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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2004
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________________ to ____________________________
Commission File Number: 0-25662

ANADIGICS, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)		 22-2582106
(I.R.S. Employer Identification No.)
141 Mt. Bethel Road, Warren, NJ
(Address of principal executive offices)

07059

(Zip Code)

908-668-5000
(Registrant's telephone number, including area code)
35 Technology Drive, Warren, NJ  07059
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes [x] No [ ]

The number of shares outstanding of the Registrant's common stock as of July 3, 2004 was 32,457,561.

INDEX

ANADIGICS, Inc.


Part I.
Financial Information
Item 1.
Financial Statements (unaudited)
 
Condensed consolidated balance sheets – July 3, 2004 and December 31, 2003
 
Condensed consolidated statements of operations and comprehensive loss – Three and six months ended July 3, 2004 and June 28, 2003.
 
Condensed consolidated statements of cash flows – Six months ended July 3, 2004 and June 28, 2003.
 
Notes to condensed consolidated financial statements – July 3, 2004.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II.
Other Information
Item 1.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits and Reports on Form 8-K
 
Signatures



 
PART I - FINANCIAL STATEMENTS

ITEM 1.    .    FINANCIAL STATEMENTS (UNAUDITED)

ANADIGICS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

 
  
July 3,
2004
December 31, 2003
 
     (unaudited)     
(Note 1
)
Assets
   
 
    
 
  
Current assets:
   
 
    
 
  
  
 
 
    Cash and cash equivalents
 
$
19,313
 
$
18,525
 
    Marketable securities
   
41,680
   
54,130
 
    Accounts receivable
   
13,029
   
12,074
 
    Inventories
   
13,960
   
10,321
 
    Prepaid expenses and other current assets
   
4,231
   
3,243
 
  
 
 
Total current assets
   
92,213
   
98,293
 
  
 
 
Marketable securities
   
39,767
   
48,975
 
  
 
 
Property and equipment:
   
 
    
 
  
    Equipment and furniture
   
132,875
   
130,815
 
    Leasehold improvements
   
38,437
   
38,437
 
    Projects in process
   
1,466
   
1,609
 
 
    
172,778
   
170,861
 
  
 
 
    Less accumulated depreciation and amortization
   
(124,117
)
 
(115,619
)
 
 
 
 
    
48,661
   
55,242
 
  
 
 
Goodwill and other intangibles, net of amortization
   
6,394
   
1,788
 
Other assets
   
3,055
   
3,600
 
  
 
 
Total assets
 
$
190,090
 
$
207,898
 
  
 
 
Liabilities and stockholders equity
   
 
    
 
  
  
 
 
Current liabilities:
   
 
    
 
  
    Accounts payable
 
$
10,690
 
$
9,497
 
    Accrued liabilities
   
6,374
   
5,618
 
    Accrued restructuring costs
   
1,281
   
1,994
 
    Capital lease obligations
   
49
   
84
 
  
 
 
Total current liabilities
   
18,394
   
17,193
 
  
 
 
Long-term debt
   
66,700
   
66,700
 
Other long-term liabilities
   
3,079
   
2,959
 
 
    
 
    
 
  
Commitments and contingencies
   
 
    
 
  
  
 
 
Stockholders equity:
   
 
    
 
  
    Common stock, $0.01 par value, 144,000,000 shares authorized, 32,457,561 and 31,225,888 issued and outstanding at July 3, 2004 and December 31, 2003
   
325
   
312
 
    Additional paid-in capital
   
341,360
   
335,477
 
    Accumulated deficit
   
(239,364
)
 
(214,881
)
    Accumulated other comprehensive (loss) income
   
(404
)
 
138
 
  
 
 
Total stockholders’ equity
   
101,917
   
121,046
 
  
 
 
Total liabilities and stockholders’ equity
 
$
190,090
 
$
207,898
 


See accompanying notes.
 

