10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on February 9, 2010
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 31,
2009
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ___ to ___
Commission
File Number 0-22175
EMCORE
Corporation
(Exact
name of registrant as specified in its charter)
New Jersey
(State
or other jurisdiction of incorporation or organization)
|
22-2746503
(I.R.S.
Employer Identification No.)
|
10420 Research Road, SE, Albuquerque, New
Mexico
(Address
of principal executive offices)
|
87123
(Zip
Code)
|
Registrant’s
telephone number, including area code: (505)
332-5000
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. x Yes ¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). ¨ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one): ¨
Large accelerated filer x
Accelerated
filer ¨
Non-accelerated filer ¨
Smaller reporting company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). ¨ Yes
xNo
The
number of shares outstanding of the registrant’s no par value common stock as of
February 4, 2010 was 81,741,138.
CAUTIONARY
STATEMENT
FOR
PURPOSES OF “SAFE HARBOR PROVISIONS”
OF
THE PRIVATE SECURITIES LITIGATION ACT OF 1995
This
Quarterly Report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Exchange Act of 1934. These forward-looking statements are largely
based on our current expectations and projections about future events and
financial trends affecting the financial condition of our
business. Such forward-looking statements include, in particular,
projections about our future results included in our Exchange Act reports,
statements about our plans, strategies, business prospects, changes and trends
in our business and the markets in which we operate. These
forward-looking statements may be identified by the use of terms and phrases
such as “anticipates”, “believes”, “can”, “could”, “estimates”, “expects”,
“forecasts”, “intends”, “may”, “plans”, “projects”, “targets”, “will”, and
similar expressions or variations of these terms and similar
phrases. Additionally, statements concerning future matters such as
the development of new products, enhancements or technologies, sales levels,
expense levels and other statements regarding matters that are not historical
are forward-looking statements. Management cautions that these forward-looking
statements relate to future events or our future financial performance and are
subject to business, economic, and other risks and uncertainties, both known and
unknown, that may cause actual results, levels of activity, performance or
achievements of our business or our industry to be materially different from
those expressed or implied by any forward-looking statements. Factors
that could cause or contribute to such differences in results and outcomes
include without limitation those discussed under Item 1A - Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended September 30,
2009. The cautionary statements should be read as being applicable to
all forward-looking statements wherever they appear in this Quarterly Report and
they should also be read in conjunction with the consolidated financial
statements, including the related footnotes.
Neither
management nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. All forward-looking
statements in this Quarterly Report are made as of the date hereof, based on
information available to us as of the date hereof, and subsequent facts or
circumstances may contradict, obviate, undermine, or otherwise fail to support
or substantiate such statements. We caution you not to rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business that are addressed in our Annual
Report. Certain information included in this Quarterly Report may
supersede or supplement forward-looking statements in our other Exchange Act
reports filed with the Securities and Exchange Commission. We assume
no obligation to update any forward-looking statement to conform such statements
to actual results or to changes in our expectations, except as required by
applicable law or regulation.
EMCORE
Corporation
FORM
10-Q
For
The Quarterly Period Ended December 31, 2009
TABLE
OF CONTENTS
PAGE
|
|||
Part I
|
Financial
Information
|
||
Item
1.
|
Financial
Statements
|
4
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
37
|
|
Item
4.
|
Controls
and Procedures
|
38
|
|
|
|||
Part II
|
Other
Information
|
||
Item
1.
|
Legal
Proceedings
|
39
|
|
Item
1A.
|
Risk
Factors
|
41
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
42
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
42
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
42
|
|
Item
5.
|
Other
Information
|
42
|
|
Item
6.
|
Exhibits
|
43
|
|
|
|||
SIGNATURES
|
44
|
PART
I.
|
FINANCIAL
INFORMATION
|
ITEM
I.
|
Financial
Statements
|
EMCORE
CORPORATION
Condensed
Consolidated Statements of Operations and Comprehensive Loss
For
the three months ended December 31, 2009 and 2008
(in
thousands, except loss per share)
(unaudited)
For
the Three Months
Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Product
revenue
|
$
|
40,939
|
$
|
51,554
|
||||
Service
revenue
|
1,462
|
2,502
|
||||||
Total
revenue
|
42,401
|
54,056
|
||||||
Cost
of product revenue
|
33,229
|
50,772
|
||||||
Cost
of service revenue
|
1,168
|
1,695
|
||||||
Total
cost of revenue
|
34,397
|
52,467
|
||||||
Gross
profit
|
8,004
|
1,589
|
||||||
Operating
expenses:
|
||||||||
Selling,
general, and administrative
|
12,423
|
12,159
|
||||||
Research
and development
|
7,513
|
8,110
|
||||||
Impairments
|
-
|
33,781
|
||||||
Total
operating expenses
|
19,936
|
54,050
|
||||||
Operating
loss
|
(11,932
|
)
|
(52,461
|
)
|
||||
Other
(income) expense:
|
||||||||
Interest
income
|
(2
|
)
|
(50
|
)
|
||||
Interest
expense
|
116
|
195
|
||||||
Foreign
exchange loss
|
232
|
472
|
||||||
Loss
from financing derivative instrument
|
1,360
|
-
|
||||||
Impairment
of investment
|
-
|
367
|
||||||
Total
other expense
|
1,706
|
984
|
||||||
Net
loss
|
$
|
(13,638
|
)
|
$
|
(53,445
|
)
|
||
Foreign
exchange translation adjustment
|
79
|
108
|
||||||
Comprehensive
loss
|
$
|
(13,559
|
)
|
$
|
(53,337
|
)
|
||
Per
share data:
|
||||||||
Net
loss per basic and diluted share
|
$
|
(0.17
|
)
|
$
|
(0.69
|
)
|
||
Weighted-average
number of basic and diluted shares outstanding
|
81,113
|
77,816
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Balance Sheets
As
of December 31, 2009 and September 30, 2009
(in
thousands)
(unaudited)
As
of
December
31,
2009
|
As
of
September
30,
2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
15,138
|
$
|
14,028
|
||||
Restricted
cash
|
4
|
1,521
|
||||||
Available-for-sale
securities
|
1,350
|
1,350
|
||||||
Accounts
receivable, net of allowance of $6,640 and $7,125,
respectively
|
40,726
|
39,417
|
||||||
Inventory,
net
|
31,454
|
34,221
|
||||||
Prepaid
expenses and other current assets
|
4,550
|
4,712
|
||||||
Total
current assets
|
93,222
|
95,249
|
||||||
Property,
plant and equipment, net
|
52,719
|
55,028
|
||||||
Goodwill
|
20,384
|
20,384
|
||||||
Other
intangible assets, net
|
12,424
|
12,982
|
||||||
Long-term
restricted cash
|
163
|
163
|
||||||
Other
non-current assets, net
|
720
|
753
|
||||||
Total
assets
|
$
|
179,632
|
$
|
184,559
|
||||
LIABILITIES
and SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Borrowings
from credit facility
|
$
|
10,678
|
$
|
10,332
|
||||
Short-term
debt
|
843
|
842
|
||||||
Accounts
payable
|
28,632
|
24,931
|
||||||
Accrued
expenses and other current liabilities
|
21,042
|
21,687
|
||||||
Total
current liabilities
|
61,195
|
57,792
|
||||||
Warrant
liability
|
1,132
|
-
|
||||||
Other
long-term liabilities
|
103
|
104
|
||||||
Total
liabilities
|
62,430
|
57,896
|
||||||
Commitments
and contingencies
|
||||||||
Shareholders’
equity:
|
||||||||
Preferred
stock, $0.0001 par, 5,882 shares authorized; no shares
outstanding
|
-
|
-
|
||||||
Common
stock, no par value, 200,000 shares authorized;
81,900
shares issued and 81,741 shares outstanding as of December 31,
2009;
80,982
shares issued and 80,823 shares outstanding as of September 30,
2009
|
692,942
|
688,844
|
||||||
Accumulated
deficit
|
(574,471
|
)
|
(560,833
|
)
|
||||
Accumulated
other comprehensive income
|
814
|
735
|
||||||
Treasury
stock, at cost; 159
shares as of December 31, 2009 and September 30, 2009
|
(2,083
|
)
|
(2,083
|
)
|
||||
Total
shareholders’ equity
|
117,202
|
126,663
|
||||||
Total
liabilities and shareholders’ equity
|
$
|
179,632
|
$
|
184,559
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the three months ended December 31, 2009 and 2008
(in
thousands)
(unaudited)
For
the Three Months Ended December 31,
|
|||||||||
2009
|
2008
|
||||||||
Cash
flows from operating activities:
|
|||||||||
Net
loss
|
$
|
(13,638
|
)
|
$
|
(53,445
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||||
Impairments
|
-
|
33,781
|
|||||||
Stock-based
compensation expense
|
3,186
|
2,150
|
|||||||
Depreciation
and amortization expense
|
3,117
|
4,293
|
|||||||
Provision
for inventory
|
(378
|
)
|
4,362
|
||||||
Provision
for doubtful accounts
|
(434
|
)
|
922
|
||||||
Provision
for product warranty
|
340
|
-
|
|||||||
Impairment
of investment
|
-
|
366
|
|||||||
Loss
on disposal of equipment
|
-
|
97
|
|||||||
Compensatory
stock issuances
|
200
|
18
|
|||||||
Loss
from financing derivative instrument
|
1,360
|
-
|
|||||||
Total
non-cash adjustments
|
7,391
|
45,989
|
|||||||
Changes
in operating assets and liabilities:
|
|||||||||
Accounts
receivable
|
(1,004
|
)
|
(1,938
|
)
|
|||||
Inventory
|
3,143
|
(4,337
|
)
|
||||||
Other
assets
|
173
|
225
|
|||||||
Accounts
payable
|
3,682
|
(6,806
|
)
|
||||||
Accrued
expenses and other current liabilities
|
(987
|
)
|
(832
|
)
|
|||||
Total
change in operating assets and liabilities
|
5,007
|
(13,688
|
)
|
||||||
Net
cash used in operating activities
|
(1,240
|
)
|
(21,144
|
)
|
|||||
Cash
flows from investing activities:
|
|||||||||
Purchase
of plant and equipment
|
(87
|
)
|
(597
|
)
|
|||||
Investments
in patents
|
(158
|
)
|
-
|
||||||
Sale
of available-for-sale securities
|
-
|
1,700
|
|||||||
Release
of restricted cash
|
1,517
|
27
|
|||||||
Net
cash provided by investing activities
|
$
|
1,272
|
$
|
1,130
|
|||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the three months ended December 31, 2009 and 2008
(in
thousands)
(unaudited)
(Continued
from previous page)
|
For
