UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 28, 2002

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 000-31231

Repeater Technologies, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		77-0535658
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1150 Morse Avenue

Sunnyvale, California 94089

(Address of principal executive offices)

(408) 747-1900

(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 periods 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

The number of shares of the Registrant’s common stock outstanding as of August 1, 2002 was 23,914,052.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures of Market Risk
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
EXHIBIT 10.19
EXHIBIT 99.1

INDEX


		Page

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)		2
	Condensed Consolidated Balance Sheets		2
	Condensed Consolidated Statements of Operations		3
	Condensed Consolidated Statements of Cash Flows		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
	Risks That Could Affect Future Results		21
Item 3.	Quantitative and Qualitative Disclosures of Market Risk		31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		31
Item 2.	Changes in Securities and Use of Proceeds		32
Item 3.	Defaults Upon Senior Securities		32
Item 4.	Submission of Matters to a Vote of Security Holders		32
Item 5.	Other Information		32
Item 6.	Exhibits and Reports on Form 8-K		33
Signature			34
Exhibit Index			35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REPEATER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


			June 28,			March 29,
			2002			2002


			(In thousands, except share
			and per share data)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	2,467		$	5,250
	Accounts receivable, net			807			1,628
	Inventories, net			4,498			4,184
	Other current assets			192			424

		Total current assets		7,964			11,486
Service parts, net				845			960
Property and equipment, net				2,657			2,973
Other assets				68			95

		Total assets	$	11,534		$	15,514

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	2,231		$	3,811
	Accrued compensation			409			375
	Other accrued liabilities			1,127			1,263
	Deferred revenue			154			150
	Current portion of capital lease obligations			82			141

		Total current liabilities		4,003			5,740
Deferred revenue, net of current portion				762			852

		Total liabilities		4,765			6,592
Stockholders’ equity:
	Common Stock, $0.001 par value; 70,000,000 shares authorized; 23,914,052 and 23,880,133 shares issued and outstanding at June 28, 2002 and March 29, 2002, respectively			24			24
	Additional paid in capital			109,819			109,830
	Unearned stock-based compensation			(80	)		(234	)
	Accumulated deficit			(102,994	)		(100,698	)

		Total stockholders’ equity		6,769			8,922

		Total liabilities and stockholders’ equity	$	11,534		$	15,514

The accompanying notes are an integral part of these condensed consolidated financial statements.

REPEATER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



			Three Months Ended

			June 28,			June 29,
			2002			2001


			(In thousands, except
			per share data)
			(Unaudited)
Net revenues			$	1,411		$	3,902
Cost of revenues				1,305			3,723

Gross profit				106			179

Operating expenses:
	Research and development			602			2,015
	Sales and marketing			887			1,756
	General and administrative			901			1,228

		Total operating expenses		2,390			4,999

Loss from operations				(2,284	)		(4,820	)
Other income (expense), net				(12	)		302

Net loss			$	(2,296	)	$	(4,518	)

Net loss per share — basic and diluted			$	(0.10	)	$	(0.20	)

Shares used in net loss per share calculation — basic and diluted				23,324			22,891

The accompanying notes are an integral part of these condensed consolidated financial statements.

REPEATER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



				Three Months Ended

				June 28,			June 29,
				2002			2001


				(In thousands)
				(Unaudited)
Cash flows used in operating activities:
Net loss				$	(2,296	)	$	(4,518	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				447			564
	Provision for losses on accounts receivable				—			78
	Provision for writedowns on inventories				—			208
	Amortization of unearned stock-based compensation				139			139
	Amortization of debt discount				—			44
	Gain on sale of Gwydion development project				—			(357	)
	Loss on sale of property and equipment				18			—
	Changes in assets and liabilities:
		Accounts receivable, net			821			94
		Inventories, net			(314	)		(857	)
		Other assets			259			155
		Accounts payable			(1,580	)		(1,026	)
		Accrued compensation			34			(191	)
		Other accrued liabilities			(136	)		(319	)
		Deferred revenue			(86	)		(681	)

			Net cash used in operating activities		(2,694	)		(6,667	)

Cash flows from investing activities:
	Proceeds from sale of Gwydion development project				—			969
	Proceeds from the disposal of property and equipment				13			—
	Purchase of field service parts				(29	)		(234	)
	Purchase of property and equipment				(18	)		(332	)

			Net cash (used in)/provided by investing activities		(34	)		403

Cash flows from financing activities:
	Principal payments on notes payable				—			(332	)
	Payments on capital lease obligations				(59	)		(108	)
	Issuance of common stock				4			137

			Net cash used in financing activities		(55	)		(303	)

Net decrease in cash and cash equivalents					(2,783	)		(6,567	)
Cash and cash equivalents at beginning of the period					5,250			26,084

Cash and cash equivalents at end of the period				$	2,467		$	19,517

Supplemental Disclosure of Cash Flow Information:
	Cash paid for interest			$	2		$	63

	Taxes paid			$	4		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 28, 2002

(Unaudited)

Organization

Repeater Technologies, Inc. (the “Company”), formerly Peninsula Wireless Communications, Inc., was formed in October 1983. The Company’s name was changed to Repeater Technologies, Inc. in December 1996. The Company’s principal activity is the development, marketing and selling of wireless communications network equipment based on the Code Division Multiple Access (“CDMA”) technology standard. The Company reincorporated in the State of Delaware on May 18, 2000.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of June 28, 2002 and for the three-month periods ended June 28, 2002 and June 29, 2001 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. The amounts as of March 29, 2002 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company and its results of operations and cash flows. These financial statements should be read in conjunction with the annual audited financial statements and notes as of and for the year ended March 29, 2002, included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on June 27, 2002.

The results of operations for the three months ended June 28, 2002 are not necessarily indicative of the results that may be expected for the year ending March 28, 2003 or any other future interim period, and the Company makes no representations related thereto.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company has a history of operating losses and operates in an industry sector that is subject to significant and rapid shifts in demand and changes in technology. The Company completed its initial public offering in August 2000, which raised $42.3 million, net of expenses. However, the Company has incurred substantial losses and negative cash flows from operations since inception. For the years ended March 30, 2001 and March 29, 2002, the Company incurred losses from operations of approximately $23.6 million and $21.2 million, respectively, and negative cash flows from operations of approximately $21.3 million and $17.4 million, respectively. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. In regard to this matter, management plans to continue to reduce cash used in operating activities. Three workforce reductions were implemented during the fiscal year ended March 29, 2002 and one in July 2002. Management also plans to increase the sales volume of its Network Repeaters and realize higher margins on its new dual-channel products. If these efforts prove to be insufficient, certain discretionary expenditures could be further reduced. The Company may also need additional financing in the current year. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to continue as a going concern and to achieve its intended business objectives. The financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

The Company recognizes revenue when four basic criteria are met: (1) persuasive evidence of an arrangement exists, generally in the form of a contract or a purchase order; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured.

The Company’s revenues are derived primarily from the sale of the Company’s hardware products and accessories. Product revenue is recognized upon shipment or delivery to the customer, depending on the terms of the sale. Where a purchase order or a sales agreement contains a customer acceptance clause, the Company defers revenue recognition until the acceptance criteria have been met.

Revenues from services, including network design, training and installation support, are recognized when services are performed.

Revenues from Network Management Systems software are recognized upon completion of installation, provided that no significant vendor obligations remain and collectibility is reasonably assured. To date, revenue from software products has been immaterial.

Sales to distributors — Revenues generated from certain foreign countries are derived from sales to distributors. The Company does not grant return rights, exchange rights or price protection rights. Payment terms are on average 60 days after invoice and the Company usually requires an irrevocable letter of credit, a down payment or credit insurance. Revenue from distributors is recognized upon shipment or delivery to the distributor, depending on sales terms.

Sales through agents — The Company’s sales agents act strictly as sales representatives and receive commission which is recorded in sales and marketing expenses. The Company invoices the end user directly and revenue is recognized upon shipment or delivery to the end-user, depending upon the terms of the sale.

At the time of sale, the Company provides for the estimated cost of meeting product warranty and hot-line technical support. When warranty and post-contract customer support obligations exist beyond one year, the related revenue is deferred and recognized ratably over the term of the arrangement.

Inventories

Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out (“FIFO”) method. Appropriate allowances are made to reduce the value of inventories to net realizable value, where this is below cost. These allowances are based on management’s judgment, when management determines that inventories may be slow moving or obsolete.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company did not enter into any business combinations after June 30, 2001; therefore, the adoption of SFAS No. 141 has not had a significant impact on the Company’s financial statements.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. The Company currently does not carry goodwill on its financial statements; therefore, the adoption of SFAS No. 142 has not had a material impact on the Company’s financial statements.

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board opinion No. 30, “Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business.” SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of net book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (i) can be distinguished from the rest of the entity and (ii) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a significant impact on the Company’s financial statements.

Concentration of Credit Risk

The Company’s cash and cash equivalents are maintained at major US financial institutions. Deposits in these institutions may exceed the amount of insurance provided for such deposits.

The Company’s customers are providers of wireless communications services. The Company performs periodic credit evaluations of these customers and generally does not require collateral for its domestic customers. For certain international customers, the Company usually requires letters of credit prior to shipment. The Company maintains reserves for potential credit losses and such losses have historically been within management’s expectations.

