreciation and amortization
        (related to intangible assets and stock-based compensation). Further
        information regarding this term, a description of why management
        believes it is a useful measure, and a quantitative reconciliation to
        the most directly comparable measure calculated in accordance with
        GAAP is set forth under the heading "Non-GAAP Reporting" in our MD&A
        for the quarter ended August 31, 2009.
    

Caution Regarding Forward-Looking Information

This document contains statements which constitute forward-looking statements. These forward-looking statements are not descriptive of historical matters and may refer to management's expectations or plans. These statements include but are not limited to statements concerning: Gennum's business objectives and plans including Gennum's corporate strategy and strategic priorities; Gennum's future financial performance and prospects including revenues, gross margins and earnings; future trends in the semiconductor and intellectual property licensing industries and, in particular, market trends for analog and mixed-signal products, optical products and intellectual property products and licensing; Gennum's expectations for sales and licensing of its products in these markets including anticipated costs, sales, size, duration, growth or decline of market opportunities and competitive and pricing pressures in these markets; Gennum's product roadmap and the speed at which Gennum is able to introduce new products; the adoption of new standards in the markets in which Gennum competes and the ability of Gennum to anticipate these changes and successfully address new opportunities; sales and capital spending plans and estimates, shipment levels and operating expenses; exchange rate fluctuations in, and the relative values of, the Canadian dollar, the U.S. dollar and the Japanese yen; Gennum's ability to finance its growth plans and make necessary investment; and litigation in which Gennum is involved.

Inherent in forward-looking statements are risks and uncertainties beyond Gennum's ability to predict or control including, but not limited to, risks associated with: competitive and pricing pressures in the increasingly competitive environment in which Gennum operates; economic cycles in the semiconductor industry including downturns which can result from adverse general economic conditions; our ability to anticipate needs for future products and successfully execute our product roadmap, including the possibility of the emergence of disruptive technologies which negatively impact our positioning in the marketplace; fluctuations in foreign exchange rates and their potential adverse impact upon our financial results; our reliance on external foundries and suppliers and the potential adverse effects of disruptions in any of these arrangements; the successful integration of acquisitions and the ability to achieve expected synergies and operating efficiencies within expected time-frames (or at all); our ability to attract and retain key personnel necessary for our business; our ability to successfully protect our intellectual property rights; and the initiation and outcome of legal proceedings. Readers should also refer to the sections entitled "Risks and Uncertainties" in our 2008 annual report and "Risk Factors" in our annual information form dated February 23, 2009.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this document. Such statements are based on a number of assumptions which may prove to be incorrect including, but not limited to, the following assumptions: there is no material deterioration in the business and economic conditions in the marketplace for Gennum's products; Gennum's expectations regarding market trends for analog and mixed-signal products, optical products and intellectual property products and licensing are not materially incorrect; Gennum is able to execute its product roadmap without delays or disruptions having a material impact on Gennum; Gennum's expectations relating to the needs and direction of the marketplace for its products are within reasonable bounds of accuracy and Gennum is able to introduce products and capitalize on new opportunities generally as expected; material disruptions in the manufacture and supply of products and services to Gennum by foundries and suppliers will not materialize; Gennum's expectations relating to competitive pressures, including pricing pressures, are not materially incorrect; significant fluctuations in foreign exchange rates which materially adversely affect Gennum's financial results do not arise; customer demand for Gennum's products remains generally as anticipated; Gennum is able to successfully integrate acquisitions and to achieve synergies generally as anticipated; and Gennum is able to continue to retain and attract technical and other key employees.

Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive. Forward-looking statements are not guarantees of future performance. Events or circumstances could cause Gennum's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Consequently, readers should not place any undue reliance on these forward-looking statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. We disclaim any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law. All financial results referenced are unaudited, in United States currency and, unless otherwise indicated, are determined in accordance with Canadian generally accepted accounting principles (GAAP).

    
    2009 THIRD QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
    All amounts are in U.S. dollars, unless otherwise stated
    

Caution regarding forward-looking statements

This document contains statements which constitute forward-looking statements. These forward-looking statements are not descriptive of historical matters and may refer to management's expectations or plans. These statements include but are not limited to statements concerning: Gennum's business objectives and plans including Gennum's corporate strategy and strategic priorities; Gennum's future financial performance and prospects including revenues, gross margins and earnings; future trends in the semiconductor and intellectual property licensing industries and, in particular, market trends for analog and mixed-signal products, optical products and intellectual property products and licensing; Gennum's expectations for sales and licensing of its products in these markets including anticipated costs, sales, size, duration, growth or decline of market opportunities and competitive and pricing pressures in these markets; Gennum's product roadmap and the speed at which Gennum is able to introduce new products; the adoption of new standards in the markets in which Gennum competes and the ability of Gennum to anticipate these changes and successfully address new opportunities; sales and capital spending plans and estimates, shipment levels and operating expenses; exchange rate fluctuations in, and the relative values of, the Canadian dollar, the U.S. dollar and the Japanese yen; Gennum's ability to finance its growth plans and make necessary investment; and litigation in which Gennum is involved.

Inherent in forward-looking statements are risks and uncertainties beyond Gennum's ability to predict or control including, but not limited to, risks associated with: competitive and pricing pressures in the increasingly competitive environment in which Gennum operates; economic cycles in the semiconductor industry including downturns which can result from adverse general economic conditions; our ability to anticipate needs for future products and successfully execute our product roadmap, including the possibility of the emergence of disruptive technologies which negatively impact our positioning in the marketplace; fluctuations in foreign exchange rates and their potential adverse impact upon our financial results; our reliance on external foundries and suppliers and the potential adverse effects of disruptions in any of these arrangements; the successful integration of acquisitions; our ability to attract and retain key personnel necessary for our business; our ability to successfully protect our intellectual property rights; and the initiation and outcome of legal proceedings. Readers should also refer to the sections entitled "Risks and Uncertainties" in our 2008 annual report and "Risk Factors" in our annual information form dated February 23, 2009.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this document. Such statements are based on a number of assumptions which may prove to be incorrect including, but not limited to, the following assumptions: there is no material deterioration in the business and economic conditions in the marketplace for Gennum's products; Gennum's expectations regarding market trends for analog and mixed-signal products, optical products and intellectual property products and licensing are not materially incorrect; Gennum is able to execute its product roadmap without delays or disruptions having a material impact on Gennum; Gennum's expectations relating to the needs and direction of the marketplace for its products are within reasonable bounds of accuracy and Gennum is able to introduce products and capitalize on new opportunities generally as expected; material disruptions in the manufacture and supply of products and services to Gennum by foundries and suppliers will not materialize; Gennum's expectations relating to competitive pressures, including pricing pressures, are not materially incorrect; significant fluctuations in foreign exchange rates which materially adversely affect Gennum's financial results do not arise; customer demand for Gennum's products remains generally as anticipated; Gennum is able to successfully integrate acquisitions; and Gennum is able to continue to retain and attract technical and other key employees.

Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive. Forward-looking statements are not guarantees of future performance. Events or circumstances could cause Gennum's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Consequently, readers should not place any undue reliance on these forward-looking statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. We disclaim any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law.

The following discussion and analysis is intended to provide readers with an assessment of our performance for the third quarter of 2009 together with the comparable period in the prior year, as well as our financial position and future prospects. It should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes for the third quarter of fiscal 2009 and 2008, and the fiscal 2008 and 2007 audited consolidated financial statements and accompanying notes, which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") as well as the management's discussion and analysis contained in our 2008 annual report. Our public disclosure documents, including our historical financial statements and our annual information form, can be viewed on SEDAR at www.sedar.com.

In this discussion and analysis, "Gennum", the "Company", "we", "our" and similar references include Gennum Corporation and its subsidiaries, except where the context otherwise requires.

Effective December 1, 2007, the Company adopted the U.S. dollar as its reporting currency, but has retained the Canadian dollar as its functional currency. Management believes that reporting in U.S. dollars improves the comparability of the Company's financial position and results of operations to others in its industry. All amounts expressed herein are in U.S. dollars, unless otherwise stated.

As a result of the Company's leadership and product portfolio realignment at the end of 2007, the Company began operating and tracking its results in one reportable segment, consisting of numerous product areas, effective December 1, 2007.

CORPORATE OVERVIEW AND BUSINESS STRATEGY

Gennum designs, develops and markets semiconductor products and intellectual property ("IP") cores for advanced consumer connectivity, enterprise, video broadcast and data communications applications. Our products are designed to ensure that signals used to transmit video and data in applications such as networking, home entertainment and broadcasting maintain their original integrity, and to eliminate the potential for errors in sending and receiving information.

Our corporate strategy involves leveraging core technological capabilities into selected high-growth markets that provide a competitive advantage for both the Company and our customers. During the remainder of 2009, we plan to continue to make strategic investments in research and development, capitalize on new customer opportunities with our expanded product portfolio, and grow our competitive position in our target markets.

New product introductions and business developments

In the third quarter of 2009, Gennum participated in key technology demonstrations and launched new products and IP further expanding its PCI Express offerings.

    
    -  Gennum Debuts PCI Express 3.0 IP, Showcases Bridging Solutions for HD
       Video - at the PCI-SIG Developers Conference, Gennum showcased the
       industry's first public demonstration of a PCIe 3.0 PHY, as well as
       demonstrations of PCIe 2.0 and SATA IP in a PCIe SATA bridge. Gennum
       also demonstrated 3 gigabits live video capture using Gennum's PCIe
       2.0 solutions, underscoring the potential for PCIe in SDI video
       applications.

    -  Gennum's Snowbush IP Group Delivers the Industry's First PCI Express
       3.0 PHY IP on TSMC 40nm Process - Gennum introduced its Snowbush IP
       PCIe 3.0 PHY and Controller. The new PCIe(R) 3.0 cores can be licensed
       immediately by system-on-a-chip (SoC) and system companies, enabling
       early deployment of PCIe 3.0 (Gen 3) in systems.
    

RESULTS FROM OPERATIONS

Overview

Gennum revenue in fiscal 2009 has been significantly impacted by the economic downturn and related actions taken by customers to reduce inventory. In the third quarter of 2009, customers began to restock inventory, resulting in our consolidated revenue growing over 10% sequentially compared to the second quarter of 2009. This increased revenue allowed Gennum to deliver positive operating income of $0.3 million in the quarter, before restructuring costs. We continue to see improvements in bookings and end-market demand entering the fourth quarter of 2009.

On a year-over-year basis, consolidated revenue in the third quarter of 2009 was $21.4 million, lower by $12.1 million or 36% compared to the third quarter of 2008; on a year-to-date basis, consolidated revenue was $60.1 million, down by $36.4 million compared to the same period last year.

Gross margin as a percentage of revenue in the third quarter of 2009 was 69%, down from 76% in the same quarter of 2008. This decrease was primarily caused by lower production in Gennum operations as we continue to adjust inventories for lower levels of demand. Gross margin is expected to improve as demand increases and costs in our operations are reduced as a result of the significant restructuring activity which we began to implement in August.

Total operating expenses of $14.4 million in the third quarter of 2009, before the restructuring charge, decreased 20% from $18.1 million in the same period last year. The 2009 figure included an increase in our bad debt provision of $0.5 million related to a dispute over payment for an IP project. The restructuring action resulted in a charge of $5.5 million in the quarter. This charge includes severance costs associated with a reduction in the workforce, the impairment of deferred development costs and the impairment of inventory. Operating expenses are expected to continue to decline as a result of the actions taken.

Operating income in the third quarter of 2008 was $7.5 million. The 2009 third quarter operating loss of $5.2 million included the restructuring charge and deferred development impairment of $5.5 million and the bad debt expense of $0.5 million.

As the restructuring action demonstrates, we continue to proactively take steps to ensure the company returns to profitability by aggressively managing discretionary spending, minimizing capital expenditures, and aligning sales, marketing and administrative investment with short-term and mid-term customer revenue generation activities and new product development.

Despite the continuation of severe economic conditions, we were able to produce positive EBITDA* again this quarter before the restructuring charge.

Net loss from continuing operations for the third quarter and for the first nine months of 2009 was $4.3 million or $0.12 loss per share and $6.2 million or $0.18 loss per share respectively, compared to net earnings for the same periods in 2008 of $6.4 million or earnings per share of $0.18 and net earnings of $16.9 million or earnings per share of $0.48.

    
    * "EBITDA" is a non-GAAP financial measure that does not have any
        standardized meaning under GAAP and is therefore unlikely to be
        comparable to similar measures presented by other issuers. A
        definition of this term, a description of why management believes it
        is a useful measure, and a quantitative reconciliation to the most
        directly comparable measure calculated in accordance with GAAP is set
        forth below under the heading "Non-GAAP Reporting".


