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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number (0-21767)

VIASAT, INC.

6155 El Camino Real, Carlsbad, California 92009

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      The aggregate market value of the voting stock held by non-affiliates of the registrant, as of September 30, 2002 was approximately $105,964,230 (based on the closing price on that date for shares of the registrant’s Common Stock as reported by the Nasdaq National Market). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

      The number of shares outstanding of the registrant’s Common Stock, $.0001 par value, as of June 23, 2003 was 26,154,745.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended March 31, 2003.

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VIASAT, INC.

INDEX

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      All references in this annual report to our fiscal year 2003 refer to the fiscal year ended on March 31, 2003.

      Our website address is www.viasat.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission.

Introduction

      We are a leading provider of advanced digital satellite communications and other wireless networking and signal processing equipment and services to the defense and commercial markets. Although our company’s initial focus was primarily on developing satellite communication and simulation equipment for the U.S. government, we have successfully diversified into other related defense as well as commercial markets. During the period from April 2000 to January 2002, we acquired (1) the satellite networks business from Scientific-Atlanta, Inc. (SA), (2) the Comsat Laboratories business from Lockheed Martin Global Telecommunications, LLC (LMGT), and (3) U.S. Monolithics, LLC (USM). These acquisitions further enhanced our strategic positioning in the commercial satellite communication market as well as significantly expanded our intellectual property portfolio. As a result of this diversification, we have transitioned from a primarily defense-oriented company to a company with near equal amounts of government and commercial business. We believe that this diversification, in combination with our unique ability to effectively apply technologies between government and commercial markets, provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies.

      Our current defense businesses include:

	•	Tactical Data Links. Our Tactical Data Links business primarily consists of our multifunction information distribution system (MIDS) product line. The MIDS terminal operates as part of the Link-16 line-of-sight tactical radio system that enables real time data networking among ground and airborne military users providing an electronic picture of the entire battlefield to each user in the network. Our Tactical Data Links business is one of only two current U.S. government certified providers of MIDS production units.
	•	Tactical Networking and Information Assurance. The Tactical Networking and Information Assurance business area includes our information security and ViaSat Data Controller (VDC) products. Our information security products enable military and government communicators to secure information up to Top Secret levels. Our VDCs provide reliable military tactical communication channels using innovative error correction technology. Technology from some of these products are integrated into some of our existing tactical radio products (such as MIDS and UHF DAMA satellite products) as well as sold on a stand-alone basis.
	•	Simulation and Test. Our Simulation and Test business provides products and support for testing sophisticated airborne radio equipment. Our simulators allow testing of airborne equipment without expensive flight exercises. We have delivered simulators and provided support on complex, customized communication simulators for the F-22 program, as well as for joint Navy-Air Force test and evaluation centers.
	•	Mobile Satellite Systems. Our Mobile Satellite Systems business designs and develops modems, terminals and test and training equipment operating over the military UHF satellite band. We have a 15 year history as a leading supplier of UHF satellite communication terminals. These products are used in “manpack” satellite communication terminals as well as airborne, ship, shore and mobile applications.

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	•	Government Broadband Satellite Systems. During fiscal year 2003, we launched the new Government Broadband Systems business to leverage our commercial satellite technology into military applications. The Government Broadband Satellite Systems business generally focuses on opportunities for high-speed satellite communications products that operate in higher frequencies.

      We believe our long standing strength in both commercial and government satellite communications technologies is a significant advantage as the U.S. military looks to upgrade its satellite technology with a mix of government funded and commercial technologies.

      Our commercial businesses include:

	•	VSAT Networks. Our VSAT (Very Small Aperture Terminal) Networks business encompasses all of our enterprise VSAT satellite communication products. This business is a compilation of our original VSAT business, the VSAT business purchased from SA, and the Comsat Laboratories VSAT products business purchased from LMGT. The VSAT Networks business offers an extensive product line of terminals, hubs, and networks control systems. This business area also includes our VSAT service business, which operates and manages networks for our customers.
	•	Satellite Ground Systems. Our Satellite Ground Systems business provides large antenna systems for both defense and commercial communications. The Satellite Ground Systems business has a 40-year legacy in the design, test, manufacture and installation of antennas from three to eighteen meters. Applications for these antenna systems include large system gateways, VSAT or video broadcast hubs, image retrieval by satellite, transportable antennas and telemetry, tracking and control for aircraft.
	•	Broadband Systems. The Broadband Systems business is aimed at identifying and capturing large satellite network project opportunities. Currently, the Broadband Systems business operates in three major segments: (1) consumer, which includes the development of DOCSIS (Data Over Cable Service Interface Specification) based satellite broadband systems, (2) mobile, which includes both the development of airborne and ground terminals for the Connexion by Boeing in-flight broadband system as well as terminals and system integration for ARINC’s SKYLink airborne broadband system, and (3) enterprise systems.
	•	Comsat Laboratories. Comsat Laboratories is our systems and technology business, supporting engineering developments for both defense and commercial projects. Comsat Laboratories supports both internal projects as well as customers requiring satellite systems design and engineering. Comsat Laboratories has been known as a center for innovation and advancement for the satellite communications industry since 1967.
	•	U.S. Monolithics. U.S. Monolithics, a wholly owned subsidiary of ViaSat, specializes in monolithic microwave integrated circuits (MMICs), packaged components, and modules. USM engineers have extensive commercial, military and space design experience. Areas of expertise include high frequency communication technology, MMIC semiconductor design, high-power transceiver design, high levels of functional integration, high-frequency packaging, and design for low-cost manufacturing.

      With expertise in commercial satellite network engineering, gateway construction, and remote terminal manufacturing for all types of interactive communications services, we have the unique ability to take end-to-end responsibility for designing, building, initially operating, and then handing over a fully operational, customized satellite network.

The ViaSat Advantage

      Leading Industry Position. We have a leading position in certain segments of the advanced communications network industry, including our leadership in DOCSIS based satellite systems, DAMA (Demand Assigned Multiple Access) and Link-16 MIDS businesses. We have achieved this leadership through our expertise in applying emerging technologies to satellite networks as well as developing entirely new technologies. To maintain our technological edge, we have over 400 engineers focusing on the research, design and development of new and enhanced communications network technologies and techniques. Because we

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      Focus on Markets Valuing Innovative Technology. We place a high value on technical competence and expertise among our employees. Since technology is fundamental to our corporate culture, we primarily focus on markets and customers that require advanced and complex technology solutions. We believe that focusing on these types of customers and markets allows us to successfully capture a higher proportion of our target customers.

      Technically Orientated, Experienced Management Team. We have a strong, technically oriented and experienced management team, which has overseen our growth for more than a decade. Mark D. Dankberg, a co-founder of ViaSat and a leader in satellite systems solutions and development, has been our President, Chief Executive Officer and Chairman since our inception in 1986. Each of the other two founders of ViaSat, Mark J. Miller, Vice President and Chief Technical Officer, and Steven R. Hart, Vice President-Engineering and Chief Technical Officer, continue to serve as integral members of our management team.

