Westell Technologies 10-Q 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXCHANGE ACT OF 1934
Commission File Number 0-27266
Westell Technologies, Inc.
(Exact name of registrant as specified in its charter)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuers classes of common stock as of October 24, 2005:
Class A Common Stock, $0.01 Par Value 55,051,057 shares
Class B Common Stock, $0.01 Par Value 14,741,872 shares
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Safe Harbor Statement
Certain statements contained in this Quarterly Report of Form 10-Q regarding matters that are not historical facts or that contain the words believe, expect, intend, anticipate or derivatives thereof and other words of similar meaning, are forward-looking statements. Such forward-looking statements include risks and uncertainties, and actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed under Risk Factors set forth in Westell Technologies, Inc.s Annual Report on Form 10-K for the fiscal year ended March 31, 2005. Our actual results may differ from these forward-looking statements. Westell Technologies, Inc. undertakes no obligation to publicly update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.
LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these Consolidated Financial Statements.
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these Consolidated Financial Statements
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended March 31, 2005.
In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Companys consolidated financial position and the results of operations and cash flows at September 30, 2005 and for all periods presented. The results of operations for the three and six month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2006 ("fiscal year 2006").
Certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation.
Note 2. Computation of Income Per Share
The computation of basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The following table sets forth the computation of basic and diluted earnings per share:
Options to purchase 5,025,588 and 3,823,723 shares of common stock for the three months ended September 30, 2005 and September 30, 2004, respectively, and options to purchase 4,723,041 and 2,632,891 shares of common stock for the six months ended September 30, 2005 and September 30, 2004, respectively, were not included in the computation of diluted shares because the options exercise prices were greater than the average market price of the common shares.
Note 3. Restructuring Charge
The Company recognized a restructuring expense of $2.6 million in fiscal year 2003. This charge included personnel and facility costs related primarily to the closing of a Conference Plus, Inc. facility and personnel and facility charges at Westell Limited. Approximately 25 employees were impacted by these reorganizations. In fiscal year 2005, the Company terminated a lease that was partially reserved for in the 2003 restructuring. This termination resulted in the reversal of $0.5 million of restructuring for facility costs. As of September 30, 2005, the Company paid approximately $2.1 million of these accrued restructuring costs leaving a balance of $35,000.
The Company's restructuring accrual balances, all of which are legal, facility and other costs are presented in the following table:
Note 4. Interim Segment Information
Westells reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and market strategies. They consist of:
Performance of these segments is evaluated utilizing revenue, operating income and total asset measurements. The accounting policies of the segments are the same as those for Westell Technologies, Inc. Segment information for the three-month and six periods ended September 30, 2004 and 2005, are as follows:
Reconciliation of Operating income for the reportable segments to income before income taxes and minority interest:
Note 5. Comprehensive Income
The disclosure of comprehensive income, which encompasses net income and foreign currency translation adjustments, is as follows:
Note 6. Inventories
The components of inventories are as follows:
Note 7. Stock Options
The Company has elected to follow Accounting Principle Board Opinion No. 25 Accounting for Stock Issued to Employees (APB No. 25) and related interpretations in accounting for its employee stock options and awards. Under APB No. 25, employee stock options are valued using the intrinsic method, and no compensation expense is recognized since the exercise price of the options equals or is greater than the fair market value of the underlying stock as of the date of the grant. The following table shows the effect on net income and income per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock Based Compensation.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in fiscal 2005 and 2006:
Note 8. Warranty Reserve
Most of the Companys products carry a limited warranty ranging from one to seven years. The specific terms and conditions of those warranties vary depending upon the product sold. Factors that enter into the estimate of the Companys warranty reserve include the number of units shipped historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The Company reports warranty reserve as both current and long term liabilities. The following table presents the changes in the Companys product warranty reserve:
Note 9. Deferred Compensation
The Company has a deferred compensation program with the Chief Executive Officer that is funded through a rabbi trust. The rabbi trust qualifies as a Variable Interest Entity under FASB Interpretation No. 46, Consolidation of Variable Interest Entities and as such is consolidated in the Company's financial statements. Approximately $1.3 million of cash has been funded into the rabbi trust as of September 30, 2005 and the Company has recorded a $1.7 million short term liability to accrue for the deferred compensation liability. The rabbi trust is subject to the creditors of the Company. All amounts deferred under this compensation program vest on the earlier of March 31, 2006, the executive's death, permanent disability or a change in control of the Company.
