Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 2010
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMMISSION FILE NUMBER: 0-12182
 
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
     
Delaware   95-3647070
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1401 N. Rice Avenue
Oxnard, California
 
93030
(Address of principal executive offices)   (Zip Code)
(805) 987-9000
(Registrant’s 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if a smaller reporting company)    
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 outstanding of the registrant’s common stock as of September 22, 2010 was 28,137,012.
 
 

 

 


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 6. EXHIBITS
SIGNATURE
Exhibit 31.1
Exhibit 31.2
Exhibit 32


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except par value)
                 
    August 31,     February 28,  
    2010     2010  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 4,051     $ 2,986  
Accounts receivable, less allowance for doubtful accounts of $534 and $413 at August 31, 2010 and February 28, 2010, respectively
    13,650       16,520  
Inventories
    11,987       10,608  
Deferred income tax assets
    2,161       2,656  
Prepaid expenses and other current assets
    4,551       4,720  
 
           
Total current assets
    36,400       37,490  
 
           
 
               
Property, equipment and improvements, net of accumulated depreciation and amortization
    2,087       2,055  
Deferred income tax assets, less current portion
    9,686       10,017  
Intangible assets, net
    4,562       5,144  
Other assets
    1,783       2,247  
 
           
 
  $ 54,518     $ 56,953  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Bank working capital line of credit
  $ 7,799     $ 5,901  
Accounts payable
    15,158       16,186  
Accrued payroll and employee benefits
    2,572       2,742  
Deferred revenue
    5,097       4,740  
Other current liabilities
    2,642       3,526  
 
           
Total current liabilities
    33,268       33,095  
 
           
 
               
Long-term debt
    4,315       4,170  
Other non-current liabilities
    546       489  
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity:
               
Preferred stock, $.01 par value; 3,000 shares authorized; no shares issued or outstanding
           
Common stock, $.01 par value; 40,000 shares authorized; 28,137 and 27,662 shares issued and outstanding at August 31, 2010 and February 28, 2010, respectively
    281       277  
Additional paid-in capital
    152,046       151,453  
Accumulated deficit
    (135,072 )     (131,665 )
Accumulated other comprehensive loss
    (866 )     (866 )
 
           
Total stockholders’ equity
    16,389       19,199  
 
           
 
  $ 54,518     $ 56,953  
 
           
See accompanying notes to consolidated financial statements.

 

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CALAMP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
                                 
    Three Months Ended     Six Months Ended  
    August 31,     August 31,  
    2010     2009     2010     2009  
 
                               
Revenues
  $ 29,490     $ 23,940     $ 55,836     $ 46,940  
 
                               
Cost of revenues
    22,122       19,136       42,345       37,429  
 
                       
 
                               
Gross profit
    7,368       4,804       13,491       9,511  
 
                       
 
                               
Operating expenses:
                               
Research and development
    2,779       2,633       5,542       5,531  
Selling
    2,675       2,402       5,297       4,603  
General and administrative
    2,200       2,501       4,709       5,258  
Intangible asset amortization
    276       342       582       683  
 
                       
Total operating expenses
    7,930       7,878       16,130       16,075  
 
                       
 
                               
Operating loss
    (562 )     (3,074 )     (2,639 )     (6,564 )
 
                               
Non-operating income (expense):
                               
Interest expense, net
    (368 )     (174 )     (736 )     (379 )
Loss on sale of investment
          (1,008 )           (1,008 )
Other income (expense), net
          13       (32 )     (249 )
 
                       
Total non-operating expense
    (368 )     (1,169 )     (768 )     (1,636 )
 
                       
 
                               
Loss before income taxes
    (930 )     (4,243 )     (3,407 )     (8,200 )
 
                               
Income tax provision
                       
 
                       
 
                               
Net loss
  $ (930 )   $ (4,243 )   $ (3,407 )   $ (8,200 )
 
                       
 
                               
Basic and diluted loss per share
  $ (0.03 )   $ (0.17 )   $ (0.13 )   $ (0.33 )
 
                       
 
                               
Shares used in computing basic and diluted loss per share
    27,094       24,918       27,038       24,889  
See accompanying notes to consolidated financial statements.

 

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CALAMP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
                 
    Six Months Ended  
    August 31,  
    2010     2009  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net loss
  $ (3,407 )   $ (8,200 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization
    1,253       1,283  
Stock-based compensation expense
    1,004       858  
Amortization of debt issue costs and discount
    268        
Loss on sale of investment
          1,008  
Deferred tax assets, net
    807        
Changes in operating assets and liabilities:
               
Accounts receivable
    2,870       1,534  
Inventories
    (1,379 )     3,529  
Prepaid expenses and other assets
    281       631  
Accounts payable
    (1,028 )     5,324  
Accrued liabilities
    (1,317 )     (2,695 )
Deferred revenue
    677       244  
Other
    9       23  
 
           
NET CASH PROVIDED BY OPERATING ACTIVITIES
    38       3,539  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
    (712 )     (544 )
Proceeds from sale of investment
          992  
Collections on note receivable
    229       150  
Other
          (36 )
 
           
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    (483 )     562  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net proceeds from bank line of credit borrowings
    1,898       1,000  
Debt repayments
          (7,683 )
Taxes paid related to net share settlement of vested equity awards
    (388 )     (105 )
 
           
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    1,510       (6,788 )
 
           
 
               
EFFECT OF EXCHANGE RATE CHANGES ON CASH
          175  
 
           
 
               
Net change in cash and cash equivalents
    1,065       (2,512 )
Cash and cash equivalents at beginning of period
    2,986       6,913  
 
           
Cash and cash equivalents at end of period
  $ 4,051     $ 4,401  
 
           
See accompanying notes to consolidated financial statements.

