UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
000-31635
(Commission file number)
ENDWAVE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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95-4333817
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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130 Baytech Drive
San Jose, CA
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95134
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(Address of principal executive offices)
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(Zip code)
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(408) 522-3100
(Registrants telephone number, including area code)
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
þ
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 the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
þ
.
The number of shares of the registrants Common Stock outstanding as of April 25, 2008 was
9,135,641 shares. The number of shares of the registrants Preferred Stock outstanding as of April
25, 2008 was 300,000 shares.
ENDWAVE CORPORATION
INDEX
- 2 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENDWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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March 31,
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December 31,
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2008
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2007
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(unaudited)
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(1)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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40,932
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$
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38,992
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Short-term investments
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4,995
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5,464
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Accounts receivable, net
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11,158
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9,362
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Inventories
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12,473
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12,434
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Other current assets
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862
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1,168
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Total current assets
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70,420
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67,420
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Long-term investments
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1,499
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4,501
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Property and equipment, net
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3,171
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2,999
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Other assets
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195
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212
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Restricted cash
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25
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25
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Goodwill and intangible assets, net
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7,104
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7,432
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$
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82,414
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$
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82,589
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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4,068
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$
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3,422
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Accrued warranty
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2,794
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2,712
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Accrued compensation
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2,547
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2,240
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Other current liabilities
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1,967
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2,251
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Total current liabilities
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11,376
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10,625
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Other long-term liabilities
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72
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116
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Total liabilities
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11,448
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10,741
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Commitments and contingencies (Note 6)
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Stockholders equity:
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Convertible preferred stock, $0.001 par value;
5,000,000 shares authorized; 300,000 shares issued and
outstanding at March 31, 2008 and December 31, 2007
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Common stock, $0.001 par value; 50,000,000 shares authorized;
9,135,641 and 9,174,622 shares issued and outstanding at March
31, 2008 and December 31, 2007, respectively
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9
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9
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Additional paid-in capital
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345,973
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345,038
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Treasury stock, at cost, 39,150 shares at December 31, 2007
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(79
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)
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Accumulated other comprehensive income (loss)
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34
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(6
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)
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Accumulated deficit
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(275,050
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)
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(273,114
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)
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Total stockholders equity
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70,966
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71,848
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$
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82,414
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$
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82,589
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(1)
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Derived from the Companys audited consolidated financial statements as of December 31, 2007.
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
ENDWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(unaudited)
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Three months ended
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March 31,
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2008
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2007
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Revenues:
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Product revenues
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$
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13,840
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$
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14,593
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Development fees
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341
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158
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Total revenues
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14,181
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14,751
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Costs and expenses:
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Cost of product revenues*
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10,043
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10,620
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Cost of product revenues, amortization of intangible assets
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149
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113
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Research and development*
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2,842
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2,405
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Selling, general and administrative*
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3,361
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3,199
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Amortization of intangible assets
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179
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39
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Total costs and expenses
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16,574
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16,376
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Loss from operations
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(2,393
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)
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(1,625
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)
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Interest and other income, net
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457
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845
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Net loss
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$
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(1,936
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)
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$
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(780
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)
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Basic and diluted net loss per share
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$
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(0.21
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$
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(0.07
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Shares used in computing basic and diluted net loss per share
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9,142,180
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11,549,789
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* Includes the following amounts related to stock-based compensation:
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Cost of product revenues
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$
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174
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$
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105
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Research and development
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226
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151
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Selling, general and administrative
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605
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586
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
ENDWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
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Three months ended
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March 31,
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2008
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2007
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Operating activities:
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Net loss
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$
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(1,936
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)
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$
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(780
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)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation
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264
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189
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Amortization of intangible assets
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328
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152
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Stock compensation expense
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1,005
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842
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Amortization of investments
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(2
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)
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(15
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Gain on sale of investments
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(8
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)
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Changes in operating assets and liabilities:
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Accounts receivable
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(1,796
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)
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(2,200
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)
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Inventories
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(31
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2,979
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Other assets
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323
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147
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Accounts payable
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646
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(1,302
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)
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Accrued warranty
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82
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5
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Accrued compensation, other current liabilities and other
long-term liabilities
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(15
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)
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(1,072
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)
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Net cash used in operating activities
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(1,140
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)
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(1,055
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)
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Investing activities:
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Purchases of equipment
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(436
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)
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(68
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Proceeds on sales and maturities of investments
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3,528
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28,995
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Purchases of investments
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(27,590
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)
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Change in restricted cash
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118
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Net cash provided by investing activities
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3,092
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1,455
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Financing activities:
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Proceeds from exercises of stock options, net
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1
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107
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Payments on capital leases
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(6
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)
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Net cash (used in) provided by financing activities
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(5
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)
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107
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Effect of foreign exchange rate changes on cash and cash equivalents
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(7
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)
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Net change in cash and cash equivalents
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1,940
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|
507
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Cash and cash equivalents at beginning of period
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38,992
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26,176
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Cash and cash equivalents at end of period
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$
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40,932
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$
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26,683
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
ENDWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Business and Basis of Presentation
Endwave Corporation and its wholly-owned subsidiaries, Endwave Defense Systems Incorporated
and ALC Microwave, Inc. (together referred to as Endwave or the Company), design, manufacture
and market radio frequency (RF) modules that enable the transmission, reception and processing of
high-frequency signals in telecommunication networks, defense electronics and homeland security
systems. The Companys RF modules are typically used in high-frequency applications and include:
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integrated transceivers combinations of electronic devices that combine both
the transmit and receive functions necessary for a bi-directional radio link;
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amplifiers electronic devices used to increase the amplitude and power of an
electronic signal;
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synthesizers electronic devices that can be used to generate several different
radio frequency signals from a single source;
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oscillators electronic devices that generate radio frequency signals at a
fixed frequency;
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up and down converters electronic devices that shift the center frequency of a
radio signal without altering the signals data modulation;
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frequency multipliers electronic devices that increase the frequency of a
radio signal in integer multiples; and
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microwave switch arrays electronic devices that can switch the routing of a
radio signal.
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The accompanying unaudited condensed consolidated financial statements of Endwave have been
prepared in conformity with accounting principles generally accepted in the United States of
America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not contain all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. The year-end condensed
consolidated balance sheet data was derived from the Companys audited consolidated financial
statements, but does not include all disclosures required by accounting principles generally
accepted in the United States of America. In the opinion of management, the information contained
herein reflects all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of the results of the interim periods presented. Operating
results for the periods presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 2008 or any future periods. These condensed consolidated
financial statements should be read in conjunction with the Companys audited consolidated
financial statements for the year ended December 31, 2007.
- 6 -
2. Investments
The following fair value amounts have been determined using available market information.
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March 31, 2008
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Gross
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Gross
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Amortized
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Unrealized
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Unrealized
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Cost
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Gains
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Losses
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Fair Value
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(In thousands)
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Investments:
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Corporate securities
|
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$
|
6,441
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$
|
53
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|
$
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|
|
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$
|
6,494
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|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
December 31, 2007
|
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|
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Gross
|
|
|
Gross
|
|
|
|
|
|
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Amortized
|
|
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Unrealized
|
|
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Unrealized
|
|
|
|
|
|
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Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
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(In thousands)
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Investments:
|
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|
|
|
|
|
|
|
|
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|
|
|
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|
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United States government agency
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|
$
|
1,496
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|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
1,500
|
|
Corporate securities
|
|
|
8,463
|
|
|
|
8
|
|
|
|
(6
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)
|
|
|
8,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,959
|
|
|
$
|
12
|
|
|
$
|
(6
|
)
|
|
$
|
9,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
7,195
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,195
|
|
At March 31, 2008, the Company had $5.0 million of short-term investments with maturities of
less than one year and $1.5 million of long-term investments with maturities between one and two
years.
At March 31, 2008, the Company had net unrealized gains of $53,000. The increase in value of
these investments is primarily related to changes in interest rates. The investments mature
through 2009 and the Company believes that it has the ability to hold these investments until the
maturity date. The Company realized a gain of $8,000 for the quarter ended March 31, 2008.
At March 31, 2008, the Company had $38.2 million invested in a United States Treasury-backed
money market fund with a single institutional firm. At December 31, 2007, the Company had $27.0
million invested in a money market fund with a single institutional firm.
The Company reviews its investment portfolio to identify and evaluate investments that have
indications of possible impairment. Factors considered in determining whether a loss is temporary
include the length of time and extent to which fair value has been less than the cost basis, credit
quality and the Companys ability to hold the investment for a period of time sufficient to allow
for any anticipated recovery in market value. If the Company believes the carrying value of an
investment is in excess of its fair value, and this difference is other-than-temporary, it is the
Companys policy to write down the investment to reduce its carrying value to fair value.
Fair Value Measurement
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS No. 157) which defines fair value, establishes a
framework for using fair value to measure assets and liabilities, and expands disclosures about
fair value measurements. SFAS No. 157 applies whenever other statements require or permit assets
or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, except for nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis, for which application
has been deferred for one year.
The following table summarizes the Companys financial assets and liabilities measured at fair
value on a recurring basis in accordance with SFAS No. 157 as of March 31, 2008 (in thousands):
- 7 -
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|
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|
|
|
|
|
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|
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Quoted Prices in
|
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|
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|
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Active Markets of
|
|
|
Significant Other
|
|
|
|
Balance as of
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
|
March 31, 2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury-backed money market funds
|
|
$
|
38,190
|
|
|
$
|
38,190
|
|
|
$
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
4,995
|
|
|
|
|
|
|
|
4,995
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
1,499
|
|
|
|
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,684
|
|
|
$
|
38,190
|
|
|
$
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The Companys financial assets and liabilities are valued using market prices on both active
markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained
from real-time quotes for transactions in active exchange markets involving identical assets.
Level 2 instrument valuations are obtained from readily-available pricing sources for comparable
instruments. As of March 31, 2008, the Company did not have any assets or liabilities without
observable market values that would require a high level of judgment to determine fair value
(Level 3 assets).
3. Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or
market and consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw materials
|
|
$
|
8,227
|
|
|
$
|
9,630
|
|
Work in process
|
|
|
1,875
|
|
|
|
1,365
|
|
Finished goods
|
|
|
2,371
|
|
|
|
1,439
|
|
|
|
|
|
|
|
|
|
|
$
|
12,473
|
|
|
$
|
12,434
|
|
|
|
|
|
|
|
|
4. Goodwill and Intangible Assets
Goodwill
At March 31, 2008, the Company had goodwill of $2.9 million, $1.6 million associated with its
purchase of JCA Technology, Inc. (JCA) in July of 2004 and $1.4 million associated with its
purchase of ALC Microwave, Inc. (ALC) in April of 2007. The Company conducted its 2007 annual
goodwill impairment analysis of the JCA and ALC related goodwill in the third quarter of 2007 and
no goodwill impairment was indicated.
Intangible Assets
In April 2007, as part of the ALC acquisition, the Company acquired $2.9 million of
identifiable intangible assets, including $900,000 for customer relationships, $880,000 for
developed technology, $560,000 for customer backlog, $370,000 for the non-compete agreement and
$230,000 for the tradename. These assets are subject to amortization and have approximate
estimated useful lives as follows: customer relationships six years, developed technology six
years, customer backlog two years, non-compete agreement four years, and
tradename six years.
In July 2004, as part of the JCA acquisition, the Company acquired $4.2 million of
identifiable intangible assets, including $2.3 million for developed technology, $1.1 million for
the tradename, $780,000 for customer relationships and $140,000 for customer backlog. The JCA
intangible assets are subject to amortization and have
- 8 -
approximate estimated useful lives as follows: developed technology five years, customer
backlog six months and customer
relationships five years.
The components of intangible assets as of March 31, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Developed technology
|
|
$
|
3,130
|
|
|
$
|
(1,785
|
)
|
|
$
|
1,345
|
|
Tradename
|
|
|
1,290
|
|
|
|
(37
|
)
|
|
|
1,253
|
|
Customer relationships
|
|
|
1,680
|
|
|
|
(709
|
)
|
|
|
971
|
|
Customer backlog
|
|
|
700
|
|
|
|
(397
|
)
|
|
|
303
|
|
Non-compete agreement
|
|
|
370
|
|
|
|
(84
|
)
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,170
|
|
|
$
|
(3,012
|
)
|
|
$
|
4,158
|
|
|
|
|
|
|
|
|
|
|
|
The components of intangible assets as of December 31, 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Developed technology
|
|
$
|
3,130
|
|
|
$
|
(1,636
|
)
|
|
$
|
1,494
|
|
Tradename
|
|
|
1,290
|
|
|
|
(27
|
)
|
|
|
1,263
|
|
Customer relationships
|
|
|
1,680
|
|
|
|
(633
|
)
|
|
|
1,047
|
|
Customer backlog
|
|
|
700
|
|
|
|
(327
|
)
|
|
|
373
|
|
Non-compete agreement
|
|
|
370
|
|
|
|
(61
|
)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,170
|
|
|
$
|
(2,684
|
)
|
|
$
|
4,486
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of developed technology is a charge to cost of product revenues and was
$149,000 and $113,000 for the three months ended March 31, 2008 and 2007, respectively.
Amortization of all other intangible assets is a charge to operating expenses and was $179,000 and
$39,000 for the three months ended March 31, 2008 and 2007, respectively.
The JCA tradename has a gross carrying value of $1.1 million and is not subject to
amortization and is evaluated for impairment at least annually or more frequently if events and
changes in circumstances suggest that the carrying amount may not be recoverable. The Company
conducted its 2007 annual impairment analysis of the tradename in the third quarter of 2007 and no
impairment was indicated. The ALC tradename is amortized as it has an estimated economic life.
The future amortization of the identifiable intangible assets is as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2008 (April 1 through December 31)
|
|
$
|
986
|
|
2009
|
|
|
874
|
|
2010
|
|
|
428
|
|
2011
|
|
|
366
|
|
Thereafter
|
|
|
444
|
|
|
|
|
|
Total
|
|
$
|
3,098
|
|
|
|
|
|
5. Warranty
The warranty periods for the Companys products are between twelve and thirty months from date
of shipment. The Company provides for estimated warranty expense at the time of shipment. While
the Company engages in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of component suppliers, its warranty obligation is affected
by product failure rates, material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or service delivery costs
differ from the estimates, revisions to the estimated warranty accrual and related costs may be
required.
- 9 -
Changes in the Companys product warranty liability during the three months ended March 31,
2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Balance at January 1
|
|
$
|
2,712
|
|
|
$
|
2,928
|
|
Warranties accrued
|
|
|
201
|
|
|
|
190
|
|
Warranties settled or reversed
|
|
|
(119
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
2,794
|
|
|
$
|
2,933
|
|
|
|
|
|
|
|
|
6. Commitments and Contingencies
The Company is not currently party to any material litigation. The Company is, from time to
time, involved in legal proceedings arising in the ordinary course of business. While there can be
no assurances as to the ultimate outcome of any litigation involving the Company, management does
not believe any pending legal proceedings will result in judgment or settlement that will have a
material adverse effect on the Companys consolidated financial position, results of operations or
cash flows.
7. Stockholders Equity
Stock Option Exchange
On January 4, 2008, the Company filed a Tender Offer Statement on Schedule TO (the Exchange
Offer) with the Securities and Exchange Commission. The Exchange Offer related to an offer by the
Company to certain optionholders to exchange some or all of their outstanding stock option grants
under the Companys 2007 Equity Incentive Plan with an exercise price per share greater than or
equal to $21.47 for new option grants. The Exchange Offer was made to employees and directors of
the Company who, as of the date the Exchange Offer commenced, were actively employed by or
otherwise providing services to the Company and held eligible option grants. The Exchange Offer
expired on February 6, 2008. A total of 331,950 stock options were eligible to participate in the
Exchange Offer and a total of 327,921 options were exchanged. The exercise price of the new option
grants was $6.59, the closing price of Endwaves common stock on February 7, 2008.
The exchange of original options for new options was treated as a modification of the original
options in accordance with SFAS No. 123 (revised 2004) Share-Based Payment (SFAS No. 123 (R)).
As such, the Company will continue to incur compensation cost for the incremental difference
between the fair value of the new options and the fair value of the original options on the date of
modification, reflecting the current facts and circumstances on the modification date, over the
expected term of the new options.
Stock Based Compensation
The Company adopted the provisions of SFAS No. 123 (R) which establishes accounting for
stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is
measured at the grant date, based on the fair value of the award, and is recognized as expense over
the requisite service period. All of the Companys stock compensation is accounted for as an equity
instrument.
- 10 -
The effect of recording stock-based compensation for the three months ended March 31, 2008 and
2007 was as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Stock-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
$
|
891
|
|
|
$
|
784
|
|
Employee stock purchase plan
|
|
|
122
|
|
|
|
69
|
|
Amounts capitalized as inventory
|
|
|
(8
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
1,005
|
|
|
|
842
|
|
Tax effect on stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,005
|
|
|
$
|
842
|
|
|
|
|
|
|
|
|
Impact on net loss per share basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
During the three months ended March 31, 2008, the Company granted options to purchase 903,221
shares of common stock including 327,921 options granted as part of the Exchange Offer noted above.
The 327,921 options granted as part of the Exchange Offer had an estimated total grant-date fair
value of $607,000 or $1.85 per option. The remaining 575,300 options had an estimated total
grant-date fair value of $1.9 million or $3.35 per option. The total estimated grant-date fair
value of all 903,221 options granted was $2.5 million. Of this amount, the Company estimated that
the stock-based compensation expense of the awards not expected to vest was a total of $748,000.
During the three months ended March 31, 2007, the Company granted options to purchase 539,750
shares of common stock with an estimated total grant-date fair value of $3.8 million or $6.99 per
option. Of this amount, the Company estimated that the stock-based compensation expense of the
awards not expected to vest was $1.1 million.
As of March 31, 2008, the unrecorded stock-based compensation balance related to all stock
options was $3.5 million and will be recognized over an estimate weighted-average service period of
1.6 years. As of March 31, 2008, the unrecorded stock-based compensation balance related to the
employee stock purchase plan was $361,000 and will be recognized over an estimate weighted average
service period of 0.6 years.
Valuation Assumptions
The Company estimates the fair value of stock options using a Black-Scholes option valuation
model, consistent with the provisions of SFAS No. 123 (R) and Securities and Exchange Commission
Staff Accounting Bulletin No. 107. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option valuation model and the graded-vesting method with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
Risk-free interest rate
|
|
|
2.32
|
%
|
|
|
4.80
|
%
|
Expected life of options
|
|
3.6
|
years
|
|
|
3.6
|
years
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
The fair value of purchase rights under the employee stock purchase plan is determined using
the Black-Scholes option valuation model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
Risk-free interest rate
|
|
|
3.97% - 4.67
|
%
|
|
|
4.74% - 5.00
|
%
|
Expected life of options
|
|
|
1.2 years
|
|
|
|
1.3 years
|
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Volatility
|
|
|
51
|
%
|
|
|
51
|
%
|
The dividend yield of zero is based on the fact that the Company has never paid cash dividends
and has no present intention to pay cash dividends. Expected volatility is based on the combination
of historical volatility of the
- 11 -
Companys common stock and the expected future volatility over the period commensurate with
the expected life of the options and other factors. The risk-free interest rates are taken from the
Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and
represent the yields on actively traded Treasury securities for terms equal to the expected term of
the options. The expected term calculation is based on the Companys observed historical option
exercise behavior and post-vesting cancellations of options by employees.
The total intrinsic value of options exercised during the three months ended March 31, 2008
and 2007 was $1,000 and $99,000, respectively.
Equity Incentive Program
The Companys equity incentive program is a broad-based, long-term retention program designed
to align stockholder and employee interests. Under the Companys equity incentive program, stock
options generally have a vesting period of four years, are exercisable for a period not to exceed
ten years from the date of issuance and are generally granted at prices not less than the fair
market value of the Companys common stock at the grant date.
The following table summarizes activity under the equity incentive plans for the indicated
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
|
Shares
|
|
Price
|
|
Term (Years)
|
|
(In thousands)
|
Outstanding at December 31, 2007
|
|
|
2,465,436
|
|
|
$
|
13.19
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
903,221
|
|
|
|
6.59
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(169
|
)
|
|
|
2.49
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
(381,406
|
)
|
|
|
25.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
2,987,082
|
|
|
$
|
9.59
|
|
|
|
8.29
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable
and expected to be exercisable
at March 31, 2008
|
|
|
2,583,434
|
|
|
$
|
9.73
|
|
|
|
8.12
|
|
|
$
|
755
|
|
Options vested and exercisable
at March 31, 2008
|
|
|
1,164,659
|
|
|
$
|
10.30
|
|
|
|
6.92
|
|
|
$
|
755
|
|
At March 31, 2008, the Company had 1,907,542 options available for grant under its equity
incentive plans.
