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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 28, 2009
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from  to
 Commission File Number: 000-27312
 TOLLGRADE COMMUNICATIONS, INC.
  Pennsylvania
    
    25-1537134(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 493 Nixon Rd.
Cheswick, PA 15024
 412-820-1400
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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2




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##### 



TOLLGRADE COMMUNICATIONS, INC.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 28, 2009  Table of Contents
 PAGENO.PART I. FINANCIAL INFORMATIONItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 28, 2009 and December 31, 2008 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the three month periods ended March 28, 2009 and March 29, 2008 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the three month periods ended March 28, 2009 and March 29, 2008 (Unaudited)
    
    
    6Condensed Consolidated Statements of Changes in Shareholders Equity for the three month period ended March 28, 2009 (Unaudited)
    
    
    7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4 Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1A Risk Factors
    
    
    31Item 6 Exhibits
    
    
    47SIGNATURES
    
    
    49EXHIBIT INDEX
    
    
    50EX-31.1EX-31.2EX-32
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except par value) (Unaudited)
 March 28, 2009
    
    
    December 31, 2008
    *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    59,572
    
    
    $
    57,976Short-term investments
    
    
    451
    
    
    
    2,419Accounts receivable:Trade, net of allowance for doubtful accounts of
$442 in 2009 and $377 in 2008
    
    
    12,691
    
    
    
    10,560Other
    
    
    273
    
    
    
    668Inventories
    
    
    10,161
    
    
    
    10,673Prepaid expenses and deposits
    
    
    1,209
    
    
    
    1,449Deferred income taxes
    
    
    461
    
    
    
    453Total current assets
    
    
    84,818
    
    
    
    84,198Property and equipment, net
    
    
    2,545
    
    
    
    2,953Intangibles
    
    
    35,983
    
    
    
    36,853Deferred tax assets
    
    
    78
    
    
    
    81Other assets
    
    
    261
    
    
    
    262Total assets
    
    $
    123,685
    
    
    $
    124,347LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,281
    
    
    $
    1,265Accrued warranty
    
    
    1,433
    
    
    
    1,590Accrued expenses
    
    
    2,285
    
    
    
    1,655Accrued salaries and wages
    
    
    272
    
    
    
    363Accrued royalties payable
    
    
    112
    
    
    
    299Income taxes payable
    
    
    143
    
    
    
    268Deferred revenue
    
    
    3,711
    
    
    
    3,283Total current liabilities
    
    
    9,237
    
    
    
    8,723Pension obligation
    
    
    883
    
    
    
    889Deferred tax liabilities
    
    
    1,802
    
    
    
    1,792Other tax liabilities
    
    
    541
    
    
    
    489Total liabilities
    
    
    12,463
    
    
    
    11,893Commitments and contingenciesShareholders equity:Common stock, $0.20 par value; 50,000 authorized
shares, issued shares, 13,735 in 2009 and 13,733 in
2008
    
    
    2,744
    
    
    
    2,744Additional paid-in capital
    
    
    74,230
    
    
    
    73,923Treasury stock, at cost, 1,072 shares in 2009 and 2008
    
    
    (8,081
    )
    
    
    (8,081
    )Retained earnings
    
    
    44,526
    
    
    
    45,748Accumulated other comprehensive loss
    
    
    (2,197
    )
    
    
    (1,880
    )Total shareholders equity
    
    
    111,222
    
    
    
    112,454Total liabilities and shareholders equity
    
    $
    123,685
    
    
    $
    124,347
 
 *
    
    Amounts derived from audited financial statements presented in the Companys Annual Report on
Form 10-K for the year ended December 31, 2008  4




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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data) (Unaudited)
 Three Months EndedMarch 28,
    
    March 29,2009
    
    2008Revenues:Products
    
    $
    7,114
    
    
    $
    7,139Services
    
    
    4,931
    
    
    
    6,045Total revenues
    
    
    12,045
    
    
    
    13,184Cost of sales:Products
    
    
    3,450
    
    
    
    3,616Services
    
    
    1,579
    
    
    
    1,986Amortization
    
    
    698
    
    
    
