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

Form 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~March 31,~~June 30, 2010
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 0-19654

VITESSE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		77-0138960 (I.R.S. Employer Identification No.)
741 Calle Plano Camarillo, California 93012 (Address of principal executive offices, including zip code)
~~Registrant's telephone number, including area code:(805) 388-3700~~

Registrant's telephone number, including area code:(805) 388-3700

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of ~~May 13,~~August 5, 2010 there were ~~459,009,339~~23,986,531 shares of the registrant's $0.01 par value common stock outstanding.

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION

(UNAUDITED) QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2010

TABLE OF CONTENTS


	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Unaudited Consolidated Balance Sheets as of ~~March 31,~~June 30, 2010 and September 30, 2009	3
	Unaudited Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2010 and 2009	4
	Unaudited Consolidated Statement of Shareholders' Deficit and Comprehensive Loss for the ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2010	5
	Unaudited Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2010 and 2009	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1921
Item 3.	Quantitative and Qualitative ~~Disclosures~~Disclosure About Market Risk	3033
Item 4.	Controls and Procedures	3034
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3135
Item 1A.	Risk Factors	3135
Item 2.	Unregistered Sales of Equity and Use of Proceeds	3235
Item 3.	Defaults Upon Senior Securities	3235
Item 4.	Reserved	3235
Item 5.	Other Information	3235
Item 6.	Exhibits and Reports on Form 8-K	3336

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

			March 31, 2010			September 30, 2009					June 30, 2010			September 30, 2009

			(in thousands, except share data)								(in thousands, except share data)
ASSETS	ASSETS								ASSETS
Current assets:	Current assets:								Current assets:
	Cash and cash equivalents		$	37,190		$	57,544		Cash and cash equivalents		$	38,621		$	57,544
	Accounts receivable, net			18,143			15,074		Accounts receivable, net			13,265			15,074
	Inventory			19,856			18,809		Inventory			24,241			18,809
	Restricted cash			388			398		Restricted cash			391			398
	Prepaid expenses and other current assets			4,637			4,956		Prepaid expenses and other current assets			4,604			4,956

		Total current assets		80,214			96,781			Total current assets		81,122			96,781
Property, plant and equipment, net	Property, plant and equipment, net			7,797			7,874		Property, plant and equipment, net			8,015			7,874
Other intangible assets, net	Other intangible assets, net			1,117			1,541		Other intangible assets, net			1,046			1,541
Other assets	Other assets			4,064			3,077		Other assets			3,845			3,077

			$	93,192		$	109,273				$	94,028		$	109,273

LIABILITIES AND SHAREHOLDERS' DEFICIT	LIABILITIES AND SHAREHOLDERS' DEFICIT								LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:	Current liabilities:								Current liabilities:
	Accounts payable		$	11,333		$	11,191		Accounts payable		$	14,916		$	11,191
	Accrued expenses and other current liabilities			21,106			14,182		Accrued expenses and other current liabilities			15,542			14,182
	Derivative liability			—			12,209		Derivative liability			—			12,209
	Deferred revenue			3,115			4,566		Deferred revenue			4,720			4,566
	Current portion of debt and capital leases			87			5,236		Current portion of debt and capital leases			10			5,236
	Convertible subordinated debt			—			10,000		Convertible subordinated debt			—			10,000

		Total current liabilities		35,641			57,384			Total current liabilities		35,188			57,384
Other long-term liabilities	Other long-term liabilities			1,813			1,810		Other long-term liabilities			1,796			1,810
Long-term debt, net of discount	Long-term debt, net of discount			25,314			24,652		Long-term debt, net of discount			25,689			24,652
Derivative liability	Derivative liability			65,459			—		Derivative liability			29,216			—
Convertible subordinated debt	Convertible subordinated debt			41,070			86,700		Convertible subordinated debt			38,606			86,700

		Total liabilities		169,297			170,546			Total liabilities		130,495			170,546

Commitments and contingencies	Commitments and contingencies								Commitments and contingencies
Shareholders' deficit:	Shareholders' deficit:								Shareholders' deficit:
	Preferred stock—Series B, $0.01 par value, 10,000,000 shares authorized; 760,786 shares outstanding at March 31, 2010			8			—		Preferred stock—Series B, $0.01 par value, 10,000,000 shares authorized; 219,111 and no shares outstanding at June 30, 2010 and September 30, 2010, respectively			2			—
	Common stock, $0.01 par value, 5,000,000,000 shares authorized; 404,841,802 and 230,905,580 shares outstanding at March 31, 2010 and September 30, 2009, respectively			4,053			2,314		Common stock, $0.01 par value, 250,000,000 shares authorized; 23,819,521 and 11,544,803 shares outstanding at June 30, 2010 and September 30, 2009, respectively			238			115
	Additional paid-in-capital			1,805,943			1,754,598		Additional paid-in-capital			1,816,373			1,756,797
	Accumulated deficit			(1,886,191	)		(1,818,271	)	Accumulated deficit			(1,853,162	)		(1,818,271	)
	Noncontrolling interest			82			86
										Total Vitesse Semiconductor Corporation shareholders' deficit		(36,549	)		(61,359	)
		Total shareholders' deficit		(76,105	)		(61,273	)	Noncontrolling interest			82			86

			$	93,192		$	109,273			Total shareholders' deficit		(36,467	)		(61,273	)

											$	94,028		$	109,273

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended
March 31, Six months ended
March 31,

2010 2009 2010 2009

(in thousands, except per share data)
(in thousands, except per share data)

Product revenues
$ 43,661 $ 34,577 $ 85,272 $ 79,387
Intellectual property revenues
250 — 290 5,000

Revenues
43,911 34,577 85,562 84,387
Costs and expenses:

Cost of revenues
19,362 18,228 38,465 40,675

Engineering, research and development
12,276 10,939 24,235 22,520

Selling, general and administrative (net of a gain on the sale of building of $2.9 million for the six months ended March 31, 2009)
9,083 9,930 19,612 20,349

Accounting remediation & reconstruction expense & litigation costs
— 1,515 73 3,464

Goodwill impairment
— — — 191,418

Amortization of intangible assets
182 386 431 705

Costs and expenses
40,903 40,998 82,816 279,131

Income (loss) from operations
3,008 (6,421 ) 2,746 (194,744 )
Other (expense) income:

Interest expense, net (including $30.4 million and $38.6 million change in derivative valuation for the three and six months ended March 31, 2010, respectively)
(32,951 ) (1,170 ) (43,171 ) (2,300 )

Loss on extinguishment of debt
— — (21,576 ) —

Other (expense) income, net
29 (48 ) 105 96

Other expense, net
(32,922 ) (1,218 ) (64,642 ) (2,204 )
Loss before income tax expense (benefit) and noncontrolling interest in earnings of consolidated subsidiary
(29,914 ) (7,639 ) (61,896 ) (196,948 )
Income tax expense (benefit)
4,147 (554 ) 6,025 96

Net loss
(34,061 ) (7,085 ) (67,921 ) (197,044 )

Less: net loss attributable to noncontrolling interest
(1 ) — (1 ) (1 )

Fair value adjustment of Preferred Stock—Series B
— — 126 —

Net loss available to common stockholders
$ (34,060 ) $ (7,085 ) $ (68,046 ) $ (197,043 )

Net loss per common share—basic and diluted

Net loss per share
$ (0.08 ) $ (0.03 ) $ (0.18 ) $ (0.86 )
Weighted average shares outstanding:

Basic and diluted
403,897 230,227 375,363 228,194

Three months ended
June 30, Nine months ended
June 30,

2010 2009 2010 2009

(in thousands, except
per share data)
(in thousands, except
per share data)

Product revenues
$ 37,533 $ 36,356 $ 122,805 $ 115,743
Intellectual property revenues
— 8,250 290 13,250

Net revenues
37,533 44,606 123,095 128,993
Costs and expenses:

Cost of revenues
15,702 17,282 54,167 57,957

Engineering, research and development
13,674 11,200 37,909 33,720

Selling, general and administrative (net of a gain on the sale of building of $2.9 million for the nine months ended June 30, 2009)
8,669 11,412 28,281 31,761

Accounting remediation & reconstruction expense & litigation costs
— (13,206 ) 73 (9,742 )

Goodwill impairment
— — — 191,418

Amortization of intangible assets
182 362 613 1,068

Costs and expenses
38,227 27,050 121,043 306,182

Income (loss) from operations
(694 ) 17,556 2,052 (177,189 )
Other income (expense):

Interest income (expense), net (including the change in derivative liability valuation of $32.8 million and ($5.9) million for the three and nine months ended June 30, 2010, respectively, and ($4.6) million for the three and nine months ended June 30, 2009)
30,275 (5,804 ) (12,896 ) (8,104 )

Gain (loss) on extinguishment of debt
265 — (21,311 ) —

Other income (expense), net
(61 ) (38 ) 44 58

Other income (expense), net
30,479 (5,842 ) (34,163 ) (8,046 )
Income (loss) before income tax expense (benefit)

29,785
11,714
(32,111
)
(185,235
)

Income tax (benefit) expense
(3,244 ) (696 ) 2,781 (600 )

Net income (loss) from continuing operations
33,029 12,410 (34,892 ) (184,635 )

Income from discontinued operations, net
— 71 — 71

Net income (loss)
33,029 12,481 (34,892 ) (184,564 )

Net loss attributable to noncontrolling interest
— — (1 ) (1 )

Fair value adjustment of Preferred Stock—Series B
— — 126 —

Net income (loss) available to common shareholders
$ 33,029 $ 12,481 $ (35,017 ) $ (184,563 )

Net income per preferred share

Net income
$ 6.92 $ — $ — $ —
Preferred shares outstanding
219 — — —
Net income (loss) per common share—basic

Continuing operations
$ 1.38 $ 1.07 $ (1.74 ) $ (16.12 )
Net income (loss)
$ 1.38 $ 1.08 $ (1.74 ) $ (16.11 )
Net (loss) income per common share—diluted

Continuing operations
$ 0.96 $ 1.07 $ (1.74 ) $ (16.12 )
Net income (loss)
$ 0.99 $ 1.08 $ (1.74 ) $ (16.11 )
Weighted average common shares outstanding:

Basic
22,780 11,545 20,105 11,455
Diluted
34,544 11,587 20,105 11,455

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE LOSS

	Preferred Stock					Common Stock													Total Shareholders' Equity (Deficit)				Preferred Stock						Common Stock

																																							Total Vitesse Semiconductor Corporation Shareholders' Deficit
	Preferred Stock					Common Stock				Additional Paid-in- Capital			Accumulated Deficit			Noncontrolling Interest							Preferred Stock						Common Stock				Additional Paid-in-Capital			Accumulated Deficit						Total Shareholders' Deficit				Total Vitesse Semiconductor Corporation Shareholders' Deficit
(In thousands, except share data)	Shares			Amount		Shares		Amount		Additional Paid-in- Capital			Accumulated Deficit			Noncontrolling Interest					Total Shareholders' Equity (Deficit)	(In thousands, except share data)	Shares			Amount			Shares		Amount		Additional Paid-in-Capital			Accumulated Deficit						Total Shareholders' Deficit
Balance at September 30, 2009		—		$	—		230,905,580	$	2,314	$	1,754,598		$	(1,818,271	)	$	86		$	(61,273
																						Balance at September 30, 2009		—		$	—			11,544,803	$	115	$	1,756,797		$	(1,818,271	)	$	(61,359	)	$	86

Net loss		—			—		—		—		—			(67,920	)		(1	)		(67,921	)	Net loss		—			—			—		—		—			(34,891	)		(34,891	)		(1	)		(34,892	)
Compensation expense related to stock options and awards		—			—		—		—		1,127			—			—			1,127		Compensation expense related to stock options and awards		—			—			—		—		1,724			—			1,724			—			1,724
Conversion of Series B Preferred Shares		(10,000	)		—		1,000,000		10		(10	)		—			—			—		Conversion of Series B Preferred Shares		(551,675	)		(6	)		2,758,377		28		(22	)		—			—			—			—
Conversion of 8% Debentures																						Conversion of 8% Debentures								869,531		9		6,004						6,013						6,013
Debt restructuring costs		—			—		—		—		(1,050	)		—			—			(1,050	)	Debt restructuring costs		—			—			—		—		(1,050	)		—			(1,050	)		—			(1,050	)
Tax expense on debt transaction		—			—		—		—		512			—			—			512		Tax expense on debt transaction		—			—			—		—		512			—			512			—			512
Shares issued pursuant to debt restructuring		770,786			8		172,936,222		1,729		50,766			—			—			52,503		Shares issued pursuant to debt restructuring		770,786			8			8,646,810		86		52,408			—			52,502			—			52,502
Distribution to minority partners		—			—		—		—		—			—			(3	)		(3	)
Distribution to minority interest holders																						Distribution to minority interest holders		—			—			—		—		—			—						(3	)		(3	)

Balance at March 31, 2010		760,786		$	8		404,841,802	$	4,053	$	1,805,943		$	(1,886,191	)	$	82		$	(76,105	)
Balance at June 30, 2010																						Balance at June 30, 2010		219,111		$	2			23,819,521	$	238	$	1,816,373		$	(1,853,162	)	$	(36,549	)	$	82		$	(36,467	)