 

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CALAMP CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2010 AND 2009
NOTE 1 —  
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
CalAmp Corp. (“CalAmp” or the “Company”) develops and markets wireless communications solutions that deliver data, voice and video for critical networked communications and other applications. The Company’s two business segments are Wireless DataCom, which serves utility, governmental and enterprise customers, and Satellite, which focuses on the North American Direct Broadcast Satellite market.
The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal 2010 fell on February 27, 2010. The actual interim periods ended on August 28, 2010 and August 29, 2009. In the accompanying unaudited consolidated financial statements, the 2010 fiscal year end is shown as February 28 and the interim period end for both years is shown as August 31 for clarity of presentation.
Certain notes and other information are condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on May 6, 2010.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company’s financial position at August 31, 2010 and its results of operations for the three and six months ended August 31, 2010 and 2009. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year.
All significant intercompany transactions and accounts have been eliminated in consolidation.
Certain amounts in the financial statements of the prior year have been reclassified to conform to the fiscal 2011 presentation with no effect on net earnings.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate:
Cash and cash equivalents, accounts receivable and accounts payable — The carrying amount is a reasonable estimate of fair value given the short maturity of these instruments.
Debt — The estimated fair value of the Company’s bank debt approximates the carrying value of such debt because the interest rate is variable and is market-based. The estimated fair value of the Company’s 12% subordinated promissory notes due December 22, 2012 approximates the carrying value of this debt, such carrying value consisting of the $5 million face amount of the notes less a debt discount comprised of the unamortized fair value of the stock purchase warrants that were issued with the notes.
Recent Authoritative Pronouncements
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. ASU No. 2009-13 will be effective for the Company’s fiscal year 2012 with early adoption permitted. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

 

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Also in October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements.” ASU No. 2009-14 modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. ASC No. 2009-14 will be effective for the Company’s fiscal year 2012 with early adoption permitted. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
NOTE 2 — INVENTORIES
Inventories consist of the following (in thousands):
                 
    August 31,     February 28,  
    2010     2010  
Raw materials
  $ 10,129     $ 9,483  
Work in process
    342       209  
Finished goods
    1,516       916  
 
           
 
  $ 11,987     $ 10,608  
 
           
NOTE 3 — INTANGIBLE ASSETS
Intangible assets are comprised as follows (in thousands):
                                                         
            August 31, 2010     February 28, 2010  
                    Accum-                     Accum-        
            Gross     ulated             Gross     ulated        
    Amortization     Carrying     Amortiz-             Carrying     Amortiz-        
    Period     Amount     ation     Net     Amount     ation     Net  
Developed/core technology
  5-7 years   $ 3,101     $ 1,430     $ 1,671     $ 3,101     $ 1,054     $ 2,047  
Customer lists
  5-7 years     1,339       656       683       1,339       475       864  
Covenants not to compete
  4-5 years     138       87       51       138       66       72  
Patents
  4-5 years     39       12       27       39       8       31  
Tradename
  Indefinite     2,130             2,130       2,130             2,130  
 
                                           
 
          $ 6,747     $ 2,185     $ 4,562     $ 6,747     $ 1,603     $ 5,144  
 
                                           
Amortization expense of intangible assets was $276,000 and $342,000 for the three months ended August 31, 2010 and 2009, respectively, and was $582,000 and $683,000 for the six-month periods then ended. All intangible asset amortization expense was attributable to the Wireless DataCom business.
Estimated future amortization expense for the fiscal years ending February 28 is as follows (in thousands):
         
2011 (remainder)
  $ 551  
2012
  $ 990  
2013
  $ 732  
2014
  $ 159  

 

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NOTE 4 — FINANCING ARRANGEMENTS
Bank Working Capital Line of Credit
On December 22, 2009, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Square 1 Bank. This revolving credit facility has a two-year term and provides for borrowings up to the lesser of $12 million or 85% of the Company’s eligible accounts receivable. Outstanding borrowings under this facility bear interest at Square 1 Bank’s prime rate plus 2.0%, subject to minimum interest of 6.0% per annum or $20,000 per month, whichever is greater. Interest is payable on the last day of each calendar month. Outstanding borrowings on the revolver at August 31, 2010 and February 28, 2010 amounted to $7,799,000 and $5,901,000, respectively. At August 31, 2010 and February 28, 2010, the effective interest rate on the revolver was 6.0%.
The Loan Agreement contains a financial covenant that requires the Company to maintain minimum levels of earnings before interest, income taxes, depreciation, amortization and other noncash charges (“EBITDA”) on a rolling six-month basis. The Loan Agreement also provides for a number of customary events of default, including a provision that a material adverse change constitutes an event of default that permits the lender, at its option, to accelerate the loan. Among other provisions, the Loan Agreement requires a lock-box and cash collateral account whereby cash remittances from the Company’s customers are directed to the cash collateral account and which amounts are applied to reduce the revolving loan principal balance. Borrowings under the Loan Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries.
Long-Term Debt
Long-term debt is comprised of the following (in thousands):
                 
