UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

Form 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~ 30MARCH 31, ~~2009~~ 2010

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-21681

EF JOHNSON TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		47-0801192
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1440 CORPORATE DRIVE

IRVING, TEXAS 75038

(Address of principal executive offices and zip code)

(972) 819-0700

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o	Accelerated Filer o

Non-accelerated Filer o	Smaller Reporting Company x
(Do not check if a smaller reporting company)

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

As of ~~November~~May 94, ~~2009~~2010, 26,~~477~~516,~~611~~679 shares of the Registrant’s Common Stock were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009

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

	September 30, 2009			December 31, 2008
	March 31, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	1113,~~524~~523		$	1116,~~267~~030
Restricted cash	5,~~030~~032			—5,032
Accounts receivable, net of allowance for returns and doubtful accounts of $1,888 and $1,969, respectively	16,929			18,234
Accounts receivable, net of allowance for returns and doubtful accounts of $1,534 and $1,490, respectively	25,452			7,477
Accounts receivable due from related parties	—			1,281
Receivables - other	613			796
Receivables - other	320			849
Cost in excess of billings on uncompleted contracts	4,576			5,096
Cost in excess of billings on uncompleted contracts	4,717			5,116
Inventories, net	28,096			31,295
Inventories, net	32,743			37,322
Prepaid expenses	1,047			912
Prepaid expenses	789			1,632
Total current assets	78,339			66,638
Total current assets	72,052			75,701
Property, plant and equipment, net	3,888			4,425
Property, plant and equipment, net	4,801			5,996
Restricted cash	—			2,021
Goodwill	5,126			5,126
Other intangible assets, net of accumulated amortization	87,~~025~~531			87,~~770~~778
Other assets	71178			73178
TOTAL ASSETS	$	9095,~~075~~062		$	9784,~~687~~145
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt obligations	$	15,~~667~~275		$	915,476
Accounts payable	714,~~860~~596			118,~~728~~470
Accrued expenses	87,~~325~~489			107,~~786~~754
Billings in excess of cost on uncompleted contracts	~~204~~7,412			~~217~~3,610
Deferred revenues	~~602~~1,057			1,~~235~~118
Total current liabilities	3245,~~658~~829			2336,~~975~~428
Long-term debt obligations, net of current portion	—			15,006
Deferred income taxes	631			631
Other liabilities	91,639			~~1,106~~715
TOTAL LIABILITIES	3348,~~298~~099			4037,~~718~~774
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value; 3,000,000 shares authorized; none issued)	—			—
Common stock ($0.01 par value; 50,000,000 voting shares authorized, 26,470,277 and 26,336,735 issued and outstanding as of September 30, 2009 and December 31, 2008, respectively)	262			262
Common stock ($0.01 par value; 50,000,000 voting shares authorized, 26,486,586 and 26,477,611 issued and outstanding as of March 31, 2010 and December 31, 2009, respectively)	264			264
Additional paid-in capital	155,~~899~~998			~~154~~155,~~688~~795
Accumulated other comprehensive loss	(~~659~~271		)	(~~1,088~~470		)
Accumulated deficit	(98108,~~596~~899		)	(96109,~~861~~089		)
Treasury stock (118,989 and 18,083 shares at cost at September 30, 2009 and December 31, 2008)	(129		)	(32		)
Treasury stock (118,989 and 118,989 shares at cost at March 31, 2010 and December 31, 2009)	(129		)	(129		)
TOTAL STOCKHOLDERS’ EQUITY	5646,~~777~~963			5646,~~969~~371
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9095,~~075~~062		$	9784,~~687~~145

See accompanying notes to the condensed consolidated financial statements.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~ 2010 and ~~2008~~2009

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

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
				(as restated)						(as restated)
				(as adjusted)
Revenues	$	2429,~~412~~332		$	3422,~~500~~081		$	~~76,970~~		$	~~100,969~~
Cost of sales	1618,~~170~~915			2114,~~649~~731			~~48,439~~			~~65,719~~
Gross profit	810,~~242~~417			127,~~851~~350			~~28,531~~			~~35,250~~
Operating expenses:
Research and development, net of reimbursements	2,424			3,559			8,860			6,935
Research and development	2,365			3,331
Sales and marketing	2,~~229~~095			32,~~275~~476			~~7,138~~			~~9,689~~
General and administrative	45,~~577~~086			45,~~756~~423			~~15,329~~			~~16,862~~
Amortization of intangibles	~~250~~247			~~357~~246			~~740~~			~~1,170~~
Escrow fund settlement	—			—(2,804		)	~~(2,804~~		)	—
Total operating expenses	9,~~480~~793			118,~~947~~672			~~29,263~~			~~34,656~~
Income (loss) from operations	~~(1,238~~624		)	~~904~~(1,322		)	~~(732~~		)	~~594~~
Interest expense, net	(~~367~~434		)	(~~259~~284		)	~~(1,003~~		)	~~(707~~		)
Income (loss) before income taxes	~~(1,605~~190		)	~~645~~(1,606		)	~~(1,735~~		)	~~(113~~		)
Income tax (expense)	—			—			—			—
Net income (loss)	$	~~(1,605~~190	)	$	~~645~~(1,606	)	$	~~(1,735~~	)	$	~~(113~~	)
Net income (loss) per share – Basic	$	(0.06	)	$	0.02		$	(0.07	)	$	—
Net income (loss) per share — Basic	$	0.01		$	(0.06	)
Net income (loss) per share – Diluted	$	(0.06	)	$	0.02		$	(0.07	)	$	—
Net income (loss) per share — Diluted	$	0.01		$	(0.06	)
Weighted average common shares – Basic	26,440,835			26,121,544			26,355,828			26,088,648
Weighted average common shares — Basic	26,485,220			26,383,931
Weighted average common shares – Diluted	26,440,835			26,687,013			26,355,828			26,088,648
Weighted average common shares — Diluted	26,781,866			26,383,931

See accompanying notes to the condensed consolidated financial statements.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Nine~~Three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009

(Unaudited and in thousands)

	2009			2008
	2010			2009
				(as restated)
				(as adjusted)
Cash flows from operating activities:
Net loss	$	(1,735	)	$	(113	)
Net income (loss)	$	190		$	(1,606	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision (used) provided for returns and doubtful accounts	(81		)	248
Provision for returns and doubtful accounts	44			748
Depreciation and amortization	~~2,844~~843			~~3,433~~972
Recognition of deferred gain	(7124		)	(7124		)
Stock-based compensation	~~1,171~~195			~~1,742~~549
Changes in operating assets and liabilities:
Accounts receivable	2(18,~~667~~019		)	(~~11,497~~124		)
Accounts receivable from related parties	—			~~497~~281
Receivables - other	~~529~~183			~~1,161~~(97		)
Cost in excess of billings on uncompleted contracts	~~399~~520			3482
Inventories	43,~~579~~199			~~208~~1,083
Prepaid expenses and other	~~843~~(135		)	(62199		)
Accounts payable	(36,~~868~~126		)	(~~1,935~~553		)
Accrued and other liabilities	(~~2,390~~245		)	(1,~~525~~838		)
Billings in excess of cost on uncompleted contracts	~~(13~~3,802		)	68753
Deferred revenues	~~(642~~863		)	(~~202~~222		)
Total adjustments	5(2,~~967~~648		)	(71,~~901~~411		)
Net cash provided by (used in) operating activities	4,232			(8,014		)
Net cash used in operating activities	(2,458		)	(195		)
Cash flows from investing activities:
Increase in restricted cash related to collateralized bond	—			(2,012		)
Purchase of property, plant and equipment	(59		)	(296		)
Purchase of property, plant and equipment	(904		)	(1,564		)
Net cash used in investing activities	(59		)	(296		)
Other assets	2			137
Net cash used in investing activities	(902		)	(3,439		)
Cash flows from financing activities:
Proceeds on revolving lines of credits	—			11,600
Increase in restricted cash related to term loan	—			(3,003		)
Principal payments on revolving lines of credits	—			(9,600		)
Principal payments on long-term debt	(1		)	(2		)
Increase in restricted cash related to term loan	(3,009		)	—
Proceeds from issuances of common stock	11			19
Principal payments on long-term debt	(7		)	(6		)
Purchase of treasury stock	—			(86		)
Proceeds from issuances of common stock	40			18
Net cash provided by (used in) financing activities	10			(3,072		)
Purchase of treasury stock	(97		)	—
Net decrease in cash and cash equivalents	(2,507		)	(3,563		)
Proceeds from exercise of stock options	—			46
Cash and cash equivalents, beginning of period	16,030			11,267
Net cash (used in) provided by financing activities	(3,073		)	2,058
Cash and cash equivalents, end of period	$	13,523		$	7,704
Net increase (decrease) in cash and cash equivalents	257			(9,395		)
Cash and cash equivalents, beginning of period	11,267			15,636
Cash and cash equivalents, end of period	$	11,524		$	6,241

Supplemental Disclosure of Cash Flow Information:

The Company paid interest of $~~1,024~~366 and $~~920~~359 during ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively.

The Company paid income taxes of $7943 and $~~235~~37 during ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008,~~ 2009, respectively.

See accompanying notes to the condensed consolidated financial statements.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~ 2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

1. GENERAL

The condensed consolidated balance sheet of EF Johnson Technologies, Inc., ~~formerly~~ ~~EFJ, Inc.,~~ at December 31, ~~2008~~ 2009, presented within this Report on Form 10-Q, has been derived from audited consolidated financial statements at that date. The condensed consolidated financial statements ~~as of September 30, 2009 and~~ for the three ~~and nine~~ months ended ~~September~~March 3031, 2010 ~~2009~~ and ~~2008~~ 2009 are unaudited. The condensed consolidated financial statements reflect all normal and recurring accruals and adjustments that, in the opinion of of management, are necessary for a fair presentation of the financial position, operating results, and cash flows for the interim periods presented in this quarterly report. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009. The results of operations and cash flows for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010 are not ~~necessarily~~ necessarily indicative of the results for any other period or the entire fiscal year ending December 31, ~~2009~~2010.

At the Company’s May 28, 2008 Annual Meeting of Stockholders, the Stockholders approved an amendment of the Company’s Certificate of Incorporation to change the corporate name from EFJ, Inc. to EF Johnson Technologies, Inc. The Company’s stock is quoted on the NASDAQ Global Market under the symbol “EFJI”, and its ticker symbol did not change.

Unless the context otherwise provides, all references to “the Company,” “we,” “us,” and “our” include EF Johnson Technologies, Inc., its predecessor entity and its subsidiaries, including E.F. Johnson Company, Transcrypt International, Inc., and 3e Technologies International, Inc. on a consolidated basis. All references to “EF Johnson” refer to E.F. Johnson Company, all references to “Transcrypt” refer to Transcrypt International, Inc., and all references to “3eTI” refer to 3e Technologies International, Inc.

On April 1, 2009, Transcrypt International, Inc. merged into ~~the~~ E.F. Johnson Company.

2. ORGANIZATION AND CONSOLIDATION

We are a provider of secure wireless solutions that are sold to: (1) domestic and foreign public safety / public service entities, (2) federal, state and local governmental agencies, including the Departments of Defense and Homeland Security ~~and Defense~~, and (3) domestic and foreign commercial customers. Through EFJohnson, Transcrypt and 3eTI we design, develop, market, and support:

· mobile and portable wireless radios;

· stationary transmitters / receivers (base stations or repeaters);

· infrastructure equipment and systems;

· secure encryption technologies for proprietary wireless radios;

· customized wireless network centric products and systems to the federal government primarily under government funded Small Business Innovative Research (SBIR) programs; and

· niche hardware and secure software technologies for the WLAN markets primarily in the government ~~sector~~ and industrial controls sectors.

Our products are marketed under the “EFJohnson,” “3eTI” and “Transcrypt” brandnames.

The condensed consolidated financial statements include the accounts of EF Johnson Technologies, Inc. and our wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in the consolidation.

~~Previously~~In ~~the~~order ~~Company~~to ~~was~~be ~~organized,~~competitive ~~and~~in ~~reported its financial results, as a parent company with two segments, Private Wireless Communications and Secured Communications. Having recognized that~~ the public safety/public service market isthat ~~moving~~has moved towards convergent telecommunications solutions, ~~the~~with ~~continued~~ demand for interoperability and the continued transition from analog to digital platforms, ~~we reorganized~~ the Company inis ~~January 2008~~organized ~~into~~in a single centralized corporate structure ~~in order to be competitive in this market~~. In light of ~~these changes,~~ the ~~Company reassessed~~converged ~~its~~telecommunication ~~segment~~markets ~~reporting,~~ and ~~beginning~~our ~~with~~corporate ~~the first quarter of 2008~~structure, the weCompany ~~have~~has noone ~~segments~~segment to report.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and~~ ~~nine months~~ ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

3. ~~RESTATEMENT~~ BUSINESS CONDITION AND LIQUIDITY

InThe Company ~~this~~has ~~Form 10-Q,~~incurred wenet ~~are~~losses ~~restating~~of ~~our previously~~$12.2 million, ~~reported~~$20.9 million ~~financial~~and $41.1 million ~~results~~ for the ~~quarter~~years ended ~~September~~December 3031, 2009, 2008 and 2007, respectively. InThe ~~our~~Company ~~Form~~generated net cash and cash equivalents of $4.8 ~~10-K~~million ~~for~~(net ~~2008~~of restricted cash) in 2009, webut ~~restated~~used ~~our~~net ~~previously~~cash ~~reported~~and cash ~~financial~~equivalents ~~results~~of ~~for~~$2.5 million in the ~~quarters~~first ~~ended~~quarter ~~September 30~~of 2010. Additionally, ~~2007~~the Company used net cash and ~~March~~cash equivalents of $4.4 ~~31, June 30,~~million and ~~September 30,~~$7.2 million in fiscal years 2008 and 2007, respectively,. ~~and~~The ~~for~~Company was not in compliance with certain of the ~~fourth~~financial covenants of its loan agreement with ~~quarter~~Bank ~~and~~of ~~year~~America, ~~ended~~N.A. for the quarter ending December 31, ~~2007~~2009. The Company executed an amendment to the loan agreement effective March 1, 2010 which waived these covenant violations on a one-time basis, but the amendment also included additional restrictions and further limited our access to liquidity (see Note 11).

~~The~~Prior to ~~previously~~the ~~filed~~amendment ~~annual~~discussed ~~report~~below, the Company’s loan agreement with Bank of America, N.A., which governs our revolving line of credit and $15 million term loan, would have expired on ~~Form~~June ~~10-K~~30, 2010, resulting in the ~~for~~$15.0 million ~~2007~~term loan becoming due and ~~quarterly~~payable ~~reports~~in full on ~~Form~~that date. The Company has pledged $3.0 ~~10-Q~~million ~~affected~~to byBank of America, which is shown as Restricted Cash on our balance sheet and partially offsets this term loan. As a result of the ~~restatements~~amendment executed March 1, 2010, the maximum that we could ~~have~~borrow ~~not~~under ~~been~~the ~~amended~~revolving credit line was $3.75 million through June 30, 2010. As of March 31, 2010, the Company had $3.0 million available under its existing line of credit (subject to the lender’s discretion) net of the letter of credit outstanding for $0.75 million and ~~should~~had ~~not~~unrestricted becash ~~relied~~of approximately ~~upon~~$13.5 million.

OnThe Company ~~March 30,~~did ~~2009,~~not ~~the~~anticipate ~~Audit~~that ~~Committee~~it ~~(the~~would ~~“Audit Committee”)~~have ofsufficient cash on hand to pay off the ~~Company’s~~term ~~Board~~loan when due, without dedicating all or substantially all of ~~Directors~~our cash ~~concluded~~flow ~~that,~~from ~~upon~~operations to the ~~recommendation~~ payment of ~~management~~our indebtedness. As a result, the Company developed and implemented specific action plans to improve profitability and resolve this liquidly matter in ~~consultation~~the ~~with~~first ~~Grant~~half ~~Thornton~~of ~~LLP~~2010 ~~(“Grant~~including the following: ~~Thornton”~~i), flattened the ~~Company’s~~organizational ~~independent~~structure ~~registered~~and ~~public~~reduced ~~accounting~~employee ~~firm~~and operational expenses in January 2010, and ii) retained the services ~~Company’s~~of ~~previously~~an ~~issued~~outside ~~financial~~investment ~~statements~~banking ~~for~~firm ~~each~~to ofsupport the ~~quarters~~required ~~ended~~programs to ~~September 30,~~accomplish ~~2007~~management’s objectives and ~~March 31,~~to ~~June 30~~explore ~~and~~options ~~September 30,~~available to the ~~2008,~~Company ~~respectively~~to refinance the debt, ~~and~~or ~~for~~raise ~~the~~additional ~~fourth~~funds ~~quarter~~through ~~and~~private ~~year~~equity or ~~ended~~debt ~~December 31~~financing, ~~2007~~ sales of assets, ~~required~~or ~~restatement~~other strategic alternatives.

During the third quarter of 2007, the Company entered into a memorandum of understanding with one of its vendors in an effort to resolve a dispute between the parties regarding an outstanding non-trade receivable. The ~~agreement granted credits on future purchases to the Company,~~ ~~and~~accompanying ~~therefore~~financial ~~should~~statements have been ~~accounted~~prepared ~~for~~assuming bythat ~~reducing~~ the ~~cost of future~~Company ~~inventory~~will ~~purchases,~~continue ~~and subsequently cost of sales, over the period of the agreement, and the outstanding receivable should have been written off. Prior to the restatement, the Company recorded credits received~~ as a ~~result~~going ofconcern. ~~this agreement~~The asfinancial ~~collections~~statements ofdo anot ~~receivable~~include ~~instead of a reduction of inventory~~any ~~cost.~~adjustments Asto areflect ~~result,~~ the ~~Company~~possible ~~wrote~~future ~~off~~effects ~~this~~on ~~“Other Receivable” balance as of~~ the ~~third~~recoverability ~~quarter of 2007,~~ and ~~the related credits on future purchases received~~ ~~under~~classification ~~this agreement are being treated as a reduction to cost~~ of ~~sales resulting~~assets ~~from~~or the ~~lower~~amounts ~~cost~~and ~~basis~~classifications of ~~inventory.~~liabilities ~~The write-off of this receivable was charged to cost of sales, as the transactions~~ that ~~generated the~~ ~~disputed~~may ~~receivables~~result ~~related~~should to the ~~transfer~~Company ~~of inventory at cost to a contract manufacturer. Based on estimated purchases, we anticipate that approximately $2.7 million of credits remaining at December 31, 2008 will~~ be ~~earned~~unable ~~over the next two~~ to ~~three~~continue ~~years~~as ~~pursuant~~a togoing ~~this agreement~~concern. ~~The balance of credits remaining at September 30, 2009 was approximately $2.4 million.~~

~~This adjustment is a non-cash adjustment in 2007 and~~Subsequent 2008. Future purchases covered by the memorandum of understanding will have a positive impact on our gross margin and operating income on a going forward basis. For the three and nine months ended September 30, 2009 we recognized $37 and $255 in credits, respectively. For the three and nine months ended September 30, 2008 we recognized $223 and $565 in credits, respectively.events

~~The~~On ~~following~~May 15, 2010, ~~tables~~the Company, entered into an Agreement and Plan of Merger (inthe ~~thousands~~“Merger Agreement”) ~~summarize~~with ~~the~~FP-EF ~~net~~Holding Corporation, a Delaware corporation (“Parent”), ~~increases~~and FP-EF Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (~~decreases~~“Merger Sub”). The ~~for~~Merger Agreement provides that, upon the ~~three~~terms and ~~nine~~subject ~~months~~to ~~ended~~the ~~September 30~~conditions set forth in the Merger Agreement, the Merger Sub will merge with and into the Company ~~2008.~~(the ~~These~~“Merger”), ~~adjustments~~with ~~did~~the ~~not~~Company ~~change~~continuing as the ~~amounts~~surviving ~~reported~~corporation (“Surviving Corporation”) and as ~~cash~~a ~~flows~~wholly-owned ~~from~~subsidiary of Parent. Parent is an affiliate of Francisco Partners ~~operating~~II, ~~investing~~L.P., ora ~~financing~~global ~~activities~~technology-focused private equity fund.

	As previously reported three months ended						Adjusted three months ended
	September 30,						September 30,
	2008			Adjustment			2008
Revenues	$	34,500		$	—		$	34,500
Cost of sales	21,872			(223		)	21,649
Gross profit	12,628			223			12,851
Total operating expenses	11,947			—			11,947
Income from operations	681			223			904
Interest expense, net	(259		)	—			(259		)
Net income before income taxes	$	422		$	223		$	645
Income tax benefit (expense)	—			—			—
Net income	$	422		$	223		$	645
Net income per share—basic	$	0.02		$	—		$	0.02
Net income per share—diluted	$	0.02		$	—		$	0.02
Weighted average common shares— basic	26,121,544			26,121,544			26,121,544
Weighted average common shares— diluted	26,687,013			26,687,013			26,687,013

Pursuant to the terms of the Merger Agreement, stockholders will receive $1.05 per share in cash for their shares of stock of the Company at which time the Company will be privately held. Consummation of the Merger is subject to customary conditions, including, among others, (i) approval of the Company’s stockholders, (ii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, if applicable, (iii) absence of any order or injunction prohibiting the consummation of the Merger, (iv) subject to certain exceptions, the accuracy of representations and warranties with respect to the Company’s business and compliance by the Company with its covenants contained in the Merger Agreement and (v) stockholders owning no more than 10% of the Company’s outstanding common stock dissenting from the Merger and seeking appraisal rights.