the Three Months Ended December 31,
|
||||||||
2009
|
2008
|
||||||||
Cash
flows from financing activities:
|
|||||||||
Proceeds
from borrowings from credit facility
|
$
|
58,227
|
$
|
15,443
|
|||||
Payments
on borrowings from credit facility
|
(57,881
|
)
|
-
|
||||||
Proceeds
from borrowings on short-term debt
|
3
|
910
|
|||||||
Payments
on borrowings on short-term debt
|
(2
|
)
|
-
|
||||||
Proceeds
from exercise of stock options
|
-
|
32
|
|||||||
Proceeds
from employee stock purchase plan
|
505
|
613
|
|||||||
Payments
on capital lease obligations
|
(2
|
)
|
-
|
||||||
Net
cash provided by financing activities
|
850
|
16,998
|
|||||||
Effect
of foreign currency
|
228
|
107
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
1,110
|
(2,909
|
)
|
||||||
Cash
and cash equivalents at beginning of period
|
14,028
|
18,227
|
|||||||
Cash
and cash equivalents at end of period
|
$
|
15,138
|
$
|
15,318
|
|||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|||||||||
Cash
paid during the period for interest
|
$
|
76
|
$
|
132
|
|||||
Cash
paid during the period for income taxes
|
$
|
-
|
$
|
-
|
|||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|||||||||
Acquisition
of equipment under capital lease
|
$
|
-
|
$
|
-
|
|||||
Issuance
of common stock under financing derivative instrument
|
$
|
228
|
$
|
-
|
|||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
Corporation
Notes
to Consolidated Financial Statements
NOTE
1. Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements include the
accounts of EMCORE Corporation and its subsidiaries (the “Company” or “EMCORE”).
All intercompany accounts and transactions have been eliminated in
consolidation.
These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim information,
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission (“SEC”). Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP for annual financial
statements. In the opinion of management, the interim financial statements
reflect all normal adjustments that are necessary to provide a fair presentation
of the financial results for the interim periods presented. Operating
results for interim periods are not necessarily indicative of results that may
be expected for an entire fiscal year. The condensed consolidated balance sheet
as of September 30, 2009 has been derived from the audited consolidated
financial statements as of such date. For a more complete understanding of the
Company’s financial position, operating results, risk factors and other matters,
please refer to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2009.
We have
evaluated subsequent events from December 31, 2009 through February 9, 2010, the
date that these financial statements were issued.
Use of
Estimates. The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management of the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, as of the date
of the financial statements, and the reported amounts of revenue and expenses
during the reported period. The accounting estimates that require our
most significant, difficult, and subjective judgments include:
-
|
valuation
of inventory, goodwill, intangible assets, warrants, and stock-based
compensation;
|
-
|
assessment
of recovery of long-lived assets;
|
-
|
revenue
recognition associated with the percentage of completion method;
and,
|
-
|
allowance
for doubtful accounts and warranty
accruals.
|
Management
develops estimates based on historical experience and on various assumptions
about the future that are believed to be reasonable based on the best
information available. The Company’s reported financial position or results of
operations may be materially different under changed conditions or when using
different estimates and assumptions, particularly with respect to significant
accounting policies. In the event that estimates or assumptions prove
to differ from actual results, adjustments are made in subsequent periods to
reflect more current information.
Loss per Share. The
Company’s loss per share was calculated by dividing net loss applicable to
common stock by the weighted average number of common stock shares outstanding
for the period and it is presented in the accompanying consolidated statements
of operations. For the three months ended December 31, 2009, and
2008, all stock options and warrants were excluded from the computation of
diluted earnings per share since the Company incurred a net loss for these
periods and any effect would have been anti-dilutive.
Liquidity and Capital
Resources
As of
December 31, 2009, cash, cash equivalents, available-for-sale securities and
current restricted cash totaled approximately $16.5 million.
The
Company incurred a net loss of $13.6 million for the three months ended December
31, 2009. The Company’s operating results for future periods are
subject to numerous uncertainties and it is uncertain if the Company will be
able to reduce or eliminate its net losses for the foreseeable
future. Although the Company experienced year-over-year revenue
growth in most years, in fiscal 2009, the Company had not been able to sustain
historical revenue growth rates due to material adverse changes in market and
economic conditions.
In the
event that management is not able to increase revenue and/or manage operating
expenses in line with revenue forecasts, the Company may not be able to achieve
profitability.
Historically,
the Company has consumed cash from operations. During the three
months ended December 31, 2009, the Company consumed cash from operations of
approximately $1.2 million and, over the last three quarters, has only consumed
$0.2 million in cash from operations due primarily to improved working capital
management.
Management Actions and
Plans
Historically,
management has addressed liquidity requirements through a series of cost
reduction initiatives, capital markets transactions, and the sale of
assets. Management anticipates that the current recession in the
United States and internationally may continue to impose formidable challenges
for the Company’s businesses in the near term.
Due to
significant differences in operating strategy between the Company’s Fiber Optics
and Photovoltaics businesses, the Company’s management and board of directors
believes that they would provide greater value to shareholders if they were
operated as two separate business entities.
In
furtherance of this strategy, on February 3, 2010, the Company entered into a
share purchase agreement to create a joint venture with Tangshan Caofeidian
Investment Corporation (“TCIC”), a Chinese investment company located in the
Caofeidian Industry Zone, Tangshan City, Hebei Province of China. The
agreement provides for TCIC to purchase a sixty percent (60%) interest in the
Company’s Fiber Optics business (excluding its satellite communications and
specialty photonics fiber optics product lines), which will be operated as a
joint venture once the transaction is closed. The Fiber Optics
businesses included in this transaction are the Company’s telecom, enterprise,
cable television (CATV), fiber-to-the-premises (FTTP), and video transport
product lines. The Company will retain the satellite communications and
specialty photonics fiber optics product lines as well as the satellite and
terrestrial solar businesses. See Footnote 17 – Subsequent Event for
additional information related to this new joint venture.
During
fiscal 2009, management implemented a series of measures and continues to
evaluate opportunities intended to align the Company’s cost structure with its
revenue forecasts. Such measures included several workforce
reductions, temporary salary reductions, the elimination of executive and
employee merit increases and bonuses for fiscal 2009, and the elimination or
reduction of certain discretionary expenses. The Company has also
significantly lowered its spending on capital expenditures and focused on
improving the management of its working capital. During the last
twelve months ended December 31, 2009, the Company monetized approximately $25.5
million of inventory, generated $16.9 million in cash from lowering its accounts
receivable balances and achieved positive cash flow from operations during the
quarters ended June 30, 2009 and September 30, 2009.
In fiscal
2010, the Company continues to remain focused on maximizing cash flow from
operations while developing additional sources of liquidity.
On
October 1, 2009, the Company entered into an equity line of credit arrangement
with Commerce Court Small Cap Value Fund, Ltd. (“Commerce
Court”). Upon issuance of a draw-down request by the Company,
Commerce Court has committed to purchasing up to $25 million worth of shares of
the Company’s common stock over the 24-month term of the purchase agreement,
provided that the number of shares the Company may sell under the facility is
limited to no more than 15,971,169 shares of common stock or that would result
in the beneficial ownership of more than 9.9% of the then issued and outstanding
shares of the Company’s common stock.
Conclusion
We
believe that our existing balances of cash, cash equivalents, and
available-for-sale securities, together with the cash expected to be generated
from operations, amounts expected to be available under our revolving credit
facility with Bank of America and the equity line of credit agreement with
Commerce Court will provide us with sufficient financial resources to meet our
cash requirements for operations, working capital, and capital expenditures for
the next 12 months. However, in the event of unforeseen
circumstances, or unfavorable market or economic developments, we may have to
raise additional funds by any one or a combination of the following: issuing
equity, debt or convertible debt, or selling certain product lines and/or
portions of our business. There can be no guarantee that we will be able to
raise additional funds on terms acceptable to us, or at all. A significant
contraction in the capital markets, particularly in the technology sector, may
make it difficult for us to raise additional capital if or when it is required,
especially if we experience disappointing operating results. If
adequate capital is not available to us as required, or is not available on
favorable terms, our business, financial condition and results of operations may
be adversely affected.