 
ANADIGICS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 
  
Three Months Ended
Six Months Ended
 
  
July 3, 2004
June 28, 2003
July 3, 2004
June 28, 2003
 
  
(unaudited)
(unaudited)
 
Net sales
 
$
22,687
 
$
18,037
 
$
43,882
 
$
34,124
 
Cost of sales
   
19,207
   
17,250
   
38,382
   
33,329
 
Gross profit
   
3,480
   
787
   
5,500
   
795
 
Research and development expenses
   
8,866
   
8,280
   
17,768
   
15,437
 
Selling and administrative expenses
   
6,099
   
4,521
   
11,889
   
9,039
 
Restructuring and other charges
   
-
   
-
   
-
   
625
 
Purchased in-process R&D
   
-
   
1,690
   
-
   
1,690
 
Operating loss
   
(11,485
)
 
(13,704
)
 
(24,157
)
 
(25,996
)
Interest income
   
551
   
875
   
1,210
   
1,888
 
Interest expense
   
(940
)
 
(940
)
 
(1,880
)
 
(1,881
)
Other income (expense)
   
143
   
(2
)
 
344
   
(23
)
Net loss
 
$
(11,731
)
$
(13,771
)
$
(24,483
)
$
(26,012
)
 
 
 
 
 
Net loss per share
 
$
(0.36
)
$
(0.45
)
$
(0.77
)
$
(0.85
)
 
 
 
 
 
Weighted average common shares outstanding
   
32,404,755
   
30,674,033
   
31,984,714
   
30,674,033
 




CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS)

 
  
Three months ended
Six months ended
 
  
July 3, 2004
June 28, 2003
July 3, 2004
June 28, 2003
(unaudited)
   
(unaudited)
 
Net loss
 
$
(11,731
)
$
(13,771
)
$
(24,483
)
$
(26,012
)
Unrealized loss on marketable securities
   
 
(522
)
 
 
(98
)
 
 
(507
)
 
(127
)
Foreign currency translation adjustment
   
(1
)
 
7
   
(16
)
 
13
 
Reclassification adjustment:
   
 
    
 
    
 
    
 
  
Net realized loss (gain) previously in other comprehensive income
   
-
   
3
   
(19
)
 
15
 
Comprehensive loss
 
$
(12,254
)
$
(13,859
)
$
(25,025
)
$
(26,111
)



See accompanying notes.

ANADIGICS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

 
  
Six months ended
 
  
July 3, 2004
June 28, 2003
 
  

(unaudited) 

CASH FLOWS FROM OPERATING ACTIVITITIES
   
 
    
 
  
Net loss
 
$
(24,483
)
$
(26,012
)
Adjustments to reconcile net loss to net cash used in operating activities:
   
 
    
 
  
Depreciation
   
8,375
   
9,361
 
Amortization
   
780
   
631
 
Amortization of premium on marketable securities
   
1,166
   
1,146
 
Purchased in-process R&D
   
-
   
1,690
 
Loss on disposal of equipment
   
-
   
27
 
Changes in operating assets and liabilities:
   
 
    
 
  
Accounts receivable
   
(955
)
 
(851
)
Inventory
   
(3,639
)
 
618
 
Prepaid expenses and other assets
   
(986
)
 
836
 
Accounts payable
   
1,193
   
(1,291
)
Accrued liabilities and other liabilities
   
290
   
(405
)
 
 
 
Net cash used in operating activities
   
(18,259
)
 
(14,250
)
 
    
 
    
 
  
CASH FLOWS FROM INVESTING ACTIVITIES
   
 
    
 
  
Purchases of plant and equipment
   
(2,058
)
 
(1,912
)
Business acquisitions
   
(55
)
 
(2,933
)
Purchases of marketable securities
   
(17,396
)
 
(58,205
)
Proceeds from sale of marketable securities
   
37,362
   
77,993
 
  
 
 
Net cash provided by investing activities
   
17,853
   
14,943
 
  
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
   
 
    
 
  
Payment of capital lease obligations
   
(35
)
 
(44
)
Issuance of common stock
   
1,229
   
-
 
  
 
 
Net cash provided by (used in) financing activities
   
1,194
   
(44
)
 
 
 
Net increase in cash and cash equivalents
   
788
   
649
 
Cash and cash equivalents at beginning of period
   
18,525
   
24,343
 
 
    
 
    
 
  
Cash and cash equivalents at end of period
 
$
19,313
 
$
24,992
 



See accompanying notes.

