The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Areas where significant judgments are made include, but are not necessarily limited to: allowance for doubtful accounts, inventory valuation, product warranties, deferred income taxes and uncertain tax positions, the valuation of long-lived assets and preferred stock, and stock-based compensation. Actual results could differ materially from these estimates.

The Company establishes an allowance for estimated bad debts based upon a review and evaluation of specific customer accounts identified as known and expected collection problems, based on historical experience, or due to insolvency, disputes or other collection issues. As further described in Note 9 to the accompanying unaudited consolidated financial statements, the Company's customer base is concentrated, with one customer accounting for 40% of the Company's total revenue for the three months ended May 31, 2009 and 25% of the Company's net accounts receivable balance as of May 31, 2009. Changes in either a key customer's financial position, or the economy as a whole, could cause actual write-offs to be materially different from the recorded allowance amount.

The Company evaluates the carrying value of inventory on a quarterly basis to determine if the carrying value is recoverable at estimated selling prices. To the extent that estimated selling prices do not exceed the associated carrying values, inventory carrying amounts are written down. In addition, the Company generally treats inventory on hand or committed with suppliers, which is not expected to be sold within the next 12 months, as excess and thus appropriate write-downs of the inventory carrying amounts are established through a charge to cost of sales. Estimated usage in the next 12 months is based on firm demand represented by orders in backlog at the end of the quarter and management's estimate of sales beyond existing backlog, giving consideration to customers' forecasted demand, ordering patterns and product life cycles. Significant reductions in product pricing, or changes in technology and/or demand may necessitate additional write-downs of inventory carrying value in the future.

As further described in Note 13 to the accompanying unaudited consolidated financial statements, at May 31, 2009 the Company had an inventory reserve of $1.1 million and a vendor commitment liability of $889,000 that were established during fiscal 2008 in connection with a product performance issue involving a key DBS customer. Also as described in Note 13, the Company had on-hand inventory of $3.4 million and outstanding purchase commitments of $2.8 million for materials that are specific to the products that the Company manufactures for this customer. These amounts are not currently reserved for because the Company believes these materials can be used in the ordinary course of business as future shipments of products are made to this customer. Nonetheless, changes in the forecasted product demand from this customer could require that the inventory reserve and/or the vendor commitment liability be increased to cover some portion of these amounts.

The Company initially provides for the estimated cost of product warranties at the time revenue is recognized. While it engages in extensive product quality programs and processes, the Company's warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from management's estimates, revisions to the estimated warranty liability would be required.

As further described in Note 13 to the accompanying unaudited consolidated financial statements, at May 31, 2009 the Company had a $2.7 million reserve for accrued warranty costs in connection with a product performance issue involving a key DBS customer. While the Company believes that this $2.7 million warranty reserve will be adequate to cover total future product rework costs for this issue, no assurances can be given that the ultimate costs will not materially differ from the current estimate.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and for income tax purposes. A deferred income tax asset is recognized if realization of such asset is more likely than not, based upon the weight of available evidence, which includes historical operating performance and the Company's forecast of future operating performance. The Company evaluates the realizability of its deferred income tax asset on a quarterly basis, and a valuation allowance is provided, as necessary, in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes". During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred income tax asset to determine if a valuation allowance is needed.

FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authorities. FIN 48 provides guidance on de- recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. At May 31, 2009, the Company had unrecognized tax benefits of $6,449,000 which, if recognized, would impact the effective tax rate on income (loss) before income taxes.

At May 31, 2009, the Company had a net deferred income tax asset balance of $16,573,000. The current portion of the deferred tax assets is $3,301,000 and the noncurrent portion is $13,272,000. The net deferred income tax asset balance is comprised of a gross deferred tax asset of $36.0 million and a valuation allowance of $19.4 million. No tax benefit was recorded during the quarter ended May 31, 2009 because future realizability of such benefit was not considered to be more likely than not.

