##### 



Exhibit 13.1
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    Our belief that we have accomplished these financial improvements mainly
because of the success of the expanding Eclipse product line and due to the streamlining of
operations by taking certain cost reduction measures over the past few years;
    
    Our expectation that cash usage in fiscal 2007 will be constrained as our days
sales outstanding (DSO) for receivables is expected to increase back to normal levels of
70 to 75 days;
    
    Our belief that increase in revenue was primarily attributable to an increase
in the demand for our product Eclipse due to wireless subscriber growth and growth in
fixed wireless transmission infrastructures in developing countries as well as increased
use of Eclipse in data transmission applications;
    
    Our belief that global economic growth rates though modest also contributed to
the increase in revenue;
    
    Our belief that improved market conditions was also one of the factors
contributing to the increase in net sales in fiscal 2005 as compared to fiscal 2004;
    
    Our expectation that cash requirements for the product operating segment will
continue to be primarily for working capital requirements, restructuring payments and
research and capital expenditures;
    
    Our expectation that the cash requirements for our service operating segment
will continue to be primarily for labor costs and spare parts;
    
    Our expectation that gross margins will improve further due to increase in
sales of our Eclipse product line , which has higher margins as compared to our legacy
product lines;
    
    Our expectation that research and development expenses will increase in fiscal
2007 as compared to fiscal 2006 due to increases in salaries and related personnel expenses
as well as modest increases in personnel employed in this area;
    
    Our expectation that $3.4 million of the remaining restructuring accrual
balance ($0.2 million of severance and benefits, $0.3 million of legal and other costs and
$2.9 million of vacated building lease obligations) will be paid out in fiscal 2007 and
vacated building lease obligations of $14.5 million will be paid out during fiscal 2008
through fiscal 2012.
    
    Our belief that our warranty accrual is adequate and that the judgment applied is appropriate;
    
    Our judgement regarding the valuation of deferred tax assets;
    
    Our plan to minimize our overall customer financing exposure by discounting
receivables when possible, raising third party financing and arranging letters of credit;
    
    Our belief that our available cash and cash equivalents at March 31, 2006,
cash generated from operations combined with our revolving credit facility should be
sufficient to meet our anticipated needs for working capital and capital expenditures
through March 31, 2007 and
    
    Our belief that we have the financial resources needed to meet our business
requirements for the next 12 months.
  1




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Business Overview
    (in millions)Q4 FY 2006
    
    Q3 FY 2006
    
    Q2 FY 2006
    
    Q1 FY 2006Net income/(loss)
    
    
    $3.3
    
    
    
    $0.8
    
    
    
    ($2.3
    )
    
    
    ($4.2
    )Gross Margin
    
    
    30.7
    %
    
    
    29.2
    %
    
    
    26.8
    %
    
    
    23.0
    %
  2




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Expanded the existing line of credit with a commercial bank from $35 million to $50 million and
borrowed $20 million in March 2006 under this line of credit.
 Alcatel licensing agreement.
 Critical accounting policies and estimates
  Revenue Recognition.
    3




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Provision for warranty.
 Inventories.
  Valuation of Long-Lived Assets.
 Valuation of Intangible Assets.
 4




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Restructuring and Impairment Charges.
 Provision for uncollectible receivables.
 
    
    a customers ability to meet and sustain their financial commitments;
    
    a customers current and projected financial condition; and
    
    the positive or negative effects of the customers current and projected industry outlook.
 Deferred taxes.
 5




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  6




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
 Revenues
   Revenue by geographic regions
 Years ended March 31,% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    2004
    
    
    TotalUnited States
    
    $
    11,235
    
    
    
    5
    %
    
    $
    11,446
    
    
    
    6
    %
    
    $
    6,314
    
    
    
    4
    %Other Americas
    
    
    23,676
    
    
    
    10
    %
    
    
    23,839
    
    
    
    13
    %
    
    
    18,870
    
    
    
    12
    %Russia
    
    
    15,684
    
    
    
    7
    %
    
    
    35,456
    
    
    
    20
    %
    
    
    14,689
    
    
    
    9
    %Poland
    
    
    25,905
    
    
    
    11
    %
    
    
    10,811
    
    
    
    6
    %
    
    
    5,896
    
    
    
    4
    %Other Europe
    
    
    32,766
    
    
    
    14
    %
    
    
    22,144
    
    
    
    12
    %
    
    
    30,269
    
    
    
    19
    %Middle East
    
    
    26,498
    
    
    
    12
    %
    
    
    17,520
    
    
    
    10
    %
    
    
    16,416
    
    
    
    11
    %Nigeria
    
    
    19,090
    
    
    
    8
    %
    
    
    10,081
    
    
    
    6
    %
    
    
    25,705
    
    
    
    16
    %Other Africa
    
    
    18,034
    
    
    
    8
    %
    
    
    16,963
    
    
    
    9
    %
    
    
    9,824
    
    
    
    6
    %Bangladesh
    
    
    22,301
    
    
    
    10
    %
    
    
    1,637
    
    
    
    1
    %
    
    
    
    
    
    
    Other
Asia/Pacific
    
    
    35,703
    
    
    
    15
    %
    
    
    30,405
    
    
    
    17
    %
    
    
    29,365
    
    
    
    19
    %Total Revenues
    
    $
    230,892
    
    
    
    100
    %
    
    $
    180,302
    
    
    
    100
    %
    
    $
    157,348
    
    
    
    100
    %
  7




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Orders and backlog.
  Years ended March 31,2006
    
    2005Number of customers
    
    
    3
    
    
    
    2Percentage of Backlog
    
    
    12%, 11%, 10%
    
    
    
    13%, 12%
  8




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Product operating segment .
 % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    2004
    
    
    TotalEclipse
    
    $
    134,479
    
    
    
    68
    %
    
    $
    39,599
    
    
    
    26
    %
    
    $
    3,348
    
    
    
    3
    %XP4
    
    
    19,417
    
    
    
    10
    %
    
    
    64,125
    
    
    
    42
    %
    
    
    57,497
    
    
    
    44
    %DXR
    
    
    14,777
    
    
    
    7
    %
    
    
    16,120
    
    
    
    11
    %
    
    
    23,917
    
    
    
    18
    %Altium
    
    
    19,730
    
    
    
    10
    %
    
    
    23,985
    
    
    
    16
    %
    
    
    39,613
    
    
    
    31
    %Other Products
    
    
    9,785
    
    
    
    5
    %
    
    
    7,787
    
    
    
    5
    %
    
    
    4,718
    
    
    