    1,014Severance
    
    
    183
    
    
    
    21Intangible impairment
    
    
    59
    
    
    
    3,291Inventory impairment
    
    
    
    
    
    
    738Total cost of sales
    
    
    5,969
    
    
    
    10,666Gross profit
    
    
    6,076
    
    
    
    2,518Operating expenses:Selling and marketing
    
    
    1,993
    
    
    
    2,435General and administrative
    
    
    2,575
    
    
    
    2,579Research and development
    
    
    2,545
    
    
    
    3,616Severance
    
    
    63
    
    
    
    435Impairment long lived assets
    
    
    143
    
    
    
    Total operating expenses
    
    
    7,319
    
    
    
    9,065Loss from operations
    
    
    (1,243
    )
    
    
    (6,547
    )Interest income
    
    
    118
    
    
    
    492Loss before income taxes
    
    
    (1,125
    )
    
    
    (6,055
    )Provision for income taxes
    
    
    97
    
    
    
    449Net loss
    
    $
    (1,222
    )
    
    $
    (6,504
    )Loss per share information:Weighted average shares of
common stock and
equivalents:Basic
    
    
    12,679
    
    
    
    13,158Diluted
    
    
    12,679
    
    
    
    13,158Net loss per common share:Basic
    
    $
    (0.10
    )
    
    $
    (0.49
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.49
    )
  5




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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands) (Unaudited)
 Three Months EndedMarch 28, 2009
    
    
    March 29, 2008Cash flows from operating activities:Net loss
    
    $
    (1,222
    )
    
    $
    (6,504
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Impairment loss
    
    
    202
    
    
    
    3,291Depreciation and amortization
    
    
    1,037
    
    
    
    1,480Compensation expense related to stock plans
    
    
    307
    
    
    
    (23
    )Valuation allowance
    
    
    
    
    
    
    187Deferred income taxes
    
    
    64
    
    
    
    28Restructuring and inventory write-down
    
    
    
    
    
    
    761Provision for losses on inventory
    
    
    40
    
    
    
    61Provision for allowance for doubtful accounts
    
    
    79
    
    
    
    37Changes in assets and liabilities:Accounts receivable-trade
    
    
    (2,639
    )
    
    
    (602
    )Accounts receivable-other
    
    
    1,040
    
    
    
    401Inventories
    
    
    472
    
    
    
    (475
    )Prepaid expenses and other assets
    
    
    234
    
    
    
    (25
    )Accounts payable
    
    
    338
    
    
    
    (1,542
    )Accrued warranty
    
    
    (156
    )
    
    
    (295
    )Accrued expenses and deferred income
    
    
    242
    
    
    
    426Accrued royalties payable
    
    
    (188
    )
    
    
    (596
    )Income taxes payable
    
    
    (112
    )
    
    
    228Net cash used in operating activities
    
    
    (262
    )
    
    
    (3,162
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    
    
    
    
    (2,186
    )Redemption/maturity of short-term investments
    
    
    1,968
    
    
    
    464Capital expenditures, including capitalized software
    
    
    (86
    )
    
    
    (275
    )Sale of assets held for sale
    
    
    
    
    
    
    198Net cash provided by (used in) investing activities
    
    
    1,882
    
    
    
    (1,799
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,620
    
    
    
    (4,961
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (24
    )
    
    
    264Cash and cash equivalents at beginning of period
    
    
    57,976
    
    
    
    58,222Cash and cash equivalents at end of period
    
    $
    59,572
    
    
    $
    53,525
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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (In thousands) (Unaudited)
 AccumulatedOther
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Additional
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid-In
    
    
    Stock
    
    
    Earnings
    
    
    Loss
    
    
    Total
    
    
    LossBalance at December
31, 2008
    
    
    13,733
    
    
    $
    2,744
    
    
    $
    73,923
    
    
    $
    (8,081
    )
    
    $
    45,748
    
    
    $
    (1,880
    )
    
    $
    112,454Compensation
expense for options
and restricted
stock, net
    
    
    2
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307Foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (317
    )
    
    
    (317
    )
    
    $
    (317
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    
    
    
    