      High Quality and Efficient Manufacturing Processes. We believe that our ability to deliver high-quality, low-cost products through our manufacturing processes has been a key factor in our success in attracting and retaining customers. We utilize a range of contract manufacturers to reduce operating costs, reduce required capital investments, support flexible response to product demand, and focus our resources on efficient designs. By using contract manufacturers for a large portion of our manufacturing, we are able to take advantage of their high-volume purchasing power, advanced manufacturing equipment, and highly-trained workforce. We also maintain the internal capability to conduct limited manufacturing for small volume productions, final assembly, integration and testing. As part of our manufacturing accomplishments, we have maintained ISO 9001 series certification for our product development, manufacturing and support services for the past six years, and this year we upgraded to ISO 9001:2000. As further recognition of our manufacturing success, Lockheed Martin Corporation honored us with a Star Supplier Facility award in August of 1999, which we continue to maintain through continued product quality and delivery performance. We are one of only 65 suppliers recognized with this award among approximately 65,000 of Lockheed Martin’s suppliers.

Strategy

      Our objective is to leverage our advanced technology and capabilities to capture a significant share of the global satellite services and equipment market, as well as to maintain a leadership position in developing and supplying tactical data link, information assurance, and satellite networking products to the government and commercial markets. To implement this strategy, we intend to:

      Capitalize On Our Existing Technology Leadership. We believe that the global satellite communications services and equipment market presents a number of attractive opportunities to apply our advanced technologies and capabilities. We plan to develop new products and enhance existing products by leveraging our technology developed under both commercial and government programs to capture a significant share of this anticipated growth opportunity.

      Maintain and Enhance Our Technology Leadership Position. We are a leader in the development of advanced digital satellite and other wireless technologies. We continually strive to improve our technology by meeting complex network design needs for customers and by devoting significant resources to research, design and development efforts in emerging markets. In order to enhance our technology leadership position we intend to utilize the experience of our skilled research, design and engineering team to develop new and enhanced satellite products and applications.

      Increase Emphasis On Operational Efficiency and Financial Performance. We have historically maintained a strong emphasis on operational efficiency and financial performance. We believe that increasing this operational focus is essential to our future success in returning to profitability while continuing to grow our business. As part of this increased emphasis, we plan to continue to devote significant time and resources to key components of our business, such as our manufacturing processes, design systems, customer relationships,

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      Achieve Growth By Evolving into Related Products and Addressing Increasingly Larger Markets. We plan to achieve continued growth in part by taking evolutionary steps into related products and technologies as well as addressing increasingly larger markets. We plan to primarily grow our market segments by selling existing, or customized, versions of existing technologies to different customer bases (including between commercial and defense markets). In addition, we plan to grow the breadth of our products and technologies by selling new, but related, technologies or products to existing customers. In order to accelerate this growth we intend to continue addressing increasingly larger opportunities and markets. The value of this strategy has been affirmed by our recent success in capturing funded research and development opportunities for increasingly larger projects such as MIDS and Connexion by Boeing.

Technology

      We develop innovative technologies aimed at rapidly evolving communications markets. Our development efforts focus on enhancing existing communications technologies and developing new technologies to increase the efficiency of our communications products. We integrate advanced signal processing, networking and multiple access techniques into our networks to increase the efficiency of satellite resources and to support more users with a given amount of bandwidth.

      Since no single technology is optimal for all applications, we believe it is important to maintain expertise in a broad range of communications technologies. We excel at determining and designing the optimal technologies for a specific network use and then integrating those technologies with our products. Our technology development efforts have led to the successful introduction of a number of advanced digital communications products ranging from our innovative commercial satellite networks to our military Link-16 MIDS products.

      As a result of our technological expertise, we have developed numerous communications products based on DAMA technology. DAMA technology enables efficient utilization of satellite resources by allowing users to share bandwidth based on their changing needs. DAMA network subscribers access a communications link only for the duration of the transmission. When the link is terminated satellite bandwidth is then made available for use by other subscribers in the DAMA network. In addition, DAMA technology allows the development of networks providing unrestricted direct connectivity among users.

      Mesh networks based on DAMA technology are particularly advantageous where both in-bound and out-bound, point-to-point transmission at high data rates are needed. The optimal application for DAMA mesh networks are networks comprised of a large number of users communicating intermittently at high data rates with other users, such as in corporate and government networks or Intranets.

      We have also developed advanced satellite networks incorporating our advanced technology using hub and spoke architectures. These networks require all transmissions to be routed through a central ground-based hub location and are most useful for communications from remote locations to a central network location. These networks require two satellite transmissions, or hops, for communication from one remote user to another user.

      We have continued to make further development in our proprietary technologies. PCMA (Paired Carrier Multiple Access) and CRMA (Code Reuse Multiple Access) represent highly sophisticated bandwidth-saving techniques for two-way satellite communications. CRMA, a spread spectrum technology similar to CDMA coding in mobile phone systems, provides very efficient use of channel capacity, especially for completely random traffic patterns on return channels, such as Internet browsing, point of sale data, and remote monitoring. This translates to less bandwidth consumption for the entire network and faster response for remote terminals when they access the network.

      PCMA technology is a key example of our advanced signal processing and multiple access techniques. PCMA enables two satellite terminals to use the same bandwidth at the same time, allowing satellite networks to support up to twice as many users or double the traffic on a given satellite resource. For users of the same

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Government Markets

      Historically, the U.S. military has driven development of many new wireless technologies. This includes pioneering applications of satellite communications, digital radios, spread spectrum, and mobile wireless networks to connect widely dispersed operations. In many cases, these technologies have been transitioned to serve broader commercial markets. However, more recently, technology developed for commercial applications has been increasingly used for military markets as the military looks for more efficient ways to rapidly access the most advanced technology for warfare applications.

      The break-up of the Soviet Union has caused the U.S. military to de-emphasize strategic missions and shift towards more localized tactical roles such as peacekeeping, counter-terrorism, counter-insurgency and drug enforcement, all of which was underscored in the events around the September 11, 2001 terrorist attacks. These missions create new demands for rapidly deployable, mobile connectivity. In addition, past reductions in the defense budget have led to a numerically smaller, more technologically advanced military force. As a result, defense networks are increasingly built around advanced technologies and products providing high-speed transmissions of digital tactical data.