The Merger Agreement contains certain termination rights for both the Company and Parent, and further provides that, in connection with the termination of the Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee of $1.0 million and/or reimburse certain out-of-pocket expenses up to $1.0 million. Additionally, the Company’s only recourse if Parent breaches the Merger Agreement or the Company terminates the Merger Agreement in certain circumstances is the right to receive a reverse termination fee from Parent of $2.0 million and up to $1.0 million in certain of the Company’s out-of-pocket expenses. The Company cannot seek equitable relief to enforce Parent to consummate the Merger.

Parent and Merger Sub have represented and warranted that they will have sufficient financing to consummate the Merger and there is no financing condition to closing. Additionally, Francisco Partners II, L.P. and Francisco Partners Parallel Fund II, L.P., affiliates of Parent, have delivered to the Company a limited guarantee with respect to the payment of the Parent Termination Fee and out-of-pocket expenses of the Company.

On May 15, 2010, EF Johnson Technologies, Inc. (the “Company”) entered into a Seventh Amendment (the “Seventh Amendment”) effective as of May 15, 2010, to our Revolving Line of Credit Loan Agreement, Term Loan Agreement and Security Agreement (the “Loan Agreement”) with Bank of America, N.A. (the “Lender”) to extend the maturity of the Loan Agreement until August 31, 2010, to allow the Company to consummate the Merger. The Lender also waived compliance with certain financial covenants contained in the Loan Agreement for the Company’s fiscal quarter ending June 30, 2010, on

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine months ended~~ ~~September~~ended 30March 31, ~~2009~~2010 and ~~2008~~ 2009

(Unaudited ~~and in thousands, except share and per share data~~)

3a one-time basis. In consideration of the Lender’s ~~RESTATEMENT~~agreement, ~~(continued)~~the Company agreed to pay down the outstanding principal balance of the term loan portion of the Loan Agreement from $15.0 million to $5.0 million on June 17, 2010. Under the terms of the Seventh Amendment, the Company may authorize the Lender to apply funds held by the Lender in a pledged account in reduction of the outstanding principal balance, provided that the balance remaining in the pledged account cannot be reduced below $0.75 million. On June 17, 2010, the amount contained in the pledged account is expected to be $6.5 million.

	As previously reported nine months ended						Adjusted nine months ended
	September 30,						September 30,
	2008			Adjustment			2008
Revenues	$	100,969		$	—		$	100,969
Cost of sales	66,284			(565		)	65,719
Gross profit	34,685			565			35,250
Total operating expenses	34,656			—			34,656
Loss from operations	29			565			594
Interest expense, net	(707		)	—			(707		)
Net loss before income taxes	$	(678	)	$	565		$	(113	)
Income tax benefit (expense)	—			—			—
Net loss	$	(678	)	$	565		$	(113	)
Net loss per share—basic and diluted	$	(0.03	)	$	0.03		—
Weighted average common shares— basic and diluted	26,088,648			26,088,648			26,088,648

The parties further amended the Loan Agreement to increase the revolving line of credit from $3.75 million to $6.0 million effective June 17, 2010. All future advances under the Loan Agreement will continue to be subject to the Lender’s discretion. The Seventh Amendment further requires the Company to continue to provide additional financial reporting to the Lender on a monthly basis through the maturity of the loans.

	As previously reported September 30,						Adjusted September 30,
	2008			Adjustment			2008
Assets
Current assets:
Cash and cash equivalents	$	6,241		$	—		$	6,241
Accounts receivable	32,097			—			32,097
Receivables—other	5,218			(2,881		)	2,337
Cost in excess of billings on uncompleted contracts	3,241			—			3,241
Inventories, net	33,663			—			33,663
Prepaid Expenses	1,171			—			1,171
Total current assets	81,631			(2,881		)	78,750
TOTAL ASSETS	$	122,946		$	(2,881	)	$	120,065
LIABILITIES AND STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES	41,399			—			41,399
Commitments and contingencies
Stockholders’ equity:
Common stock	262			—			262
Additional paid-in capital	155,162			—			155,162
Accumulated other comprehensive loss	(657		)	—			(657		)
Accumulated deficit	(73,220		)	(2,881		)	(76,101		)
TOTAL STOCKHOLDERS’ EQUITY	81,547			(2,881		)	78,666
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	122,946		$	(2,881	)	$	120,065

4. RETROSPECTIVE ADOPTION OF NEW ACCOUNTING GUIDANCE

4.In September 2009, the Financial Accounting ~~NET~~Standards ~~INCOME~~Board (~~LOSS~~“FASB”) ~~PER~~amended ~~SHARE~~the accounting standards related to revenue recognition for arrangements with multiple deliverables (“new accounting guidance”). The new accounting guidance permits prospective or retrospective adoption, and the Company elected to retrospectively adopt as of January 1, 2009 during the fourth quarter of 2009.

~~Basic~~Prior ~~income~~to ~~(loss)~~2009, ~~per share~~the ~~(“EPS”)~~Company ishad ~~calculated~~not ~~based~~provided ~~upon~~a significant ~~the weighted average~~ number of ~~common shares~~optional ~~outstanding~~extended ~~during~~warranties; ~~the~~and ~~period.~~therefore, ~~The diluted EPS calculation reflects~~ the ~~potential~~ ~~dilution from common stock equivalents such as stock options, stock~~Company ~~satisfied~~determined ~~stock~~that ~~appreciation~~the ~~rights~~deferral ~~(“SSAR’s”),~~of ~~restricted~~revenue ~~stock~~associated ~~grants~~with ~~and restricted~~optional ~~stock units (collectively “Incentive Shares”). For the three months~~extended ~~ended~~warranties ~~September 30,~~was ~~2008,~~insignificant ~~outstanding~~in ~~incentive~~prior ~~shares with exercise~~ years.

The new accounting guidance generally requires the Company to account for the sale of products and optional extended warranties as separate deliverables. The first deliverable is the hardware recognized at the time of delivery, and the second deliverable is the optional extended warranty recognized ratably over the period benefited. The new accounting guidance requires the Company to estimate a stand-alone selling price for the optional extended warranty, defer that amount as deferred revenue and recognize the revenue ratably over the period benefited.

The Company had the option of adopting the new accounting guidance at the start of the fiscal year on a prospective basis or at an interim period on a retrospective basis and elected retrospective adoption. Retrospective adoption required the Company to revise its previously issued 2009 quarterly interim financial statements as if the new accounting guidance had been applied from the beginning of the fiscal year.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine months ended~~ ~~September~~ended 30March 31, ~~2009~~2010 and ~~2008~~ 2009

(Unaudited ~~and in thousands, except share and per share data~~)

~~prices~~The ~~lower~~following ~~than~~table ~~the average~~unaudited ~~market~~(in ~~price~~thousands, ~~of the common stock for the period were considered common~~except ~~stock~~per ~~equivalents~~share ~~and~~amounts) ~~were~~presents ~~dilutive in~~ the ~~calculation~~effects of the ~~diluted~~retrospective ~~weighted average~~adoption ~~common~~of ~~shares. Outstanding incentive shares that had exercise prices~~the ~~higher~~new ~~than~~accounting ~~the~~guidance ~~average~~as ~~market price~~ of ~~the~~January 1, ~~common~~2009 ~~stock~~to ~~for~~ the ~~periods~~Company’s ~~were~~previously ~~considered~~reported ~~anti-dilutive~~Condensed ~~and~~Consolidated ~~excluded~~Statements ~~from the calculation~~ of ~~diluted~~Operations ~~weighted average~~for ~~common shares. For~~ the three months ~~ended September 30, 2009 and~~ ~~the nine months~~ ended ~~September~~March 3031, 2009 and 2008, respectively, all outstanding incentive shares were considered anti-dilutive due to the net loss for the period end. The outstanding incentive shares that are considered dilutive and anti-dilutive are as follows:

	Three Months Ended				Nine Months Ended
	As previously						As
	September 30,				September 30,
	reported						amended
	2009		2008		2009		2008
	March 31, 2009			Adjustment			March 31, 2009
Incentive shares with dilutive effect	—		565,469		—		—
Revenues	$	22,429		$	(348	)	$	22,081
Incentive shares with anti-dilutive effect	1,660,701		1,088,810		1,747,704		1,457,856
Net income (loss) before income taxes	$	(1,258	)	$	(348	)	$	(1,606	)
Outstanding incentive shares	1,660,701		1,654,279		1,747,704		1,457,856
Net income (loss)	$	(1,258	)	$	(348	)	$	(1,606	)
Net income (loss) per share—basic	$	(0.05	)	$	(0.01	)	$	(0.06	)
Net income (loss) per share—diluted	$	(0.05	)	$	(0.01	)	$	(0.06	)
Weighted average common shares— basic	26,383			26,383			26,383
Weighted average common shares— diluted	26,383			26,383			26,383

5. NET INCOME (LOSS) PER SHARE

Basic income (loss) per share (“EPS”) is calculated based upon the weighted average number of common shares outstanding during the period. The diluted EPS calculation reflects the potential dilution from common stock equivalents such as stock options, stock satisfied stock appreciation rights (“SSAR’s”), restricted stock grants and restricted stock units (collectively “Incentive Shares”). For the three months ended March 31, 2010, outstanding incentive shares with exercise prices lower than the average market price of the common stock for the period were considered common stock equivalents and were dilutive in the calculation of the diluted weighted average common shares. Outstanding incentive shares that had exercise prices higher than the average market price of the common stock for the period were considered anti-dilutive and excluded from the calculation of diluted weighted average common shares. For the three months ended March 31, 2009 all outstanding incentive shares were considered anti-dilutive due to the net loss for the period end. The outstanding incentive shares that are considered dilutive and anti-dilutive are as follows:

	Three Months Ended
	March 31,
	2010	2009
Incentive shares with dilutive effect	296,646	—
Incentive shares with anti-dilutive effect	1,180,418	1,889,919
Outstanding incentive shares	1,477,064	1,889,919

We use the treasury stock method to calculate diluted weighted average common shares, as if all such options were outstanding for the periods presented.

56. ACCOUNTING FOR STOCK-BASED COMPENSATION

We use the Black-Scholes option pricing model to determine the fair value of all stock option grants and stock satisfied stock appreciation rights (“SSAR’s”) (collectively “Options”). For the three ~~and nine~~ months ended ~~September~~March 3031, 2010 and 2009, we recognized compensation expense of $0.31 million and $0.83 million, respectively, related to options and $0.1 million and $0.21 million, respectively, related to restricted stock grants and restricted stock units. Additionally, $0.1 million of compensation expense was recognized related to equity grants made in the first quarter of 2009 to certain named executive officers associated with performance-based incentives earned for ~~meeting~~ meeting certain operational, new product introductions and other personal goals. For the three and nine months ended September 30, 2008, we recognized compensation expense of $0.4 million and $1.2 million, respectively, related to options and $0.2 million and $0.6 million, respectively, related to restricted stock grants and restricted stock units.

At the Company’s May 27, 2009 Annual Meeting of Stockholders, the Stockholders approved an amendment to the EFJ, Inc. 2005 Omnibus Incentive Compensation Plan to increase the maximum number of shares of common stock that may be granted to any one participant in any fiscal year from 100,000 to 350,000 shares.

6. ESCROW FUND SETTLEMENT

On January 13, 2009, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) settling a claim made by the Company against the escrow fund established in connection with the acquisition of 3eTI by the Company in 2006. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated July 10, 2006, by and among the Company, 3eTI, Avanti Acquisition Corp., Chih-Hsiang Li, as Stockholders’ Agent, and Steven Chen, James Whang, Chih-Hsiang Li and AEPCO, Inc. (as the “Principal Stockholders”), $3.6 million (or ten percent (10%) of the purchase price for 3eTI) was deposited into an escrow account at the time of closing to indemnify the Company for any claims under the Merger Agreement. In August 2008, the Company made a claim against the escrow fund for damages arising out of certain alleged breaches of representations and warranties contained in the Merger Agreement.

Pursuant to the terms of the Settlement Agreement, the Company received on January 16, 2009, approximately $2.8 million, inclusive of interest, out of the escrow fund. The remaining balance of the escrow fund (or approximately $1.1 million, inclusive of interest) was paid out to the former stockholders of 3eTI pursuant to the terms of the Merger Agreement. The Settlement Agreement also contains a mutual release of liability for claims related to the acquisition of 3eTI by the Company.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine months ended~~ ~~September~~ended 30March 31, ~~2009~~2010 and ~~2008~~ 2009

(Unaudited ~~and in thousands, except share and per share data~~)

7. ESCROW FUND SETTLEMENT

On January 13, 2009, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) settling a claim made by the Company against the escrow fund established in connection with the acquisition of 3eTI by the Company in 2006. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated July 10, 2006, by and among the Company, 3eTI, Avanti Acquisition Corp., Chih-Hsiang Li, as Stockholders’ Agent, and Steven Chen, James Whang, Chih-Hsiang Li and AEPCO, Inc., $3.6 million (or ten percent (10%) of the purchase price for 3eTI) was deposited into an escrow account at the time of closing to indemnify the Company for any claims under the Merger Agreement. In August 2008, the Company made a claim against the escrow fund for damages arising out of certain alleged breaches of representations and warranties contained in the Merger Agreement.

The escrow funds received as part of the settlement were recorded as a reduction of operating expense. The Company previously incurred research and development costs in connection with the re-design, re-testing and re-certification of certain 3eTI products to bring them up to specifications represented to exist at the acquisition date.

78. INTEREST RATE SWAP AGREEMENT AND COMPREHENSIVE LOSS

On July 19, 2006, we entered into an interest rate swap agreement to manage interest costs and risks associated with changing interest rates, not for speculative or ~~trading~~ trading purposes. The interest rate swap has been designated as a cash flow hedge and is recorded in the consolidated financial statements at fair value. Changes in the fair value of the swap have been recorded in Accumulated Comprehensive Loss in the balance sheet as the derivative is assessed as effectively hedged at ~~September~~March 3031, ~~2009~~ 2010. Changes in the fair value of the swap would be reclassified to other income (expense) to the extent the hedging instrument is determined to be ineffective.

The interest rate swap agreement effectively converts the variable LIBOR component of the interest rate on the $15.0 million term loan to a fixed rate of 5.64%. Under the terms of the interest rate swap agreement, the Company will pay 5.64% and the counterparty will pay LIBOR on a monthly basis. The interest rate swap agreement terminates on June 30, 2010, the termination date of the term loan. The cumulative net unrealized loss was $0.73 million and is included in the current portion of long-term debt obligations due to the termination date of the interest rate swap agreement and accumulated other comprehensive loss in the consolidated balance sheet at ~~September~~March 3031, ~~2009~~2010. The following is a summary of comprehensive loss (in thousands):

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
				(as restated)						(as restated)
				(as adjusted)
Net income (loss)	$	~~(1,605~~190	)	$	~~645~~(1,606	)	$	~~(1,735~~	)	$	~~(113~~	)
Reclassification to interest expense	(~~205~~239		)	(~~121~~192		)	~~(596~~		)	~~(308~~		)
Fair value adjustment for interest rate swap	~~360~~438			~~169~~311			~~1,025~~			~~361~~
Comprehensive income (loss)	$	~~(1,450~~389	)	$	~~693~~(1,487	)	$	~~(1,306~~	)	$	~~(60~~	)

8. INVENTORIES

The following is a summary of inventories:

	September 30, 2009			December 31, 2008
Raw materials and supplies	$	10,371		$	11,598
Work in progress	354			1,049
Finished goods	23,318			24,673
Service inventories	2,847			3,163
	36,890			40,483
Reserve for obsolescence	(4,147		)	(3,161		)
Total inventories	$	32,743		$	37,322

9. GOODWILL AND INTANGIBLE ASSETS

Our goodwill and intangible assets are tested for impairment annually as of December 31 of each year unless events or circumstances would require an immediate review. Goodwill and intangible asset amounts are allocated to the reporting units based upon amounts allocated at the time of their respective acquisition. Intangible assets, consisting of existing technology, customer relationships, license and covenants not-to-compete, are amortized over their useful life on a straight-line basis. Intangible assets consisting of trademark and trade name and certifications are not subject to amortization.

We performed fair value-based impairment tests at December 31, 2008. Upon completion of the impairment test, we concluded that the fair value of the 3eTI reporting unit was lower than the carrying value of the associated goodwill, certain intangibles and its trade name. Therefore, in the fourth quarter ended December 31, 2008, we reported an impairment charge of $14.9 million related to goodwill and $3.5 million related to the other intangibles, including trade name, that was recorded in general and administrative expenses.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine months ended~~ ~~September~~ended 30March 31, ~~2009~~2010 and ~~2008~~ 2009

(Unaudited ~~and in thousands, except share and per share data~~)

~~No events occurred during the nine months ended September 30, 2009 and 2008, respectively, which would indicate that an impairment of such assets had taken place as of such dates~~9. INVENTORIES

~~Amortization~~The ~~expense, related~~following tois ~~intangible~~a ~~assets~~summary which are subject to amortization, was $0.3 and $0.4 million for the three months ended September 30, 2009 and September 30, 2008, respectively. Amortization expense, related to intangible assets which are subject to amortization, was $0.8 and $1.2 million for the nine months ended September 30, 2009 and September 30, 2008, respectively. Intangible assets consist of ~~the~~inventories ~~following as of the dates indicated~~(in thousands):

	September 30, 2009								December 31, 2008
	March 31, 2010			December 31, 2009
	Gross						Net		Gross					Net
Raw materials and supplies	$	7,728		$	6,773
	Amount			Impairment			Amount		Amount		Impairment			Amount
Work in progress	122			742
Intangible assets not subject to amortization:
Finished goods	20,652			23,621
Goodwill	$	5,126		$	—		$	5,126	$	20,040	$	(14,914	)	$	5,126
Service inventories	1,506			1,696
Trademarks	2,044			—			2,044		4,364		(2,320		)	2,044
	30,008			32,832
Certifications	1,230			—			1,230		1,230		—			1,230
Reserve for obsolescence	(1,912		)	(1,537		)
	$	8,400		$	—		$	8,400	$	25,634	$	(17,234	)	$	8,400
Total inventories	$	28,096		$	31,295

	September 30, 2009									December 31, 2008
	Gross				Accumulated			Net		Gross					Accumulated			Net
	Amount		Impairment		Amortization			Amount		Amount		Impairment			Amortization			Amount
Intangible assets subject to amortization:
Existing technology	$	6,190	$	—	$	(3,080	)	$	3,110	$	6,190	$	—		$	(2,667	)	$	3,523
Customer relationships	3,756		—		(2,227		)	1,529		4,800		(1,044		)	(1,908		)	1,848
License	159		—		(159		)	—		320		(161		)	(159		)	—
Covenant not-to-compete	400		—		(400		)	—		400		—			(400		)	—
Trademarks/Patents	209		—		(97		)	112		209		—			(84		)	125
	$	10,714	$	—	$	(5,963	)	$	4,751	$	11,919	$	(1,205	)	$	(5,218	)	$	5,496

10. GOODWILL AND INTANGIBLE ASSETS

10Our goodwill and intangible assets are tested for impairment annually as of December 31 of each year unless events or circumstances would require an immediate review. ~~NOTE~~Goodwill ~~PAYABLE~~and ~~AND~~intangible ~~LINE~~asset OFamounts ~~CREDIT~~are allocated to the reporting units based upon amounts allocated at the time of their respective acquisition. Intangible assets, consisting of existing technology, customer relationships, license and covenants not-to-compete, are amortized over their useful life on a straight-line basis. Intangible assets consisting of trademark and trade name and certifications are not subject to amortization.

We ~~amended our secured~~ ~~line~~performed offair ~~credit~~value-based ~~agreement~~impairment ~~with~~tests Bank of America in July 2006 to retain a revolving line of credit of up to $15.0 million and include a term loan of $15.0 million (the “Loan Agreement”). The $15.0 million term loan was fully funded and used to finance the acquisition of 3eTI dated July 10, 2006. Both borrowings bear interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) plus a margin (“LIBOR Margin”) determined by our ratio of debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”). The LIBOR Margin was 400 basis points as of SeptemberDecember 3031, 2009 and ~~was 200~~ ~~basis~~concluded ~~points at September 30, 2008. As discussed below, an amendment to the Loan Agreement was executed in March 2009~~ that ~~resulted~~no inimpairment ~~increased~~of ~~basis points and lowered~~ the ~~revolving~~related ~~line~~goodwill ofor ~~credit~~trade toname ~~$10.0 million. Interest~~had ~~rates of 4~~occurred.~~26% and 4.5% were in effect at September 30, 2009 and 2008, respectively. The Loan Agreement expires June 30, 2010.~~

~~At September 30,~~No ~~2009~~events ~~and~~occurred ~~December 31,~~during ~~2008, no borrowings had been made on~~ the ~~revolving line~~three ofmonths ~~credit.~~ended ~~There was $0.75 million open letters of credit under our line of credit at September~~March 3031, ~~2009~~2010 and ~~there were no open letters of credit~~2009, ~~under our line of credit at December 31~~respectively, ~~2008.~~which ~~The~~would ~~total~~indicate ~~available remaining~~that ~~credit~~an ~~under~~impairment ~~the line~~ of ~~credit~~such ~~was~~assets ~~$9.25~~had ~~million and $14.4~~taken ~~million~~place as of ~~September 30,~~such ~~2009 and December 31, 2008, respectively~~dates.