    (1,222
    )
    
    
    (1,222
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,539
    )Balance at
March 28, 2009
    
    
    13,735
    
    
    $
    2,744
    
    
    $
    74,230
    
    
    $
    (8,081
    )
    
    $
    44,526
    
    
    $
    (2,197
    )
    
    $
    111,222
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
   8




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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
 
 2. FAIR VALUE MEASUREMENTS
 10




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
    
    Level 1  Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
    
    Level 2  Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly, including quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that
are observable for the asset or liability (e.g., interest rates); and inputs that are
derived principally from or corroborated by observable market data by correlation or other
means; and
    
    Level 3  Inputs that are both significant to the fair value measurement and
unobservable.
  3. STOCK COMPENSATION PLANS AND ACCOUNTING FOR STOCK-BASED COMPENSATION EXPENSE
 The Plans
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Stock-Based Compensation Expense
   Shares Authorized But Not GrantedMarch 28, 2009
    
    December 31, 20082006 Long-Term Incentive Compensation Plan
    
    
    106,904
    
    
    
    459,039
  Number of
    
    Range of
    
    Weighted AverageShares
    
    Option Prices
    
    Exercise PriceOutstanding, December 31,
2008
    
    
    1,605,490
    
    
    $
    3.27 - 159.19
    
    
    $
    23.08Granted
    
    
    394,000
    
    
    
    5.38
    
    
    
    5.38Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled/Forfeited/Expired
    
    
    (104,964
    )
    
    
    6.57-117.34
    
    
    
    24.57Outstanding, March 28, 2009
    
    
    1,894,526
    
    
    $
    3.27 - $159.19
    
    
    $
    19.32
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4. SEVERANCE
   5. INTANGIBLE ASSETS
  March 28, 2009Useful
    
    
    
    
    
    
    

    (Unaudited)Life
    
    
    
    
    
    Accumulated(Years)
    
    Gross
    
    Amortization
    
    Impairments
    
    NetAmortizing Intangible Assets:Post warranty service agreements
    
    
    6-50
    
    
    $
    37,429
    
    
    $
    4,107
    
    
    $
    
    
    
    $
    33,322Technology
    
    
    0.25-10
    
    
    
    18,755
    
    
    
    16,621
    
    
    
    40
    
    
    
    2,094Customer relationships
    
    
    5-15
    
    
    
    3,541
    
    
    
    3,129
    
    
    
    
    
    
    
    412Tradenames and other
    
    
    0.25-10
    
    
    
    807
    
    
    
    633
    
    
    
    19
    
    
    
    155Total Intangible Assets
    
    
    
    
    
    $
    60,532
    
    
    $
    24,490
    
    
    $
    59
    
    
    $
    35,983
 Useful

    
    December 31, 2008Life
    
    
    
    
    
    Accumulated(Years)
    
    Gross
    
    Amortization
    
    Impairments
    
    NetAmortizing Intangible Assets:Post warranty service agreements
    
    
    6-50
    
    
    $
    37,563
    
    
    $
    3,752
    
    
    $
    
    
    
    $
    33,811Technology
    
    
    2-10
    
    
    
    18,762
    
    
    
    14,979
    
    
    
    1,396
    
    
    
    2,387Customer relationships
    
    
    5-15
    
    
    
    3,554
    
    
    
    1,420
    
    
    
    1,676
    
    
    
    458Tradenames and other
    
    
    0.5-10
    
    
    
    809
    
    
    
    393
    
    
    
    219
    
    
    
    197Total Intangible Assets
    
    
    
    
    
    $
    60,688
    
    
    $
    20,544
    
    
    $
    3,291
    
    
    $
    36,853
 Impairments
 Long-Lived Assets
   13




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6. INVENTORIES
  March 28, 2009(Unaudited)
    
    
    December 31, 2008Raw materials
    
    $
    5,993
    
    
    $
    6,225Work in process
    
    
    2,462
    
    
    
    3,296Finished goods
    
    
    4,084
    
    
    
    3,49212,539
    
    
    
    13,013Reserves for slow moving and obsolete inventory
    
    
    (2,378
    )
    
