-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KQ3bgLdysKMtOY8she26WqJXj27gnR9aMKVKLKAk5IXrZHWEyOFeJcWypZpFUTIq hLiYE+QbFDFKiqRv7FL0tA== 0000895755-01-500006.txt : 20010123 0000895755-01-500006.hdr.sgml : 20010123 ACCESSION NUMBER: 0000895755-01-500006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010110 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARI L CO INC CENTRAL INDEX KEY: 0000917173 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 060678347 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23866 FILM NUMBER: 1512302 BUSINESS ADDRESS: STREET 1: 4895 PEORIA STREET CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033711560 MAIL ADDRESS: STREET 1: 11101 EAST 51ST AVENUE CITY: DENVER STATE: CO ZIP: 80239 8-K 1 v8k111012.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): January 10, 2001 VARI-L COMPANY, INC. (Exact Name of Registrant as Specified in its Charter) COLORADO 0-23866 06-0678347 (State of Incorporation) (Commission File (IRS Employer ID Number) Number) 4895 Peoria Street Denver, Colorado 80239 (Address of Principal Executive Offices) (303) 371-1560 (Registrant's Telephone Number, including Area Code) ITEM 5. OTHER EVENTS Vari-L Company, Inc.(the "Registrant") issued a press release on January 10, 2001 announcing the appointment of a new Chief Financial Officer which is attached as Exhibit 99.1 to this report and incorporated herein by reference. The Registrant also issued a press release on January 19, 2001 releasing financing information as anticipated in its announcement of December 27, 2000 which is attached as Exhibit 99.2 to this report and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) None (b) None (c) Exhibits 99.1 Press Release dated January 10, 2001 99.2 Press Release dated January 19, 2001 99.3 Script for January 19, 2001 Conference Call ITEM 9. REGULATION FD DISCLOSURE In accordance with General Instruction B.2. of Form 8-K, the Script of the January 19, 2001 Conference Call is attached as Exhibit 99.3 to this report and incorporated herein by reference. The Script shall not be deemed "filed" for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth in such filing. The conference call, which was open to the public, was also broadcast live over the Internet through Investor Broadcast Network's V-call web site. Pete Pappas, CEO, and Kriss Andrews, CFO, delivered prepared remarks and responded to questions from call participants. The prepared remarks are being filed with the SEC under Item 9 of Form 8-K pursuant to Regulation FD. After the prepared remarks, Pappas and Andrews were asked questions concerning cancellation charges, tax loss carryforwards, research and development costs and the composition of sales by product line and other criteria. One participant asked the following question: Why are the balance sheets for June 30th and September 30th, 2000 not audited? Mr. Pappas responded as follows: The answer is simple. The SEC does not require quarterly financial statements to be audited. Nevertheless, we are working with KPMG to prepare audited financial statements for purposes of providing that information to BankOne and other lenders who might be interested in Vari-L. Of course, in the ordinary course of business we expect that KPMG will complete an audit of our financial statements for our total fiscal year which ends on June 30th. Date: January 22, 2001 VARI-L COMPANY, INC. By:/s/G. Peter Pappas G. Peter Pappas Chief Executive Officer EX-99 2 v8kpr991.txt EXHIBIT 99.1 FOR IMMEDIATE RELEASE: NEWS January 10, 2001 OTC-VARL VARI-L COMPANY ANNOUNCES APPOINTMENT OF RICK DUTKIEWICZ AS PERMANENT CHIEF FINANCIAL OFFICER DENVER, Colorado -- Vari-L Company, Inc. (OTC-VARL), a leading provider of advanced components for the wireless telecommunications industry, today announced the appointment of Richard P. Dutkiewicz as permanent chief financial officer. Dutkiewicz is scheduled to join Vari-L on January 22, replacing Kriss Andrews, who has been acting as interim chief financial officer since August. Andrews plans to remain with the Company for several weeks to ensure a smooth transition. Dutkiewicz has 22 years of diversified financial management, bank, investment bank and investor relations experience with companies such as United Technologies, MicroLithics, Tetrad and Coleman Natural Products. In addition, he is a former audit manager and management computer audit specialist with KPMG, LLP, although his association with KPMG predates KPMG's current engagement with Vari-L by 16 years. "Rick Dutkiewicz brings to Vari-L a wealth of experience that is ideally suited to his new role at the Company," said Pete Pappas, CEO. "His background in microelectronics and particular strengths in financial management and analysis, cost accounting, auditing, SEC reporting, investor relations and banking were key to our decision to select him over several hundred applicants. We expect him to play an important role on the senior management team in moving Vari-L forward and building investor confidence and shareholder value." Immediately prior to joining Vari-L, Dutkiewicz was vice president of finance, chief financial officer, treasurer and secretary of Coleman Natural Products, Inc., a leading domestic supplier of natural beef. Prior assignments include director of finance and administration with MicroLithics Corporation, a designer and developer of multilevel interconnect boards, standard electronic modules and systems used in defense electronics applications; and various finance and related positions with medical device manufacturer Tetrad Corporation and semiconductor maker United Technologies Microelectronics Center, a division United Technologies Corporation. Dutkiewicz is a graduate of Loyola University of Chicago with a BBA in Accounting. He is currently a member of Financial Executives International (FEI) and the American Institute of Certified Public Accountants. He is also a member of the board of directors of CareerLab.com, and is a former treasurer and board member of Evergreen Mountain School. Through its headquarters in Denver, Vari-L designs, manufactures and markets wireless communications components that generate or process radio frequency (RF) and microwave frequency signals. Vari-L's patented products are used in commercial infrastructure equipment (including cellular/paging/PCS base stations and repeaters, fixed terminal point to point/multi-point data radios including LMDS/MMDS), consumer subscriber products (advanced cellular/PCS/satellite handsets, web-enabled smart phones, 2-way pagers, wireless PDAs, home networking), and military/aerospace platforms (satellite communications/telemetry, missile guidance, electronic warfare, electronic countermeasures, battlefield communications). Vari-L serves a diverse customer base of the world's leading technology companies, including Adaptive Broadband, Agilent Technologies, Digital Microwave, Ericsson, Glenayre Technologies (Wireless Access), Harris, Hughes, Lockheed Martin, Lucent Technologies, Microwave Data Systems, Mitsubishi, Motorola, NEC, NeoPoint, Netro, Newbridge Networks, Nokia, Northrop Grumman, Novatel Wireless, Raytheon, Samsung and Siemens. Some of the statements contained in this news release are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, including but not limited to the success of the products into which the Company's products are integrated, governmental action relating to wireless communications licensing and regulation, the accuracy of the Company's internal projections as to the demand for certain types of