      The market for defense applications of wireless technologies is growing at a higher rate than other parts of the defense market due in large measure to an increasing reliance on complex weapon and tactical data communication systems. Key reasons for this growth include:

	•	the need to communicate target information and the location of coalition and enemy forces to all military units in the battlefield,
	•	the need to maintain smaller, lighter, less expensive and better performing voice and data equipment for rapid deployment of ground troops and weapons systems to all parts of the world,
	•	the need to develop advanced networks capable of supporting modern military maneuvers and operations, and
	•	the development of new technologies that are increasing the utility of wireless communications networks by decreasing operating costs and increasing bandwidth utilization and capabilities.

      We believe that we are well positioned to take advantage of the trends in the defense industry. Our leadership in the UHF DAMA market and communications test equipment, the continued development of our information security products, and our selection as one of only two current U.S. government certified manufacturers of Link-16 MIDS terminals, provide an advantage for future United States and international procurements in these areas and a foundation from which to expand our sales opportunities. We intend to continue applying our commercial technology and commercial products and standards to government applications to expand our traditional opportunities by both increasing capabilities and functionality of our government products as well as increasing the cost competitiveness of these offerings.

      We offer a broad range of products and services to the government communications market. We are a leading developer of UHF DAMA products and services for the U.S. military. In addition, we have recently developed highly sophisticated communications products for military applications such as the Link-16 MIDS terminal, information assurance, and our simulator and test products.

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      Our government defense business units include:

	•	Mobile Satellite Systems
	•	Tactical Data Links
	•	Simulation and Test, and
	•	Tactical Networking and Information Assurance

      Mobile Satellite Systems. Our Mobile Satellite Systems product line primarily consists of stand-alone and embedded satellite modems, terminals, and test and training equipment operating over the military UHF satellite band. UHF is a globally available U.S. satellite radio frequency for military communications. UHF satellite terminals are generally required to support a complex set of interoperable networking standards known as MIL-STD 188-182 and MIL-STD 188-183, or also referred to collectively as UHF DAMA (Demand Assigned Multiple Access). Historically, we have had a strong position as a supplier of UHF DAMA terminals, modems, and network control systems for both U.S. and allied militaries and prime contractors. Our Mobile Satellite System products include:

           AN/PSC-5 Terminal (Spitfire). The Spitfire is a battery-operated UHF satellite radio that Raytheon Systems Company builds for the U.S. Army. Spitfires are used to send encrypted voice, electronic mail, fax or other data via satellite. Our DAMA modem, which is a central component of the Spitfire, allows the radio operator to automatically request a portion of a satellite channel for a selected destination at the time the operator needs to send a message or transmit data. The Spitfire radio, combined with a portable satellite antenna, can transmit secure voice or other data from almost anywhere in the world. We have provided over 12,000 DAMA modems to Raytheon for the Spitfire. A next-generation modem production is underway for application in Raytheon’s extended Skyfire and Shadowfire line of radios as well as other applications such as the Tomahawk missile program.

           MD-1324 Modem. This modem can be used with many types of UHF satellite radios. The MD-1324 enables a satellite radio connected to external equipment to connect to a DAMA-based network. We have provided over 1,000 of these modems to U.S. and international forces in airborne, shipboard, and ground based applications. We also developed an upgrade to our MD-1324 product which adds an improved digital signal processor to enable better performance within the same package.

           RT-18xx UHF DAMA Terminal. The RT-18xx is a programmable, modular radio system providing flexible configuration of UHF satellite communications terminals and test equipment. Various configurations of this system utilize the same core module hardware for ship, shore, mobile, and airborne applications. This product line is intended for near-term applications throughout the U.S. services and into international military markets as well. The RT-18xx is currently deployed in Italy and Australia and was recently chosen by the Defense Information Systems Agency (DISA) for its UHF DAMA teleport capability.

           QDC-100 Antenna Combiner. Without this product, an aircraft loses communications if its single fixed antenna is pointed away from the satellite by aircraft position changes. This product is used on U.S. Navy P-3 Orion reconnaissance aircraft. Additional potential uses for this product include international and naval shipboard applications. Projected upgrades to our QDC-100 product are expected to provide a stand-alone satellite communications and antenna-combining solution in one piece of equipment for applications to the United States and international aircraft and surface ships which have multiple antennas.

           DOCCT/S Trainer and Simulator. By simulating signals, this product enables users to integrate and test UHF DAMA systems as well as train UHF DAMA users without actually accessing the DAMA network through the satellite. Access to this tool simplifies the user’s activity by providing realistic communications experiences without the difficult and expensive process of obtaining satellite resources. An optional antenna system provides line of sight channel simulation for pre- and post-mission checkout of UHF DAMA terminals installed aboard a user’s platform.

      Tactical Data Links. Link-16 is a high performance broadband data link system selected by the U.S. government and international allied nations to support networked information transmission across a variety of

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           MIDS Terminals. Multifunction Information Distribution System, or MIDS, terminals are designed to operate in a highly secure, high performance wireless networking system that allows military platforms, including fighter aircraft, ships, command and control aircraft, and ground-based units, to share critical real-time information. Platforms that employ MIDS/ Link-16 within a theater of operation use it to first collect tactical information from each user’s on-board sensors such as radars, early warning electronic warfare systems, and electronic identification systems and then disseminate a packaged set of information back to the other network users. By sharing this critical information, MIDS allows each user in a Link-16 network to maintain a real-time situational awareness picture of the entire battle space. Our MIDS terminals communicate in a Link-16 network using a complex, highly secure waveform. This waveform is designed to provide reliable communications to multiple users within a hostile electromagnetic environment. It employs many advanced techniques, such as direct sequence spread spectrum, frequency hopping, error detection and correction coding, and encryption, to ensure maximum robustness and jam resistance. The first U.S. platforms to receive MIDS will be the Navy F/A-18 fighter aircraft and the Air Force F-16 Fighting Falcon. Other platforms are expected to include U.S. ground-based Command and Control platforms, bomber aircraft, ships, submarines, the French Rafael fighter, the European EF-2000, Italy’s AMX/Tornado fighters, and Spain’s EF-18 fighters.

           Link-16 Monitoring and Test Products. These include monitoring products such as the one we developed for Northrop Grumman’s Link-16 Monitoring System which provides the capability to receive transmissions, complete with signal quality measures, for monitoring and analyzing a Link-16 wireless network. The Link-16 Simulator is another of our test products that allows the generation of low power Link-16 signals representing many different participants in the network for testing of Link-16 equipment in a dynamic, dense environment.

      Simulation and Test. The products offered by our Simulation and Test business are comprised of large systems designed to simulate realistic radio environments and are used to test how well surveillance or other radio systems work in the presence of various and changing communications signals. The simulation product generates a large number of very accurate radio frequency signals that can be radiated and received by the equipment under test or potentially directly inserted into multiple antenna ports. The U.S. military forces have found it critical to accurately and quickly transmit information during air combat situations, not only between various U.S. military component systems, but also among our allies. Historically, these systems needed to be tested while aircraft were in-flight for simulated combat. Our Communications Environment Simulator (CES) allows the U.S. military and its allies to integrate, test, and evaluate communications systems without incurring the expense or danger of in-flight simulated combat testing. The U.S. military and major aerospace firms have awarded us more than $60 million for the CES products and technology. For example, Lockheed Martin purchased this system to facilitate its internal system integration, testing, and weapon system support. In addition, GTE Inc. uses a product similar to CES for advanced weapon and sensor system testing and evaluation.

