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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
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 000-31861
OPTICAL COMMUNICATION PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
--------------------
Delaware 95-4344224
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6101 Variel Avenue
Woodland Hills, California 91367
(Address of principal executive offices,
including zip code)
Registrant's Telephone Number, Including Area Code: (818) 251-7100
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 |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The registrant has two classes of common stock authorized, Class A
Common Stock and Class B Common Stock. The rights, preferences and privileges of
each class of common stock are identical except for voting rights. The holders
of Class A Common Stock are entitled to one vote per share while holders of
Class B Common Stock are entitled to ten votes per share on matters to be voted
on by stockholders. As of January 31, 2005, there were approximately 46,841,555
shares of Class A common stock outstanding and 66,000,000 shares of Class B
Common Stock outstanding.
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OPTICAL COMMUNICATION PRODUCTS, INC.
INDEX TO FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED DECEMBER 31, 2004
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 2004 (unaudited) and September 1
30, 2004 ...........................................................
Statements of Operations for the Three Months Ended December 31,
2004 and 2003 (unaudited)........................................... 2
Statements of Cash Flows for the Three Months Ended December 31,
2004 and 2003 (unaudited)........................................... 3
Notes to Financial Statements (unaudited)........................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk........... 28
Item 4. Controls and Procedures............................................. 28
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings................................................... 30
Item 6. Exhibits and Reports on Form 8-K.................................... 30
Signature................................................................... 31
PART I.
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
OPTICAL COMMUNICATION PRODUCTS, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
December 31, September 30,
2004 2004
- -------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83,793 $ 75,423
Marketable securities 64,995 75,131
Accounts receivable less allowance for doubtful accounts:
$358 at December 31, 2004 and $362 at September 30, 2004 8,629 8,566
Inventories 10,137 8,649
Prepaid expenses and other current assets 827 1,118
-------- --------
Total current assets 168,381 168,887
Property, plant and equipment, net 28,082 29,278
Intangible assets, net 1,577 1,802
-------- --------
TOTAL ASSETS $198,040 $199,967
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,605 $ 1,136
Accounts payable to related parties 3,828 3,325
Accrued payroll & benefits 1,321 1,989
Accrued bonus 2,285 4,451
Other accrued expenses 1,144 1,248
Income taxes payable 158 158
-------- --------
Total current liabilities 10,341 12,307
-------- --------
OTHER LONG-TERM LIABILITIES 400 400
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock, $0.001 par value; 200,000,000 shares authorized,
46,841,055 and 46,771,927 shares outstanding at December 31, 2004
and September 30, 2004, respectively. 47 47
Class B common stock $0.001 par value; 66,000,000 shares
authorized, 66,000,000 shares issued and outstanding at
December 31, 2004 and September 30, 2004 66 66
Additional paid-in-capital 132,988 132,917
Retained earnings 54,198 54,230
-------- --------
Total stockholders' equity 187,299 187,260
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $198,040 $199,967
======== ========
See notes to financial statements.
1
OPTICAL COMMUNICATION PRODUCTS, INC
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31,
---------------------------------
2004 2003
- -------------------------------------------------------------------------------------------------------------
REVENUE $ 14,023 $ 13,769
COST OF REVENUE 8,558 8,185
--------- ---------
GROSS PROFIT 5,465 5,584
--------- ---------
EXPENSES:
Research and development 3,727 4,253
Selling and marketing 1,201 1,348
General and administrative 1,194 1,596
--------- ---------
Total expenses 6,122 7,197
--------- ---------
LOSS FROM OPERATIONS (657) (1,613)
OTHER INCOME, Net 626 262
--------- ---------
LOSS BEFORE INCOME TAXES (31) (1,351)
INCOME TAX PROVISION 0 192
--------- ---------
NET LOSS $ (31) $ (1,543)
========= =========
BASIC LOSS PER SHARE $ (0.00) $ (0.01)
========= =========
DILUTED LOSS PER SHARE $ (0.00) $ (0.01)
========= =========
BASIC SHARES OUTSTANDING 112,818 112,338
========= =========
DILUTED SHARES OUTSTANDING 112,818 112,338
========= =========
See Notes to Financial Statements
2
OPTICAL COMMUNICATION PRODUCTS, INC
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended December 31,
-----------------------------------
2004 2003
- -------------------------------------------------------------------------------------------------------------
Operating Activities:
Net loss $ (31) $ (1,543)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization of property, plant and equipment 1,271 1,265
Amortization of intangibles 225 225
Amortization of premiums on marketable securities 103 310
Changes in operating assets and liabilities:
Accounts receivable, net (63) (388)
Income taxes receivable -- 192
Inventories (1,488) (45)
Prepaid expense and other assets 291 (1,314)
Accounts payable 469 754
Accounts payable to related parties 503 1,587
Accrued bonuses (2,166) (1,615)
Other accrued expenses (772) (390)
-------- --------
Net cash used in operating activities (1,658) (962)
-------- --------
Investing Activities:
Purchase of marketable securities (4,967) (10,094)
Maturities of marketable securities 15,000 15,000
Purchase of property, plant and equipment (76) (1,398)
-------- --------
Net cash provided by investing activities 9,957 3,508
-------- --------
Financing Activities:
Principal payments on long-term debt -- (118)
Issuance of common stock 71 47
-------- --------
Net cash provided by (used in) financing activities 71 (71)
-------- --------
Increase in cash and cash equivalents 8,370 2,475
Cash and cash equivalents, beginning of period 75,423 64,895
-------- --------
Cash and cash equivalents end of period $ 83,793 $ 67,370
======== ========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ -- $ (11)
Income taxes $ -- $ --
See Notes to Financial Statements
3
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Optical
Communication Products, Inc., a Delaware corporation (the "Company"),
have been prepared in accordance with accounting principles generally
accepted in the United States of America and Article 10 of the
Securities and Exchange Commission's Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America
for complete financial statements. In management's opinion, the
unaudited financial statements contain all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the Company's
financial statements as of December 31, 2004 and for all interim periods
presented. The financial statements should be read in conjunction with
the audited financial statements included in the annual report of the
Company filed on Form 10-K with the Securities and Exchange Commission
for the year ended September 30, 2004. The results of operations for the
period ended December 31, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30,
2005. The Company's operations are primarily located in Woodland Hills,
California. The Company is a majority-owned subsidiary of The Furukawa
Electric Company, Ltd. of Japan ("Furukawa"). Furukawa beneficially
owned 58.5% of the Company's common stock at December 31, 2004, which
accounts for 93.4% of the combined voting power of all of the Company's
outstanding stock.
Stock Based Compensation
The Company accounts for its employee stock option plan under the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. The Company has a stock-based compensation plan. All
options granted had an exercise price equal to the quoted market price
of the underlying common stock on the date of grant. The following table
illustrates the effect on the operating results and per share amounts if
the fair value recognition provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148 Accounting for Stock-Based
Compensation--Transition and Disclosure an amendment of FASB Statement
No. 123 had been applied to stock-based employee compensation:
Three months ended December 31,
2004 2003
---- ----
(in thousands, except per share amounts)
Net loss:
As reported: $ (31) $ (1,543)
Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects: (997) (1,525)
----------------------------------------
Pro forma $ (1,028) $ (3,068)
========================================
Basic loss per share
As reported $ (0.00) $ (0.01)
Pro forma $ (0.01) $ (0.03)
Diluted loss per share
As reported $ (0.00) $ (0.01)
Pro forma $ (0.01) $ (0.03)
4
The fair value of each option grant estimated on the date of grant used
to compute pro forma income per share is estimated using the
Black-Scholes option-pricing model. The following assumptions were used
in completing the model:
Three months ended December 31,
2004 2003
---- ----
Dividend yield 0% 0%
Expected volatility 96% 103%
Risk-free rate of return 4.04% 3.89%
Expected life (years) 8.7 7.1
During the three months ended December 31, 2004 and 2003, the Company
granted 23,900 and 16,000 stock options, respectively, with exercise
prices equal to the fair value of the underlying Common Stock on the
date of grant. The average exercise prices of the underlying Common
Stock on the dates of the grant were $2.14 and $3.64 for the three
months ended December 31, 2004 and 2003, respectively.
Recent Accounting Pronouncements
In July 2004, the Emerging Issues Task Force ("EITF") published its
consensus on Issue No. 03-01, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." EITF Issue No.
03-01 addresses the meaning of other-than-temporary impairment and its
application to debt and equity securities within the scope of Statement
of Financial Accounting Standards ("SFAS") No. 115, certain debt and
equity securities within the scope of SFAS No. 124, and equity
securities that are not subject to the scope of SFAS No. 115 and not
accounted for under the equity method of accounting. In September 2004,
the FASB issued FASB Staff Position ("FSP") Emerging Issues Task Force
(EITF) Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue
No. 03-1, which delays the effective date for the recognition and
measurement guidance in EITF Issue No. 03-1. In addition, the FASB has
issued a proposed FSP to consider whether further application guidance
is necessary for securities analyzed for impairment under EITF Issue No.