    4
    %Total Revenue
    
    $
    198,188
    
    
    
    
    
    
    $
    151,616
    
    
    
    
    
    
    $
    129,093Operating Loss
    
    $
    (3,692
    )
    
    
    (1.9
    )%
    
    $
    (47,064
    )
    
    
    (31
    )%
    
    $
    (39,987
    )
    
    
    (31
    )%
      9




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Service Operating Segment .
 % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueField Service revenue
    
    $
    20,545
    
    
    
    
    
    
    $
    16,605
    
    
    
    
    
    
    $
    15,404Operating income/(loss)
    
    
    1,116
    
    
    
    5
    %
    
    
    (516
    )
    
    
    (3
    )%
    
    
    665
    
    
    
    4
    %Repair revenue
    
    
    12,159
    
    
    
    
    
    
    
    12,081
    
    
    
    
    
    
    
    12,851Operating income
    
    
    4,898
    
    
    
    40
    %
    
    
    3,859
    
    
    
    32
    %
    
    
    4,777
    
    
    
    37
    %Total Service Revenue
    
    $
    32,704
    
    
    
    
    
    
    $
    28,686
    
    
    
    
    
    
    $
    28,255Total Operating Income
    
    $
    6,014
    
    
    
    18
    %
    
    $
    3,343
    
    
    
    12
    %
    
    $
    5,442
    
    
    
    19
    %
     10




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Gross Profit
 Years ended March 31,(In
Thousands)% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of Net2006
    
    
    Sales
    
    
    2005
    
    
    Sales
    
    
    2004
    
    
    SalesNet sales
    
    $
    230,892
    
    
    
    100
    %
    
    $
    180,302
    
    
    
    100
    %
    
    $
    157,348
    
    
    
    100
    %Cost of sales
    
    
    167,303
    
    
    
    72.5
    %
    
    
    151,398
    
    
    
    84.0
    %
    
    
    129,689
    
    
    
    82.4
    %Inventory valuation
charges (benefits)
    
    
    
    
    
    
    
    
    
    
    2,581
    
    
    
    1.4
    %
    
    
    (498
    )
    
    
    (0.3
    )%Gross profit
    
    $
    63,589
    
    
    
    27.5
    %
    
    $
    26,323
    
    
    
    14.6
    %
    
    $
    28,157
    
    
    
    17.9
    %
   Research and Development
 Years ended March 31,(In Thousands)2006
    
    2005
    
    2004Research and development
    
    $
    14,475
    
    
    $
    16,661
    
    
    $
    17,151% of net sales
    
    
    6.3%
    
    
    
    9.2%
    
    
    
    10.9%
   11




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Selling, General and Administrative
 Years ended March 31,(In Thousands)2006
    
    2005
    
    2004Selling, general and administrative
    
    $
    46,792
    
    
    $
    44,379
    
    
    $
    39,273% of net sales
    
    
    20.3%
    
    
    
    24.6%
    
    
    
    25.0%
   Restructuring Charges
 Years ended March 31,(In Thousands)2006
    
    2005
    
    2004Restructuring charges
    
    $
    
    
    
    
    $7,423
    
    
    $
    5,488% of net sales
    
    
    
    
    
    
    4.1%
    
    
    
    3.5%
    12




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Severance
    
    
    Facilitiesand Benefits
    
    
    and Other
    
    
    TotalBalance as of March 31, 2003
    
    $
    1.5
    
    
    $
    22.7
    
    
    $
    24.2Provision in fiscal 2004
    
    
    0.9
    
    
    
    4.6
    
    
    
    5.5Cash payments
    
    
    (1.3
    )
    
    
    (5.6
    )
    
    
    (6.9
    )Balance as of March 31, 2004
    
    
    1.1
    
    
    
    21.7
    
    
    
    22.8Provision in fiscal 2005
    
    
    3.8
    
    
    
    3.6
    
    
    
    7.4Cash payments
    
    
    (3.8
    )
    
    
    (4.0
    )
    
    
    (7.8
    )Non-cash expense
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )Reclassification of related
rent accruals
    
    
    
    
    
    
    1.2
    
    
    
    1.2Balance as of March 31, 2005
    
    
    1.1
    
    
    
    21.9
    
    
    
    23.0Provision in fiscal 2006
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (1.2
    )
    
    
    (3.6
    )
    
    
    (4.8
    )Reclassification
    
    
    0.3
    
    
    
    (0.6
    )
    
    
    (0.3
    )Balance as of March 31, 2006
    
    $
    0.2
    
    
    $
    17.7
    
    
    $
    17.9Current portion
    
    $
    0.2
    
    
    $
    3.2
    
    
    $
    3.4Long-term portion
    
    
    
    
    
    
    14.5
    
    
    
    14.5
  Interest Income, Interest Expense, Other Expenses
 Years ended March 31,(In Thousands)2006
    
    
    2005
    
    
    2004Interest income
    
    $
    1,111
    
    
    $
    737
    
    
    $
    886Interest expense
    
    
    2,227
    
    
    
    1,662
    
    
    
    160Other expenses, net
    
    
    1,927
    
    
    
    845
    
    
    
    1,116
   13




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Provision for Income Taxes
 Years ended March 31,(In Thousands)2006
    
    
    2005
    
    
    2004Provision for income taxes
    
    
    1,576
    
    
    
    455
    
    
    
    2,133
   14




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Liquidity and Capital Resources
          15




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cash requirements
  §
    
    Operations§
    
    Research and development§
    
    Restructuring payments§
    
    Capital expenditures§
    
    Acquisitions
 Commercial commitments
  Contractual obligations
  Payments due (in thousands):Years ending March 31,2012 &
    
    
    Total2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    beyond
    
    
    ObligationsOperating leases (a)
    
    $
    6,403
    
    
    $
    6,654
    
    
    $
    6,787
    
    
    $
    6,913
    
    
    $
    5,766
    
    
    $
    855
    
    
    $
    33,378Unconditional
purchase
obligations (b)
    
    $
    42,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,044Long-term debt (c)
    
    $
    11,250
    
    
    $
    11,250
    
    
    $
    6,041
    
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    $
    33,541
 
 (a)
    
    Contractual cash obligations include $17.4 million of lease obligations that have been
accrued as restructuring charges as of March 31, 2006.(b)
    
