8-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

AMENDMENT NO. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest

Event Reported): June 18, 2004

WJ COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Commission file number 000-31337

DELAWARE	94-1402710
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
401 River Oaks Parkway, San Jose, California	95134
(Address of principal executive offices)	(Zip Code)

(408) 577-6200

(Registrant’s telephone number, including area code)

On July 2, 2004 the Company filed a Current Report on Form 8-K reporting under Item 2 the acquisition by the Company of assets from EiC Corporation.  The description of the acquisition in Item 2.01 below is reprinted verbatim from Item 2 of the original Form 8-K for the convenience of the reader and such description has not been amended.  The purpose of this Form 8-K/A is solely to amend the Form 8-K filed on July 2, 2004 to include the financial information required by Item 9.01(a) Financial Statements and 9.02(b) Pro Forma Financial Information of Form 8-K which was omitted from the original filing and is being filed herewith within 60 days after the date of the original Form 8-K filing as permitted by Form 8-K.

Item 2.01Completion of Acquisition or Disposition of Assets.

On June 18, 2004 (the “Closing Date”), WJ Communications, Inc., a Delaware corporation (the “Company”) completed its acquisition of assets from EiC Corporation, a California corporation (“EiC”) and EiC Enterprises Limited (“EiC Enterprises” and together with EiC, the “Seller”).  Pursuant to an Asset Purchase Agreement, dated June 3, 2004, as amended June 18, 2004, by and between the Company and the Seller (the “Purchase Agreement”), the Company purchased, subject to the terms and conditions of the Purchase Agreement, the infrastructure business and associated assets of the Seller (the “Assets”).

EiC designs, develops, manufactures and markets proprietary radio frequency integrated circuits primarily for wireless communications products (the “Line”).  The Company purchased from the Seller all of the assets necessary for the conduct of the business of the Line as of the Closing Date, consisting primarily of, and including, but not limited to, a patent, patent applications and the 5V, 12V and 28V processes used in the Seller’s infrastructure business.  The 12V process and 28V process are solely developed for use in the Line.  The 5V process is also used to build other products that are not part of the Line.  The Company hired 35 former employees of EiC to assist the Company with the conduct of the business of the Line after the Closing Date.

The Company acquired the Assets for consideration (the “Closing Consideration”) consisting of cash in the amount of $10.0 million, which was paid out of the Company’s cash reserves on the Closing Date, and 737,000 shares of the Company’s Common Stock (the “Shares”).  Under the Purchase Agreement, the Company did not assume any material debts or liabilities of the Seller.  Of the Closing Consideration, cash in the amount of $1.5 million and 294,118 shares are being held in escrow with respect to any indemnification matter under the Purchase Agreement.  The escrow described above is qualified by reference to the Escrow Agreement, a copy of which is attached as an exhibit to the Purchase Agreement attached hereto as Exhibit 2.1 and incorporated by reference herein.

In addition to the Closing Consideration, EiC may be entitled to further compensation of up to $14.0 million in cash and shares of the Company’s Common Stock if certain revenue and gross margin targets are achieved by the Company by March 31, 2005 and March 31, 2006 (together with the Closing Consideration, hereinafter referred to as the “Consideration”).

The Consideration the Company paid to the Seller pursuant to the Purchase Agreement was determined pursuant to arms’ length negotiations and the Company’s management relied on representations made by management of the Seller and other documents and information provided to the Company.  The Company’s management considered various factors to determine the amount of consideration appropriate for the acquisition of the Assets and the Line, including, the relative value of the Assets and the Line, the present and past use of the Assets by the Seller in the conduct of the business of the Line, the future potential value of the Assets and the Line to the Company and the potential benefit of the transaction to the Company’s stockholders.  The Company intends to use the Assets to produce products associated with the Line and to develop additional commercially salable products.

The Shares were issued to the Seller without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering based on, among other factors, representations made by the recipients of such shares to the Company and the information made available to the recipients of the Shares.  Under the Purchase Agreement, however, the Company has agreed to prepare and file with the Securities and Exchange Commission a registration statement under the Securities Act, and the securities laws of any applicable states, no later than six months after the Closing Date, covering the resale by Seller of up to 442,882 shares of the Company’s Common Stock.  A copy of the Registration Rights Agreement describing all obligations of the Company associated therewith is attached hereto as Exhibit 4.1 and incorporated by reference herein (the

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“Registration Rights Agreement”).  The foregoing description of registration rights is qualified in its entirety by reference to the Registration Rights Agreement. The Seller is restricted from selling the Shares in accordance with the Lock-up Agreement, a copy of which is attached hereto as Exhibit 4.2 and incorporated by reference herein.

The summary of the transaction described above is qualified by reference to the Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1 and incorporated by reference herein.

Item 9.01               Financial Statements and Exhibits.

(a)           Financial Statements

The audited consolidated financial statements of the Seller for the year ended December 31, 2003, which are required by paragraph (a) of Item 9.01 of Form 8-K with respect to the acquisition of assets of the Seller by the Company, are filed as part of this Current Report on Form 8-K/A as Exhibit 99.2.

(b)           Pro Forma Financial Information

The pro forma financial information required by paragraph (b) of Item 9.01 of Form 8-K with respect to the acquisition is furnished as part of this Current Report on Form 8-K/A as Exhibit 99.3.