03-1. The Company continues to assess the potential impact that the
adoption of the proposed FSP could have on its financial statements.
In November 2004, the FASB issued SFAS 151, Inventory Costs. SFAS 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities
and unallocated overheads are recognized as an expense in the period in
which they are incurred. In addition, other items such as abnormal
freight, handling costs and amounts of wasted materials require
treatment as current period charges rather than a portion of the
inventory cost. SFAS 151 is effective for inventory costs incurred
during periods beginning after June 15, 2005. The Company is currently
assessing the impact of adopting SFAS 151.
On December 16, 2004, the FASB issued Statement 123 (revised 2004) that
will require compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based on
the grant-date fair value of the equity or liability instruments issued.
In addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee
provides service in exchange for the award. Statement 123(R) replaces
FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123(R) is effective as of the first interim or annual reporting
period that begins after June 15, 2005. The Company is currently
assessing the impact of adopting SFAS 123(R).
5
2. INVENTORIES
Inventories consist of the following (in thousands):
December 31, September 30,
2004 2004
(Unaudited)
-----------------------------------------------------------------------
Raw materials $ 5,897 $ 4,911
Work-in-process 3,364 2,927
Finished goods 876 811
------------------ -----------------
Total inventories $ 10,137 $ 8,649
================== =================
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31, September 30,
2004 2004
(Unaudited)
Useful Lives
--------------------------------------------------------------------------------------------
Land $ 6,729 $ 6,729
Buildings and improvements 14,949 14,949 39 years
Machinery and equipment 20,027 19,965 5 years
Computer hardware and software 1,606 1,592 3 years
Furniture and fixtures 382 382 5 years
Leasehold improvements 181 181 9 years
------------------ -----------------
43,874 43,798
Less accumulated depreciation 15,792 14,520
------------------ -----------------
$ 28,082 $ 29,278
================== =================
6
4. INTANGIBLE ASSETS
The Company's intangible assets by major asset class are as follows:
As of Weighted Average
December 31, 2004 Amortization Period
(in thousands) September 30, 2004 (Years)
-----------------------------------------------------------------
Licensing Fees $ 2,000 $ 2,000 3.5
Accumulated Amortization (1,651) (1,534)
Patents 950 950 5.0
Accumulated Amortization (411) (364)
Acquired Technology 1,216 1,216 5.0
Accumulated Amortization (527) (466)
--------------------------
Total intangible assets, net $ 1,577 $ 1,802
=========================
Aggregate amortization expense related to intangible assets was
approximately $225,000 and $225,000 for the three months ended December
31, 2004 and 2003.
Following is a summary of future amortization expense in each of the
next five fiscal years.
(in thousands)
remaining nine months fiscal 2005 $ 675
fiscal 2006 433
fiscal 2007 433
fiscal 2008 36
---------
$ 1,577
=========
7
5. EARNINGS (LOSS) PER SHARE
The following is a calculation of basic and diluted earnings (loss) per
share ("EPS"):
Three Months Ended
December 31,
-------------------------------------
2004 2003
(in thousands, except per share data)
- -------------------------------------------------------------------------
BASIC EPS COMPUTATION:
Net income (loss) applicable to
common stock $ (31) $ (1,543)
----------- -----------
Weighted average common shares 112,818 112,338
----------- -----------
Basic earnings (loss) per share $ (0.00) $ (0.01)
============== ===========
DILUTED EPS COMPUTATION:
Net income (loss) applicable to
common stock $ (31) $ (1,543)
-------------- -----------
Diluted weighted average shares
outstanding 112,818 112,338
-------------- -----------
Diluted earnings (loss) per share
$ (0.00) $ (0.01)
============== ===========
The weighted average diluted common shares outstanding for the three
months ended December 31, 2004 and December 31, 2003 excludes the
dilutive effect of approximately 6,833,648 and 7,111,760 options,
respectively. The options are excluded when the options have an exercise
price in excess of the average market value of the Company's Common
Stock during the period or due to a net operating loss.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has operating leases for certain facilities. Lease payments
are made monthly. The Company's leases are renewable monthly,
semiannually, annually or for five years. Rent expense for these leases
for the three months ended December 31, 2004 and 2003 was $135,000 and
$102,000, respectively.
Following is a summary of future minimum payments due under operating
leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 2004:
(in thousands)
----------------------------------------------------------------------
nine months thru September 30, 2005 $ 391
2006 189
2007 12
----------------------------------------------------------------------
Total minimum lease payments $ 592
=============================================================
Warranty Accruals
The Company provides a standard warranty of its products from defects in
materials and workmanship. The warranty is limited to repair or
replacement, at the Company's option, of defective items authorized for
return within one year from the date of the sale. The table below sets
forth the activity of the Company's warranty reserve.
8
Balance at Additions Balance
beginning charged to at end of
Warranty Reserve of period expense (Deductions) period
Three months ended:
December 31, 2003 $ 46,000 $ (14,000) $ (3,000) $ 29,000
December 31, 2004 $ 31,000 $ 3,000 $ (8,000) $ 26,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes to such financial statements included elsewhere in this Report.
The following discussion contains forward-looking statements that involve risks
and uncertainties. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "may," "will" or similar expressions are intended to identify
forward-looking statements. The statements are based on current expectations and
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to the differences are discussed below in this Report
under "Risk Factors" and elsewhere in this Report, and in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year
ended September 30, 2004.
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make judgments, assumptions and estimates that affect the
amounts reported in the Financial Statements and accompanying notes. Note 2 to
the Financial Statements in the Annual Report on Form 10-K for the fiscal year
ended September 30, 2004 describes the significant accounting policies and
methods used in the preparation of the Financial Statements. Estimates are used
for, but not limited to, the accounting for the allowance for doubtful accounts
and sales returns, valuation of excess and obsolete inventory, warranty
accruals, long-lived assets and income taxes. Actual results could differ from
these estimates. The following critical accounting policies are impacted
significantly by judgments, assumptions and estimates used in the preparation of
our Financial Statements.
Allowance for Doubtful Accounts and Sales Returns
Our accounts receivable balance, net of allowance for doubtful accounts
and sales returns, was $8.6 million as of December 31, 2004 and September 30,
2004. The allowance for doubtful accounts and sales returns as of December 31,
2004 was $358,000, compared with $362,000 as of September 30, 2004. The
allowance is based on our assessment of the collectibility of customer accounts
and potential returns. We regularly review the allowance by considering factors
such as historical experience, credit quality, age of the accounts receivable
balances, current economic conditions that may affect a customer's ability to
pay and historical customer returns. If a major customer's creditworthiness
deteriorates, or if actual defaults are higher than our historical experience,
or if actual future customer returns were to deviate from our expectations, our
estimates of the recoverability of amounts due to us could be overstated, and
additional allowances could be required, which could have an adverse impact on
our operations.
Inventory Write-downs
Our inventory balance was $10.1 million as of December 31, 2004,
compared with $5.6 million as of December 31, 2003. At December 31, 2004 and
2003 inventory with a historical cost of $10.0 million and $13.7 million,
respectively, was written down as excess and obsolete inventory. We estimate our
excess and obsolete inventory primarily through reference to historical usage
and future demand
9
forecasts. We operate in a highly-volatile industry with high and unpredictable
rates of inventory obsolescence. At the point of write down, a new, lower-cost
basis for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly
established cost basis. We do not necessarily discard written-down inventory
and, on occasion, we have discovered that written-down inventory was not
obsolete or excess, as previously estimated. In those situations, the written
down inventory is sold and reflected in cost of sales at the new written-down
basis. If there were to be a sudden and significant decrease in demand for our
products, or if there were a higher incidence of inventory obsolescence because
of rapidly changing technology and customer requirements, we could be required
to increase inventory write-downs, and our gross margin could be adversely
affected.
Warranty Accruals
The liability for product warranties, included in other accrued
liabilities, was $26,000 as of December 31, 2004, compared with $31,000 as of
September 30, 2004. Our products sold are generally covered by a warranty for
periods ranging from one to five years. We accrue for warranty costs as part of
our cost of sales based on associated material costs, and labor costs. If we
experience an increase in warranty claims compared with our historical
experience, or if the cost of servicing warranty claims is greater than the
expectations on which the accrual has been based, our gross margin could be
adversely affected.