    Overall performance of continuing operations

    (in millions of U.S. dollars except earnings (loss) per share or as
    otherwise stated)

                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------

    Revenue                          21.4   33.5  (36.1)  60.1   96.6  (37.7)
    Gross margin                     14.7   25.6  (42.3)  42.6   73.3  (41.9)
    Restructuring charge and
     deferred development impairment  5.5      -    n/a    5.5      -    n/a
    Earnings (loss) from continuing
     operations before income taxes  (5.5)   9.4    n/a   (9.4)  26.1    n/a
    As a percentage of revenue        n/a   28.1    n/a    n/a   27.1    n/a

    Net earnings (loss) from
     continuing operations           (4.3)   6.4    n/a   (6.2)  16.9    n/a
    Net earnings (loss) from
     discontinued operations            -      -      -      -    7.6    n/a
    Net earnings (loss)              (4.3)   6.4    n/a   (6.2)  24.5    n/a

    Earnings (loss) per share:
      continuing operations         (0.12)  0.18    n/a  (0.18)  0.48    n/a
      discontinued operations           -   0.00      -      -   0.21    n/a
    Net earnings (loss) per share
     basic and diluted              (0.12)  0.18    n/a  (0.18)  0.69    n/a

    Cash and cash equivalents*     34.9   48.7  (28.5)  34.9   48.7  (28.5)
    Total debt*                     2.3    2.0   12.8    2.3    2.0   12.8

    Cash dividends per share(1)    $0.031 $0.035        $0.088 $0.105
    -------------------------------------------------------------------------
    * 2008 figures as of November 30, 2008
    (1) Dividends were paid in Canadian dollars at a rate of $0.035 per share
        per quarter


    Revenue

    (in millions of U.S. dollars)
    -------------------------------------------------------------------------
                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------
    Analog and Mixed Signal (AMS)    15.9   26.7  (40.4)  42.6   75.4  (43.5)
    Optical                           2.9    3.5  (18.8)   8.8   12.8  (31.0)
    IP Licensing                      2.6    3.3  (20.1)   8.7    8.4    3.6
    -------------------------------------------------------------------------
    Total revenue                    21.4   33.5  (36.1)  60.1   96.6  (37.7)
    -------------------------------------------------------------------------
    

Overall revenue in the third quarter and first nine months of 2009 declined 36.1% and 37.7% respectively, compared to the same periods in 2008 mainly due to the global economic downturn in the current fiscal year and its resultant effects upon the markets for these products.

AMS products

Revenue in the third quarter and first nine months of 2009 from our AMS product group declined by 40.4% and 43.5% respectively, compared to the same periods last year. Management's analysis of capital spending in the global media and television markets would suggest that capital spending began to show a significant slowdown in 2008. Capital spending in the broadcast market is generally thought to be a function of advertising revenue. Compared to the second quarter of 2009, revenue in the third quarter was up almost 24% as the end markets are beginning to show signs of a gradual recovery.

Optical products

Revenue was lower in our Optical product group at $2.9 million for the third quarter of 2009 compared to $3.5 million for the third quarter of 2008, and $8.8 million for the first nine months of 2009 compared to $12.8 million for the same period in 2008 due to the economic recession in 2009. The percentage drop in Optical products on a year-over-year basis has not been as severe as we experienced in AMS as the reduction in capital spending in network equipment was not as significant as the broadcast market.

IP licensing

IP revenue for the third quarter of 2009 was $2.6 million, down $0.7 million compared to the third quarter of 2008. On a year-to-date basis, IP revenue was ahead by $0.3 million compared to the same period last year. Revenues in this product area will fluctuate from quarter to quarter depending on the allocation of hours supporting customer projects versus internal development projects.

    
    Gross margin

    (in millions of U.S. dollars)

                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------
    Gross margin                     14.7   25.6  (42.3)  42.6   73.3  (41.9)
    Percentage of revenue            68.9   76.3          70.8   75.9
    -------------------------------------------------------------------------
    

Gross margin as a percentage of revenue in the third quarter of 2009 was 69%, which was lower compared to the same period in 2008. The lower percentage was primarily the result of lower production levels in our test operations. In the first nine months of 2009, gross margin as a percentage of revenue at 71% was also lower compared to the same period in 2008 primarily due to the impact of lower production volume in our test operations. Despite this, we believe that our gross margins continue to reside at the high end of industry benchmarks.

    
    Sales, marketing and administration expenditures

    (in millions of U.S. dollars)

                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------
    Sales, marketing and
     administration expense           7.6    9.5  (19.7)  22.7   26.3  (13.6)
    Percentage of revenue            35.5   28.2          37.8   27.3
    -------------------------------------------------------------------------
    

Sales, marketing and administration expenditures in the third quarter of 2009 were lower by $1.9 million compared to the same period in 2008. Favourable currency adjustments, lower variable compensation expenses and reduced trade show and travel costs were partially offset by an increase in the provision for doubtful accounts of $0.5 million and operating costs resulting from the ASIC Architect acquisition in July 2008.

In the first nine months of 2009, sales, marketing and administration expenditures were lower by $3.6 million compared to the same period in 2008. Favourable currency adjustments, lower variable compensation expenses and reduced trade show and travel costs and lower corporate branding costs were partially offset by an increase in the provision for doubtful accounts of $0.8 million and the increase in operating costs as a result of the ASIC Architect acquisition.

    
    Research and development (R&D) expenditures

    (in millions of U.S. dollars)

                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------
    R&D expense (gross)               7.4    9.4  (21.5)  22.8   27.4  (16.8)
    Percentage of revenue            34.5   28.1          38.0   28.4
    -------------------------------------------------------------------------
    

In the third quarter of 2009, R&D spending was lower by $2.0 million compared to the same period in 2008. Favourable currency adjustments, lower variable compensation expenses and the favourable impact of divesting the BST technology group were partially offset by approximately $0.4 million of expenditures related to the ASIC Architect acquisition in July 2008.

For the first nine months of 2009, R&D expenditures were lower by $4.6 million compared to the same period last year. Favourable currency adjustments, higher capitalized R&D expenditures, lower variable compensation expenses and the sale of the BST technology group were partially offset by the inclusion of operating expenses related to the ASIC Architect acquisition in July 2008.

Eligible R&D expenditures capitalized in the third quarter and first nine months of 2009 were $1.6 million and $4.0 million respectively. In the third quarter of 2008, $1.3 million was capitalized and $2.1 million was capitalized in the first nine months of 2008. As previously noted, impairment charges of $1.2 million were taken on certain capitalized R&D expenditures as part of the restructuring activities and have been included under "Restructuring and deferred development charges". There were no impairment charges in the third quarter or first nine months of 2008.

    
    Restructuring charge and deferred development impairment

    (in millions of U.S. dollars)

                                     Three Months Ended    Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                                    %                    %
                                     2009   2008  change  2009   2008  change
    -------------------------------------------------------------------------
    Severance costs                   3.5      -      -    3.5      -      -
    Deferred development cost
     impairment                       1.2      -      -    1.2      -      -
    Inventory and other asset
     impairments                      0.8      -      -    0.8      -      -

    -------------------------------------------------------------------------
    Total restructuring charge and
     deferred development impairment  5.5      -      -    5.5      -      -
    -------------------------------------------------------------------------
    

During the third quarter of 2009, the Company announced the implementation of a restructuring plan to improve profitability and cash flow and help achieve its business model targets. The Company's plans include realigning its investment to maintain its R&D programs while reducing corporate infrastructure and business operations costs and capital expenditures. Additionally, Gennum is focusing its marketing, sales and administrative investment on short and mid-term customer revenue generation activities and new product development.

This plan resulted in a restructuring charge and deferred development impairment of $5.5 million related to the termination of approximately 10% of total headcount in August and additional restructuring actions to be completed in the fourth quarter of 2009.

    
    Other income (expense)

    (in millions of U.S. dollars)

                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                    August 31     August 31
    -------------------------------------------------------------------------
                                                   2009   2008   2009   2008
    -------------------------------------------------------------------------
    Realized gain (loss) on foreign exchange
     hedges                                         0.8   (0.1)  (2.4)   0.7
    Foreign exchange gain (loss) on translation    (0.5)   1.8   (3.0)   2.2
    -------------------------------------------------------------------------
    Gain (loss) on foreign exchange, net            0.3    1.7   (5.4)   2.9
    -------------------------------------------------------------------------
    Gain on sale of building                        1.0      -    1.0      -
    Corporate development charges                  (1.2)     -   (1.2)     -
    Tundra termination fee, net                       -      -    2.2      -
    Gain on sale of BST technology group              -      -    1.6      -
    Gain on sale of Toumaz investment                 -      -    0.3      -
    Provision on long-term investment              (0.1)     -   (0.8)     -
    Fair value loss on instruments held for trading   -      -   (0.3)     -
    Other                                          (0.3)  (0.1)  (0.6)  (0.2)
    -------------------------------------------------------------------------
                                                   (0.6)  (0.1)   2.2   (0.2)
    -------------------------------------------------------------------------
    Total other income (expense)                   (0.4)   1.6   (3.2)   2.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Other expense in the third quarter of 2009 was $0.4 million compared to other income of $1.7 million in the third quarter of 2008 and $3.2 million of expense compared to $2.7 million in income on a year-to-date basis for 2009 and 2008 respectively. Foreign exchange contracts matured in the quarter resulting in realized gains of $0.8 million. Currency translation losses were $0.5 million. On a year-to-date basis, the Company realized losses of $2.4 million on foreign exchange contracts and recorded a foreign exchange translation loss of $3.0 million due to the strengthening of the Canadian dollar versus the U.S. dollar during the past nine months.

During the quarter, the Company completed the sale of land and a vacant building in Burlington, Ontario, which resulted in a gain of $1.0 million recorded to other income. Corporate development charges of $1.2 million were recognized as other expense. The Company also impaired the remaining value of its investment in CellPoint.

    
    Income taxes

    (in millions of U.S. dollars)

                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                    August 31     August 31
    -------------------------------------------------------------------------
                                                   2009   2008   2009   2008
    -------------------------------------------------------------------------
    Income tax (recovery) expense                  (1.2)   3.0   (3.2)   9.3
    -------------------------------------------------------------------------
    

In the third quarter and first nine months of 2009, there was an income tax recovery compared to an income tax expense for the same periods in 2008. The effective tax rate in the third quarter and first nine months of 2009 was 22.6% and 33.7% respectively, compared to the Canadian statutory rate of 33.0%. The reduction in the rate for the quarter was driven mainly by a permanent difference from stock option amortization.

    
    Net (loss) earnings from continuing operations

    (in millions of U.S. dollars except earnings per share)

    -------------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                    August 31     August 31
    -------------------------------------------------------------------------
                                                   2009   2008   2009   2008
    -------------------------------------------------------------------------
    Net (loss) earnings from
     continuing operations                         (4.3)   6.4   (6.2)  16.9
    Percentage of revenue                           n/a   19.0    n/a   17.5
    Basic (loss) earnings per share
     from continuing operations                   (0.12)  0.18  (0.18)  0.48
    -------------------------------------------------------------------------
    

In the third quarter of 2009, the Company incurred a net loss of $4.3 million or a $0.12 loss per share compared to net earnings of $6.4 million or $0.18 earnings per share in the third quarter of 2008. This loss was primarily driven by the restructuring charges of $5.5 million taken in the current quarter and the significant decline in revenue caused by the global economic slowdown. On a year-to-date basis, the net loss was $6.2 million or $0.18 loss per share which was primarily caused by the economic slowdown and the restructuring charge.

    
    Discontinued operations, net of tax

    (in millions of U.S. dollars except earnings per share)
    -------------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                    August 31     August 31
    -------------------------------------------------------------------------
                                                   2009   2008   2009   2008
    -------------------------------------------------------------------------
    Hearing/Manufacturing                             -      -      -   (1.1)
    VXP(R), including gain on sale                    -      -      -    8.7
    -------------------------------------------------------------------------
    Total earnings (loss) on discontinued
     operations, net of taxes                         -      -      -    7.6
    Earnings (loss) per share
      - basic and diluted                             -      -      -   0.21
    -------------------------------------------------------------------------

    In the first quarter of 2008, the Company completed the sale of its VXP(R)
business to Sigma Designs for $18.2 million, which resulted in a pre-tax gain
on the sale of approximately $13.5 million.

    Net (loss) earnings

    (in millions of U.S. dollars except earnings per share)
    -------------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                    August 31     August 31
    -------------------------------------------------------------------------
                                                   2009   2008   2009   2008
    -------------------------------------------------------------------------
    Net (loss) earnings                            (4.3)   6.4   (6.2)  24.5
    Percentage of revenue                           n/a   19.0    n/a   25.4
    Basic (loss) earnings per share               (0.12)  0.18  (0.18)  0.69
    -------------------------------------------------------------------------
    

In the third quarter of 2009, the Company incurred a net loss of $4.3 million, or a $0.12 loss per share, compared to net earnings of $6.4 million, or $0.18 earnings per share in the third quarter of 2008.