    We have firm purchase commitments with various suppliers as of end of March 2006. Actual
expenditures will vary based upon the volume of the transactions and length of contractual
service provided. In addition, the amounts paid under these arrangements may be less in the
event that the arrangements are renegotiated or cancelled. Certain agreements provide for
potential cancellation penalties. Our policy with respect to all purchase commitments is to
record losses, if any, when they are probable and reasonably estimable. We believe we have
made adequate provisions for potential exposure related to inventory purchases for orders
that may not be utilized.(c)
    
    See discussion of repayment of long-term debt in the following paragraphs. Restructuring payments
  16




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Customer financing
  Repayment of long-term debt
    Sources of cash:
  Available credit facility
  17




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk:
 Exposure on Investments
   Years ending March 31(In thousands)2007
    
    
    2008Cash equivalents and short-term investments (a)
    
    
    $51,175
    
    
    
    $Weighted average interest rate
    
    
    4.44%
    
    
    
    0.0%
 
 (a)
    
    Does not include cash of $6.5 million held in bank checking and deposit
accounts including those held by our foreign subsidiaries.  18




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Exposure on Borrowings:
  Exchange Rate Risk:
    Factors that May Affect Future Financial Results
  19




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    We have had a history of losses, and we may not achieve or sustain
profitability on a quarterly or annual basis;
    
    Competition could harm our ability to maintain or improve our position in the
market and could decrease our revenues;
    
    Our average sales prices are declining;
    
    If we do not continue to successfully market our major new product line,
Eclipse, our business would be harmed;
    
    Because a significant amount of our revenues comes from a few customers, the
termination of any of these customer relationships may harm our business;
    
    Due to the significant volume of our international sales, we are susceptible
to a number of political, economic and geographic risks that could harm our business;
    
    If we fail to develop and maintain distribution relationships, our revenues
may decrease;
    
    Our industry is volatile and subject to frequent changes, and we may not be
able to respond effectively or in a timely manner to these changes;
    
    Acts of terrorism can negatively impact our revenues;
    
    Consolidation within the telecommunications industry and among suppliers could
decrease our revenues;
    
    Our success depends on new product introductions and acceptance;
    
    Our customers may not pay us in a timely manner, or at all, which would
decrease our income and utilize our working capital;
    
    We will need additional capital in the future. If additional capital is not
available, we may not be able to continue to operate our business pursuant to our business
plan or we may have to discontinue our operations;
    
    We may breach our covenants relating to our outstanding debt against our $50
million credit facility with a commercial bank resulting in a secured creditor claim action
against us by the bank and the inability to obtain future borrowings;
    
    The inability of our subcontractors to perform, or our key suppliers to
manufacture and deliver materials, could cause our products to be produced in an untimely
or unsatisfactory manner, or not at all;
    
    Negative changes in the capital markets available for telecommunications and
mobile cellular projects may result in reduced revenues and excess inventory that we cannot
sell or may be required to sell at distressed prices, and may result in longer credit terms
to our customers;
    
    If we fail to manage our internal development or successfully integrate
acquired businesses, we may not effectively manage our growth and our business may be
harmed;
    
    The unpredictability of our quarter-to-quarter results may harm the trading
price of our common stock;
    
    Because of intense competition for highly skilled candidates, we may not be
able to recruit and retain qualified personnel;
    
    If sufficient radio frequency spectrum is not allocated for use by our
products, and we fail to obtain regulatory approval for our products, our ability to market
our products may be restricted;
    
    We may not successfully adapt to regulatory changes in our industry, which
could significantly impact the operation of our business;
    
    Our stock price may be volatile, which may lead to losses by investors;
 20




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
    
    Changes in Accounting Standards for Share-Based Payments will reduce our
future profitability; and
    
    If we fail to maintain an effective system of internal controls, we may not be
able to accurately report our financial results. As a result, current and potential
stockholders could lose confidence in our financial reporting, which would harm our
business.
  21




---



##### 



SELECTED CONSOLIDATED FINANCIAL DATA
 Years ended March 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in thousands, except per share amounts)Consolidated Statements of Operations Data:Net sales
    
    $
    230,892
    
    
    $
    180,302
    
    
    $
    157,348
    
    
    $
    197,704
    
    
    $
    228,844Net loss
    
    $
    (2,297
    )
    
    $
    (45,946
    )
    
    $
    (37,068
    )
    
    $
    (51,555
    )
    
    $
    (168,873
    )Basic and diluted loss per share
    
    $
    (0.02
    )
    
    $
    (0.51
    )
    
    $
    (0.44
    )
    
    $
    (0.62
    )
    
    $
    (2.13
    )Basic and diluted weighted average shares
outstanding
    
    
    95,600
    
    
    
    89,634
    
    
    
    83,364
    
    
    
    82,548
    
    
    
    79,166
 March 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in thousands, except number of employees)Balance Sheet and other Data:Total assets
    
    $
    180,830
    
    
    $
    160,631
    
    
    $
    163,244
    
    
    $
    184,785
    
    
    $
    214,117Long-term liabilities
    
    $
    37,376
    
    
    $
    32,185
    
    
    $
    20,311
    
    
    $
    19,145
    
    
    $
    6,675Stockholders equity
    
    $
    62,343
    
    
    $
    60,023
    
    
    $
    81,182
    
    
    $
    112,800
    
    
    $
    167,457Total employees
    
    
    453
    
    
    
    456
    
    
    
    617
    
    
    
    587
    
    
    
    760
 22




---



##### 



STRATEX NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
 March 31,2006
    
    2005(in thousands, except per share amounts)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    44,414
    
    
    $
    32,860Short-term investments
    
    
    13,272
    
    
    
    15,831Accounts receivable, net of allowance of $2,140 in 2006 and $2,769 in 2005
    
    
    42,003
    
    
    
    35,084Inventories
    
    
    43,867
    
    
    
    36,780Other current assets
    
    
    12,620
    
    
    
    10,572Total current assets
    
    
    156,176
    
    
    
    131,127Property and Equipment:Machinery and equipment
    
    
    77,930
    
    
    
    79,156Land and buildings
    
    
    6,686
    
    
    
    7,550Furniture and fixtures
    
    
    7,550
    
    
    
    5,575Leasehold improvements
    
    
    1,556
    
    
    
    1,53793,722
    
    
    
    93,818Accumulated depreciation and amortization
    
    
    (69,673
    )
    
    
    (65,590
    )Net property and equipment
    
    
    24,049
    
    
    
    28,228Other assets
    
    
    605
    
    
    
    1,276Total Assets
    
    $
    180,830
    
    
    $
    160,631Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    38,725
    
    
    $
    34,472Short-term debt
    
    
    11,250
    
    
    
    6,250Accrued liabilities
    
    
    31,136
    
    
    