During the three months ended June 28, 2002, two customers accounted for approximately 30% and 27% of net revenues. During the three months ended June 29, 2001, four customers accounted for approximately 21%, 16%, 13% and 11% of net revenues. As of June 28, 2002, two customers accounted for approximately 34% and 21% of total receivables. As of March 29, 2002, three customers accounted for approximately 31%, 22% and 13% of total receivables.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net loss per share is computed giving effect to all dilutive potential common shares, including options and warrants. Options and warrants were not included in the computation of diluted net loss per share for the three-month periods ended June 28, 2002 and June 29, 2001 because the effect would have been anti-dilutive. A reconciliation of the numerator and denominator used in the calculation of historical basic and diluted net loss per share is as follows (in thousands, except per share data):



		Three Months Ended

		June 28,			June 29,
		2002			2001

Numerator:
Net loss		$	(2,296	)	$	(4,518	)

Denominator:
	Weighted average shares outstanding		23,897			23,464
	Weighted average unvested shares subject to repurchase		(573	)		(573	)

Denominator for basic and diluted calculations			23,324			22,891

Net loss per share-basic and diluted		$	(0.10	)	$	(0.20	)

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following securities have not been included in the computation of diluted net loss per share as they are anti-dilutive (in thousands):


	June 28,		June 29,
	2002		2001

Options outstanding		3,988		5,494
Warrants outstanding		250		250
Unvested common stock		573		573

		4,811		6,317

Balance Sheet Components (in thousands)

Accounts receivable, net:


	June 28,			March 29,
	2002			2002

Gross accounts receivable	$	979		$	1,800
Less: allowance for bad debts and sales returns		(172	)		(172	)

	$	807		$	1,628

Inventories, net:


	June 28,			March 29,
	2002			2002

Raw materials	$	1,936		$	1,556
Work in process		625			1,298
Finished goods		8,367			7,786

		10,928			10,640
Less: allowance for excess and obsolete inventory		(6,430	)		(6,456	)

	$	4,498		$	4,184


	*Disposal of Assets*

On April 21, 2001, the Company entered into an agreement to sell substantially all of the assets of The Gwydion Company, LLC (“Gwydion”) product development project. The consideration received for the sale was approximately $969,000 in cash. The Company recorded a gain on sale of approximately $357,000 in the first quarter of fiscal year ending March 29, 2002 in relation to the sale of substantially all of the assets of the Gwydion development project.


	*Contingencies*

In November 1999, in connection with the Company’s acquisition of substantially all of the assets of Gwydion, the Company issued 573,334 shares of the Company’s common stock to the members of Gwydion, Harry Ayvazian and Gary Grimes. These shares were to be held in an escrow account and subject to the Company’s right of repurchase for $1.00 in the aggregate until certain performance criteria were met. In May 2001, the Company filed an escrow claim with Gwydion and the escrow agent to assert the Company’s right under the Gwydion acquisition agreement to repurchase the 573,334 shares issued as consideration. Gwydion and its members have disputed this claim and on September 17, 2001 filed direct and stockholder derivative lawsuits in the Superior Court of the State of California for the County of Santa Clara against the Company

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and Kenneth L. Kenitzer, Timothy A. Marcotte, Chris L. Branscum, John E. Bosch, Bandel Carano, Richard G. Grey, Perry M. LaForge and Alessandro A. Piol in their capacities as the Company’s current and former directors and officers. The Company initially reported these legal proceedings in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2001 and subsequently reported them in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2001 and the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2002.

In the stockholder derivative action, the plaintiffs alleged that, among other things, the defendants (i) made untrue representations in connection with the acquisition agreement, (ii) entered into the acquisition agreement with no intention of committing the resources necessary to the success of the Gwydion project, and (iii) contributed to the decrease in value of the Company’s stock; claimed fraud, intentional and negligent misrepresentation, and breach of fiduciary duty; and requested damages and attorney’s fees. In the direct lawsuit, the plaintiffs allege that, among other things, the defendants engaged in conduct that precluded the plaintiffs from fulfilling their obligations under the Gwydion acquisition agreement, claim breach of contract and fraud, and request compensatory and punitive and/or exemplary damages, costs and attorney’s fees.

On January 10, 2002, the Company’s challenge to the stockholder derivative lawsuit was sustained without leave to amend and on January 17, 2002, the court entered judgment in favor of the Company and against Gwydion and its members. The direct suit for breach of contract and fraud remains pending. While the Company believes that the plaintiffs’ direct claims are without merit and intends to vigorously defend itself against them, the Company cannot predict the ultimate outcome of the pending action.

Litigation

On November 16, 2001, the Company, Chris L. Branscum, Kenneth Kenitzer, Timothy Marcotte and certain underwriters of the Company’s initial public offering (“IPO”) of its common stock were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now consolidated under the caption In re Repeater Technologies, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-10140. This lawsuit purports to bring suit on behalf of all purchasers of the Company’s common stock between August 8, 2000, the effective date of the Company’s IPO, and December 6, 2000. In the complaint, the plaintiffs allege that the Company, certain of its officers and directors and the underwriters of its IPO violated the federal securities laws because the Company’s IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same Court against hundreds of other public companies that conducted IPOs of their common stock in the late 1990s (the “IPO Lawsuits”).

On August 8, 2001, the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. Judge Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further order of the Court. Thus, the Company has not been required to answer the complaint, and no discovery has been served on the Company.

In accordance with Judge Scheindlin’s orders at further status conferences in March and April 2002, the appointed lead plaintiffs’ counsel filed amended, consolidated complaints in the IPO Lawsuits on April 19, 2002. Defendants then filed a global motion to dismiss the IPO Lawsuits on July 15, 2002, as to which the Court does not expect to issue a decision until at least November 2002. The Company believes that this lawsuit is without merit and intends to defend against it vigorously. The Company initially reported these legal proceedings in its Quarterly Report on Form 10-Q for the quarter ended December 28, 2001 and subsequently reported them in its Annual Report on Form 10-K for the fiscal year ended March 29, 2002.

REPEATER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

China Order

On October 22, 2001, the Company announced that the delivery of products against an order worth $11.0 million by the Company’s distributor in China would be extended for a significant length of time and will most likely be in volumes substantially lower than originally anticipated. To date, the Company has shipped products with a value of $2.2 million against the $11.0 million order. The Company is expecting that the order from the Company’s distributor will ultimately be for substantially less than $11.0 million and the delivery schedule will be extended for a long period of time. The Company had placed a $5.6 million purchase order with the Company’s contract manufacturer in relation to the order received from the Company’s distributor in China. The Company has subsequently cancelled a portion of this order. At June 28, 2002, the Company had $2.9 million in inventory in relation to this purchase order.

Commitments

The Company’s contractual obligations at June 28, 2002 were as follows:



	Payments Due by Period

	Less Than 1 Year		1-3 Years		Total


	(In thousands)
Contractual Obligations
Capital-lease obligations	$	82	$	—	$	82
Operating leases		502		488		990
Unconditional purchase obligations		614		—		614

Total contractual obligations	$	1,198	$	488	$	1,686


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

You should read the following information in conjunction with the historical financial information and notes thereto included in our Annual Report on Form 10-K for the year ended March 29, 2002, which was filed with the Securities and Exchange Commission on June 27, 2002. Unless otherwise indicated, references to “year ended” or “year ending”, or “three months ended” or “three months ending”, refer to our fiscal year or fiscal three months, respectively.

This Form 10-Q contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions based on the information available to us at the time this report was filed. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results could differ materially from those anticipated in these forward-looking statements.

Overview

We develop, market and sell wireless network equipment primarily for CDMA-based wireless communications networks. We provide cost-effective, high-quality products for use in suburban and rural areas, urban areas and inside office buildings and other coverage-limited structures. Our products have been deployed with over 70 CDMA wireless service providers in more than ten countries. International sales accounted for approximately 40.7%, 32.0% and 39.2% of net revenues for the years ended March 31, 2000, March 30, 2001 and March 29, 2002, respectively.

From our inception in 1983 through our year ended March 31, 1996, we were primarily focused on providing microwave frequency repeaters for long-distance telecommunications applications and cellular repeaters for non-CDMA-based wireless communications applications. Beginning in our year ended March 31, 1997, we changed our strategic focus and re-directed our resources to the development and marketing of repeaters for wireless networks based on the CDMA digital standard. This wireless standard offered us the opportunity to develop a new type of repeater, which we call our Network Repeater. In conjunction with CDMA base stations, our Network Repeater enables wireless service providers to deploy or extend CDMA wireless networks in non-urban areas at a significantly reduced cost. CDMA technology is not as widely deployed, and the customer base for CDMA-based products is not as broad, as compared to other digital standards. Our Network Repeaters, along with the associated network management system, are designed specifically to operate as an integrated network element within a CDMA wireless network, extending the coverage area of a CDMA base station without compromising the quality of the wireless service. We have licensed a portion of the technology for our CDMA-based repeaters from one of our former executives. Our ability to continue to deploy our existing products and to develop new products depends significantly upon this license. We shipped our first Network Repeaters for CDMA wireless networks in May 1997.

We contract with a third-party manufacturer to manufacture some of our products. Our third-party manufacturer is currently Sanmina Corporation. Our manufacturer assembles modules for us, which we test for functionality prior to assembly into finished products. We do not have a long-term manufacturing contract with our contract manufacturer. We have payment obligations that extend through August 2002 for units previously purchased under an amended settlement agreement with our manufacturer. Our ability to use this manufacturer is subject to minimum order volumes. Any individual purchase order is generally not cancelable by us unless the supplier fails to deliver in conformance with the terms of the purchase order. We believe that our third-party contract manufacturer has the capability to support our demand for the foreseeable future. Although we believe that we can obtain an alternate contract manufacturer for our products if necessary, we cannot guarantee that such a manufacturer can be obtained on short notice or that our products could be manufactured by an alternative manufacturer on satisfactory terms. Any of these problems could damage relationships with current or prospective customers, seriously harm our operating results and revenues in a given period and impair our ability to generate future sales.

We rely on a sole source of supply for several of our significant components, including antennas, power amplifiers, power supplies, and battery back-up power systems. Although we believe that we can obtain alternative sources of supply for these components, we cannot guarantee that such sources can be secured on short notice or that components will be available from alternative sources on satisfactory terms. Any of these problems could damage relationships with current or prospective customers, seriously harm our operating results and revenues in a given period and impair our ability to generate future sales.

We reduced our workforce by 16 employees in July 2002 to sustain our operations and align our resources with current market conditions. The total cost incurred in relation to this workforce reduction was approximately $116,000 and will be recorded as payroll expense during the three months ending September 27, 2002.