 

ANADIGICS, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – JULY 3, 2004

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended July 3, 2004 are not necessarily indicative of the results that may be expected for the year ending Decembe r 31, 2004.

The condensed, consolidated balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

The condensed, consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

INCOME TAXES

The Company maintains a full valuation allowance on its deferred tax assets. Accordingly, the Company has not recorded a benefit for income taxes.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 is the interpretation of Accounting Research Bulletin No. 51 Consolidated Financial Statements, which addresses consolidation by business enterprises of variable interest entities. FIN 46 is effective immediately for all variable interest entities created after January 31, 2003 and effective for periods ending after March 15, 2004 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have any impact on the Company’s financial position or results of operations.

STOCK BASED COMPENSATION
As permitted by FAS 123, the Company has elected to follow the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock option plans. Under APB 25, no compensation expense is recognized at the time of option grant if the exercise price of the Company’s employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net loss and loss per common share as if the Company had applied the fair value method to measure stock-based compensation, required under the disclosure provisions of FAS 123:

 
  
Three months ended
Six months ended
 
  
July 3, 2004
June 28, 2003
July 3, 2004
June 28, 2003
 
 
 
 
 
Net loss, as reported
 
$
(11,731
)
$
(13,771
)
$
(24,483
)
$
(26,012
)
Stock based compensation included in reported net loss
   
9
   
7
   
19
   
7
 
Stock based compensation expense under fair value reporting
   
(1,803
)
 
(1,781
)
 
(3,345
)
 
(3,678
)
Pro-forma net loss
 
$
(13,525
)
$
(15,545
)
$
(27,809
)
$
(29,683
)
 
 
 
 
 
Net loss per share
   
 
    
 
    
 
    
 
  
As reported
 
$
(0.36
)
$
(0.45
)
$
(0.77
)
$
(0.85
)
Pro-forma
 
$
(0.42
)
$
(0.51
)
$
(0.87
)
$
(0.97
)


WARRANTY

The Company provides, by a current charge to income, an amount it estimates, by examining historical returns and other information it deems critical, will be needed to cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in Accrued liabilities in the condensed consolidated balance sheets. Warranty reserve movements in the six months ended July 3, 2004 included $175 in actual charges and $147 in provisions resulting in the balance of $77 at July 3, 2004. Warranty reserve movements in the s ix months ended June 28, 2003 were $145 in actual charges and $(116) of provision reversals.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. BUSINESS ACQUISITIONS

On March 31, 2003, the Company acquired certain assets and liabilities of the WLAN power amplifier business of RF Solutions ("RFS"). The RFS acquisition was a strategic initiative that allows the Company to participate in the emerging and fast-growing WLAN market with a depth of experienced design personnel and cutting-edge products. The Company paid cash purchase consideration on March 31, 2003 of $2,800 and, pursuant to the terms of the acquisition agreement, issued 747,280 shares effective March 31, 2004, valued at $4,648 after RFS achieved certain revenue milestones. In addition, the Company incurred $217 in acquisition-related costs.

On October 14, 2003, the Company acquired certain assets of a CDMA wireless handset power amplifier developer, formerly named Tavanza, a wholly-owned subsidiary of Celeritek. The Company paid cash consideration of $1,000 and incurred $255 in acquisition-related costs.

The acquisitions were accounted for using the purchase method of accounting. The results of operations for RFS and Tavanza are included in the results of operations of the Company from the respective dates of purchase. There are no significant differences between the accounting policies of the Company and RFS or Tavanza.

The aggregate acquisition consideration of $8,920, after giving effect to the March 31, 2004 purchase consideration, were allocated to the assets acquired and liabilities assumed, based on their fair values as follows:
 
 
 
     Total  
Fair value of tangible assets    $  1,029  
Fair value of liabilities assumed      (527  )
In-process research and development    

 1,863

  
Process technology      210  
 Covenant-not-to-compete               175  
 Customer list      240  
 Goodwill       5,930  
 Total purchase price             $ 8,920  

The Company recorded a charge of $1,863 representing the fair value of certain acquired research and development projects relating to dual band, high gain and modules applications for Wireless LAN and certain passive-free power amplifier applications, in the case of Tavanza, that were determined to have not reached technological feasibility and to not have alternative future uses. The fair value of such projects was determined based on discounted net cash flows. These cash flows were based upon management’s estimates of future revenues and expected profitability of each technology. The rate used to discount these projected cash flows accounted for the time value of money, as well as the risks of realization of cash flows.