technological innovation, competitive products and pricing, the success of new product development efforts, the timely release for production and the delivery of products under existing contracts, the outcome of pending and threatened litigation and regulatory actions, the success and timeliness of the Company's efforts to restate its prior financial statements, future economic conditions generally, as well as other factors. CONTACTS: Vari-L Company, Inc. Pfeiffer Public Relations, Inc. Pete Pappas, CEO Jay Pfeiffer 303/371-1560 303/393-7044 Jay@pfeifferpr.com EX-99 3 v8kpr992.txt EXHIBIT 99.2 FOR IMMEDIATE RELEASE: NEWS January 19, 2001 OTC-VARL VARI-L COMPANY RELEASES FINANCIAL INFORMATION AS ANTICIPATED IN ITS ANNOUNCEMENT OF DECEMBER 27, 2000 DENVER, Colorado - Vari-L Company, Inc. (OTC-VARL), a leading supplier of advanced components for the wireless industry, today released unaudited condensed income statement information for the three months ended September 30, 2000 and September 30, 1999; for the six months ended June 30, 2000 and June 30, 1999; and for the year ended December 31, 1999. In addition, the Company released unaudited condensed balance sheet information for September 30, 2000; June 30, 2000; and December 31, 1999. Amounts related to periods before June 30, 2000 represent restated amounts. COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000, WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1999 For the quarter ended September 30, 2000, Vari-L reported revenue of $11.5 million versus $6.5 million in the same quarter in 1999, reflecting strong growth in the Company's core business serving the commercial market and a one-time benefit from the closeout of a contract, as well as contract cancellation fees. Gross profit in the 2000 quarter was $5.4 million, or 47% of sales, versus $3.1 million, or 47% of sales, in the comparable 1999 quarter. Included in cost of goods sold is a provision of $0.5 million for the three months ended September 30, 2000 and less than $0.1 million for the three months ended September 30, 1999 for obsolete and excess inventory. The gross margin percentage in the 2000 quarter reflected an improvement in the ratio of manufacturing overhead costs, many of which are fixed, to revenue, an improvement in the ratio of labor related costs to revenue, offset by an increase in the ratio of material costs to revenue and the inventory provision. Total operating expenses for the 2000 quarter were $5.4 million versus $2.9 million in the comparable 1999 quarter. Of the $2.5 million increase, $1.2 million was related to the expenses attributable to the accounting restatements and the related shareholder litigation, and $0.2 million was related to stock compensation, primarily related to the issuance of stock options in prior years. General and administrative expense also increased in part due to the cost of the interim senior management, which was provided by an outside consulting firm. Other categories of expenses increased as a result of increased personnel to support the increased volume of business. As a result, the net loss for the quarter ended September 30, 2000 was $0.2 million, or $0.03 per share versus a profit of less than $0.1 million in the comparable 1999 quarter, or $0.01 per share ($0.01 on a diluted basis). Excluding the impact of stock compensation (which is a non-cash charge to earnings) and expenses relating to the accounting restatements and the related shareholder litigation, (which management believes is non- recurring), net income in the quarter ended September 30, 2000 would have been $1.3 million, or $0.18 per share ($0.18 on a diluted basis), versus $0.1 million in the comparable 1999 quarter, or $0.01 per share ($0.01 on a diluted basis). On the other hand, a combination of events caused revenue and gross profit in the three months ended September 30, 2000 to be higher than in the three months ended September 30, 1999. These events included: o During the quarter ended September 30, 2000, the Company benefited from revenue and resultant gross profit due to production associated with the end of life of a particular contract as well as contract cancellation fees. o The increased volume associated with the end of life contract enabled the Company to achieve more efficient production runs during the quarter. o The product mix experienced by the Company during the quarter was favorable. Partially offsetting these factors was a provision of $0.5 million for obsolete and excess inventory items. The Company expects revenue in the three months ended December 31, 2000 to be approximately $10.9 million, as compared with the $11.5 million in the quarter ended September 30, 2000. COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 WITH THE SIX MONTHS ENDED JUNE 30, 1999 Consistent with its previously announced plans to change its fiscal year end from December 31 to June 30, the Company also announced results for the six months ended June 30, 2000 and the six months ended June 30, 1999. Revenue for the six months ended June 30, 2000 was $17.2 million versus $10.8 million for the six months ended June 30, 1999. This improvement reflects increased demand from the commercial market. Gross profit for the six months ended June 30, 2000 was $6.8 million, or 40% of sales, versus $5.2 million, or 48% of sales, in the comparable 1999 period. Included in cost of goods sold is a $0.4 million provision for the six months ended June 30, 2000 and less than $0.1 million for the six months ended June 30, 1999 for obsolete and excess inventory. The lower gross profit margin in the 2000 period principally reflected a much higher ratio of material costs to sales, due in part to the Company's decision to pay higher costs in return for expedited delivery of the materials. Total operating expenses for the six months ended June 30, 2000 were $7.9 million versus $5.3 million in the comparable 1999 period. Of the $2.6 million increase, $1.6 million was due to higher selling, general and administrative, and research and development expense. All such expenses reflected the higher cost of supporting the substantially higher revenue base the Company had achieved and positioning the Company for anticipated increased demand for new products. These cost categories increased in absolute dollars, but declined as a percentage of revenue. In addition, stock compensation amounted to $0.5 million in the six months ended June 30, 2000 versus $0.1 million in the comparable 1999 period. Expenses attributable to the accounting restatements and the related shareholder litigation in the 2000 period amounted to $0.5 million versus no such expenses in the comparable 1999 period. Other income (expense), principally interest expense, net of interest income, improved by $0.2 million in the six-month period ended June 30, 2000 versus the comparable 1999 period due to additional interest income earned on higher cash balances. As a result of the above factors, the net loss for the six months ended June 30, 2000 was $1.2 million, or $0.17 per share, compared with a loss of $0.5 million, or $0.09 per share, in the comparable period in 1999. Excluding the impact of stock compensation (which is a non-cash charge to earnings) and expenses relating to accounting restatements and related shareholder litigation (which management believes is nonrecurring), net loss in the six months ended June 30, 2000 would have been $0.2 million, or $0.03 per share, compared with a loss of $0.5 million, or $0.08 per share, in the 1999 period. DISCUSSION OF 1999 RESTATED FULL YEAR