Impairment Assessments of Purchased Intangible Assets and Other Long-Lived Assets

At May 31, 2009, the Company had $6.2 million in other intangible assets on its consolidated balance sheet. The Company believes the estimate of its valuation of long-lived assets is a "critical accounting estimate" because if circumstances arose that led to a decrease in the valuation it could have a material impact on the Company's results of operations.

The Company makes judgments about the recoverability of non-goodwill intangible assets and other long-lived assets whenever events or changes in circumstances indicate that an impairment in the remaining value of the assets recorded on the balance sheet may exist.

In order to estimate the fair value of long-lived assets, the Company typically makes various assumptions about the future prospects for the business that the asset relates to, considers market factors specific to that business and estimates future cash flows to be generated by that business. These assumptions and estimates are necessarily subjective and based on management's best estimates based on the information available at the time such estimates are made. Based on these assumptions and estimates, the Company determines whether it needs to record an impairment charge to reduce the value of the asset stated on the balance sheet to reflect its estimated fair value.

An investment in preferred stock of a privately held company is included in non-current Other Assets in the consolidated balance sheet and is accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the issuer's operations. The originally ascribed carrying value of $3.1 million for this preferred stock, which was received as partial consideration for the sale of the TelAlert software business in August 2007, was determined using the Black-Scholes Option Pricing Model, in which the preferred stock is treated as a series of call options on the entity's enterprise value. Under the cost method of accounting, this investment is carried at cost and is only adjusted for other-than-temporary declines in fair value and distributions of earnings. Management periodically evaluates the recoverability of this preferred stock investment based on the performance and the financial position of the issuer as well as other evidence of market value. Such evaluations include, but are not limited to, reviewing the investee's cash position, recent financings, projected and historical financial performance, cash flow forecasts and financing requirements. During the fourth quarter of the fiscal 2009, the Company recorded an impairment loss of $1.1 million, representing the excess of the carrying amount of $3.1 million over the investment's fair value of $2.0 million. During the three months ended May 31, 2009 and 2008, the Company did not recognize any losses due to other- than-temporary decline of the value of this investment.

Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R") requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in their financial statements. Accordingly, the Company measures stock-based compensation expense at the grant date, based on the fair value of the award, and recognizes the expense over the employee's requisite service (vesting) period using the straight-line method. The measurement of stock-based compensation expense is based on several criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate and forfeiture rate. Certain of these inputs are subjective to some degree and are determined based in part on management's judgment. The Company recognizes the compensation expense on a straight-line basis for its graded-vesting awards. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. However, the cumulative compensation expense recognized at any point in time must at least equal the portion of the grant-date fair value of the award that is vested at that date. As used in this context, the term "forfeitures" is distinct from "cancellations" or "expirations", and refers only to the unvested portion of the surrendered equity awards.

RESULTS OF OPERATIONS

Basis of presentation

The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal 2009 fell on February 28, 2009. The actual interim periods ended on May 30, 2009 and May 31, 2008. In the accompanying unaudited consolidated financial statements, the 2009 fiscal year end is shown as February 28 and the interim period end for both years is shown as May 31 for clarity of presentation.

CalAmp Corp. is a provider of wireless communications solutions that enable anytime/anywhere access to critical data and content. CalAmp's Wireless DataCom business services the public safety, utility, industrial monitoring and controls, and mobile resource management ("MRM") markets. CalAmp's Satellite business supplies outdoor customer premise equipment to the U.S. Direct Broadcast Satellite ("DBS") market.

The Wireless DataCom segment services the public safety, industrial monitoring and controls, and MRM segments with wireless solutions that extend communications networks to field applications, thereby enabling coordination of emergency response teams, increasing productivity and optimizing workflow for the mobile workforce, improving management controls over valuable remote assets, and enabling novel applications in a connected world.

