**SECURITIES
AND EXCHANGE COMMISSION**
 **** **WASHINGTON,
D.C. 20549**
 ****
 **FORM
10-K**
 
 (Mark
one)
 
 /X/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004.
 
 OR
 
 / /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
 Commission
File No. 0-25662
 
 ANADIGICS,
Inc.
 ------------------------------------------------------
 (Exact
name of registrant as specified in its charter)
 
 Delaware
22-2582106
 ---------------------------------
-----------------------------------
 (State
or other jurisdiction of (I.R.S. Employer Identification No.)
 incorporation
or organization)
  141
Mt. Bethel Road
 Warren,
New Jersey 07059
 ------------------------------------------
----------------------
 (Address
of principal executive offices) (Zip Code)
 
 (908)
668-5000
 ----------------------------------------------------
 (Registrant's
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, $0.01 par value
 
 The
above securities are registered on the NASDAQ National Market
 
 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated in Part III of this Form 10-K or any amendment to this Form 10-K.
/X/
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes /X/ No / /
 
 The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of July 3, 2004 was approximately $151 million, based upon the
closing sales price of the Registrant’s common stock as quoted on the NASDAQ
National Market on such date.
 
 The
number of shares outstanding of the Registrant's common stock as of December 31,
2004 was 33,072,438.
  Documents
incorporated by reference: Definitive proxy statement for the Registrant's 2005
annual meeting of shareholders (Part III).
 
  **TABLE
OF CONTENTS**
 
 PagePART
      IItem
      1:
    Business
    3Item
      2:
    Properties
    16Item
      3:
    Legal
      Proceedings
    17Item
      4:
    Submission
      of Matters to a Vote of Security Holders
    17PART
      IIItem
      5:
    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
    17Item
      6:
    Selected
      Financial Data
    17Item
      7:
    Management’s
      Discussion and Analysis of Financial Condition and
      Results
      of Operations
    18Item
      7A:
    Quantitative
      and Qualitative Disclosures About Market Risk
    24Item
      8:
    Financial
      Statements and Supplementary Data
    25Item
      9:
    Changes
      in and Disagreements with Accountants on Accounting and
      Financial
      Disclosure
    411tem
      9A:
    Controls
      and Procedures
    41Item
      9B:
    Other
      Information
    42PART
      IIIItem
      10:
    Directors
      and Executive Officers of the Registrant
    43Item
      11:
    Executive
      Compensation
    43Item
      12:
    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
    43Item
      13:
    Certain
      Relationships and Related Transactions
    43Item
      14:
    Principal
      Accountant Fees and Services
    43PART
      IVItem
      15:
    Exhibits,
      Financial Statement Schedules
    43
 
 PART
1
 
 ITEM
1. BUSINESS.
  **Background**
 
 **** ANADIGICS,
Inc. ("we" or the "Company") was incorporated in Delaware in 1984. Our corporate
headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, and
our telephone number at that address is 908-668-5000.
 
 We
design and manufacture radio frequency integrated circuit (RFIC) solutions for
the wireless and broadband communications markets. Our high frequency RFIC
products enable manufacturers of communications equipment to enhance overall
system performance and reduce manufacturing cost and time to market. Our
products are primarily included in cellular and personal communications service
(PCS) phones and base stations, wireless local area networks (WLANs), and cable
television infrastructure and set-top boxes. We offer a broad array of products
including amplifiers, switches, tuner integrated circuits, photodiodes and
integrated RF modules. These integrated circuits perform the transmit and
receive functions that are critical to the performance of wireless and broadband
communication systems.
 
 In
the wireless market, we focus on RFIC solutions for wireless communication
handset applications operating over various air interface standards, including
Code Division Multiple Access (CDMA), Global System for Mobile communication
(GSM), Wideband CDMA (WCDMA), General Packet Radio Service (GPRS) and Enhanced
Data rate for GSM Evolution (EDGE). In the broadband markets, our focus is on
applications for WLAN systems, cable television (CATV) subscriber products, CATV
infrastructure systems, and fiber optic communications systems. We believe we
have a competitive advantage in the markets we serve due to our design,
development and applications expertise, our superior compound semiconductor
technologies, our high-volume, low-cost state-of-the-art manufacturing processes
and expertise, and our strong working relationships with leading original
equipment manufacturers (OEMs), original design manufacturers (ODMs) and
reference design houses (collectively our "market customers").
 
 We
design, develop and manufacture RFICs primarily using Gallium Arsenide (GaAs)
compound semiconductor substrates with various process technologies, Metal
Semiconductor Field Effect Transistors (MESFET), Pseudomorphic High Electron
Mobility Transistors (pHEMT), and Heterojunction Bipolar Transistors
(HBT).
 
 The
quality and reliability of our products results from a comprehensive design,
characterization, qualification, and robust manufacturing process. In addition
to the manufacturing facility and design team located at our corporate
headquarters in Warren, New Jersey, we operate a development center and
manufacturing facility in Camarillo, California and development centers in
Richardson, Texas; Atlanta, Georgia; Aalborg, Denmark; Taipei, Taiwan; Seoul,
Korea and Shanghai, China.
 
 Our
design and applications engineering staff is strategically active and engaged
with customers during all phases of design and production. This strategy helps
our customers streamline their design process and time to market, achieve
cost-effective and manufacturable designs, and ensure a smooth transition into
high-volume production.
 
 We
have two company-owned fabrication facilities (fabs): a state-of-the-art
six-inch diameter analog GaAs fab located at our corporate headquarters in
Warren, New Jersey, and a two-inch diameter indium phosphide (InP) fab located
in Camarillo, California. Our six-inch wafer fab allows us to produce, at a
small incremental cost, more than twice the RF die per wafer compared with a
four-inch wafer, still used by some of our competition. We believe our strong
manufacturing fabrication capability, combined with logistics expertise and
innovative product designs, allow us to quickly develop and manufacture products
in line with market and customer requirements.
 
 **Industry
Background**
 
 Over
the last decade, there have been remarkable developments in electronic
communications, as evidenced by the emergence of wireless communications,
Internet services and digital television services. Radio frequency/microwave and
integrated circuit technologies have enabled increases in communications
capacity and significant reductions in systems costs. The wireless and broadband
communications markets are beneficiaries of current technological trends,
including higher frequencies, digital modulation and higher levels of electronic
integration.
 
 Wireless
communications are growing rapidly and replacing landline telephone services in
mature markets and are being built in lieu of landline services in other
emerging markets. Worldwide unit sales of cellular/PCS wireless handsets were
approximately 610 million in 2004.
 
 Broadband
markets are also benefiting from technological changes. Cable television systems
are moving from one-way analog signal distribution systems to interactive
digital systems offering increased and new video content, Internet connection
services and telephony. We estimate that approximately 10 million digital CATV
set-top boxes were produced in 2004. The continued build out and upgrading of
the cable infrastructure network required a production of approximately 2.8
million amplifier components for line extenders, systems amplifiers and fiber
nodes. Additionally, the WLAN market continues to be a bright spot in the
worldwide chip marketplace. The demand for increased mobility, seamless
communications, internet browsing, and streaming video/audio is driving the need
for increased throughput and gaining even greater momentum provided by WLAN
modems for the enterprise and home markets. New standards, such as 802.11g,
802.11 b/g as well as dual-band combo products, are accelerating the adoption
and expanding the use of WLANs globally. We estimate that approximately 75
million WLAN chipsets, primarily wireless notebooks and access points, were
shipped in 2004.
 
 Activity
in broadband fiber optic networks is being driven by demand from Internet and
corporate users for high-speed data transfer capability resulting in increased
deployment of Fiber to the Home (FTTH), Local Area Networks (LAN), Metropolitan
Area Networks (MAN), and Storage Area Networks (SAN).
 
 Given
these developments, our customers are facing the following challenges and need
the following solutions from their suppliers:
 *
    *Shorter
      cycle times.*In both the wireless and broadband communications markets, manufacturers
      must bring new subscriber products to market quickly in order to maintain
      their market position. The development of multi-chip modules, using
      advanced packaging techniques, and the development of relationships with
      providers of RF reference designs is imperative;
 *
    *Need
      for low-cost products.*Wireless handsets and cable set-top boxes are increasingly becoming
      consumer-driven, commodity products. Component suppliers must be cost
      effective in order for their market customers to stay competitive; and
 
 *
    *Stronger
      supplier relationships.*The digital, wireless, cable and fiber optic industries are
      standards-driven. Companies in the communications industry must work very
      closely with their suppliers in order to develop new products. Companies
      therefore limit themselves to a small number of suppliers in order to keep
      their competitive advantages.
 **The
GaAs Advantage**
 
 Through
our research and development efforts, we have developed expertise in producing
cost-effective GaAs-based RFICs for high-volume commercial applications. These
circuits offer the performance attributes required for radio frequency/microwave
applications that are not easily obtained with silicon-based integrated
circuits. GaAs transistors can operate at frequencies greater than silicon
transistors, and therefore can handle the requirements of radio
frequency/microwave applications. GaAs RFICs have a lower noise figure than
silicon-based integrated circuits, providing increased sensitivity, less
distortion and interference and better dynamic range, thereby enabling systems
to handle a wide range of signal strengths. GaAs is a semi-insulating material
that facilitates integration of the passive components required in radio
frequency/microwave applications. Finally, GaAs RFICs used in transmitter
applications are more power-efficient than silicon-based circuits, allowing for
longer battery life or use of smaller batteries.
 
 **The
InGaP Advantage**
 
 In the
industry, there are two predominant commercially viable types of HBT process
technologies. Earlier generations use either beryllium or carbon doping in the
base layer and Aluminum
Gallium Arsenide (AlGaAs) in the emitter layer. The state-of-the-art for HBT
uses carbon doping in the base layer and Indium Gallium Phosphide (InGaP) in the
emitter layer.
 
 There are
several significant advantages to InGaP. One advantage is stability over a range
of temperatures. An InGaP HBT device will experience only an approximate 10%
drop in gain over a range of 0 to 100 degrees Celsius, while the gain loss in an
AlGaAs device approximates 50%. An InGaP device has much higher reliability than
an AlGaAs device, giving the option to run the InGaP device at higher
temperatures. These advantages lead to smaller chip sizes and thus lower cost.
Finally, InGaP allows for more robust manufacturing because the material has the
advantage of a selective etch process not possible with AlGaAs.
 
 The InGaP
advantages of performance, reliability and manufacturability led to our decision
to develop the world’s first commercially viable 6-inch InGaP HBT process, which
was completed in 2000 and complements our GaAs MESFET technology.
 
 **ANADIGICS’
Strategy**
 
 Our
objective is to be a leading supplier of RFICs for the wireless and broadband
communications markets. The cornerstone of our strategy is to capitalize on
opportunities in the wireless and broadband communications markets by addressing
applications that leverage our RFIC design and manufacturing expertise and
longstanding relationships with leading companies in these markets. The key
elements of this strategy include:
 
 ***Be
First-to-Market with Proprietary Value-Added Products***
 
 We
intend to continue to design timely, cost-effective RFIC solutions for our
target markets. In developing prototypes, the combination of an experienced
engineering staff, a "quick-turn" wafer fabrication facility, the flexibility of
using both in-house and contracted product assembly, and a world class product
testing process generally allow us to develop parts and be ready for customer
evaluation in less than one month. This design efficiency contributes to
customer satisfaction and allows us to improve product designs rapidly for
manufacturing efficiency. We will continue to apply our "best-of-breed" product
differentiation strategy, which focuses on developing high-performance and
integrated products.
 
 
 ***Capitalize
on World Class Manufacturing Capabilities, while Reducing
Costs***
 
 We
will continue to focus on improving manufacturing performance and customer
service, while reducing costs. We believe we can effectively control the
critical phases of the production process in order to realize high manufacturing
yields, product quality and customer satisfaction. Our six-inch wafer fab
provides increased manufacturing capacities and shorter cycle times at a lower
incremental cost than four-inch wafer fabs. We believe our strong working
relationship with overseas manufacturing subcontractors will allow us to
continue to deliver low-cost products to our customers.
 
 ***Forge
Strong Customer Relationships***
 
 We
have developed strong working relationships with our customers, many of whom are
leading manufacturers in their markets. Because our target markets are
standards-driven, customer relationships are important. These relationships
provide us with product development opportunities and the ability to anticipate
future market trends. The rapid feedback received from our customers during the
product design phase increases the likelihood that our designs will meet our
customers' cost and performance requirements. We believe strengthening our
relationships with reference design companies will continue to contribute market
share gains within each of the wireless and broadband communications
markets.
 
 
 ***Pursue
Strategic Alliances and Investments***
 
 We
will continue to pursue strategic alliances and investments to expand and
improve upon our technologies, industry expertise, products and market share. We
expect that these alliances and investments will be complementary to current
activities and will enhance our ability to work with leading companies to
develop next generation solutions. As new strategic opportunities to increase
shareholder value arise, we will continue to monitor and selectively pursue
them.
  **Target
Markets and Products**
 
 The
Company classifies its revenues based upon the end application of the product in
which its integrated circuits are used. For the years ended December 31, 2002,
2003 and 2004, wireless applications accounted for approximately 54%, 55% and
50% of total net sales, while broadband applications accounted for approximately
46%, 45% and 50% of total net sales.
 
 ***Wireless
Communications***
 
 The
wireless communications market is a growing, dynamic market as a result of
increasing demand for:
 *
    Portable
      voice, video and data communications;
*
    Smaller,
      lighter handsets offering increased functionality;
*
    Reliable
      access and voice quality comparable to land lines;
*
    Longer
      talk-time and standby time; and
*
    Wireless
      access to the Internet. Our
RFIC products are used in handsets where small size, multi-band operation and
low power consumption are key features. Currently in the United States, the
primary digital air interface communications standard is CDMA. Another standard,
GSM, is the most widely deployed digital standard on a worldwide basis. We
currently offer and continue to bring to market an array of products for both
the handset and infrastructure markets for these major air interface standards.
 
 We
have developed multiband/multimode InGaP HBT power amplifier (PA) modules for
the CDMA and GSM standards. InGaP HBT module technology offers high efficiency,
low power consumption and stability over a range of temperatures, as well as a
lower total solution cost. This combination allows our customers to build the
transmitter section of the wireless handset more efficiently by reducing design
complexity and component counts.
 
 Our
principal customers in the wireless market include LG Electronics and Kyocera.
Of our total net sales in the year ended December 31, 2004, LG Electronics
accounted for 15% and Kyocera accounted for 11%, while no other customer in this
market accounted for 10% or more of total net sales during 2004.
 
 The following
table sets forth information regarding our principal products in the wireless
communications market:
 
 **Product**
    **Application***Handset
      Products*Power
      Amplifier (PA)
    Used
      in RF transmit chain of wireless handset to amplify signal to base
      station.Single-band
      PA module
    Encapsulates
      InGaP HBT PA die and certain passive components in multi-layer laminate
      module. Used primarily in CDMA handsets.Quad-band
      PA module
    Encapsulates
      InGaP HBT PA die, CMOS bias control chip, and certain passive components
      in multi-layer laminate module. Used primarily in GSM
      handsets.PowerPlexerTM
    Encapsulates
      two InGaP HBT PA die, CMOS, bias and power control chip, antenna switch,
      coupler, harmonic filter and passives in multi-layer laminate module. Used
      in GSM handsets.RF
      Switches
    Used
      in wireless handsets and other wireless applications to switch between
      receive and transmit modes and multiple frequency
bands.*Infrastructure
      Products*Driver
      Amplifiers
    Used
      in cellular base stations in the transmit chain.Gain
      Blocks
    Used
      in cellular base stations in the transmit
chain.
 
 ***Broadband***
 
 The Broadband segment of our business
encompasses our key markets in video and data telecommunications systems,
primarily consisting of cable television, WLAN and fiber optic applications.
 
 Cable
television systems traditionally delivered one-way analog television
programming, limited to a few entertainment channels, via a coaxial cable.
However, upgraded coaxial cable and hybrid fiber-coax systems are increasingly
used to deliver digital content as well as a wide array of interactive video and
other services, such as high speed Internet access and telephony. These market
trends require system operators to upgrade the bandwidth, quality and
functionality of both the system infrastructure and terminal equipment.
 
 Consumer
preferences for digital programming, watch-and-record capability and
video-on-demand (VoD) has resulted in an increased demand for CATV set-top boxes
with advanced features and multiple tuners. Our double conversion tuner RFICs
support these enhanced features, and our new active splitter RFICs facilitate
the use of multiple tuners per box. Both product lines enable our customers to
accelerate and simplify the design of their set-top boxes.
 
 Our
CATV line amplifier RFICs are used in infrastructure equipment such as line
extenders, distribution amplifiers, system amplifiers and fiber nodes. Including
products that operate from power supplies as high as 24 volts, our line
amplifier product line supports the stringent performance requirements of the
latest high-bandwidth CATV systems. We also provide amplifier RFICs for drop
amplifier applications, which provide the final stage of amplification in the
CATV system at individual subscriber locations.
 
 Hybrid
fiber-coax CATV systems utilize fiber optic lines to a fiber node or subscriber
location, at which point the signal is converted from an optical signal to an RF
signal. We manufacture photodetector diodes that are used to perform the optical
to RF translation. Typically, a photodetector diode will interface to an RF
amplifier, like one of our line amplifiers, to drive the local coaxial network.
 
 The
following table sets outlines our principal CATV products and their
applications:
 
 **Product**
    **Application***CATV
      Set-top Boxes Products*Tuner
      Upconverters and Downconverters
    Used
      to perform signal amplification and frequency conversion in
      double-conversion video and data tuners.Active
      Splitters
    Used
      to split an incoming signal to feed multiple tuners.*CATV
      Infrastructure Products*Line
      Amplifiers
    Used
      to distribute RF signals from headends to subscribers.Drop
      Amplifiers
    Used
      to amplify RF signals at individual subscriber
  locations.Photodetector
      Diodes
    Used
      to convert from optical to RF signals.
 
 Our
principal customers in the cable and broadcast markets are Motorola, Inc. and
Scientific Atlanta, which each represented 10% of total net sales in 2004. No
other customer in this market accounted for 10% or more of our total net sales
in 2004.
 
 In
March 2003, we acquired the WLAN power amplifier product line from RF Solutions,
headquartered in Atlanta, Georgia as an entrance into the growing WLAN market.
The WLAN market is being driven by:
  *
    Demand
      for wireless data access and portability of wireless access devices;
 
 *
    Emergence
      of several wireless data networking mediums, primarily via personal
      computers; and
 
 *
    New
      market applications such as consumer electronics and wireless voice over
      Internet protocol (VoIP).
 Adoption
of wireless data networking has been enabled by the introduction of a family of
industry standards for WLAN technology that have substantially increased
capacity and data rates. The introduction of the 802.11g standard allows the
existing 2.4 GHz spectrum to be operated more efficiently with a substantial
increase in data rates from the previous one or two megabits per second (Mbps)
now up to 54 Mbps. The introduction of the 802.11a standard has enabled the
use of the 5 GHz spectrum and substantially increased the available channel
capacity. The wireless networking market is further transitioning from products
that operate using a single standard to products that support all of the
standards using the 2.4 GHz and 5 GHz bands in a variety of combinations.
These 802.11a/g dual band products will support the continued growth of the
market while substantially diminishing or avoiding frequency interference and
network congestion.
 
 The
wireless capabilities of WLAN networking products are provided primarily by a
semiconductor chipset. A wireless chipset typically contains a radio
transceiver, a digital media access controller (MAC), baseband processor and
power amplifier to boost the transmit signal, thereby improving range and data
throughput. Traditionally, a single power amplifier supported a chipset.
However, the market has begun seeking both dual band power amplifiers and power
amplifiers with higher levels of integration. This increased integration will
provide for smaller size, higher reliability and faster time to market for WLAN
systems.
 
 No
single customer in the WLAN market was responsible for 10% or more of our total
net sales in 2004. The following table sets forth information regarding our
principal products in the WLAN market:
 
 **Product**
    **Application***Single
      band Products*2.4
      GHz power amplifiers
    Used
      in wireless network interface cards (NIC), embedded PC notebook (mini-PCI)
      and access point (AP) applications to boost the transmit signal for
      increased range and data throughput.5
      GHz power amplifiers
    Used
      in wireless rich-media applications, such as streaming audio/video, to
      boost the transmit signal for increased range and data
      throughput.Dual
      band power amplifiers
    Used
      in wireless network systems that require seamless transition between
      frequencies to mitigate interference and
congestion.
 
 **Marketing,
Sales, Distribution and Customer Support**
 
 We
primarily sell our products to our direct customers worldwide. We have developed
close working relationships with leading companies in the broadband and wireless
communications markets. Additionally, we selectively use independent
manufacturers' representatives and distributors to complement our direct sales
and customer support efforts. In 2004 we continued to evaluate, upgrade and
expand our sales representative organization. We believe this is critical to our
objective of expanding our customer base, especially as we expand our product
portfolio. In addition to our field sales applications support centers in both
Taipei, Taiwan and Seoul, South Korea established in 2003, we opened a new
office in Shanghai, China in 2004. Our support centers position our resources in
close proximity to our existing and potential customers enabling real-time
service.
 
 We
believe that the technical nature of our products and markets demands an
extraordinary commitment to building and maintaining close relationships with
our customers. The sales and marketing staff, assisted by the technical staff
and senior management, visit prospective and existing customers worldwide on a
regular basis. We believe that these contacts are vital to the development of
close, long-term working relationships with our customers, and in obtaining
regular forecasts, market updates and information regarding technical and market
trends.
 
 Our
design and applications engineering staff actively communicate with customers
during all phases of design and production. We provide our customers with
engineering data and up-to-date product application notes, and communicate with
our customers' engineers on a regular basis to assist in resolving technical
problems on and off site. In most cases the design and applications engineers
obtain prototypes from our customers in order to troubleshoot and identify
potential improvements to the design in parallel with our customers' efforts.
This strategy helps our customers accelerate their design process, achieve
cost-effective and manufacturable designs, and ensure a smooth transition into
high-volume production.
 
 We
believe that reference-design manufacturers in the wireless and broadband market
will continue to play an ever-increasing role in the future of these markets.
Therefore, we believe it is essential that we maintain strong relationships in
partnering with these companies to penetrate these market opportunities.
 
 **Manufacturing,
Assembly and Testing**
 
 ***Manufacturing***
 
 We
fabricate substantially all of our integrated circuits in our six-inch diameter
GaAs wafer fab in Warren, New Jersey and in our two-inch diameter InP fab in
Camarillo, California.
 
 Our
Warren facility has a 19,000 square foot fab, including 10,000 square feet of
Class 100 "clean room" space. Based on physical floor space, weekly production
capacity at the Warren facility is approximately 1,200 equivalent six-inch HBT
wafers. Based on equipment currently installed, present weekly capacity is 600
equivalent six-inch HBT wafers, although this space can be equipped to expand
capacity as market conditions require. On the basis of equivalent four-inch HBT
wafers, which is the industry norm, present weekly capacity is 1,350 wafers per
week. See "Risk Factors - We may face constraints on our manufacturing capacity
which would limit our ability to increase sales volumes."
 
 Our
InP fab in Camarillo is a 22,000 square foot facility with 2,000 and 6,000
square feet of fab and assembly clean room, respectively. Production capacity is
currently 50 InP wafers per week per shift.
 Our
six-inch diameter InGaP HBT process, including a backside VIA hole process, was
among the first  in
the industry and is the technology platform for our newer-generation PA module
wireless applications. The advantages of better performance over a range of
temperatures and higher reliability lead
to smaller chip sizes and thus lower cost. InGaP also allows for more robust
manufacturing because the material has the advantage of a selective etch process
not possible with AlGaAs.
 Our
wafer processing technologies have been developed for low cost, high yield,
rapid throughput and short cycle-time manufacturing. Our GaAs MESFET process
uses ion implant variations to optimize performance and yield, allowing us to
produce high-linearity, low-noise, receiver integrated circuits or transmitter
integrated circuits with high power and efficiency. MESFET is the technology
platform underlying the majority of our broadband products.
 
 Our
GaAs pHEMT manufacturing process achieves extremely high electron mobility.
Devices manufactured using this process have better sensitivity and bandwidth
than conventional MESFET devices, and offer better stability at higher
frequencies. The pHEMT process is an enabling technology for our wireless switch
products.
 
 Our
Warren manufacturing processes were first certified as ISO 9001 compliant in
December 1993. Since that time, we have updated our compliance to the ISO
9001:2000 upgrade of this standard. In 2004, we also received ISO 14001
certification.
 
 Our
manufacturing process technology includes our two-inch InP process in Camarillo. InP
applications for discrete active devices are widespread in communications
networking, making it the natural starting place for wholesale integration of
passive devices for a complete system on a chip. As a semiconductor material,
InP can provide all-in-one integrated functionality that includes light
generation, detection, amplification, high-speed modulation and switching, as
well as passive splitting, combining and routing. The same material can be used
to make high-speed modulators, switches, amplifiers and detectors, or just
passive waveguides for interconnecting these diverse devices.
 
 ***Assembly***
 
 Fabricated
GaAs wafers are shipped to contractors in Asia for packaging into monolithic
microwave integrated circuits (MMICs) or for assembly into standard plastic lead
frame-based packaging or modules.
 
 The
components within mobile phones have become increasingly integrated, enabling
the development of ever smaller, lighter, and more efficient phones. However,
integration in the RF subsystem at the IC level is considerably more
challenging, given that various components require different manufacturing
processes for optimal performance. Typical RF processes include pHEMT, MESFET,
HBT, and RF CMOS. The choice of process for various RFICs is typically based on
the relative weight given to performance (often measured by efficiency and
linearity) versus cost. In low-end phones, cost will dominate, and
less-efficient, less-costly components will be used. On the other hand, in
high-end phones, the emphasis will shift to better performance.
 
 Since
the processes cannot be easily or economically integrated onto a single die,
multi-chip modules that combine multiple die within a single package have taken
hold, enabling the selection of the optimal process technology for each IC
within the package, while providing enhanced integration at the system level.
These solutions generate significant size and weight reductions in handset
component circuitry, while simultaneously increasing the reliability of the
components.
 
 A
number of challenges, outlined below, are being overcome as we become a fully
integrated module manufacturer:
 
 **Design
complexity:** Within
a cellphone, the RF section arguably represents the greatest design challenge
for engineers. Modules place the burden of designing and optimizing RF front-end
subsystems on RFIC manufacturers. These manufacturers must focus on providing
the optimal IC process (e.g., InGaP HBT for PAs) and then integrate the
technology into a well-designed module that also incorporates additional passive
and control circuitry. The quality of the RF module design ultimately drives the
device’s performance and manufacturability.
 
 **Increased
cost:** Modules
can be substantially more expensive to produce than individual IC components.
Modules often require extensive design and engineering expertise, new production
processes, and additional assembly costs. In many cases, the necessary
components (e.g., discretes and passives) must be purchased from outside
vendors. Consequently, the gross margin is generally lower for modules than for
discrete RF MMICs.
 
 **Manufacturing
challenges:** In
addition to the increased costs of designing modules, achieving sufficient
yields on new products can be problematic. Previously, RFIC companies had little
or no experience in manufacturing modules. As a result, our gross margins were
under pressure as we progressed on the learning curve. In order to attain high
"final test" yields, the challenge continues to be to achieve high yields in the
fab, in assembly, and in test.
 
 
 Modules
allow our customers to get their product to market more rapidly at a lower
overall end product cost due largely to the reduced parts count and reduction in
required engineering effort. We believe we are well positioned to address the
shift toward multi-chip modules because we possess both extensive process
breadth (a key advantage, as modules typically incorporate numerous process
technologies) and a large portfolio of RF expertise (e.g., PAs, switches,
transceivers, filters, and discretes).
 
 ***Final
Test***
 
 After
assembly, packaged integrated circuits are tested prior to shipment to our
customers. Increasingly, these test activities are being performed by
third-party contractors in Asia.
 
 We
outsource a majority of our production RF testing operations, which are
performed nearby our module assembly contractors in Asia.  This adds
considerable efficiencies to the device manufacturing process in reducing
product cycle times and manufacturing costs and supports our initiative to
reduce manufacturing costs by lowering test cost per unit.
 
 See
"Risk Factors - We depend on foreign semiconductor assembly contractors and
a loss of an assembly contractor could result in delays or reductions in product
shipment," "The manufacturing of our products could be delayed as a result of
the outsourcing of our test operations" and "We may face constraints on our
manufacturing capacity which would limit our ability to increase sales volumes."
 