RESULTS AND THE RESTATED BALANCE SHEET AS OF DECEMBER 31, 1999 The Company has restated its 1999 results, and, as previously announced, will include its restated 1999 financial statements in its transition report on form 10-KSB/T which it intends to file with the SEC. For the year ended December 31, 1999, the Company reported sales of $24.2 million and a gross margin of $11.4 million, or 47% of sales. Total operating expenses were $11.7 million, resulting in an operating loss of $0.3 million. Other income (expense), consisting principally of interest expense, net of interest income, amounted to $0.6 million, resulting in a loss of $0.9 million, or $0.16 per share. The Company had previously reported net income of $3.4 million for the year ended December 31, 1999. A reconciliation of the previously reported earnings to the restated loss of $0.9 million is attached. As noted thereon, the principal factors that negatively impacted the restated results are a $1.3 million adjustment to inventories to increase the allowance for obsolete and excess inventory items and to bring carrying values in line with recalculated standard costs; a $4.0 million adjustment to the carrying value of property and equipment to reflect significantly reduced capitalized labor costs, shorter economic asset lives, reduced residual values and to eliminate certain items that do not qualify for capitalization; a $0.7 million adjustment to intangibles and other assets to eliminate the capitalization of internal labor, to eliminate certain other deferred costs related to patents and ISO 9001 registration and to reflect a reduction in the estimated useful lives of certain patents; $0.4 million of additional accrued expenses and $0.1 million of stock compensation expense. Partially offsetting these downward adjustments is the elimination of $2.1 million of deferred income taxes and a $0.1 million increase in prepaid expenses. As previously reported, the Company has been informed by KPMG LLP, its independent auditor, that they will not be able to express unqualified audit opinions for periods prior to June 30, 2000. The decision, which was made following many months of efforts by KPMG and Vari-L management, is based on KPMG's determination that the internal controls over inventory accounting and management systems prior to June 30, 2000 were not sufficiently reliable to enable KPMG to audit the Company's inventory quantities. KPMG is unable to apply alternative auditing procedures to the Company's inventory balances for periods prior to June 30, 2000. The Company and KPMG concluded that no amount of reconstructive accounting could overcome the conditions that existed prior to June 30, 2000. For related reasons, the Company has determined that it is not feasible to restate financial statements for periods prior to January 1, 1999. The cumulative effect of these adjustments have been recorded as an adjustment to stockholders' equity as of January 1, 1999. The attached Schedule also reconciles the Company's previously reported equity of $49.8 million as of December 31, 1999 to the $14.4 million recorded in the restated balance sheet. Of the $35.4 million reduction in stockholders' equity, the factors that negatively impacted equity are a $0.9 million reduction of accounts receivable reflecting an increase in the reserve for uncollectible trade accounts receivable; a $5.8 million adjustment to inventories to increase the allowance for obsolete and excess inventory items and to bring carrying values in line with recalculated standard costs; a $1.1 million reduction in prepaid expenses; a $25.6 million adjustment to the carrying value of property and equipment to reflect significantly reduced capitalized labor costs, shorter economic asset lives, reduced residual values and to eliminate certain items that do not qualify for capitalization; a $3.5 million adjustment to intangibles and other assets to eliminate the capitalization of internal labor, to eliminate certain other deferred costs related to patents and ISO 9001 registration and to reflect a reduction in the estimated useful lives of certain patents, and; a $2.2 million adjustment to accrued expenses. Partially offsetting these downward adjustments is the elimination of $3.7 million of deferred income taxes. DISCUSSION OF LIQUIDITY AND BALANCE SHEETS DATED SEPTEMBER 30, 2000; JUNE 30, 2000; AND DECEMBER 31, 1999 The Company's working capital at September 30, 2000, excluding the bank loan of $9.9 million, was $16.8 million. Working capital at September 30, 2000 includes cash of $6.3 million. On September 28, 2000, the Company concluded a forbearance agreement with Bank One Colorado, N.A., its principal secured creditor, that, among other provisions, called for a principal payment which reduced the Company's bank loan from $11.5 million to the $9.9 million reported as of September 30, 2000. The Company renegotiated an extension of its forbearance agreement with Bank One effective December 15, 2000. The revised agreement provided for a further paydown of the bank loan to $8.8 million. The agreement now extends through March 31, 2001 and the loan is collateralized by accounts receivable, inventories, fixed assets and certain other assets of the Company. During the nine months ended September 30, 2000, the Company made investments in plant and equipment of approximately $2.0 million to increase production capability and to support the higher personnel base of the Company "We are pleased to have finalized our financial results so that our shareholders and other stakeholders can have a better understanding of the financial health and performance of the Company," said Pete Pappas, CEO. "We believe that our financial results are a clear indication that Vari-L has the potential to thrive in the future. "On behalf of the board of directors and all employees of Vari-L, I want to thank our shareholders, customers, vendors and other stakeholders for their patience, loyalty and support of Vari-L during the past several months," Pappas added. "The release of our financial results is an important milestone for Vari-L in our effort to restore shareholder confidence and move this company forward in a positive manner. While we still face a number of challenges, we are confident Vari-L is headed in the right direction and look forward to reporting our progress as it unfolds." Through its headquarters in Denver, Vari-L designs, manufactures and markets wireless communications components that generate or process radio frequency (RF) and microwave frequency signals. Vari-L's patented products are used in commercial infrastructure equipment (including cellular/paging/PCS base stations and repeaters, fixed terminal point to point/multi-point data radios including LMDS/MMDS), consumer subscriber products (advanced cellular/PCS/satellite handsets, web-enabled smart phones, 2-way pagers, wireless PDAs, home networking), and military/aerospace platforms (satellite communications/telemetry, missile guidance, electronic warfare, electronic countermeasures, battlefield communications). Vari-L serves a diverse customer base of the world's leading technology companies, including Adaptive Broadband, Agilent Technologies, Digital Microwave, Ericsson, Glenayre Technologies (Wireless Access), Harris, Hughes, Lockheed Martin, Lucent Technologies, Microwave Data Systems, Mitsubishi, Motorola, NEC, NeoPoint, Netro, Newbridge Networks, Nokia, Northrop Grumman, Novatel Wireless, Raytheon, Samsung and Siemens. Some of the statements contained in this news release are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, including but not limited to the success of the products into which the Company's products are integrated, governmental action relating to wireless communications, licensing and regulation, the accuracy of the Company's internal projections as to the demand for certain types of technological innovation, competitive products and pricing, the success of new product development efforts, the timely release for production and the delivery of products under existing contracts, the outcome of pending and threatened litigation and regulatory actions, the success and timeliness of the Company's efforts to restate its prior financial statements and report future financial results on a timely basis, as well as other factors. CONTACTS: Vari-L Company, Inc. Pfeiffer Public Relations, Inc. Pete Pappas, CEO Jay Pfeiffer 303/371-1560 303/393-7044 jay@pfeifferpr.com VARI-L COMPANY, INC. STATEMENTS OF OPERATIONS (unaudited)