The options outstanding and vested and exercisable at March 31, 2008 were in the following
exercise price ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at March 31, 2008
|
|
Options Vested and Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
At March 31, 2008
|
|
|
|
|
|
|
Weighted-Average
|
|
Remaining
|
|
|
|
|
|
Weighted-Average
|
Range of Exercise Price
|
|
Shares
|
|
Exercise Price
|
|
Contractual Life
|
|
Shares
|
|
Exercise Price
|
$ 0.76 - $ 5.50
|
|
|
172,113
|
|
|
$
|
1.80
|
|
|
|
4.88
|
|
|
|
172,113
|
|
|
$
|
1.80
|
|
$ 6.59 - $ 6.59
|
|
|
898,771
|
|
|
$
|
6.59
|
|
|
|
9.87
|
|
|
|
|
|
|
$
|
0.00
|
|
$ 6.60 - $ 9.75
|
|
|
199,160
|
|
|
$
|
9.07
|
|
|
|
7.97
|
|
|
|
95,875
|
|
|
$
|
9.10
|
|
$ 9.77 - $ 9.77
|
|
|
342,671
|
|
|
$
|
9.77
|
|
|
|
7.86
|
|
|
|
175,393
|
|
|
$
|
9.77
|
|
$ 9.90 - $10.20
|
|
|
301,265
|
|
|
$
|
10.04
|
|
|
|
7.76
|
|
|
|
158,175
|
|
|
$
|
10.13
|
|
$10.22 - $11.87
|
|
|
317,654
|
|
|
$
|
10.70
|
|
|
|
6.64
|
|
|
|
262,326
|
|
|
$
|
10.58
|
|
$12.90 - $12.90
|
|
|
91,812
|
|
|
$
|
12.90
|
|
|
|
7.64
|
|
|
|
50,391
|
|
|
$
|
12.90
|
|
$13.23 - $13.23
|
|
|
515,435
|
|
|
$
|
13.23
|
|
|
|
8.88
|
|
|
|
129,910
|
|
|
$
|
13.23
|
|
$15.14 - $21.47
|
|
|
133,201
|
|
|
$
|
17.25
|
|
|
|
7.07
|
|
|
|
105,476
|
|
|
$
|
17.38
|
|
$34.89 - $34.89
|
|
|
15,000
|
|
|
$
|
34.89
|
|
|
|
7.34
|
|
|
|
15,000
|
|
|
$
|
34.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,987,082
|
|
|
$
|
9.59
|
|
|
|
8.29
|
|
|
|
1,164,659
|
|
|
$
|
10.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
In October 2000, the Company established the Endwave Corporation Employee Stock Purchase Plan.
All employees who work a minimum of 20 hours per week and are customarily employed by the Company
(or an
- 12 -
affiliate thereof) for at least five months per calendar year are eligible to participate.
Under this plan, employees may purchase shares of common stock through payroll deductions of up to
15% of their earnings with a limit of 3,000 shares per offering period under the plan. The price
paid for the Companys common stock purchased under the plan is equal to 85% of the lower of the
fair market value of the Companys common stock on the date of commencement of participation by an
employee in an offering under the plan or the date of purchase. The compensation cost in connection
with the purchase plan for the three months ended March 31, 2008 and 2007 was $122,000 and $69,000,
respectively. During the first quarter of 2008 and the first quarter of 2007, there were no shares
purchased under the employee stock purchase plan. At March 31, 2008, 429,340 shares were available
for purchase under the plan.
8. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of
common shares outstanding for the period. Diluted net loss per share is computed by dividing the
net loss for the period by the weighted-average number of shares of common stock and potential
common stock equivalents outstanding during the period, if dilutive. Potential common stock
equivalents include convertible preferred stock, warrants to purchase convertible preferred stock,
options to purchase common stock, and shares to be purchased in connection with the Companys
employee stock purchase plan.
As of March 31, 2008, 300,000 shares of preferred shares were outstanding, which were
convertible into 3,000,000 shares of common stock. Additionally, as of March 31, 2008, the Company
had an outstanding warrant that granted the holder the right to purchase 90,000 shares of preferred
stock, which were convertible into 900,000 shares of common stock.
As the Company incurred net losses for all periods presented, shares associated with common
stock issuable upon the conversion of the preferred shares or the exercise of the outstanding
warrants were not included in the calculation of diluted net loss per share, as the effect would be
anti-dilutive. Also, potential dilutive common shares of 2,987,082 as of March 31, 2008 and
2,245,286 as of March 31, 2007 from the assumed exercise of stock options were not included in the
net loss per share calculations as their inclusion would have been anti-dilutive. As a result,
diluted net loss per share is the same as basic net loss per share for all periods presented.
During the first quarter of 2008, the Company retired 39,150 shares of common stock, reducing
the number of outstanding shares of common stock. This did not have a significant impact on the
weighted average number of common shares calculated for use in the earnings per share calculations.
9. Comprehensive Income (Loss)
Comprehensive income (loss) generally represents all changes in stockholders equity except
those resulting from investments or contributions by stockholders. The Companys unrealized gains
and losses on its available-for-sale securities and gains and losses resulting from foreign
currency translation adjustments represent the only components of comprehensive loss excluded from
the reported net loss.
The components of comprehensive income (loss) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net loss
|
|
$
|
(1,936
|
)
|
|
$
|
(780
|
)
|
Foreign currency translation adjustments
|
|
|
(7
|
)
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
47
|
|
|
|
7
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(1,896
|
)
|
|
$
|
(773
|
)
|
|
|
|
|
|
|
|
- 13 -
10. Segment Disclosures
The Company operates in a single business segment. Although the Company sells to customers in
various geographic regions throughout the world, the end customers may be located elsewhere. The
Companys total revenues by billing location for the periods ended March 31 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
United States
|
|
$
|
3,134
|
|
|
|
22.1
|
%
|
|
$
|
2,111
|
|
|
|
14.3
|
%
|
Finland
|
|
|
7,604
|
|
|
|
53.6
|
%
|
|
|
6,085
|
|
|
|
41.3
|
%
|
Italy
|
|
|
635
|
|
|
|
4.5
|
%
|
|
|
2,542
|
|
|
|
17.2
|
%
|
Norway
|
|
|
34
|
|
|
|
0.2
|
%
|
|
|
2,303
|
|
|
|
15.6
|
%
|
Slovakia
|
|
|
1,328
|
|
|
|
9.4
|
%
|
|
|
795
|
|
|
|
5.4
|
%
|
Rest of the world
|
|
|
1,446
|
|
|
|
10.2
|
%
|
|
|
915
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,181
|
|
|
|
100.0
|
%
|
|
$
|
14,751
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008, Nokia Siemens Networks and Nera accounted for 58%
and 10%, respectively, of the Companys total revenues. For the three months ended March 31, 2007,
Nokia Siemens Networks (including Nokia and Siemens AG revenues for 2007 prior to their merger) and
Nera accounted for 58% and 21%, respectively, of the Companys total revenues. For the periods
presented, no other customer accounted for more than 10% of the Companys total revenues.
11. Recent Accounting Pronouncements
In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), to partially defer SFAS
No. 157. FSP 157-2 defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years, and interim periods within
those fiscal years, beginning after November 15, 2008. The Company is currently evaluating the
impact of FSP 157-2 on its consolidated financial position and results of operations.
- 14 -
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the condensed
consolidated financial statements, related notes and Risk Factors section included elsewhere in
this report on Form 10-Q, as well as the information contained under Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations and our consolidated
financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended
December 31, 2007. In addition to historical consolidated financial information, this discussion
contains forward-looking statements that involve known and unknown risks and uncertainties,
including statements regarding our expectations, beliefs, intentions or strategies regarding the
future. All forward-looking statements included in this report are based on information available
to us on the date hereof, and we assume no obligation to update any such forward-looking
statements. Our actual results could differ materially from those discussed in the forward-looking
statements. You are cautioned not to place undue reliance on these forward-looking statements. In
the past, our operating results have fluctuated and are likely to continue to fluctuate in the
future.
The terms we, us, our and words of similar import below refer to Endwave Corporation and
its wholly-owned subsidiaries, Endwave Defense Systems Incorporated and ALC Microwave, Inc.
Overview
We design, manufacture and market radio frequency, or RF, modules that enable the
transmission, reception and processing of high frequency signals in telecommunication networks,
defense electronics and homeland security and other systems. Our RF modules are typically used in
high-frequency applications and include integrated transceivers, amplifiers, synthesizers,
oscillators, up and down converters, frequency multipliers and microwave switch arrays.
We believe the demand for microwave radios and the transceiver modules used to build them is
increasing. As service providers deploy more cellular base stations to serve their growing
subscriber base and upgrade existing facilities, they will require more microwave radio links for
cellular backhaul. We believe this projected increased demand is driven by increased demand from
developing nations and increased use of data-intensive applications.
We also believe the demand for high-frequency RF modules within various defense electronics
and homeland security systems is increasing. We are seeing increased demand in defense electronics
systems as high frequency RF modules are being used in sophisticated radar systems, electronic
warfare systems, intelligent battlefield systems and high-capacity communication systems. Due to
the need for greater resolution, more comprehensive real-time information and better communication
on the battlefield, the United States militarys demand for high-frequency RF modules in the
defense electronics market is growing. Similarly, the global escalation of terrorist and insurgency
threats is resulting in increased governmental and private concern over providing adequate security
measures. Many new, more capable systems are utilizing high-frequency RF signals for various
detection and imaging systems applied to threats of violence.
We continue to seek growth through strategic acquisitions. Since our initial public offering
in October 2000, we have acquired and integrated six businesses or product lines. As a result of
these transactions, we have increased our revenues and market share, broadened our product
portfolio, diversified our customer base, gained expertise outside our core telecommunication
network market and added key members to our staff.