NOTE
2. Recent Accounting Pronouncements
ASC 105 – Generally
Accepted Accounting Principles. On October 1,
2009, the Company adopted new authoritative guidance within ASC 105 which
establishes the Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) as the sole source of authoritative accounting
principles recognized by the FASB to be applied by all nongovernmental entities
in the preparation of financial statements in conformity with
GAAP. The adoption of this new guidance did not impact the Company’s
results of operations or financial condition, but it revised the reference of
accounting pronouncements within this Quarterly Report.
ASC 350 – Intangibles
– Goodwill and Other. On October 1,
2009, the Company adopted new authoritative guidance within ASC 350 which amends
the factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible
assets and the
period of expected cash flows used to measure the fair value of intangible
assets under ASC 805, Business
Combinations. The adoption of this new guidance did not have
any impact on the Company’s results of operations or financial
condition.
ASC 470 – Debt. On October 1, 2009, the
Company adopted new authoritative guidance within ASC 470 that requires the
proceeds from the issuance of certain convertible debt instruments to be
allocated between a liability component (issued at a discount) and an equity
component. The resulting debt discount is amortized over the period the
convertible debt is expected to be outstanding as additional non-cash interest
expense. The change in accounting treatment is effective for the Company
beginning in fiscal 2010, and it is required to be applied retrospectively to
prior periods. Management is currently assessing the potential impact
upon adoption of this new guidance and expects it will have an effect on the
Company’s fiscal 2008 statement of operations, but it should not have any effect
on the fiscal 2008 ending equity account balances or the fiscal 2009 financial
statements.
ASC 605 – Revenue
Recognition. In October 2009, the FASB issued new
authoritative guidance on revenue recognition related to arrangements with
multiple deliverables that will become effective in fiscal 2011, with earlier
adoption permitted. Under the new guidance, when vendor specific
objective evidence or third party evidence for deliverables in an arrangement
can not be determined, a best estimate of the selling price is required to
separate deliverables and allocate arrangement consideration using the relative
selling price method. The new guidance includes new disclosure requirements on
how the application of the relative selling price method affects the timing and
amount of revenue recognition. Management is currently assessing the
potential impact that the adoption of this new guidance could have on the
Company’s financial statements.
ASC 805 – Business
Combinations. On
October 1, 2009, the Company adopted new authoritative guidance within ASC
805 which requires an acquirer to recognize the assets acquired, the
liabilities assumed, including those arising from contractual
contingencies, any contingent consideration, and any noncontrolling
interest in the acquiree at the acquisition date, measured at their fair
values as of that date, with limited exceptions specified in the
statement. It also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step
acquisition) to recognize the identifiable assets and liabilities, as well
as the noncontrolling interest in the acquiree, at the full amounts of
their fair values (or other amounts determined in accordance with this
accounting principle). In addition, the accounting principle’s
requirement to measure the noncontrolling interest in the acquiree at fair
value will result in recognizing the goodwill attributable to the
noncontrolling interest in addition to that attributable to the acquirer.
ASC 805 also requires the acquirer to recognize changes in the amount of
its deferred tax benefits that are recognizable because of a business
combination either in income from continuing operations in the period of
the combination or directly in contributed capital, depending on the
circumstances. It also provides guidance on the impairment testing of
acquired research and development intangible assets and assets that the
acquirer intends not to use. ASC 805 applies prospectively to
business combinations for which the acquisition date is on or after
October 1, 2009, therefore, the adoption of ASC 805 did not have any
impact on the Company’s historical financial
statements.
|
ASC 810 – Consolidation. – On October 1,
2009, the Company adopted new authoritative guidance within ASC 810 which
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. ASC 810 also changes the way the consolidated
income statement is presented by requiring consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
the noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. ASC 810 requires
that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated and requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent owners and the interests of the noncontrolling owners of a
subsidiary. The adoption of this new guidance did not have any impact
on the Company’s results of operations or financial condition.
NOTE
3. Equity
Stock
Options
The Company provides
long-term incentives to eligible officers, directors, and employees in the form
of stock options. Most of the stock options vest and become exercisable
over four to five years and have a contractual life of ten years. The Company
maintains two stock option plans: the 1995 Incentive and Non-Statutory Stock
Option Plan (“1995 Plan”) and the 2000 Stock Option Plan (“2000 Plan” and,
together with the 1995 Plan, the “Option Plans”). The 1995 Plan authorizes the
grant of stock options up to 2,744,118 shares of the Company's common
stock. The 2000 Plan authorizes the grant of stock options up to
15,850,000 shares of the Company's common stock. As of December 31,
2009, no stock options were available for issuance under the 1995 Plan and
2,252,014 stock options were available for issuance under the 2000
Plan. Certain options under the Option Plans are intended to qualify
as incentive stock options pursuant to Section 422A of the Internal Revenue
Code. The Company issues new shares of common stock to satisfy
the issuance of shares under the Option Plans.
The following table
summarizes the activity under the Option Plans:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|||||||||||||||||||||||||
Outstanding
as of September 30, 2009
|
10,788,174
|
$
|
4.85
|
|||||||||||||||||||||||||
Granted
|
24,000
|
1.02
|
||||||||||||||||||||||||||
Exercised
|
-
|
-
|
||||||||||||||||||||||||||
Forfeited
|
(95,913
|
)
|
3.37
|
|||||||||||||||||||||||||
Cancelled
|
(762,494
|
)
|
5.57
|
|||||||||||||||||||||||||
Outstanding
as of December 31, 2009
|
9,953,767
|
$
|
4.78
|
7.78
|
||||||||||||||||||||||||
Exercisable
as of December 31, 2009
|
3,625,721
|
$
|
5.92
|
5.92
|
||||||||||||||||||||||||
Vested
and expected to vest as of December 31, 2009
|
5,883,866
|
$
|
5.05
|
7.10
|
As of
December 31, 2009, there was approximately $5.5 million of total unrecognized
compensation expense related to non-vested stock-based compensation arrangements
granted under the Option Plans. This expense is expected to be
recognized over an estimated weighted average life of 2.8 years.
Intrinsic
value for stock options represents the “in-the-money” portion or the positive
variance between a stock option’s exercise price and the underlying stock
price. There were no stock options exercised during the three months
ended December 31, 2009. The total intrinsic value related to stock
options exercised during the three months ended December 31, 2008 totaled
approximately $10,000. The intrinsic value related to fully vested
and expected to vest stock options as of December 31, 2009 totaled approximately
$11,000 and there was no intrinsic value related to exercisable stock options as
of December 31, 2009.
Number
of Stock Options Outstanding
|
Options
Exercisable
|
|||||||||
Exercise
Price of Stock Options
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life (years)
|
Weighted-
Average Exercise Price
|
Number
Exercisable
|
Weighted-
Average Exercise Price
|
|||||
<$5.00
|
5,104,908
|
8.02
|
$1.90
|
1,496,845
|
$2.98
|
|||||
>=$5.00
to <$10.00
|
4,729,939
|
7.66
|
7.55
|
2,035,056
|
7.41
|
|||||
>$10.00
|
118,920
|
2.64
|
18.53
|
93,820
|
20.47
|
|||||
TOTAL
|
9,953,767
|
7.78
|
$4.78
|
3,625,721
|
$5.92
|
Stock-based
compensation expense is measured at the stock option grant date, based on the
fair value of the award, and is recorded to cost of sales; sales, general, &
administrative; and research and development expense based on individual
employee’s responsibility and function over the requisite service
period. Management has made an estimate of expected forfeitures and
is recognizing compensation expense only for those equity awards expected to
vest. The effect of recording stock-based compensation expense
was as follows:
(in
thousands, except per share data)
|
For
The Three Months
Ended
December 31,
|
|||||||
2009
|
2008
|
|||||||
Stock-based
compensation expense by award type:
|
||||||||
Employee
stock options
|
$
|
3,006
|
$
|
1,995
|
||||
Employee
stock purchase plan
|
180
|
155
|
||||||
Total
stock-based compensation expense
|
$
|
3,186
|
$
|
2,150
|
||||
Net
effect on net loss per basic and diluted share
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
Surrender of Stock
Options
On
November 20, 2009, Mr. Markovich, the Company’s Chief Financial Officer,
voluntarily surrendered stock options exercisable into 475,000 shares of common
stock. These stock options had an exercise price of $5.57 and were
granted to Mr. Markovich on August 18, 2008. Mr. Markovich received
no consideration in exchange for the surrender of these stock
options. The surrender of his non-vested stock options resulted in an
immediate non-cash charge of $1.3 million which was recorded in SG&A during
the three months ended December 31, 2009. The expense was due to the
acceleration of all unrecognized stock-based compensation expense associated
with that specific stock option grant.
Valuation
Assumptions
The fair
value of each stock option grant is estimated on the date of grant using the
Black-Scholes option valuation model and the straight-line attribution approach
using the following weighted-average assumptions. The option-pricing
model requires the input of highly subjective assumptions, including the
option’s expected life and the price volatility of the underlying
stock. The weighted-average grant date fair value of stock options
granted during the three months ended December 31, 2009 and 2008 was $1.02 and
$2.95, respectively.