Three months ended Three months ended September 30, September 30, 1999 2000 ------------------ ------------------ (restated) Net sales $11,495,129 100.0% $6,525,555 100.0% Cost of goods sold 6,137,793 53.4% 3,452,137 52.9% ----------- ---------- Gross profit 5,357,336 46.6% 3,073,418 47.1% ----------- ---------- Operating expenses: Selling 1,033,694 9.0% 801,454 12.3% General and administrative 1,499,545 13.0% 841,102 12.9% Research and development 1,415,196 12.3% 1,207,792 18.5% Stock compensation 210,539 1.8% 27,540 0.4% Expenses relating to accounting restatements and the related shareholder litigation 1,248,067 10.9% 0 ---------- --------- Total operating expenses 5,407,041 47.0% 2,877,888 44.1% ---------- --------- Operating income (loss) (49,705) (0.4%) 195,530 3.0% Other income (expense): Interest income 157,706 1.4% 56,891 0.9% Interest expense (329,134) (2.9%) (210,324) (3.2%) Other, net 19,931 0.2% 382 0.0% ---------- --------- Total other expense (151,497) (1.3%) (153,051) (2.3%) ---------- --------- Net income (loss) ($201,202) (1.8%) $42,479 0.7% ========== ========= Basic earnings (loss) per share ($0.03) $0.01 ========== ========= Diluted earnings (loss) per share ($0.03) $0.01 ========== ========= Weighted average shares outstanding - basic 7,070,702 5,667,523 ========== ========= Weighted average shares outstanding - diluted 7,070,702 6,150,984 ========== =========
VARI-L COMPANY, INC. STATEMENTS OF OPERATIONS (unaudited)
Six months Six months Ended June 30, ended June 30, 2000 1999 -------------- --------------- (restated) Net sales $17,157,541 100.0% 10,773,177 100.0% Cost of goods sold 10,310,940 60.1% 5,581,693 51.8% ----------- ----------- Gross profit 6,846,601 39.9% 5,191,484 48.2% ----------- ----------- Operating expenses: Selling 1,869,073 10.9% 1,469,563 13.6% General and administrative 2,256,658 13.2% 1,634,567 15.2% Research and development 2,772,404 16.2% 2,183,464 20.3% Stock compensation 492,609 2.9% 54,642 0.5% Expenses relating to accounting restatements and the related shareholder litigation 469,347 2.7% 0 ----------- ----------- Total operating expenses 7,860,091 45.8% 5,342,236 49.6% ----------- ----------- Operating loss (1,013,490) (5.9%) (150,752) (1.4%) Other income (expense): Interest income 314,921 1.8% 117,075 1.1% Interest expense (453,059) (2.6%) (459,695) (4.3%) Other, net (27,625) (0.2%) (24,600) (0.2%) ----------- ----------- Total other expense (165,763) (1.0%) (367,220) (3.4%) ----------- ----------- Net loss ($1,179,253) (6.9%) ($517,972) (4.8%) =========== =========== Loss per share ($0.17) ($0.09) =========== =========== Diluted loss per share ($0.17) ($0.09) =========== =========== Weighted average shares outstanding 7,042,247 5,499,713 =========== =========== Weighted average shares outstanding - diluted 7,042,247 5,499,713 =========== ===========
Year ended December 31, 1999 ------------ (restated) Net sales $24,212,249 100.0% Cost of goods sold 12,811,300 52.9% ----------- Gross profit 11,400,949 47.1% ----------- Operating expenses: Selling 3,147,800 13.0% General and administrative 3,608,977 14.9% Research and development 4,800,073 19.8% Stock compensation 112,156 0.5% Expenses relating to accounting restatements and the related shareholder litigation 0 ----------- Total operating expenses 11,669,006 48.2% ----------- Operating loss (268,057) (1.1%) Other income (expense): Interest income 261,827 1.1% Interest expense (878,524) (3.6%) Other, net (32,381) (0.1%) ----------- Total other expense (649,078) (2.7%) ----------- Net loss ($917,135) (3.8%) =========== Loss per share ($0.16) =========== Diluted loss per share ($0.16) =========== Weighted average shares outstanding 5,680,287 =========== Weighted average shares outstanding - diluted 5,680,287 ===========
VARI-L COMPANY, INC. EFFECTS OF RESTATEMENT ADJUSTMENTS As of and for the year ended December 31, 1999 (unaudited)
Net income Shareholders' (loss) equity ----------- ------------ Amounts as previously reported $3,403,000 $49,822,000 Restatement adjustments: Accounts receivable (3,483) (936,010) Inventories (1,311,070) (5,789,898) Prepaid expenses 77,225 (1,137,526) Property and equipment (4,008,550) (25,577,533) Intangibles and other assets (665,868) (3,530,271) Accrued expense (393,904) (2,207,704) Deferred income taxes 2,097,671 3,730,000 Stock compensation expense (112,156) - ---------- ----------- Total restatement adjustments (4,320,135) (35,448,942) ---------- ----------- Amounts as restated ($917,135) $14,373,058 ========== ===========
VARI-L COMPANY, INC. BALANCE SHEETS (unaudited)
September 30, June 30, December 31, ASSETS 2000 2000 1999 ------------- --------- ------------ (restated) Current assets: Cash and cash equivalents $6,256,827 $10,709,495 $14,721,048 Trade accounts receivable, net 7,716,580 5,881,279 4,075,990 Inventories 7,268,252 7,434,660 4,465,102 Prepaid expenses and other 612,574 189,485 22,474 ----------- ----------- ----------- Total current assets 21,854,233 24,214,919 23,284,614 ----------- ----------- ----------- Property and equipment: Machinery and equipment 9,933,858 9,719,676 8,125,525 Furniture and fixtures 763,983 720,971 668,368 Leasehold improvements 1,562,282 1,538,575 1,486,045 Leased property 160,026 125,726 97,692 ----------- ----------- ----------- 12,420,149 12,104,948 10,377,630 Less accumulated depreciation and amortization 5,173,612 4,767,159 4,048,163 ----------- ----------- ----------- Net property and equipment 7,246,537 7,337,789 6,329,467 Other assets 698,912 697,185 625,729 ----------- ----------- ----------- Total assets $29,799,682 $32,249,893 $30,239,810 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $2,892,994 $4,182,270 $2,385,130 Accrued expenses 2,128,356 1,724,995 2,220,750 Notes payable and current installments of long-term obligations 9,978,077 11,566,386 11,159,081 ----------- ----------- ----------- Total current liabilities 14,999,427 17,473,651 15,764,961 Long-term obligations 98,407 91,666 101,791 ----------- ----------- ----------- Total liabilities 15,097,834 17,565,317 15,866,752 Total stockholders' equity 14,701,848 14,684,576 14,373,058 ----------- ----------- ----------- Total liabilities and stockholders' equity $29,799,682 $32,249,893 $30,239,810 =========== =========== ===========