On a year-to-date basis, the net loss was $6.2 million or $0.18 loss per share, compared to net earnings of $24.5 million or $0.69 earnings per share in 2008. Net earnings for the first nine months of 2008 included a positive contribution of $7.6 million or $0.21 earnings per share from discontinued operations.

    
    Quarterly results

    (in millions of U.S. dollars except earnings per share)
    -------------------------------------------------------------------------
                                 Third      Second      First      Fourth
                                Quarter     Quarter    Quarter     Quarter
                              2009  2008  2009  2008  2009  2008  2008  2007
    -------------------------------------------------------------------------

    Revenue                   21.4  33.5  19.4  33.0  19.4  30.1  30.3  29.9

    Net earnings (loss) from
     continuing operations    (4.3)  6.4  (1.1)  5.9  (0.8)  4.6   2.7   4.4
    Net earnings (loss) from
     discontinued operations     -     -     -  (1.1)    -   8.7  (0.2) (4.8)

    Earnings (loss) per share:
      Continuing operations
        basic and diluted    (0.12) 0.18 (0.03) 0.17 (0.02) 0.13  0.07  0.12
      Discontinued operations
        basic and diluted        - (0.00)    - (0.03)    -  0.24     - (0.14)
    -------------------------------------------------------------------------
    

Revenue and net earnings performance can fluctuate on a quarterly basis due to a wide variety of factors, including economic conditions and exchange rates.

NON-GAAP REPORTING

The Company presents non-GAAP financial measures to assist the financial community in its analysis and comparison of historical results and assessment of the Company's future operating results.

EBITDA

We believe that financial analysts and investors use EBITDA to understand our financial results and to compare us with our industry peers. The term EBITDA refers to a non-GAAP financial measure that we define as earnings before interest, taxes, depreciation and amortization (related to intangible assets and stock-based compensation). In the current quarter, we have also excluded the restructuring charges from the EBITDA calculation as management believes that this would better represent the normal operations of the Company. Since EBITDA is not a measure defined under GAAP, it may not be comparable to definitions of EBITDA reported by other companies. EBITDA is presented here over the last five quarters to provide readers with a historical perspective regarding our operational performance. We believe this allows us to compare our operating performance on a more consistent basis. The most comparable GAAP financial measure is operating income from continuing operations. The table below reconciles EBITDA to operating income from continuing operations.

    
    -------------------------------------------------------------------------
    EBITDA Last Five Quarters                     Q3    Q2    Q1    Q4    Q3
                                                2009  2009  2009  2008  2008
    -------------------------------------------------------------------------
    Revenue                                     21.4  19.4  19.4  30.3  33.5
    Operating income (loss) from continuing
     operations                                 (5.2) (1.0) (0.3)  5.6   7.5
    Restructuring and deferred development
     charges                                     5.5     -     -     -     -
    Operating income (loss) from continuing
     operations before restructuring and
     deferred development charges                0.3  (1.0) (0.3)  5.6   7.5

    Adjustments to reconcile to EBITDA:
      Depreciation expense                       1.3   1.3   1.3   1.4   1.4
      Amortization of:
        Intangibles                              0.5   0.4   0.4   0.5   0.5
        Stock-based compensation                 0.8   0.7   0.6   1.4   1.1
    -------------------------------------------------------------------------
    EBITDA                                       2.9   1.4   2.0   8.9  10.5
    -------------------------------------------------------------------------
    EBITDA as a percentage of revenue            14%    7%   10%   29%   31%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents

The cash and cash equivalents balance at August 31, 2009 was $34.9 million, a decrease of $13.9 million from the end of the 2008 fiscal year. Uses of cash in the first nine months of 2009 were mainly a result of lower earnings and an inventory buildup caused by a planned investment in finished goods related to legacy products approaching the end-of-life stage and the sudden and severe economic downturn. Management has taken action to reduce work in process in the supply chain and limit future capital expenditures to critical projects. As a result, inventories began to decrease in the third quarter and are expected to decline further by year end.

The Company is in a strong liquidity position and is able to meet its cash flow obligations as they come due. The Company's cash and accounts receivable represents a combined balance of $52.0 million, which is sufficient to cover the combination of accounts payable and the current portion of the long-term payable of $14.2 million. The current ratio at the end of the third quarter was 5.6 times.

Cash flow used in operating activities was $0.3 million in the third quarter of 2009 compared to cash generated of $10.2 million in the same period last year. The use of cash in operations was mainly due to funding of operating losses, offset by cash generated from non-cash working capital. Cash of $0.8 million was used in investing activities in the third quarter of 2009 compared to cash generation of $6.4 million for the same period last year. This change was mainly due to proceeds received on the sale of the land and vacant building, offset by investments in capital assets and project development costs. During the third quarter of 2008 the generation of cash was mainly due to proceeds received on the sale-leaseback transaction of our corporate office, partially offset by investments in the implementation of a new enterprise resource planning ("ERP") system and leasehold improvements related to the new test operation facility.

Accounts receivable

At August 31, 2009, the accounts receivable balance was $17.2 million compared to $22.7 million at November 30, 2008. The reduction in accounts receivable is mainly due to lower revenues in the third quarter compared to the fourth quarter of last year.

As of August 31, 2009, the allowance for doubtful accounts was $1.0 million compared to $0.2 million at the end of the 2008 fiscal year. The increase relates to provisions made in the first nine months of 2009 against accounts that were deemed to be uncollectible.

The aging of trade receivable balances as of August 31, 2009 compared to November 30, 2008 was as follows:

    
    -------------------------------------------------------------------------
                                     % of total                    % of total
                                         before                        before
                     August 31, 2009  allowance  November 30, 2008  allowance
    -------------------------------------------------------------------------

    Not past due                13.8       75.8               18.4       80.2
    Past due 0-30 days           2.8       15.4                2.9       12.7
    Past due 31-60 days          0.3        1.6                1.1        4.7
    Past due over 61 days        1.3        7.2                0.5        2.4
    -------------------------------------------------------------------------
    Trade receivables           18.2                          22.9
    Less allowance for
     doubtful accounts          (1.0)                         (0.2)
    -------------------------------------------------------------------------
                                17.2                          22.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Company is exposed to commercial credit risk from its customers in the normal course of business. However, this risk is mitigated by the Company's credit management policies. Advance payments from customers are required in certain circumstances.

No material write-offs occurred in the third quarter and first nine months of 2009 or 2008.

Inventories

At August 31, 2009, inventories were $23.2 million, compared to $14.2 million at the end of November 30, 2008. This increase was mainly caused by a planned investment in finished goods related to legacy products approaching the end-of-life stage. Management has taken action to aggressively reduce work in process, refine safety stock levels and postpone other deliveries of incoming materials. As a result, inventory levels were reduced in the third quarter and further reductions are expected by year end.

Instruments held for trading and long-term investments

Trading of the CellPoint shares were halted on the Aktie Torget stock exchange in Sweden during the quarter. Those shares classified as held for trading were written down to a fair value of nil as of August 31, 2009 (November 30, 2008 - $0.3 million). The fair value adjustment loss for the quarter recorded through net earnings was less than $0.1 million (third quarter of 2008 - nil). On a year-to-date basis, the unrealized pre-tax loss recorded through net earnings was $0.3 million (year-to-date 2008 - nil).

The CellPoint shares classified as available for sale were impaired for the remaining value of $0.1 million through net earnings in the quarter (November 30, 2008 - $0.5 million). On a year-to-date basis, an impairment charge of $0.8 million has been recorded.

In the second quarter of 2009, the Company sold its investment in Toumaz for $1.0 million, net of commissions, resulting in a realized gain of $0.3 million.

Future income tax assets

Net future income tax assets increased by $6.2 million compared to the end of 2008. The increase is primarily related to the additional R&D expense carry forwards.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities at August 31, 2009 decreased by $5.8 million to $13.0 million compared to $18.8 million at the end of the 2008 fiscal year. The decrease is primarily the result of the payout of accruals for the Company's fiscal 2008 variable compensation program and new ERP system, and lower levels of economic activity in 2009.

Total assets

Total assets at the end of the third quarter of 2009 were $164.3 million, an increase of $4.8 million from the end of 2008. The increase is primarily due to higher inventory and future income taxes, partially offset by lower cash and cash equivalents and receivables.

Capital expenditures

Purchases of capital assets in the first nine months of 2009 were $3.2 million compared to $11.1 million in the first nine months of 2008. The first nine months of 2008 included expenditures associated with the implementation of the Company's new ERP system ($4.4 million) and the new Burlington test operations facility ($3.2 million). Capital commitments at August 31, 2009 totalled $1.0 million.

Dividends

Total dividends of $1.1 million, or Canadian $0.035 per share, were paid in the third quarter of 2009 ($1.2 million or Canadian $0.035 per share in the third quarter of 2008).

Derivative financial instruments

The objective of the Company's foreign exchange risk management activities is to minimize translation exposures and the resulting volatility of the Company's earnings. The Company utilizes financial instruments to manage the risk associated with fluctuations in foreign exchange rates by entering into foreign exchange forward contracts.

Cash, receivables and payables on the Canadian entity's books are primarily denominated in U.S. dollars while the functional currency of this entity is Canadian dollars. Therefore, translation gains or losses can occur when these net monetary assets are translated to Canadian dollars at the exchange rate in effect on the balance sheet date. A volatile exchange rate can create significant swings in periodic income. To help mitigate this risk, starting in the third quarter of 2009, the Company entered into foreign exchange forward contracts equal to the forecasted U.S. dollar denominated net monetary assets and excess U.S. dollar cash balances. These contracts mature in one month and help to offset the impact of translation gains or losses due to currency movements.

In the year to date for 2009, the Canadian dollar strengthened compared to the U.S. dollar ($0.8083 on November 30, 2008 Canadian to U.S. dollar exchange rate compared to $0.9118 on August 31, 2009) and remained consistent with the prior quarter ($0.9123 on May 31, 2009 Canadian to U.S. dollar exchange rate compared to $0.9118 on August 31, 2009).

During the third quarter, the Company cancelled foreign exchange contracts entered into under its previous hedging policy which resulted in a gain of $0.3 million. Realized gains on foreign exchange forward and spot contracts, including the cancelled contracts, were $0.8 million in the third quarter of 2009 (2008 - losses of $0.1 million). The Company reported a foreign currency translation loss on net monetary assets in other expense in the third quarter of $0.5 million (2008 - gains of $1.8 million).

The Company has entered into a foreign exchange forward contract to sell an aggregate amount of U.S. $16.0 million as at August 31, 2009. This contract matures on September 30, 2009 at an exchange rate of Canadian $1.0991 against the U.S. dollar. Management estimates that a before tax gain of $0.1 million would be realized if the contract was terminated on August 31, 2009. The fair value of the foreign exchange forward contract is based on market information from major financial institutions. This forward contract is not considered a hedge therefore the gain is included in Other Income on the Statement of Earnings.

The Company's reporting currency is the U.S. dollar. Therefore, financial results are first consolidated into the Canadian dollar functional currency and then translated into U.S. dollars using the current rate method. The translation to the reporting currency does not generate any cash impact and is not hedged by the Company. Any gains or losses created by translating from the functional currency to the reporting currency are captured as a change in unrealized gains (losses) on translating financial statements and are captured in the consolidated statement of Other Comprehensive Income. A year-to-date foreign currency translation gain of $14.9 million is included in Other Comprehensive Income as a result of converting the Canadian dollar consolidation for the purpose of U.S. dollar reporting.

    
    CONTRACTUAL OBLIGATIONS

    (in millions of U. S. dollars)

                                          Payments Due by Period
                                 --------------------------------------------
                                  Less than                        More than
                           Total     1 year  1-3 years  4-5 years    5 years
                          ---------------------------------------------------

    Operating leases        29.4        3.9        6.9        4.4       14.2
    Purchase obligations(1)  7.1        6.7        0.4          -          -
    Other obligations        0.1        0.1          -          -          -
    -------------------------------------------------------------------------
    Total contractual
     obligations            36.6       10.7        7.3        4.4       14.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Agreements to purchase goods or services that are enforceable and
        legally binding and that specify all significant terms, including
        fixed or minimum quantities to be purchased, fixed or variable price
        provisions and the approximate timing of the transactions. The
        purchase obligations relate primarily to inventory, product
        development, license agreements, general operating costs and
        $1.0 million in authorized capital projects.
    

There are no off-balance sheet arrangements that have or are likely to have an effect on the results of operations or the financial condition of the Company.

RELATED PARTY TRANSACTIONS

The Company did not have any related party transactions during the year.

LITIGATION

In the ordinary course of business activities, the Company may become involved in litigation or claims with customers, suppliers, former employees and third parties.