Black-Scholes
Weighted-Average Assumptions
Stock
Options
|
For
the Three Months
Ended
December 31,
|
||||||||
2009
|
2008
|
||||||||
Expected
dividend yield
|
-
|
%
|
-
|
%
|
|||||
Expected
stock price volatility
|
96.4
|
%
|
92.4
|
%
|
|||||
Risk-free
interest rate
|
2.5
|
%
|
3.5
|
%
|
|||||
Expected
term (in years)
|
3.8
|
6.1
|
|||||||
Estimated
pre-vesting forfeitures
|
32.6
|
%
|
25.1
|
%
|
Expected Dividend
Yield: The Black-Scholes valuation model calls for a single
expected dividend yield as an input. The Company has not issued any
dividends.
Expected Stock Price
Volatility: The fair values of stock-based payments were
valued using the Black-Scholes valuation method with a volatility factor based
on the Company’s historical stock price.
Risk-Free Interest
Rate: The Company bases the risk-free interest rate used in
the Black-Scholes valuation method on the implied yield that was currently
available on U.S. Treasury zero-coupon notes with an equivalent remaining term.
Where the expected term of stock-based awards do not correspond with the terms
for which interest rates are quoted, the Company performed a straight-line
interpolation to determine the rate from the available maturities.
Expected Term: Expected term
represents the period that the Company’s stock-based awards are expected to be
outstanding and was determined based on historical experience of similar awards,
giving consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior as influenced by changes
to the terms of its stock-based awards.
Estimated Pre-vesting Forfeitures:
When estimating forfeitures, the Company considers voluntary termination
behavior as well as workforce reduction programs.
Common
Stock
The
Company’s Board of Directors has authorized a total of 200 million shares of
common stock available for issuance.
Preferred
Stock
The
Company’s Restated Certificate of Incorporation authorizes the Board of
Directors to issue up to 5,882,352 shares of preferred stock upon such terms and
conditions having such rights, privileges, and preferences as the Board of
Directors may determine. As of December 31, 2009 and September 30,
2009, no shares of preferred stock were issued or outstanding.
Warrants
As of
December 31, 2009, the Company had 3,000,003 warrants outstanding.
In
October 2009, the Company entered into an equity line of credit arrangement and
issued three warrants representing the right to purchase up to an aggregate of
1,600,000 shares of the Company’s common stock. See Footnote 4 -
Equity Facility, for additional information regarding this credit arrangement
and warrants issued.
In
February 2008, the Company also issued 1,400,003 warrants in conjunction with a
private placement transaction. The warrants grant the holder the
right to purchase one share of our common stock at a price of $15.06 per
share. The warrants are immediately exercisable and remain
exercisable until February 20, 2013. Beginning two years after their
issuance, the warrants may be called by the Company for a price of $0.01 per
underlying share if the closing price of its common stock has exceeded 150% of
the exercise price for at least 20 trading days within a period of any 30
consecutive trading days and other certain conditions are met. In
addition, in the event of certain fundamental transactions, principally the
purchase of the Company’s outstanding common stock for cash, the holders of the
warrants may demand that the Company purchase the unexercised portions of their
warrants for a price equal to the Black-Scholes Value of such unexercised
portions as of the time of the fundamental transaction. Warrants
issued to the investors were accounted for as an equity transaction with a value
of $9.8 million recorded to common stock.
Employee Stock Purchase
Plan
The
Company maintains an Employee Stock Purchase Plan (“ESPP”) that provides
employees of the Company an opportunity to purchase common stock through payroll
deductions. The ESPP is a 6-month duration plan with new participation periods
beginning the first business day of January and July of each year. The purchase
price is set at 85% of the average high and low market price of the Company's
common stock on either the first or last day of the participation period,
whichever is lower, and contributions are limited to the lower of 10% of an
employee's compensation or $25,000. The Company issues new shares of
common stock to satisfy the issuance of shares under this stock-based
compensation plan.
The amounts
of shares issued for the ESPP are as follows:
Number
of Common Stock Shares
|
Purchase
Price per Share of
Common
Stock
|
|||||||
Amount
of shares reserved for the ESPP
|
4,500,000
|
|||||||
Number
of shares issued for calendar years 2000 through
2007
|
(1,123,857
|
)
|
$1.87
- $40.93
|
|||||
Number
of shares issued for calendar year 2008
|
(592,589
|
)
|
$0.88
- $ 5.62
|
|||||
Number
of shares issued for calendar year 2009
|
(1,073,405
|
)
|
$0.88
- $ 0.92
|
|||||
Remaining
shares reserved for the ESPP
|
1,710,149
|
Future
Issuances
As
of December 31, 2009, the Company had reserved a total of 16.9 million
shares of its common stock for future issuances as follows:
Number
of Common Stock Shares Available
|
||||
For
exercise of outstanding common stock options
|
9,953,767
|
|||
For
future issuances to employees under the ESPP
|
1,710,149
|
|||
For
future common stock option awards
|
2,252,014
|
|||
For
future exercise of warrants
|
3,000,003
|
|||
Total
reserved
|
16,915,933
|
NOTE
4. Equity Facility
On
October 1, 2009, the Company entered into a common stock purchase agreement (the
“Purchase Agreement”) with Commerce Court Small Cap Value Fund, Ltd. (“Commerce
Court”). The Purchase Agreement provides that upon certain terms and
conditions, and the issuance of a draw-down request by the Company, Commerce
Court has committed to purchasing up to $25 million worth of shares of the
Company’s common stock over the 24-month term of the Purchase Agreement;
provided, however, in no event may the Company sell more than 15,971,169 shares
of common stock under the Purchase Agreement, which is equal to one share less
than twenty percent of the Company’s outstanding shares of common stock as of
the closing date of the Purchase Agreement, less the number of shares of common
stock the Company issued to Commerce Court on the closing date in partial
payment of its commitment fee, or more shares that would result in the
beneficial ownership or more than 9.9% of the then issued and outstanding shares
of our common stock by Commerce Court.
As
payment of a portion of Commerce Court’s fees in connection with the Purchase
Agreement, the Company agreed to issue to Commerce Court upon the execution of
the Purchase Agreement, 185,185 shares of common stock and three warrants
representing the right to purchase up to an aggregate of 1,600,000 shares of
common stock, as follows:
-
|
a
warrant, pursuant to which Commerce Court may purchase up to 666,667
shares of common stock at an exercise price of $1.69, which is equal to
125% of the average of the volume weighted average price of common stock
for the three trading days immediately preceding the execution date of the
Purchase Agreement,
|
-
|
a
warrant, pursuant to which Commerce Court may purchase from up to 666,667
shares of common stock at an exercise price of $2.02, which is equal to
150% of the average of the volume weighted average price of common stock
for the three trading days immediately preceding the execution date of the
Purchase Agreement, and
|
-
|
a
warrant, pursuant to which Commerce Court may purchase up to 266,666
shares of common stock at an exercise price of $2.36, which is equal to
175% of the average of the volume weighted average price of common stock
for the three trading days immediately preceding the execution date of the
Purchase Agreement.
|
The
warrants may be exercised at any time or from time to time between April 1, 2010
and April 1, 2015. The warrants may not be offered for sale, sold,
transferred or assigned without our consent, in whole or in part, to any person
other than an affiliate of Commerce Court. If after April 1, 2010,
the Company’s common stock trades at a price greater than 140% of the exercise
price of any warrant for a period of 10 consecutive trading days and the Company
meets certain equity conditions, then the Company has the right to effect a
mandatory exercise of such warrant.
From time
to time over the term of the Purchase Agreement, and at the Company’s sole
discretion, the Company may present Commerce Court with draw down notices to
purchase common stock over a ten consecutive trading day period or such other
period mutually agreed upon by the Company and Commerce Court (the “draw down
period”) with each draw down subject to limitations based on the price of the
Company’s common stock and a limit of the amount in the applicable fixed amount
request, or 2.5% of the Company’s market capitalization at the time of such draw
down, whichever is less.
The
Company has the right to present Commerce Court with up to 24 draw down notices
during the term of the Purchase Agreement, with only one such draw down notice
allowed per draw down period with a minimum of five trading days required
between each draw down period.
Once
presented with a draw down notice, Commerce Court is required to purchase a pro
rata portion of the shares on each trading day during the trading period on
which the daily volume weighted average price for the common stock exceeds a
threshold price determined by the Company for such draw down. The per share
purchase price for these shares will equal the daily volume weighted average
price of the common stock on each date during the draw down period on which
shares are purchased, less a discount of 5%. If the daily volume weighted
average price of the common stock falls below the threshold price on any trading
day during a draw down period, the Purchase Agreement provides that Commerce
Court will not be required to purchase the pro-rata portion of shares of common
stock allocated to that day. However, at its election, Commerce Court may buy
the pro-rata portion of shares allocated to that day at the threshold price less
the discount described above.