    August 31,     February 28,  
    2010     2010  
Subordinated promissory notes due December 22, 2012
  $ 5,000     $ 5,000  
Less unamortized discount
    (685 )     (830 )
 
           
 
  $ 4,315     $ 4,170  
 
           
On December 22, 2009 and January 15, 2010, the Company raised a total of $5,000,000 from the issuance of subordinated debt (the “Subordinated Notes”), including $325,000 of Subordinated Notes that were sold to three investors affiliated with the Company. The Subordinated Notes bear interest at 12% per annum and have a maturity date of December 22, 2012. Interest is payable semiannually on the last banking day of June and December, and all Subordinated Note principal is payable at the maturity date. The discount on long-term debt represents the unamortized fair value of the warrants issued to the holders of the promissory notes in the original amount of $870,000. The fair value was estimated using the Black-Scholes option pricing model. This discount is being amortized on a straight-line basis to interest expense over the three-year term of the Subordinated Notes.
The Company also incurred debt issue costs of $543,000 on the Square 1 Bank credit facility and the Subordinated Notes. These costs are being amortized on a straight-line basis to interest expense over an average period of approximately 2.8 years. These debt issue costs, net of amortization, are included in Other Assets in the consolidated balance sheets at August 31, 2010 and February 28, 2010.
NOTE 5 — INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and for income tax purposes. A deferred income tax asset is recognized if realization of such asset is more likely than not, based upon the weight of available evidence that includes historical operating performance and the Company’s forecast of future operating performance. The Company evaluates the realizability of its deferred income tax assets and a valuation allowance is provided, as necessary. During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is needed.

 

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On March 1, 2007, the Company adopted the provisions of ASC 740, Income Taxes (formerly FIN 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109) (“ASC 740”), which clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Management determined based on its evaluation of the Company’s income tax positions that it has one uncertain tax position relating to federal research and development (“R&D”) tax credits of $1.3 million at August 31, 2010 and February 28, 2010 for which the Company has not recognized an income tax benefit for financial reporting purposes. Assuming these tax benefits were recognized at the present time, such amount would be offset by an equal increase in the deferred income tax valuation allowance because the Company has recorded a full valuation allowance against its recognized federal R&D tax credits due to uncertainty as to future realization. The fully reserved recognized federal R&D tax credit balance as of August 31, 2010 and February 28, 2010 was $2.5 million.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. Income tax returns filed for fiscal years 2005 and earlier are not subject to examination by U.S. federal and state tax authorities. Certain income tax returns for fiscal years 2006 through 2010 remain open to examination by U.S federal and state tax authorities. The income tax returns filed by the Company’s French subsidiary for fiscal years 2004 through 2007 are currently being examined by French tax authorities. Certain income tax returns for fiscal years 2007 through 2010 remain open to examination by Canada federal and Quebec provincial tax authorities. The Company believes that it has made adequate provision for all income tax obligations pertaining to these open tax years.
At August 31, 2010, the Company had net deferred income tax assets of $11,847,000. The current portion of the deferred tax assets is $2,161,000 and the noncurrent portion is $9,686,000. The net deferred income tax asset balance is comprised of gross deferred tax assets of $54.3 million and a valuation allowance of $42.5 million.
During the quarter ended August 31, 2010, the Company received $807,000 for recouping U.S. federal income taxes paid in the 5 years preceding its fiscal year 2008. The Worker, Homeownership, and Business Assistance Act of 2009 (“WHBAA”) provided for a Net Operating Loss (“NOL”) carryback of up to 5 years for NOLs incurred in taxable years beginning or ending in either 2008 or 2009 (but not both). The carry back provision also qualified for Alternative Minimum Tax (“AMT”). Use of an AMT NOL is limited to 90% of alternative minimum taxable income, however, the WHBAA legislation suspended the 90% limitation on the use of any AMT NOL for the carryback period. Approximately 75% of the $807,000 tax refund relates to federal AMT paid in prior years, and the remainder represents regular federal taxes paid. The $807,000 tax refund was recorded as a reduction of deferred income tax assets.
No tax benefit was recorded during the three and six-month periods ended August 31, 2010 and 2009 because the future realizability of such benefit was not considered to be more likely than not.
NOTE 6 — EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. In computing diluted earnings per share, the treasury stock method assumes that outstanding options are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options will have a dilutive effect under the treasury stock method only when the Company reports net income and the average market price of the common stock during the period exceeds the exercise price of the options.
The weighted average number of common shares outstanding was the same amount for both basic and diluted loss per share for all periods presented. Potentially dilutive securities outstanding in the amount of 5,107,000 and 4,297,000 at August 31, 2010 and 2009, respectively, were excluded from the computation of diluted earnings per share because the Company reported a net loss and the effect of inclusion would be antidilutive (i.e., including such securities would result in a lower loss per share). These potentially dilutive securities consist of options, warrants, nonvested restricted stock, and nonvested restricted stock units (“RSUs”).