EX-99 4 v8kscript.txt 6 EXHIBIT 99.3 Vari-L Company, Inc. CONFERENCE CALL SCRIPT JANUARY 19, 2001 Some of the statements contained in this news release are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, including but not limited to the success of the products into which the Company's products are integrated, governmental action relating to wireless communications licensing and regulation, the accuracy of the Company's internal projections as to the demand for certain types of technological innovation, competitive products and pricing, the success of new product development efforts, the timely release for production and the delivery of products under existing contracts, the outcome of pending and threatened litigation and regulatory actions, the success and timeliness of the Company's efforts to restate its prior financial statements, future economic conditions generally, as well as other factors. [Pete Pappas] Good afternoon and welcome to the Vari-L conference call. I'm Pete Pappas, interim President and Chief Executive Officer of Vari-L. Joining me is Kriss Andrews, the interim Chief Financial Officer. Rick Dutkiewicz, our new Chief Financial Officer, is not here today, as he will not be coming on board until later this month. Approximately five months ago, in August, my firm, BBK, was engaged by the board of directors to address a number of important issues that arose from the disclosure of accounting irregularities at Vari-L. As most of you know, these issues included restating Vari-L historical financial statements, seeking to overturn Nasdaq's delisting of the Company's stock, responding to an SEC investigation, a series of shareholder class action lawsuits, a derivative shareholder lawsuit and, perhaps most importantly, addressing the decline in shareholder confidence, and resulting shareholder value, that came about as a result of those issues. BBK is one of the largest firms of its kind in the United States and was chosen by Vari-L's board of directors due to its breadth and depth of experience and strong track record in helping to turn around troubled companies and resolving difficult issues such as those that were facing Vari-L. Speaking for Kriss and myself, our goal from the beginning has always been to resolve Vari-L's issues in a speedy and efficient manner and, thereby, maximize the value of the Company for the shareholders. Today, I'm happy to announce that we've made excellent progress toward our goals. The recent release of reliable, up-to-date, financial information is the culmination of months of painstaking work by Vari-L staff and KPMG. We believe that this information is what shareholders, stockbrokers, analysts and fund managers need to shape their investment decisions and form opinions as to the future prospects of this Company. These results also confirm what we at Vari-L believe about the future of this Company -- that Vari-L is a growth company with good prospects to operate profitably in the future while playing an important part in the development of wireless infrastructure on a worldwide basis. While there are still a number of critical challenges to meet - and we will update you on those in the next few minutes - we believe that by removing the uncertainty surrounding Vari-L's historical financial results, we have eliminated a major concern of all Vari-L stockholders as well as investment professionals who may be evaluating the Company. The format of today's call will be as follows: Kriss Andrews will provide supporting commentary on the financial statements. I'll follow that with an update on some of the key ongoing issues and then we'll open up the call to questions and answers. I'll now turn the call over to Kriss Andrews. [Kriss Andrews] Thank you, Peter. Before I get into the meat of the financial statements I want to take this opportunity to answer a question that I know many of you have wondered about - - that is, why did it take so long for Vari-L to restate its historical financial statements. The answer to that question is composed of four major parts. 1. COMPLEXITY: The first part relates to the sheer complexity of the accounting irregularities that needed to be corrected. There was little information we could rely upon, and the people that had prepared the previously issued financial statements were no longer with the Company. 2. NEED TO DEVELOP GOOD SYSTEMS: The second part relates to Vari-L's lack of a good accounting system before BBK was engaged and, therefore, the need to develop and implement a sound system even before the restatement process could begin. The systems were unstable from a number of different perspectives, and the setups were not conducive to a restatement process. 3. VOLUME OF WORK: The third part is the massive amount of work that was required to reconstruct the financial data for five historical quarters dating back to the December 31, 1998 balance sheet - - this was particularly true of the work relating to reconstructing the inventory data, the fixed asset data and the stock option information. For example, reconstruction of the inventory data was probably the most time consuming part of our work. Before KPMG would even begin to consider whether the inventory could be audited Vari-L had to work backward for 18 months from June 30, 2000 quantities on a part-by-part basis for thousands of parts to reconstruct every transaction that affected those quantities. Needless to say, this was a very time consuming effort. 4. NEED FOR EXTRA CAUTION AND ACCURACY: The fourth part is the extra caution that was needed and the critical importance of absolute accuracy in order to ensure stockholder confidence in the numbers we did finally publish. This morning, we released unaudited condensed income statements for the three months ended September 30, 2000 and September 30, 1999; for the six months ended June 30, 2000 and June 30, 1999; and for the year ended December 31, 1999. In addition, we released unaudited condensed balance sheets for September 30, 2000; June 30, 2000; and December 31, 1999. I am going to discuss the statements in the order noted above. For the three months ended September 30, 2000, Vari-L reported revenue of $11.5 million versus $6.5 million in the same period in 1999, a very substantial increase. Gross profit in the 2000 quarter showed improvement comparable with the increase in revenue. Total operating expenses for the 2000 quarter increased by $2.5 million over the comparable 1999 period due to a number of factors, including $1.2 million of expenses attributable to the accounting restatements and the related shareholder litigation. Net loss for the quarter ended September 30, 2000 was $0.2 million, or $0.03 per share versus a profit of less than $0.1 million in the comparable 1999 quarter, or $0.01 per share. In order to better clarify the Company's performance and exclude the impact of certain items that we believe are non-recurring or are non-cash items we have made some alternative earnings computations excluding certain unusual items. Eliminating the impact of stock compensation and expenses relating to the accounting restatements and the related shareholder litigation, net income in the quarter ended September 30, 2000 would have been $1.3 million, or $0.18 per share, versus $0.1 million in the comparable 1999 quarter, or $0.01 per share. As we noted in the press release, there were some items that impacted favorably on the Company in the third quarter, such as production associated with the end of life of a contract, contract cancellation fee, long production runs as a result of the high revenue, and a favorable product mix. The revenue associated with the end of life contact was approximately $0.8 million and the cancellation fee was approximately $0.1 million. Accordingly, we do not believe it is appropriate to assume that the third quarter revenue and gross profit numbers are necessarily a fair indicator