The
Purchase Agreement also provides that, from time to time and at the Company’s
sole discretion, the Company may grant Commerce Court the right to exercise one
or more options to purchase additional shares of common stock during each draw
down period for an amount of shares specified by the Company based on the
trading price of the common stock. Upon Commerce Court’s exercise of such an
option, the Company would sell to Commerce Court the shares of common stock
subject to the option at a price equal to the greater of the daily volume
weighted average price of the common stock on the day Commerce Court notifies
the Company of its election to exercise its option or the threshold price for
the option determined by the Company, less a discount calculated in the same
manner as it is calculated in the draw down notice.
In
addition to the issuance of shares of common stock to Commerce Court pursuant to
the Purchase Agreement, a supplement to the Company’s shelf registration
statement filed with the SEC also covers the sale of those shares from time to
time by Commerce Court to the public.
The
Company paid $45,000 of Commerce Court’s attorneys’ fees and expenses incurred
by Commerce Court in connection with the preparation, negotiation, execution and
delivery of the Purchase Agreement and related transaction
documentation. The Company has also agreed to pay up to $5,000 in
certain fees and expenses incurred by Commerce Court in connection with any
amendments, modifications or waivers of the Purchase Agreement, ongoing due
diligence of our company and other transaction expenses associated with fixed
requests made by the Company from time to time during the term of the Purchase
Agreement, provided that the Company shall not be required to pay any
reimbursement for any such expenses in any calendar quarter in which the Company
provides a fixed request notice.
If the
Company issues a draw down notice and fails to deliver the shares to Commerce
Court on the applicable settlement date, and such failure continues for ten
trading days, the Company has agreed to pay Commerce Court, at Commerce Court’s
option, liquidated damages in cash or restricted shares of common
stock.
Upon each
sale of common stock to Commerce Court under the Purchase Agreement, the Company
has also agreed to pay Reedland Capital Partners, an Institutional Division of
Financial West Group, a placement fee equal to 1% of the aggregate dollar amount
of common stock purchased by Commerce Court.
Financial
Impact
The
Purchase Agreement meets all of the criteria of a financial derivative
instrument in accordance with the accounting literature in ASC 815, Derivatives and
Hedging. Derivative instruments should be measured initially
at fair value; however, because the Purchase Agreement is based on the
prevailing market price at a possible future transaction date, this
variable-priced contract would not be expected to have a fair value other than
zero. The warrants issued by the Company were classified as a
liability since the warrants met the classification requirements for liability
accounting in accordance with ASC 815.
Costs
incurred to enter into this derivative instrument were expensed as
incurred. During the three months ended December 31, 2009, the
Company expensed the fair value of the common stock and warrants issued as a
non-operating expense from a financing derivative instrument within the
condensed consolidated statement of operations.
The fair
value of the 185,185 shares of common stock issued was based on the closing
price of $1.23 per share on October 1, 2009, or $0.2 million. The
fair value of each warrant was estimated using the Black-Scholes option
valuation model using the weighted-average assumptions set forth
below. The option-pricing model requires the input of highly
subjective assumptions, including the warrant’s expected life and the price
volatility of the underlying stock, as outlined below:
Black-Scholes
Assumptions
As
of October 1, 2009
|
Warrant 1
|
Warrant 2
|
Warrant 3
|
TOTAL
|
Grant
date
|
10/1/09
|
10/1/09
|
10/1/09
|
|
Stock
price
|
$1.23
|
$1.23
|
$1.23
|
|
Exercise
price
|
$1.69
|
$2.02
|
$2.36
|
|
Expected
term
|
5.5
years
|
5.5
years
|
5.5
years
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
|
Volatility
|
95%
|
95%
|
95%
|
|
Risk-free
interest rate
|
2.2%
|
2.2%
|
2.2%
|
|
Black-Scholes
value
|
$0.87
|
$0.84
|
$0.81
|
|
Number
of warrants issued
|
666,667
|
666,667
|
266,666
|
1,600,000
|
Value
of warrants
|
$580,000
|
$560,000
|
$216,000
|
$1,356,000
|
On
October 1, 2009, the Company recorded $1.4 million in non-operating expense
related to the issuance of these warrants. The Company expects an
impact to the consolidated statement of operations when it records an adjustment
to fair value of the warrants at the end of each quarterly reporting period
going forward.
As of
December 31, 2009, the fair value of the warrants was estimated to be $1.1
million and the Company recorded a gain of $0.2 million on the change in fair
value of the warrants since October 1, 2009. The fair value of each
warrant was estimated using the following weighted-average
assumptions:
Black-Scholes
calculation
As
of December 31, 2009
|
Warrant 1
|
Warrant 2
|
Warrant 3
|
TOTAL
|
Grant
date
|
10/1/09
|
10/1/09
|
10/1/09
|
|
Stock
price
|
$1.07
|
$1.07
|
$1.07
|
|
Exercise
price
|
$1.69
|
$2.02
|
$2.36
|
|
Expected
term
|
5.25
years
|
5.25
years
|
5.25
years
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
|
Volatility
|
95%
|
95%
|
95%
|
|
Risk-free
interest rate
|
2.7%
|
2.7%
|
2.7%
|
|
Black-Scholes
value
|
$0.73
|
$0.70
|
$0.67
|
|
Number
of warrants issued
|
666,667
|
666,667
|
266,666
|
1,600,000
|
Value
of warrants
|
$486,667
|
$466,667
|
$178,666
|
$1,132,000
|
NOTE
5. Receivables
The
components of accounts receivable consisted of the following:
(in
thousands)
|
As
of
December
31, 2009
|
As
of
September
30, 2009
|
|||||
Accounts
receivable
|
$
|
42,168
|
$
|
40,474
|
|||
Accounts
receivable – unbilled
|
5,198
|
6,068
|
|||||
Accounts
receivable, gross
|
47,366
|
46,542
|
|||||
Allowance
for doubtful accounts
|
(6,640
|
)
|
(7,125
|
)
|
|||
Total
accounts receivable, net
|
$
|
40,726
|
$
|
39,417
|
The
Company records receivables from certain solar panel and solar power systems
contracts using the percentage-of-completion method. The term of the
contracts associated with this type of receivable usually exceed a period of one
year. As of December 31, 2009, the Company had recorded $13.0 million
of accounts receivable using the percentage of completion method. Of
this amount, $8.5 million was invoiced and $4.5 million was unbilled as of
December 31, 2009. Unbilled accounts receivable represents revenue
recognized but not yet billed or accounts billed after the period
ended. Billings on contracts using the percentage-of-completion
method usually occurs upon completion of predetermined contract milestones or
other contract terms, such as customer approval. The allowance for
doubtful accounts specifically related to receivables recorded using the
percentage-of-completion method totaled $2.5 million as of December 31,
2009. The allowance is based on the age of receivables and a specific
identification of receivables considered at risk of collection.
All of
the Company’s accounts receivable as of December 31, 2009 is expected to be
collected within the next twelve months.
The
following table summarizes the changes in the allowance for doubtful
accounts:
(in
thousands)
|
For
the Three Months Ended
December 31,
|
||||||||
2009
|
2008
|
||||||||
Balance
at beginning of period
|
$
|
7,125
|
$
|
2,377
|
|||||
Provision
adjustment – (recovery) expense
|
(434
|
)
|
922
|
||||||
Write-offs
- deductions against receivables
|
(51
|
)
|
-
|
||||||
Balance
at end of period
|
$
|
6,640
|
$
|
3,299
|
NOTE
6. Inventory
Inventory
is stated at the lower of cost or market, with cost being determined using the
standard cost method that includes material, labor, and manufacturing overhead
costs. The components of inventory consisted of the
following:
(in
thousands)
|
As
of
December
31,2009
|
As
of
September
30, 2009
|
|||||
Raw
materials
|
$
|
28,237
|
$
|
27,607
|
|||
Work-in-process
|
7,057
|
6,496
|
|||||
Finished
goods
|
7,374
|
9,998
|
|||||
Inventory,
gross
|
42,668
|
44,101
|
|||||
Less:
valuation allowance
|
(11,214
|
)
|
(9,880
|
)
|
|||
Total
inventory, net
|
$
|
31,454
|
$
|
34,221
|
The
following table summarizes the changes in the valuation allowance
accounts:
(in
thousands)
|
For
the Three Months
Ended
December 31,
|
||||||||
2009
|
2008
|
||||||||
Balance
at beginning of period
|
$
|
9,880
|
$
|
12,625
|
|||||
Provision
adjustment – (recovery) expense
|
(378
|
)
|
5,507
|
||||||
Adjustments
against inventory or provisions
|
1,712
|
(780
|
)
|
||||||
Balance
at end of period
|
$
|
11,214
|
$
|
17,352
|
NOTE
7. Property, Plant, and Equipment
The
components of property, plant, and equipment consisted of the
following:
(in
thousands)
|
As
of
December
31, 2009
|
As
of
September
30, 2009
|
|||||
Land
|
$
|
1,502
|
$
|
1,502
|
|||
Building
and improvements
|
34,922
|
34,922
|
|||||
Equipment
|
98,711
|
98,693
|
|||||
Furniture
and fixtures
|
3,065
|
3,065
|
|||||
Computer
hardware and software
|
2,655
|
2,660
|
|||||
Leasehold
improvements
|
1,055
|
1,094
|
|||||
Construction
in progress
|
3,144
|
3,031
|
|||||
Property,
plant and equipment, gross
|
145,054
|
144,967
|
|||||
Less:
accumulated depreciation and amortization
|
(92,335
|
)
|
(89,939
|
)
|
|||
Total
property, plant and equipment, net
|
$
|
52,719
|
$
|
55,028
|
As of
December 31, 2009 and September 30, 2009, the Company did not have any
significant capital lease agreements.