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

			Six months ended March 31,									Nine months ended June 30,

			2010			2009						2010			2009
			(in thousands)									(in thousands)
Cash flows from operating activities:	Cash flows from operating activities:								Cash flows from operating activities:
Net loss	Net loss		$	(67,921	)	$	(197,043	)	Net loss			$	(34,892	)	$	(184,564	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			1,730			2,204
Adjustments to reconcile net loss to net cash provided by operating activities:									Adjustments to reconcile net loss to net cash provided by operating activities:
	Share-based compensation			1,127			1,583		Depreciation and amortization				2,615			3,260
	Change in market value of embedded derivative liability			38,631			—		Share-based compensation				1,724			2,381
	Allowance for sales return reserve			—			(36	)	Change in market value of embedded derivative liability				5,860			4,636
	Loss on extinguishment of debt			20,765			—		Gain on conversion of debt				(265	)		—
	Impairment of goodwill			—			191,418		Loss on extinguishment of debt				20,765			—
	Capitalization of interest			614			—		Impairment of goodwill				—			191,418
	Amortization of debt issuance costs			398			377		Capitalization of interest				937			—
	Amortization of debt discount			831					Amortization of debt issuance costs				605			566
	Gain on sale of Colorado building			—			(2,924	)	Amortization of debt discount				1,311			—
	Minority interest in earnings of consolidated subsidary			(1	)		—		Gain on sale of Colorado building				—			(2,924	)
	Other			512			7		Other				511			(29	)
Change in operating assets and liabilities:	Change in operating assets and liabilities:								Change in operating assets and liabilities:
	Accounts receivable			(3,069	)		(81	)	Accounts receivable				1,809			(8,554	)
	Inventory			(1,047	)		9,288		Inventory				(5,432	)		13,530
	Restricted cash			10			201		Restricted cash				7			197
	Prepaids and other current assets			299			(155	)	Prepaids and other current assets				259			(566	)
	Accounts payable			141			(4,678	)	Accounts payable				3,725			880
	Accrued expenses and other liabilities			6,928			(3,338	)	Accrued expenses and other liabilities				1,346			(5,898	)
	Deferred revenue			(1,451	)		3,018		Deferred revenue				154			(2,082	)

		Net cash used in operating activities		(1,503	)		(159	)		Net cash provided by operating activities			1,039			12,251

Cash flows from investing activities:	Cash flows from investing activities:								Cash flows from investing activities:
	Restricted cash			—			17		Proceeds from sale of Colorado building				—			6,500
	Proceeds from sale of Colorado building			—			6,500		Transaction costs for sale of Colorado building				—			(547	)
	Transaction costs for sale of Colorado building			—			(547	)	Capital expenditures				(2,150	)		(1,540	)
	Capital expenditures			(1,228	)		(1,170	)	Purchase of intangible assets				(111	)		(1,982	)
	Distribution to minority partners			(3	)		1		Other				(3	)		18
	Purchase of intangible assets			—			(1,982	)
											Net cash (used in) provided by investing activities		(2,264	)		2,449
		Net cash (used in) provided by investing activities		(1,231	)		2,819

Cash flows from financing activities:	Cash flows from financing activities:								Cash flows from financing activities:
	Payment of convertible debentures			(10,000	)		—		Payment of convertible debentures				(10,000	)		—
	Payment of senior debt			(5,000	)		—		Payment of senior debt				(5,000	)		—
	Debt issuance costs			(1,365	)		—		Debt issuance costs				(1,365	)		—
	Equity issuance costs			(1,050	)				Equity issuance costs				(1,050	)		—
	Prepayment fee on senior debt			(50	)		—		Prepayment fee on senior debt				(50	)		—
	Payment of capital lease obligations			(155	)		—		Payment of capital lease obligations				(233	)		—

		Net cash used in financing activities		(17,620	)		—				Net cash used in financing activities		(17,698	)		—

Net (decrease) increase in cash	Net (decrease) increase in cash			(20,354	)		2,660		Net (decrease) increase in cash				(18,923	)		14,700
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period			57,544			36,722		Cash and cash equivalents at beginning of period				57,544			36,722

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period		$	37,190		$	39,382		Cash and cash equivalents at end of period			$	38,621		$	51,422

Cash paid during the year for:									Cash paid during the year for:
									Interest			$	4,155		$	3,402
									Income taxes			$	643		$	2,352
Supplemental disclosure of non-cash transactions:									Supplemental disclosure of non-cash transactions:
Non-cash investing and financing activities:	Non-cash investing and financing activities:								Non-cash investing and financing activities:
	Issuance of 2014 convertible debentures		$	40,343		$	—		Issuance of 2014 convertible debentures			$	40,343		$	—
	Common stock issued in exchange for 2024 debentures		$	36,317					Common stock issued in exchange for 2024 debentures			$	36,317		$	—
	Preferred stock—Series B issued in exchange for 2024 debentures		$	16,187		$	—		Preferred stock—Series B issued in exchange for 2024 debentures			$	16,187		$	—
	Compound embedded derivative issued in exchange for 2024 debentures		$	27,925		$	—		Compound embedded derivative issued in exchange for 2024 debentures			$	27,925		$	—
									Common stock issued in exchange for 2014 debentures			$	6,013		$	—
									Common stock issued in exchange for Preferred Stock Series B			$	27,584		$	—

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~March 31,~~June 30, 2010

Note 1. The Company and its Significant Accounting Policies

Description of Business

Vitesse Semiconductor Corporation ("~~Vitesse"~~Vitesse," the "Company," "us" or ~~the "Company"~~"we") is a leading worldwide supplier of high-performance integrated circuits ("ICs") that are utilized primarily by manufacturers of networking systems for carrier, enterprise and storage communications applications. Vitesse designs, develops and markets a diverse portfolio of high-performance, cost-competitive semiconductor products. For more than 25 years, Vitesse has led the transition of new technologies in communications networks.

Vitesse was incorporated in the State of Delaware in 1987. Our principal offices are located at 741 Calle Plano, Camarillo, California, and our phone number is (805) 388-3700. Our stock trades on the OTCQB marketplace under the ticker symbol VTSS.

Basis of Presentation

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission ("SEC") Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended September 30, 2009, included in our Annual Report on Form 10-K filed with the SEC on December 14, 2009.

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position at ~~March 31,~~June 30, 2010 and September 30, 2009, the consolidated results of our operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2010 and 2009, our consolidated cash flows for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 and 2009 and the changes in our shareholders' ~~equity (deficit)~~equity/deficit and comprehensive loss for the ~~six~~nine months ended ~~March 31, 2009.~~June 30, 2010. The results of operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2010 are not necessarily indicative of the results to be expected for future quarters or the full year.

On January 7, 2010, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to affect a reverse stock split of the Company's common stock at a reverse split ratio between one-for-20 and one-for-50, to be selected by the Board of Directors. On May 17, 2010, the Company announced its plans to complete a one-for-20 reverse stock split of its common stock, to take effect on June 30, 2010.

Immediately prior to the one-for-20 reverse stock split on June 30, 2010, there were five billion shares of common stock authorized and 476,399,949 common shares issued and outstanding. Subsequent to the reverse stock split, there were 250 million common shares authorized, 23,819,521 common shares issued and outstanding. The Company did not issue fractional shares in connection with the reverse stock split and stockholders otherwise entitled to receive fractional shares received cash in lieu of fractional shares. All share and per share amounts have been retroactively adjusted to reflect the reverse stock split. There was no net effect on total shareholders' equity as a result of the reverse stock split.

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 1. The Company and its Significant Accounting Policies (Continued)
        The Company's fiscal year is October 1 through September 30.
Reclassifications
        Certain reclassifications have been made to ~~prior year~~prior-year amounts and related footnotes to conform to ~~current year~~current-year presentation.
Correction of Error
        During the first quarter of 2010, we identified an error in our financial statements as of September 30, 2009 and for the quarter and year then ended. This error was the result of an operational change that was not appropriately reflected in our inventory costing and accounting processes. In accordance with Accounting Standards Codification ("ASC") Topic 250, "Accounting Changes and Error Corrections," originally issued as SAB No. 99"Materiality" and SAB No. 108"Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 1. The Company and its Significant Accounting Policies (Continued)~~

Financial Statements," management evaluated the materiality of the error from a qualitative and quantitative perspective and concluded that the error was not material to any prior periods. Further, we evaluated the materiality of the error on the results of operations for the first quarter as well as the expected results of operations for the full year and concluded that the error in the first quarter was quantitatively significant to the first quarter financial statements but was not anticipated to be material to the full year or the trend of financial results. Accordingly, we corrected the error in the first quarter. The effects of the adjustment to correct the error on specific line items of the financial statements for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 were as follows:

Six Months Ended
March 31, 2010 Nine Months Ended
June 30,
2010 (unaudited)
Decrease in cost of sales
$ 934 $ 934
Increase in income from operations
934 934
Decrease in net loss
934
Decrease in net income
934
Net loss per share—basic and diluted
$ — $ (0.05 )
        The adjustment to correct the error had no impact on the three months ended ~~March 31,~~June 30, 2010. The net loss per share—basic and diluted was adjusted to reflect our June 30, 2010 one-for-20 reverse stock split.
Computation of Net ~~Loss~~Income (Loss) per Share
        In accordance with ASC Topic 260 "Earnings Per Share" ("ASC 260") originally issued as SFAS 128, "Earnings per Share," basic net income and loss per share is computed by dividing net income or loss available to common shareholders by the ~~weighted average~~weighted-average number of common shares outstanding during the period.
        For periods in which we report income from continuing operations, the weighted average number of shares used to calculate diluted income per share is inclusive of common stock equivalents from unexercised stock options, restricted stock units, warrants, convertible preferred stock and convertible debentures. Unexercised stock options, restricted stock units and warrants are considered to be

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 1. The Company and its Significant Accounting Policies (Continued)

common stock equivalents if, using the treasury stock method, they are determined to be dilutive. The dilutive effect of the convertible preferred stock and convertible debentures is determined using the if-converted method.
        For the ~~three and six~~nine months ended ~~March 31,~~June 30, 2010 and 2009, the Company recorded a loss from continuing operations and in accordance with ASC 260, all outstanding potential common shares were excluded from the diluted loss per share computation. For periods in which the Company reports a loss from continuing operations, diluted loss per share is calculated using only the ~~weighted average~~weighted-average number of shares outstanding during each of the periods, as the inclusion of any common stock equivalents would be anti-dilutive. For the three months ended June 30, 2010 , we recorded income from continuing operations and accordingly included common stock equivalents from the convertible debentures, convertible preferred stock, stock options and restricted stock units in the diluted earnings per share calculation. For the three months ended June 30, 2009, we recorded income from continuing operations and accordingly included common stock equivalents from restricted stock units in the diluted earnings per share calculation.
        Our shares of Series B Preferred Stock are participating securities. Holders of these shares are entitled to receive, when, as and if dividends are declared by the Board on the common stock, dividends in an amount equal to 10% of par value per share of the Series B Preferred Stock plus the amount of dividends that would have been payable on the shares of common stock into which the Series B Preferred Stock could be converted on an if-converted basis. Accordingly, we used the two-class method, as prescribed by ASC 260, in determining the earnings for each class of stock.
Financial Instruments
        ASC Topic 825, "Financial Instruments," defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Our financial instruments include cash equivalents, restricted cash, accounts receivable, accounts payable,

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 1. The Company and its Significant Accounting Policies (Continued)~~

accrued expenses and various debt instruments. These financial instruments are stated at their carrying values, which are estimates of their fair ~~values.~~values because of their nearness to cash settlement or the comparability of their terms to the terms we could obtain, for similar instruments, in the current market.
        Restricted cash consists of interest-bearing certificates of deposit ("~~CD"~~CDs") collateralizing letters of credit and other commitments. As of ~~March 31,~~June 30, 2010 and September 30, 2009, the Company had approximately $1.8 million and $2.0 million, respectively, in ~~CD.~~CDs.
        Our senior term loan is stated at carrying value of $25.0 million as of ~~March 31,~~June 30, 2010 and $30.0 million as of September 30, 2009, which are estimates of its fair value.
        We estimate the fair values of the 2014 Debentures and embedded derivatives using a convertible bond valuation model within a lattice framework. These valuations are determined using Level 3 inputs. The valuation model combines expected cash outflows with ~~market based~~market-based assumptions regarding risk-adjusted yields, stock price volatility, recent price quotes and trading information of the Company's common stock into which the 2014 Debentures are convertible. The fair value of the 2014 Debentures includes the face value of the debentures plus the discount, which is amortized as interest expense over the life of the debentures. The fair value of the 2014 Debentures was ~~$43.6~~$44.3 million as of ~~March 31,~~June 30, 2010.

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 1. The Company and its Significant Accounting Policies (Continued)

On October 30, 2009, the date of issuance, the fair value of the bifurcated compound derivative was $28.0 million. As of ~~March 31,~~June 30, 2010, the fair value of the bifurcated compound derivative was ~~$65.5 million, with the~~$29.2 million. The change ~~of $37.5 million~~in fair value is reflected as an increase of interest expense in the Statement of Operations for the ~~six~~nine month period ended ~~March 31,~~June 30, 2010. On January 7, 2010 shareholders of the Company authorized the issuance of a total of 5,000,000,000 shares of common stock, providing the Company with sufficient common shares to satisfy all potential conversion obligations.
        The Company will continue to mark the bifurcated compound derivative to market due to the conversion price not being indexed to the Company's own stock. Specifically, the feature requiring the Company to redeem foregone interest upon conversion by the holder ~~feature~~ causes the exercise price not to ~~not~~ be indexed to the Company's own stock. The change in the fair value of the bifurcated compound derivative is primarily related to the change in price of the underlying common stock. The change in value of the bifurcated compound derivative is a non-cash item; further, the Company can elect to settle the embedded derivative in either cash or common shares. As of ~~March 31,~~June 30, 2010, the Company has enough common shares to settle all of its potential conversion obligations. The Company intends to settle this obligation in common shares should it be exercised by its holders. As the Company intends to, and has the ability to, satisfy the obligations with equity securities, in accordance with ASC Topic 470 Debt ("ASC 470"), the Company has reclassified the liability as a long-term liability on its Consolidated Balance Sheet as of ~~March 31,~~June 30, 2010.
        As of September 30, 2009, the fair value of our 2024 Debentures was the face value of $96.7 million. The fair value of the related embedded derivative as of September 30, 2009 was $12.2 million.
Recent Accounting Pronouncements
        We do not believe that there are any recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants or the SEC that would have a material impact on the Company's present or future consolidated financial statements.