 **Raw
Materials**
 
 GaAs
wafers, InP wafers, HBT/pHEMT epitaxial wafers, passive components, other raw
materials, and equipment used in the production of our integrated circuits are
available from a limited number of sources. See "Risk Factors - Sources for
certain components, materials and equipment are limited which could result in
delays or reductions in product shipments."
 
 **Research
and Development**
 
 We
have made significant investments in our proprietary processes, including
product design, wafer fabrication and integrated circuit testing, which we
believe gives us a competitive advantage. Research and development expenses were
$29.7 million, $32.1 million, and $33.3 million in 2002, 2003, and 2004,
respectively. Our research and development efforts in 2002 and 2003 were
primarily focused on improving performance relative to the size of our CDMA
products and developing products to compete in the GSM market. In 2003 and 2004,
our activities included the continued development and expansion of products
offered to the GSM and WLAN markets.
 
 As
of December 31, 2004, we had approximately 121 engineers assigned primarily to
research and development.
 
 Our
wireless power amplifier capability has expanded from plastic-packaged GaAs RF
integrated circuit products to RF modules incorporating multiple technologies.
This capability is critical to encapsulating RF intellectual property and
know-how into a module that may be used to shrink the time-to-market for
cellular phone manufacturers. Our RF power amplifier modules use a multi-layer
laminate substrate to combine our proprietary InGaP HBT power amplifier
integrated circuits with custom-designed CMOS controllers and passive
components.
 
 Module
integration capability required extending our design tools in several
dimensions. Electromagnetic simulation of laminate substrates to design embedded
passive components and model parasitic effects were added to our RF design tool
set. In addition, the ability to simulate at the module level was greatly
enhanced through our partnership with a leading manufacturer of electronic
design automation tools.
 
 Additionally,
several silicon CMOS components were developed to support our module efforts. We
currently do not intend to manufacture this technology in-house, as we believe
there will be adequate external foundry capacity available. See "Risk Factors -
Sources for certain components, materials and equipment are limited, which could
result in delays or reductions in product shipments."
 
 **Customers**
 
 We receive
most of our revenues from a few significant customers. See "Risk Factors - We
depend on a small number of customers; a loss of or a decrease in purchases
and/or change in purchasing patterns by one of these customers would materially
and adversely affect our revenues and our ability to forecast
revenue."
 
 **Employees**
 
 As
of December 31, 2004, we had 424 employees, including five employees in Denmark
who were members of the Danish Engineering Union. We believe our labor relations
to be good and we have never experienced a work stoppage. During 2004 our
workforce decreased by 56 employees, primarily as a result of staff reductions
in operations and research and development.
 
 **Competition**
 
 Competition
in all of the markets for our current products is intense; competition is on the
basis of performance, price and delivery. Our competitors in the wireless market
are suppliers of both discrete devices and integrated circuits, and include
Hitachi, Ltd., RF Micro Devices, Inc., Skyworks Solutions, Inc. and certain of
our customers who design and fabricate their own in-house solutions.
 
 Within
the Broadband markets, which include the cable television, WLAN and fiber optic
markets, our competitors are also primarily manufacturers of both discrete
components and integrated circuits. Our competitors include Analog Devices,
Inc., Applied Micro Circuits Corp., Conexant Systems, Inc., Maxim Integrated
Products, Inc., Microsemi Corp. and Microtune, Inc., as well as certain of our
customers who design and fabricate their own in-house solutions.
 
 
 Many
of our competitors have significantly greater financial, technical,
manufacturing and marketing resources. Increased competition could adversely
affect our revenue and profitability through price reductions or reduced demand
for our products. See "Risk Factors - We face intense competition, which could
result in a decrease in our products’ prices and sales."
 
 **Patents,
Licenses and Proprietary Rights**
 
 It
is our practice to seek U.S. and foreign patent and copyright protection on our
products and developments where appropriate and to protect our valuable
technology under U.S. and foreign laws affording protection for trade secrets
and for semiconductor chip designs. We own 47 U.S. patents and have twelve
pending U.S. patent applications in addition to one pending foreign patent
application filed under the Patent Cooperation Treaty. The U.S. patents were
issued between 1992 and 2004 and will expire between 2009 and 2023.
 
 We
rely primarily upon trade secrets, technical know-how and other unpatented
proprietary information relating to our product development and manufacturing
activities. To protect our trade secrets, technical know-how and other
proprietary information, our employees are required to enter into agreements
providing for maintenance of confidentiality and the assignment of rights to
inventions made by them while in our employ. We have also entered into
non-disclosure agreements to protect our confidential information delivered to
third parties in conjunction with possible corporate collaborations and for
other purposes. See "Risk Factors - We may not be successful in protecting our
intellectual property rights or in avoiding claims that we infringed on the
intellectual property rights of others."
 
 **Environmental
Matters**
 
 Our
operations are subject to federal, state and local environmental laws,
regulations and ordinances that govern activities or operations that may have
adverse effects on human health or the environment. These laws, regulations or
ordinances may impose liability for the cost of remediating, and for certain
damages resulting from, sites of past releases of hazardous materials. We
believe that we currently conduct, and have conducted, our activities and
operations in substantial compliance with applicable environmental laws, and
that costs arising from existing environmental laws will not have a material
adverse effect on our results of operations. We cannot assure you, however, that
the environmental laws will not become more stringent in the future or that we
will not incur significant costs in the future in order to comply with these
laws. See "Risk Factors - We are subject to stringent environmental regulation
both domestically and abroad."
 
 **Available
Information**
 
 Copies
of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available
free of charge through our website ( www.anadigic s .com )
as soon as reasonably practicable after we electronically file the material
with, or furnish it to, the Securities and Exchange Commission.
  RISK
FACTORS
 
 CERTAIN
STATEMENTS IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS (AS THAT TERM IS
DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) THAT INVOLVE RISKS
AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN GENERALLY BE IDENTIFIED
AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT WILL INCLUDE WORDS SUCH AS WE
"BELIEVE", "ANTICIPATE", "EXPECT" OR WORDS OF SIMILAR IMPORT. SIMILARLY,
STATEMENTS THAT DESCRIBE OUR FUTURE PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE
FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS REPORT SHOULD
BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER
THEY APPEAR IN THIS REPORT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
AND DEVELOPMENTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY
THE FORWARD-LOOKING STATEMENTS PRESENTED HEREIN INCLUDE THE RISK FACTORS
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.
  IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN ANADIGICS,
INC. AND IN ANALYZING OUR FORWARD-LOOKING STATEMENTS.
 
 **Risks
Related to ANADIGICS**
 
 **We
have a history of recent losses, and expect to continue to incur
losses.**
 
 We
have incurred operating and net losses in each of the three years in the period
ended December 31, 2004 and expect to continue to incur losses in 2005. The
markets for our products weakened substantially in 2001. The downturn from 2000
levels reflected a reduction in capital spending by many of our customers and
lower end consumer demand.
 
 Although
the company has gained increased market acceptance for certain of its products
in 2004, the market for our products remains weak. We cannot assure you as to
whether or when we will become profitable again. If the recent trend in our net
losses does not reverse, either because the economy does not improve or because
we underperform, our ability to compete in a very difficult market may be
materially and adversely affected.
 
 **Our
results of operations can vary significantly.**
 
 The
semiconductor industry has been cyclical, seasonal and subject to significant
downturns. Since the beginning of 2001, the industry has experienced market
weaknesses that have created lower order demand, production overcapacity, high
inventory levels, and accelerated declines in average selling prices for our
products, which is expected to continue in the future. These elements have
continued to negatively affect our operating results.
 
 Our
results of operations have been subject to significant quarterly fluctuations.
As a result, we may experience substantial period-to-period fluctuations in
future operating results. Investors should not rely on our results of operations
for any previous period as an indicator of what results may be for any future
period.
  **Our
decline in revenue and underutilized manufacturing capacity have adversely
affected our gross margins and profitability.**
 
 Our
manufacturing infrastructure and capacity were designed to address significantly
higher volume levels and consequently we have underutilized manufacturing
capacity. Many of our expenses, particularly those relating to capital equipment
and manufacturing overhead, are fixed. Accordingly, our fixed production costs
increase as a percentage of revenues during a period of declining revenues,
which adversely affects our gross margin and profitability. In the future,
improved utilization of our manufacturing capacity will primarily depend on
continued growth in demand for our wireless products. Our ability to reduce
expenses is further constrained because we must continue to invest in research
and development in order to maintain our competitive position.
 
 **We
depend on a small number of customers; a loss of or a decrease in purchases
and/or change in purchasing patterns by one of these customers would materially
and adversely affect our revenues and our ability to forecast
revenue.**
 
 We
receive most of our revenues from a few significant customers and their
subcontractors. Sales to LG Electronics, Kyocera, Motorola, Inc. and Scientific
Atlanta accounted for 15%, 11%, 10% and 10%, respectively, of total net sales
during 2004. Sales to our greater than 10% customers have exceeded 45% of total
revenues in each of the last three years. Our operating results have been
materially and adversely affected in the past by the failure of anticipated
orders to be realized and by deferrals or cancellations of orders as a result of
changes in customer requirements. If we were to lose LG Electronics, Kyocera,
Motorola, Scientific Atlanta or another major customer, or if sales to these
customers were to decrease materially, results of operations would be materially
and adversely affected.
 
 Several
of our customers have reduced the lead times on orders placed with us for our
products. While this trend has enabled us to reduce our inventories, it also
restricts our ability to forecast future revenues. We cannot predict whether a
change in order demand patterns or lead times from customers will take
place.
 
 **We
will need to keep pace with rapid product and process development and
technological changes as well as product cost reductions to be
competitive.**
 
 Rapid
changes in both product and process technologies characterize the markets for
our products. Because these technologies are continually evolving, we believe
that our future success will depend, in part, upon our ability to continue to
improve the efficiencies of our product and process technologies and rapidly
develop new products and process technologies. If a competing technology emerges
that is, or is perceived to be, superior to our existing technology and we are
unable to develop and/or implement the new technology successfully or to develop
and implement a competitive and economic alternative technology, our results of
operations would be materially and adversely affected. We will need to make
substantial investments to develop these enhancements and technologies, and we
cannot assure investors that funds for these investments will be available or
that these enhancements and technologies will be successful.
 
 **Our
products have experienced rapidly declining unit prices.**
 
 In
each of the markets where we compete, prices of established products tend to
decline significantly over time. Accordingly, in order to remain competitive, we
believe that we must continue to develop product enhancements and new
technologies that will either slow the price declines of our products or reduce
the cost of producing and delivering our products. If we fail to do so, our
results of operations and financial condition would be materially and adversely
affected.
 
 **The
variability of our manufacturing yields may affect our gross
margins.**
 
 Our
manufacturing yields vary significantly among products, depending on the
complexity of a particular integrated circuit’s design and our experience in
manufacturing that type of integrated circuit. We have experienced difficulties
in achieving planned yields in the past, particularly in pre-production and upon
initial commencement of full production volumes, which have adversely affected
our gross margins.
 
 Regardless
of the process technology used, the fabrication of integrated circuits is a
highly complex and precise process. Problems in the fabrication process can
cause a substantial percentage of wafers to be rejected or numerous integrated
circuits on each wafer to be nonfunctional, thereby reducing yields. These
difficulties can include:
 
 ·
    defects
      in masks, which are used to transfer circuit patterns onto our
      wafers;
 ·
    impurities
      in the materials used;
 ·
    contamination
      of the manufacturing environment; and
 ·
    equipment
      failure.
 
 Many
of our manufacturing costs are relatively fixed and average selling prices for
our products tend to decline over time. Therefore, it is critical for us to
improve the number of shippable integrated circuits per wafer and increase the
production volume of wafers in order to maintain and improve our results of
operations. Yield decreases can result in substantially higher unit costs, which
could materially and adversely affect our operating results and have done so in
the past. We cannot assure you that we will not suffer periodic yield problems,
particularly during the early production of new products or introduction of new
process technologies. In either case, our results of operations and financial
condition could be materially and adversely affected.
 
 **We
depend on foreign semiconductor assembly contractors and a loss of an assembly
contractor could result in delays or reductions in product
shipment.**
 
 We
do not assemble our integrated circuits or multi-chip modules. Instead, we
provide the integrated circuit die and, in some cases, packaging and other
components to assembly vendors located primarily in Asia. We maintain two
qualified service suppliers for each assembly process. If we are unable to
obtain sufficient high quality and timely assembly service, or if we lose one of
our current assembly vendors, or if we experience delays in transferring our
production between assembly vendors, or if means of transportation to our
vendors are interrupted, we would experience delays or reductions in product
shipment, and/or reduced product yields, that could materially and adversely
affect our results of operations and financial condition.
 
 **The
manufacturing of our products could be delayed as a result of the outsourcing of
our test operations.**
 
 We
outsource most of the testing of certain of our products to test houses or
vendors overseas, primarily in Asia. The failure of these test houses or other
third parties to maintain our standards of testing or complete the testing
process of our products in a timely manner, could subject us to delays in
manufacturing and in the delivery of products to customers, which could have a
material adverse effect on our results of operations and financial condition. In
addition to the test houses, we also test some of our products
internally.
 
 **The
short life cycles of some of our products may leave us with obsolete or excess
inventories.**
 
 The
life cycles of some of our products depend heavily upon the life cycles of the
end products into which our products are designed. For example, we estimate that
current life cycles for cellular and PCS telephone handsets, and in turn our
cellular and PCS products, are approximately 12 to 24 months. Products with
short life cycles require us to manage production and inventory levels closely.
We cannot assure investors that obsolete or excess inventories, which may result
from unanticipated changes in the estimated total demand for our products and/or
the estimated life cycles of the end products into which our products are
designed, will not affect us beyond the inventory charges taken in the
past.
 
 **Our
announced restructuring plans may have insufficiently addressed market
conditions.**
 
 In
2002 and 2003, we announced restructuring plans in response to a sharp
downturn in our industry. Under our restructuring plans, we have incurred
charges relating to reductions in our workforce, impairments of certain
manufacturing and research fixed assets, and the consolidation of facilities.
From January 1, 2001 to December 31, 2004, our workforce was reduced by over
25%, primarily through restructuring and cost reduction initiatives. We may have
incorrectly anticipated the extent of the long-term market decline for our
products and services and we may be forced to restructure further or may incur
further operating charges due to poor business conditions.
 
 **We
face intense competition, which could result in a decrease in our products’
prices and sales.**
 
 The
semiconductor industry is intensely competitive and is characterized by rapid
technological change. We compete primarily with manufacturers of discrete
gallium arsenide and silicon semiconductors and with manufacturers of gallium
arsenide and silicon integrated circuits. We expect increased competition
from:
 
 ·
    other
      gallium arsenide integrated circuit manufacturers who may replace us as a
      supplier to our market customers or otherwise dilute our sales to
      them;
 ·
    silicon
      analog integrated circuit manufacturers; and
 ·
    companies
      which may penetrate the radio frequency/microwave integrated circuit
      communications market with other breakthrough
technologies.
 
 Increased
competition could result in:
 
 ·
    decreased
      prices of our integrated circuits;
 ·
    reduced
      demand for our products; and
 ·
    a
      reduction in our ability to recover development engineering
    costs.
 
 Any
of these developments could materially and adversely affect our results of
operations and financial condition.
 
 Most
of our current and potential competitors, including Hitachi Ltd., Maxim
Integrated Products Inc., Microtune Inc., Motorola, RF Micro Devices Inc. and
Skyworks Solutions, Inc. have significantly greater financial, technical,
manufacturing and marketing resources than we do. We cannot assure investors
that we will be able to compete successfully with existing or new
competitors.
 
 **We
may not have sufficient cash flow to make payments on our convertible senior
unsecured notes and any other debt we may incur.**
 
 Our
ability to pay principal and interest on our $84.7 million in outstanding
convertible senior unsecured notes, $46.7 million of which are due in November
of 2006 and the remainder of which are due in October of 2009, and our other
debt and to fund our planned capital expenditures depends on our future
operating performance. Our future operating performance is subject to a number
of risks and uncertainties that are often beyond our control, including general
economic conditions and financial, competitive and regulatory factors.
Consequently, we cannot assure investors that we will have sufficient cash flow
to meet our liquidity needs.
 
 **We
face a risk that capital needed for our business will not be available when we
need it.**
 
 ****
 In
the future, we may need to access sources of financing to fund our growth.
Taking into consideration our cash balance including marketable securities of
$104.1 million at December 31, 2004 and our $84.7 million in outstanding
convertible senior notes, $46.7 million of which are due in November of 2006 and
the remainder of which are due in October of 2009, we believe that our existing
sources of liquidity, together with cash expected to be generated from
operations, will be sufficient to fund our research and development, capital
expenditure, working capital and other financing requirements for at least the
next twelve months.
 
 However,
there is no assurance that the capital required to fund these expenses will be
available in the future. Conditions existing in the U.S. capital markets when we
seek financing, as well as the then current condition of the Company will affect
our ability to raise capital, as well as the terms of any financing. We may not
be able to raise enough capital to meet our capital needs on a timely basis or
at all. Failure to obtain capital when required would have a material adverse
effect on the Company.
 
 In
addition, any strategic investments and acquisitions that we may make to help us
grow our business may require additional capital resources. We cannot assure you
that the capital required to fund these investments and acquisitions will be
available in the future.
 
 **We
may pursue selective acquisitions and alliances and the management and
integration of additional operations could be expensive and could divert
management time and acquisitions may dilute the ownership of our current
shareholders.**
 
 As
part of our strategy, we will selectively pursue acquisitions and alliances. Our
ability to complete acquisitions or alliances is dependent upon, and may be
limited by, the availability of suitable candidates and capital. In addition,
acquisitions and alliances involve risks that could materially adversely affect
our operating results, including the management time that may be diverted from
operations in order to pursue and complete such transactions and difficulties in
integrating and managing the additional operations and personnel of acquired
companies. We cannot assure investors that we will be able to obtain the capital
necessary to consummate acquisitions or alliances on satisfactory terms, if at
all. Further, any businesses that we acquire will likely have their own capital
needs, which may be significant, which we could be called upon to satisfy
independent of the acquisition price. Future acquisitions or alliances could
result in additional debt, equity, costs and contingent liabilities, all of
which could materially adversely affect our results of operations and financial
condition. Any such additional debt could subject us to substantial and
burdensome covenants and any such equity could be materially dilutive to
existing stockholders. The growth that may result from future acquisitions or
alliances may place significant strains on our resources, systems and
management. If we are unable to effectively manage such growth by implementing
systems, expanding our infrastructure and hiring, training and managing
employees, our ability to offer our products could be materially
harmed.
 
 **We
depend heavily on key personnel.**
 
 Our
success depends in part on keeping key technical, marketing, sales and
management personnel. We must also continue to attract qualified personnel. The
competition for qualified personnel is intense, and the number of people with
experience, particularly in radio frequency engineering, integrated circuit
design, and technical marketing and support, is limited. We cannot be sure that
we will be able to attract and retain other skilled personnel in the
future.
 
 **Our
international sales and operations involve foreign exchange
risks.**
 
 Sales
to customers located outside North America (based on shipping addresses and not
on the locations of ultimate end users) accounted for 46%, 49% and 61% of our
net sales for the years ended December 31, 2002, 2003, and 2004 respectively. We
expect that revenues derived from international sales will continue to represent
a significant portion of our net sales.
 
 In
addition, independent third parties located in Asia supply a substantial portion
of the starting wafers and packaging components that we use in the production of
gallium arsenide integrated circuits, and assemble and test nearly all of our
products.
 
 Due
to our reliance on international sales and foreign suppliers, assemblers and
test houses, we are subject to risks of conducting business outside of the
United States, including primarily those arising from currency fluctuations,
which could affect the price of our products and/or the cost of producing
them.
 
 **Sources
for certain components, materials and equipment are limited, which could result
in delays or reductions in product shipments.**
 
 We
do not manufacture any of the starting wafers, packaging or passive components
used in the production of our gallium arsenide integrated circuits. Wafers and
packaging components are available from a limited number of sources. If we are
unable to obtain these wafers or components in the required quantities and
quality, we could experience delays or reductions in product shipments, which
would materially and adversely affect our results of operations and financial
condition.
 
 We
depend on a limited number of vendors to supply equipment used in our
manufacturing processes. When demand for semiconductor manufacturing equipment
is high, lead times for delivery of such equipment can be substantial. We cannot
assure investors that we would not lose potential sales if required
manufacturing equipment is unavailable and, as a result, we are unable to
maintain or increase our production levels.
 
 **We
may face constraints on our manufacturing capacity which would limit our ability
to increase sales volumes.**
 
 We
believe that our six-inch wafer fabrication facility, the expansion of which was
completed in June of 2002, should be able to satisfy our forecasted production
needs. However, if production volumes were to increase significantly from
expected levels, we might be required to hire, train and manage additional
production personnel in order to successfully increase production capacity at
our facility. We cannot assure investors that we would be able to implement
these changes successfully. A delay for any reason in increasing capacity would
limit our ability to increase sales volumes. In addition, if we fail to increase
production and do not have sufficient capacity to satisfy the demand for our
products, our relationships with customers could be harmed.
 
 **We
may face interruptions in our manufacturing processes.** ****
  Our
manufacturing operations are complex and subject to disruption, including for
causes beyond our control. The fabrication of integrated circuits is an
extremely complex and precise process consisting of multiple steps. It requires
production in a highly controlled, clean environment. Minor impurities,
contamination of the clean room environment, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer,
defects in equipment or materials, human error, or a number of other factors can
cause a substantial percentage of wafers to be rejected or numerous die on each
wafer to malfunction. Because our operating results are highly dependent upon
our ability to produce integrated circuits at acceptable manufacturing yields,
these factors could have a material adverse effect on our business. In addition,
we may discover from time to time defects in our products after they have been
shipped, which may require us to replace such products.
 
 Additionally,
our operations may be affected by lengthy or recurring disruptions of operations
at any of our production facilities or those of our subcontractors. These
disruptions may include electrical power outages, fire, earthquake, flooding,
war, acts of terrorism, or other natural or man-made disasters. Disruptions of
our manufacturing operations could cause significant delays in shipments until
we are able to shift the products from an affected facility or subcontractor to
another facility or subcontractor. In the event of such delays, we cannot assure
investors that the required alternative capacity, particularly wafer production
capacity, would be available on a timely basis or at all. Even if alternative
wafer production or assembly and test capacity is available, we may not be able
to obtain it on favorable terms, which could result in higher costs and/or a
loss of customers. We may be unable to obtain sufficient manufacturing capacity
to meet demand, either at our own facilities or through external manufacturing
or similar arrangements with others.
 
 Due
to the highly specialized nature of the gallium arsenide integrated circuit
manufacturing process, in the event of a disruption at the Warren, New Jersey
semiconductor wafer fabrication facility, alternative gallium arsenide
production capacity would not be immediately available from third-party sources.
These disruptions could have a material adverse effect on our business,
financial condition and results of operations.
 
 **We
are subject to stringent environmental regulation both domestically and
abroad.**
 
 We
are subject to a variety of federal, state and local requirements governing the
protection of the environment. These environmental regulations include those
related to the use, storage, handling, discharge and disposal of toxic or
otherwise hazardous materials used in or resulting from our manufacturing
processes. Failure to comply with environmental laws could subject us to
substantial liability or force us to significantly change our manufacturing
operations. In addition, under some of these laws and regulations, we could be
held financially responsible for remedial measures if our properties are
contaminated, even if we did not cause the contamination.  Although
we are aware of contamination resulting from historical third-party operations
at one of our facilities, a prior owner has been performing, and paying for the
costs associated with, remediation of this property pursuant to an agreement
with the state environmental regulatory authority. However, we cannot assure you
that such prior owner will continue to do so or that we will not incur any
material costs or liabilities associated with compliance with environmental laws
in the future.
 
 **We
may not be successful in protecting our intellectual property rights or in
avoiding claims that we infringed on the intellectual property rights of
others.**
 
 Our
success depends in part on our ability to obtain patents and copyrights,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. As is typical in the semiconductor
industry, we have been notified, and may be notified in the future, that we may
be infringing on certain patent and/or other intellectual property rights of
others. We cannot assure investors that we will not be subject to patent
litigation to defend our products or processes against claims of patent
infringement or other intellectual property claims. Any such litigation could
result in substantial costs and diversion of our resources. If we determine that
we have infringed on the intellectual property rights of others, we cannot
assure investors that we would be able to obtain any required licenses on
commercially reasonable terms.
 
 In
addition to patent and copyright protection, we also rely on trade secrets,
technical know-how and other non-patented proprietary information relating to
our product development and manufacturing activities, which we seek to protect,
in part, by confidentiality agreements with our collaborators and employees. We
cannot assure investors that these agreements will not be breached, that we
would have adequate remedies for any breach or that our trade secrets and
proprietary know-how will not otherwise become known or independently discovered
by others.
 
 **Provisions
in our governing documents and our shareholders rights agreement could
discourage takeovers and prevent shareholders from realizing an investment
premium.**
 
 ****
 Certain
provisions of our articles of incorporation and by-laws could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of our Company. These provisions
include the ability of the board of directors to designate the rights and
preferences of preferred stock and issue such shares without shareholder
approval, our staggered board of directors, and our advance notice requirements
for stockholder proposals and director nominations. In addition, the Company has
adopted a shareholders’ rights agreement that may make it more difficult and
expensive for a third party to acquire the Company. Any of the foregoing could
limit the price that certain investors might be willing to pay in the future for
shares of our common stock.
 
 **We
have had significant volatility in our stock price and it may fluctuate in the
future. Therefore, the ability to sell shares of common stock at or above the
price paid for them may be difficult.**
 
 The
trading price of our common stock has and may continue to fluctuate
significantly. Such fluctuations may be influenced by many factors, including:
 
 •
      our performance and prospects;
      •
      the performance and prospects of our major customers;
      •
      the depth and liquidity of the market for our common stock;
      •
      investor perception of us and the industry in which we operate;
      •
      changes in earnings estimates or buy/sell recommendations by analysts;
      •
      general financial and other market conditions; and
      •
      domestic and international economic conditions.
 
 Public
stock markets have experienced, and are currently experiencing, extreme price
and trading volume volatility, particularly in the technology sectors of the
market. This volatility has significantly affected the market prices of
securities of many technology companies for reasons frequently unrelated to or
disproportionately impacted by the operating performance of these companies.
These broad market fluctuations may materially and adversely affect the market
price of our common stock.
 
 In
addition, fluctuations in our stock price and our price-to-earnings multiple may
have made our stock attractive to momentum, hedge or day-trading investors who
often shift funds into and out of stocks rapidly, exacerbating price
fluctuations in either direction, particularly when viewed on a quarterly
basis.
 
 ITEM
2. PROPERTIES.
 
 Our
executive offices and primary fabrication facility are located at 141 Mt. Bethel
Road, Warren, New Jersey 07059. We currently lease space in several buildings in
Warren, New Jersey, all of which are located in the same industrial park.
Approximately 150,000 square feet of manufacturing and office space is occupied
in a building located at 141 Mt. Bethel Road in Warren, New Jersey under a
twenty-year lease expiring on December 31, 2016. Approximately 92,500 square
feet of office and laboratory space is leased at 35 Technology Drive in Warren,
New Jersey under a twelve-year lease, which expires on May 1, 2005. We have
moved out of this space and over half of the space at 35 Technology Drive has
been sublet in order to reduce costs. Additionally, we lease an approximately
22,000 square foot building in Camarillo, California. The lease expires on July
31, 2005; however the term may be extended up to two times for additional
two-year periods.
 
 
 We
also lease approximately 36,700 square feet of office space in the following
locations: Richardson, Texas; Atlanta, Georgia; San Jose California; Aalborg,
Denmark; Rehovot, Israel; Taipei, Taiwan; Shanghai, China; and Seoul, South
Korea under lease agreements with remaining terms ranging from seven months to
two years that can be extended, at our option. The space in Rehovot, Israel has
been sublet in order to reduce costs.
 
 ITEM
3. LEGAL PROCEEDINGS.
 
 The
Company is a party to litigation arising out of the operation of its business.
We believe that the ultimate resolution of such litigation should not have a
material adverse effect on our financial condition, results of operation or
liquidity.
 
 ITEM
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
 
 No
matters were submitted to a vote of the Company’s security holders during the
fourth quarter of 2004.
 
 
 PART
II
 
 ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
 
 Our
$0.01 par value Common Stock, ("Common Stock") has been quoted on the NASDAQ
National Market under the symbol "ANAD" since the commencement of trading on
April 21, 1995 following our initial public offering of our Common Stock. The
following table sets forth for the periods indicated the high and low sale
prices for our Common Stock.
 