    27,701Total current liabilities
    
    
    81,111
    
    
    
    68,423Long-term debt
    
    
    22,291
    
    
    
    13,542Restructuring and other long-term liabilities
    
    
    15,085
    
    
    
    18,643Total liabilities
    
    
    118,487
    
    
    
    100,608Commitments and Contingencies (Note 9)Stockholders Equity:Preferred stock, $.01 par value; 5,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 150,000 shares authorized, 96,931 and
94,918 shares issued and outstanding at March 31, 2006 and 2005,
respectively
    
    
    969
    
    
    
    948Additional paid-in capital
    
    
    489,370
    
    
    
    485,382Accumulated deficit
    
    
    (416,022
    )
    
    
    (413,725
    )Accumulated other comprehensive loss
    
    
    (11,974
    )
    
    
    (12,582
    )Total stockholders equity
    
    
    62,343
    
    
    
    60,023Total Liabilities and Stockholders Equity
    
    $
    180,830
    
    
    $
    160,631
  23




---



##### 



STRATEX NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Years ended March 31,2006
    
    2005
    
    2004(in thousands, except per share amounts)Net Sales
    
    $
    230,892
    
    
    $
    180,302
    
    
    $
    157,348Cost of sales
    
    
    167,303
    
    
    
    151,398
    
    
    
    129,689Inventory and other valuation charges (benefit)
    
    
    
    
    
    
    2,581
    
    
    
    (498
    )Gross profit
    
    
    63,589
    
    
    
    26,323
    
    
    
    28,157Operating Expenses:Research and development
    
    
    14,475
    
    
    
    16,661
    
    
    
    17,151Selling, general and administrative
    
    
    46,792
    
    
    
    44,379
    
    
    
    39,273Amortization of intangible assets
    
    
    
    
    
    
    1,581
    
    
    
    790Restructuring charges
    
    
    
    
    
    
    7,423
    
    
    
    5,488Total operating expenses
    
    
    61,267
    
    
    
    70,044
    
    
    
    62,702Income (loss) from operations
    
    
    2,322
    
    
    
    (43,721
    )
    
    
    (34,545
    )Other Income (Expense):Interest income
    
    
    1,111
    
    
    
    737
    
    
    
    886Interest expense
    
    
    (2,227
    )
    
    
    (1,662
    )
    
    
    (160
    )Other expenses, net
    
    
    (1,927
    )
    
    
    (845
    )
    
    
    (1,116
    )Total other expense, net
    
    
    (3,043
    )
    
    
    (1,770
    )
    
    
    (390
    )Loss before provision for income taxes
    
    
    (721
    )
    
    
    (45,491
    )
    
    
    (34,935
    )Provision for income taxes
    
    
    1,576
    
    
    
    455
    
    
    
    2,133Net Loss
    
    $
    (2,297
    )
    
    $
    (45,946
    )
    
    $
    (37,068
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.51
    )
    
    $
    (0.44
    )Shares used to compute basic and diluted net
loss per share
    
    
    95,600
    
    
    
    89,634
    
    
    
    83,364
  24




---



##### 



STRATEX NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Years ended March 31, 2004, 2005 and 2006AccumulatedOtherCommon
    
    
    Stock
    
    
    Additional
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Total StockholdersShares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity(in thousands)Balances March 31, 2003
    
    
    82,748
    
    
    $
    827
    
    
    $
    457,147
    
    
    $
    (330,711
    )
    
    $
    (14,463
    )
    
    $
    112,800Components of
comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,068
    )
    
    
    
    
    
    
    (37,068
    )Change in unrealized
holding gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    1,081Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,967
    )Shares issued to Tellumat
(Pty) Ltd for acquisition
of net assets of Plessey
Broadband Wireless
    
    
    730
    
    
    
    7
    
    
    
    2,950
    
    
    
    
    
    
    
    
    
    
    
    2,957Stock issued for options
and purchase plan
    
    
    570
    
    
    
    6
    
    
    
    1,386
    
    
    
    
    
    
    
    
    
    
    
    1,392Balances March 31, 2004
    
    
    84,048
    
    
    $
    840
    
    
    $
    461,483
    
    
    $
    (367,779
    )
    
    $
    (13,362
    )
    
    $
    81,182Components of
comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ( 45,946
    )
    
    
    
    
    
    
    (45,946
    )Change in unrealized
holding loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    (58
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838
    
    
    
    838Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,166
    )Sale of common stock, net
of cash and non-cash
(warrants) expenses of
$1.4 million and $4.1
million, respectively
(See note 11)
    
    
    10,327
    
    
    
    103
    
    
    
    22,850
    
    
    
    
    
    
    
    
    
    
    
    22,953Stock issued for options
and purchase plan
    
    
    543
    
    
    
    5
    
    
    
    1,049
    
    
    
    
    
    
    
    
    
    
    
    1,054Balances March 31, 2005
    
    
    94,918
    
    
    $
    948
    
    
    $
    485,382
    
    
    $
    ( 413,725
    )
    
    $
    (12,582
    )
    
    $
    60,023Components of
comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,297
    )
    
    
    
    
    
    
    (2,297
    )Change in unrealized
holding loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    577Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,689
    )Stock issued for options
and purchase plan
    
    
    1,117
    
    
    
    6
    
    
    
    2,488
    
    
    
    
    
    
    
    
    
    
    
    2,494Restricted Stock Awards
    
    
    896
    
    
    
    15
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    1,515Balances March 31, 2006
    
    
    96,931
    
    
    $
    969
    
    
    $
    489,370
    
    
    $
    (416,022
    )
    
    $
    (11,974
    )
    
    $
    62,343
  25




---



##### 



STRATEX NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended March 31,2006
    
    
    2005
    
    
    2004(in thousands)Cash Flows From Operating Activities:Net loss
    
    $
    (2,297
    )
    
    $
    (45,946
    )
    
    $
    (37,068
    )Adjustments to reconcile net loss to net cash used for
operating activities:Non-cash stock compensation charges
    
    
    1,515
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    7,418
    
    
    
    11,460
    
    
    
    9,470Non-cash restructuring charges
    
    
    
    
    
    
    928
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (6,445
    )
    
    
    (530
    )
    
    
    (3,721
    )Inventories
    
    
    (6,385
    )
    
    
    (1,461
    )
    
    
    (6,662
    )Other assets
    
    
    (1,227
    )
    
    
    1,176
    
    
    
    2,035Accounts payable
    
    
    4,154
    
    
    
    (5,597
    )
    
    
    14,960Accrued liabilities
    
    
    3,697
    
    
    
    5,998
    
    
    
    (3,416
    )Long-term liabilities
    
    
    (3,559
    )
    
    
    (1,662
    )
    
    
    (3,039
    )Net cash used for operating activities
    
    
    (3,129
    )
    
    
    (35,634
    )
    
    
    (27,441
    )Cash Flows From Investing Activities:Purchase of available-for-sale securities
    
    
    (82,185
    )
    
    
    (83,275
    )
    
    
    (220,983
    )Proceeds from sale of available-for-sale securities
    
    
    84,753
    
    
    
    95,723
    
    
    
    248,812Purchase of property and equipment
    
    
    (3,532
    )
    
    
    (7,435
    )
    
    
    (10,532
    )Purchase of net assets of Plessey Broadband
Wireless, a division of Tellumat (Pty) Ltd.
    