On October 22, 2001, we announced that the delivery of products against an order worth $11.0 million by our distributor in China would be extended for a significant length of time and will most likely be in volumes substantially lower than originally anticipated. To date, we have shipped $2.2 million worth of products against the $11.0 million order. We are expecting that the order from our distributor will ultimately be for substantially less than $11.0 million and the delivery schedule will be extended for a long period of time. We had placed a $5.6 million purchase order with our contract manufacturer in relation to the order received from our distributor in China. We have subsequently cancelled a portion of this order. At June 28, 2002, we had $2.9 million in inventory in relation to this purchase order.

Since our inception, we have used stock option programs for employees as compensation to attract strong business and technical talent. Stock-based compensation consists of the difference between the deemed fair market value of stock subject to stock options and the exercise price of these options. This difference is being amortized on an accelerated basis over the vesting period of the grants, generally four years. For the year ended March 29, 2002, and the three-month period ended June 28, 2002, we recorded $38,000 and $139,000, respectively, of stock-based compensation expense in connection with options granted to employees and consultants.

In November 2001, the Company extended an offer to its eligible employees and directors to cancel stock options with exercise prices greater than $0.30 per share and to grant replacement stock options with an exercise price equal to the quoted market price of the Company’s common stock at December 27, 2001, one day before the expiration of the offer. On December 28, 2001, the Company granted replacement options to purchase an aggregate of 3,143,628 shares of its common stock at $0.29 per share to eligible employees and directors who accepted the offer in a one-for-one exchange for such cancelled stock options. Each replacement option will vest monthly over one year following the date of grant and will expire 18 months after the date of grant. The Company will account for all such replacement options, as well as eligible options to purchase an aggregate of 69,770 shares of common stock which were not exchanged, under the variable accounting method and will revalue these stock options at the end of each reporting period until the options are exercised, forfeited, or expire unexercised; the resulting charge will be recorded as compensation expense. The higher the market value of the Company’s common stock, the greater the compensation expense will be. To date we have not recorded any compensation expense under the variable accounting method in connection with the stock option exchange due to the low price of our common stock.

We incurred a net loss of $2.3 million for the three months ended June 28, 2002 and a net loss of $4.5 million for the three months ended June 29, 2001. Although we have been successful in reducing our cash usage rate gradually during the past five consecutive quarters including the three months ended June 28, 2002, we have been unable to increase our revenues. In an effort to sustain our business, we reduced our workforce by 17% in April 2001, 34% in October 2001, 27% in March 2002 and 40% in July 2002. We have ceased purchases for our older single-channel products, we have implemented a sales promotion for our older single-channel products to reduce our inventory and we have introduced our new dual-channel product, which we started to ship during the quarter ended March 29, 2002. If these efforts prove to be insufficient, we may be forced to reduce our expenditures further by reducing our purchase commitments, reducing capital expenditures and reducing other discretionary expenditures. Our failure to increase the sales volume of our Network Repeaters, realize higher margins on our new products or further reduce our expenditures could have a

material adverse effect on our ability to continue as a going concern and to achieve our intended business objectives.

As part of such expenditure reductions, we began discussions with Sanmina to negotiate a settlement amount and a payment schedule for outstanding amounts due under our amended settlement and release agreement with Sanmina. We also suspended payments to Sanmina pending completion of such negotiations. We have also initiated and plan to initiate discussions with other significant creditors during August 2002 to modify payment terms for existing obligations. We have had and expect to continue to have negative cash flows from operations through December 2002. On July 31, 2002, we had $1.4 million in cash and cash equivalents. Based upon our current working capital needs and outstanding commitments and assuming that no additional expense reduction measures or limitations on cash disbursements are implemented by us and the Company’s obligations to Sanmina and our other significant creditors are not successfully renegotiated, the Company believes that available cash reserves will not be sufficient to fund operations and to meet our working capital needs and anticipated capital expenditures after August 2002. There can be no assurance that the Company will successfully negotiate restructuring of its obligations to Sanmina or its other significant creditors. To the extent that funds are insufficient, we will need to obtain additional financing through public or private debt or equity financing to sustain our business and fund our operating losses after August 2002 or enter into a sale, merger, recapitalization or other strategic transaction with a third party.

If we raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If we raise additional funds through the issuance of debt securities, those securities would have rights, preferences and privileges senior to those of our common stock, and the terms of these debt securities could impose restrictions on our operations. However, there is no assurance that additional financing will be available when needed, on favorable terms, or at all, or that the Company will be successful in finding a strategic partner. The delisting of our common stock, which Nasdaq has advised us will occur on August 13, 2002, could make it more difficult for us to raise additional capital. If adequate funds are not available, we may have to file for protection under the United States Bankruptcy Code or cease operations as a going concern. Moreover, if funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could materially harm our business.

Net Revenues. Our net revenues are derived primarily from products based on the CDMA standard, including our Network Repeaters. In addition, we sell complementary equipment for these products, including battery back-up systems, antennas and network management software. We also provide training, installation support, design, and implementation services to our customers on a fee-for-service basis. In the past, we publicly announced the signing of certain purchase contracts and orders with three customers with announced estimated aggregate values through November 2002 of approximately $50.0 million, $15.0 million and $3.0 million, respectively. However, these agreements have no required minimum purchase amounts and can be terminated without penalty. Accordingly, any estimates of total value of these agreements are speculative. To date, we have only recognized revenues of $11.0 million, $3.4 million and $1.1 million, respectively, for these three customers under these agreements. In addition, on September 6, 2001, we announced an $11.0 million order from Capitel Group, Ltd. of Beijing for China Unicom. On October 22, 2001, we announced that the delivery of products against this order would be extended for a significant length of time and will most likely be in volumes substantially lower than originally anticipated. To date, we have shipped $2.2 million in products under this purchase order.

continued through June 28, 2002 and have adversely affected our business, financial condition and results of operations, as indicated by the reduction in our net revenues for the quarter ended June 28, 2002 as compared to the quarter ended June 29, 2001. If these trends continue further or accelerate, our net revenues, business, financial condition and results of operations would continue to be adversely affected.

We have experienced downward pressure on selling prices of our single-channel products as a result of our entering into volume sale agreements with some customers and general competitive pressures. We expect that our selling prices for these products will continue to decline for the foreseeable future. If we cannot offset declines in selling prices by increasing our sales volumes, realizing higher gross margins on our new products or reducing manufacturing costs, our revenues or gross margins will decline. We believe that the introduction and sale of our new dual-channel Network Repeater product should help generate customer interest and assist in reversing this trend in declining orders and revenues. While we have shipped the new dual-channel Network Repeater during the quarter ending June 28, 2002, we have not received orders sufficient to reverse this trend of declining revenues in the quarter ending June 28, 2002.

We have experienced and expect to continue to experience significant fluctuations in our quarterly net revenues as a result of our long and variable sales cycle. Historically, our sales cycle, which is the period from the time a sales lead is generated until the recognition of revenue from that lead, ranges from nine to 24 months. The variability and length of our sales cycle is influenced by a number of factors, including:


	•	our customers’ deployment schedules;

	•	our customers’ access to financing for the purchase of our products;

	•	the need to design networks to incorporate our products;

	•	the need to demonstrate our products before purchase;

	•	the manufacturing lead times for our products; and

	•	our inventory levels for the specific product configuration ordered by our customers.

Our customer base has been and may continue to be concentrated with a small number of customers.

If we fail to significantly increase our sales of Network Repeaters and the deployment of RepeaterHybrid Networks or to broaden our customer base, we may fail to generate sufficient revenues to sustain our business.

Cost of Revenues. Our cost of revenues consists of the costs of the various components used to assemble our products, the third-party charges to assemble and test the products, the overhead cost of the operations departments, inventory valuation allowance, the direct costs of network design services we sell to our customers and the cost of providing customer service, including warranty and repair charges. Our components are currently obtained from a small number of suppliers and contract manufacturers. Several of these suppliers are either single-source or sole-source suppliers, which could limit our ability to achieve lower prices from these suppliers and could lead to delays and interruption in supply.

Gross Profit. Our gross profit is affected by the level of demand for our products and services, new product introductions by us and our competitors, and the competitive pressures and costs of the various components and production services provided by our vendors. If we are unable to offset our expected decline in selling prices with lower unit costs, our gross profits may decline. Additionally, as part of volume and other sales agreements, we sell our products at a reduced margin to certain customers. If sales to these customers represent an increased portion of sales in any quarter, we may experience a reduction in our gross margins. Warranty reserve, inventory valuation allowance and similar charges also have a significant effect on gross profit in any one particular year or quarter.

Operating Expenses. Research and development expenses consist primarily of expenses incurred in the design and development of our products and our proprietary technology. These expenses include the salaries and associated overhead expenditures for our engineers and technicians, materials for the production of prototypes and expenses for various consultants. We expect to incur significant expenses in the development of our next generation of products to serve the emerging high-speed wireless markets.

Sales and marketing expenses consist primarily of salaries, commissions, consulting fees, trade show expenses, travel expenses, advertising, direct marketing expenses and associated overhead expenses. We must maintain significant levels of sales and marketing expenses so that we may enter new markets or introduce new products in order to generate sufficient revenues to sustain our business.

General and administrative expenses consist primarily of expenses for finance, corporate management, general office administration, insurance, and legal, accounting and other professional fees.

In connection with the acquisition of Gwydion, we recorded an in-process technology charge of $0.9 million for the year ended March 31, 2000 and we issued 573,334 shares subject to our right of repurchase until certain performance criteria were met. These shares were held in an escrow account and subject to our right of repurchase under certain conditions. We revalued these shares at the end of each reporting period until April 20, 2001, at which time we entered into an agreement to sell substantially all of the assets of the Gwydion development project. In connection with this contingent consideration, we recognized a research and development expense of $1.9 million during the year ended March 31, 2000. During the year ended March 30, 2001, we recorded a net credit to research and development expense of $1.4 million under this arrangement.

During the year ended March 29, 2002, we recorded $0.1 million in research and development expense under this arrangement. Total compensation expense recorded related to these shares was $579,000 in the aggregate.