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
Note 2. Supplemental Financial Information
Inventory
        The following table presents the principal components of the Company's inventory:

March 31,
2010 September 30,
2009
June 30,
2010 (unaudited) September 30,
2009

(in thousands)

(in thousands)

Inventory:
Inventory:

Inventory:

Raw materials
Raw materials
$ 1,868 $ 1,411
Raw materials
$ 3,591 $ 1,411
Work-in-process
Work-in-process
7,239 8,335
Work-in-process
8,915 8,335
Finished goods
Finished goods
10,749 9,063
Finished goods
11,735 9,063

Total
$ 19,856 $ 18,809
Total
$ 24,241 $ 18,809

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 2. Supplemental Financial Information (Continued)
Revenues by Product Markets
        The following table presents revenues from the Company's product markets:

Three Months Ended
March 31, Six Months Ended
March 31, Three Months Ended
June 30, Nine Months Ended
June 30,

2010 2009 2010 2009 2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands)
(in thousands)

Carrier Networking Products
$ 17,170 $ 16,040 $ 36,358 $ 34,893 $ 14,983 $ 16,689 $ 51,341 $ 51,582
Enterprise Networking Products
19,813 13,081 37,930 29,027 18,725 14,960 56,655 43,987
Non-Core Products
6,678 5,456 10,984 15,467 3,825 4,707 14,809 20,174

Net Product Revenues
$ 43,661 $ 34,577 $ 85,272 $ 79,387 $ 37,533 $ 36,356 $ 122,805 $ 115,743

Revenues from Intellectual Property
        The following table presents revenues from intellectual property:

Three
Months
Ended
March 31, Six Months
Ended
March 31,

2010 2009 2010 2009

(in thousands)

Licensing Revenues
$ 250 $ — $ 290 $ 5,000

Three Months Ended
June 30, Nine Months Ended
June 30,

2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands)

Licensing Revenues
$ — $ 8,250 $ 290 $ 13,250
Revenues by Geographic Area
        The following table presents revenues by geographic area:

Three Months Ended
June 30, Nine Months Ended
June 30,

2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands)

North America(1)
$ 13,908 $ 20,448 $ 48,961 $ 60,341
Asia Pacific
18,053 20,507 55,014 49,534
Europe
5,572 3,651 19,120 19,118

Total Net Revenues
$ 37,533 $ 44,606 $ 123,095 $ 128,993

(1)
North America includes the United States, Canada and Mexico

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
~~March 31,~~June 30, 2010
Note 2. Supplemental Financial Information (Continued)
~~Revenues by Geographic Area~~
        ~~The following table presents revenues by geographic area:~~

Three Months Ended
March 31, Six Months Ended
March 31,

2010 2009 2010 2009

(in thousands)

North America(1)
$ 17,304 $ 14,102 $ 35,053 $ 38,924
Asia Pacific
18,577 16,190 36,962 36,055
Europe
8,030 4,285 13,547 9,408

Total Net Revenues
$ 43,911 $ 34,577 $ 85,562 $ 84,387

~~(1)~~
~~North America includes the United States, Canada and Mexico~~
Computation of Net ~~Loss~~Income (Loss) per Share
        The following table presents the computation of ~~loss~~income (loss) per share:

Three Months Ended
March 31, Six Months Ended
March 31,

2010 2009 2010 2009

(in thousands, except per share data)

Net loss
$ (34,061 ) $ (7,085 ) $ (67,921 ) $ (197,044 )

Less: net loss attributable to noncontrolling interest
(1 ) — (1 ) (1 )

Fair value adjustment of Preferred Stock—Series B
— — 126 —

Net loss available to common shareholders
$ (34,060 ) $ (7,085 ) $ (68,046 ) $ (197,043 )

Weighted average number of shares—basic and diluted
403,897 230,227 375,363 228,194
Loss per share—basic and diluted

Net loss
$ (0.08 ) $ (0.03 ) $ (0.18 ) $ (0.86 )

Less: net loss attributable to noncontrolling interest
— — — —

Fair value adjustment of Preferred Stock—Series B
— — — —

Net loss available to common shareholders
$ (0.08 ) $ (0.03 ) $ (0.18 ) $ (0.86 )

Three Months Ended
June 30, Nine Months Ended
June 30,

2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands, except per share data)

Net income (loss) from continuing operations
$ 33,029 $ 12,410 $ (34,892 ) $ (184,635 )

Income from discontinued operations, net
— 71 — 71

Net income (loss)
33,029 12,481 (34,892 ) (184,564 )

Net loss attributable to noncontrolling interest
— — (1 ) (1 )

Fair value adjustment of Preferred Stock—Series B
— — 126 —

Net income (loss) available to common shareholders
33,029 12,481 (35,017 ) (184,563 )

Impact of assumed conversion of 2014 Debentures:

Interest on 2014 Debentures, net of tax
1,161 — — —

Net income (loss) available to common shareholders plus assumed conversions
$ 34,190 $ 12,481 $ (35,017 ) $ (184,563 )

Allocation of undistributed earnings to preferred stock
1,516 — — —
Preferred Stock—Series B
219 — — —
Net income per preferred share
$ 6.92 $ — $ — $ —
Allocation of undistributed earnings to common stock—basic

Net income from continuing operations
$ 31,513 $ — $ — $ —

Income from discontinued operations, net
— — — —

Net income
31,513 — — —

Weighted average number of shares—basic
22,780 11,545 20,105 11,455

Effect of dilutive common stock equivalents from:

Outstanding stock options
149 — — —

Outstanding restriced stock units
187 42 — —

Convertible preferred stock
1,096 — — —

2014 Convertible debentures
10,332 — — —

Weighted average number of shares—diluted
34,544 11,587 20,105 11,455
Net income (loss) per common share

Basic:

Net income (loss) from continuing operations
$ 1.38 $ 1.07 $ (1.74 ) $ (16.12 )

Income from discontinued operations, net
— 0.01 — 0.01

Net income (loss)
1.38 1.08 (1.74 ) (16.11 )

Fair value adjustment of Preferred Stock—Series B
— — — —

Net income (loss) available to common shareholders
$ 1.38 $ 1.08 $ (1.74 ) $ (16.11 )

Diluted:

Net income (loss) from continuing operations
$ 0.96 $ 1.07 $ (1.74 ) $ (16.12 )

Income from discontinued operations, net
— 0.01 — 0.01
Net income (loss)
0.96 1.08 (1.74 ) (16.11 )

Fair value adjustment of Preferred Stock—Series B
— — — —

Net income (loss) available to common shareholders
0.96 1.08 (1.74 ) (16.11 )

Impact of assumed conversion of 2014 Debentures:

Interest on 2014 Debentures, net of tax
0.03 — — —

Net income available to common shareholders plus assumed conversions
$ 0.99 $ 1.08 $ — $ —

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 2. Supplemental Financial Information (Continued)
        For ~~each of~~ the ~~quarters and six month~~nine-month periods ended ~~March 31,~~June 30, 2010 and 2009, the Company recorded a loss from continuing operations and in accordance with ASC 260, all outstanding potential common shares were excluded from the diluted loss per share computation. For periods in which the

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 2. Supplemental Financial Information (Continued)~~

Company reports a loss from continuing operations, diluted loss per share is calculated using only the weighted average number of shares outstanding during each of the periods, as the inclusion of any common stock equivalents would be anti-dilutive. For the three months ended June 30, 2010, we recorded income from continuing operations and accordingly included common stock equivalents from the convertible debentures, convertible preferred stock, stock options and restricted stock units in the diluted earnings per share calculation. For the three months ended June 30, 2009, we recorded income from continuing operations and accordingly included common stock equivalents from restricted stock units in the diluted earnings per share calculation.
        Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participation rights in undistributed earnings for each class. For the three months ended June 30, 2010, the dividend rights on the outstanding preferred shares are not material to the calculation and are therefore not considered in determining earnings and losses per preferred share. The allocation of undistributed earnings to preferred shares is equal to the amount of earnings per common share that would be distributed on an if-converted basis.
        The ~~weighted average~~ potential common shares excluded from the diluted ~~loss~~income (loss) per share computation are as follows:

Three Months
Ended
March 31, Six Months Ended
March 31, Three Months Ended
June 30, Nine Months Ended
June 30,

2010 2009 2010 2009 2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands)
(in thousands)

Outstanding stock options
19,602 21,982 19,985 21,655 951 1,080 1,015 1,082
Outstanding restricted stock units
1,685 3,429 983 2,890 28 — 96 18
Outstanding warrants
150 150 150 150 8 8 8 8
Convertible preferred stock
76,079 — 76,079 — — — 1,096 —
2014 Convertible debentures
222,191 — 222,191 — — — 10,332 —
2024 Convertible debentures
— 37,981 — 37,981 — 1,899 — 1,899

Total potential common shares excluded from calculation
319,707 63,542 319,388 62,676 987 2,987 12,547 3,007

Note 3. Debt
        As of September 30, 2009, we had outstanding a $30.0 million senior secured term loan with Whitebox VSC, Ltd. (the "Senior Term Loan") and $96.7 million in aggregate principal amount of 1.5% Convertible Subordinated Debentures due 2024 (the "2024 Debentures). Effective October 16, 2009, the Company entered into an agreement to amend the Senior Term Loan with Whitebox. Pursuant to the amendment to the Senior Term Loan, the Company repaid $5.0 million of the original $30.0 million and agreed to an interest rate increase on the remaining $25.0 million outstanding. In

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 3. Debt (Continued)

accordance with ASC 470, this transaction was accounted for as a debt modification whereby fees of $0.5 million incurred pursuant to the modification were expensed as incurred.
        The Company also entered into a Debt Conversion Agreement (the "Conversion Agreement") with the beneficial owners of more than 96.7% of the 2024 Debentures (the "Noteholders"). Pursuant to the Conversion Agreement, the Noteholders agreed to exchange their 2024 Debentures for a combination of $6.4 million in cash, ~~172,936,222~~8,646,811 shares of common stock, and $50.0 million in newly issued 8.00% Convertible Second Lien Debentures Due 2014 (the "2014 Debentures") convertible into ~~222,191,111~~11,109,556 shares of common stock. 770,785 shares of Series B Preferred Stock were also issued to certain Noteholders. The Conversion Agreement was consummated on October 30, 2009. The Company also paid $3.6 million in cash to 3.3% of the holders of the 2024 Debentures who declined to participate in the Conversion Agreement.
        In accordance with ASC 470, this transaction was accounted for as a debt extinguishment, pursuant to which the Company recognized a $21.6 million loss. The loss on the extinguishment of debt was calculated as the difference between the aggregate fair values of the new instruments, including the compound embedded derivative associated with the 2014 Debentures, totaling $130.8 million, plus

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 3. Debt (Continued)~~

~~$0.8~~ $0.8 million in additional amounts and fees paid to the creditors, compared to the net carrying values of the 2024 Debentures and related premium put derivative of $96.7 million and $13.3 million, respectively.
        In connection with the debt exchange and the debt modification, the Company incurred third-party costs of approximately $2.9 million that were allocated to the underlying financial instruments issued based on the relative fair value of each instrument. Of the total fees incurred, $0.5 million was allocated to the modification of the Senior Term Loan and expensed as incurred, $1.0 million was allocated to the issuance of the common and preferred shares and charged against additional paid-in capital, and $1.4 million was allocated to the issuance of the 2014 Debentures and was capitalized in other assets as debt issuance costs, to be amortized as interest expense over the term of the loan. Unamortized debt issuance costs as of ~~March 31,~~June 30, 2010 were ~~$1.3~~$1.1 million.
        On May 14, 2010, the Company received a Conversion Notice from one of the Noteholders of the 2014 Debentures of its intent to convert $3.5 million face amount of its holdings. The Company converted the principal amount of the submitted debentures into shares of common stock and elected to pay the "Make-Whole Amount" (as defined in the Indenture) in shares of common stock. 777,778 shares of the Company's common stock were issued on May 20, 2010 in settlement of the $3.5 million of debentures based on a conversion price of $4.50 per share. On June 7, 2010, 91,753 shares of common stock were issued in settlement of the Make-Whole Amount obligation.
        In accordance with ASC 470, this conversion was accounted for as a debt extinguishment due to the bifurcation of the compound embedded derivative. The Company recognized a gain of $0.3 million in the accompanying financial statements. The gain on the extinguishment of debt was calculated as the difference between the fair value of the shares of common stock issued and the recorded value of the debt extinguished, which included a pro rata share of 1) debt issue costs; 2) debt discount; and 3) fair value of the embedded derivative on the date of the conversion.
        The Company has relied on the Noteholders' representation in the Conversion Notice that the Noteholder would not own more than 9.99% of the outstanding common stock of the Company after

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 3. Debt (Continued)

the conversion of the debentures and payment of the Make-Whole Amount in shares of the Company's common stock.
Note 4. Fair Value Measurements
        Assets and liabilities measured at fair value on a recurring basis include the following at ~~March 31,~~June 30, 2010 and September 30, 2009 (in thousands):

Fair Value
Measurements Using
Fair Value
Measurements Using

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Quarter ended March 31, 2010

June 30, 2010 (unaudited)

Derivative liability—premium put
$ — $ — $ — $ — $ — $ — $ — $ —
Derivative liability—compound embedded derivative
— — 65,459 65,459 — — 29,216 29,216
Year ended September 30, 2009

September 30, 2009

Derivative liability—premium put
$ — $ — $ 12,209 $ 12,209 $ — $ — $ 12,209 $ 12,209
Derivative liability—compound embedded derivative
— — — — — — — —
        The following table provides a reconciliation of the beginning and ending balances for the derivative liability—premium put and derivative liability—embedded compound derivative liability measured at fair value using significant unobservable inputs (Level 3) (in thousands):