- 15 -
Results of Operations
Three months ended March 31, 2008 and 2007
The following table sets forth certain statement of operations data as a percentage of total
revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Cost of product revenues
|
|
|
70.8
|
|
|
|
72.0
|
|
Cost of product revenues, amortization of intangible assets
|
|
|
1.1
|
|
|
|
0.8
|
|
Research and development
|
|
|
20.0
|
|
|
|
16.3
|
|
Selling, general and administrative
|
|
|
23.7
|
|
|
|
21.7
|
|
Amortization of intangible assets
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
116.9
|
|
|
|
111.0
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16.9
|
)
|
|
|
(11.0
|
)
|
Interest and other income, net
|
|
|
3.2
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13.7
|
)%
|
|
|
(5.3
|
)%
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Total revenues
|
|
$
|
14,181
|
|
|
$
|
14,751
|
|
|
|
(3.9
|
)%
|
Product revenues
|
|
$
|
13,840
|
|
|
$
|
14,593
|
|
|
|
(5.2
|
)%
|
Development fees
|
|
$
|
341
|
|
|
$
|
158
|
|
|
|
115.8
|
%
|
Total revenues consist of product revenues and development fees. Product revenues are
attributable to sales of our RF products. Development fees are attributable to the development of
product prototypes and custom products pursuant to development agreements that provide for payment
of a portion of our research and development or other expenses. We expect to enter into more
development contracts in the future as we seek to further penetrate the defense electronics market,
where development contracts are customary, but we do not expect development fees to represent a
significant percentage of our total revenues for the foreseeable future.
Product revenues decreased $753,000 from the first quarter of 2007 to the first quarter of
2008. We experienced a $2.1 million decrease in revenues from our telecommunications customers
which was offset in part by a $1.5 million increase in revenues from our defense and homeland
security customers primarily due to revenues from our acquisition of ALC Microwave, Inc., or ALC.
The decrease in telecommunication revenue was primarily attributable to decreased revenues from the
former Siemens product lines of Nokia Siemens Networks as they reduced purchases of legacy products
that historically had been outsourced to us. During the first quarter of 2008, revenues from our
telecom OEM customers comprised 74% of our total revenues, compared with 85% in 2007. During the
first quarter of 2008, revenues from our defense and homeland security and other customers
comprised 26% of our total revenues, compared with 15% in 2007.
The increase in development fees from the first quarter of 2007 to the first quarter of 2008
was attributable to increased development of custom-designed products for new and existing
customers.
Cost of product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Cost of product revenues
|
|
$
|
10,043
|
|
|
$
|
10,620
|
|
|
|
(5.4
|
)%
|
Percentage of total revenues
|
|
|
70.8
|
%
|
|
|
72.0
|
%
|
|
|
|
|
Cost of product revenues consists primarily of: costs of direct materials and labor utilized
to assemble and test our products; equipment depreciation; costs associated with procurement,
production control, quality assurance and manufacturing engineering; costs associated with
maintaining our manufacturing facilities; fees paid to our offshore manufacturing vendor; reserves
for potential excess or obsolete material; costs related to stock-based compensation; and accrued
costs associated with potential warranty returns offset by the benefit of usage of materials that
were previously written off.
- 16 -
During the first quarter of 2008, the cost of product revenues as a percentage of revenues
decreased primarily due to a change in product mix favoring certain higher margin products. The
cost of product revenues in both periods was favorably impacted by the utilization of inventory
that was previously written off, amounting to $64,000 during the first quarter 2008 and $153,000
during the first quarter 2007.
We continue to focus on reducing the cost of product revenues as a percentage of total
revenues through the introduction of new designs and technology and further improvements to our
offshore manufacturing processes. In addition, our product costs are impacted by the mix and volume
of products sold and will continue to fluctuate as a result.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Research and development expenses
|
|
$
|
2,842
|
|
|
$
|
2,405
|
|
|
|
18.2
|
%
|
Percentage of total revenues
|
|
|
20.0
|
%
|
|
|
16.3
|
%
|
|
|
|
|
Research and development expenses consist primarily of salaries and related expenses for
research and development personnel, outside professional services, prototype materials, supplies
and labor, depreciation for related equipment, allocated facilities costs and expenses related to
stock-based compensation.
During the first quarter of 2008, research and development costs increased both as a
percentage of total revenues and in absolute dollars compared to the first quarter of 2007. The
increase in research and development costs was primarily attributable to an increase of $242,000 in
personnel-related expenses, an increase of $77,000 related to the acquisition of the engineering
group from ALC, an increase of $75,000 for SFAS No. 123 (R) stock-based compensation expense and an
increase of $43,000 in project-related expenses.
During the remainder of 2008, we expect moderate increases in absolute dollars in research and
development expenses as we continue our investment in development programs in both the
telecommunication and defense electronics and homeland security related businesses.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Selling, general and
administrative
expenses
|
|
$
|
3,361
|
|
|
$
|
3,199
|
|
|
|
5.1
|
%
|
Percentage of total revenues
|
|
|
23.7
|
%
|
|
|
21.7
|
%
|
|
|
|
|
Selling, general and administrative expenses consist primarily of salaries and related
expenses for executive, sales, marketing, finance, accounting, legal, information technology and
human resources personnel, professional fees, facilities costs, expenses related to stock-based
compensation and promotional activities.
During the first quarter of 2008, selling, general and administrative expenses increased both
as a percentage of total revenues and in absolute dollars compared to 2007 primarily due to a
$173,000 increase in personnel-related expenses.
During 2008, we anticipate selling, general and administrative expenses will be relatively
flat in absolute dollar terms.
- 17 -
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Cost of product revenues,
amortization
of intangible assets
|
|
$
|
149
|
|
|
$
|
113
|
|
|
|
31.9
|
%
|
Amortization of intangible assets
|
|
$
|
179
|
|
|
$
|
39
|
|
|
|
359.0
|
%
|
As part of our acquisition of ALC in April 2007, we acquired $2.9 million of identifiable
intangible assets, including $900,000 for customer relationships, $880,000 for developed
technology, $560,000 for customer backlog, $370,000 for the non-compete agreement and $230,000 for
the tradename. These assets are subject to amortization and have approximate estimated useful
lives as follows: customer relationships six years, developed technology six years, customer
backlog two years, non-compete agreement four years, and tradename six years.
As part of our acquisition of JCA Technology, Inc., or JCA, in July 2004, we acquired $4.2
million of identifiable intangible assets, including $2.3 million for developed technology, $1.1
million for the tradename, $780,000 for customer relationships and $140,000 for customer backlog.
These assets are subject to amortization and have approximate estimated useful lives as follows:
developed technology five years, customer backlog six months and customer relationships five
years. The tradename intangible asset is not subject to amortization and will be evaluated for
impairment at least annually or more frequently if events and changes in circumstances suggest that
the carrying amount may not be recoverable.
The amortization associated with developed technology is a charge to cost of product revenues.
The amortization associated with developed technology was $149,000 and $113,000 for the first
quarter of 2008 and 2007, respectively. The increase in cost of product revenues, amortization of
intangible assets was due to $36,000 of amortization for the ALC developed technology.
The amortization associated with customer backlog, customer relationships, non-compete and
tradename is a charge to operating expenses. During the first quarter of 2008, the $179,000 of
amortization was comprised of the following: $76,000 for customer relationships, $70,000 for
customer backlog, $23,000 for the non-compete agreement and $10,000 for the tradename. During the
first quarter of 2007, the $39,000 of amortization was due to the amortization of customer
relationships of JCA. This increase in amortization was attributable to the amortization of the
ALC intangibles.
Interest and other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
|
Interest and other income, net
|
|
$
|
457
|
|
|
$
|
845
|
|
|
|
(45.9
|
)%
|
Interest and other income, net consists primarily of interest income earned on our cash, cash
equivalents and investments, the amortization of the deferred gain from the sale of our Diamond
Springs, California location and gains and losses related to foreign currency transactions.
The decrease in interest and other income, net during the first quarter of 2008 was primarily
the result of decreased interest earned on our investments. We had a lower cash and investment
balance due to our stock repurchase in the fourth quarter of 2007 and our acquisition of ALC during
the second quarter of 2007. Additionally, interest rates have decreased significantly from the
prior year especially on the highest rated investment vehicles leading to lower interest income.
During the first quarter of 2008, we earned $457,000 of interest income and recognized $38,000 of
other income from the amortization of the deferred gain from our sale of the Diamond Springs,
California location which were partially offset by banking charges and losses on foreign currency
transactions. During the first quarter of 2007, we earned $838,000 of interest income and
recognized $39,000 of
- 18 -
other income primarily from the amortization of the deferred gain from our sale of the Diamond
Springs, California location partially offset by banking charges.
Our functional currency is the U.S. Dollar. Transactions in foreign currencies other than the
functional currency are remeasured into the functional currency at the time of the transaction.
Foreign currency transaction losses consist of the remeasurement gains and losses that arise from
exchange rate fluctuations related to our operations in Thailand. During the first quarter of
2008, we recorded a foreign currency transaction loss of $21,000. There were no such losses in
the first quarter of 2007.
Liquidity and Capital Resources
At March 31, 2008, we had $40.9 million of cash and cash equivalents, $5.0 million in
short-term investments, $1.5 million in long-term investments, working capital of $59.0 million and
no debt outstanding. The following table sets forth selected condensed consolidated statement of
cash flows data:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
(in thousands)
|
Net cash used in operating activities
|
|
$
|
(1,140
|
)
|
|
$
|
(1,055
|
)
|
Net cash provided by investing activities
|
|
|
3,092
|
|
|
|
1,455
|
|
Net cash (used in) provided by financing activities
|
|
|
(5
|
)
|
|
|
107
|
|
Cash, cash equivalents, restricted cash, short-
term and long-term investments at end of period
|
|
$
|
47,451
|
|
|
$
|
66,854
|
|
During the first quarter of 2008 and the first quarter of 2007, we used $1.1 million of cash
in operating activities. Our net loss adjusted for depreciation and other non-cash items, used cash
of $349,000 in the first quarter of 2008. Our net loss adjusted for depreciation and other
non-cash items, provided cash of $388,000 in the first quarter of 2007. During the first quarter of
2008, the remaining use of $791,000 in cash was primarily due to a $1.8 million increase in
accounts receivable partially offset by a $646,000 increase in accounts payable and a $323,000
decrease in other assets. During the first quarter of 2007, the remaining use of $1.4 million of
cash was primarily due to a $2.2 million increase in accounts receivable, a $1.3 million decrease
in accounts payable, and a $1.1 million decrease in accrued compensation and other current and
long-term liabilities partially offset by a $3.0 million decrease in inventories and a $147,000
decrease in other assets.