Stock-based compensation consists of the difference between the deemed fair market value of stock subject to stock options and the exercise price of these options. This difference is being amortized over the vesting period of the options, generally four years. In each of the three-month periods ended June 29, 2001 and June 28, 2002, we recorded $139,000 of stock-based compensation expense in connection with options granted to employees and consultants. The portion included in operating expenses was $228,000 and $140,000, respectively, with the balance as a credit to costs of revenues.

Loss from Operations. We have incurred substantial losses since our inception and, as of June 28, 2002, had an accumulated deficit of approximately $103.0 million. We expect to continue to incur substantial operating losses for the fiscal year ending March 28, 2003 and we may never achieve or sustain profitability.

During our past three fiscal years, we have not achieved profitability on a quarterly or annual basis. Because we need to continue to invest significant financial resources in our sales and marketing efforts and other operating expenses, we expect to continue to incur losses at least through the fiscal year ending March 28, 2003. We will need to generate significantly higher revenues in order to support our operating expenses and to achieve and maintain profitability.

Other Income and Expense, Net. Other income and expense, net, consists primarily of interest income earned on balances held in our interest-bearing accounts, offset by interest expense on our promissory notes.

Significant Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 101A and SAB No. 101B. SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists, generally in the form of a contract or a purchase order; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured.

Our revenues are derived primarily from the sale of our hardware products and accessories. Product revenue is recognized upon shipment or delivery to the customer, depending on the terms of the sale. Where a purchase order or a sales agreement contains a customer acceptance clause, we defer revenue recognition until the acceptance criteria have been met.

Revenues from services, including network design, training and installation support, are recognized when services are performed.

Sales to distributors — Revenues generated from certain foreign countries are derived from sales to distributors. We do not grant return rights, exchange rights or price protection rights. Payment terms are on average 60 days after invoice and we usually require an irrevocable letter of credit, a down payment or credit insurance. Revenue from distributors is recognized upon shipment or delivery to the distributor, depending on sales terms.

Sales through agents — Our sales agents act strictly as sales representatives and receive commission, which is recorded in sales and marketing expenses. We invoice the end user directly and revenue is recognized upon shipment or delivery to the end-user, depending upon the terms of the sale.

At the time of sale, we provide for the estimated cost of meeting product warranty and hot-line technical support. When warranty and post contract customer support obligations exist beyond one year, the related revenue is deferred and recognized ratably over the term of the arrangement.

The accounting rules related to revenue recognition are complex and are affected by interpretations of the rules and an understanding of industry practices, both of which are subject to change. Consequently, management must make significant judgments, including those with respect to evidence of an arrangement and collectibility of receivables. The determinations that we make can materially impact the timing of recognition of revenues.

Inventory Valuation Allowance. We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. Appropriate allowances are made to reduce the value of inventories to net realizable value, where this is below cost. These allowances are based on management’s judgment, when management determines that inventories may be slow moving or obsolete. We regularly review inventory quantities on hand and record an inventory valuation allowance for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months. Our products require a considerable amount of lead-time for production and we may run into inventory overages due to our inability to cancel production orders from our contract manufacturer. For example, in fiscal 2001, our cost of revenues included $2.4 million related to inventory valuation allowance for excess and obsolete inventory. In addition, in fiscal 2002, we recorded $4.6 million in inventory valuation allowance, which was comprised of $0.8 million for lower-of-cost-or-market, and $3.8 million for excess and obsolete inventory. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the allowance required for excess and obsolete inventory. In the future, if our inventory is determined to be overvalued, we would be required to recognize such costs in our cost of revenue at the time of such determination. Likewise, if our inventory is determined to be undervalued, we may have over-reported our costs of revenues in previous periods and would be required to recognize such additional operating income at the time of sale. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results. See “Due to uncertainties in production forecasting, we may experience unexpected surpluses or shortages of inventory,” and “Our quarterly revenues and operating results may fluctuate significantly” under “Risks That Could Affect Future Results.”

Warranty Reserve. Our warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While our warranty

costs have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same warranty return rates or repair costs that we have in the past. A significant increase in product return rates, or a significant increase in the costs to repair our products, could have a material adverse impact on our operating results for the period or periods in which such returns or additional costs materialize.

Results of Operations

The following table sets forth our results of operations as a percentage of net revenues for the periods indicated:



			Three Months Ended

			June 28,			June 29,
			2002			2001

			(Unaudited)			(Unaudited)
Net revenues				100.0	%		100.0	%
Cost of revenues				92.5			95.4

Gross margin				7.5			4.6

Operating expenses:
	Research and development			42.6			51.6
	Sales and marketing			62.9			45.0
	General and administrative			63.9			31.5

		Total operating expenses		169.4			128.1

Loss from operations				(161.9	)		(123.5	)
Other income (expense), net				(0.9	)		7.7

Net loss				(162.8	)%		(115.8	)%

Net revenues. Our net revenues are derived primarily from products based on the CDMA standard, including our Network Repeaters. In addition, we sell complementary equipment for these products, including battery back-up systems, antennas and network management software. We also provide training, installation supervision, design and implementation services to our customers on a fee-for-service basis.

Net revenues decreased $2.5 million, or 63.8%, from $3.9 million for the three months ended June 29, 2001 to $1.4 million for the three months ended June 28, 2002. This decrease was primarily due to decreased shipments of our CDMA-based repeaters due to an overall slowdown in the U.S. economy and reduced or deferred capital expenditures by our customers worldwide. During the three months ended June 28, 2002, 87.2% of our net revenues were derived from ten customers, with sales to two customers, Sercom and Unefon, comprising approximately 30.4% and 27.2%, respectively. During the three months ended June 29, 2001, 85.2% of our net revenues were derived from ten customers, with sales to four customers, Qwest, Unefon, iPCS and UbiquiTel PCS, comprising approximately 20.5%, 15.9%, 12.8% and 10.5%, respectively. International sales accounted for 71.6% of net revenues during the three months ended June 28, 2002, as compared to 24.0% during the three months ended June 29, 2001.

In the quarter ended December 29, 2000, we began to experience a slowdown in the booking of orders from new and existing customers and certain customers requested delays in shipment of existing orders. To date we have experienced postponements of approximately $10 million in orders that were initially planned to be shipped within the last 18 months. Our customers may further delay or cancel these orders without any repercussion or penalty. We have been unable to book new orders sufficient to offset the effects of these postponements. While the reasons for these trends are uncertain, they may be attributable to an overall slowdown in the economy and in the telecommunications industry in particular, reduced or deferred capital expenditures by our customers, or difficulty by some customers in obtaining financing. These trends have continued through June 28, 2002 and have adversely affected our business, financial condition and results of

operations, as indicated by the reduction in our net revenues for the three months ended June 28, 2002 as compared to the three months ended June 29, 2001. If these trends continue further or accelerate, our net revenues, business, financial condition and results of operations would continue to be adversely affected.

We believe that the introduction and sale of our new dual-channel network repeater product should help generate customer interest and orders sufficient to reverse this trend in declining orders and revenues. If we fail to significantly increase our sales of Network Repeaters and the deployment of RepeaterHybrid Networks or broaden our customer base, we may fail to generate sufficient revenues to sustain our business.

Cost of revenues and gross margin. Our cost of revenues consists of the costs of the various components used to assemble our products, third-party charges to assemble and test the products, the overhead cost of the operations department, inventory valuation allowance, the direct costs of network design services we sell to our customers and the cost of providing customer service, including warranty and repair charges. Our gross margin is affected by the level of demand for our products and services, new product introductions by us and our competitors, competitive pressures and the costs of the various components and production services provided by our vendors. If we are unable to offset our expected decline in selling prices with lower unit costs, our gross profits may decline. Additionally, as part of volume and other sales agreements, we sell our products at a reduced margin to certain customers. If sales to these customers represent an increased portion of sales in any quarter, we may experience a reduction in our gross margins. Warranty reserve, inventory valuation allowance and similar charges also have a significant effect on gross margin in any one particular quarter. These reserves and allowances are based on management’s reasonable estimates. If events and circumstances cause management to revise these estimates and therefore increase these reserves and allowances, such revision might have an adverse effect on our gross margins. For example, we recorded a $1.3 million cancellation penalty accrual in the quarter ended December 28, 2001, which had an adverse effect on our gross margins, results of operations and financial condition.

Cost of revenues decreased $2.4 million, or 64.9%, from $3.7 million for the three months ended June 29, 2001 to $1.3 million for the three months ended June 28, 2002. The gross profit margin increased to 7.5% for the three months ended June 28, 2002 from 4.6% for the three months ended June 29, 2001. The majority of this 2.9 percentage point increase in gross profit margin is due to a decrease in warranty expense and inventory valuation allowance of $0.4 million. Other costs of revenue, which consist of manufacturing overhead and customer service expenditures, decreased from $1.4 million for the three months ended June 29, 2001 to $0.6 million for the three months ended June 28, 2002. Although expenses declined from the prior year, manufacturing overhead increased as a percent of sales primarily due to the decline in revenues. The decrease in other costs of revenue was primarily due to a decrease in customer service expenses of $0.3 million, and a decrease in manufacturing overhead of $0.5 million. The decrease in expenses is related primarily to lower payroll from decreased headcount. Direct material margins decreased from 50.1% in the three months ended June 29, 2001 to 47.5% for the three months ended June 28, 2002 due to lower selling prices for our Network Repeaters.

Research and development. Research and development expenses consist primarily of expenses incurred in the design and development of our products and our proprietary technology. Research and development expenses decreased $1.4 million, or 70.1%, from $2.0 million for the three months ended June 29, 2001 to $0.6 million for the three months ended June 28, 2002. This decrease was due to a decrease in payroll-related expenses of $0.5 million due to reduced headcount from 34 as of June 29, 2001 to 14 as of June 28, 2002, a decrease in the amortization of stock-based compensation of $0.1 million, a decrease of $0.5 million due to the reduction in the number of outside contractors we used for research and development activities, and a reduction of $0.3 million for development materials.