The following table reflects the changes in goodwill for the period from December 31, 2003 to July 3, 2004:

Balance at December 31, 2003             $1,227
Additions, primarily related to RFS share issuance    4,703
                ------
Balance at July 3, 2004             $5,930
  ======

The following unaudited pro-forma consolidated financial information reflects the results of operations for the three and six months ended June 28, 2003, as if the acquisitions of RFS and Tavanza had occurred on December 31, 2002 and after giving effect to purchase accounting adjustments. The charge for purchased in-process research and development is not included in the pro-forma results because it is non-recurring.

 
  
Three months ended
Six months
ended
 
    

 June 28, 2003

 
  
 
 
Pro-forma revenue
 
$
18,037
 
$
34,483
 
Pro-forma net loss
   
(12,583
)
 
(26,792
)
 
 
 
Pro-forma net loss per share
 
$
(0.41
)
$
(0.87
)


These pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on December 31, 2002. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations.

3.    INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following:

 
  
July 3, 2004
December 31, 2003
 
 
 
Raw materials
 
$
3,383
 
$
3,302
 
Work in process
   
9,524
   
7,200
 
Finished goods
   
4,981
   
4,564
 
  
 
 
Reserves
   
(3,928
)
 
(4,745
)
 
 
 
Total
 
$
13,960
 
$
10,321
 


4.    LOSS PER SHARE

The reconciliation of shares used to calculate loss per share consists of the following:

 
  
Three months ended
Six months ended
 
    
July 3, 2004 

 

 
June 28, 2003

 

 
July 3,
 2004

 

 
June 28, 2003
 
  
 
 
 
 
Weighted average common shares outstanding used to calculate basic loss per share
   
32,404,755
   
30,674,033
   
31,984,714
   
30,674,033
 
Net effect of dilutive securities based upon the treasury stock method using an average market price
   
-*
   
-*
   
-*
   
-*
 
Weighted average common and dilutive securities outstanding used to calculate diluted loss per share
   
32,404,755
   
30,674,033
   
31,984,714
   
30,674,033
 



* Any dilution arising from the Company's outstanding stock options or shares potentially issuable
upon conversion of the Convertible notes are not included as their effect is anti-dilutive.


On July 3, 2003, the Company announced a voluntary stock option exchange program for employees and officers. Directors of the Company were not eligible for the exchange program. Pursuant to the terms and conditions of the offer, which expired on August 4, 2003, the Company accepted for cancellation options to purchase 1,673,931 shares of common stock having a weighted average exercise price of $19.49. On February 6, 2004, participating employees were issued 551,564 stock options, under this one for three-exchange program, for the cancelled options. The new options have an exercise price equal to $7.27, which represented the fair market value at the date of grant and will fully vest after one year.

5.  REVENUE SOURCES

The Company classifies its revenues based upon the end application of the product in which its integrated circuits are used. Net sales by end application are regularly reviewed by the chief operating decision maker and are as follows:

 
  
Three months ended
Six months ended
 
     July 3, 2004     
June 28, 2003
   
July 3, 2004
   
June 28, 2003
 
  
 
 
 
 
Broadband
 
$
12,173
 
$
9,038
 
$
22,091
 
$
16,550
 
Wireless
   
10,514
   
8,999
   
21,791
   
17,574
 
  
 
 
 
 
Total
 
$
22,687
 
$
18,037
 
$
43,882
 
$
34,124
 


The Company primarily sells to three geographic regions: Asia, U.S.A. and Canada, and Other. The geographic region is determined by the destination of the shipped product. Net sales to each of the three geographic regions are as follows:

 
  
Three months ended  
Six months ended
 
    
July 3, 2004  

 

 
June 28, 2003

 

 
July 3,
 2004

 

 
June 28, 2003
 
  
 
 
 
 
Asia
 
$
12,098
 
$
6,261
 
$
24,315
 
$
10,980
 
USA and Canada
   
9,131
   
10,369
   
16,526
   
20,833
 
Other
   
1,458
   
1,407
   
3,041
   
2,311
 
  
 
 
 
 
Total
 
$
22,687
 
$
18,037
 
$
43,882
 
$
34,124
 

 
6. RESTRUCTURING AND OTHER CHARGES

During the first quarter of 2003, the Company recorded restructuring charges of $625 pertaining to severance and related benefits of workforce reductions undertaken in the quarter. The workforce reductions eliminated approximately 19 operations and administrative positions.