of future performance. We believe that, from this point forward, the Company will be reporting its financial results on a timely basis. We are not releasing final fourth quarter results today, but we have reported that we expect revenue in the three months ended December 31, 2000 to be approximately $10.9 million, as compared with the $11.5 million in the quarter ended September 30, 2000. Because we plan to change our fiscal year end from December 31 to June 30, we also announced results for the six months ended June 30, 2000 and the six months ended June 30, 1999. Revenue for the six months ended June 30, 2000 was $17.2 million versus $10.8 million for the six months ended June 30, 1999. However, gross profit for the six months ended June 30, 2000 was 40% of sales, versus 48% of sales, in the comparable 1999 period. The lower gross profit margin in the 2000 period reflected a much higher ratio of material costs to sales due in part to previous management's decision to pay higher costs in return for expedited delivery of materials. Net loss for the six-month period ended June 30, 2000 was $1.2 million, or $0.17 per share, compared with a loss of $0.5 million, or $0.09 per share, in the comparable six-month period in 1999. However, excluding the impact of stock compensation and expenses relating to accounting restatements and related shareholder litigation, net loss in the six months ended June 30, 2000 would have been $0.2million, or $0.03 per share, compared with a loss of $0.5 million, or $0.08 per share, in the 1999 period. We have completed the restatement of our 1999 results, and will include such restated financial statements in the transition report on Form 10-KSB/T which we intend to file with the SEC in the near future. For the year ended December 31, 1999, the Company reported sales of $24.2 million and a loss of $0.9 million, or $0.16 per share. An area of concern to shareholders has and continues to be the impact of such restatements on the reported results of the Company and its financial position. The Company had previously reported net income of $3.4 million for the year ended December 31, 1999, which was an incorrect amount. We included with our press release a reconciliation of such amount to the restated loss of $0.9 million for 1999. I will not go through all of the detail, but the larger issues that negatively impacted the restated results are a $1.3 million adjustment to inventories, a $4 million adjustment to the carrying value of property and equipment and a $0.7 million adjustment to intangibles and other assets. Partially offsetting these downward adjustments is the elimination of $2.1 million of deferred income taxes. We also included a reconciliation of the Company's previously reported equity of $49.8 million as of December 31, 1999 to the $14.4 million recorded in the restated 1999 balance sheet. Of the $35.4 million reduction in stockholders' equity, the major factors that negatively impacted equity are a $5.8 million adjustment to inventories, a $25.6 million adjustment to the carrying value of property and equipment; a $3.5 million adjustment to intangibles and other assets, and; a $2.2 million adjustment to accrued expenses. Partially offsetting these downward adjustments is the elimination of $3.7 million of deferred income taxes. Nonetheless, the Company's financial position remains sound. Working capital at September 30, 2000, excluding the bank loan of $9.9 million, was $16.8 million, which includes $6.3 million of cash. Since last August when Peter and I began this assignment, we have concluded a forbearance agreement with our primary lender, and have since extended such agreement through March 31, 2001. Restating our financial results is the first big step in initiating a permanent lending relationship with our existing primary lender or a new lender. That concludes my comments on the financial statements so I'll turn the call back to Peter. [Pete Pappas] Thank you Kriss. Over the past several months I've had an opportunity to speak with many shareholders, brokers, analysts and portfolio managers. I've listened to their concerns and welcomed their comments and suggestions. In addition, we've published regular updates on ongoing activities in the form of news releases and shareholder letters that were carried on most news services and are all posted and chronologically listed on our website. For those of you who may not be up to speed, our website is an excellent source of historical information covering our progress. You might jot down the site address, which is www.vari-l.com The information we've provided has been as complete as possible under the circumstances. However, some individuals have expressed frustration that more detailed information was not made available earlier, particularly concerning financial information and the status of the lawsuits and the SEC investigation. My answer to that is very direct. First, when a public company reports accounting irregularities and a major international accounting firm like KPMG is called in to help sort things out, it is commonplace and good business practice to fully complete the restatement process and then release information in a comprehensive manner rather than release information on a piecemeal basis that could be misleading in the absence of that complete information. Second, considering the interests of shareholders, Vari-L has not publicly reported any substantive information concerning the private lawsuits or the SEC investigation. This is not only standard practice but it is common sense because to do otherwise could significantly impair Vari-L's ability to resolve those lawsuits in a timely and reasonable manner. I cannot give you any specific information today concerning settlement discussions or the responsibility of any of the individual defendants because to do so would almost certainly compromise the Company's position by delaying or even preventing a timely and fair resolution of those controversies. I can tell you, however, that I am very hopeful that there will be a prompt and fair resolution of all of the pending and threatened litigation and that, in my opinion, such a resolution would permit Vari-L to move forward and continue to strengthen its business fundamentals. As a result of the many phone calls we have received, we believe we have a good handle on which issues are most important to you. Today, in the interests of everyone's time, my intention is to address those issues prior to the Q&A in as much detail as possible. I need to caution you, however, that there are many highly sensitive subjects as to which I will not be able to elaborate beyond my prepared remarks. I apologize in advance if I seem to be unable to provide you with some of the details you may be interested in but, considering the Company's litigation posture, not to mention the difficulties imposed by the SEC's new Regulation FD, I really do not have any choice. PERMANENT MANAGEMENT. The hiring of permanent management is the first issue that I'll address. The good news is that we have now hired Rick Dutkiewicz as our permanent CFO. Regarding the CEO position, we've interviewed dozens of candidates who were culled from hundreds of applications. We are now in the final stages of interviewing the top candidates for the permanent CEO position. I believe we'll be in a position to bring in a permanent CEO within the very near future. Kriss Andrews and I will both be available to help Rick and the new permanent CEO get up to speed as quickly as possible before we leave Vari-L and