(c)           Exhibits

2.1*	Asset Purchase Agreement by and among WJ Communications, Inc., EiC Corporation and EiC Enterprises Limited dated June 3, 2004. (Previously filed with the Securities and Exchange Commission on July 2, 2004 as Exhibit 2.1 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
2.2	Amendment to Asset Purchase Agreement by and among WJ Communications, Inc., EiC Corporation and EiC Enterprises Limited dated June 18, 2004. (Previously filed with the Securities and Exchange Commission on July 2, 2004 as Exhibit 2.2 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
4.1	Registration Rights Agreement by and among WJ Communications, Inc., EiC Corporation and EiC Enterprises Limited dated June 18, 2004. (Previously filed with the Securities and Exchange Commission on July 2, 2004 as Exhibit 4.1 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
4.2	Seller Lock-up Agreement by EiC Corporation and EiC Enterprises Limited dated June 18, 2004. (Previously filed with the Securities and Exchange Commission on July 2, 2004 as Exhibit 4.2 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
10.1*	Supply Agreement by and between WJ Communications, Inc. and EiC Corporation dated June 18, 2004. (Previously filed with the Securities and Exchange Commission on July 2, 2004 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
23.1+	Consent of PricewaterhouseCoopers LLP, independent accountants of EiC Enterprises Limited.
99.1	Press Release of the Company dated June 21, 2004. (Previously filed with the Securities and Exchange Commission on June 22, 2004 as Exhibit 99.1 to the Company’s Current Report on Form 8-K and incorporated by reference herein.).
99.2+	Audited consolidated financial statements of EiC Enterprises Limited for the year ended December 31, 2003.
99.3+	Unaudited pro forma combined condensed financial statements giving effect to the combination of the Company and EiC Enterprises Limited.

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The following schedules, exhibits and annexes to the Asset Purchase Agreement have been omitted. The Company will furnish supplementally copies of the omitted schedules, exhibits and annexes to the Commission upon request.

Schedule A	Seller’s Infrastructure and Wafer Fab Product Line
Schedule 1.01	Exclusions from Transferred Assets
Schedule 1.01(b)	Furniture, Fixtures and Equipment
Schedule 1.01(c)	Customer Accounts
Schedule 1.01(d)	Vendor and Supplier Lists
Schedule 1.01(f)	Assumed Contracts
Schedule 1.01(h)	Software
Schedule 1.01(i)	Intellectual Property Purchased by Buyer
Schedule 1.01(i)(a)	Intellectual Property Retained by Seller
Schedule 1.02	Unpaid Invoices
Schedule 1.03(d)	Earnout Products
Schedule 1.04	Purchase Price Allocation
Schedule 2.01(c)	Title to Personal Property
Schedule 2.01(d)	Lease
Schedule 2.01(e)	EiC Contracts
Schedule 2.01(h)	Customer Base
Schedule 2.01(i)	EiC Compliance with Laws
Schedule 2.01(j)	EiC Consents
Schedule 2.01(l)	Labor Matters
Schedule 2.01(m)	Financial Statements
Schedule 2.01(o)	Taxes
Schedule 2.01(p)	Seller’s Intellectual Property
Schedule 2.01(q)	Permits and Licenses
Schedule 2.01(r)	Tangible Assets
Schedule 2.01(u)	Environmental Representations
Schedule 2.02(d)	EiC Enterprises Contracts
Schedule 2.02(g)	EiC Enterprises Compliance with Laws
Schedule 2.03(c)	Buyer Consents
Schedule 3.01	Patent Licensed by Buyer to EiC Enterprises
Schedule 3.02	Patents and Processes Licensed by EiC Enterprises to Buyer
Schedule 3.11	Employees to Interview
Schedule 3.12	Employees to receive Change of Control Payments
Exhibit 3.01	Seller License Agreement
Exhibit 3.02(a)	Buyer/EiC Enterprises Licenses Agreement
Exhibit 3.02(b)	Trademark License Agreement
Exhibit 3.04	Eutrend Services Agreement
Exhibit 3.06	Sublease Agreement
Exhibit 3.11	Confidentiality Proprietary and Information Agreement
Exhibit 3.12(a)	Change of Control Agreement
Exhibit 3.12(b)	Investment Representation Agreement
Exhibit 5.02(i)	Stockholder Acknowledgement and Release
Exhibit 5.02(q)(i)(a)	Bill of Sale
Exhibit 5.02(q)(i)(b)	Patent Assignment
Exhibit 5.02(s)(a)	Opinion of Counsel to EiC
Exhibit 5.02(s)(b)	Opinion of Counsel to EiC Enterprises
Exhibit 5.02(v)	PAM Wafer Specifications
Exhibit 5.03(d)	Opinion of Counsel to Buyer

*              Confidential treatment has been requested for portions of this exhibit.

+              Filed herewith.

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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.

	WJ COMMUNICATIONS, INC.
	By:	/s/  DAVID R. PULVINO
		David R. Pulvino
		Principal Accounting Officer
Dated:  September 1, 2004

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-52408 and 333-66244) and Form S-3 (No. 333-110111) of WJ Communications, Inc. of our report dated March 11, 2004 relating to the financial statements of EiC Enterprises Limited, which appear in the Current Report on Form 8-K/A of WJ Communications, Inc. dated June 18, 2004.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Hsinchu, Taiwan

31 August 2004

EX-99.2

Exhibit 99.2

EiC ENTERPRISES LIMITED

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2003 AND 2002

	2/F No. 11 Innovation Rd., 1
	Science-Based Industrial Park
	Hsinchu, Taiwan, Republic of China
	Tel:(03) 578-0205
	Fax:(03) 577-7985

Report of Independent Accountants

To the Board of Directors and Stockholders of EiC Enterprises Limited

We have audited the accompanying consolidated balance sheets of EiC Enterprises Limited and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income and changes in accumulated deficit and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EiC Enterprises Limited and its subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ PRICEWATERHOUSECOOPERS

