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WFI Committee Says Company Missed $30M to $40M in Non-Cash Compensation

Wireless Facilities Inc., a local telecom company that’s been investigating its stock option granting process, said it has uncovered sufficient negative evidence that will require restating of its financial results from 1998 to September 2006.

The revelations, announced Aug. 20, follow the criminal plea bargain in July of a former WFI stock options administrator who defrauded the company out of more than $6 million.

Apparently, the theft was part of a larger problem, as WFI said the sum of non-cash equity based compensation charges it missed from 1998 to 2005 is an estimated $30 million to $40 million.

Wireless Facilities Chief Executive Officer Eric DeMarco said the investigation conducted by a special committee of WFI directors was complete. And, he concluded “that no inappropriate actions regarding the granting of options were related to our current executive management team.”

The key word there is “current,” and it prompts the question of who was responsible for the improper stock option grants during the years before DeMarco arrived in 2003 as the top executive.

It also suggests that federal prosecutors and the Securities and Exchange Commission will take a hard look at the report.

In April 2004, DeMarco, a former president of Titan Corp., was promoted to chief executive, replacing Masood Tayebi, who was named WFI’s executive chairman.

WFI was co-founded by brothers Masood and Massih Tayebi in 1994, and both have held top level executive and board positions at the company.

Last year, WFI embarked on a wholesale restructuring of its business, which is designing and managing wireless networks. DeMarco’s plan was to shift into a different model, one similar to a model that Titan was engaged in, providing communications consulting services to federal government agencies.

WFI said it had 2,300 employees last year, but because of the sale of its wireless engineering unit and the wireless deployment unit this year, it now has 1,500 employees.

Still traded under WFII on Nasdaq (it faces delisting unless it files past due financial reports), shares closed Aug. 20 at $2.15, and ranged from $1.01 to $2.98 in the past 52 weeks.

Earlier this month, WFI received notice from Nasdaq that it failed to comply with requirements on filing timely financial reports when it didn’t file its second-quarter results by the prescribed deadline. The company already obtained an extension to file its annual 10-K report and reports for the first quarter on or before Sept. 10.

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Viking Systems Buying German Company:

Viking Systems Inc., which designs and makes vision systems used in laparoscopic surgery, said Aug. 20 that it agreed to acquire Tuebingen Scientific Medical, a maker of surgical instruments used in minimally invasive surgery, which is based in Germany.

Terms were not released, but the company said the purchase represented a strategic shift and should boost its revenues.

The combination of the two companies would provide doctors, patients and hospitals with a full line of products designed for complex minimally invasive surgery, according to the press statement.

“We are convinced that the combination of our solutions would be of tremendous value in complex minimally invasive surgery, the fastest growing segment of the surgical market,” said Viking CEO Donald Tucker.

Viking said completion of the deal depends upon successful negotiation and completion of a definitive agreement, due diligence and arranging all the financing. Viking said it expects a final agreement by year’s end.

The company’s main product is the 3Di digital vision system, used by surgeons for laparoscopic surgery, with an initial focus on urology, gynecology, bariatrics and general surgery.

Founded in 1998, Viking has yet to make a profit, and reported a net loss of $17 million on revenue of $5.6 million in 2006. For the first quarter, Viking reported a net loss of $4.4 million on $1.9 million in revenue.

For the first half of the year, Viking reported a net loss of $8.7 million on revenue of $4.7 million, with sales increasing 120 percent from the first half of 2006. As of June 30, it had an accumulated deficit of $24.4 million.

Traded under VKSY on the Over the Counter Bulletin Board, shares rose a penny on Aug. 20 to 19 cents. Its 52-week range was between 16 and 24 cents.

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LEAP Gets Knocked Down, But May Take Off:

Shares of Leap Wireless International Inc., parent of flat rate wireless carrier Cricket Communications, have gotten battered since hitting a record high in July of $99.04, and then dropping more than 30 percent. But much of the decline was caused by larger forces pushing down the overall stock market, said one analyst covering the company.

Thomas J. Lee of JP Morgan thinks the stock, traded under LEAP on Nasdaq, could reach $119 by August 2008, nearly doubling the level of Aug. 17, when it closed at $62.72.

“We think LEAP’s miserable price performance over the last few weeks is more due to sheer panic than any fundamental issue,” said Lee in an investors report.

Leap and fellow flat rate carrier Metro PCS Communications Inc. were two of the biggest gainers on the market’s rebound Aug. 17, when the S & P; 500 increased nearly 35 points or 2.5 percent.

Both carriers target customers whose credit histories have been damaged and considered subprime, the kiss of death in the investment world this year.

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Websense Gets Control:

Websense Inc., a San Diego provider of Internet filtering software, said shareholders of SurfControl PLC, a British software firm, gave its approval to be acquired for $403 million.

The actual deal called for each share of SurfControl to receive 700 pence, or $1.39 in U.S. dollars.

Websense received U.S. regulatory approval for the purchase in June, and gained approval from the United Kingdom Office of Fair Trading in July.

In other news, Websense named Dudley Mendenhall its new chief financial officer, taking over from Doug Wride, who was named the company’s president in April.

Mendenhall was recently senior vice president and CFO of K2 Inc.

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Jarden Acquires K2:

For a while there, it looked like Carlsbad-based K2 Inc. was going to grow into one of those mega-sporting goods manufacturers, along the lines of Nike Inc. But its board decided otherwise and arranged the sale to a much larger and more diversified manufacturer, Jarden Corp., in April for $1.2 billion, including assumption of K2’s debt.

Unlike some other corporate transactions, this deal flowed fairly smoothly and closed Aug. 8.

K2 shareholders did get dinged by the stock market fallout this month, and had to accept a total price of $14.55 for each of their shares, which included $10.85 in cash and 0.1118 percent of Jarden’s common stock. At the time the agreement was struck in April, the price paid to K2 shareholders was estimated at $15.50, but that was while Jarden, traded as JAH on the New York Stock Exchange, was at about $43. As of Aug. 8, when the deal closed, JAH was down to $33.88.

The transaction’s completion didn’t come without complications, particularly a challenge from the Federal Trade Commission, which raised antitrust issues. To resolve the matter, Jarden agreed to sell assets of four brands of fishing lines: Cajun Line, Omniflex, Outcast and Supreme.

The revenue from those sold assets weren’t significant to either Jarden or K2, the company said, without revealing the purchase price.

Based in Rye, N.Y., Jarden has three main business segments: branded consumables, including Bee and Diamond; consumer solutions, including Crock-Port and Mr. Coffee; and outdoor solutions, including Coleman and now K2.

K2 had 5,000 employees, but most worked elsewhere. It had only 300 at its headquarters in Carlsbad. Calls to Jarden about plans for that office were not returned.


Send any news of locally based public companies to Mike Allen via e-mail at

mallen@sdbj.com

. He can be reached at (858) 277-6359.

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