~~The Loan Agreement~~Amortization ~~provides for customary affirmative and negative covenants~~expense, ~~including maintenance~~related ofto ~~corporate~~intangible existence, rights, property, books and records and insurance, compliance with contracts and laws, and certain reporting requirements, as well as limitations on debt, liens, fundamental changes, acquisitions, transfers of assets, ~~investments,~~which ~~loans,~~are ~~guarantees,~~subject ~~use~~to ~~of proceeds~~amortization, ~~sale-leaseback transactions and capital expenditures. In addition,~~was ~~the Loan Agreement contains certain financial covenants including a maximum ratio of funded debt to EBITDA and a fixed charge coverage ratio~~$0.2 ~~The~~million ~~Loan Agreement also provides~~ for ~~events of default that would permit~~ the ~~lender~~three ~~to accelerate~~months ~~the~~ended ~~loans upon their occurrence~~March 31, ~~including~~2010 ~~failure~~and ~~to make payments~~March 31, ~~breaches of representations and warranties~~2009, ~~insolvency~~respectively. Intangible ~~events,~~assets consist ~~acceleration~~ of ~~other~~ ~~indebtedness,~~the ~~failure~~following toas ~~discharge judgments, material adverse effects, certain breaches~~ of ~~contracts,~~the ~~casualty~~dates ~~losses~~indicated (in thousands):

	March 31, 2010						December 31, 2009
	Gross				Net		Gross				Net
	Amount		Impairment		Amount		Amount		Impairment		Amount

Intangible assets not subject to amortization:
Goodwill	$	5,126	$	—	$	5,126	$	5,126	$	—	$	5,126
Trademarks	2,044		—		2,044		2,044		—		2,044
Certifications	1,230		—		1,230		1,230		—		1,230
	$	8,400	$	—	$	8,400	$	8,400	$	—	$	8,400

	March 31, 2010									December 31, 2009
	Gross				Accumulated			Net		Gross				Accumulated			Net
	Amount		Impairment		Amortization			Amount		Amount		Impairment		Amortization			Amount

Intangible assets subject to amortization:
Existing technology	$	6,190	$	—	$	(3,355	)	$	2,835	$	6,190	$	—	$	(3,218	)	$	2,972
Customer relationships	3,756		—		(2,439		)	1,317		3,756		—		(2,333		)	1,423
Licenses	159		—		(159		)	—		159		—		(159		)	—
Covenant not-to-compete	400		—		(400		)	—		400		—		(400		)	—
Trademarks/Patents	209		—		(104		)	105		209		—		(100		)	109
	$	10,714	$	—	$	(6,457	)	$	4,257	$	10,714	$	—	$	(6,210	)	$	4,504

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and nine months ended~~ ~~September~~ended 30March 31, ~~2009~~2010 and ~~2008~~ 2009

(Unaudited ~~and in thousands, except share and per share data~~)

~~when no or insufficient insurance is maintained, changes of control, certain ERISA events and failure to observe covenants~~11. NOTE AsPAYABLE ~~collateral~~AND ~~for~~LINE ~~the~~OF obligations under the Loan Agreement, the Lender has a security interest in substantially all assets of the borrowers, including accounts receivable, inventories, machinery, equipment, real estate, and general intangibles.CREDIT

AsWe amended ~~noted in~~ our ~~Form 10-K for~~line ~~the~~of ~~period~~credit ~~ending~~agreement ~~December 31, 2008, we were not in compliance~~ with ~~the~~ ~~financial covenants of the Loan Agreement for the quarter ended December 31, 2008. As a result, effective March 16, 2009 we executed an Amendment to the Loan Agreement whereby~~ Bank of America ~~waived~~in ~~such~~July 2006 ~~financial covenant defaults on a one-time basis, and amended the Loan Agreement~~ to~~, among other~~ ~~things,~~retain ~~lower~~our ~~the~~ revolving line of credit ~~from~~of ~~$15.0~~up ~~million~~ to $1015.0 million~~, revise~~ ~~such financial covenants, add additional covenants,~~ and toinclude ~~modify~~a ~~the~~term ~~advance~~loan ~~and~~of ~~borrowing~~$15.0 ~~provisions~~million ~~under~~ (the “Loan Agreement”). InBoth ~~order~~borrowings tobear ~~maintain~~interest at ~~compliance~~a ~~with~~variable ~~the~~rate ~~terms~~based ofon the ~~Amendment,~~London ~~the~~Interbank ~~Company~~Offered ~~pledged~~Rate as(“LIBOR”) ~~additional~~plus a ~~cash~~margin ~~collateral~~(“LIBOR ~~for~~Margin”). ~~the~~The ~~remaining~~LIBOR ~~term~~Margin ofwas ~~the~~500 ~~term~~basis ~~loan~~points ~~$3.0~~at ~~million on the~~March 31, ~~effective~~2010 ~~date~~and of400 ~~the~~basis ~~Amendment.~~points ~~Furthermore,~~at ~~beginning with the quarter ending June~~March 3031, 2009,. weThe ~~are~~interest ~~required~~rate ~~to maintain a certain level~~ of ~~EBITDA,~~5.41% ~~maintain~~and ~~certain~~4.56% ~~fixed~~were ~~charge~~in ~~coverage~~effect ~~ratio~~at onMarch 31, a2010 ~~cumulative~~and ~~basis beginning April 1,~~ 2009, arespectively. ~~minimum funded debt to EBITDA ratio on an annualized basis beginning April 1,~~The ~~2009~~Loan ~~for~~Agreement ~~each~~expires ~~quarterly financial reporting period through~~ June 30, 2010. ~~and~~As ~~limit~~discussed ~~capital expenditures to $2.5 million for 2009. In addition~~below, ~~the interest~~an ~~rate~~amendment ~~on the revolving note issuable pursuant~~ to the Loan Agreement ~~has been~~was ~~amended~~executed toon ~~a floating rate equal to LIBOR plus a Libor Margin ranging from~~March 1, 2010 ~~2.50%~~that toresulted ~~5.00%~~in ~~through~~higher ~~the~~interest ~~term of the note based on the Company’s funded debt to EBITDA~~rates.

The $15.0 ~~Company~~million ~~was~~term ~~in compliance~~loan ~~with~~was ~~all~~fully ~~financial~~funded and ~~negative~~used ~~covenants~~to atfinance ~~September 30,~~the ~~2009~~acquisition of ~~under~~3eTI. ~~the~~The ~~Loan~~Company ~~Agreement~~did ~~except~~not ~~for~~borrow against the ~~minimum~~revolving ~~EBITDA~~line ~~financial~~during ~~covenant. Effective November 9,~~ 2009, ~~Bank of America waived such financial covenant~~or ~~default~~during onthe athree ~~one~~months ~~time~~ended ~~basis~~March 31, 2010. AsThere ~~discussed~~was ~~above,~~$0.75 ~~compliance~~million ~~with~~open ~~new,~~letters of ~~more~~credit ~~restrictive financial covenants~~ under ~~the~~our ~~Loan~~line ~~Agreement~~of ~~was~~credit ~~required beginning~~at inMarch 31, ~~the~~2010 ~~Company’s~~and ~~second quarter of~~ 2009. If ~~certain~~As ~~orders are~~discussed ~~not received and shipped~~ in ~~the~~more ~~fourth~~detail ~~quarter~~below, the ~~Company~~maximum ~~may~~that ~~not~~we ~~meet~~can ~~those more~~borrow ~~restrictive~~under ~~loan covenants for~~ the ~~fourth~~revolving ~~quarter. Management’s evaluation~~credit isline ~~based~~was ~~on recent experience with expected orders being temporarily delayed by customers~~$3. In75. ~~such~~The ~~event,~~total ~~the~~available ~~Company~~credit ~~intends to attempt to obtain a waiver of noncompliance from the lender, failing which the lender could declare the Company in default~~ under the ~~Loan~~line ~~Agreement~~of ~~and~~credit ~~accelerate the payment of~~was ~~the~~approximately $153.0 million ~~term~~and ~~loan,~~$3.1 ~~require~~million ~~payment~~as of ~~any~~March 31, ~~borrowings~~2010 ~~under the revolving line of credit~~ and ~~raise the interest rate an additional 4%.~~December 31, ~~There~~2009, ~~can be no assurance that the Company will be able to obtain such waiver~~respectively.

IfThe Loan ~~the~~Agreement ~~Company~~provides isfor ~~not~~customary ~~in compliance~~affirmative ~~with~~and ~~the~~negative ~~bank~~ covenants, atincluding maintenance ~~the~~of ~~end~~corporate ofexistence ~~the~~and ~~fourth~~certain ~~quarter~~reporting ~~and~~requirements, isas well ~~unable~~as tolimitations ~~obtain~~on adebt, ~~waiver~~liens, ~~from~~fundamental ~~such~~changes, ~~noncompliance~~acquisitions, ~~the~~investments, loans, ~~Company~~guarantees, ~~may~~use ~~need~~of ~~to raise~~proceeds ~~additional~~and ~~funds~~capital ~~through~~expenditures. ~~public~~In oraddition, ~~private~~the Loan ~~equity~~Agreement orcontains ~~debt~~certain ~~financing~~financial tocovenants including a maximum ratio ~~pay~~of ~~amounts~~funded ~~due~~debt to EBITDA and ~~owing~~a ~~under~~fixed ~~the~~charge coverage ratio. The Loan Agreement, also toprovides ~~the~~for ~~extent~~events ~~existing resources~~of ~~and~~default ~~cash~~that ~~from~~would ~~operations~~permit ~~are~~the ~~insufficient~~lender to ~~pay~~accelerate the ~~such~~loans ~~obligations~~upon their occurrence. ~~These~~ ~~funds~~As ~~may~~collateral ~~not~~for bethe ~~available,~~obligations orunder ifthe Loan ~~available,~~Agreement wethe ~~may~~Lender ~~not~~has bea ~~able~~security tointerest ~~obtain~~in substantially all assets ~~them~~of onthe ~~terms~~borrowers, ~~favorable~~including toaccounts usreceivable, inventories and general intangibles.

~~The~~We ~~Loan~~were not in compliance with certain of the financial covenants of the Loan Agreement ~~expires~~for ~~June~~the quarter ended December 3031, ~~2010~~2009. As a result, ~~the~~effective ~~$15.0~~March 1, 2010, ~~million~~we ~~term~~executed ~~loan~~an ~~under~~amendment to the Loan Agreement ~~has~~whereby ~~been classified~~Bank asof ~~current~~America waived ~~due~~such tofinancial ~~its~~covenant ~~maturity~~defaults ~~date~~on ofa ~~June 30~~one-time basis, ~~2010.~~waived ~~Through~~compliance ~~the~~with ~~expiration~~such offinancial covenants for the ~~term~~Company’s ~~loan~~first quarter of 2010, weand further ~~expect~~amended the Loan Agreement to, ~~build~~among ~~our~~other ~~cash~~things, ~~balances~~(i) lower inthe ~~anticipation~~revolving line of ~~payment~~credit ~~and~~from /$10.0 ormillion ~~refinancing~~to ~~all~~$3.75 ormillion, a(ii) make all ~~portion~~future ofadvances under the ~~term~~line ~~loan at~~subject ~~maturity.~~to Asthe ~~noted~~lender’s ~~above~~discretion, we(iii) further limit ~~may~~our ~~need~~ability to ~~raise~~obtain ~~additional~~letters ~~funds~~of ~~through public~~credit, or(iv) require ~~private~~us ~~equity~~to orpledge additional ~~debt~~cash ~~financing~~collateral tototaling ~~satisfy~~$3.5 million for the remaining term ~~loan~~of atthe ~~maturity.~~loan ~~These~~agreement ~~funds~~no ~~may~~later ~~not~~than beJune 15, ~~available~~2010, orand if(v) require ~~available,~~us weto provide ~~may~~additional ~~not~~financial bereporting ~~able~~ to ~~obtain~~the ~~them~~bank on a monthly basis. Failure to comply with any of these terms could ~~favorable~~constitute an event of default that would permit the lender to usaccelerate the loans upon their occurrence, which could have a material adverse effect on our operating results and cash flows.

11As more fully disclosed in Note 3 above, on May 15, 2010, the Company entered into the Seventh Amendment to our Loan Agreement with Bank of America, N.A. to extend the maturity of the Loan Agreement until August 31, ~~INCOME~~2010 ~~TAXES~~to allow the Company to consummate the Merger. The Lender also waived compliance with certain financial covenants contained in the Loan Agreement for the Company’s fiscal quarter ending June 30, 2010, on a one-time basis. In consideration of the Lender’s agreement, the Company agreed to pay down the outstanding principal balance of the term loan portion of the Loan Agreement from $15.0 million to $5.0 million on June 17, 2010. Under the terms of the Seventh Amendment, the Company may authorize the Lender to apply funds held by the Lender in a pledged account in reduction of the outstanding principal balance, provided that the balance remaining in the pledged account cannot be reduced below $0.75 million. On June 17, 2010, the amount contained in the pledged account is expected to be $6.5 million.

WeThe ~~did~~parties ~~not~~further ~~record~~amended ~~a tax benefit or provision for~~ the ~~three~~Loan ~~and~~Agreement ~~nine months ended September 30, 2009 and 2008 primarily due~~ to ~~our fully reserved deferred tax assets requiring~~ noincrease ~~further~~the ~~provision~~revolving ~~for~~line ~~income~~of ~~taxes~~credit ~~for~~from ~~each respective period end~~$3.75 ~~The Company~~million ~~has~~to ~~unrecognized tax benefits of approximately~~ $06.50 million ~~that did~~ ~~not~~effective ~~change significantly during the nine months ended September~~June 3017, ~~2009 relating to carry forward of business credits~~2010. All ~~The adoption of FASB authoritative guidance for~~future ~~accounting~~advances ~~for~~under ~~uncertainty in income taxes did not result in~~ the ~~recognition~~Loan ~~of additional~~Agreement ~~tax~~will ~~liability~~continue ~~for~~to ~~unrecognized~~be ~~income~~subject ~~tax~~to ~~benefits since~~ the ~~tax~~Lender’s ~~benefits have not been included in prior income tax return filings~~discretion. The InSeventh Amendment ~~addition,~~further ~~future~~requires ~~changes in~~ the ~~unrecognized~~Company ~~tax~~to ~~benefit~~continue ~~will~~to ~~have~~provide noadditional ~~net~~financial ~~impact~~reporting onto the ~~effective~~Lender ~~tax~~on ~~rate~~a ~~due~~monthly tobasis through the ~~existence~~maturity of the ~~valuation allowance~~loans.

AsThe Company agreed to pay Lender a one-time fee in the amount of ~~September~~$0.032 million on or before June 30, ~~2009~~ 2010, wewhich ~~have~~fee nois ~~accrual~~in ~~requirement~~addition ~~for~~to ~~interest~~any orfees ~~penalties~~previously required ~~related~~by ~~to uncertain~~the ~~tax~~Lender, ~~positions~~including, ~~since~~without limitation, the ~~tax~~fees ~~benefits~~required ~~have~~under the ~~not~~terms ~~been~~of ~~included~~the inSixth ~~prior~~Amendment to Revolving Line of Credit Loan Agreement, ~~income~~Term ~~tax~~Loan ~~return~~Agreement ~~filings~~and Security Agreement dated as of March 1, 2010.

The tax years 2004-2008 remain open to examination by the major taxing jurisdictions to which we are subject. Additionally, upon inclusion of the NOL and R&D credit carry forward tax benefits from tax years 1996 to 2003 in future tax returns, the related tax benefit for the period in which the benefit arose may be subject to examination.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and~~ ~~nine months~~ ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

12. ~~WARRANTY~~ INCOME ~~COSTS~~TAXES

We did ~~provide~~not record a ~~one-to-three~~tax ~~year~~benefit ~~warranty~~or onprovision ~~substantially~~for ~~all~~the ofthree ~~our~~months ~~product~~ended ~~sales~~March 31, ~~depending~~2010 ~~upon~~and ~~certain~~2009 ~~terms~~primarily ~~and~~due ~~conditions~~to ofour ~~the~~fully ~~sale,~~reserved ~~and~~deferred ~~estimate~~tax ~~future~~assets requiring ~~warranty~~no ~~claims~~further ~~based~~provision onfor ~~historical~~income ~~experience~~taxes ~~and~~for ~~anticipated~~each ~~costs~~respective toperiod beend. The ~~incurred~~Company ~~over~~has ~~the~~unrecognized ~~life~~tax benefits of ~~the~~approximately ~~warranty~~$0.5 ~~Warranty~~million ~~expense~~that isdid not ~~accrued~~change atduring the ~~time of~~three months ~~sale~~ended ~~with~~March 31, an2010 ~~additional~~relating ~~accrual~~to ~~for~~carry forward ~~specific~~of ~~items~~business ~~after~~credits. ~~the~~In ~~sale~~addition, ~~when~~future ~~their existence~~changes isin ~~known~~the ~~and~~unrecognized tax ~~amounts~~benefit ~~are~~will ~~determinable.~~have Ano ~~reconciliation~~net ofimpact ~~changes~~on ~~in our~~the ~~accrued~~effective ~~warranty~~tax ~~reserve~~rate asdue ofto ~~September 30,~~the existence ~~2009~~of isthe asvaluation ~~follows:~~allowance.

	Balance at		Charged to	Deduction /	Balance at
	December 31, 2008		Expense	Expenditures	September 30, 2009
Allowance for Warranty Reserve	$	3,116	1,910	1,813	$	3,213

As of March 31, 2010, we have no accrual requirement for interest or penalties related to uncertain tax positions since the tax benefits have not been included in prior income tax return filings.

13The tax years 2005-2009 remain open to examination by the major taxing jurisdictions to which we are subject. Additionally, upon inclusion of the NOL ~~FAIR~~and ~~VALUE~~R&D OFcredit ~~FINANCIAL~~carry ~~INSTRUMENTS~~forward tax benefits from tax years 1996 to 2004 in future tax returns, the related tax benefit for the period in which the benefit arose may be subject to examination.

~~In September 2006, the FASB issued authoritative guidance for measuring fair value, which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years~~13. WARRANTY This guidance defines fair value, establishes a framework for measuring fair value, expands the related disclosure requirements and applies under other accounting pronouncements that require or permit fair value measurements. The guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The guidance defines fair value based upon an exit price model.COSTS

~~The Company~~We ~~adopted~~provide ~~the~~a ~~guidance~~one-to-three asyear warranty on substantially all of ~~January 1~~our product sales, ~~2008~~depending ~~relating~~upon tocertain ~~financial~~terms and conditions of the ~~assets~~sale, and ~~liabilities.~~estimate ~~The~~future ~~carrying~~warranty ~~amount~~claims ofbased ~~our~~on ~~current~~historical ~~assets~~experience and ~~liabilities~~anticipated ~~approximates~~costs ~~fair~~to ~~value~~be ~~because~~incurred over the life of the ~~short~~warranty. ~~maturity~~Warranty expense is accrued at the time of ~~these~~sale with an additional accrual for specific ~~instruments.~~items ~~The~~after ~~carrying~~the ~~amount~~sale when their existence is known and amounts are determinable. A reconciliation of ~~our~~changes ~~term~~in ~~loan~~our ~~approximates~~accrued ~~fair~~warranty ~~value~~reserve as itof isMarch 31, ~~based~~2010 onis ~~prevailing~~as ~~market~~follows ~~rates~~(in ~~of interest.~~thousands):

The guidance relating to non-recurring nonfinancial assets and nonfinancial liabilities will be applied as circumstances require. Non-recurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill impairment testing and indefinite lived intangible assets measured at fair value for impairment testing.

	Balance at		Charged to	Deduction /	Balance at
	December 31, 2009		Expense	Expenditures	March 31, 2010
Allowance for Warranty Reserve	$	2,600	114	114	$	2,600

~~The fair value of our interest rate swap agreement represents the amount required to settle the agreement using prevailing market rates of interest~~14. FAIR ~~Interest rate~~VALUE ~~swaps~~OF ~~are~~FINANCIAL ~~measured at fair value indirectly through market corroboration, for substantially the full term of the financial instrument within Level 2 of the fair value hierarchy.~~INSTRUMENTS

The carrying ~~following~~amounts ~~table~~of ~~provides~~our ~~the~~current assets and liabilities ~~carried~~approximate fair value atbecause of the short maturity of these instruments. The carrying amount of our term loan approximates fair value ~~measured~~as it is based on aprevailing ~~recurring~~market ~~basis~~rates asof interest. The fair value of ~~September 30,~~our ~~2009:~~interest rate swap agreement represents the amount required to settle the agreement using prevailing market rates of interest.

	Fair Value Measurements Using
	Total Carrying Value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate swap - liability at September 30, 2008	$	657	$	—	$	657	$	—
Interest rate swap - liability at September 30, 2009	$	659	$	—	$	659	$	—

The FASB authoritative guidance relating to the accounting for financial assets and liabilities which defines fair value, establishes a framework for measuring fair value, provides guidance regarding the manner in determining fair value of a financial asset when there is no active market for such asset at the measurement date and expands disclosures about fair value measurements.