 

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NOTE 7 — COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the total of net income (loss) and all non-owner changes in equity. The following table details the components of comprehensive loss for the three and six months ended August 31, 2010 and 2009 (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    August 31,     August 31,  
    2010     2009     2010     2009  
Net loss
  $ (930 )   $ (4,243 )   $ (3,407 )   $ (8,200 )
Foreign currency translation adjustments
          (4 )           256  
 
                       
Comprehensive loss
  $ (930 )   $ (4,247 )   $ (3,407 )   $ (7,944 )
 
                       
NOTE 8 — STOCK-BASED COMPENSATION
Stock-based compensation expense is included in the following captions of the unaudited consolidated statements of operations (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    August 31,     August 31,  
    2010     2009     2010     2009  
Cost of revenues
  $ 34     $ 27     $ 73     $ 48  
Research and development
    74       65       153       125  
Selling
    60       30       100       51  
General and administrative
    313       324       678       634  
 
                       
 
  $ 481     $ 446     $ 1,004     $ 858  
 
                       
Changes in the Company’s outstanding stock options during the six months ended August 31, 2010 were as follows:
                 
    Number of     Weighted  
    Options     Average  
    (in 000s)     Option Price  
Outstanding at February 28, 2010
    2,023     $ 5.82  
Granted
    186       2.34  
Exercised
           
Forfeited or expired
    (51 )     20.88  
 
           
Outstanding at August 31, 2010
    2,158     $ 5.17  
 
           
Exercisable at August 31, 2010
    1,406     $ 6.75  
 
           

 

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Changes in the Company’s unvested restricted stock shares and RSUs during the six months ended August 31, 2010 were as follows:
                 
    Number of     Weighted  
    Shares     Average Grant  
    and RSUs     Date Fair  
    (in 000s)     Value  
Outstanding at February 28, 2010
    1,784     $ 2.06  
Granted
    863       2.34  
Vested
    (528 )     2.17  
Forfeited
    (40 )     1.88  
 
           
Outstanding at August 31, 2010
    2,079     $ 2.15  
 
           
During the six months ended August 31, 2010, the Company retained 163,341 of the vested restricted stock shares and RSUs to cover the required amount of employee withholding taxes in the amount of $388,000.
As of August 31, 2010, there was $4.4 million of total unrecognized stock-based compensation cost related to nonvested stock options, restricted stock and RSUs. That cost is expected to be recognized as an expense over a weighted-average remaining vesting period of 2.8 years.
NOTE 9 — CONCENTRATION OF RISK
Because the Company sells into markets dominated by a few large service providers, a significant percentage of consolidated revenues and consolidated accounts receivable relate to a small number of customers. One customer of the Company’s Satellite business unit accounted for 38% and 41%, respectively, of consolidated revenues for the quarters ended August 31, 2010 and 2009, respectively, and accounted for 39% and 41% of consolidated revenues for the six-month periods then ended. This customer also accounted for 36% and 48% of consolidated net accounts receivable at August 31, 2010 and February 28, 2010, respectively. No other customer accounted for 10% or more of consolidated revenues for the three and six months ended August 31, 2010 or 2009.
Some of the Company’s components, assemblies and electronic manufacturing services are purchased from sole source suppliers. One supplier, which functions as an independent foreign procurement agent, accounted for approximately 50% of the Company’s total inventory purchases in the six months ended August 31, 2010 and 2009. At August 31, 2010, this supplier accounted for 66% of the Company’s total accounts payable balance.
NOTE 10 — PRODUCT WARRANTIES
The Company generally warrants its products against defects over periods ranging from 3 to 24 months. An accrual for estimated future costs relating to products returned under warranty is recorded as an expense when products are shipped. At the end of each quarter, the Company adjusts its liability for warranty claims based on its actual warranty claims experience as a percentage of revenues for the preceding three years and also considers the impact of the known operational issues that may have a greater impact than historical trends. Activity in the accrued warranty costs liability for the six months ended August 31, 2010 and 2009 is as follows (in thousands):
                 
    Six Months Ended  
    August 31,  
    2010     2009  
 
Balance at beginning of period
  $ 1,231     $ 3,286  
Charged to costs and expenses
    360       350  
Deductions
    (853 )     (979 )
 
           
Balance at end of period
  $ 738     $ 2,657  
 
           
Accrued warranty costs are included in Other Current Liabilities in the consolidated balance sheets at August 31, 2010 and February 28, 2010.