 High
    
    LowCalendar
      2004Fourth
      Quarter
    
    $3.92
    
    $2.65Third
      Quarter
    
    
    5.15
    
    
    3.21Second
      Quarter
    
    
    7.04
    
    
    4.17First
      Quarter
    
    
    9.11
    
    
    5.65Calendar
      2003Fourth
      Quarter
    
    $
    7.38
    
    $
    4.52Third
      Quarter
    
    
    5.65
    
    
    2.98Second
      Quarter
    
    
    3.72
    
    
    1.81First
      Quarter
    
    
    2.95
    
    
    1.69
 
 As
of December 31, 2004, there were 33,072,438 shares of Common Stock outstanding
and 568 holders of record of the Common Stock.
 
 We
have never paid cash dividends on our capital stock. We currently anticipate
that we will retain all available funds for use in the operation and expansion
of our business, and do not anticipate paying any cash dividends in the
foreseeable future.
 
 See
also "Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters" under Part III, Item 12 of this report.
 
 ITEM
6. SELECTED FINANCIAL DATA.
 
 The
selected financial data set forth below should be read in conjunction with Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations", and our financial statements, related notes and other financial
information included herein. The selected consolidated financial data set forth
below as of December 31, 2004 and 2003 and for the years ended December 31,
2004, 2003, and 2002 have been derived from our audited financial statements
included herein. The selected consolidated financial data set forth below as of
December 31, 2002, 2001 and 2000 and for the years ended December 31, 2001 and
2000 have been derived from our audited financial statements that are not
included herein or incorporated by reference herein. Our historical results are
not necessarily indicative of the results that may be expected for any future
period.
 2000
    
    2001
    
    2002
    
    2003
    
    2004RESULTS
      OF OPERATIONSNet
      sales
    
    $
    172,268
    
    $
    84,765
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350Gross
      profit (loss)
    
    
    82,797
    
    
    (2,932
    )
    
    7,262
    
    
    3,285
    
    
    13,995Operating
      income (loss)
    
    
    16,796
    
    
    (85,986
    )
    
    (65,565
    )
    
    (50,998
    )
    
    (41,822
    )Income
      (loss) before income taxes
    
    
    28,596
    
    
    (82,782
    )
    
    (52,183
    )
    
    (51,139
    )
    
    (43,082
    )Net
      income (loss)
    
    
    18,892
    
    
    (107,120
    )
    
    (55,886
    )
    
    (50,757
    )
    
    (43,082
    )Earnings
      (loss) per share:Basic
    
    $
    0.64
    
    $
    (3.54
    )
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )Diluted
    
    $
    0.60
    
    $
    (3.54
    )
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )BALANCE
      SHEET DATA:Total
      cash and marketable securities
    
    $
    166,161
    
    $
    200,095
    
    $
    155,518
    
    $
    121,630
    
    $
    104,051Working
      capital
    
    
    179,987
    
    
    132,062
    
    
    110,151
    
    
    81,100
    
    
    89,517Total
      assets
    
    
    352,473
    
    
    346,914
    
    
    255,671
    
    
    207,898
    
    
    185,895Total
      capital lease obligations
    
    
    250
    
    
    94
    
    
    -
    
    
    90
    
    
    18Long-term
      debt, including current portion
    
    
    3,000
    
    
    100,244
    
    
    66,700
    
    
    66,700
    
    
    84,700Total
      stockholders’ equity
    
    
    328,832
    
    
    226,636
    
    
    171,088
    
    
    121,046
    
    
    84,615
   ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 
 OVERVIEW
 
 We
were organized in 1984 and initially focused on the development and manufacture
of GaAs integrated circuits for low-volume defense and aerospace applications.
In 1988 we began shifting our strategy to focus on radio frequency/microwave
communications systems for high-volume applications, and began production for
these applications in 1989. In 1992 we introduced integrated circuits for the
cable television market. In late 1994 we entered the wireless communications
market with the introduction of cellular telephone integrated circuits. In 2001
we introduced our InGaP HBT power amplifier modules to the wireless
communications market and in 2003 expanded into the WLAN power amplifier
marketplace.
 
 We
strive to achieve market advantage through the application of our radio
frequency/microwave design and application knowledge. With our design expertise
we have led the industry with the introduction of innovative products. Recent
examples include quad-band GSM/GPRS power amplifiers with integrated power
control, high efficiency low power (HELP TM )
3mm x 3mm CDMA PA modules, wideband CDMA power amplifier modules,
PowerPlexer TM integrated GSM front end modules, active splitter integrated circuits for cable
infrastructure and set-top box applications and high output 802.11 b/g WLAN
power amplifier modules, all of which offer greater levels of product
performance and reduce manufacturers' production costs.
 
 We
aim to achieve cost advantages through the scale and efficiency of our
manufacturing operations. During 1999 we began production in our six-inch analog
GaAs wafer fabrication facility, which we believe was among the first six-inch
analog GaAs wafer fabrication facility in our industry. Using a six-inch wafer
allows us to produce, at a small incremental cost, more than twice the
integrated circuit dice per wafer than can be produced from the industry norm
four-inch wafer.
 
 We
have fixed expenses particularly relating to capital equipment and manufacturing
overhead. Accordingly, decreases in revenue result in our fixed production costs
increasing as a percentage of revenue, which adversely affects our gross margin
and profitability. We will continue to invest in selected strategic research and
development programs to maintain our competitive position.
 
 We
resumed revenue growth in 2004 primarily due to increased demand for our
broadband products for the Wireless LAN (WLAN) market consisting of our power
amplifiers and for the cable subscriber and infrastructure markets consisting of
our newer broadband RF integrated circuits. We also experienced increased demand
for our wireless products, while at a lesser degree than the stronger revenue
growth in broadband, consisted of our newer and smaller power amplifier modules
having lower average selling prices than those offered in the prior year.
 
 We
believe our markets are, and will continue to remain, competitive, which could
result in continued quarterly volatility to our revenue stream and therefore
cause continued fluctuations in our profitability. The ongoing market shift to
newer and smaller power amplifier modules will continue to influence average
selling prices to trend downward, which could adversely affect our gross margin
and profitability.
 
 We
have only one reportable segment. For financial information related to such
segment and certain geographic areas, see Note 5 to the accompanying financial
statements.
 
 CRITICAL
ACCOUNTING POLICIES
 
 GENERAL
 
 We
believe the following accounting policies are critical to our business
operations and the understanding of our results of operations. Such accounting
policies may require management to exercise a higher degree of judgment and make
estimates used in the preparation of our consolidated financial
statements.
 
 REVENUE
RECOGNITION
 
 Production
revenue is recorded when products are shipped to customers pursuant to a
purchase order. We charge customers for the costs of certain
contractually-committed inventories that remain at the end of a product's life.
Cancellation revenue is recognized when cash is received. The value of the
inventory related to cancellation revenue may, in some instances, have been
reserved during prior periods in accordance with our inventory obsolescence
policy.
 
 WARRANTY
COSTS
 
 We
provide for potential warranty claims by recording a current charge to income.
We estimate potential claims by examining historical returns and other
information deemed critical and provide for an amount which we believe will
cover future warranty obligations for products sold during the year. The accrued
liability for warranty costs is included in accrued liabilities in the
consolidated balance sheets.
 
 LONG-LIVED
ASSETS
 
 Long-lived
assets include fixed assets, goodwill and other intangible assets. We regularly
review these assets for indicators of impairment and assess the carrying value
of the assets against market values. When an impairment exists, we record an
expense to the extent that the carrying value exceeds fair market
value.
 
 Goodwill
and intangibles impairment
 We
have intangible assets related to goodwill and other acquired intangibles.
Significant judgements are involved in the determination of the estimated useful
lives for our other intangibles and whether the goodwill or other intangible
assets are impaired. In assessing the recoverability of goodwill and other
intangibles, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets.
 
 Impairment
of long-lived assets
 We
record impairment losses on long-lived assets used in operations or expected to
be disposed of when events and circumstances indicate that the undiscounted cash
flows estimated to be generated by these assets is less than the carrying
amounts of those assets. Management considers sensitivities to capacity,
utilization and technological developments in making its
assumptions.
 
 DEFERRED
TAXES
 
 We
record a valuation allowance to reduce deferred tax assets when it is more
likely than not that some portion of the amount may not be realized. During
2001, we determined that it was no longer more likely than not that we would be
able to realize all or part of our net deferred tax asset in the future, and an
adjustment to provide a valuation allowance against the deferred tax asset was
charged to income. We continue to maintain a full valuation allowance on our
deferred tax assets.
 
 While
we have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future, an adjustment to the deferred tax asset would increase
income in the period such determination was made.
 
 INVENTORY
 
 Inventories
are valued at the lower of cost or market ("LCM"), using the first-in, first-out
method. In addition to LCM limitations, we reserve against inventory items for
estimated obsolescence or unmarketable inventory. Our reserve for excess and
obsolete inventory is primarily based upon forecasted short-term demand for the
product and any change to the reserve arising from forecast revisions is
reflected in cost of sales in the period the revision is made.
 
 ALLOWANCE
FOR DOUBTFUL ACCOUNTS
 
 We
maintain an allowance for doubtful accounts for estimated losses resulting from
customers' failure to make payments. If the financial condition of our customers
were to erode, making them unable to make payments, additional allowances may be
required.
 
 RESULTS
OF OPERATIONS
 
 The
following table sets forth statements of operations data as a percentage of net
sales for the periods indicated:
 2002
    
    2003
    
    2004Net
      sales
    
    
    100.0
    %
    
    100.0
    %
    
    100.0
    %Cost
      of sales
    
    
    91.2
    
    
    95.6
    
    
    84.7Gross
      profit
    
    
    8.8
    
    
    4.4
    
    
    15.3Research
      and development expense
    
    
    36.0
    
    
    42.7
    
    
    36.5Selling
      and administrative expenses
    
    
    25.9
    
    
    25.8
    
    
    24.6Restructuring
      and other charges
    
    
    6.1
    
    
    1.2
    
    
    -Asset
      impairment charges
    
    
    10.5
    
    
    -
    
    
    -Goodwill
      impairment charge
    
    
    9.7
    
    
    -
    
    
    -Purchased
      in-process R & D
    
    
    -
    
    
    2.5
    
    
    -Operating
      loss
    
    
    (79.4
    )
    
    (67.8
    )
    
    (45.8
    )Interest
      income
    
    
    7.7
    
    
    4.4
    
    
    2.4Interest
      expense
    
    
    (6.2
    )
    
    (5.0
    )
    
    (4.5
    )Impairment
      of investments
    
    
    (0.5
    )
    
    -
    
    
    -Gain
      on repurchase of Convertible notes
    
    
    15.2
    
    
    -
    
    
    0.4Other
      income
    
    
    -
    
    
    0.4
    
    
    0.3Loss
      before income taxes
    
    
    (63.2
    )
    
    (68.0
    )
    
    (47.2
    )Benefit
      from income taxes
    
    
    (5.2
    )
    
    (0.5
    )
    
    -Loss
      before cumulative effect of accounting change
    
    
    (58.0
    )
    
    (67.5
    )
    
    (47.2
    )Cumulative
      effect of accounting change
    
    
    (9.7
    )
    
    -
    
    
    -Net
      loss
    
    
    (67.7
    %)
    
    (67.5
    %)
    
    (47.2
    %)
   2004
COMPARED TO 2003
 
 NET
SALES. Net sales during 2004 increased 21.5% to $91.3 million, compared to $75.2
million for 2003. The sales improvement was primarily due to an increase in
demand for Broadband products, particularly our Wireless LAN (WLAN) power
amplifiers used in wireless PC access and RF integrated circuits used in both
cable subscriber and infrastructure applications and the remainder to demand for
our GSM power amplifiers used in wireless handsets and hand-held
devices.
 
 
 Sales
during 2004 of RF integrated circuits used for broadband applications increased
36.5% to $46.0 million from $33.7 million in 2003. The increase was primarily
due to increased volumes of our power amplifiers used for Wireless LAN (WLAN)
applications and products used for both cable and subscriber and infrastructure
applications.
 
 Specifically,
net sales of RF integrated circuits used for cellular and PCS applications
increased 9.2% during 2004 to $45.4 million from $41.5 million in 2003. The
increase was due to our expanded product presence and volumes for our GSM power
amplifiers.
 
 Generally,
selling prices for same product sales were lower during 2004 as compared to
2003.
 
 GROSS
MARGIN. Gross margin for 2004 improved to 15.3% of net sales, compared with 4.4%
of net sales in the prior year. The increase in gross margin from the prior year
is the result of the increase in revenue, improved production throughput in our
facilities, lower depreciation expense and lower product costs.
 
 RESEARCH
& DEVELOPMENT. Company sponsored research and development expense increased
3.8% during 2004 to $33.3 million from $32.1 million during 2003 primarily due
to the incremental year-over-year operating costs of the company’s acquisitions
of RFS and Tavanza.
 
 PURCHASED
IN-PROCESS R&D. In 2003, the Company expensed purchased in-process research
and development costs of $1.9 million resulting from the acquisitions of RFS and
Tavanza. The charge represented the fair value of certain acquired research and
development projects that were determined to have not reached technological
feasibility and did not have alternative future uses. No acquisitions or
in-process R&D applied in 2004.
 
 SELLING
AND ADMINISTRATIVE. Selling and administrative expenses increased 15.9% during
2004 to $22.5 million from $19.4 million in 2003. The increase was primarily due
to increased headcount and sales-related costs associated with our sales
expansion efforts, including application centers in Taiwan and South
Korea.
 
 ASSET
AND INVESTMENT IMPAIRMENT CHARGES AND RESTRUCTURING AND OTHER CHARGES. During
2003, we recorded charges of $0.9 million for restructuring and other charges
related to severance and related employee benefits in connection with workforce
reductions of approximately 19 operations and administrative positions and
lease-related costs.
 
 Activity
and liability balances related to the restructuring and other charges for the
years ended December 31, 2003 and 2004 are as follows (in
millions):
 
 Lease
      Related
    
    Workforce
      Reductions
    
    TotalYear
      ended December 31, 2003Beginning
      balance
    
    $
    2.8
    
    $
    0.2
    
    $
    3.0Restructuring
      and other
      expenses
    
    
    0.3
    
    
    0.6
    
    
    0.9Deductions
    
    
    (1.1
    )
    
    (0.8
    )
    
    (1.9
    )December
      31, 2003 restructuring balance
    
    
    2.0
    
    
    -
    
    
    2.0Year
      ended December 31, 2004Deductions
    
    
    (1.3
    )
    
    -
    
    
    (1.3
    )December
      31, 2004 restructuring balance
    
    $
    0.7
    
    $
    -
    
    $
    0.7
 
 INTEREST
INCOME. ****** Interest
income decreased 34.1% to $2.2 million during 2004 from $3.3 million in 2003.
The decrease was due to lower average invested funds and was compounded by lower
interest rates.
 
 INTEREST
EXPENSE. Interest expense increased to $4.1 million in 2004 from $3.8 million in
2003. Interest expense arises from obligations under our 5% Convertible Senior
Notes due in 2006 ("2006 Notes") and our 5% Convertible Senior Notes due in 2009
("2009 Notes"). In September, 2004, we repurchased $20.0 million aggregate
principal amount of our 2006 Notes and consequently reduced the outstanding
principal balance to $46.7 million, and concurrently issued $38 million
aggregate principal amount of our 2009 Notes.
 
 GAIN
ON REPURCHASE OF CONVERTIBLE NOTES. During 2004, we recognized a gain of $0.3
million, on the repurchase of $20.0 million aggregate principal amount of our
2006 Notes, after adjusting for accrued interest and the write-off of a
proportionate share of unamortized offering costs.
 
 BENEFIT
FROM INCOME TAXES. In 2004, the Company received no benefit from income taxes
and recorded a full valuation allowance for its deferred tax
balance.
 
 2003
COMPARED TO 2002
 
 NET
SALES. Net sales during 2003 decreased 8.9% to $75.2 million, compared to $82.6
million for 2002. The sales decline was due to a decrease in demand of TDMA
power amplifiers used in cellular handsets resulting from a market shift in the
U.S. from the TDMA air interface standard to the emergence and deployment of the
CDMA-1X telecommunication standard. Additionally, demand was lower for IC’s used
in set-top boxes attributed to overall market softness for set-top
boxes.
 
 
 Specifically,
net sales of integrated circuits for cellular and PCS applications decreased
7.1% during 2003 to $41.5 million from $44.7 million in 2002. Net sales for TDMA
power amplifiers declined to zero in 2003 from $3.5 million in 2002.
 
 Sales
during 2003 of integrated circuits for broadband applications decreased 11.1% to
$33.7 million from $37.9 million in 2002. The decline was partially offset by
sales of our power amplifiers used in Wireless LAN (WLAN) applications. On March
31, 2003, we purchased the power amplifier business of RF Solutions (RFS)
providing the Company an entrance into the growing WLAN power amplifier
market.
 
 Generally,
selling prices for same product sales were lower during 2003 as compared to
2002.
 
 GROSS
MARGIN. Gross margin for 2003 decreased to 4.4% of net sales, compared with 8.8%
of net sales in the prior year. The decline in gross margin from the prior year
is the result of the decrease in revenue, lower production throughput in our
facilities due to outsourcing and consequent lower absorption of fixed costs.
The aforementioned lower pricing was largely offset by savings related to lower
test, assembly and raw material costs.
 
 RESEARCH
& DEVELOPMENT. Company sponsored research and development expense increased
7.8% during 2003 to $32.1 million from $29.7 million during 2002 primarily due
to the acquisition of the RFS power amplifier business on March 31, 2003 and the
acquisition of the Tavanza CDMA wireless handset business from Celeritek on
October 14, 2003.
 
 PURCHASED
IN-PROCESS R&D. The Company expensed purchased in-process research and
development costs of $1.9 million resulting from the acquisitions of RFS and
Tavanza. The charge represented the fair value of certain acquired research and
development projects that were determined to have not reached technological
feasibility and did not have alternative future uses. No acquisitions or
in-process R&D applied in 2002.
 
 SELLING
AND ADMINISTRATIVE. Selling and administrative expenses decreased 9.3% during
2003 to $19.4 million from $21.4 million in 2002. The decrease was primarily due
to the elimination of intangibles’ amortization as a result of the write-off of
intangibles in the fourth quarter of 2002 and savings realized from the
administrative headcount reductions resulting from our restructuring activities.
The expense reductions were partially offset by increased expenses from the RFS
acquisition and the establishment of new application centers in Taiwan and South
Korea.
 
 ASSET
AND INVESTMENT IMPAIRMENT CHARGES AND RESTRUCTURING AND OTHER CHARGES. During
2003, we recorded charges of $0.9 million for restructuring and other charges
related to severance and related employee benefits in connection with workforce
reductions involving approximately 19 operations and administrative positions
and lease-related costs. During 2002, we recorded charges of $8.6 million for
asset impairments, $0.4 million for impairment on investments and $5.0 million
for restructuring and other charges.
 
 Activity
and liability balances related to the restructuring and other charges for the
years ended December 31, 2002 and 2003 were as follows (in
millions):
 Lease
      Related
    
    
    Workforce
      Reductions
    
    
    TotalYear
      ended December 31, 2002Beginning
      balance
    
    $
    1.1
    
    $
    0.8
    
    $
    1.9Restructuring
      and other expenses
    
    
    3.4
    
    
    1.6
    
    
    5.0Deductions
    
    
    (1.7
    )
    
    (2.2
    )
    
    (3.9
    )December
      31, 2002 restructuring balance
    
    
    2.8
    
    
    0.2
    
    
    3.0Year
      ended December 31, 2003Restructuring
      and other expenses
    
    
    0.3
    
    
    0.6
    
    
    0.9Deductions
    
    
    (1.1
    )
    
    (0.8
    )
    
    (1.9
    )December
      31, 2003 restructuring balance
    
    $
    2.0
    
    $
    -
    
    $
    2.0
 GOODWILL
IMPAIRMENT CHARGE. During 2002, we monitored fiber market conditions in light of
additional job cuts and difficult prospects announced by several of our
end-market customers. In view of these weaker market conditions during the third
quarter of 2002, we evaluated our goodwill and intangible assets for potential
impairment. As a result of that evaluation, we recorded a goodwill impairment
charge of $8.0 million. Also see cumulative effect of accounting change below.
There was no impairment of goodwill in 2003.
 
 INTEREST
INCOME. ****** Interest
income decreased 47.0% to $3.3 million during 2003 from $6.3 million in 2002.
The decrease was due to lower average invested funds and was compounded by lower
interest rates.
 
 INTEREST
EXPENSE. Interest expense decreased to $3.8 million in 2003 from $5.1 million in
2002. Our interest expense arose from obligations under our 2006 Notes, issued
on November 27, 2001. In September 2002, we repurchased $33.3 million in face
value of the 2006 Notes and consequently reduced the outstanding principal
balance to $66.7 million.
 
 GAIN
ON REPURCHASE OF CONVERTIBLE NOTES. During 2002, we recognized a gain of $12.6
million, on the repurchase of $33.3 million in principal of our 2006 Notes,
after adjusting for accrued interest and the write-off of a proportionate share
of unamortized offering costs.
 
 BENEFIT
FROM INCOME TAXES. In
December 2002, the Company received a $4.3 million refund pursuant to a
carryback claim under the Job Creation and Workers Assistance Tax Act of 2002.
The refund represented taxes paid in 1996 and 1997.
 
 CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. In 2002, we adopted the provisions of Statement of
Financial Accounting Standards ("FAS") No 142, "Goodwill and Other Intangible
Assets". Under the new rules, goodwill is no longer subject to amortization but
is reviewed for potential impairment, upon adoption and thereafter annually or
upon the occurrence of an impairment indicator. The annual amortization of
goodwill which would have approximated $2.6 million was no longer required. As a
result of completing the required test, we recorded a charge for the cumulative
effect of the accounting change in the amount of $8.0 million representing the
excess of the carrying value of a reporting unit as compared to its estimated
fair value. In 2003, there was no charge for an accounting change.
 
 LIQUIDITY
AND SOURCES OF CAPITAL
 
 At
December 31, 2004 we had $11.2 million of cash and cash equivalents on hand and
$92.9 million in marketable securities. We had $38.0 million aggregate principal
amount of our 2009 Notes and $46.7 million aggregate principal amount of our
2006 Notes outstanding as of December 31, 2004.
 
 Operations
required the use of $29.7 million in cash during 2004. Investing activities
provided $4.1 million of cash during 2004, consisting principally of net sales
of marketable securities of $7.5 million, partially offset by purchases of
equipment of $3.4 million. Financing activities provided $18.2 million of cash
in 2004, primarily consisting of proceeds received from our issuance of $38.0
million aggregate principal amount of our 2009 Notes, net of offering costs and
further reduced by our repurchase of $20.0 million aggregate principal amount of
our 2006 notes.
 
 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 as well as the repayment of
our debt prinicipal obligation due in November, 2006. Our anticipated capital
needs may include acquisitions of complimentary businesses or technologies,
investments in other companies or repurchases of 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.  Our
ability to pay principal and interest on our $84.7 million in outstanding
convertible senior unsecured notes, $46.7 million of which are due in November
of 2006 and the remainder of which are due in October of 2009, and our other
debt and to fund our planned capital expenditures depends on our future
operating performance.
 
 The
table below summarizes required cash payments as of December 31,
2004:
  CONTRACTUAL
      OBLIGATIONS
    
    PAYMENTS
      DUE BY PERIOD (in thousands)Total
    
    
    1
      year and less
    
    
    1
      - 3 years
    
    
    4
      - 5 years
    
    
    After
      5 yearsLong-term
      debt, including interest
    
    $
    98,182
    
    $
    4,235
    
    $
    52,543
    
    $
    41,404
    
    $
    -Operating
      leases
    
    
    23,628
    
    
    2,641
    
    
    3,392
    
    
    3,480
    
    
    14,115Capital
      leases
    
    
    18
    
    
    18
    
    
    -
    
    
    -
    
    
    -Unconditional
      purchase obligations
    
    
    2,445
    
    
    2,445
    
    
    -
    
    
    -
    
    
    -Total
      contractual cash obligations
    
    $
    124,273
    
    $
    9,339
    
    $
    55,935
    
    $
    44,884
    
    $
    14,115
 
 IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
  In December 2004, the
Financial Accounting Standards Board issued Statement No. 123(R) (FAS 123R),
Share-Based Payment, amending FAS 123 and requiring that all share-based
payments to employees be recognized in the financial statements. Generally, the
approach to accounting for share-based payments in FAS 123R is similar to the
approach described in FAS 123, however, pro forma footnote disclosure will no
longer be an alternative to financial statement recognition. This statement
becomes effective in the first interim or annual period beginning after June 15,
2005. The Company expects to adopt the new statement effective January 1, 2005,
using the modified-prospective transition method described in the statement.
Under this method, the Company will be required to recognize compensation
expense over the remaining vesting period for all awards that remain unvested as
of January 1, 2005. As permitted by FAS 123, the Company currently accounts for
share-based payments to employees using APB 25's intrinsic value method and, as
such, generally recognized no compensation cost for employee stock options. The
Company believes based on the level of share-based payments previously granted
and unvested, that the adoption of FAS 123R will not have a material effect on
its financial position, results of operations or cashflows, however, the
level of future equity based compensation grants could have a material
effect on amounts recorded in our statement of operations. On December 22,
2004, the Company authorized an immediate vesting of eligible employees’
unvested share options with an exercise price greater than $5.00 per share.
Directors were not eligible. In total, 1,772,289 options with an average
exercise price of $7.26 immediately vested and have an average remaining
contractual life of 9.1 years. The unamortized fair value associated with these
accelerated-vest shares of approximately $2.65 million amortized immediately. In
addition to its employee-retention value, the Company’s decision to accelerate
the vesting of these "out-of-the-money" options was based upon the accounting of
such costs moving from disclosure-only in 2004 to being included in the
Company’s statement of operations in 2005.
 
 In
November 2004, the Financial Accounting Standards Board issued Statement No. 151
(FAS 151), Inventory costs, an amendment of ARB No. 43, Chapter 4. FAS 151
clarifies that abnormal amounts of idle facility expense, freight, handling
costs and wasted materials should be recognized as current period charges. In
addition, FAS 151 requires that allocation of fixed production overhead to
inventory be based on the normal capacity of the production facilities. FAS 151
is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company currently believes that the adoption of FAS 151 will
not have a material impact on its consolidated financial statements.
 
 
 ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 We
are exposed to changes in interest rates primarily from our investments in
certain available-for-sale securities. Our available-for-sale securities consist
primarily of fixed income investments, including corporate bonds, commercial
paper and U.S. Treasury and agency securities. We continually monitor our
exposure to changes in interest rates and the credit ratings of issuers with
respect to our available-for-sale securities. Accordingly, we believe that the
effects of changes in interest rates and the credit ratings of these issuers are
limited and would not have a material impact on our financial condition or
results of operations. However, it is possible that we are at risk if interest
rates or credit ratings of issuers change in an unfavorable direction. The
magnitude of any gain or loss will be a function of the difference between the
fixed rate of the financial instrument and the market rate and our financial
condition and results of operations could be materially affected.
 
 At
December 31, 2004, we held marketable securities with an estimated fair value of
$92.9 million. Our primary interest rate exposure results from changes in
short-term interest rates. We do not purchase financial instruments for trading
or speculative purposes. All of our marketable securities are classified as
available-for-sale securities. The following table provides information about
our marketable securities at December 31, 2004:
 
 Estimated
      Principal Amount and Weighted Average Stated Rate by Expected Maturity
      Value
    
    Fair
      Value($’s
      000)
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    Total
    
    
    ($’s
      000
    )Principal
    
    $
    63,240
    
    $
    28,839
    
    
    -
    
    $
    92,079
    
    $
    92,880Weighted
      Average Stated Rates
    
    
    3.79
    %
    
    4.43
    %
    
    -
    
    
    3.99
    %
    
    -
  The
stated rates of interest expressed in the above table may not approximate the
actual yield of the securities which we currently hold since we have purchased
some of our marketable securities at other than face value. Additionally, some
of the securities represented in the above table may be called or redeemed, at
the option of the issuer, prior to their expected due dates. If such early
redemptions occur, we may reinvest the proceeds realized on such calls or
redemptions in marketable securities with stated rates of interest or yields
that are lower than those of current holdings, affecting both future cash
interest streams and future earnings. In addition to investments in marketable
securities, we place some of our cash in money market funds in order to keep
cash available to fund operations and to hold cash pending investments in
marketable securities. Fluctuations in short term interest rates will affect the
yield on monies invested in such money market funds. Such fluctuations can have
an impact on our future cash interest streams and future earnings, but the
impact of such fluctuations are not expected to be material.
 