For the six months ended July 3, 2004, the net change of $713 in accrued restructuring costs principally represents cash payments of obligations under property leases.

7. LONG-TERM DEBT

On November 27, 2001, the Company issued $100,000 aggregate principal amount of 5% Convertible Senior Notes ("Convertible notes" or "notes") due November 15, 2006. During the third quarter of 2002, the Company repurchased and retired $33,300 principal amount of the Convertible notes. The outstanding notes are convertible into shares of common stock at any time prior to their maturity or redemption by the Company. The notes are convertible into shares of common stock at a rate of 47.619 shares for each $1,000 principal amount (convertible at a price of $21.00 per share), subject to adjustment. Interest is payable semi-annually on May 15 and November 15 of each year.

8. OTHER INCOME (EXPENSE)

Other income (expense) for the three months ended July 3, 2004 is principally comprised of income from a $368 gain on the sale of securities and a $490 settlement received in connection with a claim against a former supplier, partially offset by a charge of $750 relating to the settlement of a contractual claim.



ANADIGICS, Inc.

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

RESULTS OF OPERATIONS

The following table sets forth unaudited condensed consolidated statements of operations data as a percent of net sales for the periods presented:

 
  
Three months ended
Six months ended
 
    
July 3, 2004 

 

 
June 28, 2003

 

 
July 3,
 2004

 

 
June 28, 2003
 
  
 
 
 
 
Net sales
   
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of sales
   
84.6
   
95.6
   
87.5
   
97.7
 
Gross profit
   
15.4
   
4.4
   
12.5
   
2.3
 
Research and development expenses
   
39.1
   
45.9
   
40.5
   
45.2
 
Selling and administrative expenses
   
26.9
   
25.1
   
27.1
   
26.5
 
Restructuring and other charges
   
-
   
-
   
-
   
1.8
 
Purchased in-process R&D
   
-
   
9.4
   
-
   
5.0
 
Operating loss
   
(50.6
)
 
(76.0
)
 
(55.1
)
 
(76.2
)
 
 
 
 
 
Interest income
   
2.4
   
4.8
   
2.8
   
5.5
 
Interest expense
   
(4.1
)
 
(5.2
)
 
(4.3
)
 
(5.5
)
Other income (expense)
   
0.6
   
-
   
0.8
   
-
 
  
 
 
 
 
Net loss
   
(51.7
%)
 
(76.4
%)
 
(55.8
%)
 
(76.2
%)



NET SALES. Net sales increased 25.8% during the second quarter of 2004 to $22.7 million from $18.0 million in the second quarter of 2003. For the six months ended July 3, 2004, net sales were $43.9 million, a 28.6% increase from net sales of $34.1 million for the six months ended June 28, 2003.
Sales of integrated circuits for Wireless applications increased 16.8% during the second quarter of 2004 to $10.5 million from $9.0 million in the second quarter of 2003. For the six months ended July 3, 2004, net sales of integrated circuits for Wireless applications increased 24.0% to $21.8 million from $17.6 million in the six-month period ended June 28, 2003. The increase in sales of integrated circuits for Wireless applications during the three and six months ended July 3, 2004 was primarily due to increased customer demand for our GSM products.

Sales of integrated circuits for Broadband applications increased 34.7% during the second quarter of 2004 to $12.2 million from $9.0 million in the second quarter of 2003. For the six months ended July 3, 2004, net sales of integrated circuits for Broadband applications increased 33.5% to $22.1 million from $16.5 million in the six-month period ended June 28, 2003. The increase in sales in the three and six month periods ended July 3, 2004 was primarily due to increased customer demand for both our Wireless LAN and cable infrastructure products. For the six month period ended July 3, 2004, sales further reflect an increase in Wireless LAN sales following the acquisition of RF Solutions’ ("RFS") power amplifier business on March 31, 2003.