Long-Lived Assets
We monitor and evaluate the recoverability of our long-lived assets. If
the carrying amount of a long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) from the use of the asset, we
recognize an impairment loss in the amount of the difference between the
carrying amount and the fair value of the asset. Our long-lived assets subject
to impairment are our property, plant and equipment and our intangible assets
which had net carrying values of $28.0 million and $1.6 million, respectively at
December 31, 2004. We currently estimate that undiscounted future cash flows
will be sufficient to recover the value of our long-lived assets. However, our
estimates of future cash flows are subject to change. Should our estimates of
future undiscounted cash flows indicate that the carrying value of our
long-lived assets may not be recoverable, we would be required to determine the
fair value of those assets and record a loss for the difference, if any, between
the carrying value and the fair value of those assets.
Income Taxes
At December 31, 2004, the unadjusted net book value of our deferred
income tax assets totaled approximately $4.5 million, which was principally
comprised of federal and state net operating loss carry-forwards and differences
between the book and tax bases or our inventories. The provisions of SFAS No.
109 "Accounting for Income Taxes," require a valuation allowance when, based
upon currently available information and other factors, it is more likely than
not that all or a portion of the deferred income tax asset will not be realized.
We intend to maintain a valuation allowance until sufficient evidence exists to
support its reversal. Also, until an appropriate level of profitability is
reached, we do not expect to recognize any domestic income tax benefits in
future results of operations.
We continually reassess our assumptions and judgments and make
adjustments when significant facts and circumstances dictate.
Overview
We design, manufacture and sell a comprehensive line of high
performance, highly reliable fiber optic subsystems and modules for fiber optic
transmission systems that are used to address the bandwidth
10
limitations in the metropolitan area network, or MAN, local area network, or
LAN, and storage area network, or SAN, markets. Our subsystems and modules
include optical transmitters, receivers, transceivers and transponders that
convert electronic signals into optical signals and back to electronic signals,
enabling high-speed communication of voice and data traffic over public and
private networks. We began our operations and shipped our first products in
November of 1991.
Furukawa beneficially owns all of our outstanding Class B common stock,
representing 58.5% of our outstanding shares of common stock and 93.4% of the
combined voting power of all of our outstanding common stock as of the fiscal
quarter ended December 31, 2004. Since our inception, we have purchased
substantially all of our lasers and the majority of our other fiber optic
components from Furukawa. We have relied on Furukawa's research and development
capabilities to provide us with technologically advanced lasers and fiber optic
components that we purchase from Furukawa for inclusion in our products. We
currently purchase the majority of lasers from Furukawa under a one-year Master
Purchase Agreement, which we entered into with Furukawa on October 1, 2003. This
Agreement renews automatically on October 1 of each year unless it is terminated
upon written notice by either Furukawa or us prior to renewal. This agreement
was automatically renewed on October 1, 2004.
We operate in one industry segment, the design and manufacture of fiber
optic subsystems and modules. We sell our products to communication equipment
manufacturers, or CEMs, their contract manufacturers, or CMs, who incorporate
them into systems they assemble for CEMs, and to distributors. We define our
customers as CEMs who have purchased our products directly or indirectly through
CMs and distributors. We recognize revenue upon product shipment, and sales
returns and allowances have been insignificant. Historically, a relatively small
number of customers have accounted for a significant percentage of our revenue.
Our 10 largest customers accounted for approximately 70.7% and 70.3% of our
total revenue for the quarters ended December 31, 2004 and 2003, respectively.
Cisco Systems and Alcatel, (including sales to each of their contract
manufacturers) accounted for approximately 18.1% and 12.1%, respectively, of our
total revenue for the quarter ended December 31, 2004. Cisco Systems and
Alcatel, (including sales to each of their contract manufacturers) accounted for
approximately 13.7% and 12.6%, respectively, of our total revenue for the
quarter ended December 31, 2003. No other end-user customer accounted for more
than 10.0% of our total revenue for the quarters ended December 31, 2004 or
2003.
For financial reporting purposes, we consider our customers to be the
CEMs, CMs and distributors who place purchase orders with us directly. No direct
customer accounted for more than 10.0% of our total revenue for the quarters
ended December 31, 2004 or 2003. Although our revenue from sales to our other
customers continues to increase, we expect that significant customer
concentration will continue for the foreseeable future. Our sales are made on a
purchase order basis rather than by long-term purchase commitments. Our
customers may cancel or defer purchase orders without penalty on short notice.
The fiber optic communication industry continues to face challenging
market conditions. Capital spending by service providers on network
infrastructure has remained substantially below pre-2001 levels, increasing only
slightly - if at all - during the last year. As a result, equipment
manufacturers have also dramatically reduced their quarterly purchases of
components and modules from our competitors and from us. While several service
providers, including BellSouth, SBC and Verizon, have recently announced current
and planned investments in Fiber-to-the-Premises (FTTP) applications, which we
believe could increase traffic demand on the metropolitan area networks (MANs)
into which such FTTP infrastructure would feed, it is too early to predict the
outcome of these potential FTTP roll-outs. Because visibility in the industry
remains extremely limited, we cannot provide any assurance as to the timing or
extent of any increased business that we may receive as a result of these or
other industry developments.
11
On October 9, 2002, we acquired certain assets of Cielo Communications,
Inc., a research and design company located in Broomfield, Colorado, focused on
creating VCSEL technology for fiber optic communication networks for a cash
purchase price and direct costs of $6.6 million. The purchase price includes the
acquisition of capital equipment and intellectual property.
On January 31, 2003, we acquired parallel optical module assets and
intellectual property from Gore Photonics, an industry leader in the research
and development of VCSEL parallel optical modules for fiber optic communication
networks located in Elkton, Maryland, for a cash purchase price of $3.4 million.
The purchase price includes the acquisition of capital equipment and inventory.
The average selling prices of our products generally decrease as the
products mature from factors such as increased competition, the introduction of
new products or technology, increased unit volumes, and price concessions
required by our customers. We anticipate that average selling prices of our
existing products will continue to decline in future periods although the timing
and degree of the declines cannot be predicted with any certainty. We must
continue to develop and introduce new products that incorporate features that
can be sold at higher average selling prices on a timely basis.
Our cost of revenue consists principally of materials, as well as
salaries and related expenses for manufacturing personnel, manufacturing
overhead and provisions for excess and obsolete inventory. We purchase several
key components for our products from a limited number of suppliers.
Our research and development expenses consist primarily of salaries and
related expenses for design engineers and other technical personnel, cost of
developing prototypes, and depreciation of test and prototyping equipment. Our
research and development expenses also consist of materials and overhead costs
related to major product development projects. We charge all research and
development expenses to operations as incurred. We believe that continued
investment in research and development is critical to our future success.
Accordingly, we may continue to expand our internal research and development
capabilities in the future to develop new products and as a result, our research
and development expenses in absolute dollar amounts may increase in future
periods.
Sales and marketing expenses consist primarily of salaries and related
expenses for sales and marketing personnel, commissions paid to sales personnel
and independent manufacturers' representatives, marketing and promotion costs.
We intend to expand our sales and marketing operations and efforts in order to
increase sales and market awareness of our products. We believe that investment
in sales and marketing is critical to our success. As a result, these expenses
may increase in future periods.
General and administrative expenses consist primarily of salaries and
related expenses for our administrative, finance and human resources personnel,
professional fees and other corporate expenses. We expect that general and
administrative expenses will increase in the near term primarily due to an
increase in professional fees associated with implementation of the requirements
of the Sarbanes-Oxley Act of 2002 and an increase in our legal and consulting
fees associated with analysis of strategic alternatives, including future market
opportunities, that have been undertaken by our management and board of
directors.
12
Results of Operations - Comparison of Three Months Ended December 31, 2004 and
2003
The following table sets forth statement of operations data and
percentage of change for the periods indicated:
Three Months Ended December 31,
----------------------------------------------------------------
2004 2003 % Change
- ------------------------------------------------------------------------------------------------------------------ -----------
(Unaudited)
REVENUE $ 14,023 $ 13,769 1.8%
COST OF REVENUE 8,558 8,185 4.6%
---------------------- ----------------------
GROSS PROFIT 5,465 5,584 -2.1%
---------------------- -----------------------
Gross Profit as a Percent of Revenue 39.0% 40.6% -3.9%
EXPENSES:
Research and development 3,727 4,253 -12.4%
Selling and marketing 1,201 1,348 -10.9%
General and administrative 1,194 1,596 -25.2%
---------------------- -----------------------
Total expenses 6,122 7,197 -14.9%
---------------------- -----------------------
LOSS FROM OPERATIONS (657) (1,613) -59.3%
----------------------- -----------------------
OTHER INCOME, Net 626 262 138.9%
---------------------- -----------------------
LOSS BEFORE INCOME TAXES (31) (1,351) -97.7%
INCOME TAXES 192 -100.0%
-----------------------
NET LOSS $ (31) $ (1,543) -98.0%
======================= =======================
The following table compares our sales of MAN, LAN and SAN
products for the periods indicated:
As of
December 31, December 31,
2004 2003
------------------------------------------------------
(in thousands) % change
-------------
MAN $12,737 $12,156 4.8%
LAN/SAN 1,233 1,529 -19.4%
Others 53 84 -36.9%
------ ------ ------
Total $14,023 $13,769 1.8%
13
Revenue - Revenue increased 1.8% to $14.0 million in the quarter ended
December 31, 2004 from $13.8 million in the quarter ended December 31, 2003.