 

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NOTE 11 — OTHER FINANCIAL INFORMATION
“Net cash provided by operating activities” in the unaudited consolidated statements of cash flows includes cash payments (receipts) for interest and income taxes as follows (in thousands):
                 
    Six Months Ended  
    August 31,  
    2010     2009  
 
               
Interest paid
  $ 537     $ 385  
Net income tax refunds received
  $ (806 )   $ (7 )
Other Non-Current Liabilities
Other non-current liabilities consist of the following (in thousands):
                 
    August 31,     February 28,  
    2010     2010  
Deferred rent
  $ 20     $ 88  
Deferred revenue
    526       401  
 
           
 
  $ 546     $ 489  
 
           
NOTE 12 — SEGMENT INFORMATION
Segment information for the three and six months ended August 31, 2010 and 2009 is as follows (dollars in thousands):
                                                                 
    Three Months Ended August 31, 2010     Three Months Ended August 31, 2009  
    Operating Segments                     Operating Segments              
    Satellite     Wireless
DataCom
    Corporate     Total     Satellite     Wireless
DataCom
    Corporate     Total  
 
                                                               
Revenues
  $ 11,416     $ 18,074             $ 29,490     $ 9,964     $ 13,976             $ 23,940  
Gross profit
  $ 1,145     $ 6,223             $ 7,368     $ 331     $ 4,473             $ 4,804  
Gross margin
    10.0 %     34.4 %             25.0 %     3.3 %     32.0 %             20.1 %
Operating income (loss)
  $ 31     $ 618     $ (1,211 )   $ (562 )   $ (728 )   $ (1,299 )   $ (1,047 )   $ (3,074 )
                                                                 
    Six Months Ended August 31, 2010     Six Months Ended August 31, 2009  
    Operating Segments                     Operating Segments              
    Satellite     Wireless
DataCom
    Corporate     Total     Satellite     Wireless
DataCom
    Corporate     Total  
 
                                                               
Revenues
  $ 21,943     $ 33,893             $ 55,836     $ 19,213     $ 27,727             $ 46,940  
Gross profit
  $ 1,938     $ 11,553             $ 13,491     $ 758     $ 8,753             $ 9,511  
Gross margin
    8.8 %     34.1 %             24.2 %     3.9 %     31.6 %             20.3 %
Operating income (loss)
  $ (239 )   $ 111     $ (2,511 )   $ (2,639 )   $ (1,345 )   $ (2,943 )   $ (2,276 )   $ (6,564 )

 

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The Company considers operating income (loss) to be the primary measure of profit or loss of its business segments. The amount shown for each period in the “Corporate” column above for operating income (loss) consists of corporate expenses not allocated to the business segments. Unallocated corporate expenses include salaries and benefits of all executive officers, certain other corporate staff, and corporate expenses such as audit fees, investor relations, stock listing fees, director and officer liability insurance, and director fees and expenses.
Corporate expenses include stock-based compensation expense of $278,000 and $223,000 in the three- month periods ended August 31, 2010 and 2009, respectively, and $585,000 and $441,000, respectively, in the six-month periods then ended.
NOTE 13 — COMMITMENTS AND CONTINGENCIES
DBS Product Field Performance Issues
During 2007 a product performance issue arose involving certain DBS equipment manufactured by the Company for a certain customer. After examining the various component parts used in the manufacture of these products, it was determined by the Company that the performance issue was the result of a deterioration of the printed circuit board (PCB) laminate material used in these products. In fiscal 2008, the Company recorded a charge of $17.9 million for this matter. In addition to returning product, in May 2007 this DBS customer put on hold all orders for CalAmp products, including newer generation products, pending the requalification of all products manufactured by the Company for this customer. In December 2007, the Company entered into a settlement agreement with this customer. Under the terms of the settlement agreement, the Company agreed to rework certain DBS products returned by the customer through March 14, 2009. The Company also agreed to provide extended warranty periods for workmanship (18 months) and product failures due to the issue with the PCB laminate material (36 months). In January 2008, the customer requalified CalAmp’s designs for the affected products and in May 2008 the Company resumed product shipments to this customer.
At August 31, 2010, the Company has aggregate remaining reserves of $1.4 million for this matter, of which $0.5 million is an inventory reserve, $0.5 million is a vendor commitment liability included in Other Current Liabilities, and the remaining $0.4 million is a reserve for accrued warranty costs that is also included in Other Current Liabilities. The Company believes that its reserves as of August 31, 2010 of $1.4 million will be adequate to cover the full resolution of this matter.
Legal Proceedings
In November 2008, a class action lawsuit was filed in the Los Angeles County Superior Court against CalAmp, the former owner of CalAmp’s Aercept business, and one of Aercept’s distributors. The lawsuit alleged that Aercept made misrepresentations when the plaintiffs purchased analog vehicle tracking devices in 2005, which was prior to CalAmp’s acquisition of Aercept in an asset purchase. In April 2010, the parties entered into a settlement agreement on terms and conditions that did not have a material impact on CalAmp’s financial condition or results of operations. On August 4, 2010, the Court granted final approval of the settlement.
In December 2009, a patent infringement suit was filed against the Company in the Northern District of Georgia. The suit alleged infringement of four U.S. patents. On June 14, 2010, the plaintiff filed with the court a notice of voluntary dismissal without prejudice of this lawsuit.
In addition to the foregoing matters, the Company from time to time is a party, either as plaintiff or defendant, to various legal proceedings and claims that arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated financial position or results of operations.