March 11, 2004

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EiC ENTERPRISES LIMITED

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

(EXPRESSED IN UNITED STATES THOUSAND DOLLARS)

	2003			2002
ASSETS
Current Assets
Cash	$	573		$	625
Marketable securities	61			2,287
Notes receivable	15			4
Accounts receivable	755			147
Other financial assets – current	600			300
Inventories	2,131			922
Other current assets	146			170
	4,281			4,455
Long-term Investments	—			457
Property and Equipment-net	3,480			5,287
Other Assets
Deposit out	64			64
Deferred charges	3			—
Other assets	2			4
	69			68
TOTAL ASSETS	$	7,830		$	10,267
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities	$	1,000		$	1,000
Borrowings under line of credit	990			372
Accounts payable	448			514
Accrued expenses	115			132
Deferred margin	6			1
Other payables	500			—
Current portion of long-term note payable	87			62
Current portion of capital lease obligation	3,146			2,081
Other Liabilities
Long-term notes payable	292			—
Capital lease obligation	21			83
	313			83
TOTAL LIABILITIES	3,459			2,164
Stockholders’ Equity
Capital
Common stock - par value of $0.01 per share	16			15
Convertible preference stock - par value of $0.01 per share	453			333
Capital received in advance	14			—
Capital surplus	51,444			48,514
Accumulated deficit	(47,363		)	(40,560		)
Cumulative translation adjustment	(193		)	(199		)
	4,371			8,103
Commitments (Note 13)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,830		$	10,267

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

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EiC ENTERPRISES LIMITED

CONSOLIDATED STATEMENTS OF INCOME AND CHANGES IN ACCUMULATED DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

(EXPRESSED IN UNITED STATES THOUSAND DOLLARS)

	2003			2002
Operating revenues	$	4,402		$	1,979
Operating costs	(5,971		)	(5,927		)
Gross loss	(1,569		)	(3,948		)
Operating expenses	(5,045		)	(7,945		)
Operation loss	(6,614		)	(11,893		)
Non-operating income and expenses, net
Interest income	5			58
Foreign exchange loss, net	(3		)	—
Interest expense	(83		)	(63		)
Investment loss	(29		)	(283		)
Loss on disposal of investments	(79		)	—
Other income, net	—			6
	(189		)	(282		)
Loss before income tax and minority interest	(6,803		)	(12,175		)
Minority interest	—			1
Net loss	$	(6,803	)	$	(12,174	)
Accumulated deficit
Beginning balance	(40,560		)	(28,386		)
Ending balance	$	(47,363	)	$	(40,560	)

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

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EiC ENTERPRISES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 20Q2

(EXPRESSED IN UNITED STATES THOUSAND DOLLARS)

	2003			2002
Cash flows from operating activities
Net loss	$	(6,803	)	$	(12,174	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	2,040			4,288
Amortization of deferred stock-based compensation	39			89
Loss on disposal of investment	79			—
Loss on impairment of long-term investments	29			283
Minority interest in net loss of consolidated subsidiaries	—			(1		)
Currency translation adjustment	4			4
Changes in assets and liabilities:
Notes receivable	(11		)	(4		)
Accounts receivable	(608		)	120
Inventories	(1,209		)	1,261
Other current assets	24			(37		)
Other assets	2			—
Accounts payable	618			(470		)
Accrued expenses	(66		)	49
Deferred margin	(17		)	(59		)
Other payables	5			(1		)
Net cash used in operating activities	(5,874		)	(6,652		)
Cash flows from investing activities
(Increase) decrease in restricted cash, net	(300		)	86
Decrease in deposit out	—			12
Decrease (increase) in marketable securities	2,252			(2,279		)
Proceeds from disposal of long-term investment	325			—
Purchase of property and equipment	(195		)	(293		)
Increase in deferred charges	(4		)	—
Net cash provided by (used in) investing activities	2,078			(2,474		)
Cash flows from financing activities
Proceeds from additional capital contribution	3,026			7,606
Proceeds from borrowings	1,000			7,606
Repayment of note payable	(208		)	(166		)
Repayment of capital lease obligation	(74		)	(26		)
Net cash provided by financing activities	3,744			7,414
Net (decrease) increase in cash and cash equivalents	(52		)	(1,712		)
Cash and cash equivalents at beginning of the period	625			2,337
Cash and cash equivalents at end of the period	$	573		$	625
Supplemental disclosure of cash paid
Interest expense paid	$	86		$	76
Supplemental disclosure of cash paid
Capital lease for machinery and equipment	$	37		$	145

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

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EiC ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002

(EXPRESSED IN UNITED STATES THOUSAND DOLLARS)

1.HISTORY AND ORGANIZATION

1)EiC Enterprises Limited was incorporated in the British Bermuda Islands under “The International Business Companies Ordinance” in June, 1997. The Company is engaged in investment holding.

2)Consolidated Subsidiaries

Company name	Relationship with related parties	Main operating items	Rates of direct and Indirect holding interest
Eurtend Technology Corporation	Holding shares more than 50% interest	Designs and manufactures “RFIC”	99.75%
EiC Corp.	Holding shares more than 50% interest	Designs and manufactures “RFIC” and microwave semiconductor devices.	100%

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1)Basis of consolidation

The financial statements of subsidiaries in which the Company owns more than 50% of the subsidiaries’ shares are included in consolidations. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

2)Translation of foreign currency transactions

The accounts of the Company and its consolidated subsidiaries are maintained in their functional currencies. Transactions denominated in foreign currencies, except for forward contracts, are translated into their functional currencies at the rates of exchange prevailing on the transaction dates. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated into their functional currencies at the rates of exchange prevailing at the balance sheet date. Exchange gains or losses are included in the current year’s net income.