14The authoritative guidance defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are ~~COMMITMENTS~~three ~~AND~~levels ~~CONTINGENCIES~~of inputs that may be used to measure fair value:

We· Level 1—quoted ~~are involved~~prices in ~~certain legal proceedings incidental to the normal conduct of our~~active ~~business.~~markets Atfor ~~this~~identical ~~time,~~assets weand ~~do not believe that any~~ liabilities ~~relating to such legal proceedings are likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or cash flows~~.

~~The total~~· Level 2—observable weinputs ~~have~~other ~~accrued~~than quoted prices in ~~regards~~active tomarkets ~~all~~for ~~legal~~identical ~~proceedings~~assets ~~as of September 30, 2009~~ and ~~December 31, 2008 was $0~~liabilities.~~1 million.~~

· Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and~~ ~~nine months~~ ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

InThe ~~the normal~~following ~~course~~table ~~of our business activities, we are required under certain~~provides ~~supplier~~the ~~agreements~~liabilities ~~and~~carried contracts with various government authorities to provide letters of credit and bonds that may be drawn upon if we fail to perform under these agreements or contracts. There was $0.75 million open letters of credit under our line of credit at ~~September 30,~~fair ~~2009~~value ~~and~~measured ~~there were~~on noa ~~open~~recurring ~~letters~~basis ofas ~~credit under our line~~ of ~~credit at December~~March 31, ~~2008.~~2010 ~~Bonds,~~(in ~~which expire on various dates, totaled $2.4 million on September 30, 2009 and December 31, 2008. No bonds had been drawn upon at either date.~~thousands):

15. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

	Total Carrying Value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate swap - liability at March 31, 2009	$	969	$	—	$	969	$	—
Interest rate swap - liability at March 31, 2010	$	271	$	—	$	271	$	—

~~On November~~ 15, 2007, the Company committed to an organizational plan (the “Plan”) to shift from three divisions to one integrated corporate structure focused on secure wireless communications for government and industrial customers. COMMITMENTS ~~The~~AND Plan was expected to improve efficiencies in our operations, to reduce our infrastructure costs and to support a new technology roadmap driving towards a streamlined and more effective structure. Implementation of the Plan included senior and middle management changes as well as staff reductions designed to eliminate redundant positions and reflected the Company’s decision to consolidate operations and move production from three locations into a centralized operations and outsourcing program in the Dallas/Fort Worth area.CONTINGENCIES

~~Costs~~We are ~~that~~involved ~~were~~in ~~directly~~certain ~~associated~~legal ~~with~~proceedings ~~the~~incidental ~~Plan~~to ~~were~~the ~~recorded~~normal asconduct ~~“restructuring~~of our ~~costs”~~business. ~~and~~At ~~were~~this ~~included~~time, inwe ~~general~~do ~~and~~not ~~administrative~~believe ~~expenses. Other costs~~ that ~~did~~any ~~not~~liabilities ~~qualify~~relating asto ~~restructuring~~such legal ~~costs~~proceedings ~~were~~are ~~classified~~likely asto ~~other~~be, ~~operating expenses~~individually or ~~costs~~in ofthe ~~goods~~aggregate, ~~sold~~material to inour ~~the~~business, ~~Company’s~~financial ~~consolidated~~condition, ~~statements~~results of operations or cash flows.

The ~~timing~~Company ofhas ~~the~~no ~~recognition~~legal ofsettlement ~~costs~~fees ~~associated~~accrued ~~with~~as ~~this~~of ~~move were determined in accordance with FASB authoritative guidance for accounting for costs associated with exit or disposal activities~~March 31, ~~and~~2010. ~~other relevant guidance, which~~The ~~provides~~total ~~that~~we ahave ~~liability~~accrued ~~for a cost associated with an exit or disposal activity shall be recognized at its fair value~~ in ~~the~~regards ~~period~~to inall ~~which~~legal ~~the liability~~proceedings isas ~~incurred.~~of ~~In particular~~December 31, ~~employee-related termination costs~~ ~~associated~~2009 ~~with~~was ~~the relocation are generally recognized ratably over the period that the employees are required to provide services in order to earn the respective termination benefit~~$32,000.

~~The~~In the ~~following~~normal ~~table~~course ~~summarizes~~of ~~the~~our ~~estimates~~business activities related to sales of wireless radio systems to local and ~~actual~~state ~~exit~~governmental ~~costs~~entities, ~~incurred~~we are required under certain contracts with various government authorities to provide letters of credit or performance or bid bonds that may be drawn upon if we fail to perform under our contracts. There was a $0.75 million letter of credit under our line of credit as of ~~September~~March 3031, 2010 and December 31, 2009. Performance and bid bonds, which expire on various dates, totaled $2.4 million at March 31, 2010 and December 31, 2009:. No bonds had been drawn upon at either date. The majority of bonds relate to the contract awarded in May 2008 by the Government of Yukon, Canada that is collateralized by restricted cash of $2.0 million.

	Original amount expected to be incurred		Additional costs incurred		Total amount expected to be incurred		Amount incurred as of December 31, 2008		Amount incurred for the three months ended September 30, 2009		Amount incurred for the nine months ended September 30, 2009		Remaining amount to be incurred
One-time termination benefits	$	951	$	—	$	951	$	939	$	—	$	12	$	—
Other costs	139		59		198		198		—		—		—
Total costs	$	1,090	$	59	$	1,149	$	1,137	$	—	$	12	$	—

16. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

~~The~~On November 15, ~~following~~2007, ~~table~~the ~~summarizes~~Company committed to an organizational plan (the ~~beginning~~“2007 ~~and~~Plan”) ~~ending~~to shift ~~liability~~from ~~reserve~~three divisions to one integrated corporate structure focused on secure wireless communications for ~~exit~~government and industrial customers. The Plan resulted in improved efficiencies in our operations, reduced our infrastructure costs asand supported a new technology roadmap driving toward a streamlined and more effective structure. Implementation of ~~September~~the Plan includes senior and middle management changes as well as staff reductions designed to eliminate redundant positions and reflects the Company’s decision to consolidate operations and move production from three locations into a centralized operations and outsourcing program in the Dallas/Fort Worth area. All exit costs for the 2007 plan had been incurred by March 3031, 2009:.

	Balance at December 31, 2008		Cash Payments		Balance at September 30, 2009
One-time termination benefits	$	12	$	12	$	—
Other costs	—		—		—
Total costs	$	12	$	12	$	—

On December 31, 2009, the Company committed to a work force reduction plan (the “2009 Plan”) to realign certain executive and senior management positions as well as staff reductions resulting from the fourth quarter 2009 performance of land mobile radio product sales. The 2009 Plan was implemented in the first quarter of 2010.

16Costs that were directly associated with the 2009 Plan were being recorded as “restructuring costs” and were included in general and administrative expenses. ~~RELATED~~ ~~PARTY~~Other ~~TRANSACTIONS~~costs that do not qualify as restructuring costs are being classified as other operating expenses or costs of goods sold in the Company’s consolidated statements of operations.

~~For~~The timing of the ~~period~~recognition ~~October 2005~~of ~~through~~costs ~~June 2009,~~associated ~~DRS~~with ~~Technologies, Inc. (“DRS”)~~this ~~was~~move ~~considered~~were adetermined ~~related~~in accordance ~~party~~the ~~due~~FASB authoritative guidance relating to ~~Mr. Newman,~~the ~~Chairman,~~accounting for costs associated ~~President~~with ~~and~~exit ~~Chief~~or ~~Executive~~disposal ~~Officer~~activities ofand ~~DRS,~~provides ~~who~~that ~~also~~a ~~served~~liability asfor a cost ~~director~~associated ofwith an exit or disposal activity shall be recognized at its ~~the~~fair ~~Company~~value ~~during~~in ~~this~~the period in which the liability is incurred. ~~Effective~~In ~~June 5~~particular, employee-related ~~2009,~~termination ~~Mr. Newman~~costs associated with the relocation are generally ~~resigned~~recognized asratably aover ~~Director~~the ofperiod that the ~~Company~~employees ~~due~~are required to ~~potential~~provide services ~~conflicts~~in oforder to earn the respective termination benefit.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and~~ ~~nine months~~ ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

~~interest~~The following ~~relating~~table tosummarizes ~~his position~~the ~~with~~estimates ~~DRS.~~and ~~Transactions~~actual ~~with~~exit ~~DRS~~costs ~~subsequent~~incurred toas ~~June~~of March 531, 2009 ~~would not~~for bethe ~~considered~~2007 ~~related~~Plan ~~party~~(in ~~transactions.~~thousands):

For the approximate five month period ended June 5, 2009, DRS and its related subsidiaries acquired approximately $1.6 million of our products. During the three and nine months ended September 30, 2008, DRS and its related subsidiaries acquired approximately $1.7 million and $15.9 million, respectively, of our products. Included in our account receivable balances as of December 31, 2008 were amounts due from DRS for $1.3 million.

	Original amount expected to be incurred		Additional costs incurred		Total amount expected to be incurred		Amount incurred as of March 31, 2009		Remaining amount to be incurred
One-time termination benefits	$	951	$	—	$	951	$	951	$	—
Other costs	139		59		198		198		—
Total costs	$	1,090	$	59	$	1,149	$	1,149	$	—

~~17.~~The ~~RECENTLY~~following ~~ISSUED~~table ~~ACCOUNTING~~summarizes ~~STANDARDS~~the beginning and ending liability reserve for exit costs as of December 31, 2009 for the 2007 Plan (in thousands):

In December 2007, the FASB revised authoritative guidance for business combinations, which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The guidance also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. The guidance is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. The impact of our adoption of this guidance will depend upon the nature and terms of business combinations, if any, that we consummate on or after January 1, 2009.

	Balance at December 31, 2008		Cash Payments		Balance at December 31, 2009
One-time termination benefits	$	12	$	12	$	—
Other costs	—		—		—
Total costs	$	12	$	12	$	—

~~In December 2007,~~The ~~the~~following ~~FASB~~table ~~revised~~summarizes ~~authoritative~~the ~~guidance~~estimates ~~for consolidations, which establishes accounting~~ and ~~reporting~~actual ~~standards~~exit ~~for~~costs ~~ownership~~incurred ~~interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent~~ and to the ~~noncontrolling interest, changes in a~~ ~~parent’s~~beginning ~~ownership interest~~ and ~~the~~ending ~~valuation~~reserve offor ~~retained~~exit ~~noncontrolling~~costs ~~equity investments~~as ~~when a subsidiary is deconsolidated. The guidance also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests~~ of ~~the~~March 31, ~~parent~~2010 ~~and~~for the ~~interests~~ of2009 ~~the~~Plan ~~noncontrolling~~(in ~~owners. The adoption of this guidance currently has no impact on our Consolidated Financial Statements.~~thousands):

In March 2008, the FASB revised authoritative guidance for disclosures of derivative instruments and hedging activities, which requires additional disclosures about the objectives of using derivative instruments, the method by which the derivative instruments and related hedged items are accounted for and the effect of derivative instruments and related hedged items on financial position, financial performance, and cash flows. The guidance also requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. The Company adopted this guidance effective January 1, 2009. The adoption of this guidance had no material impact on our consolidated financial statements.

	Original amount expected to be incurred and accrued as of December 2009		Amount incurred and paid as of March 31, 2010		Remaining amount to be incurred as of March 31, 2010
One-time termination benefits	$	311	$	140	$	171
Other costs	25		25		—
Total costs	$	336	$	165	$	171

In April 2008, the FASB revised authoritative guidance for determining the useful life of intangible assets, which revises the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset17. RELATED ~~The~~PARTY Company will be required to adopt this guidance with respect to intangible assets acquired on or after January 1, 2009. Due to the prospective application requirement, the adoption of this guidance had no impact on our consolidated financial statements.TRANSACTIONS

InFor ~~November 2008,~~ the ~~FASB~~period ~~revised~~October 2005 ~~authoritative~~through ~~guidance~~June 2009, DRS ~~for accounting for defensive intangible assets~~Technologies, ~~which~~ Inc. ~~addresses~~(“DRS”) ~~the~~was ~~accounting~~considered ~~for assets acquired in~~ a ~~business~~related ~~combination~~party ordue ~~asset~~to ~~acquisition~~Mr. Newman, Chairman, ~~that~~President anand ~~entity~~Chief ~~does~~Executive ~~not~~Officer ~~intend to~~of ~~actively use~~DRS, ~~otherwise~~who ~~referred~~also toserved as a director ~~‘defensive~~of ~~asset’.~~the ~~The~~Company ~~guidance requires~~during ~~defensive~~this ~~intangible~~period. ~~assets~~Effective toJune 5, be2009, ~~initially~~Mr. Newman resigned ~~accounted for~~ as a ~~separate~~ ~~unit~~Director of ~~accounting~~the ~~and~~Company ~~not~~due ~~included~~to aspotential ~~part~~conflicts of ~~the cost of the~~interest ~~acquirer’s~~relating ~~existing~~to ~~intangible~~his ~~asset(s) because~~position itwith ~~is separately identifiable~~DRS. ~~The~~ ~~guidance~~Transactions ~~also~~with ~~requires~~DRS ~~that~~subsequent ~~defensive intangible assets be assigned a separate useful life. Due~~ to ~~the prospective application requirement~~June 5, ~~the~~ ~~adoption~~2009 ofwould ~~this~~not ~~guidance~~be ~~had~~considered norelated ~~impact~~party ~~on our consolidated financial statements~~transactions.

~~In April 2009,~~During the ~~FASB~~three ~~revised~~months ~~authoritative~~ended ~~guidance~~March 31, ~~for~~2009, ~~determining~~DRS ~~fair value when the volume~~ and ~~level~~its ofrelated ~~activity for the~~subsidiaries asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(~~s) used,~~part ~~the objective~~ of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed saleFinmeccanica) ~~between~~ ~~market~~acquired ~~participants~~approximately ~~at the measurement date under current market conditions~~$0.4 ~~The~~million ~~guidance is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The Company’s adoption~~ of ~~this~~products ~~guidance did not have a material impact on its consolidated~~from ~~financial~~EF ~~statements~~Johnson.

In April 2009, the FASB revised authoritative guidance for disclosures of financial instruments. The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The guidance is effective for interim and annual reporting periods ending after June 15, 2009. The Company’s adoption of this guidance did not have a material impact on its consolidated financial statements.

EF JOHNSON TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and~~ ~~nine months~~ ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009

(Unaudited ~~and in thousands, except share and per share data~~)

In May 2009, the FASB revised authoritative guidance for subsequent events, which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued18. RECENTLY ItISSUED ~~requires~~ACCOUNTING the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The guidance was effective for interim or annual financial periods ending after June 15, 2009. The Company adopted this guidance for the period ended June 30, 2009 and provided the required disclosures for the period ending September 30, 2009STANDARDS

In ~~June~~January ~~2009~~2010, the FASB issued ~~new~~FASB ~~authoritative~~ASU ~~guidance~~2010-06, ~~for~~Improving Disclosures ~~the~~About ~~hierarchy~~Fair ofValue ~~accounting standards~~Measurements, which ~~establishes~~amends ~~the~~ FASB ~~Accounting~~ASC 820. ~~Standards~~The updated guidance requires new disclosures about recurring or ~~Codification~~nonrecurring ~~TM (“Codification”) as~~fair-value ~~the~~measurements ~~source~~including significant transfers into and out of ~~authoritative~~Level ~~U.S.~~1 ~~GAAP~~and ~~recognized~~Level by2 ~~the~~fair-value ~~FASB~~measurements toand beinformation ~~applied by~~on ~~nongovernmental~~purchases, ~~entities.~~sales, ~~Rules~~ issuances, and ~~interpretive~~settlements ~~releases~~on ofa ~~the~~gross ~~SEC~~basis ~~under~~in the ~~authority~~reconciliation of ~~federal~~Level ~~securities~~3 ~~laws~~fair-value ~~are~~measurements. The guidance also ~~sources~~clarified existing offair-value ~~authoritative~~measurement ~~GAAP~~disclosure ~~for~~guidance about the level of ~~SEC~~disaggregation, ~~registrants~~inputs, and valuation techniques. OnThe ~~the~~guidance became effective for ~~date~~interim ofand ~~the~~annual ~~guidance,~~reporting ~~the~~periods ~~Codification~~beginning on or after December 15, ~~superseded~~2009, ~~all~~with ~~then-existing~~an ~~non-SEC~~exception ~~accounting~~for ~~and~~the ~~reporting~~disclosures ~~standards.~~of ~~All~~purchases, sales, issuances and ~~other~~settlements ~~nongrandfathered~~on ~~non~~the roll-~~SEC~~forward ~~accounting~~of ~~literature~~activity ~~not~~in ~~included~~Level in3 ~~the Codification~~fair ~~became~~value ~~nonauthoritative~~measurements. Those ~~This~~disclosures ~~guidance~~will isbe effective for ~~financial~~fiscal ~~statements issued~~years ~~for~~beginning ~~interim~~after December 15, 2010 and ~~annual~~for interim periods ~~ending~~within ~~after~~those ~~September 15,~~fiscal ~~2009~~years. We ~~The~~ do not anticipate the adoption of this guidance ~~did~~to ~~not~~ have a material impact on our condensed consolidated ~~financial~~ financial statements.

~~In October 2009, the FASB issued Accounting Standards Update (“Update”) No~~19. ~~2009-13,~~ SUBSEQUENT which amends the Revenue Recognition topic of the Codification. This update provides amendments to the criteria in Subtopic 605-25 of the Codification for separating consideration in multiple-deliverable arrangements. As a result of those amendments, multiple-deliverable arrangements will be separated in more circumstances than under existing U.S. GAAP. The amendments establish a selling price hierarchy for determining the selling price of a deliverable and will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. The amendments will also eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and will require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. These amendments will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the impact the adoption of this update might have on our consolidated financial statements.EVENTS

InWe ~~October 2009, the~~have ~~FASB~~evaluated ~~issued~~events occurring ~~Update~~subsequent ~~No. 2009-14,~~to ~~which amends~~ the ~~Software~~date ~~topic~~ of ~~the Codification.~~our ~~The~~financial ~~amendments~~statements inand ~~this~~through ~~update change~~ the ~~accounting model for~~ ~~revenue~~date ~~arrangements~~our ~~that~~financial ~~include~~statements ~~both~~were ~~tangible products and software elements~~issued. ~~Tangible~~ ~~products~~We ~~containing~~have ~~software~~recognized ~~components and nonsoftware components that function together to deliver~~ the ~~tangible~~effects ~~product’s essential functionality are no longer within the scope~~ of ~~the software revenue guidance~~ inall ~~Subtopic~~subsequent ~~605-985~~events ~~of the Codification. In addition, the amendments in this update require~~ that ~~hardware~~provide ~~components~~additional ofevidence aabout ~~tangible~~conditions ~~product containing software components always be excluded from the software revenue guidance. In~~ that ~~regard,~~existed ~~the~~at ~~amendments~~our ~~provide~~balance ~~additional~~sheet ~~guidance~~date onas ~~how~~of ~~to determine which software~~March 31, ~~if any~~2010, ~~relating~~including estimates toinherent ~~the~~in ~~tangible product also would be excluded from~~ the ~~scope~~process of ~~the~~preparing ~~software~~our ~~revenue~~financial ~~guidance~~statements. ~~The amendments also provide~~There ~~guidance~~were onno ~~how~~non-recognized asubsequent ~~vendor~~events ~~should allocate arrangement consideration~~ to ~~deliverables~~ in an arrangement that includes both tangible products and software. The amendments also provide further guidance on how to allocate arrangement consideration when an arrangement includes deliverables both included and excluded from the scope of the software revenue guidance. These amendments will be ~~effective~~disclosed ~~prospectively for revenue arrangements entered into or materially modified~~ in ~~fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the impact the adoption of this update might have on~~ our ~~consolidated~~ financial statements.

18As more fully disclosed in Note 3 above, on May 15, 2010, the Company, entered into a Merger Agreement with FP-EF Holding Corporation, a Delaware corporation (“Parent”), and FP-EF Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, upon the ~~SUBSEQUENT~~terms ~~EVENTS~~and subject to the conditions set forth in the Merger Agreement, the Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (“Surviving Corporation”) and as a wholly-owned subsidiary of Parent. Pursuant to the terms of the Merger Agreement, stockholders will receive $1.05 per share in cash for their shares of stock of the Company at which time the Company will be privately held.

WeAs ~~have~~more ~~evaluated~~fully ~~events~~disclosed ~~occurring~~in ~~subsequent~~Note to11 ~~the~~above, on May 15, ~~date~~2010, ofthe ~~our~~Company ~~financial~~entered ~~statements~~into ~~through~~a ~~November~~Seventh Amendment effective as of May 1215, 2010, ~~2009~~to our Loan Agreement with Bank of America, ~~which~~N.A. isto extend the maturity ~~date~~of ~~our~~the ~~financial~~Loan ~~statements~~Agreement ~~were~~to ~~issued.~~allow Wethe ~~have~~Company ~~recognized~~to consummate the ~~effects~~Merger. ofUnder the ~~all~~terms ~~subsequent~~of ~~events~~the ~~that~~Seventh ~~provide~~Amendment, ~~additional~~the ~~evidence~~Lender ~~about~~extended ~~conditions~~the ~~that~~maturities of the loans ~~existed~~governed atand ~~our~~secured ~~balance~~by ~~sheet~~the ~~date~~Loan asAgreement ofuntil ~~September~~August 3031, ~~2009~~2010, ~~including~~and ~~estimates~~waived ~~inherent~~compliance inwith ~~the~~certain ~~process~~financial ofcovenants ~~preparing~~contained ~~our~~in ~~financial~~the ~~statements. There~~Loan ~~were~~Agreement nofor ~~non-recognized~~the ~~subsequent~~Company’s ~~events~~fiscal toquarter beending ~~disclosed~~June 30, in2010, ~~our~~on ~~financial~~a ~~statements~~one-time basis.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussions of certain matters contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). These forward-looking statements are based upon our current expectations, estimates and projections about our business and our industry, and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements relate to, among other things, the results of our product development efforts, future sales and expense levels, our future financial condition, liquidity, and business prospects generally, the impact of our relocation of operating facilities, and outsourcing of manufacturing on our operating results, perceived opportunities in the marketplace for our products, and our other business plans for the future.