The Company's DBS reception products are sold primarily to the two U.S. DBS system operators, Echostar and DirecTV, for incorporation into complete subscription satellite television systems. Prior to fiscal 2008, the Company's overall revenue consisted principally of sales of satellite television outdoor reception equipment for the U.S. DBS industry. As the result of a DBS product performance issue, the Company's historically largest DBS customer substantially reduced its purchases of the Company's products in fiscal 2008. In May 2008, the Company resumed product shipments to this customer. There were no sales to the Company's other DBS customer in the preceding two fiscal quarters due to pricing and competitive pressures and the time period involved in getting the next generation product qualified with this customer.

The Company's revenue, gross profit and operating income (loss) by business segment are as follows:

REVENUE BY SEGMENT

                           Three Months Ended May 31,
                       -----------------------------------
                            2009                 2008
                       ---------------     ---------------
                                % of                % of
    Segment             $000s   Total      $000s    Total
  -----------          -------  -----      ------   -----

Satellite             $ 9,249    40.2%    $ 7,641    27.4%
Wireless DataCom       13,751    59.8%     20,260    72.6%
                       ------   -----      ------   -----
Total                 $23,000   100.0%    $27,901   100.0%
                       ======   =====      ======   =====

GROSS PROFIT BY SEGMENT

                           Three Months Ended May 31,
                       -----------------------------------
                            2009                 2008
                       ---------------     ---------------
                                % of                % of
    Segment             $000s   Total      $000s    Total
  -----------          -------  -----      ------   -----

Satellite             $   427     9.1%    $   733     7.8%
Wireless DataCom        4,280    90.9%      8,696    92.2%
                       ------   -----      ------   -----
Total                 $ 4,707   100.0%    $ 9,429   100.0%
                       ======   =====      ======   =====

OPERATING INCOME (LOSS) BY SEGMENT

                           Three Months Ended May 31,
                       -----------------------------------
                            2009                 2008
                       ---------------     ---------------
                                % of                % of
    Segment             $000s   Sales       $000s    Sales
  -----------         --------  -----      ------   -----

Satellite            $  (617)   (2.7%)    $  (332)   (1.2%)
Wireless DataCom      (1,644)   (7.1%)      1,057     3.8%
Corporate expenses    (1,229)   (5.4%)     (1,196)   (4.3%)
                      -------   -----       ------   -----
Total                $(3,490)  (15.2%)    $  (471)   (1.7%)
                      =======   =====      ======    =====

Satellite revenue increased $1.6 million, or 21%, to $9.2 million in the three months ended May 31, 2009 from $7.6 million for the same period in the previous fiscal year. As discussed above, the Company's historically largest DBS customer put on hold all orders with the Company in late May 2007, including orders for newer generation products, pending a requalification of all products manufactured by CalAmp for this customer. In January 2008, the customer requalified CalAmp's designs for the affected products and in late May 2008 the Company resumed product shipments to this customer. Revenues from this DBS customer were $8.5 million higher for the quarter ended May 31, 2009 compared to the same period last year. However, there were no sales to the Company's other DBS customer in the first quarter of the current fiscal year compared to sales of $6.8 million from that customer for the same period in the previous fiscal year due to pricing and competitive pressures and the time period involved in getting the next generation product qualified with this customer. The Company does not expect to begin shipping this next generation product until late in fiscal 2010. Although the Company expects that its Satellite revenue will increase in fiscal 2010 compared to fiscal 2009, in the foreseeable future it does not expect its Satellite revenue to fully return to pre-fiscal 2008 levels as a result of macroeconomic and competitive factors.

Wireless DataCom revenue declined by $6.5 million, or 32%, to $13.8 million in the first quarter of fiscal 2010 compared to the fiscal 2009 first quarter. Almost a quarter of the decrease was due to the sale of patent rights which contributed $1.5 million to Wireless DataCom revenue for the three months ended May 31, 2008. The remainder of the decrease was due to lower sales by the Wireless DataCom business units as the result of the global economic downturn.