The financial statements of foreign subsidiaries are translated into United States dollars using the exchange rates prevailing at balance sheet date for asset and liability accounts, average exchange rates for profit and loss accounts and historical exchange rates for equity accounts. The cumulative translation effects for subsidiaries using functional currencies other than the United States dollar are included in the cumulative translation adjustment in stockholders’ equity.

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3)Cash equivalents

Cash equivalents are short-term, highly liquid investment, which are readily convertible to known amounts of cash and with maturity dates that do not present significant risk of changes in value because of changes in interest rates.

4)Marketable securities

Marketable securities are recorded at cost when acquired. The carrying amount of the marketable securities portfolio is stated at the lower of its aggregate cost or market value at the balance sheet date.

5)Inventories

Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method.

6)Long-term investments

Long-term investments are accounted for at the lower of cost or market value for listed companies and at cost for unlisted companies if the Company holds an interest of less than 20% and have no significant influence on operational decisions of the investee company. The unrealized loss resulting from the decline in market value of such investment is deducted from stockholders’ equity. When it becomes evidently clear that there has been a permanent impairment in value and the chance of recovery is minimal, loss is recognized in current year’s net income or loss.

Long-term investments in both listed and unlisted companies are accounted for under the equity method if the Company holds an interest of at least 20%, unless the Company cannot exercise significant influence over the investee company, in which case, the investment is accounted for at cost. Unrealized intercompany gains and loss are eliminated under the equity method.

The exchange difference arising from foreign long-term investments is included in the Company’s equity account as “Cumulative Translation Adjustment”.

7)Property and equipment

Property and equipment are recorded at cost, Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term of the respective assets.

8)Impairment of long-lived assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets are based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

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9)Income tax

The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statements reported amounts, and for net operating loss and tax credit carryforwards. The Company records a valuation allowance against deferred tax assets for which realization is uncertain.

10)Revenue recognition

Foundry/consulting services revenues are recognized when evidence of an arrangement exists, services are rendered and collection is probable. Payments received before services are rendered are recorded as deferred revenue. Revenue from product sales to customers, other than to distributors with rights of return, is recognized upon shipment if a signed purchase order exists, the price is fixed or determinable, collection of the resulting receivables is considered probable and product returns can be reasonably estimated. Subsequent to the sales of the products, the Company has no obligation to provide modification or customization, upgrades, enhancements or any post contract customer support. Revenue from shipments to distributors with rights of return is deferred until the distributor resells the inventory. Upon shipment, the Company provides for the estimated costs that may be incurred for product warranties.

11)Management estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results could differ from those estimates.

3.CASH AND CASH EQUIVALENTS

	December 31,
	2003		2002
Cash :
Checking and savings accounts	$	573	$	625

4.MARKETABLE SECURITIES

	December 31,
	2003		2002
Mutual Funds	$	61	$	2,287

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5.INVENTORIES

	December 31,
	2003		2002
Work in progress	$	1,495	$	781
Finished goods	636		141
	$	2,131	$	922

6.LONG-TERM INVESTMENTS

Details of long-term investments are summarized as follows:

	December 31,
	2003				2002
	Amount		Percentage of Ownership		Amount		Percentage of Ownership
Investments accounted for under cost method;
Meicer Semiconductor Inc.	$	—	0.43	%	$	29	0.43	%
Kopin Taiwan Corp.	—		—		428		1	%
	$	—			$	457

Meicer Semiconductor Inc. has suffered an impairment in value and the chance of recovery is minimal, accordingly the Company’s subsidiary recognized impairment loss for the year 2003 and 2002 of $29 and $283, respectively.

7.PROPERTY AND EQUIPMENT

	December 31,
	2003		2002
Leasehold improvements	$	4,305	$	4,305
Machinery and equipment	10,140		9,953
Equipment under capital leases	223		186
Software	329		326
Furniture and fixtures	403		407
Other equipment	63		57
	15,463		15,234
Less: Accumulated depreciation and amortization	11,983		9,947
	$	3,480	$	5,287

Accumulated depreciation related to equipment under capital leases totaled $55 and $15 at December 31, 2003 and 2002, respectively.

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8.BORROWINGS

Notes payable

In July 2003, the Company obtained an equipment loan from a bank in the U.S. The credit facility allows for borrowing up to $1,000 and is collateralized by the equipment and machinery purchased under the loan by the Company.  The principal was repaid in equal installments beginning in August 2003 with final payment due in July 2005. The equipment loan bears interest at prime rate plus 1.5% (5.5% at December 31, 2003). At December 31, 2003, the outstanding balance under this equipment loan was $792 with current portion of $500.

Lines of credit

The Company maintains a line of credit with a bank in the U.S. The line of credit, renewed in September each year, provides for $1,000 in credit, bears interest at prime plus 1.5% (5.5% and 5.25% at December 31, 2003 and 2002, respectively), and is collectivized by accounts receivable and inventories. At December 31, 2003 and 2002, the outstanding balances under this line of credit were both $1,000.

Loan covenants

During the lives of these loans, the Company is required to maintain certain loan covenants, including current ratios, debt to equity ratios and net worth, and to pledge to the bank a demand deposit equivalent to 30% of loan outstanding balance. The Company was in compliance with the covenants as of December 31, 2003 and 2002. At December 31, 2003 and 2002, the Company is required to maintain a demand deposit of $600 and $300 with the bank for the equipment loan and the line of credit, respectively.

9.INCOME TAXES

There was no tax provision in 2003 and 2002, because of the losses incurred.