NEW ACCOUNTING POLICIES AND CRITICAL ESTIMATES

A summary of significant accounting policies is presented in note 1 to our audited November 30, 2008 Consolidated Financial Statements. Certain of our accounting policies are critical to understanding the results of operations and financial condition of Gennum. These critical accounting policies require us to make certain judgements and estimates, some of which may relate to matters that are uncertain. For a description of the judgements and estimates involved in the application of critical accounting policies and assumptions made, refer to our 2008 Annual Report. The accounting policies used in the preparation of these Consolidated Financial Statements are consistent with those used in the Company's November 30, 2008 audited Consolidated Financial Statements, except as described below.

Changes in Significant Accounting Policies

Effective December 1, 2008, the Company adopted the following Canadian Institute of Chartered Accountants (CICA) Handbook Sections:

General Standards of Financial Statement Presentation - The CICA amended Section 1400 "General Standards of Financial Statement Presentation", to include requirements to assess and disclose an entity's ability to continue as a going concern. The Company adopted the amendments to this standard beginning December 1, 2008. There was no impact on the classification of the Company's consolidated financial statements.

Inventories - The CICA issued a new standard, Section 3031 "Inventories", which requires inventory to be measured at the lower of cost and net realizable value. The standard provides guidance on the types of costs that can be capitalized and requires reversal of previous inventory write-downs if economic circumstances have changed to support the higher inventory values. The Company adopted this standard beginning December 1, 2008 and adjusted opening inventory on this date by $0.2 million with the adjustment recorded net of tax as an increase to retained earnings for additional transportation costs now required to be included in inventory. The prior period was not restated. Inventories are recorded at the lower of cost and net realizable value. Inventory cost is based on weighted average cost and includes material, labour, transportation and handling costs and manufacturing overhead where applicable.

Goodwill and Intangible Assets - The CICA issued a new accounting standard, Section 3064 "Goodwill and Intangible Assets", which clarifies that costs can be deferred only when they relate to an item that meets the definition of an asset. The Company adopted the new standard beginning December 1, 2008. As a result of the new Section, the Company reversed the deferred cost balance of $0.4 million related to deferred pre-opening costs as they are no longer eligible for capitalization. The adjustment of $0.3 million net of tax was made as a reduction to retained earnings.

Financial Statement Concepts - Section 1000 "Financial Statement Concepts", was amended to provide consistency with the new standard, Section 3064. The amended standard was effective for the Company beginning December 1, 2008 and had no impact on the classification and valuation of the Company's consolidated financial statements.

Recently issued accounting pronouncements

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests - In December 2008, the CICA approved three new accounting standards; Handbook Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements", and Section 1602, "Non-Controlling Interests", replacing Section 1581, "Business Combinations" and Section 1600, "Consolidated Financial Statements". Section 1582 provides the Canadian equivalent to IFRS 3 - "Business Combinations (January 2008)" and Sections 1601 and 1602 to IAS 27 - "Consolidated and Separate Financial Statements (January 2008)". Section 1582 requires additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Entities adopting Section 1582 will also be required to adopt Sections 1601 and 1602. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards will require a change in the measurement of non-controlling interest and will require the non-controlling interest to be presented as part of shareholders' equity on the balance sheet. In addition, the net earnings will include 100% of the subsidiary's results and will be allocated between the controlling interest and non-controlling interest. These standards apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Early adoption of these Sections is permitted and all three Sections must be adopted concurrently. All three standards are effective at the same time Canadian public companies will have adopted IFRS, for fiscal year beginning on or after January 1, 2011. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

International Financial Reporting Standards - In February 2008, the Canadian Accounting Standards Board announced the adoption of International Financial Reporting Standards ("IFRS") for publicly accountable enterprises. The Company will be required to adopt IFRS no later than December 1, 2011, and will be required to provide IFRS comparative information for the previous fiscal year. The Company expects the transition to IFRS to impact accounting, financial reporting, internal controls over financial reporting, taxes, IT systems and processes and compensation plans. The Company has established an IFRS implementation team and completed a diagnostic analysis in the second quarter of 2009. The second phase of the conversion process is expected to begin in the fourth quarter of 2009.

CONTROLS AND PROCEDURES

There have been no changes in the Company's internal control over financial reporting during the second quarter of 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

COMMON SHARES OUTSTANDING

At August 31, 2009, there were 35,429,086 common shares of Gennum outstanding, being the same number of common shares outstanding as at November 30, 2008. On September 30, 2008, a normal course issuer bid was announced to acquire up to 3,408,224 of the Company's common shares (approximately 10% of the public float), commencing on October 2, 2008 and ending on October 1, 2009. No repurchases have been made to date in 2009.

At the end of the third quarter of 2009, there were 2,587,894 outstanding options, each entitling the holder to purchase one common share of Gennum. Of these outstanding options, 845,467 were exercisable as at August 31, 2009.

RISKS AND UNCERTAINTIES

We are subject to a number of risks and uncertainties that could significantly affect our financial condition and performance. As we grow, continue our commitment to R&D, and enter into new markets, these risks can increase. For a discussion of these risks, please refer to our annual information form dated February 23, 2009, our 2008 Annual Report and our other public filings.

OUTLOOK

Our third fiscal quarter was a period in which we saw customer demand strengthen, resulting in a 10% revenue growth compared to the second quarter of 2009 and improved backlog for the fourth quarter.

For the fourth quarter, we have better visibility as customer lead times continue to increase. We are encouraged by continued increasing market demand for our products, enabling our ability to deliver improved revenue performance in the final quarter of our fiscal year.

We continue to be focused on improving profitability and cash flow. With the increased manufacturing activity in our test operations and actions to reduce costs, we expect gross margin percentage to return to average corporate levels. We also expect our cost structure to continue to benefit from the cost initiatives that were announced in August 2009.

Turning to the economic environment, and specifically our industry outlook, we do see some improvement in the overall economic environment and end markets. We are particularly seeing improvement in broadcast and data communications markets due to the continued build out of the global 3Gb/s video broadcast infrastructure and the migration to data rates above 10Gb/s in data center, enterprise and storage applications. We expect this market demand improvement to continue into fiscal 2010.

Looking ahead to 2010, we believe that the cost initiatives, improvement in our market segments and early volume ramps of new products should result in us achieving operating ratios in line with our 2008 performance.

We remain confident in our strategy and will continue to deliver more new products, capitalize on new customer opportunities and grow our leadership in our target markets.

September 23, 2009

    
                             GENNUM CORPORATION

                 Unaudited Consolidated Financial Statements

                  For the Nine Months ended August 31, 2009

                   (Amounts in thousands of U.S. Dollars)



    Gennum Corporation
    CONSOLIDATED BALANCE SHEETS - (unaudited)
    (U.S. dollars, amounts in thousands)

                                                    August 31,   November 30,
                                                         2009           2008
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                          34,862         48,748
    Instruments held for trading (note 9)                   -            268
    Accounts receivable, net                           17,167         22,726
    Inventories (note 3)                               23,184         14,219
    Prepaid expenses and other assets                   4,781          4,863
    Promissory note receivable (note 10)                1,161            816
    Consideration receivable (note 6)                     500              -
    Income taxes receivable                             3,867            547
    Future income taxes                                 9,824         13,428
    Assets held for sale (note 6)                           -            142
    -------------------------------------------------------------------------
    Total current assets                               95,346        105,757
    -------------------------------------------------------------------------
    Capital assets, net  (note 4)                      21,839         20,579
    Long-term investment (note 9)                           -          1,300
    Intangible assets, net (note 11)                   11,503          8,652
    Promissory note receivable (note 10)                    -            606
    Consideration receivable (note 6)                     845              -
    Goodwill (note 11)                                 20,843         18,029
    Future income taxes                                13,909          2,915
    Assets held for sale (note 6)                           -          1,616
    -------------------------------------------------------------------------
                                                      164,285        159,454
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities
     (note 17)                                         13,025         18,849
    Deferred revenue (note 12)                            719            308
    Current portion of long-term payable (note 13)      1,142          1,013
    Income taxes payable                                  814          1,138
    Future income taxes                                 1,273          1,515
    -------------------------------------------------------------------------
    Total current liabilities                          16,973         22,823
    -------------------------------------------------------------------------
    Long-term payable (note 13)                         1,143          1,013
    Deferred revenue (note 12)                          3,628          3,430
    Future income taxes                                 3,882          2,478
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 14)                             8,576          8,576
    Deferred compensation                              (2,766)        (2,092)
    Retained earnings                                 104,522        113,658
    Contributed surplus                                 3,466          2,493
    Accumulated other comprehensive income             24,861          7,075
    -------------------------------------------------------------------------
    Total shareholders' equity                        138,659        129,710
    -------------------------------------------------------------------------
                                                      164,285        159,454
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments and contingencies (note 21)

    See accompanying notes



    Gennum Corporation
    CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - (unaudited)
    (U.S. dollars, amounts in thousands except per share data)

                                    Three Months Ended     Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Revenue (note 16)                21,389     33,496     60,140     96,583
    Cost of goods sold                6,646      7,931     17,571     23,269
    -------------------------------------------------------------------------

    Gross margin                     14,743     25,565     42,569     73,314
    -------------------------------------------------------------------------

    Sales, marketing and
     administration expense           7,596      9,454     22,741     26,333
    Research and development expense  7,377      9,401     22,834     27,428
    Amortization of intangible
     assets                             491        454      1,326      1,348
      Less government assistance    (1,026)     (1,206)    (3,379)    (4,387)
    -------------------------------------------------------------------------

    Operating expenses before
     restructuring and deferred
     development charge             14,438      18,103     43,522     50,722
    Restructuring charge and
     deferred development
     impairment (note 17)            5,509           -      5,509          -
    -------------------------------------------------------------------------

    Operating income (loss)         (5,204)      7,462     (6,462)    22,592
    Investment income                   58         259        272        881
    Other income (expense)
     (note 18)                        (364)      1,687     (3,201)     2,667
    -------------------------------------------------------------------------

    Earnings (loss) from
     continuing operations before
     income taxes                   (5,510)      9,408     (9,391)    26,140
    Provision (recovery) of income
     taxes (note 19)                (1,244)      3,037     (3,168)     9,250
    -------------------------------------------------------------------------

    Net earnings (loss) for the
     period, from continuing
     operations                     (4,266)      6,371     (6,223)    16,890
    Net earnings (loss) on
     discontinued operations, net
     of tax (note 5)                     -         (18)         -      7,626
    -------------------------------------------------------------------------

    Net earnings (loss) for the
     period                         (4,266)      6,353     (6,223)    24,516
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
     (note 14)
    Continuing operations - basic
     and diluted                      (0.12)      0.18      (0.18)      0.48
    Discontinued operations - basic
     and diluted                          -       0.00          -       0.21
    -------------------------------------------------------------------------
    Net earnings (loss) - basic and
     diluted                          (0.12)      0.18      (0.18)      0.69
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Gennum Corporation
    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (unaudited)
    (U.S. dollars, amounts in thousands)

                                    Three Months Ended     Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Capital stock
    Balance at beginning of the
     period                           8,576      8,627      8,576      8,680
    Shares repurchased under normal
     course issuer bid                    -          -          -        (53)
    -------------------------------------------------------------------------
    Balance at end of the period      8,576      8,627      8,576      8,627
    -------------------------------------------------------------------------
    Deferred compensation
    Balance at beginning of the
     period                          (3,384)    (3,902)    (2,092)    (3,404)
    New awards                          (49)         -     (1,986)    (1,680)
    Forfeitures                         234         59        250        413
    Amortization                        433        485      1,062      1,313
    -------------------------------------------------------------------------
    Balance at end of the period     (2,766)    (3,358)    (2,766)    (3,358)
    -------------------------------------------------------------------------
    Retained earnings
    Balance at beginning of the
     period (as restated - note 1)  109,905    108,555    113,658     93,200
    Transitional adjustment on
     adoption of new accounting
     policies (note 1)                    -          -        212          -
    Net earnings (loss)              (4,266)     6,353     (6,223)    24,516
    Dividends                        (1,117)    (1,231)    (3,125     (3,723)
    Repurchase of common shares           -          -          -       (316)
    -------------------------------------------------------------------------
    Balance at end of the period    104,522    113,677    104,522    113,677
    -------------------------------------------------------------------------
    Contributed surplus
    Balance at beginning of the
     period                           3,094      1,729      2,493      1,078
    Stock option amortization           372        412        973      1,063
    -------------------------------------------------------------------------
    Balance at end of the period      3,466      2,141      3,466      2,141
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive income, net of
     income taxes
    Balance at beginning of the
     period                          24,675     37,055      7,075     36,802
    Other comprehensive income
     (loss) for the period              186    (10,807)    17,786    (10,554)
    -------------------------------------------------------------------------
    Balance at end of the period     24,861     26,248     24,861     26,248
    -------------------------------------------------------------------------
    Total shareholders' equity at
     end of the period              138,659    147,335    138,659    147,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    Gennum Corporation
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (unaudited)
    (U.S. dollars, amounts in thousands)