return to BBK, our consulting firm, and our next assignment. ADDITIONAL BOARD MEMBERS. In addition, as previously announced, we are actively seeking new outside board members and we're focusing on persons who are TRULY independent. Vari-L's board of directors have already interviewed several good candidates and the board plans on considering additional persons. One result of the pending litigation and the SEC investigation, we believe, is that some of the very best potential candidates for the board will proceed very cautiously given the risks of director liability. In addition, because the selection of new board members deserves careful attention in this context, the board needs sufficient time to complete the process. I believe Vari-L's board has made good progress in recruiting additional members and we are all hopeful that these efforts will be successfully completed as soon as practicable. Obviously, as I already mentioned, the process of recruiting additional board members would be made much easier if the existing litigation were quickly and reasonably resolved. LAWSUITS. In that regard, let me brief you on the status of those lawsuits. A number of class action lawsuits and one derivative lawsuit were filed last year shortly after the Company announced that it intended to restate its financial statements. As is customary, the class action lawsuits have been consolidated into a single lawsuit and the court has designated one law firm as lead plaintiffs' counsel to act on behalf of all plaintiffs. I believe that THAT lead counsel recognizes that Vari-L's operational strength is its primary asset, and their clients' interest will be served by a resolution which does not impair that strength. Vari- L's own legal counsel handling the litigation and the SEC investigation is a former SEC staffer with substantial experience in these matters and the process is ongoing. Vari-L has two directors and officers liability insurance policies that were purchased to cover situations such as this. Those policies provide total coverage of $7.5 million dollars. For the reasons I've already described, I cannot and will not speculate on potential outcomes, or comment on the existence or nature of settlement discussions or any other details of the process except to reiterate that we believe that all parties recognize that they are all best served by a timely and equitable solution. KPMG'S AUDIT DECISION: Next, I'd like discuss KPMG's determination that they are unable to provide Vari-L with unqualified audit opinions on the Company's financial statements for time periods prior to the June 30, 2000 balance sheet. As you will probably recall, Vari-L's prior auditor resigned on July 5, 2000 and KPMG subsequently became Vari-L's new auditor. Fortunately, KPMG was present at Vari-L to observe the June 30, 2000 physical inventory so we are confident that, from June 30th onward, they will be able to audit the actual quantities of inventory on hand. Unfortunately, however, KPMG was not present to observe any physical inventories for time periods prior to June 30th and they believe that they cannot and should not rely on the work that was performed by the prior auditors. We attempted to avoid this result by making every effort possible to reconstruct the inventory quantities for time periods prior to June 30th by working backward from the known quantities observed by KPMG on June 30, 2000. Included in this "rollback" are the book-to-physical quantity adjustments that Vari-L made each quarter to bring the book quantity in line with the actual quantity that was observed during each particular physical inventory before KPMG's engagement. Vari-L had hoped that the historical book-to-physical quantity adjustments, in quarters prior to June 30, 2000, would be small. If that had been the case, then KPMG likely could have audited the "rollback". However, we actually found that the book-to-physical adjustments were very significant so that KPMG was not in a position to render an unqualified opinion on the inventory and, as a result, on the financial statements generally. As you will see, that fact is the key problem in getting relisted on Nasdaq. NASDAQ LISTING. Regarding Nasdaq, based on some of the questions we have been hearing from shareholders, there seems to be some confusion regarding Vari-L's status with Nasdaq, and I'd like to clear that up once and for all. As most of you are aware, Nasdaq has specific listing criteria for public companies. One of their most strict criteria is the requirement that a company have at least two years of financial statements with unqualified audit opinions (three years for bigger companies). Let me repeat: TWO YEARS OF UNQUALIFIED AUDITED FINANCIAL STATEMENTS. As you know, Vari-L does NOT meet that requirement at this time. Those of you who followed Vari-L last year may remember that the trading halt and de- listing process was initiated in the first place for the very reason that Vari-L's prior outside auditor withdrew their audit opinions on Vari-L's historical financial statements. Therefore, whether we like it or not, Nasdaq's decision to de-list Vari-L was completely consistent with their listing requirements and the only way that Vari-L can be relisted is for the Company to eventually have at least two years of financial statements with unqualified audit opinions (or three years if the Company gets so large that it no longer qualifies as a Small Business filer). It is theoretically possible that Nasdaq or another exchange or quotation service could make an exception to its rules for Vari-L but it is wholly unrealistic for the Company to pursue that course prior to the resolution of the pending and threatened litigation, particularly the SEC investigation. In the meantime, as you know, Vari-L's stock is trading on the Pink Sheets, which is two steps below Nasdaq Small Cap. The in-between step is the Bulletin Board, but that option is also closed to us at this time because the Bulletin Board also requires a company to have at least two years of audited financial statements in order to be listed. The good news is that the Pink Sheets have improved somewhat in terms of reporting and execution. And, as we have said before, we believe savvy investors will recognize value no matter what exchange a company's stock is listed on or quoted. There is recent evidence to support this belief. At year- end 2000, Vari-L stock was quoted under one dollar. Today the stock traded in the four dollar range. It may take longer than it otherwise would, but we continue to believe that Vari-L has the potential to increase shareholder value over the long term and we're optimistic about our future prospects. We are continuing our efforts to enhance the liquidity of the Company's stock, by listing it on a recognized exchange or quotation service or otherwise. CHANGE IN FISCAL YEAR. As we recently announced, Vari-L is changing its fiscal year end to June 30, retroactive to June 30, 2000. Because we believe we'll be able to obtain unqualified audit opinions on our financial statements starting from June 30, 2000 onward, the change in fiscal year gives us a 6-month head start on meeting the requirement that we have at least 2 years of audited financials. SEC INVESTIGATION. The next topic is the ongoing SEC investigation. To date there have been no enforcement actions initiated by the SEC against Vari-L. As with any ongoing investigation, there is little sense in commenting publicly on details until the investigation is complete. Our counsel is in close communication with the