Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Edwin Mok with Needham and Company.
Edwin Mok – Needham & Company
First let me ask you just some housekeeping questions. We got in the financials $700,000 charged relate to the Towers and investment. I was just wondering, Carl, are you going to report that as a non-GAAP or is that going to be part of the ---
Carl M. Mills
That happens in Q4, that will be part of our GAAP results.
Edwin Mok – Needham & Company
So it will be part of GAAP and it will count as a one time --
Carl M. Mills
Exactly and it’s a non-cash charge.
Edwin Mok – Needham & Company
On the OpEx line, comp base on your commentary sounds like third quarter was unusually slow because you have very little outsourcing expense there. I was wondering how do you look at that if you just average out over a longer term, how much R&D outsource expense do you guys expect per quarter?
Carl M. Mills
We haven’t provided guidance on that going forward. I guess the thing I would say is that as we outsourced our R&D, one thing we expect is much lower cost per design. Whereas we had a fixed cost in Canada for R&D through the second quarter, really that fixed cost has largely gone down and the variable cost per design was much slower than the fixed cost was per design. The net effect should be, even after variable costs, lower R&D costs for the same amount of product or if we elect to do more designs, of course R&D would be more expensive. But it is a variable model as opposed to a fixed model.
Edwin Mok – Needham & Company
Maybe I should ask you differently. Is it fair to say that the third quarter numbers is basically your fixed R&D costs where you would expect some other outsourcing costs along the way for example in the fourth quarter where your guidance is for higher R&D expenses, is that correct?
Carl M. Mills
That’s reasonable and it’s not only just the outsource cost but we may purchase [inaudible] expense in the quarter too, so it’s really a combination of those two things and plus then prototypes will hit the project expense kind of category.
Edwin Mok – Needham & Company
So it is a function of when you are going to do that is the end net result.
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