This increase was due predominantly to an increase in demand from our existing
customers. Sales of our products for metropolitan area networks were
approximately 91% of revenue for the quarter ended December 31, 2004 compared to
approximately 88% of revenue for the quarter ended December 31, 2003. Sales of
our products for local area and storage area networks were approximately 9% of
revenue for the quarter ended December 31, 2004 compared to approximately 11% of
revenue for the quarter ended December 31, 2003. We cannot assure you that our
rate of growth in revenue will be sustainable in future periods, as the average
selling prices for existing products may decline in response to product
introductions by competitors or us, or other factors, including the reduction of
customer demand for our products or pressure from customers for price
concessions.
Cost of Revenue - Cost of revenue increased 4.6% to $8.6 million in the
quarter ended December 31, 2004 from $8.2 million in the quarter ended December
31, 2003. Gross margin decreased to 39.0% from 40.6% during this period. The
decrease in gross margin was primarily due to an increase in material costs as a
percent of revenue to 39.0% from 35.8%, in the quarters ended December 31, 2004
and 2003, respectively. This is a result of a decrease in inventory used in
products sold during the quarter that was previously written down as excess
inventory of $572,000, which is the net of $563,000 for quarter ended December
31, 2004 and $1.1 million for quarter ended December 31, 2003. This was
partially offset by a decrease in manufacturing costs as a percent of revenue to
17.9% from 19.4%, for the quarters ended December 31, 2004 and 2003,
respectively. The decrease in manufacturing cost was a result of a $187,000
decrease in the bonus pool available to employees (which reduced our payroll
expenses) and a $164,000 decrease in inventory write-down (which occurred
because a greater proportion of our inventory is newly-purchased, and thus less
likely to be written down) but partially offset by a $105,000 increase in
indirect supplies (which resulted from our purchase of supplies and fixtures to
develop new automated manufacturing processes).
Research and Development - Research and development expenses decreased
12.4% to $3.7 million in the quarter ended December 31, 2004 from $4.3 million
in the quarter ended December 31, 2003. This decrease was primarily due to a
decrease in the number of engineering staff members from 84 members in the
quarter ended December 31, 2003 to 76 members in the quarter ended December 31,
2004 and a $273,000 decrease in the bonus pool available to employees. We do not
expect any of these factors to have a material impact on our research and
development efforts.
Sales and Marketing - Sales and marketing expenses decreased 10.9% to
$1.2 million for the quarter ended December 31, 2004 from $1.3 million in the
quarter ended December 31, 2003. The decrease was primarily due to a $134,000
decrease in the bonus pool available to employees. We believe that investment in
sales and marketing is critical to our success and believe that these expenses
may increase in absolute dollars in the future.
General and Administrative - General and administrative expenses
decreased 25.2% to $1.2 million in the quarter ended December 31, 2004 from $1.6
million in the quarter ended December 31, 2003. The decrease in expense in the
quarter ended December 31, 2004 was primarily due to a $213,000 decrease in
Directors' and Officers' insurance expense as the Company negotiated the
extension of the current policy from 12 to 18 months at no additional cost, a
$62,000 decrease in accounting and legal fees, and a $45,000 decrease in the
bonus pool available to employees.
Other Income, net - Other income, net increased 138.9% to $626,000 in
the quarter ended December 31, 2004 from $262,000 in the quarter ended December
31, 2003. This increase was primarily due to a $244,000 increase in investment
income, which was primarily the result of an increase in interest
14
rates, and a decrease, from $75,000 to zero, in the utilities, insurance, and
depreciation expenses associated with our Chatsworth facility, which we sold in
June 2004.
Income Taxes - There was no income tax provision recorded for the
quarter ended December 31, 2004. Income tax expense for the quarter ended
December 31, 2003 is comprised of $192,000 resulting from an adjustment to prior
year's net deferred tax assets.
Liquidity and Capital Resources
As of December 31, 2004, our primary source of liquidity was our cash
and cash equivalents balance of $83.8 million and our marketable securities
balance of $65.0 million, which consists primarily of United States Treasury
notes and bonds. At September 30, 2004, we had $75.4 million in cash and cash
equivalents and $75.1 million in current marketable securities.
Since inception, we have financed our operations primarily with cash
generated from operations. Additional financing has been generated through lines
of credit and term loans, and through our initial public offering of our Class A
common stock, which we completed on November 3, 2000. As of December 31, 2004,
our working capital was $158.0 million with a current ratio of 16:1 compared to
our working capital of $156.6 million with a current ratio of 14:1 as of
September 30, 2004. Our working capital increased during the three months ended
December 31, 2004 primarily due to approximately $2.2 million decrease in
accrued bonus liability due to the annual bonus payment that occurred in
November 2004. We believe that additional cash could be borrowed if necessary;
however, cash flow from operations, cash and equivalents, and marketable
securities are expected to be sufficient to fund operations for the next twelve
months.
During the three months ended December 31, 2004, cash used by operations
was $1.7 million compared to cash used by operations of $1.0 million in the
three months ended December 31, 2003. The cash used by operating activities
during the three months ended December 31, 2004 was the result of an increase in
inventories, decreases in accrued bonus and other accrued expenses, and the net
loss after adding back the adjustments for depreciation and amortization. These
were partially offset by increases in accounts payable and accounts payable to
related parties. The cash used in operating activities during the three months
ended December 31, 2003 was the result of increases in accounts receivable and
prepaid expenses and a decrease in accrued bonus. These were partially offset by
increases in accounts payable, accounts payable to related parties and the net
loss after adding back the adjustments for depreciation and amortization.
During the three months ended December 31, 2004, cash provided by
investing activities was $10.0 million compared to cash provided by investing
activities of $3.5 million in the three months ended December 31, 2003. The cash
provided by investing activities in the three months ended December 31, 2004 was
primarily the result of $10.0 million in marketable securities maturities net of
purchases. The cash provided by investing activities during the three months
ended December 31, 2003 was primarily the result of $4.9 million in marketable
securities purchases net of maturities, partially offset by $1.4 million in
property plant and equipment purchases.
During the three months ended December 31, 2004, cash provided by
financing activities was $70,000 compared to cash used in financing activities
of $71,000 in the three months ended December 31, 2003. The cash provided by
financing activities in the three months ended December 31, 2004 was the result
of an increase in common stock shares issued for $70,000. The majority of cash
used in financing activities for the three months ended December 31, 2003 was
for principal payments on the Company's long-term debt.
We believe that our existing cash, cash equivalents and investments on
hand, together with cash that we expect to generate from our operations, will be
sufficient to meet our capital needs for at least the
15
next twelve months. However, it is possible that we may need or elect to raise
additional funds to fund our activities beyond the next year or to consummate
acquisitions of other businesses, products or technologies. We could raise such
funds by selling more stock to the public or to selected investors, or by
borrowing money. In addition, even though we may not need additional funds, we
may still elect to sell additional equity securities or obtain credit facilities
for other reasons. We cannot assure you that we will be able to obtain
additional funds on commercially favorable terms, or at all. If we raise
additional funds by issuing additional equity or convertible debt securities,
the ownership percentages of existing stockholders would be reduced. In
addition, the equity or debt securities that we issue may have rights,
preferences or privileges senior to those of the holders of our common stock.
Although we believe we have sufficient capital to fund our activities for at
least the next twelve months, our future capital requirements may vary
materially from those now planned. The amount of capital that we will need in
the future will depend on many factors, including:
o the market acceptance of our products;
o the levels of promotion and advertising that will be required to launch our
new products and achieve and maintain a competitive position in the
marketplace;
o price discounts on our products to our customers;
o our business, product, capital expenditure and research and development plans
and product and technology roadmaps;
o the levels of inventory and accounts receivable that we maintain;
o capital improvements to new and existing facilities;
o technological advances;
o our competitors' response to our products;
o our pursuit of strategic alternatives, including future market opportunities;
and
o our relationships with suppliers and customers.
In addition, we may require additional capital to accommodate planned
growth, hiring, infrastructure and facility needs or to consummate acquisitions
of other businesses, products or technologies.