SEC's staff. As a result, I will not comment on the SEC investigation, other than to reiterate that it is ongoing, that we are fully cooperating, and that we hope it comes to a speedy conclusion. VARI-L'S INTERNAL INVESTIGATION. In addition, we've been asked if Vari-L is conducting an internal investigation to augment the SEC's investigation. As we have previously disclosed, the Audit Committee of the Board of Directors has been engaged in its own internal investigation of the matters raised by the SEC investigation and the private litigation. In addition, they are taking a very thorough look at prior accounting practices and procedures. Management is making procedural changes to correct deficiencies and we are implementing safeguards to prevent a repeat of the problems this Company experienced under prior management. DEFENDING THE BOARD AND FORMER OFFICERS. We have also been asked a number of questions about Vari-L's current and former board members and officers who have been named as defendants in the class action or derivative lawsuits. First, people have asked if former CEO David Sherman is still actively working within the Company. The answer to that question is no. Mr. Sherman is required to provide consulting services under his consulting agreement with the Company on an as needed basis. He has provided some assistance to the Company in connection with a collection action brought by the Company but he has not been active at Vari-L for many months. Another question which has been asked is why Vari-L is helping to defend its current board members and some of the now-departed executives who are the subject of legal actions. The answer is two fold: officers and directors both past and present, have the right under Colorado corporate law and Vari-L's Articles of Incorporation and Bylaws to receive advances from the Company for their legal fees and other expenses incurred in defending claims brought against them on account of their activities while they were acting on behalf of the Company. To get those advances, they are required to pay back all funds advanced if it is subsequently determined that they did not meet the statutory standards of conduct when they were with the Company. This is the same way that virtually all directors and executives of public companies are indemnified by their current and former employers. It is standard practice. They are presumed innocent until it is proven otherwise. However, if it is determined that one or more of those individuals did not meet the applicable standards of conduct to which corporate officers and directors are held, then appropriate action will be taken, including but not limited to, termination of their rights to further advances from the Company. No such final determination has yet been made. As I've stated earlier, the SEC investigation and the Audit Committee's own internal investigation of those individuals is ongoing. Beyond that, I think it is inappropriate for anyone to jump to conclusions about those individuals until all the facts are obtained. Until that time, I do not plan to elaborate on the matter. LEGAL ACTION BY VARI-L. The next area of interest I want to address is the status of any legal action by Vari-L against its former executives. Some of you have asked whether Vari-L has taken or intends to take legal action against Dave Sherman and/or any of the former financial executives of the Company. To date, Vari-L has not taken legal action against those persons, although the Company does reserve the right to do so in the future if circumstances warrant. Obviously, if it is determined that one or more of those individuals are guilty of serious wrongdoing, then that would factor into any decision regarding a settlement and/or future legal action by the Company. At this time, however, I will not comment further on this issue for the obvious reason that it could compromise the Company's ability to achieve a timely and reasonable solution to all the legal matters that is currently faces. STRATEGIC OPTIONS. The issue of so called "strategic options" is another matter that I'll address. Specifically, a number of persons have asked whether Vari-L is for sale or whether we've hired investment bankers. Your board of directors and executive management team is constantly considering and weighing options to increase shareholder value. Certainly, the possibility of an acquisition or other corporate level financing transaction which fairly recognizes the value of Vari-L's technology, customer base and human resources is always there. If someone were to make such an offer to Vari-L, then I'm sure the board would listen. If that offer was fair or more than fair, then I'm sure that the board would strongly consider such an offer. However, if that offer was less than fair, then I'm sure that the board would respond accordingly. Again, our ultimate responsibility is to build shareholder value. I'm sure the board and Vari-L's management team will appropriately consider all options to fulfill that responsibility. On the other hand, it is important for me to state that there is no "for sale" sign hanging out in front of Vari-L. We believe we have a viable company on our own and we have the potential for a very bright future once we can get the last of these past problems behind us. In closing, I would like to summarize some of the reasons for optimism. o Vari-L continues to enjoy positive sales momentum. o Our key customers have remained loyal, which is a testament to our technology and, more importantly, to our people. o The vast majority of our key employees have elected to stay with Vari- L and work through this difficult period notwithstanding a strong job market. o We continue to develop and patent important technology. o The growth of the wireless industry appears to remain steady. o And finally, as evidenced by our financial statements, Vari-L's recent performance has demonstrated that the Company has the potential to grow profitably into the future. Prior to opening the call to questions, I want to say that while we've made a great deal of progress on many fronts, there is still much to do and some very sensitive issues remain, such as resolution of lawsuits and the SEC investigation. As a result, it would be unwise and potentially very harmful to shareholders' interests to publicly air certain details of our ongoing work. I have just covered the key issues that I know are of importance to stakeholders. I've covered them as completely as I can under the circumstances, and I will not be able to elaborate further at this time. With that said, I welcome your questions. Otherwise, I would ask that those of you contemplating follow-up questions on these issues to please understand and respect our position on this matter. If questions are asked that have already been answered, I am going to have to move on to the next question so that we can address as many new topics as possible. Finally, I would like to thank all of you for listening to this presentation today. I especially want to thank Vari-L's shareholders and other stakeholders for their patience during what I know has been a very frustrating and difficult period. For those of you on the call who are long-time shareholders of Vari-L, we are very pleased that you are still with us and we will try to justify your faith in our future. And for all shareholders, customers and friends of Vari-L, we are committed to finishing what we started here and moving this Company forward. Operator, I will now open the call to questions. -----END PRIVACY-ENHANCED MESSAGE-----