Geographically, sales during the three and six months ended July 3, 2004 increased in the Asia region primarily due to the Company's expanded product distribution of WLAN and Wireless power amplifier module and switch products.

Generally, selling prices for same product sales were lower during the second quarter of 2004 compared to the second quarter of 2003.

GROSS MARGIN. Gross margin during the second quarter of 2004 increased to 15.4% from 4.4% in the second quarter of 2003. For the six months ended July 3, 2004, gross margin increased to 12.5% from 2.3% for the six months ended June 28, 2003. The increase in gross margin in the three and six month periods ended July 3, 2004 was primarily due to the increase in revenues, as well as higher production levels and the consequent absorption of fixed costs over higher unit volume.

RESEARCH AND DEVELOPMENT. Company sponsored research and development expense increased 7.1% during the second quarter of 2004 to $8.9 million from $8.3 million during the second quarter of 2003. The increase in expense in the second quarter of 2004 was due to certain compensation costs associated with operating expense reduction initiatives which eliminated redundant staffing positions. Company sponsored research and development expense for the six months ended July 3, 2004 increased 15.1% to $17.8 million from $15.4 during the six-month period ended June 28, 2003. The increase in the six month period ended July 3, 2004 was primarily attributable to increased headcount and expense associated with the RFS and Tavanza acquisitions as well as the aforementioned additional compensation costs associated with operating expense reduction initiatives undertaken in the second quarter.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 34.9% during the second quarter of 2004 to $6.1 million from $4.5 million in the second quarter of 2003. Selling and administrative expenses increased 31.5% during the six-month period ended July 3, 2004 to $11.9 million from $9.0 million in the six-month period ended June 28, 2003. The increases in selling and administrative expenses in the three and six months ended July 3, 2004 are primarily due to increased sales headcount and expenses associated with our sales expansion efforts, including new application centers in Taiwan and Korea, in addition to certain legal fees in connection with the settlement of a contractual claim.

RESTRUCTURING AND OTHER CHARGES. During the first quarter of 2003, we recorded restructuring charges of $0.6 million pertaining to severance and related benefits of workforce reductions undertaken in that quarter. The workforce reductions eliminated approximately 19 positions in operations and administration.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. The Company expensed purchased in-process research and development costs of $1.7 million as a result of the RFS acquisition on March 31, 2003. The charge represents the fair value of certain acquired research and development projects that were determined to have not reached technological feasibility and do not have alternative future uses.

INTEREST INCOME. Interest income decreased 37.0% to $0.6 million during the second quarter of 2004 from $0.9 million during the second quarter of 2003. For the six months ended July 3, 2004, interest income decreased 35.9% to $1.2 million from $1.9 million in the six-month period ended June 28, 2003. The decreases were primarily due to lower invested funds and were compounded by lower interest rates.

INTEREST EXPENSE. Interest expense was flat at $0.9 million and $1.9 million during the three and six months of both 2004 and 2003. The interest relates to the $66.7 million outstanding balance of our 5% Convertible notes.

OTHER INCOME (EXPENSE). Other income (expense) for the three months ended July 3, 2004 is principally comprised of income from a $0.4 million gain on the sale of securities and a $0.5 million settlement received in connection with a claim against a former supplier, partially offset by a charge of $0.8 million relating to the settlement of a contractual claim.

LIQUIDITY AND CAPITAL RESOURCES

As of July 3, 2004, we had $19.3 million in cash and cash equivalents and $81.5 million in marketable securities. We had $66.7 million of interest-bearing debt outstanding as of July 3, 2004.
Operating activities used $18.3 million in cash during the six-month period ended July 3, 2004. Investing activities, which principally consisted of net sales of marketable securities of $20.0 million, partially offset by purchases of equipment of $2.1 million, provided $17.9 million of cash during the six-month period ended July 3, 2004. Financing activities primarily consisted of share issuances for employee stock option exercises and provided $1.2 million of cash during the six months ended July 3, 2004.

As of July 3, 2004, we had purchase commitments of approximately $0.8 million for equipment, furniture and leasehold improvements.