Sales and marketing. Sales and marketing expenses consist primarily of salaries, commissions, consulting fees, trade show expenses, travel expenses, advertising, direct marketing expenses and associated overhead expenses. Sales and marketing expenses decreased $0.9 million, or 50.0%, from $1.8 million for the three months ended June 29, 2001 to $0.9 million for the three months ended June 28, 2002. This decrease was due to reduced payroll of $0.3 million as a result of reduced headcount from 13 as of June 29, 2001 to 6 as of June 28, 2002, reduced professional fees of $0.2 million, reduced sales commissions of $0.1 million due to the decline in revenues, and a decrease in travel-related expenses of $0.3 million.

General and administrative. General and administrative expenses consist primarily of expenses for finance, corporate management, general office administration, insurance, amortization of stock-based compensation, and legal, accounting and other professional fees. General and administrative expenses decreased $0.3 million, or 26.6%, from $1.2 million for the three months ended June 29, 2001 to $0.9 million for the three months ended June 28, 2002. This decrease was attributable to a decrease in payroll expenses of $0.1 million due to decreased headcount from 19 as of June 29, 2001 to 10 as of June 28, 2002, a decrease in professional fees and contract labor costs of $0.1 million, and a decrease in provisions for bad debt associated with accounts receivable of $0.1 million.

Other income and expense, net. Other income and expense, net, consists primarily of interest income earned on balances held in our interest-bearing accounts, offset by interest expense on our promissory notes. Other income was $35,000 and $0.6 million for the three-month periods ended June 28, 2002 and June 29, 2001, respectively. The majority of the decrease in other income is due to the sale of the Gwydion development project of $0.4 million, and a decrease in interest income of $0.2 million from our interest bearing accounts due to lower account balances. Other expenses decreased $0.3 million from $0.3 million for the three months ended June 29, 2001 to $47,000 for the three months ended June 28, 2002 primarily due to reduced interest expense of $0.2 million as a result of paying off outstanding loans, and reduced sales tax expenses of $0.1 million.

Liquidity and Capital Resources

At June 28, 2002, we had $2.5 million in cash and cash equivalents, as compared to $5.3 million at March 29, 2002. Cash used in operating activities for the three months ended June 28, 2002 was $2.7 million, as compared to $6.7 million for the three months ended June 29, 2001. The significant use of cash in operating activities during the three months ended June 28, 2002 resulted from our net losses of $2.3 million, an increase in inventories of $0.3 million, a net decrease in accounts payable, accrued compensation and other accrued liabilities of $1.7 million, a decrease in deferred revenue of $0.1 million, offset by non-cash depreciation and amortization expenses of $0.4 million, a decrease in accounts receivable of $0.8 million, a decrease in other assets of $0.3 million and non-cash expenses of $0.1 million for stock-based compensation. Management is continuing to strive to reduce cash used in operating activities by reducing inventory levels, reducing daily sales outstanding from 71 days to 45 days, and reducing expenses where appropriate.

Cash used in investing activities for the three months ended June 28, 2002 was $34,000, as compared to cash provided from investing activities of $0.4 million for the three months ended June 29, 2001, attributable to the sale of substantially all of the assets related to the Gwydion development project. Capital expenditures of $47,000 were primarily investments to support our business and field service parts. We received proceeds of $13,000 from the sales of unnecessary equipment.

Net cash used in financing activities was $55,000 for the three months ended June 28, 2002, as compared to net cash used in financing activities of $0.3 million for the three months ended June 29, 2001. For the three months ended June 28, 2002, $59,000 was used for payments against capital lease obligations.

The Company’s contractual obligations at June 28, 2002 were as follows:



	Payments Due by Period

	Less Than 1 Year		1-3 Years		Total


	(In thousands)
Contractual Obligations
Capital-lease obligations	$	82	$	—	$	82
Operating leases		502		488		990
Unconditional purchase obligations		614		—		614

Total contractual obligations	$	1,198	$	488	$	1,686

We incurred a net loss of $2.3 million for the three months ended June 28, 2002, and a net loss of $4.5 million for the three months ended June 29, 2001. Although we have been successful in reducing our cash usage gradually during the past five consecutive quarters including the three months ended June 28, 2002, we have been unable to increase our revenues. In an effort to sustain our business, we have reduced our workforce by 17% in April 2001, 34% in October 2001, 27% in March 2002, and 40% in July 2002. We have ceased purchases for our older single-channel products, we have implemented a sales promotion for our older single-channel products to reduce our inventory and we have introduced our new dual-channel product which we started to ship during the quarter ended March 29, 2002. If these efforts prove to be insufficient, we may be forced to reduce our expenditures further by reducing our purchase commitments, reducing capital expenditures, and reducing other discretionary expenditures. Our failure to increase the sales volume of our Network Repeaters, realize higher margins on our new products or further reduce our expenditures could have a material adverse effect on our ability to continue as a going concern and to achieve our intended business objectives.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We did not enter into any business combinations after June 30, 2001; therefore, the adoption of SFAS No. 141 has not had a significant impact on our financial statements.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. We currently do not carry goodwill in our financial statements; therefore, the adoption of SFAS No. 142 has not had a material impact on our financial statements.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board opinion No. 30, “Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business.” SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of net book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (i) can be distinguished from the rest of the entity and (ii) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We do not expect the adoption of SFAS No. 144 to have a significant impact on our financial statements.

Risks That Could Affect Future Results

The factors discussed below are cautionary statements that identify important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements in this report.


	*We have incurred significant losses since we began doing business, anticipate continuing losses, and may never achieve or sustain profitability.*

We have accumulated losses of $103.0 million since we began doing business in 1983 through June 28, 2002, and we may never achieve or sustain profitability. We incurred a net loss of $2.3 million for the quarter ended June 28, 2002. We will continue to incur significant expenses, particularly research and product development and sales and marketing expenses. We anticipate incurring net losses at least through the fiscal year ending March 28, 2003. We will need to generate significantly higher revenues to achieve profitability and recoup our accumulated losses. We cannot be certain that we will realize sufficient revenues to sustain our business.


	*We will require additional capital in the future which may not be available to us.*

We incurred a net loss of $2.3 million for the three months ended June 28, 2002, and a net loss of $4.5 million for the three months ended June 29, 2001. Although we have been successful in reducing our cash usage rate gradually during the past five consecutive quarters including the three months ended June 28, 2002, we have been unable to increase our revenues. In an effort to sustain our business, we have reduced our workforce by 17% in April 2001, 34% in October 2001, 27% in March 2002, and 40% in July 2002. We have ceased purchases for our older single-channel products, we have implemented a sales promotion for our older single-channel products to reduce our inventory and we have introduced our new dual-channel product, which we started to ship during the quarter ended March 29, 2002. If these efforts prove to be insufficient, we may be forced to reduce our expenditures further by reducing our purchase commitments, reducing capital expenditures, and reducing other discretionary expenditures. Our failure to increase the sales volume of our Network Repeaters, realize higher margins on our new products or further reduce our expenditures could have a

material adverse effect on our ability to continue as a going concern and to achieve our intended business objectives.


	*If the strategic restructuring of our organization is not effective, our financial results and business could suffer.*

In response to changes in industry and market conditions we are restructuring, and may continue to restructure, our activities to more strategically realign our resources and improve our operational efficiency. Our restructuring plan is based on certain assumptions regarding the cost structure of our business and the nature and severity of the current industry adjustment, which may not prove to be accurate. Our restructuring plan has involved the implementation of a number of initiatives to streamline our business and improve operational efficiency. We cannot assure you that our restructuring plan will result in sufficient cost reduction or greater operational efficiency in light of current or future capital markets and telecommunications industry conditions. We also cannot assure you that we will not be required to refine, expand or extend our restructuring plan, or that we will improve our operational efficiency as a result of our restructuring plan. In addition, we cannot assure you that we will be able to successfully utilize our reduced workforce resources effectively or that our management will be effective during our restructuring. Current and additional restructuring actions may result in further cash and/or non-cash charges, which could adversely affect our business, results of operations and financial condition. Finally, we may be the target of employment litigation in connection with our restructuring and reductions in workforce.


	*We have deployed a limited number of RepeaterHybrid Networks and we may not be able to gain broad market acceptance of the RepeaterHybrid Network concept.*

Our RepeaterHybrid Networks have yet to gain widespread industry acceptance and we have deployed them with only a limited number of wireless service providers. If we fail to significantly increase the

deployment and market acceptance of our products and RepeaterHybrid Networks as replacements for traditional networks using only base stations, we may fail to generate sufficient revenues to sustain our business.


	*Our quarterly revenues and operating results may fluctuate significantly.*

Our quarterly operating results have fluctuated significantly in the past and are likely to do so in the future. Factors that could cause our quarterly results to fluctuate include, but are not limited to:


	•	general economic conditions and, in particular, conditions within our industry that affect demand for our products;

	•	the reduction in the selling price of our products due to competitive pressures from base station manufacturers and the introduction of other competing repeater products;

	•	customer responses to announcements of new products and product enhancements by competitors and the entry of new competitors into our markets;

	•	the concentration of customer orders at the end of a quarter, which can result in products shipping in the following quarter due to capacity constraints faced by our contract manufacturer; and

	•	any delay in our introduction of new products or product enhancements, particularly our new products for use in 3G networks.


	*If our operating results do not meet the expectations of securities analysts and investors, our stock price is likely to decline.*

In the quarter ended December 29, 2000, we began to experience a slowdown in the booking of orders from new and existing customers and certain customers requested delays in shipment of existing orders. To date we have experienced postponements of approximately $10.0 million in orders that were initially planned to be shipped within the last 18 months. Our customers may further delay or cancel these orders without any repercussion or penalty. We have been unable to book new orders sufficient to offset the effects of these postponements. While the reasons for these trends are uncertain, they may be attributable to an overall slowdown in the economy and in the telecommunications industry in particular, reduced or deferred capital expenditures by our customers, or a difficulty by some customers in obtaining financing. These trends have continued through June 28, 2002 and have adversely affected our business, financial condition and results of operations, as indicated by the reduction in our net revenues for the quarter ended June 28, 2002 as compared to the quarter ended June 29, 2001. If these trends continue further or accelerate, our net revenues, business, financial condition and results of operations would continue to be adversely affected.