    
    (2,340
    )$
    10,161
    
    
    $
    10,673
  7. PRODUCT WARRANTY
  Three Months EndedMarch 28, 2009
    
    
    Year Ended(Unaudited)
    
    
    December 31, 2008Balance at the beginning of the period
    
    $
    1,590
    
    
    $
    1,937Accruals for warranties issued during the period
    
    
    194
    
    
    
    1,789Settlements during the period
    
    
    (351
    )
    
    
    (2,136
    )Balance at the end of the period
    
    $
    1,433
    
    
    $
    1,590
 8. PER SHARE INFORMATION
  14




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Three Months Ended
    
    
    Three Months EndedMarch 28, 2009
    
    
    March 29, 2008(Unaudited)
    
    
    (Unaudited)Net loss
    
    $
    (1,222
    )
    
    $
    (6,504
    )Common and common equivalent shares:Weighted average common shares outstanding
    
    
    12,679
    
    
    
    13,158Effect of dilutive securities  stock options
    
    
    
    
    
    
    12,679
    
    
    
    13,158Loss per share:Basic
    
    $
    (0.10
    )
    
    $
    (0.49
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.49
    )
  9. CONTINGENCIES AND COMMITMENTS
  15




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At March 28, 20092009 (remaining period)
    
    $
    5772010
    
    
    5712011
    
    
    5382012
    
    
    3712013
    
    
    Thereafter
    
    
    $
    2,057
   10. INCOME TAXES
     United States  Federal
    
    2005 and forwardUnited States  State
    
    2005 and forwardEurope
    
    2007 and forward
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11. MAJOR CUSTOMERS AND INTERNATIONAL SALES
   17




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12. SUBSEQUENT EVENTS
   18




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report.
 CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
   Overview
     19




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Products
 Services
  Telecommunications Test and Measurement Products
  20




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Cable Testing Products
 21




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®
  Electric Utility Monitoring Products
  Our Customers
  22




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Backlog
 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
  23




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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Interim Disclosures about Fair Value of Financial Instruments   Recognition and Presentation of
Other-Than-Temporary Impairments Accounting for Certain Loans or
Debt Securities Acquired in a Transfer,
 Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly Fair Value Measurements
 25




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Application of Critical Accounting Policies
   RESULTS OF OPERATIONS
 FIRST QUARTER OF 2009 COMPARED TO FIRST QUARTER OF 2008
 Revenues
    26




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Gross Profit
  Selling and Marketing Expense
  General and Administrative Expense
 .
 Research and Development Expense
  27




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Severance Expense
  Interest Income
  Income Taxes
  Net Loss and Loss Per Share
  LIQUIDITY AND CAPITAL RESOURCES
  28




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KEY RATIOS
  29




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COMMITMENTS AND CONTRACTUAL OBLIGATIONS
   Minimum annual future commitments as of March 28, 2009 are (in thousands):
 Payments due by period
 Total
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterOperating Lease
Obligations
    
    $
    1,800
    
    
    $
    512
    
    
    $
    507
    
    
    $
    474
    
    
    $
    307
    
    
    $
    
    
    
    $
    Purchase Obligations
    
    
    73
    
    
    
    69
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FIN 48 Obligations
    
    
    541
    
    
    
    
    
    
    
    541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension Obligations
    
    
    883
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    864Total
    
    $
    3,297
    
    
    $
    600
    
    
    $
    1,052
    
    
    $
    474
    
    
    $
    307
    
    
    $
    
    
    
    $
    864
   30




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  31




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Our Services business is subject to a trend of reduced capital spending for our products by our
major customers and possible delays in, or the inability to complete, negotiation and execution of
purchase and service agreements with new or existing customers could significantly impact business
results and possibly result in impairment charges in the future.
  Our future growth depends to a large extent upon our ability to reposition the Company with a
greater focus on our service assurance testing offerings to the telecom market.
   32




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Our cost reduction plans may be ineffective or may limit our ability to compete.
  A continuing downturn in the global economy may adversely affect our revenues, results of
operations and financial condition.
  33