Derivative
liability—
premium put
related to
2024 Debentures Compund
Embedded
Derivative
related to
2014 Debentures
Derivative liability—premium
put related to 2024 Debentures Compund Embedded Derivative
related to 2014 Debentures
Balance at September 30, 2009
Balance at September 30, 2009
$ 12,209 $ —
Balance at September 30, 2009
$ 12,209 $ —

Transfers in and/or out of Level 3
— 27,925
Transfers in and /or out of Level 3
— 27,925

Total losses included in earnings
1,096 37,534
Total losses included in earnings
1,096 1,291

Settlement
(13,305 ) —
Settlement
(13,305 ) —

Balance at March 31, 2010
$ — $ 65,459
Balance at June 30, 2010 (unaudited)
Balance at June 30, 2010 (unaudited)
$ — $ 29,216

~~Table of Contents~~

~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 4. Fair Value Measurements (Continued)~~
        The compound embedded derivative liability, which is included in long term liabilities, represents the value associated with the right of the holders of the 2014 Debentures associated with the equity conversion feature and a "make-whole" feature of the 2014 Debentures.
        There is no current observable market for this type of derivative and, as such, we determined the value of the embedded derivative using a lattice-based convertible bond valuation model that combined expected cash outflows with market-based assumptions. The fair value of the 2014 Debentures without the embedded compound derivative feature was also estimated using a convertible bond valuation model within a lattice framework. The convertible bond valuation model combined expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility and recent price quotes and trading information regarding shares of our common stock into which the 2014 Debentures are convertible. On January 7, 2010 shareholders of the Company authorized the issuance of a total of 5,000,000,000 shares of common stock, providing the Company with sufficient common shares to satisfy potential conversion obligations. The Company will ~~continue to~~ mark the embedded derivative to market due to the conversion price not being indexed to the Company's own stock. The change in the fair value of the bifurcated compound embedded derivative is primarily related to the change in price of the underlying common stock. At the Company's option it can settle the embedded derivative in either cash or

Table of Contents

VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 4. Fair Value Measurements (Continued)

common shares. As of ~~March 31,~~June 30, 2010, the Company has enough common shares to settle the entire obligation in shares. The Company intends to settle this obligation in common ~~shares should it be exercised by its holders.~~shares. As the Company intends to, and has the ability to, satisfy the obligations with equity securities, in accordance with ASC 470, the Company has reclassified the liability as a long-term liability on its Consolidated Balance Sheet as of ~~March 31,~~June 30, 2010. The change in fair value of the compound embedded derivative liability is recorded in interest expense.
        The valuation methodologies used by the Company as described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Note 5. Income Taxes
        The provision for income taxes as a percentage of income from continuing operations before income taxes was ~~(9.73%)~~8.84% for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 compared to ~~(1.74%)~~5.84% for the comparable period in the prior year. For the year ending September 30, 2010, the Company's estimated effective tax rate is ~~(9.73%)~~8.84%. The Company's effective tax rate is primarily impacted by continuing operating losses.
        At October 1, 2009, the Company had net deferred tax assets of $422.1 million before considering the effect of the valuation allowance. These deferred tax assets ~~are~~were primarily composed of net operating loss ("NOL") carryforwards, research and development credits, tangible and intangible assets recovery, and other accruals and reserves. Due to uncertainties surrounding the Company's ability to generate future taxable income to utilize the deferred tax assets, management had recorded a full valuation allowance against the deferred tax assets.

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~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
~~Note 5. Income Taxes (Continued)~~
        Effective October 16, 2009, the Company entered into a Debt Conversion Agreement (the "Conversion Agreement") with the beneficial owners of more than 96.7% of the 2024 Debentures (the "Noteholders") whereby the Noteholders agreed to exchange their 2024 Debentures for a combination of cash, shares of common stock, the ~~New Notes~~2014 Debentures and, in some cases, shares of Series B Preferred Stock. The Conversion Agreement was consummated on October 30, 2009 (the "Closing Date"). (See Note 3—~~Debt)~~Debt in the accompanying unaudited financial statements).
        The Federal Tax Reform Act of 1986, and similar state laws, contains provisions that may limit the net operating loss and tax credits ~~carry forwards~~carry-forwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership interests. Under IRC Section 382 and 383 rules, a change in ownership can occur whenever there is a shift in ownership by more than fifty percentage points by one or more five-percent shareholders within a three-year period. When a change of ownership is triggered, the NOLs and credits may be impaired.
        We performed a study to evaluate the status of net operating losses. Based on that study, we believe that, as a result of the Conversion Agreement discussed above, the Company experienced an "ownership change" as defined for U.S. federal income tax purposes as of October 30, 2009 that will trigger an impairment of the use of our NOLs and credits as of the fiscal year ended September 30,

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VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 5. Income Taxes (Continued)

2010. As a result of the ownership change, the Company only has approximately $55.7 million of NOLs that can be used in future tax years and is subject to an annual limitation of $3.1 million in utilizing its NOLs. The NOLs will expire in fiscal year 2030. Also, due to the ownership change, the research and development credits have been limited as to usage such that the Company does not anticipate being able to use any of its research and development credits existing as of ~~the ownership change~~October 30, 2009 in future tax years.
        ASC Topic 740 Income Taxes ("ASC 740"), originally issued as FIN 48,"Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. ~~109"~~109," prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Due to significant net operating losses, the cumulative effect of applying this interpretation upon adoption on October 1, 2009, had no impact on retained earnings.
        ~~The~~As a result of the adoption of ASC 740, the total amount of gross unrecognized tax benefits, for the nine-months ended June 30, 2010, increased by ~~$340,000~~$344,000 for potential federal and state tax liabilities. These amounts, if recognized, would impact the effective tax rate.
        The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of ~~March 31,~~June 30, 2010, no material interest or penalties were accrued due to significant net operating losses.
        The Company is subject to taxation in the US and various state and foreign jurisdictions. The Company recently completed an examination by the Internal Revenue Service for the tax years ended September 30, 2004 through September 30, 2006. The audit resulted in an adjustment that reduced the Company's federal NOL carryforwards. Effectively, all the Company's tax years in which a tax net operating loss is carried forward to the present are subject to examination by the federal, state, and foreign tax authorities. Therefore, the Company cannot estimate the range of unrecognized tax benefits that may significantly change within the next twelve months.

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~~VITESSE SEMICONDUCTOR CORPORATION~~
~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~March 31, 2010~~
Note 6. Shareholders' Equity
Preferred Stock
        The Company is authorized to issue up to 10,000,000 shares of ~~non-voting convertible~~ preferred stock, par value of $0.01 per ~~share.~~share, of which 800,000 shares have been designated as Series B Participating Non-Cumulative Convertible Preferred Stock, par value of $0.01 per share ("Series B Preferred Stock"). As of ~~March 31,~~June 30, 2010, ~~760,786 preferred~~219,111 shares of Series B Preferred Stock that are convertible into common stock on a ~~100:1~~five-to-one basis were outstanding. No preferred shares were outstanding as of September 30, 2009.
        The Company did not have sufficient authorized common shares for the conversion of all 770,786 ~~preferred~~ shares of Series B Preferred Stock outstanding as of December 31, 2009. In accordance with ASC Topic 480 "Distinguishing Liabilities from Equity" ("ASC 480"), we classified 44,533 shares of Series B ~~preferred shares~~Preferred Stock as temporary equity in the mezzanine section of the balance sheet as of December 31, 2009. These shares were measured at ~~$0.25~~$5.00 per share the fair value of the common stock they would have been converted into on that date. Upon our shareholders' approval of an increase in authorized ~~shares~~common stock to a total of ~~5,000,000,000~~250,000,000 shares ~~of common stock~~ on January 7, 2010, we had sufficient authorized common shares for the conversion of all preferred shares outstanding, and thus, all such shares are classified as permanent equity.

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VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
Note 6. Shareholders' Equity (Continued)
        During the quarter ended ~~March 31,~~June 30, 2010, ~~10,000~~541,675 preferred shares were converted to ~~1,000,000~~2,708,377 shares of common stock. The conversion rate for the shares of Series B Preferred Stock was adjusted to five-to-one from 100-to-one as a result of the June 30, 2010 one-for-20 reverse stock split.
Common Stock
        As of ~~March 31,~~June 30, 2010 and September 30, 2009 the Company was authorized to issue up to ~~5,000,000,000~~250,000,000 and ~~500,000,000~~25,000,000 shares of common stock, par value of $0.01 per share, respectively. On October 30, 2009, in connection with our debt restructuring, we issued ~~172,936,222~~8,646,811 shares of common stock. As of ~~March 31,~~June 30, 2010 and September 30, 2009, ~~404,841,802~~23,819,521 shares and ~~230,905,580~~11,544,803 shares of common stock, were outstanding, respectively.
        On January 7, 2010, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to affect a reverse stock split of the Company's common stock at a reverse split ratio between one-for-20 and one-for-50, to be selected by the Board of Directors. On May 17, 2010, the Company announced its plans to complete a one-for-20 reverse stock split of its common stock, to take effect on June 30, 2010. All share and per share amounts have been retroactively adjusted to reflect the reverse stock split. There was no net effect on total shareholders' equity as a result of the reverse stock split.
        Immediately prior to the one-for-20 reverse stock split on June 30, 2010, there were five billion shares of common stock authorized and 476,399,949 common shares issued and outstanding. Subsequent to the reverse stock split, there were 250 million common shares authorized, 23,819,521 common shares issued and outstanding. The Company did not issue fractional shares in connection with the reverse stock split and stockholders otherwise entitled to receive fractional shares received cash in lieu of fractional shares.
Stock Option Plans
        The Company has several share-based plans that have expired, but under which stock options are still outstanding. In February 2010, our board of directors approved aour new plan, the 2010 Vitesse Semiconductor Corporation Incentive Plan (the "2010 Incentive Plan"). On May 11, 2010, the ~~shareholders~~stockholders approved the 2010 Incentive Plan. The 2010 Incentive Plan permits the grant of stock options, stock appreciation rights, stock awards, restricted stock and stock units, and other stock orand cash-based awards. ~~It will replace~~The 2010 Incentive Plan replaced the Vitesse Semiconductor Corporation 2001 Stock Incentive Plan.
        Under all stock option plans, a total of ~~80,097,525~~5,159,814 shares of common stock, have been reserved for issuance and ~~33,037,954~~2,746,566 shares, remained available for future grant as of ~~March 31,~~June 30, 2010. The following

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VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
~~March 31,~~June 30, 2010
Note 6. Shareholders' Equity (Continued)

table summarizes compensation costs related to the Company's share-based compensation plans (in thousands):

Three Months
Ended
March 31, Six Months Ended
March 31, Three Months Ended
June 30, Nine Months Ended
June 30,

2010 2009 2010 2009 2010
(unaudited) 2009
(unaudited) 2010
(unaudited) 2009
(unaudited)

(in thousands)
(in thousands)

Cost of revenues
$ 79 $ 153 $ 225 $ 359 $ 100 $ 169 $ 326 $ 528
Engineering, research and development
158 207 405 435 183 242 587 678
Selling, general and administrative
206 352 497 789 314 386 811 1,175

Total share-based compensation expense
$ 443 $ 712 $ 1,127 $ 1,583 $ 597 $ 797 $ 1,724 $ 2,381

Stock Options
        Activity under all stock option plans for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 was as follows:

Shares Weighted
average
exercise
price Weighted
average
remaining
contractual
life (in years) Aggregate
intrinsic
value Shares Weighted
average
exercise
price Weighted
average
remaining
contractual life
(in years) Aggregate
intrinsic
value
Options outstanding, September 30, 2009
21,249,683 $ 5.47 1,061,816 $ 109.32
Granted
10,839,750 $ 0.26 544,449 5.19
Cancelled or expired
(2,050,434 ) $ 16.53 (129,653 ) 292.49

Options outstanding, March 31, 2010
30,038,999 $ 2.83 6.52 $ 1,793,317
Options outstanding, June 30, 2010 (unaudited)
1,476,612 54.85 6.35 $ 11,110

Options exercisable, March 31, 2010
16,552,595 $ 4.80 4.14 $ 80,848
Options exercisable, June 30, 2010 (unaudited)
828,021 $ 93.20 3.97 $ —
Restricted Stock Units
        A summary of restricted stock unit activity for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 is as follows:

Shares Weighted
Average
Grant-Date
Fair Value
per Share Shares Weighted
Average
Grant-Date
Fair Value
per Share
Restricted stock outstanding, September 30, 2009
3,443,253 $ 0.35
Restricted stock units outstanding, September 30, 2009
171,907 $ 7.05
Awarded
10,457,750 0.26 574,550 5.43
Released
—
Forfeited
(138,959 ) 0.35 (14,589 ) 6.16

Restricted stock outstanding, March 31, 2010
13,762,044 $ 0.28
Restricted stock units outstanding, June 30, 2010 (unaudited)
731,868 $ 5.80