 Each
of our 2006 Notes and 2009 Notes are convertible notes that bear a fixed rate of
interest of 5%. A change in interest rates on long-term debt is assumed to
impact fair value but not earnings or cash flow because the interest rate is
fixed. At December 31, 2004, the fair value of the outstanding Convertible
notes, estimated based upon dealer quotes, was approximately $86.1 million.
 
  
  ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 
 Report
of Independent Registered Public Accounting Firm
 
 The
Board of Directors and Stockholders
 ANADIGICS,
Inc.
 
 We
have audited the accompanying consolidated balance sheets of ANADIGICS, Inc. as
of December 31, 2004 and 2003, and the related consolidated statements of
operations, comprehensive loss, stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2004. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audit of financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ANADIGICS, Inc. as of
December 31, 2004 and 2003, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2004
in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
 
 As discussed
in Note 3, the Company changed its method of accounting for goodwill and other
intangible assets in 2002.
 
 We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of ANADIGICS, Inc.’s internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
2, 2005 expressed an unqualified opinion thereon.
 
 
 /s/  ERNST
& YOUNG LLP
 
 
 
 MetroPark,
New Jersey
 March
2, 2005
 
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
BALANCE SHEETS
 
 (DOLLARS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
 December
      31,2003
    
    
    2004ASSETSCurrent
      assets:Cash and cash equivalents
    
    $
    18,525
    
    $
    11,171Marketable securities
    
    
    54,130
    
    
    63,615Accounts receivable, net of allowance for doubtful accounts of $752 and
      $988 in 2003 and 2004, respectively
    
    
    12,074
    
    
    10,770Inventories
    
    
    10,321
    
    
    14,436Prepaid expenses and other current assets
    
    
    3,243
    
    
    3,073Total
      current assets
    
    
    98,293
    
    
    103,065Marketable
      securities
    
    
    48,975
    
    
    29,265Plant
      and equipmentEquipment and furniture
    
    
    130,815
    
    
    132,864Leasehold improvements
    
    
    38,437
    
    
    38,774Projects in process
    
    
    1,609
    
    
    1,341170,861
    
    
    172,979Less accumulated depreciation and amortization
    
    
    115,619
    
    
    129,94155,242
    
    
    43,038Goodwill
      and other intangibles, less accumulated amortization of $64 and $258 in
      2003 and 2004, respectively
    
    
    1,788
    
    
    6,297Other
      assets
    
    
    3,600
    
    
    4,230$
    207,898
    
    $
    185,895LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      liabilities:Accounts payable
    
    $
    9,497
    
    $
    8,021Accrued liabilities
    
    
    5,618
    
    
    4,783Accrued restructuring costs
    
    
    1,994
    
    
    726Current maturities of capital lease obligations
    
    
    84
    
    
    18Total
      current liabilities
    
    
    17,193
    
    
    13,548Long-term
      debt
    
    
    66,700
    
    
    84,700Other
      long-term liabilities
    
    
    2,959
    
    
    3,032Commitments
      and contingenciesStockholders’
      equityPreferred stock, $0.01 par value, 5,000,000 shares authorized, none issued
      or outstandingCommon stock, convertible, non-voting, $0.01 par value, 1,000,000 shares
      authorized, none issued or outstandingCommon stock, $0.01 par value, 144,000,000 shares authorized at December
      31, 2003 and 2004, and  31,225,888 and 33,072,438 issued and
      outstanding at December 31, 2003 and 2004, respectively
    
    
    312
    
    
    331Additional paid-in capital
    
    
    335,477
    
    
    343,594Deferred compensation
    
    
    -
    
    
    (861
    )Accumulated deficit
    
    
    (214,881
    )
    
    (257,963
    )Accumulated other comprehensive income
    
    
    138
    
    
    (486
    )Total
      stockholders’ equity
    
    
    121,046
    
    
    84,615$
    207,898
    
    $
    185,895
 
 
 See
accompanying notes.
  
  
     YEAR
      ENDED DECEMBER 31,2002
    
    
    2003
    
    
    2004Net
      sales
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350Cost
      of sales
    
    
    75,302
    
    
    71,927
    
    
    77,355Gross
      profit
    
    
    7,262
    
    
    3,285
    
    
    13,995Research
      and development expenses
    
    
    29,742
    
    
    32,075
    
    
    33,306Selling
      and administrative expenses
    
    
    21,400
    
    
    19,420
    
    
    22,511Restructuring
      and other charges
    
    
    5,001
    
    
    925
    
    
    -Asset
      impairment charges
    
    
    8,641
    
    
    -
    
    
    -Goodwill
      impairment charges
    
    
    8,043
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,863
    
    
    -72,827
    
    
    54,283
    
    
    55,817Operating
      loss
    
    
    (65,565
    )
    
    (50,998
    )
    
    (41,822
    )Interest
      income
    
    
    6,309
    
    
    3,344
    
    
    2,203Interest
      expense
    
    
    (5,119
    )
    
    (3,761
    )
    
    (4,085
    )Impairment
      of investments
    
    
    (390
    )
    
    -
    
    
    -Gain
      on repurchase of Convertible notes
    
    
    12,581
    
    
    -
    
    
    327Other
      income
    
    
    1
    
    
    276
    
    
    295Loss
      before income taxes
    
    
    (52,183
    )
    
    (51,139
    )
    
    (43,082
    )Benefit
      from income taxes
    
    
    (4,307
    )
    
    (382
    )
    
    -Loss
      before cumulative effect of accounting change
    
    
    (47,876
    )
    
    (50,757
    )
    
    (43,082
    )Cumulative
      effect of accounting change
    
    
    (8,010
    )
    
    -
    
    
    -Net
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Net
      loss per shareBasic
      and dilutedLoss
      before cumulative effect of accounting change
    
    $
    (1.57
    )
    $
    (1.65
    )
    $
    (1.33
    )Net
      loss
    
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )Weighted
      average common and dilutive securities outstanding
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922
 
 
 
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
 
 (DOLLARS
IN THOUSANDS)
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Net
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Other
      comprehensive income (loss)Unrealized
      gain (loss) on marketable securities
    
    
    116
    
    
    (666
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    (10
    )
    
    46
    
    
    12Reclassification
      adjustment:Net
      realized (gain) loss previously included in other comprehensive
      income
    
    
    (71
    )
    
    15
    
    
    (19
    )Comprehensive
      loss
    
    $
    (55,851
    )
    $
    (51,362
    )
    $
    (43,706
    )
 
 
 See
accompanying notes.
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 
 (SHARES
AND DOLLARS IN THOUSANDS)
 
 Common
      Stock Shares
    
    
    Common
      Stock Amount
    
    
    Additional
      Paid-In Capital
    
    
    Deferred
      Compensation
    
    
    Accumulated
      Deficit
    
    
    Accumulated
      Other Comprehensive Income (loss
    )
    
    Total
      Stockholders’ EquityBalance,
      December 31, 2001
    
    
    30,569
    
    $
    306
    
    $
    333,860
    
    
    -
    
    $
    (108,328
    )
    $
    708
    
    $
    226,636Stock
      options exercised
    
    
    17
    
    
    -
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    108Shares
      issued under employee stock purchase plan
    
    
    88
    
    
    1
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    195Unrealized
      gains on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    116Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    (10
    )Net
      realized gain, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    (71
    )Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,886
    )
    
    
    
    
    (55,886
    )Balance,
      December 31, 2002
    
    
    30,674
    
    
    307
    
    
    334,162
    
    
    -
    
    
    (164,124
    )
    
    743
    
    
    171,088Stock
      options exercised
    
    
    23
    
    
    -
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Shares
      issued under employee stock purchase plan
    
    
    529
    
    
    5
    
    
    1,222
    
    
    
    
    
    
    
    
    
    
    
    1,227Unrealized
      loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (666
    )
    
    (666
    )Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    46Net
      realized loss, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    15Stock-based
      compensation
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,757
    )
    
    
    
    
    (50,757
    )Balance,
      December 31, 2003
    
    
    31,226
    
    
    312
    
    
    335,477
    
    
    -
    
    
    (214,881
    )
    
    138
    
    
    121,046Stock
      options exercised
    
    
    536
    
    
    5
    
    
    1,355
    
    
    
    
    
    
    
    
    
    
    
    1,360Shares
      issued under employee stock purchase plan
    
    
    182
    
    
    2
    
    
    561
    
    
    
    
    
    
    
    
    
    
    
    563Shares
      issued as contingent acquisition consideration
    
    
    747
    
    
    8
    
    
    4,640
    
    
    
    
    
    
    
    
    
    
    
    4,648Restricted
      stock grant
    
    
    403
    
    
    4
    
    
    1,613
    
    $
    (1,617
    )
    
    
    
    
    
    
    
    -Restricted
      stock forfeitures
    
    
    (22
    )
    
    -
    
    
    (87
    )
    
    87
    
    
    
    
    
    
    
    
    -Amortization
      of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    
    669Unrealized
      loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (617
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    12Net
      realized gain, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    (19
    )Stock-based
      compensation
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,082
    )
    
    
    
    
    (43,082
    )Balance,
      December 31, 2004
    
    
    33,072
    
    $
    331
    
    $
    343,594
    
    $
    (861
    )
    $
    (257,963
    )
    $
    (486
    )
    $
    84,615
 
 
 See
accompanying notes.
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 (DOLLARS
IN THOUSANDS)
 
 YEAR
      ENDED DECEMBER 31,2002
    
    
    2003
    
    
    2004CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Cumulative
      effect of accounting change
    
    
    8,010
    
    
    -
    
    
    -Gain
      on repurchase of Convertible notes
    
    
    (12,581
    )
    
    -
    
    
    (327
    )Depreciation
    
    
    19,828
    
    
    18,481
    
    
    15,282Amortization
    
    
    2,197
    
    
    1,173
    
    
    1,483Stock
      based compensation
    
    
    -
    
    
    26
    
    
    704Amortization
      of premium on marketable securities
    
    
    2,256
    
    
    2,432
    
    
    2,090Impairments
      of long-lived assets and investments
    
    
    17,074
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,863
    
    
    -Loss on
      sale of equipment
    
    
    -
    
    
    20
    
    
    15Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    1,184
    
    
    (2,906
    )
    
    1,304Inventory
    
    
    1,384
    
    
    2,957
    
    
    (4,115
    )Prepaid
      expenses and other assets
    
    
    1,070
    
    
    1,234
    
    
    361Accounts
      payable
    
    
    (1,681
    )
    
    1,730
    
    
    (1,476
    )Accrued
      and other liabilities
    
    
    (386
    )
    
    146
    
    
    (1,892
    )Net cash
      used in operating activities
    
    
    (17,531
    )
    
    (23,601
    )
    
    (29,653
    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of plant and equipment
    
    
    (4,945
    )
    
    (4,178
    )
    
    (3,427
    )Purchases
      of marketable securities
    
    
    (104,619
    )
    
    (97,605
    )
    
    (51,128
    )Proceeds
      from sales of marketable securities
    
    
    108,197
    
    
    122,577
    
    
    58,627Business
      acquisitions
    
    
    -
    
    
    (4,217
    )
    
    (55
    )Proceeds
      from sale of equipment
    
    
    2
    
    
    -
    
    
    130Net
      cash (used in) provided by investing activities
    
    
    (1,365
    )
    
    16,577
    
    
    4,147CASH
      FLOWS FROM FINANCING ACTIVITIESPayment
      of obligations under capital leases
    
    
    (94
    )
    
    (88
    )
    
    (66
    )Repayments
      of long-term debt
    
    
    (244
    )
    
    -
    
    
    -Proceeds
      from issuance of long-term debt net of offering costs
    
    
    -
    
    
    -
    
    
    35,695Repurchase
      of Convertible notes
    
    
    (19,828
    )
    
    -
    
    
    (19,400
    )Issuances
      of common stock, net of related expenses
    
    
    303
    
    
    1,294
    
    
    1,923Net
      cash (used in) provided by financing activities
    
    
    (19,863
    )
    
    1,206
    
    
    18,152Net
      decrease in cash and cash equivalents
    
    
    (38,759
    )
    
    (5,818
    )
    
    (7,354
    )Cash
      and cash equivalents at beginning of period
    
    
    63,102
    
    
    24,343
    
    
    18,525Cash
      and cash equivalents at end of period
    
    $
    24,343
    
    $
    18,525
    
    $
    11,171Supplemental
      disclosures of cash flow information:Interest
      paid
    
    $
    4,549
    
    $
    3,335
    
    $
    3,193Taxes
      paid
    
    
    200
    
    
    -
    
    
    117
 
  
 See
accompanying notes.
 
 
 
 
 
  
  
 ANADIGICS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (DOLLARS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
 NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
 
 
 ANADIGICS,
Inc. (the "Company") is a leading supplier of radio frequency ("RF")/microwave
integrated circuit solutions for the communications industry. The Company’s
products are used to send and receive signals in a variety of broadband and
wireless communications applications. In the broadband markets, the focus is on
applications for cable subscriber products, cable infrastructure systems,
wireless local area networks ("WLAN"), and fiber optic communications systems.
In the wireless market, the Company’s efforts are focused on applications for
cellular and personal communication systems ("PCS") handsets.
 
 The
Company designs, develops and manufactures radio frequency integrated circuit
solutions primarily using gallium arsenide ("GaAs") semiconductor material with
either Metal Semiconductor Field Effect Transistor (MESFET), Pseudomorphic High
Electron Mobility Transistor (PHEMT) or Heterojunction Bipolar Transistor (HBT)
process technology. The Company manufactures its integrated circuits in its
six-inch analog GaAs wafer fabrication facility. GaAs offers certain advantages
in RF/microwave applications including the integration of numerous RF/microwave
functions, which cannot be easily integrated in silicon-based circuits. The
Company’s high frequency integrated circuits enable manufacturers of
communications equipment to enhance overall system performance and reduce
manufacturing cost and time to market.
 
 The
consolidated financial statements include the accounts of ANADIGICS, Inc. and
its wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
 
 USE
OF ESTIMATES
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates. Significant estimates that affect the financial statements include,
but are not limited to: recoverability of inventories, useful lives and
amortization periods and recoverability of long-lived assets.
  CONCENTRATION
OF CREDIT RISK
  The
Company grants trade credit to its customers, who are primarily foreign
manufacturers of wireless communication devices, cable and broadcast television
receivers and fiber optic communication devices. The Company performs periodic
credit evaluations of its customers and generally does not require collateral.
Sales and accounts receivable from customers are denominated in U.S. dollars.
The Company has not experienced significant losses related to receivables from
these individual customers.
 
 Net
sales to individual customers who accounted for 10% or more of the Company’s
total net sales and corresponding end application information are as
follows:
  YEAR
      ENDED DECEMBER 312002
    
    
    2003
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Customer
      (application)Motorola
      (Broadband)
    
    $
    18,666
    
    
    23
    %
    $
    10,422
    
    
    14
    %
    $
    9,184
    
    
    10
    %Kyocera
      (Wireless)
    
    
    29,231
    
    
    35
    %
    
    21,263
    
    
    28
    %
    
    9,751
    
    
    11
    %Scientific
      Atlanta (Broadband)
    
    
    <10
    %
    
    <10
    %
    
    <10
    %
    
    <10
    %
    
    9,218
    
    
    10
    %LG
      Electronics (Wireless)
    
    
    <10
    %
    
    <10
    %
    
    10,346
    
    
    14
    %
    
    13,628
    
    
    15
    %
 
 Accounts
receivable at December 31, 2003 and 2004 from the greater than 10% customers
accounted for 49% and 51% of total accounts receivable,
respectively.
 
 REVENUE
RECOGNITION
 
 Production
revenue is recorded when products are shipped to customers pursuant to a
purchase order. The Company charges customers for the costs of certain
contractually-committed inventories that remain at the end of a product's life.
Cancellation revenue is recognized when cash is received. The value of the
inventory related to cancellation revenue may, in some instances, have been
reserved during prior periods in accordance with the Company’s inventory
obsolescence policy. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from customers' failure to make
payments.
 
 WARRANTY
COSTS
 
 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 consolidated balance sheets.
 
 PLANT
AND EQUIPMENT
 
 
 Plant
and equipment are stated at cost. Depreciation of plant, furniture and equipment
has been provided on the straight-line method over 3-5 years. Leasehold
improvements are amortized and included in depreciation over the useful life of
the leasehold or the life of the lease, whichever is shorter.
 
 The
cost of equipment acquired under capital leases was $10,633 and $10,545 at
December 31, 2003 and 2004, respectively, and accumulated amortization was
$10,484 and $10,519 at December 31, 2003 and 2004, respectively. Equipment
acquired under a capital lease is amortized and included in depreciation over
the useful life of the leased equipment or the life of the lease, whichever is
shorter.
 
 GOODWILL
AND OTHER INTANGIBLES
 
 Goodwill,
process technology, customer list and a covenant-not-to-compete were recorded as
part of the Company's acquisitions. Effective January 1, 2002, the Company
adopted the provisions of Financial Accounting Standards Board Statement No.
142, Goodwill and Other Intangible Assets (FAS 142). Under the new rules,
goodwill is no longer subject to amortization but is reviewed for potential
impairment upon adoption and thereafter annually or upon the occurrence of an
impairment indicator. FAS 142 prescribes a two-phase process for impairment
testing of goodwill. The first phase screens for impairment; while the second
phase measures the impairment. Process technology, the customer list and the
covenant continued to be amortized using the straight-line method over three to
four year lives. The carrying amount of the Company’s intangibles are reviewed
on a regular basis for any signs of an impairment. The Company determines if the
carrying amount is impaired based on anticipated cash flows. In the event of
impairment, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the asset. For each of the reporting units,
fair value is determined primarily using the anticipated cash flows, discounted
at a rate commensurate with the associated risk.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS
 
 Long-lived
assets used in operations are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets might not be
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and fair value. Long-lived assets held for sale are
reported at the lower of cost or fair value less costs to sell.
 
 INCOME
TAXES
 
 
 Deferred
income taxes reflect the net effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the income tax basis of such assets and liabilities. The Company maintains a
full valuation allowance on its deferred tax assets.
 
 RESEARCH
AND DEVELOPMENT COSTS
 
 
 The
Company charges all research and development costs associated with the
development of new products to expense when incurred.
 
 
 IN-PROCESS
RESEARCH AND DEVELOPMENT
 
 In
the event of an acquisition, the Company will calculate the fair value of
in-process research and development projects, based upon discounted cash flows
estimated by management of future revenues and expected profitability of the
related technology. The rate used to discount the projected future cash flows
accounts for the time value of money, as well as the risks of realization of the
cash flows. Management will record a charge to earnings where projects are
determined to have not reached technological feasibility and do not have
alternative uses.
 
 CASH
EQUIVALENTS
 
 
 The
Company considers all highly liquid marketable securities with an original
stated maturity of three months or less as cash equivalents.
 
 
 MARKETABLE
SECURITIES
 
 
 Available
for sale securities are stated at fair value, as determined by quoted market
prices, with unrealized gains and losses reported in other accumulated
comprehensive income or loss. The cost of securities sold is based upon the
specific identification method. The amortized cost of debt securities is
adjusted for amortization of premium and accretion of discounts to maturity.
Such amortization, realized gains and losses, interest and dividends are
included in interest income. See Note 8 for a summary of available-for-sale
securities.
 
 FOREIGN
CURRENCY TRANSLATION
 
 The
financial statements of subsidiaries outside of the United States are measured
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the rates of exchange at the balance sheet
date. The resultant translation adjustments are included in other accumulated
comprehensive income or loss. Income and expense items are translated at the
average monthly rates of exchange. Gains and losses from foreign currency
transactions of these subsidiaries are included in the determination of net
income or loss.
 
 STOCK
BASED COMPENSATION
 
 As
permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
(FAS 123), the Company has elected to follow the intrinsic value method under
Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations in accounting for its employee
stock option and other stock based compensation plans. Under APB 25, no
compensation expense is recognized at the time of option grant when the exercise
price of the Company’s employee stock options equals the fair market value of
the underlying common stock on the date of grant. Compensation expense
attributable to restricted stock awards is based on the fair value of such
shares at the date of issuance and is amortized over the vesting
period.
  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 SFAS No. 123:
 
 2002
    
    
    2003
    
    
    2004Net
      loss, as reported
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Stock
      based compensation included in reported net loss
    
    
    -
    
    
    26
    
    
    704Stock
      based compensation expense under fair value reporting
    
    
    (10,863
    )
    
    (7,905
    )
    
    (9,978
    )Pro
      forma net loss
    
    $
    (66,749
    )
    $
    (58,636
    )
    $
    (52,356
    )Basic
      and diluted loss per shareNet
      loss, as reported
    
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )Pro
      forma net loss
    
    $
    (2.18
    )
    $
    (1.91
    )
    $
    (1.62
    )
 On
December 22, 2004, the Company authorized an immediate vesting of eligible
employees’ unvested share options with an exercise price greater than $5.00 per
share. Directors were not eligible. In total, 1,772,289 options with an average
exercise price of $7.26 immediately vested and have an average remaining
contractual life of 9.1 years. The unamortized fair value associated with these
accelerated-vest shares in the amount of $2,654 amortized immediately. Had the
accelerated-vest program not occurred, the related-cost in the years ended
December 31, 2005, 2006 and 2007 would have included $1,846, $751 and $57,
respectively. In addition to its employee-retention value, the Company’s
decision to accelerate the vesting of these "out-of-the-money" options was based
upon the accounting of such costs moving from disclosure-only in 2004 to being
included in the Company’s statement of operations in 2005.
 EARNINGS PER
SHARE
 
 Basic
and diluted earnings per share are calculated in accordance with FASB Statement
No. 128, Earnings Per Share. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised resulting in the issuance of common stock of the Company.  Any
dilution arising from the Company's outstanding stock options or share
potentially issuable upon conversion of the Convertible notes are not included
as their effect is anti-dilutive.
  FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The fair value
of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The fair value of
each of the following instruments approximates their carrying value because of
the short maturity of these instruments: cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities. At December 31, 2004, the
fair value of the Company's outstanding Convertible senior notes, estimated
based upon dealer quotes, was approximately $86,062.
 
 IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
 
 In
December 2004, the Financial Accounting Standards Board issued Statement No.
123(R) (FAS 123R), Share-Based Payment, amending FAS 123 and requiring that all
share-based payments to employees be recognized in the financial statements.
Generally, the approach to accounting for share-based payments in FAS 123R is
similar to the approach described in FAS 123, however, pro forma footnote
disclosure will no longer be an alternative to financial statement recognition.
This statement becomes effective in the first interim or annual period beginning
after June 15, 2005. The Company expects to adopt the new statement effective
January 1, 2005, using the modified-prospective transition method described in
the statement. Under this method, the Company will be required to recognize
compensation expense over the remaining vesting period for all awards that
remain unvested as of January 1, 2005. As permitted by FAS 123, the Company
currently accounts for share-based payments to employees using APB 25's
intrinsic value method and, as such, generally recognized no compensation cost
for employee stock options. The Company believes based on the level of
share-based payments previously granted and unvested, that the adoption of FAS
123R will not have a material effect on its financial position, results of
operations or cashflows, however, the level of future equity based compensation
grants could have a material effect on amounts recorded in our statement of
operations.
 
 In
November 2004, the Financial Accounting Standards Board issued Statement No. 151
(FAS 151), Inventory costs, an amendment of ARB No. 43, Chapter 4. FAS 151
clarifies that abnormal amounts of idle facility expense, freight, handling
costs and wasted materials should be recognized as current period charges. In
addition, FAS 151 requires that allocation of fixed production overhead to
inventory be based on the normal capacity of the production facilities. FAS 151
is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company currently believes that the adoption of FAS 151 will
not have a material impact on its consolidated financial
statements.
 
 RECLASSIFICATIONS
 
 Certain
prior period amounts have been reclassified to conform to the current
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
acquisition costs of $8,920 was allocated to the assets acquired and liabilities
assumed, based on their fair values as follows:
 
 TotalFair
      value of tangible assets
    
    $
    1,029Fair
      value of liabilities assumed
    
    
    (527
    )In-process
      research and development
    
    
    1,863Process
      technology
    
    
    210Covenant-not-to-compete
    
    
    175Customer
      list
    
    
    240Goodwill
    
    
    5,930Total
      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 year ended December 31,
2004:
 
 Balance
      at December 31, 2003
    
    $
    1,227Additions,
      primarily related to RFS share issuance
    
    
    4,703Balance
      at December 31, 2004
    
    $
    5,930
 
 The
following unaudited pro-forma consolidated financial information reflects the
results of operations for the twelve months ended December 31, 2002 and 2003, as
if the acquisitions of RFS and Tavanza had occurred on December 31, 2001 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.
  Year
      Ended December 312002
    
    
    2003Pro-forma
      revenue
    
    $
    83,020
    
    $
    75,751Pro-forma
      net loss before cumulative effect of accounting change
    
    
    (57,034
    )
    
    (51,947
    )Pro-forma
      net loss
    
    
    (65,044
    )
    
    (51,947
    )Basic
      and diluted net loss per sharePro-forma
      net loss before cumulative effect of accounting change
    
    $
    (1.86
    )
    $
    (1.69
    )Pro-forma
      net loss
    
    
    (2.13
    )
    
    (1.69
    )
 
 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
acquisition actually taken place on December 31, 2001. 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. 
INTANGIBLES, GOODWILL, CUMULATIVE EFFECT OF ACCOUNTING CHANGE AND
ACQUISITION INTANGIBLES' IMPAIRMENT CHARGES
 
 As
of December 31, 2003 and 2004, the Company's intangible assets consist of the
following:
 
 Gross
      Carrying Amount
    Accumulated
      AmortizationDecember
      31,
    December
      31,2003
    
    
    2004
    
    
    2003
    
    
    2004Goodwill
    
    $
    1,227
    
    $
    5,930
    
    $
    -
    
    $
    -Process
      Technology
    
    
    210
    
    
    210
    
    
    35
    
    
    91Covenant
      not to compete
    
    
    175
    
    
    175
    
    
    12
    
    
    70Customer
      list
    
    
    240
    
    
    240
    
    
    17
    
    
    97$
    1,852
    
    $
    6,555
    
    $
    64
    
    $
    258
 
 Annual
amortization expense related to intangible assets is calculated over their
estimated useful lives of three to four years and was $64 and $194 in the years
ended December 31, 2003 and 2004, respectively. In the year ended December 31,
2002, intangible asset amortization expense was $1,080 which was recorded prior
to the impairment write-off of the intangibles in the fourth quarter of 2002, as
discussed below.
 
 Future
annual amortization expense related to intangible assets is expected to be as
follows:
 
 2005
    
    
    2006
    
    
    2007Amortization
      expense
    
    $
    194
    
    $
    162
    
    $
    11
  Effective
January 1, 2002, the Company adopted the provisions of FAS 142 and under the new
rules, goodwill is no longer subject to amortization but is reviewed for
potential impairment annually or upon the occurrence of an impairment indicator.
The annual amortization of Telcom’s goodwill, which would have approximated
$2,567 was no longer required in 2002. Other intangible assets continued to be
amortized over their useful lives. As a result of completing the initial
required impairment test, the Company recorded a charge for the cumulative
effect of the accounting change in the amount of $8,010 ($0.26 per share)
representing the excess of the carrying value of a reporting unit (Telcom) as
compared to its estimated fair value as of January 1, 2002.
 
 During
the course of 2002, the Company monitored fiber market conditions in light of
job cuts and difficult prospects announced by several of its end-market
customers. In view of these weaker market conditions, the Company performed
several tests of its goodwill and intangible assets for potential impairment
during the year. As a result of those evaluations, the Company recorded a
goodwill impairment charge of $8,043 and an asset impairment charge for its
remaining acquired intangibles of $2,310. The $2,310 was included within charges
for asset impairments as discussed in Note 4 below.
 
 
 4.
RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
 
 During
2003, the Company recorded restructuring charges of $925 pertaining to severance
and related benefits of workforce reductions of approximately 19 operations and
administrative positions and lease-related costs.
 