 

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ITEM 2.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Actual results could differ materially from these estimates. The critical accounting policies listed below affect the Company’s more significant accounting judgments and estimates used in the preparation of the consolidated financial statements. These policies are described in greater detail in Management’s Discussion and Analysis (“MD&A”) under Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended February 28, 2010 as filed with the Securities and Exchange Commission on May 6, 2010 and include the following areas:
   
Allowance for doubtful accounts;
 
   
Inventory write-downs;
 
   
Product warranties;
 
   
Deferred income tax and uncertain tax position;
 
   
Impairment assessments of purchased intangible assets and other long-lived assets;
 
   
Stock-based compensation expense; and
 
   
Revenue recognition.
RESULTS OF OPERATIONS
Overview
CalAmp Corp. (“CalAmp” or the “Company”) develops and markets wireless communications solutions that deliver data, voice and video for critical networked communications and other applications.
The Company’s two business segments are Wireless DataCom, which serves utility, governmental and enterprise customers, and Satellite, which focuses on the North American Direct Broadcast Satellite market.
WIRELESS DATACOM
The Wireless DataCom segment provides wireless communications technologies, products and services to the wireless networks and mobile resource management markets for a wide range of applications. CalAmp has expertise in designing and providing applications involving various combinations of private and public (cellular infrastructure) networks, narrow-band and broad-band frequencies, licensed and unlicensed radio spectrum, and mobile and fixed-remote communications. The Company’s Wireless DataCom segment is comprised of a Wireless Networks business and a Mobile Resource Management (“MRM”) business.
SATELLITE
The Company’s DBS reception products have historically been sold to the two U.S. DBS system operators, EchoStar and DirecTV, for incorporation into complete subscription satellite television systems. However, during fiscal 2010 and the first half of fiscal 2011 the Company has not sold any products to DirecTV due to pricing and competitive pressures on older generation products and the time required to get the next generation products qualified with this customer. The Company is currently developing next generation products for DirecTV and is targeting initial deliveries of one such product in the fourth quarter of this fiscal year.

 

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Operating Results by Business Segment
The Company’s revenue, gross profit and operating loss by business segment are as follows:
REVENUE BY SEGMENT
                                                                 
    Three Months Ended August 31,     Six Months Ended August 31,  
    2010     2009     2010     2009  
            % of             % of             % of             % of  
    $000s     Total     $000s     Total     $000s     Total     $000s     Total  
Segment
                                                               
Satellite
  $ 11,416       38.7 %   $ 9,964       41.6 %   $ 21,943       39.3 %   $ 19,213       40.9 %
Wireless DataCom
    18,074       61.3 %     13,976       58.4 %     33,893       60.7 %     27,727       59.1 %
 
                                               
Total
  $ 29,490       100.0 %   $ 23,940       100.0 %   $ 55,836       100.0 %   $ 46,940       100.0 %
 
                                               
GROSS PROFIT BY SEGMENT
                                                                 
    Three Months Ended August 31,     Six Months Ended August 31,  
    2010     2009     2010     2009  
            % of             % of             % of             % of  
    $000s     Total     $000s     Total     $000s     Total     $000s     Total  
Segment
                                                               
Satellite
  $ 1,145       15.5 %   $ 331       6.9 %   $ 1,938       14.4 %   $ 758       8.0 %
Wireless DataCom
    6,223       84.5 %     4,473       93.1 %     11,553       85.6 %     8,753       92.0 %
 
                                               
Total
  $ 7,368       100.0 %   $ 4,804       100.0 %   $ 13,491       100.0 %   $ 9,511       100.0 %
 
                                               
OPERATING INCOME (LOSS) BY SEGMENT
                                                                 
    Three Months Ended August 31,     Six Months Ended August 31,  
    2010     2009     2010     2009  
            % of             % of             % of             % of  
            Total             Total             Total             Total  
    $000s     Revenue     $000s     Revenue     $000s     Revenue     $000s     Revenue  
Segment
                                                               
Satellite
  $ 31       0.1 %   $ (728 )     (3.0 %)   $ (239 )     (0.4 %)   $ (1,345 )     (2.9 %)
Wireless DataCom
    618       2.1 %     (1,299 )     (5.4 %)     111       0.2 %     (2,943 )     (6.3 %)
Corporate expenses
    (1,211 )     (4.1 %)     (1,047 )     (4.4 %)     (2,511 )     (4.5 %)     (2,276 )     (4.8 %)
 
                                               
Total
  $ (562 )     (1.9 %)   $ (3,074 )     (12.8 %)   $ (2,639 )     (4.7 %)   $ (6,564 )     (14.0 %)
 
                                               
Revenue
Satellite revenue increased $1.4 million, or 15%, to $11.4 million in the three months ended August 31, 2010 from $10.0 million for the same period in the previous fiscal year. As discussed above, the Company’s historically largest DBS customer put on hold all orders with the Company in 2007, including orders for newer generation products, pending a requalification of all products manufactured by CalAmp for this customer. In 2008, the customer requalified CalAmp’s designs for the affected products and the Company resumed product shipments to this customer. Revenues from this DBS customer were $1.2 million higher for the quarter ended August 31, 2010 compared to the quarter ended August 31, 2009 because the business with this customer was still ramping up last year.
For the six months ended August 31, 2010, Satellite revenue increased $2.7 million, or 14%, to $21.9 million from $19.2 million for the same period of the prior year. Revenues from the Company’s historically largest DBS customer were $2.5 million higher for the six months ended August 31, 2010 compared to the same period last year due to the reasons cited above.
Wireless DataCom revenue increased by $4.1 million, or 29%, to $18.1 million in the second quarter of fiscal 2011 compared to the fiscal 2010 second quarter. For the six months ended August 31, 2010, Wireless DataCom revenue increased by $6.2 million, or 22%, to $33.9 million compared to the same period of the prior year. The revenue improvement was predominantly related to the MRM business and was attributable to the addition of new customers and growth in orders from existing customers.