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VITESSE SEMICONDUCTOR CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
~~March 31,~~June 30, 2010
Note 7. Legal Proceedings
        We are involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts, such as the matter described below.
The DOJ Subpoena and SEC Investigation
        In May 2006, we received a grand jury subpoena from the office of the United States Attorney for the Southern District of New York requesting documents from 1999 through the present. The Division of Enforcement of the SEC also conducted an investigation of Vitesse. The Division of Enforcement requested documents from January 1, 1995 through the present. Vitesse has cooperated with both government agencies in their investigations. While the investigation by the United States Attorney is still ongoing, the staff of the SEC's Division of Enforcement has agreed to recommend to the SEC a proposed settlement that would conclude for the Company all matters arising from the SEC investigation into historical stock option practices and certain other accounting irregularities. Under the proposed settlement, the Company would pay a $3.0 million civil penalty and consent to the entry of a final judgment by a federal court permanently enjoining the Company from violations of the antifraud and other provisions of the federal securities laws. In connection with the Company's settlement with the staff of the Division of Enforcement, we recorded a $3.0 million expense related to the civil penalty payable to the SEC. The proposed settlement is contingent on the review and approval of final documentation by the Company and the staff of the SEC's Division of Enforcement, ~~of the SEC,~~ and is subject to final approval by the SEC.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement
        You should read the following discussion and analysis in conjunction with our Unaudited Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report, as well as in our Annual Report on Form 10-K for the year ended September 30, 2009 and in our ~~Quarterly Report on Form 10-Q for the period ended December 31, 2009 filed~~other filings with the SEC, which discuss our business in greater detail.
        This Quarterly Report contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipates," "believes," "plans," "expects," "future," "intends," "may," "should," "estimates," "predicts," "potential," "continue," "becoming," "transitioning" and similar expressions to identify such forward-looking statements. Our forward-looking statements include statements as to our business outlook, revenues, margins, expenses, tax provision, capital resources sufficiency, capital expenditures, interest income, cash commitments and expenses. Forward-looking statements are not guarantees of future performance and the Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those referenced in the subsection entitled "Risk Factors" in Part II, Item 1A of this Report, and similar discussions in our other SEC filings. You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Overview
        We design, develop and market a diverse portfolio of high-performance, cost-competitive semiconductor solutions for ~~telecommunications~~ carrier and enterprise networks worldwide. We believe that engineering excellence and dedicated customer service distinguish Vitesse as an industry leader in high-performance Ethernet LAN, WAN, and RAN, Ethernet-over-SONET/SDH, optical transport (OTN), and best-in-class signal integrity, ~~and~~ physical layer, and connectivity products for Ethernet, SONET, Fibre Channel, Serial Attached SCSI, InfiniBand(r), video, and PCI Express applications.
        We are a leading supplier of high-performance integrated circuits ("ICs") principally targeted at systems manufacturers in the communications and storage industries. Within the communications industry, our products address ~~telecommunications~~ carrier and enterprise networking, where they enable data to be transmitted at high-speeds and processed and switched under a variety of protocols.
        We focus our product development and marketing efforts on products that leverage the convergence of carrier and enterprise networking onto IP-based networks. These evolving networks must deliver more bandwidth and provide increasing data-based capabilities to provide "quadruple play" services that integrate voice, data and video traffic over both wired and wireless networks. Increasingly, these networks will be delivered based on Ethernet technology to provide these services at lower cost. We believe that products in this emerging technology area represent the best opportunity for us to provide differentiation in the market.
Debt Restructuring
        In October 2009, Vitesse completed a debt restructuring transaction. The debt restructuring resulted in the conversion of 96.7% of the Company's 2024 Debentures into a combination of cash, common stock, Series B Preferred Stock and 2014 Debentures. With respect to the remaining 3.3% of

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the 2024 Debentures, Vitesse settled its obligations in cash. Additionally, Vitesse repaid approximately $5.0 million of its $30.0 million Senior Term Loan, the terms of which were amended as part of the debt restructuring transactions.
        Under the terms of the debt restructuring transactions, Vitesse:
•
Paid $3.6 million in cash to satisfy its obligations to the holders of 2024 Debentures who did not participate in the transaction.

•
Paid $6.4 million in cash consideration to the holders of the 2024 Debentures who participated in the transaction.

•
Issued $50.0 million in aggregate principal amount of the 2014 Debentures to the holders of the 2024 Debentures who participated in the transaction. The 2014 Debentures have a five-year term, an 8.0% annual interest rate and a conversion price of ~~$0.225~~$4.50 per share. The indebtedness under these 2014 Debentures is secured by a second-priority security interest in substantially all of Vitesse's assets that is subordinated to the security of the Senior Term Loan.

•
Issued to the holders of the 2024 Debentures who participated in the exchange, ~~173 million~~8,646,811 shares of common stock, and to some of those holders, an aggregate of 771,000 shares of a new Series B Preferred Stock, which are convertible into common stock on a ~~100:1~~five-to-one basis and have a dividend preference relative to the common stock. The Series B Preferred Stock and the 2014 Debentures include restrictions on conversion that prohibit holders of these securities from converting them if it would result in the holder beneficially owning more than 9.99% of Vitesse's outstanding common stock.
Critical Accounting Policies
        Our critical accounting policies are described in ~~the~~an Annual Report on Form 10-K for the year ended September 30, 2009. There have been no significant changes to these policies during the ~~six~~nine months ended ~~March 31,~~June 30, 2010. These policies continue to be those that we believe are most important to a reader's ability to understand our financial results.
Valuation of Compound Embedded Derivative related to Subordinated Debentures
        In accordance with ASC Topic 815 Derivatives and Hedging ("ASC 815"), originally issued as SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," embedded derivatives must be bifurcated from the underlying debt instrument and valued as a separate financial instrument. Management evaluated the terms and features of the 8.00% Convertible Second Lien Debentures Due 2014 (the "2014 Debentures") and identified an embedded derivative (the "compound embedded derivative" or "derivative liability") requiring bifurcation and accounting at fair value because the economic and contractual characteristics of the compound derivative meet the criteria for bifurcation and accounting for separately as set forth in ASC 815 due to the conversion price not being indexed to the Company's own stock. Any gain or loss on the fair value of the compound derivative will be reflected in current earnings. The embedded compound derivative is comprised of the conversion option and a ~~make whole~~make-whole payment for foregone interest if the holder converts the debenture early. We estimated the approximate fair value of the compound derivative as the difference between the estimated value of the 2014 Debentures with and without the compound derivative features. The fair value of the 2014 Debentures was estimated using a convertible bond valuation model within a lattice framework. These valuations were determined using Level 3 inputs. The convertible bond valuation model combined expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility and recent price quotes and trading information regarding shares of our common stock into which the 2014 Debentures are convertible. Our analysis was premised on the assumption that the holder would act in a manner that maximizes the potential return, or ~~"payoff",~~"payoff," at any given

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point in time. Included in this premise was the assumption that the holder would compare the potential return associated with each available alternative, including, as specified in the terms of the ~~contract,~~2014 Debentures, holding the debt instrument, exercising an equity conversion option, or exercising a put option.
        On October 30, 2009, the date of issuance, the fair value of the bifurcated compound derivative was $28.0 million. As of ~~March 31,~~June 30, 2010, the fair value of the bifurcated compound derivative was ~~$65.5~~$29.2 million, with the change ~~of $37.5 million~~ reflected as interest expense in the Statement of Operations for the ~~six month~~nine-month period ended ~~March 31,~~June 30, 2010. The change in the fair value of the bifurcated compound derivative is a non-cash item resulting from the increase in the market price of the underlying common stock. Should the ~~bifurcated compound derivative~~holders convert the 2014 Debentures and receive the make-whole payment, settlement may be, ~~exercised by~~at the ~~holders, settlement is~~Company's election, in shares of the Company's common stock. The Company intends to settle this obligation in common shares should it be exercised by its holders. As the Company intends to, and has the ability to, satisfy the obligations with equity securities, in accordance with ASC 470, the Company has reclassified the liability as a long-term liability on its Consolidated Balance Sheet as of ~~March 31,~~June 30, 2010.
Results of Operations for the Three and ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2010 compared to the Three and ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2009
        The following table sets forth certain consolidated statement of operations data expressed as a percentage of net revenue for the periods indicated:

Three Months
Ended
March 31, Six Months Ended
March 31,

2010 2009 2010 2009
Revenues
100.0 % 100.0 % 100.0 % 100.0 %
Cost and expenses:

Cost of revenues
44.1 % 52.7 % 45.0 % 48.2 %

Engineering, research and development
28.0 % 31.6 % 28.3 % 26.7 %

Selling, general and administrative
20.7 % 28.7 % 22.9 % 24.1 %

Accounting remediation & reconstruction expense & litigation costs
0.0 % 4.4 % 0.1 % 4.1 %

Goodwill impairment
0.0 % 0.0 % 0.0 % 226.8 %

Amortization of intangible assets
0.4 % 1.1 % 0.5 % 0.8 %

Costs and expenses
93.2 % 118.5 % 96.8 % 330.7 %
Income (loss) income from operations

6.8
%
(18.5
)%
3.2
%
(230.7
)%
Other (expense) income:

Interest expense, net
(75.0 )% (3.4 )% (50.5 )% (2.7 )%
Loss on extinguishment of debt
0.0 % 0.0 % (25.2 )% 0.0 %
Other (expense) income, net
0.1 % (0.1 )% 0.1 % 0.1 %

Other expense, net
(74.9 )% (3.5 )% (75.6 )% (2.6 )%
Loss before income tax expense and noncontrolling interest in earnings of consolidated subsidiary
(68.1 )% (22.0 )% (72.4 )% (233.3 )%
Income tax expense (benefit) expense
9.4 % (1.6 )% 7.0 % 0.1 %

Net loss
(77.5 )% (20.4 )% (79.4 )% (233.4 )%

Less: net loss attributable to noncontrolling interest
(0.0 )% 0.0 % (0.0 )% (0.0 )%

Fair value adjustment of Preferred Stock—Series B
0.0 % 0.0 % 0.1 % 0.0 %

Net loss available to common stockholders
(77.5 )% (20.4 )% (79.5 )% (233.4 )%

Three Months
Ended
June 30, Nine Months
Ended
June 30,

2010 2009 2010 2009
Net revenues
100.0 % 100.0 % 100.0 % 100.0 %
Cost and expenses:

Cost of revenues
41.8 % 38.7 % 44.0 % 44.9 %

Engineering, research and development
36.4 % 25.1 % 30.7 % 26.1 %

Selling, general and administrative
23.1 % 25.6 % 23.0 % 24.6 %

Accounting remediation & reconstruction expense & litigation costs
0.0 % (29.6 )% 0.1 % (7.5 )%

Goodwill impairment
0.0 % 0.0 % 0.0 % 148.4 %

Amortization of intangible assets
0.5 % 0.8 % 0.5 % 0.8 %

Costs and expenses
101.8 % 60.6 % 98.3 % 237.3 %
Income (loss) from operations

(1.8
)%
39.4
%
1.7
%
(137.3
)%
Other income (expense):

Interest income (expense), net
80.7 % (13.0 )% (10.5 )% (6.3 )%
Gain (loss) on extinguishment of debt
0.7 % 0.0 % (17.3 )% 0.0 %
Other income (expense), net
(0.2 )% (0.1 )% 0.0 % 0.0 %

Other income (expense), net
81.2 % (13.1 )% (27.8 )% (6.3 )%
Income (loss) before income tax expense (benefit)

79.4
%
26.3
%
(26.1
)%
(143.6
)%
Income tax expense (benefit)
(8.6 )% (1.6 )% 2.3 % (0.5 )%

Net income (loss) from continuing operations
88.0 % 27.9 % (28.4 )% (143.1 )%

Income from discontinued operations, net
0.0 % 0.2 % 0.0 % 0.1 %

Net income (loss)
88.0 % 28.1 % (28.4 )% (143.0 )%

Fair value adjustment of Preferred Stock—Series B
0.0 % 0.0 % 0.1 % 0.0 %

Net income (loss) available to common shareholders
88.0 % 28.1 % (28.5 )% (143.0 )%

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Product Revenues
        We classify our IC products into three categories: (i) Carrier Networking Products; (ii) Enterprise Networking Products; and (iii) Non-Core Products. The Carrier Networking Products line services core, metro and access networks. The Enterprise Networking Products line services the market for Ethernet switching and transmission within local area networks in ~~small-medium-business~~small-medium business and enterprise (SMB/SME) markets. Our Non-Core Products are product lines have not received additional investment over the prior three years and as a result have generally been in decline. The following tables summarize our net product mix by product line.