Depreciation
expense was $2.4 million and $3.1 million for the three months ended December
31, 2009 and 2008, respectively.
NOTE
8. Goodwill
As of
September 30, 2009, the Company performed an impairment test on its goodwill
based on revised operational and cash flow forecasts. The impairment
testing indicated that no impairment existed and that fair value exceeded
carrying value by approximately 40%. As of December 31, 2009, the
Company performed an annual impairment test on its goodwill of $20.4 million
related to its Photovoltaics reporting unit and the Company believes the
carrying amount of the goodwill is not impaired. There were no events
or change in circumstances that would more likely than not reduce the fair value
of the Photovoltaics reporting unit below its carrying
amount. However, if there is further erosion of the Company’s market
capitalization or the Photovoltaics reporting unit is unable to achieve its
projected cash flows, management may be required to perform additional
impairment tests of its remaining goodwill. The outcome of these
additional tests may result in the Company recording goodwill impairment
charges.
NOTE
9. Intangible Assets
The
following table sets forth changes in the carrying value of intangible assets by
reporting segment:
(in
thousands)
|
As of December 31,
2009
|
As
of September 30, 2009
|
|||||||||||||||||
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
||||||||||||||
Fiber
Optics
|
$
|
24,522
|
$
|
(12,993
|
)
|
$
|
11,529
|
$
|
24,494
|
$
|
(12,341
|
)
|
$
|
12,153
|
|||||
Photovoltaics
|
1,589
|
(694
|
)
|
895
|
1,459
|
(630
|
)
|
829
|
|||||||||||
Total
|
$
|
26,111
|
$
|
(13,687
|
)
|
$
|
12,424
|
$
|
25,953
|
$
|
(12,971
|
)
|
$
|
12,982
|
The
Company believes the carrying amount of its long-lived assets and intangible
assets as of December 31, 2009 are recoverable. However, if there is
further erosion of the Company’s market capitalization or the Company is unable
to achieve its projected cash flows, management may be required to perform
impairment tests of its remaining long-lived assets and intangible
assets. The outcome of these tests may result in the Company
recording impairment charges.
Amortization
expense related to intangible assets is generally included in SG&A on the
consolidated statements of operations. Amortization expense was $0.7
million and $1.1 million for the three months ended December 31, 2009 and
2008, respectively.
Based on
the carrying amount of the intangible assets as of December 31, 2009, the
estimated future amortization expense is as follows:
(in
thousands)
|
Estimated
Future Amortization Expense
|
|||
Nine
months ended September 30, 2010
|
$
|
2,133
|
||
Fiscal
year ended September 30, 2011
|
2,463
|
|||
Fiscal
year ended September 30, 2012
|
2,139
|
|||
Fiscal
year ended September 30, 2013
|
1,804
|
|||
Fiscal
year ended September 30, 2014
|
1,269
|
|||
Thereafter
|
2,616
|
|||
Total
future amortization expense
|
$
|
12,424
|
NOTE
10. Accrued Expenses and Other Current Liabilities
The
components of accrued expenses and other current liabilities consisted of the
following:
(in
thousands)
|
As
of
December
31, 2009
|
As
of
September
30, 2009
|
||||||
Compensation-related
|
$
|
4,521
|
$
|
5,861
|
||||
Warranty
|
4,417
|
4,287
|
||||||
Loss
on firm commitments
|
-
|
3,821
|
||||||
Professional
fees
|
2,046
|
1,839
|
||||||
Royalty
|
2,113
|
1,937
|
||||||
Self
insurance
|
1,431
|
1,272
|
||||||
Deferred
revenue and customer deposits
|
3,858
|
886
|
||||||
Income
and other taxes
|
685
|
625
|
||||||
Accrued
program loss
|
15
|
51
|
||||||
Restructuring
accrual
|
342
|
395
|
||||||
Other
|
1,614
|
713
|
||||||
Total
accrued expenses and other current liabilities
|
$
|
21,042
|
$
|
21,687
|
The
following table summarizes the changes in the product warranty accrual
accounts:
(in
thousands)
|
For
the Three Months
Ended
December 31,
|
||||||||
2009
|
2008
|
||||||||
Balance
at beginning of period
|
$
|
4,287
|
$
|
4,640
|
|||||
Provision
adjustment – expense (recovery)
|
340
|
(133
|
)
|
||||||
Utilization
of warranty accrual
|
(210
|
)
|
(395
|
)
|
|||||
Balance
at end of period
|
$
|
4,417
|
$
|
4,112
|
NOTE
11. Restructuring Charges
In
accordance with ASC 420, Exit
or Disposal Cost Obligations, restructuring charges include costs
associated with the integration of business acquisitions and overall
cost-reduction efforts, all of which are generally included in SG&A on the
consolidated statements of operations.
Restructuring
charges consisted of the following:
(in
thousands)
|
For
the Three Months
Ended
December 31,
|
||||||||
2009
|
2008
|
||||||||
Employee
severance-related expense
|
$
|
8
|
$
|
617
|
|||||
Other
restructuring-related expense
|
-
|
-
|
|||||||
Total
restructuring charges
|
$
|
8
|
$
|
617
|
The
following table sets forth changes in the severance and restructuring-related
accrual accounts:
(in
thousands)
|
Severance-related
Accrual
|
Restructuring-related
Accrual
|
Total
|
|||||||||
Balance
as of September 30, 2009
|
$
|
226
|
$
|
395
|
$
|
621
|
||||||
Additional
accruals
|
8
|
-
|
8
|
|||||||||
Cash
payments or otherwise settled
|
(223
|
)
|
(53
|
)
|
(276
|
)
|
||||||
Balance
as of December 31, 2009
|
$
|
11
|
$
|
342
|
$
|
353
|
NOTE
12. Debt
Line of
Credit
In
September 2008, the Company closed a $25 million asset-backed revolving credit
facility with Bank of America which can be used for working capital, letters of
credit and other general corporate purposes. Subsequently, the credit
facility was amended resulting in a reduction in the total loan availability to
$14 million. The credit facility matures in September 2011 and is
secured by virtually all of the Company’s assets. The credit facility
is subject to a borrowing base formula based on eligible accounts receivable and
provides for prime-based borrowings.
As of
December 31, 2009, the Company had a $10.7 million prime rate loan outstanding,
with an interest rate of 8.25%, and approximately $2.9 million in outstanding
standby letters of credit under this credit facility.
The
facility is also subject to certain financial covenants. On February
8, 2010, the Company and Bank of America entered into a Sixth Amendment to the
Company’s revolving asset-backed credit facility, which (a) permits the Company
to enter into foreign exchange hedging transactions pursuant to a separate
facility with the bank, provided that available amounts under such facility
shall be deducted from the maximum revolving loan limit under this facility; and
(b) resets the EDITDA financial covenant for the first quarter of fiscal 2010 to
place the Company in compliance with that covenant.
Short-term
Debt
In
December 2008, the Company borrowed $0.9 million from UBS Securities that is
collateralized with $1.4 million of auction rate preferred
securities. The average interest rate on the loan is approximately
1.4% and the term of the loan is dependent upon the timing of the settlement of
the auction rate securities with UBS Securities which is expected to occur by
June 2010 at 100% par value.
Letters of
credit
As of
December 31, 2009, the Company had 8 standby letters of credit issued and
outstanding which totaled approximately $3.1 million, of which $2.9 million was
issued against the Company’s credit facility with Bank of America and the
remaining $0.2 million in standby letters of credit are collateralized with
other financial institutions and are listed on the Company’s balance sheet as
restricted cash.
NOTE
13. Commitments and Contingencies
The
Company leases certain land, facilities, and equipment under non-cancelable
operating leases. The leases typically provide for rental adjustments for
increases in base rent (up to specific limits), property taxes, insurance and
general property maintenance that would be recorded as rent
expense. Net facility and equipment rent expense under such leases
totaled approximately $0.7 million and $0.6 million for the three months ended
December 31, 2009 and 2008, respectively.
Estimated
future minimum rental payments under the Company's non-cancelable operating
leases with an initial or remaining term of one year or more as of December 31,
2009 are as follows:
(in
thousands)
|
Estimated
Future Minimum Lease Payments
|
|||
Nine
months ended September 30, 2010
|
$
|
1,444
|
||
Fiscal
year ended September 30, 2011
|
1,814
|
|||
Fiscal
year ended September 30, 2012
|
1,072
|
|||
Fiscal
year ended September 30, 2013
|
799
|
|||
Fiscal
year ended September 30, 2014
|
76
|
|||
Thereafter
|
2,699
|
|||
Total
minimum lease payments
|
$
|
7,904
|
Legal
Proceedings
The
Company is subject to various legal proceedings and claims that are discussed
below. The Company is also subject to certain other legal proceedings and claims
that have arisen in the ordinary course of business and which have not been
fully adjudicated. The Company does not believe it has a potential
liability related to current legal proceedings and claims that could
individually, or in the aggregate, have a material adverse effect on its
financial condition, liquidity or results of operations. However, the results of
legal proceedings cannot be predicted with certainty. Should the Company fail to
prevail in any legal matters or should several legal matters be resolved against
the Company in the same reporting period, then the operating results of that
particular reporting period could be materially adversely
affected. In the past, the Company settled certain matters that did
not individually, or in the aggregate, have a material impact on the Company’s
results of operations.
a)
Intellectual Property Lawsuits
We
protect our proprietary technology by applying for patents where appropriate
and, in other cases, by preserving the technology, related know-how and
information as trade secrets. The success and competitive position of our
product lines are significantly impacted by our ability to obtain intellectual
property protection for our R&D efforts.