Inflation
Inflation has not had a material adverse effect on our results of
operations, however, our results of operations may be materially and adversely
affected by inflation in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is
defined in rules promulgated by the Securities and Exchange Commission, that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors
Contractual Obligations
There have been no material changes to the contractual obligations as of
September 30, 2004 disclosed in our Form 10-K filed with the SEC on December 29,
2004.
16
RISK FACTORS
This Report contains forward-looking statements based on the current
expectations, assumptions, estimates and projections about us and our industry.
Our actual results could differ materially from those discussed in these
forward-looking statements as a result of certain factors, as more fully
described in this section and elsewhere in this Report. These forward-looking
statements involve risks and uncertainties. You should carefully consider the
following risks before you decide to buy shares of our Class A common stock. The
risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties, including those risks set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report, may also adversely impact and impair
our business. If any of the following risks actually occur, our business,
results of operations or financial condition would likely suffer. In such case,
the trading price of our Class A common stock could decline, and you may lose
all or part of the money you paid to buy our stock. We do not undertake to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
Our continued success in generating revenue depends on growth in construction of
fiber optic MANs, LANs, and SANs.
Our fiber optic subsystems and modules are used primarily in MAN, LAN,
and SAN applications. These markets are rapidly evolving, and it is difficult to
predict their potential size or future growth rate. In addition, we are
uncertain as to the extent to which fiber optic technologies will be used in
these markets. Our success in generating revenue will depend on the growth of
these markets and their adoption of fiber optic technologies. A substantial
portion of our revenue is derived from sales of our product in the MAN market.
Sales of our products for the MAN market represented approximately 91%, and 88%
of our revenue for the three months ended December 31, 2004, and 2003,
respectively.
As the result of currently uncertain economic and market conditions, (a)
our revenue may decline, (b) we are unable to predict future revenue accurately,
and (c) we are currently unable to provide long-term guidance for future
financial performance. The conditions contributing to this difficulty include:
o lower near term revenue visibility; and
o general market and economic uncertainty.
Based on these and other factors, many of our major customers have
reduced orders for our products and have expressed uncertainty as to their
future requirements. As a result, our revenue in future periods may decline. In
addition, our ability to meet financial expectations for future periods may be
harmed.
We derive a significant portion of our total revenue from a few significant
customers, and our total revenue may decline significantly if any of these
customers cancels, reduces or delays purchases of our products or extracts price
concessions from us.
Our success depends on our continued ability to develop and maintain
relationships with a limited number of significant customers. We sell our
products into markets dominated by a relatively small number of systems
manufacturers, a fact that limits the number of our potential customers. Our
dependence on orders from a relatively small number of customers makes our
relationship with each customer critical to our business.
We do not have long-term sales contracts with our customers. Instead,
sales to our customers are made on the basis of individual purchase orders that
our customers may cancel or defer on short notice without significant penalty.
In the past, some of our major customers canceled, delayed or significantly
17
accelerated orders in response to changes in the manufacturing schedules for
their systems, and they are likely to do so in the future. The reduction,
cancellation or delay of individual customer purchase orders would cause our
revenue to decline. Moreover, these uncertainties complicate our ability to
accurately plan our manufacturing schedule. Additionally, if any of our
customers cancel or defer orders, our operating expenses may increase as a
percentage of revenue.
In the past, our customers have sought price concessions from us, and
they are likely to continue to do so in the future. In addition, some of our
customers may shift their purchases of products from us to our competitors. The
loss of one or more of our significant customers, our inability to successfully
develop relationships with additional customers or future price concessions
could cause our revenue to decline significantly.
We are dependent on a limited number of suppliers for most of our key
components. If these suppliers are unable or unwilling to meet our manufacturing
requirements, if they raise prices of their products, or if they discontinue
certain key components, we may experience production delays leading to delays in
shipments, increased costs and cancellation of orders for our products.
We purchase several key components that we incorporate into our products
from a limited number of suppliers. We also purchase the majority of our lasers
from Furukawa under a Master Purchase Agreement. We do not have long-term supply
contracts with any of our other key suppliers and our agreement with Furukawa is
only for one year. Our dependence on a small number of suppliers and our lack of
longer term supply contracts exposes us to several risks, including our
potential inability to obtain an adequate supply of quality components, the
discontinuance of key components from our suppliers, price increases and late
deliveries. For example, we face the risk that price increases imposed on us by
our suppliers will be higher than the price increases (or cost increases)
imposed on our competitors when they purchase (or manufacture) similar
components; and we face a corresponding risk that any price decreases that we
are able to obtain from our suppliers will be less than the price decreases (or
cost reductions) that our competitor's obtain when they purchase (or
manufacture) similar components. We have experienced shortages and delays in
obtaining, and the discontinuation of key components in the past and expect to
experience shortages, delays, and the discontinuation of key components in the
future.
In the past, industry capacity has been constrained and some of our
component suppliers placed limits on the number of components sold to us. If
industry capacity becomes constrained in the future, our component suppliers may
place similar limits on us. We do not have any control over these limits, and
our suppliers may choose to allocate more of their production to our
competitors.
A disruption in, or termination of, our supply relationship with
Furukawa or any of our other key suppliers, or our inability to develop
relationships with new suppliers would interrupt and delay the manufacturing of
our products, which could result in delays in our revenue, or the cancellation
of orders for our products. We may not be able to identify and integrate
alternative suppliers in a timely fashion, or at all. Any transition to
alternative suppliers would likely result in delays in shipment, quality control
issues and increased expenses, any of which would limit our ability to deliver
products to our customers. Furthermore, if we are unable to identify an
alternative source of supply, we may have to redesign or modify our products,
which would cause delays in shipments, increase design and manufacturing costs
and require us to increase the prices of our products.
Our future operating results are likely to fluctuate from quarter to quarter,
and if we fail to meet the expectations of securities analysts or investors, our
stock price could decline significantly.
Our historical quarterly operating results have varied significantly,
and our future quarterly operating results are likely to continue to vary
significantly from period to period. As a result, we believe
18
that period-to-period comparisons of our operating results should not be relied
upon as an indicator of our future performance. Some of the factors that could
cause our operating results to vary include:
o fluctuations in demand for, and sales of, our products, which is
dependent on the implementation of fiber optic networks;
o the timing of customer orders, particularly from our significant
customers;
o competitive factors, including introductions of new products, product
enhancements and the introduction of new technologies by our
competitors, the entry of new competitors into the fiber optic
subsystems and modules market and pricing pressures;
o our ability to control expenses;
o the mix of our products sold; and
o economic conditions specific to the communications and related
industries.
We incur expenses from time to time that may not generate revenue until
subsequent quarters. In addition, in connection with new product introductions,
we incur research and development expenses and sales and marketing expenses that
are not matched with revenue until a subsequent quarter when the new product is
introduced. We cannot assure you that our expenditures on manufacturing capacity
will generate increased revenue in subsequent quarters or that new product
introductions will generate sufficient revenue in subsequent quarters to recover
our research and development expenditures. If growth in our revenue does not
outpace the increase in our expenses, our quarterly operating results may fall
below expectations and cause our stock price to decline significantly.
Due to these and other factors, we believe that our quarterly operating
results are not an indicator of our future performance. If our operating results
are below the expectations of public market analysts or investors in future
quarters, the trading price of our Class A common stock would be likely to
decrease significantly.
General economic factors could negatively impact our growth plan.
The unfavorable economic conditions in the United States that began in
2001 detrimentally affected the U.S. manufacturing industry, particularly sales
of fiber optics equipment to service providers and communication equipment
companies. Announcements by fiber optics equipment manufacturers and their
customers at the time indicated that there was a reduction in spending for fiber
optic equipment as a result of the economic slowdown and efforts to reduce
then-existing inventories. Based on these and other factors, some of our
customers reduced, modified, cancelled or rescheduled orders for our products
and expressed uncertainty as to their future requirements. In addition, that
economic slowdown required us to aggressively manage our costs and expenses,
including our July 2001 and April 2002 announcements of the elimination of
approximately 110 jobs and 45 jobs, respectively, primarily in the manufacturing
area. Despite an improvement in general economic conditions in the United States
since that time, capital spending by service providers in the fiber optic
communications industry on network infrastructure has remained substantially
below pre-2001 levels. Our business, operating results and financial condition
are likely to suffer if the global economy, or economic conditions in the United
States, experiences another downturn.
If we do not develop and introduce new products with higher average selling
prices in a timely manner, the overall average selling prices of our products
will decrease.