Three Months Ended
March 31, 2010 Three Months Ended
March 31, 2009

Three Months Ended
June 30, 2010 Three Months Ended
June 30, 2009

Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change

(in thousands, except percentages)

(in thousands, except percentages)

Carrier Networking Products
$ 17,170 39.3 % $ 16,040 46.4 % $ 1,130 7.0 % $ 14,983 39.9 % $ 16,689 45.9 % $ (1,706 ) (10.2 )%
Enterprise Networking Products
19,813 45.4 % 13,081 37.8 % 6,732 51.5 % 18,725 49.9 % 14,960 41.1 % $ 3,765 25.2 %
Non-Core Products
6,678 15.3 % 5,456 15.8 % 1,222 22.4 % 3,825 10.2 % 4,707 13.0 % $ (882 ) (18.7 )%

Net Product Revenues
$ 43,661 100.0 % $ 34,577 100.0 % $ 9,084 26.3 % $ 37,533 100.0 % $ 36,356 100.0 % $ 1,177 3.2 %

Six Months Ended
March 31, 2010 Six Months Ended
March 31, 2009

Nine Months Ended
June 30, 2010 Nine Months Ended
June 30, 2009

Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change

(in thousands, except percentages)

(in thousands, except percentages)

Carrier Networking Products
$ 36,358 42.6 % $ 34,893 44.0 % $ 1,465 4.2 % $ 51,341 41.8 % $ 51,582 44.6 % $ (241 ) (0.5 )%
Enterprise Networking Products
37,930 44.5 % 29,027 36.6 % 8,903 30.7 % 56,655 46.1 % 43,987 38.0 % $ 12,668 28.8 %
Non-Core Products
10,984 12.9 % 15,467 19.5 % (4,483 ) (29.0 )% 14,809 12.1 % 20,174 17.4 % $ (5,365 ) (26.6 )%

Net Product Revenues
$ 85,272 100.0 % $ 79,387 100.0 % $ 5,885 7.4 % $ 122,805 100.0 % $ 115,743 100.0 % $ 7,062 6.1 %

        Net product revenues for the ~~second~~third quarter of 2010 were ~~$43.7~~$37.5 million compared to ~~$34.6~~$36.4 million for the same period in 2009. This increase of ~~$9.1~~$1.2 million, or ~~26.3%~~3.2%, was driven primarily by overall strengthening customer demand for our core products. Carrier Networking ~~increased~~decreased by ~~$1.1~~$1.7 million, or ~~7.0%~~10.2%. This decline was due to weakness at several customers in China as well as a decline in legacy SONET products at several customers. Enterprise Networking increased ~~$6.7~~$3.8 million, or ~~51.5%~~25.2%, due to an increase in Ethernet PHY and MAC products, our 10GbE physical layer ~~PMD and signal integrity product segments~~products, as well as ~~growth~~strength in ~~both Ethernet~~signal and ~~fabric~~connectivity products, including our crosspoint switch ~~products.~~family. Sales of Non-Core Products were ~~up $1.2~~down $0.9 million, or ~~22.4%~~18.7%, due to a decline of our legacy Raid-on-Chip and NPU product lines.
        Net product revenues for the nine months ended June 30, 2010 and 2009 were $122.8 million compared to $115.7 million for the same period in 2009. This increase of $7.1 million, or 6.1%, was driven primarily by overall strengthening customer demand for our core products. Carrier Networking was down $0.2 million, or 0.5%. This decline was due to weakness at several customers in China as well as a decline in legacy SONET products at several customers. Enterprise Networking increased $12.7 million, or 28.8%, due to an increase in Ethernet PHY and MAC products, our 10GbE physical layer products, as well as strength in signal and connectivity products including our ~~NPU products selling into Carrier-Ethernet applications. Our~~crosspoint switch family. Sales of Non-Core Products ~~are~~were down $5.4 million or 26.6% due to a decline of our legacy Raid-on-Chip and NPU product ~~lines that have had minimal on-going investment over the prior three years and as a result have generally been in decline.~~lines.

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Intellectual Property Revenues

Three Months Ended
March 31, 2010 Three Months Ended
March 31, 2009

Amount % of
Licensing
Revenues Amount % of
Licensing
Revenues Change %
Change

(in thousands, except percentages)

Licensing Revenues
$ 250 100.0 % $ — 100.0 % $ 250 100.0 %

Three Months
Ended
June 30, 2010 Three Months
Ended
June 30, 2009

Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change

(in thousands, except percentages)

Licensing Revenues
$ — 0.0 % $ 8,250 18.5 % $ (8,250 ) (100.0 )%
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Six Months Ended
March 31, 2010 Six Months Ended
March 31, 2009

Amount % of
Licensing
Revenues Amount % of
Licensing
Revenues Change %
Change

(in thousands, except percentages)

Licensing Revenues
$ 290 100.0 % $ 5,000 100.0 % $ (4,710 ) (94.2 )%

Nine Months
Ended
June 30, 2010 Nine Months
Ended
June 30, 2009

Amount % of Net
Revenues Amount % of Net
Revenues Change %
Change

(in thousands, except percentages)

Licensing Revenues
$ 290 0.2 % $ 13,250 10.3 % $ (12,960 ) (97.8 )%
        In 2008, we began to leverage our substantial intellectual property portfolio into licensing opportunities with third-parties. ~~Intellectual~~There were no intellectual property revenues in the third quarter of 2010 and intellectual property revenues were ~~$0.3~~$8.3 million in the ~~second quarter of 2010; no revenues were recognized in the second~~third quarter of 2009. We recognized $0.3 million and ~~$5.0~~$13.3 million in the first ~~six~~nine months of year 2010 and 2009, respectively. ~~No royalties were received or recognized in the second quarter of 2010.~~
Cost of Revenues

Three Months Ended
March 31, Change Three Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Cost of revenues
$ 19,362 $ 18,228 $ 1,134 6.2 % $ 15,702 $ 17,282 $ (1,580 ) (9.1 )%
Percent of net revenues
44.1 % 52.7 % 41.8 % 38.7 %

Six Months Ended
March 31, Change Nine Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Cost of revenues
$ 38,465 $ 40,675 $ (2,210 ) (5.4 )% $ 54,167 $ 57,957 $ (3,790 ) (6.5 )%
Percent of net revenues
45.0 % 48.2 % 44.0 % 44.9 %
        As a fabless semiconductor company, our cost of revenues consists predominantly of: (i) purchased finished wafers; (ii) assembly services; and (iii) labor and overhead costs associated with product procurement and testing. There was no cost of revenues associated with intellectual property licensing revenues for any periods presented in this report.
        Our cost of net revenues ~~increased~~decreased from ~~$18.2~~$17.3 million for the three months ended ~~March 31,~~June 30, 2009 to ~~$19.4~~$15.7 million for the same period in 2010 primarily due to ~~increased~~improvements in product ~~shipments.~~costs. As a percentage of net product revenues, our cost of net product revenues was ~~44.1%~~41.8% in the ~~second~~third quarter of 2010 compared with ~~52.7%~~47.5% in the ~~second~~third quarter of 2009, respectively. The decrease in our cost of revenues as a percentage of net revenues is due to higher revenues, effective cost controls and favorable mix of products. The increase in revenues allowed us to better leverage fixed manufacturing labor and overhead costs.2009. We made progress in transitioning our test manufacturing activities from our California facility to an outsource model in an offshore facility resulting in reduced costs of test. ~~In addition, we had a favorable mix of products with higher shipments of legacy fibre channel physical layer components~~Additionally, on-going cost reduction efforts to reduce materials costs and ~~NPUs that~~improve product yields have ~~generally lower~~been effective at lowering cost of revenue. ~~Through March 31,~~
        For the nine months ending June 30, 2010, our cost of net revenues decreased to ~~$38.5~~$54.2 million from ~~$40.7~~$58.0 million in the same period of 2009. As a percentage of net product revenues, our cost of revenues was 45.0% for the six months ended March 31, 2010 compared to 48.2% in the same period of 2009. The decrease was due to reduced cost in our physical layer and ethernet switch product lines as a result of on-going cost control efforts including yield enhancement efforts and reduced testing costs.
        There was no cost of revenues associated with intellectual property licensing revenues of $0.3 million in the quarter ended March 31, 2010 and $5.0 million for the six months ended 2009. As a percentage of sales, excluding IP revenue, cost of revenues were 45.1% in the six months ended March 31, 2010 compared to 51.2% for the same period last year.

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net revenues was 44.1% for the nine months ended June 30, 2010 compared to 50.1% in the same period of 2009. Consistent with the three-month period described above, the decrease in cost of net revenues as a percentage of product revenues, was due to reduced costs of tests due to our outsource model and reduced materials costs and improved product yields.
Engineering, Research and Development

Three Months Ended
March 31, Change Three Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Engineering, research and development
$ 12,276 $ 10,939 $ 1,337 12.2 % $ 13,674 $ 11,200 $ 2,474 22.1 %
Percent of net revenues
28.0 % 31.6 % 36.4 % 25.1 %

Six Months Ended
March 31, Change Nine Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Engineering, research and development
$ 24,235 $ 22,520 $ 1,715 7.6 % $ 37,909 $ 33,720 $ 4,189 12.4 %
Percent of net revenues
28.3 % 26.7 % 30.7 % 26.1 %
        We believe that continued investment in the design and development of future products is vital to maintaining a competitive edge. Engineering, research and development expenses consist primarily of salaries and related costs, including share-based compensation expense of employees engaged in research, design and development activities. Engineering, research and development also includes costs of mask sets, electronic design automation tools, software licensing contracts, subcontracting and fabrication costs, depreciation and amortization, and facilities expenses. We will continue to concentrate our spending in this area to meet our customer requirements and respond to market conditions.
        ~~Engineering,~~In the third quarter of 2010, engineering, research and development expenses increased ~~$1.3~~$2.5 million compared to the same periods of 2009. The increase is attributable to increased engineering tool costs of $1.5 million, primarily mask sets and ~~$1.7~~labor costs of approximately $0.9 million ~~for~~due to increased headcount and the ~~three and six~~elimination of temporary salary reductions that were in effect in prior periods.
        For the nine months ended ~~March 31,~~June 30, 2010, ~~respectively,~~engineering, research and development expenses increased $4.2 million, compared to the same periods of 2009. The increase is attributable to increased labor costs of approximately $2.3 million due to increased contract labor, increased headcount and ~~contract labor and due to~~the elimination of temporary salary reductions that were in ~~place~~effect in prior periods. ~~For the three month period, there~~There was also a ~~$0.6~~$1.9 million increase in engineering tools.

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Selling, General and Administrative

Three Months Ended
March 31, Change Three Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Selling, general and administrative
$ 9,083 $ 9,930 $ (847 ) (8.5 )% $ 8,669 $ 11,412 $ (2,743 ) (24.0 )%
Percent of net revenues
20.7 % 28.7 % 23.1 % 25.6 %

Six Months Ended
March 31, Change Nine Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Selling, general and administrative
$ 19,612 $ 20,349 $ (737 ) (3.6 )% $ 28,281 $ 31,761 $ (3,480 ) (11.0 )%
Percent of net revenues
22.9 % 24.1 % 23.0 % 24.6 %
        Selling, general and administrative expense consists primarily of personnel-related expenses, including ~~share-based~~share based compensation expense, legal and other professional fees, facilities expenses, outside labor and communications expenses.
        In the ~~second~~third quarter of 2010, selling, general and administrative expense decreased by ~~$0.9~~$2.7 million from the ~~second~~third quarter of 2009. As a percentage of net revenues, selling, general and

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administrative expense decreased from ~~28.7%~~25.6% to ~~20.7%~~23.1%. During the quarter ~~professional~~ended June 30, 2009, the Company incurred broker fees of $1.8 million related to the sale of certain intellectual property patents that did not recur in 2010. Professional fees decreased by $0.7 million compared to the same quarter of the prior year due to the ~~transitioning of~~Company's successful efforts to decrease legal and accounting ~~and finance functions from contract employees to full-time staff.~~fees. The remainder of the decrease is the continuing benefit of our cost reduction efforts in the prior year.
        For the ~~six~~nine months ended ~~March 31,~~June 30, 2010, selling, general and administrative expense decreased by ~~$0.7~~$3.5 million from the same period of 2009. As a percentage of net revenues, selling, general and administrative expense decreased from ~~24.1%~~24.6% to ~~22.9%~~23.0%. During the ~~six month~~nine-month period ended ~~March 31,~~June 30, 2009, we recognized a gain on the sale of our Colorado building, which offset selling, general and administrative expense for that period by $2.9 million. The Company also recognized $1.8 million in broker fees related to the sale of certain intellectual property patents in the nine-month period ended June 30, 2009. We did not have any similar transactions in 2010. In the ~~six month~~nine-month period ended ~~March 31,~~June 30, 2010, professional fees decreased by ~~$2.0~~$2.7 million compared to the same period of the prior year due to the ~~transitioning~~Company's successful efforts to decrease legal and accounting fees. Compensation related costs for the nine-months ended June 30, 2010 decreased by $1.6 million compared to the same period in 2009 as a result of ~~accounting and finance functions from contract employees to full-time staff.~~headcount reductions. During the period, we succeeded in reducing facilities, travel and supplies expenses by a total of ~~$1.4~~$1.5 million due to our extensive ~~cost reduction~~cost-reduction efforts. ~~Compensation related costs for the six months ended March 31, 2010 decreased by $0.8 million compared to the same period in 2009 as a result of headcount reductions in 2009.~~ During the ~~six month~~nine-month period ended ~~March 31,~~June 30, 2010, we incurred $1.0 million in non-capitalizable costs related to negotiating the restructuring of our debt, which was successfully completed on October 30, 2009. The remainder of the decrease is the continuing benefit of our cost reduction efforts in the prior year.