 

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Gross Profit and Gross Margins
Satellite gross profit increased by $814,000 to $1.1 million in the fiscal 2011 second quarter compared to the second quarter of last year. Satellite’s gross margin improved to 10.0% in the second quarter of fiscal 2011 from 3.3% in the second quarter of fiscal 2010 due primarily to increased absorption of fixed manufacturing costs on higher satellite revenue. Gross profit and gross margin in the second quarter of fiscal 2011 also benefited from royalty income of $200,000 that had no corresponding cost of revenue.
The Satellite segment had gross profit of $1.9 million for the six months ended August 31, 2010, compared with gross profit of $758,000 for the same period last year. The increase in gross profit is primarily attributable to the increase in revenue. Satellite gross margin was 8.8% for the six months ended August 31, 2010, compared to 3.9% for the same period last year. Gross margin for the latest six-month period improved year-over-year for the same reasons cited above.
Wireless DataCom gross profit increased by $1.8 million to $6.2 million in the fiscal 2011 second quarter compared to $4.4 million in the second quarter of last year. Wireless DataCom’s gross margin improved to 34.4% in the second quarter of fiscal 2011 from 32.0% in the second quarter of fiscal 2010 due primarily to increased absorption of fixed manufacturing costs on higher revenue.
Wireless DataCom gross profit increased 32% to $11.6 million in the six months ended August 31, 2010, compared to $8.8 million for the same period of the prior year. Wireless DataCom gross margin increased from 31.6% in the first half of fiscal 2010 to 34.1% in the first half of fiscal 2011 due primarily to higher revenue.
See also Note 12 to the accompanying unaudited consolidated financial statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development (“R&D”) expense increased by $146,000 to $2,779,000 in the second quarter of fiscal 2011 from $2,633,000 last year. Almost $100,000 of this increase is due to development expenses incurred by the Satellite segment on new products. For both of the six-month year-to-date periods, consolidated R&D expense was $5.5 million.
Consolidated selling expenses increased by $273,000 to $2,675,000 in the second quarter of this year from $2,402,000 last year. For the six-month year-to-date periods, selling expenses increased by $694,000 from $4,603,000 last year to $5,297,000 this year. These year-over-year increases are due primarily to higher incentive and commission expense on the higher revenue level, increased salaries expense and higher travel expenses.
Consolidated general and administrative expenses (“G&A”) decreased by $301,000 to $2,200,000 in the second quarter of this year compared to the prior year. For the six-month periods, consolidated G&A decreased by $549,000 to $4,709,000 for fiscal 2011 from $5,258,000 last year. These year-over-year decreases are due to workforce reductions and other cost cutting actions implemented by the Company.
Amortization of intangibles decreased from $342,000 in the second quarter of last year to $276,000 in the second quarter of this year. The reduction is attributable to some intangible assets becoming fully amortized during the first half of this year. For the six-month periods, amortization of intangibles decreased to $582,000 from $683,000 last year.
Non-operating Expense, Net
Non-operating expense decreased $801,000 from the second quarter of last year to the second quarter of this year. This decrease was primarily due to a loss of $1.0 million on the sale of an investment in the preferred stock of a privately held company in the second quarter of last year, partially offset by an increase in net interest expense of $194,000. The higher interest expense in the second quarter of this year was attributable to the 6% per annum minimum interest on the bank revolving credit facility, the 12% interest per annum fixed interest on the Subordinated Notes, and the interest expense from amortization of debt issue costs and debt discount as discussed in Note 4 to the accompanying unaudited consolidated financial statements.
Non-operating expense was $768,000 in the six months ended August 31, 2010, compared to non-operating expense of $1,636,000 in the six months ended August 31, 2009. The decrease was due to the aforementioned loss of sale of investment of $1.0 million last year and the $205,000 reduction of foreign currency loss from $246,000 last year to $41,000 this year, partially offset by an increase in net interest expense of $357,000. The increase in net interest expense was due to the reasons noted above.

 