Investing activities provided cash of $3.1 million in the first quarter of 2008 as compared to
$1.5 million in the first quarter of 2007. The source of cash during the first quarter of 2008 was
primarily the result of the sales and maturities of investments of $3.5 million partially offset by
the purchase of equipment of $436,000. The source of cash during the first quarter of 2007 was
primarily the result of the maturity of investments net of the purchases of investments of $1.4
million and the decrease of restricted cash of $118,000 partially offset by the purchase of
equipment of $68,000.
Financing
activities used cash of $5,000 in the first quarter of 2008 primarily for the payment of
capital leases. Financing activities provided cash of $107,000 in the first quarter of 2007
primarily due to proceeds from the exercise of employee stock options.
At March 31, 2008, we had a net unrealized gain of $53,000 related to $6.5 million of
investments in five debt securities. The increase in the value of these investments is primarily
related to changes in interest rates. The investments all mature during 2008 or 2009 and we
believe that we have the ability to hold these investments until the maturity date. Realized gains
were $8,000 for the quarter ended March 31, 2008. During the first quarter of 2008, we recorded a
foreign currency transaction loss of $21,000. There were no such losses during the first quarter
of 2007.
In order to maintain and enhance our competitive position, we must be able to satisfy our
customers short lead-times and rapidly-changing needs. As a result of these challenges, we may
increase our raw materials inventory and add more finished products to our key customers
consignment stocks so that they will be better-positioned to meet
- 19 -
their customers demand. These increases in raw materials and finished goods may increase our
working capital needs in the future.
We believe that our existing cash and investment balances will be sufficient to meet our
operating and capital requirements for at least the next 12 months. With the exception of operating
leases discussed in the notes to the consolidated financial statements included in this report, we
have not entered into any off-balance sheet financing arrangements and we have not established or
invested in any variable interest entities. We have not guaranteed the debt or obligations of other
entities or entered into options on non-financial assets. The following table summarizes our future
cash obligations for operating leases and capital leases, excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1 3 Years
|
|
|
3-5 Years
|
|
|
More Than 5 Years
|
|
|
|
(In thousands)
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, including interest
|
|
$
|
61
|
|
|
$
|
24
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
1,881
|
|
|
|
809
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,942
|
|
|
$
|
833
|
|
|
$
|
1,109
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), to partially defer FASB
Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157).
FSP 157-2 defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years, and interim periods within
those fiscal years, beginning after November 15, 2008. We are currently evaluating the impact of
FSP 157-2 on our consolidated financial position and results of operations.
- 20 -
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our reported market risks since our report on market
risks in our Annual Report on Form 10-K for the year ended December 31, 2007 under the heading
corresponding to that set forth above. Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. In order to reduce this interest rate risk, we
usually invest our cash primarily in investments with short maturities. As of March 31, 2008, our
investments in our portfolio were classified as cash equivalents, short-term investments and
long-term investments. The cash equivalents and short-term investments consisted primarily of
United States Treasury-backed money market funds and corporate notes. The long-term investment
consisted of a corporate note. Since over 90% of our investments consist of cash equivalents and
short-term investments, a change in interest rates would not have a material effect on our
financial condition or results of operations. Declines in interest rates over time will, however,
reduce interest income.
Currently, all sales to international customers are denominated in United States dollars and,
accordingly we are not exposed to foreign currency rate risks in connection with these sales.
However, if the dollar were to strengthen relative to other currencies that could make our products
less competitive in foreign markets and thereby lead to a decrease in revenues attributable to
international customers.
We currently pay a number of expenses related to our Thai personnel and office in Thai Bhat.
During the first quarter of 2008, the total payments made in Thai Bhat were $230,000 and we
recorded a related foreign currency transaction loss of $21,000.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, our chief executive officer and chief financial officer have concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act)) were effective as of the end of the period covered by
this report.
Our disclosure controls and procedures are designed to provide reasonable assurance of
achieving their objectives, and our chief executive officer and our chief financial officer have
concluded that these controls and procedures are effective at the reasonable assurance level. We
believe that a control system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within a company
have been detected.
(b) Changes in internal controls over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.
- 21 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently party to any material litigation.
Item 1A. Risk Factors
You should consider carefully the following risk factors as well as other information in this
report before investing in any of our securities. If any of the following risks actually occur, our
business, operating results and financial condition could be adversely affected. This could cause
the market price of our common stock to decline, and you may lose all or part of your investment.
**
Indicates risk factor has been updated since our Annual Report on Form 10-K for the year
ended December 31, 2007.
Risks Relating to Our Business
We have had a history of losses and may not be profitable in the future.**
We have had a history of losses. We had a net loss of $1.9 million for the first quarter of
2008. We also had net losses of $5.4 million and $1.3 million for the years ended December 31, 2007
and 2006, respectively. There is no guarantee that we will achieve or maintain profitability in the
future.
We depend on a small number of key customers in the telecommunications industry for a large portion
of our revenues. If we lose any of our major customers, particularly Nera or Nokia Siemens
Networks, or there is any material reduction in orders for our products from any of these
customers, our business, financial condition and results of operations would be adversely
affected.**
We depend, and expect to continue to depend, on a relatively small number of telecom customers
for a large portion of our revenues. The loss of any of our major customers, particularly Nera or
Nokia Siemens Networks, or any material reduction in orders from any such customers, would have a
material adverse effect on our business, financial condition and results of operations. In the
first three months of 2008 and in fiscal 2007, Nokia Siemens Networks (including Nokia and Siemens
AG revenues for 2007 prior to their merger) accounted for 58% and 60% of our total revenues,
respectively. In the first three months of 2008 and in fiscal 2007, revenues from Nera accounted
for 10% and 14% of our total revenues, respectively. We had no other customers individually
representing more than 10% of our total revenues for these periods.
We depend on the telecommunications industry for most of our revenues. If this industry suffers
another downturn or fails to grow as anticipated, our revenues could decrease and our profitability
could suffer. In addition, consolidation in this industry could result in delays or cancellations
of orders for our products, adversely impacting our results of operations.**
We depend, and expect to remain dependent, on the telecommunications industry for most of our
revenues. Revenues from all of our telecom OEM customers comprised 74% of our total revenues during
the first quarter of 2008 and 79% of our total revenues in 2007.
The telecommunications industry suffered a significant worldwide downturn beginning in 2000.
In connection with this downturn, there were worldwide reductions in telecommunication network
projects that resulted in the loss of some of our key customers and reduced revenues from our
remaining customers. We also were forced to undertake significant cost reduction measures as a
result. The telecommunications industry has begun to grow again, but at a more measured rate than
in the 1990s. Our revenues are dependent, in part, on growth of wireless telephony particularly in
developing countries, increasing data-intensive cellular traffic, deployment of third-generation,
or 3G, networks and the introduction of other high capacity data-only telecommunication networks.
If similar downturns reoccur, or if the telecommunications industry fails to grow as we anticipate,
our revenues may remain flat or decrease. Significantly lower revenues would likely force us to
make provisions for excess inventory and abandoned
- 22 -
or obsolete equipment and reduce our operating expenses. To reduce our operating expenses, we
could be required to reduce the size of our workforce and consolidate facilities. We cannot
guarantee that we would be able to reduce operating expenses to a level commensurate with the lower
revenues resulting from such an industry downturn.
The telecommunications industry has undergone significant consolidation in the past few years
and we expect that consolidation to continue. The acquisition of one of our major customers in this
market, or one of the communications service providers supplied by one of our major customers,
could result in delays or cancellations of orders of our products and, accordingly, delays or
reductions in our anticipated revenues and reduced profitability or increased net losses. In
particular, during April 2007, Nokia and Siemens merged their telecommunication network businesses.
Implementing our acquisition strategy could result in dilution to our stockholders and operating
difficulties leading to a decline in revenues and operating profit.**
One of our strategies is to grow through acquisitions. To that end, we have completed six
acquisitions since our initial public offering in October 2000. We intend to continue to pursue
acquisitions in our markets that we believe will be beneficial to our business. The process of
investigating, acquiring and integrating any business into our business and operations is risky and
may create unforeseen operating difficulties and expenditures. The areas in which we may face
difficulties include:
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diversion of our management from the operation of our core business;
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assimilating the acquired operations and personnel;
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integrating information technology and reporting systems;
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retention of key personnel;
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retention of acquired customers; and
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implementation of controls, procedures and policies in the acquired business.
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In addition to the factors set forth above, we may encounter other unforeseen problems with
acquisitions that we may not be able to overcome. Future acquisitions may require us to issue
shares of our stock or other securities that dilute our other stockholders, expend cash, incur
debt, assume liabilities, including contingent or unknown liabilities, or create additional
expenses related to write-offs or amortization of intangible assets with estimated useful lives,
any of which could materially adversely affect our operating results.
Our future success depends in part on our ability to further penetrate into new markets, such as
defense electronics and homeland security, and we may be unable to do so.
Historically, a large majority of our revenues have been attributable to sales of our RF
modules to telecom OEMs such as Nokia Siemens Networks. Part of our growth strategy is to design
and sell high-frequency RF modules for and to OEMs and systems integrators in new markets,
particularly defense electronics and homeland security. To date, only a modest percentage of our
revenues have been attributable to sales of RF modules to these alternate markets. We are designing
and selling products for the emerging homeland security market. The potential size of this market
is unclear and we cannot predict how the market will evolve. If increased demand for high-frequency
RF modules in the defense electronics and homeland security markets does not materialize, or if we
fail to secure new design wins in these markets or if we are unable to design readily
manufacturable products for these new markets, our growth and revenues could be adversely impacted,
thereby decreasing our profitability or increasing our net losses.
- 23 -
Our operating results may be adversely affected by substantial quarterly and annual fluctuations
and market downturns.
Our revenues, earnings and other operating results have fluctuated in the past and our
revenues, earnings and other operating results may fluctuate in the future. These fluctuations are
due to a number of factors, many of which are beyond our control. These factors include, among
others, overall growth in our target markets, the ability of our customers to obtain adequate
capital, U.S. export law changes, changes in customer order patterns, customer consolidation,
availability of components from our suppliers, the gain or loss of a significant customer, changes
in our product mix and market acceptance of our products and our customers products. These
factors are difficult to forecast, and these, as well as other factors, could materially and
adversely affect our quarterly or annual operating results.
Because of the shortages of some components and our dependence on single source suppliers and
custom components, we may be unable to obtain an adequate supply of components of sufficient
quality in a timely fashion, or we may be required to pay higher prices or to purchase components
of lesser quality.