Deferred tax assets (liabilities) consist of the following:

	December 31,
	2003			2002
Deferred tax assets:
Net operating loss carryforward	$	8,141		$	7,592
Accruals and allowances	1,585			549
Research and development tax credit	1,729			1,420
Depreciation and amortization	574			470
Other	342			340
Gross deferred tax assets	12,371			10,371
Deferred tax valuation allowance	(12,371		)	(10,371		)
Net deferred tax assets	$	—		$	—

The Company has established a valuation allowance offsetting the net deferred tax assets because of the uncertainty regarding realization of those assets. If unused, these carryforwards will expire commencing in 2004 through 2011. The research and development tax credit will expire starting in the year 2003 through 2011 if not utilized.

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10.CONVERTIBLE PREFERRED STOCK

Terms for issuance of convertible preferred stocks:

a)Dividends or other distributions

The holders of preferred shares shall be entitled to participate pari passu with the holders of common shares in any dividends or other distributions declared on the common shares and any other shares, which are entitled to participate in dividends and distributions declared on common shares.

b)Liquidation, dissolution or winding up

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, each holder of preferred shares shall be entitled to be paid out of the assets of the Company available for distribution to holders of the Company’s shares, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any other class of shares of the Company’s capital. An amount of US$2.00 per share together, with all declared and unpaid dividends thereon up to and including the date of full payment, shall be tendered to the holders of the preferred shares, with respect to such liquidation, dissolution or winding up.

c)Voting rights

Each holder of preferred shares shall be entitled to vote on all matters submitted to a vote of the shareholders on the basis of one vote for each preferred share held by such shareholder.

d)Conversion of shares

The preferred shares shall automatically be converted, on the date of occurrence of a “Triggering Event”. The “Triggering Event” means the time the Company receives the proceeds from a firm commitment of an underwritten public offering of common shares. At the time the Company receives an offer in writing for all the voting shares in the capital of the Company (including without limitation to common shares and preferred shares) at a price per share, which shall exceed the issue price of the highest price per share at which any issue of common shares and preferred shares has occurred.

e)Issuance of warrants

The Company has issued to each investor purchasing the preferred shares of 2001-July Fundraising a warrant for additional Preference Shares of the Company. The Exercise Period is commencing from the date of the warrant and ending on March 31, 2004, the Exercise Price is US$0.1 per share and the Exercise Shares for each investor shall be the exact equivalent of the shares purchased by such investors. The Company has authorized the issuance of 7,283,154 warrants equal to the number of preferred shares purchased.

11.STOCK OPTION PLAN

1997 Stock Option Plan

In June 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”). The 1997 Plan provides for the issuance of incentive and non qualified stock options to employees, directors and consultants of the Company and its subsidiaries. Under the 1997 Plan, options to purchase 5,104,000 shares of the Company’s Common Stock have been

10

authorized for grant to employees, directors and consultants of the Company. Options under the plan must be granted with exercise prices less than 100% and 85% for incentive and non qualified stock options, respectively, of the estimated fair value of the Company’s Common Stock on the date of grant, as determined by the Board of Directors. Options granted to shareholders who own greater than 10% of the Company’s outstanding stock must be issued with exercise prices not less than 110% of the estimated fair value of the Company’s Common Stock on the date of grant, as determined by the Board of Directors. Options under the 1997 Plan generally becomes exercisable at a rate of at least 20% per year over four years from the date of the options are granted. Options will expire, if not exercised, upon the earlier of 10 years from the date of grant or generally 30 days after termination as an employee of the Company.

During the years ended December 2003 and 2002, the Company recorded no deferred stock-based compensation.  This deferred compensation represents the difference between the grant price and the deemed fair value for financial statement reporting purposes of the Company’s common stock during the period and is amortized into expense over the vesting period of the related options.

A summary of the activity related to options granted to employees, directors and consultants of the Company and its subsidiaries under the 1997 Plan is set forth below:

	Shares Available for Grant		Shares Outstanding		Weighted Average Exercise Price
Balance at December 31, 2001	1,635,724		3,268,450		$	1.50
Options authorized	873,979		—		—
Options granted	(397,500	)	397,500		2.12
Options exercised	—		(13,245	)	0.14
Options cancelled	1,470,425		(1,470,425	)	1.47
Balance at December 31, 2002	3,582,628		2,182,280		1.64
Options authorized	1,440,000		—		—
Options granted	(4,569,332	)	4,569,332		0.05
Options exercised	—		(157,975	)	0.15
Options cancelled	176,453		(176,453	)	0.50
Balance at December 31, 2003	629,749		6,417,184		0.58

As of December 31, 2003, the outstanding and exercisable options granted to employees, directors and consultants of the Company and its subsidiaries under the 1997 Plan are presented below:

	Options Outstanding at December 31, 2003
		Weighted
		Average	Weighted
		Remaining	Average		Options Exercisable at December 31, 2003
Exercise	Number	Contractual	Exercise		Number	Weighted Average
Price	Outstanding	Life (in Years)	Price		Outstanding	Exercise Price
$0.05	3,512,984	6.79	$	0.05	1,517,097	$	0.05
$0.10~1.60	2,860,700	2.92	0.68		2,204,025	0.61
$3.00	43,500	6.68	3.00		32,625	3.00
	6,417,184	5.06	$	0.58	3,753,747	$	0.41

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On November 26, 2002, the Company offered a voluntary stock option re-pricing program for its employees.  The employees were given the opportunity to voluntarily exchange unvested stock options as of July 1, 2002 for new options to be issued on or after May 27, 2003.  Approximately 1,039,725 shares of options were surrendered by November 15, 2002. The Company granted 1,039,725 shares of options on May 27, 2003 with exercise price of $0.05 per share. The vesting terms for the new options continue with the old options. The exchange program did not result in the recording of any compensation expense. The exercise price of the options granted in 2003 was subsequently determined to be at or above the fair value of EiC-Bermuda’s common stock.