      Tactical Networking and Information Assurance. The Tactical Networking and Information Assurance business area includes our information security and ViaSat Data Controller (VDC) products. Our tactical network and information security (INFOSEC) products and systems are used globally with many U.S. Department of Defense services and military forces. U.S. Special Forces rely on our products to conduct their covert operations and to communicate internally with voice and data. These products extend reliable data

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           ViaSat Internet Protocol Crypto. Our KIV-21 Crypto product encrypts classified information so that it can be transmitted over communications networks, ground-based or satellite. This product enables classified private networks to be set up and operated over unclassified networks such as the public Internet. KIV-21 Crypto was approved in 2000 by the National Security Agency for transmission of information classified up to Top Secret. Interesting applications that KIV-21 is especially suited for include coalition interoperability missions and industrial security. The industrial security application allows defense contractors to establish wide area secure networks between geographically separated development teams.

           INFOSEC. The release of the KIV-21 has opened the door for other opportunities to provide high grade secure communications technology to the marketplace. We have relationships with several customers to embed high-grade security into their products. We are developing a successor product to the KIV-21 called the KG-250 that will conform to the U.S. Department of Defense new High Assurance Internet Protocol Encryption (HAIPE) standard. We have also received contracts to develop a new stand-alone encryption device called the KG-136 that interfaces to gigabit Ethernet networks. The most significant aspect of this contract is the growing size of the market for these types of security products. Both the KG-250 and KG-136 are in the ALTASEC family of programmable high assurance cryptographic products. This is a rapidly growing business that typically involves custom designing a crypto module to satisfy requirements specific to each customer. We have created a flexible and modular security architecture that can be adapted and modified to diverse applications needed by customers. This allows us to provide custom, cost effective products that ordinarily would be very expensive.

           ViaSat Data Controllers. Our ViaSat Data Controllers (VDC) convert military tactical communications channels, typically very noisy and error prone, into an environment that supports familiar applications and devices. Using a ViaSat developed (now a military standard) error correction protocol, VDCs enable soldiers in the field to send and receive information via email, including attached maps and images. The smallest of these devices, the VDC-600, is approximately the size of a credit card. Accompanying software makes the VDCs compatible with hand-held computers (PDAs), aiding today’s more mobile soldier by reducing the size and weight of their communications gear.

      The primary customers for our government products and services are the U.S. Department of Defense, international allied nations and large defense contractors. While most of our commercial customers are based in the United States, many of our large defense contractor customers have recently been leveraging our network design experience and the advanced capabilities of our products to sell communications products to international military forces. Examples of large defense contractors with which we have worked in the past include Raytheon Systems Company, Lockheed Martin Corporation, The Boeing Company, Northrop-Grumman Corporation, ITT Industries, and Marconi Communications, Elmer S.p.A.

      We use both direct and indirect sales channels to sell our government products. We have approximately ten sales and marketing personnel who offer our government products and services. All but one of these sales personnel are located in the United States. International government sales are conducted primarily through our U.S. sales personnel. Although many of our sales are generated from direct sales, we often sell our products to prime contractors responsible for developing the entire network system where our products are integrated and embedded into the system.

      Our government sales teams consist of engineers, program managers, marketing managers and contract managers who work together to identify business opportunities, develop customer relationships, develop solutions for the customer’s needs, prepare proposals and negotiate a contractual arrangement. The period of time from initial contact through the point of product sale and delivery can take over three years for more

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      Our indirect sales are primarily generated from strategic relationships with prime contractors for large defense projects and referrals from existing large defense contractor customers.

      Similar to our efforts on the commercial side, we continue to increase the awareness of the ViaSat brand through a mix of public relations, advertising, trade show selling and conference speaking engagements.

      The government communications industry is highly competitive and the level of competition is increasing. As a developer of communications products and services for the government markets in the United States and internationally, we compete with a variety of communications equipment providers. Many of these companies have significant competitive advantages, including long standing customer relationships, more experience with meeting government standards, and greater financial and management resources. To compete effectively, we emphasize our:

	•	record of developing and producing products in relatively short periods of time,
	•	products featuring advanced and flexible architectures,
	•	proven network design solutions, and
	•	competitive product and service prices.

      Our principal competitors in the supply of communications products and services to the U.S. government include The Titan Corporation, Rockwell Collins Corporation, Raytheon Systems Company, General Dynamics, L-3 Communications Holdings, Harris Corporation, and BAE Systems. With respect to Link-16 products, our principal competitor is Data Link Solutions (DLS), a partnership between BAE Systems and Rockwell Collins, which is also a U.S. government qualified Link-16 MIDS provider. EuroMIDS, a third provider of Link-16 MIDS products is a consortium among Thales (France), MID S.p.A. (Italy), INDRA (Spain), and European Aerospace and Defense (EADS). We compete with EuroMIDS in the international MIDS terminal market. We believe that we are competitively positioned among these companies because of our installed base of equipment, our existing contracts, our market lead time with respect to some product capabilities, our ability to apply relevant commercial technologies, and our participation in both the network control and subscriber terminal markets.

Commercial Markets

      The introduction of satellite communications technology in the 1950’s represented a fundamental change in communications networks. A communications satellite, in essence, provides the ability to route a communications signal through the sky. Signals are sent from users on the ground to the satellite, which then amplifies the signal and sends it back to the end-user on the ground. Depending on the altitude of a satellite’s orbit, it can cover a geographic area, or footprint, larger than the size of a continent. The key components of a satellite communications system include:

	•	user terminals (indoor unit and outdoor unit) connecting the users to the satellite network,
	•	satellites which relay communications signals to and from the users, and
	•	gateways that control the satellite network and connect it to communications networks on the ground.

      The essential advantage of satellite communications is that it allows a network provider to rapidly deploy new communications services to large numbers of people anywhere in the footprint of the satellite. Consequently, satellites can be used to deploy communication services in developed and developing markets in a shorter period of time than building ground-based infrastructure. Moreover, in some areas satellite solutions are less expensive than terrestrial wired and wireless alternatives. As satellite communications equipment

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      Although the market for commercial communications products and services experienced a slowdown during the last two years due to the global economic environment, we believe there are still noteworthy opportunities in the near future to provide satellite links. The commercial satellite communications industry is expected to be driven by the following major factors: (1) world-wide demand for communications services in general, and broadband data networks in particular, (2) the improving cost-effectiveness of satellite communications for many uses, (3) recent technological advancements which broaden applications for and increase the capacity and efficiency of satellite based networks, and (4) global deregulation and privatization of government-owned telecommunications carriers.