Satellite gross profit decreased by $306,000 to $427,000 in the fiscal 2010 first quarter compared to the first quarter of last year. Satellite's gross margin declined to 4.6% in the first quarter of fiscal 2010 from 9.6% in the first quarter of fiscal 2009. Gross profit in the fiscal 2009 first quarter was benefited by $587,000 associated with the sale of Satellite products for which the inventory cost had been fully reserved in the prior fiscal year. If this product cost had not been reserved in the prior year, Satellite gross margin in the fiscal 2009 first quarter would have been 1.9%.

Wireless DataCom gross profit declined 51% to $4.3 million in the fiscal 2010 first quarter compared to $8.7 million in the first quarter of last year. Wireless DataCom's gross margin decreased to 31.1% in the first quarter of fiscal 2010 from 42.9% in the first quarter of fiscal 2009 due primarily to the decline in revenue and to the $1.5 million patent sale last year. Excluding the patent sale, Wireless DataCom's gross margin was 38.4% in the first quarter of last year.

See also Note 12 to the accompanying unaudited consolidated financial statements for additional operating data by business segment.

Consolidated research and development expense decreased by $302,000 to $2,898,000 in the first quarter of fiscal 2010 from $3,200,000 last year. This decrease is primarily due to personnel reductions in the Public Safety Mobile unit of the Wireless DataCom segment.

Consolidated selling expenses decreased 3% to $2,201,000 in the first quarter of this year from $2,272,000 last year. Last year's first quarter was benefited by a $205,000 reversal of a bad debts reserve for a contracts receivable. Selling expense was lower in the first quarter of this year primarily because of lower commissions expense on the lower revenue level compared to the first quarter of last year.

Consolidated general and administrative expenses ("G&A") decreased by $339,000 to $2,757,000 in the first quarter of this year compared to the prior year. Cost reduction actions implemented by the Company subsequent to the first quarter of last year resulted in lower G&A expense in the first quarter of this year. However, the effect of these cost reduction actions on G&A was partially offset by an increase in stock-based compensation expense because the first quarter of last year included a $507,000 reduction of stock compensation expense as the result of the forfeiture of unvested stock options upon the resignation of the Company's former President and Chief Executive Officer in March 2008.

Amortization of intangibles decreased from $1,332,000 in the first quarter of last year to $341,000 in the first quarter of this year. The reduction is attributable to lower carrying value of intangible assets as a result of the impairment write-down recorded in the fourth quarter of fiscal 2009.

Non-operating expense increased $51,000 from the first quarter of last year to the first quarter of this year due a foreign currency loss of $269,000 in the current quarter compared to a $107,000 foreign currency gain during the first quarter of fiscal 2009. The effect was partially offset by a decrease in interest expense of $363,000 as a result of lower average outstanding bank debt during the current fiscal quarter.

The effective income tax benefit rate was 0% and 44% in the three months ended May 31, 2009 and 2008, respectively. There was no tax benefit recorded during the quarter ended May 31, 2009. No tax benefit was recorded during the quarter ended May 31, 2009 because future realizability of such benefit was not considered to be more likely than not.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are its cash and cash equivalents, which amounted to $4,382,000 at May 31, 2009. During the three months ended May 31, 2009, cash and cash equivalents decreased by $2,531,000. Cash was used for debt repayments of $3,125,000 and capital expenditures of $273,000, partially offset by cash provided by operations of $570,000, collections on a note receivable of $75,000 and the effect of exchange rate changes on cash of $255,000.

In May 2006, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of Montreal (BMO), as administrative agent, and the other financial institutions that from time to time may become parties to the Credit Agreement (collectively, the "Banks"). Borrowings are secured by substantially all of the assets of CalAmp Corp. and its domestic subsidiaries. At the Company's option, borrowings under the Credit Agreement bear interest at BMO's prime rate ("Prime Based Loans") plus a margin ranging from 2.50% to 2.75% (the "Prime Rate Margin") or LIBOR ("LIBOR Based Loans") plus a margin ranging from 3.25% to 3.75% (the "LIBOR Margin"). The Prime Rate Margin and the LIBOR Margin vary depending on the Company's ratio of debt to earnings before interest, taxes, depreciation, amortization and other noncash charges. Interest is payable on the last day of the calendar quarter for Prime Based Loans and at the end of the fixed-rate LIBOR period (ranging from 1 to 12 months) in the case of LIBOR Based Loans. At May 31, 2009, the effective interest rate on the bank term loan was 4.07%, comprised of a one- month LIBOR rate of 0.32% plus the LIBOR Margin of 3.75%.