12.RELATED PARTY TRANSACTIONS

A.Names and relationship of related parties

Names of related parties	Relationship with the Company
Etron Technology, Inc.	One of the major shareholders

B.Significant Related Party Transactions

Eutrend Technology, Inc. leased the office from Etron Technology, Inc. The total rental expense were both $13 for the year ended December 31, 2003 and 2002, and provide guarantees of rent to Etron Technology, Inc., amounted to $1.

13.COMMITMENTS

Subsidiary, EiC Corporation leases manufacturing facilities under operating leases which will expire May 31, 2007. Total rent expense was approximately $720 and $718 for the years ended December 31, 2003 and 2002, respectively.

Future minimum payments under the lease agreement are as follows :

Year Ending December 31	Capital Leases			Operating Leases
2004	$	97		$	617
2005	24			636
2006	—			655
2007	—			279
Total minimum lease payments	121			2,187
Less: Amount representing interest	(13		)
Present value of minimum lease payments	108
Less: Current portion	(87		)
Long-term portion	$	21

14.SUBSEQUENT EVENTS

The Company has resolved to issue convertible loan approved by its Board of Directors. Total financing amount will be between $3,000,000 and $6,000,000. The purchase price equals to 100% of the principal amount of each loan, with interest rate to be 10% per annum. Within the twelve-month period following the Initial Closing Date, the loan shall be, at the option of the investor, (1) convertible into Preference Shares of the company at

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the price of $0.18 per share or (2) due and payable immediately, including all accrued interest.

15.OTHER

The Company has incurred a significant amount of loss in the past years and as a result, the accumulated deficit as of December 31, 2003 amounted to $45,860.  This circumstance raises substantial doubt on the Company’s ability to continue as a going concern. However, the Company has received assurances from major stockholders that addition funding would be provided, if needed, in order to enable the Company to continue its operation.

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EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTORY NOTE

On June 18, 2004, WJ Communications, Inc. (the “Company”) completed its acquisition of the wireless infrastructure business and associated assets from EiC Corporation, a California corporation and EiC Enterprises Limited (together “EiC”). EiC designs, develops, manufactures and sells proprietary radio frequency integrated circuits (“RFICs”) primarily for wireless communications products. The Company believes that the addition of EiC’s technical expertise further enhances its strategy of offering customers a leading infrastructure RFIC product portfolio. The aggregate purchase price of the acquisition was $13.7 million which included payments of cash of $10.0 million, the issuance of 737,000 shares of the Company’s common stock valued at $2.5 million and acquisition costs of $1.2 million (including $700,000 paid to a related party for investment banking services in connection with the acquisition). In connection with the acquisition, $1.5 million in cash and 294,118 shares of common stock have been held in escrow as with respect to any indemnification matter under the Purchase Agreement. The outstanding balance of the escrow account less any properly noticed unpaid or contested amounts will be distributed within five days after March 31, 2005. The Company has agreed to file a registration statement no later than six months after the closing registering for resale by the seller of up to 442,882 shares of the Company’s common stock issued in the acquisition. In addition to the closing consideration, EiC may be entitled to further consideration of up to $14.0 million in cash and shares of the Company’s common stock if certain revenue and gross margin targets are achieved by March 31, 2005 and March 31, 2006. The fair value of the Company’s common stock was determined based on the average closing price per share of the Company’s common stock over a 5-day period beginning two trading days before and ending two trading days after the amended terms of the acquisition were agreed to and announced (June 21, 2004). The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), and accordingly, the assets of EiC were recorded at their estimated fair values at the date of the acquisition with the excess purchase price allocated to goodwill.

The following unaudited pro forma combined condensed consolidated financial statements gives effect to the acquisition by the Company of the wireless infrastructure business and associated assets from EiC using the purchase method of accounting, and the assumptions and adjustments to reflect the allocation of purchase price to the acquired assets of EiC described in the accompanying notes to the unaudited pro forma combined condensed consolidated financial statements. The pro forma adjustments are based on management’s estimates of the value of the tangible and intangible assets acquired including an independent valuation of intangible assets. The unaudited pro forma combined condensed consolidated balance sheet is based on the audited historical balance sheet of the Company and EiC as of December 31, 2003, and has been prepared to reflect the acquisition as if the acquisition had been consummated on that date. The unaudited pro forma combined condensed consolidated statement of operations combine the audited results of operations of the Company and EiC for the year ended December 31, 2003 as if the acquisition had occurred on January 1, 2003. The unaudited pro forma combined condensed consolidated statement of operations have been prepared excluding acquired in-process research and development of $8.5 million.

The unaudited pro forma condensed combined consolidated financial information has been prepared from, and should be read in conjunction with the historical consolidated financial statements of WJ Communications, Inc. which can be found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2004. EiC’s historical consolidated financial statements for the year ended and as of December 31, 2003 are included elsewhere in this Form 8-K/A filing as Exhibit 99.2. Reclassifications have been made to the historical consolidated statements of operations of EiC for the year ended December 31, 2003 to conform to the Company’s presentation.

The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not intended to represent what the Company’s financial position is or results of operations would have been if the acquisition had occurred on those dates or to project the Company’s financial position or results of operations for any future period. Since the Company and EiC were not under common control or management for any period presented, the unaudited pro forma combined condensed consolidated financial results may not be comparable to, or indicative of, future performance. These statements do not reflect any additional costs or cost savings resulting from the acquisition.