      We provide satellite communications network solutions for multiple segments of the commercial market.

      Data Networks. Satellite networks are well suited for data networks which focus on (1) rapidly deploying new services across large geographic areas, (2) reaching multiple user locations separated by long distances, (3) filling in gaps or providing support for data points of congestion, or bottlenecks, in ground-based communications networks, and (4) providing communications capabilities in remote locations and in emerging markets where ground-based infrastructure has not yet been developed.

      Satellite networks are used as a substitute for, or supplement to, ground-based communications services such as frame relay, digital subscriber lines, fiber optic cables, and Integrated Services Digital Networks (ISDN). We believe satellite data network products and services will present us with growth opportunities as commercial data networks using satellites are applied in developed and developing markets throughout the world.

      Internet Applications. In recent years, there has been an increase in the use of satellites for Internet traffic. This growth has been centered on connecting consumers and businesses with the Internet. Satellite capacity is often used where fiber cable is prohibitively expensive or rare, such as rural areas or emerging countries.

      We expect satellite communications to offer a cost-effective augmentation capability for Internet Service Providers (ISPs), particularly in markets where ground-based networks are unlikely to be either cost-effective or abundant. Additionally, satellite broadcast architecture provides an alternative for ISPs, which are dealing with congestion associated with the distribution of increasing amounts of high-capacity multimedia content on the Internet.

      Our commercial business units offer a broad range of satellite communications and other wireless communications products and services. Our commercial business units include:

	•	VSAT Network Systems
	•	Satellite Ground Systems
	•	Broadband Systems
	•	Comsat Laboratories, and
	•	U.S. Monolithics

      VSAT Networks. VSAT Networks business is a global supplier of VSAT satellite networks, services and products. The VSAT Networks business is organized through the integration of our original VSAT product line, the VSAT products business purchased from SA, and the Comsat Labs products business acquired from LMGT. Products offered by the VSAT Networks Business primarily include LinkStar, LINKWAY, Skylinx, StarWire and ArcLight.

           LinkStar. LinkStar is a two-way, broadband VSAT system for service providers, ISPs, and corporate networking that offers more efficiency and higher data rates than generally offered by other TDMA

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           As a DVB-based platform, LinkStar enables service providers and satellite operators worldwide to build standards-based networks for IP data, Internet access, video streaming, telemedicine, voice over IP, or distance learning. Operating on a platform near the DVB-RCS standard plus turbo coding ensures a state-of-the-art standards based approach. The LinkStar product’s web-based network management connects from a standard browser to configure, control, and manage the entire LinkStar VSAT network. The Regional Network Control Center (RNCC) also can provide traffic statistics, call detail records, and SNMP interface. Operators can download software to remote terminals without site visits. The system can scale to 10,000 sites per RNCC and up to 100,000 network nodes using multiple hubs.

           LINKWAY. Our LINKWAY product is a broadband, multi-protocol networking, hubless VSAT system that enables users to cost effectively integrate a variety of applications into one network — in mesh, star, or multi-star hybrid topologies. LINKWAY provides broadband connections efficiently and cost-effectively by reducing satellite airtime costs. The LINKWAY VSAT product connects to users’ networking applications using IP, ATM, Frame Relay, and ISDN protocols. The LINKWAY product family consists of two terminals: LINKWAY 2100 and linkway.IP. Both terminals are interoperable over C-band or Ku-band fixed satellite services (FSS) satellites with fixed-beam, split-beam or cross-strapped configurations. A quick-commissioning feature makes LINKWAY VSATs easy to install and operate.

           Skylinx. Our Skylinx VSAT product is a competitively priced VSAT terminal based on DAMA technology. This product provides inexpensive, toll quality telephone service for voice and fax communication for small businesses and cities in areas lacking adequate telephone infrastructure. An important feature of the Skylinx terminal is the large number of telephone interfaces that it supports. The ability to interface with many different telephone protocols gives the Skylinx terminal a much larger addressable market as compared to other VSAT systems which normally only support one or two voice interfaces. These voice protocols include 2-wire E&M, 4-wire E&M, MF, DTMF, R2, China #1, SS#5, and SS#7. The Skylinx VSAT terminal’s flexibility, in conjunction with the Skylinx network control system, allows common or custom numbering plans, downloadable channel unit circuit types, interfaces and signaling systems. This enables a network to accommodate specific customer requirements for private business telephony, public rural telephony and disaster recovery. In addition, a single Skylinx network control system can support up to 62,000 subscribers in the network.

           StarWire. Our StarWire VSAT products employing DAMA technology provide mesh broadband data, video and voice services via satellite to remote locations and areas that lack adequate ground-based communications infrastructure. StarWire provides high levels of DAMA operating efficiency. In addition, all of our StarWire products are embedded with Internet Protocol routing and are compatible with Internet and Intranet applications. Our StarWire line currently consists of two terminal products operating at rates up to 2 Mbps and a network control system. StarWire also features the first integration of PCMA bandwidth saving technology.

           ArcLight. Our ArcLight VSAT technology employs our proprietary technology to offer increased bandwidth efficiency and lower operating costs. ArcLight incorporates two ViaSat proprietary technologies: CDMA return channel technology, called Code Reuse Multiple Access (CRMA), and Asymmetric Paired Carrier Multiple Access (A-PCMA). PCMA enables data transmissions coming back to the hub from remote sites to be combined within the same bandwidth as the outbound channel. Rather than requiring additional return bandwidth, ArcLight needs only the space segment required by the outbound channel to support two-way satellite services.

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           Network Services. Our VSAT Networks business also includes our network services business, sold in part under the Immeon brand name. Satellite network services are a natural extension of our VSAT products business. Many of our customers want to use satellite communications networks without purchasing network control systems, directly purchasing bandwidth from satellite providers, or hiring and training specialized personnel. Our turnkey network services include the provision of bandwidth to our customers by procuring satellite transponder capacity, which we obtain from third parties on an as-needed basis. We provide on-site installation of our equipment sold to customers, systems integration, training of customer on-site personnel and ongoing technical support. We also provide our customers with access to our network operations center (NOC), located in Carlsbad, California, and to our network control systems for users of our VSAT terminal products.

      Satellite Ground Systems. Our Satellite Ground Systems business unit is a global provider of: (1) gateway infrastructure, (2) remote sensing ground stations, (3) antenna systems and (4) tracking, telemetry and command ground stations. Satellite Ground Systems business products consist of essentially the same three components: a large satellite antenna dish, a high-powered radio transmitter and receiver, and an ultra high-speed satellite modem. The modems integrated into these systems can process data at rates of up to 150 Mbps per second, depending on the application of the satellite system. These systems support functions in the L, S, X, Ku, and Ka-band frequency spectrums.