The market for fiber optic subsystems and modules is characterized by
declining average selling prices for existing products due to increased
competition, the introduction of new products, product obsolescence and
increased unit volumes as manufacturers deploy new network equipment. We have in
the past experienced, and in the future may experience, period-to-period
fluctuations in operating results due to declines in our overall average selling
prices. We anticipate that the selling prices for our existing products will
decrease in the future in response to product introductions by competitors or
us, or other
19
factors, including pressure from significant customers for price concessions.
Therefore, we must continue to develop and introduce new products that can be
sold at higher prices on a timely basis to maintain our overall average selling
prices. Failure to do so could cause our revenue and gross margins to decline.
If our customers do not approve our manufacturing processes and qualify our
products, we will lose significant customer sales and opportunities.
Customers generally will not purchase any of our products before they
qualify them and approve our manufacturing processes and quality control system.
Our customers may require us to register under international quality standards,
such as ISO 9001. Delays in product qualification or loss of ISO 9001
certification may cause a product to be dropped from a long-term supply program
and result in a significant lost revenue opportunity. If particular customers do
not approve of our manufacturing processes, we will lose the sales opportunities
with those customers.
We are currently registered under ISO 9001:2000.
If we fail to predict our manufacturing requirements accurately, we could incur
additional carrying costs and have excess and obsolete inventory or we could
experience manufacturing delays, which could cause us to lose orders or
customers.
We currently use historical data, a backlog of orders and estimates of
future requirements to determine our demand for components and materials. We
must accurately predict both the demand for our products and the lead-time
required to obtain the necessary components and materials. Lead times for
components and materials vary significantly depending on factors such as the
specific supplier, the size of the order, contract terms and demand for each
component at a given time. We generally maintain levels of inventories that
increase our inventory carrying costs and periodically cause us to have excess
and obsolete inventory. However, if we were to underestimate our purchasing
requirements, manufacturing could be interrupted, resulting in delays in
shipments.
Our markets are highly competitive, some of our customers are also our
competitors, and our other customers may choose to purchase our competitors'
products rather than our products or develop internal capabilities to produce
their own fiber optic subsystems and modules.
The market for fiber optic subsystems and modules is highly competitive
and we expect competition to intensify in the future. Our primary competitors
include Agilent Technologies, ExceLight Communications, Finisar, Infineon
Technologies, JDS Uniphase, MRV Communications, OpNext, Picolight, and Stratos
Lightwave. We also face indirect competition from public and private companies
providing products that address the same fiber optic network problems that our
products address. The development of alternative solutions to fiber optic
transmission problems by our competitors, particularly systems companies that
also manufacture modules, such as Fujitsu, could significantly limit our growth
and harm our competitive position.
Many of our current competitors and potential competitors have longer
operating histories and significantly greater financial, technical, sales and
marketing resources than we do. As a result, these competitors are able to
devote greater resources to the development, promotion, sale and support of
their products. In addition, our competitors that have large market
capitalization or cash reserves are in a much better position to acquire other
companies in order to gain new technologies or products that may displace our
products. Any of these potential acquisitions could give our competitors a
strategic advantage. In addition, many of our competitors have much greater
brand name recognition, more extensive customer bases, more developed
distribution channels and broader product offerings than we do. These companies
can use their broader customer bases and product offerings and adopt aggressive
pricing policies to gain market share.
20
In addition, existing and potential customers, especially in Japan and
other international markets, may also become competitors. These customers have
the internal capabilities to integrate their operations by producing their own
optical subsystems and modules or by acquiring our competitors or the rights to
produce competitive products or technologies, which may allow them to reduce
their purchases or cease purchasing from us.
We expect our competitors to introduce new and improved products with
lower prices, and we will need to do the same to remain competitive. We may not
be able to compete successfully against either current or future competitors
with respect to new products. We believe that competitive pressures may result
in price reductions, reduced margins and our loss of market share.
Our sales cycle runs from our customers' initial design to production for
commercial sale. This cycle is long and unpredictable and may cause our revenue
and operating results to vary from our forecasts.
The period of time between our initial contact with a customer and the
receipt of a purchase order from that customer may span more than a year and
varies by product and customer. During this time, customers may perform or
require us to perform extensive evaluation and qualification testing of our
products. Generally, they consider a wide range of issues before purchasing our
products, including interoperation with other subsystems and components, product
performance and reliability. We may incur substantial sales and marketing
expenses and expend significant management effort while potential customers are
qualifying our products. Even after incurring these costs, we ultimately may not
sell any or sell only small amounts of our products to a potential customer. If
sales forecasts to specific customers are not realized, our revenue and results
of operations may be negatively impacted.
If we do not achieve acceptable manufacturing yields in a cost-effective manner,
or we are required to develop new manufacturing processes to improve our yields,
our operating results would be impaired.
The manufacture of our products involves complex and precise processes.
As a result, it may be difficult to cost-effectively meet our production goals.
In addition, changes in our manufacturing processes or those of our suppliers,
or our suppliers' inadvertent use of defective materials, could significantly
reduce our manufacturing yields, increase our costs and reduce our product
shipments. To increase our gross margin, while offering products at prices
acceptable to customers, we will need to develop new manufacturing processes and
techniques that will involve higher levels of automation.
We could be subjected to litigation regarding intellectual property rights,
which may divert management attention, cause us to incur significant costs or
prevent us from selling our products.
In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights in the
networking technologies industry. Many companies aggressively use their patent
portfolios to bring infringement claims against competitors. As a result, we may
be a party to litigation or be involved in disputes over our alleged
infringement of others' intellectual property in the future. These claims and
any resulting lawsuit, if successful, could subject us to significant liability
for damages and prevent us from making or selling some of our products. These
lawsuits, regardless of their merit, would likely be time-consuming and
expensive to resolve and would divert management's time and attention. Any
potential intellectual property litigation also could force us to do one or more
of the following:
o stop selling, incorporating or using our products that use the
infringed intellectual property;
o obtain a license to make, sell or use the relevant technology from
the owner of the infringed intellectual property, which license may
not be available on commercially reasonable terms, if at all; or
21
o redesign the products to not use the infringed intellectual property,
which may not be technically or commercially feasible.
If we are forced to take any of these actions, we may be limited in our
ability to execute our business plan.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights. These claims could result in costly
litigation and the diversion of our technical and management personnel. In the
process of asserting our intellectual property rights, these rights could be
found to be invalid, unenforceable or not infringed. Failure to successfully
assert our intellectual property rights could result in our inability to prevent
our competitors from utilizing our proprietary rights.
If we are unable to protect our proprietary technology, this technology could be
misappropriated, which would make it difficult for us to compete in our
industry.
Our success and ability to compete is dependent in part on our
proprietary technology. We rely primarily on patent, copyright, trademark and
trade secret laws, as well as confidentiality agreements and other methods, to
establish and protect our proprietary rights. Existing patent, copyright,
trademark and trade secret laws afford only limited protection. While we are
pursuing foreign patent protections, the laws of some foreign countries do not
protect the unauthorized use of our proprietary technology and processes to the
same extent as do the laws of the United States, and policing the unauthorized
use of our products is difficult. Many U.S. companies have encountered
substantial infringement problems in some foreign countries. Because we sell
some of our products overseas, we have exposure to foreign intellectual property
risks. Any infringement of our proprietary rights could result in costly
litigation, and any failure to adequately protect our proprietary rights could
result in our competitors offering similar products, potentially resulting in
the loss of some of our competitive advantage and a decrease in our revenue.
If we are unable to generate adequate additional revenue as a result of the
expansion of our sales operations, our competitive position may be harmed and
our revenue or margins may decline.
Historically, we have relied primarily on a limited direct sales force,
supported by third party manufacturers' representatives and distributors, to
sell our products. Our sales strategy focuses primarily on developing and
expanding our direct sales force, manufacturers' representatives and
distributors. We have incurred and will continue to incur significant costs
related to the expansion of our sales operations. If the expansion of our sales
operations does not generate adequate additional revenue, our operating margins
may decline. To the extent we are unsuccessful in developing our direct sales
force, we will likely be unable to compete successfully against the
significantly larger and well-funded sales and marketing operations of many of
our current or potential competitors. In addition, if we fail to develop
relationships with significant manufacturers' representatives or distributors,
or if these representatives or distributors are not successful in their sales or
marketing efforts, sales of our products may decrease and our competitive
position would be harmed. Our representatives or distributors may not market our
products effectively or may not continue to devote the resources necessary to
provide us with effective sales, marketing and technical support. Our inability
to effectively manage our domestic and foreign sales and support staff or
maintain existing or establish new relationships with manufacturer
representatives and distributors would harm our revenue and result in declining
margins.
The market for our products is new and is characterized by rapid technological
changes and evolving industry standards. If we do not respond to the changes in
a timely manner, our products likely will not achieve market acceptance.