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Accounting Remediation & Reconstruction Expense & Litigation Costs

Three Months Ended
March 31, Change Three Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Accounting remediation & reconstruction expense
$ — $ 1,515 $ (1,515 ) (100.0 )%
Accounting remediation & reconstruction expense & litigation costs
$ — $ (13,206 ) $ 13,206 (100.0 )%
Percent of net revenues
0.0 % 4.4 % 0.0 % (29.6 )%

Six Months Ended
March 31, Change Nine Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Accounting remediation & reconstruction expense
$ 73 $ 3,464 $ (3,391 ) (97.9 )%
Accounting remediation & reconstruction expense & litigation costs
$ 73 $ (9,742 ) $ 9,815 (100.7 )%
Percent of net revenues
0.1 % 4.1 % 0.1 % (7.5 )%
        Accounting remediation and reconstruction expense and litigation costs consisted of fees incurred to resolve certain legal issues, remediate control deficiencies, and transition accounting and reporting responsibilities to full-time staff, in addition to the completion or settlement of audits, investigations and lawsuits related to prior accounting periods.
        We did not recognize any charges in the ~~second~~third quarter of 2010. ~~Year-to-date,~~During the quarter ended June 30, 2009, we recorded a settlement with KPMG which resulted in a net credit of $16.0 million. We recorded a $3.0 million accrual due to the proposed settlement by the staff of Division of Enforcement related to their investigation of the Company's historical stock option practices and certain other accounting irregularities. Lastly, we reached a settlement with the IRS related to the exercise of backdated options, which resulted in a credit of $0.7 million.
        For the current year-to-date, these costs totaled $73,000, while for the nine-months ended June 30, 2009, we recognized a net credit of $9.7 million. During the 2009 period, we recorded a settlement with KPMG which resulted in a net credit of $16.0 million. We recorded costs of $4.0 million for work performed on stock option accounting and ~~$3.5~~inventory valuation, revision of our revenue recognition policies, and other legal and financial issues. We recorded a $3.0 million ~~in 2010 and 2009, respectively. These costs consist primarily~~accrual due to the proposed settlement by the SEC staff of ~~legal fees~~Division of Enforcement related to their investigation of the Company's historical stock option practices and certain other accounting ~~remediation work. These costs have decreased significantly since~~irregularities. Lastly, we ~~have resolved certain legal issues, completed and filed all outstanding financial reports and transitioned accounting and reporting responsibilities~~reached a settlement with the IRS related to ~~full-time staff.~~

~~Table~~the exercise of ~~Contents~~backdated options, which resulted in a credit of $0.7 million.
Goodwill Impairment

Six Months Ended
March 31, Change Nine Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Goodwill Impairment
$ — $ 191,418 $ (191,418 ) 100.0 % $ — $ 191,418 $ (191,418 ) 100.0 %
Percent of net revenues
0.0 % 226.8 % 0.0 % 148.4 %
        During the quarter ended December 31, 2008, we performed an analysis of our goodwill and determined that the carrying amount of goodwill exceeded the implied fair value of that goodwill. As a

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result of the analysis, we recorded an impairment charge to fully write off our goodwill balance of $191.4 million during the quarter ended December 31, 2008.
Amortization of Intangible Assets

Three Months Ended
March 31, Change Three Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Amortization of intangible assets
$ 182 $ 386 $ (204 ) (52.8 )% $ 182 $ 362 $ (180 ) (49.7 )%
Percent of net revenues
0.4 % 1.1 % 0.5 % 0.8 %

Six Months Ended
March 31, Change Nine Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Amortization of intangible assets
$ 431 $ 705 $ (274 ) (38.9 )% $ 613 $ 1,068 $ (455 ) (42.6 )%
Percent of net revenues
0.5 % 0.8 % 0.5 % 0.8 %
        The decrease in amortization expense is primarily due to intangible assets related to our prior acquisitions of Adaptec and Infinera becoming fully amortized during 2009.
Interest Expense, net

Three Months Ended
March 31, Change Three Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Interest expense, net
$ 32,951 $ 1,170 $ 31,781 2716.3 %
Interest income (expense), net
$ 30,275 $ (5,804 ) $ 36,079 (621.6 )%
Percent of net revenues
75 % 3.4 % 80.7 % (13.0 )%

Six Months Ended
March 31, Change Nine Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except percentages)

Interest expense, net
$ 43,171 $ 2,300 $ 40,871 1777.0 % $ (12,896 ) $ (8,104 ) $ (4,792 ) 59.1 %
Percent of net revenues
50.5 % 2.7 % (10.5 )% (6.3 )%
        For the three and ~~six~~nine month periods ended ~~March 31,~~June 30, 2010, interest expense, net of interest income, decreased by $36.1 million and increased by ~~$31.8 million and $40.9~~$4.8 million, respectively, compared to the same periods in 2009. For both periods, the ~~increase relates~~changes relate primarily to the change in the fair value of the ~~embedded~~

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~~derivatives~~derivative liability on the 2014 Debentures and 2024 Debentures (combined, "the Debentures"). Interest expense related to the change in the fair value of ~~$30.4~~the Debentures decreased $37.4 million and ~~$38.6~~increased $1.2 million for the three and ~~six~~nine month periods ended June 30, 2010, respectively. Interest expense on the ~~debentures~~Debentures and our Senior Secured Debt, net of interest income, increased from 2009 to 2010 by ~~$1.4~~$1.3 million and ~~$2.3~~$3.5 million for the three and ~~six~~nine month periods ended ~~March 31,~~June 30, 2010, respectively. ~~For the six months ended March 31, 2010, we also incurred $1.1 million of~~The increase in interest expense ~~related to~~is the ~~extinguishment~~result of the ~~derivative liability-premium put associated with~~higher combined effective interest rate on indebtedness as a result of the ~~2024 Debentures.~~debt exchange.

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Loss on Extinguishment of Debt

Six Months Ended
December 31, Change Three Months
Ended June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Loss on extinguishment of debt
$ (21,576 ) $ — $ (21,576 ) 100.0 %
Gain on extinguishment of debt
$ 265 $ — $ 265 100.0 %
Percent of net revenues
(25.2 )% 0.0 % 0.7 % 0.0 %

Nine Months
Ended June 30, Change

2010 2009 $ %

(in thousands,
except percentages)

Loss on extinguishment of debt
$ (21,311 ) $ — $ (21,311 ) 100.0 %
Percent of net revenues
(17.3 )% 0.0 %
        Effective October 30, 2009, the Company finalized negotiations with the Noteholders of the 2024 Debentures to settle the obligations under the debentures, including all amounts owed under the derivative liability for the premium put option, with a combination of cash, shares of the Company's common stock, shares of the Company's Series B Preferred ~~stock~~Stock and a new issuance of $50.0 million of convertible bonds (see Note 3—Debt in the accompanying unaudited consolidated financial statements). The Company recorded the new instruments issued in the extinguishment of the 2024 Debentures at fair value and recognized a $21.6 million loss for the difference between the fair values of the new ~~instruments and approximately $0.8 million of fees paid to the creditors compared to the net carrying value of the 2024 Debentures.~~instruments. For the purposes of calculating this loss on extinguishment, the net carrying amount of the 2024 Debentures included the $96.7 million principal amount of the 2024 Debentures and $13.3 million of the premium put derivative, recorded at fair value. During the three months ended June 30, 2010, the Company recognized a gain of $0.3 million on the conversion of $3.5 million face value of 2014 Debentures and the associated "Make-Whole Amount" into shares of the Company's common stock (see Note 3—Debt in the accompanying unaudited consolidated financial statements).
Other Income (Expense), net

Three Months Ended
March 31, Change Three Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Other income (expense), net
$ 29 $ (48 ) $ 77 (160.4 )% $ (61 ) $ (38 ) $ (23 ) 61 %
Percent of net revenues
0.1 % (0.1 )% (0.2 )% (0.1 )%

Six Months Ended
March 31, Change Nine Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Other income, net
$ 105 $ 96 $ 9 9.4 % $ 44 $ 58 $ (14 ) (24.1 )%
Percent of net revenues
0.1 % 0.1 % 0.0 % 0.0 %
        The change in other income primarily relates to foreign exchange transactions.

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Income Tax (Benefit) Expense ~~(Benefit)~~

Three Months Ended
March 31, Change Three Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Income tax expense (benefit) expense
$ 4,147 $ (554 ) $ 4,701 848.6 %
Income tax (benefit)
$ (3,244 ) $ (696 ) $ (2,548 ) 366.1 %
Percent of net revenues
9.4 % (1.6 )% (8.6 )% (1.6 )%

Six Months Ended
March 31, Change Nine Months
Ended
June 30, Change

2010 2009 $ % 2010 2009 $ %

(in thousands,
except percentages)

(in thousands,
except
percentages)

Income tax expense
$ 6,025 $ 96 $ 5,929 6176.0 %
Income tax expense (benefit)
$ 2,781 $ (600 ) $ 3,381 (563.5 )%
Percent of net revenues
7.0 % 0.1 % 2.3 % (0.5 )%
        Income tax ~~expense~~benefit was ~~$4.1~~$3.2 million for the ~~second~~third quarter of fiscal 2010 compared to income tax benefit of ~~$0.6~~$0.7 million for the ~~second~~third quarter of fiscal 2009, an increase in benefit of ~~$4.7~~$2.5 million. The increase ~~in expense~~ is primarily the result of changes to the Company's projected annual tax expense during the period and limitations on the Company's NOL carryforwards as a result of an "ownership change" experienced for tax purposes on October 30, 2009. For the three months ended ~~March 31,~~June 30, 2009, income tax benefit represents the impact of taxable losses for ~~the three months ended March 31, 2009.~~that period.
        Income tax expense was ~~$6.0~~$2.8 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 compared to income tax ~~expense~~benefit of ~~$0.1~~$0.6 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2009, an increase in expense of ~~$5.9~~$3.4 million. The increase in expense is primarily the result of limitations on the Company's NOL carryforwards ~~as a result of an~~following the "ownership change" experienced for tax purposes on October 30, ~~2009.~~2009, as a result of debt restructuring. Net income tax expense for the ~~six month~~nine months ended ~~March 31, 2010~~June 30, 2009 represents minimum federal, state, and foreign income tax on income not eligible for offset by loss carryforwards.
Liquidity and Capital Resources
        Cash and cash equivalents decreased to ~~$37.2~~$38.6 million at ~~March 31,~~June 30, 2010, from $57.5 million at September 30, 2009, primarily as a result of the ~~pay-down of~~$5.0 million payment on the Senior Term Loan, ~~of $5.0 million,~~ repayment of a portion of the 2024 Debentures of $10.0 million and approximately $6.0 million in legal and other fees to complete the debt restructuring transaction.

Six Months Ended
March 31, Nine Months Ended
June 30,

2010 2009 2010 2009

(in thousands)
(in thousands)

Net cash used in operating activities
$ (1,503 ) $ (159 )
Net cash provided by operating activities
$ 1,039 $ 12,251
Net cash (used in) provided by investing activities
(1,231 ) 2,819 (2,264 ) 2,449
Net cash used in financing activities
(17,620 ) — (17,698 ) —

Net (decrease) increase in cash and cash equivalents
$ (20,354 ) $ 2,660 $ (18,923 ) $ 14,700
Cash and cash equivalents at beginning of period
57,544 36,722 57,544 36,722

Cash and cash equivalents at end of period
$ 37,190 $ 39,382 $ 38,621 $ 51,422

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        In the ~~six~~nine months ended ~~March 31,~~June 30, 2010, our operating activities ~~used $1.5~~provided $1.0 million in cash. Our net loss of ~~$67.9~~$34.9 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 included non-cash charges of $20.8 million for the loss on extinguishment of debt, ~~$38.6~~$5.9 million in the change in the market value of the embedded derivative liability, ~~$1.7~~$2.6 million of depreciation and ~~$1.1~~amortization, and $1.7 million of ~~stock-based~~share-based compensation. In the ~~six~~nine months ended ~~March 31,~~June 30, 2009, our operating activities ~~used $0.2~~provided $12.3 million in

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cash. Our net loss of ~~$197.0~~$184.6 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2009 included ~~$2.2~~$3.3 million of depreciation ~~$1.6~~and amortization, $2.4 million of ~~stock-based~~share-based compensation, and $191.4 million of goodwill impairment offset by the gain on sale of the Colorado building of $2.9 million.
        Accounts receivable, net of allowance for sales return, ~~increased $3.0~~decreased $1.8 million from $15.1 million at September 30, 2009 to ~~$18.1~~$13.3 million at ~~March 31,~~June 30, 2010. The ~~increase~~decrease was primarily due to the timing of sales to our end users via our distributor ~~network.~~network and a small decrease in revenues compared to the three-months ended September 30, 2009. Inventories increased ~~$1.0~~$5.4 million, from $18.8 million at September 30, 2009 to ~~$19.9~~$24.2 million at ~~March 31,~~June 30, 2010, as our channel partners and distributors took action to increase their inventory in response to stronger demand. We were able to respond quickly to the change in demand, increasing orders to our suppliers.
        Investing activities used cash of ~~$1.2~~$2.3 million in the ~~six~~nine months ended ~~March 31,~~June 30, 2010 for capital expenditures. Investing activities provided cash of ~~$2.8~~$2.4 million in the ~~six~~nine months ended ~~March 31,~~June 30, 2009, which was primarily the result of the proceeds from the sale of the Colorado building for $6.0 million, net of commissions and transactions costs, partially offset by capital expenditures of approximately $1.2 million and additions to intangibles of $2.0 million.
        In the ~~six~~nine months ended ~~March 31,~~June 30, 2010, our financing activities used ~~$17.6~~$17.7 million primarily due to a cash payment of $10.0 million to the holders of 2024 Debentures, $5.0 million to pay down the principal amount of the Senior Term Loan, equity issuance costs of $1.1 million and debt issuance costs of $1.4 million. (See Note 3—Debt in the accompanying unaudited consolidated financial statements).
        On October 30, 2009, we closed the debt restructuring transaction with our major creditors pursuant to which we issued approximately $50.0 million of 2014 Debentures (See Note 3—Debt in the accompanying unaudited consolidated financial statements). Annual interest payments on the 2014 Debentures will be ~~$4.0~~$3.7 million annually, an increase of ~~$2.5~~$2.2 million over the annual interest payments on the 2024 Debentures. The first interest payment on the 2014 Debentures ~~is due~~was made on April 1, 2010.
        Concurrent with the issue of the 2014 Debentures, the Company amended the terms of the Senior Term Loan Agreement. The amendment of the Senior Term Loan included a $5.0 million repayment of principal, a fee of 1.0% of the amount of repayments; and a change to the interest terms. The amended interest terms on the Senior Term Loan will not materially impact the amount of quarterly interest payments over the remaining life of the associated note, but additional interest expense accrued under a payment-in-kind interest ("PIK") provision will increase the final payment due on the Senior Term Loan at maturity in the fiscal year ending September 30, 2012 by approximately $2.6 million over the face value of the note.
        We believe that our available cash will be adequate to finance our operating needs and meet our obligations for the next 12 months.
Special Meeting of Stockholders
        At the special meeting of our stockholders on January 7, 2010, the stockholders approved an increase in the number of authorized shares of common stock from ~~500,000,000~~25,000,000 to ~~5,000,000,000.~~250,000,000 . This increase permits the conversion of the 2014 Debentures into shares of common stock and provides additional available shares for other general corporate purposes. In addition, the Company's ~~shareholders also authorized the board of directors to affect a reverse stock-split when it is deemed appropriate. As of May 14, 2010, the reverse stock-split has not been executed.~~