    
    
    
    
    
    
    
    
    
    (2,578
    )Net cash provided by (used for) investing activities
    
    
    (964
    )
    
    
    5,013
    
    
    
    14,719Cash Flows From Financing Activities:Borrowings from banks
    
    
    33,000
    
    
    
    25,000
    
    
    
    Repayment of bank borrowings
    
    
    (19,250
    )
    
    
    (5,208
    )
    
    
    Proceeds from sale of common stock
    
    
    2,495
    
    
    
    24,007
    
    
    
    1,392Net cash provided by financing activities
    
    
    16,245
    
    
    
    43,799
    
    
    
    1,392Effect of exchange rate changes on cash
    
    
    (598
    )
    
    
    (1,944
    )
    
    
    (1,080
    )Net increase (decrease) in cash and cash equivalents
    
    
    11,554
    
    
    
    11,234
    
    
    
    (12,410
    )Cash and cash equivalents at beginning of year
    
    
    32,860
    
    
    
    21,626
    
    
    
    34,036Cash and cash equivalents at end of year
    
    $
    44,414
    
    
    $
    32,860
    
    
    $
    21,626
  26




---



##### 



STRATEX NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Supplemental Statements of Cash Flows Disclosures.
 Years ended March 31,2006
    
    2005
    
    2004(in thousands)Interest paid
    
    $
    1,097
    
    
    $
    1,781
    
    
    $
    103Income taxes paid
    
    $
    1,430
    
    
    $
    199
    
    
    $
    274
 Supplemental Schedule of Non Cash Financing Activities:
 2006
    
    2005
    
    2004(in thousands)Non-cash
purchase
consideration for
the acquisition of
Plessey Broadband
Wireless, a
division of
Tellumat (Pty) Ltd.
through the
issuance of common
stock
    
    $
    
    
    
    $
    
    
    
    $
    2,957Issuance of common
stock warrants (See
Note 11)
    
    $
    
    
    
    $
    4,122
    
    
    $
    
 27




---



##### 



Note 1. Description of Business
  Note 2. Summary of Significant Accounting Policies
 Basis of Presentation.
 Use of Estimates.
 Cash and Cash Equivalents.
 Short-Term Investments.
  28




---



##### 



2006UnrealizedCost
    
    Fair Value
    
    Holding Loss(in thousands)Corporate notes
    
    $
    2,083
    
    
    $
    2,083
    
    
    $
    Corporate and Government
bonds
    
    
    3,605
    
    
    
    3,589
    
    
    
    (16
    )Auction rate preferred notes
    
    
    7,600
    
    
    
    7,600
    
    
    
    Total
    
    $
    13,288
    
    
    $
    13,272
    
    
    $
    (16
    )
  2005UnrealizedCost
    
    Fair Value
    
    Holding Loss(in thousands)Corporate notes
    
    $
    749
    
    
    $
    749
    
    
    $
    Corporate and Government
bonds
    
    
    9,578
    
    
    
    9,532
    
    
    
    (46
    )Auction rate preferred notes
    
    
    5,550
    
    
    
    5,550
    
    
    
    Total
    
    $
    15,877
    
    
    $
    15,831
    
    
    $
    (46
    )
 Inventories.
 March 31,2006
    
    2005(in thousands)Raw materials
    
    $
    9,012
    
    
    $
    11,065Work-in-process
    
    
    
    
    
    
    488Finished goods
    
    
    34,855
    
    
    
    25,227$
    43,867
    
    
    $
    36,780
  Property and Equipment.
 29




---



##### 



Other Assets.
 Accumulated Other Comprehensive Income.
  March 31,2006
    
    
    2005(in thousands)Unrealized holding loss on available-for-sale-securities
    
    $
    (16
    )
    
    $
    (46
    )Cumulative foreign exchange translation adjustment
    
    
    (11,958
    )
    
    
    (12,536
    )Accumulated other comprehensive loss
    
    $
    (11,974
    )
    
    $
    (12,582
    )
 Foreign Currency Translation.
   30




---



##### 



Derivative Financial Instruments
    Twelve
    
    
    TwelveMonths Ended
    
    
    Months EndedMarch 31, 2006
    
    
    March 31, 2005Gains/(Losses)
    
    
    Gains/(Losses)Beginning balance as of April 1
    
    $
    90
    
    
    $
    23Net changes
    
    
    (772
    )
    
    
    644Reclassifications to revenue
    
    
    573
    
    
    
    (526
    )Reclassifications to cost of sales
    
    
    2
    
    
    
    (51
    )Ending balance as of March 31
    
    $
    (107
    )
    
    $
    90
  Revenue Recognition.
  31




---



##### 



Research and Development.
 Stock-Based Compensation.
  Years ended March 31,2006
    
    
    2005
    
    
    2004(in thousands, except per share amounts)Net loss  as reported
    
    $
    (2,297
    )
    
    $
    (45,946
    )
    
    $
    (37,068
    )Less: Stock-based compensation expense
determined under fair value method for all
awards, net of related tax effects
    
    
    (4,954
    )
    
    
    (11,630
    )
    
    
    (9,961
    )Net loss  pro forma
    
    $
    (7,251
    )
    
    $
    (57,576
    )
    
    $
    (47,029
    )Basic and diluted loss per share  as reported
    
    $
    (0.02
    )
    
    $
    (0.51
    )
    
    $
    (0.44
    )Basic and diluted loss per share  pro forma
    
    $
    (0.08
    )
    
    $
    (0.64
    )
    
    $
    (0.56
    )
 32




---



##### 



Years ended March 31,2006
    
    2005
    
    2004Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected stock volatility
    
    
    96.2
    %
    
    
    96.8
    %
    
    
    96.6
    %Risk-free interest rate
    
    
    3.9  4.6
    %
    
    
    2.7  3.9
    %
    
    
    2.2  3.3
    %Expected life of options from vest date
    
    
    1.8 years
    
    
    