                                    Three Months Ended     Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Net earnings (loss) for the
     period                          (4,266)     6,353     (6,223)    24,516

    Other comprehensive income
     (loss), net of income taxes
      Change in unrealized gains
       (losses) on translating
       financial statements            (175)    (9,820)    14,848     (9,142)
      Change in gains (losses) on
       derivative instruments
       designated as cash flow
       hedges(1)                      2,171       (806)     2,319     (1,242)
      Reclassification to earnings
       of gains (losses) on
       settled cash flow hedges(2)   (1,810)        25        405        402
      Change in unrealized gains
       (losses) on available for
       sale financial assets(3)         (62)      (206)     1,365       (572)
      Reclassification to earnings
       of gains (losses) on
       available for sale financial
       assets(4)                         62          -     (1,151)         -
    -------------------------------------------------------------------------
      Total other comprehensive
       income (loss), net of income
       taxes                            186    (10,807)    17,786    (10,554)
    -------------------------------------------------------------------------
    Comprehensive income (loss) for
     the period                      (4,080)    (4,454)    11,563     13,962
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net of income tax recovery of nil for the quarter and nil year to
        date (2008 - tax recovery of $399 for the quarter and $618 year to
        date)
    (2) Net of income tax recovery of nil for the quarter and nil year to
        date (2008 - tax of $12 for the quarter and $203 year to date)
    (3) Net of income tax recovery of $10 for the quarter and $148 year to
        date (2008 - nil for the quarter and year to date)
    (4) Net of income tax recovery of $10 for the quarter and $148 year to
        date (2008 - nil for the quarter and year to date)

    See accompanying notes



    Gennum Corporation
    CONSOLIDATED STATEMENTS OF CASH FLOWS - (unaudited)
    (U.S. dollars except as noted, amounts in thousands except per share
    data)

                                    Three Months Ended     Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net (loss) earnings from
     continuing operations for the
     period                          (4,266)     6,371     (6,223)    16,890
    Items not affecting cash
      Depreciation and amortization   1,776      1,798      5,199      5,428
      Impairment of deferred
       development costs              1,164          -      1,308          -
      Deferred compensation and
       stock option amortization        794        864      2,039      2,320
      Gain on sale of land and
       building                      (1,002)         -     (1,002)         -
      Gain on sale of BST
       technology group                   -          -     (1,601)         -
      Gain on sale of Toumaz
       investment                         -          -       (268)         -
      Loss on CellPoint investments      96          -      1,110          -
      Future income taxes            (3,193)      2,054     (5,904)    2,045
      Foreign exchange (gain) loss
       on translation                   556     (1,810)     3,015     (2,154)
      Other                              72        (57)       (83)      (177)
    -------------------------------------------------------------------------
                                     (4,003)     9,220     (2,410)    24,352
    Net change in non-cash working
     capital balances related to
     continuing operations            3,687        989     (7,026)    (6,949)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     operating activities of
     continuing operations             (316)    10,209     (9,436)    17,403
    Cash used in operating
     activities of discontinued
     operations                           -         25          -     (7,786)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     operating activities              (316)    10,234     (9,436)     9,617
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets       (1,069)    (3,890)    (3,155)   (11,070)
    Payment of license fees and
     deferred development charges    (1,606)    (1,407)    (4,161)    (2,184)
    Acquisition, cash acquired            -        123          -        123
    Acquisition, other than cash
     acquired                           162     (1,716)      (432)    (2,639)
    Proceeds on sale of BST
     technology group - cash            250          -      2,026          -
    Proceeds on sale of Toumaz
     investment                           -          -      1,019          -
    Proceeds from sale of VXP(R)
     (note 7)                             -          -          -     18,302
    Proceeds from sale of land and
     building                         1,437     13,285      1,437     17,575
    Sale of CellPoint investment          -          -          -        502
    -------------------------------------------------------------------------
    Cash provided by (used in)
     investing activities of
     continued operations              (826)     6,395     (3,266)    20,609
    Cash provided by investing
     activities of discontinued
     operations                           -          -          -        105
    -------------------------------------------------------------------------
    Cash provided by (used in)
     investing activities              (826)     6,395     (3,266)    20,714
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Deferred compensation paid,
     net of forfeitures                 185         66     (1,748)    (1,509)
    Shares repurchased under normal
     course issuer bid                    -          -          -       (370)
    Dividends paid                   (1,117)    (1,231)    (3,125)    (3,723)
    -------------------------------------------------------------------------
    Cash used in financing activities  (932)    (1,165)    (4,873)    (5,602)
    -------------------------------------------------------------------------

    Effect of exchange rate changes
     on cash and cash equivalents       351     (3,471)     3,689     (3,731)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net (decrease) increase in cash
     and cash equivalents during
     the period                      (1,723)   (11,993)   (13,886)    20,998
    Cash and cash equivalents,
     beginning of the period         36,585     43,146     48,748     34,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of the period               34,862     55,139     34,862     55,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends declared per share(1)  $0.031     $0.035     $0.088     $0.105
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    No interest expense was paid in the third quarter or the nine months
    ended August 31, 2009 or 2008. Income taxes paid in the third quarter was
    $513 (2008 - $540) and in the year to date was $2,936 (2008 - $810). Cash
    and cash equivalents at August 31, 2009 is comprised of $16,935 in cash
    and $17,927 in cash equivalents (August 31, 2008 - Cash - $8,461 and cash
    equivalents - $46,678).

    (1) Dividends were paid in Canadian dollars at a rate of $0.035 per share
        per quarter.

    See accompanying notes



    GENNUM CORPORATION

    Notes to the Consolidated Financial Statements
    (U.S. dollars except as noted, amounts in thousands except share and per
    share data)

    1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The accompanying unaudited consolidated financial statements of Gennum
    Corporation (the "Company") have been prepared by the Company in
    accordance with Canadian generally accepted accounting principles (GAAP)
    on a basis consistent with those followed in the most recent audited
    financial statements, except as noted below. These unaudited consolidated
    financial statements do not include all the information and footnotes
    required by GAAP for annual financial statements and therefore should be
    read in conjunction with the audited consolidated financial statements
    and notes included in the Company's Annual Report for the year ended
    November 30, 2008.

    Changes in accounting policies

        Effective December 1, 2008, the Company adopted the following
        Canadian Institute of Chartered Accountants (CICA) Handbook Sections:

        General Standards of Financial Statement Presentation - The CICA
        amended Section 1400 "General Standards of Financial Statement
        Presentation", to include requirements to assess and disclose an
        entity's ability to continue as a going concern. The Company adopted
        the amendments to this standard beginning December 1, 2008. There was
        no impact on the classification of the Company's consolidated
        financial statements.

        Inventories - The CICA issued a new accounting standard, Section 3031
        "Inventories", which requires inventory to be measured at the lower
        of cost and net realizable value. The standard provides guidance on
        the types of costs that can be capitalized and requires reversal of
        previous inventory write- downs if economic circumstances have
        changed to support the higher inventory values. The Company adopted
        this standard beginning December 1, 2008 and adjusted opening
        inventory on this date by $234 with an adjustment of $212 net of tax
        made as an increase to retained earnings for additional
        transportation costs now required to be included in inventory. The
        prior period was not restated. Inventories are recorded at the lower
        of cost and net realizable value. Inventory cost is based on weighted
        average cost and includes material, labour, transportation and
        handling costs and manufacturing overhead where applicable.

        Goodwill and Intangible Assets - The CICA issued a new accounting
        standard, Section 3064 "Goodwill and Intangible Assets", which
        clarifies that costs can be deferred only when they relate to an item
        that meets the definition of an asset. The Company adopted the new
        standard retrospectively. As a result of the new Section, the Company
        reversed the deferred cost balance of $403 related to deferred
        pre-opening costs as they are no longer eligible for capitalization.
        The adjustment of $323 net of tax was made as a reduction to ending
        retained earnings as at November 30, 2008.

        Financial Statement Concepts - Section 1000 "Financial Statement
        Concepts", was amended to provide consistency with the new standard,
        Section 3064. The amended standard was effective for the Company
        beginning December 1, 2008 and had no impact on the classification
        and valuation of the Company's consolidated financial statements.

    Recently issued accounting pronouncements

        Business Combinations, Consolidated Financial Statements and
        Non-Controlling Interests - In December 2008, the CICA approved three
        new accounting standards; Handbook Section 1582, "Business
        Combinations", Section 1601, "Consolidated Financial Statements", and
        Section 1602, "Non-Controlling Interests", replacing Section 1581,
        "Business Combinations" and Section 1600, "Consolidated Financial
        Statements". Section 1582 provides the Canadian equivalent to IFRS 3
        - "Business Combinations (January 2008)" and Sections 1601 and 1602
        to IAS 27 - "Consolidated and Separate Financial Statements (January
        2008)". Section 1582 requires additional use of fair value
        measurements, recognition of additional assets and liabilities, and
        increased disclosure for the accounting of a business combination.
        The section applies prospectively to business combinations for which
        the acquisition date is on or after the beginning of the first annual
        reporting period beginning on or after January 1, 2011. Entities
        adopting Section 1582 will also be required to adopt Sections 1601
        and 1602. Section 1601 establishes standards for the preparation of
        consolidated financial statements. Section 1602 establishes standards
        for accounting for a non-controlling interest in a subsidiary in
        consolidated financial statements subsequent to a business
        combination. These standards will require a change in the measurement
        of non-controlling interest and will require the non-controlling
        interest to be presented as part of shareholders' equity on the
        balance sheet. In addition, the net earnings will include 100% of the
        subsidiary's results and will be allocated between the controlling
        interest and non-controlling interest. These standards apply to
        interim and annual consolidated financial statements relating to
        fiscal years beginning on or after January 1, 2011. Early adoption of
        these Sections is permitted and all three Sections must be adopted
        concurrently. All three standards are effective at the same time
        Canadian public companies will have adopted IFRS, for fiscal years
        beginning on or after January 1, 2011. The Company is currently
        evaluating the impact of this standard on its consolidated financial
        statements.

    2.  CHANGE OF REPORTING CURRENCY

    Effective December 1, 2007, the Company adopted the U.S. dollar as its
    reporting currency, but has retained the Canadian dollar as its
    functional currency. Management believes that reporting in U.S. dollars
    improves the comparability of the Company's financial position and
    results of operations to others in its industry.

    As a result of adopting the U.S. dollar as its reporting currency for
    both the current and prior periods, the cumulative translation adjustment
    effects of prior periods have been reflected in the opening balance for
    the period in accumulated Other Comprehensive Income.

    During the period, revenue and expenses have been translated from
    Canadian dollars to U.S. dollars at the monthly average rates, and cash
    flows at the quarterly average rates. Assets and liabilities have been
    translated at the period end rate of $0.9118 Canadian dollars to U.S.
    dollars (November 30, 2008 - $0.8083).

    3.  INVENTORIES

                                                    August 31,   November 30,
                                                         2009           2008
    -------------------------------------------------------------------------
    Raw materials and supplies                            338            301
    Work in process                                    13,294          9,183
    Finished goods                                      9,552          4,735
    -------------------------------------------------------------------------
                                                       23,184         14,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Inventory is reviewed at least quarterly for obsolescence. The Company
    recorded a write-down of $286 during the third quarter of 2009 and $428
    year to date. The inventory write-down in the quarter was part of the
    restructuring activity (see note 17).

    4.  CAPITAL ASSETS

                                                    August 31,   November 30,
                                                         2009           2008
    -------------------------------------------------------------------------

    Land                                                  897          1,133
    Buildings                                               -          3,641
    Equipment and furniture                            27,904         25,151
    Computer software and hardware                     10,550         13,938
    Operating systems                                   9,008          7,099
    Leasehold improvements                              2,307          1,371
    -------------------------------------------------------------------------
                                                       50,666         52,333
    -------------------------------------------------------------------------
    Less accumulated depreciation
      Buildings                                             -          3,588
      Equipment and furniture                          18,612         17,025
      Computer software and hardware                    9,163         11,063
      Operating systems                                   682             59
      Leasehold improvements                              370             19
    -------------------------------------------------------------------------
                                                       28,827         31,754
    -------------------------------------------------------------------------
                                                       21,839         20,579
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The cost of capital asset additions year to date for 2009 was reduced by
    government assistance of $290. Included in capital assets were assets
    valued at $1,842 that were not in use as of August 31, 2009 and therefore
    depreciation was not started (as at November 30, 2008 - $2,455).