We believe that our existing sources of capital, including our existing cash and marketable securities, will be adequate to satisfy operational needs and anticipated capital needs for the next twelve months and beyond. Our anticipated capital needs may include acquisitions of complimentary businesses or technologies, or investments in other companies or repurchasing our outstanding debt or equity. However, we may elect to finance all or part of our future capital requirements through additional equity or debt financing. There can be no assurance that such additional financing would be available on satisfactory terms.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 is the interpretation of Accounting Research Bulletin No. 51 Consolidated Financial Statements, which addresses consolidation by business enterprises of variable interest entities. FIN 46 is effective immediately for all variable interest entities created after January 31, 2003 and effective for fiscal years ending after March 15, 2004 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have any impact on the Company’s financial position or results of operations.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains projections and other forward-looking statements (as that term is defined in the Securities Exchange Act of 1934, as amended). These projections and forward-looking statements reflect the Company’s current views with respect to future events and financial performance and can generally be identified as such because the context of the statement will include words such as "believe", "anticipate", "expect", or words of similar import. Similarly, statements that describe our future plans, objectives, estimates or goals are forward-looking statements. No assurances can be given, however, that these events will occur or that these projections will be achieved and actual results and developments could differ materially from those projected as a result o f certain factors. Important factors that could cause actual results and developments to be materially different from those expressed or implied by such projections and forward-looking statements include those factors detailed from time to time in our reports filed with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2003, and those discussed elsewhere herein.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk has not changed significantly for the risks disclosed in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.


ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of certain members of the Company’s management, including the President and Chief Executive Officer and Chief Financial Officer, the Company completed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended, (the "Exchange Act")). Based on this evaluation, the Company’s President and Chief Executive Officer and Chief Financial Officer believe that the disclosure controls and procedures were effective as of July 3, 2004.

There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


 
ANADIGICS, Inc.

PART II - OTHER INFORMATION

ITEM  1.  LEGAL PROCEEDINGS

ANADIGICS is a party to litigation arising in the ordinary course of the operation of its business. We believe that the ultimate resolution of such litigation should not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

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

The Company held its annual meeting of stockholders on May 20, 2004 at which the Company’s stockholders voted on:
The two matters listed above were voted upon and approved by the shareholders of the Company as follows:

ITEM  6.  EXHIBITS AND REPORTS ON FORM 8-K


10.1 Form of "Notice of Award of Restricted Stock and Agreement" pursuant to the 1995 Long Term Incentive and Share Award Plan and the 1997 Long Term Incentive and Share Award Plan for Employees

10.2 Form of "Notice of Grant of Stock Options and Option Agreement" (one-year vesting) pursuant to the 1995 Long Term Incentive and Share Award Plan and the 1997 Long Term Incentive and Share Award Plan for Employees

10.3 Form of "Notice of Grant of Stock Options and Option Agreement" (three-year vesting) pursuant to the 1995 Long Term Incentive and Share Award Plan and the 1997 Long Term Incentive and Share Award Plan for Employees
31.1 Rule 13a-14(a)/15d-14(a) Certification of Bami Bastani, President and Chief Executive Officer of ANADIGICS, Inc.

31.2 Rule 13a-14(a)/15d-14(a) Certification of Thomas C. Shields, Senior Vice President and Chief Financial Officer of ANADIGICS, Inc.

32.1 Section 1350 Certification of Bami Bastani, President and Chief Executive Officer of ANADIGICS, Inc.

32.2 Section 1350 Certification of Thomas C. Shields, Senior Vice President and Chief Financial Officer of ANADIGICS, Inc.


On April 26, 2004, the Company furnished on Form 8-K a press release announcing the Company’s financial results for its first quarter of 2004.
 
 
 
 
SIGNATURES

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

           ANADIGICS, INC.


By:
/s/ Thomas C. Shields
 
Thomas C. Shields
 
Senior Vice President
 
and Chief Financial Officer



Dated: August 2, 2004




 
Exhibit 10.1
 
ANADIGICS Inc.
ID: [ ]
 
141 Mt Bethel Road
Warren, NJ  07059
 
Form of Notice of Award of Restricted Stock  And Agreement
                             
 
[Recipient]     
Award Number:
Plan:
ID:
141 Mt Bethel Road                        
Warren, NJ 07059                     

Effective [ ], you have been awarded [ ] shares of Restricted Stock of ANADIGICS, Inc. (the Company) stock at $[ ] per share.