    1.5 years
    
    
    
    1.7 yearsForfeiture rate
    
    
    Actual
    
    
    
    Actual
    
    
    
    Actual
  Years ended March 31,2006
    
    2005
    
    2004Expected stock volatility
    
    
    55.7
    %
    
    
    75.7
    %
    
    
    89.6
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    1.6
    %
    
    
    1.0
    %Expected life of options from vest date
    
    
    0.3 years
    
    
    
    0.3 years
    
    
    
    0.2 years
  Loss Per Share.
  Income Taxes.
 33




---



##### 



Recent Accounting Pronouncements
    34




---



##### 



Note 3. Acquired Intangible Assets
  Note 4. Concentration of Credit Risk
   35




---



##### 



March 31, 2006
    
    March 31, 2005Number of significant customers
    
    
    2
    
    
    
    Percentage of accounts
receivable balance
    
    
    12%, 10
    %
    
    
    
  Years ended March 31,2006
    
    2005
    
    2004Number of significant
customers
    
    
    1
    
    
    
    1
    
    
    
    1Percentage of net sales
    
    
    10
    %
    
    
    21
    %
    
    
    19
    %
  Note 5. Other Current Assets
  March 31,2006
    
    2005(in thousands)Receivables from suppliers
    
    $
    3,074
    
    
    $
    2,566Non-trade receivables
    
    
    947
    
    
    
    851Prepaid expenses
    
    
    4,165
    
    
    
    3,529Prepaid insurance
    
    
    395
    
    
    
    340Income tax and VAT refund
    
    
    3,795
    
    
    
    2,976Other
    
    
    244
    
    
    
    310$
    12,620
    
    
    $
    10,572
  36




---



##### 



Note 6. Accrued Liabilities
  March 31,2006
    
    2005(in thousands)Customer deposits
    
    $
    2,103
    
    
    $
    1,822Accrued payroll and benefits
    
    
    2,628
    
    
    
    2,250Accrued commissions
    
    
    4,660
    
    
    
    2,117Accrued warranty
    
    
    4,395
    
    
    
    5,340Accrued restructuring
    
    
    3,373
    
    
    
    4,902Accrual for customer discount
    
    
    4,359
    
    
    
    3,688Deferred revenue
    
    
    3,193
    
    
    
    1,279Other
    
    
    6,425
    
    
    
    6,303$
    31,136
    
    
    $
    27,701
  37




---



##### 



Note 7. Long term debt
     Years ending March 31,(in thousands)2007
    
    $
    11,2502008
    
    
    11,2502009
    
    
    6,0412010
    
    
    5,000Total
    
    $
    33,541
  Note 8. Restructuring charges
   38




---



##### 



Severance
    
    
    Facilitiesand Benefits
    
    
    and Other
    
    
    TotalBalance as of March 31, 2003
    
    $
    1.5
    
    
    $
    22.7
    
    
    $
    24.2Provision in fiscal 2004
    
    
    0.9
    
    
    
    4.6
    
    
    
    5.5Cash payments
    
    
    (1.3
    )
    
    
    (5.6
    )
    
    
    (6.9
    )Balance as of March 31, 2004
    
    
    1.1
    
    
    
    21.7
    
    
    
    22.8Provision in fiscal 2005
    
    
    3.8
    
    
    
    3.6
    
    
    
    7.4Cash payments
    
    
    (3.8
    )
    
    
    (4.0
    )
    
    
    (7.8
    )Non-cash expense
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )Reclassification of related rent accruals
    
    
    
    
    
    
    1.2
    
    
    
    1.2Balance as of March 31, 2005
    
    
    1.1
    
    
    
    21.9
    
    
    
    23.0Provision in fiscal 2006
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (1.2
    )
    
    
    (3.6
    )
    
    
    (4.8
    )Reclassification
    
    
    0.3
    
    
    
    (0.6
    )
    
    
    (0.3
    )Balance as of March 31, 2006
    
    $
    0.2
    
    
    $
    17.7
    
    
    $
    17.9Current portion
    
    $
    0.2
    
    
    $
    3.2
    
    
    $
    3.4Long-term portion
    
    
    
    
    
    
    14.5
    
    
    
    14.5
  39




---



##### 



Note 9. Commitments and Contingencies
  Years ending March 31,(in thousands)2007
    
    $
    6,4032008
    
    
    6,6542009
    
    
    6,7872010
    
    
    6,9132011
    
    
    5,7662012 and beyond
    
    
    855Future minimum lease payments (a)
    
    $
    33,378
 
 (a)
    
    Future minimum lease payments include $17.4 million of lease obligations that have been
accrued as restructuring charges as of March 31, 2006.  Legal Contingencies.
 Contingencies in Manufacturing and Suppliers.
 Warranty.
 40




---



##### 



Years ended March 31,2006
    
    2005
    
    2004(in thousands)Balance at the beginning of the year
    
    $
    5,340
    
    
    $
    4,277
    
    
    $
    4,219Additions related to current period sales
    
    
    5,202
    
    
    
    7,282
    
    
    
    7,416Warranty costs incurred in the current period
    
    
    (5,330
    )
    
    
    (5,227
    )
    
    
    (7,207
    )Adjustments to accruals related to prior
period sales
    
    
    (817
    )
    
    
    (992
    )
    
    
    (151
    )Balance at the end of the year
    
    $
    4,395
    
    
    $
    5,340
    
    
    $
    4,277
 Note 10. Income Taxes
   Years ended March 31,2006
    
    
    2005
    
    
    2004(in thousands)Domestic
    
    $
    (1,732
    )
    
    $
    (34,780
    )
    
    $
    (29,897
    )Foreign
    
    
    1,011
    
    
    
    (10,711
    )
    
    
    (5,038
    )$
    (721
    )
    
    $
    (45,491
    )
    
    $
    (34,935
    )
  Years ended March 31,2006
    
    
    2005
    
    
    2004(in thousands)Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    8
    
    
    
    80
    
    
    
    46Foreign
    
    
    1,568
    
    
    
    375
    
    
    
    344Total current
    
    
    1,576
    
    
    
    455
    
    
    
    390Deferred- foreign
    
    
    
    
    
    
    
    
    
    
    1,743$
    1,576
    
    
    $
    455
    
    
    $
    2,133
 41




---



##### 



Years ended March 31,2006
    
    
    2005
    
    
    2004(in thousands)Expected tax benefit
    
    $
    (252
    )
    