Many of our products are customized and must be qualified with our customers. This means that
we cannot change components in our products easily without the risks and delays associated with
requalification. Accordingly, while a number of the components we use in our products are made by
multiple suppliers, we may effectively have single source suppliers for some of these components.
In addition, we currently purchase a number of components, some from single source suppliers,
including, but not limited to:
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|
|
semiconductor devices;
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|
|
application-specific monolithic microwave integrated circuits;
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|
voltage-controlled oscillators;
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|
|
voltage regulators;
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|
|
unusual or low usage components;
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|
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|
surface mount components compliant with the EUs Restriction of Hazardous
Substances, or RoHS, Directive;
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|
high-frequency circuit boards;
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custom connectors; and
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yttrium iron garnet components.
|
Any delay or interruption in the supply of these or other components could impair our ability
to manufacture and deliver our products, harm our reputation and cause a reduction in our revenues.
In addition, any increase in the cost of the components that we use in our products could make our
products less competitive and lower our margins. In the past, we suffered from shortages of and
quality issues with various components. These shortages and quality issues adversely impacted our
product revenues and could reappear in the future. Our single source suppliers could enter into
exclusive agreements with or be acquired by one of our competitors, increase their prices, refuse
to sell their products to us, discontinue products or go out of business. Even to the extent
alternative suppliers are available to us and their components are qualified with our customers on
a timely basis, identifying them and entering into arrangements with them may be difficult and time
consuming, and they may not meet our quality standards. We may not be able to obtain sufficient
quantities of required components on the same or substantially the same terms.
Our cash requirements will be impacted by our need to increase inventories.
As part of our expansion in the telecommunications market and our increased emphasis on the
defense electronics and homeland security markets, we have significantly increased the number of
our products during recent fiscal years. The products we manufacture require hundreds or thousands
of components obtained from a
- 24 -
wide variety of suppliers and we have faced component shortages and quality issues from our
suppliers from time to time. In addition, in order to maintain and enhance our competitive
position, we must be able to satisfy our customers short lead-times and rapidly-changing needs. As
a result of these challenges, we have significant raw materials inventory and finished products in
our key customers consignment stocks so that they will be better-positioned to meet their own
customers demand. Increased inventory of raw materials and finished goods may consume additional
capital in the future.
We are exposed to fluctuations in the market values of our investment portfolio.**
Although we have not experienced any material losses on our cash, cash equivalents and
short-term and long-term investments, future declines in their market values could have a material
adverse effect on our financial condition and operating results. Although our portfolio has no
auction rate or sub-prime mortgage securities, our overall investment portfolio is currently and
may in the future be concentrated in cash equivalents including money market funds. If any of the
issuers of the securities we hold default on their obligations, or their credit ratings are
negatively affected by liquidity, credit deterioration or losses, financial results, or other
factors, the value of our cash equivalents and short-term and long-term investments could decline
and result in a material impairment.
We rely heavily on a Thailand facility of HANA Microelectronics Co., Ltd., a contract manufacturer,
to produce our RF modules. If HANA is unable to produce these modules in sufficient quantities or
with adequate quality, or it chooses to terminate our manufacturing arrangement, we will be forced
to find an alternative manufacturer and may not be able to fulfill our production commitments to
our customers, which could cause sales to be delayed or lost and could harm our reputation.
We outsource the assembly and testing of most of our telecommunication related products to a
Thailand facility of HANA Microelectronics Co., Ltd., or HANA, a contract manufacturer. We plan to
continue this arrangement as a key element of our operating strategy. If HANA does not provide us
with high quality products and services in a timely manner, terminates its relationship with us, or
is unable to produce our products due to financial difficulties or political instability we may be
unable to obtain a satisfactory replacement to fulfill customer orders on a timely basis. In the
event of an interruption of supply from HANA, sales of our products could be delayed or lost and
our reputation could be harmed. Our latest manufacturing agreement with HANA expires in October
2008, but will renew automatically for successive one-year periods unless either party notifies the
other of its desire to terminate the agreement at least one year prior to the expiration of the
term. In addition, either party may terminate the agreement without cause upon 365 days prior
written notice to the other party, and either party may terminate the agreement if the
non-terminating party is in material breach and does not cure the breach within 30 days after
notice of the breach is given by the terminating party. There can be no guarantee that HANA will
not seek to terminate its agreement with us.
We rely on the semiconductor foundry operations of Northrop Grumman Space Technology, Inc.
(formerly known as Velocium) and other third-party semiconductor foundries to manufacture the
semiconductors contained in our products. The loss of our relationship with any of these foundries,
particularly Northrop Grumman Space Technology, Inc., without adequate notice would adversely
impact our ability to fill customer orders and could damage our customer relationships.
We design semiconductor devices. However, we do not own or operate a semiconductor fabrication
facility, or foundry, and rely on a limited number of third parties to produce these components.
Our largest semiconductor foundry supplier is the semiconductor foundry operations of Northrop
Grumman Space Technology, Inc. If Northrop Grumman Space Technology, Inc. is unable to deliver
semiconductors to us in a timely fashion, the resulting delay could severely impact our ability to
fulfill customer orders and could damage our relationships with our customers. In addition, the
loss of our relationship with or our access to any of the semiconductor foundries we currently use,
particularly Northrop Grumman Space Technology, Inc., and any resulting delay or reduction in the
supply of semiconductor devices to us, would severely impact our ability to fulfill customer orders
and could damage our relationships with our customers.
We may not be successful in forming alternative supply arrangements that provide us with a
sufficient supply of gallium arsenide devices. Gallium arsenide devices are used in a substantial
portion of the products we manufacture. Because there are a limited number of semiconductor
foundries that use the particular process
- 25 -
technologies we select for our products and that have sufficient capacity to meet our needs,
using alternative or additional semiconductor foundries would require an extensive qualification
process that could prevent or delay product shipments and revenues. We estimate that it may take up
to six months to shift production of a given semiconductor circuit design to a new foundry.
Our products may contain component, manufacturing or design defects or may not meet our customers
performance criteria, which could cause us to incur significant repair expenses, harm our customer
relationships and industry reputation, and reduce our revenues and profitability.
We have experienced manufacturing quality problems with our products in the past and may have
similar problems in the future. As a result of these problems, we have replaced components in some
products, or replaced the product, in accordance with our product warranties. Our product
warranties typically last twelve to thirty months. As a result of component, manufacturing or
design defects, we may be required to repair or replace a substantial number of products under our
product warranties, incurring significant expenses as a result. Further, our customers may discover
latent defects in our products that were not apparent when the warranty period expired. These
defects may cause us to incur significant repair or replacement expenses beyond the normal warranty
period. In addition, any component, manufacturing or design defect could cause us to lose customers
or revenues or damage our customer relationships and industry reputation.
We depend on our key personnel. Skilled personnel in our industry can be in short supply. If we are
unable to retain our current personnel or hire additional qualified personnel, our ability to
develop and successfully market our products would be harmed.
We believe that our future success depends upon our ability to attract, integrate and retain
highly skilled managerial, research and development, manufacturing and sales and marketing
personnel. Skilled personnel in our industry can be in short supply. As a result, our employees are
highly sought after by competing companies and our ability to attract skilled personnel is limited.
To attract and retain qualified personnel, we may be required to grant large stock option or other
stock-based incentive awards, which may harm our operating results or be dilutive to our other
stockholders. We may also be required to pay significant base salaries and cash bonuses, which
could harm our operating results.
Due to our relatively small number of employees and the limited number of individuals with the
skill set needed to work in our industry, we are particularly dependent on the continued employment
of our senior management team and other key personnel. If one or more members of our senior
management team or other key personnel were unable or unwilling to continue in their present
positions, these persons would be very difficult to replace, and our ability to conduct our
business successfully could be seriously harmed. We do not maintain key person life insurance
policies.
Competitive conditions often require us to reduce prices and, as a result, we need to reduce our
costs in order to be profitable.
Over the past year, we have reduced many of our prices of telecom products by 10% to 15% in
order to remain competitive and we expect market conditions will cause us to reduce our prices in
the future. In order to reduce our per-unit cost of product revenues, we must continue to design
and re-design products to require lower cost materials, improve our manufacturing efficiencies and
successfully move production to lower-cost, offshore locations. The combined effects of these
actions may be insufficient to achieve the cost reductions needed to maintain or increase our gross
margins or achieve profitability.
The length of our sales cycle requires us to invest substantial financial and technical resources
in a potential sale before we know whether the sale will occur. There is no guarantee that the sale
will ever occur and if we are unsuccessful in designing a high-frequency RF module for a particular
generation of a customers products, we may need to wait until the next generation of that product
to sell our products to that particular customer.
Our products are highly technical and the sales cycle can be long. Our sales efforts involve a
collaborative and iterative process with our customers to determine their specific requirements
either in order to design an appropriate solution or to transfer the product efficiently to our
offshore contract manufacturer. Depending on the product and
- 26 -
market, the sales cycle can take anywhere from 2 to 24 months, and we incur significant
expenses as part of this process without any assurance of resulting revenues. We generate revenues
only if our product is selected for incorporation into a customers system and that system is
accepted in the marketplace. If our product is not selected, or the customers development program
is discontinued, we generally will not have an opportunity to sell our product to that customer
until that customer develops a new generation of its system. There is no guarantee that our product
will be selected for that new generation system. In the past, we have had difficulty meeting some
of our major customers stated volume and cost requirements. The length of our product development
and sales cycle makes us particularly vulnerable to the loss of a significant customer or a
significant reduction in orders by a customer because we may be unable to quickly replace the lost
or reduced sales.
We may not be able to design our products as quickly as our customers require, which could cause us
to lose sales and may harm our reputation.
Existing and potential customers typically demand that we design products for them under
difficult time constraints. In the current market environment, the need to respond quickly is
particularly important. If we are unable to commit the necessary resources to complete a project
for a potential customer within the requested timeframe, we may lose a potential sale. Our ability
to design products within the time constraints demanded by a customer will depend on the number of
product design professionals who are available to focus on that customers project and the
availability of professionals with the requisite level of expertise is limited. We have, in the
past, expended significant resources on research and design efforts on potential customer products,
that did not result in additional revenue.
Each of our telecommunication network products is designed for a specific range of
frequencies. Because different national governments license different portions of the frequency
spectrum for the telecommunication network market, and because communications service providers
license specific frequencies as they become available, in order to remain competitive we must adapt
our products rapidly to use a wide range of different frequencies. This may require the design of
products at a number of different frequencies simultaneously. This design process can be difficult
and time consuming, could increase our costs and could cause delays in the delivery of products to
our customers, which may harm our reputation and delay or cause us to lose revenues.