           Gateways. Our gateway products represent a key component of our ability to offer complete network development and integration services. The gateway products connect satellites to the communications infrastructure on the ground, such as public switched telephone networks. We offer a number of different gateway products depending on the type, speed and size of the network. The gateways consist of our internally developed antenna and signal processing hardware and software as well as third party hardware. Although each of these components employs advanced technologies, the most complex component of a gateway is the overall system design and the software used to integrate each of the hardware components and operate the system. Gateways represent a key-operating component of any satellite network since gateways are required to interface the satellite portion of the network to the terrestrial communications network.

           We believe that we will continue to derive benefits and efficiencies from our gateway building capabilities. Since the gateway is a complex and central component of any network, the optimization of the gateway for the specific network use is critical to optimizing the performance of the entire network. The ability to provide gateways and integrate those gateways into our innovative network solutions should provide us with an advantage over other network manufacturers and integrators, most of which purchase gateways from third parties. Our Satellite Ground Systems business has extensive experience in developing gateways for systems using Ka-band technologies. We believe these new technologies are a cornerstone of emerging satellite services like broadband on demand.

           Remote Sensing Ground Stations. Our Satellite Ground Systems business has been a leader in the satellite imaging and remote sensing ground station market for over 20 years. Remote sensing ground stations receive images of the earth transmitted from low earth orbit satellites. These images are often collected for both civilian and military purposes. Our remote sensing ground station products typically include a personal computer with software to provide satellite pre-mission planning, automated pre-pass set-up, system performance integrity analysis, signal routing assignments, and maintenance actions.

           Antenna Systems. Our antenna products provide standard off the shelf antennas for typical geosynchronous satellite applications. Although our antenna systems are often sold and integrated with our other satellite communication products, we also offer a wide range of antenna systems as separate units. Our antennas range from 3.6 meters to 18 meters in diameter depending on the power of the transmissions from the satellite. Customers of our antenna systems include cable TV uplink stations and cable system providers that operate head-end receive stations, VSAT service providers, and various satellite communication system integrators that require traditional satellite communication capability.

           Tracking, Telemetry and Command Systems. Our tracking, telemetry and command products are designed to provide a means for monitoring and controlling satellites in orbit. The telemetry subsystem in the satellite supplies measurements of various parameters to an earth station that is responsible for the satellite

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      Broadband Systems. Broadband Systems business is a leader in designing and developing large-scale, broadband satellite network projects. Our Broadband Systems business pursues opportunities to provide large infrastructure projects consisting of customer terminals and gateways to large service providers offering regional or global broadband services by satellite. These projects are focused on delivering high-speed communications products with capabilities beyond that of conventional VSAT networks.

      Currently, Broadband Systems is developing subscriber terminals and ground infrastructure in three major groups: mobile, consumer and enterprise. The Broadband Systems business has active customers in both the mobile and consumer broadband markets.

           Mobile. Broadband Systems is a major equipment supplier for the Connexion by Boeing project. Currently, Broadband Systems is developing, testing, manufacturing and providing support for the airborne and ground terminals for the Connexion by Boeing service. Connexion provides in-flight broadband connectivity to commercial airlines and government customers. During fiscal year 2003, we completed testing, Federal Aviation Administration (FAA) certification, initial flight installations, and a pilot production run for Connexion terminals.

           Broadband Systems business is also providing airborne and ground communications systems for ARINC’s SKYLink airborne broadband service for use on business jets. We are developing, testing and manufacturing initial SKYLink systems for installation and use on Gulfstream business jets. The SKYLink system leverages our ArcLight CDMA for satellite technology. ArcLight technology uses a ViaSat developed spread spectrum technique called Code Re-use Multiple Access (CRMA) to increase responsiveness in the network and efficiency in bandwidth use.

           Consumer. The Broadband Systems business is focused on developing, producing and installing Ku-band and Ka-Band DOCSIS based satellite consumer terminals and system gateways. The Broadband Systems’ products leverage the cable modem networking standard called DOCSIS (Data Over Cable Service Interface Specification). Coupled with our advanced satellite waveform technology, our DOCSIS based products are expected to lower the cost of consumer terminals, reduce satellite bandwidth requirements, enable easy self-provision for customers and provide mature customer service, billing and network control software to network providers.

           Enterprise. The Broadband Systems business is also focused on capturing large-scale enterprise satellite systems. Astrolink International, LLC, a broadband satellite service aimed at the enterprise market, was a customer of ViaSat, but is currently undergoing a restructuring. The Broadband Systems business is seeking additional opportunities to develop high-speed satellite communications systems for enterprise markets.

      Comsat Laboratories. Comsat Laboratories is our systems and technology business, supporting engineering developments for both defense and commercial projects. Comsat Laboratories was established as a separate research and development think-tank for COMSAT, the world’s first commercial satellite operator. Comsat Laboratories has been known as a center for innovation and advancement for the satellite communications industry since 1967. We acquired Comsat Laboratories as part of our purchase of the LMGT product group. We plan to grow the Comsat Laboratories business to recapture its position as the leader in satellite communications innovation.

      Comsat Laboratories is focused on ViaSat-internal projects, as well as seeking customers with a need for systems design and engineering services. We believe system design and engineering services are a primary competitive advantage we maintain in the commercial satellite communications industry. Most of the manufacturers in this industry do not perform complex and customized network design. Instead, most manufacturers only sell hardware and software communications products. Although some companies build large, standardized networks limited to the applications offered by the hardware and software used in the

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      U.S. Monolithics. U.S. Monolithics, a wholly owned subsidiary of ViaSat, specializes in monolithic microwave integrated circuits (MMICs), packaged components and modules. USM engineers have extensive commercial, military and space design experience, including Iridium, Milstar, the Space Station S-band communication system and other spacecraft, missile and aircraft systems design. Areas of expertise include high frequency communication technology, MMIC semiconductor design, high-power transceiver design, high levels of functional integration, high-frequency packaging and design for low-cost manufacturing.

      USM is independently operated from ViaSat so that it can capture both ViaSat internal projects as well as external customers. Current programs include next generation Ka-band transceivers for the Eutelsat SKYPLEX system, developing RF transceiver chips for both ViaSat and a third party reseller and designing UHF power amplifiers for our Mobile Satellite Systems business and phased array antenna multi-chip modules under subcontract from a large government contractor.

      Immeon. In January 2001 we entered into a joint venture with Loral Skynet, a division of Loral Space & Communications Ltd., to offer metered satellite bandwidth on demand. Immeon is a wireless, satellite-based bandwidth-on-demand network, that provides wideband IP services to its customers using VSAT terminals located anywhere in the United States. All Immeon resources within the network are controlled and monitored by our network operations center (NOC) operated by ViaSat personnel. Immeon network access terminals are located at customers’ facilities and provide the network interface between the satellite network and the enterprise LAN/ WAN using industry standard IP protocol and Ethernet interfaces. Loral has indicated it plans to withdraw from the Immeon venture, subject to its continuing obligations to provide customer bandwidth.