    $
    (15,808
    )
    
    $
    (12,227
    )State taxes, net of Federal benefit
    
    
    8
    
    
    
    (565
    )
    
    
    335Change in valuation allowance
    
    
    (1,854
    )
    
    
    10,202
    
    
    
    16,775Foreign taxes
    
    
    1,568
    
    
    
    375
    
    
    
    344Other
    
    
    2,107
    
    
    
    6,251
    
    
    
    (3,094
    )$
    1,576
    
    
    $
    455
    
    
    $
    2,133
  March 31,2006
    
    
    2005(in thousands)Inventory write offs
    
    $
    13,469
    
    
    $
    10,585Restructuring reserves
    
    
    6,810
    
    
    
    8,610Warranty reserves
    
    
    1,483
    
    
    
    1,763Bad debt reserves
    
    
    763
    
    
    
    1,007Net operating loss carry forwards
    
    
    151,821
    
    
    
    147,370Tax credits
    
    
    12,096
    
    
    
    12,650Impairment of investments
    
    
    1,128
    
    
    
    8,404Depreciation reserves
    
    
    426
    
    
    
    (300
    )Other
    
    
    11,166
    
    
    
    5,137199,162
    
    
    
    195,226Less: Valuation allowance
    
    
    (199,162
    )
    
    
    (195,226
    )Net deferred tax asset
    
    $
    
    
    
    $
    
   42




---



##### 



Note 11. Common Stock
 Stock Option Plans.
       43




---



##### 



2006
    
    2005
    
    2004Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageShares
    
    Exercise Price
    
    Shares
    
    Exercise Price
    
    Shares
    
    Exercise Price(shares in thousands)Options outstanding at
beginning of year
    
    
    11,819
    
    
    $
    6.01
    
    
    
    13,175
    
    
    $
    5.85
    
    
    
    12,258
    
    
    $
    8.57Granted
    
    
    1,473
    
    
    
    2.04
    
    
    
    192
    
    
    
    2.43
    
    
    
    4,581
    
    
    
    4.60Exercised
    
    
    (823
    )
    
    
    2.32
    
    
    
    (122
    )
    
    
    2.06
    
    
    
    (189
    )
    
    
    2.18Expired or canceled
    
    
    (1,111
    )
    
    
    6.28
    
    
    
    (1,426
    )
    
    
    4.40
    
    
    
    (3,475
    )
    
    
    14.02Options outstanding at end
of year
    
    
    11,358
    
    
    $
    5.74
    
    
    
    11,819
    
    
    $
    6.01
    
    
    
    13,175
    
    
    $
    5.85Exercisable at end of year
    
    
    9,243
    
    
    
    
    
    
    
    6,955
    
    
    
    
    
    
    
    4,488Weighted average fair
value of options granted
    
    $
    2.04
    
    
    
    
    
    
    $
    1.53
    
    
    
    
    
    
    $
    3.05
  Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedActual Range of
    
    Number
    
    Contractual Life
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    (years)
    
    Exercise Price
    
    Exercisable
    
    Exercise Price(shares in thousands)$
    0.23  1.72
    
    
    
    1,117
    
    
    
    6.07
    
    
    $
    1.70
    
    
    
    1,103
    
    
    $
    1.711.74  2.01
    
    
    
    1,343
    
    
    
    3.51
    
    
    
    1.99
    
    
    
    1,123
    
    
    
    2.012.02  2.05
    
    
    
    1,860
    
    
    
    3.71
    
    
    
    2.05
    
    
    
    1,479
    
    
    
    2.052.11  4.38
    
    
    
    2,976
    
    
    
    4.80
    
    
    
    4.13
    
    
    
    1,579
    
    
    
    4.074.51  5.36
    
    
    
    1,149
    
    
    
    2.88
    
    
    
    5.20
    
    
    
    1,046
    
    
    
    5.225.38  7.25
    
    
    
    1,485
    
    
    
    4.35
    
    
    
    6.44
    
    
    
    1,485
    
    
    
    6.449.00  21.69
    
    
    
    810
    
    
    
    2.06
    
    
    
    12.79
    
    
    
    809
    
    
    
    12.7930.06  37.00
    
    
    
    618
    
    
    
    4.11
    
    
    
    30.15
    
    
    
    618
    
    
    
    30.15$
    0.23  37.00
    
    
    
    11,358
    
    
    
    4.11
    
    
    $
    5.74
    
    
    
    9,243
    
    
    $
    6.23
 Employee Stock Purchase Plans.
 44




---



##### 



Years endingMarch 31,(shares)2000
    
    
    93,1892001
    
    
    111,4412002
    
    
    318,2272003
    
    
    409,0442004
    
    
    343,2222005
    
    
    364,8832006
    
    
    293,6271,933,633
 Restricted Stock Plan.
  Three Months Ending,(In thousands, except per share)March 31,
    
    December 31,
    
    September 30,
    
    June 302006
    
    2005
    
    2005
    
    2005
    
    TotalNumber of
shares vested
    
    
    35,293
    
    
    
    178,435
    
    
    
    543,945
    
    
    
    133,838
    
    
    
    891,511Price per share at
date of grant
    
    $
    1.70
    
    
    $
    1.70
    
    
    $
    1.70
    
    
    $
    1.70
    
    
    $
    1.70Compensation expense
    
    $
    59
    
    
    $
    303
    
    
    $
    925
    
    
    $
    228
    
    
    $
    1,515
  Stock Warrants.
 45




---



##### 



Note 13. Benefit plans
  Note 14. Operating Segment and Geographic Information
   ® ®
   46




---



##### 



Years ended March 31,2006
    
    2005
    
    2004(in thousands)ProductsRevenues
    
    $
    198,188
    
    
    $
    151,616
    
    
    $
    129,093Operating loss
    
    
    (3,692
    )
    
    
    (47,064
    )
    
    
    (39,987
    )Services and otherRevenues
    
    
    32,704
    
    
    
    28,686
    
    
    
    28,255Operating income
    
    
    6,014
    
    
    
    3,343
    
    
    
    5,442TotalRevenues
    
    $
    230,892
    
    
    $
    180,302
    
    
    $
    157,348Operating income (loss)
    
    
    2,322
    
    
    
    (43,721
    )
    
    
    (34,545
    )
  2006
    
    2005
    
    2004(in thousands)Eclipse
    
    $
    134,479
    
    
    $
    39,599
    
    
    $
    3,348XP4
    
    
    19,417
    
    
    