We have,
from time to time, exchanged correspondence with third parties regarding the
assertion of patent or other intellectual property rights in connection with
certain of our products and processes. Additionally, on September 11, 2006, we
filed a lawsuit against Optium Corporation, currently part of Finisar
Corporation (Optium) in the U.S. District Court for the Western District of
Pennsylvania for patent infringement of certain patents associated with our
Fiber Optics segment. In the suit, the Company and JDS Uniphase Corporation
(JDSU) allege that Optium is infringing on U.S. patents 6,282,003 and 6,490,071
with its Prisma II 1550nm transmitters. On March 14, 2007, following denial of a
motion to add additional claims to its existing lawsuit, the Company and JDSU
filed a second patent suit in the same court against Optium alleging
infringement of JDSU's patent 6,519,374 ("the '374 patent"). On March
15, 2007, Optium filed a declaratory judgment action against the Company and
JDSU. Optium sought in this litigation a declaration that certain products of
Optium do not infringe the '374 patent and that the patent is invalid, but the
District Court dismissed the action on January 3, 2008 without addressing the
merits. The '374 patent is assigned to JDSU and licensed to the
Company.
On
December 20, 2007, the Company was served with a complaint in another
declaratory relief action which Optium had filed in the Federal District Court
for the Western District of Pennsylvania. This action seeks to have
U.S. patents 6,282,003 and 6,490,071 declared invalid or unenforceable because
of certain conduct alleged to have occurred in connection with the grant of
these patents. These allegations are substantially the same as those
brought by Optium by motion in the Company’s own case against Optium, which
motion had been denied by the Court. On August 11, 2008, both actions
pending in the Western District of Pennsylvania were consolidated before a
single judge, and a trial date of October 19, 2009 was set. On
February 18, 2009, the Company’s motion for a summary judgment dismissing
Optium’s declaratory relief action was granted, and on March 11, 2009, the
Company was notified that Optium intended to file an appeal of this order. In
October 2009 the consolidated matters were tried before a jury, which found that
all patents asserted against Optium were valid, that all claims asserted were
infringed, and that such infringement by Optium was willful where willfulness
was asserted. The jury awarded EMCORE and JDSU monetary damages
totaling approximately $3.4 million.
b)
Avago-related Litigation
On July
15, 2008, the Company was served with a complaint filed by Avago Technologies
and what appear to be affiliates thereof in the United States District Court for
the Northern District of California, San Jose Division (Avago Technologies U.S.,
Inc., et al., Emcore
Corporation, et al.,
Case No.: C08-3248 JW). In this complaint, Avago asserts
claims for breach of contract and breach of express warranty against Venture
Corporation Limited (one of the Company’s customers) and asserts a tort claim
for negligent interference with prospective economic advantage against the
Company.
On
December 5, 2008, the Company was also served with a complaint by Avago
Technologies filed in the United States District Court for the Northern District
of California, San Jose Division alleging infringement of two patents by the
Company’s VCSEL products. (Avago Technologies Singapore et al., Emcore Corporation,
et al., Case
No.: C08-5394 EMC). This matter has been stayed pending
resolution of the International Trade Commission matter described immediately
below.
On March
5, 2009, the Company was notified that, based on a complaint filed by Avago
alleging the same patent infringement that formed the basis of the complaint
previously filed in the Northern District of California, the U.S. International
Trade Commission had determined to begin an investigation titled “In the Matter
of Certain Optoelectronic Devices, Components Thereof and Products Containing
the Same”, Inv. No. 337-TA-669. This matter was tried before an
administrative law judge of the International Trade Commission from November
16-20, 2009, and final briefings have been completed but no decision has yet
been rendered.
The
Company intends to vigorously defend against the allegations of all of the Avago
complaints.
c)
Green and Gold related litigation
On
December 23, 2008, Plaintiffs Maurice Prissert and Claude Prissert filed a
purported stockholder class action (the “Prissert Class Action”) pursuant to
Federal Rule of Civil Procedure 23 allegedly on behalf of a class of Company
shareholders against the Company and certain of its present and former directors
and officers (the “Individual Defendants”) in the United States District Court
for the District of New Mexico captioned, Maurice Prissert and Claude Prissert
v. EMCORE Corporation, Adam Gushard, Hong Q. Hou, Reuben F. Richards, Jr., David
Danzilio and Thomas Werthan, Case No. 1:08cv1190 (D.N.M.). The
Complaint alleges that Company and the Individual Defendants violated certain
provisions of the federal securities laws, including Section 10(b) of the
Securities Exchange Act of 1934, arising out of the Company’s disclosure
regarding its customer Green and Gold Energy (“GGE”) and the associated backlog
of GGE orders with the Company’s Photovoltaics business segment. The
Complaint in the Class Action seeks, among other things, an unspecified amount
of compensatory damages and other costs and expenses associated with the
maintenance of the Action.
On or
about February 12, 2009, a second purported stockholder class action (Mueller v. EMCORE Corporation et
al., Case No. 1:09cv 133 (D.N.M.)) (the “Mueller Class Action”) was filed
in the United States District Court for the District of New Mexico against the
same defendants named in the Prissert Class Action, based on substantially the
same facts and circumstances, containing substantially the same allegations and
seeking substantially the same relief. Plaintiffs in both class
actions have moved to consolidate the matters into a single action, and several
alleged EMCORE shareholders have moved to be appointed lead class plaintiff of
the to-be consolidated action. Selection of a lead plaintiff in this
matter is currently pending before the Court.
On
January 23, 2009, Plaintiff James E. Stearns filed a purported stockholder
derivative action (the “Stearns Derivative Action”) on behalf of the Company
against certain of its present and former directors and officers (the
“Individual Defendants”), as well as the Company as nominal defendant in the
Superior Court of New Jersey, Atlantic County, Chancery Division (James E. Stearns, derivatively on
behalf of EMCORE Corporation v. Thomas J. Russell, Robert Bogomolny,
Charles Scott, John Gillen, Reuben F. Richards, Jr., Hong Q. Hou, Adam Gushard,
David Danzilio and Thomas Werthan, Case No. Atl-C-10-09). This
action is based on essentially the same factual contentions as the Prissert
Class Action, and alleges that the Individual Defendants engaged in
improprieties and violations of law in connection with the reporting of the GGE
backlog. The Derivative Action seeks several forms of relief,
allegedly on behalf of the Company, including, among other things, damages,
equitable relief, corporate governance reforms, an accounting of, rescission of,
restitution of, and costs and disbursements of the lawsuit.
On March
11, 2009, Plaintiff Gary Thomas filed a second purported shareholder derivative
action (the “Thomas Derivative Action”; together with the Stearns Derivative
Action, the “Derivative Actions”) in the U.S. District Court for the District of
New Mexico against the Company and certain of the Individual
Defendants (Gary Thomas, derivatively on behalf
of EMCORE Corporation v. Thomas J. Russell, Robert Bogomolny, Charles
Scott, John Gillen, Reuben F. Richards, Jr., Hong Q. Hou, and EMCORE
Corporation, Case No. 1.09-cv-00236, (D.N.M.)). The Thomas
Derivative Action makes the same allegations as the Stearns Derivative Action
and seeks essentially the same relief.
The
Stearns Derivative Action and the Thomas Derivative action have been
consolidated before a single judge in Somerset County, New Jersey, and have been
stayed pending the Prissert and Mueller Class Actions.
The
Company intends to vigorously defend against the allegations of both the Class
Actions and the Derivative Action.
d)
Securities Matters
-
|
SEC
Communications. On or about August 15, 2008, the Company
received a letter from the Denver office of the Enforcement Division of
the Securities and Exchange Commission wherein it sought the Company's
voluntary production of documents relating to, among other things, the
Company's business relationship with Green and Gold Energy, Inc., its
licensees, and the Photovoltaics segment backlog the Company reported to
the public. Since that time, the Company has provided documents
to the staff of the SEC and met with the staff on December 12, 2008 to
address this matter. On June 10, 2009, the SEC staff requested
that the Company voluntarily provide documentary backup for certain
information presented at the December 2008 meeting, which was provided on
July 17, 2009, and arrange for a telephone interview with one former
employee, which has been completed. On August 24, 2009, in a
telephone call with the Company’s counsel, the staff posed certain
questions relating to the material provided on July 17, 2009, which were
answered via the production of additional information and documentation on
October 9, 2009.
|
-
|
NASDAQ
Communication. On or about November 13, 2008, the Company
received a letter from the NASDAQ Listings Qualifications group (“NASDAQ”)
concerning the Company's removal of $79 million in backlog attributable to
GGE which the Company announced on August 8, 2008 and the remaining
backlog exclusive of GGE. The Company advised NASDAQ that it would
cooperate with its inquiry. To date, the Company has received
three additional requests for information from NASDAQ (the latter 2 of
which requested updates on the SEC matter). The Company has
complied with each of NASDAQ’s requests. In early November 2009
the NASDAQ orally requested to be advised of developments in the SEC
matter.
|
As of
December 31, 2009 and the filing date of this Quarterly Report on Form 10-Q, no
amounts have been accrued for any litigation item discussed above since no
estimate of loss can be made at this time.