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
    
    poor availability of credit,
    
    continued recession in the United States economy and other countries that we serve,
    
    fluctuation in the value of the U.S. dollar relative to foreign currencies in
jurisdictions where we transact business,
 
    
    significant act of terrorism which disrupts global trade or consumer confidence,
    
    geopolitical tensions including war and civil unrest, and
    
    reduced levels of economic activity or disruption of domestic or international
transportation.
   We are dependent upon our ability to attract, retain and motivate our key personnel.
  We depend upon a few major customers for a majority of our revenues, and the loss of any of these
customers, or the substantial reduction in the products or services that they purchase from us,
would significantly reduce our revenues and net income.
  34




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
    
    the conditions of the communications market and the weakening economy in general;
    
    subscriber line loss and related reduced demand for wireline telecommunications
services;
    
    changes or shifts in the technology utilized in the networks;
    
    labor disputes between our customers and their collective bargaining units;
    
    the failure of our customers to meet established purchase forecasts and growth
projections;
     competition among the large domestic carriers, competitive exchange carriers and
wireless telecommunications and cable providers; and
    
    reorganizations, including management changes, at one or more of our customers or
potential customers.
  Our operating results may vary from quarter to quarter, causing our stock price to fluctuate.
  We may experience reduced product sales caused by customers transitioning their access network
service assurance solutions.
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We have completed, and may pursue additional acquisitions, which could result in the disruption of
our current business, difficulties related to the integration of acquired businesses, and
substantial expenditures.
  The failure of acquired assets to meet expectations, or a decline in our fair value determined by
market prices of our stock, could indicate impairment of our intangible assets and result in
impairment charges.
  The sale of our products is dependent upon our ability to satisfy the proprietary requirements of
our customers.
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The sale of our products is dependent on our ability to respond to rapid technological change,
including evolving industry-wide standards, and may be adversely affected by the development, and
acceptance by our customers, of new technologies which may compete with or reduce the demand for
our products.
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Our reliance on third parties to manufacture certain aspects of our products involves risks,
including delays in product shipments and reduced control over product quality.
  Our future sales in international markets are subject to numerous risks and uncertainties.
  We face intense competition, which could result in our losing market share or experiencing a
decline in our gross margins.
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Our future results are dependent on our ability to establish, maintain and expand our distribution
channels and our existing third-party distributors.
  The sales cycle for our system products is long, and the delay or failure to complete one or more
large transactions in a quarter could cause our operating results to fall below our expectations.
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We depend on sales of our MCU products for a meaningful portion of our revenues, but this product
is mature and its sales will continue to decline.
   The continued adoption of industry-wide standards in both the telecommunications and cable markets
could have a material adverse effect on our profitability.
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The presence of available open source software could adversely affect our ability to maximize
revenue from software products.
  If our development efforts with respect to our LightHouse system fail to result in products which
meet our customers needs, or if our customers fail to accept our new products, our revenues will
be adversely affected.
  Our customers are subject to an evolving governmental regulatory environment that could
significantly reduce the demand for our products or increase our costs of doing business.
   Our limited ability to protect our proprietary information and technology may adversely affect our
ability to compete, and our products could infringe upon the intellectual property rights of
others, resulting in claims against us the results of which could be costly.
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The success of some of our products is dependent on our ability to maintain licenses to technology
from the manufacturers of systems with which our products must be compatible.
  If we are unable to satisfy our customers specific product quality, certification or network
requirements, our business could be disrupted and our financial condition could be harmed.
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If our accounting controls and procedures are circumvented or otherwise fail to achieve their
intended purposes, our business could be seriously harmed.
  If we ship products that contain defects, the market acceptance of our products and our reputation
will be harmed and our customers could seek to recover their damages from us.
  We may incur significant liabilities if we fail to comply with environmental regulations.
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Consolidations in, or a continued slowdown in, the telecommunications industry could harm our
business.
  Our expenses are relatively fixed in the short term, and we may be unable to adjust spending to
compensate for unexpected revenue shortfalls.
  We rely on software that we license from third-party developers to perform key functions in our
products.
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We are affected by a pattern of product price decline in certain markets, which can harm our
business.
  Our common stock price may be extremely volatile.
  