	*Our lengthy and variable sales cycle makes it difficult for us to predict if and when a sale will be made and could lead to operating difficulties and cash flow problems.*

Our sales cycle, which is the period from the generation of a sales lead until the recognition of revenues, ranges from nine to 24 months, making it difficult to forecast revenues and operating results. Our inability to accurately predict the timing and magnitude of sales of our products and services could cause a number of problems, including, but not limited to:


	•	expending significant management efforts and incurring substantial sales and marketing expenses in a particular period that do not translate into orders during that period, or at all;

	•	difficulties in meeting our cash flow requirements and obtaining credit because of delays in receiving orders; and

	•	difficulties in meeting our customers’ product delivery requirements in the event many orders are received in a short period of time.

The problems resulting from our lengthy and variable sales cycle could impede our growth, cause fluctuations in our operating results and restrict our ability to take advantage of new opportunities.


	*Certain existing contracts may not result in revenues as large as previously disclosed.*

In the past, we publicly announced the signing of certain purchase contracts and orders with three customers with announced estimated aggregate values through November 2002 of approximately $50.0 million, $15.0 million, and $3.0 million, respectively. However, these agreements have no required minimum purchase amounts and can be terminated without penalty. Accordingly, any estimates of total value of these agreements are speculative. Furthermore, we may never achieve the expected values or sales volume publicly disclosed. While we continue to internally estimate specific customer sales volumes for business planning purposes, none of our prior publicly disclosed estimates should be regarded as purchase commitments or indicative of our current estimates or expectations. To date, we have only recognized revenues of $11.0 million, $3.4 million and $1.1 million, respectively, for these three customers under these agreements.

In addition, on September 6, 2001, we announced an $11.0 million order from Capitel Group, Ltd. of Beijing for China Unicom. On October 22, 2001, we announced that the delivery of products against this order would be extended for a significant length of time and will most likely be in volumes substantially lower than originally anticipated. To date, we have shipped $2.2 million worth of products under this purchase order.


	*Due to uncertainties in production forecasting, we may experience unexpected surpluses or shortages of inventory.*

Our contract with our manufacturer requires us to provide a rolling six-month forecast for production each month. The forecast for the first two months of the six-month forecast are considered firm purchase orders. If we fail to accurately predict our customers’ demand for our products, we may be subject to shortages of certain products and surpluses of other products. If we fail to have an adequate supply of inventory for our products, we may be subject to cancellation of orders from our customers for these products. In addition, if we have a surplus of certain products, we may incur charges for excess or obsolete inventory. For example, in fiscal 2001, our cost of revenue included $2.4 million related to inventory valuation allowance for excess and obsolete inventory. In addition, during the year ended March 29, 2002, we recorded $4.6 million in inventory valuation allowance, which was comprised of accrual of $0.8 million for lower-of-cost-or-market and $3.8 million for excess and obsolete inventory.

Some of the components of our products may have long lead times from the date a purchase order is placed with the supplier to the date the components are delivered to our contract manufacturer. In order to ensure an adequate supply of these components, we may be required to purchase the components ourselves and then resell them to our contract manufacturer to meet our forecasted requirements. If we fail to accurately predict the demand for these components, we may face shortages and potentially lose sales, or alternatively incur charges for excess or obsolete inventory.


	*A small number of customers account for a substantial portion of our revenues and the loss of any of these customers could harm our business.*

Our customer base has been and may continue to be concentrated with a small number of customers. The loss of any of these customers, or the delay, reduction or cancellation of orders by or shipments to any of these customers could hurt our results and cause a decline in our stock price. In the three months ended June 28, 2002, ten customers accounted for 87.2% of our net revenues, with Sercom and Unefon accounting for 30.4% and 27.2%, respectively. In the three months ended June 29, 2001, 85.2% of our net revenues were derived from ten customers, with sales to four customers, Qwest, Unefon, iPCS and UbiquiTel PCS, comprising approximately 20.9%, 15.9%, 12.8% and 10.5%, respectively.

When our products have been fully deployed in a customer’s network or a customer’s demands are otherwise satisfied, we must replace that customer’s sales with those of new customers in order to maintain our sales volume.

We do not have any long-term contracts with any of our customers. Our contracts generally do not contain minimum purchase requirements and are terminable at any time without penalty. We expect to continue to depend on a small number of customers for a substantial portion of our revenues.

In addition, we face increased credit risks, including slow payments or non-payments, due to the concentration of our customer base.


	If we are unable to obtain or maintain vendor qualification with nationwide wireless network operators, our ability to sell our products would be impaired and our revenues would likely decline.

Many of our current and potential customers are large major network operators or affiliates of nationwide wireless network operators. In order to sell our products to these affiliates, our products must be authorized for purchase by the network operator. This authorization process can be both costly and lengthy. If we do not maintain our status as a qualified vendor or supplier, we will be unable to sell our products to these network operators and their affiliates, and our revenues will likely decline.


	Competition from larger, more established companies with greater resources could lead to price reductions, loss of revenues and market share and could prevent us from achieving profitability.

The market for base stations, repeaters and related products is highly competitive. We compete with large infrastructure manufacturers, systems integrators, repeater manufacturers and base station subsystem suppliers, as well as new market entrants. Most of our current and potential competitors have longer operating histories, larger installed customer bases, substantially greater name recognition and more financial, technical, manufacturing, marketing, sales, distribution and other resources than we do. We may not be able to compete successfully against current and future competitors, including companies that develop and market new wireless telecommunications products and services.

We have experienced downward pressure on selling prices of our single-channel products as a result of our entering into volume sale agreements with some customers and general competitive pressures as discussed above. We expect that our selling prices for these products will continue to decline for the foreseeable future. If we cannot offset declines in selling prices by increasing our sales volumes, realizing higher gross margins on our new products or reducing manufacturing costs, our revenues or gross margins will decline. These competitive pressures may also result in longer sales cycles and loss of customers. If we fail to significantly increase our sales of Network Repeaters and the deployment of RepeaterHybrid Networks or to broaden our customer base, we may fail to generate sufficient revenues to sustain our business.


	*A significant decrease in the cost of base stations and their communication links would diminish one of our competitive advantages.*

Unlike our repeater products, current base stations typically require an expensive communications link, usually through a high capacity digital telephone connection, to the network. In addition, base stations themselves are typically larger and more expensive than repeaters. A decrease in the cost of base stations and the communication links used to connect base stations to the local telephone network, especially in less populated areas, will diminish a cost saving that our customers experience from using our products. If the cost of base stations and their communication links decline, demand for our products may decrease and we may have to lower our product prices or experience a decline in orders. Either one of these results could cause decreased revenues and margins.


	*Our dependence on a contract manufacturer for most of our products may diminish our ability to control the quality and timing of delivery of our products.*

We utilize a third-party contract manufacturer to manufacture modules that are assembled into our products. There are risks associated with our dependence on a contract manufacturer, including the contract manufacturer’s control of capacity allocation, labor relations, production quality and other aspects of the manufacturing process. If our contract manufacturer encounters any of these problems, our manufacturing processes will be adversely affected and we may lose customers.

We do not have long-term supply contracts with our contract manufacturer, and they are not obligated to supply us with products for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order. If we are unable to obtain our products from our contract

manufacturer on schedule, revenues from the sale of those products may be delayed or lost, and our reputation, relationships with customers and our business could be harmed. In addition, if our production volumes are too low to maintain existing purchase orders with our contract manufacturer, we could incur significant expenses and experience substantial disruption to our business. Although we believe that we can obtain an alternate contract manufacturer for our products if necessary, we cannot guarantee that such a manufacturer can be obtained on short notice or that our products could be manufactured by an alternative manufacturer on satisfactory terms. Any of these problems could damage relationships with current or prospective customers, seriously harm our operating results and revenues in a given period and impair our ability to generate future sales.


	Our contract manufacturer’s reliance on a limited number of component suppliers could lead to delays, additional costs, problems with our customers and potential customers and loss of revenues.

Our contract manufacturer currently utilizes one or a small number of suppliers for each of the components of our products. In particular, there are currently only a few suppliers of high-power amplifiers, a critical component for a Network Repeater that meets our quality standards. Our contract manufacturer has no long-term contracts or arrangements with the suppliers of components for our products that guarantee the availability of these components. If for any reason a supplier fails to meet quality or quantity requirements, or stops selling components at commercially reasonable prices, or if a competitor enters into an exclusive relationship with one of our suppliers, we could experience significant production delays or cost increases.

From time to time, our contract manufacturer may be required to replace some of the components of our products when the supplier of a particular component discontinues production. While we do not generally maintain an inventory of components, we may purchase a quantity of these discontinued components to supply to our contract manufacturer until new suppliers or substitute components can be found. We face the risk that we may deplete this inventory of discontinued components before finding adequate substitutes, which could cause the loss of significant sales opportunities. Alternatively, we may be left with surplus quantities of these components, which could cause us to incur charges for excess inventory. Although we believe that we can obtain alternative sources of components, we cannot guarantee that such sources can be secured on short notice or that components will be available from alternative sources on satisfactory terms. Any of these problems could damage relationships with current or prospective customers, seriously harm our operating results and revenues in a given period and impair our ability to generate future sales.


	*Our inability to provide long-term equipment financing for our customers is a competitive disadvantage and could result in a loss of sales.*

Many of our current and potential customers require equipment financing to purchase our products. We do not offer long-term equipment financing to our customers. If we cannot assist in arranging long-term equipment financing for our customers, we may lose sales and customers to competitors that provide such financing. Additionally, if we decide to provide our customers with long-term equipment financing in the future, we could face credit risks, including slow payments or non-payments from customers.


	*We have significant sales efforts in international markets, which will subject us to additional business risks.*

A significant portion of our sales efforts has been targeted to international service providers in Australia, Canada, Mexico, South America, Central America, and Asia. Conducting business in these areas subjects us to a number of risks and uncertainties, including:


	•	inadequate protection of intellectual property in foreign countries;

	•	increased difficulty in collecting accounts;

	•	delays and expenses associated with tariffs and other trade barriers;

	•	difficulties and costs associated with complying with a wide variety of complex foreign laws and treaties;


	•	currency fluctuations, including a decrease in the value of foreign currencies relative to the U.S. dollar, which could make our products less competitive against those of foreign competitors; and

	•	political and economic instability.