These forward-looking statements are subject to certain risks and uncertainties that could cause the actual results, performance and outcomes to differ materially from those expressed or implied in these forward-looking statements due to a number of risk factors including, but not limited to, the risks discussed in the ~~2008~~2009 Annual Report on Form 10-K under Item 1A “Risk Factors” and in Part II of this report on Form 10-Q under Item 1A “Risk Factors.” We caution readers not to rely on these forward-looking statements, which reflect management’s analysis only as of the date of this quarterly report. We undertake no obligation to revise or update any forward-looking statement for any reason except as required by law.

The following discussion is intended to provide a better understanding of the significant changes in trends relating to our financial condition and results of operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto.

Overview

~~Previously~~In ~~the~~order ~~Company was~~to ~~organized, and reported its financial results, as a parent company with two~~be ~~segments,~~competitive ~~Private~~in ~~Wireless Communications and Secured Communications. Having recognized that~~ the public safety/public service market isthat ~~moving towards~~has moved towards convergent telecommunications solutions, ~~the~~with ~~continued~~ demand for interoperability and the continued transition from analog to digital platforms, ~~we reorganized~~ the Company is organized in ~~January 2008 into~~ a single centralized corporate structure. inIn ~~order~~light toof bethe ~~competitive~~converged telecommunication inmarkets ~~this~~and ~~market~~our corporate structure, the Company has one segment to report.

~~The~~We ~~operating structure~~design, ofdevelop, ~~the~~market ~~Company~~and ~~also~~support ~~changed~~wireless inradios ~~the~~and ~~first~~wireless ~~quarter~~communications infrastructure ofand ~~2008.~~systems ~~Under~~for ~~the~~digital ~~new structure,~~and ~~all~~analog ofplatforms. ~~the~~In ~~Company’s~~addition, ~~operations~~we offer ~~report~~encryption uptechnologies tofor ~~the~~wireless ~~chief~~voice, ~~executive officer~~video and ~~president~~data ~~through~~communications and ~~the~~we ~~chief~~also ~~operating~~design, ~~officer.~~develop, ~~The~~market ~~chief~~and ~~financial officer,~~support ~~chief~~secure ~~operating~~wireless ~~officer~~networking solutions ~~and~~that ~~general~~include ~~counsel~~Wi-Fi ~~report~~products, tomesh ~~the~~networking, ~~chief executive~~access ~~officer~~points, and client ~~president~~infrastructure products. ~~Based on~~ ~~the~~The ~~synergies~~Company’s ofcustomers ~~our~~include ~~products,~~first responders ~~customers,~~in public safety and ~~organizational~~public ~~structure~~service, the ~~Company~~ ~~now~~federal ~~operates~~government, inand industrial ~~a single segment~~organizations.

~~We design,~~Due ~~develop, market and support wireless radios and wireless communications~~to ~~infrastructure~~the ~~and~~timing ~~systems~~of ~~for~~orders ~~digital~~ and ~~analog platforms. In addition~~seasonality, ~~we offer~~our ~~encryption~~quarterly ~~technologies~~results ~~for~~fluctuate. ~~wireless voice, video and data communications~~We ~~and~~experience weseasonality ~~also~~in ~~design,~~our ~~develop,~~results ~~market~~in ~~and~~part ~~support~~due ~~secure~~to ~~wireless~~governmental ~~networking~~customer ~~solutions~~spending patterns that ~~include~~are ~~Wi-Fi~~influenced ~~products,~~by ~~mesh~~government ~~networking,~~fiscal ~~access~~year-end ~~points,~~budgets and ~~client infrastructure products~~appropriations. The ~~Company’s~~unpredictable ~~customers~~sales ~~include~~cycle ~~first responders~~coupled inwith ~~public~~launching ~~safety~~new products and ~~public~~solutions ~~service,~~can ~~the~~also ~~federal~~cause ~~government,~~variations ~~and industrial~~from ~~organizations~~quarter to quarter.

~~Due~~Our ~~to the~~Products ~~timing of orders~~ and seasonality, our quarterly results fluctuate. We experience seasonality in our results in part due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations. The unpredictable sales cycle coupled with launching new products and solutions can also cause variations from quarter to quarter.Solutions

Our ~~Products~~wireless radio offerings are primarily digital solutions designed to operate in both analog and ~~Solutions~~digital system environments. Our products and systems are based on industry standards designed to enhance interoperability among systems, improve bandwidth efficiency, and integrate voice and data communications.

~~Our~~The Land Mobile Radio (“LMR”) industry utilizes two-way wireless ~~radio~~communications through ~~offerings~~wireless ~~are~~networks, ~~primarily~~which ~~digital~~include ~~solutions~~infrastructure ~~designed~~components tosuch ~~operate~~as inbase ~~both~~stations, ~~analog~~repeaters, transmitters and ~~digital~~receivers, ~~system~~network ~~environments~~switches and portable and mobile two-way communication radios. ~~Our~~Individual ~~products~~users operate portable hand-held radios and ~~systems~~vehicular-mounted ~~are~~radios ~~based~~in their wireless communications onsystem. ~~industry~~Utilizing ~~standards~~licensed ~~designed~~RF tospectrum, ~~enhance~~the ~~interoperability~~customer ~~among~~owns ~~systems,~~and operates the ~~improve~~wireless ~~bandwidth~~communication ~~efficiency~~system that is networked by linking together the infrastructure components. We develop customer solutions, ~~and~~which ~~integrate~~leverage ~~voice~~the customer’s wireless system and ~~data~~wireless ~~communications~~radios with customer specific or enterprise wide applications.

The ~~Land~~majority ~~Mobile~~of ~~Radio~~our ~~(“LMR”)~~revenues ~~industry~~are ~~utilizes~~derived ~~two-way~~from ~~wireless~~the ~~communications through~~sale of wireless ~~networks,~~radio ~~which include infrastructure components such as base~~products. ~~stations,~~Our ~~repeaters~~federal, ~~transmitters~~state and ~~receivers,~~local ~~network~~governmental ~~switches~~agency ~~and~~customers ~~portable~~are increasingly ~~and~~demanding ~~mobile~~interoperable, ~~two-way~~secured ~~communication~~communications ~~radios.~~products ~~Individual users operate portable hand-held radios~~ and ~~vehicular-mounted~~systems. ~~radios in their wireless communications~~We ~~system.~~believe ~~Utilizing~~this ~~licensed~~demand RFhas ~~spectrum,~~created ~~the~~opportunities ~~customer~~for ~~owns~~us ~~and~~as ~~operates~~we ~~the wireless~~believe ~~communication~~we ~~system that is networked by linking together the~~are ~~infrastructure~~positioned ~~components.~~to Weprovide ~~develop~~these products and

~~customer~~systems. ~~solutions~~As a result, ~~which~~we ~~leverage~~expect ~~the~~to ~~customer’s~~continue ~~wireless~~to ~~system~~allocate a majority of our on-going research and development expenditures to wireless ~~radios~~radio ~~with~~features ~~customer~~and enhancements, ~~specific~~infrastructure orcomponents ~~enterprise~~and ~~wide~~system ~~applications~~development efforts.

~~The~~We ~~majority~~provide ~~of revenues are derived from~~ the ~~sale~~domestic ~~of wireless radio products. Our federal, state~~ and ~~local~~international ~~governmental~~LMR ~~agency~~industry ~~customers~~with ~~are~~secure ~~increasingly~~encryption ~~demanding~~technologies ~~interoperable,~~for ~~secured~~analog ~~communications~~wireless ~~products and systems~~radios. ~~We believe~~These ~~this~~products ~~demand~~are ~~has~~specifically designed ~~created~~to ~~opportunities~~prevent ~~for~~unauthorized usaccess asto wesensitive ~~believe~~voice wecommunications ~~are~~in ~~positioned~~parts toof ~~provide~~the ~~these~~world ~~products~~where ~~and~~wireless radio systems. Asremain aanalog ~~result,~~and wesecurity needs ~~expect~~are ~~to continue~~high. toThese ~~allocate~~products aare ~~majority~~sold ofas ~~our~~aftermarket onadd-~~going~~on ~~research~~components ~~and development~~or ~~expenditures~~embedded tocomponents ~~wireless~~for ~~radio~~existing ~~features~~analog ~~and~~radios ~~enhancements, infrastructure components~~ and ~~system development efforts~~systems.

We ~~provide~~ ~~the~~also ~~domestic~~design, develop, market and ~~international~~support customized ~~LMR~~wireless ~~industry~~network ~~with~~centric ~~secure~~products ~~encryption~~and systems which include secure ~~technologies~~Wi-Fi ~~for~~products, ~~analog~~including ~~wireless~~mesh ~~radios.~~networking, ~~These~~access ~~products~~point, ~~are~~bridge, ~~specifically~~and client ~~designed~~infrastructure toproducts, ~~prevent~~as ~~unauthorized~~well ~~access~~as tosecurity ~~sensitive~~software. ~~voice~~We ~~communications~~provide insensor ~~parts~~network ofsolutions ~~the~~through ~~world~~our ~~where~~InfoMatics® ~~wireless~~middleware, ~~radio~~which ~~systems~~enable ~~remain~~sensors ~~analog~~and databases to communicate data to pertinent personnel for command and ~~security~~control ~~needs~~applications ~~are~~in ~~high~~near real-time. These products ~~are~~and ~~sold~~solutions asutilize ~~aftermarket~~FIPS ~~add~~140-on2 validated ~~components~~wireless ~~or embedded~~products, ~~components~~802.11 ~~for~~wireless ~~existing~~networking ~~analog~~(WIFI) ~~radios~~solutions, mesh networking and ~~systems~~conditions based and location based telematics solutions.

WeOur ~~also~~Sales ~~design, develop, market~~ and ~~support customized~~Distribution wireless network centric products and systems which include secure Wi-Fi products, including mesh networking, access point, bridge, and client infrastructure products, as well as security software. We provide sensor network solutions through our InfoMatics® middleware, which enable sensors and databases to communicate data to pertinent personnel for command and control applications in near real-time. These products and solutions utilize FIPS 140-2 validated wireless products, 802.11 wireless networking (WIFI) solutions, mesh networking and conditions based and location based telematics solutions.Approach

Our ~~Sales~~products and systems are sold through multiple channels including a direct sales force, dealers, distributors, and ~~Distribution~~strategic ~~Approach~~partnering arrangements. We utilize our dealer network to assist in installing, servicing, selling and distributing our products. We also generate revenues through the federal government under government funded research and development Small Business Innovative Research programs (“SBIR”). Additionally, we offer our products to commercial, non-governmental users.

~~Our~~Much ~~products~~of ~~and~~our ~~systems~~business ~~are~~is obtained ~~sold~~ through ~~multiple channels~~submission ~~including~~of aformal ~~direct~~competitive ~~sales~~bids. ~~force,~~Our ~~dealers, manufacturing~~governmental ~~representatives,~~customers ~~distributors~~generally can specify the terms, conditions and ~~strategic~~form ~~partnering~~of ~~arrangements.~~the Wecontract. ~~utilize~~Our ~~our~~government ~~dealer~~business ~~network~~is subject to ~~assist~~government infunding ~~installing,~~decisions ~~servicing, selling~~ and contract ~~distributing~~types ~~our~~can ~~products.~~vary Wewidely, ~~also generate~~including ~~revenues~~cost ~~through~~plus, ~~the~~fixed ~~federal~~priced, ~~government~~indefinite delivery/indefinite ~~under~~quantity ~~government~~(“IDIQ”), ~~funded research~~ and ~~development~~government-wide ~~Small~~acquisition contracts ~~Business~~with ~~Innovative~~the ~~Research~~General ~~programs~~Services Administration (“~~SBIR~~GSA”)~~. Additionally~~, wewhich ~~offer~~require pre-qualification ~~our~~of ~~products~~vendors and allows government customers to ~~commercial,~~more ~~non-governmental~~easily procure ~~users~~our products and systems.

~~Much of~~Depending ~~our~~on ~~business~~the issize ~~obtained~~and complexity ~~through submission~~ of ~~formal~~customer ~~competitive~~specifications ~~bids.~~and ~~Our governmental~~requirements, ~~customers~~products ~~generally~~ can ~~specify~~be shipped to the ~~terms,~~customer ~~conditions~~in ~~and~~a ~~form~~relatively ~~of the~~short ~~contract.~~period ~~Our~~of ~~government~~time ~~business~~(typically is90 ~~subject~~days) toor with ~~government~~complex ~~funding decisions~~integrations and ~~contract~~various ~~types~~delivery ~~can vary widely~~dates, ~~including~~orders ~~cost~~can ~~plus,~~span ~~fixed~~multiple ~~priced,~~years. ~~indefinite~~For ~~delivery/indefinite quantity (“IDIQ”)~~example, ~~and~~our ~~government~~longer-~~wide acquisition~~term system contracts ~~with the General Services Administration (“GSA”), which require pre-qualification of vendors~~ and ~~allows~~ government ~~customers~~services revenues toare ~~more easily~~generated ~~procure~~under ~~our~~customer ~~products~~contracts and ~~systems.~~agreements ~~Through~~for ~~the federal government SBIR~~which ~~programs~~revenue ~~the business~~ is ~~most~~recorded ~~typically~~under ~~obtained through~~ the ~~submission~~ percentage-of ~~formal~~-completion ~~proposals under cost plus or fixed fee price agreements~~method.

~~Depending~~Description ~~on the size and complexity~~ of ~~customer specifications~~Operating and requirements, products can be shipped to the customer in a relatively short period of time (typically 90 days) or with complex integrations and various delivery dates, orders can span multiple years. For example, our longer-term system contracts and government services revenues are generated under customer contracts and agreements for which revenue is recorded under the percentage-of-completion method.Accounts

~~Description~~Revenues. Revenues consist of product sales, services, and government-funded research and development services and solutions net of returns ~~Operating~~and ~~Accounts~~allowances. Longer-term system and government services revenues are recognized under the percentage-of-completion method.

~~Revenues.~~Cost ~~Revenues~~of ~~consist~~Sales. Cost of ~~product~~ sales, ~~services,~~includes costs of components and ~~government-funded~~materials, ~~research~~labor, depreciation and ~~development~~overhead ~~services~~costs ~~and~~associated ~~solutions~~with ~~net~~the production of ~~returns~~ ~~and~~our ~~allowances.~~products ~~Longer-term~~and ~~system~~services, ~~and~~as ~~government~~well ~~services~~as ~~revenues~~shipping, ~~are~~royalty, ~~recognized~~inventory ~~under~~reserves, ~~the~~warranty ~~percentage-of-completion~~product ~~method~~costs, and incurred cost under sales contracts.

~~Cost~~Gross ~~of Sales~~Profit. ~~Cost~~Gross ofprofit ~~sales~~is ~~includes~~net ~~costs~~revenues ofless ~~components~~the ~~and materials,~~cost ~~labor,~~of ~~depreciation~~ sales and ~~overhead~~is ~~costs~~affected ~~associated~~by ~~with~~a ~~the production~~number of ~~our~~factors, ~~products~~including ~~and~~competitive ~~services~~pricing, asproduct mix, ~~well~~type asof ~~shipping,~~contract ~~royalty,~~and ~~inventory reserves,~~cost ~~warranty~~of ~~product~~products ~~costs,~~ and ~~incurred~~services ~~cost~~including ~~under~~warranty ~~sales~~and inventory ~~contracts~~reserves and conversion costs.

~~Gross~~Research ~~Profit~~and Development. ~~Gross~~Unreimbursed ~~profit~~research isand ~~net~~development ~~revenues~~expenses consist ~~less~~primarily of costs associated with research and development personnel, materials, and the ~~cost~~depreciation of ~~sales~~ research and isdevelopment ~~affected~~equipment byand facilities. aWe ~~number~~expense ofall ~~factors,~~unreimbursed ~~including~~research ~~competitive~~and ~~pricing,~~development ~~product~~costs as they ~~mix,~~are ~~type~~incurred ofwhile ~~contract~~all research and ~~cost~~development expenses that are reimbursed by our government customers are included as a component of ~~products~~cost ~~and~~of ~~services~~sales.

~~Research~~Sales and ~~Development~~Marketing. ~~Research~~Sales and ~~development~~marketing expenses consist primarily of salaries ~~costs~~and ~~associated~~related ~~with~~costs ~~research~~of ~~and~~sales ~~development~~ personnel, ~~materials,~~including ~~and~~sales ~~the depreciation~~commissions ~~of research~~ and ~~development equipment and facilities. We expense~~ ~~research~~travel ~~and~~expenses, ~~development~~as ~~costs~~well as ~~they~~costs ~~are~~of ~~incurred~~advertising, ~~net~~product ~~of any applicable cost reimbursements. Research~~ and ~~development expenses relating to our~~program ~~government-funded~~management, ~~research~~public relations and ~~development~~trade ~~services~~show ~~are included as a component of cost of sales~~participation.

~~Sales~~General and ~~Marketing~~Administrative. ~~Sales~~General and ~~marketing~~administrative expenses consist primarily of salaries and ~~related~~other ~~costs~~expenses ofassociated with our management, post sales ~~personnel~~operations support, ~~including~~accounting, ~~sales~~information ~~commissions~~systems and administrative ~~travel~~functions. ~~expenses~~This expense also includes the impact of equity-based compensation expense and costs relating to our operating facility moves. Pertinent to 3eTI, accounting asfor ~~well~~government contracts delineates what is a direct charge allowable to include in contract costs and what is considered to be an indirect charge reflected as general and administrative expenses. We consider indirect engineering labor and operating costs ofsuch ~~advertising~~as quality, ~~product~~planning, operations, and ~~program management~~company fringe benefits, ~~public~~general ~~relations~~administrative salaries and ~~trade~~other ~~show~~general administrative ~~participation~~expenses as general and administrative expense.

~~General~~Amortization ~~and~~of ~~Administrative~~Intangibles. Amortization ~~General~~of ~~and administrative expenses consist~~intangibles consist primarily ofamortization ~~salaries~~expense ~~and other expenses~~ associated with ~~our management, accounting, information systems and operational functions. This expense also includes~~ the ~~impact~~definite oflived ~~equity-based compensation expense. Accounting for~~intangibles ~~government~~assets ~~contracts~~acquired ~~delineates what is a direct charge allowable to include~~ in ~~contract~~ ~~costs~~the ~~and~~3eTI ~~what is considered to be an indirect charge reflected as general and administrative expenses~~acquisition. WeDefinite ~~consider~~lived ~~indirect~~intangible ~~engineering labor and~~assets, ~~operating~~consisting ~~costs~~of ~~such~~existing ~~as quality~~technology, ~~planning,~~customer ~~operations~~relationships, ~~and~~license ~~company fringe~~and ~~benefits~~covenants not-to-compete, ~~general~~are ~~administrative~~amortized ~~salaries~~over ~~and~~their ~~other~~useful ~~general~~life ~~administrative~~on a ~~expenses~~straight-line ~~as general and administrative expense~~basis.

~~Interest~~Escrow ~~Expense,~~Fund ~~Net~~Settlement. Escrow ~~Interest~~fund ~~expense, net~~ settlement consists of ~~interest expense~~funds onreceived associated with the ~~term~~3eTI ~~note,~~reporting ~~revolving~~unit ~~line~~for ofsettled claims ~~credit~~against funds held in an escrow account. The escrow fund reimbursed the Company for previously incurred research and ~~capital~~development ~~leases~~costs ~~net~~in connection with the re-design, re-testing and re-certification of certain 3eTI products to ~~interest~~bring ~~income~~them ~~earned~~up onto ~~cash~~specifications ~~and~~represented ~~cash~~to ~~equivalents~~exist at the acquisition date.

~~Provision~~Interest ~~for~~Expense, ~~Income Taxes~~Net. ~~Provision~~Interest ~~(benefit)~~expense, ~~for~~net ~~income~~consists ~~taxes~~of ~~includes the~~interest ~~increase~~expense oron ~~decrease in~~ the ~~valuation~~term ~~reserve that is based upon management’s conclusions regarding~~note, ~~among~~revolving ~~other~~line ~~considerations,~~of ~~our~~credit ~~historical operating results~~ and ~~forecasted~~capital ~~future~~leases ~~earnings~~net ~~over a five year period, our current and~~of ~~expected~~interest ~~customer~~income ~~base~~earned ~~projections,~~on ~~and~~cash ~~technological~~ and ~~competitive~~cash ~~factors impacting our current products~~equivalents. Current financial accounting standards require that organizations analyze all positive and negative evidence relating to deferred tax asset realization, which would include our historical accuracy in forecasting future earnings, as well as our history of losses incurred within the past three years. Should factors underlying management’s estimates change, future adjustments, either positive or negative, to our valuation allowance may be necessary.