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Income Tax Provision
There was no tax benefit recorded during the three and six months ended August 31, 2010 and 2009 because future realizability of such benefit was not considered to be more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its cash and cash equivalents, which amounted to $4,051,000 at August 31, 2010, and the working capital line of credit with Square 1 Bank. During the six months ended August 31, 2010, cash and cash equivalents increased by $1,065,000. Cash was provided by net borrowings on the bank line of credit of $1,898,000 and collections on a note receivable of $229,000, partially offset by capital expenditures of $712,000 and employee withholding taxes paid related to net share settlement of vested equity awards of $388,000.
On December 22, 2009, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Square 1 Bank. This revolving credit facility has a two-year term and provides for borrowings up to the lesser of $12 million or 85% of the Company’s eligible accounts receivable. Outstanding borrowings under this facility bear interest at Square 1 Bank’s prime rate plus 2.0%, subject to minimum interest of 6.0% per annum or $20,000 per month, whichever is greater. Interest is payable on the last day of each calendar month. At August 31, 2010, the Company had outstanding borrowings under this facility of $7,799,000, and the amount available to borrow at that date amounted to $2,405,000. At August 31, 2010 and February 28, 2010, the effective interest rate on the revolver was 6.0%.
The Loan Agreement contains a financial covenant that requires the Company to maintain minimum levels of earnings before interest, income taxes, depreciation, amortization and other noncash charges (“EBITDA”). The Loan Agreement also provides for a number of customary events of default, including a provision that a material adverse change constitutes an event of default that permits the lender, at its option, to accelerate the loan. Among other provisions, the Loan Agreement requires a lock-box and cash collateral account whereby cash remittances from the Company’s customers are directed to the cash collateral account and which amounts are applied to reduce the revolving loan principal balance. Borrowings under the Loan Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries.
On December 22, 2009 and January 15, 2010, the Company raised a total of $5,000,000 from the issuance of subordinated debt (the “Subordinated Notes”), including $325,000 of Subordinated Notes that were sold to three investors affiliated with the Company. The Subordinated Notes bear interest at 12% per annum and have a maturity date of December 22, 2012. Interest is payable semiannually on the last day of June and December, and all Subordinated Note principal is payable at the maturity date.
At August 31, 2010 the Company had aggregate reserves of $1.4 million for a DBS product performance issue as described in Note 13 to the accompanying unaudited consolidated financial statements. While the Company believes that these reserves will be adequate to cover the remaining product rework costs under the settlement agreement reached with the particular customer and vendor commitment liabilities for materials not expected to be utilizable in the future, no assurances can be given that the ultimate costs will not materially increase from the current estimates. Substantially all of the cash impact of these reserves is anticipated to occur over the next 12 months.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q which include, without limitation, statements relating to the Company’s plans, strategies, objectives, expectations, intentions, projections and other information regarding future performance, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “may”, “will”, “could”, “plans”, “intends”, “seeks”, “believes”, “anticipates”, “expects”, “estimates”, “judgment”, “goal”, and variations of these words and similar expressions, are intended to identify forward-looking statements. These forward-looking statements reflect the Company’s current views with respect to future events and financial performance and are subject to certain risks and uncertainties, including, without limitation, product demand, market growth, competitive pressures and pricing declines in the Company’s Satellite and Wireless markets, supplier constraints, manufacturing yields, the length and extent of the global economic downturn that has and may continue to adversely affect the Company’s business, and other risks and uncertainties that are set forth under the caption “Risk Factors” in Part I, Item 1A of the Annual Report on Form 10-K for the year ended February 28, 2010 as filed with the Securities and Exchange Commission on May 6, 2010. Such risks and uncertainties could cause actual results to differ materially from historical or anticipated results. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. A cumulative foreign currency translation loss of $866,000 related to the Company’s Canadian and French subsidiaries is included in accumulated other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet at August 31, 2010 and February 28, 2010. Foreign currency gains of $2,000 and $23,000 were included in the consolidated statements of operations for the three months ended August 31, 2010 and 2009, respectively. Foreign currency losses of $41,000 and $246,000 were included in the consolidated statements of operations for the six months ended August 31, 2010 and 2009, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent in the interest rate on the $12 million revolving credit facility with Square 1 Bank would have an annual impact of approximately $70,000 net of tax on the Company’s consolidated statement of operations assuming that the full amount of the facility was borrowed. The Subordinated Notes in the aggregate amount of $5,000,000 bear a fixed rate of interest and hence are not subject to interest rate risk.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s principal executive officer and principal financial officer have concluded, based on their evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the “Exchange Act”)) as of the end of the period covered by this Report, that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission.
Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION
ITEM 1.  
LEGAL PROCEEDINGS
In November 2008, a class action lawsuit was filed in the Los Angeles County Superior Court against CalAmp, the former owner of CalAmp’s Aercept business and one of Aercept’s distributors. The lawsuit alleged that Aercept made misrepresentations when the plaintiffs purchased analog vehicle tracking devices in 2005, which was prior to CalAmp’s acquisition of Aercept in an asset purchase. In April 2010, the parties entered into a settlement agreement on terms and conditions that did not have a material impact on CalAmp’s financial condition or results of operations for fiscal 2010. On August 4, 2010, the Court granted final approval of the settlement.
In December 2009, a patent infringement suit was filed against the Company in the Northern District of Georgia. The suit alleged infringement of four U.S. patents. On June 14, 2010, the plaintiff filed with the court a notice of voluntary dismissal without prejudice of this lawsuit.
ITEM 1A.  
RISK FACTORS
The reader is referred to Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended February 28, 2010 as filed with the Securities and Exchange Commission on May 6, 2010, for a discussion of factors that could materially affect the Company’s business, financial condition or future results.
ITEM 6.  
EXHIBITS
     
Exhibit 31.1 -  
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
 
Exhibit 31.2 -  
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
 
Exhibit 32 -  
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
October 6, 2010
      /s/ Richard K. Vitelle    
 
           
Date
      Richard K. Vitelle    
 
      Vice President Finance & CFO    
 
      (Principal Financial Officer and
Chief Accounting Officer)
   

 

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