Note 10. Guarantee
In conjunction with a sale of product lines and specified fixed assets in fiscal year 2005, the Company provided an unconditional guarantee in the amount of $1.62 million relating to a 10 year term note payable to the lender that financed the transaction. This guarantee will stay in place until the note is paid in full. The Company must pay all amounts due under the note payable upon demand from the lender. In fiscal year 2005, the Company assessed its obligation under this guarantee pursuant to the provisions of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" and recorded a $300,000 liability for the value of the guarantee. The Company will evaluate the liability periodically and adjust the value as required. No adjustments in the liability have been made to date.
Note 11. New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment (SFAS 123R). Under this new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic value method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense over the service period. SFAS 123R allows for several alternative transition methods, but the Company has not yet determined the transition method it will use. On April 14, 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the required effective date of SFAS 123R for registrants to the beginning of the first fiscal year beginning after June 15, 2005. The Company expects to adopt this statement in the first quarter of its 2007 fiscal year. The adoption of SFAS 123R will have an impact on the Companys results of operations, although it will have no incremental impact on the Companys overall financial position.
In January 2005, the Financial Accounting Standards Board (FASB) issued revised Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS 151 will be effective for the Company beginning in fiscal year 2007. The impact of SFAS 151 is not expected to have a significant impact to the consolidated financial statements.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The Company is comprised of two segments: telecommunications equipment manufacturer and teleconference services bureau. The equipment manufacturing segment consists of two product lines: Customer Networking Equipment (CNE) products and Network Service Access (NSA) products. The CNE product line includes broadband and digital subscriber line (DSL) technology products that allow the transport of high-speed data over the local loop and enable telecommunications companies to provide broadband services over existing copper infrastructure. The Companys NSA product line consists of manageable and non-manageable T1 transmission equipment, associated mountings and special service plugs for the legacy copper telephone network. Westell realizes the majority of its revenues from the North American market.
The Companys teleconference service segment is comprised of a 91.5% owned subsidiary, Conference Plus, Inc. Conference Plus provides audio, video, and web conferencing services. Businesses and individuals use these services to hold voice, video or web conferences with many people at the same time. Conference Plus sells its services directly to large customers, including Fortune 1000 companies, and serves other customers indirectly through its private label reseller program.
The equipment manufacturing segment of the Companys business consists of two product lines, offering a broad range of products that facilitate the broadband transmission of high-speed digital and analog data between a telephone company's central office and end-user customers. These two product lines are:
Below is a table that compares equipment and service revenues for the quarter and six months ended September 30, 2005 with the quarter and six months ended September 30, 2004 by product line.
The prices for the products within each market group vary based upon volume, customer specifications and other criteria and are subject to change due to competition among telecommunications manufacturers and service providers. Increasing competition, in terms of the number of entrants and their size, and increasing size of the Companys customers because of past mergers, continues to exert downward pressure on prices for the Company's products. The Company expects average selling prices on its CNE products to decline less than 20% in fiscal year 2006.
The Company's customer base is highly concentrated and comprised primarily of the Regional Bell Operating Companies (RBOCs), independent domestic local exchange carriers and public telephone administrations
located outside the U.S. Due to the stringent quality specifications of its customers and the regulated environment in which its customers operate, the Company must undergo lengthy approval and procurement processes prior to selling its products. Accordingly, the Company must make significant upfront investments in product and market development prior to actual commencement of sales of new products.
To remain competitive, the Company must continue to invest in new product development and invest in targeted sales and marketing efforts to cover new product lines. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change or otherwise, would have a material adverse effect on the Company's business and results of operations. The Company expects to continue to evaluate new product opportunities and engage in extensive research and development activities.
The Company is focusing on expanding its product offerings in the equipment segment from basic high speed broadband to more sophisticated applications such as networking, VoIP, wireless systems, video, multimedia distribution and control and user interfaces. This will require the Company to continue to invest in research and development and sales and marketing, which could adversely affect short-term results of operations. The Company is currently increasing research and development investment levels in the areas of video, VoIP and home networking applications. In view of the Companys reliance on the DSL market for revenues and the unpredictability of orders and pricing pressures, the Company believes that period-to-period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Revenues from NSA products such as NIUs have declined in recent years due primarily to reduced demand resulting from the migration by telephone companies to high-speed digital transmission products and the sale of Data Station Termination product lines that occurred in the first quarter of fiscal 2005.