The market for our products is characterized by rapid technological
change, new and improved product introductions, changes in customer requirements
and evolving industry standards. Our future
22
success will depend to a substantial extent on our ability to develop, introduce
and support cost-effective new products and technology on a successful and
timely basis. Because the costs for research and development of new products and
technology are expensed as incurred, we expect a negative impact on our reported
net operating results. If we fail to develop and deploy new cost-effective
products and technologies or enhancements of existing products on a timely
basis, or if we experience delays in the development, introduction or
enhancement of our products and technologies, our products will no longer be
competitive and our revenue will decline.
The development of new, technologically advanced products is a complex
and uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. We cannot assure you that we will be able to
identify, develop, manufacture, market or support new or enhanced products on a
timely basis, if at all. Furthermore, we cannot assure you that our new products
will gain market acceptance or that we will be able to respond effectively to
product announcements by competitors, technological changes or emerging industry
standards. Our failure to respond to product announcements, technological
changes or industry changes in standards would likely prevent our products from
gaining market acceptance and harm our competitive position.
Terrorist activities and resulting military and other actions could adversely
affect our business.
The September 11, 2001 terrorist attacks in the United States and recent
terrorist attacks in other parts of the world, as well as continued threats of
global terrorism, current and future military response to them and the United
States military action in Iraq have created many economic and political
uncertainties that make it extremely difficult for us, our customers and our
suppliers to accurately forecast and plan future business activities. This
reduced predictability challenges our ability to operate profitably or to grow
our business. In particular, it is difficult to develop and implement
strategies, sustainable business models and efficient operations, and
effectively manage contract manufacturing and supply chain relationships. In
addition, the continued threats of terrorism and the heightened security
measures in response to such threats have and may continue to cause significant
disruption to commerce throughout the world. Disruption in air transportation in
response to these threats or future attacks may result in transportation and
supply-chain disruptions, increase our costs for both receipt of inventory and
shipment of products to our customers, and cause customers to defer their
purchasing decisions. Disruptions in commerce could also cause consumer
confidence and spending to decrease or result in increased volatility in the
U.S. and worldwide financial markets and economy. They also could result in
economic recession in the U.S. or abroad. Any of these occurrences could have a
significant impact on our operating results, revenue and costs and may result in
the volatility of the market price for our Class A common stock and on the
future price of our Class A common stock.
Our success depends on our key personnel, including our executive officers, the
loss of any of whom could harm our business.
Our success depends on the continued contributions of our senior
management and other key research and development, sales and marketing and
operations personnel, including Muoi Van Tran, our Chief Executive Officer and
President, Susie Nemeti, our Chief Financial Officer and Vice President of
Finance and Administration, and Mohammad Ghorbanali, our Chief Operating Officer
and Vice President of Technical Operations. Competition for employees in our
industry is intense. We do not have life insurance policies covering any of our
executives. There can be no assurance that we will be successful in retaining
such key personnel, or that we will be successful in hiring replacements or
additional key personnel. Our loss of any key employee, the failure of any key
employee to perform in his or her current position, or the inability of our
officers and key employees to expand, train and manage our employee base may
prevent us from executing our growth strategy.
23
We will need to attract and retain highly qualified managers, sales and
marketing and technical support personnel. We have had difficulty hiring the
necessary engineering, sales and marketing and management personnel in the past.
If we fail to hire and retain qualified personnel when needed, our product
development efforts and customer relations will suffer. Our key management
personnel have limited experience in managing the growth of technologically
complex businesses in a rapidly evolving environment. If we are unable to manage
our growth effectively, we will incur additional expenses that will negatively
impact our operating results.
Our products may have defects that are not detected until full deployment of a
customer's system. Any of these defects could result in a loss of customers,
damage to our reputation and substantial costs.
We design our products for large and complex fiber optic networks, and
our products must be compatible with other components of the network system,
both current and future. We have experienced in the past, and may continue to
experience in the future, defects in our products. Defects in our products or
incompatibilities in our products may appear only when deployed in networks for
an extended period of time. In addition, our products may fail to meet our
customers' design specifications, or our customers may change their design
specifications after the production of our product. A failure to meet our
customers' design specification often results in a loss of the sale due to the
length of time required to redesign the product. We may also experience defects
in third party components that we incorporate into our products. We have and may
continue to experience the following due to our inability to detect or fix
errors:
o increased costs associated with the replacement of defective
products, redesign of products to meet customer design specification
and/or refund of the purchase price;
o diversion of development resources; and
o increased service and warranty costs.
Our products and the systems into which our products are incorporated must
comply with domestic and international governmental regulations, and if our
products do not meet these regulations, our ability to sell our products will be
restricted.
Our products are subject to various regulations of U.S. and foreign
governmental authorities principally in the areas of radio frequency emission
standards and eye safety. Radio frequency emission standards govern allowable
radio interference with other services. Eye safety standards govern the labeling
and certification of laser products to ensure that they are used in a way that
does not create a hazard to the human eye. Our products and the systems into
which they are incorporated must also comply with international standards and
governmental standards of the foreign countries where our products are used. Our
inability, or the inability of our customers, to comply with existing or
evolving standards established by regulatory authorities, or to obtain timely
domestic or foreign regulatory approvals or certificates will restrict our
ability to sell our products.
We are subject to environmental laws and other legal requirements that have the
potential to subject us to substantial liability and increase our cost of doing
business.
Our properties and business operations are subject to a wide variety of
federal, state and local environmental, health and safety laws and other legal
requirements, including those relating to the storage, use, discharge and
disposal of toxic, volatile or otherwise hazardous substances. We may be
required to incur substantial costs to comply with current or future legal
requirements. In addition, if we fail to obtain required permits or otherwise
fail to operate within these or future legal requirements, we may be required to
pay substantial penalties, suspend our operations or make costly changes to our
manufacturing processes or facilities. We believe our properties and business
operations are in
24
compliance with applicable environmental laws. We do not anticipate any material
capital expenditures for environmental control facilities for the 2004 fiscal
year.
We face risks associated with our international operations that could prevent us
from marketing and distributing our products internationally.
Although a significant portion of our sales has historically been in
North America, a growing percentage of our revenue is generated from sales
outside North America. Sales of our products outside North America accounted for
approximately 42.4%, and 39.9% of our revenue for the three months ended
December 31, 2004, and 2003, respectively. We expect that our sales outside of
North America will continue to contribute materially to our revenue. We have
limited experience in marketing and distributing our products internationally.
One of our objectives is to expand our international operations in the future.
Significant management attention and financial resources are needed to develop
our international sales, support and distribution channels and manufacturing. We
may not be able to establish or maintain international market demand for our
products.
In addition, international operations are subject to other risks,
including:
o greater difficulty in accounts receivable collection and longer
collection periods;
o difficulties and costs of staffing and managing foreign operations
with personnel who have expertise in fiber optic technology;
o unexpected changes in regulatory or certification requirements for
optical networks; and
o political or economic instability.
A portion of our international revenue and expenses may be denominated
in foreign currencies in the future. Accordingly, we could experience the risks
of fluctuating currencies and may choose to engage in currency hedging
activities. These factors could adversely impact our international sales or
increase our costs of doing business abroad or impair our ability to expand into
international markets, and therefore could significantly harm our business.
Disruption of our operations at our Woodland Hills, California manufacturing
facility could require us to lease alternative manufacturing facilities or limit
our manufacturing operations.
In August 2003, we relocated our headquarters from Chatsworth,
California to Woodland Hills, California. All of our manufacturing operations
are conducted in our Woodland Hills, California headquarters. Due to this
geographic concentration, a disruption of our manufacturing operations,
resulting from sustained process abnormalities, human error, government
intervention or natural disasters, such as earthquakes, fires or floods, or
other causes, could require us to cease or limit our manufacturing operations.
Our limited experience in acquiring other businesses, product lines and
technologies may make it difficult for us to overcome problems encountered in
connection with any acquisition we may undertake.
We expect to review opportunities to buy other businesses, products or
technologies that would enhance our technical capabilities, complement our
current products or expand the breadth of our markets or which may otherwise
offer growth opportunities. Our acquisition of businesses or technologies will
require significant commitment of resources. We may be required to pay for any
acquisition with cash, but we cannot be certain that additional capital will be
available to us on favorable terms, if at all. In lieu of paying cash, we could
issue stock as consideration for an acquisition that would dilute existing
stockholders' percentage ownership, incur substantial debt or assume contingent
liabilities. We have little experience in acquiring other businesses and
technologies. Potential acquisitions also involve numerous risks, including:
25
o problems assimilating the purchased operations, technologies or
products;
o unanticipated costs associated with the acquisition;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with suppliers and
customers;
o risks associated with entering markets in which we have no or limited
prior experience; and
o potential loss of key employees of purchased organizations.