    Depreciation expense from continuing operations for the period was as
    follows:

                                    Three Months Ended     Nine Months Ended
                                         August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Buildings                             4         73         16        321
    Equipment and furniture             863        961      2,604      3,002
    Computer software and hardware      171        246        482        759
    Operating systems                   238          -        669          -
    Leasehold improvements               65          -        159          -
    -------------------------------------------------------------------------
                                      1,341      1,280      3,930      4,082
    -------------------------------------------------------------------------

    5.  RECONCILIATION OF DISCONTINUED OPERATIONS

    As part of the Company's 2007 strategic decision-making process, it was
    determined that the Company would focus on its core business of
    designing, developing and marketing innovative optical and analog and
    mixed-signal products. As a result of this decision, divestitures of
    non-core businesses, including Hearing and Manufacturing Operations and
    VXP(R) Image Processing, were completed.

    As a result, certain figures for 2008 and 2009 for operating results have
    been re-classified to discontinued operations in accordance with CICA
    Handbook Section 3475 "Disposal of Long-Lived Assets and Discontinued
    Operations". The following table summarizes the reclassifications for the
    third quarter of 2008 (there were no discontinued operations in the year
    to date for 2009):

    Discontinued Operations
    -------------------------------------------------------------------------
                                                     Nine Months ended
                                                      August 31, 2008
    -------------------------------------------------------------------------
                                              Hearing/
                                                 Mfg(1)  VXP(R)(1)     TOTAL
    -------------------------------------------------------------------------

    Revenue                                          -      1,290      1,290
    Operating loss, before tax                    (423)    (3,906)    (4,329)
    Gain (loss) on sale                         (1,173)    13,473     12,300
    -------------------------------------------------------------------------
                                                (1,596)     9,567      7,971
    Income tax (expense) recovery                  525       (870)      (345)
    -------------------------------------------------------------------------
    Net earnings (loss) from discontinued
     operations, net of tax                     (1,071)     8,697      7,626
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The gain and loss on sale are considered capital transactions and
        therefore are only 50% taxable/deductible.

    6.  SALE OF THE BST TECHNOLOGY GROUP AND ASSOCIATED ASSETS

    On March 4, 2009, the Company completed the sale of its BST technology
    group and associated assets to Paratek Microwave, Inc. ("Paratek") for
    cash on closing of $1,526 and future cash payments totaling $2,150. The
    consideration receivable is non interest bearing with $250 payable
    quarterly for the next year and a long-term portion of $1,150 payable by
    March 4, 2012. The long-term portion was originally discounted to $796
    using a rate of 12%. The balance at August 31, 2009 is $845.

    The Company is also entitled to royalty payments based on Paratek's sales
    of BST related products over the next 5 years, but royalty payments could
    terminate earlier if Paratek were to undergo a change of control in that
    time frame. In the event that a change of control occurred on or before
    September 4, 2010, the royalty payments may only be terminated upon the
    payment of $3,000 to the Company; in the event that any such transaction
    occurs on or before March 4, 2012, the royalty payments may only be
    terminated upon the payment of $2,000 to the Company. No accrual was made
    for royalty payments at this time because an estimate cannot yet be made.

    The Company does not have any continuing involvement in or retain any
    ownership interest in these operations.

    The sale of the BST technology group and associated assets resulted in a
    gain of $1,601, calculated as follows:

    Capital assets                                                     1,436
    Inventory                                                            164
    Transaction costs                                                    121
    -------------------------------------------------------------------------
                                                                       1,721
    -------------------------------------------------------------------------
    Less proceeds:
    Cash                                                               1,526
    Consideration receivable                                           1,796
    -------------------------------------------------------------------------

    Gain on sale recognized in 2009                                    1,601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Inventory of $142 and capital assets (net) of $1,616 related to the BST
    technology group have been reclassified to assets held for sale as at
    November 30, 2008.


    7.  SALE OF VXP(R) IMAGE PROCESSING BUSINESS

    On February 8, 2008, the Company completed the sale of its VXP(R) Image
    Processing business to Sigma Designs for $18,200. The sale of the VXP(R)
    Image Processing business resulted in the termination of approximately 30
    employees in January 2008.

    Following the close of the sale transaction, the Company received a final
    payment of fees from Sigma Designs in June 2008 for providing certain
    administrative functions and for the lease of office space. The Company
    does not have any significant continuing involvement in or retain any
    ownership interest in these operations and, therefore, the continuing
    cash flows are not considered direct cash flows of the disposal group.

    The sale of the VXP(R) Image Processing business resulted in a gain of
    $13,473 and was calculated as follows:

    Accounts receivable                                                  886
    Inventories                                                        1,305
    Prepaid and other assets                                             273
    Capital assets, net                                                  738
    Intangible assets                                                    382
    Transaction costs                                                  1,364
    Accounts payable and accrued liabilities                            (221)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                                       4,727
    -------------------------------------------------------------------------
    Less proceeds:
    Cash                                                              18,200
    -------------------------------------------------------------------------
    Gain on sale recognized in fiscal year 2008                       13,473
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The assets and liabilities and operating results related to the Company's
    VXP(R) Image Processing business have been reclassified as assets held
    for sale and discontinued operations in accordance with the CICA Handbook
    Section 3475 "Disposal of Long-Lived Assets and Discontinued Operations"
    (see note 5).

    8.  ACQUISITION - ASIC ARCHITECT, INC.

    On July 25, 2008, the Company acquired all of the shares of ASIC
    Architect, Inc. ("ASIC Architect"), a developer of high-speed controller
    intellectual property, for a total initial cash consideration of $1,582
    including transaction related costs of $82 and the following future cash
    consideration:

    a)  Working capital surplus - a cash payment was required if the working
        capital of ASIC Architect on completion of the transaction was in a
        surplus position; a final payment of $36 has been made to account for
        a working capital surplus and has been accounted for as an increase
        in the purchase price and goodwill.

    b)  Earn-out - earn-out payments are required to be made based on
        attaining certain annual IP sales thresholds in the first three years
        past closing. This contingent consideration had not been accounted
        for in the initial purchase price because a reasonably accurate
        estimate could not be made at that time; however, payments made since
        closing are treated as purchase price adjustments. To date, $118
        related to the earn-out has been reflected as a purchase price
        adjustment to goodwill.

    The acquisition was accounted for under the purchase method from the
    acquisition date. The purchase price allocation was assigned to the net
    identifiable assets acquired based on their fair values as follows and is
    adjusted quarterly for earn-out accruals:


    Cash                                                                 122
    Accounts receivable                                                  164
    Prepaids and other assets                                             14
    Capital assets                                                        33
    Identifiable intangible assets subject to amortization:
      Technology                                                         339
      Customer relationships                                              25
      In process development                                             142
      Customer value                                                     290
      Contracts in process                                               299
    -------------------------------------------------------------------------
                                                                       1,428
    -------------------------------------------------------------------------

    Accounts payable and accrued liabilities                            (263)
    Future income taxes                                                 (438)
    -------------------------------------------------------------------------
                                                                        (701)
    -------------------------------------------------------------------------

    Excess of adjusted purchase price over fair value of
     identifiable net assets acquired (goodwill) (note 11)             1,009
    -------------------------------------------------------------------------

    Total adjusted purchase price, including transaction costs         1,736
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  INSTRUMENTS HELD FOR TRADING AND LONG-TERM INVESTMENTS

    The Company owns 1.7 million shares of CellPoint Connect ("CellPoint"),
    received as partial consideration for the sale of its Consumer Headset
    product line on August 24, 2007. The original book value of these shares
    was Canadian $1,500.

    One third of the shares have been classified as held for trading. Trading
    of the shares was halted on the Aktie Torget stock exchange in Sweden
    during the quarter and the Company wrote the shares down to a fair value
    of nil as of August 31, 2009 (November 30, 2008 - $268). The fair value
    adjustment for the quarter was a $32 loss recorded through earnings
    (third quarter of 2008 - nil). On a year-to-date basis, the unrealized
    loss recorded through earnings was $266 (year-to-date 2008 - nil).

    The remaining 1.1 million shares have been classified as available for
    sale and are recorded on the balance sheet at their fair market value of
    nil (November 30, 2008 - $536) with fair value adjustments normally
    deferred to Other Comprehensive Income. However, since the decrease in
    the fair value of the shares was significant and prolonged, an impairment
    of $64 was charged to earnings in the third quarter and $844 in the year
    to date.

    In November 2005, the Company received a 6% interest or $2,734 in shares
    of Nanoscience Inc. (11.1 million shares) as consideration for the sale
    of its investment in Toumaz Technology Limited to Nanoscience Inc. The
    shares of Nanoscience Inc., which later changed its name to Toumaz
    Technology Limited ("Toumaz"), are traded on the AIM exchange in London,
    England. Since November 2005, the Company had recorded impairments
    totaling $1,983 against the value of this investment. On May 26, 2009,
    the Company sold its investment in Toumaz for $1,019, net of commissions,
    creating a gain of $268 in the second quarter.

    10. PROMISSORY NOTE RECEIVABLE

    On October 19, 2007, the Company received $2,503 in an interest-bearing
    promissory note as part of the consideration received from the sale of
    its Hearing and Manufacturing Operations to Sound Design Technologies
    Ltd. ("Sound Design"). The promissory note bears interest at a fixed
    interest rate of 5% per annum with scheduled quarterly principal payments
    of Canadian $250 which began in April 2008, and the remaining balance
    plus accrued interest due in April 2010. In connection with the sale of
    the BST technology group and associated assets (note 6), the Company
    agreed to postpone the July 2009 payment to October 2009. All other
    payments remain on the original schedule. The balance of $1,161 has been
    classified as a current asset as at August 31, 2009 (November 30, 2008 -
    $816 current and $606 long-term).

    11. Goodwill and Intangible Assets

    (i) Goodwill

    Goodwill of $1,889 was acquired through the purchase of SiGe
    Semiconductor Inc.'s LightCharger(TM) optical networking business in May
    2004. In October 2007, goodwill of $16,895 was recognized through the
    purchase of the shares of Snowbush Microelectronics Inc. and subsequent
    to closing, further adjustments to goodwill occurred of $1,778 in 2008
    and $379 to date in 2009. On July 25, 2008, goodwill of $855 was
    recognized through the purchase of the shares of ASIC Architect and, as
    discussed in note 8, goodwill was adjusted by $62 in 2008 and $92 to date
    in 2009. Goodwill is reviewed annually for impairment.

    For reconciliation purposes only, the following table summarizes goodwill
    balances translated to U.S. dollars at the historical exchange rates in
    effect at the dates of acquisition and the adjustment required to
    translate from historical rates to the respective balance sheet rates:

                                                       August       November
                                                     31, 2009       30, 2008
    -------------------------------------------------------------------------

    SiGe Semiconductor Inc.                             1,889          1,889
    Snowbush Microelectronics Inc.                     19,052         18,673
    ASIC Architect (note 8)                             1,009            917
    Exchange translation                               (1,107)        (3,450)
    -------------------------------------------------------------------------
                                                       20,843         18,029
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (ii) Intangible Assets
                                                       August       November
                                                     31, 2009       30, 2008
    -------------------------------------------------------------------------

    License fees                                          216            192
    Less accumulated amortization                        (105)           (58)
    -------------------------------------------------------------------------
                                                          111            134

    SiGe acquired in 2004
    Technology                                          2,025          1,795
    Less accumulated amortization                      (1,543)        (1,175)
    -------------------------------------------------------------------------
                                                          482            620

    Snowbush acquired in 2007
    Technology                                          3,739          3,314
    Supplier relationships                              1,185          1,051
    In process development                                638            566
    Customer value                                        100             89
    Contracts in process                                  128            113
    -------------------------------------------------------------------------
                                                        5,790          5,133
    Less accumulated amortization                      (2,384)        (1,250)
    -------------------------------------------------------------------------
                                                        3,406          3,883

    ASIC Architect acquired in 2008
    Technology                                            315            279
    Customer relationship                                  23             20
    In process development                                 72            117
    Customer value                                        269            238
    Contracts in process                                  278            247
    -------------------------------------------------------------------------
                                                          957            901
    Less accumulated amortization                        (182)           (49)
    -------------------------------------------------------------------------
                                                          775            852

    Deferred development cost                           6,759          3,165
    Less accumulated amortization                         (30)            (2)
    -------------------------------------------------------------------------
                                                        6,729          3,163
    -------------------------------------------------------------------------
                                                       11,503          8,652
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    License fees are amortized using the straight-line method over the
    estimated useful lives ranging from three to five years. No new license
    fees were incurred in the first nine months of 2009 or 2008.

    The intangible asset resulting from the SiGe Semiconductor Inc.
    acquisition in May 2004 is amortized using the straight-line method over
    the estimated useful life of seven years.

    Intangible assets resulting from the Snowbush Microelectronics Inc.
    acquisition in October 2007 are amortized using the straight-line method
    over the estimated useful lives ranging from one to five years.

    Intangible assets resulting from the ASIC Architect acquisition in July
    2008 are amortized using the straight-line method over the estimated
    useful lives ranging from five to seven years.