      TrellisWare Technologies. In August 2000, we established TrellisWare Technologies Inc., a majority-owned spin-off of ViaSat. TrellisWare was formed to focus on developing products based on maximum likelihood processing technology, a signal processing technology that is expected to greatly improve the performance of broadband communications in challenging environments (multipath, interference and high channel dynamics).

      Teaming Arrangements. We regularly enter into teaming arrangements with other government contractors to more effectively capture complex government programs. In these teaming arrangements we may act as either the prime contractor or subcontractor bidder. Once awarded a contract, generally the prime contractor is obligated, with some exceptions, to award a contract to the relevant subcontractors on the team.

      We expect to continue to actively seek strategic relationships and ventures with companies whose financial, marketing, operational or technological resources can accelerate the introduction of new technologies and the penetration of new markets.

      The majority of our customers for our commercial products and services are satellite network integrators, large communications service providers and corporations requiring complex communications networks. Over the past couple of years, we have significantly expanded our commercial customer base both domestically and internationally.

      Significant customers of commercial business in the last fiscal year included Eutelsat, Boeing, Telespazio, Gedas, Inc., ARINC, Shoppers Drug Mart, INTERDirec, Shanghai Stock Exchange, Beijing Application Institute of Information Technology (BAIIT), Halliburton and Tatanet India. Eutelsat and Telespazio installed multiple hubs and are deploying user terminals for our LinkStar VSAT product. We also installed

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      We primarily use direct sales channels to market and sell our products and services. Our marketing and sales activities are organized geographically in domestic and global markets. In addition, our VSAT Network Systems business provides us with an additional international sales presence in global and regional markets. Our sales and marketing group includes approximately 28 persons, with six located outside the United States.

      Our sales teams consist of regional sales directors, regional sales managers and sales engineers, who act as the primary interface to establish account relationships and determine technical requirements for the customers networks. In addition to our sales force, we maintain a highly trained service staff to provide technical product and service support to our customers. The sales cycle in the commercial satellite network market is lengthy and it is not unusual for a sale to take up to 18 months from the initial contact through the execution of the agreement. The sales process often includes several network design iterations, network demonstrations, and pilot networks consisting of a few sites.

      In addition, we seek to develop key strategic relationships to market and sell our network products and services. We seek strategic relationships and partners based on many factors, including financial resources, technical capability, geographic location and market presence.

      We also obtain sales to new customers through referrals from existing customers, industry suppliers, and other sources such as participation in trade shows and advertising. We actively work at increasing awareness for the ViaSat brand through a mix of public relations, advertising, trade show selling and conference speaking engagements.

      Additionally, we direct our sales and marketing efforts to our strategic partners, primarily through our senior management relationships. In some cases a strategic ally may be the prime contractor for a system or network installation and will subcontract a portion of the project to us. In other cases, the strategic ally may recommend us as the prime contractor for the design and integration of the network.

      We provide service, repair and technical support for our products and services. Through our sales teams and support services, we are constantly made aware of customers’ needs and their use of products and services. Accordingly, a superior level of continuing customer service and support is integral to our objective of developing and maintaining long-term relationships with our customers. The majority of our service and support activities are provided by our field engineering team, systems engineers, and sales and administrative support personnel, both on-site at the customer’s location and by telephone.

      The commercial communications industry is highly competitive. As a provider of commercial network products and designer of commercial network solutions in the United States and internationally, we compete with a number of wireless and ground-based communications service providers. Many of these competitors have significant competitive advantages, including strong customer relationships, more experience with regulatory compliance, greater financial and management resources, and control over central communications networks. To compete with these providers, we emphasize:

	•	the overall cost of our satellite networks, which includes both equipment and bandwidth costs, as compared to products offered by ground-based and other satellite service providers,
	•	the distinct advantages of satellite data networks,
	•	our end-to-end network implementation services, and
	•	our network management services.

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      Our principal competitors in the supply of commercial satellite data networks are Hughes Network Systems, Gilat Satellite Networks Ltd., EMS Technologies, Inc., Nera ASA, ND Satcom and iDirect Technologies, each of which offers a broad range of satellite communications products and services. Our principal competitors in the supply of antenna and gateway systems are Andrew Corporation, RFS and Tripoint Global. In competing with these companies, we emphasize:

	•	the innovative and flexible features integrated into our products,
	•	our proven designs and network integration services for complex, customized network needs, and
	•	the increased bandwidth efficiency offered by our networks and products.

Research and Development

      We believe that future success depends on the ability to adapt to the rapidly changing satellite communications and related signal processing and networking software environment. Therefore, the continued timely development and introduction of new products is essential in maintaining our competitive position. We develop most of our products in-house and have a research and development and engineering staff that includes over 400 engineers. A significant portion of our research and development efforts in the defense industry has generally been conducted in direct response to the specific requirements of a customer’s order and, accordingly, these amounts are included in the cost of sales when incurred and the related funding is included in revenues at that time. In contrast, a substantial portion of the research and development efforts of our VSAT Networks business and USM have been focused on the development of commercial products and services.

      Our revenues for research and development funded by government and commercial customers during fiscal year 2001 were approximately $79.0 million, during fiscal year 2002 were approximately $75.2 million, and during fiscal year 2003 were approximately $74.1 million. In addition, we invested $6.2 million in fiscal year 2001, $9.4 million in fiscal years 2002, and $16.0 million in fiscal year 2003, on independent research and development, which is not directly funded by a third party. Funded research and development contains a profit component and is therefore not directly comparable to independent research and development. As a government contractor, we also are able to recover a portion of our independent research and development expenses, consisting primarily of salaries and other personnel-related expenses, supplies and prototype materials related to research and development programs.

Manufacturing

      Our manufacturing objective is to produce high-quality products that conform to specifications at the lowest possible manufacturing cost. We primarily utilize a range of contract manufacturers, based on the volume of the production, to reduce the costs of products and to support rapid increases in delivery rates when needed. As part of our manufacturing process, we conduct extensive testing and quality control procedures for all products before they are delivered to customers.

      Contract manufacturers produce products for many different customers and are able to pass on the benefits of large scale manufacturing to their customers. These manufacturers are able to achieve high quality products with lower levels of costs by (1) exercising their high-volume purchasing power, (2) employing advanced and efficient production equipment and systems on a full-time basis, and (3) using a highly skilled workforce. Our primary contract manufacturers include Flextronics, Inc., SMS Technologies Inc., Electro Surface Technologies (EST) and Spectral Response, Inc.