 In
2002, the Company recorded charges for asset impairments, impairment on
investments and for restructuring and other charges of $8,641, $390 and $5,001,
respectively. The asset impairment charge of $8,641 related to the write-off of
certain manufacturing and research equipment, leasehold improvements, certain
acquired intangibles and certain technology licenses that are no longer used in
the ongoing activities of the business. The charge for impairment on investments
was recorded on a private-equity investment following an evaluation that
indicated the carrying value of such investment exceeded its estimated fair
market value. The restructuring and other charges were for lease-related costs
and for severance and related employee benefit costs of workforce reductions.
The workforce reductions eliminated approximately 83 positions throughout the
Company.
 
 Activity
and liability balances related to the restructuring and other charges for the
years ended December 31, 2002, 2003 and 2004 are as follows:
 
 Lease
      Related
    
    
    Workforce
      Reductions
    
    
    TotalYear
      ended December 31, 2002Beginning
      balance
    
    $
    1,189
    
    $
    709
    
    $
    1,898Restructuring
      and other expenses
    
    
    3,374
    
    
    1,628
    
    
    5,002Deductions
    
    
    (1,759
    )
    
    (2,185
    )
    
    (3,944
    )December
      31, 2002 restructuring balance
    
    
    2,804
    
    
    152
    
    
    2,956Year
      ended December 31, 2003Restructuring
      and other expenses
    
    
    300
    
    
    625
    
    
    925Deductions
    
    
    (1,124
    )
    
    (763
    )
    
    (1,887
    )December
      31, 2003 restructuring balance
    
    
    1,980
    
    
    14
    
    
    1,994Deductions
    
    
    (1,254
    )
    
    (14
    )
    
    (1,268
    )December
      31, 2004 restructuring balance
    
    $
    726
    
    $
    -
    
    $
    726
 
 5.
SEGMENTS
 
 The
Company operates in one segment. Its integrated circuits are primarily
manufactured using common manufacturing facilities located in the same domestic
geographic area. All operating expenses and assets of the Company are combined
and reviewed by the chief operating decision maker on an enterprise-wide basis,
resulting in no additional discrete financial information or reportable segment
information.
 
 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:
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Wireless
    
    $
    44,689
    
    $
    41,538
    
    $
    45,379Broadband
    
    
    37,875
    
    
    33,674
    
    
    45,971Total
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350
 
 
 The
Company primarily sells to three geographic regions: Asia, U.S.A. and Canada,
and Other. The geographic region is determined based on shipping addresses, not
on the locations of the ultimate users. Net sales to each of the three
geographic regions are as follows:
 
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Asia
    
    $
    31,897
    
    $
    31,014
    
    $
    48,939USA
      and Canada
    
    
    44,193
    
    
    38,024
    
    
    35,982Other
    
    
    6,474
    
    
    6,174
    
    
    6,429Total
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350
 
 6.
LONG-TERM DEBT
 
 
 On
September 24, 2004, the Company issued $38,000 aggregate principal amount of 5%
Convertible Senior Notes ("2009 Notes") due October 15, 2009. The 2009 Notes are
convertible into shares of the Company’s common stock at any time prior to their
maturity, at an initial conversion rate, subject to adjustment, of 200 shares
for each $1,000 principal amount, which is equivalent to a conversion price of
$5.00 per share. Pursuant to the indenture, dated as of September 24, 2004,
between the Company and U.S. Bank Trust Association, as trustee, in the event of
a "fundamental change" on or prior to July 15, 2009, the Company will pay a make
whole premium upon the repurchase or conversion of the 2009 Notes. Subject to
certain exceptions, the make whole premium will be 1% of the principal amount of
the 2009 Notes, plus an additional premium based on the date such "fundamental
change" becomes effective and the price paid per share of the Company’s common
stock in the transaction constituting the "fundamental change". Interest on the
2009 Notes is payable semi-annually in arrears on April 15 and October 15 of
each year.
 
 On
November 27, 2001, the Company issued $100,000 aggregate principal amount of 5%
Convertible Senior Notes ("2006 Notes") due November 15, 2006. The outstanding
2006 Notes are convertible into shares of common stock at any time prior to
their maturity or prior redemption by the Company. The 2006 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 in arrears on May 15 and November
15 of each year.
 
 ANADIGICS,
Inc. has the option to redeem all or a portion of the 2006 Notes at a redemption
price of 102% of the principal amount during the period from November 15, 2004
through November 14, 2005 and at a redemption price of 101% of the principal
amount during the period from November 15, 2005 to November 14, 2006. In the
event of a change in control, as defined, 2006 Note-holders may require the
Company to repurchase the notes at 100% of the principal amount. In the event of
a change in control, the Company, in certain circumstances, may elect to repay
the 2006 Notes in common stock valued at 95% of the average of the closing
prices of the Company's common stock for the five days immediately preceding and
including the third trading day prior to the repurchase.
 
 As
of December 31, 2004, $46,700 aggregate principal amount of the 2006 Notes
remain outstanding. During the third quarter of 2002, the Company repurchased
and retired $33,300 aggregate principal amount of the 2006 Notes for $20,365 in
cash, inclusive of accrued interest of $537. The Company recognized a gain of
$12,581 on the repurchase after adjusting for accrued interest and the write-off
of a proportionate share of unamortized offering costs. In addition, in the
third quarter of 2004 and concurrent with the issuance of the 2009 Notes, the
Company repurchased and retired $20,000 aggregate principal amount of the 2006
Notes for $19,758 in cash, inclusive of accrued interest of $358. The Company
recognized a gain of $327 on the repurchase after adjusting for the write-off of
a proportionate share of unamortized offering costs.
 
 Unamortized
debt issuance costs of $1,221 and $2,744 at December 31, 2003 and 2004,
respectively, consisting principally of underwriters' fees, were included in
other assets and are being amortized over the life of the
notes.
  7.
COMMITMENTS AND CONTINGENCIES
 
 
 The
Company leases manufacturing, warehousing and office space and manufacturing
equipment under noncancelable operating leases that expire through 2016. The
Company also leases certain equipment under capital leases that expire in 2005.
Rent expense, net of sublease income was $3,560, $3,225 and $3,063 in 2002, 2003
and 2004, respectively. Sublease income was $406, $789 and $780 in 2002, 2003
and 2004, respectively. The future minimum lease payments under the
noncancelable operating leases and the present value of the minimum capital
lease payments are as follows:
 
 YEAR
    
    
    Capital
      Leases
    
    
    Operating
      Leases2005
    
    $
    18
    
    $
    2,6412006
    
    
    
    
    
    1,6932007
    
    
    
    
    
    1,6992008
    
    
    
    
    
    1,7042009
    
    
    
    
    
    1,776Thereafter
    
    
    
    
    
    14,115Total
      minimum lease payments
    
    
    18
    
    
    23,628Less:
      contractually-required sublease income
    
    
    -
    
    
    (268
    )$
    18
    
    $
    23,360
  The
lessor on the lease for the Company’s headquarters building in Warren, New
Jersey, changed during 2003 as a result of the settlement of a bankruptcy
proceeding involving the prior lessor. The lease agreement is unchanged as a
result of the transfer of ownership.
 
 In
addition to the above, at December 31, 2004, the Company had unconditional
purchase obligations of approximately $2,445.
 
 8.
MARKETABLE SECURITIES
 
 The
following is a summary of available-for-sale securities:
 
 Available-for-Sale
      SecuritiesCost
    
    
    Gross
      Unrealized Gains (Losses)
    
    
    Estimated
      Fair ValueUS
      Treasury & Agency Securities
    
    $
    9,966
    
    $
    (16
    )
    $
    9,950US
      Corporate Securities
    
    
    93,014
    
    
    141
    
    
    93,155Total
      at December 31, 2003
    
    $
    102,980
    
    $
    125
    
    $
    103,105US
      Treasury & Agency Securities
    
    $
    11,908
    
    $
    (81
    )
    $
    11,827US
      Corporate Securities
    
    
    81,483
    
    
    (430
    )
    
    81,053Total
      at December 31, 2003
    
    $
    93,391
    
    $
    (511
    )
    $
    92,880
 
 
 The
amortized cost and estimated fair value of debt and marketable equity securities
at December 31, 2004, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
 
 Available-for-Sale
      SecuritiesCost
    
    
    Estimated
      Fair ValueDue
      in one year or less
    
    $
    63,827
    
    $
    63,615Due
      after one year through two years
    
    
    29,564
    
    
    29,265Total
    
    $
    93,391
    
    $
    92,880
 
  9.
INVENTORIES
 
 
 Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Inventories consist of the following:
 
 December
      31,2003
    
    
    2004Raw
      materials
    
    $
    3,302
    
    $
    3,510Work
      in progress
    
    
    7,200
    
    
    9,026Finished
      goods
    
    
    4,564
    
    
    5,97415,066
    
    
    18,510Reserves
    
    
    (4,745
    )
    
    (4,074
    )Total
    
    $
    10,321
    
    $
    14,436
 
 10.
ACCRUED LIABILITIES
 
 
 Accrued
liabilities consist of the following:
 
 December
      31,2003
    
    
    2004Accrued
      compensation
    
    $
    3,732
    
    $
    2,005Warranty
      reserve
    
    
    100
    
    
    159Other
    
    
    1,786
    
    
    2,619$
    5,618
    
    $
    4,783
 
 Warranty
reserve movements in the years ended December 31, 2003 and 2004 for returns were
$278 and $331, respectively. The periodic charges for estimated warranty costs
were $10 and $390 in the years ended December 31, 2003 and 2004.
  11.
INCOME TAXES
 
 
 The
components of the provision (benefit) for income taxes are as
follows:
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Current
      benefit:Federal
    
    $
    (4,307
    )
    $
    (382
    )
    $
    -State and foreign
    
    
    -
    
    
    -
    
    
    -Deferred
      provision:Federal
    
    
    -
    
    
    -
    
    
    -State and foreign
    
    
    -
    
    
    -
    
    
    -Total
    
    $
    (4,307
    )
    $
    (382
    )
    $
    -
 In
December 2002, the Company received a $4,307 refund pursuant to a carryback
claim under the Job Creation and Workers Assistance Tax Act of 2002. The refund
represents taxes paid in 1996 and 1997. Deferred tax assets require a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of the deferred tax assets may not be realized. Whereas realization
of the deferred tax assets is dependent upon the timing and magnitude of future
taxable income prior to the expiration of the deferred tax attributes,
management began recording a full valuation allowance in 2001. The amount of the
deferred tax assets considered realizable, however, could change if estimates of
future taxable income during the carry-forward period are
changed.
 
 Significant
components of the Company’s net deferred taxes as of December 31, 2003 and 2004
are as follows:
 
 December
      31,2003
    
    
    2004Deferred
      tax balancesAccurals/reserves
    
    $
    3,790
    
    $
    3,642Net
      operating loss carryforwards
    
    
    77,260
    
    
    94,285General
      business and research and development credits
    
    
    4,634
    
    
    5,073Deferred
      rent expense
    
    
    1,091
    
    
    1,160Difference
      in basis of plant and equipment
    
    
    2,295
    
    
    2,689Other
    
    
    (71
    )
    
    -Valuation
      reserve
    
    
    (88,999
    )
    
    (106,849
    )Net
      deferred tax assets
    
    
    -
    
    
    -
 
 
 As of December
31, 2004, the Company had net operating loss carryforwards of approximately
$260,000 for both federal and state tax reporting purposes. The federal
carryforward will begin to expire in 2018, and the state carryforwards will
begin to expire in 2005. At December 31, 2004, approximately $24,860 of the
deferred tax asset related to net operating loss carryforwards and an equivalent
amount of deferred tax asset valuation allowance represented tax benefits
associated with the exercise of non-qualified stock options. Such benefit, when
realized, will be credited to additional paid-in capital.
 
 The
reconciliation of income tax expense computed at the U.S. federal statutory rate
to the benefit from income taxes is as follows:
 
 Year
      Ended December 31,2002
    2003
    2004Tax
      at US statutory rate
    
    $
    (18,264
    )
    
    (35.0
    )%
    $
    (17,899
    )
    
    (35.0
    )%
    $
    (15,079
    )
    
    (35.0
    )%State
      and foreign tax (benefit), net of federal tax effect
    
    
    (1,696
    )
    
    (3.2
    )
    
    (1,662
    )
    
    (3.2
    )
    
    (1,400
    )
    
    (3.2
    )Research
      and experimentation tax credits
    
    
    (337
    )
    
    (0.6
    )
    
    -
    
    
    -
    
    
    (516
    )
    
    (1.2
    )Valuation
      allowance, net of carryback
    
    
    11,232
    
    
    21.5
    
    
    20,098
    
    
    39.3
    
    
    17,850
    
    
    41.4Intangibles
      amortization and other
    
    
    4,758
    
    
    9.1
    
    
    (919
    )
    
    (1.8
    )
    
    (855
    )
    
    (2.0
    )Benefit
      from income taxes
    
    $
    (4,307
    )
    
    (8.2
    )%
    $
    (382
    )
    
    (0.7
    )%
    $
    -
    
    
    0.0
    %
 
 
 12.
STOCKHOLDERS' EQUITY
 
 
 On
December 17, 1998, the Company adopted a Shareholders’ Rights Agreement (the
"Agreement"). Pursuant to the Agreement, as amended on November 30, 2000, rights
were distributed as a dividend at the rate of one right for each share of
ANADIGICS, Inc. common stock, par value $0.01 per share, held by stockholders of
record as of the close of business on December 31, 1998. The rights will expire
on December 17, 2008, unless earlier redeemed or exchanged. Under the Agreement,
each right will entitle the registered holder to buy one one-thousandth of a
share of Series A Junior Participating Preferred Stock at a price of $75.00 per
one one-thousandth of a share, subject to adjustment in accordance with the
Agreement. The rights will become exercisable only if a person or group of
affiliated or associated persons acquires, or obtains the right to acquire,
beneficial ownership of ANADIGICS, Inc. common stock or other voting securities
that have 18% or more of the voting power of the outstanding shares of voting
stock, or upon the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in such person
or group acquiring, or obtaining the right to acquire, beneficial ownership of
18% or more of the voting power of ANADIGICS, Inc. common stock or other voting
securities.
 
 13.
EMPLOYEE BENEFIT PLANS
 
 In
1995, the Company adopted an employee stock purchase plan ("ESP Plan") under
Section 423 of the Internal Revenue Code. All full-time employees of ANADIGICS,
Inc. and part-time employees, as defined in the ESP Plan, are eligible to
participate in the ESP Plan. An aggregate of 1,693,750 shares of common stock
are reserved for offering under the ESP Plan. Offerings are made at the
commencement of each calendar year and must be purchased by the end of that
calendar year. Pursuant to the terms of ESP Plan, shares purchased and their
applicable per share prices were 88,493 ($2.21), 528,894 ($2.32), 181,685
($3.11), for the years ended December 31, 2002, 2003 and 2004,
respectively.
 
 Employees
and outside directors have been granted options to purchase shares of common
stock under stock option plans adopted in 1994, 1995 and 1997. An aggregate of
489,130, 4,912,500 and 5,100,000 shares of common stock were reserved for
issuance under the 1994 Long-Term Incentive Share and Award Plan, the 1995
Long-Term Incentive Share Award Plan and the 1997 Long-Term Incentive and Share
Award Plan for Employees (the "Plans"), respectively. The Plans provide for the
granting of stock options, stock appreciation rights, restricted shares, or
other share based awards to eligible employees and directors, as defined in the
Plans. Options granted under the Plans become exercisable in varying amounts
over periods of up to three years. To date, no stock appreciation rights have
been granted under the Plans.
 
 On
July 23, 2004, the Company granted 403,204 restricted shares under the 1995 and
1997 Long-Term Incentive Share Award plans ("Plans"). On the date of the grant,
the market price of the shares was $4.01. The value of the grant has been
recorded as deferred compensation, a component of Stockholders’ Equity and is
being amortized over the required one-year vest period. At December 31, 2004,
21,622 restricted shares have been forfeited under the conditions of the Plans.
During the first quarter of 2005, the Company has granted an additional
1,028,716 restricted
shares under the Plans at an average market price of $2.78 and carrying vesting
periods of one or three years.
 
 On
May 20, 2002, the Company announced a voluntary stock option exchange program
for eligible employees. Officers and directors were not eligible for the
exchange program. Pursuant to the terms and conditions of the offer, which
expired on June 18, 2002, the Company accepted for cancellation options to
purchase 838,157 shares of common stock having a weighted average exercise price
of $36.90. On December 20, 2002, participating employees were issued 760,742
options under this program in exchange for the cancelled options. The new
options have an exercise price equal to $2.53, which represents the fair market
value at the date of grant and fully vested on December 20, 2003.
 
 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
represents the fair market value at the date of grant.
 
 A summary of the Company’s
stock option activity, and related information for the years ended December 31,
2002, 2003 and 2004 are as follows:
 
 **2002**
    **2003**
    **2004**Common
      Stock Options
    
    
    Weighted
      Average Exercise Price
    
    
    Common
      Stock Options
    
    
    Weighted
      Average Exercise Price
    
    
    Common
      Stock Options
    
    
    Weighted
      Average Exercise PriceOutstanding
      at beginning of year
    
    
    6,283,632
    
    $
    17.52
    
    
    7,132,034
    
    $
    10.80
    
    
    5,904,937
    
    $
    7.30Granted
    
    
    2,248,353
    
    
    3.90
    
    
    856,366
    
    
    3.44
    
    
    1,943,713
    
    
    7.16Exercised
    
    
    (16,773
    )
    
    6.44
    
    
    (22,961
    )
    
    2.93
    
    
    (536,633
    )
    
    2.53Forfeited
    
    
    (545,021
    )
    
    21.17
    
    
    (386,571
    )
    
    10.78
    
    
    (520,311
    )
    
    9.31Cancelled
    
    
    (838,157
    )
    
    36.90
    
    
    (1,673,931
    )
    
    19.49
    
    
    -
    
    
    -Outstanding
      at end of year
    
    
    7,132,034
    
    
    10.80
    
    
    5,904,937
    
    
    7.30
    
    
    6,791,706
    
    
    7.47Exercisable
      at end of year
    
    
    3,903,164
    
    
    13.69
    
    
    4,185,488
    
    
    8.65
    
    
    6,172,285
    
    
    7.94
 
 Stock
options outstanding at December 31, 2004 are summarized as follows:
 
 Range
      of exercise prices
    
    
    Outstanding
      Options at Dec. 31, 2004
    
    
    Weighted
      average remaining contractual life
    
    
    Weighted
      average exercise price
    
    
    Exercisable
      at Dec. 31, 2004
    
    
    Weighted
      average exercise price$1.98
      - $2.53
    
    
    1,412,550
    
    
    8.00
    
    $
    2.49
    
    
    1,058,948
    
    $
    2.50$2.79
      - $5.33
    
    
    1,816,777
    
    
    5.13
    
    $
    4.21
    
    
    1,566,058
    
    $
    4.39$5.63
      - $7.65
    
    
    1,892,492
    
    
    8.88
    
    $
    7.18
    
    
    1,877,392
    
    $
    7.19$7.66
      - $13.59
    
    
    897,338
    
    
    4.78
    
    $
    11.95
    
    
    897,338
    
    $
    11.95$13.60
      - $53.48
    
    
    772,549
    
    
    5.10
    
    $
    19.77
    
    
    772,549
    
    $
    19.77
 
 FASB
123 requires pro forma information regarding net income and earnings per share
as if the Company has accounted for its employee stock options, warrants and
shares of common stock purchased by employees in connection with the ESP Plan
("equity awards") under the fair value method prescribed by FASB 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model. The following are weighted average
assumptions for stock option grants for 2002, 2003 and 2004, respectively:
risk-free interest rate of 2.0%, 1.8% and 2.2%; expected volatility of 1.08,
1.10 and 1.01; expected option life of one year from vesting and an expected
dividend yield of 0.0%. The weighted average fair value of options granted
during 2002, 2003 and 2004 was $2.40, $2.24 and $4.17,
respectively.
 
 ANADIGICS,
Inc. also sponsors an Employee Savings and Protection Plan under Section 401(k)
of the Internal Revenue Code which is available to all full-time employees.
Employees can make voluntary contributions up to limitations prescribed by the
Internal Revenue Code. The Plan was amended in 2001 and the Company now matches
50% of employee contributions up to 6% of their gross pay. The Company recorded
expense of $696, $628 and $730 for the years ended December 31, 2002, 2003 and
2004, respectively, relating to plan contributions.
 
 14.
EARNINGS PER SHARE
 
 The reconciliation of shares
used to calculate basic and diluted earnings per share consists of the
following:
 
 Year
      ended December 31,2002
    
    
    2003
    
    
    2004Weighted
      average common shares outstanding used to calculate basic earnings per
      share
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922Net
      effect of dilutive securities - based on treasury stock method using
      average market price
    
    
    -*
    
    
    -*
    
    
    -*Weighted
      average common and dilutive securities outstanding used to calculate
      diluted earnings per share
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922
 
 
 *
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.
 
 15.
OTHER ACCUMULATED COMPREHENSIVE INCOME
 
 The
components of other accumulated comprehensive income are as
follows:
 
 Foreign
      Currency Translation Adjustments
    
    
    Unrealized
      Gain (loss) on available-for-sale securities
    
    
    TotalBalance
      at December 31, 2002
    
    $
    (33
    )
    $
    776
    
    $
    743Unrealized
      gain on available-for-sale securities
    
    
    -
    
    
    (666
    )
    
    (666
    )Foreign
      currency translation adjustment
    
    
    46
    
    
    -
    
    
    46Net
      loss recognized in other comprehensive income
    
    
    -
    
    
    15
    
    
    15Balance
      at December 31, 2003
    
    
    13
    
    
    125
    
    
    138Unrealized
      gain on available-for-sale securities
    
    
    -
    
    
    (617
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    12
    
    
    -
    
    
    12Net
      gain recognized in other comprehensive income
    
    
    -
    
    
    (19
    )
    
    (19
    )Balance
      at December 31, 2004
    
    $
    25
    
    $
    (511
    )
    $
    (486
    )
 
 
 The
earnings associated with the Company’s investment in its foreign subsidiaries is
considered to be permanently invested and no provision for U.S. federal and
state income taxes on those earnings or translation adjustments have been
provided.
  16.
LEGAL PROCEEDINGS
 
 ANADIGICS
is a party to litigation arising out of the operation of our business. We
believe that the ultimate resolution of such litigation should not have a
material adverse effect on our financial condition, results of operations or
liquidity.
 
 
 17.
QUARTERLY FINANCIAL DATA (UNAUDITED)
 
 Quarter
      Ended2003
    2004Mar 29
    
    
    June
      28
    
    
    Sept.
      28
    
    
    Dec.
      31
    
    
    April
      3
    
    
    July
      3
    
    
    Oct.
      2
    
    
    Dec.
      31Net
      sales
    
    $
    16,087
    
    $
    18,037
    
    $
    17,750
    
    $
    23,338
    
    $
    21,195
    
    $
    22,687
    
    $
    25,053
    
    $
    22,415Cost
      of sales
    
    
    16,079
    
    
    17,250
    
    
    17,538
    
    
    21,060
    
    
    19,175
    
    
    19,207
    
    
    19,811
    
    
    19,162Gross
      profit
    
    
    8
    
    
    787
    
    
    212
    
    
    2,278
    
    
    2,020
    
    
    3,480
    
    
    5,242
    
    
    3,253Research
      and development
    
    
    7,157
    
    
    8,280
    
    
    8,029
    
    
    8,609
    
    
    8,902
    
    
    8,866
    
    
    7,884
    
    
    7,654Selling
      and administrative expense
    
    
    4,518
    
    
    4,521
    
    
    4,795
    
    
    5,586
    
    
    5,790
    
    
    6,099
    
    
    5,482
    
    
    5,140Restructuring
      and other charges
    
    
    625
    
    
    -
    
    
    -
    
    
    300
    
    
    -
    
    
    -
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,690
    
    
    -
    
    
    173
    
    
    -
    
    
    -
    
    
    -
    
    
    -Operating
      loss
    
    
    (12,292
    )
    
    (13,704
    )
    
    (12,612
    )
    
    (12,390
    )
    
    (12,672
    )
    
    (11,485
    )
    
    (8,124
    )
    
    (9,541
    )Interest
      income
    
    
    1,013
    
    
    875
    
    
    741
    
    
    715
    
    
    659
    
    
    551
    
    
    469
    
    
    524Interest
      expense
    
    
    (941
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (955
    )
    
    (1,250
    )Gain
      on notes repurchase
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    327
    
    
    -Other
      (expense) income
    
    
    (21
    )
    
    (2
    )
    
    183
    
    
    116
    
    
    201
    
    
    143
    
    
    (36
    )
    
    (13
    )Loss
      before income taxes
    
    
    (12,241
    )
    
    (13,771
    )
    
    (12,628
    )
    
    (12,499
    )
    
    (12,752
    )
    
    (11,731
    )
    
    (8,319
    )
    
    (10,280
    )Benefit
      from income taxes
    
    
    -
    
    
    -
    
    
    -
    
    
    (382
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      loss
    
    $
    (12,241
    )
    $
    (13,771
    )
    $
    12,628
    )
    $
    12,117
    )
    $
    (12,752
    )
    $
    (11,731
    )
    $
    (8,319
    )
    $
    (10,280
    )Basic
      and diluted loss per share
    
    $
    (0.40
    )
    $
    (0.45
    )
    $
    (0.41
    )
    $
    (0.39
    )
    $
    (0.40
    )
    $
    (0.36
    )
    $
    (0.25
    )
    $
    (0.31
    )
 
   ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
 Not
applicable.
 
 ITEM
9A. CONTROLS AND PROCEDURES.
 
 Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer, or CEO and Chief Financial Officer, or CFO, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as of
December 31, 2004. Based on that evaluation, our management, including our CEO
and CFO, concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
as specified within the SEC’s rules and forms.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework of *Internal
Control-Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2004.
 
 Our
management’s evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their
report which is included below.
 
 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.
 
 Inherent
Limitations of Controls
 
 Because of
their inherent limitations, disclosure controls and procedures and internal
control over financial reporting may not pre vent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 ITEM
9B. OTHER INFORMATION
 
 None.
 Report of
Independent Registered Public Accounting Firm
 
 The Board of
Directors and Stockholders
 ANADIGICS,
Inc.
 
 
 We have
audited management’s assessment, included in Item 9A, Management's Report
on Internal Control Over Financial Reporting, that ANADIGICS, Inc. maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). ANADIGICS, Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the
effectiveness of the company’s internal control over financial reporting based
on our audit.
 
 We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 In our
opinion, management’s assessment that ANADIGICS, Inc. maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, ANADIGICS, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on the
COSO criteria.
 
 We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of ANADIGICS,
Inc. as of December 31, 2004 and 2003, and the related consolidated statements
of operations, comprehensive loss, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2004 and our report dated
March 2, 2005 expressed an unqualified opinion thereon.
 
 
 /s/    ERNST & YOUNG
LLP
 
 
 
 
 MetroPark, New
Jersey
 March 2,
2005
 PART
III
 
 
 ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
 The Company
has adopted a Code of Conduct and Business Ethics that applies to directors,
officers and employees, including the President and Chief Executive Officer, and
Chief Financial Officer and has posted such code on its website at ( www.anadigics.com ) .
Changes to and waivers granted with respect to the Company’s Code of Conduct and
Business Ethics for officers and directors that are required to be disclosed
pursuant to the applicable rules and regulations will be filed on a current
report on Form 8-K and posted on the Company website.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this item.
 
 ITEM
11. EXECUTIVE COMPENSATION.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that
is responsive to the information required with respect to this Item.
 
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 PART
IV
  
 ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
 (a)
1. Financial Statements
 
 Financial
Statements are included in Item 8, "Financial Statements and Supplementary
Data" as follows:
 
 -
    Report
      of Independent Registered Public Accounting Firm
 -
    Consolidated
      Balance Sheets - December 31, 2003 and 2004
 -
    Consolidated
      Statements of Operations - Years ended December 31, 2002, 2003 and
      2004
  -
    Consolidated
      Statements of Comprehensive Loss - Years ended December 31, 2002, 2003 and
      2004
 
 -
    Consolidated
      Statements of Stockholders’ Equity - Years ended December 31, 2002, 2003
      and 2004
 
 -
    Consolidated
      Statements of Cash Flows - Years ended December 31, 2002, 2003 and
      2004
 
 -
    Notes
      to Consolidated Financial Statements
 
 
 2. Financial Statement Schedules
 
 Schedule II -
Valuation and Qualifying Accounts
 
 All other
schedules for which provision is made in the applicable ac counting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore
have been omitted.
 