The total value of the share award is $[ ].

The shares will become fully vested and unrestricted one year following the award date.



By your signature and the Company’s signature below, you and the Company agree that this award is granted under and governed by the terms and conditions of the Company’s [1995 Long Term Incentive and Share Award Plan or the 1997 Long Term Incentive and Share Award Plan for Employees] as amended and this Agreement, all of which are attached and made part of this document.



ANADIGICS, Inc.                  Date



[Recipient]                         Date




Exhibit 10.2
 
ANADIGICS Inc.
ID: [ ]
 
141 Mt Bethel Road
Warren, NJ  07059
 
Form of Notice of Award of Restricted Stock  And Agreement
                             
 
[Recipient]     
Award Number:
Plan:
ID:
141 Mt Bethel Road                        
Warren, NJ 07059 

 
Effective [ ], you have been granted a Non-Qualified Stock Option to buy [ ] shares of ANADIGICS, Inc. (the Company) stock at $[ ] per share.

The total option price of the shares granted is $[ ].

Options will become fully vested one year from the grant date and expire ten years after the grant date.




By your signature and the Company’s signature below, you and the Company agree that this award is granted under and governed by the terms and conditions of the Company’s [1995 Long Term Incentive and Share Award Plan or the 1997 Long Term Incentive and Share Award Plan for Employees] as amended and this Agreement, all of which are attached and made part of this document.


ANADIGICS, Inc.                  Date



[Recipient]                         Date


 


Exhibit 10.3
 
ANADIGICS Inc.
ID: [ ]
 
141 Mt Bethel Road
Warren, NJ  07059
 
Form of Notice of Award of Restricted Stock  And Agreement
                             
 
[Recipient]     
Award Number:
Plan:
ID:
141 Mt Bethel Road                        
Warren, NJ 07059 

 
Effective [ ], you have been granted a Non-Qualified Stock Option to buy [ ] shares of ANADIGICS, Inc. (the Company) stock at $[ ] per share.

The total option price of the shares granted is $[ ].


Options will vest as follows: one-third will become vested one year from the grant date, the remaining two-thirds will vest one-eighth per quarter over the next eight three-month periods. The grant will expire ten years after the grant date.

 
By your signature and the Company’s signature below, you and the Company agree that this award is granted under and governed by the terms and conditions of the Company’s [1995 Long Term Incentive and Share Award Plan or the 1997 Long Term Incentive and Share Award Plan for Employees] as amended and this Agreement, all of which are attached and made part of this document.


ANADIGICS, Inc.                  Date



[Recipient]                         Date



Exhibit 31.1


CERTIFICATION

I, Bami Bastani, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of ANADIGICS, Inc.;

  1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  1. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:





  1. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):





Date    :    August 2, 2004                                                 ________________________________
By:
/s/ Bami Bastani
 
Bami Bastani
 
President and
 
Chief Executive Officer


 


Exhibit 31.2


CERTIFICATION

I, Thomas Shields, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of ANADIGICS, Inc.;

  1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  1. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:





  1. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  • All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date    :    August 2, 2004        
By:
/s/ Thomas C. Shields
 
Thomas C. Shields
 
Senior Vice President
 
and Chief Financial Officer



 


Exhibit 32.1

CERTIFICATION

The undersigned, Bami Bastani, President and Chief Executive Officer of ANADIGICS, Inc. (the "Company") hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended July 3, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: August 2, 2004    
By:
/s/ Bami Bastani
 
Bami Bastani
 
President and
 
Chief Executive Officer

This certification shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ANADIGICS, Inc. and will be retained by ANADIGICS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.



                                               Exhibit 32.2

CERTIFICATION

The undersigned, Thomas C. Shields, Senior Vice President and Chief Financial Officer of ANADIGICS, Inc. (the "Company") hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended July 3, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 2, 2004    
By:
/s/ Thomas C. Shields
 
Thomas C. Shields
 
Senior Vice President
 
and Chief Financial Officer

This certification shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ANADIGICS, Inc. and will be retained by ANADIGICS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.