In the equipment manufacturing segment, the Company is focusing on new product opportunities such as the DSL wireless gateway, voice/media-over-IP, and vertical applications. The Company has introduced new products including UltralineTM, ProLineTM, VersaLinkTM, TriLinkTM and TR-069 compliant software which are targeted at the home networking, small office/home office (SOHO) and small business markets. The Company continues to support the Verizon One product, a multimedia gateway. Revenue is expected from these products in fiscal year 2006 but a greater impact in fiscal year 2007 is anticipated. The Company has multiple evaluations and is entering trials for TriLinkTM, UltraLineTM and the Westell Media Gateway, a variation of the Verizon One product marketed outside of the United States. The Company continues to focus on expanding existing and new products into the international markets such as the Europe, Canada, Mexico and the Pacific Rim.
The Company expects DSL service promotions by several customers to generate stronger demand for ProLineTM modems in the December 31, 2005 quarter than it has experienced in the past. As a result of the stronger demand for ProLineTM modems, the demand for VersaLinkTM modems, which has a higher selling price than ProLineTM modems, has correspondingly declined. The Company believes that its customers continue to expect growth in the broadband market that the Companys CNE products serve. More users are subscribing to DSL services and some subscribers currently using DSL technology desire new DSL technology as the older modems cannot deliver newer applications that require higher broadband speed.
The NSA market continues to decline as the transition to high-speed digital service continues. The Company expects the NSA market to continue to decline 10% to 15% per year which could impact the Companys future revenue. The Companys goal is to increase market share in mountings and NIUs in the NSA market to offset in part reduced prices for NIUs and mountings. The Company is investing in new products in the NSA product line that complement the broadband market products such as PowerSpan that may support the deployment of VoIP in residential markets and partnership derived products such as VirtualEdgeTM.
Results of Operations
CNE revenue increased in the second quarter of fiscal 2006 compared to the same quarter in the prior year due to a 9.3% increase in the number of units shipped offset in part by a 1.7% decrease in selling price per unit. CNE revenue increased in the first half of fiscal 2006 compared to the same period in the prior year due to a 25.1% increase in the number of units shipped and a 5.5% increase in selling price per unit. The selling price per unit in fiscal year 2006 was positively impacted by the sale of VersaLinkTM product that has a higher selling price per unit than traditional modems. Traditional modems unit sales decreased 6.6% and 8.5% and the average selling price per unit decreased 9.9% and 11.4% in the second quarter and first half of fiscal 2006 compared to the same periods last year. NSA revenues decreased due to lower unit sales and lower selling prices per unit. In addition, NSA product revenue in the first half of fiscal 2005 included an $883,000 contractual settlement from a customer, $900,000 of non-recurring revenue and approximately $500,000 of revenue from a product line subsequently sold. The overall decrease in NSA product revenue is due to reduced demand resulting from the migration by telephone companies to high-speed digital transmission products. Revenue in the services segment increased due to an increase in minutes billed in the fiscal year 2006 offset in part by lower revenue per minute at the Companys Conference Plus, Inc. subsidiary.
Gross margin as a percent of sales in the equipment segment increased in the second quarter of fiscal 2006 compared to the same period in fiscal 2005 due primarily to non recurring expediting and other costs related to the introduction of the VersaLinkTM product in the second quarter of fiscal 2005. This more than offset the change in sales mix from higher margin NSA products to lower margin CNE products and a $600,000 charge taken for excess and obsolete inventory in the second fiscal quarter of 2006. The decrease in equipment margin percentage in the first half of fiscal 2006 when compared to the same period in fiscal 2005 was due primarily to a higher mix of lower margin CNE sales compared to NSA sales and a $600,000 charge taken for excess and obsolete inventory. In addition, the September 30, 2004 margin includes the $883,000 contractual settlement mentioned above. The Company believes continued pricing pressures and continued reduction of NSA sales affecting its equipment segment could continue to adversely impact margins in the future. The service margins decrease in the second quarter of fiscal 2006 compared to the same period in fiscal 2005 is due to increased overhead costs related to web outsourcing and credit card fees. The increase in services margin for the first half of fiscal 2006 compared to the same period in fiscal 2005 is primarily due to a reduction in long distance expense which more than offset increases in overhead expenses. It is the Companys strategy to offset the effects of these anticipated price reductions with continued cost reductions and introducing new products that have higher sales prices and margins.