 
 (b)
Exhibit List
 2.1
    Stock
      Purchase Agreement dated April 2, 2001, among the Company, Telcom Devices
      Corp. and the sellers named therein. Filed as an exhibit to the Company’s
      Current Report on Form 8-K dated April 6, 2001, and incorporated herein by
      reference.3.1
    Amended
      and Restated Certificate of Incorporation of the Company, together with
      all amendments thereto. Filed as an exhibit to the Company's Registration
      Statement on Form S-3 (Registration No. 333-75040), and incorporated
      herein by reference.3.2
    Amended
      and Restated By-laws of the Company. Filed as an exhibit to the Company's
      Registration Statement on Form S-3 (Registration No. 333-75040), and
      incorporated herein by reference.4.1
    Form of
      Common Stock Certificate. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.4.2
    Indenture,
      dated as of November 27, 2001, between the Company, as Issuer, and State
      Street Bank & Trust Company, N.A., as Trustee for the 5% Convertible
      Senior Notes due November 15, 2006. Filed as an exhibit to the Company’s
      Registration Statement on Form S-3 (Registration No. 333-75040), and
      incorporated herein by reference.4.3
    Form of
      Registration Rights Agreement. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.4.4
    Schedule
      to Form of Registration Rights Agreement. Filed as an exhibit to the
      Company's Registration Statement on Form S-1 (Registration No. 333-20783),
      and incorporated herein by reference.4.5
    Rights
      Agreement dated as of December 17, 1998 between the Company and Chase
      Mellon Shareholder Services L.L.C., as Rights Agent. Filed as an exhibit
      to the Company’s current report on Form 8-K filed on December 17, 1998,
      and incorporated herein by reference.4.6
    Amendment
      No. 1 as of November 20, 2000 to the Rights Agreement dated as of December
      17, 1998 between the Company and Chase Mellon Shareholder Services L.L.C.,
      as Rights Agent. Filed as an exhibit to the Company’s Current Report on
      Form 8-K filed on December 4, 2000.4.7
    Registration
      Rights Agreement, dated November 27, 2001, between the Company, as Issuer,
      and the Purchasers of the 5% Convertible Senior Notes due November 15,
      2006. Filed as an exhibit to the Company’s Registration Statement on Form
      S-3 (Registration No. 333-75040), and incorporated herein by
      reference.4.8
    Form of
      5% Convertible Senior Note due November 15, 2006 (included in Exhibit
      4.2).4.9
    Post-effective
      Amendment No. 1 to Form S-3 for 5% Convertible Senior Notes due November
      15, 2006. Filed on Form POS AM dated November 6, 2002, and incorporated
      herein by reference.4.10
    Indenture,
      dated as September 24, 2004, between the Company, as Issuer and U.S. Bank
      Trust National Association, as Trustee for the 5% Convertible Senior Notes
      due October 15, 2009. Filed as an exhibit to the Company’s Current Report
      on Form 8-K dated September 28, 2004, and incorporated herein by
      reference.4.11
    Registration
      Rights Agreement, dated September 24, 2004, between the Company, as
      Issuer, and the Purchasers of 5% Convertible Senior Notes due October 15,
      2009. Filed as an exhibit to the Company’s Current Report on Form 8-K
      dated September 28, 2004, and incorporated herein by
      reference.4.12
    Form of
      5% Convertible Senior Note due October 15, 2009 (included in Exhibit
      4.10).10.1
    1994
      Long-Term Incentive and Share Award Plan. Filed as an exhibit to the
      Company's Registration Statement on Form S-1 (Registration No. 33-89928),
      and incorporated herein by reference.10.2
    1995
      Long-Term Incentive and Share Award Plan, as amended May 29, 1997 and May
      24, 2000. Filed as an exhibit to the Company’s current report on Form S-8
      (Registration No. 333-49632), and incorporated herein by reference.10.3
    Employee
      Savings and Protection Plan. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.10.4
    Form of
      Employee Stock Purchase Plan. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.10.5
    Lease
      Agreement between Mt. Bethel Corporate Center and the Company dated May 1,
      1993. Filed as an exhibit to the Company's Registration Statement on Form
      S-1 (Registration No. 33-89928), and incorporated herein by reference.10.6
    Lease
      Agreement between United States Land Resources, L.P. and the Company dated
      as of April 26, 1996. Filed as an exhibit to the Company's Registration
      Statement on Form S-1(Registration No. 333-20783), and incorporated herein
      by reference.10.7
    First
      Amendment, dated as of November 20, 1996, to the Lease agreement between
      United States Land Resources, L.P. and the Company dated as of April 26,
      1996. Filed as an exhibit to the Company’s Annual Report on Form 10-K405
      dated March 29, 2002, and incorporated herein by
  reference.10.8
    Second
      Amendment, dated as of September 8, 1997, to the Lease agreement between
      Warren Hi-Tech Center, L.P. (successor in interest to United States Land
      Resources, L.P.) and the Company dated as of April 26, 1996. Filed as an
      exhibit to the Company’s Annual Report on Form 10-K405 dated March 29,
      2002, and incorporated herein by reference.10.9
    Third
      Amendment, dated as of December 20, 2000, to the Lease agreement between
      Warren Hi-Tech Center, L.P. (successor in interest to United States Land
      Resources, L.P.) and the Company dated as of April 26, 1996. Filed as an
      exhibit to the Company’s Annual Report on Form 10-K405 dated March 29,
      2002, and incorporated herein by reference.10.10
    Employment
      Agreement between the Company and Dr. Bamdad Bastani, dated September 17,
      1998. Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended July 4, 1999, and incorporated herein by
      reference.10.11
    Employment
      Agreement between the Company and Ronald Rosenzweig, dated June 1, 1999.
      Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended July 4, 1999, and incorporated herein by
      reference.10.12
    Amendment
      No. 1 as of March 15, 2002, to the Employment Agreement dated June 1,
      1999, between the Company and Ronald Rosenzweig. Filed as an exhibit to
      the Company’s Annual Report on Form 10-K405 dated March 29, 2002, and
      incorporated herein by reference.10.13
    Employment
      Agreement between the Company and Thomas Shields, dated July 25, 2000.
      Filed as an exhibit to the Company’s Annual Report on Form 10-K405 dated
      March 29, 2002, and incorporated herein by reference.10.14
    Employment
      Agreement between the Company and Charles Huang, dated July 25, 2000.
      Filed as an exhibit to the Company’s Annual Report on Form 10-K405 dated
      March 29, 2002, and incorporated herein by reference.10.15
    Amendment
      No. 2 as of May 27, 2003, to the Employment Agreement dated June 1, 1999,
      between the Company and Ronald Rosenzweig. Filed as an exhibit to the
      Company’s Annual Report on Form 10-K dated March 15, 2004, and
      incorporated herein by reference.10.16
    Amendment
      No. 3 as of August 20, 2004, to the Employment Agreement dated June 1,
      1999, between the Company and Ronald Rosenzweig. Filed as an exhibit to
      the Company’s Quarterly report on Form 10-Q for the quarter ended October
      2, 2004, and incorporated herein by reference.10.17
    Form of
      1997 Long-Term Incentive and Share Award Plan. Filed as an exhibit to the
      Company’s Annual Report on Form 10-K405 dated February 18, 1997, and
      incorporated herein by reference.*21
    Subsidiary
      Listing*23.1
    Consent
      of Ernst and Young LLP.24.1
    Power of
      Attorney (included on the signature page of this Annual Report on Form
      10-K).*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.* Filed
      herewith
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) 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 on the 16th day of March
2005.
 
 
 ANADIGICS,
INC.
 
 BY:
/s/ Bami Bastani
 -----------------------------------------
 Dr.
Bami Bastani
 CHIEF
EXECUTIVE OFFICER
 AND
PRESIDENT
 
 KNOW ALL MEN BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Bami Bastani and
Thomas Shields as his/her attorney-in-fact and agent, with full power of
substitution and resubstitution, for him/her and in his/her name, place, and
stead, in any and all capacities, to sign and file any and all amendments to
this Annual Report on Form 10-K, with all exhibits thereto and hereto, and other
documents with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
 
 **PURSUANT
TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF ANADIGICS, INC. IN THE CAPACITIES
AND ON THE DATES INDICATED:**
  Name
    Title
    Date/s/
      Bami Bastani
    President,
      Chief Executive Officer and Director (Principal Executive
      Officer)
    March
      16, 2005Dr.
      Bami Bastani/s/
      Thomas C. Shields
    Senior
      Vice President and Chief Financial Officer (Principal Financial Accounting
      Officer)
    March
      16, 2005Thomas
      C. Shields/s/
      Ronald Rosenzweig
    Chairman
      of the Board of Directors
    March
      16, 2005Ronald
      Rosenzweig/s/
      Paul S. Bachow
    Director
    March
      16, 2005Paul
      S. Bachow/s/
      Garry McGuire
    Director
    March
      16, 2005Gary
      McGuire/s/
      Harry T. Rein
    Director
    March
      16, 2005Harry
      T. Rein/s/
      Lewis Solomon
    Director
    March
      16, 2005Lewis
      Solomon/s/
      Dennis F. Strigl
    Director
    March
      16, 2005Dennis
      F. Strigl
 SCHEDULE
II--VALUATION AND QUALIFYING ACCOUNTS
 
 Description
      (Dollars
      in Thousands)
    
    
    Balance
      at Beginning of Period
    
    
    Additions
      Charged to Costs and Expenses
    
    
    Deductions
    
    
    
    
    Balance
      at end of periodYear
      ended December 31, 2004:Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    752
    
    $
    240
    
    $
    (4
    )
    
    (1)
    $
    988Reserve for excess and obsolete inventory
    
    
    4,745
    
    
    1,636
    
    
    (2,307
    )
    
    (2)
    
    4,074Reserve
      for warranty claims
    
    
    100
    
    
    390
    
    
    (331
    )
    
    (3)
    
    159Year
      ended December 31, 2003Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    781
    
    $
    -
    
    $
    (29
    )
    
    (1)
    $
    752Reserve for excess and obsolete inventory
    
    
    7,134
    
    
    287
    
    
    (2,676
    )
    
    (2)
    
    4,745Reserve
      for warranty claims
    
    
    368
    
    
    10
    
    
    (278
    )
    
    (3)
    
    100Year
      ended December 31, 2002Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    715
    
    $
    297
    
    $
    (231
    )
    
    (1)
    $
    781Reserve for excess and obsolete inventory
    
    
    8,502
    
    
    4,188
    
    
    (5,556
    )
    
    (2)
    
    7,134Reserve
      for warranty claims
    
    
    960
    
    
    (259
    )
    
    (333
    )
    
    (3)
    
    368
 
 (1)
    Uncollectible
      accounts written-off to the allowance account.
 (2)
Inventory write-offs to the reserve account.
 
 (3)
Warranty expenses incurred to the reserve for warranty claims.
 
 EXHIBIT
21
 Subsidiaries
of ANADIGICS, Inc.
 
 Name of
      Subsidiary
    State of
      Jurisdiction of Incorporation
    %
      OwnedANADIGICS
      (U.K.) Limited
    United
      Kingdom
    100%ANADIGICS,
      Limited
    Israel
    100%ANADIGICS
      Denmark ApS
    Denmark
    100%ANADIGICS
      Acquisition Corp
    Delaware
    100%ANADIGICS
      Holding Corp.
    Delaware
    100%Broadband
      & Wireless Investors, Incorporated
    Delaware
    100%Integral
      Pathway, Inc.
    New
      Jersey
    100%Telcom
      Devices Corp.
    California
    100%
 EXHIBIT
23.1
 
 CONSENT OF
INDEPENDENT AUDITORS
 
 We consent to
the incorporation by reference in the Registration Statement (Form S-8 No.
33-89928) pertaining to the ANADIGICS, Inc. Stock Option Plan, 1994 Long-Term
Incentive and Share Award Plan, 1995 Long-Term Incentive Share Award Plan
and  Employee Stock Purchase Plan, in the Registration Statements (Form S-8
No. 33-32533 and Form S-8 No. 333-63836) pertaining to the ANADIGICS, Inc. 1997
Long-Term Incentive and Share Award Plan for Employees and in the Registration
Statements (Form S-3 No. 333-75040, Form S-3 No. 333-110538 and Form S-3 No.
333-120947) of our reports dated March 2, 2005, with respect to the
consolidated financial statements and schedule of ANADIGICS, Inc. and ANADIGICS,
Inc. management’s assessment of the effectiveness of internal control over
financial reporting, and the effectiveness of internal control over financial
reporting of ANADIGICS, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 2004.   MetroPark, New
Jersey
March 11,
2005
 
 
 Exhibit
31.1
 CERTIFICATION
 
 I,
Bami Bastani, certify that:
 
 1.
    I
      have reviewed this Annual Report on Form 10-K of ANADIGICS,
  Inc.;
 
 2.
    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;
 
 3.
    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;
 
 4.
    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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
have:
 a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 
 b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 
 c)
    Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
 
 d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
 5.
    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 the registrant’s
      board of directors (or persons performing the equivalent
    functions):
 a)
    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
 b)
    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: :  March
16, 2005
 
 By:
    /s/
      Bami BastaniBami
      BastaniPresident
      andChief
      Executive Officer
  
 
 
 
 
 
 Exhibit
31.2
 
 CERTIFICATION
 I,
Thomas Shields, certify that:
 
 1.
    I
      have reviewed this Annual Report on Form 10-K of ANADIGICS,
  Inc.;
 
 2.
    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;
 
 3.
    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;
 
 4.
    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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
have:
 a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 
 b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 
 c)
    Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
 
 d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
 5.
    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 the registrant’s
      board of directors (or persons performing the equivalent
    functions):
 a)
    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
 
 b)
    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: :  March
16, 2005
 
 By:
    /s/
      Thomas C. ShieldsThomas
      C. ShieldsSenior
      Vice Presidentand
      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 Annual Report of the Company on
Form 10-K for the period ended December 31, 2004 fully complies with the
requirements of Section 13(a) or 15(d) 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:
March 16, 2005
 By:
    /s/
      Bami BastaniBami
      BastaniPresident
      andChief
      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 Annual
Report of the Company on Form 10-K for the period ended December 31, 2004 fully
complies with the requirements of Section 13(a) or 15(d) 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:
March 16, 2005
 /s/
      Thomas C. ShieldsThomas
      C. ShieldsSenior
      Vice Presidentand
      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.
 
 ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 
 Report
of Independent Registered Public Accounting Firm
 
 The
Board of Directors and Stockholders
 ANADIGICS,
Inc.
 
 We
have audited the accompanying consolidated balance sheets of ANADIGICS, Inc. as
of December 31, 2004 and 2003, and the related consolidated statements of
operations, comprehensive loss, stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2004. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audit of financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ANADIGICS, Inc. as of
December 31, 2004 and 2003, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2004
in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
 
 As discussed
in Note 3, the Company changed its method of accounting for goodwill and other
intangible assets in 2002.
 
 We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of ANADIGICS, Inc.’s internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
2, 2005 expressed an unqualified opinion thereon.
 
 
 /s/  ERNST
& YOUNG LLP
 
 
 
 MetroPark,
New Jersey
 March
2, 2005
 
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
BALANCE SHEETS
 
 (DOLLARS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
 December
      31,2003
    
    
    2004ASSETSCurrent
      assets:Cash and cash equivalents
    
    $
    18,525
    
    $
    11,171Marketable securities
    
    
    54,130
    
    
    63,615Accounts receivable, net of allowance for doubtful accounts of $752 and
      $988 in 2003 and 2004, respectively
    
    
    12,074
    
    
    10,770Inventories
    
    
    10,321
    
    
    14,436Prepaid expenses and other current assets
    
    
    3,243
    
    
    3,073Total
      current assets
    
    
    98,293
    
    
    103,065Marketable
      securities
    
    
    48,975
    
    
    29,265Plant
      and equipmentEquipment and furniture
    
    
    130,815
    
    
    132,864Leasehold improvements
    
    
    38,437
    
    
    38,774Projects in process
    
    
    1,609
    
    
    1,341170,861
    
    
    172,979Less accumulated depreciation and amortization
    
    
    115,619
    
    
    129,94155,242
    
    
    43,038Goodwill
      and other intangibles, less accumulated amortization of $64 and $258 in
      2003 and 2004, respectively
    
    
    1,788
    
    
    6,297Other
      assets
    
    
    3,600
    
    
    4,230$
    207,898
    
    $
    185,895LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      liabilities:Accounts payable
    
    $
    9,497
    
    $
    8,021Accrued liabilities
    
    
    5,618
    
    
    4,783Accrued restructuring costs
    
    
    1,994
    
    
    726Current maturities of capital lease obligations
    
    
    84
    
    
    18Total
      current liabilities
    
    
    17,193
    
    
    13,548Long-term
      debt
    
    
    66,700
    
    
    84,700Other
      long-term liabilities
    
    
    2,959
    
    
    3,032Commitments
      and contingenciesStockholders’
      equityPreferred stock, $0.01 par value, 5,000,000 shares authorized, none issued
      or outstandingCommon stock, convertible, non-voting, $0.01 par value, 1,000,000 shares
      authorized, none issued or outstandingCommon stock, $0.01 par value, 144,000,000 shares authorized at December
      31, 2003 and 2004, and  31,225,888 and 33,072,438 issued and
      outstanding at December 31, 2003 and 2004, respectively
    
    
    312
    
    
    331Additional paid-in capital
    
    
    335,477
    
    
    343,594Deferred compensation
    
    
    -
    
    
    (861
    )Accumulated deficit
    
    
    (214,881
    )
    
    (257,963
    )Accumulated other comprehensive income
    
    
    138
    
    
    (486
    )Total
      stockholders’ equity
    
    
    121,046
    
    
    84,615$
    207,898
    
    $
    185,895
 
 
 See
accompanying notes.
  
  
     YEAR
      ENDED DECEMBER 31,2002
    
    
    2003
    
    
    2004Net
      sales
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350Cost
      of sales
    
    
    75,302
    
    
    71,927
    
    
    77,355Gross
      profit
    
    
    7,262
    
    
    3,285
    
    
    13,995Research
      and development expenses
    
    
    29,742
    
    
    32,075
    
    
    33,306Selling
      and administrative expenses
    
    
    21,400
    
    
    19,420
    
    
    22,511Restructuring
      and other charges
    
    
    5,001
    
    
    925
    
    
    -Asset
      impairment charges
    
    
    8,641
    
    
    -
    
    
    -Goodwill
      impairment charges
    
    
    8,043
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,863
    
    
    -72,827
    
    
    54,283
    
    
    55,817Operating
      loss
    
    
    (65,565
    )
    
    (50,998
    )
    
    (41,822
    )Interest
      income
    
    
    6,309
    
    
    3,344
    
    
    2,203Interest
      expense
    
    
    (5,119
    )
    
    (3,761
    )
    
    (4,085
    )Impairment
      of investments
    
    
    (390
    )
    
    -
    
    
    -Gain
      on repurchase of Convertible notes
    
    
    12,581
    
    
    -
    
    
    327Other
      income
    
    
    1
    
    
    276
    
    
    295Loss
      before income taxes
    
    
    (52,183
    )
    
    (51,139
    )
    
    (43,082
    )Benefit
      from income taxes
    
    
    (4,307
    )
    
    (382
    )
    
    -Loss
      before cumulative effect of accounting change
    
    
    (47,876
    )
    
    (50,757
    )
    
    (43,082
    )Cumulative
      effect of accounting change
    
    
    (8,010
    )
    
    -
    
    
    -Net
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Net
      loss per shareBasic
      and dilutedLoss
      before cumulative effect of accounting change
    
    $
    (1.57
    )
    $
    (1.65
    )
    $
    (1.33
    )Net
      loss
    
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )Weighted
      average common and dilutive securities outstanding
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922
 
 
 
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
 
 (DOLLARS
IN THOUSANDS)
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Net
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Other
      comprehensive income (loss)Unrealized
      gain (loss) on marketable securities
    
    
    116
    
    
    (666
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    (10
    )
    
    46
    
    
    12Reclassification
      adjustment:Net
      realized (gain) loss previously included in other comprehensive
      income
    
    
    (71
    )
    
    15
    
    
    (19
    )Comprehensive
      loss
    
    $
    (55,851
    )
    $
    (51,362
    )
    $
    (43,706
    )
 
 
 See
accompanying notes.
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 
 (SHARES
AND DOLLARS IN THOUSANDS)
 
 Common
      Stock Shares
    
    
    Common
      Stock Amount
    
    
    Additional
      Paid-In Capital
    
    
    Deferred
      Compensation
    
    
    Accumulated
      Deficit
    
    
    Accumulated
      Other Comprehensive Income (loss
    )
    
    Total
      Stockholders’ EquityBalance,
      December 31, 2001
    
    
    30,569
    
    $
    306
    
    $
    333,860
    
    
    -
    
    $
    (108,328
    )
    $
    708
    
    $
    226,636Stock
      options exercised
    
    
    17
    
    
    -
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    108Shares
      issued under employee stock purchase plan
    
    
    88
    
    
    1
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    195Unrealized
      gains on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    116Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    (10
    )Net
      realized gain, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    (71
    )Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,886
    )
    
    
    
    
    (55,886
    )Balance,
      December 31, 2002
    
    
    30,674
    
    
    307
    
    
    334,162
    
    
    -
    
    
    (164,124
    )
    
    743
    
    
    171,088Stock
      options exercised
    
    
    23
    
    
    -
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Shares
      issued under employee stock purchase plan
    
    
    529
    
    
    5
    
    
    1,222
    
    
    
    
    
    
    
    
    
    
    
    1,227Unrealized
      loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (666
    )
    
    (666
    )Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    46Net
      realized loss, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    15Stock-based
      compensation
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,757
    )
    
    
    
    
    (50,757
    )Balance,
      December 31, 2003
    
    
    31,226
    
    
    312
    
    
    335,477
    
    
    -
    
    
    (214,881
    )
    
    138
    
    
    121,046Stock
      options exercised
    
    
    536
    
    
    5
    
    
    1,355
    
    
    
    
    
    
    
    
    
    
    
    1,360Shares
      issued under employee stock purchase plan
    
    
    182
    
    
    2
    
    
    561
    
    
    
    
    
    
    
    
    
    
    
    563Shares
      issued as contingent acquisition consideration
    
    
    747
    
    
    8
    
    
    4,640
    
    
    
    
    
    
    
    
    
    
    
    4,648Restricted
      stock grant
    
    
    403
    
    
    4
    
    
    1,613
    
    $
    (1,617
    )
    
    
    
    
    
    
    
    -Restricted
      stock forfeitures
    
    
    (22
    )
    
    -
    
    
    (87
    )
    
    87
    
    
    
    
    
    
    
    
    -Amortization
      of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    
    669Unrealized
      loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (617
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    12Net
      realized gain, previously included in other comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    (19
    )Stock-based
      compensation
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,082
    )
    
    
    
    
    (43,082
    )Balance,
      December 31, 2004
    
    
    33,072
    
    $
    331
    
    $
    343,594
    
    $
    (861
    )
    $
    (257,963
    )
    $
    (486
    )
    $
    84,615
 
 
 See
accompanying notes.
  
  ANADIGICS,
INC.
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 (DOLLARS
IN THOUSANDS)
 
 YEAR
      ENDED DECEMBER 31,2002
    
    
    2003
    
    
    2004CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Cumulative
      effect of accounting change
    
    
    8,010
    
    
    -
    
    
    -Gain
      on repurchase of Convertible notes
    
    
    (12,581
    )
    
    -
    
    
    (327
    )Depreciation
    
    
    19,828
    
    
    18,481
    
    
    15,282Amortization
    
    
    2,197
    
    
    1,173
    
    
    1,483Stock
      based compensation
    
    
    -
    
    
    26
    
    
    704Amortization
      of premium on marketable securities
    
    
    2,256
    
    
    2,432
    
    
    2,090Impairments
      of long-lived assets and investments
    
    
    17,074
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,863
    
    
    -Loss on
      sale of equipment
    
    
    -
    
    
    20
    
    
    15Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    1,184
    
    
    (2,906
    )
    
    1,304Inventory
    
    
    1,384
    
    
    2,957
    
    
    (4,115
    )Prepaid
      expenses and other assets
    
    
    1,070
    
    
    1,234
    
    
    361Accounts
      payable
    
    
    (1,681
    )
    
    1,730
    
    
    (1,476
    )Accrued
      and other liabilities
    
    
    (386
    )
    
    146
    
    
    (1,892
    )Net cash
      used in operating activities
    
    
    (17,531
    )
    
    (23,601
    )
    
    (29,653
    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of plant and equipment
    
    
    (4,945
    )
    
    (4,178
    )
    
    (3,427
    )Purchases
      of marketable securities
    
    
    (104,619
    )
    
    (97,605
    )
    
    (51,128
    )Proceeds
      from sales of marketable securities
    
    
    108,197
    
    
    122,577
    
    
    58,627Business
      acquisitions
    
    
    -
    
    
    (4,217
    )
    
    (55
    )Proceeds
      from sale of equipment
    
    
    2
    
    
    -
    
    
    130Net
      cash (used in) provided by investing activities
    
    
    (1,365
    )
    
    16,577
    
    
    4,147CASH
      FLOWS FROM FINANCING ACTIVITIESPayment
      of obligations under capital leases
    
    
    (94
    )
    
    (88
    )
    
    (66
    )Repayments
      of long-term debt
    
    
    (244
    )
    
    -
    
    
    -Proceeds
      from issuance of long-term debt net of offering costs
    
    
    -
    
    
    -
    
    
    35,695Repurchase
      of Convertible notes
    
    
    (19,828
    )
    
    -
    
    
    (19,400
    )Issuances
      of common stock, net of related expenses
    
    
    303
    
    
    1,294
    
    
    1,923Net
      cash (used in) provided by financing activities
    
    
    (19,863
    )
    
    1,206
    
    
    18,152Net
      decrease in cash and cash equivalents
    
    
    (38,759
    )
    
    (5,818
    )
    
    (7,354
    )Cash
      and cash equivalents at beginning of period
    
    
    63,102
    
    
    24,343
    
    
    18,525Cash
      and cash equivalents at end of period
    
    $
    24,343
    
    $
    18,525
    
    $
    11,171Supplemental
      disclosures of cash flow information:Interest
      paid
    
    $
    4,549
    
    $
    3,335
    
    $
    3,193Taxes
      paid
    
    
    200
    
    
    -
    
    
    117
 
  
 See
accompanying notes.
 
 
 
 
 
  
  
 ANADIGICS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (DOLLARS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
 NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
 
 
 ANADIGICS,
Inc. (the "Company") is a leading supplier of radio frequency ("RF")/microwave
integrated circuit solutions for the communications industry. The Company’s
products are used to send and receive signals in a variety of broadband and
wireless communications applications. In the broadband markets, the focus is on
applications for cable subscriber products, cable infrastructure systems,
wireless local area networks ("WLAN"), and fiber optic communications systems.
In the wireless market, the Company’s efforts are focused on applications for
cellular and personal communication systems ("PCS") handsets.
 
 The
Company designs, develops and manufactures radio frequency integrated circuit
solutions primarily using gallium arsenide ("GaAs") semiconductor material with
either Metal Semiconductor Field Effect Transistor (MESFET), Pseudomorphic High
Electron Mobility Transistor (PHEMT) or Heterojunction Bipolar Transistor (HBT)
process technology. The Company manufactures its integrated circuits in its
six-inch analog GaAs wafer fabrication facility. GaAs offers certain advantages
in RF/microwave applications including the integration of numerous RF/microwave
functions, which cannot be easily integrated in silicon-based circuits. The
Company’s high frequency integrated circuits enable manufacturers of
communications equipment to enhance overall system performance and reduce
manufacturing cost and time to market.
 
 The
consolidated financial statements include the accounts of ANADIGICS, Inc. and
its wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
 
 USE
OF ESTIMATES
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates. Significant estimates that affect the financial statements include,
but are not limited to: recoverability of inventories, useful lives and
amortization periods and recoverability of long-lived assets.
  CONCENTRATION
OF CREDIT RISK
  The
Company grants trade credit to its customers, who are primarily foreign
manufacturers of wireless communication devices, cable and broadcast television
receivers and fiber optic communication devices. The Company performs periodic
credit evaluations of its customers and generally does not require collateral.
Sales and accounts receivable from customers are denominated in U.S. dollars.
The Company has not experienced significant losses related to receivables from
these individual customers.
 