Any of the factors described above could impair our ability to continue expanding into international markets and could prevent us from increasing our revenues and achieving profitability. We may establish contract manufacturing operations in other countries which could further subject us to the risks described above, particularly the difficulty of protecting intellectual property rights.


	*We have developed a product line primarily based on the CDMA standard and we may not succeed if CDMA is not widely accepted.*

We have concentrated our efforts on the development and sale of products specific to CDMA technology. CDMA is the newest wireless communications technology standard and has yet to achieve the market penetration of other more established digital standards, including TDMA and GSM. There are currently a limited number of wireless service providers utilizing CDMA-based equipment. These service providers are concentrated in North America, Central America, South America and Asia. If CDMA technology is not widely accepted by wireless service providers, the demand for our products will not be as large as we are anticipating. A decline in demand for our current products could have a significant negative impact on our results of operations. In addition, a decline in demand may require us to develop new products compatible with other wireless technology standards, which would cause us to experience significant production delays and cost increases with no assurance of new product acceptance.


	*Because our products are deployed in complex networks, they may have errors or defects that we find only after deployment, which, if not remedied, could harm our business.*

Our products are highly complex, designed to be deployed in complicated networks and may contain undetected defects, errors or failures. Although our products are tested during manufacturing prior to deployment, they can only be fully tested when deployed in commercial networks. Consequently, our customers may discover errors after the products have been deployed. The occurrence of any defects, errors or failures could result in installation delays, product returns, diversion of our resources, increased service and warranty costs, legal actions by our customers, increased insurance costs and other losses to us or to our customers or end users. For example, in fiscal years 2001 and 2002, our cost of sales included $1.9 million and $0.2 million, respectively, related to warranty expense due to defects discovered in our products after installation and operation in our customers’ networks. Any of these occurrences could also result in the loss of or delay in market acceptance of our products, which would harm our business and adversely affect our operating results and financial condition.


	*We are dependent on licensed technology for our products.*

The receive diversity technology contained in our products is licensed from one of our former executive officers. We have held this perpetual license since May 1998. The license agreement requires the timely payment of royalties in the form of cash and shares of our common stock. These royalty payments are non-refundable. Failure to honor the terms of the license agreement could adversely affect our business. Our ability to continue to deploy our existing products and to develop new products incorporating this technology depends significantly upon this license.


	*If we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively.*

We regard substantial elements of our products, such as receive diversity technology, component design specifications, network management software and network component optimization techniques, as proprietary and attempt to protect them by relying on patent, trademark, service mark, copyright and trade secret laws. We also rely on confidentiality procedures and contractual provisions with our employees, consultants, vendors

and licensees to protect our intellectual property. Despite these efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business.

As of March 29, 2002, we had four patents granted and five patent applications pending. We have held these patents since November 1988, July 1990, February 1993, and September 2000, respectively. It is possible that no patents will be issued from these pending applications or from future patent applications. Moreover, our currently issued patents and any patents issued in the future may not provide us with any competitive advantages over, or may be challenged by, third parties.

Effective patent, trademark, service mark, copyright and trade secret protection may not be available in some countries in which our products are distributed, particularly countries within South America and Asia. Furthermore, our competitors may independently develop similar technologies that limit the value of our intellectual property or design around patents issued to us.


	Because legal standards relating to the protection of intellectual property rights related to the telecommunications industry are uncertain and evolving, we may be subject to intellectual property rights disputes, causing us to incur significant costs, diverting the time and attention of our management and preventing us from selling our products.

Due to the competitive nature of the telecommunications industry, particularly as it relates to CDMA-based technology, any competitive advantage we may have relies heavily upon protection of our intellectual property rights. Because the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in our industry are uncertain and evolving, in the future, we may be a party to litigation concerning the intellectual property incorporated in our products. These lawsuits, regardless of their outcome, would be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation also could force us to do one or more of the following:


	•	stop selling, incorporating or using our products that use the challenged intellectual property;

	•	obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or

	•	redesign those products that use the challenged technology.

If we are forced to take any of these actions, our business may be harmed. Our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.


	*Delays in new product development projects could harm our business.*

The market for our products is subject to competition from other repeater manufacturers and base station manufacturers. As a result, we must continue to develop new products and enhancements to our existing products to remain competitive. In particular, we must develop and bring to market our products designed to address third generation, or 3G, wireless networks. If we do not successfully develop new products and enhancements in a timely manner, we may lose market acceptance of our products and be unable to compete effectively with new competitive products, which could harm our business.


	*If we lose key engineering personnel or are unable to hire additional qualified engineering personnel, we may not be successful.*

Our future success largely depends on our ability to attract and retain qualified engineering personnel. The market for qualified engineering personnel in the telecommunications industry is highly competitive and if we cannot attract and retain these personnel, our ability to compete and to grow our business would be significantly limited. We may find it more difficult to attract or retain qualified personnel as a result of our recent reductions in workforce and restructuring.


	*We have engaged in acquisitions and may engage in future acquisitions or strategic transactions that may subject us to various operational and financial risks.*

We have in the past and expect in the future to acquire other businesses or technologies that complement our products, expand the breadth of our product offerings, enhance our technical capabilities, help secure critical sources of supply, or that may otherwise offer growth opportunities. In connection with acquisitions, we may incur operational, financial and other risks, including:


	•	difficulties in combining operations, personnel, technologies or products;

	•	unanticipated costs;

	•	risks associated with entering markets in which we have no or limited prior experience;

	•	diversion of management’s attention from our core business;

	•	adverse effects on existing business relationships with suppliers and customers;

	•	issuing stock that would dilute our current stockholders’ percentage ownership;

	•	incurring debt; and

	•	assumption of liabilities.


	Our certificate of incorporation, bylaws and share purchase rights plan, as well as provisions of Delaware law, could discourage potential acquisitions of our company that stockholders may consider favorable.

Certain provisions of our certificate of incorporation, our bylaws and Delaware law, as well as our share purchase rights plan, may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. This could have an adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.


	Control by certain stockholders will limit the ability of other stockholders to influence the outcome of matters requiring stockholder approval and could discourage potential acquisitions of our company by third parties.

We believe that our executive officers, directors and entities affiliated with them, along with the current holders of more than 5% of our common stock, in the aggregate, beneficially own a majority of our common stock (including shares issuable pursuant to options and warrants held by those parties which are currently exercisable or exercisable within 60 days of May 15, 2002). These stockholders, if acting together, would be able to exert a significant degree of influence over our management and affairs and over matters requiring approval by our stockholders, including the election of our board of directors and the approval of mergers or other business combination transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.


	*The delisting of our common stock due to our low stock price will adversely affect the liquidity of our common stock.*

On February 14, 2002, Nasdaq advised us that the bid price of our common stock had been less than the minimum of $1.00 and the market value of our publicly-held stock had been less than the minimum of $5,000,000 for 30 consecutive trading days and that we would be provided 90 calendar days, or until May 15, 2002, to regain compliance with these required listing criteria. Our common stock did not meet these criteria and on May 15, 2002, we applied for a transfer to the Nasdaq Smallcap Market. While our application for transfer was under review by Nasdaq, our common stock continued to be listed on the Nasdaq National Market. In July 2002, our board of directors decided to withdraw our application for transfer in light of the significant associated costs. On August 5, 2002, Nasdaq advised us that our common stock would be delisted

on August 13, 2002. We do not intend to request review of Nasdaq’s delisting decision as permitted by Nasdaq’s rules.

The delisting of our common stock could adversely affect the liquidity of our common stock. Such delisting could make trading our shares more difficult for investors, increase trading spreads and adversely affect investors’ perception of us and our prospects, any of which could lead to declines in our share price. Delisting could also make it more difficult for us to raise additional capital. We will also incur additional costs under state blue sky laws to sell equity as a result of such delisting.


	*We are currently involved in litigation that could divert management’s time and attention and may be time-consuming and expensive to defend.*

On September 17, 2001, The Gwydion Company, LLC and its members filed direct and stockholder derivative lawsuits against us and certain of our current and former directors and officers claiming breach of contract, fraud, intentional and negligent misrepresentation, and breach of fiduciary duty, and requesting damages and attorney’s fees. On January 10, 2002, our challenge to the shareholder derivative lawsuit was sustained without leave to amend and on January 17, 2002, the court entered judgment in favor of us and against Gwydion and its members. The direct suit for breach of contract and fraud remains pending. While we believe that the plaintiffs’ direct claims are without merit and intend to vigorously defend ourselves against them, we cannot predict the ultimate outcome of the pending action.

On November 16, 2001, a purported stockholder class action lawsuit was filed against us, certain of our current and former directors and officers and certain underwriters of our initial public offering of common stock. This lawsuit purports to bring suit on behalf of all purchasers of our common stock between August 8, 2000, the effective date of our initial public offering, and December 6, 2000. The plaintiffs allege, among other things, that our prospectus, incorporated in our Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially false and misleading because it failed to disclose, among other things, that certain underwriters allegedly (i) solicited and received excessive and undisclosed commissions from certain investors in exchange for which such underwriters allocated to those investors substantial portions of the shares issued in our initial public offering, and (ii) entered into agreements with customers whereby the underwriters agreed to allocate shares of our common stock to those customers in our initial public offering in exchange for which the customers agreed to purchase additional shares of our common stock in the aftermarket at pre-determined prices. The plaintiffs seek unspecified damages and other relief. We believe that we have meritorious defenses and intend to vigorously defend ourselves against these allegations.

In connection with these lawsuits, we expect to incur substantial legal and other expenses. In addition, this litigation could divert the efforts and attention of our management. Such expenses and diversion of resources associated with this litigation could seriously harm our business and financial condition.