~~Critical~~Provision for Income Taxes. Provision (benefit) for income taxes includes the ~~Accounting~~increase ~~Policies~~or decrease in the valuation reserve that is based upon management’s conclusions regarding, among other considerations, our historical operating results and forecasted future earnings over a five year period, our current and expected customer base projections, and technological and competitive factors impacting our current products. Current financial accounting standards require that organizations analyze all positive and negative evidence relating to deferred tax asset realization, which would include our historical accuracy in forecasting future earnings, as well as our history of losses incurred within the past three years. Should factors underlying management’s estimates change, future adjustments, either positive or negative, to our valuation allowance may be necessary.

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and all known facts and circumstances that we believe are relevant. Actual results may differ materially from our estimates. We believe the following accounting policies to be most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. Our critical accounting estimates include those regarding (1) revenues, (2) receivables, (3) inventories, (4) goodwill and other intangible assets, (5) warranty costs, (6) income taxes, (7) long-lived assets and (8) stock-based compensation. For a discussion of the critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies~~” in our Annual Report on Form 10-K for the year ended December 31, 2008.~~

18The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and all known facts and circumstances that we believe are relevant. Actual results may differ materially from our estimates. We believe the following accounting policies to be most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. Our critical accounting estimates include those regarding (1) revenues, (2) receivables, (3) inventories, (4) goodwill and other intangible assets, (5) warranty costs, (6) income taxes, (7) long-lived assets and (8) stock-based compensation. For a discussion of the critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2009.

~~Results of Operations~~18

~~The~~Results ~~following table presents certain Condensed Consolidated Statements~~ of Operations ~~information as a percentage of revenues during the periods indicated:~~

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
			(as restated)				(as restated)
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	66.2		62.8		62.9		65.1
Gross profit	33.8		37.2		37.1		34.9
Operating expenses:
Research and development	9.9		10.3		11.5		6.9
Sales and marketing	9.1		9.5		9.3		9.6
General and administrative	18.7		13.8		19.9		16.7
Amortization of intangibles	1.0		1.0		1.0		1.2
Escrow fund settlement	—		—		(3.6	)	—
Total operating expenses	38.8		34.6		38.0		34.3
Income (loss) from operations	(5.1	)	2.6		(1.0	)	0.6
Interest expense, net	(1.5	)	(0.8	)	(1.3	)	(0.7	)
Income (loss) before income taxes	(6.6	)	1.9		(2.3	)	(0.1	)
Income tax (expense)	—		—		—		—
Net income (loss)	(6.6	)	1.9		(2.3	)	(0.1	)

The following table presents certain Condensed Consolidated Statements of Operations information as a percentage of revenues during the periods indicated:

Comparison of the Three Months and Nine Months Ended September 30, 2009 and 2008

	Three Months Ended
	March 31,
	2010		2009
			(as adjusted)
Revenues	100.0	%	100.0	%
Cost of sales	64.5		66.7

Gross profit	35.5		33.3

Operating expenses:
Research and development	8.1		15.1
Sales and marketing	7.1		11.2
General and administrative	17.3		24.6
Amortization of intangibles	0.9		1.1
Escrow fund settlement	—		(12.7	)
Total operating expenses	33.4		39.3

Income (loss) from operations	2.1		(6.0	)

Interest expense, net	(1.5	)	(1.3	)

Income (loss) before income taxes	0.6		(7.3	)

Income tax (expense)	—		—

Net income (loss)	0.6	%	(7.3	)%

~~Revenues.~~Comparison ~~Our~~of ~~revenues decreased $10.1 million, or 29%, to $24.4 million for~~ the ~~three~~Three ~~months~~Months ~~ended~~Ended ~~September~~March 3031, ~~2009~~2010 ~~from $34.5 million for the same period in 2008. The decline was attributable to lower federal LMR revenues~~ and ~~State and Local revenues partially offset by increases associated~~ ~~with government services revenues. Our revenues decreased $24.0 million, or 24%, to $77.0 million for the nine months ended September 30,~~ 2009 ~~from $101.0 million for the same period in 2008. The decline was attributable to lower LMR revenues partially offset by increases in government services revenues.~~

~~Gross Profit~~Revenues. Our ~~gross~~revenues ~~profit~~increased ~~decreased~~ $47.63 million, or 3633%, to $829.2 3 million infor the three months ended ~~September~~March 3031, ~~2009~~2010 from $1222.9 1 million for the same period in ~~2008. Gross profit, as a percentage of revenues, or gross margin, was 33.8% for the three months ended September 30,~~ 2009~~, as compared to 37~~.2% ~~for the same period in 2008.~~ The ~~decrease~~increase ~~in gross profit and gross margin~~ was attributable to ~~both~~increased ~~product~~State ~~mix~~ and Local ~~lower~~LMR ~~quarterly~~ revenues. ~~Our~~relating ~~gross profit decreased $6.7 million, or 19%,~~ to ~~$28.5~~certain ~~million~~delayed ~~in the~~shipments ~~nine months ended September 30, 2009~~ from ~~$35.2 million for~~ the ~~same~~fourth ~~period~~quarter inof ~~2008.~~2009 ~~The~~and ~~decrease~~increases ~~in gross profit was primarily due to the volume variance~~ associated with ~~the~~government ~~decline~~services ~~in LMR revenue. Gross profit, as a percentage of~~ revenues, ~~or gross margin, was 37.1% for the nine months ended September 30,~~ ~~2009,~~partially asoffset ~~compared~~by ~~to 34.9% for the same period in 2008. Gross margin improved for the nine months ended September 30, 2009 primarily due to second quarter performance and improved product mix that resulted in~~ lower ~~cost~~federal ~~of sales.~~LMR ~~We anticipate the fourth quarter gross margin percentage to be similar to the third quarter of 2009~~revenues.

~~Research~~Gross ~~and Development~~Profit. ~~Research~~Our ~~and~~gross ~~development~~profit ~~expenses~~increased ~~decreased~~ $13.2 0 million, or 3241%, to $210.4 million in the three months ended ~~September~~March 3031, ~~2009~~ 2010 from $37.64 million for in the same period in ~~2008~~2009. ~~Research~~Gross ~~and~~profit, ~~development expenses~~ as a percentage of revenues, ~~decreased~~or gross tomargin, 9was 35.95% infor the ~~third~~three ~~quarter~~months ofended March 31, 2010, as ~~2009~~compared ~~versus~~to 1033.3% for the same period in ~~2008~~2009. ~~Research~~The ~~and~~increase ~~development expenses increased $2.0 million, or 29%, to $8.9 million~~ in ~~the~~gross ~~nine~~profit ~~months~~and ~~ended~~gross ~~September 30,~~margin ~~2009~~was ~~from~~attributable ~~$6.9~~to ~~million~~both inhigher ~~the~~quarterly ~~same~~revenues, ~~period~~and ~~in 2008.~~lower ~~Research~~conversion ~~and~~costs ~~development~~associated ~~expenses~~with aslower awarranty ~~percentage~~cost ofand ~~revenues~~inventory ~~increased to~~reserve 11requirements.5% inWe ~~the~~anticipate ~~first~~margins ~~nine~~to ~~months~~fluctuate ofover ~~2009~~the ~~versus~~remainder ~~6.9%~~of ~~for~~fiscal year ~~the~~2010 ~~same~~due ~~period~~to inproduct ~~2008~~mix.

19Research and Development. Research and development expenses decreased $0.9 million, or 27% to $2.4 million in the three months ended March 31, 2010 from $3.3 million in the same period in 2009. Research and development expenses as a percentage of revenues decreased to 8.1% in the first quarter of 2010 versus 15.1% for the same period in 2009 mainly due to increased revenues. Lower first quarter 2010 expenses are due to the completion of certain engineering programs and a more focused R&D approach for our core initiatives.

~~The quarterly~~Sales ~~decline~~and inMarketing. ~~R&D~~Sales ~~expenditures~~and ismarketing ~~due~~expenses todecreased ~~certain~~$0.4 ~~program~~million, ~~realignments~~or ~~and~~16%, ~~completions~~to $2.1 million in the ~~second~~three ~~and~~months ~~third~~ended ~~quarters~~March 31, of2010 ~~2009~~from $2. We5 million ~~expect~~in ~~R&D~~the ~~expenses~~same toperiod ~~increase~~ in ~~future~~ ~~quarters~~2009. asThe ~~product~~decrease ~~development~~is ~~programs~~mainly ~~continue~~attributable ~~along the development~~to ~~path~~lower ~~requiring incremental investments.~~headcount

The nine-month increase in research and development expenses was attributable to a non-recurring engineering cost reimbursement of $4.0 million received in the second quarter of 2008 from a customer for research and development expenses relating to the development and re-engineering of our Multinet radio product line associated with the FCC re-banding effort. The development of our Multinet radio was completed and no further non-recurring engineering cost reimbursements were received.19

~~Sales~~ and Marketing. Sales and marketing expenses decreased $1.1 million, or 33%, to $2.2 million in the three months ended September 30, 2009 from $3.3 million in the same period in 2008. The decrease is mainly attributable to reduced labor coupled with lower sales ~~incentives resulting from the decline in~~ ~~revenue~~compensation ~~noted~~structure ~~above. Sales and marketing expenses as a percentage of revenues were 9.1%~~ in the ~~third~~first quarter of ~~2009 versus 9~~2010.5% ~~in the third quarter of 2008.~~ Sales and marketing ~~expenses decreased $2.6 million, or 26%, to $7.1~~ million in the nine months ended September 30, 2009 from $9.7 million in the same period in 2008. The decrease is mainly attributable to reduced labor coupled with lower sales incentives resulting from the decline in revenue noted above. Sales and marketing expenses as a percentage of revenues were 97.31% ~~for~~ in the first ~~nine~~quarter ~~months~~ of ~~2009~~ 2010 versus 911.62% in the first ~~nine~~quarter ~~months~~ of ~~2008. We expect the trend in sales and marketing expenses to continue for the remainder of~~ 2009.

General and Administrative. General and administrative expenses decreased $0.23 million, or 46%, to $45.61 million for the three months ended ~~September~~March 3031, ~~2009~~ 2010 from $45.84 million for the same period in ~~2008. General and administrative expenses decreased $1.6 million, or 9%, to $15.3 million for the nine months ended September 30,~~ 2009 ~~from $16~~.9 ~~million for the same period in 2008.~~ The decrease in expenses is primarily attributable to ~~reduced~~workforce ~~labor~~reductions in 2010, lower ~~incentive~~ ~~compensation~~bad ~~accruals~~debt requirements ~~for 2009~~ and reduced stock compensation expense resulting from increased estimated forfeiture rates in the first ~~nine~~three months of ~~2009~~2010 as compared with the first ~~nine~~three months of ~~2008~~2009.

Amortization of Intangibles. Amortization of intangibles ~~decreased~~remained ~~$0.1~~stable ~~million,~~at ~~or 25%, to~~ $0.3 2 for the three months ended ~~September~~March 3031, ~~2009~~2010 ~~from~~and ~~$0.4 million~~ for the same period in ~~2008. Amortization of intangibles decreased $0.5 million, or 42%, to $0.7 million in the nine months ended September 30,~~ 2009 ~~from $1~~.2 million in the same period in 2008. The decreases relate to lower amortization of specifically identifiable intangible assets with a definite life as a result of the impairment of certain amortizable assets during the fourth quarter of 2008.

Escrow fund settlement. In January 2009, we settled claims under the 2006 3eTI acquisition agreement (the “Agreement”) and received $2.8 million of the funds held in the escrow account. The escrow funds received as part of the settlement that were not replicated in 2010 were recorded as a reduction of operating expense. The settlement was in connection with the acquisition of 3eTI in 2006, the total consideration paid by the Company consisted of $36.0 million in cash, which included $3.6 million to be held in escrow to indemnify the Company for any claims under the Agreement. In August 2008, the Company made a claim against the escrow fund for damages arising out of certain ~~alleged~~ alleged breaches of representations and warranties contained in the Merger ~~Agreement.~~ ~~In January 2009, we settled claims under the~~ Agreement ~~and received $2~~.~~8 million~~ ~~of the funds held in the escrow account.~~ The ~~escrow funds received as part of the settlement were recorded as a reduction of operating expense. The~~ Company previously incurred research and development costs in connection with the re-design, re-testing and re-certification of certain 3eTI products to bring them up to specifications represented to exist at the acquisition date.

Interest Expense, net. Interest expense, net increased $0.1 million to $0.4 million in expense for the three months ended ~~September~~March 3031, ~~2009~~2010 from $0.3 million for the same period in ~~2008. Interest expense, net increased $0.3 million to $1.0 million in expense for the nine months ended September 30,~~ 2009 ~~from $0~~.7 ~~million for the same period in 2008.~~ The increases were attributable to increased interest rates on the term loan ~~and~~relating ~~lower~~to ~~interest~~the ~~income~~loan ~~earned on~~amendment ~~cash~~executed ~~investments~~in ~~resulting~~March 2010 ~~from~~as ~~lower~~more ~~amounts~~fully ofdisclosed ~~invested~~in ~~cash~~“Liquidity ~~earning~~and ~~lower~~Capital ~~rates~~Resources” ~~of interest~~below.

Provision for Income Taxes. We did not record a tax benefit or provision for either the three ~~or nine~~ months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~ 2009 primarily ~~attributable~~due to our fully reserved deferred tax assets requiring no further provision for income taxes for each respective period end. The valuation reserve is based upon management’s conclusions regarding, among other considerations, our cumulative loss position during three preceding years, our operating results during each period, our current and expected customer base, technological and competitive factors impacting our current products, and management’s estimates of future earnings based on information currently available.

Net Income / (Loss). Net ~~loss~~income was $10.62 million for the three months ended ~~September~~ March 3031, ~~2009~~ 2010, reflecting an ~~earnings~~increase ~~decrease~~ of $21.28 million, as compared to net ~~income~~loss of $01.6 million for the same period in ~~2008. Net loss was $1.7 million for the nine months ended September 30,~~ 2009~~, reflecting an earnings decrease of $1~~.6 ~~million, as compared to net loss of $0.1 million for the same period in 2008.~~ Excluding the $2.8 million received for the escrow fund settlement, the net loss for the ~~nine~~three months ended ~~September~~March 3031, 2009, would have been $4.54 million. ~~Excluding~~The ~~the~~improved ~~$4.0 million received for the~~operating ~~non-recurring~~performance ~~engineering~~relates ~~cost~~to ~~reimbursement~~higher revenues, ~~the~~improved ~~net~~margins ~~loss~~and ~~for~~lower ~~the~~operating expenses ~~nine~~resulting ~~months ended~~from ~~September 30,~~reductions ~~2008,~~in ~~would~~work ~~have~~force ~~been~~in $42009.~~1 million.~~

20Liquidity and Capital Resources

~~Liquidity~~The Company’s primary sources of liquidity are its cash and ~~Capital~~cash ~~Resources~~equivalents which were $13.5 million (net of $5.0 million pledged restricted cash) at March 31, 2010 and $16.0 million at December 31, 2009 (net of $5.0 million pledged restricted cash). Due to the net losses in 2009, 2008 and 2007, we considered several key factors in assessing the liquidity requirements of the Company for the next twelve months. Management developed operational cash flow projections which factor in our backlog of orders, timing of receiving and shipping orders, the continued focus on cost management, and our historical collection and payment patterns with customers and vendors. The majority of our customers are with the United States Government, state counties that are rebanding under the FCC and Sprint / Nextel escrowed funds arrangement, state and local agencies and our dealer network supporting state and local agencies. In several cases, our customer purchases of products and services are supported by encumbered funds and grants. While this does not provide absolute payment assurance, it does indicate collectibility is reasonably assured. Management continues to monitor the financial condition of our vendors and supply chain noting some impact from the current economic conditions could disrupt our deliveries.

The Company’s ~~primary~~also ~~sources~~has ofa ~~liquidity~~secured ~~are~~line ~~its~~of ~~cash~~credit ~~and~~agreement ~~cash~~with ~~equivalents~~Bank ~~that were~~of ~~$11~~America, N.5A. (the ~~million~~“Loan ~~(net~~Agreement”), ofwhich, ~~$5.0~~prior ~~million~~to ~~pledged~~the ~~restricted~~Seventh ~~cash)~~Amendment atdiscussed ~~September~~below, would have expired on June 30, 2010. We amended the Loan Agreement in July 2006 ~~2009~~to ~~and~~include a revolving line of credit of up to $1115.3 0 million ~~(net~~and a term loan of $215.0 million. The $15.0 million term ~~pledged~~loan ~~restricted~~was ~~cash)~~fully atfunded ~~December 31,~~and used to finance the ~~2008~~acquisition of 3eTI. In ~~addition,~~Both ~~effective~~borrowings ~~with~~bear interest at a variable rate based on the ~~amended~~London ~~Loan~~Interbank ~~Agreement~~Offered ~~dated~~Rate (“LIBOR”) plus a margin (“LIBOR Margin”). The LIBOR Margin was 500 basis points at March 1631, ~~2009,~~ we2010. ~~have~~The aeffective interest ~~revolving~~rate ~~line~~at ofMarch 31, ~~credit~~2010 ~~for~~was ~~$10~~5.~~0 million~~41 percent.

~~Net~~The ~~cash~~Loan ~~from~~Agreement ~~operating~~provides ~~activities.~~for ~~Our~~customary affirmative ~~operating~~and ~~activities~~negative ~~provided~~covenants, ~~cash~~including maintenance of corporate ~~$4.2~~existence, ~~million~~property inand ~~the~~certain ~~nine~~reporting ~~months~~requirements, ~~ended~~as ~~September 30,~~well ~~2009. Our~~as ~~operating~~limitations on ~~activities~~debt, ~~used~~liens, ~~cash~~fundamental ofchanges, ~~$8.0~~acquisitions, investments, loans, ~~million~~guarantees, inuse ~~the~~of ~~nine~~proceeds ~~months~~and ~~ended~~capital ~~September 30~~expenditures. In addition, ~~2008.~~the Loan Agreement

During the first nine months of 2009, operating cash was provided primarily from improved inventory turnover, collection of trade accounts receivable, lower prepaid expenses and non-cash depreciation, amortization and stock compensation all aggregating to $12.1 million. Partially offsetting were the net loss of $1.7 million coupled with reductions in accounts payable and other accrued liabilities all aggregating to $8.0 million. Operating cash includes $2.8 million received from the escrow fund settlement in January 2009.20

~~During~~contains certain ~~the~~financial ~~first~~covenants ~~nine~~including ~~months~~a ofmaximum ~~2008,~~ratio ~~operating~~of ~~cash~~funded ~~was~~debt ~~used~~to ~~primarily~~EBITDA ~~for~~and ~~increases~~a infixed ~~trade~~charge ~~accounts~~coverage ~~receivable,~~ratio. ~~and~~The ~~reductions~~Loan inAgreement ~~accounts~~also ~~payable~~provides ~~and~~for ~~other~~events of ~~accrued~~default ~~liabilities~~that ~~coupled~~would ~~with~~permit athe ~~net~~lender ~~loss~~to ~~all~~accelerate ~~aggregating~~the toloans ~~$15.1~~upon ~~million.~~their ~~Partially~~occurrence. ~~offsetting~~As ~~were~~collateral ~~collections~~for ofthe ~~related~~obligations ~~party~~under ~~and~~the ~~other~~Loan ~~receivables and non-cash depreciation~~Agreement, ~~amortization and stock compensation all aggregating~~the toLender ~~$6.8~~has ~~million. The~~a ~~increase~~security ~~in accounts~~interest ~~receivable reflects delays~~ in ~~cash~~substantially ~~collections~~all ~~from~~assets ~~certain~~of ~~customers during~~ the ~~quarter ended September 30~~borrowers, ~~2008. Operating cash includes $4.0~~ ~~million~~including ~~received~~accounts ~~for~~receivable, ~~the~~inventories ~~non-recurring~~and ~~engineering~~general ~~cost reimbursement in June 2008~~intangibles.

~~Net~~The Company ~~cash~~did ~~from~~not ~~investing~~borrow ~~activities.~~against ~~During~~the revolving line of credit during 2009 or during the ~~nine~~three months ended ~~September~~March 3031, ~~2009,~~ ~~investing~~2010. ~~activities~~There ~~used~~was $0.975 million ~~primarily~~of an ~~investing~~open inletter ~~the purchase~~of credit under our line of ~~property~~credit at March 31, ~~plant~~2010 and ~~equipment~~ 2009. ~~During~~As of March 31, 2010, the ~~nine~~maximum ~~months~~that ~~ended~~we ~~September 30,~~can borrow under the ~~2008~~revolving ~~investing~~credit ~~activities~~line ~~used~~was $3.475 million. ~~primarily~~The ~~attributable~~total toavailable ~~establishing~~credit under the line of credit was approximately $23.0 million ofand ~~restricted~~$3.1 ~~cash~~million as ~~collateral~~of ~~for~~March 31, 2010 and December 31, 2009, respectively. Effective with the ~~Government~~Seventh Amendment ofdiscussed ~~Yukon~~below, ~~Canada~~ ~~bond~~the ~~and~~maximum ~~purchases~~the ofCompany ~~property~~will ~~plant~~be ~~and~~able ~~equipment~~to ofborrow under the revolving credit line will increase to is $1.6.0 million with any borrowings under the line of credit are at the discretion of the lender.