 Net
sales to individual customers who accounted for 10% or more of the Company’s
total net sales and corresponding end application information are as
follows:
  YEAR
      ENDED DECEMBER 312002
    
    
    2003
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Customer
      (application)Motorola
      (Broadband)
    
    $
    18,666
    
    
    23
    %
    $
    10,422
    
    
    14
    %
    $
    9,184
    
    
    10
    %Kyocera
      (Wireless)
    
    
    29,231
    
    
    35
    %
    
    21,263
    
    
    28
    %
    
    9,751
    
    
    11
    %Scientific
      Atlanta (Broadband)
    
    
    <10
    %
    
    <10
    %
    
    <10
    %
    
    <10
    %
    
    9,218
    
    
    10
    %LG
      Electronics (Wireless)
    
    
    <10
    %
    
    <10
    %
    
    10,346
    
    
    14
    %
    
    13,628
    
    
    15
    %
 
 Accounts
receivable at December 31, 2003 and 2004 from the greater than 10% customers
accounted for 49% and 51% of total accounts receivable,
respectively.
 
 REVENUE
RECOGNITION
 
 Production
revenue is recorded when products are shipped to customers pursuant to a
purchase order. The Company charges customers for the costs of certain
contractually-committed inventories that remain at the end of a product's life.
Cancellation revenue is recognized when cash is received. The value of the
inventory related to cancellation revenue may, in some instances, have been
reserved during prior periods in accordance with the Company’s inventory
obsolescence policy. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from customers' failure to make
payments.
 
 WARRANTY
COSTS
 
 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 consolidated balance sheets.
 
 PLANT
AND EQUIPMENT
 
 
 Plant
and equipment are stated at cost. Depreciation of plant, furniture and equipment
has been provided on the straight-line method over 3-5 years. Leasehold
improvements are amortized and included in depreciation over the useful life of
the leasehold or the life of the lease, whichever is shorter.
 
 The
cost of equipment acquired under capital leases was $10,633 and $10,545 at
December 31, 2003 and 2004, respectively, and accumulated amortization was
$10,484 and $10,519 at December 31, 2003 and 2004, respectively. Equipment
acquired under a capital lease is amortized and included in depreciation over
the useful life of the leased equipment or the life of the lease, whichever is
shorter.
 
 GOODWILL
AND OTHER INTANGIBLES
 
 Goodwill,
process technology, customer list and a covenant-not-to-compete were recorded as
part of the Company's acquisitions. Effective January 1, 2002, the Company
adopted the provisions of Financial Accounting Standards Board Statement No.
142, Goodwill and Other Intangible Assets (FAS 142). Under the new rules,
goodwill is no longer subject to amortization but is reviewed for potential
impairment upon adoption and thereafter annually or upon the occurrence of an
impairment indicator. FAS 142 prescribes a two-phase process for impairment
testing of goodwill. The first phase screens for impairment; while the second
phase measures the impairment. Process technology, the customer list and the
covenant continued to be amortized using the straight-line method over three to
four year lives. The carrying amount of the Company’s intangibles are reviewed
on a regular basis for any signs of an impairment. The Company determines if the
carrying amount is impaired based on anticipated cash flows. In the event of
impairment, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the asset. For each of the reporting units,
fair value is determined primarily using the anticipated cash flows, discounted
at a rate commensurate with the associated risk.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS
 
 Long-lived
assets used in operations are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets might not be
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and fair value. Long-lived assets held for sale are
reported at the lower of cost or fair value less costs to sell.
 
 INCOME
TAXES
 
 
 Deferred
income taxes reflect the net effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the income tax basis of such assets and liabilities. The Company maintains a
full valuation allowance on its deferred tax assets.
 
 RESEARCH
AND DEVELOPMENT COSTS
 
 
 The
Company charges all research and development costs associated with the
development of new products to expense when incurred.
 
 
 IN-PROCESS
RESEARCH AND DEVELOPMENT
 
 In
the event of an acquisition, the Company will calculate the fair value of
in-process research and development projects, based upon discounted cash flows
estimated by management of future revenues and expected profitability of the
related technology. The rate used to discount the projected future cash flows
accounts for the time value of money, as well as the risks of realization of the
cash flows. Management will record a charge to earnings where projects are
determined to have not reached technological feasibility and do not have
alternative uses.
 
 CASH
EQUIVALENTS
 
 
 The
Company considers all highly liquid marketable securities with an original
stated maturity of three months or less as cash equivalents.
 
 
 MARKETABLE
SECURITIES
 
 
 Available
for sale securities are stated at fair value, as determined by quoted market
prices, with unrealized gains and losses reported in other accumulated
comprehensive income or loss. The cost of securities sold is based upon the
specific identification method. The amortized cost of debt securities is
adjusted for amortization of premium and accretion of discounts to maturity.
Such amortization, realized gains and losses, interest and dividends are
included in interest income. See Note 8 for a summary of available-for-sale
securities.
 
 FOREIGN
CURRENCY TRANSLATION
 
 The
financial statements of subsidiaries outside of the United States are measured
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the rates of exchange at the balance sheet
date. The resultant translation adjustments are included in other accumulated
comprehensive income or loss. Income and expense items are translated at the
average monthly rates of exchange. Gains and losses from foreign currency
transactions of these subsidiaries are included in the determination of net
income or loss.
 
 STOCK
BASED COMPENSATION
 
 As
permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
(FAS 123), the Company has elected to follow the intrinsic value method under
Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations in accounting for its employee
stock option and other stock based compensation plans. Under APB 25, no
compensation expense is recognized at the time of option grant when the exercise
price of the Company’s employee stock options equals the fair market value of
the underlying common stock on the date of grant. Compensation expense
attributable to restricted stock awards is based on the fair value of such
shares at the date of issuance and is amortized over the vesting
period.
  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 SFAS No. 123:
 
 2002
    
    
    2003
    
    
    2004Net
      loss, as reported
    
    $
    (55,886
    )
    $
    (50,757
    )
    $
    (43,082
    )Stock
      based compensation included in reported net loss
    
    
    -
    
    
    26
    
    
    704Stock
      based compensation expense under fair value reporting
    
    
    (10,863
    )
    
    (7,905
    )
    
    (9,978
    )Pro
      forma net loss
    
    $
    (66,749
    )
    $
    (58,636
    )
    $
    (52,356
    )Basic
      and diluted loss per shareNet
      loss, as reported
    
    $
    (1.83
    )
    $
    (1.65
    )
    $
    (1.33
    )Pro
      forma net loss
    
    $
    (2.18
    )
    $
    (1.91
    )
    $
    (1.62
    )
 On
December 22, 2004, the Company authorized an immediate vesting of eligible
employees’ unvested share options with an exercise price greater than $5.00 per
share. Directors were not eligible. In total, 1,772,289 options with an average
exercise price of $7.26 immediately vested and have an average remaining
contractual life of 9.1 years. The unamortized fair value associated with these
accelerated-vest shares in the amount of $2,654 amortized immediately. Had the
accelerated-vest program not occurred, the related-cost in the years ended
December 31, 2005, 2006 and 2007 would have included $1,846, $751 and $57,
respectively. In addition to its employee-retention value, the Company’s
decision to accelerate the vesting of these "out-of-the-money" options was based
upon the accounting of such costs moving from disclosure-only in 2004 to being
included in the Company’s statement of operations in 2005.
 EARNINGS PER
SHARE
 
 Basic
and diluted earnings per share are calculated in accordance with FASB Statement
No. 128, Earnings Per Share. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised resulting in the issuance of common stock of the Company.  Any
dilution arising from the Company's outstanding stock options or share
potentially issuable upon conversion of the Convertible notes are not included
as their effect is anti-dilutive.
  FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The fair value
of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The fair value of
each of the following instruments approximates their carrying value because of
the short maturity of these instruments: cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities. At December 31, 2004, the
fair value of the Company's outstanding Convertible senior notes, estimated
based upon dealer quotes, was approximately $86,062.
 
 IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
 
 In
December 2004, the Financial Accounting Standards Board issued Statement No.
123(R) (FAS 123R), Share-Based Payment, amending FAS 123 and requiring that all
share-based payments to employees be recognized in the financial statements.
Generally, the approach to accounting for share-based payments in FAS 123R is
similar to the approach described in FAS 123, however, pro forma footnote
disclosure will no longer be an alternative to financial statement recognition.
This statement becomes effective in the first interim or annual period beginning
after June 15, 2005. The Company expects to adopt the new statement effective
January 1, 2005, using the modified-prospective transition method described in
the statement. Under this method, the Company will be required to recognize
compensation expense over the remaining vesting period for all awards that
remain unvested as of January 1, 2005. As permitted by FAS 123, the Company
currently accounts for share-based payments to employees using APB 25's
intrinsic value method and, as such, generally recognized no compensation cost
for employee stock options. The Company believes based on the level of
share-based payments previously granted and unvested, that the adoption of FAS
123R will not have a material effect on its financial position, results of
operations or cashflows, however, the level of future equity based compensation
grants could have a material effect on amounts recorded in our statement of
operations.
 
 In
November 2004, the Financial Accounting Standards Board issued Statement No. 151
(FAS 151), Inventory costs, an amendment of ARB No. 43, Chapter 4. FAS 151
clarifies that abnormal amounts of idle facility expense, freight, handling
costs and wasted materials should be recognized as current period charges. In
addition, FAS 151 requires that allocation of fixed production overhead to
inventory be based on the normal capacity of the production facilities. FAS 151
is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company currently believes that the adoption of FAS 151 will
not have a material impact on its consolidated financial
statements.
 
 RECLASSIFICATIONS
 
 Certain
prior period amounts have been reclassified to conform to the current
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
acquisition costs of $8,920 was allocated to the assets acquired and liabilities
assumed, based on their fair values as follows:
 
 TotalFair
      value of tangible assets
    
    $
    1,029Fair
      value of liabilities assumed
    
    
    (527
    )In-process
      research and development
    
    
    1,863Process
      technology
    
    
    210Covenant-not-to-compete
    
    
    175Customer
      list
    
    
    240Goodwill
    
    
    5,930Total
      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 year ended December 31,
2004:
 
 Balance
      at December 31, 2003
    
    $
    1,227Additions,
      primarily related to RFS share issuance
    
    
    4,703Balance
      at December 31, 2004
    
    $
    5,930
 
 The
following unaudited pro-forma consolidated financial information reflects the
results of operations for the twelve months ended December 31, 2002 and 2003, as
if the acquisitions of RFS and Tavanza had occurred on December 31, 2001 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.
  Year
      Ended December 312002
    
    
    2003Pro-forma
      revenue
    
    $
    83,020
    
    $
    75,751Pro-forma
      net loss before cumulative effect of accounting change
    
    
    (57,034
    )
    
    (51,947
    )Pro-forma
      net loss
    
    
    (65,044
    )
    
    (51,947
    )Basic
      and diluted net loss per sharePro-forma
      net loss before cumulative effect of accounting change
    
    $
    (1.86
    )
    $
    (1.69
    )Pro-forma
      net loss
    
    
    (2.13
    )
    
    (1.69
    )
 
 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
acquisition actually taken place on December 31, 2001. 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. 
INTANGIBLES, GOODWILL, CUMULATIVE EFFECT OF ACCOUNTING CHANGE AND
ACQUISITION INTANGIBLES' IMPAIRMENT CHARGES
 
 As
of December 31, 2003 and 2004, the Company's intangible assets consist of the
following:
 
 Gross
      Carrying Amount
    Accumulated
      AmortizationDecember
      31,
    December
      31,2003
    
    
    2004
    
    
    2003
    
    
    2004Goodwill
    
    $
    1,227
    
    $
    5,930
    
    $
    -
    
    $
    -Process
      Technology
    
    
    210
    
    
    210
    
    
    35
    
    
    91Covenant
      not to compete
    
    
    175
    
    
    175
    
    
    12
    
    
    70Customer
      list
    
    
    240
    
    
    240
    
    
    17
    
    
    97$
    1,852
    
    $
    6,555
    
    $
    64
    
    $
    258
 
 Annual
amortization expense related to intangible assets is calculated over their
estimated useful lives of three to four years and was $64 and $194 in the years
ended December 31, 2003 and 2004, respectively. In the year ended December 31,
2002, intangible asset amortization expense was $1,080 which was recorded prior
to the impairment write-off of the intangibles in the fourth quarter of 2002, as
discussed below.
 
 Future
annual amortization expense related to intangible assets is expected to be as
follows:
 
 2005
    
    
    2006
    
    
    2007Amortization
      expense
    
    $
    194
    
    $
    162
    
    $
    11
  Effective
January 1, 2002, the Company adopted the provisions of FAS 142 and under the new
rules, goodwill is no longer subject to amortization but is reviewed for
potential impairment annually or upon the occurrence of an impairment indicator.
The annual amortization of Telcom’s goodwill, which would have approximated
$2,567 was no longer required in 2002. Other intangible assets continued to be
amortized over their useful lives. As a result of completing the initial
required impairment test, the Company recorded a charge for the cumulative
effect of the accounting change in the amount of $8,010 ($0.26 per share)
representing the excess of the carrying value of a reporting unit (Telcom) as
compared to its estimated fair value as of January 1, 2002.
 
 During
the course of 2002, the Company monitored fiber market conditions in light of
job cuts and difficult prospects announced by several of its end-market
customers. In view of these weaker market conditions, the Company performed
several tests of its goodwill and intangible assets for potential impairment
during the year. As a result of those evaluations, the Company recorded a
goodwill impairment charge of $8,043 and an asset impairment charge for its
remaining acquired intangibles of $2,310. The $2,310 was included within charges
for asset impairments as discussed in Note 4 below.
 
 
 4.
RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
 
 During
2003, the Company recorded restructuring charges of $925 pertaining to severance
and related benefits of workforce reductions of approximately 19 operations and
administrative positions and lease-related costs.
 
 In
2002, the Company recorded charges for asset impairments, impairment on
investments and for restructuring and other charges of $8,641, $390 and $5,001,
respectively. The asset impairment charge of $8,641 related to the write-off of
certain manufacturing and research equipment, leasehold improvements, certain
acquired intangibles and certain technology licenses that are no longer used in
the ongoing activities of the business. The charge for impairment on investments
was recorded on a private-equity investment following an evaluation that
indicated the carrying value of such investment exceeded its estimated fair
market value. The restructuring and other charges were for lease-related costs
and for severance and related employee benefit costs of workforce reductions.
The workforce reductions eliminated approximately 83 positions throughout the
Company.
 
 Activity
and liability balances related to the restructuring and other charges for the
years ended December 31, 2002, 2003 and 2004 are as follows:
 
 Lease
      Related
    
    
    Workforce
      Reductions
    
    
    TotalYear
      ended December 31, 2002Beginning
      balance
    
    $
    1,189
    
    $
    709
    
    $
    1,898Restructuring
      and other expenses
    
    
    3,374
    
    
    1,628
    
    
    5,002Deductions
    
    
    (1,759
    )
    
    (2,185
    )
    
    (3,944
    )December
      31, 2002 restructuring balance
    
    
    2,804
    
    
    152
    
    
    2,956Year
      ended December 31, 2003Restructuring
      and other expenses
    
    
    300
    
    
    625
    
    
    925Deductions
    
    
    (1,124
    )
    
    (763
    )
    
    (1,887
    )December
      31, 2003 restructuring balance
    
    
    1,980
    
    
    14
    
    
    1,994Deductions
    
    
    (1,254
    )
    
    (14
    )
    
    (1,268
    )December
      31, 2004 restructuring balance
    
    $
    726
    
    $
    -
    
    $
    726
 
 5.
SEGMENTS
 
 The
Company operates in one segment. Its integrated circuits are primarily
manufactured using common manufacturing facilities located in the same domestic
geographic area. All operating expenses and assets of the Company are combined
and reviewed by the chief operating decision maker on an enterprise-wide basis,
resulting in no additional discrete financial information or reportable segment
information.
 
 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:
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Wireless
    
    $
    44,689
    
    $
    41,538
    
    $
    45,379Broadband
    
    
    37,875
    
    
    33,674
    
    
    45,971Total
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350
 
 
 The
Company primarily sells to three geographic regions: Asia, U.S.A. and Canada,
and Other. The geographic region is determined based on shipping addresses, not
on the locations of the ultimate users. Net sales to each of the three
geographic regions are as follows:
 
 
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Asia
    
    $
    31,897
    
    $
    31,014
    
    $
    48,939USA
      and Canada
    
    
    44,193
    
    
    38,024
    
    
    35,982Other
    
    
    6,474
    
    
    6,174
    
    
    6,429Total
    
    $
    82,564
    
    $
    75,212
    
    $
    91,350
 
 6.
LONG-TERM DEBT
 
 
 On
September 24, 2004, the Company issued $38,000 aggregate principal amount of 5%
Convertible Senior Notes ("2009 Notes") due October 15, 2009. The 2009 Notes are
convertible into shares of the Company’s common stock at any time prior to their
maturity, at an initial conversion rate, subject to adjustment, of 200 shares
for each $1,000 principal amount, which is equivalent to a conversion price of
$5.00 per share. Pursuant to the indenture, dated as of September 24, 2004,
between the Company and U.S. Bank Trust Association, as trustee, in the event of
a "fundamental change" on or prior to July 15, 2009, the Company will pay a make
whole premium upon the repurchase or conversion of the 2009 Notes. Subject to
certain exceptions, the make whole premium will be 1% of the principal amount of
the 2009 Notes, plus an additional premium based on the date such "fundamental
change" becomes effective and the price paid per share of the Company’s common
stock in the transaction constituting the "fundamental change". Interest on the
2009 Notes is payable semi-annually in arrears on April 15 and October 15 of
each year.
 
 On
November 27, 2001, the Company issued $100,000 aggregate principal amount of 5%
Convertible Senior Notes ("2006 Notes") due November 15, 2006. The outstanding
2006 Notes are convertible into shares of common stock at any time prior to
their maturity or prior redemption by the Company. The 2006 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 in arrears on May 15 and November
15 of each year.
 
 ANADIGICS,
Inc. has the option to redeem all or a portion of the 2006 Notes at a redemption
price of 102% of the principal amount during the period from November 15, 2004
through November 14, 2005 and at a redemption price of 101% of the principal
amount during the period from November 15, 2005 to November 14, 2006. In the
event of a change in control, as defined, 2006 Note-holders may require the
Company to repurchase the notes at 100% of the principal amount. In the event of
a change in control, the Company, in certain circumstances, may elect to repay
the 2006 Notes in common stock valued at 95% of the average of the closing
prices of the Company's common stock for the five days immediately preceding and
including the third trading day prior to the repurchase.
 
 As
of December 31, 2004, $46,700 aggregate principal amount of the 2006 Notes
remain outstanding. During the third quarter of 2002, the Company repurchased
and retired $33,300 aggregate principal amount of the 2006 Notes for $20,365 in
cash, inclusive of accrued interest of $537. The Company recognized a gain of
$12,581 on the repurchase after adjusting for accrued interest and the write-off
of a proportionate share of unamortized offering costs. In addition, in the
third quarter of 2004 and concurrent with the issuance of the 2009 Notes, the
Company repurchased and retired $20,000 aggregate principal amount of the 2006
Notes for $19,758 in cash, inclusive of accrued interest of $358. The Company
recognized a gain of $327 on the repurchase after adjusting for the write-off of
a proportionate share of unamortized offering costs.
 
 Unamortized
debt issuance costs of $1,221 and $2,744 at December 31, 2003 and 2004,
respectively, consisting principally of underwriters' fees, were included in
other assets and are being amortized over the life of the
notes.
  7.
COMMITMENTS AND CONTINGENCIES
 
 
 The
Company leases manufacturing, warehousing and office space and manufacturing
equipment under noncancelable operating leases that expire through 2016. The
Company also leases certain equipment under capital leases that expire in 2005.
Rent expense, net of sublease income was $3,560, $3,225 and $3,063 in 2002, 2003
and 2004, respectively. Sublease income was $406, $789 and $780 in 2002, 2003
and 2004, respectively. The future minimum lease payments under the
noncancelable operating leases and the present value of the minimum capital
lease payments are as follows:
 
 YEAR
    
    
    Capital
      Leases
    
    
    Operating
      Leases2005
    
    $
    18
    
    $
    2,6412006
    
    
    
    
    
    1,6932007
    
    
    
    
    
    1,6992008
    
    
    
    
    
    1,7042009
    
    
    
    
    
    1,776Thereafter
    
    
    
    
    
    14,115Total
      minimum lease payments
    
    
    18
    
    
    23,628Less:
      contractually-required sublease income
    
    
    -
    
    
    (268
    )$
    18
    
    $
    23,360
  The
lessor on the lease for the Company’s headquarters building in Warren, New
Jersey, changed during 2003 as a result of the settlement of a bankruptcy
proceeding involving the prior lessor. The lease agreement is unchanged as a
result of the transfer of ownership.
 
 In
addition to the above, at December 31, 2004, the Company had unconditional
purchase obligations of approximately $2,445.
 
 8.
MARKETABLE SECURITIES
 
 The
following is a summary of available-for-sale securities:
 
 Available-for-Sale
      SecuritiesCost
    
    
    Gross
      Unrealized Gains (Losses)
    
    
    Estimated
      Fair ValueUS
      Treasury & Agency Securities
    
    $
    9,966
    
    $
    (16
    )
    $
    9,950US
      Corporate Securities
    
    
    93,014
    
    
    141
    
    
    93,155Total
      at December 31, 2003
    
    $
    102,980
    
    $
    125
    
    $
    103,105US
      Treasury & Agency Securities
    
    $
    11,908
    
    $
    (81
    )
    $
    11,827US
      Corporate Securities
    
    
    81,483
    
    
    (430
    )
    
    81,053Total
      at December 31, 2003
    
    $
    93,391
    
    $
    (511
    )
    $
    92,880
 
 
 The
amortized cost and estimated fair value of debt and marketable equity securities
at December 31, 2004, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
 
 Available-for-Sale
      SecuritiesCost
    
    
    Estimated
      Fair ValueDue
      in one year or less
    
    $
    63,827
    
    $
    63,615Due
      after one year through two years
    
    
    29,564
    
    
    29,265Total
    
    $
    93,391
    
    $
    92,880
 
  9.
INVENTORIES
 
 
 Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Inventories consist of the following:
 
 December
      31,2003
    
    
    2004Raw
      materials
    
    $
    3,302
    
    $
    3,510Work
      in progress
    
    
    7,200
    
    
    9,026Finished
      goods
    
    
    4,564
    
    
    5,97415,066
    
    
    18,510Reserves
    
    
    (4,745
    )
    
    (4,074
    )Total
    
    $
    10,321
    
    $
    14,436
 
 10.
ACCRUED LIABILITIES
 
 
 Accrued
liabilities consist of the following:
 
 December
      31,2003
    
    
    2004Accrued
      compensation
    
    $
    3,732
    
    $
    2,005Warranty
      reserve
    
    
    100
    
    
    159Other
    
    
    1,786
    
    
    2,619$
    5,618
    
    $
    4,783
 
 Warranty
reserve movements in the years ended December 31, 2003 and 2004 for returns were
$278 and $331, respectively. The periodic charges for estimated warranty costs
were $10 and $390 in the years ended December 31, 2003 and 2004.
  11.
INCOME TAXES
 
 
 The
components of the provision (benefit) for income taxes are as
follows:
 Year
      Ended December 31,2002
    
    
    2003
    
    
    2004Current
      benefit:Federal
    
    $
    (4,307
    )
    $
    (382
    )
    $
    -State and foreign
    
    
    -
    
    
    -
    
    
    -Deferred
      provision:Federal
    
    
    -
    
    
    -
    
    
    -State and foreign
    
    
    -
    
    
    -
    
    
    -Total
    
    $
    (4,307
    )
    $
    (382
    )
    $
    -
 In
December 2002, the Company received a $4,307 refund pursuant to a carryback
claim under the Job Creation and Workers Assistance Tax Act of 2002. The refund
represents taxes paid in 1996 and 1997. Deferred tax assets require a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of the deferred tax assets may not be realized. Whereas realization
of the deferred tax assets is dependent upon the timing and magnitude of future
taxable income prior to the expiration of the deferred tax attributes,
management began recording a full valuation allowance in 2001. The amount of the
deferred tax assets considered realizable, however, could change if estimates of
future taxable income during the carry-forward period are
changed.
 
 Significant
components of the Company’s net deferred taxes as of December 31, 2003 and 2004
are as follows:
 
 December
      31,2003
    
    
    2004Deferred
      tax balancesAccurals/reserves
    
    $
    3,790
    
    $
    3,642Net
      operating loss carryforwards
    
    
    77,260
    
    
    94,285General
      business and research and development credits
    
    
    4,634
    
    
    5,073Deferred
      rent expense
    
    
    1,091
    
    
    1,160Difference
      in basis of plant and equipment
    
    
    2,295
    
    
    2,689Other
    
    
    (71
    )
    
    -Valuation
      reserve
    
    
    (88,999
    )
    
    (106,849
    )Net
      deferred tax assets
    
    
    -
    
    
    -
 
 
 As of December
31, 2004, the Company had net operating loss carryforwards of approximately
$260,000 for both federal and state tax reporting purposes. The federal
carryforward will begin to expire in 2018, and the state carryforwards will
begin to expire in 2005. At December 31, 2004, approximately $24,860 of the
deferred tax asset related to net operating loss carryforwards and an equivalent
amount of deferred tax asset valuation allowance represented tax benefits
associated with the exercise of non-qualified stock options. Such benefit, when
realized, will be credited to additional paid-in capital.
 
 The
reconciliation of income tax expense computed at the U.S. federal statutory rate
to the benefit from income taxes is as follows:
 
 Year
      Ended December 31,2002
    2003
    2004Tax
      at US statutory rate
    
    $
    (18,264
    )
    
    (35.0
    )%
    $
    (17,899
    )
    
    (35.0
    )%
    $
    (15,079
    )
    
    (35.0
    )%State
      and foreign tax (benefit), net of federal tax effect
    
    
    (1,696
    )
    
    (3.2
    )
    
    (1,662
    )
    
    (3.2
    )
    
    (1,400
    )
    
    (3.2
    )Research
      and experimentation tax credits
    
    
    (337
    )
    
    (0.6
    )
    
    -
    
    
    -
    
    
    (516
    )
    
    (1.2
    )Valuation
      allowance, net of carryback
    
    
    11,232
    
    
    21.5
    
    
    20,098
    
    
    39.3
    
    
    17,850
    
    
    41.4Intangibles
      amortization and other
    
    
    4,758
    
    
    9.1
    
    
    (919
    )
    
    (1.8
    )
    
    (855
    )
    
    (2.0
    )Benefit
      from income taxes
    
    $
    (4,307
    )
    
    (8.2
    )%
    $
    (382
    )
    
    (0.7
    )%
    $
    -
    
    
    0.0
    %
 
 
 12.
STOCKHOLDERS' EQUITY
 
 
 On
December 17, 1998, the Company adopted a Shareholders’ Rights Agreement (the
"Agreement"). Pursuant to the Agreement, as amended on November 30, 2000, rights
were distributed as a dividend at the rate of one right for each share of
ANADIGICS, Inc. common stock, par value $0.01 per share, held by stockholders of
record as of the close of business on December 31, 1998. The rights will expire
on December 17, 2008, unless earlier redeemed or exchanged. Under the Agreement,
each right will entitle the registered holder to buy one one-thousandth of a
share of Series A Junior Participating Preferred Stock at a price of $75.00 per
one one-thousandth of a share, subject to adjustment in accordance with the
Agreement. The rights will become exercisable only if a person or group of
affiliated or associated persons acquires, or obtains the right to acquire,
beneficial ownership of ANADIGICS, Inc. common stock or other voting securities
that have 18% or more of the voting power of the outstanding shares of voting
stock, or upon the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in such person
or group acquiring, or obtaining the right to acquire, beneficial ownership of
18% or more of the voting power of ANADIGICS, Inc. common stock or other voting
securities.
 
 13.
EMPLOYEE BENEFIT PLANS
 
 In
1995, the Company adopted an employee stock purchase plan ("ESP Plan") under
Section 423 of the Internal Revenue Code. All full-time employees of ANADIGICS,
Inc. and part-time employees, as defined in the ESP Plan, are eligible to
participate in the ESP Plan. An aggregate of 1,693,750 shares of common stock
are reserved for offering under the ESP Plan. Offerings are made at the
commencement of each calendar year and must be purchased by the end of that
calendar year. Pursuant to the terms of ESP Plan, shares purchased and their
applicable per share prices were 88,493 ($2.21), 528,894 ($2.32), 181,685
($3.11), for the years ended December 31, 2002, 2003 and 2004,
respectively.
 