	*Variable plan accounting treatment of certain outstanding stock options may have a significant adverse impact on our stated expenses.*

In November 2001, we extended an offer to our eligible employees and directors to cancel stock options with exercise prices greater than $0.30 per share and to grant replacement stock options with an exercise price equal to the quoted market price of our common stock at December 27, 2001,one day before the expiration of the offer. On December 28, 2001, we granted replacement options to purchase an aggregate of 3,143,628 shares of our common stock at $0.29 per share to eligible employees and directors who accepted the offer in a one-for-one exchange for such cancelled stock options. Each replacement option will vest monthly over one year following the date of grant and will expire 18 months after the date of grant. We will account for all such replacement options, as well as eligible options to purchase an aggregate of 69,770 shares of common stock which were not exchanged, under the variable accounting method and will revalue these stock options at the end of each reporting period until the options are exercised, forfeited, or expire unexercised; the resulting charge will be recorded as compensation expense. In the case of the unexchanged stock options to purchase 69,770 shares, the variable accounting treatment may be in effect up to 10 years from the date of grant. The higher the market value of our common stock, the greater the compensation expense we will record. To date,

we have not recorded any compensation expense under the variable accounting method in connection with the stock option exchange due to the low price of our common stock.

Item 3. Quantitative and Qualitative Disclosures of Market Risk

We believe we do not have any significant exposures to quantitative and qualitative market risks. For the three months ended June 28, 2002, we did not have any derivative financial instruments or any derivative commodity instruments. Our financial instruments include trade accounts receivable, trade accounts payable, convertible subordinated debentures and a term note. Our accounts receivable and accounts payable are relatively short term in duration and, as a consequence, are not exposed to significant interest rate changes and consequent fair value adjustments. Our cash equivalents are invested in interest-bearing accounts, generally money market accounts of less than seven days’ average maturity, and as a result are not subject to significant valuation adjustments due to interest rate changes. Our financial market risk includes risks associated with international operations and related foreign currencies. We anticipate that international sales will continue to account for a significant portion of our consolidated revenues. Most of our international sales are in U.S. dollars and, therefore, are not subject to foreign currency exchange rate risk. At June 28, 2002, none of our ending accounts receivable were denominated in a foreign currency and as a result, we were not subject to foreign currency exchange risk. Expenses of our international operations are denominated in each country’s local currency and are subject to foreign currency exchange risk. Expenses in our international operations primarily consist of payroll-related costs and have not been significant. Through June 28, 2002, we have not experienced any significant negative impact on our operations as a result of fluctuations in foreign currency exchange rates.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In November 1999, in connection with the Company’s acquisition of substantially all of the assets of The Gwydion Company, LLC, the Company issued 573,334 shares of the Company’s common stock to the members of Gwydion, Harry Ayvazian and Gary Grimes. These shares were to be held in an escrow account and subject to the Company’s right of repurchase for $1.00 in the aggregate until certain performance criteria were met. In May 2001, the Company filed an escrow claim with Gwydion and the escrow agent to assert the Company’s right under the Gwydion acquisition agreement to repurchase the 573,334 shares issued as consideration. Gwydion and its members have disputed this claim and on September 17, 2001 filed direct and stockholder derivative lawsuits in the Superior Court of the State of California for the County of Santa Clara against the Company and Kenneth L. Kenitzer, Timothy A. Marcotte, Chris L. Branscum, John E. Bosch, Bandel Carano, Richard G. Grey, Perry M. LaForge and Alessandro A. Piol in their capacities as the Company’s current and former directors and officers. The Company initially reported these legal proceedings in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2001 and subsequently reported them in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2001 and the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2002.

believes that the plaintiffs’ direct claims are without merit and intends to vigorously defend itself against them, the Company cannot predict the ultimate outcome of the pending action.


Item 2.	*Changes in Securities and Use of Proceeds*

On August 8, 2000, the Securities and Exchange Commission declared effective our registration statement on Form S-1 (No. 333-31266) relating to the initial public offering of our common stock.

The net offering proceeds to us from our initial public offering, after deducting the underwriting discounts and commissions and offering expenses, were approximately $42.3 million. The majority of the proceeds have been used for expansion of sales, marketing and future development of our products and for general corporate purposes, including working capital. We intend to use the remaining proceeds to support our operations and to provide working capital.


Item 3.	*Defaults Upon Senior Securities*

Not applicable.


Item 4.	*Submission of Matters to a Vote of Security Holders*

Not applicable.


Item 5.	*Other Information*

Not applicable.


Item 6.	*Exhibits and Reports on Form 8-K*

(a) Exhibits


Exhibit
Number		Description of Document

	3.1(1)	Amended and Restated Certificate of Incorporation of the registrant.
	3.3(2)	Bylaws of the registrant, as currently in effect.
	4.1(2)	Specimen Common Stock Certificate.
	4.2(2)	Amended and Restated Preferred Stock Purchase Warrant, dated August 6, 1997, issued to Lighthouse Capital Partners II, L.P.
	4.3(2)	Warrant to Purchase Shares of Series DD Preferred Stock of Repeater Technologies, Inc., dated January 25, 1999, issued to Phoenix Leasing Incorporated.
	4.4(2)	Stock Subscription Warrant to Purchase Series DD Preferred Stock of Repeater Technologies, Inc., dated July 8, 1999, issued to TBCC Funding Trust II.
	4.5(2)	Seventh Amended and Restated Investors’ Rights Agreement, dated July 11, 2000.
	4.6(2)	Form of Warrant to Purchase Shares of Series EE Preferred Stock.
	4.7(3)	Certificate of Designation of Series A Junior Participating Preferred Stock.
	4.8(3)	Rights Agreement, dated as of August 9, 2001, between Repeater Technologies, Inc. and U.S. Stock Transfer Corporation, including Form of Right Certificate.
	10.13(4)*	Change of Control Agreement, dated May 3, 2002, between Chris L. Branscum and Repeater Technologies, Inc.
	10.14(4)*	Change of Control Agreement, dated May 3, 2002, between Joel J. Spina and Repeater Technologies, Inc.
	10.15(4)*	Change of Control Agreement, dated May 3, 2002, between John L. Soliday and Repeater Technologies, Inc.
	10.16(4)*	Change of Control Agreement, dated May 15, 2002, between John E. Bosch and Repeater Technologies, Inc.
	10.18(4)*	Form of Retention Agreement between Repeater Technologies, Inc. and each of Chris L. Branscum, Timothy A. Marcotte, Joel J. Spina and John L. Soliday.
	10.19	Amendment to Settlement and Release Agreement, dated as of July 5, 2002, between Repeater Technologies, Inc. and Sanmina-SCI Corporation.
	99.1	Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.


(1)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000, filed with the Commission on September 20, 2000.

(2)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Registration Statement on Form S-1, as amended (No. 333-31266), declared effective by the Commission on August 8, 2000.

(3)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2001, filed with the Commission on August 13, 2001.

(4)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Annual Report on Form 10-K for the fiscal year ended March 29, 2002, filed with the Commission on June 27, 2002.

*	Denotes a management contract or compensatory plan or arrangement.


	(b)	Reports on Form 8-K

No reports on Form 8-K were filed during the three months ended June 28, 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.


	REPEATER TECHNOLOGIES, INC.


	BY:	/s/ TIMOTHY A. MARCOTTE



	Timothy A. Marcotte
	Executive Vice President,
	Chief Operating Officer
	and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: August 9, 2002

EXHIBIT INDEX


Exhibit
Number		Description of Document

	3.1(1)	Amended and Restated Certificate of Incorporation of the registrant.
	3.3(2)	Bylaws of the registrant, as currently in effect.
	4.1(2)	Specimen Common Stock Certificate.
	4.2(2)	Amended and Restated Preferred Stock Purchase Warrant, dated August 6, 1997, issued to Lighthouse Capital Partners II, L.P.
	4.3(2)	Warrant to Purchase Shares of Series DD Preferred Stock of Repeater Technologies, Inc., dated January 25, 1999, issued to Phoenix Leasing Incorporated.
	4.4(2)	Stock Subscription Warrant to Purchase Series DD Preferred Stock of Repeater Technologies, Inc., dated July 8, 1999, issued to TBCC Funding Trust II.
	4.5(2)	Seventh Amended and Restated Investors’ Rights Agreement, dated July 11, 2000.
	4.6(2)	Form of Warrant to Purchase Shares of Series EE Preferred Stock.
	4.7(3)	Certificate of Designation of Series A Junior Participating Preferred Stock.
	4.8(3)	Rights Agreement, dated as of August 9, 2001, between Repeater Technologies, Inc. and U.S. Stock Transfer Corporation, including Form of Right Certificate.
	10.13(4)*	Change of Control Agreement, dated May 3, 2002, between Chris L. Branscum and Repeater Technologies, Inc.
	10.14(4)*	Change of Control Agreement, dated May 3, 2002, between Joel J. Spina and Repeater Technologies, Inc.
	10.15(4)*	Change of Control Agreement, dated May 3, 2002, between John L. Soliday and Repeater Technologies, Inc.
	10.16(4)*	Change of Control Agreement, dated May 15, 2002, between John E. Bosch and Repeater Technologies, Inc.
	10.18(4)*	Form of Retention Agreement between Repeater Technologies, Inc. and each of Chris L. Branscum, Timothy A. Marcotte, Joel J. Spina and John L. Soliday.
	10.19	Amendment to Settlement and Release Agreement, dated as of July 5, 2002, between Repeater Technologies, Inc. and Sanmina-SCI Corporation.
	99.1	Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.


(1)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000, filed with the Commission on September 20, 2000.

(2)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Registration Statement on Form S-1, as amended (No. 333-31266), declared effective by the Commission on August 8, 2000.

(3)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2001, filed with the Commission on August 13, 2001.

(4)	Incorporated by reference from the correspondingly numbered exhibit to the registrant’s Annual Report on Form 10-K for the fiscal year ended March 29, 2002, filed with the Commission on June 27, 2002.

*	Denotes a management contract or compensatory plan or arrangement.

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REPEATER TECHNOLOGIES INC 10-Q