Our customers often have specific requirements that can be at the forefront of technological
development and therefore difficult and expensive to develop. If we are not able to devote
sufficient resources to these products, or we experience development difficulties or delays, we
could lose sales and damage our reputation with those customers.
We may not be able to manufacture and deliver our products as quickly as our customers require,
which could cause us to lose sales and would harm our reputation.
We may not be able to manufacture products and deliver them to our customers at the times and
in the volumes they require. Manufacturing delays and interruptions can occur for many reasons,
including, but not limited to:
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the failure of a supplier to deliver needed components on a timely basis or with
acceptable quality;
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lack of sufficient capacity;
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poor manufacturing yields;
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equipment failures;
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manufacturing personnel shortages;
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labor disputes;
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transportation disruptions;
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changes in import/export regulations;
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- 27 -
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infrastructure failures at the facilities of our offshore contract manufacturer;
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natural disasters;
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acts of terrorism; and
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political instability.
|
Manufacturing our products is complex. The yield, or percentage of products manufactured that
conform to required specifications, can decrease for many reasons, including materials containing
impurities, equipment not functioning in accordance with requirements or human error. If our yield
is lower than we expect, we may not be able to deliver products on time. For example, in the past,
we have on occasion experienced poor yields on certain products that have prevented us from
delivering products on time and have resulted in lost sales. If we fail to manufacture and deliver
products in a timely fashion, our reputation may be harmed, we may jeopardize existing orders and
lose potential future sales, and we may be forced to pay penalties to our customers.
As part of our strategy, we may expand our domestic manufacturing capacity beyond the level
required for our current sales in order to accommodate anticipated increases in our defense
electronics business. As a result, our domestic manufacturing facilities may be underutilized from
time to time. Conversely, if we do not maintain adequate manufacturing capacity to meet demand for
our defense electronic products, we may lose opportunities for additional sales. Any failure to
have sufficient manufacturing capacity to meet demand could cause us to lose revenues, thereby
reducing our profitability, or increasing our net losses, and could harm our reputation with
customers.
Though we do have long-term commitments from many of our customers, they are not for fixed
quantities of product. As a result, we must estimate customer demand, and errors in our estimates
could have negative effects on our cash, inventory levels, revenues and results of operations.
We have been required historically to place firm orders for products and manufacturing
equipment with our suppliers up to six months prior to the anticipated delivery date and, on
occasion, prior to receiving an order for the product, based on our forecasts of customer demands.
Our sales process requires us to make multiple demand forecast assumptions, each of which may
introduce error into our estimates. If we overestimate customer demand, we may allocate resources
to manufacturing products that we may not be able to sell when we expect, if at all. As a result,
we would have additional usage of cash, excess inventory and overhead expense, which would harm our
financial results. On occasion, we have experienced adverse financial results due to excess
inventory and excess manufacturing capacity. Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity were available, we would lose revenue opportunities, market
share and damage our customer relationships. On occasion, we have been unable to adequately respond
to unexpected increases in customer purchase orders and were unable to benefit from this increased
demand. There is no guarantee that we will be able to adequately respond to unexpected increases in
customer purchase orders in the future, in which case we may lose the revenues associated with
those additional purchase orders and our customer relationships and reputation may suffer.
Any failure to protect our intellectual property appropriately could reduce or eliminate any
competitive advantage we have.**
Our success depends, in part, on our ability to protect our intellectual property. We rely
primarily on a combination of patent, copyright, trademark and trade secret laws to protect our
proprietary technologies and processes. As of March 31, 2008, we had 42 United States patents
issued, many with associated foreign filings and patents. Our issued patents include those relating
to basic circuit and device designs, semiconductors, our multilithic microsystems technology and
system designs. Our issued United States patents expire between 2008 and 2027. We maintain a
vigorous technology development program that routinely generates potentially patentable
intellectual property. Our decision as to whether to seek formal patent protection is done on a
case by case basis and is based on the economic value of the intellectual property, the anticipated
strength of the resulting patent, the cost of pursuing the patent and an assessment of using a
patent as a strategy to protect the intellectual property.
- 28 -
To protect our intellectual property, we regularly enter into written confidentiality and
assignment of rights to inventions agreements with our employees, and confidentiality and
non-disclosure agreements with third parties, and generally control access to and distribution of
our documentation and other proprietary information. These measures may not be adequate in all
cases to safeguard the proprietary technology underlying our products. It may be possible for a
third party to copy or otherwise obtain and use our products or technology without authorization,
develop similar technology independently or attempt to design around our patents. In addition,
effective patent, copyright, trademark and trade secret protection may be unavailable or limited
outside of the United States, Europe and Japan. We may not be able to obtain any meaningful
intellectual property protection in other countries and territories. Additionally, we may, for a
variety of reasons, decide not to file for patent, copyright, or trademark protection outside of
the United States. Moreover we occasionally agree to incorporate a customers or suppliers
intellectual property into our designs, in which case we have obligations with respect to the
non-use and non-disclosure of that intellectual property. We also license technology from other
companies, including Northrop Grumman Corporation. There are no limitations on our rights to make,
use or sell products we may develop in the future using the chip technology licensed to us by
Northrop Grumman Corporation. Steps taken by us to prevent misappropriation or infringement of our
intellectual property or the intellectual property of our customers may not be successful.
Litigation may be necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of proprietary rights of others, including
our customers. Litigation of this type could result in substantial costs and diversion of our
resources.
We may receive in the future, notices of claims of infringement of other parties proprietary
rights. In addition, the invalidity of our patents may be asserted or prosecuted against us.
Furthermore, in a patent or trade secret action, we could be required to withdraw the product or
products as to which infringement was claimed from the market or redesign products offered for sale
or under development. We have also at times agreed to indemnification obligations in favor of our
customers and other third parties that could be triggered upon an allegation or finding of our
infringement of other parties proprietary rights. These indemnification obligations would be
triggered for reasons including our sale or supply to a customer or other third parties of a
product which was later discovered to infringe upon another partys proprietary rights.
Irrespective of the validity or successful assertion of such claims we would likely incur
significant costs and diversion of our resources with respect to the defense of such claims. To
address any potential claims or actions asserted against us, we may seek to obtain a license under
a third partys intellectual property rights. However, in such an instance, a license may not be
available on commercially reasonable terms, if at all.
With regard to our pending patent applications, it is possible that no patents may be issued
as a result of these or any future applications or the allowed patent claims may be of reduced
value and importance. If they are issued, any patent claims allowed may not be sufficiently broad
to protect our technology. Further, any existing or future patents may be challenged, invalidated
or circumvented thus reducing or eliminating their commercial value. The failure of any patents to
provide protection to our technology might make it easier for our competitors to offer similar
products and use similar manufacturing techniques.
- 29 -
Risks Relating to Our Industry
Our revenues in the defense electronics and homeland security markets largely depend upon the
funding and implementation decisions of Congress and government agencies. These decisions could
change abruptly and without notice, unexpectedly reducing our revenues from these markets.
Our growth is partially dependent on growth in sales to defense electronics and homeland
security prime contractors. Changes in levels of government contract funding and in implementation
of government contracts may cause prime contractors to reduce funding to subcontractors. These
funding and implementation decisions are difficult to predict and may change abruptly. As a
result, our quarterly revenues from prime contractors may fluctuate significantly from quarter to
quarter.
Our failure to compete effectively could reduce our revenues and margins.**
Among merchant suppliers in the telecommunication network market, we primarily compete with
Compel Electronics Inc., Filtronic plc, Microelectronics Technology Inc., Remec Broadband Wireless,
Inc. and Teledyne Technologies Incorporated. In addition to these companies, there are telecom
OEMs, such as Ericsson and NEC Corporation, that use their own captive resources for the design and
manufacture of their high-frequency RF transceiver modules, rather than using merchant suppliers
like us. Additionally, during the first three months of 2008 and in 2007, we experienced a decrease
in revenues from the former Siemens product lines of Nokia Siemens Networks as they increased the
use of their captive resources for the manufacture of their modules. We believe that over one-half
of the high-frequency RF transceiver modules manufactured today are being produced by these captive
resources. To the extent that telecom OEMs presently, or may in the future, produce their own RF
transceiver modules, we lose the opportunity to gain a customer and the potential related sales.
Further, if a telecom OEM were to sell its captive operation to a competitor, we would lose the
opportunity to acquire those potential sales. In the defense electronics and homeland security
markets, we compete both with internal captive groups within many of the large defense OEMs, along
with other companies such as Aeroflex Incorporated, AML Communications Inc., Chelton, Ltd., Ciao
Wireless, CTT Inc., Herley Industries, Inc., KMIC Technology, Inc., M/A-Com, Miteq, Inc. and
Teledyne Technologies Incorporated.
Many of our current and potential competitors are substantially larger than us and have
greater financial, technical, manufacturing and marketing resources. In addition, we have begun
designing and selling products for homeland security applications and the market for homeland
security is only now emerging. If we are unable to compete successfully, our future operations and
financial results will be harmed.
Our failure to comply with any applicable environmental regulations could result in a range of
consequences, including fines, suspension of production, excess inventory, sales limitations and
criminal and civil liabilities.
Due to environmental concerns, the need for lead-free solutions in electronic components and
systems is receiving increasing attention within the electronics industry as companies are moving
towards becoming compliant with the Restriction of Hazardous Substances Directive, or RoHS
Directive. The RoHS Directive is European Union legislation that restricts the use of a number of
substances, including lead, after July 2006. We believe that our products impacted by these
regulations are compliant with the RoHS Directive and that materials will continue to be available
to meet these new regulations. However, it is possible that unanticipated supply shortages or
delays or excess non-compliant inventory may occur as a result of these new regulations. Failure to
comply with any applicable environmental regulations could result in a range of consequences,
including loss of sales, fines, suspension of production, excess inventory and criminal and civil
liabilities.
Government regulation of the communications industry could limit the growth of the markets that we
serve or could require costly alterations of our current or future products.
The markets that we serve are highly regulated. Communications service providers must obtain
regulatory approvals to operate broadband wireless access networks within specified licensed bands
of the frequency spectrum. Further, the Federal Communications Commission and foreign regulatory
agencies have adopted regulations that impose stringent RF emissions standards on the
communications industry. In response to the new environmental
- 30 -
regulations on health and safety in Europe and China, we are required to design and build a
lead-free product. Changes to these regulations may require that we alter the performance of our
products.