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WJ COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2003

(In thousands)

	Historical						Pro Forma
	WJCI			EiC			Adjustments			Combined
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,900		$	634		$	(634	)(a)	$	900
							(10,000		)(b)
Short-term investments	49,232			—			—			49,232
Receivables – net	4,559			755			(430		)(a)	4,559
							(325		)(c)
Inventories	2,420			2,131			(93		)(a)	4,136
							(322		)(c)
Other	1,983			761			(761		)(a)	1,983
Total current assets.	69,094			4,281			(12,565		)	60,810
PROPERTY, PLANT AND EQUIPMENT, net.	10,504			3,480			(2,356		)(a)	11,628
Goodwill	—			—			1,817		(a)	1,817
Other assets	222			69			131		(a)	422
	$	79,820		$	7,830		$	(12,973	)	$	74,677
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,125		$	990		$	(990	)(a)	$	2,803
							(322		)(c)
Accrued expenses	1,421			454			(454		)(a)	2,616
							1,195		(d)
Borrowings under line of credit	—			1,000			(1,000		)(a)	—
Accrued payroll and profit sharing	1,635			—			—			1,635
Accrued workers’ compensation	500			—			—			500
Restructuring accrual	3,665			—			—			3,665
Deferred margin	—			115			(115		)(a)	—
Current portion of long-term note payable	—			500			(500		)(a)	—
Current portion of capital lease obligation	—			87			(87		)(a)	—
Total current liabilities	10,346			3,146			(2,273		)	11,219
OTHER LONG-TERM OBLIGATIONS	33,235			313			(313		)(a)	33,235
COMMITMENTS AND CONTINGENCIES	—			—			—			—
STOCKHOLDERS’ EQUITY:
Common stock.	590			16			(16		)(h)	597
							7		(f)
Convertible preferred stock	—			453			(453		)(e)	—
Treasury stock	(13		)	—			—			(13		)
Additional paid-in capital	180,163			51,444			(51,444		)(e)	182,640
							2,477		(f)
Accumulated deficit	(144,118		)	(47,363		)	47,688		(e)	(152,618)
							(325		)(c)
							(8,500		)(a)
Deferred stock compensation	(375		)	—			—			(375		)
Cumulative translation adjustment	—			(193		)	193		(e)			(e)
Capital received in advance	—			14			(14		)(e)			(e)
Other comprehensive loss	(8		)	—			—			(8		)
Total stockholders’ equity	36,239			4,371			(10,387		)	30,223
	$	79,820		$	7,830		$	(12,973	)	$	74,677

See notes to unaudited pro forma combined condensed consolidated financial statements.

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WJ COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2003

(In thousands, except per share amounts)

	Historical						Pro Forma
	WJCI			EiC			Adjustments			Combined
Sales	$	26,565		$	4,402		$	(1,198	)(a)	$	28,936
							(833		)(b)
Cost of goods sold	15,495			5,971			(1,426		)(a)	19,813
							(267		)(b)
							40		(c)
Gross profit (loss)	11,070			(1,569		)	(378		)	9,123
Operating expenses:
Research and development	16,806			—			2,229		(d)	19,035
Selling and administrative	10,210			5,045			(2,229		)(d)	13,026
Amortization of deferred stock compensation(*).	117			—			—			117
Recapitalization merger and other	680			—			—			680
Restructuring reversals	(54		)	—			—			(54		)
Total operating expenses	27,759			5,045			—			32,804
Loss from operations	(16,689		)	(6,614		)	(378		)	(23,681		)
Interest income	755			5			(5		)(e)	645
							(110		)(f)
Interest expense	(117		)	(83		)	83		(g)	(117		)
Other income (loss) – net	1,094			(111		)	—			983
Loss before income taxes	(14,957		)	(6,803		)	(410		)	(22,170		)
Income tax benefit	647			—			—			647
Net loss	$	(14,310	)	$	(6,803	)	$	(410	)	$	(21,523	)
Basic and diluted net loss per share	$	(0.25	)							$	(0.37	)
Basic and diluted average shares	56,835						737		(h)	57,572
(*) Amortization of deferred stock compensation excluded from the following expenses:
Research and development	$	76								$	76
Selling and administrative	41									41
	$	117								$	117

See notes to unaudited pro forma combined condensed consolidated financial statements.

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WJ COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION

On June 18, 2004, WJ Communications, Inc. (the “Company”) completed its acquisition of the wireless infrastructure business and associated assets from EiC Corporation, a California corporation and EiC Enterprises Limited (together “EiC”). EiC designs, develops, manufactures and sells proprietary radio frequency integrated circuits (“RFICs”) primarily for wireless communications products. The Company believes that the addition of EiC’s technical expertise further enhances its strategy of offering customers a leading infrastructure RFIC product portfolio. The aggregate purchase price of the acquisition was $13.7 million which included payments of cash of $10.0 million, the issuance of 737,000 shares of the Company’s common stock valued at $2.5 million and acquisition costs of $1.2 million (including $700,000 paid to a related party for investment banking services in connection with the acquisition). In connection with the acquisition, $1.5 million in cash and 294,118 shares of common stock have been held in escrow as with respect to any indemnification matter under the Purchase Agreement. The outstanding balance of the escrow account less any properly noticed unpaid or contested amounts will be distributed within five days after March 31, 2005. The Company has agreed to file a registration statement no later than six months after the closing registering for resale by the seller of up to 442,882 shares of the Company’s common stock issued in the acquisition. In addition to the closing consideration, EiC may be entitled to further consideration of up to $14.0 million in cash and shares of the Company’s common stock if certain revenue and gross margin targets are achieved by March 31, 2005 and March 31, 2006. The fair value of the Company’s common stock was determined based on the average closing price per share of the Company’s common stock over a 5-day period beginning two trading days before and ending two trading days after the amended terms of the acquisition were agreed to and announced (June 21, 2004). The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), and accordingly, the assets of EiC were recorded at their estimated fair values at the date of the acquisition with the excess purchase price allocated to goodwill.