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shareholders also authorized the board of directors to effect a reverse stock-split when deemed appropriate. The reverse stock split was effected June 30, 2010. All share and per share amounts have been retroactively adjusted to reflect our one-for-20 reverse stock split. There will be no net effect on total shareholders' equity as a result of the reverse stock split.
Contractual Obligations

Payment Obligations by Year
Payment Obligations by Year

<1 Year 1 - 3 Years 3 - 5 Years >5 Years Total
<1 Year 1 - 3 Years 3 - 5 Years >5 Years Total
Convertible subordinated debt
Convertible subordinated debt
$ — $ — $ 50,000 $ — $ 50,000
Convertible subordinated debt
$ — $ — $ 46,500 $ — $ 46,500
Long term debt
Long term debt
— 25,000 — — 25,000
Long term debt
— 25,000 — — 25,000
Operating leases
Operating leases
3,076 5,814 2,711 199 11,800
Operating leases
3,405 6,244 3,017 199 12,865
Inventory and related purchase obligations
Inventory and related purchase obligations
3,976 — — — 3,976
Inventory and related purchase obligations
8,450 — — — 8,450
Software Licenses
Software Licenses
7,059 9,425 3,200 — 19,684
Software Licenses
7,059 9,425 3,200 19,684

Total
$ 14,111 $ 40,239 $ 55,911 $ 199 $ 110,460
Total
$ 18,914 $ 40,669 $ 52,717 $ 199 $ 112,499

        As of ~~March 31,~~June 30, 2010, the 2014 Debentures, with a face value of ~~$50.0~~$46.5 million, are outstanding. Additionally, we have $25.0 million in long-term debt under the Senior Term Loan. Payments with respect to the Senior Term Loan are interest only until the maturity date of October 29, 2011. Effective October 16, 2009, the Company entered into an amendment of the Senior Term Loan to include 2.0% payment-in-kind interest ("PIK"), plus an additional 0.3% PIK interest for every $1.0 million above $15.0 million of the senior term loan that is not paid down by the Company for the period from October 17, 2009 until maturity or full payment of the note. As part of the debt restructuring transactions, the Company paid $5.0 million of the original $30.0 million principal balance of the Senior Term Loan. Subsequent to the $5.0 million prepayment of the Senior Term Loan, the Company has the ability to reduce the rate of interest by 0.3% for every $1.0 million of additional principal prepayment. (See Note 3—Debt in the accompanying unaudited consolidated financial statements).
        We lease facilities under non-cancellable operating leases that expire through 2015. Approximate minimum rental commitments under all non-cancellable operating leases as of ~~March 31,~~June 30, 2010, are included in the table above.
        Inventory and related purchase obligations represent non-cancellable purchase commitments for wafers and substrate parts. Software license commitments represent non-cancellable licenses of intellectual property from third-parties used in the development of the Company's products.
        For purposes of the table above, obligations for the purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms. Our purchase orders are based on our current manufacturing needs and are typically fulfilled by our vendors within a relatively short time.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign exchange rates and interest rates and is not material to our financial position. We do not hold or issue financial instruments for trading purposes.

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ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
        We evaluated the design and operating effectiveness of our disclosure controls and procedures as of ~~March 31,~~June 30, 2010, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a-15(b) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~March 31,~~June 30, 2010, our disclosure controls and procedures were not effective because of the following material ~~weaknesses~~weakness in our internal control over financial reporting:
•
~~Our information systems lack sufficient controls limiting access to key applications and data; and~~

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•
Effective controls to ensure the accuracy, valuation and timeliness of the financial accounting process around inventory, including a lack of accuracy and basis for valuation resulting in adjustments to the amount of cost of revenues and the carrying amount of inventory.
        Due to the identified material ~~weaknesses,~~weakness, management has also concluded that the Company's internal control over financial reporting was not effective as of ~~March 31,~~June 30, 2010.
Changes in Internal Control over Financial Reporting and Remediation of the Material Weaknesses
        Management, in coordination with the input, oversight and support of our Audit Committee, continues its ongoing efforts to strengthen our internal control over financial reporting and to address the material weaknesses described above. We are investing in ongoing efforts to continuously improve the control environment and have committed considerable resources to the continuous improvement of the design, implementation, documentation, testing, and monitoring of our internal controls. In addition to improving the effectiveness and compliance with key controls, our remediation efforts involve ongoing business and accounting process improvements and the implementation of key system enhancements. The process and system enhancements are generally designed to simplify and standardize business practices and to improve timeliness and access to associated accounting data through increased systems automation appropriate limitations around IT access as well as timely testing of controls throughout the year. While we expect remedial actions to be essentially implemented in 2010, some actions may not be in place for a sufficient period of time to help us certify that material weaknesses have been fully remediated as of the end of 2010. We will continue to develop our remediation plans and implement additional measures during 2010 and possibly into 2011.
        ~~For~~
•
During the period ended ~~March 31,~~June 30, 2010, ~~we have~~the Company extensively expanded management review over key inventory metrics and transactions and increased controls over inventory cut-off as part of its remediation efforts with respect to ~~limit access to key applications and data.~~
the material weakness.
Inherent Limitation on the Effectiveness of Internal Controls
        The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
        The information set forth under Note 87 of Notes to Unaudited Consolidated Financial Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference.
ITEM 1A.    RISK FACTORS
        There have been no material changes to the risk factors disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended December 31, 2009, which updated the risk factors disclosed in our Annual Report on Form 10-K for the year ended September 30, 2009.
ITEM 2.    UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
        None.

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ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
        None.
ITEM 4.    RESERVED
ITEM 5.    OTHER INFORMATION
        None.

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ITEM 6.    EXHIBITS
3.1*3.1 * Restated Certificate of Incorporation.
~~10.1*†~~ ~~Resignation and Separation Agreement and General Release of Claims between the Company and Michael Green dated February 5, 2010.~~
10.2*10.1 † ~~Employment Agreement between~~Vitesse Semiconductor Corporation 2010 Incentive Plan (incorporated by reference to Appendix A of the ~~Company and Christopher Gardner dated February 12, 2010.~~Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on March 31, 2010).
31.1*
10.2 *† Automatic Equity Grant Program for Eligible Directors under the Vitesse Semiconductor Corporation 2010 Incentive Plan.
31.1 * Rule13a-14(a)/302 SOX Certification of Chief Executive Officer.
31.2*
31.2 * Rule13a-14(a)/302 SOX Certification of Chief Financial Officer.
32.1*
32.1 * Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
*
Filed herewith.

†
Executive Compensation Plan or Agreement

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SIGNATURES
        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
~~May 17,~~August 9, 2010 VITESSE SEMICONDUCTOR CORPORATION

By:

/s/ CHRISTOPHER R. GARDNER
Christopher R. Gardner
Chief Executive Officer

~~May 17,~~August 9, 2010

VITESSE SEMICONDUCTOR CORPORATION

By:

/s/ RICHARD C. YONKER
Richard C. Yonker
Chief Financial Officer
(Principal Financial and Accounting Officer)

	Six Months Ended March 31, 2010		Nine Months Ended June 30, 2010 (unaudited)

Decrease in cost of sales	$	934	$	934
Increase in income from operations		934		934
Decrease in net loss		934
Decrease in net income				934
Net loss per share—basic and diluted	$	—	$	(0.05	)

		March 31, 2010		September 30, 2009			June 30, 2010 (unaudited)		September 30, 2009

		(in thousands)					(in thousands)
Inventory:	Inventory:					Inventory:
Raw materials	Raw materials	$	1,868	$	1,411	Raw materials	$	3,591	$	1,411
Work-in-process	Work-in-process		7,239		8,335	Work-in-process		8,915		8,335
Finished goods	Finished goods		10,749		9,063	Finished goods		11,735		9,063

	Total	$	19,856	$	18,809	Total	$	24,241	$	18,809

	Three Months Ended June 30,				Nine Months Ended June 30,

	2010 (unaudited)		2009 (unaudited)		2010 (unaudited)		2009 (unaudited)
	(in thousands)
Licensing Revenues	$	—	$	8,250	$	290	$	13,250

	Fair Value Measurements Using								Fair Value Measurements Using

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Quarter ended March 31, 2010
June 30, 2010 (unaudited)
Derivative liability—premium put	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Derivative liability—compound embedded derivative		—		—		65,459		65,459		—		—		29,216		29,216
Year ended September 30, 2009
September 30, 2009
Derivative liability—premium put	$	—	$	—	$	12,209	$	12,209	$	—	$	—	$	12,209	$	12,209
Derivative liability—compound embedded derivative		—		—		—		—		—		—		—		—

			Weighted average exercise price			Aggregate intrinsic value				Weighted average exercise price			Aggregate intrinsic value

Options outstanding, September 30, 2009	21,249,683		$	5.47				1,061,816		$	109.32
Granted	10,839,750		$	0.26				544,449			5.19
Cancelled or expired	(2,050,434	)	$	16.53				(129,653	)		292.49

Options outstanding, March 31, 2010	30,038,999		$	2.83	6.52	$	1,793,317
Options outstanding, June 30, 2010 (unaudited)								1,476,612			54.85	6.35	$	11,110

Options exercisable, March 31, 2010	16,552,595		$	4.80	4.14	$	80,848
Options exercisable, June 30, 2010 (unaudited)								828,021		$	93.20	3.97	$	—

			Weighted Average Grant-Date Fair Value per Share				Weighted Average Grant-Date Fair Value per Share

Restricted stock outstanding, September 30, 2009	3,443,253		$	0.35
Restricted stock units outstanding, September 30, 2009					171,907		$	7.05
Awarded	10,457,750			0.26	574,550			5.43
Released					—
Forfeited	(138,959	)		0.35	(14,589	)		6.16

Restricted stock outstanding, March 31, 2010	13,762,044		$	0.28
Restricted stock units outstanding, June 30, 2010 (unaudited)					731,868		$	5.80

	Three Months Ended March 31, 2010					Three Months Ended March 31, 2009										Three Months Ended June 30, 2010					Three Months Ended June 30, 2009

	Amount		% of Net Revenues			Amount		% of Net Revenues			Change		% Change			Amount		% of Net Revenues			Amount		% of Net Revenues			Change			% Change
	(in thousands, except percentages)															(in thousands, except percentages)
Carrier Networking Products	$	17,170		39.3	%	$	16,040		46.4	%	$	1,130		7.0	%	$	14,983		39.9	%	$	16,689		45.9	%	$	(1,706	)		(10.2	)%
Enterprise Networking Products		19,813		45.4	%		13,081		37.8	%		6,732		51.5	%		18,725		49.9	%		14,960		41.1	%	$	3,765			25.2	%
Non-Core Products		6,678		15.3	%		5,456		15.8	%		1,222		22.4	%		3,825		10.2	%		4,707		13.0	%	$	(882	)		(18.7	)%

Net Product Revenues	$	43,661		100.0	%	$	34,577		100.0	%	$	9,084		26.3	%	$	37,533		100.0	%	$	36,356		100.0	%	$	1,177			3.2	%

	Three Months Ended March 31, 2010					Three Months Ended March 31, 2009

	Amount		% of Licensing Revenues			Amount		% of Licensing Revenues			Change		% Change
	(in thousands, except percentages)
Licensing Revenues	$	250		100.0	%	$	—		100.0	%	$	250		100.0	%

	Nine Months Ended June 30,						Change

	2010			2009			$			%
	(in thousands, except percentages)
Loss on extinguishment of debt	$	(21,311	)	$	—		$	(21,311	)		100.0	%
Percent of net revenues		(17.3	)%		0.0	%

		Payment Obligations by Year											Payment Obligations by Year

		<1 Year		1 - 3 Years		3 - 5 Years		>5 Years		Total			<1 Year		1 - 3 Years		3 - 5 Years		>5 Years		Total
Convertible subordinated debt	Convertible subordinated debt	$	—	$	—	$	50,000	$	—	$	50,000	Convertible subordinated debt	$	—	$	—	$	46,500	$	—	$	46,500
Long term debt	Long term debt		—		25,000		—		—		25,000	Long term debt		—		25,000		—		—		25,000
Operating leases	Operating leases		3,076		5,814		2,711		199		11,800	Operating leases		3,405		6,244		3,017		199		12,865
Inventory and related purchase obligations	Inventory and related purchase obligations		3,976		—		—		—		3,976	Inventory and related purchase obligations		8,450		—		—		—		8,450
Software Licenses	Software Licenses		7,059		9,425		3,200		—		19,684	Software Licenses		7,059		9,425		3,200				19,684

	Total	$	14,111	$	40,239	$	55,911	$	199	$	110,460	Total	$	18,914	$	40,669	$	52,717	$	199	$	112,499


3.1*3.1	*	Restated Certificate of Incorporation.
~~10.1*†~~		~~Resignation and Separation Agreement and General Release of Claims between the Company and Michael Green dated February 5, 2010.~~
10.2*10.1	†		~~Employment Agreement between~~Vitesse Semiconductor Corporation 2010 Incentive Plan (incorporated by reference to Appendix A of the ~~Company and Christopher Gardner dated February 12, 2010.~~Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on March 31, 2010).
31.1*
10.2	*†	Automatic Equity Grant Program for Eligible Directors under the Vitesse Semiconductor Corporation 2010 Incentive Plan.

31.1	*	Rule13a-14(a)/302 SOX Certification of Chief Executive Officer.
31.2*
31.2	*	Rule13a-14(a)/302 SOX Certification of Chief Financial Officer.
32.1*
32.1	*	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.


~~May 17,~~August 9, 2010	VITESSE SEMICONDUCTOR CORPORATION
	By:	/s/ CHRISTOPHER R. GARDNER Christopher R. Gardner Chief Executive Officer
~~May 17,~~August 9, 2010	VITESSE SEMICONDUCTOR CORPORATION
	By:	/s/ RICHARD C. YONKER Richard C. Yonker Chief Financial Officer (Principal Financial and Accounting Officer)