~~Net~~We were ~~cash~~not ~~from~~in ~~financing~~compliance ~~activities.~~with ~~During~~certain of the ~~nine~~financial ~~months~~covenants of the Loan Agreement for the quarter ended ~~September~~December 3031, 2009. As a result, ~~there~~effective ~~was~~March 1, 2010, we executed an ~~increase~~amendment into ~~restricted~~the ~~cash~~Loan Agreement whereby Bank of America waived such financial covenant defaults on a one-time basis, waived compliance with such financial covenants for the Company’s first quarter of 2010, and further amended the Loan Agreement to, among other things, (i) lower the revolving line of credit from $310.0 million to $3.75 million, ~~relating~~(ii) make all future advances under the line subject to the lender’s discretion, (iii) further ~~loan~~limit ~~amendment~~our ~~noted~~ability ~~below~~to ~~together~~obtain ~~with~~letters ~~other~~of ~~minimal~~credit, ~~financing~~(iv) require ~~activities.~~us to pledge ~~During~~additional cash collateral totaling $3.5 million for the ~~nine~~remaining ~~months~~term ~~ended~~of the ~~September~~Loan Agreement no later than June 3015, ~~2008~~2010, ~~financing~~and ~~activities~~(v) require us to ~~provided~~provide ~~$2.0~~additional ~~million~~financial inreporting to the bank on a ~~borrowing~~monthly ~~from~~basis. ~~the~~Failure to ~~revolving~~comply ~~line~~with any of ~~credit~~these terms could constitute an event of default that would permit the lender to ~~cover~~accelerate the loans upon their occurrence, which ~~short~~could ~~term~~have a material adverse effect on our operating results and cash ~~requirements~~flows. We cannot assure that in the future we will be able to achieve, maintain or satisfy these obligations under the Loan Agreement or obtain a waiver from Bank of America in the event we fail to comply.

~~Secured line of credit. The Loan Agreement provides for customary affirmative~~Prior ~~and~~to ~~negative~~the ~~covenants,~~Seventh ~~including~~Amendment ~~maintenance~~discussed ~~of corporate existence~~below, ~~rights, property,~~the ~~books~~Loan ~~and~~Agreement ~~records~~would ~~and~~have ~~insurance, compliance with contracts and laws,~~expired ~~and certain reporting requirements, as well as limitations~~ on ~~debt~~June 30, ~~liens~~2010, ~~fundamental~~ ~~changes,~~resulting ~~acquisitions,~~in ~~transfers~~the of$15.0 million ~~assets,~~term ~~investments,~~loan ~~loans,~~becoming ~~guarantees,~~due ~~use~~and ofpayable ~~proceeds,~~in ~~sale-leaseback~~full ~~transactions~~on ~~and~~that ~~capital expenditures~~date. InThe ~~addition,~~Company ~~the~~did ~~Loan~~not ~~Agreement~~anticipate ~~contains~~that ~~certain financial~~it ~~covenants~~would ~~including~~have asufficient ~~maximum~~cash ~~ratio~~on ofhand ~~funded~~on ~~debt~~that date to ~~EBITDA~~pay ~~and~~off athe ~~fixed~~term ~~charge~~loan ~~coverage~~without ~~ratio.~~dedicating ~~The~~all ~~Loan~~or ~~Agreement~~substantially ~~also~~all ~~provides for events~~ of ~~default~~our ~~that would~~cash ~~permit~~flow ~~the~~from ~~lender~~operations to ~~accelerate~~ the ~~loans~~payment ~~upon~~of ~~their~~our ~~occurrence~~indebtedness, ~~including~~ ~~failure~~thereby tosubstantially ~~make~~reducing ~~payments,~~the ~~breaches of representations and warranties,~~funds ~~insolvency events, acceleration~~available offor ~~other indebtedness~~operations, ~~failure~~working ~~to discharge judgments~~capital, ~~material adverse~~capital ~~effects~~expenditures, ~~certain~~research ~~breaches of contracts, casualty losses when no or~~and ~~insufficient insurance is maintained~~development, ~~changes~~sales ofand ~~control,~~marketing ~~certain~~initiatives ~~ERISA events~~ and ~~failure~~general tocorporate ~~observe~~or ~~covenants~~other purposes. As ~~collateral~~a ~~for~~result, the ~~obligations~~Company ~~under~~began ~~the Loan~~exploring ~~Agreement~~options ~~the~~available ~~Lender~~to ~~has~~it ato refinance ~~security~~the ~~interest~~debt, inor ~~substantially~~raise ~~all~~additional ~~assets of~~funds ~~the~~through ~~borrowers,~~private ~~including~~equity ~~accounts~~or ~~receivable, inventories, machinery,~~debt ~~equipment~~financing, ~~real~~sales ~~estate~~of assets, ~~and~~or ~~general~~other ~~intangibles~~strategic alternatives.

~~As noted~~On ~~in our Form~~May ~~10-K~~15, 2010, ~~for~~ the ~~period ending December~~Company, ~~31,~~entered ~~2008,~~into wean ~~were not~~Agreement inand ~~compliance~~Plan ~~with the financial covenants~~ of Merger (the ~~Loan~~ “Merger Agreement”) ~~for~~with ~~the quarter~~FP-EF ~~ending~~Holding ~~December 31~~Corporation, ~~2008. As~~ a ~~result,~~Delaware oncorporation ~~March 16~~(“Parent”), ~~2009 we~~ ~~executed~~and anFP-EF ~~Amendment~~Corporation, toa ~~the~~Delaware ~~Loan~~corporation ~~Agreement~~and ~~whereby Bank of America waived such financial covenant defaults on~~ a ~~one~~wholly-~~time~~owned ~~basis~~subsidiary ~~and amended the Loan Agreement~~of ~~to,~~Parent ~~among~~(“Merger ~~other things, lower the revolving line of credit from $15~~Sub”).0 ~~million to~~The ~~$10.0~~Merger ~~million,~~Agreement ~~revise~~provides ~~such financial covenants~~that, ~~add~~upon ~~additional covenants, and to modify~~ the ~~advance~~terms and ~~borrowing revisions under the Loan Agreement. In~~ ~~order~~subject to ~~maintain compliance with~~ the ~~terms~~conditions ofset ~~the~~forth ~~Amendment,~~in the ~~Company pledged~~Merger asAgreement, ~~additional cash collateral for~~ the ~~remaining~~Merger ~~term~~Sub will ofmerge ~~the~~with ~~term~~and ~~loan, $3.0~~into ~~million on~~ the ~~effective~~Company ~~date of~~ (the ~~Amendment. Furthermore~~“Merger”), ~~beginning~~ with the ~~quarter~~Company continuing ~~ending~~as ~~June 30,~~the ~~2009,~~surviving wecorporation ~~are~~(“Surviving ~~required~~Corporation”) toand ~~maintain~~as a ~~certain~~wholly-owned ~~level~~subsidiary of ~~EBITDA,~~Parent. aParent ~~certain~~is ~~fixed~~an ~~charge~~affiliate ~~coverage~~of ~~ratio~~Francisco ~~on a cumulative~~Partners ~~basis beginning April 1~~II, ~~2009~~L.P., a ~~minimum funded debt to EBITDA ratio on an~~ ~~annualized~~global ~~basis~~technology-focused ~~beginning~~private ~~April 1,~~equity ~~2009~~fund. ~~for~~Parent ~~each~~and ~~quarterly~~Merger ~~financial~~Sub have ~~reporting~~represented ~~period~~and ~~through~~warranted ~~June 30,~~that ~~2010~~they ~~and~~will ~~limit~~have ~~capital~~sufficient ~~expenditures~~financing to ~~$2.5~~consummate ~~million for 2009. In addition,~~ the ~~interest~~Merger ~~rate~~and onthere ~~the~~is ~~revolving~~no ~~note issuable~~financing ~~pursuant~~condition to ~~the~~closing. Additionally, ~~Loan~~Francisco ~~Agreement~~Partners ~~has~~II, ~~been~~L.P. ~~amended to a floating rate~~and ~~equal~~Francisco toPartners ~~LIBOR~~Parallel ~~plus~~Fund aII, ~~Libor Margin ranging from 2~~L.~~50% to 5~~P.~~00%~~, ~~through~~affiliates ~~the term~~ of ~~the~~Parent, ~~note~~have ~~based~~delivered to on the Company’s ~~funded~~a ~~debt~~limited toguarantee ~~EBITDA.~~with ~~Effective~~respect ~~with~~to the ~~Amendment,~~ ~~the~~payment ~~Libor~~of ~~margin is 400 basis points through~~ the ~~third quarter of~~Parent ~~2009.~~Termination ~~Interest~~Fee ~~rates~~and out-of-pocket ~~4.26%~~expenses ~~and~~of ~~4.5%~~the ~~were in effect at September 30, 2009 and 2008, respectively~~Company. ~~The Loan Agreement expires June 30, 2010.~~

21Pursuant to the terms of the Merger Agreement, stockholders will receive $1.05 per share in cash for their shares of stock of the Company at which time the Company will be privately held. Consummation of the Merger is subject to customary conditions, including, among others, (i) approval of the Company’s stockholders, (ii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, if applicable, (iii) absence of any order or injunction prohibiting the consummation of the Merger, (iv) subject to certain exceptions, the accuracy of representations and warranties with respect to the Company’s business and compliance by the Company with its covenants contained in the Merger Agreement and (v) stockholders owning no more than 10% of the Company’s outstanding common stock dissenting from the Merger and seeking appraisal rights.

The Merger Agreement ~~Company~~contains ~~was~~certain intermination ~~compliance~~rights ~~with~~for ~~all~~both ~~financial~~the Company and ~~negative~~Parent, ~~covenants~~and further atprovides ~~September 30~~that, ~~2009~~ ~~under~~in connection with the ~~Loan~~termination of the Merger Agreement ~~except~~under ~~for~~specified circumstances, the ~~minimum~~Company ~~EBITDA~~will ~~financial~~be ~~covenant~~required to pay Parent a termination fee of $1.0 million and/or reimburse certain out-of-pocket ~~Effective~~expenses ~~November 9,~~up ~~2009~~to $1.0 million. Additionally, the ~~Bank~~Company’s ofonly ~~America~~recourse ~~waived~~if ~~such~~Parent ~~financial~~breaches ~~covenant~~the Merger Agreement or the ~~default~~Company onterminates the Merger Agreement in certain circumstances is the right to receive a ~~one~~reverse ~~time~~termination ~~basis.~~fee Atfrom ~~September 30,~~Parent ~~2009~~of $2.0 million and ~~December 31,~~up to $1.0 ~~2008,~~million noin ~~borrowings~~certain ~~had~~of ~~been~~the ~~made~~Company’s onout-of-pocket ~~the~~expenses. The ~~revolving~~Company ~~line~~cannot ofseek ~~credit~~equitable relief to enforce Parent to consummate the Merger.

~~As discussed~~On ~~above~~May 15, ~~compliance with new~~2010, ~~more~~the ~~restrictive~~Company ~~financial~~entered ~~covenants~~into a ~~under~~Seventh ~~the~~Amendment ~~Loan~~effective ~~Agreement~~as ~~was~~of ~~required~~May 15, ~~beginning~~2010, into ~~the~~our ~~Company’s~~Loan ~~second~~Agreement ~~quarter~~with Bank of ~~2009~~America, N. IfA. ~~certain~~to ~~orders~~extend ~~are~~the ~~not~~maturity ~~received~~of ~~and~~the ~~shipped~~Loan inAgreement ~~the~~until ~~fourth quarter~~August 31, 2010 to allow the Company ~~may~~to ~~not~~consummate ~~meet~~the ~~those~~Merger. ~~more~~The ~~restrictive~~Lender ~~loan~~also ~~covenants for the~~waived ~~fourth~~compliance ~~quarter.~~with ~~Management’s~~certain ~~evaluation~~financial iscovenants ~~based~~contained onin ~~recent~~the ~~experience~~Loan ~~with~~Agreement for ~~expected~~the ~~orders~~Company’s ~~being~~fiscal ~~temporarily~~quarter ~~delayed~~ending byJune 30, ~~customers~~2010, on a one-time basis. In ~~such~~consideration ~~event,~~of the Lender’s agreement, the Company ~~intends~~agreed to ~~attempt~~pay todown ~~obtain~~the aoutstanding ~~waiver~~principal balance of the ~~noncompliance~~term ~~from~~loan ~~the lender,~~portion ~~failing~~of ~~which~~ the ~~lender~~Loan ~~could~~Agreement ~~declare~~from ~~the~~$15.0 ~~Company~~million into ~~default~~$5.0 ~~under~~million on June 17, 2010. Under the terms ~~Loan~~of ~~Agreement~~the ~~and~~Seventh ~~accelerate~~Amendment, the ~~payment~~Company ofmay authorize the ~~$15.0~~Lender ~~million~~to ~~term~~apply ~~loan,~~funds ~~require~~held ~~payment~~by ofthe ~~any~~Lender ~~borrowings~~in ~~under~~a ~~the~~pledged ~~revolving~~account ~~line~~in reduction of ~~credit~~the ~~and raise~~outstanding principal balance, provided that the ~~interest~~balance ~~rate~~remaining anin ~~additional~~the ~~4%. There~~pledged ~~can~~account cannot be noreduced ~~assurance~~below ~~that~~$0.75 million. On June 17, 2010, the amount ~~Company~~contained ~~will~~in bethe ~~able~~pledged account is expected to ~~obtain~~be ~~such~~$6.5 ~~waiver~~million.

If the Company is not in compliance with the bank covenants at the end of the fourth quarter and is unable to obtain a waiver from such noncompliance, the Company may need to raise additional funds through public or private equity or debt financing to pay amounts due and owing under the Loan Agreement, to the extent existing resources and cash from operations are insufficient to pay such obligations. These funds may not be available, or if available, we may not be able to obtain them on terms favorable to us.21

The ~~Loan~~parties ~~Agreement~~further ~~expires~~amended ~~June 30, 2010. As a result,~~ the ~~$15.0~~Loan ~~million~~Agreement ~~term~~to increase ~~loan under~~ the ~~Loan~~revolving ~~Agreement~~line ~~has been~~of ~~classified~~credit asfrom ~~current~~$3.75 ~~due~~million to ~~its~~$6.0 ~~maturity~~million effective ~~date of~~ June 3017, 2010. All future ~~Through~~advances ~~the~~under ~~expiration of~~ the ~~term~~Loan ~~loan,~~Agreement wewill ~~expect~~continue to ~~build~~be ~~our~~subject ~~cash~~to ~~balances in anticipation of payment and / or refinancing all or a portion of~~ the ~~term~~Lender’s ~~loan at maturity~~discretion. The AsSeventh ~~noted~~Amendment further ~~above,~~requires wethe ~~may~~Company ~~need~~to continue to ~~raise~~provide additional ~~funds through~~financial ~~public~~reporting orto ~~private~~the ~~equity~~Lender oron ~~debt~~a ~~financing~~monthly tobasis ~~satisfy~~through the ~~term loan at~~ maturity. ~~These~~of ~~funds~~the ~~may not be available, or if available, we may not be able to obtain them on terms favorable to us~~loans.

~~The Company also intends to attempt to extend and /~~Our orcurrent ~~refinance~~cash ~~the~~flow ~~$10.0 million revolving credit facility under the Loan Agreement at maturity. Assuming the Company is successful in extending~~ and /capital ~~or refinancing~~resources ~~the~~are ~~Loan Agreement~~limited, and ~~based on our estimated cash flows,~~ we ~~believe our~~require ~~existing cash, cash equivalents and the revolving line of credit are~~additional ~~sufficient~~funds to ~~meet~~pursue our ~~capital~~business. ~~and~~In ~~operating~~the ~~requirements~~event ~~for~~that ~~at least~~ the ~~next 12~~Merger ~~months.~~is ~~However,~~not ~~our future operating and capital requirements depend on many factors~~consummated, ~~including~~ the ~~levels~~Company atwill ~~which~~be werequired ~~generate~~to ~~product~~pay ~~revenue~~all ~~and related~~amounts ~~margins,~~outstanding ~~the~~to ~~timing~~Bank ~~and extent~~ of ~~development, our operating expenses,~~America ~~investments~~on ~~in inventory and accounts receivable and general economic conditions~~August 31, ~~and~~2010 ~~also,~~when the ~~continued~~Loan ~~availability~~Agreement ~~of our credit facility~~expires. ToWe ~~the extent~~may ~~existing~~not ~~resources~~be ~~and~~able ~~cash from operations are insufficient~~ to ~~support~~ ~~our~~secure ~~activities,~~further ~~and~~financing /in or the ~~Company~~future. ~~fails~~If towe ~~meet~~are ~~its~~not ~~covenants~~able ~~under~~to ~~the~~obtain ~~Loan~~additional ~~Agreement~~financing oron ~~any~~reasonable ~~extension or refinancing thereof~~terms, we may ~~need~~not tobe ~~raise additional~~able ~~funds~~to ~~through~~execute ~~public~~our orbusiness strategy, ~~private~~conduct ~~equity~~our oroperations ~~debt~~at ~~financing.~~the ~~These funds~~level ~~may not be available~~desired, or ifeven ~~available, we may not be able~~ to ~~obtain them~~continue ~~on terms favorable to us~~business.

~~Letters~~If ~~of credits and bonds. In the normal course of our business activities,~~ we ~~are~~raise ~~required~~additional ~~under~~funds ~~certain~~through ~~supplier~~further ~~agreements~~issuances ~~and contracts with various government authorities to provide letters~~ of ~~credit~~equity or ~~performance~~convertible ~~or bid bonds~~debt ~~that~~securities, ~~may~~our beexisting ~~drawn~~stockholders ~~upon~~could ifsuffer wesignificant ~~fail~~dilution ~~to perform under these agreements and~~in ~~contracts.~~their ~~There~~percentage ~~was~~ownership ~~$0.75 million~~ of ~~open~~our ~~letters~~company, ofand ~~credit~~any ~~under~~new ~~our~~equity ~~line~~securities ofwe ~~credit~~issue atcould ~~September 30~~have rights, ~~2009~~preferences and ~~there~~privileges ~~were~~senior noto ~~open~~those ~~letters~~ of ~~credit~~holders ~~under~~of our ~~line~~common ~~of credit at December 31, 2008~~stock. ~~Bonds,~~In ~~which expire on various dates~~addition, ~~totaled~~any ~~$2.4~~debt ~~million~~financing onthat ~~September 30,~~we ~~2009~~may ~~and~~secure ~~December 31, 2008, respectively. The majority of the bonds relate to the contract awarded~~ in ~~May 2008~~ by the ~~Government of Yukon, Canada that is collateralized by~~ ~~restricted~~future ~~cash~~could ofhave ~~$2.0~~restrictive ~~million.~~covenants ~~The~~relating ~~contract is expected~~ to beour ~~completed~~capital inraising ~~the~~activities ~~second~~and ~~quarter~~other offinancial ~~2010~~ and ~~the~~operational ~~corresponding~~matters, ~~bond~~which ~~and~~may ~~restricted~~make ~~cash~~it ~~would~~more bedifficult ~~released.~~for Nous ~~bonds~~to ~~had~~obtain ~~been~~additional ~~drawn~~capital ~~upon~~and atto ~~either~~pursue ~~date~~business opportunities.

~~The~~If we ~~total~~sell ~~available~~certain ~~remaining~~assets ~~credit~~of ~~under~~ the ~~line~~Company ofto ~~credit~~satisfy ~~was~~our obligations, that may ~~$9.25 million~~materially ~~and~~reduce ~~$14.4~~our ~~million~~revenues asin ofthe ~~September 30~~future, ~~2009~~which, ~~and~~to ~~December 31,~~the extent not offset ~~2008,~~by ~~respectively.~~cost ~~The~~reductions ~~decline~~or inrevenue ~~available~~from ~~remaining~~new ~~credit~~or ~~reflects~~existing ~~the~~customers, could materially ~~reduced~~reduce ~~borrowing~~our ~~allowed~~cash ~~under~~flows ~~the~~and ~~revolving~~adversely ~~line~~affect ofour ~~credit~~financial ~~coupled~~position. ~~with~~This ~~the~~may ~~opening~~limit ofour ~~the~~ability ~~letter~~to ofraise ~~credit~~capital ~~during~~or ~~the~~fund ~~first~~our ~~quarter~~operations, ofworking ~~2009~~capital needs and capital expenditures in the future. ~~The~~See ~~revolving~~“Part II Other ~~line~~Information, ofItem 1A. ~~credit~~Risk isFactors” ~~supported~~of bythis ~~the~~Form 10-Q ~~underlying~~for ~~borrowing~~an ~~base~~additional discussion of ~~the Company~~risks.