    Deferred development charges represent expenditures that are directly
    related to placing a new product into commercialization when the
    expenditure is incremental in nature and it is probable that the
    expenditure is recoverable from future sales of the associated product.
    Upon commercial launch of the product, these costs are amortized to cost
    of goods sold over the number of expected product life unit sales to a
    maximum of five years. Additional deferred development costs of $1,606
    and $4,008 were capitalized in the third quarter and the year to date for
    2009 respectively (third quarter of 2008 - $1,412; year to date for 2008
    - $2,034).

    Impairments related to deferred development costs were $1,164 in the
    third quarter and $1,330 for the year to date (no impairments were
    recognized in 2008). The deferred development cost impairment in the
    third quarter was part of the Company's restructuring activity and was
    therefore recorded under restructuring and deferred development charge
    (see note 17).

    Amortization expense related to total intangible assets for the third
    quarter and the year to date for 2009 was $501 and $1,352, respectively
    (third quarter of 2008 - $454; year to date for 2008 - $1,348).

    12. DEFERRED REVENUE

    Deferred revenue is comprised of two components. The largest is the
    unamortized gain created by the sale leaseback of the corporate
    headquarters, which was completed in August 2008.

    The second component is created in our IP product group when differences
    occur between the timing of customer payments and the recognition of
    revenue using the percentage of completion or the completed contract
    methods. These methods of revenue recognition are prevalent when IP cores
    sold to customers require customization to meet their specific
    requirements.

    As at August 31, 2009, deferred revenue related to the unamortized gain
    was $3,908, of which $280 was classified as current and the balance of
    $3,628 as long term (November 30, 2008 - $234 current and $3,430 long
    term), and deferred revenue related to collections in excess of earned IP
    revenue was $439, all classified as current (November 30, 2008 - $74).

    13. LONG-TERM PAYABLE

    As part of the consideration for the acquisition of Snowbush
    Microelectronics Inc. on October 30, 2007, the Company negotiated
    deferred purchase price payments to be paid in Canadian dollars. As at
    August 31, 2009, $2,285 remains outstanding (Canadian $2,509), with
    $1,143 due in the fourth quarter of 2010 and therefore classified as a
    long-term payable and $1,142 due in the fourth quarter of 2009 and
    classified as the current portion of the long-term payable (November 30,
    2008 - long term $1,013 and current portion of the long-term payable
    $1,013). The deferred cash payments have been discounted at 6% using the
    effective interest rate method. The amortization of the discount is being
    accounted for as a charge to net earnings over the term of the payable.

    14. CAPITAL STOCK

    The Company has authorized an unlimited number of common shares with no
    par value, of which 35,429,086 common shares (November 30, 2008 -
    35,429,086) were issued and outstanding as at August 31, 2009 with a
    stated value of $8,576 (November 30, 2008 - $8,576). An unlimited number
    of preferred shares have also been authorized, none of which have been
    issued.

    The Company announced a normal course issuer bid to acquire up to 3.4
    million common shares between October 2, 2008 and October 1, 2009. No
    repurchases have been made to date in 2009.

    Options to purchase common shares

    The Company has an incentive stock option plan which provides for the
    granting of options for the benefit of employees and officers. The total
    number of common shares that may be issued under this plan is 2,700,000,
    of which 681,644 remain available for new grants. An additional 930,000
    options were issued outside the plan to new officers upon hiring at
    exercise prices ranging from Canadian $9.75 - $13.27. No stock options
    were issued outside the plan to new officers upon hiring in 2008 or to
    date in 2009.

    All options are granted for a term of seven years from the grant date
    with vesting of 25% at the end of each of the first, second, third and
    fourth years from the date of grant. All options allow the holder to
    purchase common shares at the exercise price of the options, which is set
    at the closing price of a trade of at least a board lot of the common
    shares on the Toronto Stock Exchange on the trading day preceding the
    date of grant, unless otherwise determined by the Corporation, but in no
    event may the option exercise price be less than the fair market value of
    a common share on the date of grant of the option. The following table
    presents a comparative summary of options outstanding as of August 31.
    All exercise prices are presented in Canadian dollars:


                                          YTD 2009              YTD 2008
    -------------------------------------------------------------------------
                                                Weighted
                                                average   Weighted
                                                exercise   average  exercise
                                     Number      price     Number     price
                                   of shares    (Cdn.$)   of shares   (Cdn.$)
    -------------------------------------------------------------------------
    Outstanding, beginning
     of year                      2,117,077      10.99  2,065,885      11.65
    Granted                         660,150       4.55    536,867      10.07
    Forfeited                      (186,833)     10.36   (373,175)     12.77
    Expired                          (2,500)     13.25          -          -
    Exercised                             -          -          -          -
    -------------------------------------------------------------------------
    Outstanding, end of third
     quarter                      2,587,894       9.39  2,229,577      11.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Options exercisable at
     August 31                      845,467      11.28    563,987      11.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table summarizes information about all options outstanding
    to purchase common shares at August 31, 2009. Note, all exercise prices
    are presented in Canadian dollars:

                                   Options Outstanding  Options Exercisable
    -------------------------------------------------------------------------

                                   Weighted    Weighted             Weighted
    Range of                        average    average               average
    exercise                       remaining  exercise              exercise
    prices             Number     contractual   price     Number      price
    (Cdn.$)         outstanding      life      (Cdn.$)  exercisable  (Cdn.$)
    -------------------------------------------------------------------------

    $4.55 - $7.53       677,550     6.8 years    4.71           -         -
    -------------------------------------------------------------------------
    $7.54 - $10.51    1,086,743     5.0 years    9.84     414,167      9.82
    -------------------------------------------------------------------------
    $10.52 - $13.49     823,601     4.5 years   12.66     431,300     12.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The estimated weighted average fair value of stock options granted during
    the year to date for 2009 was Canadian $1.67 (year to date for 2008 -
    Canadian $2.82) per share using the Black-Scholes option-pricing model
    with the following weighted average assumptions:

                                      Nine Months Ended    Nine Months Ended
                                        August 31, 2009    August 31, 2008
    -------------------------------------------------------------------------
    Risk-free interest rate                   1.93%                3.13%
    Expected dividend yield                    3.1%                 1.4%
    Expected volatility                       50.9%                29.1%
    Expected time until exercise          5.5 years            5.5 years
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Restricted share plan

    The number and weighted average fair value of restricted shares of the
    Company granted under employee incentive plans in the third quarter of
    2009 were 12,964 and Canadian $4.24 respectively (no restricted shares
    were issued in the third quarter of 2008). For the year to date for 2009,
    the number and weighted average fair values were 483,431 and Canadian
    $5.08 respectively (2008 - 187,088, Canadian $9.03).

    The Company recorded compensation expense and credited to Contributed
    Surplus $372 related to stock options during the third quarter of 2009
    (third quarter of 2008 - $412) and $973 year to date (year to date 2008 -
    $1,063). Compensation expense in the third quarter of 2009 related to the
    restricted share plan was $425 (third quarter of 2008 - $431) and in the
    year to date for 2009 was $1,069 (year to date 2008 - $1,139).

    Earnings per share

    The Company uses the treasury stock method of calculating the dilutive
    effect of options on earnings per share. The following is a
    reconciliation of the numerator and denominator of earnings per share
    computations:

                                      Three Months Ended  Nine Months Ended
                                             August 31        August 31
    -------------------------------------------------------------------------
                                          2009     2008     2009     2008
    -------------------------------------------------------------------------

    Net earnings (loss) from continuing
     operations                         (4,266)    6,371    (6,223)   16,890
    Net earnings from discontinued
     operations                              -       (18)        -     7,626
    -------------------------------------------------------------------------
    Net earnings (loss) for the period  (4,266)    6,353    (6,223)   24,516
    -------------------------------------------------------------------------
    Weighted average shares outstanding
     (numbers in thousands)             35,429    35,607    35,429    35,618
    Shares held in restricted share
     plan trust fund                      (757)        -      (757)        -
    -------------------------------------------------------------------------
    Basic weighted average shares
     outstanding                        34,672    35,607    34,672    35,618
    Effect of dilutive stock options         -         5         -        80
    -------------------------------------------------------------------------
    Diluted weighted average shares
     outstanding                        34,672    35,612    34,672    35,698
    -------------------------------------------------------------------------
    Earnings (loss) per share
    Earnings (loss) per share from
     continuing operations
        - basic and diluted              (0.12)     0.18     (0.18)     0.48
    Earnings (loss) per share from
     discontinued operations
        - basic and diluted                  -      0.00         -      0.21
    -------------------------------------------------------------------------
    Earnings (loss) per share - basic
     and diluted                         (0.12)     0.18     (0.18)     0.69
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In net loss per common share situations, the diluted loss per common
    share amount is the same as that for basic, as all factors are
    anti-dilutive.

    15. FINANCIAL INSTRUMENTS

    Categories of financial assets and liabilities

    Under Canadian generally accepted accounting principles, financial
    instruments are classified into one of the following five categories:
    held for trading; held to maturity investments; loans and receivables;
    available for sale financial assets; and other financial liabilities. The
    Company has also designated certain of its derivatives as effective
    hedges. The carrying values of the Company's financial instruments,
    including those held for sale on the consolidated balance sheet are
    classified into the following categories:

                                                        August     November
                                                       31, 2009    30, 2008
    -------------------------------------------------------------------------
    Held for trading(1)                                  34,923      49,016
    Available for sale(2)                                     -       1,300
    Loans and receivables(3)                             23,720      25,466
    Other financial liabilities(4)                       16,124      18,072
    Derivatives designated as effective hedges
     - gain (loss)(5)                                         -      (3,941)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes cash and cash equivalents, foreign exchange forward
        contracts that are not effective hedges and the CellPoint investment
        designated as held for trading
    (2) Includes the CellPoint investment designated as available for sale
    (3) Includes accounts receivable, promissory note receivable, income
        taxes receivable, consideration receivable and certain financial
        instruments included in prepaid expenses and other assets
    (4) Includes accounts payable and accrued liabilities, long-term payable
        and income taxes payable
    (5) Includes the Company's foreign exchange forward contracts that are
        effective hedges

    The Company, through its financial assets and liabilities, is exposed to
    various risks. The Company's overall risk management program focuses on
    the unpredictability of financial markets and seeks to minimize potential
    adverse effects on the Company's financial performance. The Company uses
    derivative financial instruments to hedge certain risk exposures. The
    Company does not purchase any derivative financial instruments for
    speculative purposes.

    Risk management is the responsibility of the corporate finance function.
    The Company's domestic and foreign operations along with the corporate
    finance function identify, evaluate and, where appropriate, hedge
    financial risks. Material risks are monitored and are discussed with the
    audit committee of the board of directors. The following analysis
    provides information regarding certain financial risks as at August 31,
    2009:

    (a) Fair Value

    The carrying amounts for cash and cash equivalents, accounts receivable,
    other assets, promissory notes receivable and accounts payable and
    accrued liabilities approximate fair value because of the short maturity
    of these instruments.

    The short-term and long-term payable resulting from the Snowbush
    Microelectronics Inc. acquisition was recorded at its fair value with the
    resulting discount being charged to earnings.

    Instruments held for trading and long-term investments (classified as
    available for sale) are recorded at fair value based on the quoted share
    prices, where they exist and foreign exchange rates as at August 31,
    2009.

    (b) Foreign Exchange Rate Risk

    The objective of the Company's foreign exchange risk management
    activities is to minimize translation exposures and the resulting
    volatility of the Company's earnings. The Company utilizes financial
    instruments to manage the risk associated with fluctuations in foreign
    exchange rates by entering into foreign exchange forward contracts.

    As a result of the U.S. dollar profile, cash, receivables and payables on
    the Canadian entity's books are primarily denominated in U.S. dollars
    while the functional currency of this entity is Canadian dollars.
    Therefore, translation gains or losses can occur when these net monetary
    assets are translated to the Canadian dollar functional currency at the
    exchange rate in effect on the balance sheet date. A volatile exchange
    rate can create significant swings in periodic income. To help mitigate
    this risk, starting in the third quarter of 2009, the Company entered
    into foreign exchange forward contracts equal to the forecasted level of
    U.S. dollar denominated net monetary assets and excess U.S. dollar cash
    and cash equivalent balances. These contracts mature in one month and
    help to offset the impact of translation gains or losses due to currency
    movements from one balance sheet date to the next.

    During the third quarter, the Company cancelled foreign exchange
    contracts entered into under its old hedging policy which resulted in a
    gain of $280. Realized gains on foreign exchange forward and spot
    contracts, including the cancelled contracts, were $832 in the third
    quarter of 2009 (2008 - losses of $61). For the first nine months of the
    year, the realized losses were $2,355 (2008 - gains of $710).