Risks Relating to Ownership of Our Stock
The market price of our common stock has fluctuated historically and is likely to fluctuate in the
future.**
The price of our common stock has fluctuated widely since our initial public offering in
October 2000. In the first three months of 2008, the lowest daily closing sales price for our
common stock was $5.70 and the highest daily closing sales price for our common stock was $7.62.
In 2007, the lowest daily closing sales price for our common stock was $5.92 and the highest daily
closing sales price for our common stock was $13.59. The market price of our common stock can
fluctuate significantly for many reasons, including, but not limited to:
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our financial performance or the performance of our competitors;
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the purchase or sale of common stock, short-selling or transactions by
large stockholders;
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technological innovations or other trends or changes in the
telecommunication network, defense electronics or homeland security markets;
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successes or failures at significant product evaluations or site
demonstrations;
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the introduction of new products by us or our competitors;
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acquisitions, strategic alliances or joint ventures involving us or our
competitors;
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decisions by major participants in the communications industry not to
purchase products from us or to pursue alternative technologies;
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decisions by investors to de-emphasize investment categories, groups or
strategies that include our company or industry;
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market conditions in the industry, the financial markets and the economy as
a whole; and
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the low trading volume of our common stock.
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It is likely that our operating results in one or more future quarters may be below the
expectations of security analysts and investors. In that event, the trading price of our common
stock would likely decline. In addition, the stock market has experienced extreme price and volume
fluctuations. These market fluctuations can be unrelated to the operating performance of particular
companies and the market prices for securities of technology companies have been especially
volatile. Future sales of substantial amounts of our common stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for our common stock.
Additionally, future stock price volatility for our common stock could provoke the initiation of
securities litigation, which may divert substantial management resources and have an adverse effect
on our business, operating results and financial condition. Our existing insurance coverage may not
sufficiently cover all costs and claims that could arise out of any such securities litigation. We
anticipate that prices for our common stock will continue to be volatile.
We have a few shareholders that each own a large percentage of our outstanding capital stock and,
as a result of their significant ownership, are able to significantly affect the outcome of matters
requiring stockholder approval.
Oak Technology Partners XI, Limited Partnership, or Oak, owns 300,000 shares of our Series B
preferred stock that are convertible into 3,000,000 shares of our common stock and a warrant to
purchase 90,000 shares of our Series B preferred stock that upon issuance will be convertible into
900,000 shares of our common stock. Assuming the exercise in full of the warrant issued to Oak and
the conversion of Oaks preferred shares into common stock, as
- 31 -
of February 8, 2008, Oak beneficially owned 29.9% of our capital stock. In addition, two other
shareholders each beneficially owned more than 10% of our capital stock on February 8, 2008.
Because most matters requiring approval of our stockholders require the approval of the
holders of a majority of the shares of our outstanding capital stock present in person or by proxy
at the annual meeting, the significant ownership interest of these shareholders allows them to
affect significantly the election of our directors and the outcome of corporate actions requiring
stockholder approval. This concentration of ownership may also delay, deter or prevent a change in
control and may make some transactions more difficult or impossible to complete without their
support, even if the transaction is favorable to our stockholders as a whole.
Our certificate of incorporation, bylaws and arrangements with executive officers contain
provisions that could delay or prevent a change in control.
We are subject to certain Delaware anti-takeover laws by virtue of our status as a Delaware
corporation. These laws prevent us from engaging in a merger or sale of more than 10% of our assets
with any stockholder, including all affiliates and associates of any stockholder, who owns 15% or
more of our outstanding voting stock, for three years following the date that the stockholder
acquired 15% or more of our voting stock, unless our board of directors approved the business
combination or the transaction which resulted in the stockholder becoming an interested
stockholder, or upon consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of our voting stock of the
corporation, or the business combination is approved by our board of directors and authorized by at
least 66 2/3% of our outstanding voting stock not owned by the interested stockholder. A
corporation may opt out of the Delaware anti-takeover laws in its charter documents, however we
have not chosen to do so. Our certificate of incorporation and bylaws include a number of
provisions that may deter or impede hostile takeovers or changes of control of management,
including a staggered board of directors, the elimination of the ability of our stockholders to act
by written consent, discretionary authority given to our board of directors as to the issuance of
preferred stock, and indemnification rights for our directors and executive officers. Additionally,
we have adopted a Stockholder Rights Plan, providing for the distribution of one preferred share
purchase right for each outstanding share of common stock that may lead to the delay or prevention
of a change in control that is not approved by our board of directors. We have an Executive Officer
Severance and Retention Plan and a Key Employee Severance and Retention Plan that provide for
severance payments and the acceleration of vesting of a percentage of certain stock options granted
to our executive officers and certain senior, non-executive employees under specified conditions.
These plans may make us a less attractive acquisition target or may reduce the amount a potential
acquirer may otherwise be willing to pay for our company.
- 32 -
Item 6. Exhibits.
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Number
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Description
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2.1(1)
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Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC
Microwave, Inc. dated April 19, 2007.
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3.1(2)
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Amended and Restated Certificate of Incorporation effective October 20, 2000.
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3.2(3)
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Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.
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3.3(2)
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Amended and Restated Bylaws effective October 20, 2000.
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3.4(4)
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Certificate of Designation for Series A Junior Participating Preferred Stock.
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3.5(5)
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Certificate of Designation for Series B Preferred Stock.
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3.6(6)
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Amendment to Amended and Restated Bylaws.
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3.7(7)
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Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.
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4.1(2)
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Form of specimen Common Stock Certificate.
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4.2(4)
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Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company,
Inc.
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4.3(4)
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Form of Rights Certificate
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4.4(5)
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Preferred Stock and Warrant Purchase Agreement by and between Oak Investment Partners XI, Limited
Partnership and the Registrant dated April 24, 2006.
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4.5(5)
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Warrant issued to Oak Investment Partners XI, Limited Partnership.
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4.6(8)
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Amendment No. 1 to Rights Agreement, dated as of December 21, 2007, between the Registrant and
ComputerShare Trust Company, Inc.
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10.1(2)
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Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.
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10.2(2)*
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1992 Stock Option Plan.
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10.3(2)*
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Form of Incentive Stock Option under 1992 Stock Option Plan.
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10.4(2)*
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Form of Nonstatutory Stock Option under 1992 Stock Option Plan.
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10.5(9)*
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2007 Equity Incentive Plan.
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10.6(10)*
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Form of Stock Option Agreement under 2007 Equity Incentive Plan.
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10.7(10)*
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Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.
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10.8(2)*
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2000 Employee Stock Purchase Plan.
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10.9(2)*
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Form of 2000 Employee Stock Purchase Plan Offering.
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10.10(11)*
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2000 Non-Employee Directors Stock Option Plan, as amended.
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10.11(2)*
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Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.
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10.12(12)*
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Description of Compensation Payable to Non-Employee Directors.
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10.13(12)*
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2008 Base Salaries for Named Executive Officers.
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10.14(12)*
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2008 Executive Incentive Compensation Plan.
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10.15(17)*
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Executive Officer Severance and Retention Plan.
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10.16(2)
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License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.
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10.17(13)
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Purchase Agreement between Nokia and the Registrant dated January 1, 2006.
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10.18(13)
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Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated
January 16, 2006.
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10.19(14)
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Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.
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10.20(14)
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Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant
dated July 25, 2006.
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10.21(15)
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Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October
15, 2006.
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10.22(16)
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Amended and Restated Settlement Agreement by and between the Registrant and Arthur Steinberg, as
receiver for Wood River Capital Management, L.L.C., Wood River Associates, L.L.C., Wood River
Partners, L.P. and Wood River Partners Offshore, Ltd., dated December 20, 2007.
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10.23(8)
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Stock Purchase Agreement, dated December 21, 2007, entered into between the Registrant, Wood River
Partners, L.P., Wood River Partners Offshore, Ltd. and, for the limited purpose set forth therein,
Arthur J. Steinberg, solely in his capacity as Receiver for Wood River Capital Management, L.L.C.,
Wood River Associates, L.L.C., Wood River Partners, L.P. and Wood River Partners Offshore, Ltd. and
not in his individual capacity.
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31.1
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Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(1)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on April 24, 2007 and incorporated herein by reference.
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- 33 -
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(2)
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Previously filed as an exhibit to the Registrants Registration
Statement on Form S-1 (Registration No. 333-41302) and incorporated
herein by reference.
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(3)
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Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 and incorporated herein
by reference.
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(4)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 5, 2005 and incorporated herein by
reference.
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(5)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on April 26, 2006 and incorporated herein by reference.
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(6)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on February 5, 2007 and incorporated herein by
reference.
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(7)
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Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007 and incorporated
herein by reference.
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(8)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 21, 2007 and incorporated herein by
reference.
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(9)
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Previously filed as an appendix to the Registrants Definitive Proxy
Statement on Schedule 14A filed on June 13, 2007 and incorporated
herein by reference.
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(10)
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Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 (Registration No.333-144851) and incorporated
herein by reference.
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(11)
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Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 and incorporated
herein by reference.
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(12)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on February 1, 2008 and incorporated herein by
reference.
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(13)
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Previously filed as an exhibit to the Registrants Registration
Statement on Form S-3 (Registration No.333-144054) and incorporated
herein by reference.
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(14)
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Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006 and incorporated herein
by reference.
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(15)
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Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended December 31, 2006 and incorporated
herein by reference.
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(16)
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Previously filed as an exhibit to the Registrants Current Report on
Form 8-K filed on December 20, 2007 and incorporated herein by
reference.
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(17)
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Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K filed for the fiscal year ended December 31, 2007 and
incorporated herein by reference.
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*
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Indicates a management contract or compensatory plan or arrangement.
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Confidential treatment has been requested for a portion of this exhibit.
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- 34 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Endwave Corporation has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: May 8, 2008
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ENDWAVE CORPORATION
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By:
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/s/ Edward A. Keible, Jr.
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Edward A. Keible, Jr.
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President and Chief Executive Officer
(Duly
Authorized Officer and Principal
Executive Officer)
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By:
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/s/ Brett W. Wallace
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Brett W. Wallace
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Executive Vice President
and Chief Financial Officer
(Duly
Authorized Officer and Principal
Financial
and Accounting Officer)
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- 35 -
Index
to Exhibits
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|
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Number
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|
Description
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31.1
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Certification by Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification by Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certifications of Chief Executive Officer
and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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|
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- 36 -
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