The equipment segment sales and marketing expenses were relatively flat in the second quarter and first half of fiscal 2006 compared to the same periods last year. Sales and marketing expense increased in the Companys services segment in the second quarter and first half of fiscal 2006 compared to the same periods last year due primarily to more employees at Conference Plus. The Company believes that sales and marketing expense in the future will continue to be a significant percent of revenue and will be required to expand its product lines, bring new products to market and service customers.
Engineering expenses have increased in the second quarter and first half of fiscal year 2006 compared to the same periods in fiscal year 2005. The increase is due in part to recording a $900,000 credit for customer reimbursed engineering costs offset in part by a $300,000 expense for engineering period performed by a third party in fiscal year 2005. No such offset existed in fiscal year 2006. In addition, there were approximately 17% more engineering employees in fiscal year 2006 which resulted in $413,000 and $773,000 more salary expense in the second quarter and first half of fiscal 2006 compared to same periods in fiscal 2005. In fiscal year 2005, the Company capitalized $570,000 and $929,000 of engineering expenses as an intangible asset for TR-069 compliant software in the three and six months ended September 30, 2004. No costs were capitalized in the periods ended September 30, 2005. The Company believes that research and development expenses will increase in fiscal year 2006 as the Company continues to expand its product offerings. Areas of focus include VoIP, video, multimedia distribution and control, wireless systems, user interfaces and other broadband applications.
The decrease in general and administrative expense in the equipment segment for the second quarter of fiscal 2006 compared to the same periods in fiscal 2005 is due primarily to lower franchise tax expense. The increase in general and administrative expense in the equipment segment for the first half of fiscal 2006 compared to the same period in fiscal 2005 is due primarily to increased personnel costs in the UK entity offset in part by lower franchise tax expense. The decrease in general and administrative expense in the services segment for the second quarter and first half of fiscal 2006 period compared to the same periods in fiscal 2005 is due primarily to lower franchise tax expense.
Intangible amortization Intangible assets include product technology related to the March 17, 2000 acquisition of Teltrend Inc. Intangible amortization expense, which is attributed to the equipment segment, was $324,000 for the three months ended September 30, 2005 and 2004. Intangible amortization was $648,000 and $687,000 in the six months ended September 30, 2005 and 2004, respectively.
Other income, net Other income, net was $192,000 and $32,000 in the three months and $14,000 and $393,000 in the six months ended September 30, 2005 and 2004, respectively. The June 30, 2004 quarter contained income from a $400,000 legal settlement in the equipment segment. The remainder of other income, net was comprised of interest income earned on temporary cash investments and unrealized gains or losses on intercompany balances denominated in foreign currency.
Interest expense Interest expense decreased to $5,000 in the three months ended September 30, 2005 from $15,000 in the three months ended September 30, 2004 and decreased from $9,000 in the six months ended September 30, 2005 from $51,000 in the six months ended September 30, 2004. The decrease in interest expense during the current period is a result of lower net obligations outstanding during the period.
Income taxes The Company recorded $2.1 million and $4.8 million of income tax expense in the three and six month periods ended September 30, 2005 based on an estimated tax rate for the year of approximately 40% compared to $2.6 million and $4.8 million of income tax expense in the three and six month periods ended September 30, 2004.
Liquidity and Capital Resources
At September 30, 2005, the Company had $44.0 million in cash and cash equivalents consisting primarily of federal government agency instruments and the highest rated grade corporate commercial paper. At September 30, 2005, the Company had no amounts outstanding and $26.7 million available under its secured revolving credit facility.
On September 30, 2005, the Company had a revolving credit facility that provided for maximum borrowings of up to $30 million. The term on the credit facility expires on June 30, 2006. This asset based revolving credit facility provides for total borrowings based upon 85% of eligible accounts receivable and 30% of eligible inventory not to exceed $3.4 million as of September 30, 2005. The $3.4 million inventory limitation is reduced by $0.1 million on the first day of each month. Borrowings under this facility provide for the interest to be paid by the Company at the prime rate or LIBOR rate plus 2.5%. This credit facility contains covenants regarding EBITDA, tangible net worth and maximum capital expenditures. The Company was in compliance with these covenants on September 30, 2005 and expects to comply with these covenants for the term of the credit facility. The Company expects to replace the existing credit facility with a new facility with similar borrowing capacity prior to June 30, 2006.