    In the year to date for 2009, the Canadian dollar strengthened compared
    to the U.S. dollar ($0.8083 on November 30, 2008 Canadian to U.S. dollar
    exchange rate compared to $0.9118 on August 31, 2009) and remained
    consistent with the prior quarter ($0.9123 on May 31, 2009 Canadian to
    U.S. dollar exchange rate compared to $0.9118 on August 31, 2009). The
    net impact of this on our U.S.-based net monetary assets was a foreign
    exchange translation loss of $556 in the third quarter of 2009 and $3,015
    in the year to date for 2009 recorded to other income (expense) (see note
    18).

    The Company has entered into a foreign exchange forward contract to sell
    an aggregate amount of U.S. $16,000 as at August 31, 2009. This contracts
    mature on September 30, 2009 at an exchange rate of Canadian $1.0991
    against the U.S. dollar. Management estimates that a before tax gain of
    $61 would be realized if the contracts were terminated on August 31,
    2009. The fair value of the foreign exchange forward contract is based on
    market information from major financial institutions. This forward
    contract is not considered a hedge for accounting purposes and therefore
    the gain is included in Other Income on the Statement of Earnings.

    The Company's reporting currency is the U.S. dollar. Therefore, financial
    results are first consolidated into the Canadian dollar functional
    currency and then translated into U.S. dollars using the current rate
    method. The translation to the reporting currency does not generate any
    cash impact and is not hedged by the Company. Any gains or losses created
    by translating from the functional currency to the reporting currency are
    captured as a change in unrealized gains (losses) on translating
    financial statements and are captured in the consolidated statement of
    Other Comprehensive Income.

    The Company reported a foreign currency translation loss in the third
    quarter of $175 from converting the Canadian dollar consolidation for
    U.S. dollar reporting. This translation loss is recorded in Other
    Comprehensive Income and is due to a slight weakening of the Canadian
    dollar compared to the U.S. dollar in the third quarter. A year to date
    foreign currency translation gain of $14,848 in Other Comprehensive
    Income is the result of a significant strengthening of the Canadian
    dollar over the past nine months.

    (c) Credit Risk

    The Company is exposed to commercial credit risk from its customers in
    the normal course of business, which is mitigated by the Company's credit
    management policies. The Company is exposed to credit risk from potential
    default by any of its counterparties on its foreign exchange contracts
    and manages this credit risk by dealing only with major financial
    institutions with acceptable credit ratings. Credit risks associated with
    holders of promissory notes and loans are managed through regular
    communication with those holders.

    As at August 31, 2009, two customers accounted for more than 10% of
    revenue; one customer accounted for more than 10% of receivables.

    The aging of trade receivable balances as of August 31, 2009 was as
    follows:
    -------------------------------------------------------------------------
                                                                        2009
    -------------------------------------------------------------------------
    Not past due                                                      13,839
    Past due 0-30 days                                                 2,827
    Past due 31-60 days                                                  270
    Past due over 61 days                                              1,272
    -------------------------------------------------------------------------
    Trade receivables                                                 18,208
    Less allowance for doubtful accounts                              (1,041)
    -------------------------------------------------------------------------
                                                                      17,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (d) Liquidity Risk

    Liquidity risk is the risk that the Company will not be able to meet its
    obligations as they fall due. The Company manages its liquidity risk by
    forecasting cash flows from operations and anticipated investing and
    financing activities. As of August 31, 2009, the Company was holding cash
    and cash equivalents of $34,862 and accounts receivable of $17,167. The
    following are the undiscounted contractual maturities of financial
    liabilities as at August 31, 2009:

    -------------------------------------------------------------------------
                                            Less than 1 year    1 to 2 years
    -------------------------------------------------------------------------
    Accounts payable and accrued liabilities          13,025               -
    Current portion of long-term payable               1,142               -
    Long-term payable                                      -           1,143
    -------------------------------------------------------------------------
                                                      14,167           1,143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The current ratio for the Company as at August 31, 2009 was 5.6 times.

    (e) Interest Rate Risk

    Interest rate risk is the risk that interest-bearing financial
    instruments will vary in value due to the variability of the interest
    rates. Since the Sound Design promissory note has fixed interest rates,
    the Company is not exposed to any interest rate risk on this financial
    instrument.

    (f) Price Risk

    Price risk is the risk that the value of an investment will decline in
    the future. The Company currently holds an investment in CellPoint (note
    9) which is considered a start-up technology company with higher than
    average financial volatility due to the nature of the business. The price
    risk associated with this investment is high and the Company has written
    the investment down to nil. An impairment of the CellPoint investment was
    recognized through net earnings in the quarter, as management believes
    the decline in share price is other-than-temporary (see note 9).

    16. SEGMENTED INFORMATION

    As a result of the Company's leadership and product portfolio realignment
    at the end of 2007, the Company began operating and tracking its results
    in one reportable segment, consisting of numerous product areas,
    effective December 1, 2007. The Company's chief operating decision maker
    is its Chief Executive Officer. The chief operating decision maker
    allocates resources and assesses performance of the business and other
    activities at the operating segment level.

    The revenue by product portfolio within the single reportable segment and
    revenue by geographic area is as follows:

    Revenue by product portfolio is as follows:

                                   Three Months Ended     Nine Months Ended
                                          August 31             August 31
    ------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Analog and Mixed Signal          15,935     26,726     42,587     75,348
    Optical                           2,846      3,504      8,855     12,840
    IP Licensing                      2,608      3,266      8,698      8,395
    -------------------------------------------------------------------------
                                     21,389     33,496     60,140     96,583
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Revenue by principal markets is as follows:

                                     Three Months Ended    Nine Months Ended
                                          August 31            August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    North America                    14,658     19,580     41,685     57,201
    Europe                            2,103      4,122      4,921     11,590
    Pacific Rim                       4,628      9,794     13,534     27,792
    -------------------------------------------------------------------------
                                     21,389     33,496     60,140     96,583
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Revenue is attributable to countries based upon the location of
    customers.

    Capital assets and goodwill by country are as follows:

                                                          August    November
                                                         31, 2009   30, 2008
    -------------------------------------------------------------------------
    Canada*                                              40,576     36,696
    UK                                                        915        994
    Other*                                                1,191        918
    -------------------------------------------------------------------------
                                                           42,682     38,608
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * Goodwill of $19,859 (November 30, 2008 - $17,266) is located in
        Canada and $984 (November 30, 2008 - $763) is located in Other.

    17. RESTRUCTURING CHARGE AND DEFERRED DEVELOPMENT IMPAIRMENT

    During the third quarter of 2009, the Company announced the
    implementation of a restructuring plan to improve profitability and cash
    flow. The Company's plans include realigning its investment to maintain
    its R&D programs while reducing corporate infrastructure and business
    operations costs and capital expenditures. Additionally, Gennum is
    focusing its marketing, sales and administrative investment on short-term
    and mid-term customer revenue generation activities and new product
    development.

    This plan resulted in a restructuring charge and deferred development
    impairment of $5,509 related to the termination of approximately 10% of
    total headcount in August and additional restructuring actions to be
    completed over the next few quarters.

    Severance costs                                                   3,528
    Deferred development cost impairment                              1,164
    Inventory and other asset impairments                               817
    ------------------------------------------------------------------------
    Total restructuring charge and deferred development impairment    5,509
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Severance costs incurred in the third quarter                     3,528
    Severance costs paid in the third quarter                           556
    ------------------------------------------------------------------------
    Severance costs included in accounts payable and
     accrued liabilities at quarter end                               2,972
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    18. OTHER INCOME (EXPENSE)

                                        Three Months Ended  Nine Months Ended
                                              August 31       August 31
    -------------------------------------------------------------------------
                                           2009     2008    2009     2008
    -------------------------------------------------------------------------

    Realized gain (loss) on foreign
     exchange hedge contracts                 832      (61)  (2,355)     710
    Foreign exchange gain (loss)
     on translation                          (556)   1,810   (3,015)   2,154
    -------------------------------------------------------------------------
    Gain (loss) on foreign exchange, net      276    1,749   (5,370)   2,864
    -------------------------------------------------------------------------

    Gain on sale of building(1)             1,002        -    1,002        -
    Corporate development charges          (1,191)       -   (1,191)       -
    Tundra termination fee, net(2)             (7)       -    2,205        -
    Gain on sale of BST technology
     group (note 6)                             -        -    1,601        -
    Gain on sale of Toumaz investment
     (note 9)                                   -        -      268        -
    Provision on long-term investment
     (note 9)                                 (64)       -     (844)       -
    Fair value loss on instruments
     held for trading (note 9)                (32)       -     (266)       -
    Other                                    (348)     (62)    (606)    (197)
    -------------------------------------------------------------------------
                                             (640)     (62)   2,169     (197)
    -------------------------------------------------------------------------
                                             (364)   1,687   (3,201)   2,667
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) On August 14, 2009, the Company sold its land and vacant building
        located at 980 Fraser Drive in Burlington, Ontario, which resulted in
        a gain of $1,002.

    (2) On March 19, 2009, Gennum Corporation announced it had entered into a
        definitive agreement providing for the acquisition by Gennum of all
        of the issued and outstanding shares of Tundra Semiconductor
        Corporation ("Tundra"). Tundra subsequently received an acquisition
        proposal which it determined to be a superior proposal and,
        therefore, the agreement was terminated. Pursuant to the terms of the
        agreement, Tundra paid Gennum a termination fee of $4,188 (Cdn
        $5,000) upon the termination of the agreement. Transaction costs such
        as legal, financial advisory and consulting fees have been netted
        against this fee, which resulted in income of $2,205.

    19. INCOME TAXES RELATED TO CONTINUING OPERATIONS

    The following is a reconciliation of the expected income tax expense
    obtained by applying the combined corporate tax rates to earnings before
    income taxes:

                                    Three Months Ended     Nine Months Ended
                                          August 31             August 31
    -------------------------------------------------------------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Expected income tax expense
     (recovery) using statutory
     tax rates                       (1,818)     3,152     (3,099)     8,757
    Permanent differences               246        140        (45)       400
      Different income tax rates on
       earnings of foreign
       subsidiaries                     274        (49)        91        (95)
      Changes in tax rates and other     54       (206)      (115)       188
    -------------------------------------------------------------------------
    Provision for income taxes       (1,244)     3,037     (3,168)     9,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Effective tax rate                22.6%      32.3%      33.7%      35.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Permanent accounting to tax differences in the quarter relate mainly to
    stock option amortization. Year to date, the difference relates mainly to
    the inclusion of capital gains and losses and stock option amortization.

    20. CAPITAL RISK MANAGEMENT

    The Company's objectives when managing capital are to ensure that there
    is adequate capital to achieve its business objectives in order to
    provide returns for shareholders and benefits for other stakeholders and
    to maintain a conservative capital structure. The Company's capital is
    composed of shareholders' equity, and is not subject to any capital
    requirements imposed by a regulator.

    The Company manages the capital structure and makes adjustments for
    changes in economic conditions and the risk characteristics of the
    underlying assets. To maintain or adjust the capital structure, the
    Company may determine to issue or re-acquire shares, acquire or dispose
    of assets, and adjust the amount of cash and cash equivalents balances.

    21. COMMITMENTS AND CONTINGENCIES

    The Company is committed to future minimum payments under operating
    leases for software design tools and buildings and equipment as at August
    31, 2009 as follows:

    ---------------------------------------------------------
                                          Buildings
                                            and
                           Design Tools  Equipment    Total
    ---------------------------------------------------------

    2009                          274        798      1,072
    2010                        1,095      2,765      3,860
    2011                        1,095      2,324      3,419
    2012                        1,095      2,222      3,317
    2013 and beyond               547     17,196     17,743
    ---------------------------------------------------------
                                4,106     25,305     29,411
    ---------------------------------------------------------
    ---------------------------------------------------------

    The Company has committed to approximately $7.1 million in purchase
    obligations as at August 31, 2009, of which $1.0 million is related to
    authorized capital projects. The remaining purchase obligations relate
    primarily to inventory, product development and general operating costs.

    In the ordinary course of business activities, the Company may be
    contingently liable for litigation and claims with customers, suppliers,
    former employees and third parties. Management believes that adequate
    provisions have been recorded in the accounts where required. Although it
    may not be possible to accurately estimate the extent of potential costs
    and losses, if any, management believes that the ultimate resolution of
    such contingencies would not have a material adverse effect on the
    financial position of the Company.

    22. Comparative Amounts

    Certain of the comparative amounts have been reclassified to conform to
    the presentation adopted in the current year. Certain amounts previously
    classified as investing activities on the consolidated statement of cash
    flows related to the Tundra termination fee and the sale of the BST
    technology group have been reclassified to operating activities.
    



For further information: For further information: Gennum Media Contact: Robin Vaitonis, Director of Corporate Communications, Gennum Corporation, (905) 632-2999 x2110, Robin.Vaitonis@gennum.com; Gennum Investor Relations Contact: Gord Currie, Senior Vice-President, Finance & Administration and Chief Financial Officer, Gennum Corporation, (905) 632-2999 x3060, Gord.Currie@gennum.com

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GENNUM CORPORATION

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