    
    General market and economic conditions;
    
    Changes in the telecommunications industry;
    
    Actual or anticipated variations in operating results;
    
    Announcements of technological innovations, new products or new services by us or by our
competitors or customers;
    
    The fact that we no longer receive research coverage by sell-side market analysts;
    
    Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures, capital commitments or other strategic announcements;
    
    Announcements by our customers regarding end market conditions and the status of
existing and future infrastructure network deployments;
    
    Additions or departures of key personnel; and
    
    Future equity or debt offerings or our announcements of these offerings.
  We may be subject from time to time to legal proceedings, and any adverse determinations in these
proceedings could materially harm our business.
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We may have difficulty securing new financing upon the same or substantially similar terms.
  Our business may be interrupted and adversely affected if we are unable to extend the lease for our
corporate headquarters or to secure and prepare new office space for our corporate headquarters
prior to our lease expiration.
 
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Item 6. EXHIBITS
   ExhibitNumber
    
    Description10.1
    
    Agreement dated March 17, 2009 between Tollgrade Communications,
Inc. and Sara M. Antol (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the SEC on
March 19, 2009).10.2
    
    10.2 Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Gary W. Bogatay, Jr. (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed with the SEC on March 19, 2009).10.3
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Joe OBrien (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.4
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Robert King (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.5
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Grant Cushny (incorporated by reference
to Exhibit 10.5 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.6
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and David L. Blakeney (incorporated by
reference to Exhibit 10.6 to the Companys Current Report on Form
8-K filed with the SEC on March 19, 2009).10.7
    
    Severance and Retention Agreement dated March 17, 2009 between
Tollgrade Communications, Inc. and Kenneth J. Shebek (incorporated
by reference to Exhibit 10.7 to the Companys Current Report on
Form 8-K filed with the SEC on 
March 19, 2009).10.8
    
    Purchase and Sale Agreement, dated May 1, 2009, by and among the
Company, Tollgrade Communications, Inc. (Delaware corporation) and
Cheetah Technologies, L.P. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed with the
SEC on May 5, 2009).31.1
    
    Certification of Chief Executive Officer, filed herewith.31.2
    
    Certification of Chief Financial Officer, filed herewith.32
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18.U.S.C. Section 350, filed herewith.
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SIGNATURES
  Tollgrade Communications, Inc.
(Registrant)Dated: May 7, 2009/s/ Joseph A. FerraraJoseph A.  FerraraChief Executive Officer and PresidentDated: May 7, 2009/s/ Gary W. Bogatay, Jr.Gary W. Bogatay, Jr.Chief Financial Officer and Treasurer 49




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Agreement dated March 17, 2009 between Tollgrade Communications,
Inc. and Sara M. Antol (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the SEC on
March 19, 2009).10.2
    
    10.2 Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Gary W. Bogatay, Jr. (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed with the SEC on March 19, 2009).10.3
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Joe OBrien (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.4
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Robert King (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.5
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and Grant Cushny (incorporated by reference
to Exhibit 10.5 to the Companys Current Report on Form 8-K filed
with the SEC on March 19, 2009).10.6
    
    Severance Agreement dated March 17, 2009 between Tollgrade
Communications, Inc. and David L. Blakeney (incorporated by
reference to Exhibit 10.6 to the Companys Current Report on Form
8-K filed with the SEC on March 19, 2009).10.7
    
    Severance and Retention Agreement dated March 17, 2009 between
Tollgrade Communications, Inc. and Kenneth J. Shebek (incorporated
by reference to Exhibit 10.7 to the Companys Current Report on
Form 8-K filed with the SEC on 
March 19, 2009).10.8
    
    Purchase and Sale Agreement, dated May 1, 2009, by and among the
Company, Tollgrade Communications, Inc. (Delaware corporation) and
Cheetah Technologies, L.P. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed with the
SEC on May 5, 2009).31.1
    
    Certification of Chief Executive Officer, filed herewith.31.2
    
    Certification of Chief Financial Officer, filed herewith.32
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18.U.S.C. Section 350, filed herewith.
 50