See
Footnote 17 – Subsequent Event for additional commitments and contingencies
related to the Tangshan agreements announced on February 3, 2010.
NOTE
14. Income Taxes
During
the three months ended December 31, 2009 and 2008, there were no material
increases or decreases in unrecognized tax benefits and management does not
anticipate any material increases or decreases in the amounts of unrecognized
tax benefits over the next twelve months. As of December 31, 2009,
the Company had approximately $0.2 million of interest and penalties accrued as
tax liabilities on the balance sheet.
A
reconciliation of the beginning and ending amount of unrecognized gross tax
benefits is as follows:
(in
thousands)
|
||||
Balance
as of September 30, 2009
|
$
|
374
|
||
Subtractions
based on tax positions related to the current year
|
(17
|
)
|
||
Subtractions
for tax positions of prior years
|
(19
|
)
|
||
Balance
as of December 31, 2009
|
$
|
338
|
The
Company files income tax returns in the U.S. federal, state, and local
jurisdictions and, currently, no federal, state, and local income tax returns
are under examination. The following tax years remain open to income
tax examination for each of the more significant jurisdictions where the Company
is subject to income taxes: after fiscal year 2006 for U.S. federal; after
fiscal year 2005 for the state of California and after fiscal year 2006 for the
state of New Mexico.
NOTE
15. Segment Data and Related Information
The
Company has five operating segments: (1) EMCORE Digital Fiber Optics Products,
(2) EMCORE Broadband Fiber Optics Products, and (3) EMCORE Hong Kong, which are
aggregated as a separate reporting segment, Fiber Optics, and (4) EMCORE
Photovoltaics and (5) EMCORE Solar Power, which are aggregated as a separate
reporting segment, Photovoltaics. Fiber Optics revenue is derived
primarily from sales of optical components and subsystems for CATV, FTTP,
enterprise routers and switches, telecom grooming switches, core routers, high
performance servers, supercomputers, and satellite communications data
links. Photovoltaics revenue is derived primarily from the sales of
solar power conversion products for the space and terrestrial markets, including
solar cells, coverglass interconnected solar cells, satellite solar panels,
concentrator solar cells and concentrating photovoltaic (“CPV”) receiver
assemblies and systems. The Company evaluates its reportable segments
in accordance with ASC 280, Segment Reporting. The
Company’s Chief Executive Officer is the Chief Operating Decision Maker pursuant
to ASC 280, and he allocates resources to segments based on their business
prospects, competitive factors, net revenue, operating results and other
non-GAAP financial ratios. Operating income or expense that is not
specifically related to an operating segment is charged to a separate
unallocated corporate division.
The
following table sets forth the revenue and percentage of total revenue
attributable to each of the Company’s reporting segments.
Segment
Revenue
(in
thousands)
|
For
the Three Months Ended
December
31,
|
||||||||||||||||
2009
|
2008
|
||||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
||||||||||||||
Fiber
Optics
|
$
|
25,608
|
60
|
%
|
$
|
39,166
|
72
|
%
|
|||||||||
Photovoltaics
|
16,793
|
40
|
14,890
|
28
|
|||||||||||||
Total
revenue
|
$
|
42,401
|
100
|
%
|
$
|
54,056
|
100
|
%
|
The
following table sets forth the Company’s consolidated revenue by geographic
region with revenue assigned to geographic regions based on our customers’
billing address.
Geographic
Revenue
(in
thousands)
|
For
the Three Months Ended
December
31,
|
||||||||||||||||
2009
|
2008
|
||||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
||||||||||||||
United
States
|
$
|
34,361
|
81
|
%
|
$
|
31,715
|
58
|
%
|
|||||||||
Asia
|
6,196
|
15
|
19,208
|
36
|
|||||||||||||
Europe
|
1,277
|
3
|
2,797
|
5
|
|||||||||||||
Other
|
567
|
1
|
336
|
1
|
|||||||||||||
Total
revenue
|
$
|
42,401
|
100
|
%
|
$
|
54,056
|
100
|
%
|
The
following table sets forth our significant market sectors, defined as product
line sales that represented greater than 10% of total consolidated revenue, by
reporting segment.
Significant
Market Sectors
As
a percentage of total consolidated revenue
|
For
the Three Months Ended December 31,
|
||||||||
2009
|
2008
|
||||||||
Fiber
Optics – related:
|
|||||||||
Cable
Television Products
|
21
|
%
|
14
|
%
|
|||||
Parallel
Optical Transceiver / Cable Products
|
10
|
%
|
-
|
||||||
Enterprise
Products
|
-
|
15
|
%
|
||||||
Telecom
Optical Products
|
-
|
14
|
%
|
||||||
Photovoltaics
– related:
|
|||||||||
Satellite
Solar Power Generation
|
38
|
%
|
26
|
%
|
The
following table sets forth our significant customer, defined as customers that
represented greater than 10% of total consolidated revenue, by reporting
segment.
Significant
Customers
As
a percentage of total consolidated revenue
|
For
the Three Months Ended December 31,
|
||||||||
2009
|
2008
|
||||||||
Fiber
Optics – related customer:
|
|||||||||
Cisco
Systems, Inc.
|
14
|
%
|
17
|
%
|
|||||
Photovoltaics
– related customer:
|
|||||||||
Loral
Space & Communications
|
15
|
%
|
14
|
%
|
The
following table sets forth operating losses attributable to each of the
Company’s reporting segments and Corporate division.
Statement
of Operations Data
(in
thousands)
|
For
the Three Months Ended December 31,
|
||||||||
2009
|
2008
|
||||||||
Operating
loss:
|
|||||||||
Fiber
Optics segment
|
$
|
(8,407
|
)
|
$
|
(48,423
|
)
|
|||
Photovoltaics
segment
|
(3,525
|
)
|
(4,035
|
)
|
|||||
Corporate
division
|
-
|
(3
|
)
|
||||||
Operating
loss
|
$
|
(11,932
|
)
|
$
|
(52,461
|
)
|
The
following table sets forth the depreciation and amortization attributable to
each of the Company’s reporting segments and Corporate division.
Segment
Depreciation and Amortization
(in
thousands)
|
For
the Three Months Ended December 31,
|
||||||||
2009
|
2008
|
||||||||
Fiber
Optics segment
|
$
|
1,764
|
$
|
2,852
|
|||||
Photovoltaics
segment
|
1,353
|
1,441
|
|||||||
Total
depreciation and amortization
|
$
|
3,117
|
$
|
4,293
|
Long-lived
assets consist primarily of property, plant, and equipment and also goodwill and
intangible assets. The following table sets forth long-lived assets
for each of the Company’s reporting segments and Corporate
division.
Long-lived
Assets
(in
thousands)
|
As
of December 31, 2009
|
As
of
September
30, 2009
|
||||||
Fiber
Optics segment
|
$
|
35,676
|
$
|
37,399
|
||||
Photovoltaics
segment
|
49,027
|
50,169
|
||||||
Corporate
division
|
824
|
826
|
||||||
Total
long-lived assets
|
$
|
85,527
|
$
|
88,394
|
NOTE
16. Fair Value Accounting
ASC 820,
Fair Value Measurements and
Disclosures, establishes a valuation hierarchy for disclosure of the
inputs to valuation used to measure fair value. Valuation techniques used to
measure fair value under ASC 820 must maximize the use of observable inputs and
minimize the use of unobservable inputs. The standard describes a fair value
hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value
which are the following:
-
|
Level
1 inputs are unadjusted quoted prices in active markets for identical
assets or liabilities.
|
-
|
Level
2 inputs are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the
full term of the financial
instrument.
|
-
|
Level
3 inputs are unobservable inputs based on our own assumptions used to
measure assets and liabilities at fair value. A financial asset or
liability’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
|
The
following table provides the Company’s financial assets and liabilities,
consisting of the following types of instruments, measured at fair value on a
recurring basis:
(in
thousands)
|
As
of December 31, 2009
|
|||||||||||||||
Quoted
Prices in Active Markets for Identical Assets
[Level
1]
|
Significant
Other Observable Remaining Inputs
[Level
2]
|
Significant
Unobservable Inputs
[Level
3]
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Money
market fund deposits
|
$
|
15,138
|
$
|
-
|
$
|
-
|
$
|
15,138
|
||||||||
Restricted
fund deposits
|
167
|
-
|
-
|
167
|
||||||||||||
Asset-backed
auction rate securities
|
-
|
1,350
|
-
|
1,350
|
||||||||||||
Total
assets measured at fair value
|
$
|
15,305
|
$
|
1,350
|
$
|
-
|
$
|
16,655
|
||||||||
Liabilities
|
||||||||||||||||
Warrants
|
$
|
|