In connection with the Companys management changes implemented at its subsidiary Conference Plus, Inc., in fiscal year 2003, the Company purchased 3.2% of the outstanding shares of common stock of Conference Plus, Inc. from former officers of Conference Plus, Inc. for approximately $1.6 million payable in cash and promissory notes. The purchase price was based upon the minority interest value set forth in an appraisal of Conference Plus, Inc. As of September 30, 2005, there was $67,000 outstanding under these notes.
The Companys operating activities generated cash of $18.7 million in the six month period ended September 30, 2005. Cash generated by operations resulted primarily from net income, non-cash depreciation and amortization in both segments and reductions in inventory offset in part by reductions in accounts payable and accrued expenses and in accrued compensation in the equipment segment
Capital expenditures for the six month period ended September 30, 2005 were $2.2 million. The capital expenditures in the equipment segment were $1.6 million and were primarily for machinery and research and development equipment purchases. The services segment capital expenditures were $565,000. These expenditures were primarily for computer and telecom bridge equipment.
At September 30, 2005 the Companys principle sources of liquidity were $44.0 million of cash and the secured revolving credit facility under which the Company was eligible to borrow up to an additional $26.7 million based upon receivables and inventory levels. Cash in excess of operating requirements, if any, will be invested on a short-term basis in federal government agency instruments and the highest rated grade commercial paper. The Company believes its future cash requirements for the next twelve months will be satisfied by cash generated from operations and its current credit facility.
The Company had deferred tax assets of approximately $66.6 million at September 30, 2005, consisting primarily of net operating loss carryforwards. The Company has recorded a valuation allowance reserve of $7.3 million to reduce the recorded net deferred tax asset to $59.3 million.
The net operating loss carryforwards begin to expire in 2012. Realization of deferred tax assets associated with the Companys future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration. The Company uses estimates of future taxable income and a tax planning strategy that involves the potential sale of the Companys 91.5% subsidiary Conference Plus, Inc. to assess the valuation allowance required against deferred tax assets. Management periodically evaluates the recoverability of the deferred tax assets and will adjust the valuation allowance against deferred tax assets accordingly.
Critical Accounting Policies
There were no changes in critical accounting policies during the quarter.
Westell is subject to certain market risks, including foreign currency and interest rates. The Company has foreign subsidiaries in the United Kingdom and Ireland that develop and sell products and services in those respective countries. The Company is exposed to potential gains and losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. Market risk is estimated as the potential decrease in pretax earnings resulting from a hypothetical decrease in the ending exchange rate of 10%. If such a decrease occurred, the Company would incur approximately $775,000 in additional other expense based on the ending intercompany balance outstanding at September 30, 2005. The Companys future primary exposure is to changes in exchange rates for the U.S. dollar versus the British pound and the Euro.
As of September 30, 2005, the balance in the cumulative foreign currency translation adjustment account, which is a component of stockholders equity, was an unrealized loss of $326,000.
The Company does not have significant exposure to interest rate risk related to its debt obligations, which are primarily U.S. Dollar denominated. The Companys market risk is the potential loss arising from adverse changes in interest rates. In the past 12 months the Companys debt consisted primarily of subordinated term notes. Market risk is estimated as the potential decrease in pretax earnings resulting from a hypothetical increase in interest rates of 10% (i.e. from approximately 6.3% to approximately 6.9%) average interest rate on the Companys debt. If such an increase occurred, the Company would incur approximately $2,000 per annum in additional interest expense based on the average debt borrowed during the twelve months ended September 30, 2005. The Company does not believe such additional expense is significant.
The Company does not currently use any derivative financial instruments relating to the risk associated with changes in foreign currency or interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report (the Evaluation Date). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Companys management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2005 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings
On September 22, 2005, the Company held its annual meeting of stockholders.
The following directors were re-elected to serve until the annual meeting of stockholders in 2006:
The stockholders voted to approve the proposal to ratify the appointment of Ernst &Young LLP, independent auditors as auditors for fiscal year ending March 31, 2006:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.