    64,125
    
    
    
    57,497DXR
    
    
    14,777
    
    
    
    16,120
    
    
    
    23,917Altium
    
    
    19,730
    
    
    
    23,985
    
    
    
    39,613Other products
    
    
    9,785
    
    
    
    7,787
    
    
    
    4,718Total Products
    
    $
    198,188
    
    
    $
    151,616
    
    
    $
    129,093Total Services and other
    
    
    32,704
    
    
    
    28,686
    
    
    
    28,255Total Revenue
    
    $
    230,892
    
    
    $
    180,302
    
    
    $
    157,348
 47




---



##### 



Years ended March 31,(In Thousands)% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    2004
    
    
    TotalUnited States
    
    $
    11,235
    
    
    
    5
    %
    
    $
    11,446
    
    
    
    6
    %
    
    $
    6,294
    
    
    
    4
    %Other Americas
    
    
    23,676
    
    
    
    10
    %
    
    
    23,839
    
    
    
    13
    %
    
    
    18,890
    
    
    
    12
    %Russia
    
    
    15,684
    
    
    
    7
    %
    
    
    35,456
    
    
    
    20
    %
    
    
    14,689
    
    
    
    9
    %Poland
    
    
    25,905
    
    
    
    11
    %
    
    
    10,811
    
    
    
    6
    %
    
    
    5,896
    
    
    
    4
    %Other Europe
    
    
    32,766
    
    
    
    14
    %
    
    
    22,144
    
    
    
    12
    %
    
    
    30,269
    
    
    
    19
    %Middle East
    
    
    26,498
    
    
    
    12
    %
    
    
    17,520
    
    
    
    10
    %
    
    
    16,416
    
    
    
    11
    %Nigeria
    
    
    19,090
    
    
    
    8
    %
    
    
    10,081
    
    
    
    6
    %
    
    
    25,705
    
    
    
    16
    %Other Africa
    
    
    18,034
    
    
    
    8
    %
    
    
    16,963
    
    
    
    9
    %
    
    
    9,824
    
    
    
    6
    %Bangladesh
    
    
    22,301
    
    
    
    10
    %
    
    
    1,637
    
    
    
    1
    %
    
    
    
    
    
    
    Other
Asia/Pacific
    
    
    35,703
    
    
    
    15
    %
    
    
    30,405
    
    
    
    17
    %
    
    
    29,365
    
    
    
    19
    %Total Revenues
    
    $
    230,892
    
    
    
    100
    %
    
    $
    180,302
    
    
    
    100
    %
    
    $
    157,348
    
    
    
    100
    %
  2006
    
    2005(in thousands)United States
    
    $
    3,698
    
    
    $
    4,774United Kingdom
    
    
    14,193
    
    
    
    15,778New Zealand
    
    
    3,648
    
    
    
    4,630Other foreign countries
    
    
    2,510
    
    
    
    3,046Net property and equipment
    
    $
    24,049
    
    
    $
    28,228
 48




---



##### 



Report of Independent Registered Public Accounting Firm
  
      
 49




---



##### 



Managements Report on Internal Control over Financial Reporting
     Changes in Internal Control over Financial Reporting
  50




---



##### 



Inherent Limitation on the Effectiveness of Internal Controls
  51




---



##### 



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
      52




---



##### 



Internal Control  Integrated Framework Internal Control  Integrated
Framework
  DELOITTE & TOUCHE LLP
 53




---



##### 



Quarterly Financial Data and Stock Information (Unaudited)
  1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterFiscal 2006Net sales
    
    $
    54,872
    
    
    $
    56,554
    
    
    $
    55,514
    
    
    $
    63,951Gross profit (1)
    
    
    12,601
    
    
    
    15,168
    
    
    
    16,206
    
    
    
    19,614Income (loss) from operations
    
    
    (3,094
    )
    
    
    (717
    )
    
    
    2,089
    
    
    
    4,044Net income (loss)
    
    
    (4,166
    )
    
    
    (2,261
    )
    
    
    813
    
    
    
    3,317Basic and diluted net earnings loss per common share
(2)
    
    
    (0.04
    )
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.03Market price range common stock (3)High
    
    $
    2.10
    
    
    $
    2.74
    
    
    $
    3.84
    
    
    $
    6.27Low
    
    
    1.24
    
    
    
    1.72
    
    
    
    2.18
    
    
    
    3.25Quarter-end Close
    
    
    1.72
    
    
    
    2.60
    
    
    
    3.58
    
    
    
    6.15Fiscal 2005Net sales
    
    $
    46,041
    
    
    $
    43,615
    
    
    $
    49,519
    
    
    $
    41,127Gross profit (1)
    
    
    6,926
    
    
    
    8,428
    
    
    
    7,504
    
    
    
    3,465Loss from operations
    
    
    (7,463
    )
    
    
    (6,135
    )
    
    
    (17,292
    )
    
    
    (12,831
    )Net loss
    
    
    (7,984
    )
    
    
    (6,778
    )
    
    
    (17,934
    )
    
    
    (13,250
    )Basic and diluted net loss per common share (2)
    
    
    (0.09
    )
    
    
    (0.08
    )
    
    
    (0.19
    )
    
    
    (0.14
    )Market price range common stock (3)High
    
    $
    5.19
    
    
    $
    3.38
    
    
    $
    2.40
    
    
    $
    2.45Low
    
    
    2.40
    
    
    
    1.98
    
    
    
    1.65
    
    
    
    1.45Quarter-end Close
    
    
    2.95
    
    
    
    2.24
    
    
    
    2.26
    
    
    
    1.84
 
 (1)
    
    Gross profit is calculated by subtracting cost of sales from net sales(2)
    
    Earnings (loss) per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net loss per share will not necessarily equal
the total for the year.(3)
    
    The Companys common stock is traded on the Nasdaq National Market under the symbol
STXN.  54




---



##### 



Corporate Directory
 Officers and Senior Executives who report to the CEO and other Officers.
 
 
 
 
 
 
 
 
 
 
 
 
 
 55




---



##### 



Directors
 
 
 
 
 
 
 
 
 Independent Registered Public Accounting Firm
 
 Outside Legal Counsel
 
 56




---



##### 



Registrar and Transfer Agent
 
 Principal Subsidiaries
 
 
 
 
 
 
 
 
 
 Corporate Headquarters
 
 Sales and Service Offices
 North America:
 
 57




---



##### 



Central and South America:
 Europe:
 Middle East:
 Africa:
 Asia/Pacific:
 SEC Form 10-K
 
 Cautionary Statements
  58