On October 9, 2002, we acquired certain assets of privately-held Cielo
Communications, Inc and on January 31, 2003 we acquired certain assets of Gore
Photonics, the fiber optics business unit of W.L. Gore & Associates. We may
encounter problems integrating the acquired operations, technologies or products
into our own and could lose the services of certain key employees associated
with these acquired entities.
Our stock price is likely to be volatile and could drop unexpectedly.
Our Class A common stock has been publicly traded since November 3,
2000. The market price of our Class A common stock has been subject to
significant fluctuations since the date of our initial public offering. The
stock market has from time to time experienced significant price and volume
fluctuations that have affected the market prices of securities, particularly
securities of telecommunications and fiber optic companies. As a result, the
market price of our Class A common stock may materially decline, regardless of
our operating performance. In the past, following periods of volatility in the
market price of a particular company's securities, securities class action
litigation has often been brought against that company. We may become involved
in this type of litigation in the future. Litigation of this type is often
expensive and diverts management's attention and resources.
We may not be able to maintain our listing on the Nasdaq National Market and if
we fail to do so, the price and liquidity of our Class A common stock may
decline.
The Nasdaq Stock Market has quantitative maintenance criteria for the
continued listing of securities on the Nasdaq National Market. The current
requirements affecting us include maintaining a minimum bid price per share of
$1. Our bid price has been below $1 in the past. If the bid price of our Class A
common stock drops below $1 per share and remains at that level for more than 30
consecutive trading days, we will be in violation of Nasdaq's listing standards.
If within 90 days thereafter, our Class A common stock does not have a minimum
bid price of $1 per share for 10 consecutive trading days, Nasdaq will commence
proceedings to delist our Class A common stock from the Nasdaq National Market.
If we fail to maintain continued listing on the Nasdaq National Market and must
move to a market with less liquidity, our stock price would likely decline. If
we are delisted, it could have a material adverse effect on the market price of,
and the liquidity of the trading market for, our Class A common stock.
We have potential business conflicts of interest with Furukawa, the resolution
of which may not be as favorable to us as if we were dealing with an
unaffiliated third party.
We have historically relied on Furukawa's research and development
capabilities to provide us with technologically advanced lasers and fiber optic
components that we purchase from Furukawa for inclusion in our products, and we
expect to continue to rely on Furukawa in the future. We currently purchase the
majority of lasers from Furukawa under a Master Purchase Agreement. We cannot
assure you that Furukawa will renew the Agreement upon its expiration on
September 30, 2005 or whether it will continue to provide services and
components to us, and if not, whether or on what terms we could find adequate
alternative sources for these services and components. We intend to continue to
maintain our relationship with Furukawa and Furukawa can control the outcome of
any stockholder votes, as
26
discussed below. The terms of future transactions with Furukawa may or may not
be comparable to those that would be available from unaffiliated third parties.
Potential conflicts of interest exist between Furukawa and us in a
number of areas, including the nature and quality of services rendered by
Furukawa to us, potential competitive business activities, sales or
distributions by Furukawa of all or any portion of its ownership interest in us,
or Furukawa's ability to control our management and affairs. It is possible that
business decisions made by management that are in the best interest of our
stockholders may conflict with Furukawa's interests. For example, we may decide
to enter into or acquire a line of business competitive with Furukawa, or
Furukawa may decide to enter into or acquire a line of business competitive with
us. Any of these events may alter or eliminate our ability to rely on Furukawa
to supply key components to us in the future, increase our costs of producing
our products and result in increased competition in our markets. We cannot
assure you that we will be able to resolve any conflicts we may have with
Furukawa or, if we are able to do so, that the resolution will be favorable to
us.
Furukawa will control the outcome of stockholder voting and there may be an
adverse effect on the price of our Class A common stock due to disparate voting
rights of our Class A common stock and our Class B common stock.
Furukawa beneficially owns all of our outstanding shares of Class B
common stock, which as of January 31, 2005 represented 93.4% voting control over
all stockholder issues. The holders of our Class A common stock and Class B
common stock have identical rights except that holders of our Class A common
stock are entitled to one vote per share while holders of our Class B common
stock are entitled to ten votes per share on matters to be voted on by
stockholders. The differential in the voting rights of our Class A common stock
and Class B common stock could adversely affect the price of our Class A common
stock to the extent that investors or any potential future purchaser of our
shares of Class A common stock give greater value to the superior voting rights
of our Class B common stock. Each share of our Class B common stock will
automatically convert into one share of Class A common stock if it is
transferred to any entity, other than an entity controlling, controlled by or
under common control with Furukawa. In addition, our Class B common stock will
automatically convert into shares of our Class A common stock if the total
number of outstanding shares of Class B common stock falls below 20% of total
number of outstanding shares of our common stock. As long as Furukawa has a
controlling interest, it will continue to be able to elect our entire board of
directors and generally be able to determine the outcome of all corporate
actions requiring stockholder approval. As a result, Furukawa will be in a
position to continue to control all matters affecting us, including:
o a change of control, including a merger;
o our acquisition or disposition of assets;
o our future issuances of common stock or other securities;
o our incurrence of debt; and
o our payment of dividends on our common stock.
Three members of our board of directors are also executives of Furukawa.
These individuals have obligations to both our company and Furukawa and may have
conflicts of interest with respect to matters potentially or actually involving
or affecting us, such as acquisitions and other corporate opportunities that may
be suitable for both Furukawa and us.
Our exploration of strategic alternatives may not be successful.
On September 29, 2003, we announced that a special committee of our
board of directors is evaluating strategic alternatives. The special committee,
which is comprised of our three independent directors, has retained Bear,
Stearns & Co. Inc. to advise it in evaluating strategic alternatives, including
a special dividend, share repurchase, strategic merger or sale of the Company.
27
We are uncertain as to what strategic alternatives may be available to
us or what impact any particular strategic alternative will have on our stock
price if accomplished. Uncertainties and risks relating to our exploration of
strategic alternatives include:
o the exploration of strategic alternatives may disrupt operations and
distract management, which could have a material adverse effect on
our operating results;
o the process of exploring strategic alternatives may be more time
consuming and expensive than we currently anticipate;
o we may not be able to successfully achieve the benefits of the
strategic alternative undertaken by us; and
o perceived uncertainties as to the future direction of the Company may
result in the loss of employees or business partners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are currently exposed to interest rate risk on our investment
portfolio. We do not have any term loan debt as of December 31, 2004.
The primary objective of our investment activities is to preserve
capital. We have not used derivative financial instruments in our investment
portfolio. Our cash and cash equivalents includes $83.8 million the majority of
which is invested in money market and other interest bearing accounts. In
addition, we have $65.0 million invested in marketable securities, which
represents investments in United States treasury notes and treasury bonds.
As of December 31, 2004, our investment in marketable securities had a
weighted-average time to maturity of approximately 164 days. Marketable
securities represent United States treasury notes and treasury bonds with
maturity on the date purchased of greater than three months. These securities
are classified as held to maturity because we have the intention and ability to
hold the securities to maturity. Gross unrealized gains and losses on
held-to-maturity marketable securities have historically not been material.
Maturities on the date purchased of held-to-maturity marketable debt securities
can range from three months to two years.
If interest rates were to increase or decrease 1%, the result would be
an annual increase or decrease of interest income of $1.5 million on our
investment portfolio. However, due to the uncertainty of the actions that would
be taken and their possible effects, this analysis assumes no such action.
Further, this analysis does not consider the effect of the change in the level
of overall economic activity that could exist in such an environment. Sales to
foreign customers are denominated in U.S. dollars and as such we have no foreign
currency fluctuation risk.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation, as of the end of the period covered by this quarterly
report, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange
Act")) are effective based on their evaluation of these controls and procedures
required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act.
28
Changes in Internal Control
There were no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rules
13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
29
PART II.
OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. We are
not aware of any other material legal proceedings threatened or pending against
us. From time to time, however, we may become subject to additional legal
proceedings, claims, and litigation arising in the ordinary course of business.
In addition, in the past we have received, and we may continue to receive in the
future, letters alleging infringement of patent or other intellectual property
rights. Our management believes that these letters generally are without merit
and intend to contest them vigorously.
ITEM 6. EXHIBITS
Exhibit Number Description
- -------------- --------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL COMMUNICATION PRODUCTS, INC.,
a Delaware corporation
Date: February 11, 2005 By: /s/ Muoi Van Tran
------------------- ----------------------
Name: Muoi Van Tran
Title: Chairman of the Board,
Chief Executive Officer and President
Date: February 11, 2005 BY: /s/ Susie Nemeti
------------------- ----------------------
Name: Susie Nemeti
Title: Chief Financial Officer (Principal
Financial and Accounting Officer)
31
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
31.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.