The Credit Agreement also provides for a working capital line of credit ("revolver") of $3,375,000. At May 31, 2009, $1,725,000 of the working capital line of credit was reserved for outstanding irrevocable stand-by letters of credit and $1,650,000 was available for working capital borrowings. Outstanding amounts under the revolver would bear interest at BMO's prime rate plus 4% or LIBOR plus 5%. There were no outstanding borrowings on the revolver at May 31, 2009.

On February 13, 2009, the Company entered into the Seventh Amendment and Consent to the Credit Agreement (the "Seventh Amendment"), pursuant to which the Banks consented to an amendment of a subordinated note payable as described below, and the Company agreed to make additional principal payments on the bank term loan of $7.50 per unit for the first 120,000 units of a certain product sold to a key DBS customer beginning in January 2009.

On May 1, 2009, the Company entered into the Eighth Amendment and Consent to the Credit Agreement, pursuant to which, the Banks waived certain financial covenant violations and agreed to change the minimum levels of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and Wireless DataCom revenues required by the financial covenants for the remaining term of the Credit Agreement. The Company was in compliance with these financial covenants at May 31, 2009.

At May 31, 2009, the Company had an outstanding principal balance of $15,735,000 under the term loan. Subsequently, on June 30, 2009 the Company made a principal payment of $1,673,500, consisting of $1,600,000 scheduled principal payment and $73,500 additional principal payment under the Seventh Amendment as described above. A principal payment of $1,600,000 is due on September 30, 2009. The Company is also required to make mandatory prepayments under the credit facility in certain circumstances, including following the Company's incurrence of certain indebtedness, disposition of its property or extraordinary income. The Credit Agreement has a maturity date of December 31, 2009, at which time all outstanding borrowings are due and payable. In addition, a fee of $150,000 will be due and payable to the Banks on December 31, 2009.

The Credit Agreement also includes customary affirmative and negative covenants including, without limitation, negative covenants regarding additional indebtedness, investments, maintenance of the business, liens, guaranties, transfers and sales of assets, and the payment of dividends and other restricted payments.

As noted above, the Company's Credit Agreement with the Banks has a maturity date of December 31, 2009. Prior to maturity the Company expects to refinance the outstanding borrowings under the Credit Agreement with an asset-based loan, possibly supplemented by proceeds from another funding source. Although the Company believes that its expectations are reasonable, in light of the Company's current financial condition, economic conditions generally, and the state of the credit markets at the present time, no assurance can be given that the Company will be able to refinance the outstanding borrowings under the Credit Agreement from other funding sources prior to the maturity date.

On December 14, 2007, the Company entered into a settlement agreement with a key DBS customer. Under the terms of the settlement agreement, the Company issued to the customer a $5 million non-interest bearing promissory note that is payable at a rate of $5.00 per unit on the first one million DBS units purchased by this customer after the date of the settlement agreement. The promissory note, which is subordinated to the outstanding indebtedness under CalAmp's bank credit facility, will be accelerated if the Company becomes insolvent, files for bankruptcy, or undergoes a change of control. On February 13, 2009, the Company entered into an amendment of the subordinated promissory note (the "Note Amendment"). Pursuant to the Note Amendment, the Company agreed to increase the principal payments on the subordinated note from $5.00 to $20.00 per unit for sales to this customer of a certain product during the period from January through May 2009. Effective June 1, 2009, the per unit note principal payment applicable to sales of this product reverted to $5.00. From January 2009 through May 31, 2009, the . . .