 Employees
and outside directors have been granted options to purchase shares of common
stock under stock option plans adopted in 1994, 1995 and 1997. An aggregate of
489,130, 4,912,500 and 5,100,000 shares of common stock were reserved for
issuance under the 1994 Long-Term Incentive Share and Award Plan, the 1995
Long-Term Incentive Share Award Plan and the 1997 Long-Term Incentive and Share
Award Plan for Employees (the "Plans"), respectively. The Plans provide for the
granting of stock options, stock appreciation rights, restricted shares, or
other share based awards to eligible employees and directors, as defined in the
Plans. Options granted under the Plans become exercisable in varying amounts
over periods of up to three years. To date, no stock appreciation rights have
been granted under the Plans.
 
 On
July 23, 2004, the Company granted 403,204 restricted shares under the 1995 and
1997 Long-Term Incentive Share Award plans ("Plans"). On the date of the grant,
the market price of the shares was $4.01. The value of the grant has been
recorded as deferred compensation, a component of Stockholders’ Equity and is
being amortized over the required one-year vest period. At December 31, 2004,
21,622 restricted shares have been forfeited under the conditions of the Plans.
During the first quarter of 2005, the Company has granted an additional
1,028,716 restricted
shares under the Plans at an average market price of $2.78 and carrying vesting
periods of one or three years.
 
 On
May 20, 2002, the Company announced a voluntary stock option exchange program
for eligible employees. Officers and directors were not eligible for the
exchange program. Pursuant to the terms and conditions of the offer, which
expired on June 18, 2002, the Company accepted for cancellation options to
purchase 838,157 shares of common stock having a weighted average exercise price
of $36.90. On December 20, 2002, participating employees were issued 760,742
options under this program in exchange for the cancelled options. The new
options have an exercise price equal to $2.53, which represents the fair market
value at the date of grant and fully vested on December 20, 2003.
 
 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
represents the fair market value at the date of grant.
 
 A summary of the Company’s
stock option activity, and related information for the years ended December 31,
2002, 2003 and 2004 are as follows:
 
 **2002**
    **2003**
    **2004**Common
      Stock Options
    
    
    Weighted
      Average Exercise Price
    
    
    Common
      Stock Options
    
    
    Weighted
      Average Exercise Price
    
    
    Common
      Stock Options
    
    
    Weighted
      Average Exercise PriceOutstanding
      at beginning of year
    
    
    6,283,632
    
    $
    17.52
    
    
    7,132,034
    
    $
    10.80
    
    
    5,904,937
    
    $
    7.30Granted
    
    
    2,248,353
    
    
    3.90
    
    
    856,366
    
    
    3.44
    
    
    1,943,713
    
    
    7.16Exercised
    
    
    (16,773
    )
    
    6.44
    
    
    (22,961
    )
    
    2.93
    
    
    (536,633
    )
    
    2.53Forfeited
    
    
    (545,021
    )
    
    21.17
    
    
    (386,571
    )
    
    10.78
    
    
    (520,311
    )
    
    9.31Cancelled
    
    
    (838,157
    )
    
    36.90
    
    
    (1,673,931
    )
    
    19.49
    
    
    -
    
    
    -Outstanding
      at end of year
    
    
    7,132,034
    
    
    10.80
    
    
    5,904,937
    
    
    7.30
    
    
    6,791,706
    
    
    7.47Exercisable
      at end of year
    
    
    3,903,164
    
    
    13.69
    
    
    4,185,488
    
    
    8.65
    
    
    6,172,285
    
    
    7.94
 
 Stock
options outstanding at December 31, 2004 are summarized as follows:
 
 Range
      of exercise prices
    
    
    Outstanding
      Options at Dec. 31, 2004
    
    
    Weighted
      average remaining contractual life
    
    
    Weighted
      average exercise price
    
    
    Exercisable
      at Dec. 31, 2004
    
    
    Weighted
      average exercise price$1.98
      - $2.53
    
    
    1,412,550
    
    
    8.00
    
    $
    2.49
    
    
    1,058,948
    
    $
    2.50$2.79
      - $5.33
    
    
    1,816,777
    
    
    5.13
    
    $
    4.21
    
    
    1,566,058
    
    $
    4.39$5.63
      - $7.65
    
    
    1,892,492
    
    
    8.88
    
    $
    7.18
    
    
    1,877,392
    
    $
    7.19$7.66
      - $13.59
    
    
    897,338
    
    
    4.78
    
    $
    11.95
    
    
    897,338
    
    $
    11.95$13.60
      - $53.48
    
    
    772,549
    
    
    5.10
    
    $
    19.77
    
    
    772,549
    
    $
    19.77
 
 FASB
123 requires pro forma information regarding net income and earnings per share
as if the Company has accounted for its employee stock options, warrants and
shares of common stock purchased by employees in connection with the ESP Plan
("equity awards") under the fair value method prescribed by FASB 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model. The following are weighted average
assumptions for stock option grants for 2002, 2003 and 2004, respectively:
risk-free interest rate of 2.0%, 1.8% and 2.2%; expected volatility of 1.08,
1.10 and 1.01; expected option life of one year from vesting and an expected
dividend yield of 0.0%. The weighted average fair value of options granted
during 2002, 2003 and 2004 was $2.40, $2.24 and $4.17,
respectively.
 
 ANADIGICS,
Inc. also sponsors an Employee Savings and Protection Plan under Section 401(k)
of the Internal Revenue Code which is available to all full-time employees.
Employees can make voluntary contributions up to limitations prescribed by the
Internal Revenue Code. The Plan was amended in 2001 and the Company now matches
50% of employee contributions up to 6% of their gross pay. The Company recorded
expense of $696, $628 and $730 for the years ended December 31, 2002, 2003 and
2004, respectively, relating to plan contributions.
 
 14.
EARNINGS PER SHARE
 
 The reconciliation of shares
used to calculate basic and diluted earnings per share consists of the
following:
 
 Year
      ended December 31,2002
    
    
    2003
    
    
    2004Weighted
      average common shares outstanding used to calculate basic earnings per
      share
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922Net
      effect of dilutive securities - based on treasury stock method using
      average market price
    
    
    -*
    
    
    -*
    
    
    -*Weighted
      average common and dilutive securities outstanding used to calculate
      diluted earnings per share
    
    
    30,587,032
    
    
    30,716,749
    
    
    32,412,922
 
 
 *
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.
 
 15.
OTHER ACCUMULATED COMPREHENSIVE INCOME
 
 The
components of other accumulated comprehensive income are as
follows:
 
 Foreign
      Currency Translation Adjustments
    
    
    Unrealized
      Gain (loss) on available-for-sale securities
    
    
    TotalBalance
      at December 31, 2002
    
    $
    (33
    )
    $
    776
    
    $
    743Unrealized
      gain on available-for-sale securities
    
    
    -
    
    
    (666
    )
    
    (666
    )Foreign
      currency translation adjustment
    
    
    46
    
    
    -
    
    
    46Net
      loss recognized in other comprehensive income
    
    
    -
    
    
    15
    
    
    15Balance
      at December 31, 2003
    
    
    13
    
    
    125
    
    
    138Unrealized
      gain on available-for-sale securities
    
    
    -
    
    
    (617
    )
    
    (617
    )Foreign
      currency translation adjustment
    
    
    12
    
    
    -
    
    
    12Net
      gain recognized in other comprehensive income
    
    
    -
    
    
    (19
    )
    
    (19
    )Balance
      at December 31, 2004
    
    $
    25
    
    $
    (511
    )
    $
    (486
    )
 
 
 The
earnings associated with the Company’s investment in its foreign subsidiaries is
considered to be permanently invested and no provision for U.S. federal and
state income taxes on those earnings or translation adjustments have been
provided.
  16.
LEGAL PROCEEDINGS
 
 ANADIGICS
is a party to litigation arising out of the operation of our business. We
believe that the ultimate resolution of such litigation should not have a
material adverse effect on our financial condition, results of operations or
liquidity.
 
 
 17.
QUARTERLY FINANCIAL DATA (UNAUDITED)
 
 Quarter
      Ended2003
    2004Mar 29
    
    
    June
      28
    
    
    Sept.
      28
    
    
    Dec.
      31
    
    
    April
      3
    
    
    July
      3
    
    
    Oct.
      2
    
    
    Dec.
      31Net
      sales
    
    $
    16,087
    
    $
    18,037
    
    $
    17,750
    
    $
    23,338
    
    $
    21,195
    
    $
    22,687
    
    $
    25,053
    
    $
    22,415Cost
      of sales
    
    
    16,079
    
    
    17,250
    
    
    17,538
    
    
    21,060
    
    
    19,175
    
    
    19,207
    
    
    19,811
    
    
    19,162Gross
      profit
    
    
    8
    
    
    787
    
    
    212
    
    
    2,278
    
    
    2,020
    
    
    3,480
    
    
    5,242
    
    
    3,253Research
      and development
    
    
    7,157
    
    
    8,280
    
    
    8,029
    
    
    8,609
    
    
    8,902
    
    
    8,866
    
    
    7,884
    
    
    7,654Selling
      and administrative expense
    
    
    4,518
    
    
    4,521
    
    
    4,795
    
    
    5,586
    
    
    5,790
    
    
    6,099
    
    
    5,482
    
    
    5,140Restructuring
      and other charges
    
    
    625
    
    
    -
    
    
    -
    
    
    300
    
    
    -
    
    
    -
    
    
    -
    
    
    -Purchased
      in-process R&D
    
    
    -
    
    
    1,690
    
    
    -
    
    
    173
    
    
    -
    
    
    -
    
    
    -
    
    
    -Operating
      loss
    
    
    (12,292
    )
    
    (13,704
    )
    
    (12,612
    )
    
    (12,390
    )
    
    (12,672
    )
    
    (11,485
    )
    
    (8,124
    )
    
    (9,541
    )Interest
      income
    
    
    1,013
    
    
    875
    
    
    741
    
    
    715
    
    
    659
    
    
    551
    
    
    469
    
    
    524Interest
      expense
    
    
    (941
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (940
    )
    
    (955
    )
    
    (1,250
    )Gain
      on notes repurchase
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    327
    
    
    -Other
      (expense) income
    
    
    (21
    )
    
    (2
    )
    
    183
    
    
    116
    
    
    201
    
    
    143
    
    
    (36
    )
    
    (13
    )Loss
      before income taxes
    
    
    (12,241
    )
    
    (13,771
    )
    
    (12,628
    )
    
    (12,499
    )
    
    (12,752
    )
    
    (11,731
    )
    
    (8,319
    )
    
    (10,280
    )Benefit
      from income taxes
    
    
    -
    
    
    -
    
    
    -
    
    
    (382
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      loss
    
    $
    (12,241
    )
    $
    (13,771
    )
    $
    12,628
    )
    $
    12,117
    )
    $
    (12,752
    )
    $
    (11,731
    )
    $
    (8,319
    )
    $
    (10,280
    )Basic
      and diluted loss per share
    
    $
    (0.40
    )
    $
    (0.45
    )
    $
    (0.41
    )
    $
    (0.39
    )
    $
    (0.40
    )
    $
    (0.36
    )
    $
    (0.25
    )
    $
    (0.31
    )
 
 ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
 Not
applicable.
 
 ITEM
9A. CONTROLS AND PROCEDURES.
 
 Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer, or CEO and Chief Financial Officer, or CFO, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as of
December 31, 2004. Based on that evaluation, our management, including our CEO
and CFO, concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
as specified within the SEC’s rules and forms.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework of *Internal
Control-Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2004.
 
 Our
management’s evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their
report which is included below.
 
 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.
 
 Inherent
Limitations of Controls
 
 Because of
their inherent limitations, disclosure controls and procedures and internal
control over financial reporting may not pre vent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 ITEM
9B. OTHER INFORMATION
 
 None.
 Report of
Independent Registered Public Accounting Firm
 
 The Board of
Directors and Stockholders
 ANADIGICS,
Inc.
 
 
 We have
audited management’s assessment, included in Item 9A, Management's Report
on Internal Control Over Financial Reporting, that ANADIGICS, Inc. maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). ANADIGICS, Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the
effectiveness of the company’s internal control over financial reporting based
on our audit.
 
 We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 In our
opinion, management’s assessment that ANADIGICS, Inc. maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, ANADIGICS, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on the
COSO criteria.
 
 We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of ANADIGICS,
Inc. as of December 31, 2004 and 2003, and the related consolidated statements
of operations, comprehensive loss, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2004 and our report dated
March 2, 2005 expressed an unqualified opinion thereon.
 
 
 /s/    ERNST & YOUNG
LLP
 
 
 
 
 MetroPark, New
Jersey
 March 2,
2005
 PART
III
 
 
 ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
 The Company
has adopted a Code of Conduct and Business Ethics that applies to directors,
officers and employees, including the President and Chief Executive Officer, and
Chief Financial Officer and has posted such code on its website at ( www.anadigics.com ) .
Changes to and waivers granted with respect to the Company’s Code of Conduct and
Business Ethics for officers and directors that are required to be disclosed
pursuant to the applicable rules and regulations will be filed on a current
report on Form 8-K and posted on the Company website.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this item.
 
 ITEM
11. EXECUTIVE COMPENSATION.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that
is responsive to the information required with respect to this Item.
 
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 The
registrant incorporates by reference herein information to be set forth in its
definitive proxy statement for its 2005 annual meeting of shareholders that is
responsive to the information required with respect to this Item.
 
 PART
IV
  
 ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
 (a)
1. Financial Statements
 
 Financial
Statements are included in Item 8, "Financial Statements and Supplementary
Data" as follows:
 
 -
    Report
      of Independent Registered Public Accounting Firm
 -
    Consolidated
      Balance Sheets - December 31, 2003 and 2004
 -
    Consolidated
      Statements of Operations - Years ended December 31, 2002, 2003 and
      2004
  -
    Consolidated
      Statements of Comprehensive Loss - Years ended December 31, 2002, 2003 and
      2004
 
 -
    Consolidated
      Statements of Stockholders’ Equity - Years ended December 31, 2002, 2003
      and 2004
 
 -
    Consolidated
      Statements of Cash Flows - Years ended December 31, 2002, 2003 and
      2004
 
 -
    Notes
      to Consolidated Financial Statements
 
 
 2. Financial Statement Schedules
 
 Schedule II -
Valuation and Qualifying Accounts
 
 All other
schedules for which provision is made in the applicable ac counting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore
have been omitted.
 
 
 (b)
Exhibit List
 2.1
    Stock
      Purchase Agreement dated April 2, 2001, among the Company, Telcom Devices
      Corp. and the sellers named therein. Filed as an exhibit to the Company’s
      Current Report on Form 8-K dated April 6, 2001, and incorporated herein by
      reference.3.1
    Amended
      and Restated Certificate of Incorporation of the Company, together with
      all amendments thereto. Filed as an exhibit to the Company's Registration
      Statement on Form S-3 (Registration No. 333-75040), and incorporated
      herein by reference.3.2
    Amended
      and Restated By-laws of the Company. Filed as an exhibit to the Company's
      Registration Statement on Form S-3 (Registration No. 333-75040), and
      incorporated herein by reference.4.1
    Form of
      Common Stock Certificate. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.4.2
    Indenture,
      dated as of November 27, 2001, between the Company, as Issuer, and State
      Street Bank & Trust Company, N.A., as Trustee for the 5% Convertible
      Senior Notes due November 15, 2006. Filed as an exhibit to the Company’s
      Registration Statement on Form S-3 (Registration No. 333-75040), and
      incorporated herein by reference.4.3
    Form of
      Registration Rights Agreement. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.4.4
    Schedule
      to Form of Registration Rights Agreement. Filed as an exhibit to the
      Company's Registration Statement on Form S-1 (Registration No. 333-20783),
      and incorporated herein by reference.4.5
    Rights
      Agreement dated as of December 17, 1998 between the Company and Chase
      Mellon Shareholder Services L.L.C., as Rights Agent. Filed as an exhibit
      to the Company’s current report on Form 8-K filed on December 17, 1998,
      and incorporated herein by reference.4.6
    Amendment
      No. 1 as of November 20, 2000 to the Rights Agreement dated as of December
      17, 1998 between the Company and Chase Mellon Shareholder Services L.L.C.,
      as Rights Agent. Filed as an exhibit to the Company’s Current Report on
      Form 8-K filed on December 4, 2000.4.7
    Registration
      Rights Agreement, dated November 27, 2001, between the Company, as Issuer,
      and the Purchasers of the 5% Convertible Senior Notes due November 15,
      2006. Filed as an exhibit to the Company’s Registration Statement on Form
      S-3 (Registration No. 333-75040), and incorporated herein by
      reference.4.8
    Form of
      5% Convertible Senior Note due November 15, 2006 (included in Exhibit
      4.2).4.9
    Post-effective
      Amendment No. 1 to Form S-3 for 5% Convertible Senior Notes due November
      15, 2006. Filed on Form POS AM dated November 6, 2002, and incorporated
      herein by reference.4.10
    Indenture,
      dated as September 24, 2004, between the Company, as Issuer and U.S. Bank
      Trust National Association, as Trustee for the 5% Convertible Senior Notes
      due October 15, 2009. Filed as an exhibit to the Company’s Current Report
      on Form 8-K dated September 28, 2004, and incorporated herein by
      reference.4.11
    Registration
      Rights Agreement, dated September 24, 2004, between the Company, as
      Issuer, and the Purchasers of 5% Convertible Senior Notes due October 15,
      2009. Filed as an exhibit to the Company’s Current Report on Form 8-K
      dated September 28, 2004, and incorporated herein by
      reference.4.12
    Form of
      5% Convertible Senior Note due October 15, 2009 (included in Exhibit
      4.10).10.1
    1994
      Long-Term Incentive and Share Award Plan. Filed as an exhibit to the
      Company's Registration Statement on Form S-1 (Registration No. 33-89928),
      and incorporated herein by reference.10.2
    1995
      Long-Term Incentive and Share Award Plan, as amended May 29, 1997 and May
      24, 2000. Filed as an exhibit to the Company’s current report on Form S-8
      (Registration No. 333-49632), and incorporated herein by reference.10.3
    Employee
      Savings and Protection Plan. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.10.4
    Form of
      Employee Stock Purchase Plan. Filed as an exhibit to the Company's
      Registration Statement on Form S-1 (Registration No. 33-89928), and
      incorporated herein by reference.10.5
    Lease
      Agreement between Mt. Bethel Corporate Center and the Company dated May 1,
      1993. Filed as an exhibit to the Company's Registration Statement on Form
      S-1 (Registration No. 33-89928), and incorporated herein by reference.10.6
    Lease
      Agreement between United States Land Resources, L.P. and the Company dated
      as of April 26, 1996. Filed as an exhibit to the Company's Registration
      Statement on Form S-1(Registration No. 333-20783), and incorporated herein
      by reference.10.7
    First
      Amendment, dated as of November 20, 1996, to the Lease agreement between
      United States Land Resources, L.P. and the Company dated as of April 26,
      1996. Filed as an exhibit to the Company’s Annual Report on Form 10-K405
      dated March 29, 2002, and incorporated herein by
  reference.10.8
    Second
      Amendment, dated as of September 8, 1997, to the Lease agreement between
      Warren Hi-Tech Center, L.P. (successor in interest to United States Land
      Resources, L.P.) and the Company dated as of April 26, 1996. Filed as an
      exhibit to the Company’s Annual Report on Form 10-K405 dated March 29,
      2002, and incorporated herein by reference.10.9
    Third
      Amendment, dated as of December 20, 2000, to the Lease agreement between
      Warren Hi-Tech Center, L.P. (successor in interest to United States Land
      Resources, L.P.) and the Company dated as of April 26, 1996. Filed as an
      exhibit to the Company’s Annual Report on Form 10-K405 dated March 29,
      2002, and incorporated herein by reference.10.10
    Employment
      Agreement between the Company and Dr. Bamdad Bastani, dated September 17,
      1998. Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended July 4, 1999, and incorporated herein by
      reference.10.11
    Employment
      Agreement between the Company and Ronald Rosenzweig, dated June 1, 1999.
      Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended July 4, 1999, and incorporated herein by
      reference.10.12
    Amendment
      No. 1 as of March 15, 2002, to the Employment Agreement dated June 1,
      1999, between the Company and Ronald Rosenzweig. Filed as an exhibit to
      the Company’s Annual Report on Form 10-K405 dated March 29, 2002, and
      incorporated herein by reference.10.13
    Employment
      Agreement between the Company and Thomas Shields, dated July 25, 2000.
      Filed as an exhibit to the Company’s Annual Report on Form 10-K405 dated
      March 29, 2002, and incorporated herein by reference.10.14
    Employment
      Agreement between the Company and Charles Huang, dated July 25, 2000.
      Filed as an exhibit to the Company’s Annual Report on Form 10-K405 dated
      March 29, 2002, and incorporated herein by reference.10.15
    Amendment
      No. 2 as of May 27, 2003, to the Employment Agreement dated June 1, 1999,
      between the Company and Ronald Rosenzweig. Filed as an exhibit to the
      Company’s Annual Report on Form 10-K dated March 15, 2004, and
      incorporated herein by reference.10.16
    Amendment
      No. 3 as of August 20, 2004, to the Employment Agreement dated June 1,
      1999, between the Company and Ronald Rosenzweig. Filed as an exhibit to
      the Company’s Quarterly report on Form 10-Q for the quarter ended October
      2, 2004, and incorporated herein by reference.10.17
    Form of
      1997 Long-Term Incentive and Share Award Plan. Filed as an exhibit to the
      Company’s Annual Report on Form 10-K405 dated February 18, 1997, and
      incorporated herein by reference.*21
    Subsidiary
      Listing*23.1
    Consent
      of Ernst and Young LLP.24.1
    Power of
      Attorney (included on the signature page of this Annual Report on Form
      10-K).*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.* Filed
      herewith
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) 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 on the 16th day of March
2005.
 
 
 ANADIGICS,
INC.
 
 BY:
/s/ Bami Bastani
 -----------------------------------------
 Dr.
Bami Bastani
 CHIEF
EXECUTIVE OFFICER
 AND
PRESIDENT
 
 KNOW ALL MEN BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Bami Bastani and
Thomas Shields as his/her attorney-in-fact and agent, with full power of
substitution and resubstitution, for him/her and in his/her name, place, and
stead, in any and all capacities, to sign and file any and all amendments to
this Annual Report on Form 10-K, with all exhibits thereto and hereto, and other
documents with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
 
 **PURSUANT
TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF ANADIGICS, INC. IN THE CAPACITIES
AND ON THE DATES INDICATED:**
  Name
    Title
    Date/s/
      Bami Bastani
    President,
      Chief Executive Officer and Director (Principal Executive
      Officer)
    March
      16, 2005Dr.
      Bami Bastani/s/
      Thomas C. Shields
    Senior
      Vice President and Chief Financial Officer (Principal Financial Accounting
      Officer)
    March
      16, 2005Thomas
      C. Shields/s/
      Ronald Rosenzweig
    Chairman
      of the Board of Directors
    March
      16, 2005Ronald
      Rosenzweig/s/
      Paul S. Bachow
    Director
    March
      16, 2005Paul
      S. Bachow/s/
      Garry McGuire
    Director
    March
      16, 2005Gary
      McGuire/s/
      Harry T. Rein
    Director
    March
      16, 2005Harry
      T. Rein/s/
      Lewis Solomon
    Director
    March
      16, 2005Lewis
      Solomon/s/
      Dennis F. Strigl
    Director
    March
      16, 2005Dennis
      F. Strigl
 SCHEDULE
II--VALUATION AND QUALIFYING ACCOUNTS
 
 Description
      (Dollars
      in Thousands)
    
    
    Balance
      at Beginning of Period
    
    
    Additions
      Charged to Costs and Expenses
    
    
    Deductions
    
    
    
    
    Balance
      at end of periodYear
      ended December 31, 2004:Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    752
    
    $
    240
    
    $
    (4
    )
    
    (1)
    $
    988Reserve for excess and obsolete inventory
    
    
    4,745
    
    
    1,636
    
    
    (2,307
    )
    
    (2)
    
    4,074Reserve
      for warranty claims
    
    
    100
    
    
    390
    
    
    (331
    )
    
    (3)
    
    159Year
      ended December 31, 2003Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    781
    
    $
    -
    
    $
    (29
    )
    
    (1)
    $
    752Reserve for excess and obsolete inventory
    
    
    7,134
    
    
    287
    
    
    (2,676
    )
    
    (2)
    
    4,745Reserve
      for warranty claims
    
    
    368
    
    
    10
    
    
    (278
    )
    
    (3)
    
    100Year
      ended December 31, 2002Deducted
      from asset account:Allowance for doubtful accounts
    
    $
    715
    
    $
    297
    
    $
    (231
    )
    
    (1)
    $
    781Reserve for excess and obsolete inventory
    
    
    8,502
    
    
    4,188
    
    
    (5,556
    )
    
    (2)
    
    7,134Reserve
      for warranty claims
    
    
    960
    
    
    (259
    )
    
    (333
    )
    
    (3)
    
    368
 
 (1)
    Uncollectible
      accounts written-off to the allowance account.
 (2)
Inventory write-offs to the reserve account.
 
 (3)
Warranty expenses incurred to the reserve for warranty claims.
 
 EXHIBIT
21
 Subsidiaries
of ANADIGICS, Inc.
 
 Name of
      Subsidiary
    State of
      Jurisdiction of Incorporation
    %
      OwnedANADIGICS
      (U.K.) Limited
    United
      Kingdom
    100%ANADIGICS,
      Limited
    Israel
    100%ANADIGICS
      Denmark ApS
    Denmark
    100%ANADIGICS
      Acquisition Corp
    Delaware
    100%ANADIGICS
      Holding Corp.
    Delaware
    100%Broadband
      & Wireless Investors, Incorporated
    Delaware
    100%Integral
      Pathway, Inc.
    New
      Jersey
    100%Telcom
      Devices Corp.
    California
    100%
 EXHIBIT
23.1
 
 CONSENT OF
INDEPENDENT AUDITORS
 
 We consent to
the incorporation by reference in the Registration Statement (Form S-8 No.
33-89928) pertaining to the ANADIGICS, Inc. Stock Option Plan, 1994 Long-Term
Incentive and Share Award Plan, 1995 Long-Term Incentive Share Award Plan
and  Employee Stock Purchase Plan, in the Registration Statements (Form S-8
No. 33-32533 and Form S-8 No. 333-63836) pertaining to the ANADIGICS, Inc. 1997
Long-Term Incentive and Share Award Plan for Employees and in the Registration
Statements (Form S-3 No. 333-75040, Form S-3 No. 333-110538 and Form S-3 No.
333-120947) of our reports dated March 2, 2005, with respect to the
consolidated financial statements and schedule of ANADIGICS, Inc. and ANADIGICS,
Inc. management’s assessment of the effectiveness of internal control over
financial reporting, and the effectiveness of internal control over financial
reporting of ANADIGICS, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 2004.   MetroPark, New
Jersey
March 11,
2005
 
 
 Exhibit
31.1
 CERTIFICATION
 
 I,
Bami Bastani, certify that:
 
 1.
    I
      have reviewed this Annual Report on Form 10-K of ANADIGICS,
  Inc.;
 
 2.
    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;
 
 3.
    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;
 
 4.
    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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
have:
 a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 
 b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 
 c)
    Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
 
 d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
 5.
    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 the registrant’s
      board of directors (or persons performing the equivalent
    functions):
 a)
    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
 b)
    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: :  March
16, 2005
 
 By:
    /s/
      Bami BastaniBami
      BastaniPresident
      andChief
      Executive Officer
  
 
 
 
 
 
 Exhibit
31.2
 
 CERTIFICATION
 I,
Thomas Shields, certify that:
 
 1.
    I
      have reviewed this Annual Report on Form 10-K of ANADIGICS,
  Inc.;
 
 2.
    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;
 
 3.
    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;
 
 4.
    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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
have:
 a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 
 b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 
 c)
    Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
 
 d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
 5.
    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 the registrant’s
      board of directors (or persons performing the equivalent
    functions):
 a)
    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
 
 b)
    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: :  March
16, 2005
 
 By:
    /s/
      Thomas C. ShieldsThomas
      C. ShieldsSenior
      Vice Presidentand
      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 Annual Report of the Company on
Form 10-K for the period ended December 31, 2004 fully complies with the
requirements of Section 13(a) or 15(d) 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:
March 16, 2005
 By:
    /s/
      Bami BastaniBami
      BastaniPresident
      andChief
      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 Annual
Report of the Company on Form 10-K for the period ended December 31, 2004 fully
complies with the requirements of Section 13(a) or 15(d) 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:
March 16, 2005
 /s/
      Thomas C. ShieldsThomas
      C. ShieldsSenior
      Vice Presidentand
      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.