~~Backlog~~Letters of credits and bonds. In ~~Our~~the ~~backlog~~normal course of ~~unfilled~~our business ~~orders~~activities atrelated ~~September 30~~to sales of wireless radio systems to local and state governmental entities, we are required under contracts with various ~~2009~~government authorities to provide letters of credit or performance or bid bonds that may be drawn upon if we fail to perform under our contracts. There was a $640.375 million, ~~compared~~letter toof acredit ~~backlog~~under our line of ~~$68.2~~credit ~~million~~as atof ~~December~~March 31, ~~2008~~2010 and ~~$70~~December 31, 2009, respectively.5 ~~million~~Performance atand ~~September 30~~bid bonds, ~~2008.~~which expire ~~Depending~~ on ~~the~~various ~~size~~dates, ~~and complexity~~totaled of$2.4 million ~~customer~~at ~~specifications~~March 31, 2010 and ~~requirements~~December 31, 2009, ~~the~~respectively. ~~backlog~~No ~~can~~bonds ~~be converted~~had tobeen ~~revenues~~drawn inupon aat ~~relatively~~either ~~short~~date. ~~period~~The majority of ~~time~~bonds ~~(typically~~relate 90to ~~days) or~~the ~~with~~contract ~~complex~~awarded ~~integrations~~in ~~and~~May 2008 ~~various~~by ~~delivery~~the ~~dates~~Government of Yukon, ~~orders~~Canada ~~can~~that ~~span multiple~~is ~~years~~collateralized by restricted cash of $2.0 million.

~~Dividend~~Net ~~policy.~~cash ~~Since~~from ~~our~~operating ~~initial~~activities. ~~public~~Our ~~offering,~~operating weactivities ~~have~~used ~~not declared~~cash ~~or paid any dividends on our common stock~~of $2.5 Wemillion ~~presently intend to retain earnings for use in our operations~~ and ~~to finance our business~~$0.2 ~~Any change~~million in ~~our dividend policy is within~~ the ~~discretion~~three ofmonths ~~our~~ended ~~board of directors and will depend~~March 31, ~~among~~2010 ~~other things, on our earnings, debt service~~ and ~~capital requirements, restrictions in financing agreements, if any,~~ ~~business~~2009 ~~conditions and other factors that our board of directors deems relevant~~respectively.

22During the first three months of 2010, operating cash was used primarily for increases in trade accounts receivable and reductions in other accrued liabilities all aggregating to $18.4 million. Partially offsetting were net income of $0.2 million coupled with increases in accounts payable, improved inventory turnover, increased billings in excess of costs on certain percentage of completion contracts, and non-cash depreciation, amortization and stock compensation all aggregating to $15.9 million. The increase in accounts receivable reflects certain customer related delays in shipments from the fourth quarter 2009.

~~Off~~During the first quarter of 2009, cash was used primarily resulting from a net loss of $1.6 million coupled with decreases in accounts payable, accrued expenses and deferred revenues all aggregating to $4.7 million. Partially offsetting were non-~~Balance~~cash ~~Sheet~~depreciation ~~Arrangements~~and amortization, stock compensation expense, reductions in inventories, accounts receivable from related parties, and other amounting to $4.5 million. Operating cash includes $2.8 million received from the escrow fund settlement.

~~As part~~Net ofcash ~~our~~from ~~ongoing~~investing ~~business,~~activities. weDuring dothe ~~not~~three ~~participate~~months inended ~~transactions that~~March 31, ~~generate~~2010 ~~relationships~~and ~~with unconsolidated entities or financial partnerships~~2009, ~~such~~ asinvesting ~~entities~~activities ~~often~~used ~~referred~~approximately to$0.1 asmillion ~~structured~~and ~~finance or variable interest~~$0.3 ~~entities~~million ~~(“VIE”),~~respectively ~~that would have been established~~ for ~~the~~purchases ~~purpose~~ of ~~facilitating~~ ~~off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30~~property, ~~2009,~~plant weand ~~are not involved in any VIE transactions~~equipment.

~~Recently~~Net ~~Issued~~cash ~~Accounting~~from ~~Standards~~financing activities. During the three months ended March 31, 2010 there was minimal financing activities. During the three months ended March 31, 2009, financing activities used cash primarily attributable to establishing $3.0 million of restricted cash at Bank of America associated with the loan amendment noted above.

~~See Note~~Backlog. 17Our toTranscrypt-branded ~~the~~products ~~Condensed~~typically ~~Consolidated~~have ~~Financial~~a short ~~Statements~~turnaround incycle. ~~Item~~In 1contrast, ofour ~~this~~EFJohnson ~~Form 10-Q~~products and systems, and ~~for~~3eTI government services contracts, typically have a ~~full~~longer ~~description~~turnaround ofcycle due ~~recent~~to ~~accounting~~customer ~~standards,~~system ~~including~~integration ~~the~~and ~~expected~~contract delivery requirements that may ~~dates~~span ofmultiple ~~adoption~~years. ~~and~~At ~~estimated~~March 31, ~~effects~~2010 onwas ~~results~~$61.6 ofmillion, ~~operation~~compared ~~and~~to ~~financial~~a ~~condition~~backlog of $70.2 million at December 31, ~~which~~2009 isand ~~incorporated~~$67.0 ~~herein~~million byat ~~reference~~March 31, 2009.

Dividend policy. Since our initial public offering, we have not declared or paid any dividends on our common stock. We presently intend to retain earnings for use in our operations and to finance our business. Any change in our dividend policy is within the discretion of our board of directors and will depend, among other things, on our earnings, debt service and capital requirements, restrictions in financing agreements, if any, business conditions and other factors that our board of directors deems relevant.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (“VIE”), that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2010, we are not involved in any VIE transactions and do not have any off-balance sheet arrangements.

Recently Issued Accounting Standards

See Note 18 to the Condensed Consolidated Financial Statements in “Part I Financial Information, Item 1 Financial Statements” of this Form 10-Q for a full description of recent accounting standards, including the expected dates of adoption and estimated effects on results of operation and financial condition, which is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Our~~We are ~~financial~~exposed ~~instruments~~to ~~consist~~certain ofmarket ~~cash~~risks ~~and~~in ~~cash~~the ~~equivalents,~~ordinary ~~trade~~course ~~accounts~~of our business. These ~~receivable,~~risks ~~accounts~~result ~~payable,~~primarily ~~current~~from ~~and~~changes ~~long-term~~in ~~obligations.~~interest ~~The~~rates ~~primary~~and foreign currency ~~objective~~exchange ofrates. ~~our~~We ~~investment~~do ~~activities~~not iscurrently tohold ~~preserve~~any ~~principal~~derivatives ~~while~~or atother ~~the~~financial ~~same~~instruments ~~time~~purely ~~maximizing~~for ~~yields~~trading ~~without~~or ~~increasing~~speculative ~~risk~~purposes.

~~Although~~Our financial ainstruments ~~substantial~~consist ~~majority~~ of ~~our~~cash, ~~sales~~cash ~~are denominated~~equivalents, inshort- ~~U.S.~~and ~~dollars~~long-term investments, ~~fluctuations~~trade inaccounts ~~the~~receivable, ~~value~~accounts ofpayable ~~international currencies~~and ~~relative to the U~~long-term obligations.S. ~~dollar~~The ~~may~~primary ~~affect~~objective ~~the price, competitiveness and profitability~~ of our ~~products~~ ~~sold~~investment inactivities ~~international~~is ~~markets.~~to ~~Furthermore,~~preserve principal ~~the~~while ~~uncertainty~~at ofthe ~~monetary~~same ~~exchange~~time ~~values~~maximizing ~~has~~yields ~~caused,~~without ~~and~~increasing ~~may~~risk. inAs ~~the~~of ~~future~~December 31, ~~cause~~2009, ~~some~~we ~~foreign~~had ~~customers~~an toinvestment ~~delay~~portfolio ~~new~~of ~~orders~~short-term orinvestments ~~delay~~in ~~payment~~a ~~for~~variety ~~existing~~of ~~orders.~~interest-bearing ~~Additionally,~~money ~~troubled~~market ~~economic and political conditions could result in lower revenues for us~~funds. ~~While~~Due ~~most~~to ~~international~~the ~~sales~~short ~~are~~duration ~~supported~~of byour ~~letters~~investment ofportfolio, ~~credit~~a orhypothetical ~~cash~~1% change in ~~advance,~~interest ~~the~~rates ~~purchase~~would ofnot ~~our~~be material ~~products~~to ~~by international~~our ~~customers~~financial ~~presents~~condition ~~increased~~or ~~risks,~~results ~~which~~of ~~include:~~operations.

The Company has $15.0 million of variable rate debt outstanding at December 31, 2009, which debt matures on June 30, 2010. The debt is variable based on the LIBOR rate. Assuming interest rate volatility in the future is similar to what has been seen in recent years, the Company does not anticipate that short term changes in interest rates will materially affect its consolidated, financial position, results of operations or cash flows. See “Liquidity and Capital Resources” and Item 1A. “Risk Factors” for further discussion of our financing facilities and capital structure.

Although a substantial majority of our sales are denominated in U.S. dollars, fluctuations in the value of international currencies relative to the U.S. dollar may affect the price, competitiveness and profitability of our products sold in international markets. Furthermore, the uncertainty of monetary exchange values has caused, and may in the future cause, some foreign customers to delay new orders or delay payment for existing orders. The company does not use financial instruments to hedge foreign currency exchange rate changes. While most international sales are supported by letters of credit or cash in advance, the purchase of our products by international customers presents increased risks, which include:

· unexpected changes in regulatory requirements;

· tariffs and other trade barriers;

· political and economic instability in foreign markets;

· difficulties in establishing foreign distribution channels;

· longer payment cycles or uncertainty in the collection of accounts receivable;

· increased costs associated with maintaining international marketing efforts;

· cultural differences in the conduct of business;

· natural disasters or acts of terrorism;

· difficulties in protecting intellectual property; and

· susceptibility to orders being cancelled as a result of foreign currency fluctuations since a substantial majority of our quotations and invoices are denominated in U.S. dollars.

Export of our products is subject to the U.S. Export Administration regulations and some of our secured communications products require a license or a license exception in order to ship internationally. We cannot assure that such approvals will be available to us or our products in the future in a timely manner or at all or that the federal government will not revise its export policies or the list of products, persons or countries for which export approval is required. Our inability to obtain required export approvals would adversely affect our international sales, which may have a material adverse effect on us. In addition, foreign companies not subject to United States export restrictions may have a competitive advantage in the international secured communications market. We cannot predict the impact of these factors on the international market for our products.

export policies or the list of products, persons or countries for which export approval is required. Our inability to obtain required export approvals would adversely affect our international sales, which may have a material adverse effect on us. In addition, foreign companies not subject to United States export restrictions may have a competitive advantage in the international secured communications market. We cannot predict the impact of these factors on the international market for our products.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) reviewed and evaluated our disclosure controls and procedures, as defined in Rule 240.13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management including our principal executive and principal financial officer, as appropriate, to allow timely decisions regarding disclosures.

processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management including our principal executive and principal financial officer, as appropriate, to allow timely decisions regarding disclosures.

Internal Controls Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our CEO and CFO, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Remediation~~ As part of ~~Material~~our ~~Weakness~~normal inoperations, ~~Internal~~we ~~Control~~update our internal controls as necessary to accommodate any modifications to our business processes or accounting procedures. No change occurred during the most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

AsIn ~~reported~~preparation inof our ~~2008~~financial ~~Form 10-K,~~statements weas ~~did not maintain effective controls to properly and timely identify the appropriate accounting treatment at the time that the Company entered into a memorandum~~ of understanding with one of its vendors in an effort to resolve a dispute between the parties regarding an outstanding non-trade receivable. The agreement granted credits on future purchases to the Company, and ~~therefore should have been accounted~~ for ~~by reducing~~ the ~~cost of future inventory purchases, and subsequently cost of sales, over the~~ period ofended ~~the agreement~~March 31, ~~and the outstanding receivable should have~~ ~~been written off. Prior to the restatement~~2010, ~~the~~management ~~Company~~believes ~~recorded~~that ~~credits received~~our asinternal acontrols ~~result~~over ofthese ~~this~~processes agreement as collections of a receivable rather than a reduction of inventory cost. As a result, the Company wrote off this “Other Receivable” as of the third quarter of 2007 and the related credits on future purchases received under this agreement are ~~being treated as a reduction to~~ ~~cost~~operating ~~of sales resulting from the lower cost basis of inventory. Management did not properly~~ and timely identify that the execution of this agreement required a change in accounting treatment in accordance with accounting principals generally accepted in the United States of America, and therefore is a material weakness in Internal Control Over Financial Reportingeffective.

We believe we have taken the steps necessary to remediate this material weakness pertaining to non-standard agreements by improving processes, procedures and approval levels to enter into such agreements. We will continue to monitor the effectiveness of these processes, procedures and controls, and will make any further changes as management determines appropriate.

Changes in Internal Control Over Financial Reporting

As part of our normal course of business, we continually refine control procedures associated with orders, inventory costing, purchasing, shipping, and receiving and we continue to conduct full physical inventory counts periodically during 2009. However, there were no changes in our internal controls over financial reporting during the quarter ending September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDING

See Note 1415 to the ~~Notes to~~ Condensed Consolidated Financial Statements in “Part I, Financial Information, Item 1 Financial Statements” of this Form 10-Q for disclosure of legal proceedings and estimated effects on results of operation and financial condition, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Risk Factors Related to Our Business

Our operations and financial results are subject to various risks and uncertainties , that are described in ~~Part I,~~ Item 1A ~~“Risk Factors”~~ of the Company’s annual report on Form 10-K for the fiscal year ~~ended December 31~~2009, ~~2008,~~ that could adversely affect our business, financial condition, cash flow or results of operations, ~~and~~as ~~trading~~well ~~price of our common stock. The risk factors~~ as ~~described~~adversely inaffect the ~~Company’s~~ ~~Form~~value ~~10-K~~of ~~for~~an ~~the~~investment ~~year~~in ~~ended~~our ~~December~~common ~~31, 2008 are updated as follows:~~stock.

WeThe ~~have~~risk ~~risks~~factor ~~associated~~set ~~with~~forth below has been updated from these previously disclosed in the “Risk Factors” section of our ~~liquidity~~annual ~~and~~report on ~~bank~~Form 10-K ~~covenants~~for the fiscal year 2009 with more current information.

~~Based on~~Our ~~current~~business projections, if certain orders are not received and shipped in the fourth quarter, the Company may not meet its financial covenants under the Loan Agreement with Bank of America for the fourth quarter. In such event, the Company intends to attempt to obtain a waiver of noncompliance from the lender, failing which the lender could declare the Company in default under the Loan Agreement and accelerate the payment of $15.0 million term loan, require payment of any borrowings under the revolving line of credit and raise the interest rate an additional 4%. There can be nosubject ~~assurance that the Company will be able~~ to ~~obtain~~increased ~~such~~risk ~~waiver.~~if ~~In such event,~~ the Merger ~~Company~~is ~~may~~not ~~need to raise~~ consummated.

The Company does not anticipate that it will have sufficient cash on hand on that date to pay off the $15.0 million term loan without dedicating all or substantially all of our cash flow from operations to the payment of our indebtedness, thereby substantially reducing the funds available for operations, working capital, capital expenditures, research and development, sales and marketing initiatives and general corporate or other purposes. As a result, the Company explored options available to it to refinance the debt, or to raise additional funds through private equity or debt financing, sales of assets, or other strategic alternatives.

On May 15, 2010, the Company entered into the Merger Agreement which provides for the Company to be acquired by an affiliate of Francisco Partners II, L.P. Pursuant to the terms of the Merger Agreement, stockholders will receive $1.05 per share in cash for their

~~additional~~shares ~~funds~~of ~~through~~stock of the ~~public~~Company orat ~~private~~which ~~equity~~time orthe ~~debt~~Company ~~financing~~will tobe ~~pay~~privately ~~amounts~~held. Consummation ~~due~~of ~~and~~the ~~owing~~Merger ~~under~~is subject to ~~the~~customary ~~Loan~~conditions, ~~Agreement~~including, toamong others, (i) approval of the ~~extent~~Company’s stockholders, ~~existing~~(ii) expiration ~~resources~~or ~~and~~termination ~~cash~~of ~~from~~the ~~operations~~applicable ~~are~~Hart-Scott-Rodino ~~insufficient~~Act towaiting ~~pay~~period, ~~such~~if ~~obligations.~~applicable, ~~These~~(iii) absence ~~funds~~of ~~may~~any order ~~not~~or beinjunction ~~available~~prohibiting the consummation of the Merger, or(iv) subject ifto ~~available~~certain exceptions, wethe ~~may~~accuracy ~~not~~of berepresentations ~~able~~and warranties with respect to ~~obtain~~the ~~them~~Company’s onbusiness ~~terms~~and ~~favorable~~compliance toby usthe Company with its covenants contained in the Merger Agreement and (v) stockholders owning no more than 10% of the Company’s outstanding common stock dissenting from the Merger and seeking appraisal rights.

~~Furthermore~~On May 15, 2010, the Company entered into a Seventh Amendment to our Loan Agreement ~~expires~~with ~~June 30~~Bank of America, ~~2010~~N.A. ~~Through~~(the “Lender”) to extend the ~~expiration~~maturities of the Loan Agreement, weuntil ~~may~~August 31, ~~not~~2010 beto allow ~~able~~the Company to ~~build~~consummate ~~our~~the ~~cash~~Merger. The ~~balances~~Lender inalso ~~anticipation~~waived ofcompliance with certain financial covenants ~~payment~~contained ~~and~~in /the orLoan ~~refinancing~~Agreement ~~all~~for orthe Company’s fiscal quarter ending June 30, 2010, on a one-time basis. In consideration of the Lender’s agreement, the Company agreed to pay down the outstanding principal balance of the term loan portion of the Loan Agreement from $15.0 million ~~term~~to ~~loan at maturity~~$5.0 Wemillion ~~also~~on ~~may~~June 17, ~~not~~2010. Under bethe ~~able~~terms toof ~~extend~~the ~~and~~Seventh /Amendment, ~~or refinance~~the Company may authorize the ~~$10.0~~Lender ~~million~~to ~~revolving~~apply ~~credit~~funds ~~facility~~held ~~under~~by the ~~Loan~~Lender ~~Agreement~~in ata pledged ~~maturity.~~account Inin ~~such~~reduction ~~event, there~~of isthe nooutstanding ~~assurance~~principal balance, provided that wethe balance ~~will~~remaining bein ~~able~~the topledged ~~raise~~account ~~funds~~cannot ~~through~~be ~~public~~reduced orbelow $0.75 million. ~~private~~On ~~equity~~June 17, or2010, ~~debt~~the ~~financing~~amount tocontained ~~satisfy~~in ~~these~~the ~~obligations~~pledged ataccount ~~maturity,~~is orexpected onto ~~terms~~be ~~favorable~~$6.5 ~~to us~~million.

In the event the Merger is not consummated, the Company will be required to pay the remaining outstanding balance to the Lender on or before August 31, 2010 and will pursue alternative financing of the obligations due.

If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. In addition, any debt financing that we may secure in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.

If we sell certain assets of the Company to satisfy our obligations, that may materially reduce our revenues in the future, which, to the extent not offset by cost reductions or revenue from new or existing customers, could materially reduce our cash flows and adversely affect our financial position. This may limit our ability to raise capital or fund our operations, working capital needs and capital expenditures in the future.

Our current cash flow and capital resources are limited, and we require additional funds to pursue our business. We may not be able to secure further financing in the future. If we are not able to obtain additional financing on reasonable terms, we may not be able to execute our business strategy, conduct our operations at the level desired, or even to continue business.

Our “report of registered public accounting firm” on our Form 10-K for the fiscal year 2009, indicates that our recurring losses from operations, working capital deficit and maturing term loan raise substantial doubt about our ability to continue as a going concern.

Failure to complete the Merger for regulatory or other reasons could adversely affect the Company’s stock price and its future business and financial results.

Completion of the Merger is conditioned upon, among other things, the consent of the Company’s stockholders and the satisfaction of certain conditions related to the Company’s indebtedness and levels of cash on hand at the closing of the Merger. There is no assurance that the Company will be successful in its efforts to obtain such stockholder approval or meet all of the other conditions. The Company will also remain liable for significant transaction costs, including legal, accounting and financial advisory fees. In addition, the Company would have to evaluate its remaining strategic options, which would include the need to refinance its remaining obligations under its bank facility with Bank of America, N.A. that is due to be repaid in full on August 31, 2010. Further, the market price of the Company’s common stock may reflect various market assumptions as to whether the Merger will occur. Consequently, the completion of, or failure to complete, the merger could result in a significant change in the market price of the Company’s common stock.

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

N/A.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

N/A.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

N/A

ITEM 5. OTHER INFORMATION

N/A

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

Exhibit No.		Description
11.1		Computation of net income (loss) per share
31.1		Chief Executive Officer’s Certification of Report on Form 10-Q for the Quarter Ending ~~September~~March 3031, ~~2009~~2010
31.2		Chief Financial Officer’s Certification of Report on Form 10-Q for the Quarter Ending ~~September~~March 3031, ~~2009~~2010
32.1		Written certification of Chief Executive Officer, dated ~~November~~May 1217, ~~2009~~2010, pursuant to 18 U.S.C. Section 1350.
32.2		Written certification of Chief Financial Officer, dated ~~November~~May 1217, ~~2009~~2010, pursuant to 18 U.S.C. Section 1350.

+ Management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EF JOHNSON TECHNOLOGIES, INC.
Date: November 12, 2009	By:	/s/ Jana Ahlfinger Bell
Date: May 17, 2010	By:	/s/ Jana Ahlfinger Bell
		Jana Ahlfinger Bell
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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