      Our experienced management team facilitates the efficient contract manufacturing process through the development of strong relationships with a number of different contract manufacturers. By negotiating beneficial contract provisions and purchasing some of the equipment needed to manufacture our products, we retain the ability to move the production of our products from one contract manufacturing source to another if required. Our operations management has experience in the successful transition from in-house production to contract manufacturing. The degree to which we employ contract manufacturing depends on the maturity of the product. We intend to limit our internal manufacturing capacity to new product development support and

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      Therefore, our internal manufacturing capability for standard products has been, and is expected to continue to be, very limited, and we intend to rely on contract manufacturers for large-scale manufacturing.

      We also rely on outside vendors to manufacture specific components and subassemblies used in the production of our products. Some components, subassemblies and services necessary for the manufacture of our products are obtained from a sole supplier or a limited group of suppliers. In particular, Texas Instruments is a sole source supplier of digital signal processing chips, which are critical components used by us in substantially all of our products.

Backlog

      As of March 31, 2003, we had firm backlog of $213.6 million, of which $179.6 million was funded. This compares to firm backlog of $139.4 million at March 31, 2002, of which $124.2 million was funded, not including options of $48.8 million. Of the $213.6 million in firm backlog at March 31, 2003, approximately $128.4 million is expected to be delivered in fiscal year 2004 and the balance is expected to be delivered in fiscal year 2005 and thereafter. Total new awards for both commercial and defense products were $259.2 million for fiscal year 2003 compared to $191.9 million for fiscal year 2002. We include in our backlog only those orders for which we have accepted purchase orders or signed contracts. Our firm backlog does not include contract options of $44.9 million. These options include $37.2 million of Indefinite Delivery/ Indefinite Quantity (IDIQ) contracts for our UHF DAMA satellite communications products and $7.7 million of IDIQ contracts for our other products.

      Backlog is not necessarily indicative of future sales. A majority of our contracts can be terminated at the convenience of the customer since orders are often made substantially in advance of delivery, and our contracts typically provide that orders may be terminated with limited or no penalties. In addition, purchase orders may present product specifications that would require us to complete additional product development. A failure to develop products meeting such specifications could lead to a termination of the related purchase order.

      The backlog amounts as presented are comprised of funded and unfunded components. Funded backlog represents the sum of contract amounts for which funds have been specifically obligated by customers to contracts. Unfunded backlog represents future amounts that customers may obligate over the specified contract performance periods. Our customers allocate funds for expenditures on long-term contracts on a periodic basis. Our ability to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although funding of our contracts is not within our control, our experience indicates that actual contract fundings have ultimately been approximately equal to the aggregate amounts of the contracts.

Government Contracts

      Substantial portions of our revenues are generated from contracts and subcontracts with the U.S. Department of Defense and other federal government agencies. Many of our contracts are competitively bid and awarded on the basis of technical merit, personnel qualifications, experience and price. We also receive some contract awards involving special technical capabilities on a negotiated, noncompetitive basis due to our unique technical capabilities in special areas. The Federal Acquisition Streamlining Act of 1994 has encouraged the use of commercial type pricing on dual use products. Our future revenues and income could be materially affected by changes in procurement policies, a reduction in expenditures for the products and services provided by us, and other risks generally associated with federal government contracts.

      We provide products under federal government contracts that usually require performance over a period of several months to five years. Long-term contracts may be conditioned upon continued availability of congressional appropriations. Variances between anticipated budget and congressional appropriations may result in a delay, reduction or termination of these contracts. Contractors often experience revenue uncertainties with respect to available contract funding during the first quarter of the government’s fiscal year beginning October 1, until differences between budget requests and appropriations are resolved.

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      Our federal government contracts are performed under cost-reimbursement contracts, time-and-materials contracts and fixed-price contracts. Cost-reimbursement contracts provide for reimbursement of costs and for payment of a fee. The fee may be either fixed by the contract or variable, based upon cost control, quality, delivery and the customer’s subjective evaluation of the work. Under time-and-materials contracts, we receive a fixed amount by labor category for services performed and are reimbursed for the cost of materials purchased to perform the contract. Under a fixed-price contract, we agree to perform specific work for a fixed price and, accordingly, realize the benefit or detriment to the extent that the actual cost of performing the work differs from the contract price. Revenues generated from contracts with the federal government or our prime contractors for fiscal year 2003 were approximately 10% from cost-reimbursement contracts, approximately 1% from time-and-materials contracts and approximately 89% from fixed-price contracts of total revenues.

      Our allowable federal government contract costs and fees are subject to audit by the Defense Contract Audit Agency. Audits may result in non-reimbursement of some contract costs and fees. While the government reserves the right to conduct further audits, audits conducted for periods through fiscal year 1998 have resulted in no material cost recovery disallowances for us.

      Our federal government contracts may be terminated, in whole or in part, at the convenience of the government. If a termination for convenience occurs, the government generally is obligated to pay the cost incurred by us under the contract plus a pro rata fee based upon the work completed. When we participate as a subcontractor, we are at risk if the prime contractor does not perform its contract. Similarly, when we act as a prime contractor employing subcontractors, we are at risk if a subcontractor does not perform its subcontract.

      Some of our federal government contracts contain options that are exercisable at the discretion of the customer. An option may extend the period of performance for one or more years for additional consideration on terms and conditions similar to those contained in the original contract. An option may also increase the level of effort and assign new tasks to us. In our experience, options are exercised more often than not.

      Our eligibility to perform under our federal government contracts requires us to maintain adequate security measures. We have implemented security procedures that we believe are adequate to satisfy the requirements of our federal government contracts.

Regulatory Environment

      Some of our products are incorporated into wireless communications systems that are subject to regulation domestically by the Federal Communications Commission and internationally by other government agencies. Although the equipment operators and not us are responsible for compliance with these regulations, regulatory changes, including changes in the allocation of available frequency spectrum and in the military standards which define the current networking environment, could materially adversely affect our operations by restricting development efforts by our customers, making current products obsolete or increasing the opportunity for additional competition. Changes in, or our failure to manufacture products in compliance with, applicable regulations could materially harm our business. In addition, the increasing demand for wireless communications has exerted pressure on regulatory bodies world wide to adopt new standards for these products, generally following extensive investigation and deliberation over competing technologies. The delays inherent in this government approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communication systems by our customers, which in turn may have a material adverse effect on the sale of our products to the customers.

      We are also subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the imposition of substantial fines on us, suspension of production, alteration of our manufacturing processes or cessation of operations. To date, these regulations have not had a material effect on our business, as we have neither incurred significant costs to maintain compliance nor to remedy past noncompliance.

      We believe that we operate our business in material compliance with applicable government regulations. We are not aware of any pending legislation that if enacted could materially harm our business.

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      In addition to the local, state and federal government regulations, we must comply with applicable laws and obtain the approval of the regulatory authoritie