The unaudited pro forma condensed combined financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. However the Company believes that the disclosures are adequate to make the information not misleading.

2.PURCHASE PRICE ALLOCATION

The unaudited pro forma combined condensed consolidated financial statements reflect a purchase price of approximately $13.7 million. The fair value of the Company’s common stock was determined based on the average closing price per share of the Company’s common stock over a 5-day period beginning two trading days before and ending two trading days after the amended terms of the acquisition were agreed to and announced (June 21, 2004). The total purchase price of the wireless infrastructure business and associated assets of EiC is as follows (in thousands):

Cash	$	10,000
Fair value of WJ Communications, Inc. common stock	2,484
Acquisition costs	1,195
Total purchase price	$	13,679

In accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), the total purchase price was allocated to the tangible and intangible assets of EiC based upon their estimated fair values at the acquisition date with the excess purchase price allocated to goodwill. The Company engaged a third party to prepare a valuation of the intangible assets acquired which the Company utilized to prepare the allocation of the purchase price.  The following table summarizes the components of the total purchase price and the allocation (in thousands):

Property and equipment	$	1,124
Inventory	2,038
In-process research and development	8,500
Developed technology	200
Goodwill	1,817
Total purchase price	$	13,679

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2.PURCHASE PRICE ALLOCATION (continued)

With the exception of the goodwill and acquired in-process research and development (“IPRD”), the identified intangible assets will be amortized on a straight-line basis over their estimated useful lives, with a weighted average life of approximately five years. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill of $1.8 million will not be amortized and will be tested for impairment at least annually in accordance with the Company’s policy on impairment analysis. The amounts contained in the purchase price allocation may change as additional information becomes available regarding the assets acquired. The purchase price allocations are expected to be finalized in the third quarter of 2004. Any change in the fair value of the net assets of EiC will change the amount of the purchase price allocable to goodwill.

A portion of the purchase price, $8.7 million, was allocated to developed and core technology and in-process research and development (“IPRD”). Developed and core technology and IPRD were identified and valued through extensive interviews, analysis of data provided by EiC Corporation concerning developmental products, their stage of development, the time and resources needed to complete them, their expected income generating ability, target markets and associated risks. The income approach method was the primary technique utilized in valuing the developed and core technology and IPRD. Under the income approach, fair value reflects the present value of the projected cash flows that are expected to be generated by the products incorporating the current technologies.

Developmental projects that reached technological feasibility were classified as developed and core technology, and the $200,000 value assigned to developed technology was capitalized to be amortized using the straight-line method over a weighted-average period of five years. Developmental projects that had not reached technological feasibility, and had no future alternative uses were classified as IPRD. The $8.5 million value allocated to projects that were identified as IPRD would be charged to the consolidated statement of operations on the acquisition date and is reflected in the pro forma combined condensed consolidated balance sheet as an addition to accumulated deficit. The pro forma combined condensed consolidated statement of operations do not include the IPRD of $8.5 million as it is considered a non-recurring charge.  The value assigned to IPRD comprises the following projects:  12V heterojunction bipolar transistor (“HBT”) power amplifiers ($1.5 million) and 28V HBT high power amplifiers ($7.5 million).  The value of these projects was determined by estimating the discounted net cash flows from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

The nature of the efforts required to develop the acquired IPRD into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements.  The estimated aggregate cost to complete these projects was $223,000 and $160,000, respectively which is expected to occur during our third quarter of 2004 through our first quarter of 2005. The cost to complete represents the cost to complete development of the underlying process and does not include the cost to develop individual products under these processes.

In valuing the IPRD, the Company considered, among other factors, the importance of each project to the overall development plan, the projected incremental cash flows from the projects when completed and any associated risks. The projected incremental cash flows were discounted back to their present value using an after-tax discount rate of 25%. This discount rate was determined after consideration of the Company’s weighted average cost of capital and the weighted average return on assets. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets.

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3.PRO FORMA ADJUSTMENTS

The following adjustments have been reflected in the unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2003:

(a)To reflect the purchase price allocation described above and eliminate the assets not purchased and liabilities not assumed by the Company.

(b)To adjust cash and cash equivalents for the cash consideration paid by the Company as part of the acquisition.

(c)To eliminate pre-acquisition transactions between the Company and EiC.

(d)To record estimated transaction costs associated with the acquisition.

(e)To eliminate historical stockholders’ equity of EiC.

(f)To record the 737,000 shares of the Company’s common stock issued as part of the acquisition.

The following adjustments have been reflected in the unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 2003:

(a)To eliminate sales and cost of sales related to the products not acquired by the Company.

(b)To eliminate pre-acquisition transactions between the Company and EiC.

(c)To amortize acquired developed technology of $200,000 resulting from the acquisition using the straight-line method over a weighted-average period of five years.

(d)To reclassify EiC’s operating expense to conform to the Company’s presentation.

(e)To eliminate EiC’s interest income earned as the Company did not acquire any of the cash or cash equivalents of EiC.

(f)To reflect the decrease in interest income resulting from the use of $10.0 million cash to consummate the EiC asset acquisition. A 1.1% interest rate was used to determine the reduction in interest income which approximates the average rate of return on cash and investments of the Company for 2003.

(g)To eliminate EiC’s interest expense as the Company did not assume any debt of EiC.

(h)Represents the adjustment to the weighted-average number of shares outstanding for the year ended December 31, 2003 after the issuance of 737,000 shares of the Company’s common stock in the EiC asset acquisition.

6